Washington -- The Federal Communications Commission adopted
new cable-ownership rules last Friday that could force AT&T Corp. to unload cable
systems or divest Liberty Media Group in order to acquire MediaOne Group Inc. without any
In a 5-0 vote that included partial dissents, the FCC ruled
that AT&T could serve no more than 24 million cable subscribers, or 30 percent of all
subscribers (80 million) to multichannel-video distributors.
After buying MediaOne and its 25.5 percent stake in the
Time Warner Entertainment limited partnership, AT&T would have an attributable
ownership stake in 29 million subscribers.
AT&T could get to 19 million subscribers -- and, thus,
have room to grow under the new rules -- by divesting Liberty. Even though the FCC tweaked
its limited-partnership rules, AT&T's ownership of Liberty appears to make TWE a
noninsulated limited partnership under the new rules, an FCC source said.
Selling its one-third stake in Cablevision Systems Corp.,
with 3.4 million subscribers, would put AT&T at 25.6 million subscribers, or 1.6
million above the new cap.
Nevertheless, AT&T general counsel James Cicconi said
AT&T was confident that it could show the FCC that TWE was not attributable because
AT&T would not tell Time Warner Cable which programming to buy.
"We are fairly comfortable that we can make that
demonstration," Cicconi said. "There are provisions there intended to insulate
AT&T's trump card in all of this is the claim that it
does not own Liberty -- a subsidiary controlled by chairman John Malone and other
According to one Washington cable attorney, it appeared
that AT&T's best and most likely option is to divest Liberty. "That would appear
to be the solution," the lawyer said.
A second lawyer added, "I think they have left the
door open for the AT&T-MediaOne deal to be consummated," without AT&T having
to sell its stake in TWE.
AT&T chairman C. Michael Armstrong told reporters last
Friday that the FCC's moves won't interfere with closing the MediaOne deal in the first
quarter of next year. "The new cap permits us to proceed with the MediaOne
deal," he said.
AT&T lobbied hard for a 35 percent cap (28 million
subscribers) to avoid any serious restructuring, and almost got it, FCC sources said. But
the tide turned at the last minute.
Armstrong and Cicconi said it was likely that the company
would fight the 30 percent cap first at the FCC, and later in court, if necessary.
FCC chairman William Kennard said the rules applied to
cable operators in the context of video programming. The 30 percent cap would not apply to
cable operators that form joint telephony ventures, commission sources said.
Kennard said the FCC wanted "to keep big cable in
check while still giving them room to grow and compete in new areas -- and
particularly to compete against the regional Bell operating companies when it comes to
AT&T and the National Cable Television Association
issued statements expressing disappointment.
The FCC's decision is largely academic. The agency has
never enforced its old rules, and it declined last Friday to endorse the new ones while
the case challenging the constitutionality of the underlying statute is still on appeal in