FCC Rules Unclear for Comcast-AT&T


By Comcast Corp.'s reckoning, its proposed merger with AT&T Broadband
would give the newly formed cable giant 22 million subscribers, equaling 32
percent of all U.S. cable subscribers and 25 percent of all U.S. subscribers to
pay TV.

In a letter to AT&T Corp. chairman C. Michael Armstrong released Sunday
night, Comcast said it was prepared to sweeten its $58 billion offer by issuing
more stock and debt to acquire AT&T's minority interests in Time Warner
Entertainment, Cablevision System Corp. and cable programmer Rainbow Media
Holdings Inc.

The U.S. has 87.5 million pay TV subscribers, with 68 million served by
cable-system operators. In buying 13 million AT&T Broadband subscribers,
Comcast would become the nation's No. 1 cable operator, giving it about 10
million more than No. 2 MSO AOL Time Warner Inc.

If Comcast acquires AT&T Broadband and the other cable interests, the
Philadelphia-based MSO could end up with a financial interest in cable systems
serving 41.7 million cable subscribers, or 61 percent of all cable subscribers
and 48 percent of all pay TV subscribers.

But that calculation would depend on how Federal Communications Commission
ownership rules counted cable subscribers. FCC rules, which could have a large
impact on the deal's outcome, are up in the air due to a court setback in

'We are confident that the combination does not present any significant
regulatory issues,' Comcast told Armstrong in the two-page letter signed by
Comcast chairman Ralph J. Roberts and president Brian L. Roberts.

According to Comcast, the two companies had been negotiating for months, but
the failure to come to terms prompted Comcast to make an unsolicited offer as
AT&T prepared to begin its planned spinoff off the cable unit.

In a statement released to news agencies Sunday, AT&T acknowledged talks
with Comcast but declined to accept the current offer.

'We have no current plans to sell our broadband business, including this
transaction proposed today by Comcast. We will analyze their proposal and
respond in due course. We have recently had some conversations with them, but no
agreements have been reached,' AT&T said.

A Comcast-AT&T Broadband merger would undoubtedly involve the transfer of
FCC licenses, triggering the need to gain the agency's approval. The deal would
also have to be cleared by federal antitrust enforcers -- either the Department
of Justice or the Federal Trade Commission.

The deal is also likely to come under close review on Capitol Hill. Last
month, Democrats regained control of the Senate, putting Sen. Ernest (Fritz)
Hollings (D-S.C.) in charge of the Senate Commerce Committee. Hollings is a
vocal critic of excessive concentration in mass media.

The five-member FCC is led by Republican chairman Michael Powell. In numerous
public statements, Powell has promised to speed the merger-review process and to
hold companies accountable to FCC rules currently on the books and not force
them to comply with conditions that don't apply generally to industry peers and

With the swearing-in of FCC member Kevin Martin last week, the agency fell
under GOP control for the first time since 1993.

FCC rules once blocked a cable company from serving more than 30 percent of
pay TV subscribers, which covers subscribers to cable, direct-broadcast
satellite and other multichannel-video providers. But the cap was tossed out
March 2 by a panel of the U.S. Court of Appeals for the District of Columbia
Circuit. The FCC, declining to appeal, is in the process of rewriting the

'We are currently working on reviewing the rules and consider it a priority,'
an FCC source said Monday.

The commission could take months to craft new cable-ownership rules. It could
approve a Comcast-AT&T deal while putting the company on notice that it
would have to comply with the new rules.

In a conference call with reporters Monday, Brian Roberts said the merger
would not run afoul of the 30 percent cap were it still in existence. 'We are
below a cap that is no longer operative,' he added.

The D.C. Circuit also tossed out a rule that forced AT&T to add 11.36
million cable subscribers to its ownership totals mainly because of its 25
percent interest in TWE. The FCC said the two companies had to be viewed as one
under the rules because AT&T owned programming networks that sold services
to the TWE partnership.

In a June 29 FCC filing, AT&T said that because the court barred the TWE
interest from being counted, AT&T Broadband had 21.9 million cable
subscribers, and not 33 million, under FCC rules.

Comcast said in the letter to Armstrong that its initial
proposal called for acquiring 13 million AT&T Broadband subscribers and
combining them with Comcast's existing 8.5 million-subscriber base, giving the
new company 22 million subscribers.