Brand X and the Wireline Broadband Report and Order: The Beginning of the End of the Distinction Between Title I and Title II Services

I. INTRODUCTION II. EVOLUTION OF THE BOUNDARIES BETWEEN REGULATED AND UNREGULATED SERVICES A. Basic Versus Enhanced Services: The Computer Inquiry Line of Decisions B. The Telecommunications Act of 1996 III. INITIAL DIVERGENT TREATMENT OF BROADBAND INTERNET ACCESS SERVICES A. The Stevens Report B. The Advanced Services Memorandum Opinion and Order C. The Declaratory Ruling on Cable Modem Service IV. BRAND X AND IMMEDIATE AFTERMATH A. The Decisions 1. Court of Appeals Decision 2. Supreme Court Decision B. The Wireline Broadband Report and Order. C. The Ensign Bill V. CONCLUSION I. INTRODUCTION At the time of writing this Article in early fall 2005, the ink is barely dry on the Supreme Court's decision in Brand X, in which the Court upheld a 2002 ruling by the Federal Communications Commission ("FCC" or "Commission") that cable modem service is properly classified as an information service and does not involve a separate offering of telecommunications service. (1) However, both houses of Congress and the FCC have already reacted in the form of proposed legislation (2) and a Report and Order, (3) respectively, in an effort to expand the deregulatory approach taken by the Commission in its Declaratory Ruling on cable modem service, (4) which the Supreme Court upheld. (5) This Article will examine the development of the FCC's distinction between common carrier services regulated pursuant to Title II of the Communications Act of 1934, as amended ("Act"), and those regulated--if at all--pursuant to the Commission's ancillary jurisdiction under Title I of the Act. (6) This Article will trace the evolution of this distinction from the Computer Inquiry (7) line of decisions through the Stevens Report, (8) the Telecommunications Act of 1996, (9) Brand X, (10) and the recent Wireline Broadband Report and Order. (11) This Article will conclude that the Wireline Broadband Report and Order may be vulnerable to reversal on appeal and will suggest some of the policy considerations that the Commission may wish to consider if this order is remanded. II. EVOLUTION OF THE BOUNDARIES BETWEEN REGULATED AND UNREGULATED SERVICES A. Basic Versus Enhanced Services: The Computer Inquiry Line of Decisions Nearly forty years ago, the FCC first faced the issue of whether and how to regulate the provision of data processing services by common carriers. The Commission recognized, even at that time, that applying traditional economic regulation to data processing services might stifle the growth of the then-nascent computer industry. (12) In fact, as early as 1970, the FCC found in the Computer I proceeding that "the offering of data processing services is essentially competitive and that, except to the limited extent hereinafter set forth, there is no public interest requirement for regulation ... of such activities." (13) At the same time, the Commission also recognized that, given the growing interdependence of telecommunications and data processing, control by regulated common carriers over bottleneck facilities could give such entities an opportunity to cross-subsidize their services, thereby gaining an unfair advantage in the data processing industry. (14) As a result of its concerns regarding cross-subsidy and unfair competition, the FCC undertook in Computer I what would today--notwithstanding the Commission's statement in the above paragraph--hardly be considered "limited" regulation of data-processing activities by common carriers. Under the rules adopted in Computer I, the FCC elected to forbear from regulating data-processing services and to allow common carriers (15) to provide such services through affiliates. (16) However, such affiliates were subject to rigid structural separation requirements and were strictly prohibited from providing services to affiliated common carriers, even on an arm's-length basis. …