Isp/27″/mike1st/mark2nd

BY SARA FISHER

Staff Reporter

Is Internet content a type of video programming?

The answer to that seemingly innocuous question has the potential to reshape the entire telecommunications industry, and is at the heart of a high-stakes battle that began last week between a tiny Redondo Beach-based Internet service provider and cable giant Tele-Communications Inc.

The local company, Internet Ventures Inc., insists that Internet content is video programming and, as such, cable television networks should be required to lease space on their fiber-optic networks to Internet service providers.

Federal law requires cable companies to lease space to other cable companies that want to transmit video programming. If that law is extended to include Internet service providers, those companies would have immediate access to huge audiences of cable subscribers.

Not surprisingly, cable companies several of which offer their own high-speed Internet access over their network have little interest in eroding their own potential market share to accommodate Internet Ventures’ request.

“What we’re doing is good for all ISPs, especially the smaller ones,” said Internet Ventures President Don Janke, who has worked in the cable television industry for eight years and in the ISP industry for the last 11. “We will achieve this.”

The Federal Communications Commission is the main governing authority over cable networks, but because Internet Ventures is blazing new ground with its request, no one involved knows precisely how the legal battles will progress from here.

Internet Ventures has simultaneously petitioned cable companies in 10 regional markets to provide it with leased space on fiber-optic networks. In California, Janke has filed lease applications with Century Communications in Ventura and CableOne in Modesto.

Up to six other small ISPs nationwide are believed to be considering petitioning their local cable companies for leased access.

But the initial battle and likely the precedent-setting one began last week between tiny Internet Ventures and cable giant TCI, and the battlefield is Spokane, Wash.

Through a wholly owned subsidiary, Internet Ventures petitioned TCI to lease a channel in Spokane over which it could provide high-speed Internet access and thus reach an immensely larger number of customers.

“It obviously is much cheaper for a company to lease rather than to build its own cable network, and certainly to expand its customer base,” said Jeannette Noyes, an analyst at Framingham, Mass.-based International Data Corp. “This move is precedent-setting for (Internet Ventures) and for the rest of the industry, which means it will be an uphill battle. I hope they know they’re setting themselves up for high legal fees.”

TCI essentially echoed the sentiment. “We will comply with the law, but will wait for the FCC to decide this issue,” said Ken Watts, TCI’s general manager in Spokane. “At this time, we don’t believe that leased access rules, which are intended to govern video programming, apply to Internet services.”

Internet Ventures intends to fight from the bottom up, starting with the city councils and then in the courts. However, it is in TCI’s best interest to wait for the FCC to establish explicit leased-access guidelines. Not only would this stall Internet Venture’s request, it would keep TCI from battling on a city-by-city, ISP-by-ISP basis.

For its part, the Spokane City Council signaled that it wants TCI to work cooperatively with Internet companies. At a meeting last week at which Internet Ventures formally laid out its request, the council adopted a supportive amendment calling for “competition and consumers’ choice to be assured.”

“The meeting went as far as I realistically expected it to, with the City Council stipulating that they expect competitive behavior in this market,” Janke said. “If we get turned down by TCI, the next step would be to go to the U.S. District Court.”

It’s unclear whether cities can dictate what cable companies must do with their networks, despite having the power to grant local cable franchises. AT & T; promptly filed suit against the city of Portland last week for doing precisely that.

TCI and AT & T;, now in the midst of a $50 billion merger, are going before city councils around the country requesting to have TCI’s franchise licenses transferred to AT & T.; The Portland City Council refused to do so unless TCI agreed to open its network to ISPs.

A potential problem for TCI and other cable giants is that they may be boxing themselves into a double standard.

Several cable companies, including TCI, run their own cable-modem Internet access services. In a similar battle with large ISPs that are seeking access to cable companies’ networks, cable companies are claiming that their own high-speed Internet access is a “cable service.” Consequently, it should be protected under federal regulations.

But now, in the face of Internet Ventures’ petition, TCI is doing something of an about-face, arguing that Internet Ventures’ service should not be classified as a “cable service” but as a “data service.”

TCI’s Watts declined to comment specifically on the Internet Ventures case.

Several analysts said they are unsure whether Internet content constitutes video programming, but they agreed that it’s an inspired market-expansion move for ISPs if it works.

For a small Internet company not interested in further building its own network, leased access can be critical to growth. No only would the company reach more subscribers, it could reclaim market share from the monolithic America Online.

Leased access is most cost effective when a high concentration of subscribers is reached by the same local cable television loop. Small ISPs tend to be rooted in regional communities, whereas AOL subscribers are scattered across the nation.

Internet Ventures has almost doubled its number of subscribers since January of last year, climbing from 13,000 to 25,000, spread across five states. Janke intends to quadruple his company’s subscribers by this time next year, projecting 100,000 subscribers by then.

Analysts believe Janke’s approach may succeed in bolstering his company.

“While AOL is petitioning Washington, D.C. to get open access to cable networks, Janke is shaking things up at a local level,” analyst Noyes said. “If (Internet Ventures) differentiates itself this way, that’s how it will likely succeed. The smaller guys have got to be more creative. There’s a lot of them out there, and access is the main commodity.”