FCC to ISPs: Drop Dead

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Fred R. Goldstein" <fgoldstein () IONARY COM>
Date: August 5, 2005 1:14:22 PM EDT
To: CYBERTELECOM-L () LISTSERV AOL COM
Subject: FCC to ISPs: Drop Dead
Reply-To: Telecom Regulation & the Internet <CYBERTELECOM- 
L () LISTSERV AOL COM>


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.



-------------------------------------
You are subscribed as lists-ip () insecure org
To manage your subscription, go to
 http://v2.listbox.com/member/?listname=ip

Archives at: http://www.interesting-people.org/archives/interesting-people/