FCC/AT&T Policy Shifts Leave ISPs Out of the Game

Is U.S. broadband policy really being forged in back-room deals between power-brokers—rather than out in the strong light of legislative or regulatory debate?

by Patricia Fusco ISP-Planet Managing Editor [October 26, 1999]

Late last week the Federal Communications Commission adopted an order to form a joint conference between federal and state regulators to discuss advanced telecommunications services in the U.S.

This is the second recent effort made by the FCC to reel in state and local regulators to discuss cable access and broadband deployment. Commissioner William E. Kennard penned a letter to local governments last August, reiterating that the FCC shares the goal of an open Internet.

In the letter to the FCC's Local and State Government Advisory Committee, Kennard said, "We must pursue the goal of open access in a manner that encourages investment in the deployment of [broadband] networks."

At the time, local and state authorities were openly blazing new trails of regulatory control over cable companies by attaching conditions of open access to their networks as part of their licensing agreement. Kennard voiced his concern that each of over 30,000 state and local utility commissions could establish its own cable access guidelines, thus creating potential chaos for cable access deployment in the U.S.

Industry analysts agreed that the FCC was trying to rein in state and local regulators to stem the rising tide of enthusiasm for open access found currently within some municipalities. Broward County, Fla., Los Angeles, and San Francisco along with other municipalities continue to be the cable access wars' heat-seeking fronts.

Recent history
As you may recall, a federal district court ruled in May of this year that the city government of Portland, Ore. has the authority to require its cable TV franchisee to open access to independent Internet services providers. AT&T-owned Tele-Communications, Inc. appealed the decision and a multitude of open access and consumer groups have joined Portland's defense as friends of the court.

Even after Kennard pleaded with local regulators to steer clear of the issue, the City of Fairfax, Va. joined the open access crowd and exercised its jurisdiction over the local cable franchise to mandate nondiscriminatory access. This time, Cox Communications, Inc. has been forced to deal with the open access issue in order to assume operations of a local cable franchise. The Fairfax City Council placed an open access condition on the transfer of the Media General, Inc. cable system to Cox late in September.

Meanwhile, AT&T hinted that it might be willing to grant America Online open access to its cable networks. After days of speculation, Excite@Home Corp. and AT&T finally confirmed that they talked about the future of AT&T's stake in the cable Internet provider.

(With a 26 percent stake, AT&T is the largest shareholder in Excite@Home— controling 58 percent of the voting rights. Other major shareholders include cable operators Cox Communications Inc. and ComCast.)

Machinations
Open access proponents were quick to label the AT&T announcement as subterfuge, but The Los Angeles Times reported that AT&T had sent Excite@Home a proposal that would split the company's board of directors. Oddly, that report came after AT&T broadband chief Leo Hindery told Reuters news service that AT&T had not held any discussions with Excite@Home. Hindery went as far as to call recent speculation "absurd."

One week later, Hindery resigned as CEO of AT&T Broadband & Internet Services. Hindery's departure comes at a time when AT&T's fight to block rival Internet providers from direct access to its cable systems is at an all-time high and the company is considering a major policy shift toward Excite@Home.

Right now AT&T is working hard to assume the MediaOne cable franchises nationwide. The TCI deal transferred some 950 cable franchise licenses with only a few pockets of resistance from pro-open access municipalities and utility commissions. So, with the debate about mandatory access to cable networks raging, did AT&T perhaps float its Excite@Home policy shift as a signal to the FCC that We're ready to deal, rather than divest?

Quid pro quo?
What else explains why the FCC issued an order last Friday to relax cable television ownership limits? The new ruling may signal the green light to the AT&T-MediaOne deal, if AT&T dispenses with its equity in Excite@Home.

The FCC order appears to be a clear concession in return for AT&T's policy shift—one that perhaps Hindery couldn't stomach. Speculation aside, the order concisely detailed that a cable company should not have to count toward the ownership limit any partnerships where it is not involved in decisions about programming.

Remove the programming-happy gang at Excite@Home from the picture and you've got tacit federal approval of the MediaOne merger complete with a Commissioner's call to order for state and local regulators.

Should AT&T take the next step and restructure some of its arrangements with other major operators like Time Warner, Inc. or Cablevisions Corp., perhaps Kennard would step out of his forthcoming federal-state joint conference with a national broadband policy eliminating open and leased access to cable networks.

In that way, AT&T could avoid divestiture when a U.S Appeals Court reviews the constitutionality of FCC ownership limits. Oral argument in the case is scheduled for December 3, so AT&T is going to have to move quickly to realign its cable kingdom to the FCC's liking.

What are the rules?
Under current rules—temporarily suspended for the appeals court review—no company may have access to more than 30 percent of the 95 million U.S. homes capable of being hooked up to cable.

As part of the 1992 Cable Act, the rules are designed to prevent any one operator from dominating the market for cable TV programming like sports, news and entertainment channels.

AT&T, through the acquisition of TCI earlier this year, is already slightly over the 30 percent ownership limit. The MediaOne deal would push AT&T ownership to more than 50 percent of the U.S. homes capable of being hooked up to cable.

If the MediaOne deal is affirmed, AT&T would have more than 32 million cable subscribers, well above the 30 percent ownership cap. But if AT&T can extract itself from potentially monopolizing cable **programming, a grandfather clause or waiver granted by the FCC could dispense with the ownership limits altogether.

It is possible that the FCC might grant the company such a waiver if AT&T made the commitment to hasten cable upgrades and push forward the nationwide deployment of cable access in the U.S.? That potentially means that the FCC is creating an environment whereby AT&T Broadband could be the next monopoly that the Commerce and Justice Departments would dismantle with antitrust laws in the near future.

At the same time, one must admire Kennard for performing the regulatory slight-of-hand that could grant the AT&T an inside track to building the national broadband infrastructure. It's just too bad that independent ISPs will suffer the consequences of being locked out of cable access game in the broadband rush of the new millenium.

Back-room tactics
Late in September Federal Communications Commissioner Harold Furchtgott-Roth said that the FCC engages in shakedowns, extortion, and things that fall far outside the realm of the federal regulatory process.

Granted, Furchtgott-Roth often speaks with a dissenting voice among his peers as the sole economist of the five federal regulators. He also predicted that differences in regulating telephone, Internet, and cable access would make for some interesting federal fights in the future.

Based on the past few weeks of observing AT&T and the FCC in motion, it appears that the shakedown is already in play and the fighting has just begun.

—End