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Feature: An Eye on the Issues
Legal and Regulatory Roundup
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Converging industries, digital transition and innovative technologies are driving the cable industry forward. The price of such dynamism, however, is often measured in billable hours. Herewith is a sampling of cases and regulatory issues that have impacted operators and vendors—and their lawyers—over the past year.

Don’t tell your cable modem subscribers, but the Internet is not a communications service. I mean, it’s a cable, but not telecom service. Make that a telecom....

Confused? Federal courts have issued similarly contradictory rulings in a series of high-stakes cases.

In Gulf Power Company v. the Federal Communications Commission, the 11th Circuit Court of Appeals took another course, deeming Internet service neither cable nor telecom.

Decided in April in favor of Pensacola Fla.-based Gulf Power, the case arose from the utility’s hiking pole rental rates from $5 to $38 per pole. Cablevision of Panama City received the big bill.

The case addressed the question of whether a utility company is bound by existing rate limits on cable lines that are used for both Internet and cable service. It turned in part on Gulf Power’s challenge to the Federal Communications Commission’s statutory authority, as determined by the 1996 Telecommunications Act.

Agreeing with Gulf Power, the Court of Appeals’ panel clipped the FCC’s power with the following syllogism:

"Congress... authorized the FCC to develop rent formulas for attachments providing cable and telecommunications services. Internet service does not meet the definition of either a cable service or a telecommunications service. Therefore, the 1996 Act does not authorize the FCC to regulate pole attachments for Internet service."

For various reasons, including its national importance and apparent conflict between circuits represented in the judicial panel, Gulf Power, the "pole attachment" case, is now headed toward the U.S. Supreme Court.

The Fourth Circuit Court of Appeals ruled otherwise in the more widely publicized "open access" case, AT&T Corp. v. City of Portland.

As a condition of transferring Tele-Communication Inc.’s cable franchises to AT&T, Portland required AT&T two years ago to provide nondiscriminatory access to other Internet service providers (ISPs).

AT&T filed suit and lost in U.S. District Court, but won last June at the Ninth Circuit Court of Appeals. The victory, however, was Pyrrhic, given the court’s rejection of AT&T’s contention that the high-speed Internet service, Excite, was a cable service.

Labeling Internet-over-cable a telecom service instead, the Ninth Circuit potentially exposed AT&T to national telecom policy.

Meanwhile, a federal judge in Virginia concluded that Henrico County (suburban Richmond) was likewise out of bounds in ordering MediaOne to provide open access. The judge reasoned, however, that the operator’s Road Runner service was a cable service, not a telecom one.

The Henrico case currently is making its way through the Fourth Circuit Court of Appeals.

Time for a definition

It was such legal ambiguity that led FCC Commissioner William Kennard to issue a formal notice of inquiry (NOI) into the open access issue in late September.

"Recent court opinions have categorized cable modem service in differing manners, which brings home the need for a national framework for treatment of such services," Kennard said in a statement.

Those who appreciate the FCC’s heretofore market-friendly approach to open access take some comfort in an FCC white paper released almost simultaneously with this NOI. The Office of Plans and Policy (OPP) study defends the current practice of not regulating the international Internet backbone.

Proponents of open access rules, however, criticize the FCC for not having moved sooner. Its relative inaction arguably has prompted the Federal Trade Commission (FTC) to enter this debate through its ruling on the AOL-Time Warner merger.

In the field, operators are moving ahead with attempts to resolve related technical issues. AT&T and Time Warner launched open access trials in, respectively, Denver and Columbus, Ohio.

Negotiating with ISPs may prove a greater challenge for operators than surmounting technical hurdles. But whether government-imposed or market-generated or a combination thereof, open access is looking like a foregone conclusion.

Vendors of highly integrated cable modem termination systems (CMTSs), for instance, assume this network requirement in their business models.

"The writing’s on the wall," Current Analysis Senior Analyst Ron Westfall says. "Service selection will inevitably be part of cable offerings."

