by Braden Cox
October 23, 2003

Sometimes a judicial outcome can be summed up by the aphorism "hard cases make bad law.”  At other times, perhaps, it is bad law that makes hard cases.  Then there is the recent decision by the U.S. Court of Appeals for the 9^th Circuit, Brand X Internet Services v. FCC, an example of an easy case making bad policy.

The 9^th Circuit ruling issued earlier this month took some people by surprise.  A three-judge panel ruled against the FCC’s decision to classify Internet service provided by cable companies as an “information service.”  Instead, the court found that cable modem service is a “telecommunications service,” a more highly regulated category that forces cable Internet service providers to allow competitors access to their lines.  Bell companies are similarly subject to requirements that mandate competitor access to their copper plants. 

Easy Case   

Simply put, the Court ruled that cable modem service is a form of telecommunications service to be consistent with its ruling in a prior case.  The previous case involved a suit against the city of Portland, Oregon, whereby the city had placed forced access conditions on the sale of a cable franchise.  The court held that cable modem service had telecommunications service components.  As such, the city of Portland could not regulate the cable modem services – only the FCC had the legal authority to do so. 

Courts often defer to the FCC’s interpretation of the Telecommunications Act of 1996.  As a general rule, a court that is reviewing an agency’s interpretation of a statute it administers employs what is known as a “Chevron two-step” analysis.  First, the court looks to the intent of Congress.  If the intent is clear, the court rules accordingly.  However, if the statute is silent or ambiguous, the court then asks whether the agency’s interpretation is reasonable. 

Courts defer to reasonable FCC interpretations – the rationale being that the FCC, as an agency created by Congress, has the specific authority and expertise to administer the communications laws.  But when the court issued the City of Portland decision in 2000, the FCC had not yet decided how to classify cable modem services.  Thus, there was no agency action that required deference and the court was free to decide the matter from scratch.  And the 9^th Circuit correctly stated in its opinion that an agency should not be able to set aside a federal court’s interpretation of a statute – that is a job for Congress to resolve.

Bad Policy

There is danger in having an FCC that lags behind the times.  If the FCC doesn’t act, the judiciary will.  The 9^th  Circuit decision raises a fundamental policy question of whether judicial review or agency rulings are a more appropriate way for government to regulate industry and, as Judge O’Scannlain stated in his concurrence, affect an “admittedly complicated and highly technical area of telecommunications law.”  Government regulations are not very good at accommodating new technologies in ways that benefit consumers to begin with, but when even the advantage of their predictability is removed, complying with the rules while providing the service customers desire most becomes next to impossible.

Consumers would not benefit from having cable Internet services bogged down with the same regulatory morass that affects the telecommunications industry.  Requiring open access of a growing cable modem service industry would destroy the capital investment incentives needed to bring more broadband services to the home.  Thus, on remand the FCC should deregulate DSL, not regulate cable.

Congress should view this case as yet another indication that it needs to revisit the 1996 Telecommunications Act and craft a new set of regulations fit for the 21^st Century.