FCC Team Ponders Cable-Net Access

Author:
Publish date:

Washington -- It's a good guess many of the limousines
lined up at the Federal Communications Commission in the months ahead will belong to the
growing number of players taking aim at cable's Internet-access strategy.

It seems as if everyone in the media convergence game not
affiliated with AT&T Corp. has some kind of beef with the nation's largest cable
operator -- and the industry at large.

This antipathy has produced the most potent anti-cable
faction since the passage of the 1992 Cable Act.

"I don't think that's a wild-goose chase," said a
broadcast industry lobbyist when asked if cable faces a replay of 1992. "You've got
people calling AT&T Ma Cable."

Among the interests feeling threatened:

• Broadcasters that invested in Internet content
(Disney in the Go Network and NBC in Snap.com) are nervous about a cable chokehold on the
Internet;

• Internet Service Providers (America Online Inc. and
MindSpring Enterprises Inc.) fear a subscriber drain if consumers bond with cable's
powerful fusion of content and zippy access;

• The Baby Bells hate cable's Internet strategy --
unless they can copy it; and

• Consumer groups and cities, perpetually in a funk
over cable programming rates, have locked arms with the ISPs, particularly AOL.

While the loose alliance began to form with the
announcement of AT&T's $48 billion takeover of Tele-Communications Inc., it did not
start to solidify until the telco decided to wrestle MediaOne Group Inc. from Comcast
Corp. in a $56.4 billion deal that federal regulators have yet to approve.

After buying MediaOne and its 25 percent stake in Time
Warner Entertainment, AT&T will own or have a financial interest in cable systems
reaching two-thirds of the nation's TV households, according to the FCC. AT&T disputes
the FCC's figure, putting its household reach at possibly 39 percent.

AT&T's BIG REACH

With vast market reach and a business plan that requires
unaffiliated ISPs to take a number, AT&T is viewed as a digital-era colossus that has
some powerful interests fearing for their futures.

FCC chairman William Kennard reacted to the situation --
even before the MediaOne takeover -- by naming two senior FCC officials, Robert Pepper and
Deborah Lathen, to monitor the broadband-access market.

Although Kennard is opposed to forcing cable operators to
open their data networks, he recently made news by saying, for the first time, that he
believes the FCC has the legal jurisdiction to do so. FCC commissioner Susan Ness refused
to endorse Kennard's view.

"We have made no finding one way or another,"
Ness said.

Lathen, chief of the Cable Services Bureau, is charged with
studying legal and regulatory issues, while Pepper, chief of the Office of Plans and
Policy, is conducting sessions on the technical feasibility of forcing cable operators to
provide nondiscriminatory treatment to unaffiliated ISPs.

Cable lobbyists yawned when Kennard made his appointments,
mainly because the industry believes it is on solid ground in its assertions that the FCC
has no legal authority to command cable unbundling and cable system architecture is
unsuitable to accommodate any ISP that comes along demanding a chunk of bandwidth.

A Washington cable lobbyist, who asked not to be
identified, said because many senior FCC officials agree with cable, the Lathen-Pepper
effort is no immediate threat.

"I think that (their) problem is that the people that
are responsible for looking at the technology side of it are not so sure how that's
accomplished," the cable lobbyist said. "And I think people who are responsible
for the legal and public policy side of it are not so sure it's a good idea. I don't think
the FCC knows how to move in this area."

Lathen, who joined the FCC a year ago from an executive
position with Nissan Motor Corp., is so new to cable that few have an accurate read on her
thinking.

But Pepper, a seasoned FCC official, is viewed as an
advocate of cable unbundling but not someone with enough clout to obtain three FCC votes
for the adoption of cable unbundling rules.

"I think Mr. Pepper has been advocate for unbundling
cable networks," the cable lobbyist said.

Kevin Werbach, managing editor of newsletter Release 1.0,
worked for Pepper from 1994 to 1998 as a technology and Internet analyst. Werbach said
Pepper believes cable's Internet strategy, through @Home Network and Road Runner, is
flawed. This may cause him to push the FCC to involve itself in cable unbundling and
Internet openness issues.

"My impression is that he has been one of the people
urging the commission to at least take a more active role in looking at the issue,"
said Werbach, who happens to share Pepper's opinion about @Home and Road Runner.

In an interview, Pepper denied he had any outcome in mind,
saying his job as devil's advocate has often been wrongly interpreted as advocacy.

"It's too soon to tell," Pepper said, when asked
if the FCC should require cable operators to give equal treatment to all ISPs. "The
market is too new to know what providers are going to be competitors at the end of the
day."

Consumers should be pleased with the speed with which the
cable industry has advanced broadband Internet access from the experimental to the
commercial rollout phase, Pepper added.

Because AT&T's merger with MediaOne will be reviewed
while Lathen and Pepper conduct their monitoring effort, cable unbundling advocates will
have multiple opportunities to keep the issue alive.

In recent months, NBC and ABC have quietly raised concerns
about AT&T but so far have declined to join the OpenNet Coalition, the newborn lobbying
organization started by AOL in February with the explicit goal of blocking AT&T's
Internet strategy.

