AT&T Gets Conditional Approval for MediaOne Merger

SAN FRANCISCO (06/05/2000) - The U.S. Federal Communications Commission (FCC) gave a conditional approval today for AT&T Corp.'s proposed multibillion dollar merger with cable television and Internet access provider MediaOne Group Inc.

As expected, terms of the approval require AT&T to divest certain programming assets in order to comply with the FCC's "horizontal ownership" rule, which prohibits a single company from serving more than 30 percent of the nation's cable television and direct broadcast satellite subscribers.

AT&T already owns cable television giant Tele-Communications Inc. (TCI).

Without making any divestitures, a merged AT&T-MediaOne would serve 34.4 million subscribers, or almost 42 percent of the U.S. market, the FCC said.

"All of us at AT&T are delighted with today's decision by the FCC," Jim Cicconi, AT&T's general counsel, said in a teleconference this afternoon. "We felt from the time we entered into this transaction that it was an important part of our strategy overall to bring cable and advanced telephony services to customers across the country."

The FCC's approval clears the last major regulatory hurdle to the merger, which will make AT&T the largest cable operator in the U.S. AT&T hopes to close the deal by the first week in August, Cicconi said.

AT&T first announced its plan to acquire MediaOne in May of last year in a transaction then valued at US$58 billion. Comcast Corp. at one time had also been in the running, but dropped out, leaving the field clear for AT&T. [See "Comcast to End MediaOne Bid, Agrees Deal with AT&T," May 5, 1999.]AT&T has six months from the date its merger with MediaOne closes to decide which of its programming interests it will divest in order to bring itself into compliance with the 30 percent rule. The divestiture must be completed by May 19, 2001 -- one year from the date when a U.S. court of appeals upheld the constitutionality of the 30 percent rule.

The U.S. carrier faces three divestiture choices, according to the FCC. AT&T can divest MediaOne's 25.5 percent interest in Time Warner Entertainment LP (TWE); insulate its ownership interest in TWE by ending its involvement in TWE's video programming activities, which would entail selling AT&T's programming interests, including Liberty Media Group; or divest ownership interests in other cable systems serving a total of more than 9.7 million subscribers nationwide. The merged AT&T, MediaOne firm must inform the FCC by March 19, 2001, which of the divestiture options it has chosen to pursue.

AT&T wouldn't be drawn today on which of the options it might choose.

"I'm not ruling out any of the three options here," AT&T's Cicconi said.

In approving the merger, the FCC said the combination of AT&T and MediaOne's cable and telephony assets would help increase local telephony and Internet access competition through cable television networks. In the area of broadband, the FCC noted that it expects AT&T to fulfill its voluntary commitments to give unaffiliated ISPs (Internet service providers) access to its cable systems to provide competing broadband services to consumers.

The FCC also noted that AT&T has entered an agreement with the U.S. Department of Justice (DOJ), which gave its blessing to the merger with MediaOne two weeks ago. The DOJ requires the merged firm to divest its interest in the cable broadband ISP Road Runner, and to obtain the department's approval prior to entering into certain types of broadband arrangements with Time Warner Inc. and America Online Inc. (AOL).

The conditions laid out by the FCC today didn't entirely satisfy the openNet coalition, an advocacy group representing some of the largest ISPs in the U.S.

OpenNet applauded the FCC's concern for equal access to cable networks, but said it was disappointed the agency hadn't made the so-called "open access" provision a binding requirement to the proposed merger.

"Today's FCC decision continued to leave open access to the discretion of the cable industry," Greg Simon, codirector of the openNet coalition, said in a statement. "By the time the FCC determines if AT&T has fulfilled its vague voluntary commitments on open access, it may be too late to offer customers meaningful choices for cable Internet services."

AT&T, in Basking Ridge, New Jersey, can be reached at +1-908-221-2000 or http://www.att.com/. The FCC, in Washington, D.C., can be reached at http://www.fcc.gov/.

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