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[IP] FCC to ISPs: Drop Dead



Begin forwarded message:

From: "Fred R. Goldstein" <fgoldstein@xxxxxxxxxx>
Date: August 5, 2005 1:14:22 PM EDT
To: CYBERTELECOM-L@xxxxxxxxxxxxxxxx
Subject: FCC to ISPs: Drop Dead
Reply-To: Telecom Regulation & the Internet <CYBERTELECOM- L@xxxxxxxxxxxxxxxx>
As had been rumored, the FCC today adopted the Petitions for Forbearance that some large ILECs had earlier filed, and reclassified DSL as an information service, not Telecommunications Service. Subject to a one-year transition period, DSL will be detariffed and ILECs will no longer be required to offer it to ISPs. This, presumably, gives those ISPs' customers time to change their email addresses.
Democratic Commissioner Copps went along with Martin, saying that he felt that the Supreme Court's Brand X ruling weakened the ISPs' case. He said he personally agreed with Scalia's dissent, but saw his position weakened. As such he felt happy to get some trade-offs of his own into the Decision. The details are not out, but Copps, a noted conservative on many social issues, seemed happy that CALEA requirements will now be applied to broadband ISPs. The Commission also adopted a position statement, but not a rule, about what they expected Internet content to be. Therefore ISPs may be content- regulated in the future under Title 1, something heretofore considered unthinkable.
ISPs are now in a very difficult situation that presumably calls for extreme legal action. I can see two different lines of attack. IANAL so this is legally speculative, so take it for what it's worth.
One attack is antitrust. The Trinko case held that ILECs cannot be sued for Antitrust if they legally gained a monopoly; it held that the Telecom Act is the controlling law for removing that monopoly, even though the Telecom Act has a clause leaving antitrust in place. Now in this case, the ILECs had roughly a 0% share of the broadband ISP market, and not much more of dialup, at the time the Telecom Act was enacted. ISPs took advantage of the Computer Inquiries rules (which the FCC abolished today) to purchase Telecommunications from LECs. When the LECs offered captive ISP services over DSL, they had to purchase the same underlying tariffed services from their regulated affiliates. Now, under today's ruling, the ILECs, who have a very large share (>80%) of the ISP-over-DSL market and a large share (~40%?) of the broadband ISP market in general (cable being somewhat larger), stand to use their new power to take over the remaining share of the DSL ISP business. Since this is *not* an existing monopoly, and since it is based on using their extreme market power in the wire business to monopolize an industry that they were once not even a player in, it strikes me as ripe for antitrust action.
However, antitrust probably cannot commence until the Bells give their termination notices to the ISPs. So it may well be the ISPs' bankruptcy estates who will fight that battle.
Another approach is to go straight to Federal Court and argue that the FCC drastically exceeded its Brand X authority in this decision. Here, I think Copps got it 100% wrong. The Majority opinion was quite explicit in *not* ruling that telephone companies should be exempted from common carriage. It concerned the fact that cable could be treated *differently*, not that the treatment of cable was appropriate for ILECs. Here's my analysis of Brand X, and why Martin's reading was so wrong. This is why I think a Court could overturn the FCC on this one, if the case is presented correctly.
As some of you may know, I never supported the Brand X respondents -- I work with cable guys too, so I'm sensitive to their position. The ILECs are abusing cable's position as an excuse to evade their own responsibilities. I've long argued (and there's a link on my website to a copy of my 1999 Multichannel News opinion piece on the subject: http://www.ionary.com/CableAccess.htm ) that cable companies should voluntarily open up to all ISPs, for their own sake. But it doesn't make them common carriers, any more than a WISP with its own Part 15 antennas has to open its radios to other ISPs. The letter of the law, which could perhaps be called a gift to the cable industry from Congress, is with the cable guys.
The Supremes upheld that view, overturning the Ninth Circuit, on what look like basically ordinary points of law. They affirmed that Chevron applied, and it trumped stare decisis from the Portland case. To me this was a no-brainer, because Portland was an outlier. Chevron gives the FCC a lot of latitude. Under Chevron, the FCC need merely have a plausible interpretation of an ambiguous law, and courts don't have the right to step in with a better interpretation, even if there obviously is one. The Telecom Act was intentionally ambiguous, and its authors lacked a consistent theory, so the FCC has plenty of room. But not infinite room.
Even given that, the dissent was interesting. Scalia's view, joined by Souter and Ginsburg, was that the FCC's reading of the law was beyond reasonable. "After all is said and done, after all the regulatory cant has been translated, and the smoke of agency expertise blown away, it remains perfectly clear that someone who sells cable-modem service is "offering" telecommunications." So even if they agreed on the Chevron rule's trumping stare decisis, they didn't think Chevron applied here. To me that's a warning; if three justices think that the FCC went that far in what seemed to me to be a fairly easy interpretation, then the FCC's Chevron latitude isn't necessarily huge. That's good.
At 26, the Court said, "As we understand the Declaratory Ruling, the Commission did not say that any telecommunications service that is priced or bundled with an information service is automatically unregulated under Title II. The Commission said that a telecommunications input used to provide an information service that is not "separable from the data-processing capabilities of the service" and is instead "part and parcel of [the information service] and is integral to [the information service's] other capabilities" is not a telecommunications offering. Declaratory Ruling 4823, ¶39; see supra, at 16 17."
That's the heart of the argument, from the cable point of view. But from a DSL point of view, where the services are obviously "separable", it doesn't seem to apply. MCI btw did not seem to help the ISP's cause with their arguments, which the Majority said would have led to Title II regulation of all ISPs, even those who lease facilities. I sense some bad lawyering there, but then I didn't actually hear their arguments. The Court may have just mis-taken them. But in its action today, the Commission actually does start talking about regulating ISPs, albeit under Title I, both for content, and (presumably to get rural-advocate Adelstein's concurrence) price. While there is no price regulation per se, broadband ISPs will apparently now be subject to rate-averaging rules, like long distance companies, so rural subscribers cannot be charged more than urban ones. (This is certainly not a hallmark of a fully competitive marketplace.)
The issue at hand is forbearance and the removal of both Title II Common Carriage and the Computer Inquiries from ILEC DSL services. Martin's recent talk of equalizing treatment on a deregulated basis does not comport, as I read it, with these parts of the Supreme Court's Brand X ruling: 

