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AT&T-TCI merger faces hurdles

Regulators are likely to closely scrutinize the buyout; telco and cable TV rivals may claim the merger is anticompetitive.

It's not a done deal, at least not until the trustbusters have spoken.

The Justice Department, the Federal Communications Commission, and possibly other antitrust authorities are likely to scrutinize AT&T's planned buyout of Tele-Communications Incorporated. In addition, both telephone and cable TV competitors may complain of anticompetitive fallout from the marriage of the two companies, which said they expected to generate 1999 revenues of about $33 billion after the merger.

"I anticipate that See special coverage:
A giant awakens consumer groups and RBOCs [regional Bell operating companies] are going to be up in arms," said Boyd Peterson, analyst with Yankee Group.

Justice Department spokeswoman Gina Talamona said that "antitrust enforcers will be looking at the deal" but added that it was too early to say whether her agency or the Federal Trade Commission would have jurisdiction over the matter.

In a one-sentence statement, FCC chairman William Kennard indicated that his agency was not likely to block the deal. "If AT&T and TCI make a strong commitment to bring residential consumers more choice in local telephone and high-speed Internet access services, then this proposed merger is eminently thinkable," he said.

But the deal already has caught the eye of some members of Congress.

Billy Tauzin
Rep. Billy Tauzin
"This is a deal that Billy wants to look at very closely," said a spokesman for Rep. Billy Tauzin (R-Louisiana), chairman of a House telecommunications subcommittee. "The upside is that it will provide consumers with the opportunity for one-stop shopping. The downside is what impact this will have on competition in cable. It was our hope that the large telcos would become competitors to the TCIs of the world."

Added Rep. Thomas Bliley (R-Virginia), chairman of the House Commerce Committee: "I am glad to see AT&T is finally making a serious commitment to facilities-based competition. Of course, the devil is in the details, so I look forward to hearing more about the merger."

AT&T and TCI executives remained optimistic. "This is exactly what the federal government had in mind when it passed the communications act [two years ago]," TCI chief executive John Malone said.

The companies think they can close the deal in the first half of 1999, with no "significant downsizing" expected in the deal.

The merger is likely to test regulators' true appetite for telecommunications deregulation, signed into law in 1996. Deregulation was supposed to clear the way for telcos and cable TV companies to enter each other's markets, but that has occurred much more slowly than expected. (See related report)

Now AT&T and TCI are prepared to provide the "one-stop shop" for telecommunications and data services by the end of next year, a concept that has been a goal since the Telecommunications Act was enacted.

TCI's previous alliance with Sprint also is likely to draw regulatory scrutiny, since Sprint and AT&T compete against each other. The Sprint deal, which Malone brought up at today's briefing, probably will unravel.

For now, at least, a newly merged AT&T and TCI would face stiff competition. On the cable TV side, Time Warner is a powerhouse and a leader in the burgeoning cable Net access field. On the telco side, WorldCom and MCI Communications are proposing to merge, as are some Baby Bells. SBC Communications, for example, has proposed to buy Ameritech; it already has acquired Pacific Bell.

Another competitor is Bill Gates. Microsoft owns a $1 billion stake in Comcast, another cable TV giant.

Reporter Dan Goodin contributed to this report.