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Cox settles suit with rival; may face fines
By Ken Alltucker
The Arizona Republic
Wednesday, March 15, 2006

Cox Communications and a private developer paid a tiny telephone company $1 million to settle a lawsuit alleging that Cox and the developer partnered to shut out the rival phone provider.

But Cox still faces the prospect of state-imposed penalties for its role in negotiating a deal with developer Shea Sunbelt to become the main provider of pay television, telephone and high-speed Internet services at the upscale Vistancia community in Peoria.

At issue is whether Cox and Shea Sunbelt crafted a deal to block Accipiter Communications from providing service at the new 17,000-home community.

State regulators are examining a string of e-mails and notes exchanged in 2002 and 2003 among seven Cox employees who relayed a developer's plan to make Cox the sole provider of telecommunications service at Vistancia.

In one message, a Cox employee wrote: "Shea can guarantee to keep out competition.  Cox can purchase the knowledge.  What is it worth to us."

Another message written by a Cox employee:  "Paul and I met with Sunbelt Holdings today and they are giving us some pretty creative ways to keep the competition out."

Cox representatives say they didn't seek to shut out Accipiter.  They followed directions of the developer, who crafted the plan.

"The concept was not a concept that Cox created.  We were assured this was fine," said Ivan Johnson, Cox's vice president of community relations and televideo.  "Certainly we're big boys, and we check out things.  At this point, we're comfortable that no laws were broken."

Representatives of developer Shea Sunbelt could not be reached Tuesday.  Accipiter officials declined to comment.

The Cox-Vistancia deal is one of many routine "preferred provider" arrangements that developers often work out with communications companies.  The deals typically give a company, usually Cox or Qwest, the right to provide sales materials at a developer's sales office.

The Cox-Vistancia deal was unusual because Peoria allowed the developer to obtain ownership of communications access, known as an easement, and effectively control which telecommunications companies could reach customers.

Cox paid a $1 million "licensing fee" to the developer for the right to build the telecommunications network and sell services to about 45,000 users.  The developer paid Cox $3 million for the cost of building the network.

Accipiter alleged that terms of the deal made it impossible for the small company to compete for customers at Vistancia, so it filed a lawsuit in Maricopa County Superior Court and a complaint with the Arizona Corporation Commission.

Cox and Shea Sunbelt agreed to pay Accipiter $1 million to settle the lawsuit.  Other settlement terms required the private communications easement be converted to a public easement.  Cox also agreed to allow Accipiter use of its lines to compete for customers at Vistancia.

Even with the lawsuit settled, the Corporation Commission is pressing ahead with its investigation of Cox as part of an effort to determine whether the telecommunications giant engaged in anti-competitive behavior.

"Quite frankly, the e-mails are very troubling, and they suggest a level of involvement in this scheme that demands greater scrutiny," said Commissioner Kris Mayes, who pushed to make the e-mails public.  "It is critical to being able to decide whether Cox has engaged in anti-competitive behavior and whether we ought to levy penalties."

Johnson acknowledged that Cox employees wrote the phrase "shut out competition" in notes and e-mail messages, but he said Cox employees were relaying words spoken by the developer during negotiations.

Seven Cox employees in Arizona and at least one employee at the company's Atlanta headquarters helped negotiate the deal or were made aware of its terms.

The e-mails suggest that Cox employees suspected the deal could be controversial.

In a July 2003 message to Cox sales representatives, the company's manager of regulatory affairs wrote, "Did either of you have any problems with the way the developer negotiated use of the easements for Vistancia? . . . If we did have a problem with it, please let me know as it could set a precedent for other areas we may want to serve."

Another message suggests that Cox's director of new business development helped negotiate the types of packages offered to Vistancia homeowners.

In an October 2002 message, a Cox employee urged the developer to promote a bundled package of voice, video and high-speed Internet as a way to achieve "higher penetrations" and "more opportunity for greater returns."

Reach the reporter at ken.alltucker@arizonarepublic.com or (602) 444-8285.

http://www.azcentral.com/arizonarepublic/business/articles/0315cox0315.html