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The 9th U.S. Circuit Court of Appeals’ recent ruling that Portland, Ore., could not require its local cable system to provide “open access” (or “forced access”) for competing Internet service providers is a victory — so much so that each side in the case claims to have won. Opponents of forced access have declared that the 9th Circuit closed the book on efforts by local authorities to impose such requirements. But to advocates of open access, the decision confirms that, when a cable system offers to connect customers to the Internet, it is subject to federal nondiscrimination duties just like those a telephone company bears. The case does contain things to cheer the hearts of both sides. But closing the book is one thing it does not do. The 9th Circuit’s June 22 decision in AT&T v. City of Portland, 00 C.D.O.S 4991, arose from Portland’s attempt to attach a condition to the transfer of a local cable franchise to the AT&T Corp. Local governments decreed that AT&T would have to provide “nondiscriminatory access to [its] cable modem platform for providers of Internet and on-line services, whether or not such providers are affiliated with [AT&T].” In other words, AT&T would have to allow independent Internet service providers (ISPs), such as AOL and Earthlink, to use its broadband cable facilities on the same terms and conditions as AT&T’s affiliated ISP, [email protected] AT&T challenged that condition in U.S. district court. It argued that its cable modem service was a “cable service” under the federal Communications Act and thus was protected by provisions in the act that limit the powers of local governments over cable services. The city and intervening ISPs agreed that the service was a cable service, rather than a “telecommunications service,” but disagreed that the act barred the city’s action. They pointed to a part of the act that specifically contemplates that localities may deny franchise transfers that threaten competition. The district court dismissed AT&T’s lawsuit, holding that the Communications Act did not pre-empt Portland’s actions. The court, along with the parties, assumed that AT&T’s cable Internet service was a cable service. Not so the 9th Circuit. On appeal, the Federal Communications Commission submitted an amicus brief asking the court not to decide the issue until the FCC took a first crack at it. The FCC did not say how it thought the court should decide AT&T’s pre-emption arguments. Significantly, the FCC had declined repeated invitations to decide the status of cable modem services, preferring a posture of “vigilant restraint” instead. The FCC’s brief may have had the opposite of its intended effect. The 9th Circuit seized on the threshold issue of how to classify cable modem service for regulatory purposes and decided the case on that issue, even though none of the parties had briefed it. The court ruled that AT&T’s service actually was a telecommunications service and thus governed by different law. This classification, the court said, has two results: First, local cable franchising authorities cannot regulate the service. Thus Portland’s attempt to condition the transfer of the cable franchise was invalid. Second, the part of the act that governs telecommunications services imposes on AT&T’s cable modem service the same nondiscrimination duties that apply to telephone companies when they offer, for example, their digital subscriber line (DSL) services that compete directly with cable modem services. In other words, Portland acted unlawfully, but also unnecessarily, because federal law already mandates the open access that Portland sought. The court noted that the FCC has power to forbear from applying telecommunications service regulation, but also that it has not yet done so. Right or wrong, the court’s ruling opens forks in the road and brings new players into the action. First, the local chapter of the saga is not fully closed. The matter is settled for the states subject to the 9th Circuit’s jurisdiction but not for states in other jurisdictions. An appeal in the 4th Circuit, MediaOne Group Inc. v. County of Henrico, Va., is being briefed this month. Also, the 11th Circuit, in Gulf Power Co. v. FCC, has suggested that cable modem service is neither a cable service nor a telecommunications service. The power of localities to act in this arena will not be resolved until the other circuits, or the Supreme Court, have had their say. Moreover, local power does not necessarily end by changing the label of the service. Some localities — notably Portland — still exercise power over telecommunications services. Indeed, Portland has told AT&T that it must obtain a franchise and pay a fee to offer cable modem service in the city. Cable companies haven’t heard the last from local authorities about these services, even in the 9th Circuit. Meanwhile, the law of the 9th Circuit now is that the cable companies offer telecommunications services when they connect their customers to the Internet. Under the Communications Act, a telecommunications carrier must serve all comers on reasonable and nondiscriminatory terms and must interconnect with other carriers on request. Rival ISPs may therefore request service from the cable company to enable them to reach their customers, and they may sue the cable company to achieve that end. Other telecommunications carriers — such as upstart local telephone companies (known as competitive local exchange carriers, or CLECs), which may or may not also be ISPs — may request interconnection with the cable companies’ broadband transmission plant. If refused, they may seek state arbitration and then go to federal district court. The state public utility commissions have until now been largely absent from this fray. State utility commissions regulate telecommunications services within a given state. However, the FCC generally regards Internet access services as interstate, because a user in one state may access information stored anywhere in the world. But the law is not settled in this regard: The FCC is presently reconsidering its own thinking about the nature of Internet access services. A state utility commission might assert jurisdiction over the intrastate aspects of a cable modem service, and it is not clear how a court would respond. The FCC has been the giant who refused to come on stage. While urging cities and courts not to tangle with the legal issues surrounding cable modem services, the FCC has been loath to decide them itself. Chairman William Kennard’s public statements have combined support for the idea of open access with hope that the marketplace would work things out itself. But the 9th Circuit’s decision makes the FCC’s vigilant restraint yesterday’s strategy. The FCC is not formally bound by the 9th Circuit’s decision. It was not a party to the case, but only an amicus. It may now finally decide how it thinks cable modem service fits into the regulatory scheme. The moment has come to speak or forever hold its peace. Chairman Kennard announced on June 30 that he will ask the commission to launch a rule-making proceeding to explore the questions raised by the 9th Circuit’s decision. This proceeding is likely to be completed sometime within the next six to 12 months. The agency’s resulting ruling will be reviewable in the federal courts, and normally would be entitled to deference — although it will be interesting if review ends up in the 9th Circuit, which has already rather confidently declared what it thinks the statute means. If the FCC agrees with the 9th Circuit, a key issue will be whether the agency will actually impose the usual telecommunications duties. As the 9th Circuit noted, the FCC has “broad authority to forbear from enforcing the telecommunications provisions if it determines that [such enforcement is] unnecessary to prevent discrimination and protect consumers, and is consistent with the public interest.” But the agency must justify a decision to forbear, and it might be pressed to explain why it should forbear from regulating cable modem service but not competing DSL service. Congress has before it a number of bills to impose an open access requirement on cable modem service. While the FCC was studying this issue and the local skirmishes were still moving through the lower federal courts, supporters of these bills may have lacked the sort of event that is often needed to galvanize the legislature. The FCC will have to worry that the proceeding it has now begun may yield that galvanizing event. An FCC ruling that distinguishes between regulating cable modem service and DSL service could persuade Congress that it’s time to step in. And the very fact that Congress is watching will force the agency to think carefully before distinguishing between DSL and cable-modem services. So the book is not closed on open access to cable. Kennard has said that the common goal is an open environment in which consumers can choose their ISPs, and the disagreements are only about how to get there. There are enough possible ways to get there to keep the solution to open access open for some time. William T. Lake is a partner and Matthew A. Brill an associate in the Washington, D.C., office of Wilmer, Cutler & Pickering, which represented an Internet service provider that intervened on the side of Portland in the 9th Circuit litigation.

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