This is a freebie from thestreet.com so I can post: (I apologize if this has already been posted...I have been AWOL)
Portland's Populist Foray Could Come Back to
Haunt Consumers
By Jim Seymour
Special to TheStreet.com
6/6/99 2:25 PM ET
Minor cases in distant jurisdictions often ripple through our legal system in ways
different than, and with far more impact than, the proceedings might indicate.
Late Friday, U.S. District Court Judge Owen Panner ruled in Portland, Ore., that
AT&T (T:NYSE), which I am long, had no right to restrict access by local Internet
service providers, or ISPs, to the wiring grid of cable-TV provider TCI, acquired earlier
this year by Big T.
In buying TCI, AT&T also in effect bought the company's franchise agreements with
thousands of local government entities across the country, each of which then had to
approve the transfer of franchise rights from TCI to A&T. This looked easy enough: It
was a classic political rubber-stamp operation, the sort handled thousands of times a
week in city council chambers and county supervisors' meetings.
But AT&T hadn't counted on the politics of Portland, one of the country's most
desirable areas to live, but also an area with deep populist streaks in its political
consciousness. Asked to approve the transfer, both the Portland City Council and the
Multnomah County Commissioners Court heard the arguments. Then, responding to
loud complaints by local ISPs and consumer groups, they voted in December to
refuse approval of the franchise transfers ... unless AT&T promised that other ISPs
would have access to the AT&T-TCI cable-modem system.
AT&T, which sees @Home (ATHM:Nasdaq) (of which it now controls a nice chunk)
as its horse in the ISP business, logically refused.
A bizarre legal battle ensued -- including, among other oddments, the curious fact
that neither TCI nor AT&T ever offered, or announced plans to offer, cable-modem
service in Portland.
Judge Panner's decision Friday hardly ends the matter -- we can expect an appeal
very shortly -- but it does seriously muddy the waters at this enormously important
moment in the development of the telecom infrastructure that will serve us in the new
century.
Put simply, if AT&T -- or any other cable-access provider -- is forced to treat its
system as a de facto public utility, providing "carriage" to its competitors, those
owners of fast cable-access systems are going to be a lot less willing to invest the
billions of dollars need to update and build out our national telecom infrastructure to
accommodate our needs for higher-speed connections.
Their share prices will undoubtedly suffer too, of course.
Beyond that, the fast cable-access services, such as ATHM and Time-Warner's
(TWX:NYSE) RoadRunner, which today look like such bright stars to investors, will
be far less valuable, reduced to also-rans, competing on a lowest-price basis, in an
era of all-comers' access to those cable systems.
If you haven't been following the Portland case, but all this sounds familiar, it's exactly
the same argument being put forward in Washington these days by America Online
(AOL:NYSE). AOL's lawyers have been complaining to the Federal
Communications Commission, asking for a ruling requiring AT&T and other
fast-access system owners to open their systems to AOL. After all, AOL argues,
these have become nothing more than common carriers, though the wires in question
are cable wires, not telephone wires. AOL says it should be able to offer its
customers access over those lines, just as it offers access over customers' existing
phone lines -- just as telephone customers can choose which long-distance carrier to
access over their telephone lines.
Judge Panner's decision will inevitably put pressure on many other local governing
bodies around the country to play the populist card. It also puts indirect but powerful
pressure on the FCC to bring the open-access question to the front burner.
It's easy to understand the plight and the feelings of ISPs, from the few remaining
mom-and-pop shops to national giants like AOL, in this. They're scared to death that
the appeal of fast connections via cable modems will cause us to drop them and
move to the @Home or RoadRunner services being offered by the cable giants. Local
ISPs, as much as they brag about their service and variety of offerings, in fact have a
pretty terrible record of satisfying their customers, who generally are at least as ready
to jump to a new provider as these ISPs fear.
And while many local and regional ISPs have built up sizable Web-hosting
businesses -- in part because of their long-standing fear of the coming of the
fast-access providers, though also largely because they were going after the
bigger-ticket business market, rather than the mass consumer market, with its
razor-thin margins -- most still rely on that high-volume market of $20-a-month
consumer accounts for the bulk of their cash flow.
But declaring the cable systems of America common carriers would be a disaster for
our national telecom policy, for the companies building these systems ... and for
those unhappy consumers looking for something better. The debt and equity markets
are not going to be willing to finance the huge remaining investments needed to make
fast access available everywhere unless they see commensurate returns flowing to
the AT&Ts of the business from that capital investment.
Friday's ruling seems like one of those cases that, like so many populist efforts to
manage the market, at first appears likely to greatly benefit consumers but in the end
will severely penalize them. What about those local ISPs? In a dynamic market
system, companies, and classes of companies, come and go. Yes, that sounds
Darwinian ... but capitalism is Darwinian.
Local and regional ISPs that have run their businesses well, provided good service
and fair prices, and have positioned themselves well for the future by emphasizing
business customers, will do fine. For the others -- unless as a matter of national
policy we're willing to protect the economically inefficient and the
quality-of-service-challenged -- we need to let consumers speak with their dollars.
No one's taking away the consumer's right to stay with dial-up or ISDN connections
to their current local ISPs -- nor to jump to the fast-access ADSL offerings from their
phone companies, which can be expected to exploit this controversy to the hilt. It's
also worth noting that anyone who wants fast cable-modem access to AOL can
easily convert their $22-a-month, dial-up account to a $7-a-month "content only"
account and then dial in over @Home, RoadRunner or any other fast cable system.
Investors who've made big bets on companies moving aggressively into the
fast-access market -- on every side -- should follow closely developments in the
Oregon and Washington cases, including the ripple effects rolling out from these
jousts.
We're a long way from final decisions, but with Judge Panner's decision, the battle
has truly been joined. |
