the cable question -- brand x
straight forward stuff re the brand x case.
ntop partners with cable msos/telecom ... doesn't compete head to head in the consumer market with vonage/packet8.
Telecom
The Cable Question
Forbes
David M. Ewalt, 06.16.05, 10:05 AM ET
Jim Pickrell got into the Internet service provider business in 1995, back when dial-up connections ruled the day and a 56k modem was considered fast. The company's headquarters was his living room, where critical pieces of telecommunications equipment were sandwiched between home stereo components.
But despite its humble beginnings, Santa Monica, Calif.-based Brand X Internet now stands at the center of one of the most important telecommunications cases in years. When the U.S. Supreme Court releases its decision on Federal Communications Commission vs. Brand X Internet later this month, it may radically change how businesses sell high-speed Internet access.
"This is one of those Gettysburg-like battles that could turn the war," says Legg Mason analyst Blair Levin.
At question in the case is whether cable companies such as Comcast (nasdaq: CMCSA - news - people ) and Time Warner (nyse: TWX - news - people ) should be required to lease their lines to companies like Brand X. But depending on how the court rules, it could have far-ranging repercussions on how broadband Internet is sold and how much power the FCC has to govern the telecommunications industry.
It could also mean an effective end to the Internet service provider industry, crippling companies ranging from giant EarthLink (nasdaq: ELNK - news - people ) to tiny Brand X. "If we lose this, we're closed," says Pickrell. "The situation is rapidly deteriorating."
Brand X started off selling dial-up service to customers, but as the Internet grew the company began offering broadband options as well. Because their transmissions are classified as "telecommunications services," phone companies such as SBC (nyse: SBC - news - people ) and Verizon (nyse: VZ - news - people ) are required by law to provide access to their lines. That means Brand X was able to buy access to those networks at wholesale prices and resell high-speed digital subscriber lines (known as DSL) to their customers.
By 2003, Brand X had about 2000 customers, most of which were on DSL. But the phone companies didn't make it easy to access their networks. Backed by regulatory changes and court victories, the carriers started piling on charges and taking back their lines. In recent years, the carriers have increased wholesale prices nearly to match retail rates.
Meanwhile, demand for broadband Internet was booming, but DSL was lagging behind. In 2003, there were twice as many cable Internet subscribers in the U.S. as DSL subscribers, according to the Yankee Group.
Brand X started talking to cable companies about reselling their cable modem lines as well, but didn't get very far. Since cable transmissions are considered "information services," operators are not subject to the same regulation as phone companies and usually don't have to share their lines.
Meanwhile, efforts to crack open the cable networks had met with mixed success. In 2000, the city of Portland, Ore., tried to force AT&T (nyse: T - news - people ) to open up its cable lines as a condition of a merger with cable operator Tele-Communications. That effort was shot down by the 9th U.S. Circuit Court of Appeals, but the court left a door open for ISPs, ruling that cable transmissions had elements of both information and telecommunications services.
Not everyone agreed. In 2002, the U.S. Federal Communications Commission ruled that cable transmissions were strictly an information service, protecting operators from having to share their lines.
But Brand X figured the 9th Circuit decision was a chance to keep in the game. "We decided we ought to appeal this thing," says Pickrell. "If this is a telecom service, you should have common carrier rights."
The company sued the FCC, and the 9th Circuit came down on their side, ruling that only Congress and the Supreme Court could reverse its decision and reclassify cable as an information service. But the FCC appealed--and in March, the Supreme Court heard arguments from both sides.
A decision is expected to be issued in the next two weeks, and it's likely the court will make waves by ruling specifically on whether cable is an information or a telecommunication service.
If the court rules against the cable companies, agreeing with the 9th Circuit that cable contains elements of a telecommunications service, it could give new life to small ISPs like Brand X, allowing them access to cable networks and providing a new stream of revenue.
In turn, cable operators say such a decision would damage their business. Data services are increasingly important to their bottom line, and if they're forced to share lines and allow resellers access, they'd likely lose some customers.
Cable companies also say line-sharing would discourage them from investing in new networks, delaying deployment of broadband across the country.
Not everyone agrees that a pro-Brand X ruling would seriously damage the cable industry, since phone companies haven't been crippled by line-sharing. "I disagree with people who say it will be bad for cable," says Legg Mason's Blair. "Will it improve the negotiating position of a company like Earthlink? Absolutely. But over time, cable will be able to do as the Bells do."
If the Court rules that the 9th Circuit was wrong, the FCC was right, and cable is an information service, it would keep cable networks completely closed to outside ISPs, assuring that cable operators are able to continue to benefit from that revenue.
Phone companies would also benefit, since unregulated cable could easily lead to deregulated telephony. "Once [FCC Chairman] Kevin Martin gets a Republican majority, they're likely to make the same ruling for DSL," says Blair.
Either way, the Supreme Court decision won't be the end of this battle. There will be efforts in Congress and at the FCC this summer to specifically legislate broadband communications issues.
Meanwhile, Brand X Internet says it needs a favorable ruling if they're going to have any hope of surviving. "Frankly, we're pretty hosed either way," says Pickrell. "But at least it would give us some rights." |
