AT&T Break up Needs to Clear Some Hurdles

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Washington-The role of regulators in AT&T Corp.'s voluntary breakup is unclear for now, especially in connection with the company's two-year plan to transform AT&T Broadband into a stand-alone cable company.

The creation of a publicly traded MSO could represent a change in control subject to cities' approval, said Joe Van Eaton, a Washington attorney who represents local governments.

"At the end, there is going to be good chance that a change of control has occurred," Van Eaton said. "Structure is going to make a difference in the way franchising authorities look at this."

Van Eaton said U S West Inc. needed to win some local approvals when it spun off MediaOne Group Inc.

In a briefing with analysts Wednesday, AT&T chairman and CEO C. Michael Armstrong said he discussed the breakup with Federal Communications Commission chairman William Kennard, but said Kennard did not raise any regulatory concerns.

In a prepared statement, Kennard later said that the FCC "has the authority and the responsibility to ensure that this restructuring does not adversely impact the quality of consumer service, competition in the telecommunications markets and the integrity of the telecommunications network. I will continue to closely question the company about today's announcement and will insist that consumers' interests are protected."

Next summer, AT&T plans to create a tracking stock for its cable systems and its interest in broadband Internet-access provider Excite@Home Corp., floating shares in an initial public offering. A year later, AT&T plans to establish a common stock that would make AT&T Broadband an independent company.

An AT&T spokesman said the company did not need regulatory approvals in connection with the IPO tracker. He declined to comment on regulatory issues related to the spinoff, and said that event was two years in the offing.

If the spinoff results in a change of control, an FCC source said, AT&T would need agency approval to transfer its federal licenses. Cable companies typically have an inventory of cable-antenna relay service (CARS) licenses-microwave relays that beam programming between headends located in places too difficult to wire due to rugged terrain.

If the cable unit is no longer owned by AT&T, an FCC source said, AT&T's Liberty Media Group would no longer be subject to the agency's program-access rules. At present, those regulations require Liberty to sell its large stable of cable networks to the direct-broadcast satellite industry.

As expected, AT&T's plan was not a huge hit with its usual Washington opponents.

Gene Kimmelman, co-director of the Consumers Union's Washington office, said AT&T's stunning announcement vindicated his view that the Telecommunications Act of 1996 caused more harm than good, now that AT&T has apparently given up on a frontal assault on the Baby Bells' local phone monopoly.

"This is a marketplace disaster caused by a profound mistake in policy," Kimmelman said. "It shows us that the belief that telecommunications deregulation would lead to lower prices and better services as a result of wire-to-wire competition was a fantasy."

The United States Telecom Association, the Bells' Washington lobbying arm, sent a letter to all members of Congress on Wednesday. It stated that because many details of the breakup were unclear, it was especially important that lawmakers resist AT&T's effort to pass a law relaxing the FCC's cable-ownership restrictions.

"In light of the possible implications on consumers of both the restructuring and the provision AT&T is seeking to enact, we encourage you to have a full public airing of this issue before enacting legislation," USTA's one-page letter said.

On a happier note for AT&T, National Cable Television Association president Robert Sachs said the creation of a stand-alone cable company was positive for the company and the industry.

"Being singularly focused, AT&T Broadband will be able to make corporate decisions based solely on the needs and interests of its cable business," Sachs said.

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