Gov.’s Aide Serves Firm With Stake in State Bill

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Times Staff Writer

Gov. Arnold Schwarzenegger’s top campaign advisor is being paid to provide marketing strategy to AT&T; Inc. at a time when the governor’s office is involved in negotiations on legislation potentially worth billions of dollars to the telecommunications giant.

Political consultant Matthew Dowd’s involvement with the governor and AT&T; at the same time presents, at minimum, the appearance of a conflict of interest, government watchdogs warned.

For the record:

12:00 a.m. July 19, 2006 For The Record
Los Angeles Times Wednesday July 19, 2006 Home Edition Main News Part A Page 2 National Desk 1 inches; 51 words Type of Material: Correction
Governor’s advisor: A front-page article Tuesday about Gov. Arnold Schwarzenegger’s top campaign advisor and his consulting work for AT&T; Inc. gave the wrong bill number for a proposal in the Legislature to regulate how companies would provide television programming over phone lines. The bill number is AB 2987, not AB 2789.

Dowd and his consulting firm are currently assisting San Antonio-based AT&T; with the rollout of its U-verse service in Texas.


The product is designed to compete with cable TV by sending television programming and a bundle of Internet and communications services over existing and upgraded telephone lines.

At the same time, in California, AT&T; is lobbying for passage of a bill being carried by Assembly Speaker Fabian Nunez (D-Los Angeles), AB 2789, that would ease the financial and regulatory burdens of installing the new technology for the industry.

“If AT&T; hired Dowd to sell TV, and Dowd also has been hired to sell Schwarzenegger on TV, you’ve got to wonder if Dowd also is selling your governor on AT&T;’s legislative agenda for TV,” said Andrew Wheat, a public interest activist. Wheat is research director of Texans for Public Justice, which tracks the influence of money and corporate power in the state’s politics.

Dowd declined to be interviewed. But a spokeswoman for Schwarzenegger’s reelection campaign said that neither the political strategist nor his Austin, Texas-based consulting firm, ViaNovo, had acted improperly.

“The firm does no work for AT&T; in California and has had no conversations with the governor’s campaign or state staff regarding AT&T;,” Julie Soderlund said. “The scope of their work in Texas [for AT&T;] is limited to consumer branding in the marketplace.”

Schwarzenegger hired Dowd, chief strategist for the national Bush-Cheney campaign in 2004, this year. Dowd’s arrival was part of a shake-up in the governor’s political and policy staffs after four initiatives Schwarzenegger supported went down to defeat in November in a bitterly fought special election.


In California, the Assembly-passed bill, now before the state Senate, would allow phone companies to bypass regulation by city and county governments when they install costly networks to deliver video, Internet and phone services to homes.

Verizon Communications Inc. also backs the bill because it would lower the cost of introducing a competing product.

ViaNovo is helping AT&T; sell its television-over-Internet system in the San Antonio market -- the firm’s first rollout in the nation -- by using the same kind of neighborhood block parties that Dowd used to win votes to reelect President Bush in 2004.

The San Antonio effort got underway in the last week of June, just as the Nunez bill won passage in Sacramento from the Senate Energy, Utilities and Communications Committee.

This summer, Dowd is also employing the block party technique to give a boost to Schwarzenegger. The campaign has asked volunteers across the state to invite neighbors into their homes July 27 to celebrate the governor’s birthday and join him on a conference call.

According to ViaNovo’s Internet site, the consulting firm’s top executives have “direct, hands-on engagement in every facet” of the client relationship. Dowd is listed as a founding partner of ViaNovo and presumably is closely involved in providing services to AT&T; along with his links to Schwarzenegger.


Dowd is not the first Schwarzenegger political consultant to work simultaneously for political and corporate clients. Mike Murphy, who ran the governor’s 2003 campaign for office and his 2005 initiative fight, caught flak last year for organizing an industry coalition to support the importing of liquefied natural gas into California, which would be regulated by the administration.

Todd Harris, a partner in Murphy’s consulting firm, called the criticism of Dowd unfair. “If people want to make an issue of something, especially in a highly charged political season as this is, they rarely rely on facts to make their case.”

According to AT&T;, Dowd and ViaNovo are not involved in the company’s effort to bring TV service via the Internet to California. “We’ve had no communication, period,” said spokesman H. Gordon Diamond.

Diamond added that the company has met a few times with members of Schwarzenegger’s staff as the bill has moved through the Legislature.

AT&T; is hoping California lawmakers will pass the legislation and send it to the governor before adjourning Aug. 31. So far, it’s won unanimous passage in the state Assembly and a Senate committee.

If the bill reaches his desk, Schwarzenegger would have 30 days to sign or veto the measure. He has not taken a position on the bill, a spokeswoman said.


AT&T; has committed to investing up to $1 billion in California through 2008 if the Nunez bill becomes law. But before the money flows and jobs are created, AT&T; says it needs assurances from the state that it can apply for one statewide franchise rather than file separate applications with hundreds of cities and counties.

“The current process is outdated. Consumers deserve choice, and they deserve to benefit from new technology,” AT&T;’s Diamond said. “Having a streamlined process in place helps us enter the market much quicker.” He said his company has received or is waiting to be granted similar statewide franchises in seven other states.

Local government officials, however, vehemently oppose attempts to strip them of control over cable and video-over-Internet operators. They fear losing franchise-fee revenue and the ability to respond to complaints of poor service or improper billing.

Nevertheless, cities and counties say they recognize that the politically influential telephone companies generally get what they want in the state Capitol. In recent years, AT&T; and Verizon have contributed hundreds of thousands of dollars to California politicians. What’s more, AT&T; helps raise money for the state Democratic Party by sponsoring the annual Speaker’s Cup golf tournament at the renowned Pebble Beach golf course near Carmel.

“We assume that the telephone companies are driving this all the way,” said Megan Taylor, a spokeswoman for the League of California Cities.

Another opponent of the speaker’s bill is the government watchdog group California Common Cause. It says it worries that AT&T; and Verizon might not provide high-tech products to low-income and minority communities without oversight by local franchising authorities.


Common Cause Executive Director Kathay Feng said she becomes concerned when a major corporation contributes to or does business with policymakers.

“I think there is an appearance of a conflict -- and this is something I want to research more -- when a political decision might be influenced by somebody who has a direct financial relationship with an outside company,” she said.