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Supreme Court Takes Cable Pole Case

WASHINGTON-The U.S. Supreme Court last week agreed to decide whether the Federal Communications Commission may set the rates that cable operators pay to attach their wires to telephone and utility poles-if those operators also transmit Internet traffic to subscribers.

The case- FCC and the National Cable Television Association v. Gulf Power Co.
-will likely determine whether cable operators must pay much steeper pole fees and pass on those increases to all customers. The cable industry is also concerned that higher fees could throttle down the pace of broadband upgrades.

Another downside for operators that are not protected by FCC rate rules would be the risk of paying higher rates to utility and phone companies that are also Internet-access competitors.

Although the court agreed to review the case, it won't hear oral arguments until the fall. A ruling is unlikely until late this year or early next year.

Justice Sandra Day O'Connor, a Republican swing vote on the high court, did not participate in the decision to take the case, possibly because of a financial conflict of interest. In 1999, O'Connor recused herself from a case involving AT&T Corp. because she owned AT&T stock.

The delay might provide an opportunity for cable and its utility opponents to reach a settlement. But lawyers for both sides said that was not a current topic of discussion.

"I think that's highly unlikely," said Paul Glist, a cable lawyer for Cole, Raywid & Braverman, the firm representing the NCTA. "The electric-utility industry has basically declared war on federal and state regulation of pole rents and this is just one front in that war."

Tom Steindler, a lawyer with McDermott, Will & Emory, who is representing Gulf Power, agreed: "I doubt it. I haven't heard of the idea of settlement floated by either party at this point. I am not sure there really are grounds here for a settlement."

Along with the Justice Department, the NCTA urged Supreme Court review of a decision by a panel of the U.S. Court of Appeals for the 11th Circuit. The appeals panel said cable operators must pay a market-based rate for pole attachments when they also transmit Internet traffic.

The FCC and NCTA insist that pole-fee regulations legally apply to any cable-system attachment.

"We believe that the Supreme Court will find that the 11th Circuit decision was contrary to the plain meaning of the pole-attachment statute and frustrates one of the central purposes of the 1996 Telecommunications Act-encouraging deployment of Internet and other advanced services," NCTA president Robert Sachs said in a statement.

The 11th Circuit court decided the FCC had authority to set rates if cable operators provide a cable service, such as video programming, but not if they provide Internet access-even if such service is bundled with video programming.

The court said cable-provided Internet access was not a cable service protected by FCC rate rules.

The lower court stayed the effect of its ruling pending Supreme Court review.

Steindler contended cable is a mature industry that no longer needs regulated pole fees, especially now that operators are moving beyond video programming to Internet access.

"This statute was about trying to give a subsidy for the cable industry when the cable industry was little, when it was in its infancy," Steindler said. "Now, cable has some of the biggest companies in the world. AOL Time Warner [Inc.] is not exactly a shrinking violet."

About 80 percent of the nation's poles are controlled by utility companies and the remaining 20 percent by phone companies, Steindler said. That undercuts cable's argument that its largest Internet-access competitor-the telcos-possesses a pole-access bottleneck.

Various utility companies urged the Supreme Court to let the lower-court decision stand, arguing the high court might prematurely inject itself into the debate over whether cable Internet access is a cable service.

If the court held that cable-modem service was a telecommunications service, MSOs might be subject to open-access requirements. The FCC is studying the regulatory classification of Internet access via cable, partly in response to clashing federal court decisions.

Utility companies have said cable operators lose the protection of regulated rates when they expand service beyond video programming. Steindler has said the standard of "any attachment" was so broad that cable operators could hang banner advertisements from poles and not have to pay market-based rates.

"I think that's silly, and they know it's silly," Glist said.

In urging the court to take the case, the Justice Department said it could be decided on the basis of whether the FCC has authority to regulate rates for any cable attachment to poles and conduits under utilities' control.

"That question can easily be answered without reference to whether Internet access is a cable service, a telecommunications service or some other form of service," the Justice Department said.

NCTA senior vice president of law and regulatory policy Daniel Brenner said the court can decide the case without having to decide whether cable Internet access is a cable service or something else.

"I think that it can," Brenner said. "This case is not about regulatory classification, which the [FCC] is addressing in a [notice of inquiry]."