In the latest development in the Brand X case, the U.S. Supreme Court will hear an appeal of a Ninth Circuit Court decision that conflicts with the FCC's regulatory classification of cable-modem services, but legal analysts question whether the high court will resolve the debate when it issues an opinion on the matter in about six months.

Few were surprised that the Supreme Court agreed to take the case, after the FCC and the U.S. Solicitor General appealed the ruling last year that at least a component of cable-modem offerings is a telecommunications service. This classification could subject providers of the broadband-access technology to additional regulations and taxation — in stark contrast to the FCC's 2002 finding that cable modems are information services, which are generally unregulated.

And that appears to be the direction in which the FCC wants to classify all broadband services in an effort to encourage investment and adoption of high-speed communication technology. Telecom carrier representatives have long advocated regulatory parity between DSL and cable-modem offerings, but all would rather see DSL deregulated instead of increasing regulation of cable-modem providers.

Many industry observers believe that prospect would be jeopardized if the Supreme Court does not overturn the Ninth Circuit ruling, but such speculation is little more than a “short-term overreaction” to the situation, according to Andy Regitsky, president of Regitsky & Associates.

“In the long run, it's almost insignificant how they classify it,” Regitsky said. “The problem isn't classification, it's intercarrier compensation. Once the intercarrier compensation, universal service and VoIP rules are solved, all these broadband services are going to be treated the same, anyway.”

But efforts at the FCC and Congress to establish such an environment for intermodal broadband competitors could take years. In the meantime, a Supreme Court decision affirming the Ninth Circuit decision could leave cable-modem services subject to telecom taxes, which top 15% in almost half the states in the country.

This could discourage investment in broadband technologies, which is why Congress may try to address the issue next year. In addition, the National Governors Association this week has scheduled a conference of city and state representatives to consider possible changes to taxation guidelines for communications services.

Virtually all broadband network providers applauded the news that the Supreme Court would hear the appeal of the case, while ISPs and consumer organizations expressed concern that a reversal of the Ninth Circuit decision would preclude open access to high-speed networks.

Meanwhile, if the Supreme Court does not uphold the Ninth Circuit, legal experts are unclear whether the high court would rule that cable-modem offerings are information services or simply remand the case back to the Ninth Circuit. Either decision could lead to the first legal argument on the merits of the FCC's classification — the Ninth Circuit last year said it was bound by precedent from an earlier case (see timeline).

This circumstance was cited by the Solicitor General's office in its petition asking the Supreme Court to hear the case.

Regitsky said he believes the Supreme Court will remand the case to the Ninth Circuit. Legg Mason telecom analyst Blair Levin also acknowledged the possibility but said he would not be surprised if the high court chose to settle the matter itself.

The beauty of being the Supreme Court is that they can do pretty much anything they want,” Levin said. “Can they [decide the matter with a remand]? Yes. Will they? I don't know.”

A MATTER OF CLASS

Rulings affecting cable-modem classification

June 22, 2000 — In AT&T v. City of Portland, the Ninth Circuit Court of Appeals rules that cable-modem offerings are telecom services.

March 15, 2002 — FCC declares cable modems to be unregulated interstate information services.

Oct. 6, 2003 — In Brand X v. FCC, the Ninth Circuit rules that cable modems include a telecom component, citing precedent established by Portland ruling.

March 31 — Ninth Circuit denies FCC petition for rehearing on Brand X case.

Dec. 3 — Supreme Court agrees to hear appeal of Brand X case.

March 2005 — Supreme Court scheduled to hear oral arguments in Brand X case.

Source: Washington Internet Project, NCTA