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FCC gives green light to AT&T-TCI deal

As expected, the Federal Communications Commission approves the multibillion-dollar merger between AT&T and Tele-Communications Incorporated.

The Federal Communications Commission today approved the multibillion-dollar merger between AT&T and Tele-Communications Incorporated.

The commission agreed to let the merger go ahead with virtually no conditions, asking only that TCI divest its ownership in Sprint's wireless phone service, which directly competes with AT&T's mobile phone unit. The company has already agreed to do this.

"The combined resources of AT&T and TCI surely will generate a very substantial effort to expand the choices now available to residential phone subscribers in TCI territories," said FCC chairman William Kennard in a statement announcing the approval.

"Congress specifically envisioned the provision of local telephone service over the cable television infrastructure, and this merger will directly promote that goal on a widespread scale," Kennard added.

The FCC had been widely expected to give its approval to the merger, even as it continues to scrutinize deals between Bell Atlantic and GTE, and SBC Communications and Ameritech.

The merger with TCI will allow AT&T to offer cable-based local phone services in an end run around the Baby Bells' sprawling networks, which analysts say is the best hope for a genuinely competitive local phone alternative for consumers.

"More than any of the big telco mergers, this is the one that reeks of consumer benefit," said Brian Adamik, a senior telecommunications analyst at the Yankee Group.

"The Commission should be commended by all for its hard work and prompt approval of this transaction," said AT&T chief executive C. Michael Armstrong in a statement released shortly after the commission's approval. "It recognized that the union of AT&T and TCI is in the public interest, and it acted swiftly--on behalf of and to the benefit of consumers."

The FCC also is under increasing pressure from Congress to prove that it is not strangling competition at the local level. Today's approval of AT&T's move into cable telephony will help the agency make that case.

The news caps months of unsuccessful lobbying from competitors like America Online and US West, companies that asked the FCC to force AT&T to share its new cable TV network with other Internet service providers.

But the open access issue had been put to rest several weeks earlier, when Kennard took the unusual step of broadcasting the commission's intentions before a formal vote.

"It is an issue, that in my view, needs to be considered in a more comprehensive way, an industry wide way, as opposed singling out just two single players," Kennard told reporters, speaking at an impromptu press conference after a scheduled speech.

A coalition of ISPs led by AOL, MindSpring and US West have formed a lobbying group to keep the issue on the front burner in Congress and the FCC.

Kennard hinted today that the commission could revisit the issue in a later hearing. "Given the early stage of deployment of cable's high speed Internet access services, it would be imprudent to act now," he said. "We will continue to monitor these developments to see how the market develops and how these new high-speed services are benefiting consumers."

The road ahead
Meanwhile, AT&T's plans for the merged company already are unfolding.

The company has said it would invest between $5 billion and $7 billion over the next four years to upgrade TCI's cable network to handle voice and high-speed Internet traffic.

But telephone service is scheduled to begin this year, as the merged company begins offering trials of voice, video, and data services over TCI's cables in ten cities. Most of TCI's markets will get cable telephony by the end of 2000, the company has said.

AT&T also is reportedly considering using TCI's @Home cable-based Internet service as a focal point for all of the new company's Internet efforts. The WorldNet ISP service, which currently has about 1.5 million members, may be folded in to the @Home brand, joining other recent acquisitions such as the Excite Web navigation site.

Meanwhile, the company is busily striking Cable nation chart deals with outside cable companies in an attempt to extend its local telephone service area. Early this month, it agreed to form a joint cable telephony venture with Time Warner, the nation's second largest cable company, and is now reportedly in talks with a group that includes MediaOne Group, Comcast, and Cox Communications.

AT&T's Armstrong said that following the Time Warner deal he planned to boost the company's cable penetration to 60 to 65 percent of U.S. households. Between TCI and Time Warner, the company will be able to reach about half of U.S. homes.

The move of AT&T into cable-based telephone service will mark one of the largest shifts in the telecommunications landscape to happen since the breakup of the original AT&T in 1984.

The move will allow it to compete on a more equal footing with the Baby Bell companies for consumers' local phone business. And by bundling voice services with cable TV and Internet access, all streamed through a cable line that already runs into consumers' homes, the company can once again become a one-stop shopping center for telecommunications services.

But this goal is still untested, and will take several years to unfold the way the company promises, analysts warn.

"It will take time. This is not going to happen overnight," said Adamik. "It's not even going to happen in a year or two."