AT&T Denied A Cable Franchise Transfer

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AT&T Broadband & Internet Services "can't
be trusted to follow the law and act responsibly," according to the board of
supervisors of Middletown Township, Pa., which denied the transfer of the Time Warner
Cable-operated system there to AT&T Broadband (formerly Tele-Communications Inc.).

The system -- operated as Lower Bucks Cablevision Inc. and
serving the Philadelphia suburb -- is part of a planned system swap between the two MSOs.

According to exhibits used by the authorities to make their
decision, the supervisors based their assessment on TCI's corporate character --
primarily on its actions in rate disputes in Pittsburgh and Richardson, Texas. AT&T
Corp. bought TCI earlier this year. Both cities challenged basic-rate increases, but TCI
went ahead with the increases anyway.

Regulators believe that when they deny a rate increase, the
old rates should remain in effect until the Federal Communications Commission acts on the
dispute. Instead, they complained, TCI acted as if it had a stay of the rate order and
increased its rates.

For its part, TCI has stated confidently that its rate
computations will be upheld, adding that if it were to hold off on the consumer charges,
it would be entitled to interest when it ultimately won the case -- interest that would be
paid by consumers.

Richardson racked up three annual-rate complaints before
the FCC acted on the dispute and backed the city's rulings. But instead of
recognizing the municipal rate-rollback order, TCI appealed the FCC's order.

"The honesty, integrity and forthrightness of a cable
operator is of paramount concern. We are concerned that an operator with a sullied history
of these qualities may not be trusted to follow franchise requirements or to pay franchise
fees in a manner required," said attorney Fred Pollner, a consultant to Middletown
Township.

In the past, cities challenged TCI's advance into some
communities. But after the hyperbole subsided, the authorities generally approved
transfers and acquisitions.

One close call involving other operators came in the 1980s,
with the breakup of Group W Cable. Several Los Angeles-area suburbs balked at the prospect
of service by Century Communications Corp. and threatened legal action. The buyer's
consortium then restructured the breakup to assign those systems to another MSO.

Consultants said such challenges have waned in the wake of
TCI's sale to the more respected AT&T. But Middletown officials noted that the
AT&T Broadband management hasn't changed since the merger, adding that no TCI
entity "can be trusted to follow the law and act responsibly."

A lesser issue in the denial is the actual identity of the
company serving Middletown. The Time Warner cluster serves about 10,000 customers in the
township under the Lower Bucks name. During the transfer process, however, city officials
said they discovered that the Lower Bucks corporate entity had been eliminated by Time
Warner.

The city's denial will probably not derail the swap. A
TCI spokesman said it is unlikely that the deal will be restructured based on Middletown
Township's action.

However, Time Warner is the applicant, and it would be up
to that company to challenge the denial legally. Time Warner did not return calls by press
time.

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