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
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."
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