AT&T-BellSouth Merger Hits Hurdles


of the AT&T Inc.-BellSouth Corp. merger in mid-October fraught by last-minute deal-brokering and controversy, agency Chairman Kevin J. Martin canceled consideration of the transaction altogether until November.

He said he was responding to concerns voiced by Democratic Commissioners Michael J. Copps and Jonathan S. Adelstein, although other factors likely came into play. Copps and Adelstein sent a letter to Martin on Oct. 13 asking for a public comment period on 11th-hour proposals for ways to make the merger more palatable to consumers and competitors. Such an approach would facilitate a serious examination of the complex issues and proposals, they wrote, noting the Department of Justice (DoJ) had just a few days before approved the merger valued now at $80 billion, rather than the initial $67 billion without imposing any conditions.

Public comment could be handled on an expeditious basis, need not cause unnecessary delay, and could be completed well in advance of the time frames used by the commission to review other recent mergers, Copps and Adelstein continued.

Martin conceded to the extension, although he seemed to chide Copps and Adelstein in his response, asking them to raise their concerns sooner, rather than later, to avoid any further delay in our consideration of this transaction.

The FCC was expected to vote on the AT&T-BellSouth merger on Oct. 13, and the postponement came as a relief to many competitive carriers and consumer interest groups, which had taken umbrage at the DoJs failure to enforce conditions on the deal. In response to the DoJs decision, organizations such as Free Press and flooded the FCC with thousands of letters; FCC spokesman Mark Wigfield could not comment on how much impact the opinions might have had on the agencys deferred considerations of the AT&T-BellSouth matter.

On Oct. 10, Justice Department Assistant Attorney General Thomas Barnett reasoned that the presence of other competitors, changing regulatory requirements and the emergence of new technologies for residential local and longdistance service meant the deal likely would not harm consumers. He explained in a statement that, The proposed acquisition does not raise competition concerns with respect to Internet services markets or net neutrality.The merged firm would continue to face competition from other facilities-based rivals in the provision of telecommunications services to business customers including local private line services. The combination would not significantly increase concentration in the ownership of spectrum in any geographic area or give AT&T control over a large enough share of all spectrum suitable for wireless broadband services to raise competitive concerns. Finally, the merger would likely result in cost savings and other efficiencies that should benefit consumers.

Other factors that may have influenced Martins decision to push back discussion on the merger included the filing of emergency motions by NuVox Communications and XO Communications. The carriers asserted the agency disregarded public disclosure requirements. Media reports on Oct. 12 noted AT&T executives were negotiating with the FCC behind closed doors, and one lawyer, Robert Quinn, senior vice president for regulatory affairs, told Reuters, We have put a full set of conditions on the table that are reasonable and protect consumers. I want a deal with these guys; we want a 4-0 vote. XO and NuVox said those talks should be held publicly. The FCCs Wigfield could not comment on the weight of the emergency motions, either, except to say they were pending and that the commission looks at all comments.

An additional issue that is likely to figure into the public comment period in the weeks leading up to the FCCs November meeting related to ongoing Tunney Act proceedings. Copps, Adelstein and groups including the Competition Coalition and COMPTEL all contended a federal judges review of potential competitive harms done by the AT&T-SBC and Verizon-MCI combinations should conclude before any blessing of the AT&TBellSouth deal. [W]e have concerns about whether it is appropriate for the commission to conclude its consideration of this merger while the federal courts are still reviewing the remedies imposed to address last years telecommunications mergers, Copps and Adelstein wrote in their Oct. 13 letter.

And, a related kink in the works stemmed from the DoJs Oct. 10 approval of the AT&T-BellSouth merger. Instead of issuing a consent decree, the department merely distributed a press release. The absence of an official decree keeps the transaction from being subjected to judicial review, unlike its predecessors, which have been under review since May. The Alliance for Competition in Telecommunications (ACTel) decried the move as a flat contradiction to the DoJs justification for the approval of the previous Bell mergers.

AT&T countered concerns about a lack of conditions late on Oct. 13. While the carrier admitted it wanted to push the merger through with no requirements, it said it was willing to offer certain concessions for 30 months in its operating territories (see list below). AT&T did not respond to inquiries asking what would happen to the conditions after the 30-month period had ended.

AT&Ts Proposed Concessions

  • Forbearance

The carrier committed that, for 30 months from the merger closing date, it will not seek any rulings using the forbearance process, or pursue any other petition that would alter the status of any facility currently offered as a loop or transport UNE.

  • UNEs
  • The combined AT&T-BellSouth said it will continue to offer, and would not increase, rates for UNEs or colocations in effect at the mergers closing date.

  • Special access
  • The company promised not to increase existing customers (at the time of the mergers closing) rates of DS1 and DS3 local private line services provided in-region. It will not provide special access to wireline affiliates that are not available to other similarly situated special access customers on the same terms and conditions. The company further said it will not unreasonably discriminate in favor of its affiliates in establishing the terms and conditions for grooming special access facilities.

  • Promotion of broadband accessibility
  • to be achieved by offering Internet access at speeds more than 200kpbs in at least one direction to all in-region residents by Dec. 31, 2007. The company also said it will provide ADSL modems free of charge (except for shipping and handling) to wireline-accessible residents who replace dialup with high-speed access, and who commit to a 12-month, or longer, contract. New retail subscribers, accessible by wireline services, will be able to buy 768kpbs Internet access for $10 per month.

  • Wireless
  • The carrier said it will initiate 10 new trials of broadband Internet service using 2.3GHz or 2.5GHz spectrum by the end of 2007. At least five of those trials will be conducted in BellSouths in-region territory.

    AT&T Inc.
    BellSouth Corp.
    Competition Coalition
    Department of Justice
    The Alliance for Competition in Telecommunications

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