April 17, 2006
AFN plans could raise legal issues
Predatory pricing charge may stem from open lines
By Vickie Aldous
Ashland Daily Tidings
The latest plan for the Ashland Fiber Network could expose the city to accusations of predatory pricing, city officials have learned from a Washington, D.C.-based attorney specializing in telecommunications issues.
In March, the Ashland City Council directed city staff to explore implementing an “open carrier” model for AFN. Businesses could pay the city to provide new services, such as telephone service, over AFN’s infrastructure.
Another element of the plan calls for the city to provide every household with basic level television and Internet service for a mandatory fee of about $10 a month. That fee would pay operating expenses and a portion of AFN’s $15.5 million debt.
But it is that element of the plan that could cause legal headaches.
Ashland Information Technology Director Joe Franell, the new head of AFN, had a telephone conference call with attorney Jim Baller of Baller Herbst Law Group in the nation’s capitol on Thursday.
“There could be accusations of unfair practices and predatory pricing if we’re forcing people to pay something and they get a product that a competitor is trying to sell,” Franell said Baller told him. “It ends up looking like we’re forcing the competitor out. We were strongly advised to pursue other options.”
To that end, Franell said he will give city councilors information about options for AFN, including spinning it off as a nonprofit and selling it off, at a study session May 1.
He will ask the council for a new decision on a direction for AFN during the regular council meeting on May 2.
Franell said AFN’s long-standing practice of charging below-cost rates for its cable television service needs to come to an end as well.
Both AFN and Charter Communications have offered low prices on cable television for several years, although Charter’s rates have been consistently lower than AFN’s rates.
“We need to start charging what it costs,” Franell said. “We need to charge at least what our (television) programming costs are. I don’t want to allow us to continue to be involved in this predatory pricing spiral.”
Franell said Baller told him there are three criteria for a predatory pricing case: the product is priced below cost, there is an intent to run a competitor out of business and there is a reasonable probability of running a competitor out of business.
But while Baller warned that the city could face legal challenges if all households were required to pay a fee for basic television and Internet service, he also said the city might have a case against Charter for predatory pricing, according to Franell.
“Mr. Baller felt like he might be able to make the argument if there was truly a deeply discounted offer that had been going on for years,” Franell said.
Franell said Baller quoted from a 2005 Tidings article.
In that article, the Tidings reported Charter had long been offering its popular Expanded Basic cable television package in Ashland for $24.15 per month while offering the same package for $45.99 per month in other Rogue Valley communities that lack a city-owned telecommunications service.
Charter officials said at the time that they would stop making the offer to new customers upon publication of the Tidings article. Charter customer service representatives then began quoting a $32.40 monthly rate.
The Ashland City Council has been ratcheting up its 2005 Expanded Basic price of $32.41 per month to nearly $39 as of this spring.
Charter has kept its Expanded Basic rate at $32.40 in Ashland, despite increasing prices to $47.99 in Medford and Grants Pass in March.
City Attorney Mike Franell and City Finance Director Lee Tuneberg, who had been acting as AFN’s de facto leader for several months, also sat in on the conference call, Joe Franell said.
Mike Franell said city staff members would not want to pursue a predatory pricing case against Charter until they had explored costs and talked to city council members, according to Joe Franell.
“I’m pretty sure we would never sue Charter,” Joe Franell said. “But there could be FCC (Federal Communications Commission) complaints if we correct our prices and they don’t.”
Across the nation, large telecommunications companies have at times offered cut-rate prices in communities that launch municipal telecommunications services, according to Tidings research.
Joe Franell said Baller told him attorneys have been looking for a “poster child” city government that has suffered from such predatory pricing — and Ashland could serve as that example.
Experts in the telecommunications industry consulted by the Tidings have said it is extremely difficult to win a predatory pricing case.
Making such a case even more difficult for the city to win is that one of the early promises made by AFN backers is that it would provide inexpensive cable television to customers.
City Councilor David Chapman said all the new legal information about the council’s plan for AFN does not change the fact that the council will have to enact a fee on residents to help pay off AFN’s debt. That mandatory fee would just have to be separated from any provision of services by AFN, he said.
Even if the city council decided to sell AFN, it cannot be sold for enough to pay off its $15.5 million debt, according to an independent broker consulted by the city.
Chapman and Councilor Russ Silbiger said Joe Franell is making good progress on researching options for AFN’s future.
“I expect him to give it to us straight. ... If he’s got a better idea, great,” said Silbiger, who helped develop the plan to provide basic television and Internet service while charging households about $10. “I’m not locking myself into anything.”
Staff writer Vickie Aldous can be reached at 479-8199 or vlaldous@yahoo.com.