Is the Internet information, or is it telecommunications? Perhaps a strange question, but the answer is filled with such portent that the U.S. Supreme Court is deciding the answer. And the fallout has wide implications for cable system operators, Internet service providers, and even the telecom industry.
Brand-X Internet, a California-based ISP, wants cable Internet services, such as those provided by Comcast (NASDAQ:CMCSA), Cablevision (NYSE:CVC), and Time Warner (NYSE:TWX), to be classified as a telecommunications service similar to the way traditional telephone lines are defined. That would force cable operators to provide network access to ISPs like EarthLink (NASDAQ:ELNK) and other service providers. Obviously, the cable operators don't see it that way. They want their services to continue to be classified as information services, a designation they received from the Federal Communications Commission in 2002. If their viewpoint is upheld, they'll avoid the regulations the telecoms are currently subject to.
Interestingly, the telecoms support the cable operators.
As broadband services such as DSL proliferate, the "baby Bell" companies like SBC Communications (NYSE:SBC) and BellSouth (NYSE:BLS), though trailing cable operators in providing high-speed Internet access, want to be able to have the same lower restrictions the cable companies enjoy. Currently, and particularly when Internet access first appeared, the phone companies provided ISPs with discounted access rates for dial-up phone lines. Now as dial-up fades away, the ability to limit who can access the network grows in importance.
Consumer groups, understandably, want open access. They argue that the cable companies -- and the telcos -- simply want to limit competition and thus charge more for their services. The network owners contend that telephone lines are a standalone product -- that they provide telecommunication services only -- while cable lines carry a bundled service and need a separate definition.
Part of the problem arises from the fact that cable operators have been granted a government-sanctioned monopoly. Though they will have competition from various wireless services, such as satellite or electric utilities like Cinergy (NYSE:CIN) that are marketing "broadband over power lines," those services are not widespread now. Cable operators are charged simply with trying to avoid regulation.
Or, more precisely, different regulations. Cable operators are content to live by the FCC's regulatory definition of their services as informational. The 9th Circuit Court of Appeals, however, said that a Washington state court ruling predates the FCC decision and that regulation is subservient to the law anyway. That's how this matter ended up before the Supreme Court: Cable operators appealed the decision.
The ultimate decision, expected by June, will have important consequences. But those consequences may become irrelevant if satellites, power lines, or other means of transmission become more prevalent. It may be in those alternatives that investors seek out the best opportunities to receive their information services.
Fool contributor Rich Duprey remembers dialing up the Internet on a 14.4k modem and thinking it was way cool. He does not own any of the stocks mentioned in the article.
