News

TCIs 25% Solution Riles Cities

9/06/1998 8:00 PM Eastern

A number of local regulators are growling over
Tele-Communications Inc.'s insistence that it only needs to seek approvals of its
merger with AT&T Corp. in 25 percent of its franchises.

AT&T president John Zeglis will be on the hot seat this
Friday (Sept. 11), when he gives a keynote speech in San Diego at the National Association
of Telecommunications Officers and Advisors' Annual Conference.

"Mr. Zeglis, or whomever from AT&T shows up, is
going to have some explaining to do about this 'brilliant' tactic that involves
an untested legal theory, but which could bring them untold grief," said David Olson,
director of cable franchising in Portland, Ore.

TCI has begun notifying some venues that their franchises
do not require local approval for the AT&T transfer.

Presumably, if the document contains the words
"franchise transfer," TCI argued that it will technically still hold the
franchises under the AT&T corporate umbrella.

Inversely, those with "change-of-control"
language do require local action, since AT&T is acquiring TCI's outstanding stock
and control of its cable systems, TCI said.

TCI estimated that about 1,000 of some 4,000 franchises --
a moving number because of all of the deals that the company has in the works -- will
require such action.

Outgoing NATOA president Tom Weisner has informed TCI that
the number represents a "threshold problem" that threatens to
"overshadow" the benefits of the merger.

"On the surface, 900 to 1,000 is an awfully low
percentage," Weisner said. "I certainly think that it could create some delays
if cities balk at the way that TCI is doing things."

TCI officials expressed surprise at the uproar last week,
arguing that the MSO's policy is standard practice, both inside and outside of the
cable business.

"Everybody in the industry has always made these
distinctions, and it has rarely been an issue," said Madie Gustafson, TCI's
senior vice president for franchising and government affairs, who then sounded a
conciliatory tone. "We'll sit down with any city. And if we're wrong,
obviously, we'll give them a [Federal Communications Commission Form] 394."

But, she insisted, "some cities have said,
'TCI-AT&T -- we're not getting in the middle of that.'"

Executives at other MSOs agreed that TCI's policy is
nothing new.

"It's not a secret," said Tom Nathan,
general counsel for Comcast Corp.'s Comcast Cable Communications and a former New
York regulator. "And it's not just an industry practice: It's a legal
distinction that we follow."

There are precedents aplenty. Margaret Sofio,
MediaOne's vice president of law, noted that then-U S West Inc. interpreted the rules
the same way when it bought Continental Cablevision Inc., and few localities complained.

"It was just a matter of going in and explaining it to
them," Sofio said.

However, Olson, whose franchise contains change-of-control
language, said the practice has never "been tested in court on this massive
scale."

"You could have everybody marching off to court,"
he said. "And that's going to cost them time and money. I think that if I were
AT&T, I'd be asking TCI what's going on."

One municipal consultant conceded that the distinction is a
longtime industry practice that has never been tested in court, primarily because most
municipal governments invariably reach settlements with the cable operators involved.

In this case, however, what could prevent protracted
litigation may be the desire by most cities to substitute AT&T for TCI as the local
cable operator.

"If you find a city willing to say, 'No,
we'd rather have TCI than AT&T,' I'll give you a medal," said
Barry Orten, professor of telecommunications at the University of Wisconsin-Madison.

One city where TCI can expect to find itself at odds with
local authorities is St. Louis, where regulators have "informally" been told
that their transfer authorization will not be sought.

"It's a corporate decision, I'm sure,"
said Susan Littlefield, the city's cable regulatory administrator.

Officials in Chicago -- where TCI has three franchises,
serving some 375,000 customers -- said TCI is wrongheaded if it thinks that city lawmakers
won't scrutinize the transfer.

"It will be an issue here," Chicago cable
administrator Joyce Gallagher said.

TCI just earned a new 15-year franchise in the Windy City.
And while the merger was not part of the talks, Gallagher stressed that "it's
just understood" that any changes must be vetted by the city, since its franchise
states that local approval is required for any change involving greater than 20 percent of
the system's ownership.

In San Jose, Calif., Pamela Stone Jacobs, assistant to the
city manager, said she views both the transfer and the franchise renewal as opportunities
to tackle the issues that the city has with TCI.

Meanwhile, some regulators believe that the matter may boil
down to a public-relations issue for AT&T.

For example, the Georgia Municipal Association, which
represents 22 cities and counties with TCI systems, reported that one-half of those venues
have learned that the MSO will not be seeking local-transfer approvals.

Edith Spencer, the GMA's manager of
telecommunications-management services, said typical older franchises -- many of which
were written by the industry -- don't include language allowing city officials to
sign off on the AT&T-TCI deal.

"[But] some cities are going to see it as a slight to
see their neighbors getting Form 394 when they're not," Spencer said.
"It's not going to be good public relations. And it's certainly not going
to be a pleasant introduction to these communities for AT&T."

Orton agreed, saying, "TCI has always done what it had
to do, and no more. So this is perfectly in character. AT&T, on the other hand, has a
reputation, technically and legally, for doing what it has to do and a lot more."

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