Battle of Portland

Baldwin Louie — Mon, 11 Oct 1999 15:00:00 -0700

AT&T's acquisition of cable giants TCI and Media One has triggered a fierce debate over who should have the right to provide consumer Internet access via cable lines.

On one side of the battle is America Online (dossier). With support from the Baby Bells, Internet service providers and consumer groups, AOL has been campaigning in cities and states across the country, demanding that cable companies open their networks to competition.

So far, ATT (T) has held them off, with a little help from other cable networks and federal regulators. But the fight will be won or lost in the courts, where Ma Cable is contesting a spate of rulings by local jurisdictions ordering AT&T to provide "open access."

The next round begins Nov. 3, when oral arguments in the case of AT&T vs. the City of Portland are scheduled to start in Portland Pioneer Courthouse. It may be the most important trial in the Internet Economy since the U.S. Department of Justice hauled Microsoft (MSFT) into court.

The legal issue at hand is whether the City of Portland, Ore. - or any other local government, for that matter - can impose conditions on companies that provide broadband Internet access via cable-television systems. In January, Portland officials ordered AT&T to make its cable pipes available to ISPs other than ExciteAtHome, in which AT&T has a large ownership stake. A federal judge in Portland upheld the city's right to mandate open access.

Last month, however, AT&T and its allies filed briefs with the 9th U.S. Circuit Court of Appeals, arguing that Portland should not be able to require open access because, among other reasons, only the Federal Communications Commission has the right to regulate broadband Internet access. Portland, supported by an assortment of Bells, ISPs and consumer groups, hit back, asserting that the city's local franchising power over cable derives not from federal law but from traditional authority over businesses that seek to occupy public rights-of-way.

Whichever way the appeals court rules, its decision in the Portland case will shape the future of the broadband industry for some time to come. What follows is a guide to the case: the stakes, the players, the legal arguments and the possible outcomes.

The Stakes

This case is bigger than the sum of its legal arguments. It's more than a fight over local vs. federal jurisdiction. It's more than a fight over the future of the Internet and cable modems - which can cut a 15-minute download to 1 second. In fact, this case has turned into a fight over the future of telecommunications services in America - because both sides expect phone, cable, video and Internet services to be digitized and bundled by the keepers of the broadband pipes that extend to our homes. The Bells joined the battle in fear that AT&T will be able to furnish local telephone service via cable modem without the same regulatory constraints the local phone companies face.

"There is so much money at stake in broadband that the cable open-access issue has swept in all of the large political players in communications," observes Kevin Werbach, a former FCC official and now managing editor of the Release 1.0 technology newsletter. "The combatants see this as an important issue not just because of what it says about cable open access, but for the future business model for broadband and the regulatory framework on the federal and local level."

Some key players in the case are surprised by the way it has unfolded. "Before AT&T bought TCI, this was really about data or Internet service," says AtHome founder Milo Medin. "The Bells don't care about data. If they did, they would have rolled out DSL years ago. But when AT&T bought TCI, people started looking at this as voice. That's where they get all their money. It's great to see David Kendall [attorney for the AOL-led OpenNet Coalition] writing legal briefs, but where was he a year ago?"

Kendall, who's also President Clinton's attorney, is not the only big name involved. There is now a gold-plated roster of former White House lawyers, former members of Congress, former political-party fundraisers and a who's who of high-powered lobbyists duking it out over cable access. So many millions are being spent that the New York Times recently called the dispute "the latest full-employment act for lawyers and lobbyists here and in many cities around the nation."

The Players

Arguing the case for AT&T in court next month will be David Carpenter, a telecommunications lawyer from Chicago-based Sidley & Austin (dossier), the firm that incorporated the Chicago Telephone Co. in 1881 and represented the company that would eventually become AT&T before, during and after the breakup.

Portland Deputy City Attorney Terence Thatcher and his hired counsel, Joseph Van Eaton (ETN), are expected to share their 20 minutes of argument time with a cadre of high-powered Washington attorneys who have been brought on to represent others with an interest in the case. Bruce Ennis, the appellate attorney who led the successful challenge to the Communications Decency Act before the Supreme Court, is representing the Oregon Internet Service Providers Association. Lloyd Cutler, who has served in five presidential administrations and was special counsel to President Carter in 1979 to 1980 and to President Clinton in 1994, is representing U S West. The two lawyers who won't be arguing in court but whom the masses might pay to see mudwrestle are Clinton lawyer Kendall and Brett M. Kavanaugh, a former aide to Independent Counsel Ken Starr, whose firm now represents GTE (GTK).

Lobbyists galore are also focused on the issue. The Bells' stable includes: Haley Barbour, former chairman of the Republican National Committee; Michael McCurry, former White House press secretary; and Susan Molinari, the former Republican congresswoman from Staten Island. The Bells don't necessarily want to increase regulation of cable so much as they want to eliminate restrictions on their own business to make it easier for them to offer high-speed Internet service to compete with AT&T. Lobbyists for AT&T and the cable industry include Vin Weber, the former Republican representative from Minnesota, and members of a lobbying firm founded by the late Dan Dutko, a Democratic fundraiser. When AT&T and the cable forces called an organizational meeting last December, more than 53 lobbyists showed up.

Former Al Gore top aide Gregory Simon, who's spearheading the anti-AT&T forces along with former Republican National Committee Chairman Richard Bond, says AT&T has gone so far as to hire firms simply to prevent them from working for the open-access side. Simon says he tried to hire Dutko, who had worked for AT&T's wireless division, but Dutko told him AT&T threatened to cut him off if he worked for AOL or the open-access forces.

