FCC says AT&T must sell Time Warner stake

(Telephony) AT&T must shed its 25% stake in Time Warner Entertainment to comply with the divestiture requirement attached to the FCC’s approval of the carrier’s $44 billion purchase of MediaOne, the regulatory agency ruled Thursday.

In a flurry of letters exchanged in the last week, AT&T stated its desire to meet regulatory guidelines by declaring its intent to spin off Liberty Media Group on the condition that the Internal Revenue Service allows such a move to be made without a tax penalty. However, the FCC said the carrier had to make an “irrevocable” choice by last week, not a conditional one. As a result, commissioners ruled AT&T must sell—or place in a trust to sell—its Time Warner Entertainment stake.

“Without changing the terms of the original order, AT&T could only have elected the [Time Warner Entertainment] option, as of the date it was required to make the choice,” the FCC said in its ruling issued Thursday.

In his dissenting opinion, Commissioner Harold Furchgott-Roth said AT&T should be allowed to satisfy the FCC’s original MediaOne order by pursuing the Liberty Media spinoff.

“I think it an over-aggressive reading of AT&T’s letter for the Commission to conclude that it elects divestiture of TWE,” the commissioner’s opinion stated. “The letter makes clear that AT&T’s Plan A, if you will, was to pursue divestiture of Liberty Media. Today’s order wholly ignores this intent, however, and literally puts words in AT&T’s mouth.”

While AT&T’s most recent correspondence indicated a desire to spin off Liberty Media, selling the Time Warner stake has been the carrier’s primary goal. As analysts have noted, AT&T needs to gather cash in an attempt to pay off more than $60 billion in debt that has become an albatross for the company.

But AT&T says selling the Time Warner Entertainment stake is difficult, as its relationship calls for AT&T to be a major investor with little input in the company—an arrangement that Time Warner has little incentive to change. AT&T has so little input in Time Warner Entertainment that it is not privy to enough information to place a value on the stake, AT&T general counsel James Cicconi’s wrote in a November letter requesting that the FCC force Time Warner help AT&T sell its stake.

“There should be no confusion on this matter,” Cicconi wrote in the November letter. “AT&T prefers to divest the TWE interest, but absent Commission action to give Time Warner the necessary incentives to accommodate a timely disposition of AT&T’s TWE interest at fair value, it is likely that AT&T and Time Warner (and, if the Commission approves the pending merger, AOL) will remain partners.”

With the FCC ruling that AT&T must divest of its Time Warner Entertainment interest, AT&T likely will have to place the asset in a trust to be sold. While some industry observers have pegged the Time Warner stake at being worth as much as $16 billion, AT&T reportedly has not been able to get a $10 billion offer for the interest.

With the FCC’s must-sell mandate attached to the Time Warner Entertainment stake, AT&T will have almost no leverage in negotiations while trying to find a buyer a decidedly bearish telecom market—a prospect that most analysts believe will make it virtually impossible for the carrier to solicit a substantial bid.