Holes in AT&T's cable plan?: Carrier's convergence strategy faces more local foes

No doubt about it: AT&T's strategy to converge voice, video and data over a national cable network has sprung a few leaks.

How big those leaks get will depend in part on a three-judge panel in the 9th Circuit Court of Appeals, which heard arguments last week in AT&T's challenge to the power of Portland and Multnomah County, Ore., to force the company to open its cable network to competing Internet providers. The judges may not hand down their decision until February.

Meanwhile, AT&T Broadband & Internet Services seems destined to face a growing number of rebellious local cable agencies across the U.S. that are willing to challenge AT&T's right to limit Internet service to Excite@Home.

Put St. Louis as well as Cambridge, Somerville and Weymouth, Mass., in the loss column for AT&T. Officials in those cities recently voted on measures requiring AT&T to let in unaffiliated ISPs as a condition of transferring their cable franchises to the carrier, or in St. Louis' case, of renewing the carrier's franchise.

On the win side, a review panel in King County, Wash., has advised the county council to to put off until next year consideration of open-access requirements for high-speed cable Internet. But there's no guarantee the council will follow the review panel's recommendations - which include continued monitoring of the market. Last week, Denver voters accepted a referendum to transfer their former TeleCommunications Inc. cable franchise to AT&T without imposing open-access conditions. The vote was unexpectedly lopsided - 64% in favor to 36% opposed - but the company spent $1.4 million to make its case with Denver voters.

Now AT&T faces the prospect of more local skirmishes, including possible open-access legislation in the Pennsylvania statehouse and another state referendum in Massachusetts in 2000.

"I suspect local officials smell blood in the water," said Robert Tanaka, an analyst with Communications Data Corp. "And AT&T's opponents have had success getting grassroots support among both regional ISPs and to a smaller extent, among consumers."

The debate is spreading to involve cable operators beyond AT&T and its intended acquisition of MediaOne. In late September, officials in Fairfax, Va., opted to impose an open-access condition on the transfer of its Media General cable franchise to Cox Communications. Cox is a participant in Excite@Home, the same Internet service AT&T gave exclusive rights of carriage in its own network.

And on Oct. 29, ISPs urged a public hearing run by the city council of Buffalo, N.Y., to require that Adelphia Communications open its network to ISPs other than its own Power Link service.

The Portland appeal appears to encompass unexpected issues. In questioning counsel for both sides last week, circuit court judges seemed to be considering whether cable Internet was a true cable service or a telecom service.

The distinction is important because federal law permits local jurisdiction over cable but leaves telecom to federal regulation. In the original lawsuit, both sides agreed that AT&T's Internet was a cable service.

But that did not dissuade the court last Monday. "It strikes me that everyone is trying to dance around this issue of whether we're talking about a telecommunications service," said Judge Edward Leavy.

After the hearing, Erik Sten, a Portland city commissioner, said the telecom line of reasoning would work in favor of opening AT&T's network. "Telephone companies like U S West went to court years ago and argued the same thing AT&T is arguing today - that they should control access to the Internet," he said. "They lost."

But AT&T maintained that the telecom model could keep its service intact. "We [would] be providing it as a brand new local telephone competitor trying to compete against the local telephone monopolies," said Mark Rosenblum, AT&T's vice president for law. "The national telecom policy is to foster this kind of new entry by competitors like us, and it's not subject to all those same regulations."