As owners of cable-television networks, NBC and ABC must
move cautiously to protect relationships within the industry. ABC, in particular, has to
guard against overt support for cable Internet unbundling because it spent the last 18
months trumpeting the evils of unbundling ESPN from the expanded basic tier and offering
the expensive sports network on an à la carte basis.

Nevertheless, an ABC source said Disney chairman and CEO
Michael Eisner came away from a recent dinner with Microsoft Corp. chairman Bill Gates
armed with the following intelligence from the world's richest man: the future is about
high-speed Internet access and cable has won.

BROADCASTERS' FEARS

Disney, the ABC source said, wants to ensure that AT&T
cannot use its control over Internet access to discriminate against unaffiliated content
providers, such as Disney's Go Network. An NBC source said the company doesn't want to see
cable gain the kind of leverage in the Internet market that it gained in the TV market
through vertical integration.

A less circumspect player is AOL. The world's largest ISP,
with 17 million subscribers, AOL derives 80 percent of its revenue from monthly customers
who typically connect to the service over local telephone wires.

AOL is troubled because a cable-modem subscriber who wants
to continue using AOL must buy content from @Home or Road Runner first. That means AOL
can't be a consumer's first choice, and tosses AOL into a brawl for the consumer's
marginal dollar.

In Senate testimony April 13, AOL chairman Steve Case said
he favored a "light touch" approach to opening cable networks so that AOL could
compete head-to-head with @Home and Road Runner.

He said he does not favor common-carrier regulation, but
prefers the approach taken in 1992, when Congress said cable operators had to sell their
program networks to competitors and could not fill up their channels with affiliated
programmers.

Case also compared AOL subscribers to cable subscribers,
who once had to buy tiers of programming they didn't want in order to buy programming they
wanted.

Beyond those few analogies, Case has not been more
specific.

"They haven't described anything at any time. AOL has
not put any flesh on any bone that I am aware of," a Washington cable lobbyist said.
"Case is using this as a business negotiation tactic."

A Washington telecom analyst said one reason the OpenNet
Coalition has not made much progress is because Case and others have not provided a clear
roadmap to achieve their ends.

Cable, meanwhile, has offered point-by-point legal and
technical rebuttals that have resonated with policymakers.

Case, in recent comments to reporters, wouldn't rule out a
deal with a cable company, even though such a deal might undercut his Washington lobbying
effort.

"We have long said we would like to work with every
company providing any broadband technology and that includes cable companies," Case
said. "Certainly, AT&T would be on the list of companies we'd love to work with
as long as we can establish a win-win partnership that's good for them, good for us and
most importantly, good for consumers."

Jim Cicconi, AT&T chief counsel and top Washington
lobbyist, AT&T remains "very open … to discussions with America Online and
other parties to find ways to accommodate them on our system."

BELLS ON BUNDLES

Under current law and FCC rules, the Bells can jointly
market their ISP service and phone lines but can't require their phone customers to use
their ISP service. In this environment, AOL and thousands of ISPs have flourished.

Ivan Seidenberg, president and chief operating officer of
Bell Atlantic Corp., said AT&T and other cable operators should not be allowed to
bundle their ISP and high-speed transport if Bell Atlantic is forbidden from doing the
same.

"As a general matter, I would support the notion that
the bundling of products and services is a positive thing to do," Seidenberg said.
"The issue in this case, which the FCC has to look at, is whether or not this bundle
is unfair in how they would approach the marketplace."

Seidenberg dismissed cable's argument that it is not
technically feasible to open cable facilities to thousands of ISPs.

"These are the same people who have asked us to
unbundle all of our software," he said. "We are unbundling digital channels in
the switch. So I think if they need some help, we got some people that can help figure
that out."

In addition to pressing regulators at the FCC, Bell
Atlantic and other local phone companies are seeking the help of Congress.

Senate Commerce Committee chairman John McCain (R-Ariz.)
recently introduced a bill (S. 1043) that would deregulate Baby Bell provision of data
services, calling cable's ability to bundle the ISP and transport a "blatantly
unfair" advantage.

In the House, Reps. Bob Goodlatte (R-Va.) and Rick Boucher
(D-Va.) introduced a pair of bills (HR 1685 and 1686) that would permit AOL, for example,
to file an antitrust suit against cable operators with "market power" that
discriminate against unaffiliated ISPs.

AOL has a partner in the public-interest community, which
has created the No Gatekeepers organization to prod Congress and the FCC to support AOL
against cable. The organization's public-relations company, Leslie Harris Associates, is
funded by AOL.

Jeff Chester, president of the Center of Media Education, a
No Gatekeepers member, accused the cable industry of building a "a private, parallel
Internet" that regulators need to pry open.

"We believe people must have choices in the broadband
world, where no one incumbent provider can dictate the terms of Internet access and
content distribution," Chester said.

Nick Miller, a Washington-based attorney for various cities
wresting with cable operators over Internet access issues, said the FCC had to provide
guidance by establishing a national policy.

"The cities have been forced into the gap, in our
view, because of the failure of the federal government," Miller said. "It is
their duty to do something about it."

Related