News

SBC, Consumer Groups Say AT&T Exceeds Cap

12/19/1999 7:00 PM Eastern

Washington -- SBC Communications Inc. and several
public-interest groups last week said AT&T Corp.'s merger with MediaOne Group Inc.
would put the telco in violation of cable-ownership rules the Federal Communications
Commission adopted in October.

One of the key issues in the $56.4 billion merger,
currently under FCC review, is whether AT&T will wind up exceeding the agency's 30
percent cap on pay-television subscribers.

AT&T claims that after its acquisition of MediaOne, it
would serve 27 percent of U.S. subscribers. But the company arrived at that total by
excluding its 25.5 percent stake in Time Warner Entertainment, a limited partnership that
includes 9.7 million subscribers, HBO, and the Warner Bros. studio.

AT&T insists the TWE partnership should not count
toward the cap, because as a limited partner, it would have no say in TWE's programming
decisions.

SBC argued that AT&T's interest in TWE should count
toward the ownership cap and urged the FCC to block the merger until AT&T is deemed to
be in compliance.

"AT&T is flagrantly violating rules expressly
designed by Congress and the FCC to protect consumers from monopoly cable companies,"
said Robert Ferguson, SBC's president for federal relations, in a prepared statement.

Part of AT&T's motive in buying cable systems is to
compete against SBC and the other Baby Bells in local telephone markets. The Bells
collectively control about 95 percent of the local phone market.

The U.S. Court of Appeals for the District of Columbia
Circuit is deciding the fate of the law on which the rules are based, and is expected to
issue an opinion in a few months.

FCC rules would not insulate a limited partnership in cases
where the limited partner sells programming to the general partner. AT&T also owns
Liberty Media Group and has a piece of Rainbow Media Holdings Inc. through its 33 percent
stake in Rainbow's corporate parent, Cablevision Systems Corp.

Because Liberty is controlled by its chairman, John Malone,
AT&T said it is not selling Liberty's programming to TWE. AT&T also said it does
not have a large enough stake in Cablevision to dictate that MSO's programming decisions.

Three public-interest groups -- Consumers Union, the
Consumer Federation of America and the Media Access Project -- urged the FCC to attribute
AT&T's interest in TWE, saying AT&T will be able to exercise too much influence in
the programming market through its ownership or investment in cable systems
"controlling some 60 percent of cable homes."

"Because TWE's cable subscribers must be attributed to
AT&T, the merged entity will far exceed the 30 percent horizontal ownership limit
… Indeed, if the [FCC] comes to any other conclusion in the proceeding, it is
difficult to conceive of any situation in which the [FCC] could credibly enforce the
ownership cap," the groups said in a Dec. 14 filing with the FCC.

March