DBS license at issue as BT enters picture

WASHINGTON — MCI, the long distance telephone company, officially notified the FCC on Tuesday of its plans to merge with British Telecom.

In light of MCI’s pending engagement to BT, the Clinton administration told the Federal Communications Commission last week that it reserved the right to comment on the telco’s pending DBS application. The Clinton administration letter was signed by officials from three different executive branch agencies: the Commerce Dept., the office of the U.S. trade representative and the State Dept.

Cablers take stand

The administration’s interest in the matter comes on the heels of an effort led by Time Warner to discourage the FCC from granting MCI the DBS license. Time Warner, along with other cable industry companies including Cox Communications, argued that MCI should not be allowed to own the license under U.S. foreign ownership rules. Fox is counting on the MCI satellite to launch its ASkyB DBS service.

Despite such opposition, the FCC is likely to award the license to MCI by the end of the month, sources said. MCI bid $682.5 million at a government auction for the DBS slot last January and rejection of the telco as a qualified licensee could throw the whole auction process into question, sources said. Since the FCC has raised more than $20 billion in spectrum auctions, the last thing the agency wants to do is taint its own cash cow.

One source familiar with the issue suggested that the administration’s letter is an indication that the FCC will award the DBS license soon and will “tackle the more difficult issues later on.” Those difficult issues may include a decision on whether MCI should be forced to divest all or part of its interest in the DBS satellite due to U.S. foreign ownership restrictions.

Ownership waiver

Telephone companies and broadcasters are subject to complex foreign ownership restrictions under U.S. law. MCI, which is currently 20% owned by BT, already enjoys a foreign ownership waiver allowing foreigners to own up to 35% of the company.

Since it plans to use its satellite license to offer subscription TV services, MCI argues that the DBS satellite does not fall under the foreign ownership restrictions for broadcasters. But the administration indicated in its letter that it will take a close look at any ownership change that involves another nation. It told the FCC it wanted to reserve the right to make recommendations on the merger application, “particularly if the transfer or assignment involves foreign entities, and notwithstanding the regulatory classification of the DBS licensee.”

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