MSO Pair Face RICO Lawsuit

Two Pennsylvania towns are taking on cable giants AT&T Broadband and Comcast Corp. because officials in the municipalities believe the operators circumvented local approval processes in order to plow ahead with major acquisitions.

In April, attorneys for one of those communities, the borough of Blawnox, filed suit in the U.S. District Court for the Western District of Pennsylvania alleging that the operators committed fraud, mail fraud and violations of racketeering laws by proceeding with a change of operation without the borough's permission and asked the court to appoint a trustee to run the system.

At the heart of that conflict was an AT&T/Comcast systems swap that proceeded despite the town's refusal to approve the transfer. Of the more than 600 towns affected by the swap, Blawnox was the only community that refused approval.

Officials in the tiny hamlet of 1500 people have gone so far as to claim that the actions Comcast and new system manager AT&T rise to the level of racketeering, according to a response it filed with the court June 29.

Because of the borough's actions, the two parties entered into a management agreement for the 750-subscriber Blawnox area. AT&T now controls the day-to-day operations of the cable operations there and in surrounding communities.

Instead of throwing out the suit, as cable attorneys privately predicted, U.S. District Judge Gary Lancaster ordered Blawnox to file an explanation of its claim that the operators' actions violate federal Racketeer Influenced and Corrupt Organizations (RICO) Act and fraud statutes.

According to the borough, the operators negotiated their private agreement at the end of 2000 and continued to be vague about the system's true owner to the community. In the filing, officials said that AT&T benefited from its "pattern of racketeering" by billing and collecting revenue from customers it is not authorized to serve, and Comcast gained through the completion of the multi-million dollar swap.

Blawnox loses because subscribers will decline while the system is operated by AT&T Broadband and the city loses franchise fees, the filing says.

Fredrick Polner, an attorney for Blawnox, said, "It may sound a bit unusual, but when all the facts become known, I'm confident the courts and Wall Street will agree that tiny Blawnox proved Comcast and AT&T violated RICO."

Officials for both AT&T and Comcast expressed confidence the court will dismiss the claims. "We believe this suit is completely and utterly without merit," said Dan Garfinkel, executive director of communications for AT&T Broadband in Pennsylvania.

Elsewhere in the state, Comcast is under fire for another transaction, this time the merger with Lenfest Communications. That company did business in Buckingham Township and other areas as Suburban Cable Television.

The leaders of Buckingham Township allege the cable partners concluded their deal as community officials were examining the transfer application one year ago.

When officials learned the transaction had closed without its permission, the township's board of supervisors declared Comcast had violated its franchise. The municipality, also represented by Polner, and Comcast have been in negotiations for a year.

But on July 3, city officials declared the talks had "collapsed" and sent Comcast a formal letter advising the operator to cure the breach by returning control of the cable system to Lenfest within 30 days. Failing that, the city vows to launch revocation proceedings.

Comcast spokeswoman Jenny Moyer noted that her company has completely upgraded the system servicing the 11,000-population town since the merger. She added Comcast executives expect to meet with city officials and resolve their differences within the next three weeks.