AT&T-TCI Merger May Find Its Waterloo

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After years of jousting with Tele-Communications Inc., the
city of Waterloo, Iowa, has launched an investigation into AT&T Corp.'s proposed $48
billion acquisition of the MSO.

Officials in the community of 65,000 recently decided to
request additional information from the two companies before approving a transfer of TCI's
franchise.

City attorney Jim Walsh said the city will take a closer
look at the transaction in order to "better understand" AT&T's plans for
rural communities like Waterloo.

"We want to be sure that we don't end up as
second-class citizens," Walsh said, adding that the town is worried that AT&T may
concentrate on offering local phone service solely in large urban areas after it completes
its acquisition of TCI.

TCI officials said they were not surprised by Waterloo's
information request, noting that communities being asked to approve franchise transfers
are obliged to "analyze" the deal.

"This is nothing that we're concerned about," an
MSO spokeswoman said.

Meanwhile, sources familiar with the situation said
Waterloo officials have been out of sorts since 1995, when TCI upgraded its network in the
neighboring town of Cedar Falls -- a community where the local government has successfully
overbuilt the MSO.

However, TCI had launched system improvements in Waterloo
long before the AT&T deal was announced.

The MSO is currently nearing completion of a $6 million
upgrade of its local system. It has already introduced "TCI Digital"
programming, and it plans to unveil its TCI@Home high-speed Internet-access service
sometime next year.

"I think that Waterloo's just trying to get back at
TCI," said one industry observer, who asked for anonymity. "I don't think that
they have too many problems. The system is being upgraded as we speak, so I don't know
what the deal is."

Walsh conceded that city officials were unhappy that it
took years to convince TCI to upgrade the local system.

"That's because Waterloo did not have a competing
cable system," he said. "Instead, they put their dollars into nearby Cedar
Falls, which has a municipal cable system."

But given all of TCI's recent improvements, Walsh conceded
that it's unlikely that the city can ultimately deny the transfer to AT&T.

"I think that the only solution is competition,"
he said.

Walsh said the city continues to study the possibility of a
municipal overbuild, and it is talking to a second video provider that is interested in
entering the market.

"There's going to be a second provider in Waterloo.
The only question is who," he added.

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