AT&T/MediaOne Merger Clears DOJ Hurdle

The U.S. Department of Justice (DOJ) has cleared the way for AT&T (NYSE: T) and MediaOne (NYSE: UMG) to merge if the two companies sell their interests in Road Runner, the country’s second largest cable Internet service.

AT&T already has a controlling interest in ExciteAtHome, the largest provider of high-speed Internet access in the United States.

“The merger as proposed would have had an anti-competitive impact on the emerging broadband market,” assistant attorney general Joel Klein of the DOJ’s antitrust division said late Thursday. “American consumers will be the ultimate beneficiaries.”

The approval comes a year after the two companies announced the proposal and removes a big obstacle for the merger, which still faces review by the Federal Communications Commission (FCC).

If ultimately successful, the merger will make AT&T — the United States’ leading long distance carrier — the nation’s largest cable company as well, with 16 million subscribers. Time Warner (NYSE: TWX) would come in second, with 13 million customers.

DOJ Stipulations

MediaOne has already agreed to sell nine million shares that the company owns in Time Warner Telcom, a telephone and communications service that Time Warner plans to offer via cable lines.

Although the DOJ did not require AT&T to divest its 25 percent interest in Time Warner Entertainment, it did place restrictions on any future dealings with the company that would involve broadband services.

AT&T must get approval before making any broadband deals with Time Warner or its pending merger partner, America Online (NYSE: AOL). That stipulation will last two years.

AT&T officials agreed to the DOJ conditions immediately and a consent agreement was filed in Washington D.C Thursday.

FCC Approval Next

The agreement follows a U.S. Court of Appeals ruling earlier this month that a law designed to prevent one or two companies from gaining control of the cable TV industry is constitutional.

That ruling gave the FCC authority to set limits on the number of cable households a single company can reach and said the FCC can force cable companies to share their cable with other programmers.

AT&T attorney Jim Ciccioni said he expects FCC approval “shortly,” although problems remain. For example, federal regulations forbid one company from controlling more than 30 percent of the multi-channel video market. The AT&T/MediaOne merger would exceed that.

The FCC, which has traditionally shied away from trying to regulate the high-speed Internet industry, has suggested such solutions as MediaOne selling off its 25 percent stake in cable systems owned by Time Warner.

Telecommunication Consolidations

The merger approval is consistent with President Clinton’s position approving consolidation in the telecommunications market following deregulation in 1996.

Most consolidation requests have been allowed since that time, although the Justice Department did recently recommend that a proposed merger between WorldCom and Sprint be squelched.

America Online’s acquisition of Time Warner is currently under review by the department.

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