At&T Presses Fcc On Twe Sale

Television Digest with Consumer Electronics, Oct 16, 2000

Frustrated by its failed talks with Time Warner (TW), AT&T is seeking either regulatory relief or help in shedding its 25.5% stake in Time Warner Entertainment (TWE). AT&T, which is weighing TWE sale as one of 3 options for complying with FCC's conditions on MSO's earlier purchase of MediaOne Group, is quietly lobbying Commission for assistance as its deadline for choosing option approaches in 2 months. In ex parte filings with agency released Oct. 10, AT&T Exec. Vp-Gen. Counsel James Cicconi disclosed that he spoke on phone twice recently with Kathryn Brown, chief of staff to FCC Chmn. Kennard, to discuss his company's unsuccessful efforts to sell its TWE interest back to TW. Cicconi also warned that AT&T might not be able to sell its TWE stake to public before Commission's May 19, 2001, deadline for coming into compliance and hinted that regulators might have to step in. "In the absence of a negotiated settlement between the parties, which appears unlikely, the only alternatives to the uncertainties created by the registration rights process would be an obligation on both parties to ensure the fair and timely termination of the partnership," Cicconi wrote.

Move came as lawmakers and regulators weighed imposing conditions on pending AOL acquisition of TW that would force combined company to sever its ties with AT&T, nation's leading MSO. In latest action, Senate Judiciary Committee Chmn. Hatch (R- Utah) wrote FTC Chmn. Pitofsky late last month, urging his agency to analyze "the potential for anticompetitive conduct" in ownership links between AT&T and TW. "I respectfully ask that the Commission carefully consider whether a fair and expeditious resolution of the TWE partnership between AT&T and Time Warner would be in the best interest of competition and consumers in light of the proposed AOL-Time Warner merger," Hatch wrote. "This would ensure that consumers benefit from the robust competition that will result once these two companies' shared economic and operating incentives are separated."

AT&T's move also came as AOL and TW officials stoutly defended TW's links to AT&T and contended that regulators should not intervene. In recent 13-page letter to FCC, companies argued they shouldn't have to sever ties with AT&T because regulators already had addressed issue in MediaOne transaction. They also said AOL-TW deal wouldn't change those ownership interests because there were no links between AOL and AT&T. "This merger creates no new AT&T link to Time Warner, and the addition of AOL does nothing to affect the preexisting -- and FCC-approved -- AT&T ownership interests in TWE," letter stressed (TVD Oct 9 p2).

AT&T executives declined last week to say much more about their lobbying efforts. "We recognize that the addition of AOL to the cable partnership raises regulatory concerns," AT&T official said. "The FCC discussions and the Hatch letter are byproducts of that concern." TW spokesman said merely that "our conversations with AT&T are ongoing."

However, industry observers said AT&T's lobbying drive clearly was attempt to boost its leverage in flagging negotiations with TW and to win higher price for its TWE stake. Thanks to TW's having edge in bargaining because it doesn't need to buy back stake, they said, companies have remained as much as $16 billion apart in price, with AT&T reportedly seeking as much as $20 billion and TW offering as little as $4 billion. Analysts have valued stake at about $12 billion. "Inertia's not getting it done," Precursor Group CEO Scott Cleland said.

Analysts said TWE's sales price was particularly key right now because AT&T, plagued by faltering share price, could use cash infusion to cut its debt load and boost its stock's prospects. On other hand, purchase of TWE stake potentially might force TW to add debt, hurting its stock. "TWE is dead money for AT&T," Cleland said, noting that MSO had no management control over stake. But, he said, "AOL-Time Warner likes the use of AT&T's cash with no exit."