AT&T Counts Itself Under FCC Cap

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Washington -- AT&T Corp. said its merger with MediaOne
Group Inc. won't violate federal cable-ownership rules that cap the company's market share
at 30 percent of cable and direct-broadcast satellite subscribers.

In a Nov. 24 letter to the Federal Communications
Commission, AT&T said it would have cognizable ownership interest in 27 percent of
multichannel-video subscribers after merging with MediaOne.

At one least public-interest group -- the Media Access
Project -- plans to challenge AT&T's filing. The FCC is accepting initial comments on
the filing until Dec. 14.

"It's hard to imagine that the commission would bless
this arrangement, and we will explain why," MAP president Andrew Jay Schwartzman
said.

AT&T arrived at 27 percent by excluding MediaOne's
25.51 percent stake in Time Warner Entertainment, a limited partnership with 9.7 million
subscribers and programming assets, including Home Box Office. Were TWE included in the
count, AT&T would have 39 percent share, possibly trigging some kind of divestment or
restructuring unless the FCC gave a waiver.

With MediaOne, AT&T said, it would have 21.9 million
out of 81.4 million multichannel-video subscribers nationally.

In the filing, AT&T said it wasn't required to include
TWE under new rules the FCC adopted in October.

Schwartzman said he hoped the FCC would reject AT&T's
attempt to exclude TWE, adding, "We are not inclined to take it seriously. They can't
really mean what they said. On the other hand, the FCC in recent times has proven very
gullible and very malleable with respect to AT&T's wishes."

In the rules, the FCC said it would exclude a partnership
like TWE if a limited partner like AT&T demonstrated that it was not "materially
involved" in the management or operation of the partnership's video-programming
activities.

George Reed-Dellinger, telemedia analyst with Washington
Analysis, said he expects the FCC to either endorse AT&T's interpretation of the rules
or issue a waiver.

"I have always thought the real driving policy issue
is to promote competition in the local telephone market, not to debate whether a
fractional ownership contributes to a fractional exceeding of attribution that no one
understands to begin with," Reed-Dellinger said.

AT&T said it could exclude TWE even though programmers
in which AT&T owns stakes sold programming to TWE, adding that the programming
interests were too indirect financially to trigger attribution under the FCC's rules.

AT&T owns Liberty Media Group, which is controlled by
John C. Malone, AT&T's largest single shareholder.

"AT&T will not be involved in any manner in the
decisions of TWE regarding which video-programming services are purchased for or carried
on TWE's cable systems," the company told the FCC.

AT&T also has an ownership interest in Rainbow Media
Holdings Inc. through a 33 percent stake in Rainbow's parent, Cablevision Systems Corp. In
the filing, AT&T told the FCC that its programming involvement at Rainbow was
nonexistent because Cablevision and Rainbow are controlled by Charles Dolan and members of
his family.

"If Rainbow sells programming to TWE, it does not do
so at the direction of or with the involvement of AT&T," the company said.

On Dec. 3, the U.S. Court of Appeals for the D.C. Circuit
is scheduled to hear oral arguments on the constitutionality of the 1992 law that
authorized the FCC to establish the 30 percent cap. The agency adopted the cap in 1993
based on the percentage of homes passed by cable systems nationally.

The FCC stayed enforcement of the rule because just prior
to its adoption, a federal court struck down the underlying statute as constitutional. The
commission retained the stay when it adopted the new rules in October.

AT&T's $56.4 billion merger with MediaOne is pending at
the FCC. AT&T officials were hoping to close the deal in the first quarter, but that
deadline is apparently slipping to the second quarter.

The FCC adopted subscriber caps to prevent one cable
operator from using dominance in the distribution market to dictate the terms of
competition among programmers, especially programming unaffiliated with any cable
operators.

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