FCC Report Blesses Big Deals — with Reservations

Cable World, May 1, 2000 by K.C. Neel

FCC staffers are recommending that commissioners OK the mergers between AT&T Corp. and MediaOne Group as well as the union between CBS Inc. and Viacom Inc. -- that is, as long as the companies divest certain assets.

The AT&T and MediaOne deal -- originally valued at $58 billion -- would create the nation's largest MSO, and for that reason, critics have complained the combined firm will have too much clout in determining what programming reaches consumers' homes. In addition to the 16 million homes AT&T will control -- not including the Time Warner Entertainment assets -- Ma Bell wholly owns Liberty Media Group as well as a significant chunk of Cablevision Systems Corp.'s Rainbow Media Holdings.

The FCC staff report suggests AT&T divest Liberty, Rainbow or its 25.5% stake in TWE. The commissioners could vote on the issue at their May 15 meeting, although some insiders think a ruling could come sooner. The staff reports also give AT&T a year to come into compliance with the rules, less than the 18 months asked for by the companies.

Although Liberty chairman John Malone told analysts last month he's happy to stay within the AT&T fold, some insiders believe he'd love to move away from home because it would give Liberty more flexibility to use its various assets as securities. Malone won't want to spin off Liberty unless it can be done tax-free. That either requires a waiver from the Internal Revenue Service or forces AT&T to wait another year, according to tax laws.

FCC commissioners last week also OK'd the CBS/Viacom union. Both deals require the approval of the Justice Department.

Last week, consumer groups and independent companies urged the FCC to prohibit AOL from buying Time Warner unless the companies undertake a massive restructuring.

The consumer groups -- Consumer Union, Consumer Federation of America, Media Access Project and Center for Media Education -- believe the new company could squelch Internet competitors and would be a bit too connected to another cable giant -- AT&T.

Among the recommendations: divest AOL's investment in DirecTV and sell Time Warner's stake in Road Runner.

The consumer groups are also concerned about the AT&T/MediaOne merger. They maintain the combined unit will be too closely aligned with AOL Time Warner since it would own a 25.5% stake in TWE. Liberty Media, owned by AT&T, also holds a 9% stake in Time Warner Inc. That partnership creates an anti-competitive connection between the two companies, the consumer groups allege.

MediaOne, which had earlier agreed to sell its 14 million shares in Time Warner Telecom and has proposed what it calls several safeguards to eliminate any anti-competitive activities, amended its filing last week, now saying it will only sell 9 million shares. That would leave MediaOne with a 5.5% stake in the unit. It was unclear last week whether regulators would balk at the changes since the company agreed to sell the shares to secure approval of its sale to AT&T.

Other businesses worry that AOL-Time Warner will close off its system in other ways, like through its popular instant messaging service.