DECEMBER 22, 2006
Technology
By Steve Rosenbush
AT&T, BellSouth Nearing FCC Approval
Despite the current partisan deadlock over the proposed merger, the FCC is unlikely to withhold approval from the telecom giant for long
When Federal Communications Commissioner Robert McDowell announced this week that he would not step in to break a 2-2 party line deadlock over AT&T (T) and BellSouth's (BLS) application to combine, it appeared to be a big blow for the companies (see BusinessWeek.com, 12/18/06, "AT&T-BellSouth Talks: Back to the Drawing Board").
Hopes that the deal would be approved this year, or even in January, were dashed. Regulatory analysts warned that a months'-long stalemate was possible. Some even raised the possibility of a delay until June. That's when McDowell, who once worked for AT&T's rivals, is free to vote on the deal, under the terms of his appointment.
Even so, the odds still favor fairly quick approval of the $84 billion deal. Following a face-to-face meeting Dec. 18, the companies have continued phone conversations with FCC Democrats who oppose the deal, and their staffs, BusinessWeek.com has learned. While no agreement on deal conditions is imminent, progress is being made, according to Washington sources.
Negotiation Continues AT&T's deal for BellSouth has been snarled in a debate over whether telecom companies should be able to charge heavy bandwidth users like Google (GOOG) and Yahoo! (YHOO) a premium for carrying their traffic, which includes a quickly rising volume of hefty video files. Telecom companies say they are spending billions to upgrade their networks and need a reasonable return on their investment.
In a possible compromise, AT&T has suggested it may agree to freeze bandwidth prices for several years. That would stave off any immediate threat to big Internet traffickers like Google. A broader agreement on so-called Net neutrality could be addressed in Congress, which may rewrite the Telecom Act of 1996. AT&T is also offering to give away entry-level broadband service in BellSouth territory and to test new high-speed wireless data technologies. "We will—as we have always done—do our part to bring the merger review to a bipartisan completion as quickly as possible," an AT&T spokesman said.
There's a good chance an agreement could be reached by the next FCC meeting, which is scheduled for Jan. 17, and an equally good chance an agreement could be struck before then, according to the sources.
Political Wrangling The tone of the talks may have improved since McDowell dashed expectations he would join the fray. Republican Chairman Kevin Martin wanted McDowell, a fellow Republican, to "unrecuse" himself (see BusinessWeek.com, 12/4/06, "Telecom Regulation: High Water Mark"). But McDowell refused, citing pressure from the FCC general counsel and the White House ethics office, and Democrat commissioners Jonathan Adelstein and Michael Copps gained leverage from the decision. But Rep. John Dingell (D-Mich.), who is expected to be the next chairman of the House Energy & Commerce Committee, which oversees the FCC, is urging the commission not to saddle the deal with conditions that have nothing to do with the actual transaction.
The Consumers Union and other groups, part of a coalition called Save the Internet, argued Oct. 24 in Washington that AT&T and BellSouth will hurt consumers by raising prices and altering the open economic model that has spurred the Internet's growth.
The former SBC executives have been able to reach compromise with Copps and Adelstein before. The company persuaded them to approve SBC's acquisition of AT&T; SBC took AT&T's name after that deal was completed (see BusinessWeek.com, 8/31/05, "So Long, AT&T? Not So Fast").
Stalled, Not Stymied AT&T needs to complete its deal with BellSouth for strategic reasons. The combination of SBC and the old AT&T created a company that competes with BellSouth for corporate customers. And BellSouth and AT&T are joint owners of wireless leader Cingular, making it awkward for them to compete in other markets.
It's always possible that a deal won't be reached. But AT&T Chief Executive Ed Whitacre Jr. has a knack for winning these sorts of regulatory battles, thanks to his combination of ambition, tenacity, and patience, and a crew of well-connected Washington lobbyists.
Former FCC Chairman Reed Hundt famously declared in the '90s that a merger between AT&T and SBC was unthinkable. It took a dozen years, but Whitacre proved him wrong. He probably won't have to wait that long to wrap up his deal with BellSouth.
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