AT&Ts FCC Move Riles NCTA, Execs

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Washington -- People have been predicting for one year that
AT&T Corp. would go its own way. Last week, those predictions apparently started
coming true, generating an enormous amount of bad blood among senior cable-industry
executives.

The rift is over a recent effort by AT&T to jettison
the cable industry's Internet-access strategy without telling anybody else in the
business. And there's additional bad feeling over AT&T's apparent motive: wresting
favorable cable-ownership rules from the Federal Communications Commission.

"It's a combination of the two," a cable-industry
source said.

Cable-industry sources said AT&T presented top FCC
officials with a plan that would serve as an open-access paradigm for Internet-service
providers seeking cable-modem customers.

While the plan clearly served AT&T's interests, it did
nothing to advance cable's business model, underpinning the billions of dollars invested
in plant upgrades for two-way data transmission.

One source said AT&T's plan was presented to just two
FCC officials and no one else. "It was my understanding that it was only [FCC chief
of staff] Kathryn Brown and [chairman] William Kennard" who saw the plan, the source
said.

And, the source added, AT&T unveiled the plan without
informing new National Cable Television Association president Robert Sachs or its
cable-industry partners in Excite@Home Corp.

Sachs declined to comment, an NCTA spokesman said.

"This was kept very close to the vest by AT&T
until last weekend," the source said.

One FCC insider told a different story. "I can tell
you categorically that not a single person in any of the discussions [about cable
ownership] brought up the access issue," the FCC source said.

The commission source said it was highly unlikely that
AT&T presented Kennard and Brown with an access proposal. "People spin all kinds
of goofball theories. I've actually asked and, as far as I know, nobody has shown anybody
anything."

Several sources insisted that such a proposal was made to
the FCC, however.

For more than one year, the cable industry has put up a
united front in keeping government at any level out of the access debate.

But AT&T's plan, sources said, not only ditched the
agreed-upon business model, but also represented a capitulation to America Online Inc.,
other ISPs and various cities that have been hectoring cable on the access question since
June 1998, when AT&T announced its acquisition of Tele-Communications Inc.

That AT&T made an about-face on access was bad enough.
Making it worse, according to several cable-industry sources, was the fact that AT&T
came forward just as the FCC was putting final touches to new cable-ownership rules.

AT&T needed the rules to be liberalized in order to
merge with MediaOne Group Inc. without having to divest stakes in Cablevision Systems
Corp. and Time Warner Entertainment.

"I know there has been a very strong reaction that
this is totally out of line, that this is totally against the position of the cable
industry and that this is totally unnecessary," a cable source said.

One senior MSO executive confirmed AT&T's overture to
the FCC and the highly negative reaction it generated among other cable operators.

In the past, whenever a cable operator had to break from
the pack, that company typically observed the unspoken rule of informing the other cable
operators. AT&T's move was a break in that collegial tradition, the MSO executive
said.

Cable's newcomers, such as AT&T, needed to learn that
everyone can build value by sticking together, the executive added.

It could not be learned last week which AT&T executives
approved the decision to approach the FCC with the access plan, or who later told cable
executives about it.

But one source said Amos Hostetter, AT&T Broadband
& Internet Services' nonexecutive chairman, and Daniel Somers, the AT&T executive
vice president named to assume operational duties at AT&T Broadband after CEO Leo J.
Hindery Jr.'s departure last week, apologized after angry cable executives confronted them
about it.

AT&T's outreach on access also included local
officials.

"I can't comment on any of it. I have some knowledge
about it, and my understanding is that people are not commenting until the process is
done," said Ken Fellman, an Arvada, Colo., city councilman who serves on the FCC's
Local and State Government Advisory Committee.

Cable sources said James Cicconi, AT&T's general
counsel and top Washington lobbyist, pitched the open-access plan at the FCC. But Cicconi
declined to return a reporter's call for comment.

AT&T spokesman Jim McGann declined to comment on
whether the company presented the FCC with an open-access plan or on whether it timed the
unveiling of the proposal to coincide with the vote on the ownership rules. "I won't
be able to comment on any of it," he said.

McGann did say that AT&T continues to believe that
government should stay out of the cable-access fight.

A Washington cable lobbyist said AT&T's move should
have been on everyone's radar screen. "[AT&T has] never pretended to be anything
but into distribution. This should not come as a surprise," the lobbyist said.

The Wall Street Journal reported last week that
AT&T and MindSpring Enterprises Inc. were negotiating terms for that independent ISP
to demonstrate an open-access accord, possibly using an AT&T system in Atlanta
(presumably after the deal to buy MediaOne's Atlanta operation closes). Officials at
MindSpring and AT&T declined to comment.

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