Cable TV colossus expected to fly

$62.5 billion AT&T bid for MediaOne attracts scrutiny, opposition



WASHINGTON -- AT&T Corp.'s $62.5 billion bid to buy MediaOne Group Inc. is likely to get approval from federal regulators, who see cable TV as the best chance to crack the local telephone market monopoly, analysts said yesterday.

But the transaction, which would create the largest U.S. cable television provider, still faces tough scrutiny from antitrust authorities and the Federal Communications Commission.

And consumer groups will likely try to derail the transaction. Rivals such as America Online Inc., the No. 1 online access provider, are expected to try to keep AT&T from controlling cable's new high-speed Internet networks.

AT&T Chairman C. Michael Armstrong will lobby policy makers, pointing to the billions that AT&T is spending to upgrade cable TV lines to provide consumer choice for phone and fast Internet service in markets still dominated by incumbent providers such as Bell Atlantic Corp.

"Armstrong has Washington under his thumb," said Scott Cleland, managing director of Legg Mason Inc.'s Precursor Group. "At the end of the day, this deal gets approved."

AT&T is the largest U.S. phone company and second-largest cable TV company since its purchase of Tele-Communications Inc. Buying MediaOne would put AT&T in 18 of the top 20 U.S. markets. MediaOne would add about 5 million cable customers to AT&T's 10.7 million subscribers. Critics say consumers already face skyrocket- ing cable TV rates. "Concentration at this level could stymie competition," said Gene Kimmelman, director of Consumers Union's Washington office.

The FCC is considering limiting cable industry ownership by one company to 30 percent of the U.S. market. The FCC is reviewing that cap after a federal court said it violated the cable companies' right to free speech if the FCC controlled how many customers a company could serve. Comcast Corp.'s earlier offer for MediaOne would face the same ownership limit question that the AT&T offer would.

"At some point, the FCC is going to look at the side effects of all this concentration," though it's likely to approve AT&T-MediaOne, said Paul Glenchur, an analyst with Charles Schwab Corp.'s Washington Research Group.

"I fully expect that the regulators will give it a close review but we don't anticipate any problems," said James Cicconi, AT&T's general counsel. "This is all about providing local phone competition."

The Justice Department or the Federal Trade Commission will review the transaction to ensure that it doesn't impede competition in areas where both companies operate, antitrust lawyers said. Because the cable industry consists largely of government-sanctioned monopolies operating in given regions, that isn't likely to be a problem, they said.

Antitrust enforcers also must decide if buying MediaOne "gives AT&T so much of the cable business that they can have an impact on programming," said Washington antitrust lawyer Joseph Simons.

AOL and other Internet service providers have fought to make cable providers let other companies use their new high-speed networks. The FCC approved the AT&T-TCI union without that condition, though the agency said it would keep a close eye on the question of cable access.

Bankers said yesterday that AT&T is seeking a $30 billion bank loan, the biggest ever, to provide the cash needed for its $62.5 billion bid for MediaOne, just a month after it sold a record $8 billion of bonds.

AT&T hopes to line up the $30 billion by Friday. It has already arranged $10 billion of loans from its primary investment banker, Goldman, Sachs & Co., and Chase Manhattan Corp., the leading U.S. arranger of large loans that are eventually sold to dozens of banks around the world.

The loan would be due in 364 days, and would be expected to be repaid with proceeds of AT&T bond and asset sales.

Also yesterday, AT&T won European Union approval to buy International Business Machine Corp.'s global communications network for $5 billion, a move that will help the largest U.S. phone company expand its data services for companies.

The European Commission, the EU's executive agency, said the purchase won't threaten fair competition in European telecommunications markets.

The U.S. Justice Department cleared the purchase last month. AT&T expects to complete the transaction by June.

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