Battle Over High-Speed Net Access Centers in L.A.

Some of the biggest names in the telecommunications and media industries have launched a multimillion-dollar war over how consumers will get high-speed access to the Internet--and Los Angeles is Ground Zero.

AT&T;, America Online and GTE have hired several top lobbyists in Los Angeles and a battery of political consultants, pollsters, phone solicitors and professional petition gatherers. AT&T; has taken full-page issue ads in The Times and advocacy commercials on the local morning TV news programs.

Many of the ads cast the issue as a threat of government control over the Internet, but the real issue is much more prosaic: Who will stand to rake in the billions of dollars that consumers are likely to spend for lightning-fast access to this world-changing communications medium?

“This is a defining moment for the future of the Internet, but when this amount of money is being spent, the underlying issues get obscured,” said Andrew Schwartzmann of the Media Access Project, a Washington consumer advocacy group.

Inspiring this outpouring of lobbying expenditure is an upcoming City Council vote on whether to force cable companies to lease space on their high-speed networks to outside Internet providers--an issue known as “open access.” The council is expected to hold its next public hearing on Tuesday and move toward a vote this fall.

Cable companies, including AT&T;, are loath to turn over their high-speed networks to independent services such as America Online. They argue that they need the exclusive right to sell high-speed service to their own subscribers to justify the billions they are investing to upgrade their networks.

The independent Internet service lobby, led by AOL, argues that high-speed transmission is such a critical technology that they should be permitted to reach subscribers over the cable lines, just as they now sell their services over telephone lines.

City Hall Remains Undecided

Los Angeles is at the center of this national debate because it is perhaps the largest city whose political leaders remain undecided on open access. The City Council took up the issue in the course of transferring cable system franchises to AT&T; from Tele-Communications Inc. The long-distance giant bought the cable company in March and it is key to AT&T;’s strategy for entering the local phone business.

City Councilman Mark Ridley-Thomas, the leading council expert on the subject, said the local public relations blitz is among the most intense he has seen waged at City Hall.

“It rivals the Pacific Pipeline effort,” he said, referring to a protracted fight in the early 1990s over plans to build oil pipelines through minority communities. “The stakes are high and each side is doing all that it can to put forth its position and/or to bring pressure to bear.”

Both sides are aware that local authorities are taking more interest in the issue. Last Wednesday, Broward County, Fla., became the nation’s second local government to vote in favor of forcing cable operators to open their networks. The first was Portland, Ore. San Francisco and Miami are expected to follow suit in the next few weeks.

Two weeks ago, the U.S. 9th Circuit Court of Appeals cleared the way for a quick review of a decision affirming Portland’s demand for open access, despite AT&T;’s argument that the Federal Communications Commission has jurisdiction.

Some analysts say that, depending on the outcome in the Portland case this fall, momentum could snowball city-by-city as municipalities tackle the wave of franchise transfers pending after a year of cable consolidation.

Hence, both sides are making a stand in Los Angeles. Sources say every lobbyist with even a tenuous tie to City Hall has been retained in the effort.

Several former city officials are on AT&T;’s payroll, including Ken Spiker, a former chief legislative analyst for the City Council, and Maureen Kindel, of the Rose & Kindel lobbying firm, who was the public works chief and a major fund-raiser for former Mayor Tom Bradley. AT&T; also has retained Cerrell Associates, one of the city’s best-known lobbying firms.

AOL has employed as a lobbyist George Mihlsten, an attorney at Latham & Watkins, who recently represented Staples Center. GTE has George Kieffer, an attorney with Manatt, Phelps & Phillips who was named chairman of the city’s appointed charter reform commission by City Atty. James Hahn.

City Council members, meanwhile, are raising thousands of dollars in contributions from these special interests and the lobbyists representing them.

The publicity machine is also cranked up to overdrive--particularly by the AT&T; camp.

Excite@Home, the high-speed cable Internet service controlled by AT&T;, early this month placed a full-page advertisement in The Times asking: “Why Is America Online Spending Millions of Dollars to Slow You Down?” In the ad, Excite@Home, which serves 460,000 customers nationwide, warned that any new regulations would delay the roll-out of its service by several years and make the product more costly.

