AT&T Corp. v. City of Portland, CV 99-65-PA (D. Or)
 

Henry Weissmann *

On June 3, 1999, Judge Owen M. Panner issued an important ruling upholding the authority of the City of Portland and surrounding Multnomah County to require AT&T to provide open access to competing Internet Service Providers ("ISPs") as a condition of the approval of AT&T's acquisition of control over TCI's cable franchise.

Background

AT&T/TCI have begun to roll out a high-speed data transport service that utilizes cable facilities to provide Internet access at speeds advertised as 50-100 times faster than dial-up connections. AT&T/TCI market the service as an integrated offering that includes ISP services provided by @Home, a publicly-traded company over which AT&T has voting control. AT&T/TCI and @Home have agreed to divide the revenue received from subscribers to the Internet service. Other major cable operators have entered into similar exclusive arrangements with @Home or with RoadRunner, a similar ISP that is affiliated with Time Warner and MediaOne. @Home is now known as Excite @Home, following the completion of its acquisition of Excite, a leading portal and search engine provider, but we will simply refer to the service as @Home.

In June 1998, AT&T applied to the City of Portland and Multnomah County for approval of the change in control of TCI. City and County officials became concerned that the exclusive relationship between AT&T/TCI and @Home impaired the ability of independent ISPs to compete and limited consumers' ability to select their preferred ISP. Accordingly, the City and County conditioned its approval of the change of control on AT&T's provision of nondiscriminatory access to the cable modem platform for unaffiliated ISPs. AT&T refused to accept the condition, and the City and County therefore disapproved the change in control.

AT&T sued, alleging that the access condition was unlawful. Judge Panner granted the City and County's motion for summary judgment and denied AT&T's cross-motion.

Preemption

The Court first held that the City and County were not preempted by Title VI of the Communications Act from imposing the access condition. The Court began its analysis with 47 U.S.C. § 556, which preserves state and local authority "regarding matters of public health, safety, and welfare, to the extent consistent with the express provisions of this subchapter," and which preempts state and local action "which is inconsistent with this chapter." The Court deemed this section to reflect congressional intent "to interfere as little as possible with existing local government authority to regulate cable franchises." The Court held that preemption would not be found unless congressional intent to do so was "'unmistakably clear.'" Judge Panner also alluded to 47 U.S.C. § 533(d)(2), which preserves state and local authority to prohibit ownership or control of a cable system where the acquisition "may eliminate or reduce competition in the delivery of cable service in such jurisdiction." The Court interpreted this section broadly to reflect congressional recognition of local power to preserve competition for cable services. The Court declined to second-guess the City and County's conclusion that the access condition was necessary to preserve competition, and further concluded that the power to prohibit the change of control on this basis implied the lesser power to impose conditions on the change of control.

The Court rejected AT&T's argument that the access condition amounted to "common carrier" regulation prohibited by 47 U.S.C. § 541(c). The Court determined that requiring a business to permit access to an essential facility is not the same as regulating the business as a common carrier.

The Court also rejected AT&T's reliance on 47 U.S.C. § 544(e), which prohibits local authorities from requiring the "use of any subscriber equipment or any transmission technology." The Court concluded that the City and County had not dictated how AT&T was to implement nondiscriminatory access and therefore was technology-neutral.

The Court disagreed with AT&T's reliance on 47 U.S.C. § 544(f)(1), which prohibits local authorities from imposing "requirements regarding the provision or content of cable services." The Court construed the provision as applying to content-based requirements, and it found that the access requirement was content-neutral economic regulation.

Finally, the Court dismissed AT&T's argument that the access condition was a form of programming regulation inconsistent with the must carry, leased access, and PEG requirements of 47 U.S.C. §§ 531, 532, 534, and 535. The Court concluded that the access condition was not a programming requirement, but a physical access requirement.

Constitutional claims

The Court disposed of AT&T's constitutional claims, as well. Judge Panner found no First Amendment violation because AT&T had stated that subscribers could reach any ISP or content by "clicking-through" the @Home portal. The Court also viewed the access condition as content-neutral economic regulation that advanced a substantial government interest in preserving competition.

The Court found no commerce clause violation because AT&T failed to show that the increase expense caused by the access condition would create a burden on interstate commerce that outweighed the local benefits of encouraging competition.

The Court rejected AT&T's contracts clause arguments because the access condition was consistent with the franchise agreement.

Implications

Judge Panner's opinion is the first to determine whether a local franchising authority may impose a nondiscriminatory access condition. A number of cities are actively considering the imposing of a similar access condition, including Seattle and surrounding King County, Los Angeles, San Francisco, Dade and Broward Counties, and Washington, D.C. AT&T has stated that it will ask the Ninth Circuit to expedite the appeal of Judge Panner's ruling, and the outcome of the appeal will be closely watched throughout the country.

* Henry Weissmann is a telecommunications attorney at Munger Tolles & Olson LLP.

   

2001 The Federalist Society