Effort to Build New L.A. Fiber-Optic Network Falters.

A deal to grant an L.A. city franchise agreement to fiber-optic network builder RCN Corp. of Princeton, N.J. to go head-to-head with established cable companies has hit a major snag.

Flush with financial backing from computer and cable mogul Paul Allen, RCN had won preliminary approval from the city's Information Technology Agency last October to build broadband fiber-optic networks in five of the city's 13 cable franchise areas. But the deal stalled as City Councilman Alex Padilla -- who chairs the council's Information Technology Committee -- and RCN representatives dickered over terms, including a possible swap of portions of fiber-optic networks already operated by the city and those to be built by the company.

After three months of back-and-forth negotiations, an agreement seemed near, with a final deal supposed to be presented to Padilla's committee last week.

But RCN announced in December it was pulling back from new broadband markets, saying it would stick only with markets in which it had a presence or in which it was building fiber networks. And that's when, according to Padilla spokesman David Gershwin, RCN added a new condition to its terms: that it be granted an "opt-out" clause in the agreement to build in the five franchise areas. Such a clause would allow RCN to walk away from building the fiber network with little or no financial consequence.

(Pacific Telesis, now a subsidiary of SBC Communications Corp., abandoned a much more ambitious multibillion-dollar fiber-optic network for Southern California in the mid1990s, citing lack of financial resources.)

But the opt-out clause is not at all to the liking of Padilla and the city negotiators and, as a result, a franchise agreement has been indefinitely postponed as talks continue.

"That's just simply unacceptable," Gershwin said. "We've been pushing hard for competition to the cable companies and were very glad when RCN agreed to come in. But the only thing worse than no competition is the promise of competition that goes unfulfilled."

Gershwin said that if RCN is uncertain of its ability to finance fiber-optic networks in all five franchise areas, it should only bid on the two or three franchise areas it can afford.

Nancy Bavec, a spokeswoman for RCN, said the company does not comment on ongoing negotiations.

Gershwin said he is hopeful an agreement can still be reached. "Hopefully, RCN won't pull out altogether. Even with the announced pullback, it's hard to believe that Paul Allen's financing has completely dried up."