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FCC Staff Backs Media Mergers

Updated:
WASHINGTON (AP) — Federal regulators have before them a pair of colossal communication mergers that could alter the way consumers get their TV, cable and Internet.

Federal Communications Commission staff have delivered to the five commissioners recommendations that proposed deals between cable giants AT&T and MediaOne and media titans Viacom and CBS be approved — with conditions. The commissioners could accept, reject or amend the staff's work.

The AT&T and MediaOne deal — originally valued at $58 billion — would create the nation's largest provider of cable TV company and high-speed cable Internet services. For that reason, critics have raised flags that the combined business would gain a stranglehold on the programming that reaches consumers.

The recommendations offered by FCC staff provide a roadmap for how the companies can complete the merger while still complying with federal limits on how many cable households one entity can reach. For example, the report says the companies could sell MediaOne's 25 percent stake in cable systems owned by Time Warner Inc. or separate themselves from subsidiaries that sell programming to Time Warner, according to people familar with the report.

The merger may be included on the agenda for the commission's May 15 open meeting, but a decision could come before then as well.

Details of the plan were first reported in The Wall Street Journal. The FCC and AT&T both declined to comment.

The five commissioners also are looking at a recommendation from commission staff to approve Viacom's acquisition of CBS — originally valued at $36 billion — conditioned on certain divestitures needed to comply with federal rules. Those rules limit the national audience that one company may reach through its owned TV stations at 35 percent. Combined, the two businesses would reach 41 percent of the national audience.

The companies had asked for two years to come into compliance with commission rules, but the staff recommends giving them less time then they had sought, according to an FCC source. Viacom declined to comment.

Both deals also require the approval of the Justice Department.

On the AT&T matter, the merger must comply with an FCC rule prohibiting a single cable company from controlling more than 30 percent of the multichannel video market, which includes cable and its competitors such as direct broadcast satellite. AT&T's deal with MediaOne would fracture the cap, but the company has argued that MediaOne's 25 percent stake in cable systems owned by Time Warner Inc. is a ``limited partnership'' and should not be counted toward the ownership cap.

One issue complicating that argument is that AT&T's wholly owned subsidiary Liberty Media sells programming to Time Warner. But AT&T says it has no control over Liberty's activities.

According to The Journal, the FCC staff report proposes that AT&T could sever itself from Liberty. That would help fortify the company's assertion that Time Warner is a limited partner.

The staff report also gives AT&T a year to come into compliance with the rules, less than the 18 months asked for by the companies.

Consumer advocates balked at this, saying commission regulations only give companies six months to come into compliance — once a court challenge to the rules are settled.

``To me, that's a big give to AT&T,'' said Gene Kimmelman, co-director of the Washington office of Consumers Union. ``It is really very troublesome. We will oppose anything that deviates from rules of the commission.''
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