FCC Concerns: Data, Programs

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Washington -- The Federal Communications Commission's
review of AT&T Corp.'s merger with MediaOne Group Inc. is kicking into high gear,
with the agency asking some pointed questions about ownership stakes in cable programmers
and two high-speed Internet-access firms.

The FCC's questions included a request for AT&T to
document in detail its ownership ties to Liberty Media Group and to disclose whether
AT&T plans to combine its holdings in data-over-cable providers Road Runner (obtained
in the MediaOne deal) and Excite@Home Corp., or shed one of the stakes.

A cable-industry source said AT&T has outlined its
relationship with Liberty, a programming subsidiary controlled by John Malone, on more
than one occasion, and the company was not prepared to address the structure of future
investments in Road Runner and Excite@Home at this time.

AT&T wants the FCC's permission to gain control of
MediaOne's 5 million subscribers. MediaOne owns 25.5 percent of Time Warner
Entertainment, a limited partnership that serves about 9.7 million cable subscribers and
that also owns programming assets such as Home Box Office. MediaOne also owns a piece of
Road Runner.

On Nov. 3, the FCC sent both AT&T and MediaOne letters
seeking information on a wide range of topics. The commission said it wanted to have
replies in hand no later than Nov. 24.

The FCC's letter went out one week after the agency
notified AT&T that the company was required to demonstrate that its acquisition of
MediaOne would not violate recently adopted cable-ownership limits.

Under the new rules, a cable operator can't have an
ownership stake in systems that serve more than 24 million subscribers. After acquiring
MediaOne, AT&T would own about 29 million subscribers.

A cable operator can insulate a limited partnership from
the ownership rules by demonstrating that it is not "materially involved" in the
partnership's programming activities.

A cable-industry lawyer said AT&T will likely claim
that it complies with the ownership rules because it does not make programming decisions
for TWE, even though AT&T owns Liberty and TWE systems carry programming networks
controlled or partly owned by Liberty.

The lawyer added that it was unlikely that the FCC would
agree with AT&T's analysis, and agency sources have said that AT&T has a high
hurdle to clear to demonstrate that TWE is insulated.

The FCC is insisting that AT&T demonstrate compliance
with the rules after buying MediaOne, even though it is not enforcing the ownership cap
and it may never get the opportunity to enforce the cap if the courts continue to block
enforcement.

On the merger itself, the FCC asked AT&T to respond to
27 questions, some of them closely related to controversies that AT&T fell into as a
result of buying Tele-Communications Inc. in March.

For example, the agency asked to see a copy of
Excite@Home's 11-month-old agreement with video-streamer RealNetworks Inc. -- a
possible indication of concern that AT&T has designs on controlling video streaming
over the Internet.

In a related question possibly geared toward fears that
Excite@Home would discriminate against unaffiliated Internet-content providers, the FCC
asked AT&T to explain how Excite@Home "would use caching, blocking, or filtering
technologies to prioritize or block delivery of Internet content [for example, caching of
content provided by preferred vendors]."

The commission also asked about tax implications associated
with a possible spinoff of Liberty, and it asked AT&T to provide copies of agreements
with content and service providers for advanced digital set-top boxes.

AT&T spokesman Jim McGann said the company has a
meeting arranged with FCC officials to discuss the ownership-rules-compliance issue. He
added that he needed to consult with AT&T officials regarding the company's
response to the FCC's request for merger-specific information.

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