Brand-X and the future of Broadband

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The Supreme Court is hearing the Brand-X case and this all important case is going to a large extent decide the future of Broadband competition. Brand X case puts three major associations against the consumers and independent ISPs. FCC, National Cable & Telecommunications Association, ( the mouth piece for the likes of Comcast Corp. and Time Warner Inc) want to limit access to the cable networks to independent ISPs, while folks like Earthlink say that they should be allowed to sell their broadband services over cable networks.

As context, the problems started back in 1998 when AT&T bought Tele-Communications Inc. (TCI). Portland, Oregon officials refused to transfer the franchise to AT&T unless it allowed independent ISPs to offer service on the T network. AT&T said no, but lost the case in US district court. Lost again, but Ma Bell turned to the 9th U.S. Circuit Court of Appeals. AT&T won this time, because a three judge panel decided that Portland was trying to regulate T network as a telecommunications service. Things got really murky and then in March 2002 FCC said that cable modem service was an Interstate information service, and thus not covered by open access rules. As a bonus, it also said the cable guys don’t have to pay franchise fees to cities on modem revenues. Cities raised holy hell and say that loss of revenue was costing them $500 million a year.

More paper work, more appeals and one of them was from a tiny Santa Monica ISP, Brand X Internet Services. The 9th circuit courts that forced cable guys to open access to their networks heard the case, and in a 2-1 decision that the full 9th Circuit refused to reconsider the matter and send it back to FCC. Justice Department on behalf of FCC and the NCTA went to US High Court to appeal the decision. Given the national importance of the case, it got kicked up to the Supreme Court.

The independents got to make their case today in the court. Reuters reports that cable guys came under severe questioning from the judges today.

Cable companies have put together “two ingredients that form a separate product,” said Time Warner general counsel Paul Cappuccio, arguing that the law provided for exempting such an enhanced service from traditional regulations. But Justice Antonin Scalia appeared unconvinced. “It doesn’t explain to my satisfaction why it’s a different product,” Scalia said before a packed courtroom that included Democratic FCC Commissioner Jonathan Adelstein and other agency officials.

Jeff Pulver says, “Although the Brand X decision affects ISPs most directly, the Supreme Court’s opinion might have some incidental effect on whether, and to what extent, unaffiliated Internet service providers are entitled to use the cable companies’ networks to reach their subscribers.” The stakes are clearly high. ” If the FCC wins, and cable modems and DSL are classified as information services, the industry would be reduced to a crummy duopoly,” said Mark N. Cooper, director of research for the Consumer Federation of America told Newsday.

“This case, National Cable and Telecommunications Association vs. Brand X Internet Services and FCC vs. Brand X Internet Services, will decide whether consumers will be able to choose their broadband provider over cable and ultimately, over DSL as well. More broadly, it will determine whether a wide variety of innovative voice, video and data services become available, or whether Internet users will be limited to only those services their cable company provides,” Earthlink said in a statement.

Washington Post report indicates that things could be getting a little hot in days to come. If it loses, there is a risk that the investment in cable networks could slow. I don’t buy that argument because cable’s real competitors are Bell companies. If cable guys lose, they can get the heat turned on phone operators who are using FCC and legislation to lock out rivals. A decision on the case is expected by June 2005.

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This is just silly.

Given the network architectures, the only thing a different ISP gives you is a different email server. The ISPs aren’t going to build a new middle network between the last mile and the internet. They aren’t adding any more bandwidth and the majority of the cost is in the network, not in the Internet gateway or in the servers required to run an ISP.

The ISPs wouldn’t be adding any value.

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