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AT&T Files Suit Over Access To @Home Net

1/24/1999 7:00 PM Eastern

AT&T Corp. shoved back last week, filing a lawsuit
against Portland, Ore., that challenged the franchiser's authority to demand that the
company open the @Home Network cable-modem platform that it will inherit from
Tele-Communications Inc. to Internet competitors.

The suit came shortly after Los Angeles joined the debate
by tentatively approving the TCI-AT&T transfer. Though not as direct a demand as that
in the Portland action, Los Angeles's Board of Information Technology unanimously
approved an agreement that calls for TCI-AT&T to "comply with all applicable and
lawful requirements with respect to nondiscriminatory access" to the cable-modem
platform.

Further, the board opened the door to expanding the dispute
to other MSOs: It approved conducting a feasibility study of opening the modem platforms
of other Los Angeles operators when their franchises expire this year.

AT&T officials at the Los Angeles meeting said the
company does not interpret the board's resolution as requiring open access.

In Portland, AT&T issued a statement labeling its
lawsuit as "the only alternative" to several failed attempts to negotiate a
settlement with area regulators, including a bid by Sen. Ron Wyden (D-Ore.) to broker an
11th-hour deal.

Cable and municipal attorneys observing the matter said the
suit could play an important role in determining what other localities will do on the
matter.

Filed in the U.S. District Court, the action seeks a
straightforward declaratory judgment on whether Portland and Multnomah County can make
Internet-service-provider access a condition for transferring their TCI franchises to
AT&T.

The cities want access granted under federal commercial
leased-access rules.

"We're presenting [the lawsuit] as cleanly as
possible," said Scott Morris, AT&T's vice president of external affairs.
"This is purely a legal issue, involving whether the cities have the authority under
the Cable Act to impose common-carrier regulations on a cable operator."

AT&T supported its claim with a laundry list of
allegations on how area regulators were violating the 1934 Communications Act, including a
provision that it said prohibits local franchising authorities from requiring a specific
service or facility in exchange for granting an initial franchise, a renewal or a
transfer.

It also alleged that the cities were violating the part of
the act that prevents LFAs from "establish[ing] requirements for video programming
and other information services," and from "condition[ing] a cable system's
technology."

In addition, AT&T took issue with requiring ISP access
under the leased-access rules, which it claimed were designed "to promote competition
in the delivery of diverse sources of video programming," and which "does not
include Internet access."

In its most familiar argument, AT&T said the two venues
exceeded their authority by going beyond a review of the company's legal, technical
and financial ability to perform under the franchise, and by trying to impose
common-carrier requirements on a cable operator.

"Requiring that the plant be opened up for use by
everybody is the essence of being a common carrier," Morris said.

Portland and Multnomah County have 20 days to file reply
comments.

Meanwhile, Portland City Councilman Erik Sten was "not
surprised" by AT&T decision to sue, noting that the last-minute negotiations with
Wyden collapsed when "AT&T wanted us to compromise, but it offered no compromise
of its own."

Sten added, "We're not going to approve the
transfer prior to open access unless we're overruled by a higher authority."

And there's the rub.

Sten said the city might have altered its position if the
Federal Communications Commission were close to issuing a decision on the issue. But with
an FCC edict possibly years away, approving a transfer to AT&T would simply give the
company a head start on locking up the market, he added.

On behalf of Portland, David Olson, staff director of the
Mount Hood Cable Regulatory Commission, presented his region's view on municipal
authority over ISP access to a meeting of his Los Angeles peers Jan. 15, four days before
the lawsuit was filed.

"This is a unique moment in national
telecommunications policy ... locals can have an impact on national telecommunications
policy. This is a gray area, and there is a void in leadership on this issue by the
FCC," Olson said, jokingly adding that he hoped Portland wouldn't get sued
alone.

So far, Portland, Multnomah County and King County, Wash.,
have been the only local governments to officially declare their intentions on the ISP
issue. The issue in Los Angeles still must go to a City Council committee and to the full
council, both of which may make changes.

Other cities have seemingly been content to use the matter
as a bargaining chip in negotiations with AT&T.

The ISP issue has been the subject of scrutiny by attorneys
in other jurisdictions, but the lawyers differed on whether the lawsuit will chill the
debate.

"If public policy was based on every time a cable
company threatened a lawsuit, there would be no public policy," said Bill Marticorena
of Ruttan & Tucker.

Each municipality has to weigh the consequences separately,
he added. Opening the platform could lead to the loss of a share of franchise fees if the
operator is treated like a common carrier. Also, a provider could decline to provide the
disputed service.

Only a few attorneys questioned whether Portland was on
solid legal ground by attacking the issue during a transfer, rather than during a
refranchising proposal. But all found citations in the Telecommunications Act of 1996 that
they said give cities authority on the issue.

Cities do want to encourage development and competition,
but they have a trusteeship to consider, attorneys said.

"Wall Street bankers notoriously overlook the rights
of municipalities to control the rights-of-way. That was affirmed in the '96 act.
Just think what would happen if the streets were continuously cut up by a host of Internet
companies, placing and repairing their backbones in the street," said Fred Polner of
Rothman, Gordon.

But Sten said it's "a little misleading" for
other jurisdictions to authorize a transfer under the guise of revisiting the matter at a
later date.

"I'm not sure that you'll get a chance to
revisit it if AT&T gets its system up without open access," he said. "There
has to be competition from Day One."

September