King County Rebels Vs. TCI Merger

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The government of King County, Wash. -- home to 100,000
Tele-Communications Inc. customers -- will likely deny AT&T Corp.'s request for a
transfer of the MSO's local franchise this week.

Despite the setback, cable attorneys doubted that the
holdout by a few towns would delay the closing of the TCI-AT&T merger.

By a 6-0 vote, the King County Budget and Fiscal Management
Committee has recommended that the full County Council reject the transfer, citing
AT&T's continuing refusal to open high-speed-data service @Home Network to area
Internet-service providers.

Conversely, Seattle was preparing last week to approve a
deal sending its 140,000 TCI subscribers to AT&T, while keeping ISPs off the
high-speed cable-modem platform.

Both communities will vote on their respective ordinances
tomorrow (Feb. 16).

In a prepared statement, AT&T said it was
"confused" at how the adjoining jurisdictions could be going "in such
dramatically different directions."

AT&T claimed that it offered both jurisdictions the
same commitments. These included: a pledge to compete in the local phone market; Internet
access at prices 33 percent below existing rates; assurances that it would not increase
rates for two years; and a promise that the city and county could revisit the ISP issue at
a future date.

Scott Morris, AT&T's vice president of external
affairs, said he was encouraged that the county had left the door open for future talks.

In making its recommendation, the King County Budget
Committee bypassed an earlier ordinance that would have approved a transfer if AT&T
agreed to open up its network.

Instead, it adopted a last-minute ordinance introduced by
chair Jane Hague and vice chair Greg Nickels, who argued that weeks of failed talks made a
denial a "more straightforward way of expressing" the county's position.

King County will join Oregon's Portland and Multnomah
counties as the only TCI jurisdictions to refuse to transfer their franchises due to the
ISP issue.

Morris conceded that "it's quite possible"
that King County will also become the third local government dragged into court by
AT&T. The long-distance carrier is already suing Portland and Multnomah counties.

"They told us early on that we have no authority to do
this, and that, 'If you do, we'll sue you,'" King County spokesman Jim
Buck said.

Buck added that not requiring equal access creates a
"de facto" monopoly for AT&T and TCI, since consumers who are attracted to
the speeds generated by cable modems will still have to pay extra to keep their existing
ISPs.

One observer called the battle little more than
"fighting the good fight," given the fact that early last week, AT&T was
within 34 of the 967 local authorizations that it needs to complete its acquisition of
TCI.

"Everybody else decided that it's a federal
issue," said Barry Orton, professor of telecommunications at the University of
Wisconsin-Madison. "The Department of Justice approved it, and the Federal
Communications Commission is about to approve it. What's left?

"Besides, trying to bar AT&T from owning a TCI
system is like saying, 'Don't paint my house. I like peeling paint.'"

Seattle, meanwhile, is dropping ISP access as a transfer
requirement in exchange for a reduction in the monthly cable bills of some 60,000
subscribers who were affected by TCI's failure to complete an upgrade of its system.

The arrangement takes $5 off the monthly charge, plus 50
cents for each month until the job is completed. TCI must also meet specific target dates
for its rebuild, or pay $100 per day for each customer that it falls behind.

In addition, the agreement allows Seattle to reopen the
equal-access issue.

"This puts the customer first, which is where we need
to be going," said Steve Kipp, TCI's director of communications.

The city's decision to settle was a disappointment for
the Citizens Telecommunications and Technology Advisory Board, a local cable-advisory
group that wants Seattle to demand open access as a condition for a transfer of its
franchise.

CTTAB chairman Anthony Williams confirmed that the group
has contacted volunteer cable-advisory groups in other communities about banding together
to promote equal ISP access.

"The Federal Communications Commission has heard from
the politicians, and it's heard from the business community," Williams said,
"but it hasn't heard from the public -- from the consumers of these
services."

Although TCI would be in "irrevocable material breach
of contract" should it close the AT&T deal without previous municipal transfers,
attorneys said it is doubtful that cities will launch revocation proceedings.

Attorneys called revocation a "near-nuclear"
remedy that ultimately would be more disruptive to consumers.

Lesser remedies are included in some franchises, from
liquidated damages accruing daily from the date of deal completion, to a city's
belated transfer; to a "holding-over" payment where a city could lay claim to
all revenue earned while the system operated without a transfer.

Those, too, are less likely than a city using the need for
a transfer as leverage to resolve long-simmering conflicts. For instance, the city and
county of Santa Cruz, Calif., used the transfer process to resolve rate and build-out
disputes with TCI.

The days when cities could actually affect a merger -- such
as the days of the Group W Cable breakup in the late 1980s -- are gone, city officials
said.

With today's mega-investments, "more companies
are just saying, 'We'll close around you,'" said municipal attorney
Bill Marticorena of Ruttan & Tucker.

Linda Haugsted contributed to this story.

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