Policy

Powell: Regs Could Soak Data Subs

12/05/2004 7:00 PM Eastern

Washington— Applying traditional phone-industry rules to cable-modem service would raise consumer rates by about 10%, Federal Communications Commission chairman Michael Powell said last Thursday.

“If you layered on that instantly, that every cable-modem offering today has a telecommunications subcomponent, the massive extension of regulatory obligation on that I think is going to drive the cost of broadband up very significantly,” Powell said. “It’s almost an immediate 10% tax.”

Cable operators collect about $10 billion in annual cable-modem revenue, meaning Powell’s prediction of a 10% rate rise would cost cable’s 20 million high-speed data customers an additional $1 billion.

The FCC chief’s comments came a day before the U.S. Supreme Court is scheduled to decide whether to hear Brand X Internet Services v. FCC, a case from the 9th U.S. Circuit Court of Appeals that threatens cable-modem service with traditional telecom obligations, such as open access to Internet-service providers, universal service payments and interconnection with other telecommunications carriers.

Consumer groups and various ISPs support the Brand X ruling. They say it would expose cable-modem service to greater competition and make broadband access more affordable.

However, Powell said the application of telecommunications obligations would impose new financial burdens on cable companies and their customers. Universal service payments would equal about 8.9% of modem revenue, he said.

“I think you are talking [about] a significant increase in consumer prices,” Powell said. “Right now, if you buy cable-modem service from Comcast [Corp.] under the current regulatory regime, there is not a lot of universal service fees connected to that [and] there are not the costs of network interconnection.”

As chairman, Powell has fought to keep broadband deregulated, while the White House has called for universal and affordable broadband access by 2007.

Powell indicated that regulation of cable-modem service would frustrate those policy goals.

“This would be an immediate hit to both the industries and consumers if we couldn’t figure out a better way to do it,” Powell said.

The Justice Department and the National Cable & Telecommunications Association have appealed the Brand X case to the high court. The court is expected to announced its decision on Dec. 6.

The FCC has the option of employing statutory forbearance authority to shield cable-modem service from telecom rules, but that approach can take up to 15 months to process, followed by a new round of litigation that further clouds regulatory certainty.

Asked if he is pondering the forbearance approach, Powell told reporters, “We haven’t crossed that bridge.”

Powell added that the FCC could experiment with something called the “doctrine of nonacquiescence,” which would mean the FCC would recognize the Brand X holding only in states within the 9th Circuit.

“Basically, the rule applies in the 9th Circuit. It doesn’t apply anywhere else,” Powell said.

The 9th Circuit is the largest of the 13 federal circuits, both in terms of geography and population. Its jurisdiction includes California, Oregon, Washington, Arizona, Montana, Idaho, Nevada, Alaska, Hawaii, Guam and the Northern Mariana Islands.

September