'Brand X' Ruling Could Spur Telco Deregulation

The Supreme Court's decision Monday to keep cable networks free of telecom-like regulation may be the catalyst to further deregulation of the phone companies, industry participants and observers said.

And while some saw the 'Brand X' decision as a loss for independent Internet service providers and new entrants like Voice over IP provider Vonage Holdings, at least one of the "losers" said that less regulation of advanced IP services is a good thing for the industry and will help foster more innovation in the future.

In a report, telecom analysts at research house Legg Mason called the ruling "a victory for the cable industry (and probably the Bells) and a defeat for 'edge' players such as independent ISPs (e.g., EarthLink), Web service prvoiders (such as Yahoo! and Microsoft), and VoIP providers such as Vonage." But while the Brand X decision may mean that cable companies will not be penalized if they block access to independent services like Vonage, Vonage itself said the decision was a "positive ruling" for the industry.

Brooke Schulz, Vonage vice president for communications, said the company is "generally of the opinion that high-speed Internet should be categorized as an information service to promote growth and remain unfettered from telecommunications regulation." Though Vonage has had some rumored trouble of blocking by cable companies, most leading cable providers have said they wouldn't block such services. Vonage also provides OEM VoIP service to some cable and independent Internet-service providers, including Armstrong and Advanced Cable, as well as Earthlink.

Legg Mason analysts added that the ruling could end up benefiting the RBOCs as much as the cable companies, since it gives them more lobbying ammunition in their attempts to deregulate their own advanced services. The ruling, Legg Mason said, "probably opens the way for the Bells to push the FCC to resurrect proceedings to similarly classify and deregulate the Bells."Indeed, some of the larger telcos had even appeared before the Supreme Court to support the FCC's side of the Brand X case. In a prepared statement, Verizon executive vice president of public affairs, policy and communications Tom Tauke said that the Brand X ruling "confirms the FCC's authority" to classify broadband services.

The commission, Tauke's statement continued, "should update its rules to ensure that all broadband services, including those offered by Verizon and other telephone companies, are not subject to old policies that ignore consumer needs in this changing marketplace. To provide consumers the full benefits of new technology and competition, the FCC and Congress should act promptly to finish the job."

SBC, the nation's other leading telco, opined similarly in a prepared statement from Forrest Miller, SBC group president, who said:

"We're pleased the court upheld the FCC's light regulatory touch on cable broadband service. We look forward to working with chairman [Kevin] Martin and the entire Commission to move forward at full tilt with its nearly four-year-old proceeding to provide the same flexibility to the broadband service of phone companies."

However, the FCC and the phone companies may have their deregulatory party interrupted by Congress, whose deliberations about telecom reform have picked up steam in the last month. A joint statement issued Monday by Senate commerce committee leaders Ted Stevens, R-Alaska, and Daniel Inouye, D-Hawaii, hinted that Congress may usurp any further FCC moves by acting to change the existing telecom regulatory structures, some of which have been in place since the FCC's creation in 1934."Specifically, we will review the decision's impact on existing public interest obligations, including its effect on the Universal Service Fund, the provision of 911 services, access for persons with disabilities, consumer privacy protections, and on law enforcement and anti-terrorism activities," the Senators' statement read, in part. "We will also be reviewing how this decision affects Internet Service Providers (ISPs), interconnection issues, as well as its implication on the proper regulatory treatment for DSL services. All of these issues deserve careful consideration, and we look forward to examining the Brand X decision in the context of our review of current communications laws."