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Eric Glick
If several consumer groups get their way, AT&T's Corp.'s pending acquisition to buy MediaOne Group will become a new test case of U.S. antitrust policy and may stir up a re-examination of the current cable ownership rules, rules that have been suspended for the last seven years because of litigation between regulators and the cable industry.
Indeed, saying that the merger violates antitrust laws, the Consumers Union, the Consumer Federation of America and the Media Access Project filed motions at the FCC and the U.S. Department of Justice to break up the pending deal.
Key to groups' concerns: An economic analysis by the consumer groups estimates that after the merger is completed, AT&T will pass about 55 million homes and have just short of 35 million subscribers. As such, the companies AT&T owns and in which it has invested, would control 57% of the cable universe.
Currently, the FCC has a cap limiting a company's share of total cable households at 30%, but the rule has not been enforced since 1993, when a federal court found them unconstitutional.
The commission recently filed an appeal of that ruling, and is planning to re-issue the rules at its Sept. 15 open meeting. In the meantime, executives from AT&T Corp. and MediaOne Group played down efforts by consumer groups last week to put a stop to their proposed $58 billion merger, saying the groups don't have a legal leg to stand on.
With such a large percentage of the market, AT&T could block new companies from getting into the cable business, which already suffers from inadequate competition and high prices, say the groups. They fear the company would be able to hike cable rates even more.
As part of their effort, the groups sent the commission a "motion to vacate" the self-imposed stay the FCC has set on its cable ownership rules, while it sent the Justice Department a letter requesting that it block the merger as a violation of antitrust measures, said Gene Kimmelman, co-director of the Consumer Union's Washington office.
The deal, Kimmelman said, is a "blatant violation of antitrust law," because essentially it'll reduce competition and diversity in the media.
For AT&T the story is different. "The figures they're using are flat out wrong," said Jim McGann, a company spokesman. He estimates that AT&T will pass only 26 million homes with systems it completely owns and controls. If the FCC were to count systems in which AT&T has a minority stake, McGann added, it would pass less than 35 million homes, which would still put it above the commission's threshold, but by only 10% at the most.
But MediaOne's stake in other cable companies complicates the formula. It has a 25% stake in Time Warner Entertainment, but McGann said once the merger is complete, AT&T won't have any management role in the company.
MediaOne's stake in Time Warner is only a pebble in the monolith that the consumer groups see as a result of a marriage between AT&T and MediaOne. They pointed out at a press conference last week that AT&T already has stakes in Lenfest Communications, Bresnan Communications and Peak Cablevision.
Media Access Project chairman Andrew Schwartzman said at the Aug. 17 press conference, "This is not just a dollars and cents issue. This is an issue of democracy (involving) the diverse ownership of mass media."
Schwartzman claimed that in their formal merger proposal to the FCC, AT&T and MediaOne never specified whether the combined company exceeds the 30% penetration rate, which makes the "application ... deficient on its face."
Schwartzman called the alleged lack of information an "attempt to blackmail the FCC."
Mark Cooper, the Consumer Federation of America's research director, called the proposed merger a "blatant and outright violation of (antitrust) policies," adding that the Justice Department has cited the cable industry as "the most persistent monopoly" in existence.
Cooper, who headed up the coalition antitrust documentation, said regulators shouldn't accept AT&T's claim that acquiring cable companies will put it in a better position to compete with the baby Bells because it'll use cable lines to offer voice service.
Indeed, Cooper said, the FCC and the Justice Department shouldn't accept the "promise of competition in one market for a monopoly in another. We don't think the promises are worth the costs."
But AT&T's McGann said that the company's acquisition of Tele-Communications Inc. last year is already proving to be a competitive boon for consumers because competing Bells are lowering their prices for digital subscriber lines where AT&T is offering cable modem service. "That's what consumer groups should be cheering," he said.
In May, regional telephone company Bell Atlantic chairman Ivan Seidenberg came out in opposition to the merger. For its part, AT&T has sought to block Bell Atlantic's $53 billion purchase of telephone company GTE.
Sprint Corp., the number three long-distance company, won't oppose the merger, but will ask the FCC to examine the issues of universal access to AT&T cable lines, the Washington Post reported last week.
AT&T is lobbying the FCC heavily to liberalize the industry's long- languishing ownership and attribution rules. It recently asked the agency to take at least three steps in the matter.
* Count only cable systems in which an MSO "actually does or could control programming" as an "owned" system.
* Include all video subscribers - that is, DBS and wireless customers, in the so-called penetration, or homes-passed, test.
* Significantly raise the 30% (ownership) limit.
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