Consumer Groups Attack AT&T Merger

Author:
Updated:
Original:

Washington -- Consumer organizations last week called on
federal regulators to block AT&T Corp.'s acquisition of MediaOne Group Inc.,
claiming that the combination would violate antitrust laws by giving AT&T access to 60
percent of U.S. homes.

The groups took shots not only at AT&T, for its $120
billion spending spree on cable systems, but also at the Clinton administration for its
apparent unwillingness to stop large phone and cable mergers.

Gene Kimmelman, Washington-office co-director of the
Consumers Union, called the cable merger a "blatant" violation of antitrust laws
because too large a number of U.S. homes would be "subsumed under the AT&T cable
monopoly."

Consumer groups and AT&T are at odds over the proper
method of calculating homes passed by a cable operator when the operator has 100 percent
control of some systems and minority stakes in others.

The Media Access Project and the Consumer Federation of
America endorsed the Consumers Union's effort, calling on the Federal Communications
Commission and the Department of Justice to intervene.

The three groups, all based here, also announced two other
moves, both directed at the FCC.

First, they asked the agency to revive rules that bar a
cable operator and its affiliates from controlling systems that pass more than 30 percent
of U.S. households.

The FCC stayed the rules in 1993, after a U.S. District
Court judge held that the provision of the 1992 Cable Act that authorized the FCC to adopt
those rules was unconstitutional. A federal appeals court here is scheduled to hear oral
arguments in the long-running case Dec. 30.

MAP president Andrew Jay Schwartzman said the judge did not
bar the FCC from enforcing its horizontal-ownership rules while the constitutional
challenge to the statutory provision was pending appeal.

Second, they requested that the commission dismiss the
AT&T-MediaOne merger applications because AT&T failed to comply with an FCC rule
that required it to file a notice with the agency that its acquisition of MediaOne would
likely breach the 30 percent barrier.

"We are doing this for one simple reason: The
AT&T-MediaOne merger is a blatant violation of our nation's antitrust laws, our
nation's competition laws and the [FCC's] rules to promote diversity of
ownership," Kimmelman said at an Aug. 17 press conference.

Among other things, AT&T is asking the FCC to approve
the $56.4 billion merger as the long-distance giant's best hope of providing
competition to the Baby Bells for local phone customers.

Kimmelman and CFA research director Mark Cooper said it was
unreasonable to allow AT&T to dominate the cable industry in exchange for promises of
local phone competition.

AT&T spokesman Jim McGann took issue with charges that
the deal had anti-competitive effects.

"It's rather surprising to see consumer leaders
criticizing a merger that is so clearly going to benefit consumers -- by that, I mean
offering all consumers a choice in telephone service," McGann said.

AT&T claimed that FCC rules incorrectly assume that
AT&T can control other cable operators in which it has minority positions, adding that
the FCC's ownership-attribution methodology distorts its size and influence.

McGann called the 60 percent household-reach assertion by
the consumer groups "an inflated figure that is flat-out wrong."

Upon completion of the MediaOne deal, AT&T said, it
will wholly own systems with 16 million subscribers in markets representing 25 percent of
U.S households.

But Cooper stood by the 60 percent figure: "It's
fracturing the rules. It's not even close," he said.

On whether AT&T had failed to notify the FCC that it
was exceeding the 30 percent cap, McGann said the groups were misinformed about the timing
of such a filing. "I think they have got their facts wrong. Nothing's due when
you file a [merger] application. It's due prior to closing," he added.

The groups also claimed that AT&T -- through its
ownership of Liberty Media Group and its 25.5 percent stake in Time Warner Entertainment
(which includes Home Box Office and the Warner Bros. studio) -- would exercise too much
control over the programming market.

And they voiced concerns about third-party Internet-service
providers gaining fair access to AT&T's cable-modem platform.

Washington Research analyst George Reed-Dellinger said he
doubted that the groups would prevail.

"Consumer groups have to be in front of the
regulators, but I think you have to discount what they say," he said.
"Typically, the numbers that they trot out, you have to cut in half and cut in half
again."

Reed-Dellinger was picking up on AT&T's point that
all of its cable systems' subscribers should not be fully attributable to a minority
investor.

DOJ spokeswoman Gina Talamona said her agency "was
looking at the merger," but she declined to say anything more.

Tom Power, a senior adviser to FCC chairman William
Kennard, promised that the commission would review the filings. "Press conferences
certainly don't have an effect on us, but their filings we will consider," he
said.

Related