[still at 26]
"This construction does not leave all information service offerings exempt from mandatory Title II regulation. "It is plain," for example, that a local telephone company "cannot escape Title II regulation of its residential local exchange service simply by packaging that service with voice mail." Universal Service Report 11530, ¶60. That is because a telephone company that packages voice mail with telephone service offers a transparent transmission path— telephone service—that transmits information independent of the information-storage capabilities provided by voice mail.... By contrast, the high-speed transmission used to provide cable modem service is a functionally integrated component of that service because it transmits data only in connection with the further processing of information and is necessary to provide Internet service. The Commission's construction therefore was more limited than respondents assume."
Now, the "Commission's construction" has been changed to mean almost the opposite of what it was when the Supreme Court ruled. DSL is not a "functionally integrated component" in the same sense.
As a technical expert, I am fully prepared to explain why the underlying DSL service is "transparent" and "transmits information independent of the information-storage capabilities" or its equivalent. DSL is simply a physical medium upon which ATM (or occasionally Frame Relay) is layered. Those are transparent bearer services, long tariffed. And the history of independent ISPs using it is proof. No such history existed for cable modems. I've heard anecdotally that some of the design input into the DOCSIS spec was intended to make sharing of the plant by ISPs difficult. (@Home was in business at the time, and they may have had a finger in the pie, even if indirectly through their owners.) So the two worlds are Different, with a capital D: 

[at 29]
"...MCI claims that the Commission's decision not to regulate cable companies similarly under Title II is inconsistent with its DSL policy.
"We conclude, however, that the Commission provided a reasoned explanation for treating cable modem service differently from DSL service. As we have already noted, see supra, at 9 10, the Commission is free within the limits of reasoned interpretation to change course if it adequately justifies the change.4 It has done so here. The traditional reason for its Computer II common-carrier treatment of facilities-based carriers (including DSL carriers), as the Commission explained, was "that the telephone network [was] the primary, if not exclusive, means through which information service providers can gain access to their customers." Declaratory Ruling 4825, ¶44 (emphasis in original; internal quotation marks omitted). The Commission applied the same treatment to DSL service based on that history, rather than on an analysis of contemporaneous market conditions. See Wireline Order 24031, ¶37 (noting DSL carriers' "continuing obligation" to offer their transmission facilities to competing ISPs on nondiscriminatory terms)."
So the Court is agreeing that DSL and Cable are Different, not that "broadband", whatever it is, never has a telecommunications service component. And the Court recognizes the special role played by common carriers on behalf of ISPs -- exactly the role that the FCC today abolished. 

