By Randolph J. May
Special to The National Law Journal
Monday, April 11, 2005

You might assume that a case named Brand X is run-of-the mill. If so, you would be wrong. On March 29, the U.S. Supreme Court heard argument in National Cable & Telecommunications Assoc. v. Brand X Internet Services . The outcome likely will determine whether cable broadband service providers, at least for the near term, are regulated like monopolistic public utilities or whether they will remain free from regulation. In the interest of sound policy, I hope the court decides that the law does not require common-carrier regulation of broadband services, which are developing in a competitive environment.

Apart from the court's specific decision, however, what the Brand X case really demonstrates is why Congress should revise our nation's communications laws to comport with digital-age marketplace realities.

Here's why. In March 2002, the Federal Communications Commission (FCC) ruled that cable broadband is an "information service" rather than a "telecommunications service" under the Telecommunications Act of 1996's classification scheme. This has important regulatory consequences, for telecommunications service providers are regulated as common carriers, while information service providers are not. Thus, many regulatory obligations apply to telecommunications, but not information, service providers.

Perhaps the most important is the applicability of the traditional common-carrier obligation to make available access to the carriers' facilities on a nondiscriminatory basis at regulated rates. Indeed, this mandated access to use the facilities of cable operators like Comcast Corp. is what Brand X, an independent information service provider without its own transmission facilities, seeks.

Defining the services at issue

So the act's definitions are all-important. "Telecommunications service" is defined as "the offering of telecommunications for a fee directly to the public" with "telecommunications" defined as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information." "Information service" means "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications."

The FCC determined that cable broadband service is an information service because, in its view, the pure transmission component is not offered in a manner that renders it separable from the data-processing capabilities that enable applications such as e-mail. The 9th U.S. Circuit Court of Appeals, on the other hand, held that a cable operator providing Internet access over its own facilities is providing a separable telecommunications service subject to the act's common-carrier requirements. The court refused to accord the agency's classification determination deference under the familiar Chevron doctrine.

In its brief, the government stated that cable broadband service has flourished under the "hands off" deregulatory policy that applies to information service providers. This policy preference makes sense. Unlike the monopolistic environment that characterized the narrowband world of POTS (plain ol' telephone service) for much of the last century, the broadband world is characterized by rapidly emerging competition. Cable and telephone companies are slugging it out in much of the country, and wireless, satellite and power companies are poised to contest for significant segments of the market.

The Brand X case demonstrates why Congress needs to pass a new communications law with a market-oriented regulatory paradigm. Under this framework, the determination whether to regulate would be focused on whether service providers possess enough market power to harm consumers. It would not depend on parsing techno-functional characteristics like those embodied in the current statute that lead to regulatory distinctions that are downright metaphysical.

The Brand X argument itself took on a metaphysical cast. Much of the back-and-forth banter was directed to answering these questions: Is cable broadband really one offering (a holistic information service transmitted via telecommunications), or two separate offerings (distinct information and telecommunications services)? Is cable broadband a new offering or merely a repackaging of existing offerings? Does anyone imagine that consumers ask these questions when deciding between the broadband services offered by the cable companies, which for the present remain unregulated, or the comparable services of telephone companies, which for the present are regulated? Of course not.

The FCC now confronts the same conundrum in deciding how to classify the fast-growing broadband telephone services known as voice over Internet protocol. If these services are classified as telecommunications, upstart providers like Vonage Holdings Corp., which calls itself "the broadband telephone company," would be subject to the same regulatory mandates as traditional telephone companies. So far, the FCC, wanting to avoid this result, has not made a definitive determination, even while acknowledging that Vonage's service "resembles the telephone service" provided by traditional carriers.

For now, communications policy would be best served if the Supreme Court in Brand X defers to the FCC's view that new broadband services are unregulated information services. But whatever the outcome, the case should certainly help us understand that we need a new market-oriented regulatory framework, one that relies on antitrust-like jurisprudence to put the spotlight on the consumer, where it belongs. Only Congress, not the courts, can accomplish that.

Randolph J. May is senior fellow and director of communications policy at The Progress & Freedom Foundation in Washington. The views expressed here are his own.

© 2005The National Law Journal. All rights reserved. This article is reprinted with permission from The National Law Journal.