FCC Approves AT&T / BellSouth Merger

After AT&T's offer late yesterday of expanded concessions, including some that would guarantee neutrality in its network and routing pricing arrangements, the US Federal Communications Commission voted to approve the merger of AT&T Inc. and BellSouth, the former Regional Bell Operating Company (RBOC) that was spun off from AT&T Corp. in 1984.

As a result of this merger - which was announced in March of this year - none of the RBOC entities formed after the original AT&T Corp. breakup remain in their post-breakup form. The names Pacific Telesis, US West, Southwestern Bell, Ameritech, NYNEX, Bell Atlantic, and soon BellSouth will be relegated to history.

FCC commissioners were apparently impressed enough by AT&T's promise this morning that the merged entity would provide broadband Internet service to 100% of the current BellSouth service region during 2007, including a promise within twelve months of the merger's close (which could be next spring) to provide ADSL service at up to 768 Kbps (though many might not consider that "broadband") as a stand-alone, non-bundled offering to the BellSouth region for $19.95 per month. No word on whether such prices will be extended to the former Ameritech, SBC, or PacTel service areas.

Another effect of the merger is that Cingular Wireless will now be a wholly-owned subsidiary of a single company, now that its two joint founders will be one.

Despite earlier skepticism from two FCC commissioners over possible anti-competitive effects from the merger, it appears the notion that "one less competitor means more room for everyone else" ruled the day. With regard to competition for retail enterprise customers, the FCC stated this afternoon, "The Commission found that competition for medium and large enterprise customers should remain strong after the merger because medium and large enterprise customers are sophisticated, high-volume purchasers of communications services and because there will remain a significant number of carriers competing in the market."

But in an argument that may still raise some eyebrows...then lower them, then raise them again, the FCC statement actually said the merger won't have a negative impact on the voice communications market, because neither merger partner is a major player in the global voice telecom market anyway - only within their relegated region, which just happens to be most of the US.

"The Commission found that neither BellSouth nor AT&T is a significant presence or potential participant in this market outside of their respective regions," reads this afternoon's FCC statement. "Consequently, the Commission found that neither party was exerting significant competitive pressure on the other in their respective in-region territories."

Late yesterday, a letter from AT&T senior vice president Robert W. Quinn, Jr., made public by the FCC this morning, indicated the merger partners are clearly making these concessions begrudgingly, along with other concessions and promises made last October.

At that time, Quinn wrote, "we emphasized our belief that these commitments were wholly unnecessary in light of the demonstrated substantial public interest benefits of the merger and the lack of any cognizable harm to competition. We noted that this belief was shared by the Dept. of Justice, nineteen states, and three foreign countries, all of which subjected the merger to exacting scrutiny and found no anticompetitive effects."

Whether Quinn's claim of exacting scrutiny on the part of the Justice Dept. is correct may be the subject of scrutiny in its own right after the holidays, when the matter is likely to come up before a post-Democratic-upheaval reoriented Congress. There, lawmakers are considering whether the DOJ bypassed new rules mandating judicial review of its concerns about the merger, by simply having no concerns about it whatsoever.

As promised, FCC commissioner Robert McDowell abstained from today's vote, citing possible conflict of interest. However, his office issued a statement immediately thereafter: "I am delighted that my colleagues and the merging companies were able to come to terms so quickly after last week's announcement," McDowell wrote. "The shareholders, employees and customers of the new combined company all stand to benefit from the Commission's thoughtful and prompt action. Congratulations to all."

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