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AT&Ts Angel Runs Into Buzzsaw

Washington-In the waning moments of a congressional session, it can't hurt to be on Sen. Ted Stevens' good side.

A small, slender man with a fiery temper, the 76-year-old Stevens (R-Alaska) is a tenacious fighter who, as chairman of the Senate Appropriations Committee, doles out billions of dollars each year to federal departments and independent agencies like the Federal Communications Commission.

These days, Stevens is trying to eliminate FCC cable ownership rules aimed at AT&T, a behind-the-scenes move that typically occurs as Congress rushes to finish its work and cuts deals at a furious pace in the dead of night.

He recently explained that he was concerned about unnecessary damage to AT&T, which acts as the "major carrier of last resort in my state," according to a Bloomberg report. AT&T owns Alascom, an important long-distance carrier in Alaska.

On behalf of AT&T, Stevens has plunged ahead in a take-no-prisoners fashion that has angered colleagues in the House and Senate. On one occasion, he growled at a reporter and waved away questions seeking details about his AT&T bailout plan.

"He's an old trial lawyer. Sometimes you lose your temper and sometimes you use your temper, and Sen. Stevens does both on some occasions," said The Walt Disney Co. lobbyist Mitch Rose, who was Stevens' chief of staff for three years.

Former Sen. Larry Pressler (R-S.D.), who worked with Stevens to pass the Telecommunications Act of 1996, remembered the 32-year veteran as someone who doesn't just bark orders.

"When I left the Senate, he wrote me a handwritten note," Pressler said. "I actually cried when I read his note. It was so thoughtful. We saved it as a family treasure."

It's understandable that Stevens, a Harvard Law School graduate, might have a rough edge or two. He flew combat missions in World War II, beat prostate cancer and survived a 1978 plane crash in Alaska that killed his first wife, with whom he had five children, and nearly everyone else on board.

Without help from Stevens, AT&T would be forced to dispose of millions of cable subscribers or key programming interests like Liberty Media Group in a process set to begin in about six weeks.

AT&T is relying on Stevens at time when he has maximum leverage to deliver a change in the law without exposing his plans to hearings or much in the way of public debate.

"He would be the most important.figure in these last legislative days," Pressler said. "In the process of legislating, there's nothing like the Appropriations Committee in the last days and there's nothing like being chairman, because you're one of two or three people in the room."

The FCC is enforcing the rules against AT&T because of its purchase of MediaOne Group Inc. in June. AT&T has until Dec. 15 to declare its intentions and until May 19, 2001 to complete the divestiture. All of that must happen while AT&T executes its massive restructuring into four distinct companies.

Viewing the FCC rules as unfair, illogical and burdensome, AT&T quietly approached Stevens for help in enacting legislation that would effectively void the agency's mandate.

But by operating in a stealthy manner, AT&T riled up consumer groups and local phone competitors. U.S. Telecom Association head Gary Lytle complained in a letter that Stevens' proposal "has an added benefit to AT&T and AT&T alone: it could allow them to avoid a tax liability of $5 billion to $8 billion associated with the merger.''

The tax liability would come about should AT&T be forced to sell assets acquired in tax-free transactions, such as cable systems bought with stock.

Sen. John McCain (R-Ariz.) and Rep. John Dingell (D-Mich.)-lawmakers who apparently feel helpless to stop Stevens-also aired complaints in letters they gladly shared with the media.

Although an AT&T spokesman wouldn't discuss lobbying details, he said AT&T has made it clear to Congress that it disagrees with the FCC's rules and the manner in which they are being enforced.

The rules bar a cable operator from serving more than 30 percent of subscribers to cable and direct broadcast satellite providers. As a result of AT&T's big investments in Time Warner Entertainment and Cablevision Systems Corp., the FCC pegs AT&T's ownership level at 41percent.

AT&T-which has 16 million wholly owned cable subscribers, or about 19 percent of the relevant market-has said the FCC should not count minority interests in circumstances in which AT&T has no role in deciding which networks obtain distribution. The FCC has said a minority interest as small 5 percent in voting stock should count to prevent a few megacompanies from dominating the programming distribution market.

From AT&T's perspective, the problem then is not with the 30 percent cap but with FCC ownership-attribution rules. The company has challenged those regulations in court and has sought President Clinton's support in the event Stevens' legislation reaches his desk.

According to documents obtained by the Consumers Union, Stevens would give the FCC until Feb. 1, 2001, to alter its ownership-attribution rules so that minority stakes are ignored if the interest does not exercise control of the cable systems or engage in selecting programmers.

"Stevens's provision would allow AT&T to avoid the sale of cable properties required by the FCC as part of AT&T's merger with MediaOne," said Gene Kimmelman, co-director of the CU's Washington office, who urged Clinton to veto the legislation if necessary.

Kimmelman said Stevens intended to include the AT&T provision in the FCC's budget bill, but that didn't happen. Instead, he said Stevens was looking to add it the budget bill for the Labor Department and the Department of Health and Human Services.

FCC sources said that even if the Stevens provision became law, the agency could rely on its generalized "public-interest" authority to require AT&T to comply with the MediaOne merger order.

In that case, AT&T would have to sell its 25 percent stake in TWE, 9.7 million cable subscribers or Liberty and other programming interests.