District Court Upholds Portland's Open Cable Access Rule

(June 7, 1999) U.S District Court Judge Owen Panner upheld the City of Portland's ordinance requiring AT&T to open its cable network to Internet service providers. AT&T vowed to continue the legal fight.

The issue has major implications, not only for AT&T, but for the deployment of broadband Internet access to the consumer market. AT&T is transforming itself from a long distance voice telephone company into a diversified company providing voice, data and Internet services. One part of its strategy is to acquire cable companies, such as TCI, which have cable lines into millions of homes.

AT&T's goal is to use these cable networks to provide not only traditional cable entertainment, but also broadband Internet access to the home, and telephony services directly into the home.

AT&T bundles its cable Internet access with its own ISP, @Home. AT&T does not want competing ISPs to have open access to its cable networks.

On the other hand, these competing ISPs argue that they will not be able to compete in a broadband world unless they are provided open access to broadband networks. They argue, for example, a customer could purchase AT&T's services, and then also subscribe to another ISP, but many would not, since they would already have @Home service. Also, @Home service would be provided at broadband speeds, while typical Internet service today is provided over slow phone lines at 28 or 56 Kbps.

ISPs have already unsuccessfully sought to have either the Congress or the Federal Communications Commission mandate open access to cable networks. However, neither wants to inhibit local phone competition. Nor does either want to do anything that might slow down the rapid deployment of widespread broadband Internet access.

In June 1998 AT&T announced that it would acquire Tele-Communications, Inc. (TCI) as a wholly owned subsidiary. This provided AT&T with one of the leading cable television companies in the country, with nearly 11 million customers. TCI provides cable service in Portland and Multnomah County.

TCI had previously entered into Franchise Agreements with Portland and Multnomah County permitting it to provide cable service. Portland and Multnomah County have authority to approve transfers of control. When AT&T entered into the process of acquiring cable company TCI, this entailed a transfer of control.

AT&T and TCI applied for license transfers from Portland/Multnomah. The Mt. Hood Cable Regulatory Commission (MHCRC), which advises Portland/Multnomah, held hearings on the applications, and recommended the mandatory access condition. Both the City and the County decided to condition their approval of the applications on AT&T's agreement to provide open access to all ISPs to its cable network in Portland and Multnomah County.

AT&T refused. The City and County refused to grant the transfers of control. The lawsuit followed.

AT&T/TCI alleged a variety of legal theories as to why the Portland/Multnomah mandatory access requirement was illegal. AT&T/TCI argued that locally mandated open access requirement is preempted by federal statutes. It also argued that Portland/Multnomah violated the contracts, commerce and free speech clauses of the U.S. Constitution. Finally, AT&T/TCI argued that Portland/Multnomah breached TCI's franchise agreements, which permitted transfers of control. However, Judge Panner rejected all arguments.

Mark Rosenblum, AT&T vice president - law stated on Friday that "Today’s decision is inexplicable. AT&T raised numerous substantial challenges to these ordinances, going to the jurisdictions’ legal authority to adopt these rules as well as the soundness of the rules themselves. The most significant aspect of the decision is its failure to address any of these challenges in a meaningful way."

Rosenblum continued that, "We continue to believe strongly in the merits of our legal arguments. 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."

"In the meantime, the real losers are likely to be the citizens of Portland and Multnomah County. This decision can only have the potential to delay and reduce the new services that companies like AT&T will be able to offer them."