FCC'S ‘TENTATIVE CONCLUSION’ SPAWNS CABLE INDUSTRY SCRAMBLE

FCC’s tentative conclusion that DSL and other phone- based Internet services should be reclassified as information services (CD Feb 15 p1) is likely to have broad impact on cable industry, which is nation’s leading provider of high- speed Internet access. With parallel proceedings examining classification of cable modem service pending, Commission appears to be extending its vision of broadband across platforms, observers say, and that could add regulatory burdens to cable modem service that aren’t there today. For example, in FCC’s notice of proposed rulemaking (NPRM) are questions about universal service requirements and whether companies other than traditional wireline telephone service providers should be only ones contributing to it.

Question comes as FCC Chmn. Powell and many members of Congress have made it their mission to facilitate deployment of broadband nationwide. While Powell has said repeatedly that he wants free and unimpeded market to determine outcomes, others say extending universal access fund beyond traditional telephone service could signal move toward viewing high-speed Internet access as something like information right for all Americans. Universal service fund originally was created to subsidize cost of deploying telephone service to people in rural and other hard-to-reach areas. Since then, FCC has instituted e-Rate program with intention of helping wire all schools and libraries across country to Internet.

Jeff Chester of Center for Digital Democracy believes designating cable modem and DSL-Internet as “information services” would free both of requirements that have forced ILECs to unbundle their networks and allow competitors to use incumbents’ phone plant to deliver competing DSL services. Not everyone agrees with that assessment; some insiders say they don’t think FCC will alter market-opening obligations of ILECs at wholesale level, sticking instead to regulatory classification of retail services.

NCTA said it still was reviewing FCC’s latest move. Industry sources said there were several issues to consider, one of which was whether making cable industry contribute to universal service fund might impede deployment. Sources said “take rates” for broadband were less than spectacular, in large part because consumers were more daunted by higher price for “always-on” higher speed capability than comparatively low cost of dial-up access. Tacking on extra universal service fee would only make high-speed more expensive, they said. On that issue, cable industry may have powerful ally. FCC Comr. Martin, perhaps most conservative member of Republican-dominated Commission, has likened idea of extending universal service fund to “an Internet tax.” He said: “Such burdens raise costs and decrease demand for broadband, constraining the flow of capital investment and chilling innovation.”

Cable already is subject to universal service fund where it’s rolling out telephony, most notably in some areas served by AT&T Broadband and Cox, which in fact has received e-Rate funds to deploy services to wire schools and libraries. But cable industry has not made wholesale push into telephony market thus far. Another reason many industry insiders are questioning whether they should be subject to universal service fund is that they aren’t rolling out multichannel video, telephony, data or any other services in some areas of country, but essentially have ceded those far-off areas to other technologies, wireless and satellite, and believe others will provide broadband where cable doesn’t.

Cable lawyers also are grappling with question whether local franchising authorities (LFAs) would have power over “information services.” LFAs have jurisdiction over “cable services,” imposing franchise and fee requirements for rights-of-way, and have authority to regulate cable service rates at local level. NCTA said industry paid local govts. $2 billion per year in franchise fees that were passed through to cable customers. But NCTA, in a recent memo to FCC, said Congress had gone out of its way not to tax or generally regulate Internet. It apparently is double-edged sword because NCTA also said that switching Internet service from “cable service” to “information service” shouldn’t force LFAs to refund money they already had collected on cable- delivered Internet service. Industry sources said cable companies didn’t expect any refunds and LFAs wouldn’t want to give up that revenue stream. Chester said NCTA memo said cable -- at request of local communities -- shouldn’t have to set aside certain portion of bandwidth for “public, educational, and governmental” (PEG) use, or have other “customers service obligations.”

For AOL Time Warner, which provides both Internet service and cable service, classification issue could be sticky. Company experts apparently don’t believe FCC will relieve ILECs of their wholesale unbundling requirements. But even if they did, AOL TW currently has long-running contracts with several DSL providers, as well as satellite, to offer AOL to their customers, a spokeswoman said. What’s more, ILECs’ customers would demand to continue with AOL brand, she contended. AOL TW also owns Time Warner cable system properties and is under FTC consent decree ordering it to allow competitive ISPs over that plant. AOL TW in recent months has been speaking out publicly about benefits of such business model, saying that offering several ISPs over pipe would draw more customers to overall product.