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COMMENTARY: THE FCC'S KENNARD: 'THIS COULD BE THE BREAKTHROUGH MERGER'

Just a year ago, then-Federal Communications Commission Chairman Reed E. Hundt declared that AT&T's (T) rumored plan to buy a Baby Bell--SBC Communications Inc. (SBC).--was ''unthinkable.'' After all, Hundt railed, the 1996 Telecommunications Act was supposed to encourage long-distance carriers to compete with the Bells--not merge with them. The deal never jelled.

Now, the FCC's reaction to AT&T's proposed hookup with cable giant Tele-Communications Inc (TCOMA). is a lot friendlier-- one might say almost jubilant. ''This could be the breakthrough merger,'' says Hundt's successor, William E. Kennard. He calls the deal ''eminently thinkable.'' Hundt, now a telecom consultant at Charles Ross Partners, was ecstatic: ''Thank God Almighty, there could be competition at last.''

After all the false starts of telecom deregulation and years of unsuccessfully pounding the Baby Bells to share their lines with new rivals, AT&T and TCI have come up with the first deal that carries out the law's intent of bringing competition to local phone markets. For Kennard and his team--who have come under criticism as the wait for competition appeared to be endless--it was a moment to breathe a sigh of relief. They should savor it: From now on, they're going to be busy.

Why? The moment the AT&T-TCI deal was announced, the Bells leaped into action. Let's be frank: There is no deal less attractive from the Bells' perspective than AT&T-TCI. After all, AT&T had almost given up trying to penetrate the local market because of the Bells' vigilant guard-dogging.

BOLD BELLS. Now, the regional phone providers hope to use this merger and its promise of bringing competition to the local market to knock down barriers to the Bells' entry into long distance. The biggest of course: the Telecom Act, which requires the local market to be opened up before the Bells can enter long distance.

Given this deal, the Bells now expect to get theirs. ''I don't see how they can continue to approve deals with long-distance guys and still keep us out of the long-distance market,'' says Robert T. Blau, BellSouth Corp.'s vice-president for regulatory affairs. BellSouth won't oppose the deal but does plan filings with the FCC and Justice asking that the deal not be approved until all barriers to long distance are removed for the Bells.

First in line, no doubt, will be Bell Atlantic, which is waiting for approval from New York State regulators to offer long-distance in that lucrative market. If it gets the O.K., as expected, other Bells will follow in a new round of petitions to state regulators.

The boldest Bell--SBC--is likely to feel emboldened, too. The Texas-based Baby Bell has fought the hardest against the 1996 rules on its ravenous acquisition binge. Currently, SBC has pending deals to buy Ameritech Corp. (AIT) and Southern New England Telephone Co. (SNG) Neither consolidation is exactly what lawmakers envisioned when they cobbled the telecom act together, but both may be hard to stop now that the telecom landscape seems to be changing so dramatically. ''This verifies our vision of the future: Global telecom companies will compete for customers by offering local, long-distance, cellular, cable-TV, data, Internet, security, and related communications services,'' says Barry K. Allen, Ameritech's executive vice-president for regulatory and wholesale operations.

Do the Bells have a strong case? Well, they certainly have a point about AT&T-TCI. If it works, it will be a new model for local competition--a vertically integrated giant offering one-stop shopping for everything from local and long-distance service to cable and Net access.

But Kennard is not entirely convinced. He wants to make sure AT&T will prove its cable connection works first. So, for now, the FCC is likely to hold to the terms of the 1996 bill--and continue to demand proof of competition before allowing them into long distance. There's still good reason for that: Despite the latest deal, local phone companies remain virtual monopolies. But the FCC should also recognize that the technology that makes possible the AT&T-TCI deal they applaud also changes the conditions for other players. And sooner or later, that means that local phone companies will be entering the digital free-for-all. Regulators should be there to make sure they do so in pro-competitive ways.

By Catherine Yang



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Updated June 25, 1998 by bwwebmaster
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