Third Quarter 2005

The FCC Classifies Wireline DSL Service as an Information Service

Holland & Knight Newsletter
Peter M. Connolly

On August 5, 2005, the Federal Communications Commission (FCC) adopted an order redefining wireline broadband (i.e., high speed) Internet access services, usually referred to as Digital Subscriber Line (DSL) service, as an “information service.” In the past the FCC had classified such services as “telecommunications services,” subject to “common carrier” obligations.  Among such obligations were the requirements that DSL providers, such as Verizon, had to offer that service separately from their Internet access service as a whole and make it available to other Internet service providers (ISPs) on a tariffed basis. An additional obligation of telecommunications carriers is the requirement of contributing to the federal universal telephone service fund (USF). On August 5, the FCC eliminated both requirements, with a transition period that is described below. 

The FCC believes that the changes made will enable wireline broadband providers to respond quickly to consumer demand for Internet services and that they will spur vigorous competition with broadband services provided over other platforms, including cable modem, wireless, satellite and soon, powerline networks. 

The action is also taken against the background of the “Brand X” Supreme Court decision of June 27, 2005, which upheld the FCC’s reclassification of cable modem services as information services. The FCC believes the public will be best served by competition among broadband service providers and not by requiring such service providers to provide their services to competitors at below cost rates. 

In order to protect the public interest during a transition period, the August 5 order requires that facilities-based wireline broadband ISPs must continue to provide their services on a grandfathered basis to unaffiliated ISPs for an additional one year following the effective date of the order, which has not yet occurred. The order also requires that DSL providers must continue to contribute to the USF-based on their current levels of reported revenues for DSL transmissions for a 270-day period following the effective date of the order or until the FCC adopts a new universal service “contribution” system, whichever occurs earlier. If the Commission is unable to complete new USF contribution rules within the 270-day period, the Commission may take whatever action is necessary to preserve existing universal service funding levels, including extending the 270-day period or expanding the USF contribution “base” to include information service providers.

The order also allows wireline DSL providers the ability to offer the “transmission component” of their Internet access service to affiliated or unaffiliated ISPs on a common carrier basis, a non-common carrier basis, or some combination of both if they choose. Some rural incumbent local exchange carriers (LECs) have indicated that their members may continue to offer broadband Internet access service on a common carrier basis.   

In a companion Notice of Proposed Rulemaking, the FCC seeks comment on whether it should develop a “framework” for broadband consumer protections. The FCC will consider whether it should impose new requirements on wireline broadband providers regarding disability access, “slamming” and privacy, for example. 

Large telephone companies, the cable television industry and DSL equipment manufacturers applauded the FCC’s decision to classify wireline broadband Internet services as information services, while consumer advocates have warned of the potential for diminishing competition and rising prices. Independent ISPs also opposed the decision, though they will have a year to plan for how they will negotiate new arrangements for broadband access with wireline broadband providers.

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