Modem Ad Suit Latest Shot in Charter-Southwestern Bell Battle

Cable World, Sept 3, 2001 by Staci D. Kramer

Operator, telco sniping in St. Louis

Charter Communications's federal suit last week accusing SBC subsidiary Southwestern Bell Telephone of falsely advertising that cable modems are slower than DSL is the latest in a series of clashes between the two companies over the St. Louis market.

In fact, the cable modem "slowdown" campaign started just a few days after Charter wrote the FCC in July claiming that SBC was trying to interfere with its franchise renewal negotiations in the city of St. Louis.

No one is suggesting cause and effect, but both incidents illustrate a tension between the two that is only exacerbated by Charter's new status as the St. Louis cable company following its recent takeover of AT&T's systems.

Charter executives say the phone company feels threatened by the cable operator's heightened profile in St. Louis and by the added competition as Charter increases access to telephony and highspeed service through upgrades. It has already budgeted $165 million to upgrade the AT&T acquisitions.

Celeste Vossmeyer, VP-government relations at Charter, says the tension dates back to late 1999, when Charter crafted its first deal to acquire the AT&T St. Louis properties.

That deal fell through but not before Southwestern Bell started a campaign that Charter felt was directed at them as the phone company lobbied for what it calls "open access" and Charter calls "forced access" for independent ISPs looking to provide high-speed data services to consumers.

"Even then we had a lot of problems with advertising. We had people talking about how we were going to take away the rights of disabled," recalls Vossmeyer. Charter responded with a $300,000 image campaign explaining the "wired world" vision of controlling stockholder Paul Allen, promising free high-speed access to schools and assuring St. Louis everyone would be connected.

Despite the effort, the St. Louis Board of Aldermen passed an ordinance requiring open access. Charter hoped that ordinance would be repealed as part of its extensive franchise renewal agreement with the city. Instead, says Vossmeyer, a lobbyist who works for Southwestern Bell showed up at a hearing in July and tried to get the aldermen to change the package. The charter was not passed, though, because other board business pushed the renewal vote to the fall when the board returns from summer recess.

Then Southwestern Bell brought its cable modem "slowdown" campaign to town on television, on the radio and in print.

The ads are funny--if you aren't the target. In one, a mom and dad explain the family's new sleeping schedule to their young son and daughter. Says the mom, "From now on, you go to bed at 5 p.m. and wake up at 1 a.m. to avoid cable modem slowdown. Greg, your slot is from 1 to 2. Cindy, you've got 2 to 3!" Consumers are told to check out DSL for a better option.

It's especially unfunny if you're a Charter exec and the ads are everywhere you turn in your hometown. "The television ad, in particular; it really sort of rubs on your nerves--children being inconvenienced by being dragged out of bed in the middle of the night," says Curt Shaw, Charter SVP and general counsel.

"Certainly, we would take seriously this sort of behavior wherever it occurred," says Shaw. Seeing it at home and hearing it on the radio makes it "more likely it would hit our screen sooner and with a higher degree of impact. That's just human nature."

But the real problem, says Shaw, is the way the ads and the company's website falsely describe cable modem performance as slow during peak hours. That, he says, is a breach of the federal Lanham Act, which governs advertising claims.

SBC spokesman Selim Bingol points out that the ads, which are running in other areas, never mention Charter. "Cable modem network architecture is shared, and shared arch can slow during peak hours. All we're trying to do is educate our consumers."

Shaw responds: "Do they think there are any other cable companies in St. Louis right now? It's pretty clear these are directed to us. We are the predominant cable company in the area. Who else could they be directing them at?"

Bingol said it's understandable that they would think the ads are aimed at Charter because they have a monopoly on cable in St. Louis.

Shaw sniped right back. "I find it somewhat ironic that the San Antonio-based local phone monopoly is talking about someone else having market power." SBC was once headquartered in St. Louis but moved to San Antonio. Charter is controlled by Seattle-based Paul Allen but kept its headquarters in St. Louis.

But Bingol says there's a larger issue here: comparing cable's status to the myriad regulations SBC has to follow with DSL.

"Cable faces none of the that. Cable networks are closed to other ISPs. Cable is not required to open its network to other competitors and other service providers."

Shaw told the FCC in his July 26 letter that SBC argues on the federal level that it should be less regulated while it lobbies on the local level to regulate cable.

Whatever the outcome of the lawsuit--the franchise renewal or federal regulation--a lessening of the tension isn't likely anytime soon.