Cable on front line of broadband war
Major Internet players battling over access to your
living room
By By Matt Beer
EXAMINER TECHNOLOGY WRITER
All may seem tranquil in Bay Area living rooms, as hundreds of
thousands of viewers settle down to watch their favorite cable TV
shows, brought into their homes via a thick, black wire.
But on the other side of that cable, a nasty corporate brawl is
erupting.
At stake are billions of dollars in corporate investments — and
possibly the future of Bay Area high-speed Internet service.
The combatants are the giants of the information age, including
AT&T, GTE and America Online. All are slinging allegations at each
other, ranging from wholesale technology theft to Big Brother-ism.
Their feud is over the right to provide Internet access service over
high-speed cable TV connections. It's a brewing battle that is now a
front-burner fight, renewed by a recent court decision.
That ruling, handed down last Friday by a Portland, Ore. federal
judge, mandates that AT&T — which became the nation's largest
cable TV operator when it bought Tele-communications, Inc. (TCI)
last year — has to open its Portland cable system to other Internet
services providers, also known as ISPs.
Not surprisingly, AT&T is up in arms over the ruling, protesting that
it should not have to share a network it spent billions on. Meanwhile,
the ruling has outside Internet service providers (ISPs) salivating at
the chance to use AT&T's system, which now reaches 10.6 million
users.
The Portland ruling, which AT&T vows to appeal, has sparked
all-out lobbying efforts by AOL, GTE and other major ISPs in San
Francisco and other cities that govern AT&T cable systems.
Lobbyists and "citizen groups" have descended onto City Hall,
dousing supervisors with paperwork, studies and model resolutions
seeking to crack open The City's cable franchise, with the Portland
decision acting as the hammer.
"It's a good decision that other cities should follow," said John
Riposa, assistant general counsel for Dallas-based GTE Corp, who
has been visiting City officials.
AT&T has launched its own counter-campaign, visiting local
politicians, hoping to prevent other local governments from
challenging the AT&T/Excite@Home agreement. The
telecommunications giant has also engaged in a bit of legal saber
rattling.
"Cities that think they should follow that decision, do so at their own
peril," said James Cicconi, AT&T's general counsel and executive
vice president.
"This really is the battle of the titans," said David Pine, a vice
president and general counsel for Excite@Home Corp., the
Redwood City-based cable modem company that has the exclusive
rights to provide ISP access to the AT&T system. "It's a huge fight
with lots at stake."
According to the Internet research firm Forrester Research, Inc.,
U.S. computer users spent $28.7 million on Internet access in 1998.
By the end of 1999, that figure is expected to top $35 million. At the
end of 2000, U.S. Internet fees will top $45.3 million and are
expected to nearly total $77.6 million by 2002.
But connection fees are just part of the ISP revenue picture. Net
surfers usually stay with the Web pages they're presented when they
log onto an ISP. An Internet provider, by first directing its users to
its own Web pages, easily becomes a popular "home page" for Web
browsers. Ad revenues and e-commerce purchases made from
these pages add to an ISP's revenue stream.
Most home Internet users access the Internet through modems
plugged into telephone lines. Phone modems take from 20 to 30
seconds to download a one megabyte computer file.
A TV cable Internet modem, however, can connect at speeds up to
100 times that of a phone modem. A one megabyte download can
takes less than a second over this kind of connection. Also, unlike
phone modems, cable modems are always connected to the
Internet, which eliminates the dial-up process of a phone modem
connection.
High speed Internet connection speeds, referred to as "broadband
access," are seen as the final step in the realization of the digital
revolution, allowing users to easily bring smooth video movies, music
and other content into their home computers. It's a technology that
experts say will make e-commerce boom. It's an advance that could
possibly bring cheap long distance telephone networks online.
This broadband access has, until recently, been the dirt access road
of the information superhighway.
Technologies such as ISDN and DSL, which use existing copper
wire telephone lines to bring broadband speeds to users, have been
restricted by the limitations of a phone system never intended to
carry dense computer data. ISDN requires two telephone lines and
a complicated setup process. DSL is restricted geographically to
those who are within several miles of a telephone central office.
Attempts to bring broadband access to homes via wireless
transmission, from either ground stations or satellites, have also
proven to be expensive and unreliable.
