June 26, 2000 5:00 AM PDT

Is there any ammo left in the open-access fight?

As the curtains close on a lengthy legal fight over sharing high-speed cable networks, a new act colored by billion-dollar business deals and regulatory uncertainty is opening.

The 9th U.S. Circuit Court of Appeals ruled last week that AT&T won't immediately be forced to allow rival Internet service providers, such as America Online, to tap into its sprawling network of high-speed cable systems. The action effectively overturned a decision by Portland, Ore. regulators and an earlier ruling by a lower court.

It was this court battle that served as a centerpiece for 18 contentious months of debate over the issue of cable "open access." Yet during that short time, a series of corporate deals and huge communications mergers has put a different face on the fight for open access.

Although the ruling was expected at the time to rock the industry, last week?s decision has produced little more than a tremor in a market that?s already working to open cable networks without the help of the courts.

"Open access will become a reality in 2002, which should make such rulings irrelevant," Chase H&Q analyst David Levy wrote in a research report last week.

Nevertheless, a number of issues remain, such as cable access pricing, technological compatibility and other legal hurdles. Partly as a result of this uncertainty, both sides--AT&T and rival ISPs--are claiming victory in the ruling.

Analysts say that the ruling, despite lingering questions, should play a key role in determining the final shape of the high-speed consumer Internet landscape. Cable companies, through affiliates Excite@Home and Road Runner, still claim a majority of cable modem subscribers in the United States.

Telephone companies, such as US West and SBC Communications, are gaining ground with their digital subscriber line (DSL) services, as are ISPs such as America Online and Prodigy that have struck broad wholesale deals with phone companies for DSL. Yet many industry observers believe that cable companies' short-term control of cable networks gives them substantial momentum in the broadband race for at least another year or two.

Last week's ruling does help give credence to the cable industry?s long-held belief that the market, not government regulators, should determine the leading players in the high-speed market.

Cable firms say that argument has been bolstered by recent market developments, such as America Online's assimilation into the cable companies' camp in the course of its merger with cable and media giant Time Warner.

"The debate about High speed pipe dreams?open access regulations has been overtaken by tremendous progress in the marketplace with AT&T, AOL and Time Warner all committed to providing open access choice to consumers," said America Online spokeswoman Kathy McKiernan. "The debate is no longer about whether open access will happen, but when and how."

AT&T has agreed to work with the former MindSpring Enterprises, now part of EarthLink, to develop a process for allowing the ISP to hook up to AT&T's systems. Ma Bell plans to begin testing the system with up to 10 competing ISPs in a Boulder, Colo. trial later this year. Similarly, America Online and Time Warner executives have said they expect to sign open access deals with other ISPs after their merger closes.

Analysts say the ruling gives cable operators the freedom to follow their own business strategy without regulatory intervention.

"The way the cable companies have wanted it to go for a while is indeed how it looks like it will go," said Dylan Brooks, an industry analyst at Jupiter Communications. "They'll open it up on their terms and on their own timelines. And as long as they don't do something stupid to irritate the FCC, it looks like that will be acceptable."

Some analysts believe the next major step in the fight is likely to focus on how much ISPs will have to pay to lease access on cable networks. Cable operators are expected to offer "non-discriminatory" access, meaning their affiliates, such as Excite@Home and Road Runner, will not receive special pricing.

It?s still unclear, however, whether the cable companies will be free to set their own pricing or whether federal regulators will have to come in--as they often have in the telephone industry--and set pricing.

"Ultimately the fight is who should decide what the price is," Brooks said.

Some ISP representatives, who declined to be named, said they doubted the Net industry would push for pricing regulations, for fear of setting an unwanted precedent for federal intervention. The marketplace has progressed far enough on its own without regulation, they say.

On the other side of the debate, officials from the OpenNet Coalition, a group of pro-access ISPs and consumer groups, characterized the Portland ruling as a "huge victory."

In the ruling, judges classified cable Net access as a "telecommunications service." This label potentially gives the coalition new leverage to argue that cable networks should be treated like telephone networks, which are regulated by specific federal laws. One of these laws makes sure that rival carriers are allowed to lease space on dominant carriers? networks.

"I expect that AT&T will find itself subject to interconnection agreements with ISPs and (competitive local phone companies) offering Internet service very soon since AT&T is now a common carrier with existing obligations under the Telecommunications Act," OpenNet executive director Greg Simon said in an email interview.

Still, Jupiter's Brooks believes the need for regulatory intervention is quickly dissipating, as cable companies such AT&T and Time Warner strike their own deals with Net providers.

"The closer we get to the end of AT&T's exclusive contracts with Excite@Home without action by the FCC, the more the movement for forced or open access loses steam," he said.

 

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