GTE Sues AT&T, Comcast, Excite@Home Over Cable Internet Access

The suit alleges that the two cable companies are illegally forcing their customers to use Excite@Home.
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GTE

(GTE) - Get Report

said it filed a lawsuit today against the cable service unit of

AT&T

(T) - Get Report

,

Comcast

(CMCSK)

, as well as the Internet service provider they both use,

Excite@Home

(ATHM) - Get Report

. The suit alleges that the two cable companies are illegally forcing their customers to use Excite@Home.

GTE, which runs its own Internet service provider and carries local service in 28 states, wants to offer its service over AT&T's high-speed cable lines. Currently, customers who use AT&T's high-speed lines must use Excite@Home or pay a fee.

Before even reading the Federal antitrust lawsuit, AT&T angrily fired back that GTE monopolizes local telephone service in many areas, creating a monopoly on standard Internet service.

The GTE suit charges that the cable companies illegally use "market power" in the cable sector to demand market power in Internet service, GTE officials said.

"This is an issue of fundamental telecommunications policy rather than antitrust law," William Barr, executive vice president and general counsel for GTE, said in a news conference. "You shouldn't let the person who owns the driveway dictate where people go."

Although neither telephone company has a monopoly on cable lines and Excite@Home does not have a monopoly on Internet service, the relationships amount to an unlawful "tying" of services, GTE officials said. GTE argues that because cable modems are the predominant form of high-speed access, AT&T's and Comcast's ownership of cable lines and exclusive deals with Excite@Home constitute an effective monopoly on high-speed access.

High-speed service is new but is quickly gaining popularity. "Now that AT&T is trying to use cable facilities to bring choice to the monopolies' customers, GTE is using every trick in the book to delay that competition," Jim Cicconi, AT&T general counsel, said in a statement. "If the antitrust laws condemn anything, it's GTE's dismal record of closed markets, captive customers, high prices and poor service."

Comcast officials did not return calls for comment.

Excite@Home also assailed GTE. "It would be absurd for the court to find that the antitrust laws should be used to protect an entrenched monopolist, such as GTE, with a greater than 95% market share, from a new competitor, like Excite@Home, who has less than 2% market share," the company said in a statement.

GTE made reference to

America Online

(AOL)

and

MindSpring

(MSPG)

, competing Internet service providers, in a news release, and mentioned the

Department of Justice

and the

Federal Communications Commission

in a news conference. But none of these have joined the suit, although GTE said that those companies and agencies are all familiar with the argument and that some Internet service providers agree with it.

Dave Baker, vice president for legal and government relations for MindSpring, declined to comment on whether his company has been asked to join the suit. But he supported GTE's argument.

"Customers cannot today get cable modem Internet access without using their company's ISP," Baker said. "Customers ought to be able to choose their ISP using cable the way they can over any other wire."

America Online declined to comment.

GTE also said it has demonstrated that providing the access it seeks it is technologically possible, as evidenced by tests it ran on its own cable wires in Florida. It said the companies it sued are stalling while they corral customers into their service.

Internet service providers "tend to be somewhat sticky products in the sense that once you get a customer into them, email lists, buddy lists" and the like keep customers hooked," Barr said.

Recent legislation has addressed the same issue relating to telephone lines. Line owners must offer customers their choice of Internet service provider. The cable owners have argued that applies only to telephone lines.

The suit seeks injunctive relief and unspecified damages. The company chose to sue AT&T and Comcast in Pittsburgh federal court because the two companies do business there. GTE officials said they hope other cable owners will follow the company's example if the suit is successful.

GTE said it would be open to a market solution, but not if that means linking with another cable company.

Stocks of the companies involved in the lawsuit were mixed today. GTE fell 1 1/16, closing 71 11/16. AT&T gained 1 11/16 to 44 11/16. But Comcast's class B shares fell 9/16 to 38 15/16. And Excite@Home rose 3/4 to 39 13/16.