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Regulators watching AT&T breakup

One unanswered question following the company's announced plan to split into three separate companies with four stocks is how the move will be viewed by federal regulators.

WASHINGTON--One unanswered question following AT&T's announced plan to split into three separate companies with four stocks is how the move will be viewed by federal regulators.

Analysts said scrutiny is most likely to come from the Federal Communications Commission. "They are clearly going to eyeball it," said telecom attorney Andrew Lipman, of Swidler Berlin Shereff Friedman.

"Over 60 million American consumers rely on AT&T's long-distance phone service," FCC Chairman William Kennard said in a statement Wednesday. "I will continue to closely question the company about today's see roundup: AT&T breaks up announcement and will insist that consumers' interests are protected."

AT&T underwent long, arduous approval processes with the FCC when purchasing cable giants TCI and MediaOne. Central to the agency's approval was the explanation by AT&T that to offer widespread local phone service, the company needed to own a significant cable network.

Under the reorganization plan announced Wednesday, AT&T is spinning off its cable unit as AT&T Broadband, leading yet again to a standalone cable company.

"AT&T has some fence-mending to do at the FCC" to explain the latest move and assure the agency that local phone service is still in the cards, Lipman said. Still, he said he believes the FCC won't seek to block the restructuring, and even if it is so inclined, it lacks the regulatory jurisdiction it would have in a merger.

Still, Kennard said the FCC has a role to play. "The Commission has the authority and the responsibility to ensure that this restructuring does not adversely impact the quality of consumer service, competition in the telecommunications markets, and the integrity of the telecommunications network," he said.

AT&T chief executive C. Michael Armstrong told analysts Wednesday that he and AT&T general counsel Jim Cicconi "met with Chairman Kennard yesterday afternoon and had a good discussion." Armstrong said that "at that meeting, anyway, (Kennard) saw no regulatory issues to share with us."

Analysts also said that there is likely to be little interest from the Justice Department or Federal Trade Commission, as the breakup didn't involve any antitrust issues.

The Securities and Exchange Commission can be expected to give AT&T's restructuring plan a close look, particularly the various stock swaps with shareholders involved in creating the new companies and stocks.

Also of interest to the SEC will be the reverse spinoff AT&T is doing with broadband, beginning first with the issuance of an initial public offering in 2001 followed by a spinoff in 2002. Analysts said this is to avoid the tax hits related to spinning off either TCI or MediaOne before a certain period of time has elapsed from their initial purchases.