Next, the Court gave what seems to be Martin's little opening:
"The Commission in the order under review, by contrast, concluded that changed market conditions warrant different treatment of facilities-based cable companies providing Internet access. Unlike at the time of Computer II, substitute forms of Internet transmission exist today: "[R]esidential high-speed access to the Internet is evolving over multiple electronic platforms, including wireline, cable, terrestrial wireless and satellite." Declaratory Ruling 4802, ¶6; see also U. S. Telecom Assn. v. FCC, 290 F. 3d 415, 428 (CADC 2002) (noting Commission findings of "robust competition . . . in the broadband market"). The Commission concluded that " 'broadband services should exist in a minimal regulatory environment that promotes investment and innovation in a competitive market.' " Declaratory Ruling 4802, ¶5. This, the Commission reasoned, warranted treating cable companies unlike the facilities-based enhanced-service providers of the past. Id.Id., at 4825, ¶44. We find nothing arbitrary about the Commission's providing a fresh analysis of the problem as applied to the cable industry, which it has never subjected to these rules. This is adequate rational justification for the Commission's conclusions. "
So here they're accepting the FCC's speculative assumption of intermodal competition as a plausible reason for adopting a policy. But even then, they cap it off by saying "as applied to the cable industry, which it has never subjected to these rules". Plausibility within Chevron guidelines may apply here to cable, but since there's a qualitative and quantitative difference between the long-time "carrier of last resort" (ILEC) and a new entrant (cable), it is a stretch to say that this paragraph absolutely blesses Martin's view. 

This seems reinforced by a concluding paragraph:
[at 31]
"Respondents argue, in effect, that the Commission's justification for exempting cable modem service providers from common-carrier regulation applies with similar force to DSL providers. We need not address that argument."
So why did Copps think they did? I doubt he actually read the whole Decision. Indeed, the "Respondent" MCI seemed to be taking Verizon's position here, not the one Brand X would like. The Court did not go there. Continuing within that paragraph,
"The Commission's decision appears to be a first step in an effort to reshape the way the Commission regulates information- service providers; that may be why it has tentatively concluded that DSL service provided by facilities-based telephone companies should also be classified solely as an information service. See In re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 17 FCC Rcd. 3019, 3030, ¶20 (2002). The Commission need not immediately apply the policy reasoning in the Declaratory Ruling to all types of information service providers. "
So, Copps cop-out notwithstanding, the Court knows that the FCC wants to deregulated telcos, and is inviting them to *not* do so...
"It apparently has decided to revisit its longstanding Computer II classification of facilities-based information-service providers incrementally. Any inconsistency between the order under review and the Commission's treatment of DSL service can be adequately addressed when the Commission fully reconsiders its treatment of DSL service and when it decides whether, pursuant to its ancillary Title I jurisdiction, to require cable companies to allow independent ISPs access to their facilities. See supra, at 7, this page. We express no view on those matters. "
Here, they're equally inviting the FCC to use Title I, as it exists, to create the open access obligation for cable that Brand X the company had called for. Such a result is thus explicitly within their Chevron latitude. It's the opposite of what they did. The FCC made "one hand like the other", but it was the wrong hand.
"In particular, we express no view on how the Commission should, or lawfully may, classify DSL service."
So Martin claimed DSL was deregulated by Brand X, and got Copps and Adelstein to believe it too, but that sentence proves otherwise. The Court did not rule either way, and seemed to invite the FCC to deliberate slowly on the whole area, not to rule rashly one way or the other.
So I see plenty of grounds to appeal the FCC's decision to the Federal judiciary, simply on grounds that they did not properly apply a fairly clear Supreme Court ruling. This rash deregulation of DSL would probably keep the three dissenters together against the FCC, and could very easily bring in others, should it get that far. 



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