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No.

379 August 29, 2000

Open Access, Private Interests, and the


Emerging Broadband Market
by William E. Lee

Executive Summary

The debate over open access to new cable In addition, mandatory access regulation rais-
broadband networks marks the first significant es troubling First Amendment issues. The
entry of Internet service providers (ISPs) into the Internet is rapidly emerging as an important
great game of using the regulatory process to member of the press. The decision of the city of
escape market realities. Quite simply, a legal Portland, Oregon, to force an open-access model
requirement opening local cable networks to on @Home’s cable broadband network was ini-
ISPs allows ISPs to avoid investing in alternative tially approved by a judge who did not take
networks. It is tempting for businesses in this @Home’s First Amendment arguments serious-
position to take a regulatory shortcut, asking ly. The Ninth Circuit Court of Appeals did not
lawmakers to force existing networks to let them reach First Amendment questions in ruling that
piggyback on others’ investments. open access to cable systems was a matter for the
It remains to be seen how proprietary net- Federal Communications Commission, not local
works that bundle content and delivery will com- governments. In either forum, allowing govern-
pete with voluntary open-access business mod- ment to determine what speech the networks
els. Networks built on either model are extreme- must carry is a dangerous precedent. This analy-
ly risky, and the consequences of regulatory sis shows future policymakers the conflict
interference with market incentives here could be between the First Amendment and mandatory
devastating. open access.

_____________________________________________________________________________________________________

William E. Lee is a professor in the Department of Telecommunications of the Henry W. Grady College of
Journalism and Mass Communication, University of Georgia.
The interests of was designed to facilitate AT&T’s entry into
an array of com- Introduction local telephone service. AT&T offers or will
offer consumers, either à la carte or bundled,
munications com- It was a surreal scene. In 1998 America services such as local and long-distance tele-
panies are affect- Online initiated an expensive campaign to phony, high-speed Internet access, and cable
convince lawmakers that the cable industry television programming. Initially, high-speed
ed by cable- was about to monopolize high-speed connec- Internet access is offered exclusively through
Internet service tions to the Internet.1 Many other Internet @Home, a company in which AT&T inherit-
and those compa- service providers (ISPs) joined in through the ed a large stake when it acquired TCI; AT&T
openNET Coalition. They claimed that all also inherited TCI’s contract-making
nies vow to con- ISPs should be legally entitled to use cable @Home, its exclusive ISP through June
tinue fighting for systems on the same terms as ISPs affiliated 2002.8 Unlike the cable industry, whose ini-
open-access laws. with cable companies, a policy AOL and its tial forays into local telephone and Internet
allies labeled “open access.”2 But on January access markets have been sporadic and not
10, 2000, AOL announced that it was becom- very successful,9 AT&T announced that it
ing part of the cable industry by merging will spend billions of dollars to rapidly
with Time Warner, the nation’s second- upgrade TCI’s cable systems to accommo-
largest cable operator.3 AOL’s Steve Case and date those new services.
Time Warner’s Gerald Levin described the To many makers of communications pol-
proposed merger. Levin stated, “We are going icy in Washington, AT&T’s strategy was the
to take the open-access issue out of first significant step toward competition in
Washington, out of City Hall and put it in the local telephone market, a central goal of
the marketplace.”4 Case then seconded the Telecommunications Act of 1996.10 And
Levin’s aversion to government-mandated AT&T’s strategy also promises to intensify
open access, adding, “We need to take it off competition in the Internet-service market;
the table.”5 But the issue that AOL intro- the prospect of AT&T’s offering high-speed
duced to the debate will not be so easily dis- cable modem service has increased the efforts
missed. The interests of an array of commu- of local telephone companies to deploy their
nications companies are affected by cable- own high-speed means of Internet access.1 1
Internet service and those companies vow to But AT&T’s May 1999 announcement that it
continue fighting for open-access laws.6 would also acquire MediaOne’s cable sys-
Simply stated, a cable modem is a device tems,1 2giving AT&T an ownership interest in
that enables users to gain high-speed access cable systems serving 51 percent of cable sub-
to the Internet. Deployment of cable modem scribers, intensified AOL’s efforts on behalf
service, however, has triggered an intense pol- of open access. Despite AOL’s current domi-
icy debate. Should cable companies offering nance of the Internet access market, the com-
high-speed Internet access be required to pany feared that it would be confined to slow
open their networks to unaffiliated ISPs? narrowband forms of access while AT&T and
Should the government enact anticipatory other cable companies controlled the high-
regulations for emerging communications speed broadband market, and smaller ISPs’
markets? What role should antitrust law play weaker positions augmented similar con-
as the Internet becomes increasingly com- cerns on their part. Those concerns were
mercialized? And what level of First heightened by the facts that most cable sys-
Amendment protection should exist for tems do not face head-to-head competition
nascent communications services? from other cable systems and that the largest
This policy debate was triggered by cable companies have exclusive contracts
AT&T’s June 1998 announcement of its with ISPs such as @Home or Road Runner.
acquisition of TCI, one of the nation’s largest This analysis outlines the current state of
cable companies.7 AT&T’s acquisition of TCI the broadband market, explores policy deci-

2
sions made by the Federal Communications provider, such as @Home or Road Runner.
Commission and local franchising authori- For a monthly fee of between $40 and $60,
ties, and examines the claim that cable subscribers gain high-speed access to the
modem service is an essential facility. Finally, Internet and the proprietary content of the
I show that, even when subjected to content- cable modem service provider.2 0 Typically,
neutral scrutiny, open access violates the cable systems contract with only one cable
First Amendment rights of cable operators. modem service provider, and the current
leading service is @Home, which recently
merged with Excite, one of the leading
The Market for Internet Internet portal sites. An aspect of cable
Access Services modem service that has created controversy
is the start page, or first screen, that users
In 1998 approximately 30 million encounter. For example, early @Home users
American households accessed the Internet saw a start page containing local and region-
through narrowband connections.1 3 Those al information provided by the cable opera-
“dial-up” connections, provided by ISPs, tor and national information provided by
offer access through traditional telephone @Home.2 1 A broadband version of Excite was
lines at speeds of between 28 and 56 kilobits launched in March 2000 as the start page for The narrowband
per second (Kbps). Consumers use modems @Home users unless they configure their market has expe-
attached to twisted-pair copper telephone computers to go to a different Web portal.2 2 rienced explosive
lines to connect their computers to the ISP’s Cable modem service allows users to
server, which then connects to the Internet. download information at much faster speeds growth in recent
That service typically costs $20 a month for than are available with narrowband service; years: 10.2 mil-
relatively unlimited usage,1 4 although several the service is always on—eliminating the
companies have started offering free service process of dialing in—and it doesn’t tie up lion households
supported by advertising revenue.1 5 Some the household’s telephone line.23 However, signed up for
ISPs, such as AOL and Prodigy, package con- because of cable system architecture, cable Internet service
tent along with Internet access and are also modem users share the local network, and
known as online service providers. Other the transmission speed varies depending on for the first time
ISPs, of which there are literally thousands, the number of simultaneous users.2 4In 1998, in 1998.
offer primarily access to the Internet and ser- 19.5 million homes were “passed by” (i.e., the
vices such as e-mail.1 6 Ninety percent of cable ran past the residences) by cable sys-
Americans have access to several ISPs via a tems upgraded to offer cable modem ser-
local phone call.17 The narrowband market vice.25 The largest cable operators, AT&T,
has experienced explosive growth in recent Time Warner, Cablevision, Cox, and
years: 10.2 million households signed up for Comcast, are now aggressively upgrading sys-
Internet service for the first time in 1998, and tems and by the end of 2000 plan to make
AOL alone signed up more than 5 million cable modem service available to 61 million
new subscribers from July 1998 to June households.2 6 Although the number of
1999.1 8 households now choosing to subscribe to
The broadband market offers connec- cable modem service is small compared to
tions at 200 Kbps or higher through a variety the number of users of narrowband connec-
of transmission media. The residential tions, both @Home and Road Runner have
broadband market began in late 1996,1 9 and recently reported rapid growth. For example,
currently the most popular service is via a in January 1999 the FCC estimated that
cable modem offered by cable companies. A 350,000 households used cable modems; at
cable modem connects a subscriber’s com- the end of 1999 @Home had surpassed the
puter to the cable network, which in turn is one million subscriber mark and Road
connected to the cable modem service Runner had 551,000 subscribers.27

3
Another technology for broadband ser- panies, such as Loral and Lockheed Martin,
vice is digital subscriber line (DSL), offered have plans to deploy early in the next decade
by local exchange telephone companies services that will transmit information both
(ILECs) or by ISPs using the local telephone upstream and downstream via satellite.38
network.2 8 There are several varieties of DSL
technology that differ by transmission speed
and type of modem used; retail costs vary Open Access
depending on the technology and service
package. For example, US West charges Until the June 1998 announcement of the
$37.90 a month for 256 Kbps service and AT&T-TCI merger, little attention had been
GTE charges $49.95 a month for 768 Kbps.2 9 devoted to the policy questions raised by cable
Like the cable modem, DSL does not require modem services.3 9 In the 1996 Telecommuni-
“dialing in.” Unlike the cable modem service, cations Act, Congress proclaimed in broad
DSL services use a dedicated line for each terms that the policy of the United States is
customer; thus, the problem of congestion in “to preserve the vibrant and competitive free
the “last mile” of the network is not present market that presently exists for the Internet
with DSL. Its high speed is constant.3 0 and other interactive computer services, unfet-
Although fewer households currently sub- tered by Federal or State regulation . . . .”4 0
scribe to DSL service than to cable modem AOL, MindSpring Enterprises, GTE, US West,
service, in 1999 DSL grew at a faster pace.3 1 and many smaller ISPs, however, quickly per-
By November 1999 there were approximately ceived that the merger threatened their posi-
600,000 residential DSL subscribers.3 2 tions in the marketplace. They urged that local
The Bell Operating Companies (BOCs) governments and the FCC adopt open access
and GTE are investing billions of dollars in as a means of protecting competition. The
broadband technologies and have aggressive first jurisdiction to enact an open-access
timetables for those projects. For example, requirement was Portland, Oregon.
SBC Communications recently announced a
$6 billion project to bring DSL to 77 million The Portland Ordinance
households by the end of 2002.3 3And the via- Despite the fact that the @Home cable
bility of DSL offerings by competitive local modem service was not available in Portland,
exchange carriers (CLECs) was increased by a the prospect of AT&T’s acquiring TCI and
The Bell recent FCC ruling on line sharing, which offering @Home galvanized AOL and the
eliminates the need for consumers to buy a established Oregon narrowband ISPs.
Operating second telephone line to use the CLEC’s DSL Although AT&T intended to allow @Home
Companies and service.3 4 Finally, AOL has agreements with customers to connect with any Web site
three BOCs, Bell Atlantic, SBC Communi- through @Home’s facilities, AOL feared that
GTE are investing cations, and Ameritech, to offer AOL Plus, a few customers would want to pay for its ser-
billions of dollars new version of AOL configured for broad- vice after paying $40 a month for @Home.
in broadband band users, at about $40 a month.3 5 The local ISPs feared that, without access to
AOL also recently invested $1.5 billion in AT&T’s high-speed facilities, they would be
technologies and Hughes Electronics to accelerate the growth of unable to offer broadband services. AOL
have aggressive DirecPC, a satellite-based means of Internet hired a lobbyist to assist the local ISPs and
access.3 6DirecPC users download information helped shape the argument that the cable
timetables for modem platform should be open to all ISPs.
via satellite at speeds of up to 400 Kbps. The
those projects. upstream connection from the home, howev- This coalition found a sympathetic audience
er, is provided via standard telephone line at in David Olson, director of the Portland area
speeds of between 28 and 56 Kbps. cable commission, who equated AT&T’s
Consumers pay about $50 a month for 100 cable system with the incumbent local tele-
hours of service.3 7 Several other satellite com- phone company, US West. Olson stated,

4
when US West and AT&T “are going to dom- The ordinance is intriguing because it The Portland
inate the two wires that go into everybody’s assumes that AT&T’s cable network has the ordinance does
home, from pauper to king, they need to have capacity to handle an unlimited number of
that wire be available to serve other interests ISPs; the ordinance does not specify what not specify what
but their own. . . . That’s been the core of would occur should demand for access to the would occur
telecommunications policy for years.”4 1 cable modem platform exceed capacity, or
Olson’s view, while illuminating, is erro- what should transpire if traffic from a large
should demand
neous, because the core of telecommunica- number of ISPs were to degrade the perfor- for access to the
tions policy is that cable services are regulat- mance of the network. And the ordinance cable modem
ed differently than telephone services.4 2 assumes that the cable commission has the
In a series of letters, AT&T told Olson that competence to monitor AT&T’s relations platform exceed
@Home is a cable service and, thus, the com- with ISPs to detect instances of discrimina- capacity, or what
pany was not required to open its network in tion. Despite the requirement of nondiscrim-
should transpire
the same manner as local telephone compa- ination, the ordinance does not actually pro-
nies. Moreover, AT&T claimed that the city mote competition on equal terms because if traffic from a
lacked the authority to impose the open- @Home will have significant advantages over large number of
access requirements. 43 The coalition of local other ISPs. As one antitrust scholar wrote
ISPs cast AT&T as a behemoth that would about nondiscriminatory access rules for ISPs were to
crush local businesses and severely affect essential facilities: degrade the per-
“consumer choice, price of service, and tech- formance of the
nology innovation.”4 4 The plea to protect The other firms will pay the price
small local businesses was especially appeal- charged by the facility; while the con- network.
ing to the Portland area cable regulatory troller will “charge” itself the same
commission, which recommended to city price, the controller actually incurs
and county elected officials that AT&T’s only the resource cost of generating
cable modem service be treated as an essen- access for itself. The cost to the facil-
tial facility. As one cable commissioner stat- ity may thus be an amount far lower
ed, “It’s like if I owned all the airports in the than the “nondiscriminatory” price
world and I owned an airline and said only that others are paying, leaving the
my airline could land there.”4 5 facility with a substantial advantage
On December 17, 1998, the Portland city in the downstream market.4 8
and Multnomah County commissioners
adopted the following requirement: To regulate “nondiscriminatory access,” the
cable commission will have to develop elabo-
Transferee [i.e., AT&T] shall provide, rate rules governing pricing arrangements sim-
and cause Franchisees to provide, ilar to the FCC’s rules concerning relations
nondiscriminatory access to Fran- between ILECs and CLECs, a task far beyond
chisees’ cable modem platform for the local agency’s resources and expertise.4 9
providers of internet and on-line ser- Most important, the open-access require-
vices, whether or not such providers ment is contingent on AT&T’s establishing
are affiliated with Transferee or cable modem service. AT&T is not required
Franchisees, unless otherwise required to establish a cable modem platform; only if
by applicable law.46 it does so must it make the platform available
to unaffiliated ISPs. In response to the
The ordinance also required that revenue Portland requirement, AT&T refused to roll
from cable modem services be included in out @Home in Portland.5 0 Michael
the franchisees’ gross revenue, which is used Armstrong, CEO of AT&T, stated: “We
to calculate franchise fee payments to local believe our cable customers should be able to
governments.47 access any portals and content they want to

