Brand X is Better

The Supreme Court released its decision in NCTA v. Brand X Internet Services today and -- less controversially and more positively about Justice Thomas -- I like it.

The case considered the appropriate classification of high speed Internet services provided by cable television franchises ("cable modem"). The relevant statutory options were: 1) "telecommunications service";¹ or (2) "information service"² (before 1996, called "enhanced service"³). The actual statutory definitions of the two terms are confusing;⁴ a simplified version is: telecommunications service providers convey solely what the customer provides, but information service providers either supply some content or process customer information in a meaningful way. The Court previously ruled the commingled provision of Internet and cable TV did not turn cable systems into common carriers. In several late-1990s adjudications, and by declaratory ruling in March 2002, the Federal Communications Commission classified cable modem offerings as information services, not telecommunications services. The Ninth Circuit twice⁵ disagreed⁶ -- relying on the first decision to reverse the FCC in its second -- and the Supreme Court granted Cert: to determine whether, when construing ambiguous statutes, courts trump agencies.

Thomas' 6-3 majority opinion conceded the statute was ambiguous--the 1996 Communications Act predated cable modem service. But he faulted the 9th Circuit for elevating stare decisis and its own ruling over Chevron deference to an expert agency's statutory construction:

A court’s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.

A contrary rule would produce anomalous results. It would mean that whether an agency’s interpretation of an ambiguous statute is entitled to Chevron deference would turn on the order in which the interpretations issue: If the court’s construction came first, its construction would prevail, whereas if the agency’s came first, the agency’s construction would command Chevron deference.

Thomas next considered the agency's determination that cable modem service is information, not telecommunication, service under the statute. This question turned on whether cable modem providers process or otherwise manipulate the transmissions when customers access third party web sites. Most Internet send/receive data between site and user is untouched by cable modem providers (Query: "Get me a picture of a naked woman. And the head of John the Baptist." Response: "Picture of naked women. 404 on that John thing."). But the FCC bet the farm on computer processing in relatively minor aspects of cable modem service, and Thomas said the agency's analysis was reasonable:

Respondents characterize the "information-service” offering of Internet access as consisting only of access to a cable company’s e-mail service, its Web page, and the ability it provides consumers to create a personal Web page. When a consumer goes beyond those offerings and accesses content provided by parties other than the cable company, respondents argue, the consumer uses “pure transmission” no less than a consumer who purchases phone service together with voice mail.

This argument, we believe, conflicts with the Commission’s understanding of the nature of cable modem service, an understanding we find to be reasonable. When an end user accesses a third-party’s Web site, the Commission concluded, he is equally using the information service provided by the cable company that offers him Internet access as when he accesses the company’s own Web site, its e-mail service, or his personal Web page. For example, as the Commission found below, part of the information service cable companies provide is access to DNS service. A user cannot reach a third-party’s Web site without DNS, which (among other things) matches the Web site address the end user types into his browser (or “clicks” on with his mouse) with the IP address of the Web page’s host server. It is at least reasonable to think of DNS as a “capability for … acquiring … retrieving, utilizing, or making available” Web site addresses and therefore part of the information service cable companies provide. Similarly, the Internet service provided by cable companies facilitates access to third-party Web pages by offering consumers the ability to store, or “cache,” popular content on local computer servers. . . . In other words, subscribers can reach third-party Web sites via "the World Wide Web, and browse their contents, [only] because their service provider offers the ‘capability for … acquiring, [storing] … retrieving [and] utilizing … information.’" Slip op. at 25-26 (citations omitted).

Put differently, Thomas affirmed the FCC's view that the "transmission component of cable modem service is sufficiently integrated with the finished service to make it reasonable to describe the two as a single, integrated offering." A stretch, perhaps, but not unreasonable.

For the vast majority neither law- nor telecom-geeks, what does Brand X mean? It preserves hands-off oversight of the Internet. Outside of law-enforcement wiretapping, subsidies for rural customers, and enabling safety functions such as "911" emergency dialing, the net, including VoIP, will remain substantially unregulated. Though Thomas' opinion stopped short, the ruling might be a road map for further deregulation: If carriers can bundle regulated services with non-trivial computer processing, they might escape meaningful FCC oversight.

Conclusion: For over 70 years, the Federal Communications Commission and myriad state replicas have had extensive oversight and control over telecom providers. Now the telephone's ubiquitous; quality's improved a bit. True, phones can't be "dialed," aren't nearly as heavy and are come in colors other than black. But, apart from mobile phones, land-line technology's improved only incrementally while phone rates surged. A engineer from the 1950s could still understand today's network--though be stunned by the death of the former monopoly AT&T. The pace of technological implementation, rates and AT&T's finances were, in large part, a product of protectionist regulation lasting well into the 1980s.⁷

Consider, in contrast, the PC. The revolution in personal computing began less than 30 years ago. The technology's improved almost beyond measure, while price drops made PCs ubiquitous. Then came the Internet, with additional capabilities each day. All unregulated.

Were there a "Federal Computer Commission," we'd still be using IBM "Peanuts." Potential competitors would need to prove entry wouldn't harm IBM. The Internet would be for high-volume companies, fenced-off from individuals, and voice verboten, preserving AT&T.

The Brand X decision isn't, of course, a Supreme Court directive on deregulation. But it properly defers to an expert agency's belated, but welcome, insight: communications competition works and consumers in a free market are faster -- and wiser -- than regulators.

Brand X keeps Internet (mostly) unregulated. The best in the Court's (awful) '04-'05 term.

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¹ 47 U.S.C. § 153(46) ("The term 'telecommunications service' means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.").

² 47 U.S.C. § 153(20) ("The term 'information service' means the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing.").

³ 47 C.F.R. § 64.702.

⁴ The statutory definition of both "telecommunications service" and the related phrase "common carrier," 47 U.S.C. § 153(10), use the defined term in the definition and thus are circular. See NARUC v. FCC, 533 F.2d 601 (D.C. Cir. 1976).

⁵ AT&T Corp. v. Portland, 216 F.3d 871 (9th Cir. 2000).

⁶ FCC v. Brand X Internet Services, 345 F.3d 1120 (9th Cir. 2003).

⁷ As telecom guru Ken Robinson says, "Our Lord was able to invent the world in six days – but only because He didn't have to contend with the installed base."