AT & T's merger with MediaOne Group would win government approval under a plan presented to FCC commissioners Friday.
The plan, drafted by the agency's Cable Services Bureau, is likely to disappoint AT & T, which would be forced to divest one or two key operations it hopes to obtain in the deal. If the four other commissioners agree, FCC Chairman William Kennard hopes to put the merger approval to a formal vote at the commission's May 15 meeting.
To discourage divestiture, AT & T earlier last week proposed a list of safeguards to limit its involvement in a joint venture with Time Warner Inc.
AT & T pledges to stay out of the video programming decisions of Time Warner Entertainment (TWE), in which the telecommunications giant is acquiring a 25% stake through the merger. The plan goes so far as to require government approval for some board seats on subsidiaries.
Swaying the commissioners before next month's meeting is a tall order for AT & T, which has repeatedly argued that TWE subscribers should not count towards the company's national audience reach cap.
AT & T officials say the TWE partnership is a key component of the company's future-not to boost TV viewers but to corral the unit's 9 million-plus subscribers as cable telephony customers. True or not, that's a shrewd pitch on AT & T's part, because the FCC is eager to help the cable industry compete with local telephone monopolies.
AT & T's dilemma is a government rule limiting a cable system to no more than 30% of all U.S. multichannel subscribers. Equity stakes of 5% more in a cable operation cause all the system's subscribers to count toward the cap. Limited partnerships like TWE can be exempted from the tally but only if investors show they aren't involved in programming.
The cable industry has challenged the ownership cap in court, and a victory could jeopardize the FCC's power to force a divestiture. As a backstop, though, the Cable Bureau also raises concerns about market concentration as justification for asset sales.
The FCC is skeptical of AT & T's promise, because the telecom giant owns Liberty Media, which provides Time Warner with several top cable networks. AT & T's investment in Rainbow Media, which it holds through a 30% stake in Cablevision, also could trigger attribution of TWE subscribers.
If divestitures are ordered, AT & T almost certainly would ditch its partnership with Time Warner or sell its investments in Liberty and Rainbow.
Among AT & T's promises:
- No AT & T-appointed TWE directors will be involved in programming decisions, negotiating prices, setting schedules, marketing programming, setting programming budgets, selecting electronic programming guides, hiring and supervising employees, or evaluating programming service.
- AT & T's Liberty and Cablevision directors will have similar restrictions.
- AT & T's Liberty directors must be approved by the FCC.
- Liberty's other directors will be prohibited from talking with AT & T, except on questions of mismanagement or fraud.
- An independent auditor will be hired by AT & T to monitor compliance, with violations resulting in fines up to $100,000, repeated violations $250,000.
AT & T's pledges were dismissed by public advocates opposing the deal. "There's nothing new here," said Mark Cooper, research director for the Consumer Federation of America.