AT&T Bucks FCC, Could Be Hoping For Bush Help

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WASHINGTON -AT&T Corp. seems to think it can get a better deal from a Federal Communications Commission run by Republicans than Democrats.

Two weeks ago, the FCC ordered AT&T to sell its 25-percent interest in Time Warner Entertainment L.P., a step that on the surface appeared to eliminate AT&T's hope of complying with FCC cable-ownership rules by selling Liberty Media Group and other programming interests.

In response to the commission's action, the company issued a statement suggesting it can still comply with agency rules by divesting its programming interests-meaning the TWE sale was only an option, not a requirement.

Two AT&T spokespeople declined to challenge that interpretation, which potentially puts Ma Bell on a collision course with the FCC in the event the company refuses to sell the TWE stake.

If found in violation of an agency order, AT&T could face thousands of dollars in per-day fines or face proceedings to determine whether its FCC licenses should be revoked, although the latter seems unlikely because of the deleterious impact on AT&T customers.

"It could be a serious [fine]," a Washington cable attorney said, speaking not for attribution. "It would be a daily fine until the commission found they are in compliance."

Were the FCC to fine AT&T, it could tarnish the company's reputation. Local governments, for instance, could decide not to renew or transfer an AT&T cable franchise because the FCC fine demonstrated the company's poor character.

"It could become a character blemish," the cable lawyer said.

Except for the America Online Inc. merger with Time Warner Inc., the forced sale of the TWE stake was likely the last major decision by an FCC headed by Chairman William Kennard.

A Democrat appointed by President Clinton, Kennard is expected to resign soon after President-elect George W. Bush takes office on Jan. 20, though his term would not expire until June 30.

With the FCC under Republican control-or at least deadlocked under a GOP chairman-AT&T might find the agency more responsive to the company's concerns about the practical problems with cable-ownership rules and their impact on its corporate structure.

AT&T has complained that the ownership rules are too harsh. Although the company has 16 million wholly attributed cable subscribers, FCC rules mandate that AT&T's minority investments in other cable operators numbering in the millions of subscribers should be added to AT&T's subscriber base.

The FCC held that after buying MediaOne Group Inc., AT&T would have about 41 percent of pay-TV subscribers and needed to decide by Dec. 15 which assets to sell to comply with the agency's 30-percent limit.

In addition to fighting the rules in federal court, AT&T spent considerable energy over the last few months talking to key members of Congress about revamping FCC policies-a lobbying campaign Kennard has publicly criticized.

AT&T chairman C. Michael Armstrong made a personal appeal to President Clinton for White House support.

AT&T's hope for a more accommodating FCC will likely be helped by the fact that the company's top Washington lobbyist, general counsel and executive vice president James Cicconi, is a former Bush administration White House official with close ties to the incoming administration's key players.

Cicconi and some members of his staff had difficult moments with Kennard and his policy lieutenants.

In something of a surprise, Republican FCC commissioner Michael Powell, considered the leading candidate to replace Kennard, voted with the agency's three Democrats to impose the TWE asset sale mandate on AT&T.

Only GOP commissioner Harold Furchtgott-Roth thought the FCC was being too harsh on AT&T.

"It's not insignificant. The vote was 4-1, and that includes Michael Powell," commented Andrew Schwartzman, president of the Media Access Project, a public-interest law firm that urged the FCC to compel AT&T to sell the TWE interest because of the combined clout of the top two MSOs, AT&T and Time Warner Inc.

On Dec. 15, AT&T told the FCC it intended to spin off Liberty if it received a favorable tax ruling from the Internal Revenue Service. If no tax break were granted, AT&T said it would divest the TWE stake by May 19.

At the time of merger approval, the FCC gave AT&T three choices: sell the TWE stake, sell Liberty and other programmers that have contracts with TWE; or sell 9.7 million cable subscribers.

TWE, mostly owned by Time Warner, includes at least 9.7 million cable subscribers, as well as Home Box Office Inc. and the Warner Bros. film studio.

On Dec. 21, the FCC said AT&T's election to divest TWE only if it could not spin off Liberty was inconsistent with the merger condition that AT&T pick one option by Dec. 15 and stick with it.

"AT&T has proffered a conditional election, rather than the single unambiguous election that the merger order requires," the FCC said.

In a statement, AT&T spokesman Jim McGann insisted the company had complied with the FCC's merger conditions.

"AT&T has already taken significant steps toward compliance and we will continue to work diligently to meet our May 19 obligation. We do not believe today's order requires us to take any action different from those that we are already pursuing to comply with the merger order," McGann said.

Although AT&T's statement said its election method was not intended "to create ambiguity," the company did not react to the FCC's order by saying it would no longer pursue the Liberty spin-off as a means of complying with the agency's MediaOne order.

In a concession to AT&T, the FCC said it would give the company until Jan. 15 to make a case, consistent with the public interest, that it should be allowed to divest programming interests in lieu of the TWE sale.

In his dissent, Republican FCC commissioner Harold Furchtgott-Roth was alone in voicing support for AT&T's position.

He said the FCC's action seemed "to be based on an overaggressive reading" of the asset-sale requirement, adding that he saw nothing in the MediaOne merger order that barred AT&T "from designating a fallback position to its chief election."

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