Identity Crisis

Is it cable internet or telecom?

When the nations largest cable operator told lakewood, calif., last month that it could no longer collect local franchise fees from Internet customers, city officials were dubious.

"Were no pushovers," says Lakewood spokesman Donald Waldie. "When cable operators make assertions of their rights, the City of Lakewood is going to look hard at those decisions."

Like other cities on the West Coast, the Los Angeles suburb is trying to figure out where it stands six months after a landmark court decision wrested control of cable Internet connections from local authorities.

Known as the Portland decision, the ruling by the 9th Circuit Court of Appeals in San Francisco reversed a lower court ruling and held that Portland, Ore., did not have the right to regulate Internet service provided by AT&T. Local authorities regulate and collect franchise fees on cable television, but Internet connections fall under the heading of telecommunications and information services, the court said. Thus, those services are subject to federal regulation only.

For the cities covered by the 9th Circuit, the other shoe dropped when AT&T and Cox Communications interpreted the ruling to mean that local franchise fees on Internet connections were no longer valid. While Cox quit paying fees in mid-November, AT&T proposed alternative arrangements until the matter is clarified.

"These are pass-through fees," says Dave Beckwith, spokesman for the National Cable Television Association. "The benefit of not collecting them is marginal at best to the companies. They dont want to be legally liable, which they are, under California law, if they collect a fee."

To protect themselves from lawsuits, the cable companies are asking the cities to take one of three actions: drop requirements for the fees on Internet service, allow the fees to be placed in escrow or indemnify the cable companies against losses in a potential class-action suit.

Waldie says officials have not determined how much money is at stake. But cable franchise fees for all services in Lakewood totaled $403,000 last year.

Per customer, the Internet franchise fees come to $2 or less. AT&T spokesman Steve Lang says the 9th Circuit jurisdiction includes 300,000 of its customers, including those in Lakewood. Cox has about 250,000 customers in the region, including major markets such as Phoenix, Las Vegas and Orange County, Calif.

While the west coast cities seek to mediate the dispute through the National Association of Telecommunications Officers and Advisors, the cable companies are turning their attention to Washington, D.C. The Federal Communications Commission is considering new regulations on the industry, chiefly requiring cable operators to provide access to competing Internet service providers (ISPs).

Open access is exactly what Portland demanded of AT&T before allowing the company to take over the franchise held by Tele-Communications Inc., acquired by AT&T in 1999 and now operating as AT&T Broadband. In Portland, regional Bell U S West, which merged last year with Qwest Communications International, was seeking access to the cable pipeline.

But local attempts to force open access have occurred elsewhere. In November, District Judge Donald M. Middlebrooks shot down an open access requirement in Broward County, Fla., that was supported by former independent carrier GTE. Agreeing with attorneys for Comcast Cablevision, Middlebrooks ruled that the ordinance violated the cable companys First Amendment rights to freedom of speech and freedom of the press.

For the cable companies, the victory in circuit court had a downside in that they were labeled telecommunications carriers because they provide Internet connections. If that label sticks, cable companies should be treated the same as the other carriers. But cable operators are not rushing to embrace the designation, regardless of what the 9th Circuit says.

"Its a completely different regulatory regime," Lang says. "Just because we reconcile ourselves to the court order doesnt mean weve changed our position."

Cable operators say new federal rules are unnecessary because the major companies are already opening access to rival ISPs.

In Lakewood and other cities, the rapidly changing cable industry and the rise of the Internet have created a number of tough issues. The franchise fee battle is simply the latest.

"This cable franchise was granted in 1980," Waldie says. "Through those 20 years, there hardly has been a year where there has not been some issue where we have had to defend the franchise agreement."