WASHINGTON — A federal appeals court on Monday struck down the Federal Communications Commission's rules allowing cable TV operators to bar rivals from offering high-speed Internet access on their networks.
The decision by the U.S. 9th Circuit Court of Appeals in San Francisco could spur new competition in the broadband market and subject the cable industry to tighter regulation.
The appeals court ordered the FCC to treat cable Internet access similarly to the way it deals with broadband on telephone networks. Phone companies must allow competing Internet service providers -- such as EarthLink Inc., AOL Time Warner Inc.'s America Online and Microsoft Corp. -- to sell high-speed access over their systems.
The ruling, which the FCC said it would appeal, represents another legal setback for the agency, which in the last two years has seen media ownership rules and some cable TV regulations overturned.
FCC Chairman Michael K. Powell said the latest ruling threw "a monkey wrench into the FCC's efforts to develop a vitally important national broadband policy."
Powell has said that giving cable companies the exclusive right to sell high-speed access over their lines encouraged investment in new technologies.
But EarthLink said the decision would lower broadband prices and spur innovation.
"This is a big victory for consumers," said David Baker, vice president for legal and regulatory affairs at EarthLink.
"The practical result of this decision," he said, "is that cable broadband will be required to offer us and any other ISP the ability to offer broadband to their customers."
EarthLink was a plaintiff in the case along with the California Public Utilities Commission and several consumer groups.
"Giving consumers a choice of Internet service providers would open the door to more competition and let people choose services with better privacy and less spam," said Chris Murray, counsel for Consumers Union.
Monday's decision comes more than a year after the FCC permanently exempted cable companies from a federal law that requires telecommunications carriers to open their networks to rivals. Instead, the agency classified cable broadband as an unregulated "information service," leaving cable operators free to close their networks to competitors.
But a three-judge panel of the court "found that the transmission element of cable broadband service constitutes telecommunications service."
Cable operators have poured billions into upgrading their networks for high-speed Internet access and have leapfrogged phone companies to dominate the broadband market since it emerged in the late 1990s. Broadband boasts Internet access speeds as much as 30 times faster than dial-up modems.
Cable companies serve about two-thirds of the 20 million households with high-speed Internet access. The shift to broadband and cable's dominance have slashed the ranks of independent ISPs. There are about 1,500 companies selling Internet access, compared with more than 5,000 in 2000.
FCC lawyers could not be reached Monday to determine whether they would appeal the case to the U.S. Supreme Court or seek a rehearing before a larger panel in the 9th Circuit. However, legal experts said the FCC probably would seek a stay to prevent the decision from taking effect pending an appeal.
Given that, cable operators said it could be an additional two years before rules stemming from the Telecommunications Act of 1996 were sorted out.
Times staff writer James S. Granelli in Orange County contributed to this report.