Washington -- AT&T Corp. went public with its
worst-kept secret last week by unveiling an Internet-access declaration with MindSpring
Enterprises Inc., a leading Internet-service provider based in Atlanta and cofounder of
the politically pesky OpenNet Coalition.
AT&T broke with its cable cousins in signing a
statement of open-access principles, which committed the MSO to a host of
quasi-common-carrier obligations that the cable industry has spent years trying to prevent
Washington lawmakers and regulators from applying.
In the wake of the Dec. 6 announcement, cable operators
that want no part of the AT&T-MindSpring deal were asking themselves a lot of
questions, including: What's AT&T's next move?
The answer, according to some cable sources, is an
AT&T-led campaign to get Comcast Corp. and Cox Communications Inc. -- key Excite@Home
Corp. partners -- to jettison their exclusivity deals before the current mid-2002
"I have heard that there is a good deal of pressure
that maybe AT&T's next move will be to try to push Comcast and Cox toward
expediting [the] exclusive arrangements with @Home and to end those prior to 2002, and
that 2002 is just too long," a cable-industry source said.
AT&T chairman and CEO C. Michael Armstrong addressed
the issue in a way. While on the one hand defending the validity of the Excite@Home deal,
he said the premature termination of the deal was possible if the price were right.
"That contract has a considerable amount of public
value. To redo that, someone would have to pay that considerable value," Armstrong
told reporters last week.
Comcast senior vice president and treasurer John Alchin
said the Philadelphia-based MSO was not ready to join AT&T now.
"We probably won't be exclusive, but we're not going
to make a decision yet," Alchin said. "Should we have a window on our screen for
a bunch of different people? Absolutely: In the long-term, it's the right thing to
Cox chief financial officer Jimmy Hayes said his company
was not technically prepared to deal with open access today.
"Two-and-a-half years from now, we will all have the
ability to have nonexclusivity," Hayes said. "It's a bit premature to talk about
what we're going to do two-and-a-half years from now when that sector can change
significantly in that period."
Armstrong said reports that AT&T's actions were
divisive within the cable industry were wrong, adding that he remained in touch with cable
leaders about AT&T's negotiations.
"They understand that AT&T is not setting industry
policy. What we are setting is what AT&T, as one of the participants, thinks is the
right thing for our infrastructure on a business basis," he said.
With AT&T needing Federal Communications Commission
approval of its $56.4 billion merger with MediaOne Group Inc., some cable sources and
public-interest-group leaders said the company is trying to remain on good terms with the
regulators. Armstrong said all of that was wrong, too.
"We're doing this not necessarily out of any fear of
regulation or sensitivity to perception, but rather because it's good business to do it
for AT&T," he said.
Other AT&T officials said those merger-related
criticisms were unfounded because more than 90 percent of MediaOne's franchises have been
transferred and the FCC has stated repeatedly that it has no intention of regulating cable
In the MindSpring deal, AT&T said it agreed to cut
deals with third-party ISPs that would allow cable-modem subscribers to choose their own
ISPs without an Excite@Home buy-through, and it committed to a host of billing and
marketing terms, including start-page customization.
AT&T and MindSpring announced the agreement in a letter
to FCC chairman William Kennard, who called it "a good first step" because
cable-modem subscribers would not be required to pay for two ISPs.
MindSpring will become the No. 2 ISP, with 3 million
subscribers, after merging with Pasadena, Calif.-based EarthLink Network Inc. in a $3
billion deal announced in September.
One of the stranger aspects of the deal was MindSpring's
decision to write Kennard separately to denounce the Excite@Home exclusivity deal and
AT&T's unwillingness to promise no constraints on video streaming or Internet-protocol
"[AT&T] should not be allowed to delay the
implementation of open access by a single day," wrote Dave Baker, MindSpring's vice
president for legal and regulatory affairs.
Theoretically, AT&T has eliminated a major concern for
eight cities pushing open access, in that consumers will be able to keep their existing
ISPs without having to subscribe to Excite@Home -- one of the primary arguments that
spawned the access debate.
