Policy

Time Warner Challenges Municipal System

12/15/2004 6:40 AM Eastern

Time Warner Cable is pursuing an injunction against a municipal fiber-optic project in North Kansas City, Mo., alleging that the city must seek voters’ approval before it develops and plans a public network.

The motion -- filed in U.S. District Court for the Western District of Missouri, Western Division -- noted that a state statute, passed in 1997 and recently affirmed by the U.S. Supreme Court, states, “No municipality may own or operate cable-television facilities and services unless approved by a vote of the people.”

Barring award of an injunction of the entire project, the MSO asked the court to prevent the city from using the planned network for cable unless it puts the issue on a ballot.

According to the motion, filed Dec. 10, officials in North Kansas City -- a suburb home to about 4,700 people -- formed a commission in June 2003 to review and analyze city infrastructure in order to determine the viability and cost benefit of a municipally owned or operated cable network.

The city approved an agreement in September of that year with a contractor, Black & Veatch LLP, to conduct the viability study, according to the suit. The mayor sent news to city residents addressing the study, announcing that a network would deliver voice, data and video, providing “improved service and reduced prices” compared with incumbent providers.

The contractor, in the study released this past March, said consumers were “satisfied” with current telecommunications services but asserted that a city-owned network would provide competition and decrease costs to citizens. The contractor projected pricing 10% below that of Time Warner and predicted that 20%-33% of residents would switch to city services.

Two months later, the City Council approved a contract with Black & Veatch to provide design and planning services to the city for its broadband network -- a project with an estimated cost of $9.5 million.

In the court motion, Time Warner asserted that it twice wrote to the city, raising the issue of the necessary public vote. According to the filing, the city’s outside counsel responded that the project was “capable” of delivering cable services but added that the city had not yet decided whether to offer video.

The city’s legal counselor did not return repeated calls to respond to the lawsuit.

Time Warner argued that the city should be stopped now, as a vote after the network is completed will be unfair to the incumbents.

“Once the city has sunk $10 million into this project, why would any citizen vote against the no-cost option of adding cable-television services to the network?” the motion said.

Time Warner also questioned the wisdom of the expenditure. The operator is upgrading its entire Kansas City division, which, it said, should be completed by mid-2005.

Missouri’s law curbing municipal telecommunications without a public vote has withstood court scrutiny. Just this past March, the U.S. Supreme Court affirmed the right of states to block city and county municipal broadband projects.

The federal Telecommunications Act prevents rules that allow “any entity” to move into telecommunications businesses. The Missouri Municipal League argued that the state ban violated that section of the act.

But the Supreme Court affirmed the ban, showing concern over ventures where the regulated and regulators are essentially the same body.

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