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NCTA, NATOA, LFAs Unite to Fight Ruling

1/17/1999 7:00 PM Eastern

Washington -- The cable industry, in a rare alliance withlocal governments, is attempting to overturn a court ruling that could give shrewd phonecompanies a vehicle to compete in local video markets in an almost regulatory-freeenvironment.

The case is before the U.S. Court of Appeals for the FifthCircuit, and it centers on whether two affiliates of SBC Communications Inc., the dominantlocal-exchange carrier in Texas, can provide cable service in Austin, Texas, largelywithout the city's permission.

Should the ruling stand, cable operators could be placed ata severe regulatory and economic disadvantage to competitors -- especially well-heeledtelcos like SBC. Cities, meanwhile, could lose millions of dollars in franchise fees thatthey collect from cable operators.

"[SBC] should be subject to the same requirements ofthe Cable Act as we are," said Daniel Brenner, vice president of law and regulatorypolicy for the National Cable Television Association.

Unlike traditional cable operators, SBC can offer video inAustin without obtaining a franchise, without paying franchise fees and without settingaside channels for local TV stations, leased-access programmers and PEG-access (public,educational and government) entities.

"You've got an operator in your right-of-way thatis not abiding by the federally enforced [cable] requirements," said William Malone,who is representing cities and the cable industry in the case.

The NCTA has appealed the decision jointly with theNational Association of Telecommunications Officers and Advisors and various state, cityand county governmental organizations, which have a major stake in preserving theircontrol over video providers that occupy publicly owned rights-of-way.

The NCTA and the local franchising authorities weredisturbed by a lower court judge's holding that Southwestern Bell Video Services(SWBV) is exempt from the local-franchise requirement, even though SWBV'svideo-programming channels are distributed to subscribers by its corporate cousin,Southwestern Bell Telephone Co. (SWBT).

Judge Lucius D. Bunton III found that SWBV was a privatecable operator that deserved the exemption because it leased distribution facilities fromSWBT, which already has permission to run its telephone wires through the streets ofAustin.

"Although SWBV appears in all functional respects tobe a cable operator, SWBV is not using the public rights-of-way to provide service to itssubscribers. In short, this is simply a case where what looks and quacks like a duck isjust not a duck," Bunton said in an 18-page opinion issued July 31.

Bunton said that although SWBV and SWBT are affiliated,SWBV does not have any ownership or control of SWBT that would trigger provisions infederal cable law requiring SWBV to obtain a franchise from Austin.

"The city can only point out that SWBV is an affiliateof SWBT; that is not enough," Bunton said.

Bunton's ruling was not a total shock: Last year, theFederal Communications Commission held that a Michigan company -- EntertainmentConnections Inc. -- was not a cable operator because ECI had been using the facilities ofAmeritech Corp. to distribute video programming to apartment buildings.

"At least in that case, ECI and Ameritech were notaffiliates," Brenner said, pointing out a major difference between the FCC'sholding and Bunton's opinion.

Should Bunton's decision stand, phone companies wouldlikely be free to create affiliates that would face minimal federal and local oversight.

"I think that the public is going to come out on theshort end on this," Malone said.

The case is significant because it could reshape cable lawin a way unanticipated by Congress.

Under the Telecommunications Act of 1996 and otherstatutes, Congress gave telephone companies four ways to enter the video business: asspectrum-based distributors of video programming, as common carriers, as open-video-systemoperators and as franchised cable operators.

The courts -- on the heels of the FCC's holding in theECI case -- could be on the verge of establishing a fifth way.

"That would be a very odd way for this policy changeto occur," Brenner said.

Such an outcome might not be all bad for the cableindustry. If the NCTA and NATOA lose, the decision could mean that cable operators couldestablish affiliates like SBC's and escape federal and local regulation, as well.

Brenner, however, said he didn't know how cableoperators would ultimately respond to the new regulatory environment created by thecourts.

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