AT&T; to Spin Off Liberty to Satisfy MediaOne Conditions

AT&T; Corp., the largest U.S. cable-television company, decided to split off Liberty Media Corp. and other TV-programming units to satisfy regulatory conditions from its $44-billion purchase of MediaOne Group Inc.

AT&T; said it picked the spinoff of the unit run by cable pioneer John Malone from three options to meet U.S. limits on cable ownership. If the transaction fails to win a favorable tax ruling, AT&T; will use a second option--sale or creation of a trust for its 25.5% stake in Time Warner Entertainment, which it has tried to sell to Time Warner Inc.

The MediaOne purchase, part of Chairman C. Michael Armstrong’s strategy to use cable-TV lines for phone service, pushed AT&T; over the U.S. ownership limit of 30% of pay-TV homes. The Federal Communications Commission gave AT&T; until May 19 to comply and until Dec. 15 to pick from the three options.

The announcement is aimed at meeting a commitment AT&T; made when it bought MediaOne and lets the company keep control of the cable systems and subscribers. The government imposed the conditions to make sure AT&T; doesn’t have a stake in programming divisions while also owning the cable lines that distribute programming.

AT&T; challenged the FCC’s cable-ownership limit in court and in Congress, so far without success.

The third--and least appealing--option was for AT&T; to cut by 9.7 million the number of homes its cable systems reach, to remain under the 30% limit.

Shares of AT&T; fell $1 to close at $21 on the New York Stock Exchange, and have declined 39% since the MediaOne transaction June 15.

In addition to Liberty Media, AT&T; said it would either sell smaller programming units serving Time Warner Entertainment, or reduce its control over those interests. Those include a stake in Cablevision Systems Corp.’s Rainbow Media, general counsel Jim Cicconi said in a letter to the FCC.

AT&T;’s board last month voted to spin off Liberty Media if the Internal Revenue Service rules that it won’t have to pay taxes. A taxable Liberty spinoff likely would cost more than $2 billion.