FROM CBS.MARKETWATCH.COM (Please take notice of the last four paragraphs entitled "What Price Access") AT&T told to open cable access lines AOL shares soar, ExciteAtHome stock plunges on ruling
By Jeffry Bartash & Bambi Francisco, CBS MarketWatch
Last Update: 8:57 PM ET Jun 4, 1999 NewsWatch
Earnings Surprises
PORTLAND, Ore. (CBS.MW) -- A federal judge in Oregon ruled Friday that AT&T must open its cable lines to rival Internet access providers, handing America Online and other Net companies a victory in their bid to offer high-speed Web services.
U.S. District Court Judge Owen Panner's decision only directly affects the Portland area, but analysts said companies will seize on the ruling as a precedent they can use elsewhere to exploit cable lines for Internet services.
AT&T said the ruling was "inexplicable" and vowed to appeal.
The ruling sent shares of Ma Bell-controlled ExciteAtHome (ATHM: news, msgs) plunging 11 1/4, or 11 percent, to 94. AOL (AOL: news, msgs), meanwhile, jumped 10 7/8, or 10 percent, to 116 7/8. Other ISPs, such as MindSpring (MSPG: news, msgs) and EarthLink (ELNK: news, msgs), also surged. AT&T (T: news, msgs) slipped 7/8 to 53 3/8.
First fissure
"The dam is cracking (for AtHome)," said Anthony Stoss of Southeast Research Partners. "The stage is set for other Internet service providers to lobby for open access as well."
AT&T now offers high-speed cable Internet service in a small number of its territories through ExciteAtHome, and it's upgrading the rest of its cable lines to offer such service as well.
AOL and other ISPs fear that without cheap access to AT&T's lines, they'll lose customers as consumers switch from slow 28K and 56K modems to the speedier cable connections, which many analysts believe will dominate in the next century.
AOL has deals to offer high-speed service over the phone lines of the local Bell carriers, but thicker cable wires potentially can carry more data at greater speeds.
Slow crawl
Yet while the ruling is significant, it still doesn't guarantee AOL and other ISPs a high perch in the fast-approaching world of ubiquitous high-speed Internet access.
The June 4 ruling only covers the municipality of Portland, Ore., though other cities and towns could follow suit. Still, with AT&T planning to contest that ruling (and others), it could take years for the issue to be resolved, at great cost and with substantial delays for Internet service providers.
"Trying to get nationwide policy done on a statewide basis is a laborious process," said George Reed-Dellinger, a telecom analyst at HSBC Washington Analysis who covers regulatory issues. AOL would also have to persuade thousands of municipalities to join its cause, some of which are unlikely to do so, he noted.
Lobbyist Ma Bell
To avoid such an ordeal, AOL has been badgering federal regulators to force AT&T to open its cable lines on a nationwide basis, but so far they have balked.
The Federal Communications Commission is feeling pressure from Congress to spur competition in the monopolistic local phone market. AT&T's move into the cable business -- it will potentially have access to 60 percent of all American homes -- will do just that, since Ma Bell also plans to offer phone service.
At the same time, however, AT&T is acquiring a near-monopolistic position in high-speed cable Internet access. FCC officials appear sympathetic to the concerns of AOL and others but are unsure about their jurisdiction and worry about a backlash from an anti-regulatory Congress. So it's been hands off for now.
For that reason, the financial markets assumed regulators didn't have the authority -- or guts -- to tackle the issue, lifting AtHome's stock and weighing down AOL.
The next round
The Portland ruling certainly changes the equation. Scott Cleland, a regulatory expert at Legg Mason Precursor Group, called the judge's decision "significant" and said the odds favor its being upheld on appeal.
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"The federal district court has ruled, definitively until appealed, that cities across the country have the authority to require open access," he said.
Of course, AT&T plans to fight.
"Today's decision is inexplicable," said Mark Rosenblum, AT&T's legal vice president. "The actions taken by officials of Portland and Multnomah County are beyond the legal authority municipalities have to review cable franchise transfers. Clearly, we will continue to pursue our legal case."
AT&T acquired the Portland cable franchise through its purchase earlier this year of Tele-Communications Inc. As a condition of approval, city officials had demanded that AT&T allow open access, a position the carrier refused.
AT&T has repeatedly said that requiring open access could limit its potential profits and thus crimp spending on the upgrades that would allow the rest of its cable network to offer phone and high-speed Internet service. With the company already in hock for more than $110 billion in cable purchases, however, analysts doubt AT&T will all of sudden slash spending on cable upgrades.
What price access?
Left unanswered in the judge's ruling is another, perhaps more critical, issue: How much should AT&T be allowed to charge for access to its cable lines. AT&T could charge such a high amount, for example, that it would still be cheaper for consumers to purchase its AtHome cable Internet service than that of a rival provider like AOL.
If that happens, ISPs would likely have to go back to court in pursuit of limits on how much AT&T could charge.
For AT&T, the ruling is much less a blow than it is for AtHome. Even if it eventually loses the appeal -- a process that could take up to a year or more -- Ma Bell still stands to profit handsomely. The ISPs will have to pay up no matter what.
"Nobody is asking AT&T to give away their access. Let AT&T make a fortune charging access. The customers will win. The competitors will win. And AT&T will win," said Jeffrey Kagan, an independent telecom analyst based in Atlanta. "The only negative ... from AT&T's perspective (is) that they have to let competitors use their facilities."
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