AT&T is fully prepared to cut off service to more than 7000 U-verse customers in Connecticut and stop all video service in that state rather than file for a statewide cable license. The company, known for tough stands on the franchise issue, is taking its toughest stand to date, staring down consumer groups and a state attorney general determined to make AT&T accept tougher terms for the right to offer video service.

On AT&T’s side is a statewide video service law, passed this summer, that separates legacy cable operations from new video service providers and imposes fewer requirements on the new competitors. In Connecticut Attorney General Richard Blumenthal’s corner is a July 29 ruling from a federal judge that AT&T’s U-Verse is a cable offering.

The Connecticut Department of Public Utility Control this week refused to grant AT&T a statewide video license under the new law. AT&T is challenging that decision in Superior Court and is asking for an expedited judgment in the process, which starts with a hearing Oct. 22.

“There is a real possibility that, if we do not win this decision, we’ll have to leave the market,” said John Emra, regional vice president of external and legislative affairs for AT&T. “That puts service to 7000 customers at risk, and 1300 jobs at risk.”

AT&T won’t file for a statewide cable franchise, he said, because conditions such as buildout requirements would make a video business unprofitable. Emra cited the experience of SNET -- the Connecticut service provider acquired by SBC before its acquisition of AT&T – in attempting to build a hybrid-coax network in the 1990s to compete with cable.

“They couldn’t make it work, and they lost tens of millions of dollars,” he said. “The extent of the buildout is onerous. Plus you have to build PEG [Public-Education-Government] studios all over the state, which makes no sense because there already are PEG studios all over the state. If you look at all of the legacy cable rules, they are written for the cable industry and cable technology. We would have problems complying with some of those. They were written in the ‘70s for monopoly providers. As a monopoly, you are the only game in town, so you are guaranteed a customer base. We are second, and we are not guaranteed a customer base – we are starting with zero customers fighting an entrenched incumbent.”

Consumer and cable groups have argued that AT&T only wants to build its network in upscale areas where it is more likely to be profitable.

The Connecticut video franchise law, which doesn’t have similar buildout requirements, applies to companies not certified to offer video service by Oct. 1 of this year. Although AT&T has been deploying service in Connecticut and is now in 40 different communities, it was not certified as a video provider, Emra said. Initially, the service was offered under a July 2006 ruling by the DPUC that U-verse was not a cable service. That ruling was challenged in court and led to the July decision that U-verse is a cable service. AT&T has continued to offer U-verse pending its appeal of the July 2007 ruling, which was turned down Oct. 2. The company had expected favorable results from its application for a statewide video franchise, and was surprised by this week’s ruling.