5
To regulate reach. . . . But it should be done on the basis The record does not indicate that the
“nondiscrimina- of a sound commercial relationship, not consumer market is inherently a nat-
through regulation . . . . Cable carriage that ural monopoly. Although the con-
tory access,” the does not deal with these realities will simply sumer market is in the early stages of
cable commission chill broadband investment and kill a compet- development, we see the potential for
itive alternative to the local Bell companies.”51 this market to accommodate differ-
will have to devel- AT&T rejected the open-access requirement, ent technologies such as DSL, cable
op elaborate rules and in early January 1999 Portland and modems, utility fiber to the home,
governing pricing Multnomah County denied the transfer of satellite and terrestrial radio. The
TCI’s franchises. AT&T then initiated a lawsuit fact that different companies are
arrangements a challenging the local governments’ actions. using different technologies to bring
task far beyond broadband to residential customers
the local agency’s The FCC’s Broadband Report and that each existing broadband
Following the decision by Portland, a technology has advantages and dis-
resources and fierce lobbying campaign broke out at the advantages as a means of delivery to
expertise. FCC as the agency considered the AT&T-TCI millions of customers opens the pos-
merger and a report on the deployment of sibility of intermodal competition,
broadband facilities. 5 2 As part of the like that between trucks, trains, and
Telecommunications Act of 1996, Congress planes in transportation.5 6
requires that the FCC regularly study the
broadband market and, if necessary, “take Given that view of the broadband market, it was
immediate action to accelerate deployment no surprise that the FCC rejected the sugges-
of such capability by removing barriers to tion that ISPs should have a right of access to
infrastructure investment and by promoting cable modem services. First, the agency stated
competition in the telecommunications mar- that its duty to encourage broadband deploy-
ket.”53 To AT&T and its allies, policies like ment required that it “look broadly at all meth-
Portland’s discourage investment; to ods of providing additional bandwidth to cus-
openNET and its allies, AT&T’s control of tomers, not just those methods provided by
cable modem service harms competition. cable companies . . . .”5 7Second, the record indi-
Both sides viewed the FCC, which has the cated that multiple methods of accessing
authority to preempt local regulation, as a broadband are or soon will be available to con-
critical forum in which to shape policy for sumers. Thus, the FCC saw no reason to enact
the emerging broadband market. open access to cable modem platforms at that
In its Broadband Report, adopted January time.5 8It did note, however, that it would mon-
28, 1999, the FCC found that “substantial itor broadband deployment closely.
investment in broadband technologies is tak- Throughout the report, the FCC acknowl-
ing place across virtually all segments of the edged that the market was changing rapidly
communications industry”5 4 and that and that the report represented a snapshot
deployment is occurring on a major scale.5 5 taken at an early stage.5 9And, although it did
In terms of the “last mile” to the residential not refer specifically to Portland, the com-
consumer, the commission stated: mission’s view of the market fundamentally
disagrees with the view that cable modem
We believe it is premature to con- service is an essential facility.
clude that there will not be competi-
tion in the consumer market for The AT&T-TCI Merger
broadband. The preconditions for On February 16, 1999, the FCC approved
monopoly appear absent. Today no the AT&T-TCI merger without imposing any
competitor has a large embedded condition that AT&T open its cable modem
base of paying residential customers. platform to unaffiliated ISPs.6 0 One of the

6
most significant issues raised during the access services using a range of other The AT&T-TCI
inquiry was the status of cable-Internet ser- distribution technologies.67 merger would not
vices. To AT&T-TCI, @Home was a “cable ser-
vice” as defined by the Communications Act; The merger would not eliminate any scarce eliminate any
consequently, the FCC was prohibited from assets or capabilities and would yield public- scarce assets or
imposing any obligations beyond those pro- interest benefits in the form of a quicker roll-
vided by Congress in Title VI of that act.6 1 out of broadband services.6 8
capabilities and
AT&T’s reading of the Communications Act Especially important to the FCC was would yield pub-
meant that cable companies offering cable AT&T’s commitment to allow cable modem lic-interest bene-
services were not subject to interconnection customers access to any Internet content.
requirements, such as those imposed on The company wrote: fits in the form of
ILECs under Title II of that act. Other parties a quicker rollout
argued that @Home was a “telecommunica- Even if an online service provider cannot
of broadband ser-
tions service” under Title II of the Communi- or does not want to enter into [an agree-
cations Act and AT&T’s cable modem plat- ment providing TCI customers with vices.
form should be open to ISPs, just as the local unimpeded access to that provider], cus-
telephone network is open to ISPs. 62 The tomers of TCI@Home, TCI’s cable
commission, however, did not determine the Internet service, can still access that
status of cable modem services. That would provider through their TCI/IP connec-
later become a significant part of the Portland tions using a “bring-your-own-access-
litigation; in June 2000 the Ninth Circuit plan” like that actively marketed by
found that @Home was a telecommunica- AOL. TCI customers subscribing to
tions and information service and was not AOL under the BYOA plan today can
subject to local regulation.63 connect directly to AOL by “double
Another issue unresolved by the FCC was clicking” on the AOL icon on their com-
the definition of the market for Internet puter desktop. They do not have to “go
access services. AT&T-TCI argued that broad- through” @Home or view any @Home-
band and narrowband services are in the provided content or screens. In fact, if
same market.6 4 AOL and other ISPs argued they so desire, customers will be able to
that narrowband services are not reasonable remove the @Home icon from their
substitutes for broadband services and thus desktop completely. This will continue
the two are in distinct markets.6 5 The defini- to be the case after the merger.69
tion of the market did not affect the outcome
of the FCC’s analysis. If defined to include This passage needs to be explained carefully
both broadband and narrowband services, because at first glance it is somewhat misleading.
the market for Internet access is “quite com- AOL has multiple price plans. Those con-
petitive,” and the merger would not have sumers who use AOL as their ISP gain unlim-
adverse effects.6 6 Even when confined to only ited access to the Internet and AOL’s propri-
broadband services, the market was still com- etary content and features for $21.95 a
petitive. The agency stated: month. Those consumers “go through”
AOL’s sign-on screen, advertising screen, and
Although AT&T-TCI together might home page before going to another Web site.
be able more quickly to deploy high- Consumers who use an ISP other than AOL
speed Internet access services and may gain unlimited access to AOL’s propri-
win a significant number of residen- etary content and features for $9.95 a
tial Internet access customers, it month. 7 0 AOL does not, however, sell
appears that quite a few other firms Internet access without AOL’s content.7 1 In
are beginning to deploy or are work- contrast, @Home has only one pricing plan,
ing to deploy high-speed Internet $39.95 to $44.95 a month for unlimited

7
The tenor of access to the Internet.7 2 Access to sites that Congress is reluctant to meddle with the
Judge Panner’s charge for content, such as AOL, would cost Internet except when sex is involved.7 9 And a
an additional amount, payable to the content small ISP known as Internet Ventures asked
opinion is cap- provider. Thus, an @Home subscriber who the FCC to rule that ISPs are entitled to
tured by his high- was also an AOL subscriber would pay $39.95 access to cable systems under the leased-
to $44.95 a month to @Home and $9.95 a access provisions of the Communications
ly deferential month to AOL. While those subscribers Act. Given the FCC’s aversion to regulating
approach to the could configure their computers to connect the cable broadband market, it was not sur-
local govern- with AOL without “going through” any prising that the FCC denied that petition.8 0
@Home content, they would still be using Consequently, AOL and its allies began
ments’ conclusion @Home’s servers, routers, and other Internet intensely lobbying the remaining local gov-
that the cable access support facilities. ernments considering transfer of TCI’s fran-
modem service With its recent merger with Excite, @Home chises to AT&T.8 1 The importance of local
has great incentives to steer its customers to governments as a forum for this dispute
was an essential Excite as the first screen they see. Since cable markedly increased after a federal judge ruled
facility. operators keep 65 percent of the monthly fee that Portland’s open-access policy was not
charged for @Home, @Home’s profit has to preempted by federal law.
come from the sale of advertising.7 3 As T. J. In a June 3, 1999, opinion that can be
Jermoluk, Excite@Home’s CEO stated, “We described as cursory at best, Judge Owen
don’t want to be a dumb pipe for others to take Panner ruled that the Portland–Multnomah
advantage of.”7 4 AOL, which will be fully acces- County open-access policy was not preempted
sible to @Home’s subscribers, however, has by federal statutes concerning cable ser-
built its business on controlling that prime vices.8 2 A critical aspect of Judge Panner’s
piece of electronic real estate—the first screen— decision is the assumption that Internet access
and by offering a package of services such as over cable is a cable service (both parties had
easy access to the Internet, e-mail, and chat agreed that Internet access via cable was a
rooms, as well as customer service and one-stop cable service). The court of appeals ultimate-
billing. Although AOL’s advertising revenue is ly reversed Judge Panner’s ruling because the
increasing,7 5 AOL’s president Bob Pittman court did not view @Home as a “cable ser-
admits the company would lose money with- vice,” and the basis for municipal jurisdiction
out the $21.95 monthly fee that most of its 23 vanished. Judge Panner read the relevant
million users pay for Internet access.7 6 AOL’s statutes as reflecting congressional intent “to
need for the revenue stream from customers interfere as little as possible with existing
who purchase its bundle of content and local government authority to regulate cable
Internet access service explains why the firm franchises”8 3 and permitting local govern-
vehemently fought against being confined to ments to determine whether a change in
“BYOA” customers. Excite’s need to be a start ownership will reduce competition.84 Having
page for broadband Internet users explains concluded that the open-access policy was
@Home’s opposition to becoming a “dumb within the scope of local government author-
pipe.” As one writer noted, “This struggle isn’t ity, Judge Panner devoted little attention to
about where you can go, but about where mass- AT&T’s substantive constitutional claims.
es of consumers are going to be herded.” 77 The tenor of Judge Panner’s opinion is cap-
tured by his highly deferential approach to the
AT&T Corp. v. City of Portland local governments’ conclusion that the cable
After the FCC approved the AT&T-TCI modem service was an essential facility. AT&T
merger and issued its Broadband Report, leg- questioned the record before the local govern-
islative proposals concerning broadband ments and the competence of municipal offi-
access were introduced in Congress,7 8 but cials to determine highly technical antitrust
they were not expected to be enacted because issues.8 5 Judge Panner, however, stated: “It is

8
not my role to second-guess the findings sup- August 1999 the agency filed an amicus brief The FCC cau-
porting the decision to impose open access. So that outlined its long history of nonregula- tioned the appel-
long as the City and County act within their tion of the Internet, its view of the broadband
jurisdiction, their findings are entitled to def- market as highly competitive, and the fact late court that,
erence.”86 As support for this posture, he cited that the legal status of cable Internet access even in the
two equal protection cases in which local has not yet been resolved.
authorities received highly deferential review. This last point was particularly important
absence of
Glaringly absent from this opinion is any ref- because the FCC cautioned the appellate express statutory
erence to Turner Broadcasting System, Inc. v. court that, even in the absence of express preemption, the
FCC,8 7 in which the Supreme Court held that statutory preemption, the FCC could pre-
courts faced with First Amendment chal- empt local regulations that conflict with fed- FCC could pre-
lenges to content-neutral regulations target- eral policy.94 One method of preemption, the empt local regula-
ing cable systems must examine the legislative agency hinted, would be for it to classify tions that conflict
record to determine if the legislative body has cable-Internet services as “advanced telecom-
“drawn reasonable inferences based on sub- munications capability,” which would be with federal
stantial evidence.”88 As will be discussed later beyond the scope of local governments. That policy.
in this paper, the open-access regulation would enable the agency to develop a coher-
should have been subjected to a much more ent policy for the broadband market that
rigorous standard of judicial review than that would not differentiate among technologies.
used by Judge Panner. The agency stated:
Shortly after Panner’s decision in AT&T
Corp. v. City of Portland, FCC chairman The FCC is the only agency with
William Kennard spoke at the annual con- jurisdiction over all of the current
vention of the National Cable Television providers of broadband technolo-
Association and invited the industry to peti- gy—cable operators, wireline tele-
tion the FCC for preemption of local open- phone companies, providers of wire-
access regulations.8 9 Kennard described his less telecommunications service, and
vision of a broadband market consisting of satellite communications firms.
“multiple pipes” such as DSL, cable modem, Local franchising authorities, in con-
terrestrial wireless, and satellite. He stated: trast, are in no position to imple-
“Sometimes people talk about broadband as ment technologically-neutral poli-
though it is a mature industry. But the fact is cies with respect to these competi-
that we don’t have a duopoly in broadband. tors. These considerations support a
We don’t even have a monopoly in broad- narrow judicial resolution of the dis-
band. We have a NO-opoly. Because, the fact pute before this Court.9 5
is, most Americans don’t even have broad-
band.”90 Noting the rapid emergence of new The FCC’s decision to intervene in the
services, Kennard claimed that the FCC’s appeal was influenced by the July 13, 1999,
nonregulation of the Internet is “born of decision of Broward County, Florida, to
humility. Humility that we can’t predict require cable franchisees in unincorporated
where this market is going.”91 According to parts of the county to provide unaffiliated
Kennard, a patchwork of local regulations ISPs “such access on rates, terms, and condi-
would create chaos and deter investment in tions at least as favorable” as those provided
broadband facilities.9 2 to their affiliated ISPs.96 Despite the claims
AT&T chose not to petition the FCC and of proponents of open access that many
instead filed an appeal with the Court of other cities would enact similar provisions,9 7
Appeals for the Ninth Circuit.9 3 The FCC and very intense lobbying campaigns in
then faced difficult questions about what major markets such as San Francisco,9 8 only
role, if any, it should play in the appeal. In a very small number of local governments

