AT&T, Comcast Make Pitch to FCC

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AT&T Broadband and Comcast Corp. said their merger is needed to drive the penetration of several new services, especially local phone service in competition with entrenched phone incumbents.

"The transaction will yield demonstrable benefits in investment, innovation, competition, and new and improved video, data, and voice service, with no offsetting detriments," the companies told the Federal Communications Commission late last month.

The proposed $72 billion deal, representing the largest cable transaction ever, would combine AT&T Corp.'s cable system operations with Comcast's to serve 27.2 million subscribers in 17 of the top 20 markets, generating about $17.5 billion in combined annual revenue.

The companies said the pay-TV market now includes 91.3 million subscribers. A combined AT&T-Comcast would control 29.8 percent of that market.

Although the FCC is not enforcing a cable ownership limit at this time, the agency in the past has limited one cable firm to 30 percent of all pay-TV market.

The deal awaits approval from the FCC and the Department of Justice. On Feb. 28, the companies filed a statement with the FCC that laid out their understanding of public interest benefits of the deal.

The FCC is expected to release the 97-page filing for public comment in a matter of days. From an antitrust perspective, the deal is not expected to encounter serious problems because AT&T and Comcast do not compete for cable subscribers.

In the filing, the companies said the merger would not clash with any FCC rules.

AT&T-Comcast would end up owning about 25 percent of Time Warner Entertainment, a limited partnership with at least 11.3 million cable subscribers. That would bump AT&T-Comcast up to 42 percent of pay-TV subscribers, but they plan to sell the Time Warner stake as soon as possible.

The companies say the merger would accelerate deployment of digital video, data services, and local phone service on a scale they could not achieve as separate companies.

A POWELL APPEAL

The rapid roll out of facilities-based services has been a goal repeatedly espoused by FCC chairman Michael Powell.

Pushing a popular button, the companies pledged to compete for local phone customers in markets dominated by the Baby Bells. Comcast currently serves about 41,000 residential phone customers, compared to about 1 million for AT&T.

Assuming the merger is approved, AT&T-Comcast also would have ultimate power in deciding how Liberty Media uses its cable capacity for interactive programming, the companies said.

Liberty gained access to 6 MHz of spectrum on AT&T systems as part of AT&T's acquisition of Tele-Communications Inc.

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