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The U.S. Supreme Court’s decision in FCC v. Brand X Internet Services on June 27 is a milestone in telecommunications deregulation. Brand X signals that legacy analog regulation will not be allowed to impede the broadband revolution. While commentators have called the decision a victory for cable television companies, the implications for other broadband services such as Voice over Internet Protocol (VoIP), digital subscriber line (DSL) and broadband terrestrial and satellite wireless service are just as great. The Brand X case decided whether cable modem service should be regulated as a voice telephone service, called a telecommunications service under Title II of the 1934 Communications Act, as amended by the 1996 Telecommunications Act, or an information service. The stakes were high: Companies offering telecommunications service are considered “common carriers” by the act. Pursuant to Title II, common carriers are required to offer service to any member of the general public. They are required to interconnect with other carriers when in the public interest and must charge rates that are “just and reasonable” and nondiscriminatory. They must also contribute to the Universal Service Fund, a type of excise tax imposed by the Federal Communications Commission (FCC) to aid development of telecommunications service in rural and economically disadvantaged communities. While not regulated as common carriers, cable service companies that offer cable modem service are subject to programming and other FCC regulation for their cable television offerings under Title VI of the act. By contrast, a service classified as information service is not regulated either as telecommunications service or as cable service. The distinction dates from the 1960s, when, in a series of administrative proceedings, the FCC established a distinction between “basic” services-those in which the transmitted information was not processed or altered in transmission, which would be subject to common carrier regulation-and “enhanced” services-in which processing altered the transmission, which would be exempt from common carrier regulation. The 1996 act preserves the distinction, separately defining telecommunications service, which corresponds with “basic services,” and information service, which corresponds with “enhanced services.” The former is subject to common carrier regulation; the latter is not. The rise of the Internet as a medium of mass communication has stressed the distinctions made by the act among telecommunications service, cable service and information service. Since the development of the World Wide Web and browser software that made it accessible to the mass market, the Internet has been treated as an information service by the FCC; its dramatic growth is in some measure attributable to the lack of burdensome regulation imposed upon it. However, in the new broadband world, telecommunications service, cable service and information service providers offer services in each others’ core domains increasingly indistinguishable from their pre-Internet analogs and marketed as such. VoIP as a replacement phone service is the most obvious example. Axing burdensome regulations In 2003, in Brand X Internet Services v. FCC, the 9th U.S. Circuit Court of Appeals, following one of its prior decisions, held that the FCC erred in classifying cable modem service as information service and held that the service was a telecommunications service. The Supreme Court’s decision reversed the 9th Circuit. Any construction of cable modem service as subject to burdensome common carrier regulation is eliminated. The court was clearly not impressed with arguments that such regulation should be imposed just because the service may be functionally indistinguishable from services that are subject to Title II regulation. The court also explicitly upheld the right and jurisdiction of the FCC to implement regulations pursuant to the 1996 act, which it is charged with administering, so long as they are “reasonable.” Since the FCC has consistently favored an unregulated Internet, the affirmation of FCC authority is likely to favor unregulated broadband service across all platforms. Toward the end of its decision, the high court hinted that the FCC will likely construe other broadband service as information service, with similar deregulatory implications. As industry and consumers move to a broadband platform, legacy regulation is likely to wither. One issue remains: how to separate out and apply public service aspects of that regulatory system, such as the Universal Service Fund, as the FCC has done in requiring emergency 911 access by VoIP providers. It is a challenge, but so far, the court has upheld the FCC in preserving an unregulated Internet, one that is continuing to transform our lives. Owen D. Kurtin is a partner at New York’s Brown Raysman Millstein Felder & Steiner. His practice focuses on mergers and acquisitions, corporate finance and corporate representation and regulation in the telecommunications, satellite/aerospace, information technologies and media sectors. He may be reached at [email protected].

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