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Internet Infrastructure Issues: Regulation and Un-Regulation of The "Pipes" That Provide The Internet

The Internet is evolving at an astonishing rate. Few, if any, of its original creators could have envisioned the multitude of uses and the growing reliance on the .network of networks.. With this increased dependance is a concomitant desire for speed . the public is growing restless with traditional methods of Internet service, and the Internet industry is rising to the challenge.

Internet service providers (.ISPs.), eager to encourage new subscribers and enhance existing business are racing to implement high-speed alternatives to traditional delivery modes. High-speed Internet access is coming through broadband cable, DSL, wireless, and satellite conduits.

Internet providers recently have locked horns over the issue of broadband cable. ISPs that have been providing Internet service via telephone lines, including the industry giant America Online, are challenging newcomers. broadband service. See AT&T Corp. v. City of Portland, 43 F. Supp.2d 1146 (D. Or. 1999) (on appeal to Ninth Circuit). They insist that the Federal Communications Commission (.FCC.) and/or localities should force cable companies that provide cable Internet access in addition to their other television offerings to .unbundle. this valuable combination, and open the proprietary cable systems to competitors.

Legislation, including Section 706 of the Telecommunications Act of 1996 (.1996 Act.), the first major reform of the nation.s communications laws in more than fifty years, as well as the Cable Communications Policy Act of 1984 (.Cable Act.), 47 U.S.C. ' 521 et seq., are important touchstones in connection with the private sector.s roll-out of advanced technologies necessary to accommodate the public.s need for speed.

Broadband Access Tools . What They Are

Broadband cable is the physical .pipe,. the thick-gauged wire, that provides sufficient capacity (.bandwidth.) to carry large amounts of information, including video programming as well as Internet services between a provider and consumers. Cable wire is able to carry more information and at a much faster rate than traditional telephony, enabling Internet users to download and transmit at high-speeds. This type of high-speed Internet access requires a cable modem at the user.s end along with the PC. Examples of companies providing broadband cable Internet services include Excite@Home and Road Runner.

High-speed broadband cable access is not without competition. Companies including Bell Atlantic, US West, Flashcom, and Hughes Network Systems are rolling out high-speed Internet access alternatives including Digital Subscriber Lines (.DSL.), wireless, and satellite.

DSL technology utilizes the same twisted pair copper wire that carries traditional telephone service (sometimes called .POTS. or .Plain Old Telephone Service.) to and from a person.s home. Analog Internet transmission requires a modem to .translate. the analog signal into digital data that the receiving computer can .read.. Similarly, the modem converts digital data produced by the computer user into analog form for transmission over the POTS system. DSL technology allows digital data (as opposed to traditional, and less efficient analog data, to be transmitted directly to a computer. DSL allows the phone company to utilize much more efficiently the ordinary telephone wire into a person.s home. The result . a speedy and reliable digital transmission.

Satellite and wireless systems also allow transmission of high-speed Internet communication services. For example, Hughes Network Systems offers bundled satellite access and ISP service, which is desirable not only for consumers anxious for faster service, but also for those who are located in remote areas where conventional Internet access is unavailable.

Section 706 Of The 1996 Act

As indicated in the legislative history, Congress passed the 1996 Act to spur competition and lessen regulation at all levels of telephony. Congress intended the 1996 Act:

to provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector development of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition, and for other purposes . . . .

H.R. CONF. REP. No. 104-458, at 1 (1996). Section 706 includes the Congressional mandate for the FCC, as well as state commissions, to .encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans . . . .. Section 706(a). .Advanced telecommunications capability. refers to .high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology.. ' 706(c)(1).

The FCC has articulated that .we need to be particularly careful about any action we take to promote broadband deployment, given the nascent nature of the residential market for broadband. . . . [S]ome actions could contravene the intent of section 706 that our broadband policy be technology-neutral and could skew a potentially competitive marketplace.. FCC 99-5, CC Docket No. 98-146, at 6 74 (Released Feb. 2, 1999) (footnotes omitted).

