Cable Wars:  Episode 1 The History of the Battle 

Calnews.com Washington DC Bureau 
July 12, 1999 

It has all the makings of a world championship title fight.  Instead of men boxing in a ring, however, the contestants are some of the largest communications companies in the world fighting their battle in city councils, state legislatures and the halls of the United States Congress. 

The issue involves something seemingly innocuous – a single wire coming into customer homes from the street.  On one side, there are companies like AT&T that have invested hundreds of billions of dollars either acquiring or upgrading the networks of local cable companies.  On the other side, there are companies such as AOL, Pacific Bell and GTE that have been providing local phone and Internet service over traditional telephone lines. 

A key element to the looming battle involves the question of whether or not cable television companies will be required by government to provide space on their cable lines to companies that have historically relied on traditional phone lines. 

When AT&T bought cable giant TCI (it is currently also attempting to purchase another large cable provider in MediaOne), it was clear that the long distance giant had found a potential way around local phone monopolies like Pacific Bell and GTE.  These local phone monopolies have been largely successful at maintaining their monopoly status despite the passage of the Telecommunications Act of 1996 that promised consumers a competitive local phone market. 

By acquiring companies with cable lines going into customer homes, AT&T appeared to have found a way to offer local, long distance, Internet and cable television service to millions of people in a package that would arguably result in lower prices and better service.  And, this option would entirely bypass the networks of Regional Bell Operating Companies and GTE. 

The first companies to come out in strong opposition to this effort were Internet service giants like America OnLine.  AOL and other major Internet companies figured that AT&T would be a fierce competitor if allowed to roll out high-speed Internet access in key markets across the country, primarily due to the limitations of traditional telephone wire (cable wire can carry much more information than traditional copper telephone lines). And since companies like AOL have historically provided service over phone lines, the fact that AT&T could provide faster internet service for a comparable price has spurred a flurry of activity. 

The solution companies like AOL sought for their dilemma was to seek government regulation of Internet access. The Internet companies want government – preferably the federal government with one clean, nationwide law – to force cable companies to offer access to their networks to competitors under the guise of consumer rights. 

There is some irony here.  AOL and other Internet companies have prospered in the absence of government regulation and have usually argued forcefully against it, yet in this case, they have suddenly sought to promote dramatic intervention by government. 

Unfortunately for AOL, the federal government has not been receptive to the idea.  Federal Communications Commission Chairman William Kennard has denounced the idea in unusually direct and harsh terms, and Congress does not seem inclined to want to re-open the 1996 Telecom Act once again.  There are have been hearings on the issue, but one senses that the congressmen are just going through the motions and not doing the heavy lifting that would be needed for another huge telecom battle. 

In fact, there has not been much substantive support at the local level, either.  Of the more than 900 towns needed to approve the transfer of local franchises from AT&T to TCI, only one – Portland, Oregon – has actually attempted to pass laws regulating local Internet access.  The case promptly went to court where Portland won, though the decision is currently under appeal. 

AOL even briefly flirted with getting into the cable business.  AOL signed confidentiality agreements with MediaOne during the period when ComCast and AT&T were competing to buy it.  AOL ultimately backed away from the deal, but the message it sent was clear – AOL had access to cable lines, it just did not want to pay the price for it.  Far less expensive to pass a law than to spend $50+ billion acquiring 10 million cable customers. 
 
What happened next was perhaps the most interesting twist in the battle lines.  Faced with a lack of progress at both the federal and local levels, AOL joined in a marriage of convenience with mega-telephone monopolies like Pacific Bell and GTE.  AOL argued that the move being made by AT&T and other cable companies jeopardized the long term business of local phone monopolies due to the possibility that people could begin receiving local phone service through their cable lines. 

And because companies like Pacific Bell and GTE had tremendous resources at the local level due to years of local political activity, the union with AOL has created a coalition with ample resources to impose the goal of Internet access regulation.  Instead of one uniform federal law, the coalition is going to take this battle forward in a piece-meal fashion – today Los Angeles and San Francisco, tomorrow some state legislatures – all in the hopes of generating enough local pressure to force the reluctant feds to acts. 
 
The issue in this battle is clear.  AT&T and other cable companies do not want to have the government force them to provide their competitors with space on their lines after spending billions to build high speed networks.  AOL and local phone monopolies on the other hand, want the government to force cable companies to open up their lines to competitors so they can profit from the hard work of hard of others. 

Whoever emerges as the winner in this battle, it can be certain that the future of telecommunications is at stake.  The telecommunications revolution is still in its infancy, and nobody can be certain what consumers will ultimately choose.  The battle is somewhat reminiscent of the battle between 8-track tapes and cassettes.  What would have happened if the government had forced the makers of cassette machines to accommodate 8-track tapes?  Maybe we never would have seen the development of compact discs.