"This is open access," AT&T spokesman Jim
McGann said. "This is no double billing. This is what the other side has been asking
McGann warned, however, that the access principles unveiled
by AT&T won't resolve its court fight with Portland, Ore., which triggered the
unbundling controversy by conditioning a transfer of its Tele-Communications Inc.
franchise on AT&T's providing nondiscriminatory open access.
"That's a separate legal question that's moving
through the courts," he said. "The question there is whether they have the legal
authority to pass such an ordinance."
Not surprisingly, some local officials were less than
enthused by AT&T's plans, noting that the principles did not specify who would enforce
them, and that open access would still be put off until 2002.
Portland director of franchise management David Olson
called the plan "selective access," arguing that it limits the number of ISPs
capable of offering their services over AT&T's network to a preapproved few.
"It's not open access if it changes the number of ISPs
on the network from one [AT&T] to three or four that AT&T is willing to do
business with," Olson said.
Primarily, he added, the plan was a "delaying
tactic" designed to help win FCC approval of the MediaOne merger and to keep other
local governments from hopping on the open-access bandwagon.
Olson said if AT&T were serious about unbundling its
network, it would settle the lawsuit against Portland, which is now in the hands of a
panel from the Ninth U.S. Circuit Court of Appeals.
"It shows that AT&T is still in school-yard-bully
mode," he said. "If they were really serious, this could be settled in a
Elsewhere, Paul Trane, a spokesman for the city of
Somerville, Mass., which has denied transferring MediaOne's franchise to AT&T, called
AT&T's proposal "smoke and mirrors."
In a prepared statement, Cambridge, Mass. -- another city
refusing to transfer a MediaOne license -- said AT&T's plan is "not really open
access as we believe it should be."
"Open access would be open access to all ISPs, not
just two companies," Cambridge city manager Robert W. Healy said.
The announcement failed to produce a ringing endorsement
among other MSOs.
"Without passing judgment on the specifics of the
deal, it shows that the marketplace can come up with private arrangements that work,"
Time Warner Cable spokesman Mike Luftman said.
Luftman declined to say how AT&T's agreement with
MindSpring would compare with "what we would accept" in deals with ISPs.
At Cox -- which is fighting an open-access battle in
Fairfax, Va. -- spokeswoman Amy Cohn said the Atlanta-based operator had no plans to do
anything similar to AT&T's agreement, and it was happy with its arrangement with
Excite@Home, which runs through 2002.
Olson said the "deafening silence" from the rest
of the cable industry indicated that other operators are not prepared to get behind
AT&T's access plan.
However, Ken Fellman -- chairman of the FCC's Local and
State Government Advisory Committee, a group of state and local officials that advises the
commission on how issues it's working on impact local governments -- conceded that the
agreement is nonbinding.
"The significance is that it moves the debate
forward," he said. "For example, AT&T has always said that open access was
not technically feasible. Well, we found out that it is feasible, so that's off the
Fellman signed the Kennard letter with AT&T and
Excite@Home chief technology officer Milo Medin said
AT&T and MindSpring still have to hash out a significant amount of technical details
to make their plan work, as well as deploying the new systems to enable it.
Medin -- who was involved in most of the discussions
between AT&T and the ISP -- said that while there was general agreement about how the
companies would have to go about making third-party ISP access work, they had not yet
created a specific operating model, which would then likely mandate a number of technical
changes in the existing setup.
Those adjustments will probably include changes in the
operation of standards-based cable modems, requiring the involvement of the industry's
standards-development arm, Cable Television Laboratories Inc.
Engineers will also have to create the solutions for
enabling effective network sharing and for some sort of automated interface enabling
operators to activate service to individual users, to manage those users and to provide
network-management information covering multiple ISPs to the cable operator.
"This is an agreement about principles. It's not an
agreement about a deal with prices and all that," Medin said. "I think we've got
a pretty good handle on what the generic architecture is, but as far as specific changes
to modems, or what the tunneling architecture is going to be, we don't have answers
He added, "Even if both sides agreed today to remove
exclusive agreements, you'd still have a lot of things that would have to get done before
you could roll out these kinds of services in any numbers."
Bill Menezes and Mike Farrell contributed to this report.