AT&T Still Faces Regulatory Hoops


Washington -- AT&T Corp.'s buyout of
Tele-Communications Inc. breezed past federal regulators.

However, its buyout of MediaOne Group Inc. might not be so

Federal Communications Commission chairman William Kennard
-- who withheld comment on AT&T's proposed buyout until the deal was definite --
said last Friday: "This is a complex transaction. Because of its size and reach and
the many novel legal and policy issues involved, this proposed merger warrants very
careful scrutiny."

Compare that with Kennard's statement last June that
AT&T's plan to buy TCI was "eminently thinkable."

Other officials here reacted swiftly to AT&T's
accord with Comcast Corp., which paved the way for AT&T to acquire MediaOne.

Sen. Mike DeWine (R-Ohio) announced that his Subcommittee
on Antitrust, Business Rights and Competition would hold a hearing on the merger in June.

In a statement with Sen. Herb Kohl (D-Wis.), DeWine
outlined a concern shared by others that the impact of the merger might mean more
competition in local phone markets but less competition in cable markets.

"The jury is still out on how it will affect the
cable/video market. We need to closely examine all competitive aspects of this proposal to
ensure that competition is preserved and consumers are protected," the DeWine-Kohl
statement read.

Ken Johnson, spokesman for House Telecommunication
Subcommittee chairman Billy Tauzin (R-La.), said the panel would hold a hearing if House
Commerce Committee chairman Tom Bliley (R-Va.) authorizes it.

"Billy and others are clearly concerned about the
chilling effect this deal could have on competition to cable," Johnson said.
"The big players are getting bigger, and that may scare off competition."

Also, Sen. John McCain (R-Ariz.), chairman of the Senate
Commerce Committee and an opponent of the Telecommunications Act of 1996, said he would
examine AT&T's entry into the cable industry at a June 17 hearing.

"The act has failed miserably, and it has resulted in
mergers instead of competition," McCain spokeswoman Pia Pialorsi said.

AT&T chairman C. Michael Armstrong said the acquisition
of MediaOne was necessary to compete with the Baby Bells for local phone customers, adding
that the competitive clash would help consumers.

Armstrong, in a conference call with reporters, said he was
confident that AT&T would not wind up in violation of FCC rules that prohibit cable
companies from reaching more than 30 percent of households.

AT&T would pass only 23 percent of homes through wholly
owned systems, Armstrong added, and 35 percent of homes through wholly owned and partially
owned systems.

The FCC is not enforcing its 30 percent rule, but it could
win judicial authorization to do so at some point.

The commission is also considering changing its rule from
one based on a percentage of homes passed to one based on a percentage of subscribers to
multichannel-video-programming services, including cable and direct-broadcast satellite.

"If the old rules actually did come back -- which we
don't think they will -- they'll be studied and redefined probably much more in
terms of competition," Armstrong said.

Bruce Leichtman, director of media and entertainment
strategies at The Yankee Group, said his figures showed AT&T passing 43 million homes,
based on 16 million wholly owned subscribers and 9.9 million partially owned subscribers
through joint ventures and partnerships.

AT&T breaks the 60 million-homes-passed barrier through
its 25 percent stake in Time Warner Entertainment or its 10 percent stake in Time Warner
Inc. through Liberty Media Group.

Leichtman said the verdict on whether AT&T has gotten
too big will depend on the perspective of the regulators and whether they see the benefits
of local phone competition outweighing any potential anti-competitive effects in the
multichannel-video-programming-distribution market.

"I think it comes down to the how the regulators want
to view this," he added.

Leichtman said the burden is on AT&T to fulfill its
promise to take on the Baby Bells. "They have got to execute. They have a few years
to do it, though," he added.

A key goal of Armstrong's strategy is to use cable
facilities to provide high-speed Internet access.

But that strategy is coming under attack from companies
like America Online Inc., which alleged that cable-modem subscribers are denied equal
access to the Internet-service providers of their choice.

One day after AT&T and Comcast announced their
settlement, Reps. Rick Boucher (D-Va.) and Bob Goodlatte (R-Va.) introduced a pair of
bills (H.R. 1685 and H.R. 1686) designed to undermine Armstrong's Internet strategy.

The bills -- the first ones to surface on the controversial
subject of Internet access over cable -- would bar cable operators with "market
power" in the broadband Internet-access arena from discriminating against
unaffiliated ISPs.

The bills, for example, would prevent cable operators from
bundling access and high-speed transport in one package, and they would allow unaffiliated
ISPs to file antitrust suits against cable companies that violate the bundling prohibition
under the Sherman Act.

The bills track the policy goals of the OpenNet coalition,
which is headed by AOL.

Boucher said a new law was necessary to block the cable
industry from destroying the Internet's most compelling feature -- its open-network

"For the first time now, we are seeing a major threat
develop to that openness, and that is the practice of the cable industry, in rolling out
its cable-modem service, to insist upon a bundling of its transport along with affiliated
Internet-access service," Boucher said.

Both lawmakers said the bill was not timed to coincide with
the AT&T-MediaOne announcement.

"We have been developing this measure for many months,
and what we are doing is not related to the activities of AT&T," Boucher said.

Although the United States Telephone Association and GTE
Corp. hailed the bills, the National Cable Television Association slammed them as brakes
on the industry's deployment of high-speed Internet services.

"This legislation will spawn significant, costly new
litigation and inevitably result in inappropriate common-carrier-like regulation,"
NCTA president Decker Anstrom said in a prepared statement.