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Dealwatch: AT&T-BellSouth

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Published January 2, 2007 at 2:15 PM
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The Federal Communications Commission came through Dec. 29 and approved the $80 billion AT&T-BellSouth merger, creating for chairman and chief executive Ed Whitacre, a telecom behemoth.

After months of regulatory scrutiny amid the competition's outcries, approval for the deal hinged solely upon the FCC's OK, and until the 11th hour, it looked like we would have had to wait until 2007 to see whether it could pass regulatory muster. But an FCC vote on the merger, which will largely marginalize the No. 2 U.S. telecom carrier, was pushed back twice since October and didn't make the commission's agenda for a scheduled Dec. 20 meeting. FCC approval was the only hurdle remaining in place, after the Department of Justice gave the megamerger its own, unconditional blessing in October.

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THE GREAT COMPROMISE

On Dec. 28, AT&T offered a new filing with a series of conditions, which appeased the commissioners, who had been deadlocked 2-2 along party lines after republican Robert McDowell, a recent appointee to the FCC's five-member panel, recused himself from the decision. He was formerly the assistant general counsel for the Washington-based Competitive Telecommunications Association, or Comptel, where he was a vocal critical of major telecom mergers.

As The Deal's Ron Orol reported:

"...McDowell's decision earlier this month not to vote on the deal put pressure squarely back on AT&T to offer conditions that would win bipartisan consensus at the agency. It gave the agency's two Democrats, Michael Copps and Jonathan Adelstein, additional leverage in negotiating the terms of the deal.

Without McDowell, Martin and fellow Republican commissioner Deborah Tate had been trying to snag the third vote needed to approve the deal by negotiating with Copps and Adelstein who had been demanding several conditions that Martin opposes. Martin had been reluctant to grant concessions to the Democrats that both he and AT&T have opposed, but in an effort to obtain approval of the merger, they agreed to a series of late new conditions."

  • One key issue with this deal is a fear that the combined company will have the power and incentive to deny access to its Internet backbone to other competitors. AT&T agreed to a “net-neutrality” requirement prohibiting merging companies from blocking or interfering with data or voice services that must be carried over big phone companies’ networks. The restriction applies for two years or until Congress approves net-neutrality legislation.
  • AT&T also agreed to the divestiture of all of the valuable BellSouth spectrum located at the 2.5 gigahertz portion of the spectrum band within a year of the deal's closing. The Democratic commissioners want the agency to auction it to competitors to develop new Wi-Fi services. In April, a watchdog group called for federal regulators to order large portions of the wireless communications spectrum controlled by the two sold to competitors that have greater incentive to quickly build broadband Wi-Max networks over them.

A LONG SEVEN MONTHS

The deal was suspended in regulatory tie-ups for the better part of 2006.

  • On May 1, the DOJ failed to issue regulatory clearance for the pending merger and decided to give it a second look.
  • Ten days later the U.S. District Court for Washington D.C. held a hearing on challenges to the SBC-AT&T and Verizon-MCI mergers.
  • On June 5, public requests to the FCC to deny the merger came due. A group of leading U.S. telecom companies filed comments urging the Federal Communications Commission to deny the merger, citing irreparable harm to competition and the public interest.

BULKING UP <%

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