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from: Milwaukee Journal Sentinel

AT&T challenges cable TV, satellite
Internet-based U-verse won't pay communities franchise fees

By DORIS HAJEWSKI
dhajewski@journalsentinel.com

Posted: Feb. 28, 2007

AT&T is launching its Internet-based television service to compete with cable and satellite offerings in the five-county metropolitan Milwaukee area, and it is choosing not to pay municipalities for franchising rights or giving them any oversight, as cable companies do.

Milwaukee is among the first communities nationwide that will have the U-verse service.

AT&T will not disclose the number of households in the area that it will serve with the initial launch. It also will not disclose specific locations, for competitive reasons, spokeswoman Sarah Silva said.

The basic TV service will start at $44 a month and will compete with Time Warner Cable's TV service. Cable companies are required to have a franchise agreement in each municipality where they operate and to pay a franchise fee to the municipality.

"We believe (Internet protocol) television is not a cable service as defined by" law, said Mark Lipford, AT&T vice president and general manager for Wisconsin. The television signal is delivered through phone lines.

Some U-verse TV packages offer more than 300 channels, including digital music, local channels and premium movie and sports programming. The service also allows Internet remote access to a digital video recorder, which allows customers with high-speed Internet service to schedule recordings using their AT&T Yahoo! account.

In December, Milwaukee filed a federal lawsuit against AT&T that seeks to force the company to negotiate a franchise agreement for the U-verse service. Since then, many suburbs have joined the suit.

Nevertheless, the two sides have been negotiating an interim agreement that would cover many of the same issues, such as a fee to the city.

Milwaukee City Attorney Grant Langley said those talks have been "very productive" over the past weeks and suggested it will soon be clear whether a deal could be reached. Lipford said AT&T's negotiations with the city would allow the company to provide service, but that the matter would not be a franchise agreement.

"We're negotiating on terms and conditions of being able to launch the service," Lipford said.

Any such deal would have to be approved by Mayor Tom Barrett and the Common Council. It could also become a model for nearby communities, as well as the state. The Legislature has put off efforts to create regulations in this area, waiting to see what happens in Milwaukee.

Meanwhile, AT&T is going ahead with the launch. Langley said he was not alarmed by AT&T's announcement it would begin marketing the service.

"We knew at some point they would be marketing and selling their service to their customers," he said.

Public rights of way

The Regional Telecommunications Commission, which represents more than 30 municipalities in southeast Wisconsin in issues such as cable television and video-on-demand services, believes AT&T doesn't have the legal right to install equipment cabinets for U-verse in public rights of way without franchise contracts with the municipalities.

Bob Chernow, the commission's chairman, said, "They are violating the law, in our opinion."

In Brookfield, City Attorney Karen Flaherty said the city has not been notified of any start of service.

More than a year ago, the city approved the installation of an equipment box in the public right of way that was needed for the service. Flaherty said she is aware of about six boxes on privately owned land that the city did not have to approve.

In Racine, City Attorney Rob Weber said the city was aware AT&T would be offering its service. Along with other municipalities in the dispute, Racine is concerned that the services be provided in a non-discriminatory manner and be part of its cable franchise agreement, Weber said.

"AT&T has been very willing to negotiate where their boxes would be placed in terms of the right of way, but not where the coverage would be," Weber said.

Targeted sales pitch

Because the service won't be available across the area, a marketing campaign for the launch will be targeted at households that are eligible. Those homes will get direct mail solicitations and visits from door-to-door salespeople who will be able to demonstrate the service.

AT&T will have mobile demonstration trucks in neighborhoods where service is available, and it also will invite eligible households to demonstrations at the Ridge Cinemas complex in New Berlin. People who attend the theater demonstrations will be able to see a movie, with popcorn, free.

AT&T also will demonstrate U-verse at Cingular wireless retail stores in Oconomowoc and Brookfield.

AT&T is launching the service as it relies less on phone service for sales. Nationwide, the company lost 227,000 residential phone customers in the latest quarter. AT&T expects its TV service to reach 19 million homes by the end of 2008.

AT&T now has nearly 7,000 U-verse customers across the United States, up from 3,000 at the end of 2006. Service began in mid-2006 in the company's hometown of San Antonio.

Now, services are available in portions of 13 markets across five states. Last year, 2.2 million households were eligible to get the service, and the company aims to make U-verse available to 8 million households by the end of this year, Silva said.

'Real competitor'

Bev Greenberg, a spokeswoman for Time Warner's southeast Wisconsin operation, called AT&T "a real competitor" but said the company is used to competition.

"If fact, the satellite folks have about 31 percent of our state's penetration, so we have been competing, and we have great confidence in our products and our services," Greenberg said.

She questioned how quickly and widely AT&T's U-verse service will be available. She said the launch of U-verse in San Antonio turned out to be slow.

"The rollout was much slower than perceived," she said.

Time Warner has 577,000 cable television customers, 331,000 high-speed Internet customers and 130,000 digital telephone customers in Wisconsin, she said. All the phone customers have been added in the last 18 months, since the service was introduced here, she said.

Greg Borowski, Jennie Tunkieicz, David Sheeley, Lisa Sink and Paul Gores of the Journal Sentinel staff, as well as Bloomberg News and The Associated Press, contributed to this report.