Senate holds merger hearing

A Senate panel meets on whether the AT&T-TCI megamerger could help end the regional Bells' hold on local phone markets.

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A Senate subcommittee met today to study whether the proposed $48 billion merger between AT&T and Tele-Communications Incorporated could help end the stranglehold the regional Bell companies have held over the $110 billion local telephone markets, and whether Microsoft is gaining too much control over the set-top box market, among other issues.

Sen. Mike DeWine (R-Ohio), chairman of the Subcommittee on Antitrust, Business Rights, and Competition, said that he thought it was helpful to have differing opinions from entertainment, telecommunications, and cable industry leaders presented at the hearing, according to Charles Boesel, the senator's spokesman.

"Although [Sen. DeWine] was initially favorable to the AT&T-TCI merger, since it would probably break the logjam of the [1996] Telecom Act, he's still at least nine months away from reaching an opinion on the merger," Boesel said.

While the deal would combine two giants into an even larger titan with potential to stifle competition in much the same way the Bells once did, federal regulators and consumer advocates hope the merger actually will increase competition in the local phone market.

"I have been an ardent proponent of increased competition in local telephone markets. But it is the potential for the merged company to provide a variety of tiered services--video, telephony, high-speed Internet access--to a large number of Americans that on its face is very attractive," DeWine said at today's hearing. "This is what we promised when we passed the Telecommunications Act, and I intend to explore with [AT&T chairman and chief executive C. Michael Armstrong] the specifics of how his proposed merger will heighten competition."

The 1996 telecommunications law was designed to free up long distance and cable companies to enter local phone markets. That goal has gone largely unfulfilled.

"Importantly, this merger will enable consumers to make phone calls over cable, thereby promising an alternative to the Bell monopolies in areas TCI reaches," Armstrong said in his testimony today.

The completed merger will allow AT&T to combine its consumer long distance, wireless, and Internet services with TCI's cable, telecommunications, and high-speed Internet businesses. These combined services will be operated as a new subsidiary to be called AT&T Consumer Services.

Before the expanded one-stop services become available, both AT&T and TCI will have invested billions to upgrade their infrastructures. TCI, for example, will spend $1.8 billion to upgrade its system in order to enable two-way transmission by 2000.

"It is to this upgraded cable base that we will add the capability for telephone services at an estimated cost per household of $300 to $500," Armstrong said today.

But analysts and investors fear that AT&T will not easily recoup the proposed expenditure. Since the merger was announced, AT&T stock has spiraled downward. It is trading today at $56.06, with a high of $68.5 and a low of $34 during the past 52 weeks. TCI shares are at $38.81, and have traded as high as $44 and as low as $14.86 during the past 52 weeks.

After today's hearing, Armstrong told reporters that the price of the telco giant's stock-swap merger with TCI will not be renegotiated despite AT&T's battered stock prices of late.

"There is nothing to those rumors," Armstrong said. "The deal is done, signed, sealed, and delivered."

The deal, however, has yet to be approved by the two companies' shareholders or the Federal Trade Commission.

Also at today's hearing, Senate Judiciary Committee chairman Orrin Hatch said that his concerns about Microsoft had expanded to include the software giant's investments in cable television.

The Utah Republican, a frequent Microsoft critic, said he was worried Microsoft may be trying to extend its dominance in personal computer software to new cable technologies that provide Internet access.

"I don't want to seem like I'm just on Microsoft's back all the time, but I am concerned about the buying into all of these cable systems," Hatch added.

Executives from AT&T, Time Warner, ABC (owned by Disney), and Sun Microsystems all sided with Hatch, arguing before the Senate panel that consumers would suffer if Microsoft dominated the television-cable gateway to the Internet.

Microsoft last month announced that it would pay $212.5 million for a 10 percent stake in the high-speed Internet access company Road Runner, created by Time Warner and MediaOne Group. Last year, Microsoft invested $1 billion in Comcast.

Hatch said he was worried Microsoft might create a choke point by becoming the dominant software provider for set-top boxes.

Time Warner president Richard Parsons tried to assure senators present at today's hearing that the cable industry had no interest in allowing Microsoft to dominate the set-top box market. The Road Runner deal, he said, "explicitly and expressly" excluded any Microsoft control over set-top box software.

Reuters contributed to this report.