9
AT&T’s plan have imposed open-access requirements on • the continued ability to change or cus-
drew a mixed AT&T.99 More than 1,500 local governments tomize their “start page” and other
approved the transfer of TCI and MediaOne aspects of their Internet experience;
reaction from franchises to AT&T without an open-access • the functionality of their ISP com-
ISPs and other condition.1 0 0 Open-access requirements, parable to that which such ISP has
however, have been imposed on other cable on competing high-speed systems,
proponents of operators, such as Cox, Comcast, Charter, subject to any technical constraints
open access who and Adelphia,101 and were under considera- particular to, or imposed on, all ISPs
claimed that it tion in a variety of communities until the using AT&T’s cable system to deliv-
Ninth Circuit said the debate was a matter er high-speed Internet access.105
was a step in the for the FCC.102
right direction AT&T was prepared to negotiate agreements
The AT&T-MindSpring Agreement with multiple ISPs that would take effect at
but did not go far
In August 1999, the FCC declined to open the expiration of its exclusive contract with
enough. a formal proceeding on cable modem service Excite@Home in 2002. Those agreements
out of fear that such a proceeding would chill would provide the ISP with Internet trans-
investment in this service.1 0 3 Chairman port services at “prices reasonably compara-
Kennard, however, urged AT&T to negotiate ble to those offered by AT&T to any other ISP
an agreement to open its cable systems to for similar services,” the opportunity to mar-
unaffiliated ISPs. AT&T’s CEO announced ket high-speed Internet access to AT&T’s
to Wall Street analysts that the company cable customers, the opportunity to bill cable
intended to pursue relationships with multi- subscribers directly, and the opportunity to
ple vendors once its exclusive contract with maintain brand recognition.106 In a separate
Excite@Home expired in 2002, and it was statement, AT&T noted that access for mul-
widely reported that AT&T was negotiating tiple ISPs would occur only after “technical
with firms such as AOL, Yahoo, Microsoft, issues are addressed,”107 a process that
and MindSpring.104 It was not surprising, Excite@Home’s chief technology officer
then, that on December 6, 1999, AT&T, claimed would be difficult because the “tech-
MindSpring, and the head of the FCC’s local nology to do what we’re talking about in that
and state government advisory committee letter doesn’t exist today.”108
announced a set of principles to be used in AT&T’s plan drew a mixed reaction from
contract negotiations between AT&T and ISPs and other proponents of open access
unaffiliated ISPs. who claimed that it was a step in the right
According to the letter sent to Chairman direction but did not go far enough.1 0 9
Kennard, AT&T promised to work toward Noticeably absent as a party to the letter was
providing consumers with Internet giant AOL, which, unbeknownst to
the rest of the world, was negotiating its
• a choice of ISPs; merger with Time Warner. AOL’s George
• the ability to exercise their choice of Vradenburg, senior vice president for global
ISPs without having to subscribe to and strategic policy, commenting on the
any other ISP; AT&T-MindSpring agreement, stated that
• a choice of Internet connections at “the rubber’s going to hit the road and really
different speeds at prices reason- test this in reality when we try to enter into
able and appropriate for those enforceable agreements.”110
speeds;
• direct access to all content available The AOL–Time Warner Merger
on the World Wide Web without Time Warner has an exclusive contract
any AT&T-imposed charge to the with Road Runner to provide high-speed
consumer for such content; Internet services over Time Warner’s cable

10
systems until the end of 2001. One of the speed Internet access. AOL was now in a posi- Voluntary open-
intriguing consequences of AOL’s merger tion to understand the business and regula- access plans
with Time Warner is that AOL, the principal tory realities that make mandatory open
advocate of open access, will inherit this access a questionable idea. Voluntary open- allow companies
exclusive arrangement. And since Time access plans allow companies the flexibility the flexibility to
Warner and MediaOne are the dominant to control the risk involved in the experimen-
shareholders in Road Runner, two archrivals, tal venture of constructing broadband net-
control the risk
AOL and AT&T, would have been partners in works; they, not regulators, set the timetable involved in the
Road Runner until the Department of Justice and technical parameters, and allow for experimental ven-
intervened. On the basis of antitrust con- experimental rollouts.
cerns raised by the AT&T-MediaOne merger, On February 29, 2000, AOL and Time ture of construct-
the Department of Justice required AT&T to Warner unveiled a framework for ISP use of ing broadband
divest its interest in Road Runner.1 1 1 Time Warner’s broadband cable facilities.
networks.
Nonetheless, a deal between AOL and AT&T The memorandum of understanding (MoU)
seems almost inevitable: AOL wants access to establishes the following:
AT&T’s cable systems and AT&T wants to
provide local telephone service over the • Consumers will have choice among
AOL–Time Warner cable systems. ISPs and will not be required to
At the time of the merger announcement, purchase service from an ISP affili-
the position of AOL–Time Warner on open ated with AOL–Time Warner;
access was ambiguous. In a press release, the • AOL–Time Warner will negotiate
companies stated that they would be “com- arm’s-length commercial agree-
mitted to ensuring consumer choice of ISPs ments with both affiliated (such as
and content and that they hope this merger AOL) and unaffiliated ISPs and
will persuade all companies operating broad- these agreements will not discrimi-
band platforms to provide consumers with nate on the basis of whether or not
real choice.”112 But “real choice” seems suffi- the ISP is affiliated with
ciently loose to cover a variety of positions AOL–Time Warner;
that fall short of mandated access for all ISPs. • AOL–Time Warner will allow video
As Communications Today reported: streaming; and
• ISPs will be able to have a direct
Steve Case, asked directly if AOL relationship with the customer.1 1 5
would remain an open-access parti-
san, mumbled several sentences The companies did not place a limit on the
about how it remains committed to number of ISPs with which they would deal
multiple choices for consumers. “We but added that the number of ISPs that
are committed to the concept,” Case could be accommodated was contingent on
said. What he did not say was “AOL the “technological limitations” of broadband
was open access, so now Time Warner cable.116 Furthermore, Time Warner stated
is too.” There’s a fair amount of dis- that it would try to work with Road Runner
tance between the two statements.113 so that other ISPs could use Time Warner
cable systems before 2002.1 1 7
Shortly after the merger announcement, Like the AT&T-MindSpring letter, the
AOL instructed its lobbyists to stop advocat- AOL–Time Warner MoU received a mixed
ing open-access legislation.1 1 4 Steve Case reaction. Appearing before the Subcommit-
adopted Gerald Levin’s view that private tee on Communications of the Senate
negotiations, rather than government regula- Committee on Commerce, Science, and
tions, should define the terms under which Transportation, Case and Levin resisted
unaffiliated ISPs use cable systems for high- efforts to enact the principles of the MoU as

11
The ability of law. For example, Levin told senators that the nascent broadband area. ISPs
local govern- “there’s something even higher than the lacking direct access to provide broad-
MoU and that’s a sense of values.” 1 1 8 band services over cable systems are
ments in the west- entering into alliances with alterna-
ern United States Over snickering among spectators, tive broadband providers, thereby
Levin explained that beyond honest accelerating the deployment of these
to mandate open corporate culture of TW and AOL, technologies. Currently, those alter-
access completely senators could count on competition native technologies are attracting new
evaporated on in market from DSL, DBS and fixed subscribers at an exponential rate and
wireless to ensure cable operators will prices for these new services appear to
June 22, 2000, want to maximize revenue by accom- be falling. In fact, DSL sales are cur-
when the Court modating ISPs at fair rates.119 rently growing at a more rapid rate
than cable modem sales.123
of Appeals for the
Case and Levin urged other cable companies
Ninth Circuit to adopt the principles of the MoU, which is Moreover, ATT agreed to extend the commit-
ruled that not surprising because that would enable AOL ments made in its December 6, 1999, agreement
to increase its broadband reach. Other major with MindSpring to MediaOne properties.124
@Home was not a cable players, such as Cox and Comcast, The FCC was hopeful that private negotiations
cable service. recently announced that they will consider would resolve the technical and business issues
opening their systems after June 2002, but so- associated with unaffiliated ISP access to cable
called consumer advocates continue to call for infrastructure “without the imposition of a gov-
government-mandated open access. 120 As ernment-mandated model.”125
Kennard warned the cable industry in Several parties, such as MCI and
December 1999, “Don’t underestimate the MindSpring, argued that the FCC should
power of this issue to capture the attention, classify cable systems offering Internet ser-
and the ire, of American consumers.”121 vice as common carriers, subject to Title II of
the Communications Act. The commission
The AT&T-MediaOne Merger declined, stating that there may come a time
On June 5, 2000, the FCC conditionally when it will address the disparate treatment
approved the AT&T-MediaOne merger, pro- of cable and telephone broadband services,
vided that AT&T complied with rules limit- but these issues have industry-wide applica-
ing cable system ownership by May 2001.1 2 2 tion and the merger review was not the
The agency again refused to require that appropriate forum.1 2 6 The appropriate
AT&T open its cable systems to unaffiliated forum would arise in response the Ninth
ISPs, believing that consumers would not be Circuit’s decision in the Portland case.
harmed as long as alternative means of
broadband Internet access continued to The Ninth Circuit’s Treatment of Cable-
develop or unaffiliated ISPs were permitted Internet Service
access to AT&T’s facilities. The ability of local governments in the
The FCC’s description of the emerging western United States to mandate open
broadband market again undercuts claims that access completely evaporated on June 22,
cable modem service has the characteristics of 2000, when the Court of Appeals for the
an essential facility. The commission stated: Ninth Circuit ruled that @Home was not a
cable service.127 The Ninth Circuit divided
[T]here is evidence that ILECs, @Home into two elements. “To the extent
CLECs, and other competitive @Home is a conventional ISP, its activities
providers are aggressively rolling out are one [sic] of an information service.
alternative broadband technologies, However, to the extent that @Home provides
notwithstanding cable’s early lead in its subscribers Internet transmission over its

12
cable broadband facility, it is providing a as an epithet reflecting the fact that a cable The case for
telecommunications service as defined in the company has something that unaffiliated open-access regu-
Communications Act.”1 2 8Congress prohibit- ISPs want.1 3 6 But in law, “essential facility” is
ed local governments from “limiting, restrict- an antitrust term, used only after a detailed lation rests heavi-
ing, or conditioning” the provision of a inquiry into the economic or practical infea- ly on the claim
telecommunications service by cable opera- sibility of duplicating the facility and other
tors; thus, Portland could not tie the fran- factors.1 3 7 Consequently, it is extraordinary
that the cable
chise transfer to AT&T’s compliance with the to regard a service that has not yet been modem is an
open-access requirement.129 deployed as an essential facility and to essential facility.
The Ninth Circuit believed that it could impose on it prophylactic regulations. Even if
not rationally apply the scheme of cable reg- a facility is “essential,” denial of access is not
ulation to “a non-broadcast interactive medi- per se a violation of the antitrust laws; a
um such as the Internet.”130 In contrast, monopolist with legitimate business reasons
treatment of cable broadband as a telecom- may refuse to deal with competitors.138
munications service “coheres with the overall If an ISP such as MindSpring were to sue
structure” of the Communications Act.1 3 1 AT&T for refusing to open its cable modem
While noting that the FCC subjects ILEC service in a particular market, MindSpring
DSL platforms to common carrier regula- would face an insurmountable burden in
tion, the Ninth Circuit was careful to note proving a Sherman Act violation; that
that the Communications Act also allowed explains why lobbying has been the preferred
the FCC to forbear from imposing similar tactic of advocates of open access.139 The dif-
obligations on cable broadband services.1 3 2 ficulty of proving an essential facilities case is
Stated differently, the FCC may choose to aptly illustrated by Apartment Source v.
regulate cable modem platforms like DSL Philadelphia Newspapers, Inc.,140 a recent case in
platforms, but the classification of a portion which the defendants’ refusal to publish the
of cable modem service as “telecommunica- plaintiffs’ advertising was claimed to violate
tions” does not automatically trigger com- the Sherman Act.
mon carrier regulation.
FCC chairman Kennard responded to the Apartment Source v. Philadelphia Newspapers
Ninth Circuit’s opinion by announcing that Apartment Source is an apartment loca-
the FCC would open a proceeding to define the tor service that links prospective tenants with
appropriate regulation for cable broadband ser- apartment owners. One of its competitors is
vices. He cautioned, however, that he had not Apartment Solutions, which is owned by
changed his preference for market forces’ defin- Philadelphia Newspapers Inc., the publisher
ing the terms under which unaffiliated ISPs of the city’s largest daily newspapers, the
gain access to cable systems. He stated, “Calling Philadelphia Inquirer and the Philadelphia Daily
this a telecom service doesn’t mean it invokes all News. Those newspapers refused to accept
the traditional telephone regulations.”1 3 3 Apartment Source’s advertisements because
Meanwhile, AT&T began signing up Portland of a long-standing policy of denying access to
area residents for @Home.134 competitors. In contrast, Apartment
Solutions advertises extensively in the
Inquirer and the Daily News at a fraction of the
The Essential Facilities going advertising rates. Apartment Source
Doctrine challenged the newspapers’ policy as an
antitrust violation, claiming that access to
The case for open-access regulation rests those newspapers was essential to its ability
heavily on the claim that the cable modem is to compete. Apartment Source asked the
an essential facility.135 Proponents of open court to “level the playing field by requiring
access use “essential facility” loosely, in effect PNI to accept a modest amount of

13
The antitrust laws Apartment Source advertising.”1 4 1 After a could turn their venture into a profitable one
do not pursue elu- four-day nonjury trial, Judge John Padova of if allowed to advertise in PNI’s newspapers.
the U.S. District Court for the Eastern Also, if equivalent facilities exist or if the ben-
sive goals such as District of Pennsylvania ruled that the plain- efits to be derived from access to the alleged
a “level playing tiffs failed to prove that PNI violated the essential facility can be obtained from other
Sherman Act. sources, the claim will fail. There were many
field” by eliminat- The parties agreed that the relevant geo- feasible alternatives to PNI’s newspapers,
ing all forms of graphic market was the Philadelphia region including “the suburban daily newspapers,
competitive but disagreed about the relevant product the weekly newspapers, the Internet, the
market. The plaintiffs claimed that apart- Yellow Pages, and direct mail. Suppliers in
advantage. ment-locator services formed a product mar- the apartment advertising market can, and
ket or, alternatively, formed a submarket of do, advertise in the 75% of the market not
the market for apartment rentals. Antitrust controlled by PNI.”1 4 5 And Judge Padova
plaintiffs bear the burden of defining the rel- found that the newspapers’ refusal to deal
evant product market, and in this case with their competitor was based on a valid
Apartment Source failed to demonstrate the business reason—eliminating lost revenue.146
existence of an apartment-locator services In his decision, Judge Padova made the
market. Judge Padova found: following comment particularly applicable
to the open-access issue:
There is evidence in the trial record
that the consumer at issue here, [T]he Court is not without sympathy
apartment communities with 100 or for the difficulties faced by Plaintiffs
more units, treat [sic] apartment in their new business venture. After
guide books, classified advertising in all, PNI controls Philadelphia’s
newspapers, and other advertising largest daily newspapers, aggressively
vehicles as substitutes to listing with promotes Apartment Solutions in its
an ALS. In other words, there are a newspapers, and flatly denies
wide variety of advertising vehicles Apartment Source any access to this
that are reasonably interchangeable advertising vehicle. . . . [In the plain-
by apartment communities for the tiffs’ eyes,] PNI’s actions are unfair;
same purpose: securing renters to fill while PNI props up its subsidiary
vacant apartments.142 with one hand, PNI pushes
Apartment Source down with the
This definition of the product market was other. . . .
fatal to the plaintiffs’ claim that PNI was a . . . But the antitrust laws are not
monopolist in control of an essential facility. designed to redress the alleged harm
The newspapers’ share of the apartment suffered by the Plaintiffs. The general
rental advertising market was only 25 per- rule is that a company is free to do business
cent, a figure insufficient to establish with and to refuse to do business with any-
monopoly power.143 one it pleases; a company is not obligated
The test for determining if a facility is to give its competitors a helping hand. . . .
essential is whether or not denial of access A refusal to deal violates the antitrust laws
imposes a severe handicap on competitors. in only very limited circumstances.1 4 7
Judge Padova found that the newspapers’
own apartment-listing service, Apartment Stated differently, the antitrust laws do not
Solutions, was “bleeding red ink” despite its pursue elusive goals such as a “level playing
extensive advertising in the newspapers at field” by eliminating all forms of competitive
highly subsidized rates.144 Thus, it was erro- advantage. Behavior that may be harmful to a
neous for the plaintiffs to believe that they particular competitor, but does not harm the

