AT&T announces divestiture plan

(Telephony) AT&T today said it will use its planned spin-off of Liberty Media Group and a strategy to “insulate” its programming interests in Time Warner Entertainment to satisfy the regulatory conditions attached to its acquisition of MediaOne.

After buying MediaOne, AT&T owned 42% of the pay-TV market, according to the FCC, which prohibits any cable provider from having 30% of the nation’s subscribers. By taking these actions, AT&T no longer will be burdened with Time Warner’s subscribers for cap purposes, despite the fact that AT&T will continue to own a 25% stake in Time Warner Entertainment.

“In the eyes of the FCC, this is a way of getting under the cap,” an AT&T spokesman said. “They feel like, if we don’t have an interest in a company that sells programming to Time Warner Entertainment, then Time Warner Entertainment’s cable subscribers are not attributable to us.”

As a condition for approving AT&T’s acquisition of MediaOne, the FCC gave AT&T three divestiture options: sell the Time Warner Entertainment interest, divest Liberty Media; or sell more than 9 million cable subscribers. The last option was considered impractical by most analysts.

Last month, AT&T revealed plans to spin off Liberty Media, the programming arm led by cable mogul John Malone, who became AT&T largest shareholder after selling TCI to the carrier. At that time, AT&T officials said the spin-off would not satisfy the FCC’s divestiture requirements.

“That alone would not have been enough,” the spokesman said. “That is why are taking the other actions.”

Specifically, AT&T pledged to ensure that Rainbow Media Sports Holdings, iN DEMAND and the MediaOne-affiliated video programmers carried on Time Warner Entertainment cable systems are no longer attributable to AT&T under FCC rules. In addition, AT&T said it will not use its 25% stake in Time Warner Entertainment to become “materially involved … in the management or operation of the video programming-related activities of the TWE partnership.”

If AT&T is not able to implement this strategy by the FCC deadline of May 19, the carrier will divest its interest in Time Warner Entertainment or put the stake in an irrevocable trust.

“We're diligently following through on what we said we'd do,” said AT&T general counsel Jim Cicconi in a prepared statement. “We will be in compliance with our obligations under the merger conditions and, as required, we've given the FCC an insurance policy to make sure it gets done by committing to put our TWE interest in trust if need be.”

Selling the Time Warner Entertainment stake was something AT&T publicly indicated it wanted to pursue, but reports indicated Time Warner officials were not interested in buying at the price desired by AT&T. At one point, AT&T Chairman C. Michael Armstrong asked the FCC to intervene to force Time Warner to negotiate in good faith.