02Feb1999 USA: U.S. likely to approve AT&T, TCI deal soon.

By Aaron Pressman

WASHINGTON, Feb 2 (Reuters) - The Federal Communications Commission is expected to approve within two weeks AT&T Corp.'s $48 billion purchase of cable giant Tele-Communications Inc., after the agency's staff recently backed the merger, sources familiar with the staff report said on Tuesday.

The staff recommendation, which will be voted on by the agency's five commissioners, did not suggest that AT&T and TCI be required to grant open access to their new high-speed Internet service to competitors, as some Internet companies had advocated, the sources said.

The two companies have scheduled shareholder meetings on Feb. 17 to vote on the merger. FCC approval is likely before the meetings, the sources explained.

Analysts had forecast that the agency would approve the merger as a way to spur more competition in the $100 billion local phone market, especially for residential consumers.

Scott Cleland, industry analyst at the Legg Mason Precursor Group, said he had not seen the staff report but was not surprised that the deal would be approved.

"AT&T-TCI is the regulators greatest hope for facilities-based consumer competition," Cleland said. "The open cable access issue wasn't appropriate for this forum."

The two companies have said they plan to offer customers Internet access over cable wires 25 times faster than ordinary telephone Internet connections for about $40 a month. The fee also includes Internet services like e-mail and a starting Web page provided by AtHome Corp., which is owned by TCI and other cable operators.

Unlike people connecting to the Internet over phone lines, an AT&T-TCI customer must pay for the cable company's service provider even if the customer would prefer another provider such as America Online .

AOL, other Internet companies and consumer groups had asked the FCC to require AT&T and TCI to let customers choose an alternative service provider without having to still pay for AtHome.

But the merger partners argued that requiring open access would make it impossible for them to recoup the substantial investment required to upgrade TCI's cable system to allow for Internet and telephone services.

Although TCI and AT&T escaped open access requirements as part of the merger approval, telecommunications attorney Nicholas Allard of the firm Latham & Watkins said the FCC and Congress will continue to consider possible industry-wide rules.

"This is an issue which lawmakers get," Allard said. "It's going to be one of the most critical issues that's addressed in the next few years."

In afternoon trading on the New York Stock Exchange, shares of AT&T were down $2.1875 to $91.375. On the Nasdaq, TCI's class A shares were down $0.9375 to $69.375.

The FCC staff recommendation followed the Justice Department's approval of the AT&T-TCI deal in December, 1998. The department required that the companies divest TCI's stake in a wireless telephone business, but also did not require open access to the companies' cable Internet service.

A spokesman for AT&T declined to comment on the FCC staff report.

On Monday, AT&T announced it had reached an agreement to also offer telephone service over the cable wires of Time Warner Inc.

((Aaron Pressman, Washington newsroom, 202-898-8312)).

(C) Reuters Limited 1999.

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