Tuesday’s Brand X Argument

By Tom Goldstein
on Mar 24, 2005 at 9:14 pm

I’m arguing this case for the respondents – the states, companies, and groups that object to an FCC rule – on Tuesday.

The case involves the classification of broadband Internet services under the federal communications laws. The case is significant because if a service is classified a “telecommunications service” it is presumptively regulated as common carriage, as discussed below.

The case specifically involves “cable modem service,” which is the combination of high-speed Internet access and other services like e-mail that cable companies sell their customers. The FCC has announced, however, that the same rule that governs cable modem service will apply to DSL service; so the case will decide how the government regulates essentially all high-speed Internet access.

Deputy Solicitor General Tom Hungar will argue for petitioner FCC for 20 minutes. Paul Cappuccio, general counsel of AOL Time Warner and a former Supreme Court litigator, will argue for the cable companies for 10 minutes. I have the respondents’ full 30 minutes. The principal briefs are available here.

Everyone agrees that if the cable companies sold just the telecommunications component of cable modem service – the high-speed pipeline – they would be selling a telecommunications service. But instead they bundle the telecommunications with other services such as e-mail for marketing reasons — they want their customers to have to buy the complete package. The question is whether the telecommunications component is no longer a telecommunications service under the statute when part of such a bundle.

The case arose when the FCC issued a rulemaking classifying cable modem service as an “information service” and specifying that it does not include a “telecommunications service.” That determination eliminates – in fact, is avowedly intended to eliminate – a fair amount of common carriage regulation of the telecommunications component of Internet access services. (No one contends that the information-processing pieces – e.g., e-mail – are subject to regulation.)

For example, under the FCC’s rule, cable modem companies do not have to sell transmission to competing ISPs such as respondent Brand X Communications. As a consequence, a cable modem subscriber can get service from Brand X only by paying for information-processing features twice: once from the cable company as part of the cable modem service “bundle” and a second time from Brand X. Another example is that the cable companies no longer have a legal obligation to interconnect with other telecommunications networks. For those favoring rapid deregulation, such as the FCC under Commissioner Powell, this deregulatory result is most consistent with the purposes of the telecommunications laws.

Appeals by independent ISPs, states, and consumer groups were consolidated by lottery in the Ninth Circuit, which reversed. That court held that the case was controlled by its prior precedent holding that the telecommunications component of cable modem service – the high-speed communications pipeline over cable wires – was a “telecommunications service.” The court held that stare decisis precluded application of Chevron deference.

The Supreme Court granted and consolidated petitions for certiorari filed by the FCC and the cable industry. The petitioners argue that there is at least sufficient play in the joints of the statute to permit the FCC’s construction, and that the Ninth Circuit erred in refusing to apply Chevron deference. The petitioners also argue that consumers do not perceive themselves as purchasing telecommunications, but instead are buying “integrated” Internet access services.

We argue, by contrast, that the statutory language is plain or alternatively that the FCC’s construction is unreasonable. It cannot be the case, we say, that the cable companies can decide to deregulate themselves merely through the marketing decision to sell telecommunications and other services together. In addition, the obvious reason that people actually buy cable modem service (or DSL service) is because they want high-speed telecommunications, not because they like their cable company’s e-mail offering. And we say that Congress created a specific procedure for deregulating telecommunications when appropriate — the “forbearance” regime — that the FCC is circumventing.