AT&T, COMCAST DISCLOSE PROMISE TO AOL ON HIGH-SPEED CARRIAGE
Responding to last-min. questions on proposed merger of AT&T Broadband and Comcast, officials of 2 companies disclosed that AOL would get comparable high-speed cable carriage whether or not merger is approved. Revelation came in one-page letter to FCC dated Mon. In recent days, FCC’s Office of Gen. Counsel has been trying to decide whether Commission should grant motion by consumer groups imploring commissioners to examine terms and conditions of AOL high- speed access agreement made with what would be combined AT&T Comcast.
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Media Access Project, acting on behalf of Consumer Federation of America (CFA), Consumers Union (CU) and Center for Digital Democracy (CDD), wrote in 17-page filing late Mon. that FCC should at least look at agreement because, they argued, combined AT&T Comcast could have exerted its combined market power in way that extracted unfavorable terms for AOL, which has no other cable carriage agreement besides internal one with Time Warner Cable. For AOL, gaining large footprint in broadband world is crucial as online service has been grappling with questions about its current business model’s reliance on traditional dial-up connections.
But in letter to FCC, written by AT&T Vp-Law Mark Rosenblum and Comcast Senior Vp-Gen. Counsel Arthur Block, companies said AT&T and AOL Time Warner also had agreed that, if AT&T Comcast merger didn’t close by March 1, 2003, and all other conditions had been met, then AT&T and AOL would enter into Internet service provider (ISP) agreement “whose terms are identical in all material aspects” to AOL agreement with AT&T Comcast. “The only difference of consequence between the 2 agreements concerns the cities in which the agreements would be implemented,” filing said. Since, if merger fails, AT&T wouldn’t be in position to guarantee carriage on Comcast systems, AT&T then would make AOL ISP service available in different number of cities in which AT&T had cable systems “to produce approximately the same number of addressable subscribers contemplated in the original AOL ISP agreement.”
Under original terms of agreement, AOL High Speed Broadband would be made available on AT&T Comcast systems passing 10 million homes within 2 years after their merger closed. Companies also agreed to roll out AOL Broadband on AT&T Comcast systems passing additional 9 million homes in future, subject to parties’ mutual satisfaction with arrangements (CD Aug 22 p1). So in order to fulfill terms of agreement in event merger fails, AT&T would have to make service available in systems passing 19 million homes. Together, Comcast and AT&T Broadband pass 38 million homes and Comcast 14 million on its own, so AT&T would be capable of fulfilling that duty with 24 million it has in its own right.
Sources familiar with proceeding acknowledged that, if merger failed, AOL wouldn’t get carriage automatically on Comcast systems, but said AOL still would have same number of “homes passed,” although only on AT&T systems. What’s more, terms and conditions wouldn’t stop AOL from negotiating for carriage to even more homes through separate, private agreement with Comcast in future.
All this comes against backdrop of ticking FCC clock on merger. Tues. was Day 173 of merger review. FCC has imposed 180-day deadline on itself, although Commission could choose to stop clock or otherwise delay. MAP and consumer groups, meanwhile, haven’t given up their fight over AOL carriage agreement. They argue that FCC is under statutory obligation to examine terms of carriage as being “highly material” to merger. Even as commissioners were weighing Media Bureau staff’s recommendation in favor of merger, staff in Gen. Counsel’s Office was burning midnight oil Mon. over MAP’s latest filing, sources familiar with proceeding said.
Reference to AOL carriage agreement originally was made in copy of another agreement sent to FCC, involving Time Warner Entertainment (TWE) and AT&T Broadband’s proposed divestiture thereof. However, exhibit involving AOL’s carriage pact never was included in package given to FCC. MAP and others believe agency should at least look at agreement because, they say, TWE restructuring agreement makes high-speed Internet access agreement “a condition precedent to the closing of the restructuring agreement.” MAP also said it was concerned that provisions of high-speed agreement in fact could supersede those in TWE restructuring agreement, in which case FCC would be powerless for not having examined high-speed agreement, they say. “Not a shred of justification exists to allow AT&T Comcast to hide aspects of the merger and related agreements from the Commission in a sort of ‘3-card monte’ where the parties hide damaging information in the one agreement in this troika they withhold from the Commission,” MAP wrote. AT&T and Comcast argue agreement is proprietary and outside scope of Commission’s merger review.