Austin Challenges Court Ruling on Bell

12/05/1999 7:00 PM Eastern

Officials in Austin, Texas, are challenging a federal
appeals court ruling believed to threaten the city's power to oversee the deployment
of wireline cable and telecom services.

In affirming an earlier U.S. District Court decision, the
Fifth Circuit Court of Appeals recently found that Southwestern Bell Video Services was
not a cable operator, and therefore not subject to Austin's local-franchising

Its decision, which it based on arguments not even raised
in the lower court, came despite the fact that SBVS offers cable services to
multiple-dwelling units in the city.

As a result, city officials are vowing to take the case as
far is needed to protect the community's right to regulate companies that operate in
its rights-of-way.

In a 2-1 ruling, the Fifth Circuit agreed with the lower
court ruling, which said SBVS was not a cable operator because it did not own a
"significant" stake in the plant used to transport its signal.

That plant is owned by its parent, Southwestern Bell
Telephone Co. SBVS and SBTC also had separate officers and shared no employees, the court

"The point that the judges made was not one raised by
ourselves, or Southwestern Bell," said Michael D. Parks, Austin director of
telecommunications and regulatory affairs. "So how did it become the point of the
decision? It doesn't make any sense to me."

In a dissenting opinion, Judge Sidney Fitzwater said a
narrow decision based on arguments not previously heard by the district court fails to
address questions that are "important to municipal franchising authorities."

Fisher also said the majority had misread the 1934
Communications Act, which states that a cable operator cannot offer service without a

The act, Fitzwater said, goes on to define an operator as a
person or group of persons who, directly or through affiliates, own a significant interest
in the system offering the service.

Since SBVS and SBTC are wholly owned subsidiaries of SBC
Communications, they are under common ownership or control, jointly own the plant and
should be required to obtain a franchise, he concluded.

Parks said the danger is that the court has left "the
door open" for other service providers to lease space to a subsidiary on facilities
located on public property. That subsidiary, he said, would then be beyond the authority
of local franchisers.

"If I'm another company, I'm thinking about
changing one facet of my business," he said. "And it goes without saying,
that's very scary."

Parks said the city has asked the full Fifth Circuit to
review the decision, rather than the three-judge panel that initially heard the case.

"If we asked for reconsideration, without any new
evidence, I'm not sure what the (original) three-judge panel would see differently,"
he said.

The controversy began several years ago, when SBVS and SBTC
joined forces to deliver cable service to area apartment complexes.

At the time, SBVS' satellite and broadcast signal was
received on equipment owned by the parent telco, which would then use its telephone lines
-- located on public property -- to route the signal to buildings served by its affiliate.

However, SBVS claimed it did not need a cable franchise
because it was not using public property to deliver its service. SBTC said it did not
require a cable franchise because it was acting as a common carrier and already paid the
city a franchise fee for use of local right-of-ways.

The city sued, claiming federal law required SBVS obtain a
franchise to operate locally.

The appeals court decision was surprising even to local
cable executives.

"One was saying, 'Hey, it's not our
plant.' The other [said], 'We're just leasing transport,' " said
Bill Arnold, president of the Texas Cable Telecommunications Association. "Well,
Southwestern Bell Video Service is owned by Southwestern Bell, folks."

Arnold was also surprised that the court's findings did not
address the question of use of public right-of-ways.

"It was an opportunity for the Fifth Circuit to deal
with the whole issue, and instead it missed the whole shooting match," he said.

If its request for reconsideration fails, Parks said the
potential danger to its municipal authority means that the city must take the next legal

"We're prepared to fight it all the way, whatever
that next step is," he said.

Ironically, the court's decision came after the issue
had been technically rendered moot. SBVS no longer uses SBTC lines to deliver its signal,
preferring to build mini-headend facilities at apartment complexes its services.

Even so, the city finds itself forced to keep pushing the
issue, Parks said.

"The court decision doesn't allow us to walk
away," Parks said. "What worries me is that our power to protect our
right-of-ways is being eroded by a decision that was not well thought out. If we let this
lay, we leave the door wide open for somebody to walk through it."

Arnold conceded that the city had a point, and that some
area cable operators had found it "interesting to follow the court's logic.

"Somebody could use (the decision) to gain access to
the right-of-ways, start leasing its plant to a subsidiary, then claim, 'We're
no more connected than Southwestern Bell Video Services is to Southwestern Bell
Telephone,' " he said. "And they'd be outside the reach of the city.
The only thing you'd have to pay the city was a fee on the revenues you received from
the guy using the plant."

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