By Daniel Zoll

As federal antitrust regulators review Comcast Corp.'s bid to merge with cable giant AT&T Broadband, the nation's largest consumer advocacy group is calling on San Francisco to block the transfer of its cable franchise unless the merged company offers a better deal to customers. And it appears that at least some city officials are taking steps to do just that.

"For two decades federal authorities have let cable companies run amuck, jacking up prices at almost three times the rate of inflation, while delivering poor service quality," said Mark Cooper, director of research for the Consumer Federation of America, in a May 7 statement. "And mergers have played a key role in creating cable monopoly power." The best opportunity for protecting consumers, Cooper says, is at the local government level.

The merger of AT&T and Philadelphia-based Comcast, announced in December, would create the largest cable company in history, with about 22 million subscribers in 41 states. Under the deal, currently valued at nearly $60 billion, AT&T will spin off its cable assets and simultaneously merge them with Comcast. The Federal Communications Commission began its 180-day review of the transaction March 29. A coalition of 38 consumer and public interest groups from around the country have petitioned the FCC to reject the deal.

Critics say the merger will result in higher rates and shoddier customer service. But they also say the merger provides the city with a long-overdue opportunity to improve its outdated and inadequate cable contract, signed in 1980. Under Section 6 of San Francisco's cable agreement, AT&T must obtain approval from the Board of Supervisors before any ownership change. Although the city can't do much about programming or rates, it can attach conditions that would promote consumer protection and marketplace competition. The board is expected to discuss the contract in closed session May 20.

Like their predecessors Viacom and TCI, AT&T and Comcast argue the merger is not technically a transfer of ownership and does not require a green light from the board. Instead, they insist, since the shell company that operates the franchise – Television Signal Corp. – will not change, there is no change of ownership.

City officials disagree. "The City and County of San Francisco maintains that the proposed transfer of control to AT&T Comcast does require city approval," wrote Denise Brady, deputy director of the city's Department of Telecommunications and Information Services (DTIS), in a March 29 letter to AT&T.

Dozens of cable customers, independent producers, and community activists turned out at a public hearing May 7 to call on city officials to demand a better deal. Jeff Perlstein of San Francisco-based advocacy group Media Alliance asked the board to extract concessions such as higher franchise fees, more funding and channel space for public, educational, and government (PEG) channels, a system rebuild, and a senior discount, among other things, from the cable giant.

In many areas, San Francisco's cable franchise lags far behind that of other cities and counties of comparable size. Montgomery County, Md., for example, managed to get 13 PEG channels out of Comcast – compared with San Francisco's three.

AT&T spokesperson Patrick Witherington maintains the merger would benefit consumers by promoting local telephone competition, accelerating the deployment of high-definition television and video-on-demand, and reducing service costs by eliminating redundant overhead. "This gives us the size we need to compete," he said at the hearing.

The Consumer Federation's Cooper said the financial and management structure of the new company will create pressures to cut costs and reduce capital spending, which will undermine service quality.

Another opportunity to improve the agreement will come in 2005, when San Francisco's cable franchise expires. Renewal negotiations are set to start next year. And given AT&T's track record in San Francisco, AT&T-Comcast might have a hard time convincing the city it deserves a renewal; AT&T looks like it will fail to meet at least one major contract obligation. In 1999, when it took over the franchise from TCI, the company committed to upgrading the system within 48 months. At the May 7 hearing Witherington admitted AT&T was badly behind schedule.

The companies are also stonewalling the city on providing basic information about their operations and the merger. According to letters obtained by the Bay Guardian from the DTIS, AT&T and Comcast refused to answer simple questions about their records of franchise violations or revocations, declined to give evidence of city tax payments, and even balked at providing a list of their cable franchises with more than 150,000 subscribers, saying that the request was "unreasonably burdensome."

Sup. Matt Gonzalez told us that by flouting the city's authority now, AT&T-Comcast may be sorry when renewal time comes along.