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from: Hartford Business

AT&T Ruling Could Hinder National U-Verse
Company heads to court to thwart disastrous DPUC ruling

By Mary Johnson

Hartford Business Journal Staff Writer

10/22/07

Cabling for AT&T's U-verse Internet video service.

For AT&T, the future isn’t just in phones. The company is making a massive bet that it will be the dominant player in providing consumers video service over the Internet.

But blocking the way is Connecticut, which last week transformed from a state of opportunity into the biggest danger to AT&T’s national rollout strategy. Suddenly, the telecom company’s goal of reaching 18 million households by the end of 2008 may have turned into a pipedream.

“There could be a precedent set here in Connecticut,” said Brad Mondschein, a lawyer for Pullman & Comley in Hartford and president of the Connecticut Internet Service Providers Association. “My assumption is that [the competition in other states] is paying attention up here.”

AT&T has staked hundreds of millions of dollars on becoming the only national provider of Internet-delivered commercial video. Its product is called U-Verse, bringing an alternative to cable TV to thousands of households so far. U-verse currently serves about 7,000 customers in Connecticut with the potential to serve up to 150,000. The product will be available to 8 million households nationally by the end of this year, AT&T estimates.

Plug Pulled

Yet AT&T’s strategy is also to make sure it doesn’t have to compete by the same rules as cable companies. Doing so would force it to provide service to areas it deems uneconomical. That strategy has worked in 19 states so far where U-verse has been introduced. But that plan got torn up last week by the Connecticut Department of Public Utility Control.

The DPUC originally declared that AT&T did not have to secure a cable provider franchise from the state in order to offer U-verse. That riled existing cable companies, as well as both the state Office of Consumer Counsel and the Connecticut Attorney General, who saw unfair competition. They sued in federal court, and won a ruling that, under federal law, AT&T is a cable company.

Because of that, the DPUC last week backtracked from its earlier decision. It also said AT&T is ineligible to apply under a new state law that went into effect on Oct. 1, which allows companies to apply for a less restrictive “video service provider” license.

If the DPUC’s latest decision is allowed to stand, it threatens to give cable companies a new tool to shackle U-verse’s growth in states where it hasn’t yet been introduced. That’s something AT&T can’t abide.

“So far, Connecticut is the only state that’s gotten it wrong,” said Adam Cormier, an AT&T spokesman. “So far, the DPUC is the only regulatory body that has come to this conclusion.”

“Naturally, it’s somewhat of a concern,” he added.

AT&T filed suit in Connecticut Superior Court one day after the DPUC decision. The company wants an immediate declaratory ruling that the regulator is misreading the new state law. The statute prohibits “certified” cable operators from applying for a video service franchise in new communities. AT&T argues that, even if it was deemed a cable company by the federal court, it wasn’t “certified” as one in the state, and thus is eligible for the new designation. It wants the court to rule no later than Oct. 31 in order to avoid “irreparable harm.”

“That federal court ruling is irrelevant,” said John Emra, the phone company’s executive director for external affairs , “if you look at the new law that went into effect.”

The Consumer Counsel and the AG, however, are reveling in a near victory.

“Vigorous competition in cable service cannot be sustained if cable operators are subject to vastly different regulatory burdens,” said Consumer Counsel Mary Healey in a statement. “An unlevel playing field among cable operators would inevitably result in a ‘race to the bottom’ in franchising that would deprive residents and municipal governments of the fundamental protections and benefits authorized by Congress.”

Sorting Strategies

OCC attorney William Vallee was expecting AT&T to take an administrative appeal of last week’s DPUC decision, which he said was the logical legal next step, but the declaratory ruling makes sense.

“If they’re going to do an administrative appeal, they’re going to lose,” Vallee said.

Vallee has filed a motion to intervene and is fully prepared to continue the fight. Still, nothing is final, and the brawl is nothing new for the telecommunications behemoth.

In its attempt to get service into other states, AT&T has come up against serious roadblocks and fought back opposition. Its savior in those states has been getting beneficial changes to state laws, legislation that Emra says is almost identical to Connecticut’s.

Despite some state-specific provisions, “the principals are the same,” Emra asserted. All laws state that new entrants to the market will not follow “legacy” cable franchise rules. All streamlined the process for new entrants to get into the market. All required minimal or no build-out. And all laid out consumer protections and non-discrimination obligations.

Until now, AT&T’s market entrance routine — introduce U-verse, fend off the opposition, wait for new legislation to make U-verse legit — has been effective. Only Connecticut has fought the tactic.

But Emra doesn’t think there’s another regulatory body out there “that would be so dumb” as to eliminate the potential for cable competition.

Pulling Out

“I think those other states are going to look to Connecticut on how not to do things,” Emra said. “We’re going to invest our money where policy makers want us.”

If Connecticut proves to not be such a place, Emra said AT&T is ready to pull its U-verse service out of the state entirely. That will also mean slashing 1,300 current and planned jobs, as well as putting the kibosh on a planned $36 million capital investment in the state.

But Paul Cianelli, president of the New England Cable & Telecommunications Association, countered that “nothing in the latest DPUC or court decisions prevents AT&T from providing video service in Connecticut. They only ensure fair and equitable treatment for all Connecticut citizens, regardless of income or where they live.”

That doesn’t work for AT&T. “We will, under no circumstances, get a legacy cable franchise in the state of Connecticut,” Emra said. “We don’t want to walk away from customers,” he added. “[Legacy cable franchise rules] are just so onerous; they make it impossible to do business.”