AT&T deals stir debate over telecommunications

WASHINGTON -- The strategy behind a bold streak of deal-making by AT&T, the nation's largest long-distance telephone company, is simple to grasp: Deliver to millions of consumers an integrated bundle of cable TV, high-speed Internet access and local and wireless phone services.

But before AT&T redraws the road maps to cyberspace, Congress, federal agencies, advocacy groups, business rivals, and many communities with affected franchises will seek to alter the company's vision of how digital communications should evolve.

Some insights into how the proposed merger of AT&T and MediaOne Group, the third-largest U.S. cable company, will play out in Washington may be seen early next month when the Senate antitrust subcommittee holds a hearing on the $58 billion deal. While the panel lacks the clout to reopen the 1996 Telecommunications Act, which was brokered only after a 14-year struggle, it promises to offer a high-profile forum for the key parties to voice their views. The hearings are likely to sound a bipartisan tone. That was evident Thursday when panel Chairman Mike DeWine, R-Ohio, and Herb Kohl of Wisconsin, the panel's ranking Democrat, jointly said: "While this deal will likely increase AT&T's ability to provide competitive local phone service to residential customers -- which we certainly support -- the jury is still out on how it will affect the cable/video market. We need to closely examine all competitive aspects of this proposal to ensure competition is preserved and consumers are protected." Champions of the merger are expected to argue it will promote dynamic competition in local-phone markets -- virtual monopolies long controlled by an ever-shrinking number of Baby Bells and GTE, whose own $53 billion purchase by Bell Atlantic was cleared by the Justice Department Friday. "The whole purpose of AT&T's strategy is to deliver this new digital world," C. Michael Armstrong, the company's chief executive officer, told financial analysts. Nevertheless, before the long-distance phone giant can turn itself into the nation's largest cable operator, with access to 18 of the nation's top 20 markets, it must submit to extensive reviews by both government antitrust authorities and the Federal Communications Commission. "This is a complex transaction," FCC Chairman William Kennard said Friday. "Because of its size and reach and the many novel legal and policy issues involved, this proposed merger warrants very careful scrutiny." Kennard's cautious remarks contrasted sharply with his quick embrace last year of AT&T's initial cable deal, its $48 billion purchase of Tele-Communications, then the No. 2 cable-TV operator. The FCC holds the power to block mergers or impose conditions should it find the planned deal could injure consumers, imperil the financial health of other players in the telecommunications industry or otherwise harm the public interest. The Justice Department is also quite likely to examine another aspect of the proposed deal: AT&T's announcement that Microsoft, in return for a $5 billion cash investment, will supply the software for up to 10 million TV-set devices that will power the former's new cable services. Microsoft has been in the department's legal gun sights for years. At an antitrust trial due to resume later this month, government lawyers have argued that the software giant has sought to extend its huge market power over personal computers to the Internet and other emerging domains, like the ones that AT&T wants to carve out. For its part, AT&T says it will also offer other operating systems in its set-top machines. "Where we're headed is toward a new oligopoly," said Mark Cooper, research director for Consumers Union, a Washington advocacy group that strongly opposes the AT&T deal. "In the end, we'll be left with something like a Ma Bell East and a Ma Bell West and a Ma Bell Cable. The sad part is that the Clinton administration, by approving the early concentration of the Baby Bells, has no intellectual leverage left to stop it," he added The Baby Bells, which need to match AT&T's torrid pace in rolling out video services and other high-speed technology, may seek regulatory relief or court rulings to right what they regard as a tilted playing field. While no slouches when it comes to engaging merger-mania, the regional giants claim they have to jump through too many regulatory hoops to compete with AT&T in its core long-distance business. "I think it's grossly unfair," Edward Whitacre Jr., the chief executive officer of SBC Communications, told Business Week. "They're just running around gobbling up companies. We are being held to a terrible double standard." Congress could conceivably step in to protect such potential losers as America Online, the nation's biggest Internet service provider. Should America Online fail to match AT&T and its newly won partners in offering fast online access, it could lose some of its current 17 million customers. Responding to that issue Thursday, two Virginia congressmen, Republican Bob Goodlatte and Democrat Rick Boucher, sponsored a bill that would make it easier for America Online to gain access to AT&T fast cable systems. Their Internet Freedom Act, which enjoyed wide support in the prior Congress, would make cable companies liable under antitrust law if they block competing Internet providers from getting access to their wires. If the bill becomes law, and if AT&T denied America Online access, the latter could take Ma Bell to court. "There weren't reasonable grounds before to sue," said Justin Newton, public policy director of the Internet Service Providers Consortium. The Virginians' bill would also let local phone companies enter the market for heavy-duty "backbone" Internet services, which could further lower prices for wholesale cyberspace facilities.

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