FCC Approves AT&T MediaOne Merger

(June 5, 2000) The FCC conditionally approved AT&T's acquisition of cable company MediaOne. AT&T must reduce its share of MVPD subscribers to 30%. However, the FCC imposed no "open access" requirement.

The Federal Communications Commission (FCC) adopted a Memorandum Order and Opinion on June 5 which conditionally approved the transfer of licenses from MediaOne to AT&T.

On May 25, the Department of Justice's Antitrust Division, which conducted its own separate antitrust merger review, entered a proposed consent decree with AT&T, which requires the merged firm to divest its interest in the cable broadband ISP Road Runner and to obtain DOJ approval prior to entering certain types of broadband arrangements with Time Warner and America Online.

The FCC conditioned its approval on AT&T's divestiture of sufficient interests to come into compliance with the FCC's 30% horizontal ownership rule. This rule prohibits a single cable company from serving more than 30 percent of the nation’s multichannel video programming distribution (MVPD) subscribers, who are served primarily by cable television and direct broadcast satellite services. The FCC concluded that the merged firm without divestitures would have served 41.8% of the nation’s MVPD subscribers.

	Willam Kennard

FCC Chairman William Kennard issued a separate statement in which he elaborated on the order. "Within six months after closing its merger with MediaOne, AT&T must make an irrevocable election among three divestiture options in order to reduce their national subscribership to 30%. AT&T-MediaOne may choose to:

• divest their interests in Time Warner Entertainment;
• insulate their ownership interests in Time Warner Entertainment by ending involvement in Time Warner Entertainment’s video programming activities, which entails selling AT&T’s programming interests, including Liberty Media Group; or
• divest their interests in other cable systems, which involves divesting cable systems serving approximately 11.8% of cable and satellite subscribers nationwide (i.e., more than 9.7 million subscribers, which is more than half of AT&T’s current subscribers)."

While much of the criticism of the AT&T MediaOne transaction has focused on AT&T's acquisition of more cable subscribers, and its resulting share of the broadband cable Internet access market, the deal also enhances AT&T's prospects for competing with local phone companies in the provision of voice telephony.

One of the major goals of the 1996 Telecom Act was to increase competition in (and decrease prices of) local phone service. Since the Section 271 process has not had its intended effects on local competition, the FCC, as well as many Members of Congress, have come to view AT&T's cable as a viable platform for introducing competition with  RBOCs' copper wire in the local phone markets.

	Michael Armstrong

"This merger will mean a real choice and lower prices in local phone service, faster Internet access and better cable TV," said AT&T CEO Michael Armstrong in a press release. "For consumers, that’s a home run in any ballpark."

In contrast, several consumer groups have opposed the merger as currently structured, arguing that it will result in too much concentration in broadband Internet services. Gene Kimmelman, Co-Director of the Consumers Union (CU), criticized the FCC's order.

"In clearing the AT&T/MediaOne merger, the FCC has disregarded critical facts, its own rules and legal standards to help one giant cable monopoly expand its dominance over the cable television and broadband Internet markets," said Kimmelman in a press release.

"Rather than use its merger authority to protect the public against an expanding monopoly, the Commission has allowed AT&T to extend the reach of its cable and broadband Internet service monopolies and extended the time during which it can abuse consumers and harm potential competitors."

Kimmelman added that the CU "will seek to have the decision overturned in court as arbitrary and capricious" and will "Congress to restructure the FCC's authority".

The FCC also declined to impose any "open access" requirement upon AT&T. This is consistent with the FCC's order approving the AT&T TCI merger, as well as the position that it has taken in its amicus curaie brief in the AT&T v. Portland case.

William Kennard had this to say about "open access":

"In the broadband area, the FCC noted that it expects AT&T to fulfill its voluntary commitments to give unaffiliated Internet service providers (ISPs) access to its cable systems to provide broadband services to consumers. The FCC also noted that AT&T has entered a proposed consent decree with the U.S. Department of Justice, which requires the merged firm to divest its interest in the cable broadband ISP Road Runner and to obtain Justice Department approval prior to entering certain types of broadband arrangements with Time Warner and America Online. Given the nascency of broadband Internet services and growing competition from alternative broadband access providers, the FCC declined to impose additional conditions in this regard. The FCC emphasized, however, that it will scrutinize broadband developments closely and will review its policies if competition fails to grow as expected, especially if the merged firm fails to fulfill its commitment to open its cable systems or otherwise threatens the openness and diversity of the Internet."