must use the ISP owned by TCI, called @Home, for Internet access.
Officials from Portland and Multnomah County, where Portland is located, challenged this policy, attempting to condition approval of a transfer of control agreement to AT&T -- required when AT&T merged with TCI -- with an open-access provision intended to stimulate competition in the market for the benefit of residential consumers.
In a brief submitted to the U.S. District Court in March, Portland and Multnomah County officials set forth their arguments.
One argument warned, "@Home's [Securities and Exchange Commission] filings affirmed that there were reasons for the city to be concerned about the competitive effect of the merger. @Home characterized itself as having exclusive access to a majority of the houses in the United States and described its exclusivity arrangement in ways that left little doubt as to their potential for limiting competition and innovation."
The court sided with Portland and Multnomah County, upholding the open-access condition. Judge Owen Panner, in his written opinion, noted, "Congress specifically recognizes the power of local franchising authorities to preserve competition for cable services. Local franchising authorities have the power to determine whether a change of ownership or control would 'eliminate or reduce competition.' The franchising authority's power to prohibit a change of control includes the lesser power to impose conditions under which it will permit a change of control."
AT&T appealed the June decision, and is asking for an expedited hearing on the matter.
In its brief to the Ninth Circuit U.S. Court of Appeals, AT&T argued, "the challenged local ordinances [the open-access condition] must be invalidated because they are plainly inconsistent with the controlling statute and constitutional principles" and "they also threaten a balkanized approach to national telecommunications regulation that would deter beneficial investment and deny customers new services."
Meanwhile, the FCC is taking a wait-and-see approach. FCC Chairman William Kennard, in a speech to the National Cable Television Association (NCTA) in June, articulated a "high-tech Hippocratic Oath" that pledged "a hands-off, deregulatory approach to the broadband market." He noted that the FCC approved the AT&T/TCI merger "without imposing conditions that they open their network."
Kennard also addressed the Oregon situation and local regulation in general, saying, "instead of a national policy of deregulation and competition, [local government officials] want a local policy of regulation. If every one of them decided on their own technical standards for two-way communications on the cable infrastructure, there would be chaos. The market would be rocked with uncertainty. Investment would be stymied. Consumers would be hurt."
However, Kennard's speech contained elements of a warning to the cable industry. He told industry leaders that "the ball is in your court" to "act responsibly" to ensure that consumers get broadband following the open tradition of the Internet. Kennard warned NCTA members that "we are not regulating, but we are watching."
The open-access issue is a complicated knot for cities to untie. The FCC says cities should keep their regulatory hands off but warns industry that the federal hammer can come down. Corporations are subtly threatening to withhold broadband investment in the face of local attempts at regulation; while constituents, both consumers and small businesses such as ISPs, plead for open-access conditions and increased competition.
One City's Approach
Los Angeles, last December, found itself in Portland's situation. The City Council reviewed the AT&T/TCI request for approval of transfer of control and conducted the necessary public hearings. As in Portland, Los Angeles officials heard from consumers and small businesses arguing for open access and competition.
The Council asked its ITA to study this dilemma and report back to the council. "What we did is look at what would be best for