FCC Eases Some Restrictions on AT&T;’s Bid to Acquire MediaOne

Federal regulators, saying they want to promote local telephone competition and increase consumer access to high-speed Internet service, lowered on Friday the regulatory obstacles to AT&T; Corp.’s $50-billion acquisition of cable giant MediaOne.

The deal still faces significant restructuring. And the Federal Communications Commission won’t implement its new rules until sometime next year after a federal court resolves a lawsuit challenging such regulations.

But the FCC handed AT&T; and other big cable companies a significant win Friday, ruling that they can reach a far larger cable audience and make certain financial investments that are prohibited under current FCC rules.

“Today’s decision makes it clear that the FCC is trying to find a way to allow AT&T; to purchase MediaOne,” said John Corcoran, a cable TV analyst in the Boston office of the investment firm Stephens Inc. “Does the decision get AT&T; where it needs to be? No. But this is a big win for AT&T.;”

AT&T; general counsel Jim Cicconi concurred, saying in a statement that “the FCC rules today offer us a path to provide consumers a choice in local phone service through our cable acquisitions, including, upon approval, MediaOne.”

AT&T; has undertaken a series of deals with the cable industry, in addition to the MediaOne acquisition, as a means of offering local telephone, Internet and other advanced communication services nationwide.

The vote on cable ownership rules highlights a crucial industry battle over how best to stimulate local phone competition and speed the deployment of high-speed Internet access and other advanced services to consumers.

Some municipalities and consumer groups had urged the FCC not to tinker with its 7-year-old cable ownership rules. They said the expected entry of the regional Bell phone companies into the long-distance market will provide sufficient motivation for AT&T; and other carriers to respond by offering local telecommunications services.

But AT&T; argued that it needed the market share and modern equipment of MediaOne to make the multibillion-dollar investments necessary to transform its cable holdings into a nationwide, high-speed digital network that can compete against the regional Bells.

AT&T; got some of what it wanted Friday.

The FCC relaxed its rules restricting cable ownership, allowing operators to reach 30% of both cable subscribers and satellite broadcast subscribers. Previously, they could only reach up to 30% of homes passed by cable. As a result of the change, AT&T; now can reach 24 million homes, significantly more than under the old rules.

The FCC also voted to modify so-called ownership attribution rules that count cable subscribers served by limited partnerships that involve a 5% or greater voting stake.

The aim of the rule changes, explained FCC Chairman William E. Kennard, is to “keep cable in check in their core business while still giving them room to compete in other services.”

The changes still leave the AT&T-MediaOne; deal a long way from meeting regulatory muster. (If a deal were consummated today, AT&T; would have control over more than half of the nation’s cable subscribers, experts say.)

AT&T; will probably have to sell some cable systems or restructure MediaOne’s investment in a partnership with Time Warner, the nation’s second-largest cable operator, because it creates video programming.

What’s more, AT&T; remains under attack from online firms such as America Online Inc. to open its high-speed cable lines to all Internet service providers. AT&T; has said open access would prevent it from recovering its huge investments in building a high-speed network.

The FCC vote is also clouded by a Time Warner and Daniels Cablevision lawsuit challenging the FCC’s original cable TV ownership rules.

U.S. District Court Judge Thomas Penfield Jackson struck down the rules, saying they abridged the First Amendment rights of the cable companies. But the judge stayed his decision pending an appeal of the case.

The FCC likewise agreed to delay both the original rules as well as the revised rules passed Friday until the dispute is resolved.