Justices Take Up Future of Net Access

Jim Pickrell’s business -- providing Internet service to about 350 residential, government and business customers -- may be doomed. But he’s not giving up without a fight.

While keeping two dozen servers running and stuffing billing statements into envelopes, the owner and only full-time employee of Brand X Internet Services in Santa Monica also is leading a legal attack on the cable TV industry and federal regulators.

The Brand X challenge has ended up in the U.S. Supreme Court, becoming what experts call one of the most important telecommunications cases before the high court in recent years.

Brand X and other Internet service providers, including giant EarthLink Inc., want access to cable TV companies’ high-speed connections to serve customers, the way they do over local phone lines.

The Internet companies say access rights are crucial to their survival. Customers are increasingly abandoning slow dial-up connections in favor of high-speed service, which in a majority of cases is sold by cable operators.

The ISPs also contend that a loss to the cable industry would clear the way for approval of a stalled Federal Communications Commission rule giving phone carriers the same right to deny access to Internet service providers. That would leave customers with only cable and phone monopolies to provide Internet service.

The Brand X case reaches even further, experts say. A court decision could affect how customers get other key services, especially voice and video, over their high-speed connections, as well as what competition they’ll have and what prices they’ll pay.

“I don’t know of any telecom case that is so wide-ranging as this one,” said Jeff Pulver of Pulver.com Inc.

Pulver is a leading advocate of using broadband connections for phone calls -- an increasingly popular service that phone and cable companies could monopolize should Brand X lose, many experts say.

Cable companies say their networks have never been regulated as closely as phone lines -- which are treated by government as an essential service -- and that they should not be forced to follow rules set up for telephone carriers.

“We don’t offer pure transmission,” said Daniel L. Brenner, senior vice president for law at the National Cable & Telecommunications Assn., the industry’s primary trade group. “Our lines are dedicated, and we don’t sell excess capacity.”

Oral arguments are scheduled for March 29. A decision is likely this summer.

For Pickrell, the court case is a make-or-break situation. “If we lose this case, we’re out of business,” he said.

He and partners started the company in his living room in 1994 when everyone used standard telephone lines to go online. It was one of thousands of ISPs popping up to help dial-up customers get on the Internet.

At the time, they had no trouble using telephone lines to connect to the Internet. The 1996 Telecom Act required phone companies to provide all ISPs with access to their lines at the same wholesale rates they would charge their own business units.

By 2000, Brand X had an office on Westwood Avenue, five full-time employees and about 1,500 customers, including some Santa Monica city agencies and some offices of the Archdiocese of Los Angeles.

“Originally, the Internet community was just a bunch of little companies fighting it out with each other,” Pickrell said.

That changed as cable firms introduced high-speed Internet service and phone companies followed with their own broadband service known as digital subscriber lines, or DSL.

From the beginning, cable companies refused to let independent ISPs buy cable-modem service at wholesale rates to combine with Internet tools, like e-mail and Web browsing.

Cable firms offered that service, too, and if customers wanted to use Brand X or EarthLink, they would have to pay extra. Few customers did.

Meantime, the large regional phone companies, like SBC Communications Inc., were winning regulatory and court approval giving them more control over their networks.

In recent years, some of them started increasing wholesale rates for ISPs -- Pickrell said SBC charges him wholesale rates for DSL that are almost as much as the retail prices that residents pay.

With the bubble bursting in the highflying telecom and tech markets in 2001, Brand X began scaling back. “We had to figure out what to do,” Pickrell said.

They tried to get cities, which grant cable franchises, to require cable firms to sell access to ISPs, but the U.S. 9th Circuit Court of Appeals squelched that in a ruling involving Portland, Ore.

But in ruling against ISPs, the court also said that cable-modem service could be split into the transmission of the signal and the provision of data running over the wires.

That was key because transmission is a telecom service, a highly regulated area that bars network owners from discriminating against other companies that want to use their lines. Data is an information service, which is largely unregulated.

Internet companies saw an opportunity to mount another challenge. “It seemed someone ought to run with that ruling,” Pickrell said.

But the Federal Communications Commission acted first, attempting to nullify the appeals court decision with a ruling that cable-modem technology was an information service and that transmission was part of it.

Brand X sued the agency. The 9th Circuit, relying on its Portland decision rather than deferring to FCC actions, decided that the two parts of cable-modem service could be split. The court said the Supreme Court and Congress, but not an agency, could overturn a court’s interpretation of the law.

The cable industry and the FCC appealed to the Supreme Court, and the telephone industry joined them.

Though phone companies do not often side with the cable industry, they wanted to knock ISPs off their DSL lines, too, and the FCC has said it wants to treat them the same as cable operators. The commission has put a proposed DSL ruling on hold until the high court decides the Brand X case.

The Supreme Court could decide simply that the 9th Circuit erred by not deferring to the FCC’s expertise, but lawyers on both sides expect the court to decide on the merits.

Both sides say a court decision also would make it very difficult for any company other than the phone and cable firms to offer voice and video services over broadband lines.

That could be especially hard for the small pioneers of voice over Internet protocol technology, which transmits voice in packets, like e-mail, over broadband lines.

“If cable modem is an information service, then I think it’s almost certain that VOIP would also be an information service,” said Alexander Netchvolodoff, vice president for public policy for cable company Cox Communications Inc.

A Supreme Court decision also would test former FCC Chairman Michael K. Powell’s broadband policies. He has espoused affordable broadband service and the ability for consumers to use it any way they choose.

But his policies have set up two local monopolies -- cable and phone -- to deliver high-speed Internet access. Designating them as information services, critics say, would allow the two industries to discriminate against other services, such as voice and video, that other competitors offer over broadband connections.

Cable and phone companies argue that economic factors would make such discrimination unrealistic. They need other network owners, for instance, to complete calls and transmit data and other information.

But early this month, the FCC fined a small rural phone company $15,000 for blocking VOIP calls made by customers of Vonage Holdings Corp. Last week, Vonage said a cable firm was doing likewise. The FCC is investigating.

The agency may be on thin ice, however. It relies on general powers to oversee those offering information services. Critics contend it has no such authority.

Ironically, as much as the cable firms want their broadband unregulated, they also must rely on the regulations under the telecom services category.

To complete VOIP phone calls, they need interconnection agreements with phone companies, and the rules forcing phone carriers to enter such contracts fall under telecom services.

“We’ve had to arbitrate every single interconnection agreement,” Netchvolodoff said. “The phone companies do not make anything easy.”