AT&T Requests Modem-Fee Waiver


WASHINGTON -Citing legal and regulatory uncertainty, AT&T Broadband is asking franchising authorities in several Western states to waive franchise fees levied on cable-modem services.

AT&T is the second major cable operator to make a move on this front since June, when a federal court in California held that the provision of Internet access over cable networks was partly a telecommunications service and partly an information service, rather than a cable service. In May, a federal court in Virginia said cable-modem service was a cable service.

"We are saying the LFAs should waive the franchise fee until there is a determinative decision," AT&T Broadband spokesman Steve Lang said last week.

AT&T has asked local governments to sign an agreement which states the MSO could be required to refund any cable-modem franchise fees it collects from subscribers at a later point, Lang added. AT&T also wants LFAs to agree to make the company whole through franchise-fee offsets if the company is forced to pay refunds.

In a bold step AT&T did not take, Cox Communications Inc. has already informed local regulators in California, Nevada and Arizona-home to some of its biggest systems-that it would no longer collect and remit franchise fees derived from cable-modem revenue.

Cox is concerned, especially in California, that it could be sued for collecting cable franchise fees on a product that is not deemed a cable service by the 9th U.S. Circuit Court of Appeals.

The 9th Circuit's ruling came after Portland, Ore., tried to force AT&T to carry multiple Internet-service pro-viders as a condition for the transfer of Tele-Communications Inc.'s franchise. The court said Portland could not force AT&T to do so.

Lang didn't know the number of AT&T cable-modem subscribers in the 9th Circuit's nine-state territory, but the MSO has large clusters not only in Portland but also in San Francisco, Seattle, Los Angeles and Sacramento.

Cox has about 212,000 data subscribers within the 9th Circuit, most of whom pay $44.95 a month. The MSO's fee policy will likely cause localities to lose about $5.7 million generated each year by the typical 5-percent fee on gross revenue. Both Cox and AT&T have taken part in an FCC proceeding designed to determine whether cable-modem service is a cable service, a telecommunications service, an information service, or perhaps the hybrid identified by the 9th Circuit.

In Portland, officials were alerted last week that AT&T had sent a letter "suggesting how to handle" the franchise-fee issue.

Portland head of franchising and management David Olson asserted a fee should be attached to the AT&T@Home service that rolled out within hours of the 9th Circuit's decision.

"Whatever they want to call it is up to them," Olson said. "But we would expect there to be a fee on cable-modem revenues commensurate with what everybody else receives."

Olson said AT&T was at least trying to couch its intentions as a suggestion, rather than issuing "an ultimatum," as he described Cox's actions.

"Nobody wants to go anywhere where the court hasn't taken us. Nobody wants to have to litigate this all over again. So I don't think anybody is going to try and push anybody else into any kind of box," Olson said.

Sarah Hackett, senior analyst with the Metro Area Communications Commission, a coalition of 14 Portland suburbs served by AT&T, said the group had also not received the promised letter.

But behind the scenes, AT&T executives indicated the company was concerned that a class-action lawsuit might be filed against the MSO for continuing to collect a fee on a telecom service.

"They're saying, 'Either let us stop collecting it [the franchise fee], or sign a letter saying you'll pay it back, if it has to be repaid,'" Hackett said.

However, Portland-area AT&T officials could not say whether a franchise fee was already buried in the $39.95 monthly cost for @Home.

Nick Miller, a Washington attorney who represents the city of San Francisco, said local governments expect AT&T to pay a franchise fee on cable-modem revenue. Whether AT&T actually passes the fee on to subscribers is up to the company.

"They have no [legal] exposure because they are not required to pass it through," Miller said. "Until we are told otherwise, we are owed that franchise fee. It's their problem whether or not they choose to line-itemize it."