Related commercials have run locally on ABC, NBC, CBS and CNBC for the last two weeks, nominally sponsored by “Hands Off the Internet.” The lobbying group, supported by a dozen obscure organizations bearing names like “EStudentLoan LLC,” is dominated by AT&T;, which will be the nation’s largest cable operator once it completes a pending acquisition of MediaOne Group. The organization has also been calling Los Angeles residents, asking them to contact their state Assembly representatives to oppose proposed “open access” legislation.

At stake in the nationwide battle are 30 million residential subscribers who connect over conventional phone lines to the Internet through 6,000 Internet service providers, or ISPs. Some of those customers are gravitating to new high-speed services delivered by cable, telephone, satellite and wireless technologies that charge customers upward of $40 a month.

By the end of the year, 250,000 subscribers will be connected to the Internet through their local phone companies, using high-speed digital subscriber lines (DSL), according to the Yankee Group, a Boston-based market research company. Cable operators will be further along, with nearly 1 million customers connected, mostly through Excite@Home and Roadrunner, a similar high-speed service jointly owned by Time Warner and MediaOne.

The cable companies argue that the high-speed market is just emerging and does not yet warrant costly regulation, but the ISPs say the exclusive arrangements in cable unfairly lock them out of that market.

Another player on this stage is the Federal Communications Commission, which regulates telecommunications industries. Thus far the FCC has supported cable’s position on open access. And its officials have spoken out against allowing localities to set cable Internet regulations, on the grounds that it would lead to a chaotic patchwork of 30,000 individual city regulations. The FCC has promised to set a national policy that would allow the high-speed market to develop unregulated, even as various open access measures crop up in Congress and state legislatures.

Locally, Ridley-Thomas has invited academic and other experts to Tuesday’s public hearing and expects his committee to adopt a recommendation for the full council to consider, probably sometime in September. The council endorsed an open access position early on in the debate.

Meanwhile, Mayor Richard Riordan’s Information Technology Commission recommended no new regulations in a feasibility study released last month and suggested that the issue be revisited once competition for high-speed Internet customers develops among phone, cable, wireless and satellite companies. In the Los Angeles area, MediaOne, DirecTV, GTE, Pacific Bell and a host of subcontractors offer high-speed products, with more entries expected in the next year.

“If you just endorse cable, you snuff out other possibilities because everyone will ride the cable network,” said Jesse Juarros, assistant general manager for the agency. “It wasn’t until the threat from cable [arose] in the last six months that DSL got [rolled] out in Los Angeles and prices dropped to $50 a month, from between $100 or $200.”

Cable companies say there is nothing to prevent competitive ISPs from leasing DSL service from local phone companies. They contend that the phone companies have supported the ISPs in the open access war mainly to protect their local hold on telephone service as cable lines become equipped to handle telephone calls.

“This is a stall tactic by the phone companies, which can’t get into the long-distance market, stand to lose business in the local market they control 97% of, and can’t build out DSL fast enough to compete because they didn’t do it when they first had the chance,” said Perry Parks, vice president of public affairs and government relations at MediaOne.

Mayor’s Actions Questioned

For their part, the phone companies claim they are at a disadvantage to cable in the high-speed arena because they must share the market with anyone who wants to lease their lines.

“Had the phone lines been closed like cable, we would not have the 6,000 ISPs we have today,” lobbyist Kieffer said.

At City Hall, many observers blame the mayor for badly bungling the issue when it was before his Information Technology Commission, leaning so hard on his commissioners to back his position that a majority quit rather than vote his way. The issue captured local attention last month when three of the five commissioners quit because they disagreed with the mayor’s position on open access. Riordan has supported AT&T;’s position that requiring cable companies to provide access to ISPs will discourage the spread of high-speed access and ultimately work against consumers.

The result of the resignations was that a relatively low-profile issue became a major controversy, and Riordan effectively removed his office from influence, with the commission essentially out of business.

Yet some top executives continue to reach out to Riordan. Disney chief Michael Eisner, who fears his company’s Go Internet site could be stifled by a cable stranglehold, contacted the mayor in recent weeks, sources said, and followed up in a conversation with Riordan’s chief of staff, Kelly Martin. According to sources, Eisner urged the Riordan administration to reconsider its resistance to open access.