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Analysts Downplay Brand X Impact

Reflecting the views of the cable industry, Sanford C. Bernstein analyst Craig Moffett predicts there is little chance operators will be forced to open their high-speed networks to rival Internet carriers even if the industry loses the widely watched "Brand X" Supreme Court case. A decision is due by the end of June.

"We believe the risks to cable in the Brand X case have been significantly overstated," Moffet said.

The case is named for an ISP suing to overturn an FCC rule allowing cable operators to reserve their high-speed platform for in-house service providers.

At issue is whether the FCC was right to declare cable modem service an unregulated “interstate information service" exempt from open access requirements, or whether it is bound by a lower court ruling that it is a “telecommunications service” subject to telephone-style access regulations that could ultimately require operators let third-party ISPS sell their service over cable wires.

The FCC argues that exempting cable will help speed the broadband rollout, which the government has said it has a substantial interest in advancing.

Moffet sees little chance that operators will be forced to carry outside ISPs immediately, even if cable and the FCC lose the case and are forced to view cable broadband as a "telecommunications service."

First, the FCC would be required to open a lengthy proceeding to determine how telecommunications service rules would be applied to cable in the first place.

Analysts at Merrill Lynch agrees, saying in their analysis that "if the Supreme Court rules in favor of Brand X, and against the FCC and cablecos, we believe that immediate impacts will be minor."

After the review is completed, Moffett sees three possible results, only one of which would be bad for cable, and predicts it's the least likely for the FCC to choose.

The bad-for-cable approach would have the FCC embarking on a regime to set wholesale transport rates that ISPs would pay for access to cable lines. But wholesale rate-setting has a "disastrous history" in the telephone business and the FCC is unlikely to impose it on cable, he says.

Instead, the FCC is likely either to exercise its right to "forbear" against imposing new regulations, or to leave wholesale price-setting to private negotiations. Both options would preserve the status quo.

Of course if the Supreme Court upholds current FCC practice, cable companies could continue operating free of any forced carriage mandate.