Decision 00-09-043 September 7, 2000

Before The Public Utilities Commission Of The State Of California

In the Matter of the Application of AT&T Corp., Meteor Acquisition Inc., and Media One Group, Inc. for Approval of the Change in Control of MediaOne Telecommunications of California, Inc., (U-5549-C) That Will Occur Indirectly as a Result of the Merger of AT&T Corp. and MediaOne Group, Inc.

A. 99-08-013 (Filed August 9, 1999)

ORDER DENYING REHEARING DECISION 00-05-023 AND

MODIFYING THE DECISION

This matter concerns the merger of AT&T Corporation ("AT&T") and MediaOne Group, Inc. ("MediaOne"). The application came before the Commission because the national merger includes AT&T's acquisition of MediaOne Telecommunications of California, Inc. ("MediaOne Telecom"), which is a cable company authorized by the Commission to provide local exchange telephone service in Los Angeles. The merger also includes AT&T's acquisition of MediaOne's minority interest in Time Warner Telecom, Inc. ("TWT"). A subsidiary of TWT, TWT-California, is a competitive local exchange company ("CLEC") serving customers in the San Diego area.

In D.00-05-023, the Commission approved the transfer of MediaOne Telecom pursuant to a public interest evaluation under Sections 852 and 854(a) of the California Public Utilities Code. ¹ However, the Commission exempted AT&T's acquisition of the indirect, minority interest in TWT-California from the merger approval requirement of Section 852.

GTE Internetworking Inc. and GTE Media Ventures Inc. (together, "GTE," or "applicants") have jointly filed an application for rehearing of D.00-05-023. They contend that contrary to precedent, the Commission did not "consider" the question of anticompetitive effects of the merger "on the nascent market for residential broadband Internet services." (GTE Application for Rehearing, at 1.) On this basis, the applicants claim an abuse of discretion by the Commission. (GTE Application for Rehearing, at 2.) AT&T filed a response to the rehearing application arguing that GTE has mischaracterized prior Commission decisions.

After carefully reviewing all issues raised, we find that the applicants have not demonstrated that the Commission violated its constitutional and statutory mandates, or failed to act pursuant to those mandates. Nor have they shown that the Commission's decision is contrary to established precedent. ² Finding no legal error, we deny GTE's application for rehearing of D.00-05-023.

However, subsequent to the issuance of D.00-05-023, the Federal Communications Commission ("FCC") issued an order approving the AT&T/MediaOne merger with comments regarding certain actions the merging companies are to take to preclude anticompetitive behavior in their provision of cable broadband Internet services. (In the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from MediaGroup, Inc., to AT&T Corp., ( "FCC Memorandum and Order"), FCC 00-202, CS Docket No. 99-251, June 5, 2000.) Also in June 2000, the United States Court of Appeals for the Ninth Circuit issued an opinion which holds that access to the Internet via cable broadband is a telecommunications service and, therefore, is not subject to the Cable Communications Policy Act of 1984 [47 U.S.C. § 521 et seq.] (AT&T Corp. et al v. City of Portland ("City of Portland") 2000 U.S. App. Lexis 14383 (9^th Cir. June 22, 2000).

In light of the FCC and Ninth Circuit decisions, and other federal court opinions recently issued, it is appropriate that we modify and supplement our discussion on jurisdiction and Internet access issues. In doing so, however, we do not disturb our approval of AT&T's acquisition of MediaOne Telecom or our conclusion that GTE's rehearing request is without merit, as we shall explain.