Converging on MTEs

Another issue on the open access and converging technologies front involves the lucrative multiple dwelling unit (MDU), or multiple tenant environment (MTE) market, and the FCC’s cable inside wiring rules.

Paul Glist, a cable lawyer with Cole, Raywid & Braverman, says that while the FCC declined to force open this market, some two dozen states took that step, resulting in piecemeal national coverage.

The status quo shifted when wireless carriers petitioned for rooftop access to MTEs. In June 1999, the FCC opened a proceeding aimed at the barriers that impede wired (or cabled) and wireless operators, namely landlords who can limit which firms install equipment into buildings and apartments.

While noting that the real estate industry had made progress in adopting best practices and model agreements, the FCC took the following actions in October:

• Prohibited exclusive contracts between telecom providers and landlords of commercial buildings.
• Established means of reducing competitive carriers’ dependence upon incumbent local exchange carriers (ILECS).
• Determined that local exchange carriers (LECs) must afford competitors’ access to conduits and rights-of-way located in customers’ buildings.
• Extended the ban of restrictions on direct broadcast satellite (DBS) dishes to antennas receiving and transmitting data and other telecom.

The FCC also sought comment in a further notice of proposed rulemaking (NPRM) on such issues as its statutory authority regarding LECs, the commercial vs. residential MTE markets and definitions of "right-of-way."

Cable must-carry

National Cable Television Association (NCTA) Vice President of Communications David Beckwith describes the ongoing cable transition to a digital regime as a "bumpy road."

The related regulatory issues include digital must-carry, set-top retail distribution, encryption technologies and labeling of consumer electronic equipment.

Must-carry is the most contentious of these. In 1992, Congress mandated that cable systems transmit broadcasters’ existing analog signals. The cable industry objected, but lost its protracted fight in Turner Broadcasting System vs. FCC, decided 5-4 by the U.S. Supreme Court in March 1997.

As part of its early effort to spur the transition from analog to digital, Congress also called for broadcasters to return their analog spectrum to the government in 2007, provided 85 percent of households were receiving digital signals.

In April 1998, pursuant to the 1996 Telecommunications Act, the FCC granted new digital spectrum to incumbent broadcasters. A few months later, the FCC launched its effort to require cable operators to extend the obligation of must-carry to new digitally broadcast signals.

If you find this puzzling, you’re not alone.

"Rather than using the digital spectrum that (broadcasters) were given, they want to piggy back their competing technology onto the cable platform," cable lawyer Glist explains.

The broadcasters’ ability to prevail in the regulatory arena makes this policy no less "surreal," Glist says.

"There’s something really weird about allocating all that valuable over-the-air digital spectrum and then sort of throwing it away."

Must-carry, version 2

Must-carry has its DBS version, as well.

The passage of the Satellite Home Viewer Improvement Act (SHVIA), which granted local carriage rights to the DBS industry, also stipulated that if the FCC applies digital must-carry to cable, it should apply "comparable" requirements to DBS.

In June, the FCC proposed to implement SHVIA in markets, starting in 2002, where DBS retransmits at least one TV station. In late September, the DBS industry filed suit in federal district court, charging that SHVIA violated the First and Fifth Amendments as well as copyright laws.

Cable partisans may entertain pious hopes for a Turner reversal, but the DBS world sees that narrowly divided court decision as an opening to distinguish its own case.

In an October letter explaining its suit to Hill lawmakers, the Satellite Broadcasting and Communications Association (SBCA) said that the must-carry rules "go far beyond those applicable to cable."

American Enterprise Institute telecommunications Policy Scholar Tom Hazlett says that the SBCA may prevail. Yet he regards any type of must-carry as a "train wreck" and pushes the policy to its logical (if absurd) next step.

"We have this very strange policy for cable and satellite, but why not for the Internet?" Hazlett asks.

But with DBS must-carry in the courts and the original two-year-old proceeding stalled in the FCC, this policy train-wreck may still be in the station.

POD deadline met

The consumer electronics industry joined the broadcasters in the must-carry debate. But consumer electronics has other arrows in its legal quiver.

