Cable conundrum

AT&T sees 'chaos' if 'Net forced onto it

CHICAGO — AT&T chairman Michael Armstrong warned Monday that “chaos” would result if the cable industry is forced to open its systems to rival Internet services like America Online, as it would be under a recent ruling by an Oregon federal court.

Armstrong said the court ruling will also “chill broadband investment,” suggesting that AT&T would scale back hundreds of millions of dollars in cable upgrade plans in markets where the ruling was enforced. Broadband refers to high-speed cable systems which connect to the Internet and carry a range of services from video to data to telephone.

Cable stocks have dropped 20% in recent weeks, partly because of worries that a slowdown in investment spending would delay cablers’ plans to roll out new services like digital cable and telephony. As a result, the Oregon judge’s ruling has become one of the main topics of discussion at this week’s annual meeting of the National Cable Television Assn.

In his keynote address to the NCTA’s opening session, Armstrong insisted that AT&T was committed to giving its customers choice in the Internet portal they want to use as long as the choice was not federally mandated.

“It should be done on the basis of a sound commercial relationship, not through regulation of the Internet or re-regulation of the communications industry. Commercial relationships will recognize the economic, technical and contractual realities that must be addressed,” Armstrong said.

AT&T, which owns systems formerly owned by TCI and has agreed to acquire MediaOne, is a major shareholder in Internet company @Home and will become a big shareholder in @Home’s cable Internet rival Road Runner when it completes the MediaOne deal.

Both @Home and Road Runner compete with AOL and other Internet companies. AOL argues that its customers should not have to pay for @Home or Road Runner simply to get access to the Internet via cable systems, while the cablers argue that AOL shouldn’t gain access to cable systems without helping to pay the cost of upgrades.

Whether AT&T or other cablers would carry out their threats to slow down investment spending if the Oregon ruling stands is much debated on Wall Street, given the competitive threat facing cablers. Asked at a press conference after his speech to elaborate on the threat, Armstrong was evasive when listing various reasons why the ruling will be overturned.

Also during the press conference, Armstrong insisted that AT&T will close on its planned acquisition of MediaOne despite questions the Federal Communications Commission has raised.

The FCC believes the deal would give AT&T access to more than 60% of the nation’s homes. Armstrong insists that the agency has done the math incorrectly, and that an AT&T-MediaOne combination would pass less than 40% of the nation’s homes.

The FCC had a rule on the books which limited cable companies to passing no more than 30% of the nation’s households. But the fate of that rule is in limbo after a federal court threw it out. No decision on the appeal is expected until at least next year.

In the meantime, Armstrong and the FCC are locked in a debate over how the agency counts AT&T’s minority stakes in other companies. Under the current ownership attribution rule, all of the homes passed by a cable company count toward AT&T’s ownership limits if AT&T has a stake of 5% or more in it.

“It all depends on the definition of attribution,” Armstrong said.

Armstrong also argued that AT&T is only trying to make Congress’ wish come true by using the cable wires to provide competition to the Baby Bells’ local telephone monopoly. AT&T’s main goal for buying cable systems is to offer local telephone service over those systems.