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AT&T cannot be ordered by a local jurisdiction to share its cable lines with other, competing Internet service providers (ISPs), the 9th U.S. Circuit Court of Appeals held June 22 ( AT&T v. City of Portland, 9th Cir., No. 99-35609, 6/22/00). The suit has been the most-watched U.S. case involving the issue of whether local governments can mandate that cable companies follow a policy of “open access” — allowing other ISPs to have the same access at comparable terms to the cable Internet subscribers that the cable company’s own (or affiliated) ISP has. The debate over open access accelerated last summer when the Portland city government demanded that AT&T, which had just purchased the local cable franchise, allow competing ISPs to have the same kind of access to customers that AT&T’s ISP partner, [email protected], had. The company, which had to seek renewed franchise approval from Portland when it acquired the local cable company, immediately declared its intention to resist such a regulatory requirement, partly because the telecom giant saw its bundled Internet-service offering as a way of recouping its investment in building out the cable infrastructure. The company argued that local governments were out-of-bounds in imposing such a requirement, but lost in the U.S. District Court for the District of Oregon on June 9, 1999 ( AT&T Corp. v. City of Portland, D. Ore., No. CV 99-65-PA, 6/9/99). AT&T appealed the decision, and the Ninth Circuit reversed the judgment of the district court, based on its conclusion that the federal Communications Act prohibits a local franchising authority (LFA) from conditioning the transfer of a cable franchise upon the cable operator’s grant of unrestricted access to its cable broadband transmission facilities for Internet service providers other than the operator’s proprietary service. STRUGGLE OVER BROADBAND At the outset, the court of appeals, in a opinion authored by Judge Sidney R. Thomas, characterized the case as “a struggle for control over access to cable broadband technology,” which would allow users to access the Internet at speeds 50 to several hundred times faster than those available through conventional computer modems connected to what is commonly referenced in the telecommunications industry as “plain old telephone service.” The court said the race to develop broadband capability has triggered the deployment by cable, telephone, wireless, and satellite providers of new technologies, and it has also triggered a number of corporate mergers. The court noted that the merger between AT&T and Telecommunications Inc. is what led to the current lawsuit. In order to effect the merger, AT&T and TCI sought approval from three separate governmental authorities: the Department of Justice, the Federal Communications Commission, and the City of Portland. The DOJ approved the merger provided that TCI divest itself of its Sprint PCS wireless holdings. The FCC considered, inter alia, whether to impose an open-access requirement as a condition of the merger, but opted not to, reasoning that other broadband technologies being developed would provide Portland’s Internet users with choices as to broadband content and services. The third authority, Portland, has the power under the Communications Act as an LFA to condition the transfer of a franchise “upon such conditions, related to the technical, legal, and financial qualifications of the prospective party to perform according to the terms of the Franchise, as it deems appropriate.” After public hearings in which other companies, including Internet service providers, called for open access, the local governmental authority voted to approve the transfer subject to an open-access requirement, which was based on cable Internet access (also known as “cable modem services”) being classified as “cable services” as that term is used under Title VI of the Communications Act. AT&T refused the condition, which led to a denial of the request for a transfer of the franchise, and then brought suit seeking declaratory judgments to the effect that the open-access requirement violated the Communications Act and the Commerce Clause, Contract Clause, and First Amendment to the U.S. Constitution. NOT MAKING NATIONAL POLICY The court asserted that it would not yield to the requests of parties and amici that it set national telecommunications policy with regard to Internet access. Instead, it viewed the issues solely in terms of properly interpreting the language of the Communications Act. “Because Portland premised its open access condition on its position that @Home is a ‘cable service’ governed by the franchise, we begin with the question of whether the @Home service truly is a ‘cable service’ as Congress defined it in the Communications Act,” the court wrote. “We conclude that it is not.” The court observed that the Communications Act defines cable service as “(A) the one-way transmission to subscribers of (i) video programming, or (ii) other programming service, and (B) subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service.” According to the court, “[t]he essence of cable service � is one-way transmission of programming to subscribers generally.” With the @Home Internet service, the court found, “access is not one-way and general, but interactive and individual beyond the ‘subscriber interaction’ contemplated by the statute.” The court noted that Internet users’ accessing Web pages, corresponding via e-mail, and participating in live chat groups are examples of