The 1996 Act Promotes Local Telephone Market Competition

As part of its effort to foster a competitive communications market, Congress includes certain provisions to open up local telephone markets to competition. See ' 251, 252 of the 1996 Act. These sections impose a duty on each Local Exchange Carrier (.LEC.): (1) to resell telecommunication services; (2) to provide number portability; (3) to provide dialing parity; (4) to provide access to ducts, conduits, and rights-of-way; and (5) to establish reciprocal compensation agreements.

Incumbent Local Exchange Carriers (.ILECs.) are subject to additional duties: (1) to negotiate in good faith agreements for interconnection; (2) to allow nondiscriminatory interconnection; (3) to provide nondiscriminatory access to network elements on an unbundled basis; (4) to resell telecommunication services at wholesale rates; (5) to provide reasonable public notice of changes affecting transmission and routing of services, as well as other changes affecting interoperability of that ILEC.s facilities or networks; and (6) to provide collocation of any equipment necessary for interconnection.

Further, Section 271 requires each Regional Bell Operating Company (.RBOC.) to undergo strict FCC scrutiny before receiving approval to provide long distance service in their local service areas. This includes a 14-point .competitive checklist. that regulates the access and interconnection an RBOC provides to a Competitive Local Exchange Carrier (.CLEC.). Section 272 also requires RBOCs to provide certain interLATA (Local Access Transport Area) services through a separate subsidiary until four years after Congress passed the 1996 Act (unless the FCC extends the period).

RBOCs Seek To Deploy Long Distance Services Short of Fulfilling Obligations Under The 1996 Act

Despite these statutory requirements, some RBOCs have claimed that their provision of long distance .advanced services. should be exempted from these regulations . exempt under Section 706. In essence, these RBOCs seek to provide long-distance advanced services . the deployment of DSL services . without opening up their local markets to competitors as the 1996 Act requires. Many RBOCs claim that they need relief under Section 706 specifically to provide new, or improved, service to rural communities. Their pleas have been met with the argument that the conditions Congress placed on the expansion of the RBOCs. services remain important if true competition and consumer choice is the goal. Some RBOCs have also challenged some of the restrictive provisions that the 1996 Act incorporates, although the courts have rejected their arguments. See, e.g., SBC Communications v. FCC, 981 F. Supp. 996 (N.D. Tex. 1997), rev.d 154 F.3d 226 (5th Cir. 1998) (Fifth Circuit rejected several RBOCs. claims that 1996 Act.s prohibition on RBOCs. provision of interLATA services was illegal bill of attainder); BellSouth Corp. v. FCC, 144 F.3d 58 (D.C. Cir. 1998) (D.C. Circuit rejected similar arguments as those in SBC Communications upholding 1996 Act.s restriction on RBOCs participation in electronic publishing).

The FCC.s Position On Broadband Cable Internet Services

The FCC.s position is promotion, not regulation, of the Internet. FCC Chairman William E. Kennard has stated his agency.s position on many occasions, perhaps most succinctly in the following statement, .We seek not to regulate the Internet.. See William R. Richardson, Jr. & John Maull, .The 1996 Act and FCC Regulation of Internet Access,. PLI Order No. G4-4040 (Dec. 1998) (quoting Application of WorldCom, Inc. and MCI Communications Corp., FCC 98-225, CC Docket No. 97-211, at 6 142 (Released Sept. 14, 1998). Very recently, Chairman Kennard repeated this policy of .intentional restraint.. Remarks by FCC Chairman William E. Kennard before the Federal Communications Bar, Northern California Chapter, San Francisco, CA, July 20, 1999 (.FCC Policy Speech.). .[T]he FCC has taken a hands-off, deregulatory approach to the broadband market.. Id. Chairman Kennard.s comments also appear to be consistent with the face (and legislative intent) of the Cable Act.