14
market, is legal. As the Supreme Court stated, be quite competitive. For example, the Los The presence of
the purpose of antitrust policy is “the protec- Angeles Information Technology Agency alternative ways
tion of competition, not competitors.”148 recently defined the product market to
include only broadband services. The ITA for an ISP to
Cable Modem Service and the Essential examined competition to cable modem ser- reach broadband
Facilities Doctrine vice, such as DSL, satellite, and MMDS ser-
Because of the tie between the newspapers vices, and agreed with the FCC that there was
consumers
and Apartment Solutions, the PNI case pro- no evidence to indicate that cable modem sharply under-
vides a useful perspective for evaluating the service would emerge as a monopoly.1 5 1 cuts the claim
antitrust implications of @Home’s exclusive The point of defining a relevant product
contracts with its cable parents such as market is to measure market power, but even that a cable
AT&T or Comcast. Judge Padova’s essential a high market share, say, 80 percent or high- modem platform
facility analysis is applicable to industries er, may not necessarily indicate monopoly is an essential
other than newspaper publishing. For exam- power. Given the fledgling status of the
ple, in Cyber Promotions v. America Online, broadband market, a cable modem service facility.
Inc.,1 4 9 the same type of analysis was provider’s large market share in a particular
employed in a case brought by an e-mail geographic area may be only temporary and
advertising firm that sought to use AOL’s may “quickly dissipate as competitors catch
system. In Cyber Promotions, AOL was found up.”152 And a cable modem service provider’s
not to control an essential facility because large market share in a particular geographic
there were numerous other ways for advertis- area does not necessarily mean that the
ers to reach AOL subscribers and AOL had provider controls an essential facility. As
legitimate business reasons for blocking shown in the PNI case, the test for determin-
Cyber’s e-mail. ing whether a facility is essential or not turns
If AT&T or Comcast were sued under the on whether denial of access imposes a severe
essential facilities doctrine, the plaintiff handicap on competitors; if equivalent facili-
would have to establish both the relevant ties exist, or the benefits to be derived from
geographic and product markets. Defining access to the alleged essential facility can be
the geographic market is relatively easy; obtained from other sources, the facility is
defining the product market is more diffi- not essential. Thus, the presence of alterna-
cult, especially given the nascent nature of tive ways for an ISP to reach broadband con-
residential broadband services. A plaintiff sumers, such as through DSL or wireless
would seek the narrowest product market techniques, sharply undercuts the claim that
definition, arguing, as AOL did during the a cable modem platform is an essential facil-
FCC’s consideration of the AT&T-TCI merg- ity. The fact that alternatives may be more
er, that broadband services constitute a mar- expensive or less convenient does not neces-
ket distinct from narrowband services. sarily mean that the cable modem is an essen-
The argument for defining the market tial facility.
narrowly focuses on the higher speed of Closely related to the question of essen-
broadband services. According to this view, tiality is the competitor’s inability practically
narrowband services are not adequate substi- or reasonably to duplicate the alleged essen-
tutes for broadband services. Conversely, the tial facility. Again, this is a very market-spe-
argument for defining the market to include cific inquiry. In markets where DSL or other
both narrowband and broadband services broadband technologies are available on eco-
views the higher price of broadband as a dis- nomically feasible terms, a cable operator’s
advantage that explains why consumers thus refusal to deal with unaffiliated ISPs does
far prefer lower-cost narrowband services.1 5 0 not pose a severe handicap. In markets where
Even if defined as including only broadband feasible alternatives do not exist, the huge
services, a particular geographic market may capital costs of building an alternative cable

15
Even if the network would indicate the infeasibility of ware to manage the traffic of those multiple
expense of dupli- duplicating the incumbent’s network.1 5 3 ISPs instead of a router dedicated to the affil-
However, given the planned capital expendi- iated ISP. The technological changes to give
cating a cable net- tures to deploy noncable broadband facili- 80,000 customers a choice of ISPs involved a
work makes it ties, it is likely that in a few years cable will be one-time investment of $60,000.1 5 7
the sole broadband provider only in unusual @Home instantly responded that the
“infeasible” for market situations. Of course, even in markets GTE test was of limited value because of the
the present, served by both DSL and cable broadband ser- small number of customers and ISPs
forced open vices, there may be neighborhoods where, involved. The demonstration did not address
because of technical considerations, DSL and issues such as capacity planning, customer
access may not be cable modem services do not compete head- interference, and network management. For
the best approach to-head.154 But the fact that those pockets example, @Home stated:
for future could probably also be served by terrestrial
wireless and satellite services undercuts the Even if traffic can be directed to the
competition. essential facility status of cable. proper ISP, the cable infrastructure is
Even if the expense of duplicating a cable a shared network. How are one ISP’s
network makes it “infeasible” for the present, customers prevented from impact-
forced open access may not be the best ing and degrading the performance
approach for future competition. Letting of another ISP’s customers, and how
everyone onto the cable network will decrease can the cable operator know when to
incentives to innovate to find low-cost ways add additional capacity to the cable
of duplicating the network. plant in order to keep up with
growth? Because of the nature of the
Technical Issues shared network, allocation of capaci-
Assuming that the cable modem platform ty is problematic.
is considered an essential facility, the ques- . . . As a shared facility, the network
tion of whether or not sharing the facility is requires management of the cable
practical remains. The “antitrust laws do not modems, the plant, the head ends, and
require that an essential facility be shared if the routers. With no one operator to
such sharing would be impractical or would monitor and implement the services
inhibit the defendant’s ability to serve its cus- and fix problems, fingerpointing and
tomers adequately.”1 5 5 One of the most con- poor service is the result for the con-
tested issues in the open-access debate con- sumer. When a customer has a prob-
cerns the technical aspects of opening the lem that could be in the cable network
cable network to unaffiliated ISPs. During or in the ISP’s system, what database
the FCC’s consideration of the AT&T-TCI interfaces and software systems exist
merger, one of the leading ISPs, GTE, for these ISPs to troubleshoot the
acknowledged that “the architecture and problem effectively?158
technology of the network planned by
AT&T-TCI is not capable of supporting open The FCC’s chief technologist, Stagg
and nondiscriminatory access without tech- Newman, agreed with @Home’s technical
nical modification but suggests that the nec- analysis, stating, “Cable modem access is a
essary modifications are feasible.”156 GTE very complicated technology.”159
bolstered its claim in June 1999 with the Although the FCC recently concluded
announcement of the results of a demonstra- that it is technically feasible for ILECs to
tion project using its cable system in share the telephone line providing residential
Clearwater, Florida. GTE’s test involved AOL, voice service with competitors seeking to pro-
CompuServe Classic, and its own ISP, vide DSL service,160 the commission’s conclu-
GTE.net, and used a router with special soft- sion does not support open-access proposals.

16
The local telephone network, with a dedicat- though the Portland open-access law is not Judge Panner’s
ed line for each residence, employs a different aimed at particular messages, it targets a spe- opinion is stun-
architecture than does the shared network cific speaker, AT&T. The Supreme Court
design of cable systems. Moreover, although requires that a content-neutral law that dis- ning because of
the FCC found that the technology exists to criminates among speakers be subject to the its complete lack
support more than two service providers on a highest form of judicial review unless it is jus-
single telephone line, “the complexities tified by peculiar characteristics.165 A content-
of any reference
involved with implementing line sharing dra- neutral speaker-based law that is justified by to the prevailing
matically increase where more than two ser- peculiar characteristics of the speaker is sub- precedent involv-
vice providers share a single loop.”1 6 1 ject to intermediate scrutiny. Thus, courts
Consequently, the FCC rules require that an reviewing speaker-based laws should closely ing content-neutral
ILEC share a line with a only single CLEC, examine the characteristics of the medium or regulation of
and the CLEC must use a form of DSL tech- speaker to determine if the law is properly jus- access to “bottle-
nology that does not degrade voice service.1 6 2 tified. Judge Panner’s opinion in AT&T Corp.
AT&T’s agreement with MindSpring fore- v. City of Portland, however, contains no analy- neck” cable
sees AT&T’s cable systems being reconfig- sis of the peculiar characteristics of AT&T’s systems.
ured to accommodate some level of con- cable modem service. The opinion is an extra-
sumer choice among ISPs. And the ordinarily incomplete analysis of the relevant
AOL–Time Warner MoU acknowledges that First Amendment issues. Although Judge
there are limits on the number of ISPs that Panner’s decision has been reversed on other
can use a cable system. It may well be that the grounds by the Ninth Circuit, the opinion
technical problems of opening cable systems stands as the only judicial analysis of the con-
to multiple ISPs are not insurmountable, but stitutionality of mandatory open-access rules
neither are they simple.163 Consequently, the for cable. The analysis below points out the
accommodations necessary to facilitate open shortcomings of the district court’s approach
access are completely different from, for and presents an alternative analysis consistent
example, the scheduling necessary so that with content-neutral free speech doctrine.
two professional football teams may share To Judge Panner, the open-access require-
the only stadium in a metropolitan area. ment was an “economic regulation,”1 6 6 which
Unless an antitrust plaintiff can prove that he believed triggered the lowest form of judi-
sharing the facility is technically and eco- cial review. Furthermore, Judge Panner regard-
nomically practical,164 access will not be man- ed AT&T’s choice to allow users to access all
dated. Of course, if a cable company proves Web content as collapsing the First
that shared access degrades its own use of its Amendment issues to resemble those present-
facilities, the company has a legitimate busi- ed in a shopping mall case.167 Yet the Supreme
ness reason for refusing access. Court has noted that cable systems are enti-
tled to strong First Amendment protection
despite cable’s “conduit” function. Judge
The First Amendment Panner’s opinion is stunning because of its
complete lack of any reference to the prevail-
The press is subject to generally applicable ing precedent involving content-neutral regu-
laws affecting business relationships, and lation of access to “bottleneck” cable systems,
courts reviewing so-called economic regula- Turner Broadcasting System, Inc. v. FCC.168
tions apply the lowest form of judicial scruti- In Turner Broadcasting, the Court regarded
ny. These types of laws do not present the dan- the requirement that cable systems carry cer-
ger of distorting the marketplace of ideas. tain local television broadcasters as content
Laws that target particular ideas or speakers, neutral. 1 6 9 Rejecting the claim that the
however, raise this danger and are subject to relaxed standard of judicial review applicable
heightened forms of judicial review. Even to broadcasting should also apply to cable,

17
Although Turner the Court concluded that a content-neutral examine whether the measure was neces-
Broadcasting law that imposes special obligations on cable sary.1 7 5 And Judge Panner’s conclusion that
operators must pass the intermediate level the measure did not burden more speech
allows legislative of scrutiny, known as the O’Brien test.170 At than necessary is unsupported by any analy-
bodies to make its heart, O’Brien asks whether a content- sis of alternatives.176 On this point, a lesson
neutral regulation furthers a substantial may be drawn from the different versions of
predictive judg- governmental interest through narrowly tai- must-carry requirements. As initially crafted,
ments, those lored means. Although the Court found that the must-carry rules required cable systems
judgments must the government’s interests, such as preserv- to retransmit each local television station.
ing local television broadcasting, were sub- The Court of Appeals for the District of
be based on sub- stantial, it required that the government Columbia Circuit found those rules to be
stantial evidence. “demonstrate that the recited harms are real, grossly overinclusive because preserving local
not merely conjectural, and that the regula- broadcast service did not require protecting
tion will in fact alleviate these harms in a each local broadcaster.1 7 7 Consequently, the
direct and material way.”1 7 1 Because there revised version of must-carry approved by the
were unresolved factual questions, such as Supreme Court in Turner Broadcasting limits
whether cable systems would use their mar- the number of local television stations a
ket power to harm broadcasters, the Court cable system must carry. In the Internet
remanded the case so the district court access setting, there is a distinction between
could review the record relied on by preserving competition and protecting each
Congress to determine if Congress had and every ISP.
“drawn reasonable inferences based on sub- The Portland open-access requirement is
stantial evidence.”172 After examining the also fatally overinclusive in that it treats every
legislative record, the district court upheld denial of access as motivated by anti-compet-
the law, and the Supreme Court affirmed the itive concerns.178 Yet, as shown in the discus-
district court. 173 sion of the essential facility doctrine, the
Although Turner Broadcasting allows leg- antitrust laws acknowledge that refusals to
islative bodies to make predictive judgments, deal are legal when justified by legitimate
those judgments must be based on substan- business reasons. For example, @Home’s
tial evidence. Judge Panner, while not refer- Master Distribution Agreement entitles the
ring to Turner Broadcasting, nonetheless company’s cable parents (e.g., AT&T,
offered a sharply truncated O’Brien analysis Comcast, and Cox) to require @Home to
in the following passage: block access to Web sites containing “porno-
graphic or other immoral or overly violent
The open-access provision is within subject matter.”1 7 9 Although this blocking
constitutional power of the City and provision has yet to be invoked, if AT&T were
County, it furthers the substantial to do so, its exercise of editorial discretion as
governmental interest in preserving to the content disseminated over its facilities
competition, the governmental should be protected under the First
interest is unrelated to the suppres- Amendment and the antitrust laws, just as
sion of free speech, and the inciden- courts protect the ability of AOL or newspa-
tal restriction on free speech is no pers—even those with monopoly power—to
greater than necessary.174 reject advertising.1 8 0 Given the rhetoric of
proponents of open access who paint AT&T
Other than merely noting elsewhere in his as a “gatekeeper” poised to harm the First
opinion that unaffiliated ISPs claimed they Amendment, it is especially important to
couldn’t compete with @Home without an note that any content control AT&T might
open-access requirement, Judge Panner con- exercise over its broadband facilities does not
ducted no analysis of the record. Nor did he affect the First Amendment rights of speak-

