Open Access Court Ruling – Portland, OR

In June 1998, long-distance telephone company AT&T announced itsintent to buy TCI, one of the country’s largest cable companies. TheCity of Portland and Multnomah County, Oregon agreed to transfer ofcontrol of local TCI franchises to AT&T only if AT&T allowedunaffiliated Internet service providers (ISPs) to lease capacity on thecable network. This would permit subscribers to use an ISP of theirchoice, and non-affiliated ISPs would pay AT&T a wholesale rate forthe use of its lines.

TCI and AT&T did not acceptthe condition, and the city and county denied AT&T /TCI theirrequested franchise transfer. In January 1999, AT&T and TCI filed alawsuit against the city and county, seeking a declaratory judgmentthat the non-discriminatory access requirement was unlawful andunconstitutional.

On June 4, 1999 the U.S. DistrictCourt for Oregon upheld the local ordinance of Portland and MultnomahCounty, requiring AT&T to open up its cable lines to third-partyISPs. While AT&T had argued that federal law regulating cablefranchises preempted local authority, the judge in the case concludedthat the open access requirement is within the authority of the cityand county to protect competition.

This was a triumphfor local authority, but it did not last long. On June 22, 2000 theU.S. Court of Appeals for the Ninth Circuit overturned the lowercourt’s ruling.

The court’s reasoning, however, wasunexpected. The court ruled that Excite@Home, AT@T’s affiliate ISP, isnot a cable service, but rather a telecommunications service. Thismeans that Internet service over cable is not subject to regulation bythe city (as are cable services), but by the FCC.

Manyanalysts interpreted the result as a dubious victory for AT&T."AT&T won the battle but lost the war," Scott Cleland, a regulatoryanalyst with Legg Mason, a market research group, told the New York Times.If Internet services over cable lines are defined as a"telecommunications service", there is a strong chance that the federalgovernment will require cable operators to open their lines, as otherproviders of "telecommunications services" are required to do.

Mr.Cleland was half right. AT&T lost the war. Excite@Home filed forbankruptcy in 2001. AT&T sold its cable business to Comcast in 2001for a fraction of what it paid in 1999. After several rough years, SBCagreed to purchase what remained of the company.

But the cable industry as a whole fared well. After the Appeals Courtdecision, FCC Chairman William Kennard announced that the FCC wouldbegin to formulate a national open access policy. Kennard suggestedthat the recent court decision did not necessarily mean open accesswould be required of cable systems. "Calling this a telecom servicedoesn’t mean it invokes all the traditional telephone regulations," hesaid. "It just sets up a framework." In 2002, the FCC ruled that cablemodems are neither a cable service nor a telecommunications service,but an “information service.” For more information, see FCC Ruling onBroadband as an Information Service.

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