AT&T case could decide fate of fast Net

With $110 billion of cable investments hanging in the balance, AT&T takes the stand in a highly anticipated federal appeals case.

6 min read
With $110 billion of cable investments hanging in the balance, AT&T will take the stand today in a highly anticipated federal appeals case that could determine the future of speed on the Internet.

The implications of this case in Portland, Oregon, stretch across a wide swath of the technology industry. At stake are issues ranging from the way consumers use high-speed Net technology to which companies control it, according to both sides of the battle.

High speed pipe dreams? A decision by the three-judge panel may fuel a firestorm of legal and technological delays that some say could tie up the introduction of the high-speed networks companies are fighting to offer to a Web-hungry public.

A Portland ruling last year--upheld in a federal court but later appealed by AT&T--touched off a national battle concerning whether cable operators should be forced to open their networks to Internet service providers so that those firms could offer their own high-speed, or broadband, data services.

On one side are cable firms like AT&T that have dedicated billions of dollars to their high-speed networks. On the other are Internet service providers like America Online that want access to those broadband pipes.

AT&T is leading the charge against "open access," as it is called, after investing some $110 billion in its cable strategy. It has acquired Tele-Communications Incorporated and is awaiting federal approval of the acquisition of MediaOne. Yet ISPs and their compatriots have fought the telecommunications giant every step of the way. Most recently, GTE filed an antitrust suit against AT&T, Comcast, and Excite@Home, alleging monopolistic practices by the cable operators.

"The philosophy of the Internet has been about multiple voices, multiple choices. Not dominance," said Mitchell Lazarus, a lawyer at Fletcher, Heald & Hildreth, an Arlington, Virginia-based firm specializing in telecommunications. "The more we see consolidation on the Internet, the more we see the disappearance of those qualities that make it magic."

Those on AT&T's side say the only way these multiple voices can be heard is through legitimate competition--which means that ISPs need to find their own broadband strategies.

"What's going to get you there? A marketplace that's working, or having thousands of localities decide their own rules?" asked Jon Englund, director of policy and government affairs for Excite@Home. "There's a lot of politics. There's a lot of rhetoric. But ultimately we believe people will recognize that the marketplace will best serve the interests of consumers."

A courthouse conundrum
AT&T, the nation's largest long distance phone company and soon to be the biggest cable operator, appealed the Portland ruling to the Ninth Circuit U.S. Court of Appeals.

The Ninth Circuit's traditionally liberal bent could be a boon for proponents of open cable access. But AT&T and its cable industry supporters maintain that local governments do not have the authority to impose what they call "forced access."

The fight for high-speed networks
Under proposed open-access laws, ISPs would be allowed to pay cable companies for equal access to their high-speed networks to market their own services.
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Internet service providers say that allowing ISPs access to cable networks would end what they call a cable monopoly. The companies also realize that as broadband services become mainstream, dial-up ISPs are going to need cable access to continue to grow their subscriber bases.   Cable operators and affiliated ISPs deny that their services prevent consumers from getting content provided by competitors. Cable firms have invested billions of dollars in network upgrades, and they it would be unfair for competing ISPs to piggyback on their investment would be unfair.

"It depends on whether the court believes cable operators have competition. That, to me, is going to be the critical issue," said John Mansell, a senior analyst for cable legal issues at Paul Kagan Associates. "If [the judges] believe that cable operators have significant competition today, and they will continue to have competition, then I think the cable operators are likely to win."

Lawyers for both sides will each be allotted 20 minutes to argue their cases, with the judges reserving time for questions. A simple 2-to-1 majority is needed for victory, though a ruling could be months in the making.

"I wouldn't expect to see a ruling before sometime mid-2000," Lazarus said.

Political power
Portland's decision set off a flurry of activity in other local governments as they considered similar action. Municipalities including Los Angeles, Denver, Dallas, San Francisco, and Dade County, Florida, did consider cable access requirements but have since decided not to impose any requirements on their regional cable providers.

However, many local governments may revisit cable access as part of AT&T's proposed purchase of cable operator MediaOne Group--potentially opening another round of lawsuits.

Some industry observers say the fight boils down to ISPs and phone companies using the government for their own business interests. "It just seems like one competitor trying to slow another competitor down," Mansell said.

Others say the ISPs fear for their future.

"For AOL, the market leader, it's scary because these cable lines are going to be 100 times faster [than its primary dial-up service]," said Jessica Melugin, a public policy fellow at the Pacific Research Institute, a San Francisco think tank. "Rather than making the same investments AT&T has, AOL instead has just decided to try to bully their way in the name of consumer protection."

Melugin believes that new regulations are unwarranted because there is enough competition between different technologies, such as digital subscriber lines (DSL) and satellite services.

"Consumers are not going to see many benefits. It would only slow down deployments if everyone can just jump onto AT&T's wires," Melugin said.

Regulatory wrangling
The issue has also pit local governments against the Federal Communications Commission, the nation's top telecommunications regulatory body. The FCC has consistently shied away from new rules for the cable companies, repeatedly saying it won't impose any new regulation that could stifle the growth of a young industry.

See related Newsmaker: William Kennard "Given the potential cost, and the risk that would be very great in terms of regulation, the commission chose not to regulate but to monitor," said Robert Pepper, chief of the FCC's office of plans and policy, at last week's ISPCon convention in San Jose, California.

Some critics say the FCC has shirked its responsibility in providing important national policy. But the commission has issued reports detailing its belief that the Internet should not be regulated, hammering home that point when it filed a "friend of the court" brief on behalf of AT&T for today's trial.

The Justice Department is also looking into the area of cable access as part of its review of AT&T's merger with MediaOne, sources say. The DOJ has contacted telephone companies and ISPs to solicit information about possible effects of the merger. Cable Internet access is one topic of these inquiries, along with the effects of allowing AT&T to expand its control of the cable market, sources say.

Round two
Although today's trial highlights the larger issue of whether to open cable networks to competition, a key fact is often forgotten in the hype: Even if Portland wins, the ruling won't uniformly open cable networks. Rather, it would affirm that local authorities have the legal jurisdiction to impose open access if they want to.

The cable industry, the FCC, and other open-access opponents fear a "patchwork quilt" of inconsistent local regulations if Portland wins--something FCC Chairman William Kennard has said would create "chaos."

Regardless of the outcome, legal experts expect the ruling to be appealed to the Supreme Court.

"The larger significance is that the FCC will have been thwarted in its attempt to leave the area unregulated [if Portland wins]," Lazarus said. "It puts some blood in the water for the lawyers…We're going to find the cities being more creative about this issue."

News.com's John Borland contributed to this report.