Energy Legal Blog

Supreme Court Decision Backs FCC Ruling Deregulating Broadband Cable Modem Providers that Bundle Telecommunication with Internet Access

In a decision noteworthy for its implicit encouragement of bundling traditional utility network service with competitive goods and services, contrary to the regulatory course charted in recent years for pipelines, local telephone exchanges and electric transmission grids, a divided (6-3) U.S. Supreme Court recently affirmed a Federal Communications Commission (FCC) declaratory rule that exempts from common-carrier regulation providers of broadband cable modem service because of the bundling of the telecommunications component of that service with internet applications.  The majority decision in what will likely become known as the Brand X case (after an internet service provider (ISP) that supported common carrier regulation and opposed the FCC rule) dismissed with virtually no analysis the objection that the FCC rule allows broadband cable providers, such as Comcast, to deny common-carriage access to competing ISPs, while at the same time the FCC takes precisely the opposite approach in its regulation of the other principal media for accessing the internet, dial-up access and Digital Subscriber Line (DSL) service, both of which are required to provide nondiscriminatory common carriage.

While the majority decision in large part turned on an evolving and mushy area of the law concerning the extent to which federal courts must defer to the expertise and judgment of a regulatory agency such as the FCC, the ultimate question boiled down to this:  Does a broadband cable provider offer telecommunications service to the public for a fee?  If so, then the provider, like providers of dial-up and DSL, is subject to mandatory regulation as a common carrier and must provide nondiscriminatory access to competing ISPs.  Conversely, if the broadband cable modem provider is deemed not to offer telecommunications service, then it is an information service provider, like an ISP that does not own wires or cables, and escapes common carrier regulation.  Because of the nature of the broadband cable providers' service, which does not offer telecommunications on a stand-alone basis, but instead only uses telecommunications to provide end users with a package of internet applications, the FCC ruled and the Supreme Court affirmed that broadband cable providers do not "offer" telecommunications.  Paraphrasing the majority, evidently incredulous dissenters countered:

[F]or the inputs of a finished service to qualify as the objects of an “offer” . . . , it is perhaps a sufficient, but surely not a necessary, condition that the seller offer separately “each discrete input that is necessary to providing . . . a finished service . . . .”  The pet store may have a policy of selling puppies only with leashes, but any customer will say that it does offer puppies — because a leashed puppy is still a puppy, even though it is not offered on a “stand-alone” basis.

It remains to be seen whether this decision of the high court will have any carryover influence in other network industries with natural monopoly characteristics, such as pipelines, local exchange telecommunications and electric transmission systems.  The direction of these industries has been just the opposite.  In recent years, they have been unbundled from sales of natural gas or oil, long distance and wireless service, and electric energy, respectively, and required to provide competing sellers nondiscriminatory access to their networks and common carriage.   It would be a stunning volte-face if these industries could escape this obligation simply by adopting a policy of bundling network access with other services or products and not offering it on a stand-alone basis.  [National Cable & Telecommunications Association, et al., v. Brand X Internet Services, et al., 545 U.S.--, 162 L. Ed. 2d 820 (June 27, 2005)] [NEW MATTER]