AT&T Seeking New Cable-Ownership Rules

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Washington-- AT&T Corp., looking to protect its
multibillion-dollar cable-television investment, is urging the Federal Communications
Commission to ease up on cable-system-ownership rules as a way of promoting local phone
competition.

AT&T is paying an announced $48 billion to acquire
Tele-Communications Inc. and the cable giant's access to 12.5 million subscribers and
-- according to AT&T chairman C. Michael Armstrong -- 33 million households.

After failing to penetrate local phone markets by reselling
incumbent services, AT&T is planning to spend lavishly to upgrade TCI's wires in
order to offer voice telephony and high-speed Internet access, along with video
programming and long-distance telephone service.

But AT&T's investment could take a hit because the
FCC is considering reviving a rule that would prohibit TCI from controlling cable wires
that pass more than 30 percent of U.S. households.

Some within the FCC believe that TCI and cable companies
that it is affiliated with already exceed the 30 percent limit. The FCC put TCI on notice
in June that it would have 60 days to come into compliance if the agency decided to lift
its five-year-old stay.

In an Aug. 10 filing, AT&T told the FCC that the 30
percent cap would be counterproductive because cable companies need to extend their reach
to at least match the footprints of regionally concentrated local phone companies.

"The [FCC] should refrain from adopting a
horizontal-ownership limit that could eliminate the opportunity for such a potential
customer base," AT&T said.

AT&T filed in response to an FCC request for comment on
whether the 30 percent household cap should be adjusted, and on whether the cap should be
based on a percentage of cable subscribers, or on a percentage of all subscribers to
multichannel-video-programming services,

AT&T said that in the world of convergence, size
matters. It asserted that Bell Atlantic Corp., after its acquisition of GTE Corp., will
control 38 percent of the country's 170.5 million local phone lines, and SBC
Communications Inc., after its purchases of Ameritech Corp. and Southern New England
Telecommunications Corp., will control 40 percent.

While cable systems are potentially capped at reaching no
more than 30 percent of homes, the Baby Bells are "unencumbered by regulations
setting horizontal-ownership limits," AT&T said.

In its own filing, TCI said the FCC should expand the
horizontal-ownership limit to 40 percent and switch the measurement from a percentage of
cable households passed to a percentage of all subscribers to multichannel-video services.

TCI said keeping the cap at 30 percent was no longer
justified because the last five years have shown that the justification for the cap --
that one large MSO could dictate terms to programmers -- has vanished as a result of
growing competition in cable markets.

TCI said that when it begins to provide an array of
services to consumers -- with advanced set-top boxes that provide a gateway to cable
networks, the Internet and voice services -- counting cable subscribers for the purpose of
enforcing a horizontal cap could be difficult.

"A consumer with one of these devices receives a broad
range of services, and this makes 'counting' the consumer as a cable subscriber
overly simplistic," TCI said. "Stated another way, it would be tragic if TCI
were prevented from providing a consumer with competitive telephony because of a cable
horizontal rule."

The FCC heard from other parties that said they opposed any
relaxation of the ownership rules.

RCN Corp., a cable competitor offering open-video-system
service in Boston and New York, urged the FCC to reduce the 30 percent cap to 20 percent
of households, even if the lower limit required divestiture.

RCN accused Time Warner Cable and Cablevision Systems Corp.
-- two MSOs that it competes with -- of devoting "substantial financial, legal and
other resources to impeding competitive entry" into cable markets.

RCN said it would have a better chance of succeeding in the
market if it were not "battling with vertically and horizontally integrated giants
like Time Warner and Cablevision."

Time Warner has accused RCN, among other things, of
ignoring FCC rules that require OVS operators to make capacity available to unaffiliated
programmers. Cablevision, meanwhile, has challenged whether RCN's electric-utility
partner, Boston Edison Co., is wrongly using ratepayer money to subsidize its video
partnership with RCN.

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