Ball bounces to regulators
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May 6, 1999: 6:58 p.m. ET
Government agencies prepare to probe A&T, MediaOne merger deal
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NEW YORK (CNNfn) - AT&T's planned buyout of MediaOne Group is giving government regulators something else to deal with in an already frenetic atmosphere.
Already burdened by the rapid changes roiling the telecom space, regulators are trying to determine how they should approach the AT&T (T) plan to gobble up cable giant MediaOne Group (UMG).
Robert Rosenberg, president of Insight Research Corp. in Parsippany, N.J., a telecommunications market research firm, said regulatory agencies do not have a good track record in standing up to mega-mergers.
"I don't think they have the belly for it," he said. "It runs faster than the regulators can absorb it. They see little political gain in standing up to this consolidation. Unless there's a clear violation of the laws or statutes, I don't think they're going to stop it."
In addition, regulators must also contend with the changes sparked by Telecommunications Act of 1996. The act was drafted to open the market to competition in the face of the imminent convergence of the telephone, computer and Internet sectors, as well as cable television.
The mix became even more complex as AT&T and Microsoft (MSFT) announced the software giant will invest $5 billion in AT&T preferred securities, aiding AT&T's purchase of MediaOne.
Microsoft, in turn, will gain greater access to AT&T's advanced set-top devices, used to deliver communication and information services via cable into the home.
Jennifer Rose, spokeswoman for the U.S. Department of Justice, said the agency will investigate AT&T's acquisition of MediaOne.
"We'll go by our merger guidelines," she said, adding that it was too soon to comment on the Microsoft deal.
Representatives of the Federal Trade Commission and the Federal Communications Commission were not immediately available for comment.
"Deeply troubled"
But, Ken Johnson, a spokesman for Rep. Billy Tauzin, chairman of the House Telecommunications subcommittee, said the Louisiana Republican is urging regulators to examine the AT&T-MediaOne merger plan very closely.
"He's deeply troubled by the proposal," Johnson said. "He's urging the FCC, the Justice Department and the FTC to take a long, hard look at it. At first blush, there are some aspects that are encouraging. It's offering consumers one-stop shopping. But if you're the only shop offering one-stop shopping, that's not good for consumers."
Johnson said Tauzin believes the AT&T-MediaOne deal should at the very least be subjected to the same kind of constraints imposed upon Ameritech (AIT) and SBC (SBC).
And the U.S. Senate Committee on Commerce, Science and Transportation said it will hold a hearing June 17 on mergers and consolidations in the telecom industry.
Need for competition
On the competitive front, William P. Barr, executive vice president and general counsel for GTE Corp. (GTE), issued a statement calling AT&T's cable system acquisitions "classic monopolies" and a "blatant attempt to lock up access to the Internet as well as the Internet itself."
Barr said "this deal will awaken even the most supine regulators to recognize that AT&T is attempting to reassemble its dominant position right under their noses."
Rosenberg of Insight Research Corp. stressed the importance of competition in the telecommunications industry.
"If only three companies are left standing at the end of the day," he said, "that's not going to produce the level of competition that I think we expected to see. There have to be five, six or seven big companies competing - then you've got the possibility of losing customers and never seeing them again. And that puts the fear of God in marketing departments."
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