18
ers or willing recipients. AT&T is a private restricts AT&T’s ability to make choices about Judge Panner’s
actor, not a state actor, and its facilities are content on that portion of its facilities used by so-called First
not a public forum.1 8 1 the unaffiliated ISPs. Judge Panner complete-
The fact that AT&T has voluntarily ly disregarded the fact that cable systems have Amendment
offered subscribers access to all Web sites finite bandwidth, especially for upstream analysis was
through @Home does not alter one central communication. Whether each ISP is assigned
fact: the Portland open-access provision pre- its own channel or all ISPs subdivide a com-
nothing more
vents AT&T from changing its policy and mon channel,188 each unaffiliated ISP takes up than rational
blocking access to Web sites it regards as bandwidth AT&T could use to disseminate basis scrutiny.
unacceptable.182 The Portland policy grants speech of its own selection. Portland’s policy
access rights to online services as well as ISPs; impacts AT&T’s editorial discretion by
the operator of a sexually explicit Web site restricting the company’s ability to define how
has the same right of access as each of bandwidth is used for expressive purposes.
Oregon’s homegrown independent ISPs. The AT&T’s policy for its cable modem service is
consequences of this are starkly illustrated by evolving; the company’s current posture
the following scenario. Assume that AT&T toward this service should not determine its
denies access to a Web site advocating the ability to redefine the service in the future.
murder of physicians who perform abor- In summary, Judge Panner’s so-called
tions.183 The Mt. Hood Cable Regulatory First Amendment analysis was nothing more
Commission would be drawn into extraordi- than rational basis scrutiny. Consequently,
narily complex questions such as whether the “essential facility” justification for the
advocacy of illegal action abrogates a Web law was not examined. Nor were the law’s tai-
site’s right of access. The members of this loring flaws explored. As this analysis reveals,
regulatory group are ill equipped to decide cable modem service is not an essential facil-
constitutionally sensitive questions such as ity and broad measures such as the Portland
whether the Web site’s advocacy promotes an open-access law are poorly crafted. Even
abstract principle, which is protected speech, when more narrowly drawn, laws regulating
or calls for imminent action.184 Internet access via cable are likely to be
Portland’s policy may also be contrasted undermined by a rapidly changing market.
with another cable “bottleneck” law, the fed-
eral leased-access law that requires that cable
operators set aside a portion of their chan- Conclusion
nels for use by unaffiliated video program-
mers. Congress initially prevented cable oper- When @Home was created in 1995, exclu-
ators from exercising any editorial control sivity appeared to be a good strategy. But the
over those channels, but, fearing that they Internet moves at the speed of light and exclu-
had become “public porn channels,”1 8 5 sivity is quickly losing its appeal, as shown by
Congress later restored limited editorial con- AT&T’s agreement with MindSpring and
trol to cable operators, enabling them to pro- AOL’s pledge to allow Time Warner cable sub-
hibit obscene and indecent programming.1 8 6 scribers choice among ISPs. Negotiations
In 1996 the Supreme Court found this provi- between cable companies and ISPs are more
sion to be a constitutional means of protect- likely to yield commercially viable uses of cable
ing children from exposure to harmful broadband networks than are the efforts of
expression.187 local cable regulators who have little expertise
Even if Portland’s policy is interpreted as in determining fair prices and identifying dis-
allowing AT&T to exercise editorial discretion crimination. And, while the FCC may have
over the @Home portion of its cable modem more expertise in this area, its efforts are likely
service but no control over the content dis- to be quickly outdated by a rapidly changing
seminated by unaffiliated ISPs, the policy still market. Stated differently, the financial conse-

19
AT&T’s plan to quences to AT&T or AOL–Time Warner of (visited June 15, 1999), <http://www.opennetcoalition.
org/who/>. Translated into regulation, this
use cable to deliv- misallocating resources can be severe. But means that consumers should not have to use the
what are the consequences for regulators ISP affiliated with the cable company and that all
er local telephone when their actions are ineffective? interested unaffiliated ISPs should be able to pur-
chase high-speed access to consumers on a
service and AT&T’s plan to use cable to deliver local
nondiscriminatory basis. The Federal Communi-
telephone service and Internet access is one
Internet access is of the biggest gambles in the world of busi-
cations Commission’s Cable Services Bureau
recently noted that the lack of a precise definition
one of the biggest ness. Within the bounds set by the antitrust of “open access” created a number of problems.
laws, cable operators should be free to deploy The bureau said:
gambles in the
and adapt broadband networks as they wish. None of the enacted local legislation
world of business. As this study shows, regulating cable modem requiring access has set forth a defined sys-
Within the service as an essential facility distorts the tem of interconnection or guidelines for
antitrust laws. As used by proponents of pricing. And most of the enacted or pro-
bounds set by the posed legislation simply mandates that the
open access, the term “essential facility” is an terms, rates, and conditions of “open
antitrust laws, epithet that masks an effort to use govern- access” shall be the same as those the cable
cable operators ment power to advance private interests. Just operator provides to itself or affiliated
as the police inspector in Casablanca was ISPs. This nondiscrimination standard
should be free to shocked to learn that gambling was occur- offers little guidance when a cable operator
does not itself offer Internet access service
deploy and adapt ring at Rick’s, students of regulation will be or is not affiliated with an ISP.
broadband net- shocked to see private interests presented as Further, even as to cable operators
the so-called public interest. providing Internet access service through
works as they Historians who study the evolution of the an affiliated ISP, a “nondiscrimination”
standard leaves many implementation
wish. Internet will likely mark the open-access dis- questions unanswered.
pute as the first instance of large-scale lobbying
by Internet firms. Sadly, this dispute signals a FCC Cable Services Bureau, Broadband Today,
marked change in the culture of the Internet. October 1999, p. 38. Cited hereinafter as
Broadband Today.
Just like more established media, such as broad-
casting, Internet firms are now seeking to influ- 3. Saul Hansell, “America Online Agrees to Buy
ence politicians through Washington-based Time Warner for $165 Billion,” New York Times,
associations, government relations depart- January 11, 2000, p. A1.
ments, and political action committees. 4. Quoted in John R. Wilke and Kathy Chen,
Anyone who thinks this process will benefit the “Merger Partners Vow Open Access to Cable
Internet need only examine the history of Lines,” Wall Street Journal, January 11, 2000, p. B1.
broadcasting and cable regulation to see how
5. Quoted in ibid. In a press release, AOL and
regulators deform the marketplace. Time Warner announced that the new company
would be “committed to consumer choice of ISPs
and content and that they hope this merger will
Notes persuade all companies operating broadband
platforms to provide consumers with real choice.”
1. Bryan Gruley, “AOL Leads Lobbying Cam- AOL and Time Warner, “America Online and
paign to Gain Access to ‘Broad-band’ Cable-TV Time Warner Will Merge to Create World’s First
Lines for the Internet,” Wall Street Journal, January Internet-Age Media and Communications Com-
26, 1999, p. A20; and Thomas E. Weber, “AOL pany,” Press release, January 10, 2000, p. 6,
Lobbying Move in Cable Fight Is Paying Off,” Wall <http:www.corp.aol.com/cgi/announce-
Street Journal, July 15, 1999, p. B6. pr.html?>. As the Washington Post reported, this
statement “masked a stunning reversal: AOL also
2. “Open access” lacks a precise definition. The renounced government-imposed rules as the
primary advocate of open access, the openNET means of ensuring open access.” Peter S.
Coalition, states that it is “dedicated to promoting Goodman and John Schwartz, “Deal Stirs
the rights of all citizens to obtain affordable high- Concerns about Internet Access,” Washington Post,
speed access to the Internet from the provider of January 11, 2000, p. E1. See also “AOL’s
their choice.” openNET Coalition, “Our Mission” Vradenburg Says Open Access Focus Is Shifting

20
from Govt.,” Communications Daily, January 13, Bell’s Plan Is to Serve Up TV, Phone via Cable,” Wall
2000. Street Journal, May 6, 1999, p. B1. See also “It’s War,
and Web’s Future Is the Prize,” Wall Street Journal,
6. The openNET Coalition announced that it “will May 4, 1999, p. B1 (describing the strategies of the
continue to fight for open access to all cable net- companies involved in the takeover fight between
works” and will “continue to urge the federal gov- AT&T and Comcast for MediaOne).
ernment to make open access the rule for the entire
cable industry.” openNET Coalition, “Statement on 13. FCC Broadband Report ¶ 86.
America Online–Time Warner Merger Agreement,”
January 10, 2000, <http://www.opennetcoalition.org/ 14. Applications for Consent to the Transfer of
news/947541906.shtml>. The Walt Disney Control of Licenses and Section 214 Authorizations
Company, recently burned by Time Warner’s deci- from Tele-Communications, Inc. to AT&T Corp.,
sion to temporarily drop Disney-owned television Communications Regulation 15 (1999): ¶ 68. Cited
stations in major markets, has emerged as a major hereinafter as AT&T-TCI Merger.
proponent of government-mandated open access.
Kathy Chen, “Disney Campaigns against 15. See, for example, Kara Swisher, “Excite At
AOL–Time Warner,” Wall Street Journal, May 18, Home to Offer Free Access to Web,” Wall Street
2000, p. B14; and Bruce Orwall and Martin Peers, Journal, January 6, 2000, p. B8; and Andrea
“Disney Seeks Rules for AOL Purchase of Time Petersen, “Upstart ISPs Offer Free Access, But for
Warner,” Wall Street Journal, May 12, 2000, p. B2. a Price,” Wall Street Journal, June 24, 1999, p. B10.

7. Seth Schiesel, “With Cable Deal, AT&T Makes 16. AT&T-TCI Merger ¶ 69.
Move to Regain Empire,” New York Times, June 25,
1998, p. A1; and Saul Hansell, “Hooking Up the 17. FCC Broadband Report ¶ 64.
Nation,” New York Times, June 25, 1998, p. A1. See
generally Rebecca Blumenstein and Joann Lublin, 18. Andrea Peterson, “Small Players Deluge Market
“Amid All the Bets, One Stands Out: AT&T with Free Disks,” Wall Street Journal, August 3, 1999,
Ventures into Cable,” Wall Street Journal, p. B1; and America Online, “1999 Annual Report” (vis-
November 5, 1999, p. A1 (describing the transfor- ited January 5, 2000), <http://corp.aol.com/annual/
mation of AT&T’s revenue stream as the compa- highlights/highlights.html>. In the past two years
ny moves into broadband communications). AOL “has added a whopping 10 million subscribers,
more than the combined membership base of most
8. Rebecca Blumenstein, Leslie Cauley, and Kara of its major competitors.” Nick Wingfield, “America
Swisher, “Inside the Tangles of AT&T’s Web Online Net More Than Doubled,” Wall Street Journal,
Strategy,” Wall Street Journal, August 13, 1999, p. B1. January 20, 2000, pp. A3, A6.
See also Saul Hansell, “A Hitch to Marital Web
Bliss: Excite@Home Is Often at Odds with Its 19. FCC Broadband Report ¶ 32.
Cable Parents,” New York Times, June 9, 1999, p. C1.
20. AT&T-TCI Merger ¶ 70. For technical infor-
9. National Cable Television Association, “Cable mation about cable modem service, see “Cable
Industry Overview” (visited June 22, 1999), Modem Overview” (visited June 25, 1999),
<http://www.ncta.com/overview98_2html> <http://www.cablemodems.com/whatis.shtml>;
(describing the availability of cable modem and and “Frequently Asked Questions” (visited June
telephony services). 25, 1999), <http://www.tci.net/pages/faq.html>.
For a listing of markets where cable modem ser-
10. Joel Brinkley, “Early Reviews Look Positive; vice is offered, see <http://www.catv.org.modem/
Close Scrutiny Is a Certainty,” New York Times, June frame/deply.html>
25, 1998, p. C4; and Bryan Gruley, “Why Laissez
Faire Is the Washington Line on Telecom Mergers,” 21. Telephone Interview with John Englund,
Wall Street Journal, May 10, 1999, p. A1. director of policy and government affairs,
Excite@Home, December 3, 1999.
11. Inquiry Concerning the Deployment of
Advanced Telecommunications Capability to All 22. Excite@Home, “Excite@Home Rolls Out
Americans in a Reasonable and Timely Fashion, and @Home 2000,” Press release, October 19, 1999,
Possible Steps to Accelerate Such Deployment <http://corp.excite.com/news/pr_000404_01.ht
Pursuant to Section 706 of the Telecommunications ml>. Excite@Home’s start screen strategy has
Act of 1996, 1999 FCC LEXIS 407 ¶ 42 (1999). Cited caused public disputes between AT&T-TCI execu-
hereinafter as FCC Broadband Report. tives and Excite@Home executives. See, for exam-
ple, Hansell, “A Hitch to Marital Web Bliss,” p. C1;
12. Rebecca Blumenstein and Leslie Cauley, “As and Lesley Cauley, “AT&T’s Top Cable Executive
Worlds Collide, AT&T Grabs a Power Seat: Ma Resigns amid Internet-Access Fracas,” Wall Street

