If you want a glimpse into Austin's telecommunications future, look to San Antonio, where Southwestern Bell (SWB) has won the first round of what's sure to be a long legal battle over the shape and scope of Texas' information infrastructure. And it's all thanks to a state law that SWB shepherded through the Legislature last session with the support of -- among others -- 129 lobbyists, fellow telecommunications monopoly Time Warner (TW), the Austin American-Statesman (owned by media giant Cox Enterprises in Atlanta), and Texas Monthly publisher Michael Levy. Nicknamed the "Bell Bill," House Bill 2128 may be all the ammunition SWB needs to fight off competition and hamstring cities like San Antonio and Austin if they get too close to the goodies.
"It's interesting that SWB, the one who said that HB 2128 would provide so much to consumers, is now fighting stringently to prevent other companies from providing services," says one lobbyist who was in on the negotiations last session over the bill.
The new law protects SWB and TW (owner of Austin CableVision) in two ways: it restricts competitors from leasing existing fiber-optic line and requires them to install their own infrastructure, which few competitors can afford; and in a clause said to have been included because of just what Austin was planning, the law also restricts municipalities from partnering with telecommunications companies to provide service. SWB and TW hold franchise agreements with the City of Austin to provide telephone and cable service, respectively. Both are interested in expanding their telecommunications interests here and elsewhere in the state, and are vehemently opposed to partnerships between cities and outside service providers.
When San Antonio's public utility signed a 25-year contract to lease part of its fiber-optic line to Denver-based ICG Access, the city thought it was getting a bargain: The city would get help paying for the $21 million network; and ICG would enter San Antonio's local telephone service market to compete with SWB. But SWB continued to question San Antonio city staff about the legality of the ICG agreement under HB 2128, and two legal decisions handed down in San Antonio in the last two weeks appear to have quashed the deal. First, a U.S. District Judge dismissed a lawsuit which ICG had brought against SWB for allegedly interfering with their city contract. And on May 13, Attorney General Dan Morales released an opinion which found that under HB 2128, the city is prohibited from leasing its network to companies intending to enter the telecommunications market. ICG has since asked the Federal Communications Commission to overturn HB 2128 in order to do business with San Antonio.
A similar deal is taking place here in Austin. And for once, Austin could be ahead of San Antonio on the litigation front and learn from the experience of our southern neighbor. City officials are putting the finishing touches on a 30-year franchise with CSW Communications, Inc. (CSW) to lease the city's right-of-way for a fiber-optic network that would compete with SWB and TW.
On April 11 this year, the city council voted to begin negotiating a telecommunications franchise with CSW, a subsidiary of Central and South West, a publicly traded, Dallas-based electric utility holding company which owns utilities in Texas, Oklahoma, and Louisiana. The deal appears to be on the fast track, as well, in that the council would like to complete the negotiations before the new council takes over in June. CSW was selected in part because the company has already demonstrated its competence at installing and operating a broadband network in Laredo. The Laredo network -- operating in conjunction with Central Power & Light, a wholly owned subsidiary of Central & South West -- has allowed the 850 homes it now services to reduce their electric bills by an average of 7-10%. The homes are also getting high-speed access to the Internet and other communications services. CSW's plan for Austin is to have the network available throughout the city within five years, a reasonable time-frame for a brand new network in a mid-sized city such as Austin.
Despite the obvious benefits of such a network, Austin has had to re-think its strategy to avoid conflicting with the Texas Legislature. While HB 2128 was going through the legislative process, city staffers dropped plans to form a partnership with an outside company, and instead decided to pursue a franchise agreement.
Under the franchise agreement, the communications company would be allowed to use public right-of-way for its network, and would pay a percentage of its gross revenues -- roughly 5% -- to the city for that privilege. And Austin wouldn't be a partner in the venture. Since a franchise would be a private enterprise, city staffers expected less controversy than a partnership would bring about. After all, Austin already had a cable franchise with TW, as well as telecom franchises with SWB and several smaller firms that offer services in limited sections of the city. CSW was also the top choice of city staff since they were willing to fully fund the project themselves. Although SWB and TW could have gotten involved when the original partnership was proposed, the mega-giants chose not to pursue it, citing similar plans for private use of their already existing networks.
But that doesn't mean they planned to stand by and watch the competition roll in. SWB and TW soon began complaining that city staff had given CSW preferential treatment over the last 12 months. The President of Austin CableVision, Bill Carey, explained that "we're building our own hybrid fiber-coaxial network that will cover the entire city in about 40 months," and he is concerned that the city staff "might have a bias towards seeing their vision prevail [with CSW]."
Jim Lydon, Director of External Affairs at SWB, stated just after the vote at the city council meeting on April 11 that his company "welcomes the coming competition to the Austin market." Asked if SWB might sue either the city or CSW, he answered, "If CSW isn't a partner with the city, then Southwestern Bell won't have a problem." After viewing the current franchise document, Lydon said that it "appears to be acceptable."
