Minor cases in distant jurisdictions often ripple through our legal system in ways different than, and with far more impact than, the proceedings might indicate.
Late Friday, U.S. District Court Judge Owen Panner ruled in Portland, Ore., that
, which I am long, had no right to restrict access by local Internet service providers, or ISPs, to the wiring grid of cable-TV provider
, acquired earlier this year by Big T.
In buying TCI, AT&T also in effect bought the company's franchise agreements with thousands of local government entities across the country, each of which then had to approve the transfer of franchise rights from TCI to A&T. This looked easy enough: It was a classic political rubber-stamp operation, the sort handled thousands of times a week in city council chambers and county supervisors' meetings.
But AT&T hadn't counted on the politics of Portland, one of the country's most desirable areas to live, but also an area with deep populist streaks in its political consciousness. Asked to approve the transfer, both the Portland City Council and the Multnomah County Commissioners Court heard the arguments. Then, responding to loud complaints by local ISPs and consumer groups, they voted in December to refuse approval of the franchise transfers ... unless AT&T promised that other ISPs would have access to the AT&T-TCI cable-modem system.
AT&T, which sees
(of which it now controls a nice chunk) as its horse in the ISP business, logically refused.
A bizarre legal battle ensued -- including, among other oddments, the curious fact that neither TCI nor AT&T ever offered, or announced plans to offer, cable-modem service in Portland.
Judge Panner's decision Friday hardly ends the matter -- we can expect an appeal very shortly -- but it does seriously muddy the waters at this enormously important moment in the development of the telecom infrastructure that will serve us in the new century.
Put simply, if AT&T -- or any other cable-access provider -- is forced to treat its system as a
public utility, providing "carriage" to its competitors, those owners of fast cable-access systems are going to be a lot less willing to invest the billions of dollars need to update and build out our national telecom infrastructure to accommodate our needs for higher-speed connections.
Their share prices will undoubtedly suffer too, of course.
Beyond that, the fast cable-access services, such as ATHM and
, which today look like such bright stars to investors, will be far less valuable, reduced to also-rans, competing on a lowest-price basis, in an era of all-comers' access to those cable systems.
If you haven't been following the Portland case, but all this sounds familiar, it's exactly the same argument being put forward in Washington these days by
. AOL's lawyers have been complaining to the
Federal Communications Commission
, asking for a ruling requiring AT&T and other fast-access system owners to open their systems to AOL. After all, AOL argues, these have become nothing more than common carriers, though the wires in question are cable wires, not telephone wires. AOL says it should be able to offer its customers access over those lines, just as it offers access over customers' existing phone lines -- just as telephone customers can choose which long-distance carrier to access over their telephone lines.
Judge Panner's decision will inevitably put pressure on many other local governing bodies around the country to play the populist card. It also puts indirect but powerful pressure on the FCC to bring the open-access question to the front burner.
It's easy to understand the plight and the feelings of ISPs, from the few remaining mom-and-pop shops to national giants like AOL, in this. They're scared to death that the appeal of fast connections via cable modems will cause us to drop them and move to the @Home or RoadRunner services being offered by the cable giants. Local ISPs, as much as they brag about their service and variety of offerings, in fact have a pretty terrible record of satisfying their customers, who generally are at least as ready to jump to a new provider as these ISPs fear.
And while many local and regional ISPs have built up sizable Web-hosting businesses -- in part because of their long-standing fear of the coming of the fast-access providers, though also largely because they were going after the bigger-ticket business market, rather than the mass consumer market, with its razor-thin margins -- most still rely on that high-volume market of $20-a-month consumer accounts for the bulk of their cash flow.
But declaring the cable systems of America common carriers would be a disaster for our national telecom policy, for the companies building these systems ... and for those unhappy consumers looking for something better. The debt and equity markets are not going to be willing to finance the huge remaining investments needed to make fast access available everywhere unless they see commensurate returns flowing to the AT&Ts of the business from that capital investment.
Friday's ruling seems like one of those cases that, like so many populist efforts to manage the market, at first appears likely to greatly benefit consumers but in the end will severely penalize them. What about those local ISPs? In a dynamic market system, companies, and classes of companies, come and go. Yes, that sounds Darwinian ... but capitalism
Local and regional ISPs that have run their businesses well, provided good service and fair prices, and have positioned themselves well for the future by emphasizing business customers, will do fine. For the others -- unless as a matter of national policy we're willing to protect the economically inefficient and the quality-of-service-challenged -- we need to let consumers speak with their dollars.
No one's taking away the consumer's right to stay with dial-up or ISDN connections to their current local ISPs -- nor to jump to the fast-access ADSL offerings from their phone companies, which can be expected to exploit this controversy to the hilt. It's also worth noting that anyone who wants fast cable-modem access to AOL can easily convert their $22-a-month, dial-up account to a $7-a-month "content only" account and then dial in over @Home, RoadRunner or any other fast cable system.
Investors who've made big bets on companies moving aggressively into the fast-access market -- on every side -- should follow closely developments in the Oregon and Washington cases, including the ripple effects rolling out from these jousts.
We're a long way from final decisions, but with Judge Panner's decision, the battle has truly been joined.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long AT&T, although positions can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at