In re Applications for Consent to Transfer of Control of Licenses and Section 214 Authorizations from MediaOne Group, Inc., CS 99-251

• Decision Date: 06 June 2000
• Docket Number: CS 99-251
• Court: Federal Communications Commission Decisions
• Parties: In the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from MediaOne Group, Inc., Transferor, To AT&T Corp. Transferee

In the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from MediaOne Group, Inc., Transferor, To AT&T Corp. Transferee

CS No. 99-251

Federal Communications Commission

June 6, 2000

Adopted: June 5, 2000

By the Commission: Chairman Kennard issuing a statement Commissioner Furchtgott-Roth concurring in part, dissenting in part and issuing a statement; Commissioner Powell concurring and issuing a statement; and Commissioner Tristani concurring and issuing a statement.

MEMORANDUM OPINION AND ORDER

Table of Contents Paragraph

I INTRODUCTION…………………………………………………………………………………1

II. PUBLIC INTEREST FRAMEWORK ......................................................................................... 8

III. BACKGROUND ....................................................................................................................... 14

A. The Applicants .............................................................................................................. 14

B. The Merger Transaction and the Application to Transfer Licenses .................................. 30

IV. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS ................................................... 35

A. Video Programming ....................................................................................................... 36

1. Diversity and Competition in Video Program Purchasing ................................... 39

a. The Merged Firm's Cable Ownership Interests ………………………...41

b. The Merged Firm's Video Programming Purchasing Power …………..50

c. Potential Harm to Competition and Diversity in Video Programming …………………………………………………52

d. Compliance With the Horizontal Ownership Certification Provision………………………………………………….74

2. Program Access Issues ...................................................................................... 77

3. Channel Occupancy Limits ............................................................................... 84

4. Arguments That the Cable Rules Apply to Internet Access Services ................... 86

5. Electronic Programming Guides ........................................................................ 87

6. MVPD Competition .......................................................................................... 94

B. Cable Equipment ........................................................................................................... 96

C. Broadband Internet Services ........................................................................................ 102

1. Background .................................................................................................... 103

2. Discussion ...................................................................................................... 110

3. Findings .......................................................................................................... 116

D. Local Exchange and Exchange Access Service ............................................................. 129

E. Mobile Telephone Service ............................................................................................ 137

F. Bundling ..................................................................................................................... 140

G. Universal Service/Deployment ..................................................................................... 144

V. ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS ............................................ 154

A. MediaOne ................................................................................................................... 161

B. AT&T ......................................................................................................................... 168

C. Joint Venture and Other Contractual Arrangements ...................................................... 170

D. Applicants' Deployment Projections ............................................................................ 176

VI. PROCEDURAL MATTERS ................................................................................................... 179

VII. CONCLUSION ....................................................................................................................... 183

VIII. ORDERING CLAUSES .......................................................................................................... 184 Appendix A – List of Commenters Appendix B – Safeguards Relating to Video Programming

I. INTRODUCTION

1. In this Order, we consider the joint application ("Application") filed by MediaOne Group, Inc. ("MediaOne") and AT&T Corp. ("AT&T") (collectively the "Applicants" or "AT&T-MediaOne")^[1] for approval to transfer control to AT&T of certain licenses and authorizations controlled by MediaOne and its affiliates and subsidiaries, pursuant to Sections 214(a) and 310(d) of the Communications Act of 1934, as amended ("Communications Act").^[2] To obtain Commission approval of their Application, the Applicants must demonstrate that their proposed transaction will serve the public interest, convenience, and necessity.^[3] In this regard, we must weigh the potential public interest harms of the proposed merger against the potential public interest benefits to ensure that the Applicants have shown that, on balance, the benefits outweigh the harms.^[4]

2. We review this merger in the context of an unprecedented convergence of communications services, including a trend toward consolidation in communications industries generally and the cable industry in particular. Cable companies are upgrading their systems to provide a full range of video, data, and voice services. In this proceeding, the Applicants contend that the proposed merger will allow them to provide local telephony and new services more quickly and effectively in order to compete directly with incumbent local telephone exchange carriers ("ILECs"). In contrast, many commenters argue that the merger would create a web of relationships that will allow the Applicants to dominate communications conduits through their cable infrastructure and dominate media content through their vertical integration with content providers. In the proposed merger, the nation's largest cable operator, AT&T, would acquire the nation's fourth largest cable operator, MediaOne, which holds a 25.5% interest in the nation's second largest cable operator, Time Warner Entertainment, LP ("TWE").^[5]

3. The merged firm's attributable ownership interests in cable systems serving approximately 51.3% of the nation's cable subscribers and a significant number of video programming networks, raises concerns that the merged company will be able to exercise excessive market power in the purchase of video programming.^[6] Commenters opposing the merger argue that the merged entity will have the power to determine which video programming networks are successful, thereby limiting the diversity of programming available to viewers. In addition, commenters argue that the merged entity will be able to command excessively large discounts or exclusive contracts from programming networks, thereby hindering competition from alternative providers of multichannel video service. We find that the proposed merger violates the Commission's cable horizontal ownership rules, ^[7] which are designed to address threats to diversity and competition in the video programming marketplace.

4. Accordingly, as a non-severable condition to our grant of the Application, we will give the Applicants a period of 12 months from the effective date of the horizontal ownership rules, May 19, 2000 to (a) divest their interests in TWE, (b) terminate their involvement in TWE's video programming activities (pursuant to the limited partnership exemption and the officers/directors attribution waiver provisions of the cable ownership attribution rules), or (c) divest their interests in other cable systems, such that they will have attributable ownership interests in cable systems serving no more than 30% of MVPD subscribers nationwide. We also will require the merged firm to file with the Cable Services Bureau, within six months from the closing of the merger, a written document specifying which of the foregoing three compliance options it has elected to pursue. If the merged firm is not in compliance by the May 19, 2001 deadline, then we will require it to place into an irrevocable trust for the purpose of sale the assets that it must divest pursuant to the compliance option that it elected in the foregoing filing to come into compliance with the 30% limit. We also will adopt the Applicants' proposal that, 60 days before the expiration of the 12-month period, May 19, 2001, the Applicants shall file with the Cable Services Bureau a written document (a) stating that it will be in compliance by the May 19, 2001 deadline, or (b) stating that it will not be in compliance and describing the irrevocable trust arrangement that it will establish by the May 19, 2001 deadline for the sale of any assets that it must be divest in order to effectuate the compliance option it had elected. In addition to the above conditions, we will mitigate the potential harm to the diversity of programming and competition during the compliance period by imposing interim conditions on the merged entity. The merged firm must abide by the interim conditions and their enforcement mechanisms, attached hereto as Appendix B, until such time as it has taken the foregoing compliance action.

5. In the broadband arena, the merged firm will be able to provide high-speed Internet access over a vast cable infrastructure. The merged firm also would have major ownership interests in the nation's two largest cable...