• As a non-severable condition to granting the application, the FCC requires the applicants to complete one of the following options to reduce its attributable ownership interests to 30% of MVPD subscribers nationwide:
  • divest their interests in Time Warner Entertainment;

  • insulate their interests in Time Warner Entertainment (TWE) by ending involvement in TWE'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 MVPD subscribers nationwide (i.e., more than 9.7 million subscribers or more than half of AT&T's current subscribers).

• The merged firm must file with the Cable Services Bureau, within six months from the closing of the merger, a written document specifying which of the foregoing three compliance options it has elected to pursue.

• The merged firm must complete the elected compliance option by May 19, 2001.

• If the merged firm has not completed the elected compliance option by the May 19, 2001 deadline, then it will be required to place into an irrevocable trust for the purpose of sale the assets that it must divest to satisfy the 30% limit.

• Sixty days before the compliance deadline, May 19, 2001, the merged firm must file with the Cable Services Bureau a written document that either (a) states that it will be in compliance by the deadline, or (b) states that it will not be in compliance and describes the irrevocable trust arrangement that it will complete by the May 19, 2001 deadline.

• During the period prior to compliance with the foregoing conditions, the merged firm must comply with interim conditions (originally proposed by the applicants) that are designed to mitigate the potential harm to the diversity of programming and competition during the compliance period.

• Appendix B of the FCC's Memorandum Opinion and Order lists the interim conditions and related enforcement mechanisms, which include safeguards to limit the merged firm's involvement in the video programming activities of Time Warner Entertainment and the programming networks in which the merged entity has attributable ownership interests (including Liberty Media Group and Rainbow among others.)

• Appendix B also outlines strict enforcement mechanisms to ensure compliance with the foregoing non-severable conditions. Failure to comply with these conditions and safeguards during the transition period can result in a forfeiture of up to $100,000 for the first failure and up to $250,000 for additional failures. Continuing failure by AT&T to comply with these interim conditions can result in additional penalties of up to $10,000 per day, and up to $100,000 per day after 5 days of not resolving the continuing failure.

FACT SHEET:
FCC's Conditioned Approval of AT&T-MediaOne Merger

FCC's Cable Horizontal Ownership Rules

The 1992 Cable Act required the Commission to establish rules and regulations limiting the number of cable subscribers a company is authorized to reach through its own cable systems or those in which it has an attributable ownership interest. In 1992, the FCC adopted cable horizontal ownership rules that limited the reach of one entity to 30 percent of cable subscribers nationwide.

On October 8, 1999, the FCC adopted new cable horizontal ownership rules that maintained a 30 percent limit, but calculated total horizontal ownership by counting nationwide subscribers of cable, direct broadcast satellite (DBS) and other multichannel video programming distributors (MVPD), not just cable homes passed. At the time the rules were revised, a 30% limit on MVPDs subscribers was effectively equal to 36.7% of cable subscribers nationwide.

FCC's Cable Ownership Attribution Rules

The FCC's cable ownership attribution rules determine whether the size or type of an entity's ownership interest in a cable system is such that it confers on the entity the ability to influence or control the operations of the cable system or creates economic incentives to take actions that concern the FCC. Thus, the cable ownership attribution rules identify ownership interests that raise issues of concern to the FCC.

Multichannel Video Programming Distributor (MVPD) Subscribership

• Nationwide MVPD subscribers: 82.36 million
• Nationwide cable subscribers: 67.1 million

• Thirty percent of nationwide MVPD subscribers permits an operator to serve 24.7 million subscribers

• AT&T serves 18.96 million subscribers, or 23 percent of MVPD subscribers nationwide
• Excluding its attributable ownership interest in Time Warner Entertainment (TWE), MediaOne serves 5 million subscribers, or 6 percent of MVPD subscribers nationwide
• TWE serves 12.6 million subscribers, or 15.3 percent of MVPD subscribers nationwide

Without divestitures, the merged AT&T-MediaOne would serve 34.4 million subscribers or 41.8% of MVPD subscribers, which represents 51.32% of nationwide cable subscribers.

Enforcement of the Cable Horizontal Ownership Rules

On May 19, 2000, the U.S. Circuit Court for the District of Columbia upheld the constitutionality of the statute underlying the FCC's rules on cable horizontal ownership. That court decision automatically lifted the FCC's voluntary stay and the agency immediately began enforcing its 30% horizontal ownership limit.

