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Cable open access fight far from over

A landmark federal court ruling over cable open access could seriously affect the high-speed Net industry, although the final outcome is far from clear, experts say.

A landmark federal court ruling over cable open access could have wide-ranging ramifications in the high-speed Internet industry--although the final outcome of the fight is far from clear, legal experts and financial analysts said.

Friday's decision allowing Oregon officials to require AT&T to open its cable networks to competition shook Wall Street, sending Excite@Home's stock plummeting and sharply boosting share prices for America Online and MindSpring Enterprises, which are fighting for broadband access.

But attorneys and analysts said an appeal or the potential for new federal action was likely to mute the decision's long-term effects.

The decision is the result of a lawsuit between AT&T and the local governments of Portland, Oregon, and surrounding Multnomah County over the transfer of cable licenses to AT&T from Tele-Communications Incorporated, following the long distance giant's purchase of the cable operator.

Net access providers such as AOL and MindSpring want to offer high-speed cable modem services to their growing subscriber bases. But cable TV networks, which offer Net access via proprietary services such as Excite@Home and Road Runner, are closed to unaffiliated ISPs.

Friday's decision would allow Portland to force AT&T to sell access to its network to companies like AOL, at similar terms as what it gives its Excite@Home service.

Some competitors have wasted no time in trying to use the court decision to their advantage.

Internet Ventures (IVI), an ISP which also operates a small cable modem service called PerkiNet, filed documents today with AT&T seeking information on "leased access" to its cable networks in Oregon and Washington state.

While other ISPs have pushed for new nationwide open access laws, IVI has sought leased access for months under existing cable statutes. The company recently petitioned federal regulators for a ruling on whether it has a right to leased access--the ability to pay for access to cable networks on a system-by-system basis. The law was originally intended for independent cable television video programmers.

The court decision, coupled with several recent cable mergers, is also expected to give other cities--including Los Angeles, San Francisco, Seattle, and Oakland, California, among others--an opportunity to revisit open access requirements.

"It's certainly not the ending statement, it's just a step in the road," Bruce Leichtman, a cable industry analyst for market research firm The Yankee Group, said of the decision.

Observers expect AT&T to file for a stay of judgment, which would maintain the status quo and give the company time to consider an appeal. An AT&T spokeswoman today said the company has not yet filed for a stay or an appeal, but executives have said that they will "continue to pursue our legal case."

Many legal analysts believe the Portland court case may not withstand the expected appeal, however, effectively dousing the flames of the renewed fight for cable open access in other municipalities.

The prospect of varying cable regulations across the nation may also force the Federal Communications Commission, which to date has declined to rule on the controversial issue, to establish a unified federal policy governing open access, analysts said.

In research reports released today, Merrill Lynch analyst Henry Blodget said he believes the Oregon decision will be reversed and Credit Suisse First Boston analyst Kristen Koh wrote, "We do not believe this ruling will survive a likely appeal."

"We also believe the FCC will get involved and support federal preemption of local rights, with regulatory forbearance the probably outcome," Bear Stearns analyst Scott Ehrens wrote in a report today.

On shaky legal ground?
Attorneys familiar with the issue point to several potential weak points in the decision.

"It's the right result. But it's a novel and rather fragile basis for that result," said Mitchell Lazarus, a partner with Fletcher, Heald, and Hildreth in Washington, who has represented competitors to AT&T.

The court said Portland had the ability not just to block the cable license transfer from TCI to AT&T, but to apply virtually any condition on its approval, Lazarus noted.

"Essentially that would give the city the authority to require almost anything from a cable company as long as it's not explicitly prohibited elsewhere," Lazarus said. "I think that gives the city more power than Congress intended."

Additionally, neither the FCC nor the court system has ever explicitly ruled on whether an ISP like Excite@Home is legally a "cable service," attorneys say.

The Portland court's ruling is based on this assumption, Lazarus noted. But if an appeals court decides to settle the question, and rules that Internet service is something very different from traditional cable programming, it would undermine the original federal court's ruling.

AT&T itself has long argued At the crossroads that Internet service over cable lines is a cable service, thus avoiding the strict regulation applied to the Baby Bells and their telephone network-based systems. The company's own definition will make it hard for an appeals court to overturn the Portland decision, said Joe Van Eaton, a partner at Miller & Van Eaton, one of the city's representatives.

Van Eaton also predicted that the court would be unlikely to approve any AT&T request that the decision be temporarily put on hold during an appeals process. The company would have to show it could be "irreparably" harmed by opening its networks to competitors, Van Eaton noted.

Since the company would be charging a fee for the access--and could close its networks again if it won on appeal--irreversible harm would be hard to show, he said.

Is the ball in the FCC's court?
Even if the decision does get tied up in appeals--a process that could take a year or more--the federal government may step in to establish national rules on the issue, analysts said.

Earlier this year, the FCC declined to rule on open access, indicating it was too early in the development of broadband technologies to intervene. But the lack of federal direction has left aggressive local governments like Portland with leeway to establish pro-competition laws as they see fit.

Oakland and Seattle officials passed "me too" ordinances--seeking similar open access laws if another municipality successfully argues for it--and Seattle and Los Angeles are currently conducting studies to examine the potential impacts of imposing open access requirements.

"It's a little ludicrous, one would think there has to be a national policy," said Yankee Group's Leichtman. "[The FCC is] somewhat being forced to make a decision, but it's still so early."

AT&T has said that requiring open access on a national level would stifle investment in broadband networks by limiting the incentive to pour millions of dollars into upgrading systems for interactive services.