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Spin-off fallout in D.C.

AT&T's four-way split announced last week is likely to send telecommunications companies scrambling to fill a lobbying vacuum in Washington.

Bolstered by its cable industry buying binge in 1998, AT&T during the past year has openly flexed its muscle on Capitol Hill and at the FCC. AT&T's lobbyists, with hardball negotiating reminiscent of the era preceding the company's first big breakup in the early 1980s, convinced Senate Appropriations Chairman Ted Stevens (R.-Alaska) to push widely criticized legislation that would roll back the government's cable-ownership restrictions. And it persuaded the FCC to ease up on the rules for measuring that ownership (it is still trying to get the cap on ownership raised).

But now that A&T no longer is telcom's cross-sector behemoth-and its promise to usher in local-telephone competition may never be realized-the company isn't likely to carry the same kind of weight with policymakers.

For AT&T's rivals, the shift in strategy hands them an excellent shot to overturn a regulatory power structure they say has led the FCC to favor cable and long-distance carriers in the battle for local phone and broadband Internet services.

"This is great news for the Bell companies. This is great news for DSL companies," said Reed Hundt, former FCC chairman. "AT&T's cable and wireless spin-offs won't have nearly the political influence of AT&T, the mega-company."

The upshot: The Bells stand a better chance of winning their fight to free their broadband digital-subscriber-line operations from cumbersome telephone-style regulation and to enter the long-distance business.

For the cable industry, the loss of AT&T's clout is a mixed bag. Yes, they might miss AT&T's influence on some policy fights, but the company's newly free broadband unit now will be more closely allied with their industry and less likely to suffer mixed allegiances with its long-distance and wireless siblings. AT&T's conflicting interests most recently angered the cable industry with fights over bills that would offer subsidies or tax credits to companies that roll out broadband services.

AT&T, seeing the proposals as a boon for its wireless Internet operation, has been enthusiastic about the bills. Cable operators, on the other hand, say the legislation would help competitors but offer nothing to cable companies. (Wireless companies are expected to be the leaders in rural broadband, and cable companies' expensive broadband buildouts in urban areas are creating operating losses that make tax credits useless.)

The creation of new AT&T spin-offs also may keep regulators busy on the merger front. When the new units are completely divested in the next two years or so, they will be enticing targets for other telcom companies or maybe buyers themselves.