News

AT&T Backs Away From Modem-Fee Halt

1/07/2001 7:00 PM Eastern

Amid municipal opposition, AT&T Broadband has temporarily stepped back from plans to cease franchise-fee payments on Internet-service revenues.

Following the lead of Cox Communications Inc., AT&T at year-end began notifying the cities it serves in Oregon, Washington and California that it would cut out the franchise-fee payments. The company cited last year's ruling by the U.S. Court of Appeals for the 9th District in a case pitting Portland, Ore., against AT&T, which affects those states.

In striking down Portland's attempt to compel AT&T to open its high-speed data platform to unaffiliated service providers, the court classified data transmission as a telecommunications service.

Letters from AT&T Broadband advised franchisers that they may "be exposed to potential refund liability" if they continue to collect fees from the cable company. The company itself could be the target of class-action suits, the letter suggested, should AT&T Broadband continue to collect cable franchise fees on a non-cable service.

AT&T urged cities to consider establishing an escrow account for the funds in question, pending a definitive ruling on the definition of such services by the Federal Communications Commission.

Cities reacted swiftly. Several wrote back to criticize the operator's interpretation of the ruling and offered options for continuing the revenue stream while skirting the legal questions.

City officials also were angry because the operator's decision came without warning.

"They used to pick up the phone, or come by and give their perspective in the change in the situation," Lakewood, Calif. assistant city manager Michael Stover said of the AT&T executives. "Now you just get a letter saying they're not going to pay the fee."

Because of the criticism, AT&T has extended its deadline for a decision on whether it should collect the fee on its Internet service until Feb. 15.

In letters that arrived on regulators' desks shortly before Christmas, AT&T reiterated its belief that the court decision bars "voluntary payment" of franchise fees on modem-service revenue. But in a "spirit of cooperation," the implementation of that decision was delayed to allow meetings with affected local franchising authorities.

In the meantime, AT&T will try to negotiate a settlement with the National Association of Telecommunications Officers and Advisors. The two sides will have their first "face-to-face" meeting early this week, said NATOA executive director Libby Beaty.

So far, Beaty said, AT&T has offered two alternatives: The cities can either waive the fee or indemnify the company against any potential lawsuits. Neither has met with wide-ranging acceptance.

"We're going to discuss what other options may be viable," Beaty said.

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