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DOJ: AT&T must sell cable modem service to merge

Antitrust regulators agree to approve AT&T's merger with cable giant MediaOne but are forcing the companies to sell the Road Runner high-speed cable Net service.

U.S. antitrust regulators agreed to approve AT&T's merger with cable giant MediaOne today under a complicated set of rules that will force the companies to sell the Road Runner high-speed cable Net service.

AT&T agreed to merge with MediaOne a year ago in a deal that will make it unambiguously the largest cable TV company in the United States. But opponents objected, saying that the merger would give AT&T, which also controls Excite@Home, too much control over the cable TV and cable Internet business.

Today, the Justice Department said it agreed--unless AT&T was forced to sell some of its assets.

"The merger, as proposed, would have had an anti-competitive impact on the emerging broadband market," Assistant Attorney General Joel Klein, who heads the DOJ's antitrust division, said in a statement. "The divestiture assures that AT&T will not acquire undue leverage in its dealings with broadband content providers, and American consumers will be the ultimate beneficiaries."

Under the terms of a consent decree with the DOJ today, AT&T agreed to sell MediaOne's stake in Road Runner no later than Dec. 31, 2000. AT&T would own 37 percent of Road Runner when the merger is completed. MediaOne and Time Warner are joint owners of the Road Runner service along with smaller minority partners Compaq Computer, Microsoft and Advance/Newhouse.

Until that time, AT&T will be required to keep management of Road Runner separate from the rest of the company. The company also will be allowed to keep assets that are used primarily for providing cable Internet service and to move Road Runner subscribers to the Excite@Home service.

The divestiture plan had been expected for some months, since word leaked that AT&T had proposed shedding one of the cable modem services.

"The Road Runner divestiture is an obligation we always assumed we would face, and the decree proposes both a schedule and process that are fair and feasible," said AT&T general counsel Jim Cicconi. "Before and after that divestiture, we will remain fully able to roll out new broadband capabilities--including high-speed Internet access--to our subscribers."

As a part of the agreement, AT&T see story: AT&T consolidates control over
Excite@Home will have to win prior DOJ approval any time it wants to join with Time Warner, or the merged America Online Time Warner company, to offer any kind of home high-speed Internet service. Approval would also be needed if the companies agreed that one or the other would not offer service in any region.

The DOJ said it would approve these requests unless it determined the companies' agreement would lessen competition between the two giants.

The sale of the Road Runner stake may be worse news for Road Runner than for AT&T, however--and may prove to be a substantial boost for Excite@Home.

"It's not fantastic news for Road Runner," said Jupiter Communications analyst Dylan Brooks. "They're losing a big chunk of their existing subscribers and of their potential subscribers."

Under the terms of the deal, AT&T can move much of what is valuable about MediaOne's interest in Road Runner--the customers and the technological assets--into Excite@Home's portfolio. That will likely swell the rival cable modem company's subscriber ranks by hundreds of thousands of people, as well as give it a broad new swath of territory to mine for new customers.

Together, Road Runner and Excite@Home serve about 75 percent of the country's cable modem subscribers. Road Runner is the smaller, with about 730,000 customers.

The consent decree was filed as part of a two-stage process in court today. The DOJ filed a lawsuit against the merger, saying that it would harm competition in the broadband market.

But along with that lawsuit, regulators filed the consent decree, signed both by AT&T and the DOJ. If the court approves the agreement, then the lawsuit against the merger will be resolved.

The merger also requires approval by the Federal Communications Commission, which said early this month it would act in "a matter of days."