San Diego -- Local regulators last week discussed their
battle plans to counter Tele-Communications Inc.'s stance that it will seek transfers
in only 25 percent of its franchises when it merges with AT&T Corp.
Some regulators and legal experts at the National Association of Telecommunications Officers and
Advisors conference here speculated on the various strategies that they might deploy
to combat a plan that was described as "inviting a fight."
Tactics could include litigation; revocation or denial of
franchise renewals by cities excluded from the process; or, in venues where TCI chooses to
seek consent, making approval contingent on the deal going through as proposed.
TCI officials insisted that they had heard "no hue and
cry" from cities, and they suggested that the controversy was being driven by a small
group of regulators who have unresolved issues with the company.
The MSO recently said it is not required to seek approval
from local governments with franchises containing "transfer" language, since all
franchises will remain with the MSO when it become a subsidiary of AT&T.
TCI will, however, seek consent in some 1,000 cities --
one-quarter of its estimated 4,000 franchises -- with "change-of-control"
"The cities that aren't getting a [Federal
Communications Commission Form] 394 are not thrilled with the idea that TCI is saying ,
'You don't need a transfer, so we're not going to give you a
transfer,' instead of asking the community, 'What do you think?'" said
Susan Littlefield, cable administrator for metro St. Louis, one of the communities where
approval won't be sought.
"High-handedness on the part of TCI and AT&T in
making unilateral decisions on whether to file a 394 is not a good way to continue a
relationship, or to start a new one," she added.
Madie Gustafson, TCI's senior counsel for franchising
and government affairs, said the operator will provide 394s to any city desiring
additional "information" about the merger.
"Our intention is not to exclude any of our
cities," she said.
Gustafson added that to her knowlegde the legal principle
that TCI is basing its decisions on has never been challenged in court in regard to cable
television, but it has repeatedly been litigated and upheld in the real estate business.
Moreover, she said, the process of determining where to
seek regulatory approval was a joint decision with AT&T.
Executives at some of the nation's largest cable
operators have supported TCI's stance.
"There is a difference between a sale of assets and a
change of control," said Richard Gleiner, Marcus Cable Co. L.P.'s general
counsel, in a recent interview.
Meanwhile, legal experts noted that federal law does not
require MSOs to submit 394s to cities, and that the form is usually meant to start the
clock on a 120-day period during which cities must make decisions on transfer requests.
One industry observer said whittling the number of
communities where transfers are required down to 1,000 makes TCI's workload
manageable, thereby increasing the chances of closing the AT&T merger in the first
quarter of next year.
"Otherwise, you have to send a warm body bgcolor="#FFFFFF" to 4,000 city
council meetings," said Brian Grogan, a partner with Minneapolis-based law firm Moss
And even if TCI loses a court challenge, the MSO can simply
go back later and deliver 394s to individual municipalities, knowing that the odds of
actually losing a franchise are remote.
"They've assessed the risks involved,"
That figures to be little comfort to regulators in the St.
Louis area, where a number of TCI franchises -- including its 56,000-subscriber system in
the metro area -- expire next year.
Presumably, the city could deny a renewal based on service
problems that produced 2,000 cable-related complaints during the first six months of 1998.
And AT&T will not be able to argue that it can't be held responsible for
TCI's past sins, since the local franchise will still belong to TCI, Littlefield
"They can have A, or they can have B, but they
can't have A and B," she said. "They may decide that they don't need a
transfer, and that's debatable. What's not debatable is that any rights of
whatever the company is are up in 1999."
Joe Van Eaton, a partner in Washington, D.C.-based law firm
Miller & Van Eaton, called TCI's strategy a "dangerous tactic" that
could endanger its deal with AT&T.
"If the principle is challenged, and TCI loses, where
does the transaction stand?" he asked. Van Eaton's firm represents cities.
Van Eaton said some cities could launch
franchise-revocation proceedings against TCI.
"Remember, these cities are going to have an incentive
to clean up any disputes with TCI before the transaction is completed, and to make sure
that any court action is under way before it closes, in order to ensure that their
interests are not affected," he added.
TCI officials countered by arguing that before a franchise
can be revoked, the city must notify the company and give it time to "cure" the
In the cases of cities where TCI will file 394s, Van Eaton
said, municipal officials may place conditions on their approval in case the merger has to
"If I'm sitting there wondering whether to
approve this, I'm going to make my approval contingent on the deal going through
without substantial change," he said. "You don't want to approve a deal
that may have to be rewritten because the companies didn't do their homework."
Not all regulators took issue with TCI's policy,
Byron West, NATOA's immediate past president, said the
issue boils down to whether the merged companies would live up to commitments contained in
"[And] there's no reason to believe that a
company with AT&T's stellar service record would do that," she said.
In Garden City, Idaho, city official Dave O'Leary was
even more direct.
"Whether it's TCI or any other company, they
still have to follow the terms of our franchise," he said. "What difference does
it make, as long as it's a reputable company?"
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