The Case for AT&T at&t's brief questions "whether the city of Portland and each of the nation's 30,000 other local cable-television franchising authorities have jurisdiction to require cable systems to carry particular programming and to use particular transmission technologies."

Specifically, the brief argues that the city's open-access ordinance "would force a Portland cable system to act like a telephone company and to provide transmission facilities that would allow any Internet service provider to use that cable system to provide its own services."

AT&T says Congress, in the Communications Act, prohibited municipalities from taking such a measure because it would burden cable operators and subject them to conflicting requirements and "balkanize the nation's cable systems."

The FCC has filed a friend-of-the-court brief that, while it stops short of asking that the Portland decision be overturned, does request that the ruling be narrowed in scope, asserting that federal authorities have jurisdiction over such issues. In an unusual aside - one that doesn't necessarily help AT&T - the FCC questions the assumption by AT&T and Portland that cable broadband service is a "cable service" as defined by the Communications Act. "The commission has noted the existence of a serious dispute concerning the proper classification of cable-modem service," the aside says, "although it has not yet resolved the issue." Finally, the FCC suggests that, given the rapidly evolving technologies involved, "the court should proceed with caution when it resolves this case."

In its own friend-of-the-court brief, ExciteAtHome argues that "the municipal regulations at issue in this appeal present a serious threat to the development of cable-based Internet access services." Excite (ATHM) asserts that "cable operators ... have invested billions of dollars to upgrade their facilities to provide content-enriched Internet access to consumers at attractive prices. Throughout the United States, consumers are enjoying the benefits of these efforts, although cable Internet services still serve a very small share of the market. Companies that have declined to invest in new facilities or new services now seek government assistance to obtain forced access to cable facilities and free-ride on these investments."

A coalition of Internet users called Hands Off the Internet has filed a brief in support of AT&T. "There is an established federal policy concerning the regulation of broadband access, and that policy is: 'Hands Off the Internet,'" the brief reads. "Federal regulators carefully have considered the issue, and have determined that no regulation of broadband access is necessary or desirable."

The Case for Open Access

Attorneys for the city of Portland and Multnomah County argue that AT&T's definition of cable regulation "is fundamentally wrong" in its assertion that local jurisdiction is preempted by federal law. "Local franchising authority does not derive from federal law; it predates it. Local governments franchised cable television pursuant to their traditionally broad sovereign powers over businesses that sought permission to occupy public rights-of-way to earn private profit," the city and county argue in a brief filed with the appeals court.

The city and county recognize that federal law limits local authority in some respects - over cable rates, for instance - but they say their authority does extend to cable facilities and equipment requirements that relate to "channel capacity, system configuration and capacity ... headends and hubs ... and any other facilities or equipment requirement that is related to the establishment and operation of a cable system."

The Oregon Internet Service Providers, a nonprofit corporation representing more than 40 companies that offer Internet access and online services to Oregon residents, refutes AT&T's principal claims by arguing that the Portland ordinances do not involve "content-based" restrictions, do not constitute "compelled speech" because they do not compel AT&T to distribute any speech the company is unwilling to distribute, and do not burden the company's free-speech rights at all.

Attorneys for GTE and U S West argue that AT&T's appeal constitutes "a fundamentally flawed concept of federalism." The brief argues that "what the [Communications] Act does establish is that local franchising authorities retain power to address competitive questions relating to the delivery of cable service in the context of a cable franchise transfer. In the absence of a clear and unambiguous intent by Congress to preempt local law, the district court properly upheld Portland's action and avoided treading needlessly on state sovereignty."

Consumer advocates - the Citizens' Utility Board of Oregon, Consumer Action, Consumer Federation of America, the Utility Reform Network and Utility Consumers' Action Network - also filed a brief in support of Portland, arguing on behalf of "the interests of consumers in obtaining unfettered and affordable access to the diverse sources of information available through the Internet."

"Vigorous competition among providers of broadband access to the Internet benefits consumers in two ways," the group brief states. "Truly competitive markets yield lower prices, higher quality of service, and increased innovation. Competition also promotes the First Amendment's objective of a diverse flow of ideas and opinions. ... The Portland ordinance promotes both the First Amendment and economic interests of citizens and consumers."

The City of San Francisco, writing on behalf of a host of municipalities, as well as the U.S. Conference of Mayors, the National Association of Counties and the National League of Cities, asserts that these groups also have a vested interest in the outcome because they act as local cable-television franchising authorities.

The OpenNet Coalition, which represents 800 ISPs and supporters, states that the Portland rules "represent reasonable measures to ensure that openness and competition, which have fueled the astounding development of the Internet in the narrowband era, continue to exist in the market for broadband Internet access."

The OpenNet brief argues that "AT&T wants to force consumers seeking such access to purchase the services of the ISP controlled by AT&T, whether or not they would prefer another ISP. AT&T has fashioned a 'take-it-or-leave-it' proposition for consumers desiring high-speed, cable-modem access to the Internet, intended to foreclose competition and eliminate consumer choice. Under AT&T's monopoly model, every consumer who would prefer another ISP would have to pay for two ISP services in order to get the one that the consumer desired."

The Possible Outcomes

A ruling in favor of AT&T likely will scare off other municipalities trying to determine whether to follow Portland's lead. A ruling against AT&T may have the opposite effect, increasing the number of municipalities willing to take up the issue and impose conditions on the transfer of their cable franchises to AT&T. Either way, the decision is likely to be appealed to the Supreme Court.

Pull up a chair: It should be a more entertaining show than anything on cable.

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Battle of Portland