News

TALE OF TWIN CITIES U S West Wins Waiver to Retain Minn. System

3/01/1998 7:00 PM Eastern

U S West Media Group (UMG) last week overcame seeminglyoverwhelming opposition to its bid to retain the Minneapolis cable systems that it hadpreviously been ordered to sell off.

UMG will be allowed to operate the Twin Cities systemsuntil July 31, which presumably scuttles a deal to sell the properties to CharterCommunications Inc., a St. Louis-based MSO that had agreed to acquire the systems for $600million.

In a controversial decision, the Federal CommunicationsCommission's Cable Services Bureau extended the telco's waiver from federalcross-ownership rules that prohibit a regional Bell operating company from owning cablesystems inside its service territory.

"We're extremely pleased with the FCCorder," said Jan Peters, president of MediaOne, UMG's cable subsidiary. "Weplan to continue vigorously upgrading our Minnesota systems so that we can offerinnovative, competitive service to consumers in the Twin Cities."

Critics, including FCC commissioner Gloria Tristani,blasted the bureau for undermining the 1996 Telecommunications Act and for"blatantly" misstating the positions of various franchising authorities that hadopposed the extension.

MediaOne immediately "terminated" its deal withCharter, which, under the sales contract, means that MediaOne must pay Charter $30 millionin "liquidated damages."

"We're waiting for instructions from Charter asto where to wire the money," said MediaOne spokesman Steve Lang.

The cable bureau premised its decision on RBOC U S WestInc.'s insistence that its plan to restructure its U S West Communications and UMGsubsidiaries into separate public companies would abrogate the ban on telco-cablecross-ownership.

The bureau said it was "unwilling to conclude that U SWest's characterization of its restructuring is not to be believed," adding thatno opposing party had offered evidence challenging that representation.

Cable Services Bureau chief Meredith Jones said theextension gives U S West additional time to bring itself into compliance with an FCC orderthat it divest itself of the Minneapolis systems.

"And they can do that through their restructuringplan," Jones said.

Some opponents of the plan, however, argued that the agencyhad failed to articulate a clear public benefit resulting from allowing U S West to keepthe systems.

Moreover, they complained that the agency had ignoredopposition to the waiver from the Clinton administration, the Consumer Federation ofAmerica, the Minnesota Public Service Commission and more than 50 percent of the affectedlocal franchising authorities in the Minneapolis area.

"I said from the beginning that you shouldn'tunderestimate U S West's influence at the FCC," said Tom Creighton, aMinneapolis-based lawyer who represents franchising authorities covering 55 percent ofMediaOne's 300,000 cable subscribers in the area. "Anybody who thinks that thesethings are decided by the FCC on its merits is crazy. This is a shameful decision."

Moreover, Creighton accused Jones of "gross"mischaracterization when she said that no local franchising authorities had opposedgranting the extension.

"My cities argued both sides, but we clearly said thatthe petition should be denied," he said.

Rick Ellrod, an attorney with Miller & Van Eaton, aWashington, D.C.-based law firm that represents the city of St. Paul, called Jones'comments about franchising authorities not opposing the extension "misleading, atbest."

Charter officials spent last Thursday huddling at thecompany's headquarters, reviewing options that included filing an appeal with thebureau and asking the full commission to review their staff's decision. If thatfails, Charter can take its case to a federal appeals court.

"After reading the bureau order, one is hard-pressedto see how this decision was reached," said Charter president Jerry Kent, in aprepared statement. "Because of pending litigation, we prefer not to comment furtherat this time."

Charter is already suing U S West in the Circuit Court forSt. Louis County, alleging that MediaOne refused to close on the sale of the Minneapolissystems after the MSO had met all of the terms of the sales agreement.

However, sources said Charter is unlikely to win that suitbecause its contract with U S West contains a provision allowing either side to terminatethe deal. This means that the options for the judge hearing the case are limited toordering U S West to pay Charter $30 million in liquidated damages, said a lawyer familiarwith the transaction.

If Charter does appeal the decision to the full commission,it will find that it has an ally in Tristani, who took the unusual step of openlycriticizing her fellow commissioners. She issued a statement blasting the commission foraccepting U S West's representations "on faith," and for not ordering thebureau to determine whether the telco's restructuring plan violates the ban oncross-ownership.

Sources said Tristani's opposition had held up thebureau's decision until FCC chairman William Kennard allowed her to issue herstatement, making it apparent that the remaining members of the commission were aware ofthe decision and chose to remain silent.

Also still to be heard from is Congress, where Rep. EdMarkey (D-Mass) had been pushing to have U S West's extension requests denied, andwhere the Senate Commerce Committee had also opposed giving the telco any additional time.