Kennard Leans Vs. Unbundling

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Washington -- If FCC chairman William Kennard gets his way,
the Federal Communications Commission will approve AT&T Corp.'s acquisition of
Tele-Communications Inc. without mandating equal access to the company's high-speed
Internet-access facilities.

An FCC source said Kennard's current view is that he
is "leaning toward" approval without the unbundling requirement.

"I think that it makes more sense to look at
[unbundling] in the context of the cable industry as a whole, rather than in the context
of the merger," an FCC source familiar with Kennard's thinking said.

That outcome would be a major setback for America Online
Inc. chairman and CEO Steve Case. He personally lobbied Kennard and stirred policymakers
with fears that AOL customers would be forced to pay unnecessary buy-through charges to
the AT&T-TCI-owned Internet-service provider in order to reach their online and ISP
choice -- namely, AOL.

Kennard's posture will undoubtedly come as welcome
news to TCI president and chief operating officer Leo J. Hindery Jr., who proclaimed last
month that FCC-imposed unbundling of TCI's @Home Network Internet-access service
would torpedo the merger.

According to an FCC source, Kennard is apparently not
persuaded that an unbundling edict related specifically to the AT&T-TCI merger is a
prudent step.

"Maybe we will get some push back on it," an FCC
source said. "I don't know where the other offices are."

FCC sources said the agency will act on the merger before
the end of March, even though Kennard said two weeks ago that the commission might need
until the end of June.

A cable-industry source said AT&T president John Zeglis
visited with Kennard Jan. 11. Kennard, the source said, indicated that the FCC could act
on the merger by mid-February.

However, the source said, Kennard did not make any promises
on the unbundling issue.

"But I think that everyone is feeling good. I think
that the [Department of Justice] action gave Kennard cover," the cable source said.

Two weeks ago, the DOJ approved the merger without any
conditions related to Internet-access protections for competitors to @Home.

Another FCC source cautioned that the unbundling issue was
still under discussion among senior staff members.

"I couldn't even give you a
which-way-the-wind-is-blowing idea," the FCC source said.

Nevertheless, Kennard, a Democrat, would likely have little
trouble persuading Republican commissioners Harold Furchtgott-Roth and Michael Powell to
postpone the unbundling debate.

"I think [that Kennard's] got the votes," a
cable-industry source said.

However, an FCC source said Kennard's views on forced
unbundling could change based on the results of further FCC study of the issue.

In that case, an FCC unbundling mandate might reach beyond
a post-merger AT&T-TCI: It could impact all companies with cable systems that offer
high-speed transport and Internet access on an integrated basis and that do not provide
equal access to unaffiliated online services and ISPs.

At its Jan. 28 meeting, the FCC is expected to adopt a
report that addresses the unbundling issue. But FCC sources said the report will likely
announce that the agency is seeking further comment from interested parties.

That has been AT&T's position in attempting to
fend off AOL in connection with possible FCC merger conditions.

"We are hoping that this is where the commission is on
this," said Wes Heppler, a Washington, D.C., cable attorney who is representing TCI
before the FCC. Heppler said the companies believe that Internet-access unbundling should
be "handled globally, not transactionally."

The report, required under the Telecommunications Act of
1996, will evaluate the extent to which the public has access to advanced
telecommunications services.

Kennard said two weeks ago that Americans need to connect
to the Internet at speeds 1,000 times faster than they currently receive.

In that regard, the FCC is also expected Jan. 28 to allow
the five Baby Bells to provide high-speed-data connections over long-distance wires on an
unregulated basis. However, the FCC is expected to require the Bells to establish their
data companies as separate subsidiaries -- a condition that they oppose.

With the preparation of the report and the review of the
AT&T-TCI merger coinciding, FCC sources said it would look strange for the agency to
say in January that it needs to analyze unbundling in greater detail, then to turn around
a few weeks later and tell AT&T that its merger with TCI won't be approved unless
it unbundles @Home.

One FCC source said it was possible that Kennard was
steering clear of the unbundling issue for now in response to deregulatory-minded House
communications-policy leaders who have put FCC reform near the top of their 1999 agenda.

The source said the FCC was considering recommending the
passage of a new law -- modeled after Vice President Al Gore's Title VII proposal in
the first term of the Clinton administration -- that calls for minimal federal regulation
of providers of "advanced telecommunications services."

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