CABLE OR TELECOM?

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Portland, Ore. -- The Ninth Circuit Court of Appeals has
added a new wrinkle to the open-access debate, touching off frenzied speculation in the
process.

During oral arguments here last week in the Internet
open-access fight between AT&T Corp. and the city, the appellate court suggested that
it may have to decide whether the two sides are sparring over a cable service or a
telecommunications service.

AT&T wants to overturn a U.S. District Court ruling
that upheld Portland's right to demand that the company allow Internet competitors to
sell their services over its broadband platform.

Judge Sidney Thomas said the court will likely take up the
issue, since the Federal Communications Commission has not determined whether Internet
access is a cable or telecommunications service.

Thomas was joined by Judge Edward Leavy, who made the
hearing's most telling remark when he suggested that declaring Internet access a
telecommunications service would mean that "this case is over."

Both sides immediately applied their own spins to the
prospect of having what historically has been considered a cable service suddenly labeled
as something else.

From cable's perspective, if the court rules that
forced Internet-service-provider access to the cable-modem platform is a
telecommunications service, Portland has violated Section 621 of the Telecommunications
Act of 1996, which prohibits local governments from requiring cable operators to provide
telecommunications services or facilities as franchise-transfer conditions.

"At that point, the court will have agreed with the
cable operator that the city has imposed a forbidden requirement on the transfer of a
franchise," said Daniel Brenner, senior vice president of law and regulatory policy
at the National Cable Television Association, in comments to reporters here.

During the oral arguments, AT&T said open access meant
separating content from the pipe and providing unaffiliated ISPs with access to the wire.
By definition, it said, that makes the wire a telecommunications facility.

"If the court agrees with us, we win on those
grounds," said Mark Rosenblum, AT&T vice president of law. "If it's a
telecom facility, we win. If it's telecom service, we win."

Not so fast, said Portland city councilman Erik Sten,
arguing that the city wins whichever way the court rules. If it's a cable service,
it's subject to local regulation, he said. And if it's a telecommunications
service, it falls under a myriad of common-carrier requirements that will effectively open
up its plant anyway.

"There are no telecom services that I know of that are
not open access," Sten said. "And from a common-sense standpoint, how do you
conclude that it's a telecom service, but that it should have a monopoly that the
phone companies can't?"

Moreover, if it's a telecommunications service,
AT&T cannot offer it under a cable franchise, opening another can of worms in
jurisdictions nationwide, he added.

Scott Cleland, a managing director with Legg Mason Wood
Walker Precursor Group, said the FCC will be hard-pressed to find a loophole large enough
to allow AT&T to skirt common-carrier requirements that the agency routinely imposes
on the regional Bell operating companies.

"So it's from the frying pan into the fire,"
Cleland added.

Rosenblum countered that the FCC has clearly stated its
intention to keep its hands off the Internet.

Paul Kagan Associates Inc. regulatory analyst John Mansell
said the judges may have been thinking out loud, and their decision may not even mention
the cable-versus-telecommunications issue.

"It's like a prizefight," he said. "You
never know what the judges are going to do."

However, John Soma, professor of law at the University of
Denver, said AT&T may have played the telecommunications-facilities card in hopes of
steering authority over its @Home Internet product from local jurisdictions to state
regulatory commissions, where it has more clout.

"AT&T has 100 lawyers for every PUC [public
utility commission] lawyer. They just overwhelm them," Soma said.

The court's decision is not expected before next year.

One analyst said other cable operators might be sweating an
AT&T strategy that could backfire and saddle the rest of the industry with
common-carrier requirements.

"But if they're bummed out about AT&T taking
the industry out on that same limb, who can they blame? Nobody but themselves," said
Ted Henderson, an industry analyst with Janco Partners in Denver. "For the longest
time, AT&T was out on that limb by itself. The industry let them carry the flag."

Meanwhile, AT&T remained under the gun in St. Louis and
in Cambridge, Mass., where open access could be on the books as early as this week.

In St. Louis, an access ordinance passed by the Board of
Aldermen was the subject of mixed signals from Mayor Clarence Harmon, despite a recent
letter in which he declared his support for "improved telecommunications
services" for the city.

Harmon spokesman Edward Davis said the mayor supported
"the concept of open access," but he had not endorsed the measure sponsored by
his chief mayoral challenger, board president Francis Slay.

However, Slay said, Harmon indicated during a breakfast
meeting last week that he had reviewed the bill and he planned to "have it off his
desk" by the end of this week. "The indication he gave me was that he planned to
sign the bill," Slay added.

AT&T spokesman Steve Weber said enactment of the
ordinance would leave consumers "high and dry, with only local-exchange carrier
Southwestern Bell as their monopoly provider [of high-speed Internet access]."

In Cambridge -- which refuses to transfer its franchise
until AT&T agrees to open access -- the company delivered a letter to city manager
Robert W. Healy indicating that it would not accept those terms. Healy, the sole authority
over the transfer process, has until Thursday (Nov. 11) to act.

"The letter is under review, but nothing has changed.
It hasn't changed [Healy's] mind," Cambridge public-information officer Ini
Tomeu said.

Also in Massachusetts, MediaOne Group Inc. has begun a
statewide campaign to dissuade voters from signing petitions that will qualify a statewide
initiative on open access.

The 60-second spots began airing in unsold avails, or only
on MediaOne systems. State authorities have approved the topic as a ballot measure, but in
order to qualify the initiative for the November 2000 election, supporters -- led by
Boston venture capitalist J. Christopher Grace -- must collect 70,000 signatures.

State advisers to the cable-based committee to defeat the
measure have determined that the on-air campaign is legal as long as MediaOne logs each
spot and reports its value as an "in kind" contribution to state election
authorities.

The operator has also set up a Web site, www.techcompetition.org,
to communicate cable's point of view on the issue to computer users.

AT&T did, however, manage a pair of victories over
equal-access proponents in two Michigan communities last week.

Detroit suburbs Plymouth Township and Canton Township both
rejected local pleas to institute equal access as a requirement for transferring their
MediaOne franchises to AT&T.

Unlike other communities weighing the access question, both
have hardwire competition in the form of Ameritech New Media. As such, cable is not seen
as the sole provider of an essential service, Plymouth Township supervisor Kathleen Keen
McCarthy said.

Furthermore, after review by city attorneys, both
communities concluded that the transfer process was not the appropriate forum to raise the
issue, she added.

Richmond, Va., was another story, though, with the issue
fueled by a direct-mail campaign by open-access supporters. The mailers included
pre-addressed form letters that consumers were urged to send to the mayor, who has
submitted a substitute transfer ordinance demanding open access.

Richmond's public hearing on the issue is set for
today (Nov. 8).

In Buffalo, N.Y., meanwhile, local officials will hold a
series of meetings with the major telecommunications players in its market over the next
two months, following a recent public hearing where area ISPs urged the city to impose
open access on Adelphia Communications Corp.

Unlike other operators, however, Adelphia has broken with
the rest of the industry by indicating that it will not refuse to introduce its
"Power Link" high-speed-data service in metro Buffalo if an open-access
ordinance is enacted.

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