The Cable Act

In 1984, Congress passed the Cable Act to establish .a national policy concerning cable communications. and to generate .guidelines for the exercise of Federal, State, and local authority with respect to the regulation of cable systems.. 47 U.S.C. ' 521(1), (3). Congress crafted the Cable Act to balance two conflicting goals . preserve the critical role of municipal governments in the cable franchise process and affirm the FCC.s exclusive jurisdiction over cable service and the facilities related to such service. City of N.Y. v. FCC, 814 F.2d 720, 723 (D.C. Cir. 1987), aff.d, 486 U.S. 57 (1988).

The legislative history of the Cable Act also illustrates Congress. intent to restrict local governments. power over cable television:

H.R. 4103 establishes a national policy that clarifies the current system of local, state and Federal regulation of cable television. This policy continues reliance on the local franchising process as the primary means of cable television regulation, while defining and limiting the authority that a franchising authority may exercise through the franchising process.

H.R. Rep. No. 98-934 at 19 (emphasis added). Many provisions of the Cable Act indicate Congress. intent to preempt local authorities. regulation of cable and cable services. See, e.g., Section 624(a), 47 U.S.C. ' 544(a), (preempting franchising authority.s regulation of services, facilities, and equipment provided by cable operator); Section 624(f)(1), 47 U.S.C. ' 544(f)(1), (preempting imposition of requirements concerning provision or content of cable services); Section 624(b)(1), 47 U.S.C. ' 544(b)(1), (preempting establishment of requirements for video programming or other information services; 621(b)(3)(D), 47 U.S.C. ' 541(b)(3)(D), (precluding imposition of condition on cable franchise grant requiring cable operator to provide telecommunications service or facilities as condition of transfer of cable franchise). However, pro-state regulation advocates insist, and the District Court of Oregon found in AT&T v. City of Portland, that there is more than one interpretation of Congress. words. The court found that federal law did not preempt the open access requirement.

Open Access to Broadband Cable . A Battle Royal

In June of 1998, AT&T Corp. and TCI Communications, Inc., entered into a merger agreement to create an entity that could offer, among other things, cable Internet services to a much larger universe, in keeping with the Congressional mandate of the 1996 Act.2 Nevertheless, the merger has met opposition from some local governments as well as non-cable ISP competitors.

On one side are a few local regulatory agencies, organizations, and companies supporting .open access. to cable systems . government-mandated access to cable systems for all ISPs . that a very small number of cities and municipalities have imposed as a condition to the AT&T/TCI merger; and on the other side are those companies and organizations that believe forced access will stifle competition. The trial court agreed with the former, but the decision is now on appeal to the Ninth Circuit. See AT&T Corp. v. City of Portland, 43 F. Supp.2d at 1152 (court found that a local franchising authority.s .power to prohibit a chance of control includes the lesser power to impose conditions under which it will permit a change of control..). This issue of whether cable companies should be required to share their facilities with competitors is expected to become a major policy issue nationwide throughout the coming months. Apart from the policy questions over whether required access will stifle the development of other means of broadband service (DSL, wireless, satellite) because developers of those alternatives will find .piggybacking. onto cable cheaper and easier, there are important issues of federalism and authority to regulate. See, e.g., Internet Wars, N.Y. Times, Sept. 6, 1999, Editorials/Letters at A16; How to Forge a Faster Net: Competition, Business Week, Aug. 2, 1999.


For now, the FCC is allowing the market to control the development of the Internet, in particular with regard to the deployment of broadband cable Internet access. It has not used Section 706 as a sword . yet. It is not cut-and-dried, however; and many interested parties are holding their breath as court decisions like the one expected in the Ninth Circuit will affect the development of the Internet as accessed through .pipes.. And yes, Congress too may take a renewed interest in the Internet. As when downloading from the Internet, we will have to wait and see.

* * *

*Christopher Wolf is a partner in the Washington, DC office of Proskauer Rose LLP, and co‑chair of that Firm's iPractice Group.

2In May 1999, AT&T and Media One Group (.Media One.) announced their definitive agreement to merge. Media One offers extensive broadband communications, including Internet access, in the United States, Europe, and Asia. The AT&T/Media One merger is subject to federal and state approval similar to the AT&T/TCI merger.

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