9TH CIRCUIT VACATES FCC'S CABLE MODEM CLASSIFICATION RULING

The court was dealing with 7 different petitions seeking review of the Commission ruling, including from Brand X, EarthLink and Verizon. Some of the petitions were transferred to the court from the 3rd U.S. Appeals Court, Philadelphia, and the D.C. Circuit. None of the petitioners challenged the FCC’s conclusion that cable modem service was an information service. The court pointed out that some of the petitioners had argued that cable modem service was both an information service and a telecom service and therefore was subject to common carriage regulation. The 2nd group of petitioners, the court said, asserted that cable modem service was both an information service and a cable service and should be subjected to regulation by local authorities.

Verizon advanced a 3rd variation on the general “FCC did not go far enough” theme, the court said, arguing that the Commission was correct to classify cable modem service as solely an information service, but should have taken the additional step of conferring the same deregulation on DSL services provided by telecom companies.

The city of Portland (Ore.) and Multnomah County had conditioned the approval of AT&T acquisition of TCI systems on the provision of open access for competing ISPs. AT&T filed suit claiming that local franchising authorities lacked the power to impose such a condition. The district court granted summary judgment to Portland, and AT&T appealed. The 9th Circuit ruled that the Communications Act prohibited a franchising authority from regulating cable-delivered Internet access because the “transmission of Internet service to subscribers over cable broadband facilities is a telecommunications service.”

In Mon.’s ruling, the court pointed out that it was well established in federal courts of appeals that 3-judge panels were bound by the holding of earlier 3-judge panels. Apart from obvious exceptions to this rule, it said, the 9th Circuit had provided an exception where its precedents conflicted with a subsequent agency interpretation. If a panel found that an agency’s interpretation of its statute was reasonable and consistent with the law, the panel can adopt that interpretation even if circuit precedent is contrary, the court said. However, the court pointed out that in AT&T v. Portland, the FCC had declined, both in its regulatory capacity and as amicus curiae, to address the issue.

The FCC’s had argued, the court said, that because the 9th Circuit didn’t assert in AT&T v. Portland that its construction of the statute was not the only possible interpretation, it should not be bound by it, and instead should be free to review the agency’s interpretation on a clean slate. “The FCC, however, ignores Mesa Verde’s clear mandate that precedent can be disregarded in favor of a subsequent interpretation ‘only where precedent constituted deferential review of [an agency’s] decision making,'” the court said.

The court said its holding in Mesa Verde, along with that of the Supreme Court in Neal, required its adherence to its interpretation of the Communication Act in AT&T v. Portland that cable modem service wasn’t a cable service but part telecom service and part information service.

Judge Diarmuid O'Scannlain said he was concurring in the opinion “only because I believe our court’s precedent compels it.” He said it was the desire to ensure the continued development of the broadband market that drove the FCC to define cable modem service as an interstate information service. “One can disagree -- and indeed the 7 petitioners and numerous amici do disagree, vigorously -- about whether the FCC’s regulatory classification of cable modem service would move us closer to or farther away from achieving those important goals.” Judge Sidney Thomas said, however, that the statutory definitions, combined with the overall regulatory and legislative context, “compel the result” that cable modem service include a telecom component. “Thus, even if I were writing on a clean slate, my conclusion would be the same as the one we reached in City of Portland as to the meaning of the statute,” he said.

FCC Chmn. Powell said he would direct the agency’s gen. counsel to appeal the court decision. In a statement late Mon., he said: “I am disappointed that the court felt that it was bound by its prior decision and did not address the merits of the Commission’s classification.” Citing Judge O'Scannlain’s concurring opinion, he said, “the ruling ‘effectively stops a vitally important policy debate in its tracks,’ producing ‘a strange result’ which will throw a monkey wrench into the FCC’s efforts to develop a vitally important national broadband policy.”

The NCTA said Mon.’s ruling was “one step in a long process.” A spokesman said the association hadn’t reviewed the opinion and had no further comments. “This case demonstrates that the FCC ignored a U.S. court’s binding interpretation of the law,” said Cheryl Leanza, deputy dir. of the Media Access Project. Under the FCC’s decision, she said, consumers weren’t protected from content discrimination and didn’t benefit from competition among ISPs: “Now there is a chance citizens will be protected.” The ruling “vindicates” Earthlink’s stance to the FCC that cable modem service has a telecom component, said Dave Baker, vp-law & public policy. “The practical result of such a classification is that cable broadband providers would be required to open their lines to competing ISPs,” he said. Cable modem users deserved choices in ISPs, he said, and “today’s ruling is a big step toward finally affording them that choice.”

House Telecom Subcommittee ranking Democrat Markey (Mass.) said the ruling would “safeguard the open nature of the Internet… Rejection of the FCC’s policy of deregulating services by redefining their regulatory classifications is unquestionably good news for consumers because such rejection militates against the emergence of a ‘digital duopoly’ for Internet access… Yet it is also good news for the prospects of job creation in the high-tech community… because entrepreneurs and information providers who are unaffiliated with the cable operator or telephone company will now have a fighting, free-market chance to offer goods and services to broadband consumers without undue discrimination from the owner of the wire.”