Net Neutrality Stalemate on AT&T Merger

A two-month stalemate among commissioners of the US Federal Communications Commission regarding the proposed merger of AT&T and regional provider BellSouth may be reluctantly broken by one commissioner who had earlier recused himself, having previously served as counsel for a firm that lobbied on behalf of AT&T's competitors.

It could be the largest merger in American history, currently valued at $82.2 billion. It could also be the most costly irony in history, as some government regulators, legislators, and the whole of the Dept. of Justice is actively behind a deal to sew back together what the 1984 divestiture order made the former AT&T Corp. tear from its ribs: the southeastern US service arm of the former Bell System.

If the merger does go through, it would be the fourth Baby Bell (RBOC) to be reabsorbed under the AT&T umbrella, although last year, it was AT&T Corp. that was merged into SBC (the former Southwestern Bell), which then assumed the old name but left the RBOC's corporate structure mostly intact.

What's holding up the party is debate over whether one fewer competitor, especially in the southeast, would lead to a systematic reduction in competition. While the DOJ is arguing that one fewer competitor never hurt anyone, opponents point out that the new entity could hold all the cards with regard to the leasing of communications lines to smaller companies that have to provide service over those same lines in order to survive. It was the idea that telecom companies should not have to lease service lines from Ma Bell on her own terms, that led to the creation of MCI and the breakup of AT&T in the first place.

Nominated last January by President Bush to fill a vacant seat after Kevin Martin ascended to the chairman's seat, Commissioner Robert McDowell was previously assistant general counsel for COMPTEL, an association representing smaller communications companies' interests before the federal government.

Last October, COMPTEL put itself on record not as opposing the concept of the merger, but for opposing the terms the two companies negotiated, which the association argued did not do enough to promote competition. The association would possibly support a merger, if its terms included extending provisions that would compensate for the loss of competition in BellSouth's coverage area.

While McDowell was attempting to avoid the appearance of conflict of interest, Chairman Martin is now considering, according to multiple reports this afternoon, asking the FCC's general counsel, Sam Feder, to rule on the matter of whose interests are more important: the government's in seeing this matter through, or the public's in seeing it ethically decided.

However, if Feder rules that McDowell must vote, there's no guarantee that he would break the logjam. He could abstain, forcing a newly installed 110th Congress -- with a Democratic majority in both houses -- to take up the matter after the holidays.

In COMPTEL's petition before the FCC last October, its attorneys wrote, "The Applicants' proposed thirty-month limitation with an automatic sunset on conditions and commitments must be considered in light of the substantial competitive harms that would result from the combination of AT&T and BellSouth. The damage to competition and innovation can only be cured by the assurance of a pro-competitive environment that reasonably and effectively invites the entry and expansion of competitive carriers. It will take new entrants many years to expand sufficiently to replace the competition lost due to the merger.

"When viewed from such a perspective," the petition continued, "it is clear that the proposed limitation will cause the conditions to lapse before they are fully and sufficiently implemented and before the pre-merger levels of competition can be replaced."

Did the DOJ approve the merger too quickly?