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By Mary Johnson
Hartford Business Journal Staff Writer
10/15/07

Legal papers were flying faster than electrons last week as AT&T battled both the Connecticut Attorney General and the state Office of Consumer Counsel to keep expanding its U-verse video service.

With deadlines ticking at the Connecticut Department of Public Utility Control, state officials were aggressively trying to enforce a federal court ruling that would prevent AT&T from taking advantage of a new state law. For its part, AT&T was all but telling the AG and the federal court to take a hike.

AT&T says traditional cable company rules don't apply to its U-verse television product.

The stakes are huge, for both the phone company and for state officials who claim it needs to play by the same rules as Connecticut’s established cable television operators. AT&T wants to offer consumers an Internet-based TV alternative. But Attorney General Richard Blumenthal and state Consumer Counsel Mary Healey say AT&T is trying to gain unfair advantage over its cable company competition.

In July, U.S. District Judge Janet Bond Arterton ruled that AT&T is a cable company under federal definitions, despite an earlier declaration by the state DPUC to the contrary. Arterton entered a final judgment in that ruling on Oct. 2, dismissing an AT&T motion for reconsideration.

But Oct. 1, a new state law went into effect, creating a designation for companies offering Internet-based video services. So AT&T immediately filed for such status, taking the tack that it now qualifies under the changed rules, and doesn’t need to apply for a cable company franchise.

And last week, the Consumer Counsel’s office filed papers to force AT&T to stop any further expansion of its U-verse service. In its motion to the DPUC, the office asserts that the federal court has declared the company to be a cable operator, and unless that ruling is changed, that’s AT&T’s legal status.

“Unless AT&T decides that it will end its outlaw status and become a lawfully franchised cable company … basic due process requires” the DPUC to order AT&T to stop the U-verse rollout, the Consumer Counsel’s office wrote.

AT&T is looking to compete against the existing cable television market with U-verse, an Internet-based technology that provides about 135,000 customers in 40 towns with a cable TV alternative.

For months, the company has battled federal court rulings, regulatory bodies and the Attorney General, all of whom say that if AT&T wants to play on cable’s turf, it has to play by cable’s rules.

AT&T stood its ground, banking on new legislation and “saner minds” to keep it competing in Connecticut’s cable television market with U-verse.

“The law of the land has changed,” said Chad Townes, vice president of AT&T Connecticut. “We’re going to follow the guidelines of the new law.”

Since Oct. 1 the new law lays out different sets of rules for traditional cable service providers and so-called video service providers. The rules for traditional cable companies are more restrictive and are subject to greater government regulation. Video service providers, however, are given more room to wiggle. But the distinction between the two is far from clear.

AT&T believes itself to be a video service provider, and the Department of Public Utility Control has agreed. The reason: because of the two-way technology driving the service, U-verse’s DNA is different enough to warrant a new status and new rules.

The Office of Consumer Counsel, Connecticut’s utility ratepayer advocate, and the New England Cable and Telecommunications Association, which represents private cable telecommunications companies in New England, were the first to decry the ruling. “We felt that it was blatantly incorrect,” said NECTA President Paul Cianelli.

Despite a slight difference in technology, they claimed, AT&T provides the same services as cable.

Blumenthal has sided against AT&T, asking the DPUC to make the company act as a cable service provider. That means AT&T would have to make U-verse accessible to all residents statewide before turning on service in individual communities. It’s a costly endeavor, and AT&T isn’t interested.

“Where our fiber is close by is where we’re going to get it out to customers faster,” said Townes.

“[Cable is] kind of the last bastion of monopolies,” said AT&T spokesman Adam Cormier. “The people have spoken loudly for competition.”

And so has the Office of Consumer Counsel. “I have no problem with two 800-pound gorillas in the ring … but not with AT&T getting a free ride,” said OCC lawyer William Vallee.

Although Blumenthal and Vallee insist that the federal court ruling hobbles AT&T even under the new law, stacks of new legal briefs are already being prepared to argue the point. Brad Mondschein, a telecommunications attorney at Pullman & Comley in Hartford, thinks the phone company stands a good chance of winning the final battle.

“They should be very happy with the statue that got passed,” said Mondschein, executive director and general counsel to the Connecticut Internet Service Providers Association. He said he believes AT&T will likely prevail in its view of the situation.

But Blumenthal asserts a more stark ending. AT&T “should not be rewarded for having broken the statute that then existed before the new one was adopted.”

“There has to be a level playing field in order to have real competition,” he said, “without AT&T ‘cherry-picking’ the most wealthy and easiest accessible areas.”

But Townes said U-verse is currently available in areas far from the top of the socioeconomic ladder.

AT&T filed a motion last week to have the federal ruling vacated as moot. Townes said the company is obeying the law, and regardless of what the attorney general has said, that law is all they are required to obey.