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FCC Spinoff Spat Adds to Woes at Ever-Changing AT&T

The agency says AT&T must sell its Time Warner Entertainment stake, pressuring an already beleaguered company.

As every real estate veteran knows, it never works in the seller's favor if the buyer knows she's under pressure to unload a house quickly. Well, the same thing holds true for AT&T (T) - Get AT&T Inc. Report and its cable TV systems.

The Plunge
AT&T's sliding share price

Thanks to a heavy debt load, a looming liability and -- as indicated by a document released on Thursday -- an unhappy

Federal Communications Commission

, the stumbling Ma Bell is beginning to look like a distressed seller of at least part of its cable holdings, the nation's largest network of local cable television systems. That's just one of many unpleasant developments for a company that announced earlier this week that it is cutting its dividend for the first time.

In Friday afternoon trading, AT&T, down from a 52-week high of $61, was trading at $17.75, up 69 cents.

In the latest piece of bad news for AT&T, the FCC said Thursday that AT&T had failed to comply with a previously issued ruling that set the conditions under which AT&T could acquire the cable company


. It was that acquisition, along with the deal to buy the former

Tele-Communications Inc.

, that transformed the nation's biggest consumer long distance carrier into the nation's largest cable system operator.

Saying that AT&T has not met a deadline for unambiguously picking one of several options that would put the company in compliance with its prior ruling, the FCC said Thursday it was making the choice for AT&T: The company will have to divest itself of its 25% stake in

Time Warner's


Time Warner Entertainment

, a collection of cable systems and programming properties.

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AT&T begs to differ, insisting in a statement last night that it still has the option of pursuing its first choice, which is, assuming it gets favorable tax treatment from the IRS, spinning off its

Liberty Media Group


and other programming assets. "We do not believe today's order requires us to take any action different from those that we are already pursuing to comply with the merger order," the company said in a statement Thursday.

Maybe, maybe not.

Another fire AT&T has to douse is an ever-worsening

deal it made earlier this year with cable TV operators




Cox Communications


. Under the terms of that transaction, Comcast and Cox have the right, starting Jan. 1, to demand that AT&T buy their shares in high-speed Internet company


(ATHM) - Get Autohome Inc. Report

for an aggregate total of $2.9 billion, or $48 per share. On Friday afternoon, Excite@Home shares were trading for $5.06.

According to reports Friday, AT&T is trying to get Cox and Comcast to take some of its cable systems as payment, but those cable companies aren't biting. AT&T declined to comment on the story.

It's not just the MediaOne and the Excite@Home transactions that make AT&T a "motivated seller," to use the real estate cliche. The company is trying to dig its way out of its $62 billion in debt -- a burden that led to the company's unprecedented dividend cut.

"I think they're in a position of weakness," says Uri Landesman, chief investment officer of the

Fleck T.I.M.E. Fund

, which invests in telecommunications, the Internet, media and entertainment. "There are three things going on, all of which are bad," says Landesman, referring to AT&T's disagreement with the FCC, the pressure to sell its stake in Time Warner Entertainment, and the deal with Comcast and Cox. "They're stuck between a rock and a hard place," he says.

Landesman's firm has a small position in AT&T and larger holdings of Time Warner and Comcast, but not in Cox.