two-way communication and information exchange “unmatched by the act of electing to receive a one-way transmission of cable or pay-per-view television programming.” Furthermore, the court found, applying the “carefully tailored scheme” of cable regulation to broadband Internet access would lead to “absurd results,” such as mandatory set-aside channels for public, educational, or governmental use. “We cannot rationally apply these cable television regulations to a non-broadcast interactive medium such as the Internet,” the court wrote. Because cable-modem services/broadband Internet services are not “cable services” within the meaning of the Communications Act, the court held, Portland may not directly regulate them through its franchising authority. Thus, a cable operator does not require a franchise from an LFA in order to offer such Internet services. SCOPE OF CABLE FRANCHISE The court then turned to the issue of whether Portland could condition AT&T’s provision of standard cable service upon its opening access to the cable broadband network for competing ISPs. “To do so, we must determine how the Communications Act defines @Home,” the court wrote. The court noted that under the statute Internet access for most users “consists of two separate services” — “telecommunications” (the linking up of a computer to an ISP, usually over a phone line) and “information services” (the ISP itself, which allows the “generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications”). Although ISPs in general are users of telecommunications services themselves, the court found, as to their subscribers they are “information services” and not subject to regulation as telecommunications carriers. In fact, the court said, such services have never been subject to regulation under the Communications Act. But @Home is a different sort of entity, the court found. “Like other ISPs, @Home consists of two elements: a ‘pipeline’ (cable broadband instead of telephone lines), and the Internet service transmitted through that pipeline,” the court stated. “However, unlike other ISPs, @Home controls all of the transmission facilities between its subscribers and the Internet,” the court stated. “To the extent @Home is a conventional ISP, its activities are one of an information service,” the court said. “However, to the extent that @Home provides its subscribers Internet transmission over its cable broadband facility, it is providing a telecommunications service as defined in the Communications Act.” The court stated that under these definitions Portland is barred by the Communications Act from conditioning the franchise transfer upon AT&T’s provision of the telecommunications component of @Home’s services. “The Communications Act includes cable broadband transmission as one of the ‘telecommunication services’ a cable operator may provide over its cable system,” the court found. “Thus, AT&T need not obtain a franchise to offer cable broadband.” Portland also may not impose any requirement that has “the purpose or effect of prohibiting, limiting, restricting or conditioning” AT&T’s provision of cable broadband; Portland may not order AT&T to discontinue cable broadband; and Portland may not require AT&T to provide cable broadband as a condition of the franchise transfer. “Therefore, under the several provisions of Section 541(b)(3), Portland may not regulate AT&T’s provision of @Home in its capacity as a franchising authority, and the open access condition contained in the franchise transfer agreement is void,” the court concluded. The court noted, however, that the definition of cable broadband connectivity as a telecommunications service renders that component of @Home’s services subject to the Telecommunications Act of 1996′s “dual duties of nondiscrimination and interconnection” — in effect, common carriage. The court indicated that the FCC had the authority under the Telecommunications Act to subject cable broadband to common carriage regulation, although it added that “[w]e note that the FCC has broad authority to for-bear from enforcing the telecommunications provisions if it determines that such action is unnecessary to prevent discrimination and protect consumers, and is consistent with the public interest.” PORTLAND LOST, BUT DID AT&T WIN? The final conclusions of the court of appeals sparked comment from all sides in the ongoing open-access dispute. “AT&T won the battle but lost the war,” said one Washington-based regulatory analyst, who explained that the company had “lost the broader fight over whether their service is regulated or not.” Some ISP representatives said they believed the decision amounted to a call for FCC intervention. “FCC inaction so far has, in effect, meant that the cable systems have been closed to competition,” said Dave Baker, Earthlink’s vice president of law and policy. The issue is back in the FCC’s court now, Baker said, adding that “since they’ve supported open access in principle, I can’t imagine them backing down.” One FCC official seemed to suggest that the agency would be compelled to respond to the issue. “These are open questions on which the commission has not yet ruled and presumably will rule soon,” the official said, adding that, “I suspect all of this will be brought to our doorstep very soon.” AT&T, in contrast, declared the decision a “complete victory,” in the words of one company spokesperson. “Our point was that local authorities are not allowed to regulate telecommunication services and we won,” he said.

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