21
Journal, October 7, 1999, p. B1. 32. Barrett and Wilson. For other recent esti-
mates of the DSL markets, see Section 706 Notice
23. “Cable Modem Advantages” (visited June 25, of Inquiry, 2000 FCC LEXIS 733, Appendix A ¶ 5
1999), <http://www.cablemodems.com/advantages. (February 18, 2000).
shtml>.
33. SBC, “SBC Launches $6 Billion Initiative to
24. AT&T-TCI Merger ¶ 71 and n. 207. Other fac- Transform It into America’s Largest Single
tors affecting transmission speed include the sub- Broadband Provider,” Press release, October 18,
scriber’s computer, whether cached or noncached 1999, <http://www.sbc.com/Project_Pronto/Home.
data are accessed, the location of the accessed server, html>. See also Stephanie Mehta, “SBC
performance of each component of the network, Communications Plans to Speed Up DSL
and all users’ compliance with the cable modem Service Rollout,” Wall Street Journal, October 18,
provider’s policies. See, for example, Excite@Home, 1999, p. B6. SBC also formed a partnership with
“@Home Service Acceptable Use Policy” (visited Prodigy to market DSL service. Stephanie Mehta,
November 23, 1999), <http://www.home.com/ “SBC, Prodigy to Combine Internet Plans,” Wall
support/aup/>. See also Leslie Cauley, “Heavy Street Journal, November 23, 1999, p. A3. For a dis-
Traffic Is Overloading Cable Companies’ New cussion of DSL activity by other regional Bell
Internet Lines,” Wall Street Journal, March 16, 2000, operating companies and GTE, see Broadband
p. B1 (describing the problems posed by users who Today, pp. 27–29. Smaller local exchange compa-
do not comply with acceptable use policies). nies in rural areas are also deploying DSL. See
FCC Broadband Report ¶¶ 68–69. The deploy-
25. National Cable Television Association, ment of DSL may be accelerated by Lucent
“Cable Television Industry Year–End Review 1998” Technologies’ recent move into the DSL equip-
(visited June 22, 1999), <http://www/ncta.com/ ment market. See Stephanie Mehta, “Lucent Has
yearend98_3.html>. Multiform DSL for Telephones,” Wall Street
Journal, September 7, 1999, p. B6. AT&T also
26. Broadband Today, p. 26. recently announced it will use DSL to provide
high-speed Internet access to business customers.
27. FCC Broadband Report ¶ 54; Excite@Home, Rebecca Blumenstein, “AT&T to Offer Internet
“Excite@Home Surpasses One Million Broadband Access through DSL,” Wall Street Journal,
Subscribers,” Press release, December 6, 1999, September 16, 1999, p. B6.
<http://www.home.net/news/pr_991206_0101.
html>; and Leslie Cauley, “Beep! Beep! AOL May 34. Deployment of Wireline Services Offering
Push a Web Laggard Ahead,” Wall Street Journal, Advanced Telecommunications Capability and
January 13, 2000, p. B1. Implementation of the Local Competition
Provisions of the Telecommunications Act of 1996,
28. For a listing of ISPs offering DSL service, see 1999 FCC LEXIS 6303 (1999). Hereinafter cited as
<http://www.dslreports.com>. See generally Scott Line Sharing Report. In a separate ruling, the FCC
Thurm, “In a Race to the Web, Phone Upstarts found that, because of the nascent nature of this
Grab Turf,” Wall Street Journal, October 18, 1999, market, incumbent local exchange carriers (ILECs)
p. B1 (describing the efforts of ISPs using DSL do not have to unbundle their packet switches and
technology). For a brief discussion of DSL tech- digital subscriber line access multiplexers
nology, see Deployment of Wireline Services (DSLAMs) used for high-speed Internet access.
Offering Advanced Telecommunications Capa- FCC Promotes Local Telecommunications
bility, 1999 FCC LEXIS 1327 ¶¶ 9–12 (March 31, Competition, 1999 FCC LEXIS 4534 (1999). DSL
1999). For a comparison of the different forms of competitors that have their own DSLAMs will still
DSL, see Broadband Today, p. 21. have collocation and interconnection rights in
ILEC central offices and will have access to the loop
29. Randy Barrett and Carol Wilson, “Digital Phone serving the “last mile” to residential customers.
Lines Gain Speed: Pricing Uncertainty,” Interactive “FCC Unshackles Bells’ DSL Gear,” Network World,
Week, November 8, 1999, <http://www.zdnet.com/ September 20, 1999, p. 6.
intweek/stories/news/0,4164,2388809-3,00.html>.
35. Saul Hansell, “Now, AOL Everywhere,” New
30. FCC Broadband Report, Appendix A ¶ 6. York Times, July 4, 1999, sec. 3, pp. 1, 6; Bell Atlantic
and AOL, “AOL and Bell Atlantic Form Strategic
31. TeleChoice, “DSL Deployment Surges Well Partnership to Provide High-Speed Access for the
beyond Projections; Grows 5 Times Faster Than AOL Service,” Press release, January 13, 1999,
Cable in 6-Month Period,” Press release, August 6, <http://www/ba.com/nr/1999/Jan/ 19990113002.html>;
1999, <http://www.telechoice.com/content/ press- “AOL, Ameritech Ink High-Speed DSL Deal” (visit-
releases/ 08171999.asp>. ed June 25, 1999), <http://www.news.com/News/

22
Item/0.4.39537,00.html>; and Corey Grice, “AOL Internet Rivals Access to TCI’s Network?” Wall
Sows High-Speed Seeds around AT&T” (visited Street Journal, January 15, 1999, pp. A1, A6.
September 15, 1999), <http://www.news.com/News/
Item/ 0,4,39608,00.html>. 42. One of the cable industry’s greatest fears has
been common carrier regulation. The industry
36. AOL and Hughes Electronics, “America Online fought intensely for a provision in the Cable
and Hughes Electronics Form Strategic Alliance to Communications Policy Act of 1984, which
Market Unparalleled Digital Entertainment and states: “Any cable system shall not be subject to
Internet Services,” Press release, June 21, 1999, regulation as a common carrier or utility by rea-
<http://www.direcpc.com/consumer/scoop/ son of providing any cable service.” Pub. L. No.
pr11.html>. Hughes recently sold its satellite-man- 98-549 § 621(c), 98 Stat. 2779, 2786 (1984). The
ufacturing business as part of its strategy to focus House Committee on Energy and Commerce
on broadband communications. Andy Pasztor, noted that this exemption applied only to “cable
“Hughes Aims to Expand AOL Satellite Venture,” services” and preserved existing regulatory
Wall Street Journal, January 14, 2000, p. B2. authority over all other communications services
offered by a cable system. H.R. Rep. No. 934, p. 29
37. FCC Broadband Report, Appendix A ¶ 3. (1984). As will be discussed below, the legal cate-
Because DirecPC does not transmit at speeds in gory applied to cable-Internet service is critical.
excess of 200 Kbps in both downstream and For a discussion of the limited authority of local
upstream directions, the FCC does not classify it governments over telecommunications services,
as a broadband service. Ibid. ¶ 22 n. 17. see TCI Cablevision of Oakland County, Inc.,
1997 FCC LEXIS 5164 (1997) (stating that
38. Ibid., Appendix A ¶ 9. See also Broadband Today, Congress intended to separate the functions of
pp. 22, 30. Another form of wireless Internet con- cable franchising from the regulation of telecom-
nection is offered by Multichannel Multipoint munications services).
Distribution Service (MMDS) and Local Multipoint
Distribution Service (LMDS). FCC Broadband 43. Gruley, “Must AT&T Give Internet Rivals
Report, Appendix A ¶¶ 7–8. Although the FCC Access to TCI’s Network?” p. A6. An insight into
lacked information on the number of subscribers to Olson’s regulatory philosophy is provided by his
these services, it noted that an estimated several mil- acknowledgment that, while federal law govern-
lion households could obtain service from these ing third-party access to cable systems does not
companies. Ibid. ¶ 57. See also Broadband Today, pp. refer to Internet services, “I come from an envi-
29–30. Wireless telephone services are also develop- ronment that says, unless the federal [law] says
ing methods of connecting wireless phones to the you can’t do something, you can.” Quoted in ibid.
Internet. See, for example, Nicole Harris, “Wireless
Phone Companies Cheer AOL Merger,” Wall Street 44. Intervenors’ Memorandum in Opposition to
Journal, January 13, 2000, p. B14 (estimating that 15 Plaintiffs’ Motion for Partial Summary Judgment
million wireless phone subscribers will be using their at 10, AT&T Corp. v. City of Portland, 1999 U.S.
phones to get data from the Web by the end of Dist. LEXIS 8223 (D. Ore. June 3, 1999) (quoting
2000); and Nicole Harris, “AT&T’s High Wireless comments of Richard Horswell, president of the
Act: Can It Deliver the Web and a Dial Tone?” Wall Oregon Internet Service Provider Association).
Street Journal, March 2, 2000, p. B1. For an extensive
discussion of wireless methods of Internet access, see 45. Quoted in Gruley, “Must AT&T Give Rivals
“The Internet Cuts the Cord,” Wall Street Journal, Access to TCI’s Network?” p. A6. The identity of
September 20, 1999, pp. R1-31 (special report). For a the commissioners and their occupations are
discussion of AOL’s recent moves in the wireless available at <http://www.mhcrc.org/staff.htm>.
market, see Nick Wingfield, “AOL Expands Links to Olson described the vote as reflecting the inde-
Wireless Services,” Wall Street Journal, February 29, pendent thinking of Oregonians who have stood
2000, p. B6. out from residents of other states on issues such
as medicinal marijuana and physician-assisted
39. For an early exploration of some of the pol- suicide. “It is a streak that is miles deep and miles
icy questions raised by cable modem services, wide and very, very Oregon,” Olson said. Quoted
see Barbara Esbin, “Internet over Cable: in Su-jin Yim, “Bad Reception for AT&T,”
Defining the Future in Terms of the Past,” FCC Oregonian, December 14, 1998, pp. C1, C5.
Office of Plans and Policy, Working Paper no.
30, August 1998. 46. AT&T Corp. v. City of Portland (D. Ore.) at *6.

40. Telecommunications Act of 1996, Pub. L. No. 47. Ibid.


104-104 § 509(b)(2), 110 Stat. 56, 138 (1996).
48. James R. Ratner, “Should There Be an Essential
41. Quoted in Bryan Gruley, “Must AT&T Give Facility Doctrine?” University of California at Davis

23
Law Review 21 (1988): 372 (footnotes omitted). 54. FCC Broadband Report ¶ 44.

49. For example, San Francisco’s Department of 55. Ibid. ¶ 36.


Telecommunications and Information Services
recently recommended implementation of an 56. Ibid. ¶ 48.
open-access requirement without rate regulation
“because the City does not have the resources to 57. Ibid. ¶ 101.
develop a detailed regulatory program.” City and
County of San Francisco Department of 58. Ibid.
Telecommunications and Information Services,
“Open Access Report,” January 14, 2000, p. 65. 59. Ibid. ¶ 7. See also Section 706 Notice of
Cited hereinafter as “Open Access Report.” See Inquiry (noting a variety of questions about the
also Broadband Today, p. 45 (noting the lengthy broadband market).
time it took the Canadian Radio-Television
Commission to develop complex rules governing 60. For a listing of the various policy proposals
nondiscriminatory access for unaffiliated ISPs). for cable modem service presented during this
proceeding, see AT&T-TCI Merger ¶ 86.
50. AT&T’s general counsel James Cicconi stated,
“[W]e can’t proceed to roll out the services until this 61. Ibid. ¶ 82. See 47 U.S.C. § 522(6)(B).
matter is resolved. . . .” Quoted in “AT&T’s
Armstrong Says Portland Case Won’t Stand on 62. AT&T-TCI Merger ¶ 84. One of the more inter-
Appeal,” Warren’s Cable Regulation Monitor, June 21, esting proposals was advanced by BellSouth, which
1999. @Home was introduced in limited parts of claimed that the FCC should determine that high-
Washington County and Clackamas County before speed Internet access services offered by ILECs are
the decision to impose the open-access requirement. not subject to interconnection, unbundling, and
Su-jin Yim, “Lawsuit Slows the Spread of @Home’s resale requirements. Ibid. ¶ 86. As previously
Internet Hookups,” Oregonian, May 16, 1999, p. D1. noted, the FCC has given ISPs access to certain net-
See generally Su-jin Yim, “One Brand of Faster work elements for DSL service but has not provid-
Internet Comes by Cable,” Oregonian, May 16, 1999, ed access to other elements.
p. D1. DSL, however, has been deployed in Portland
since 1999. Covad, “Covad Broadens Portland’s 63. AT&T Corp. v. City of Portland, 2000 U.S. App.
Choice of DSL Services to Area Businesses and LEXIS 14383 (9th Cir. June 22, 2000).
Homes,” Press release, July 12, 1999, <http://
www.covad.com/press_071299.cfm>. 64. AT&T-TCI Merger ¶ 77.

51. Quoted in Leslie Cauley, “AT&T to Shun 65. Ibid. ¶ 78.


Exclusive Pacts for Cable TV,” Wall Street Journal,
June 15, 1999, p. B8. In its lobbying efforts, AT&T 66. Ibid. ¶ 93.
repeatedly emphasized the chill that open-access
requirements would have on its plans to upgrade 67. Ibid. ¶ 94.
cable systems for telephone and Internet services.
Kathy Chen, “AT&T Used Carrot-and-Stick 68. Ibid.
Lobbying Efforts in Local Debates over Access to
Cable-TV Lines,” Wall Street Journal, November 24, 69. Ibid. ¶ 95.
1999, p. A20. Cox Communications also threat-
70. AOL’s pricing information is available at
ened not to provide cable modem service in
<http://www.aol.com/info/pricing.html>.
response to adoption of an open-access require-
ment by Fairfax, Virginia. Eric Wee and John
71. AT&T-TCI Merger ¶ 65.
Schwartz, “Fairfax City Opens Cable Lines,”
Washington Post, October 1, 1999, p. B2. For the 72. @Home’s pricing information is available at
argument that open access will not reduce invest- <http://www.home.com/pricing.html>. In select
ment incentives, see Jeffrey MacKie-Mason, markets, @Home affiliates recently ran a promo-
“Investment in Cable Broadband Infrastructure: tion that provides subsidies to @Home users
Open Access Is Not an Obstacle,” 1999, wishing to use AOL. Those AOL users get a dis-
Unpublished manuscript. On file with the count from @Home so they do not have to pay
author. the regular @Home monthly fee plus $9.95 a
month to AOL. “@Home Affiliates Subsidizing
52. Bryan Gruley, “FCC Fight Erupts over Internet AOL Access Charges,” Broadband Bob Report,
Access,” Wall Street Journal, January 22, 1999, p. A3. September 13, 1999 (visited September 28, 1999),
<http://www.catv.org/bbbreport/frame/archives99.
53. Telecommunications Act of 1996 § 706(b).
html>. Excite@Home reported that this has been

24
its most successful customer acquisition program open-access ordinance to be preempted by federal
targeted at on-line customers. Excite@Home, law. MediaOne Group, Inc. v. County of Henrico, 2000
“Excite@Home Reports Third Quarter 1999 U.S. Dist. LEXIS 6517 (E.D. Va. May 10, 2000).
Results,” Press release, October 19, 1999, <http://
www.home.net/news/pr_991019_01.html>. 83. AT&T Corp. v. City of Portland (D. Ore.) at *10.

