Deal furrows brows

Pols questions AT&T's move to buy MediaOne

WASHINGTON — AT&T may have pushed its way past Comcast in its quest to acquire MediaOne, but Republican legislators and Democratic regulators are turning up the heat on the $58 billion acquisition.

Senate Commerce Committee Chairman John McCain, R-Ariz., and Senate Antitrust Subcommittee topper Mike DeWine, R-Ohio, have each called hearings to examine the transaction, and FCC Chairman William Kennard said the deal deserves “very close scrutiny.”

In announcing his hearing, McCain suggested the deal is another piece of evidence supporting his view that the Telecommunications Act of 1996 has been a failure. “Rather than promoting competition in the industry, the act has led to a flood of mega-mergers,” he said.

The tone taken by regulators and legislators is distinctly different from that taken when AT&T announced its now-completed acquisition of Tele-Communications Inc. last June. AT&T hyped the transaction as a way to jump-start the almost nonexistent competition in the local telephone business and also to speed up the development of the Internet.

Regulators concerned

But this time, regulators seem worried that the purchase of MediaOne by AT&T will make the telco behemoth too big.

One of the first points of contention between Federal Communications Commission staffers and AT&T is just how big the telco-cable hybrid will be if the deal with MediaOne is consummated. FCC staffers say it will reach 66% of the country, but AT&T says it’s more like 25%.

At the heart of the disagreement is the question of how regulators should count AT&T’s minority stakes in other cable companies. The FCC says that if AT&T owns as little as 5% of another cabler, all of that company’s cable subs should be attributed to AT&T.

For instance, AT&T would gain a 25% stake in Time Warner Entertainment through its acquisition of MediaOne. But under the FCC’s interpretation, AT&T might as well own 100% of the company. AT&T’s Washington general counsel James Cicconi called the FCC’s ownership calculations “absurd on its face.”

Questions debated

Furthermore, the FCC makes decisions on ownership limits based on the number of homes with access to a company’s cable wires, not the number of actual subscribers. So, for example, Time Warner has approximately 13 million subscribers, but about 65% of the total homes passed by the cabler.

The entire issue is complicated by the fact that a federal court has thrown out the FCC’s current rule barring a company from owning cable systems that pass more than 30% of the country.

The negative signals sent by Washington were discounted by Cicconi, who said AT&T was “cautiously optimistic” that the deal would ultimately be cleared.

But based on its early reviews, the deal may take much longer to work its way through Washington, compared with the speedy 10 months it took the FCC and the Justice Department to clear AT&T’s takeover of TCI.