Television cable Internet access, however, has emerged as a viable
home broadband connection, using the ubiquitous TV cable already
found in many homes. And Excite@Home holds the exclusive rights
to provide that service to millions of AT&T subscribers until the year
2002. AT&T also owns 26 percent of Excite@Home Networks.
(One of Excite@Home's founders, William Hearst, was a past
publisher of The Examiner. He currently sits on the board of
Excite@Home, and is a member of the family that owns Hearst
Publications, which owns The Examiner.)
ISPs and other Internet companies have been trying to break into
this market. America Online's CEO Steve Case and other Internet
executives have personally lobbied federal regulators and legislators
— unsuccessfully — hoping to weaken the Excite@Home/AT&T
cable modem agreements.
In April of 1998, the Senate Commerce Committee refused to
adopt legislation forcing AT&T to open its Internet service to ISPs.
Alaska Senator Ted Stevens called regulations that would have
mandated ISP access "unwarranted."
In May, Federal Communications Commissioner William Kennard
also refused to enact regulations breaching the
AT&T/Excite@Home contract, in keeping with the credo
enunciated in an earlier speech, where he declared, "As long as I am
chairman of the Federal Communications Commission, we will not
regulate the Internet."
Changing the rules of the game
The fight for cable Internet open access changed in June, 1998,
when when TCI, one of the country's largest cable systems,
announced it would become a wholly-owned subsidiary of AT&T in
a $48 billion deal that closed this past March.
Because of that change in ownership, TCI's cable TV agreements
came under review by local municipalities. ISPs like America Online,
GTE, Mindspring and others aimed their lobbying efforts toward
these municipalities, hoping to gain locally what they couldn't
accomplish nationally.
The Portland decision, handed down June 4 by the Oregon U.S.
District Court, was the first victory for open access. Judge Owen
Panner ruled that Portland's requirement that AT&T open its system
to competing ISPs did not violate local or federal cable regulations
or the Constitution.
That decision has fueled a renewed push in San Francisco and other
Bay Area cites. Oakland has already adopted a "Portland" clause
that calls for non-Excite@Home access to their AT&T-owned cable
system should Judge Panner's decision be upheld on appeal.
In San Francisco, Board of Supervisors President Tom Ammiano,
after several meetings with area ISPs, AOL officials and others, has
asked the City's Telecommunications Commission and Public
Utilities Commission to study the matter.
"We've really became aware of all this a couple of months ago," said
Denise Brady, a deputy director with San Francisco's
Telecommunications Commission. "But we're trying to get up to
speed on it."
The local push mirrors a renewed national campaign. This coming
week, AOL and GTE plan on staging a demonstration of open
access cable modem technology for Washington politicos.
The corporate offensives have taken on a near-religious fervor.
Open access, its proponents argue, will only continue the Internet's
explosive growth and development. It also, they add, will further the
democratic flow of online information.
"It is vital to the American people and our economy that access to
the Internet remain open," said GTE's Riposa. "The bottom line is
that the consumers have choice, they need choice and ought to have
choice."
Added Riposa: "Control over access to a medium is control over the
medium itself. What AT&T is attempting to do is control access to
the Internet. They will, thereby, control the Internet."
Fair play or underhanded tactics?
Open access proponents also have been fielding "citizen groups" to
talk to the press about supposed grass-roots open access
movements.
But the main body of these groups, The Bay Area Open Access
Coalition, turns out to consist of local ISPs seeking access to
AT&T's cable system.
"We're actually funded and made up of ISPs," said Katie Roper,
who said she was the leader of the organization. "But I'm not at
liberty to divulge who those companies are."
AT&T and Excite@Home counters that open access lets AOL and
others take advantage of a system the ISPs ignored for the last
several years.
"Now that they see that it works, that they see that it's a threat, they
want a free ride," said Ted Jermoluk, Excite@Home's CEO. "What
the ISPs are actually asking for is a handout to make up for their
lack of vision... for a bad business plan."
Jermoluk also accuses AOL, GTE and others of even more sinister
motivations. He claims that AOL and the ISPs are trying to stall
cable Internet connections by forcing a technological traffic jam on
the system with open ISP access, the better to let them develop
other broadband alternatives, including an AOL partnership with
local telephone systems to bring DSL service to its subscribers.
GTE's Riposa counters that the technology exists "off the shelf" to let
other ISPs access AT&T's system. Jermoluk laughs at that
assertion.
"The system just isn't there to handle something like that," said
Jermoluk. "We don't really know how to make it all work, and
we've been at this for five years."
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