AT&T Handed Franchise Defeat in Connecticut

The Connecticut Department of Public Utility Control on Monday rejected AT&T's application to be designated a "competitive video provider" under a new state law -- forcing the telephone company to halt its U-verse TV deployment in the state as it appeals the decision, or until it is granted a cable franchise.

AT&T, in a statement following the decision, said that by denying its application, "the DPUC has thwarted the will of the Connecticut legislature and governor and has harmed Connecticut consumers in ways and to a degree that is impossible to calculate. The only parties that benefit from the DPUC’s unlawful action are the cable monopolists."

The agency ordered AT&T to apply for a cable franchise no later than Dec. 31, 2007. Until it receives a cable franchise, the DPUC has barred AT&T from marketing to or signing up additional customers for U-verse TV, as well as from constructing or installing any video-distribution facilities in the state of Connecticut.

The Connecticut DPUC said the phone company may continue to serve existing video subscribers until the DPUC rules on its cable-franchise application. AT&T claimed it would be forced to disconnect 7,000 subscribers of U-verse service in the state.

In its ruling, the DPUC cited the July 26 decision by the U.S. District Court for the District of Connecticut that found U-verse TV constituted a “cable service” being offered over a “cable system” by a “cable operator,” as the terms are defined in the federal Cable Act. 

The agency also said it agreed with Connecticut attorney general Richard Blumenthal, who filed opposition to AT&T’s competitive-provider application on Oct. 11. “AT&T is an unfranchised cable company illegally providing cable service in Connecticut,” Blumenthal said in the filing. “AT&T is therefore not a lawfully operating video service provider nor is it a franchised cable company seeking to provide competitive service outside its franchise area. Instead, AT&T is a third category – a cable company that is unlawfully operating without a franchise.”

The DPUC's decision will require AT&T -- the nation's largest phone company -- to apply for a cable franchise, rather than granting the telco special "competitive video provider" status under a law that took effect Oct. 1. Under that designation, providers would be taxed at the same rate as incumbent cable companies but be exempted from certain other requirements. Blumenthal has asserted that the new law does not remove the need to ensure a video provider complies with all state-specific operating regulations.

The decision represents an about-face for the DPUC: In June 2006, the commission said AT&T's Internet Protocol TV service did not meet federal or state definitions of a cable service and that therefore AT&T did not need a cable franchise in the state. 

On Oct. 2, U.S. District Court Judge Janet Bond Arterton affirmed her ruling that the DPUC erred in the decision that IPTV services should not be subject to cable regulations.

According to AT&T, this makes the Connecticut DPUC the first state regulatory commission in the United States that has tried to force the phone company to obtain a cable franchise before providing video service to consumers.

AT&T said it would file an emergency action with the Connecticut Superior Court to have the ruling reversed. "AT&T believes that consumers deserve a choice in video, and we hope to continue providing that choice with U-verse. To that end, AT&T intends to pursue available remedies in court to require the DPUC to follow the law," the company said in a statement.

In addition to disconnecting existing customers, AT&T said the rejection of its application would force it to eliminate more than 300 Connecticut jobs it created in recent months to offer video service as well as scrap plans for or eliminate approximately 1,000 other jobs in the state. AT&T also threatened to "redirect to other states a significant portion" of the $336 million the telco had earmarked to invest in the state in the next three years.

In Connecticut, U-verse TV is currently available to more than 150,000 households in parts of 40 cities and towns, according to AT&T.