The 1996 Telecommunications Act, for instance, stipulated that cable subscribers be able to purchase their own equipment. Implementing the law, the FCC mandated that cable operators with deployed digital systems make removable security devices available to customers who want to buy set-tops at retail.

The deadline for producing what became known as point of deployment (POD) modules was July 1. A week later, a consortium of cable operators, as well as Scientific-Atlanta and Motorola’s Broadband Communications Sector, submitted its status report to the FCC.

The report summarized CableLabs’ success at developing specifications to enable manufacturers to build digital POD modules and products in line with those specs within the FCC-mandated deadline. The authors also reported their compliance, albeit reluctantly, with the FCC’s additional analog requirements.

Although CableLabs had published analog-separate security module specs, no manufacturer stepped up to the plate to build the analog module, and no retailer placed orders for a hybrid (analog/digital) set-top. The status report also notes that operators (with few exceptions) had "at the cost of scarce channel space" duplicated their scrambled analog programming on digital tiers, lest there be any disincentive to purchase digital boxes at retail.

But it appears that demand disincentives are less of an issue than the lack of incentives to supply digital hosts in the first place. "No retailers appear to have placed orders for digital set-top boxes," the authors of the report note.

Why no retail market?

In mid-September, the FCC ruled out one possible explanation. Against complaints that CableLabs’ licensing of the Dynamic Feedback Arrangement Scrambling Technique (DFAST) violated its rules, the FCC instead determined that some measure of anti-copying encryption technology could be located within the host device.

The FCC went further and initiated a review of its 1998 rules on navigation devices (set-tops, remote control units and so on). But while the Commission might puzzle over the behavior of retailers such as Circuit City, whose advocacy had helped drive this legislation, cable insiders speak clearly.

"The CEA [Consumer Electronics Association] is stuck with the same rules they put on us," NCTA’s Beckwith says. "They can either get that (cost plus 11 percent price regime) overturned, or try to extract revenues from us on a monthly basis."

Glist frames the issue in similar terms. Consumers are already getting digitized information from their personal computers (PCs), he says. "You can’t make it happen on the TV set if the economics are not lining up there."

On another CEA-NCTA dispute, a lack of consensus over the labeling of digital television (DTV) receivers led the FCC to issue a mid-September ruling, designating three respective tiers of "Digital Cable Ready" connectivity:

• Tier 1: Requiring a POD but carrying no 1394 interface connector.
• Tier 2: Including the 1394 connector and able to support advanced services through a digital set-top.
• Tier 3: Receiving advanced programming through direct connection.

The FCC says it would have preferred a "comprehensive market-driven solution" to this issue, and neither side appears completely satisfied.

Copyrights and patents

A final category of legal issues is the welter of intellectual property disputes that characterize any technologically vibrant industry.

The file-sharing programs such as Napster or MP3 that have created headaches for data network administrators and musical industry executives exemplify the latest threat. Yet this is a familiar song.

"With every single new technology, the copyright laws have been erected as a barrier to that technology by the copyright owners," Glist says. "And every single time, the technology forced a change in the copyright law."

Cable itself, Glist reminds us, was once a novel transmission technology facing similar roadblocks.

In other cases, competing new technologies are squaring off against each other.

Recent examples include SeaChange International’s copyright infringement suit against video-on-demand (VOD) equipment competitor nCUBE, or Gemstar’s various settlements against Scientific-Atlanta, Motorola, or TV Guide, which it ultimately acquired.

The SeaChange case is a cautionary tale of how a plaintiff can become a defendant when its intellectual property is at stake. (For more details, see "SeaChange Prevails in Court," November 2000).

Gemstar CEO Henry Yuen (who holds both a Ph.D. and a law degree) demonstrates the value that accrues to someone who assembles scores of patents on a strategic piece of real estate, in this case the electronic program guide (EPG).

While cable’s legal eagles are clear-sighted on many regulatory issues facing the industry, how this billionaire’s acquisition of TV Guide made it through FTC review unscathed remains something of a mystery.

Jonathan Tombes is deployment editor for Communications Technology. You may reach him at .

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