AT & T Must Divest Road Runner Stake

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Washington-As widely expected, the Department of Justice last week approved AT & T Corp.'s merger with MediaOne Group Inc. on the condition that AT & T divest its stake in high-speed Internet-access company Road Runner by Dec. 31, 2001.

Although the DOJ imposed several conditions on AT & T's future business dealings with America Online Inc. or Time Warner Inc. for two years, it did agree to allow AT & T to migrate MediaOne's 730,000 Road Runner subscribers to Excite@Home Corp., the high-speed Internet company controlled by AT & T.

The consent decree still needs the approval of a federal district court judge here. AT & T's last step before closing the deal is winning approval from the Federal Communications Commission-an action that has been held up by potential conflicts with the FCC's cable-ownership rules.

AT & T general counsel and executive vice president James W. Cicconi said in a prepared statement that he expects AT & T "to gain FCC approval of the merger shortly."

After buying 1.5 million-subscriber MediaOne, AT & T would assume MediaOne's 34 percent stake in Road Runner, in which Time Warner also has a 38 percent interest.

Together, Road Runner and Excite@Home have 90 percent of the high-speed Internet-access market, although that drops to below 5 percent if narrowband subscribers are included.

"The Road Runner divestiture is an obligation we always assumed we would face, and the decree proposes both a schedule and process that are fair and feasible," Cicconi said.

In a prepared statement, Joel Klein, the DOJ's top antitrust enforcer, said: "The merger, as proposed, would have had an anti-competitive impact on the emerging broadband market. The divestiture assures that AT & T will not acquire undue leverage in its dealings with broadband-content providers, and American consumers will be the ultimate beneficiaries."

The FCC has a rule that limits one cable company from owning more than 30 percent of pay TV subscribers. If AT & T's 25 percent investment in Time Warner Entertainment, which includes 9.4 million subscribers, is counted toward the cap, AT & T would be at about 40 percent.

The FCC and AT & T disagree on whether the TWE investment should be attributable to AT & T for purposes of calculating AT & T cable-subscriber totals.

In the consent decree, the DOJ said AT & T would be allowed to keep Road Runner assets "used exclusively to provide cable- modem service and broadband service to MediaOne customers."

For two years after AT & T divests Road Runner, the DOJ said, AT & T would need approval to enter a joint agreement with either AOL or Time Warner, which are merging, for the provision of residential broadband service to customers "in any geographic region."

The DOJ added that it would also need to approve any agreement that would "prevent" AT & T or AOL Time Warner Inc. from offering broadband service to customers.

Lastly, the DOJ said, AT & T would need clearance for any deal with AOL Time Warner that involved the exclusion of content from cable-modem service or that prevented either AT & T or AOL Time Warner from providing "preferential treatment to content provided by others."

"We're very pleased to have reached this major milestone in the MediaOne merger-approval process, and we look forward to closing the deal as soon as possible," Cicconi said.

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