The Federal Communications Commission yesterday relaxed limits on the breadth of a single company's cable television holdings, improving the prospect for AT&T's plans to absorb cable giant Media One Group Inc. and furthering the company's efforts to use cable lines as a conduit for high-speed Internet access and telephone service.

The commission reaffirmed a prior decision to bar any one cable company from controlling more than 30 percent of the total market. But then it expanded the definition of the market: Satellite television subscribers will be included, and actual cable subscribers--rather than all homes within reach of cable--will be counted. That change means a company could now hold up to 36 percent of the market under the old definition and still meet the cap.

Yesterday's proceedings took place in an uncertain atmosphere. The power of the FCC to impose such limits has been challenged in court and the rules have been suspended pending the outcome of the case. Still, AT&T regards the rule change as significant: It indicates the commission's thinking as it takes up the company's merger application.

The key provision of the rules adopted yesterday hands AT&T the opportunity to restructure its Media One purchase and gain regulatory approval without shedding any holdings, even if it exceeds the new limit. Media One carries a 25 percent stake in a partnership with Time Warner Inc., another cable giant. If those cable lines were counted toward AT&T's holdings, the company acknowledges that it would exceed the 30 percent cap, even under the new, expanded rules. But now, if AT&T can convince the FCC that it wields no influence over Time Warner's cable programming, those cable lines would not be counted.

"The new cap permits us to proceed with the Media One deal," AT&T Chairman C. Michael Armstrong said at a news conference, even as he vowed to challenge the 30 percent cap in court.

FCC Chairman William E. Kennard portrayed the new rules as a balance between potentially conflicting mandates delivered by Congress: On one hand, the Cable Act of 1992, which compels the commission to limit the size of cable holdings so video programmers have multiple avenues into living rooms; on the other, the Telecommunications Act of 1996, which compels policies that will foster more telephone competition.

As Kennard portrays it, AT&T's cable plans are crucial to delivering more local telephone competition and high-speed Internet access. The company has been gobbling up cable lines across the country, seeking to ride them directly into homes and businesses. Kennard said he is sympathetic to the argument--frequently advanced by AT&T--that the company can't offer such local services until it can gain significant market share, giving it the scale to compete.

"It's all about my passion to get high-speed Internet access in every home as soon as we can," Kennard said in an interview. "The cable industry is a logical provider of those services. We want them to move aggressively. . . . We're trying to create as much incentive for them to do that as possible."

Kennard maintained that the new rules will protect consumers against a monopolistic cable interest. But some citizen groups blasted the decision as a giveaway to AT&T, accusing the commission of tailoring its rules to ensure AT&T is able to buy Media One.

"This is reprehensible," said Andrew J. Schwartzman, president of Media Access Project, a nonprofit law firm that represents consumer advocates. "This is a legal fiction written to AT&T's script . . . They don't need to own Media One in order to do Internet and telephony. They basically blackmailed the FCC."

The commission's action yesterday was technically discrete from its consideration of AT&T's Media One purchase. Under the Cable Act, the commission had to determine how broad one company's cable holdings may swell before video programmers and consumers are threatened. In 1993, the commission adopted an order placing the allowable limit at 30 percent of all households within range of cable lines. But the statute was struck down as an infringement of freedom of speech by U.S. District Court in Washington. An appeal is pending, with arguments scheduled for December.

The FCC decided yesterday that its new rules will apply within six months of a resolution of the court case and will be made retroactive to AT&T's Media One merger.

"They signaled they didn't want to tube the AT&T-Media One deal, but that it wouldn't pass as currently structured," said Scott Cleland, an analyst with Legg Mason Precursor Group. "They really threw it back in the lap of AT&T to figure out how to make it pass muster."