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California and the West

S.F. Won't Open Cable to Internet Firms

Communications: AT&T wins much-watched battle, agrees to spend $50 million on upgrades so it can offer Net service.

July 27, 1999|CHARLES PILLER and MARIA La GANGA | TIMES STAFF WRITERS

SAN FRANCISCO — America's most-wired city on Monday turned back a move that would have required telecommunications giant AT&T to open its network of cable television lines to competitors that would use them to offer high-speed Internet access to consumers.

But in a negotiated compromise finalized Monday by the San Francisco Board of Supervisors, AT&T agreed to promptly upgrade the city's cable infrastructure so that it can handle Internet services as well as television signals, an effort that will cost an estimated $50 million.

The supervisors also approved a resolution that allows them to require AT&T to provide open access in San Francisco should it become available in any other municipality.

San Francisco's prominence as a bellwether for technology trends and home to many high-tech companies means that Monday's decision could influence the approach taken by local governments in Los Angeles and other municipalities nationwide.

"It gives us the option" to impose open access at a later date, said Supervisor Leslie Katz. "It buys us some time, and in the meantime we get a built out system."

Like Los Angeles, which has delayed any decision about open access until the fall, San Francisco had been the target of a multimillion-dollar lobbying campaign pitting AT&T--the nation's leading cable provider after its recent acquisition of Tele-Communications Inc.--against America Online and other companies that provide Internet access over phone lines. Cable TV lines can provide Internet access at 50 to 100 times the speed of a standard modem connection, and therefore are coveted both by sophisticated Web users and by providers such as AOL, which can charge a premium for high-speed service.

The antagonists rallied hundreds of supporters to Monday's meeting. Emotions ran high when many were herded from the supervisors' chambers to an overflow room even before the meeting began. Enough spectators remained, however, that the crush of bodies accidentally set off a fire alarm, temporarily delaying the meeting while more people were escorted out.

Local governments regulate cable providers, which generally hold monopolies on local cable TV franchises. Portland, Ore., and Broward County, Fla., have already used this power to mandate open access, but AT&T has challenged those decisions in court.

AT&T acquired Tele-Communications in a $55-billion takeover March 10. The acquisition, along with the pending purchase of MediaOne, would make the telecommunications giant the nation's largest provider of cable television services.

In an unusual move Monday, the supervisors adjourned the public hearing to go into a private room and hash out a compromise with AT&T over conditions at the heart of the board's decision--the transfer of Tele-Communications' San Francisco cable franchise to AT&T.

The 75-minute session focused on the contentious issue of open access. Local officials had tentatively negotiated conditions in the cable contract that require the upgrade of the cable infrastructure so that it can handle Internet services as well as television signals. The pact also requires free high-speed Internet access for libraries and prohibits redlining, or failing to offer access in poor neighborhoods.

AT&T had said that if it is forced to open its cable lines to competitors, it could walk away from the infrastructure upgrade, which the city strongly desired.

But Katz said: "This is a market that AT&T is going to want to be in. Period. It would be foolish not to offer your services to the No. 1 most wired city in the country."

AT&T is the largest shareholder in Excite@Home--the Redwood City, Calif.-based company whose @Home service is the largest Internet provider over cable systems, serving some 650,000 subscribers nationwide.

The company has expressed willingness to open its network to competing Internet providers--but only for a fee paid by consumers on top of the $39.95 per month collected by @Home. That strategy would protect AT&T's cable investment and the high cost of upgrading its networks to handle Internet traffic.

The company also rejects government regulation--particularly on the local level--as antithetical to the growth of the Internet.

"If we have 30,000 different municipalities deciding how to regulate the Internet, it will be a regulatory Vietnam," said Matt Wolfram, a spokesman for Excite@Home.

Advocates of open access, including some consumer groups, argue that the additional fees would make competition difficult, if not impossible. If cable monopolies are preserved, they say, users will pay unnecessarily high fees and receive inferior results--an argument buttressed by ongoing service outages and other problems in a wide range of @Home service areas, including some suburbs of San Francisco.

"We have resolutions of support from dozens of renters and homeowners groups, community-based organizations," said Bill Barnes, spokesman for the Bay Area Open Access Coalition, a consumer advocacy group backed by AOL and telephone company interests. "They're looking at it as a $15, $20, $30 issue. They don't want to have to pay twice to access their [provider] of choice."

Many industry watchers believe that ultimately, the federal government or the U.S. Supreme Court will have to settle the issue, a view that may gain credence in light of the San Francisco decision.

Bruce Leichtman, a telecommunications analyst with the Yankee Group in Boston, predicted that the Federal Communications Commission or Congress will have to step in. FCC Chairman William Kennard has already argued in favor of a national policy, but is leery of federal regulation before the high-speed access market has had a chance to develop, and has stopped short of directing his agency to take up the issue.

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