News

AT&T Seeks Time Out On FCC Sub-Cap Rule

8/29/1999 8:00 PM Eastern

Fearful of the impact on its pending acquisition of
MediaOne Group Inc., AT&T Corp. wants the Federal Communications Commission to delay
an expected Sept. 15 vote on cable-ownership concentration rules, sources said last week.

AT&T has sent a steady stream of lobbyists -- both
in-house and from Washington, D.C.-based law firms -- to try to dissuade the commission
from voting on the cable-ownership-cap rules at this time.

According to Thomas Power, FCC chairman William Kennard's
legal adviser for common-carrier issues, AT&T contended that recently filed public
comments on the merger could give its opponents undue influence on the ownership-rules
decision.

"They have been lobbying heavy," Power said.
"I get phone calls, meetings or requests for meetings all day long from three
different law firms and in-house [lobbyists]. They want it delayed."

AT&T's argument is that waiting until after all of the
merger comments are in -- and after AT&T's reply comments are filed Sept. 17 -- would
give the FCC a better context in which to decide the ownership rules, Power added.

Jim McGann, an AT&T spokesman, said the company would
not comment on whether or not it was lobbying for a delay in the ownership-rules decision.

According to the current rules -- which have been suspended
while their constitutionality is argued in federal court -- a cable operator is limited to
controlling 30 percent of the total cable homes passed in the country.

Counting MediaOne's 5 million subscribers, AT&T's joint
ventures with other cable operators and Time Warner Cable subscribers from MediaOne's 25
percent ownership stake in Time Warner Entertainment, AT&T would pass about 47 percent
of cable homes in the nation -- well beyond the current cap.

By the looks of comments about the MediaOne merger filed
Aug. 23, AT&T may have reason to be worried.

Comments filed by GTE Corp., SBC Communications Inc. and a
coalition of consumer-advocacy groups urged the FCC to reject the merger because it would
stifle competition among providers of broadband services.

Stating that AT&T was attempting to dominate the market
before competitors had "a chance to lace up their shoes," GTE petitioned the FCC
to deny the merger, or to at least attach requirements that AT&T make broadband
capacity available to competitors.

"Because cable has an extraordinary head start over
competing technologies in acquiring broadband customers, AT&T has been able to use
this tying strategy to push its market power in broadband access into the fledgling market
for broadband content," GTE wrote.

SBC said AT&T's claim of bringing competition to local
telephone markets did not hold water.

"In reality, the merger is about reinforcing market
power in traditional cable and multichannel-video-programming markets and extending that
power into a host of emerging and vitally important broadband-dependent markets," SBC
commented.

"We've made our case with the commission," McGann
replied. "We're going to bring choice into the local telephone market. That is a
clear and convincing argument for this merger. We're also going to offer choice in the
market for high-speed Internet access."

AT&T's position regarding the ownership rules is well
known. In a July 30 letter to the commission, it suggested that the FCC attribute to an
MSO only those systems for which it actually does or could control programming choices;
that it measure an MSO's horizontal-concentration level as a percentage of all
multichannel-video providers (including direct-broadcast satellite operators); and that it
significantly raise the 30 percent limit.

Among the FCC's advisers on the ownership-rules issue is
the Cable Services Bureau, which handles cable issues for the FCC. The CSB has submitted a
recommendation on the matter, a commission source said.

Although cable-ownership rules are being handled separately
from the AT&T/

MediaOne merger consideration, the outcome could affect the
merger due to the size and scope of the combined company.

While Power would not speculate on whether the commission
would push back its vote on the ownership rules, he said the agency had a firm grasp of
the issues at hand regardless of the merger comments.

"We have a complete understanding of all of the
relationships that are at issue there," Power said. "I don't think we need the
reply comments."

Power added that the criteria for the ownership rules were
set by Congress as part of the 1992 Cable Act, and they have nothing to do with the
proposed AT&T/MediaOne merger.

"Obviously, there's a very strong relationship, and
the rules could have a major impact on the merger," he said. "We are certainly
not going to shape the rules to fit a merger. It's the other way around."

Aside from sheer subscriber size, the FCC is apparently
concerned about AT&T's influence over its cable partners, exerted by AT&T
executives who are also directors of other operators and by Liberty Media Group, which
became an AT&T subsidiary after AT&T's merger with Tele-Communications Inc. in
March.

Liberty -- which is effectively controlled by chairman John
Malone and other shareholders -- owns interests in about 100 different programming
entities.

Earlier this month, the CSB wrote to AT&T seeking more
information about the MediaOne merger, including details on

Liberty's relation to AT&T.

The Liberty connection could be troublesome if the FCC
determines that control of its programming creates an influence over the MSOs that carry
those networks -- especially TWE, which AT&T would own a stake in after the MediaOne
deal closes.

"There are ways that you can set up interests in
different entities and make it insulated enough so that they are not attributed,"
said a regulatory source who asked not to be named.

"One of the bars that stand in the way of that are any
contracts between the parties," that source added. "If you're selling
programming, that blows it out of the water. The fact that Liberty is attributable to
AT&T would say AT&T is selling programming to Time Warner. That's what prohibits
AT&T from saying under the current rules that it is disassociated from Time
Warner."

AT&T could probably craft a solution that would fall
short of divesting Liberty, the source said, without specifying how such an arrangement
would work.

Barney McManigal of States News Service contributed to
this report.

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