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Court Agrees With FCC On DSL Deregulation

Washington – A federal appeals court on Tuesday refused to overturn the Federal Communications Commission’s 2005 ruling to deregulate high-speed Internet access service that phone companies offer to consumers.

The ruling, handed down by a three-judge panel of the U.S. Court of Appeals for the 3rd Circuit in Philadelphia, affirmed the regulatory status quo in which neither cable nor phone companies need to share their networks with companies that would also like to provide broadband access.

“I am pleased that the court affirmed the FCC’s decision to remove outdated, decades-old regulations from today’s broadband services,” said FCC chairman Kevin Martin, who inherited a deregulatory broadband policy from his immediate predecessor, Michael Powell.

In March 2002, the FCC under Powell issued a ruling declaring that cable modem service is an information service free of network sharing obligations that applied to monopoly phone networks for decades. In June 2005, the Supreme Court backed the FCC’s cable modem decision.

Three months later, the FCC under Martin, buoyed by the outcome in the Supreme Court, issued a ruling that phone company provision of digital subscriber service (DSL) was also an information service. The FCC ruling was appealed primarily by Time Warner Telecom, EarthLink, and the trade association COMPTEL.

“The court has upheld Chairman Martin’s determination to put consumers in charge of the broadband market,” said Walter McCormick, president of the United States Telecom Association, a trade group that includes AT&T and Verizon. “This was the right decision for Americans and will ensure that these pro-consumer policies remain in place.”

The case can be appealed to the full 3rd Circuit or directly to the U.S. Supreme Court.

“We believe today’s decision is good news for the Bells and other incumbent local telcos as it reduces their regulatory overhang and preserves their increasing broadband parity with cable providers,” said Stifel Nicolaus analysts Blair Levin, David Kaut, and Rebecca Arbogast in a client note.

In addition to not needing to share their networks with rivals, cable modem and DSL providers are not required by the FCC to contribute funds to Universal Service, a $7 billion program that subsidizes local phone service in rural America. A federal law that expires Nov. 1 if not renewed bars state and local governments from taxing broadband access.