In a decision likely to limit consumer choice in the rapidly growing market for high-speed Internet access, the Supreme Court ruled yesterday that cable companies were not required to give competitors access to their broadband networks.
The decision was seen as a victory for cable giants, such as Comcast Corp., and the Federal Communications Commission as well as the one-time Bell operating companies - including Verizon Communications Corp. and SBC Communications Inc. - which are seeking a similar exemption.
But the closely watched case was also considered by many to be a blow to consumers and independent Internet service providers, from giants such as EarthLink Inc. and AOL to smaller regional players at a time when demand for broadband-based technologies such as Internet phone service and digital entertainment is expected to skyrocket. Over time, the decision could mean the market for high-speed Internet will be dominated by the major cable and telephone companies.
The cable industry heralded the Supreme Court decision as "a victory for consumers [that gives] broadband providers the incentive to invest to provide faster service," said Kyle McSlarrow, president and chief executive officer of the National Cable & Telecommunications Association, the trade group that represents cable companies.
But consumer groups said the decision would limit choice and drive prices higher.
The court's ruling "threatens to cement the cozy duopoly of cable modem and DSL service that has made a mockery of competition in American broadband markets and prompted hundreds of communities across the country to build their own local networks," said three consumer groups - the Consumer Federation of America, Consumers Union and the Free Press.
In the 6-3 decision, the Justices overturned a federal court decision that would have forced cable companies to share their high-speed fiber-optic networks with independent Internet service providers, or ISPs. The heart of the case is a 2002 FCC ruling that classified Internet access provided by cable companies as an "information service," instead of a "telecommunications service," exempting them from regulatory requirements to allow rivals access to their networks.
Brand X Internet Services LLC, a California Internet services provider, successfully challenged the FCC ruling in federal court, and that was upheld in October 2003 by the 9th U.S. Circuit Court of Appeals. The FCC and cable industry then appealed to the Supreme Court.
In writing for the majority, Justice Clarence Thomas said that, because federal regulations don't clearly say whether companies that provide Internet access via cable modems are selling information services or telecommunications services, the FCC "has the discretion to fill the consequent statutory gap."
Thomas also wrote that "nothing in [relevant regulations] makes unlawful the [FCC's] use of its expert policy judgment to resolve these difficult questions."
In a sharply worded dissent, Justice Antonin Scalia, joined by Justices David H. Souter and Ruth Bader Ginsburg, said the FCC "has attempted to establish a whole new regime on nonregulation, which will make for more or less free market competition, depending upon whose experts are to be believed."
"After all is said and done ... and the smoke of agency expertise blown away, it remains perfectly clear that someone who sells cable modem service is 'offering' telecommunications," Scalia wrote.
The decision clearly resets the competitive landscape in the estimated $16 billion market for high-speed Internet access. It's the fastest-growing slice of the market for information services, with 53 percent of home users now opting for a broadband connection, predominantly through cable modems or phone companies' digital subscriber lines (DSL), according to the Pew Internet & American Life Project.
Cable companies get about $10 billion in annual revenue from broadband services.
Yesterday, FCC Chairman Kevin J. Martin said the court ruling "provided much-needed regulatory clarity and a framework for broadband that can be applied to all providers. We can now move forward quickly to finalize regulations that will spur the deployment of broadband services for all Americans."
Verizon urged both the FCC and Congress to do whatever it takes to reclassify DSL as an information service, and to act quickly. The Supreme Court decision affirms the FCC's authority to make that reclassification, Verizon said.
"Now, to provide consumers the full benefits of new technology and competition, the FCC and Congress should act promptly to finish the job," Tom Tauke, Verizon's executive vice president of public affairs, policy and communications, said in a statement.
EarthLink was disappointed with the court decision and company executives said it would fight. The company intends to lobby lawmakers for a review of the country's telecommunications policies, said Dave Baker, a law and public-policy expert with Atlanta-based EarthLink. About 1.5 million of its 5.4 million subscribers access the service via broadband, Baker said.
Cutting off access to cable and DSL networks will almost definitely have serious negative - if not dire - consequences for competition, said Kevin Brown, founder, president and chief executive officer of Quantum Internet Services Inc., a 14-employee ISP based in Carroll County.
"It will definitely limit consumer choice," he said. "The long-term implications are great, and could lead to independent ISPs being shut out of the DSL market, and forcing them to offer other services [such as Web-hosting]," or going out of business altogether.
Proponents of the ruling and the FCC's plans say these other technologies - wireless, satellite and broadband over power lines (BPL) - could provide outside competition. And competition between the telephone and cable companies will also keep prices in check, the proponents argue, and even drive fees down.
The Associated Press and Bloomberg News contributed to this article.