• The Supreme Court overturned a ruling that cable high-speed Internet lines must be opened to rival online service providers, handing a victory to the Federal Communications Commission. In a 6-3 decision, authored by Justice Clarence Thomas, the high court sustained the FCC’s authority to classify broadband offered over cable modems as an “information service” and not a “telecommunications service.” The former category is largely unregulated, while the latter is subject to extensive regulation. The decision, National Cable and Telecommunications Association v. Brand X Internet Service, relied principally on the doctrine that federal agencies are owed deference in making regulatory decisions, even when agencies reverse themselves on key matters. The 9th U.S. Circuit Court of Appeals disagreed with the FCC, ruling in October 2003 that cable modems should have been classified as both an information service and a telecom service. The appeals court relied on its prior 2000 decision in AT&T Corp. v. Portland. The Supreme Court majority opinion relies heavily on the landmark case in administrative law, the 1984 Chevron USA v. Natural Resources Defense Council, which holds that disputes over federal statutes should be decided by the agency delegated with the task of resolving ambiguities. The Supreme Court held that the 9th circuit failed to apply Chevron. Justice Antonin Scalia, joined by Ruth Bader Ginsburg and David Souter, disagreed, comparing the package of cable-modem service to be a combination of both telecom and information services. The cable industry has about 21 million high-speed Internet access subscribers.

• FCC Chairman Kevin Martin said that with the Supreme Court sanctioning his agency’s decision to liberalize rules governing high-speed Internet service over cable modems, he plans to turn now to relaxing rules for other high-speed communications services. “This decision provides much-needed regulatory clarity and a framework for broadband that can be applied to all providers,” Martin said in a statement. “We can now move forward quickly to finalize regulations that will spur the deployment of broadband services for all Americans.” An FCC official said the agency is going to act soon to clarify that broadband distributed over the digital subscriber lines (“DSL”), typically offered by telephone companies, also can be classified as “information services.” Such a proceeding could happen by the end of the summer, a source familiar with the agency said. In February 2002, one month after its cable-modem decision, the FCC began a proceeding to also grant DSL service the same classification. That matter has been on hold pending the Supreme Court’s decision.

• The major problem with the 1996 Telecommunications Act was that it presumed the viability of long-distance communications as a viable business, AT&T CEO David Dornan said Tuesday at the Telecommunications Industry Association’s gathering at the SuperComm telecommunications convention in Chicago. “Long distance is a feature; it is not a business,” said Dornan, whose company has agreed to merge with SBC Communications and is awaiting regulatory approval. Dornan said, “The watershed event” in the decision to sell AT&T was the change in network-sharing rules implemented by the FCC after it had been reversed by a federal appeals court. Inconsistent policy also created havoc for the company, he said. “I did not think we could continue to fight a battle predicated on a regulatory ruling that had changed so many times; we made a decision to exit the consumer market where we had more control of our destiny. Regulatory actions have consequences to business.”

• Three consumer groups called for the FCC and Justice Department to reject the proposed mergers of AT&T with SBC Communications and MCI with Verizon Communications. The four companies have a “track record of flagrant disregard of their own promises to compete,” Janee Briesemeister, a senior policy analyst for the Consumers Union, said in a statement. She acknowledged that the FCC and Justice have the authority to stop the companies from abusing their power but said that all four have a “record of misleading actions and broken promises.” The Consumer Federation of America (“CFA”) said the combined companies would dominate 90 percent of the local, residential telephone business, 70 percent of the long-distance market and up to 50 percent of the wireless industry. “The remaining competitors would be minuscule in comparison,” CFA Research Director Mark Cooper said. The U.S. Public Interest Research Group also voiced its opposition.

• The debate over how much media conglomerates can grow without undermining news diversity in local communities may reignite soon thanks to a Supreme Court decision. The Supreme Court declined to consider appeals from several media companies regarding a Third U.S. Circuit Court of Appeals decision in June 2004 that overturned portions of the nation’s media-ownership rules. The rules, which the FCC issued in July 2003, loosened the restrictions on how many companies media conglomerates could own in local and national markets. The Third Circuit Court concluded that the FCC’s rule on ownership of broadcast and print or radio and television outlets in the same markets was not supported by “reasoned analysis.” The Third Circuit Court also criticized the FCC’s use of its “diversity index” to make decisions about ownership limits in local media markets. In particular, FCC made “unrealistic assumptions about media outlets’ relative contributions to viewpoint Third Circuit diversity in local markets” and “gave too much weight to the Internet as a media outlet.” The Third Circuit Court further rejected the FCC’s rules on local-television ownership and asked it to rework the rules with a better analysis and rationale.

• The Internet governing body the Internet Corporation for Assigned Names and Numbers (“ICANN”) formally selected VeriSign to continue managing for six years Web sites that end in .net, the group announced Thursday. The move comes after independent auditor Telcordia Technologies recommended in March and again last month that ICANN retain VeriSign as its .net handler. VeriSign beat four other applicants for the job, which is estimated to be worth about $150 million. The other applicants were Afilias, CORE++, DeNIC and Sentan. ICANN Chairman Vinton Cerf said at an April meeting that “security and stability” are a major factor in determining who runs domains under ICANN’s control.

• At its monthly meeting, the FCC took action to expedite the relocation of federal agencies to new airwave space in order to clear 90 megahertz of spectrum at auction for commercial wireless services. President Bush signed a law on the matter last December 23, and former FCC Chairman Michael Powell took action one week later, indicating the agency’s intent to auction the frequencies in June 2006, the earliest possible date under the statute. The Commerce Department’s National Telecommunications and Information Administration is managing the efforts to reallocate frequencies in the 1710-1755-megahertz range by December. Those airwaves will be paired with another 45 megahertz for the auction. “We are on target for a June 2006 auction date,” said Katherine Seidel, acting bureau chief of the Wireline Telecommunication Bureau.

Authored by
Gregg Mendenhall
202-218-0025
gmendenhall@sheppardmullin.com