Section 613 and the FCC's Cable Horizontal Ownership Rules

1. 1992 Cable Act required the FCC to set a horizontal ownership limit for cable.
2. Daniels Cablevision challenged the constitutionality of the statute in District Court.
3. September 1993 - District Court agreed that the statute was unconstitutional.
4. FCC appealed to the U.S. Court of Appeals for District of Columbia Circuit.
5. FCC adopted 30% as the ownership limit, but voluntarily stayed enforcement of the rule because of the District Court's ruling.
6. Time Warner challenged the 30% rule as unconstitutional in the U.S. Court of Appeals for the District of Columbia Circuit.
7. D.C. Circuit Court consolidated the challenge to the statute (Daniels) and the challenge to the rules (Time Warner).
8. On October 8, 1999, the FCC revised its 30% ownership limit to account for all multichannel video program distributor (MVPD) subscribers, not just cable homes passed.
9. The D.C. Circuit Court decided to consider separately the challenge to the statute and the challenge to the FCC rules.
10. On May 19, 2000, the D.C. Circuit Court upheld the constitutionality of the statute requiring ownership limits. The FCC's voluntary stay on enforcing its rules was automatically lifted.
11. D.C. Circuit Court will hear oral arguments on the FCC rules on October 17, 2000.

Local Phone Competition

• Local competitors added 65 percent of new business lines in the third quarter of 1999.
• In 1996, competitors to the incumbent phone companies had one percent of the local market.
  - In the second quarter of 1999, competitors reached six percent of the market.
• AT&T provides residential local telephone service to 555,000 customers nationwide.
  - MediaOne provides residential local telephone service to 100,000 customers nationwide.

Public Interest Benefits from the AT&T-MediaOne Merger

In analyzing the potential public interest benefits from the merger, the FCC found that consumers are likely to benefit from increased local telephone competition. The FCC determined that the combination of AT&T's brand name, expertise and telephony assets with MediaOne's expertise in providing cable telephony, and the economies of scale offered by the merger, is likely to increase these companies' ability to compete successfully against the incumbent LECs. AT&T's success in providing cable telephony over the merged firm's systems also is likely to facilitate its efforts to provide local telephony over other cable operators' networks through contractual arrangements. The FCC concluded that the merger will enable AT&T and MediaOne to provide local telephony competition more effectively than either company could independently or through joint ventures.

Broadband

In its analysis, the FCC also considered the impact the merged firm will have on broadband services, but declined to impose conditions in this regard. The FCC discussed the merged entity's ability to provide high-speed Internet access over a vast cable infrastructure. The merged firm also would have major ownership interests in the nation's two largest cable broadband Internet services providers (ISPs), Excite@Home and Road Runner. Excite@Home and Road Runner are the exclusive ISPs serving broadband subscribers over the cable systems of AT&T, MediaOne, TWE, Cox Corporation and Comcast Corporation, among others.

The FCC analyzed the merger as modified by the U.S. Department of Justice's proposed consent decree with the applicants, which requires them to divest their interests in Road Runner no later than December 31, 2001, and to obtain the Justice Department's approval prior to entering certain types of arrangements with America Online and Time Warner that involve broadband services. Given the nascency of broadband Internet services, the FCC concluded that growing competition from alternative broadband access providers, the applicants' commitment to give unaffiliated ISPs direct access to their cable systems, and the terms of the Justice Department consent decree make it unlikely that the merged firm will be able to dominate and threaten the openness and diversity of the Internet.

Timeline of AT&T-MediaOne Merger

July 23, 1999: FCC issues Public Notice regarding AT&T Corp. and MediaOne Group, Inc merger application. Merger review begins.

October 26, 1999: FCC requests documentation from AT&T demonstrating how the company will fit under the revised horizontal ownership and ownership attribution rules.

December 21, 1999: AT&T requests 18-month waiver to come into compliance with FCC's ownership rules. Waiver request requires FCC to collect further public comments.

February 4, 2000: The Cable Services Bureau convenes a Public Forum on the proposed AT&T-MediaOne merger.

March 24, 2000: FCC receives complete information from AT&T regarding waiver request and subscriber certifications.

June 5, 2000:FCC grants conditioned approval of AT&T-MediaOne merger. AT&T is required to elect one of three divestiture options within six months after closing the merger.

March 19, 2001: AT&T is required to report to the FCC that it will meet the May 19, 2001 divestiture deadline, or to describe the irrevocable trust arrangements for sale of the assets that it must divest to complete the compliance option it has elected to reduce its attributable ownership interests to 30% of MVPD subscribers.

May 19, 2001: Divestiture deadline. If AT&T has not completed the elected compliance option, the designated assets will be put into an irrevocable trust by this date for sale.