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AT&T Inc. is waging a high-stakes battle against several U.S. cities in federal court in a quest to bring a new product that bundles voice, video and Internet service to 19 million U.S. homes. The telecommunications company, eager to break into markets dominated by cable companies, is fighting the city of Milwaukee and Chicago suburbs in federal court over whether AT&T can offer the new service without getting franchise agreements, which are required for cable rivals. The agreements regulate use of public property, specify fees and stipulate other aspects of the service. State legislatures, the Federal Communications Commission (FCC) and Congress are wrestling with the same issue and may make new laws, as the state of California did, to deal with the disagreement. For now, a decision by the U.S. District Court for the Eastern District of Wisconsin could be precedent-setting. “We think the best way to get a determination as to whether they’re governed by the ordinance is for the court to tell us,” said Vince Moschella, Milwaukee’s deputy city attorney. “There will be a lot of places across the United States watching this case because they need an answer to the same question.” Playing by the rules AT&T is spending $4.6 billion to roll out the so-called U-Verse service across the country by the end of 2008. So far, it’s in 11 U.S. markets, including Indianapolis; San Jose, Calif.; and AT&T’s hometown, San Antonio. The company maintains that U-Verse is not a cable service and therefore is not subject to franchise agreements. While some of the embattled cities would welcome competition in the market, they want AT&T to play by the same rules as cable television providers by entering franchise agreements. When Milwaukee officials learned that AT&T might roll out the service as early as last December without a franchise agreement, they took the company to court. Milwaukee v. Wisconsin Bell, No. 06-1299 (E.D. Wis.). The FCC, which governs the U.S. telecommunications industry, in December determined that local franchising was creating “an unreasonable barrier to entry” and called for removing barriers. Still, U.S. Representative John Dingell, D-Mich., the new chairman of the House Energy and Commerce Committee, challenged the proposal in a Dec. 19 letter to FCC Chairman Kevin Martin. “The commission has confused all parties’ understanding of the law and yet they still haven’t issued an opinion telling us what they really mean,” said a lawyer for Milwaukee, Nicholas Miller, an attorney at Washington-based Miller & Van Eaton, a boutique firm focused on regulatory communications issues. In Illinois, AT&T sued seven Chicago suburbs over ordinances barring the company, at least temporarily, from putting enlarged facilities cabinets needed for the new service in public rights-of-way without the franchise agreements. Illinois Bell vs. Itasca, No. 06-2439 (N.D. Ill.). The cities, including Itasca, Carpentersville, Roselle, Wheaton, Geneva, Wood Dale and North Aurora, are concerned that AT&T’s new five-foot high cabinets are unattractive and can cause obstructions, said Jim Knippen, a lawyer with Walsh, Knippen, Knight & Pollack in Wheaton. They are also worried that cable companies could sue them if they don’t treat AT&T similarly, said Knippen, who represents four of the suburbs. Settlement talks in Milwaukee are proceeding alongside the litigation, said AT&T Wisconsin spokesman Jeff Bentoff. That’s not the case in Illinois, though some of the communities are working on revised ordinances, Knippen said. In Wisconsin, representatives for Milwaukee, AT&T and cable rival Time Warner Cable Inc. are lobbying state lawmakers on legislation that could settle the issue, said Moschella, who declined to detail the city’s position. When California passed a law last year giving the state purview for any video franchising, the town of Walnut Creek, 30 miles east of San Francisco, expected to get rid of an AT&T lawsuit over city conditions on permits related to the service, said Paul Valle-Riestra, the city’s attorney. AT&T refused to back down and is still seeking damages in federal court for the delays it says the city caused, Valle-Riestra said. Pacific Bell v. Walnut Creek, No. 05-4723 (N.D. Calif.).

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