Net Neutrality Stalemate on AT&T Merger

The Justice Dept. swiftly approved the AT&T/BellSouth merger early last October, almost as soon as the matter was brought up, saying the fact that there are so many competitors in telecom markets already indicated that they wouldn't be harmed by one fewer player.

"The presence of other competitors, changing regulatory requirements and the emergence of new technologies in markets for residential local and long distance service indicate that this transaction is not likely to harm consumer welfare," stated DOJ Antitrust division chief Thomas O. Barnett following the approval, adding, "The proposed acquisition does not raise competition concerns with respect to Internet services markets or 'net neutrality."'

But immediately afterward, FCC Commissioner Jonathan Adelstein went on record condemning the DOJ's move, questioning why it acted so swiftly without waiting for the results of a congressional inquiry, when it had urged caution on other merger matters in the past.

"Today's move by the Department of Justice to approve the proposed AT&T-BellSouth combination without condition is a reckless abandonment of DOJ's responsibility to protect competition and consumers," Adelstein wrote. "By failing to issue a complaint, consent decree or condition, it appears DOJ took a dive on one of the largest mergers in history just to avoid further court scrutiny."

One concern, raised by COMPTEL last October, is whether the newly merged entity could force smaller competitors, not just in the southeast but across the country, to lease access to its lines in bundle deals only. This could effectively limit potential lessees to just the major players - those with the capability to provide voice, data, and television service in a "triple play," or not at all. That makes the merger conditions effectively a net neutrality issue, merging -- if you will -- the AT&T/BellSouth debate with the existing fracas in Congress over whether national Internet licensing would lead to favoritism among the major players.

But another issue could be equally as intriguing: A newly merged telecom powerhouse could conclude it needs fewer providers of raw materials, especially copper, as it continues its conversion to a fiberoptic system. Smaller telecom competitors don't have the capital required to compete in the fiberoptic space, and continue to require copper in order to complete "the last mile" between private telecom lines and households.

But if AT&T decommissions the copper plants, they could cease to produce copper altogether. "Putting the brakes on this anti-competitive activity, and preserving the copper last mile access required for intra-modal competitors to reach customers, is critical to ensuring that consumers have more than one or two choices of service providers," COMPTEL wrote.

Its proposed solution would apparently keep copper providers in business, at least for awhile. But lawmakers and commissioners on both sides of the merger issue may argue, why force a phone company to purchase raw materials it doesn't need?

With the absence of McDowell to break any ties, the remaining four commissioners have been hopelessly deadlocked over the past two months over whether to impose these and other conditions upon the deal. The deadlock has led to a bigger debate throughout Washington, over whether such conditions would amount to too much government control over what industry leaders consider innovation.

Last month, the merger partners agreed to provide DSL broadband service to customers in outlying areas for as low as $10 per month, and not requiring customers to subscribe to AT&T phone service in order to qualify for good rates on broadband, in response to requests from House Democrats. But part of the current debate concerns whether this is actually a good thing: The new AT&T already has an advantage in being able to install DSL service in rural areas, that its competitors don't enjoy. If AT&T clinches those customers before others have a chance, they may never get that chance.

After the DOJ decision in October, Commissioners Adelstein and Michael Copps wrote FCC Chairman Miller, urging him to open up the merger matter before a public hearing.

"Given the limited analysis from our leading antitrust authorities," the commissioners wrote, "it is all the more imperative that we now employ an open process to fully involve all affected parties, including the applicants, in order to get the public and expert review that is otherwise lacking...To put this in context, we are still six months ahead of the time it took us to complete the Adelphia-Comcast-Time Warner merger, a transaction less than one-fifth the size of this one."

But when protracted debate forced Miller on November 2 to pull the public hearing from the docket, COMPTEL went on record as supporting Miller's move to suspend a public hearing.

"COMPTEL applauds the FCC for choosing not to consider the proposed merger of AT&T and BellSouth at its Nov. 3 open meeting," a COMPTEL statement said. "Given AT&T's failure thus far to make a good faith effort to address legitimate public interest concerns, COMPTEL is heartened that the Commission did not bend to AT&T's pressure tactics. It remains to be seen whether AT&T ever engaged in any meaningful attempt to resolve those concerns but we look forward to seeing what, if any, last-minute proposals they may have made to the Commission."

So even if McDowell were compelled to vote, and chose not to abstain, it isn't exactly clear at this time that he'd necessarily vote in accordance with his old employer even if he opposed the merger in principle. And however he votes, legislators early next year may take up the issue over whether a matter this important, with enormous impact on the future of global telecommunications, should ever be hoisted onto the shoulders of just one man.