But, in March, SWB filed an Open Records Request with the city to make all the details of CSW's agreement with the city public. The city has, in turn, handed over the request to the Attorney General's office because CSW claimed there were "trade secrets" in some of the documents. The American-Statesman also filed their own Open Records Request in an effort to get that information made public. CSW says they have similar proposals pending in other cities, and that if they make public the details of their Austin project, it may help their competitors in other cities. Additionally, the company says, it invested heavily in market research. "The plan was developed over a long time, after much hard work, expense, and experience. Therefore, like a secret product formula or patented design, it must be held confidential," says Bill Morrow, managing director of CSW. Not to mention that the big dogs are after them, including the Statesman, which wants to be a local Internet access provider themselves, and whose parent company is entering the telecommunications business. The Statesman editorialized several times last year against the City of Austin getting involved in building a fiber optic network, and then warned in April this year that the city would likely get "sued" by competitors if it did so.
Local Internet access providers like the Statesman are concerned about CSW's intentions and capability -- and they're also worried that CSW will try to compete with them. Aubrey McAully, president of Adhesive Media, an Austin Internet service provider (ISP), is uncomfortable about the lack of details in the information CSW has agreed to make public. "If it is implemented correctly, it could be a great benefit to the citizens of Austin, Austin businesses, and Austin's multimedia/software community in particular. If several critical questions are not answered before the plan is approved, the results could be extremely harmful to everyone."
In particular, if CSW decides to offer Internet access, it would be more difficult for smaller ISPs to compete. Spencer Wendt, Business Development Director at Signet Partners, another Austin ISP, expects that there will be fewer ISPs as the need for numerous sophisticated connections increase. "The faster the circuit or bandwidth, the more complex the routing, the more servers you add, the more complex the software, you are not likely to make it all work with less sophisticated providers," he explains.
McAully agrees: "The fact that CSW's current business plan does not include plans for providing Internet access does not mean they will not decide to provide Internet access in the future." Mel Riser's response to this ominous look into the future is emphatic: "CSW will provide the bare pipe for delivering content... people can provide their own information." Asked if CSW plans to provide Internet connectivity directly to consumers, Bill White, the company's manager of marketing, replies that "it's not part of the business plan." What this means to ISPs contemplating moving from SWB to CSW is that CSW will be able to offer higher-speed connections at a competitive rate. Meanwhile, MCI, Sprint, ATT, and Microsoft have also begun offering Internet connections, making Austin's smaller ISPs even more concerned about the future. Trudging Toward the Courthouse The smaller ISPs, however, don't have the strength of HB 2128 behind them, and may have to settle for whatever tiny portion is left of Austin's market after CSW, SWB, and TW struggle over the larger piece of the pie. Those battles seem destined for the courthouse, as the "intention" of HB 2128 is interpreted by attorneys.
Scott McCollough, a former assistant attorney general now in private practice, represents several small local Internet providers, and was highly visible during the negotiations over HB 2128 last year. McCollough believes that the City of Austin has done a fair job of "figuring out how to get the infrastructure done and abide by the language of the law at the same time." But McCollough also agrees that the concept of what is "unfair competition" by a municipality is never fully laid out in the law's language. SWB, therefore, could argue in court that CSW's franchise is "unfair competition" based on the fact that the city intended to develop a partnership, and essentially has done so through a franchise.
McCollough notes that members of the Texas Municipal League, a coalition of Texas cities, are in the process of consulting attorneys about the proper interpretation of HB 2128 in anticipation of future court battles. The passage of the Telecommunications Act of 1996, which guarantees a city's right to compete in the telecommunications market, offers one legal avenue for cities interested in fighting HB 2128. Since by federal statute, federal law can supercede state law, Austin's attorneys may argue that HB 2128 does not apply to municipalities. But "the pre-emption argument is a loser," contends McCollough, since Austin is a home-rule city created by the State of Texas, and as such -- it could be argued -- is bound first and foremost to state, not federal laws. McCollough suggests that Austin "get the Texas Municipal League to band together and get [HB 2128] changed next session."
Meanwhile, this week, AG Dan Morales is seeking an opinion from the FCC on whether the Federal Telcommunications Act supercedes HB 2128. While the future of Texas' telecommunications industry may rest in the FCC's hands, and eventually, in the state and federal courts, this battle in Austin, like all other utility battles, looks like it will follow the old adage that "big dogs eat first." Southwestern Bell has millions of customers in Texas; Time Warner has over 325,000 just in our region. Right now, CSW serves just 850 homes in Laredo, and none in Austin yet. There's little doubt that SWB and TW want to keep it that way as long as possible. n