Agenda - 05-16-2000-9d - Laserfiche WebLink

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9 AT&T's acquisition of MediaOne's 25.51% shaze of Time Warner Entertainment Advance Newhouse will give it a 32% interest in Tirne Worrier's high speed Internet service, Road Runner. When this interest is combined with AT&T's 58% stake in Excite@hame, MediaOne's high-speed Internet service, places AT&T squazely is in the position of dominating the two prominent broadband-cable modem services. The federal ownership statutes limit any one cable operator to no more than 30% of the mazketplace. AT&T's purchase of MediaOne boosted its national market share to 39%. Although, MediaOn-e surrendered its management rights to Time Warner, this did not deter the FCC from ruling that the transaction exceeded the federal limits. The FCC is not enforcing the rule because a federal district court judge in 1993 ruled that the statute authorizing the 30% cap was unconstitutional because it violated the First Amendment. The matter was appealed to the US Court of Appeals in December 1999 and a decision is expected later this year. The FGC believes that the lower court's ruling will be reversed and the 30% statute cap will be upheld. Consequently, the FCC has advised AT&T that they would have 180 days from the date of decision to came into compliance. Compliance could mean that i) AT&T could exchange its Time Warner stake for a sweet heart contract with AOL-Time Warner to provide phone service over theix cable systems or ii) AT&T could divest itself of its Rainbow Media Holdings, Inc., and Liberty Cable properties to comply with the 30% cap rule. MediaOne initially invested $1.5 billion in Road Runner's start-up. This investment's current value approaches $15 billion3. Because of RR's exceptional appreciated value, a buyout ofAT&T's interest by the new entity, AOL -Time Warner, is extremely unlikely because it is cost prohibitive and assets would be better spent tv upgrade existing networks and enhance services. The Open Access Alliance of the Bay (San Francisco) Area conducted a study4 and.subsequently reported that a cable broadband monopoly would result in higher Internet access prices, $5 to $15 monthly, absent competition. The merger validates Open Access as a solid business model for delivery of Internet and telephony via cable. With AT&T as a major player, there can be no doubt that Open Access is compatible with their core business. This means that the intellectual property and technology issues related to Open Access have ~'I'alking Up the Deal, Multichannel News, January Z4, 2000. `~TThe Business journal of $an Jose, March 13, 2000. -5-