Is cable a form of phone service that must make its Web network available to rivals or an information service free to bar them?
The U.S. Supreme Court yesterday questioned federal rules that say Time Warner and other cable-television operators don’t have to open their Web-access networks to rival Internet service providers.
The case pits the cable industry and the Federal Communications Commission against the providers, including EarthLink. The justices’ decision may shape the future of the $15.6 billion market for high-speed Web connections.
At issue is whether cable is a form of phone service that must give access to rivals, or an information service exempt from that requirement. The related issue is whether the FCC can determine that on its own.
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Justice Antonin Scalia said the FCC seemed to have adopted a “good policy” that, nevertheless, ignored language in the 1996 Telecommunications Act. “What I’m still waiting to hear is how you get that out of the definitions” in the law, he told Justice Department lawyer Thomas Hungar, who represented the FCC before the court.
Chief Justice William Rehnquist took the opposite approach, suggesting the FCC rules were in line with the act. “Congress apparently wanted to go in the direction of deregulation here,” Rehnquist said.
The case is before the high court as consumers increasingly turn to high-speed Web access, shunning slower dial-up connections. The number of broadband Web connections this year for the first time will outstrip regular phone-line links, according to a report this month by eMarketer, a New York Web researcher.
“Most people would come out of that argument today a little less sure” of a victory for the cable companies and government, said Stanford Washington Research Group analyst Paul Glenchur, a former FCC attorney who attended the session. “This one’s just very, very tough to call based on what we heard in there.”
The justices gave no clear indication how they will rule. A decision is due by July.
Cable companies want to hang onto their lead over telephone companies such as SBC Communications in providing high-speed Internet access. Comcast and its peers made up two-thirds of the broadband market last year.
The FCC is trying to keep the Internet-access market free from the regulations that control the telephone industry.
Former FCC Chairman Michael Powell said in 2003 that forcing the cable companies to offer access to Internet service providers would throw “a monkey wrench into the FCC’s efforts to develop a vitally important national broadband policy.”
Telephone companies including BellSouth already are required by federal regulation to offer access to their high-speed lines. An FCC proposal to lift that requirement was tied up in 2003 by an appeals-court decision on cable-modem access that led to today’s case.
Outside the cable and phone carriers, Internet service providers lack their own direct connection to consumers and must buy wholesale access from phone and cable companies.
Time Warner General Counsel Paul Cappuccio, arguing on behalf of the cable industry, said the FCC’s rule is “a classic example of what an agency does.”
Justice Stephen Breyer, suggesting deference to the FCC’s decision, said he had “no idea” how high-speed Internet service would be offered in 20 years.
“Maybe people will be broadcasting it through their teeth,” Breyer told Thomas Goldstein, a lawyer for EarthLink. “Why not leave it to the FCC?”
The court and the lawyers also looked to automobiles, baked goods and cigarette smoking for comparisons to help define cable-modem services.
Cappuccio said the companies are “offering two ingredients,” raw Internet access and online capabilities such as e-mail “that come together to form a separate product,” rather than two discrete products.
“A person that offers cake to the public does not offer butter to the public,” Cappuccio said.
“Unless you also sell butter,” replied Scalia, who questioned whether forcing car buyers to purchase a windshield makes it “any less of a car.”
Goldstein said that if the FCC’s logic, deregulating a combination of services, were applied to tobacco companies, cigarette makers could say, “I’m not offering cigarettes. What I’ve done is create a smoking service.”
The Justice Department’s Hungar said an “enhanced bundle” of services “is not subject to regulation, and that’s been the case for 25 years.”