73. Hansell, “A Hitch to Marital Web Bliss,” p. C1. 84. Ibid. at *11.

74. Quoted in Blumenstein, Cauley, and Swisher, 85. See, for example, Plaintiffs’ Reply Memoran-
p. B4. dum in Support of Their Motion for Partial
Summary Judgment and Memorandum in
75. While AOL’s revenue from advertising and e- Opposition to Defendants’ Cross-Motion for
commerce recently has dramatically increased, 66 Summary Judgment at 1–2, AT&T Corp. v. City of
percent of its revenue comes from subscription Portland (D. Ore.) (No. CV 99-65-PA), stating:
fees. Wingfield, “AOL Online Net More Than
Doubled,” p. A6. The Municipalities have neither jurisdic-
tion to make an adjudicatory finding that
76. Quoted in Nick Wingfield, “Free Web Services TCI’s cable system is an essential facility
Challenge AOL’s Dominance,” Wall Street Journal, for Internet access nor any factual basis for
September 23, 1999, p. B8. imposing the kind of antitrust remedy
they seek to apply. The Municipalities are
77. Scott Rosenberg, “A Corporate Game of Internet not a court of law or other tribunal capable
Monopoly” (visited November 19, 1999), of finding that TCI’s cable system is such
<http://www.salonmagazine.com/21st/rose/199 an essential facility and they can show no
9/01/20straight2.html> basis for limiting that remedy to TCI’s
cable system alone.
78. H.R. 1686, 106th Cong., 1st sess. (1999); and
H.R. 1685, 106th Cong., 1st sess. (1999). These See also Memorandum in Support of Plaintiffs’
bills, sponsored by Reps. Bob Goodlatte (R-Va.) Motion for Partial Summary Judgment at 30,
and Rick Boucher (D-Va.), are opposed by Rep. AT&T Corp. v. City of Portland (D. Ore.), criticizing
Billy Tauzin (R-La.), chairman of the Subcom- the lack of factual support for the open-access
mittee on Telecommunications, Trade, and requirement. But see Defendants’ Motion for
Consumer Protection of the House Commerce Summary Judgment at 40–41, AT&T Corp. v. City
Committee. of Portland (D. Ore.), which describes the evidence
before the local governments.
79. See Reno v. ACLU, 117 S. Ct. 2329 (1997) (find-
ing invalid provisions of federal statute governing 86. AT&T Corp. v. City of Portland (D. Ore.) at *11.
indecency on the Internet).
87. 512 U.S. 622 (1994).
80. Internet Ventures, Inc., 2000 FCC LEXIS 720
(February 18, 2000) (ruling that ISP Internet access ser- 88. Ibid. at 666.
vice is not video programming). For Internet Ventures’
petition, see <http://www.ivn.net/ strat/access.html>. 89. William E. Kennard, “The Road Not Taken:
See also Michael Hiltzik, “Net Firm to Ask FCC to Building a Broadband Future for America,”
Open Cable Lines,” Los Angeles Times, June 2, 1999, p. Address before the National Cable Television
C1. Internet Ventures’ approach was not supported by Association, Chicago, June 15, 1999, p. 5 (visited
AOL and its allies because it would limit the number June 28, 1999), <http://www.fcc.gov/Speeches/
of ISPs that could gain access to a cable system. Kennard/spwek921.html>. See also William E.
“NCTA Attacks IV Petition on Legal and Public Policy Kennard, “How to End the World Wide Wait,”
Grounds,” Warren’s Cable Regulation Monitor, July 19, Wall Street Journal, August 24, 1999, p. A18.
1999.
90. Kennard, “The Road Not Taken,” p. 3. See
81. See, for example, Kara Swisher, Khanh Tran, also Stephanie Mehta and Kathy Chen, “U.S.
and Kathy Chen, “High-Stakes Internet Battle Market for Broadband Is Barely Tapped,” Wall
Erupts in San Francisco,” Wall Street Journal, July Street Journal, January 12, 2000.
26, 1999, p. A24; and Stephen Labaton, “Fight for
Internet Access Creates Unusual Alliances,” New 91. Kennard, “The Road Not Taken,” p. 4. See also
York Times, August 13, 1999, p. A1. Jason Oxman, “The FCC and the Unregulation of
the Internet,” FCC Office of Plans and Policy,
82. AT&T Corp. v. City of Portland (D. Ore.). Working Paper no. 31, July 1999.
Recently, another federal district court found an

25
92. Kennard, “The Road Not Taken,” p. 5. 98. See Swisher, Tran, and Chen; and Labaton.
After a very expensive lobbying campaign, the San
93. “AT&T Asks to Speed Appeals Process in Suit Francisco Board of Supervisors voted to support
over Access to Cable,” Wall Street Journal, June 17, the principle of open access but did not impose any
1999, p. B11. legal conditions on AT&T’s cable modem service.
The board also decided to revisit the issue, much to
94. Amicus Curiae Brief of the Federal Commun- the glee of local lobbyists. See Ann Grimes and
ications Commission at 27, AT&T Corp. v. City of Khanh Tran, “San Francisco Transfers Cable
Portland (9th Cir. August 16, 1999) (No. 99-35609). System to AT&T, Will Revisit Open Access Issue,”
Wall Street Journal, July 27, 1999, p. A4. Recently, the
95. Ibid. at 29. In the FCC’s recent line-sharing city’s Department of Telecommunications and
proceeding, US West argued that line sharing for Information Services recommended that the city
DSL service violated the principle of competitive adopt an open-access requirement, but without
neutrality because the commission has not rate regulation. See “Open Access Report.”
imposed a similar requirement on cable opera-
tors. The FCC stated: 99. In addition to the Portland/Multnomah
County open-access requirement, similar provisions
We note that the [Communications] Act affecting AT&T have been enacted by Culver City,
makes distinctions based on a common California; Madera County, California; Broward
carrier’s prior monopoly status. . . . We have County, Florida; Cambridge, Massachusetts; North
not yet determined whether the provision Andover, Massachusetts; Quincy, Massachusetts;
of Internet access through a cable modem Somerville, Massachusetts; St. Louis, Missouri; and
is a cable service, telecommunications ser- Henrico County, Virginia. The actions by California
vice, or information service . . . . We have local governments are void in light of the Ninth
determined, however, that lack of access to Circuit’s opinion in AT&T Corp. v. City of Portland.
the high frequency portion of the incum- The Henrico County ordinance is void in light of the
bent’s local loop impairs a competitive car- decision in MediaOne Group v. County of Henrico. The
rier’s ability to offer advanced services. . . . actions of the four Massachusetts communities
Therefore, we conclude that it is appropri- were voided by the state Department of Telecom-
ate to unbundle access to the high fre- munications and Energy. Peter Howe, “4 Communi-
quency portion of the local loop, regardless ties’ Drives for ‘Open Access’ Rejected,” Boston Globe,
of the regulatory status of cable modem May 2, 2000, p. E3. A planned November ballot
Internet access. question that would require open access in
Massachusetts was recently dropped after propo-
Line Sharing Report ¶ 59 (footnotes omitted). nents reached a compromise with AT&T. Peter
Howe, “Deal with AT&T Halts Ballot Item on
96. Broward County, Florida, Ordinance no. 1999- Internet Use,” Boston Globe, June 28, 2000, p. A1. For
41, enacted July 13, 1999 (visited November 23, updated information on local government activity,
1999), <http://www.broward.org>. See generally see <http://www.opennetcoalition.org>.
Kathy Chen, “Another Vote to Open Up Cable
Lines Means More Complications for AT&T,” Wall 100. “NCTA’s Sachs Declares Forced Access
Street Journal, July 14, 1999, p. B7. This ordinance Legislation Is Dead,” Warren’s Cable Regulation
applied to all cable franchisees in the county and Monitor, December 13, 1999.
was immediately challenged by Comcast and
Advocate Communications. “Comcast Opens 2nd 101. See Wee and Schwartz (discussing require-
Open Access Litigation Front in Florida,” ment imposed on Cox Communications by
Communications Daily, July 22, 1999. AT&T filed a Fairfax, Virginia); Hector Berrera, “W. Hollywood
separate suit. Kathy Chen, “AT&T to Appeal Joins Backers of Open Access,” Los Angeles Times,
Florida Internet Access Ruling,” Wall Street Journal, December 22, 1999, p. C2 (discussing West
July 15, 1999, p. B6. To the amazement of Broward Hollywood’s plan to make open access a negotiat-
County officials, no ISP has requested access to ing point in franchise renewal discussions with
cable modem facilities. “Cable and ISPs Duel for Adelphia Communications); and Christopher
Cities on Access Issue at NATOA,” Warren’s Cable Carey, “Cable TV Giant Fights Further Regula-
Regulation Monitor, September 20, 1999. GTE was tion,” St. Louis Post-Dispatch, December 31, 1999
one of the primary advocates of open access in (noting Charter Communications’ efforts to deter
Broward County and has agreed to pay the coun- St. Louis County from enacting an open-access mea-
ty’s legal fees in defense of the ordinance. sure similar to that enacted by the city of St. Louis).

97. “Open Access Advocates Say Broward County 102. In addition to local governments, a number
Is Just 2nd of Many,” Communications Daily, July of state legislatures have considered open-access
15, 1999. legislation, but no state access measures have

26
been enacted. “Open Access Bill Rendered Moot Access Adherents Speechless,” Communications
in Michigan, Its Last Bastion,” Warren’s Cable Today, January 12, 2000.
Regulation Monitor, July 3, 2000.
114. Peter Goodman and Craig Timberg, “AOL
103. “Kennard Says ‘Open Access’ Proceeding Ends Its Push for Open Access,” Washington Post,
Would Chill Investment,” Washington Telecom February 12, 2000, p. A1; and Peter Howe, “AOL
NewsWire, August 11, 1999. Calls Off Open-Access Lobby Efforts,” Boston
Globe, February 15, 2000, p. C1.
104. Kara Swisher et al., “Excite At Home at a
Defining Moment,” Wall Street Journal, October 1, 115. Memorandum of Understanding between
1999, p. B6; and Leslie Cauley, “AT&T’s Top Cable Time Warner, Inc. and America Online, Inc.
Executive Resigns amid Internet-Access Fracas,” Regarding Open Access Business Practices,
Wall Street Journal, October 7, 1999, p. B1. February 29, 2000, <http://media.web.aol.com/
media/press.cfm?>.
105. David N. Baker, vice president for legal and reg-
ulatory affairs, MindSpring Enterprises; James W. 116. Ibid. at 2.
Cicconi, general counsel, AT&T; and Kenneth S.
Fellman, chairman, FCC Local and State 117. Ibid. at 3.
Government Advisory Committee, Letter to William
E. Kennard, chairman, Federal Communications 118. Quoted in “Case and Levin Discount Idea of
Commission, December 6, 1999, p. 1. On file with Mandating Open Access MoU,” Communications
the author. Daily, March 3, 2000.

106. Ibid., p. 2. 119. Ibid.

107. AT&T, “AT&T Commits to Give Consumers 120. Kathy Chen, “Cox Will Consider Open Cable
Choice of ISPS for High-Speed Internet Access via Lines for Different ISPs,” Wall Street Journal,
Cable, Fixed Wireless,” Press release, December 6, 1999, March 29, 2000, p. A14; and Kathy Chen,
<http://www.att.com/press/item/0,1354,2320,00. “Comcast Hopes to Offer in 2002 Open–Access
html>. AT&T recently announced it would begin Policy,” Wall Street Journal, March 27, 2000, p. A42.
technical trials with multiple ISPs in Boulder,
Colorado, and three Massachusetts communities. 121. William E. Kennard, “Broadband Cable: Next
Leslie Cauley and Nick Wingfield, “AT&T to Test Steps,” Address before the California Cable Television
Multiple ISPs on Cable Lines,” Wall Street Journal, Association, Los Angeles, December 16, 1999, p. 4
June 8, 2000, p. B10; and AT&T, “Massachusetts (visited January 3, 2000), <http://www.fcc.gov/
Coalition for Consumer Choice and Competition Speeches/Kennard/spweek944.html>.
on the Internet and AT&T Agree on Plan for
Consumer Choice of ISPs in Massachusetts,” 122. Applications for Consent to the Transfer of
Press release, June 27, 2000, <http://www.att.com/ Control of Licenses and Section 214 Authori-
press/item/0,1354,3037,00.html>. zations from MediaOne Group, Inc. to AT&T,
FCC 00-202 ¶ 4 (June 5, 2000) (outlining the
108. Quoted in Peter Howe, “Critics Hit AT&T Deal steps AT&T must take to comply with the FCC’s
with ISP,” Boston Globe, December 7, 1999, p. D1. horizontal ownership rules).

109. Ibid.; Kara Swisher, Kathy Chen, and Nick 123. Ibid. ¶ 117 (footnotes omitted).
Wingfield, “AT&T’s Access Plan Draws a Mixed
Reaction,” Wall Street Journal, December 7, 1999, p. B6; 124. Ibid. ¶ 120.
and Peter Goodman, “AT&T Rivals Cautious on
Cable Access,” Washington Post, December 6, 1999, 125. Ibid. ¶ 121.
p. A16.
126. Ibid. ¶ 126.
110. Quoted in ibid.
127. AT&T Corp. v. City of Portland (9th Cir.). The
111. United States v. AT&T Corp. and MediaOne Group, Ninth Circuit’s opinion may be contrasted with
Inc., Case No. 1:00CV01176, Complaint and Proposed that of the Eleventh Circuit in Gulf Power Co. v.
Final Judgment (D.D.C., filed May 25, 2000). FCC, 208 F.3d 1263 (11th Cir. 2000). The
Eleventh Circuit ruled that the FCC has the
112. AOL and Time Warner, “America Online and authority to regulate pole attachment rates for
Time Warner Will Merge,” p. 6. cable and telecommunications service, but
Internet service is neither. Ibid. at 1276.
113. “AOL–Time Warner Deal Leaves Open-

27
128. AT&T Corp. v. City of Portland (9th Cir.) at *18. terms of broadband forms of access, claiming
that dial-up service “is not an adequate substitute
129. Ibid. at *19–20. for high-speed transport.” Ibid. at 6. Given the
very low penetration rates of cable modem ser-
130. Ibid. at *15. vices (@Home has a 4.8 percent penetration rate
of homes served by upgraded cable systems.
131. Ibid. at *21. Excite@Home, “Excite@Home Reports Fourth
Quarter and Fiscal Year 1999 Results,” Press
132. Ibid. at *24. release, January. 20, 2000, p. 2, <http//www.home.net/
news/pr_000120_01.html>, and the marked price
133. Quoted in “FCC Proceeding to Decide Key difference between dial-up and cable modem ser-
Cable Open Access Issue,” Communications Daily, vices, it may well be that consumer demand for
July 3, 2000. high-speed Internet access is very price sensitive.
Furthermore, GTE regards the provision of high-
134. “Portland Ruling Shifts Open Access Battle speed transport of data between customers and
Back to FCC,” Communications Daily, June 26, ISPs as a separate product from the provision of
2000. ISP services. Ibid. at 8. Even assuming that the dis-
tinction between data transport and ISP services
135. The comments of the AT&T-led coalition are correctly defines product markets, the success of
available at <http://www.handsofftheinternet.com>. GTE’s tying claim depends on showing that the
For the comments of the AOL-led coalition, see cable defendants have monopoly power in the
<http://www.opennetcoalition.org>. data transport market. Despite cable companies’
current market share of broadband data trans-
136. As Professors Areeda and Hovenkamp wrote, port, it seems doubtful that they possess monop-
the term “essential facility” is “just an epithet oly power, especially in a new and rapidly chang-
describing the monopolist’s situation: The ing market. In response to this suit, a Comcast
monopolist possesses something the plaintiff executive stated, “No one should be surprised
wants. It is not an independent tool of analysis that GTE, which has sued the FCC at every turn
but only a label—a label that beguiles some com- to stop local phone competition, should try simi-
mentators and courts.” Phillip E. Areeda and lar tactics to slow down facilities-based Internet
Herbert Hovenkamp, Antitrust Law: An Analysis of competition.” “Communications Daily Notebook,”
Antitrust Principles and Their Application, rev. ed. Communications Daily, October 27, 1999.
(Boston: Little, Brown, 1996), vol. 3A, pp. 178–79.
140. 1999 U.S. Dist. LEXIS 7744 (E.D. Pa. May 18,
137. See, for example, MCI Communications Corp. v. 1999).
AT&T, 708 F.2d 1081, 1132–33 (7th Cir. 1983)
(describing the elements needed to prove liability 141. Ibid. at *7.
under the essential facilities doctrine).
142. Ibid. at *62.
138. See, for example, Aspen Skiing Co. v. Aspen
Highlands Skiing Corp., 472 U.S. 585, 600 (1985) (a 143. Ibid. at *70.
monopolist does not have an unqualified duty to
cooperate with business rivals). 144. Ibid. at *74.
139. The exception is GTE, operator of an 145. Ibid. at *75.
Internet backbone service, known as GTE
Internetworking, and an ISP, known as gte.net. 146. Ibid. at *78.
GTE’s subsidiaries filed suit against TCI,
Comcast, and @Home, alleging that the defen- 147. Ibid. at *7 (emphasis added).
dants’ “mandatory bundling of their high-speed
data transport services with the At Home ISP ser- 148. Brown Shoe Co. v. United States, 370 U.S. 294,
vice is an unlawful tie.” GTE Internetworking Inc. & 320 (1962).
GTE Intelligent Network Services Inc. v. Tele-
Communications, Inc., Comcast Corp., and At Home 149. 948 F. Supp. 456 (E.D. Pa. 1996).
Corp., Complaint, at 3 (W.D. Pa. October 27,
1999). The complaint also alleges that the con- 150. AT&T-TCI Merger ¶¶ 77–78.
tracts between the defendants are unlawful exclu-
sive dealing and refusals to deal. Ibid. Although 151. City of Los Angeles Information Technology
detailed analysis of GTE’s claims is outside the Agency, “Broadband Access Report,” June 1999,
scope of this paper, a few comments are warrant- pp. 10–18. Cited hereinafter as “Broadband
ed. GTE defines the product market solely in Access Report.” Consequently, the ITA concluded

