Kennard Takes Heat on Open Access

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Washington -- Federal Communications Commission chairman
William Kennard came under pressure last week from two U.S. senators who are siding with
cities on opening cable facilities to independent Internet-service providers.

In an Aug. 4 letter that surfaced last week, Sens. John
Warner (R-Va.) and Ron Wyden (D-Ore.) -- representing interests in the thick of the
open-access debate -- told Kennard the FCC should steer clear of AT&T Corp.'s
litigation against the city of Portland, Ore.

"We urge you to stay out of the local fights and not
file an amicus [curiae] brief in the pending case against the city of Portland," the
letter said. "We will continue to follow closely the commission's actions in
this area, and we may consider a legislative approach should one prove necessary."

Since the beginning of the year, Kennard has clung to the
position that the Internet-access debate should be settled nationally and, for the time
being, that the FCC should do nothing to interfere with the rollout of broadband
facilities except monitor it for signs of market failure.

The tone of the letter was strongly critical, and it
suggested that Kennard had mishandled an important policy debate by siding with the cable
industry and beseeching local governments not to interfere with the rollout of the
cable-modem platform.

"We have seen anything but vigilant monitoring of the
situation," the Warner-Wyden letter said. "In fact, you have not taken any
action on this issue expect for questioning the right of local communities to address the
problem on behalf of their citizens."

The cable industry sees the letter as a defense of
important state constituents. America Online Inc. -- the Internet giant leading the
cable-access fight -- is based in Dulles, Va., and Portland is a major city in
Wyden's home state.

In a way, the lawmakers got an answer from Kennard. In a
letter to local officials last week, he declined their request to investigate access to
cable's Internet facilities.

"A formal proceeding would chill investment in
cable-modem service, which, in turn, would reduce the competitive pressure on local phone
companies and others that are currently investing in alternative means of providing
consumers with access to broadband," Kennard said.

Kennard's comments came in an Aug. 10 letter to
Kenneth Fellman, chairman of the FCC-created Local and State Government Advisory
Committee, which recommended last month that the commission open an inquiry regarding
access to broadband networks.

Fellman, a lawyer based in Denver, said he was disappointed
but he hoped the FCC would reconsider when it next seeks public comment on whether
advanced telecommunications capability is being deployed to all Americans in a reasonable
and timely fashion.

"I was really not surprised … because we had been
given the indication that this would be his opinion. We were the ones who said, 'Can
you make it definitive and put it in writing?'" Fellman said.

Understandably, the cable industry applauded Kennard's
decision.

"We share the chairman's view that a competitive
marketplace is the best solution for consumers interested in cable's high-speed
Internet access, and that consumers, not government, should determine the marketplace
winners," National Cable Television Association spokesman Scott Broyles said.

While saying that he shared the panel's support for
open access to the Internet, Kennard added that an FCC inquiry at this time would
undermine the agency's goal of spurring investment in the deployment of broadband
facilities.

He said he disagreed that cable had an unbeatable edge in
the race to be the dominant Internet-access provider, noting that cable served 1 million
broadband subscribers from a pool of 40 million Americans who use the Internet.

"While some consider cable to have a lead at this
time, it is premature to conclude either that such a lead will last or that its current
position amounts to a monopoly," Kennard added.

The cable industry got another boost last week when the
National Governors' Association, meeting in St. Louis, adopted a "policy"
statement saying that it favored a competitive environment, and that "government
should not slow the proliferation of these services by encumbering broadband providers
with burdensome regulations."

Also last week, FCC staff got caught up in an internal
debate regarding how far the agency should go in support of AT&T's position that
Portland violated communications law four times in refusing to transfer the cable
franchise held by Tele-Communications Inc. unless AT&T gave access to unaffiliated
ISPs.

The FCC's court brief is due at the U.S. Court of
Appeals for the Ninth Circuit today (Aug. 16), but as of late last week, the five
commissioners had not reached a consensus on what exactly to say, FCC sources said.

Commission sources said it is possible that the brief --
which Kennard promised to file in a speech last month -- will stop short of saying that
Portland violated federal law by requiring open access.

Such a stance would be a blow to AT&T, which filed a
brief Aug. 9 that elaborately outlined Portland's legal transgressions, including the
federal ban on any regulatory body -- federal, state or local -- imposing common-carrier
regulations on cable systems.

And such a stance would strongly suggest that at least
three FCC commissioners do not completely share Kennard's view that allowing
thousands of cities to regulate cable provision of Internet access would lead to
"chaos."

FCC general counsel Christopher Wright was at work on
several drafts, hoping to find the right mix of arguments that could attain the necessary
three-vote majority, FCC sources said.

Meanwhile, AT&T resumed its court fight against
Oregon's Portland and Multnomah counties -- the two jurisdictions that triggered the
open-access wars by mandating unfettered ISP access to @Home Network and winning in a
Federal District Court ruling in June from U.S. Judge Owen Panner.

Experts immediately noticed that the voluminous 70-page
appeal spent less time challenging Portland and Multnomah counties' authority and
more time accusing the local franchising authorities of statutory violations of
communications law, which, it said, was meant to "minimize" unnecessary
regulations on cable operators.

As such, it said, Panner was "patently wrong" in
ruling that "Congress intended to interfere as little as possible" with
LFAs' authority.

Instead, it claimed that the cities were violating the act
by passing ordinances that would force the cable operator "to act like a telephone
company." Equal access, the AT&T brief said, is "the very definition of
common-carrier regulation."

The appeal said that although federal cable law allows
local governments to manage municipal rights-of-way and to review new operators'
qualifications, it does not permit cities to require specific services as conditions for
granting or renewing franchises.

It also challenged open access on constitutional grounds,
alleging that it violates the First Amendment and the Commerce Clause.

"The statutory issues seem to be pretty strong for
AT&T," Paul Kagan Associates Inc. regulatory analyst John Mansell said. "The
downside is that cable has lost a lot of court decisions. I think it's because courts
will often focus on the competitive aspects of cable, or lack thereof."

Portland city councilman Erik Sten said AT&T's
arguments amounted to changing horses in midstream.

"This may be an indication that they figured out their
last argument wasn't too good," Sten said, "but I didn't see anything
new in this filing. They lost in district court. I think they're going lose on
appeal."

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