Tuesday, March 29, 2005

The Supreme Court began hearing arguments yesterday on a case that will decide how much territory America’s information superhighway will cover. If the court rules in favor of the FCC, cable companies will have regulatory incentives to continue deploying Internet broadband, or high-speed, infrastructure broadly. If the court rules in favor of Brand X, an Internet service provider based in California, cable companies will have to lease their broadband infrastructure to competitors at discounted rates and will therefore face regulator disincentives to expand.

At issue is whether or not cable companies delivering broadband are primarily providing an information or telecommunications service. If the court should decide the companies are delivering an information service, then they will not be forced to lease their broadband networks at discounted rates, the way telecommunication companies were required to do with their networks under the 1996 Telecommunications Act.

Broadband will have a variety of uses in the near future, quite apart from allowing users to surf the Web. It is already being used to bring voice services over the Internet (commonly referred to as VoIP) to subscribers and will be used to feed high-definition stations and bring next-generation digital services into peoples’ homes.

Cable companies have spent an estimated $80 billion to upgrade their networks to handle broadband and digital video. In 2004, broadband subscriptions grew by 8.6 million to a national total of 33.2 million. Unsurprisingly, cable remains the leader of the industry, with about 60 percent of the market. If cable companies had been restricted by the same redtape that restricts telecommunications companies, that kind of expansion would not have made market sense.

Since cable companies have become such clear market rivals to telecommunication companies, the court will consider whether it is fair for cable to benefit from a more relaxed regulatory framework. Interestingly, the Baby Bell phone companies (Verizon Communications, SBC Communications, BellSouth and Qwest Communications International) have argued that instead of burdening cable companies with the same regulations they are saddled with, the regulatory requirements on telecommunication companies should instead be relaxed. That position makes sense.

Also, the FCC has loosened the regulations on the Baby Bells. In February 2003, the FCC voted to phase out rules requiring the Bells to share residential DSL lines at discounted rates. The Bells have said that change has prompted them to make new network investments. Verizon, for example, is spending billions of dollars upgrading from copper lines to optical fiber.

In this information age, broadband deployment could be pivotal to America’s global economic competitiveness. The court is expected to decide by early summer whether it will allow cable companies to add mileage to the information superhighway. Should the court not rule in favor of the FCC, though, Congress should step in to further deregulate the broadband industry.

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