28
that “it does not appear at this time that regula- 156. AT&T-TCI Merger ¶ 88. See also ibid. ¶ 87;
tory intervention on the magnitude of open and “Broadband Access Report,” pp. 28–31.
access is either prudent or advisable.” Ibid. at 46.
157. GTE, “GTE Demonstrates Ease of Cable Open
152. Byars v. Bluff City News Co., 609 F.2d 843, 851 Access to Multiple ISPs; Clearwater Trial Shows One-
n. 19 (6th Cir. 1979). Time Investment of Less Than $1 per Home Would
Provide Consumer Choice,” Press release, June 14,
153. See, for example, Fishman v. Estate of Wirtz, 807 1999, http://www.gte.com/ AboutGTE/NewsCenter/
F.2d 520 (7th Cir. 1986) (denial of access to a sports NewsReleases/ClearwaterOpenAccess.html>.
stadium poses a severe handicap due to the inade- Lawrence Gasman, an expert on telecommunications
quacy of other stadia and the tremendous cost to networks, stated that the network management prob-
build a new stadium); and MCI Communications Corp. lems presented by three ISPs on a cable system are
v. AT&T (denial of access to local telephone network minuscule in comparison with the issues that would
facilities poses a severe handicap due to the absence be presented under an open-access requirement.
of alternatives and the capital investment necessary Consequently, he did not regard GTE’s test as sup-
to build a separate network). Cf. Hecht v. Pro-Football, porting the technical feasibility of a broader system of
Inc., 570 F.2d 982 (D.C. Cir. 1977) (trial court erred access. Telephone interview with Lawrence Gasman,
by failing to give jury instruction concerning the president, Communications Industry Researchers,
impracticality of building a duplicate football stadi- January 28, 2000.
um). Of course, AOL’s stunning market value, which
enabled it to buy Time Warner, places AOL in a dif- 158. Excite@Home, “The Technical Short-com-
ferent category than other ISPs when one is consid- ings of the GTE ‘Open Access’ Trial,” pp. 2–3 (vis-
ering the feasibility of duplicating the incumbent’s ited July 17, 1999), <http://www.home.net/
network. source/techdetails. html>. See also Excite@Home,
“Excite@Home Responds to Misleading Claims
154. The FCC noted that no current broadband by GTE and AOL,” Press release, June 15, 1999,
technology is capable of serving all residential <http://www.home.net/ news/ pr_990615-01.html>.
areas. The agency stated:
159. Quoted in “FCC Won’t Support Open Cable:
Although telephone and cable incumbents Incumbents Write Off GTE-AOL Test Results,”
already have facilities serving the last mile, ISP Business News, June 21, 1999.
traditional telephone and cable plant are
not ideally suited for broadband. 160. Line Sharing Report.
Ameritech, for example, estimates that
xDSL will not work on 45% of its loops 161. Ibid. ¶ 74. The commission stated: “We
today, and may never work on 20% of believe that serving multiple customers [ISPs]
them. Similarly, today’s cable television would be very costly, time consuming, and would
plant, even after upgrading for two-way lead to complex operational difficulties.
broadband operations, may not be capable Moreover, the record does not sufficiently sup-
of providing all users in a neighborhood port the establishment of multiple customer line
with very high speeds. sharing requirements.” Ibid., n. 166.

FCC Broadband Report ¶ 46 (notes omitted). But 162. Because ILECs already provide both analog
see “Broadband Access Report,” pp. 13 n. 28, 14 voice and high-speed data services over a single
(noting that telephone company representatives line, the FCC concluded that two-carrier line
acknowledge that there are technical solutions to sharing was technically feasible. Ibid. ¶¶ 63–67.
DSL’s problem of geographic reach); Dean For comments on voice-compatible forms of
Takahashi, “Start-Up Extends Reach of DSL DSL, see ibid. ¶¶ 70–71.
Lines,” Wall Street Journal, October 14, 1999, p. B8
(describing a new computer chip that lowers the 163. In a recent report, the FCC’s Cable Services
cost of DSL and expands the service area); and Bureau found that logistical problems, in addi-
SBC, “SBC Launches $6 Billion Initiative” tion to technical problems, affect the implemen-
(describing SBC’s plan to push fiber deeper into tation of open access. The bureau stated, “[O]ne
neighborhoods, thus enabling DSL service to be of the greatest logistical obstacles to the deploy-
provided to nearly all customers). See also “Open ment of distribution systems is the shortage of
Access Report,” p. 19 (stating that DSL is avail- engineers and the limited infrastructure neces-
able in all parts of San Francisco because of the sary to physically create and deploy these sys-
city’s density and the number of telephone com- tems.” Broadband Today, p. 39. See also Deborah
pany central offices spread throughout the city). Solomon and Scott Thurm, “SBC to Give PCs to
Internet Customers,” Wall Street Journal, July 10,
155. Hecht v. Pro-Football, Inc. at 992–93. 2000, p. B8 (noting the shortage of technicians

29
available for DSL installations). that even though cable’s “conduit” function
meant that viewers would not identify the views
164. See, for example, MCI Communications Corp. v. carried on broadcast stations with those of the
AT&T at 1133 (MCI proved that it was technically cable system, nonetheless, the must-carry regula-
and economically possible for AT&T to have provid- tions imposed a burden on cable’s First
ed connections to the local telephone network). Amendment rights. 512 U.S. 622, 655, 662 (1994).
Finally, the fact that AT&T’s current policy allows
165. Minneapolis Star & Tribune Co. v. Commissioner users to connect with any Web content does not
of Revenue, 460 U.S. 575, 585 (1983). define the First Amendment’s limits on govern-
mental power. AT&T would be within the scope
166. AT&T Corp. v. City of Portland (D. Ore.) at *17. of its editorial discretion if it abandoned its cur-
rent policy and blocked access to certain Web
167. See ibid. (citing PruneYard Shopping Center v. sites.
Robins, 447 U.S. 74 (1980)). The part of
PruneYard that Judge Panner cited dealt with 168. Turner Broadcasting. Applying the statutory
whether a state-mandated right of access to a classification “telecommunications service” to a
shopping center violated the First Amendment portion of cable modem service does not elimi-
principles of Wooley v. Maryland, 430 U.S. 705 nate the protection of the First Amendment.
(1977). Wooley held that a state may not require Although cable modem regulations under the
an individual to disseminate an ideological rubric of “telecommunications service” may be
message on his private property. The PruneYard content neutral, challenges to such regulations
Court distinguished Wooley on the following should receive at least intermediate scrutiny.
grounds: (1) In Wooley the government pre-
scribed the message, whereas in PruneYard the 169. Ibid. at 647.
state did not dictate the message. (2) In
PruneYard, the shopping center by the choice of 170. Ibid. at 662 (citing United States v. O’Brien, 391
its owner was not limited to the personal use of U.S. 367, 377 (1968)).
the owner, and members of the public were
unlikely to identify views expressed by members 171. Ibid. at 664.
of the public with those of the owner. (3) The
shopping mall owner could disavow any con- 172. Ibid. at 666. For a discussion of this aspect of
nection with the message by posting signs in the Turner Broadcasting, see William E. Lee,
area where speakers and pamphleteers stand. “Manipulating Legislative Facts: The Supreme
447 U.S. at 87. Judge Panner found the open- Court and the First Amendment,” Tulane Law
access provision to be similar to PruneYard Review 72 (1998): 1261.
because Portland did not dictate any messages
and there was no evidence that cable modem 173. 117 S. Ct. 1174 (1997).
users would associate AT&T with the speech of
unaffiliated ISPs. AT&T Corp. v. City of Portland 174. 1999 U.S. Dist. LEXIS 8223, at *18.
(D. Ore.) at *17.
Judge Panner’s view of PruneYard as establish- 175. As noted earlier, Judge Panner did not believe
ing the proper analytical framework is faulty for it was his role to second-guess the findings sup-
four reasons: First, the access in PruneYard did not porting the open-access requirement. But there is
impair the value of the property or the owner’s a distinction between second-guessing findings
use of the property. 447 U.S. at 83. But cable sys- and ensuring that those findings are reasonably
tems have limited bandwidth, and any use of based on substantial evidence. See generally Lee,
bandwidth by unaffiliated ISPs reduces AT&T’s “Manipulating Legislative Facts.”
ability to use that bandwidth for its own speech.
Second, the cable modem platform is not open to 176. For a recent example of narrow-tailoring
the public; only subscribers have access to the analysis of a content-neutral cable regulation, see
Internet through AT&T’s facilities. (California Horton v. City of Houston, 1999 U.S. App. LEXIS
appellate courts applying PruneYard consider 13418 (5th Cir. June 18, 1999).
whether or not the owner has so opened his prop-
erty for public use that it becomes equivalent to a 177. Quincy Cable TV, Inc. v. FCC, 768 F.2d 1434
public forum. Golden Gateway Center v. Golden (D.C. Cir. 1985).
Gateway Tenants Ass’n, 73 Cal. App. 4th 908, 914
(Cal. Ct. App. 1999)). And unlike the speakers in 178. Cf. Turner Broadcasting at 682 (O’Conner, J.,
PruneYard, ISPs will have to permanently occupy concurring in part and dissenting in part) (criti-
AT&T’s facilities by housing equipment at the cizing the must-carry provisions because not
cable head end. Third, the Court, in Turner every decision by a cable operator to carry a cable
Broadcasting, 512 U.S. 622 (1994), acknowledged programmer rather than a broadcaster is motivat-

30
ed by anti-competitive impulses). expression that threatens certain physicians and
health facilities). See also “Web Site Group Hit by
179. @Home Master Distribution Agreement, Verdict; Anti-abortion Activists Must Pay $107
quoted in “Broadband Access Report,” p. 19. Million, Jury Says,” Atlanta Journal and Constitution,
February 3, 1999, p. A3.
180. See, for example, Cyber Promotions, Inc. v.
America Online, 948 F. Supp. 456 (E.D. Pa. 184. See Yates v. United States, 354 U.S. 298 (1957)
November 26, 1996) (to protect its subscribers (distinguishing between abstract advocacy of vio-
from unsolicited e-mail advertisements, AOL may lent overthrow of government and advocacy
control use of its system); Zimmerman v. Board of designed to instigate action).
Publication of the Christian Reformed Church, Inc., 598
F. Supp. 1002, 1010 (D. Colo. 1984) (regardless of 185. Sen. Strom Thurmond of South Carolina
whether defendants held a monopoly position, speaking of cable operators’ lack of editorial control,
the Sherman Act is not aimed at reasonable con- Congressional Record 138 (January 30, 1992): 648.
duct such as refusal to publish advertising on the
ground that it might be misleading); and 186. 47 U.S.C. § 532(h) (1997). For an example of
Newspaper Printing Corp. v. Galbreath, 580 S.W.2d a cable operator’s policy concerning sexually
777, 780 (Tenn.), cert. denied, 444 U.S. 870 (1979) oriented leased-access programming, see Loce v.
(freedom of the press means freedom not to pub- Time Warner Entertainment, 1999 U.S. App. LEXIS
lish, as well as freedom to publish, as the publish- 1379 (2nd Cir. June 14, 1999).
er sees fit). See generally William Lee, “Cabled
Leased Access and the Conflict among First 187. Denver Area Educ. Telecommunications Consor-
Amendment Rights and First Amendment tium, Inc. v. FCC, 116 S. Ct. 2374 (1996). For a dis-
Values,” Emory Law Journal 35 (1986): 563, cussion of this case, see Lee, “Manipulating
569–71, 616–17 (discussing the limited reach of Legislative Facts,” pp. 1296–1306.
the antitrust laws).
188. Typical cable modem service uses a standard
181. Cf. Cyber Promotions, Inc. v. America Online, 6-MHz television channel for downstream com-
Inc., 948 F. Supp. 436 (E.D. Pa. December 19, munications. “How Do Cable Modems Work?”
1996) (AOL is not a state actor and has the right (visited June 25, 1999), <http://www.cablemodems.
to prevent unsolicited e-mail advertisements com/work.html>. Internet Ventures sought to
from reaching its subscribers). lease a 6-MHz channel from TCI’s Spokane,
Washington, cable system. Internet Ventures,
182. Cf. Turner Broadcasting II, 117 S. Ct. at 1215 at *1. AOL and its allies do not support this
(O’Connor, J., dissenting) (even though cable sys- approach because the legal limit on the number
tems voluntarily carry most television stations, of channels a cable system must make available
the must-carry requirement burdens a cable oper- for leased access means that only a limited num-
ator’s First Amendment freedom to exercise ber of ISPs would gain access. See Internet
unfettered control over a number of channels). Ventures. But see “FCC Is Told Leased Cable
Channels Could Support Multiple ISPs,” Warren’s
183. See Planned Parenthood of the Columbia/ Cable Regulation Monitor, August 16, 1999. Under a
Willamette, Inc. v. American Coalition of Life Activists, shared bandwidth approach, there is the possibil-
1999 U.S. Dist LEXIS 4332 (D. Ore. March 16, ity of degrading the level of service and other tech-
1999) (issuing permanent injunction preventing nical problems, as discussed in the subsection
defendants from using the Internet to disseminate “Technical Issues.”

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