AT&T to spin off Liberty Media
Gary Jacobi, analyst, Deutsche Banc Alex Brown
AT&T was under deadline to either separate from Liberty Media, Time Warner Entertainment (TWE) or several million cable homes as part of the FCC's approval of its MediaOne merger. AT&T general counsel Jim Cicconi said AT&T also will "insulate" its 25 percent interest in TWE so that it will not be "materially involved, directly or indirectly, in the management or operation" of any TWE programming operations.
"AT&T needs to end the TWE partnership," said Center for Media Education president Jeff Chester. "If they don't break this up we'll have AOL and Time Warner merged with AT&T."
AT&T announced last month it would spin off Liberty Media, but this was the first official indication it would use the spinoff to satisfy its regulatory concerns.
With a single stroke, AT&T is seeking to solve numerous regulatory and financial problems. Liberty Media has been a difficult subsidiary because of the autonomy of chairman John Malone. TWE holds millions of cable subscribers, which under the FCC's attribution rules also count as AT&T subscribers, putting AT&T over the federal ownership cap. The programming interests of TWE and Liberty Media gave the impression that AT&T had undue control over both programming and distribution.
Spinning off Liberty Media and insulating TWE serve to prevent AT&T from having control over programming in those areas if the FCC chooses to recognize the moves. AT&T also hopes the FCC will no longer attribute TWE cable subscribers to AT&T. That's significant, because with them, AT&T is considered to have 42 percent of the cable market, well over the 30 percent cap.
"We're diligently following through on what we said we'd do," Cicconi said. "We will be in compliance with our obligations under the merger conditions."
For several months, Cicconi and others at AT&T have been lobbying Congress to change the FCC's attribution rules so minority holdings wouldn't apply to ownership. That method of counting, AT&T has argued, results in cable homes being double-counted, attributed to the controlling owner and the minority owner. Along with the 25 percent TWE stake, AT&T owns 49 percent of Cablevision Systems.
That lobbying effort as of Friday appeared to have failed, however.
"On its merits, AT&T is correct" in its position, said National Cable TV Association president Robert Sachs. He said attribution rules should only apply if the cable operator has control over programming.
But noting how quickly the AT&T lobbying effort came after the MediaOne acquisition, Sachs acknowledged "there is an optics problem."
Cicconi wrote that if AT&T could not insulate its TWE interest by May 19, 2001, it would put its ownership in an irrevocable trust for purposes of sale. AT&T has tried for months to sell its TWE stake to Time Warner, but AT&T officials have told the FCC that Time Warner was not negotiating with any seriousness because the company knew AT&T was under regulatory pressure to sell.