FCC Unlikely to Vote Thurs. on BellSouth-AT&T Merger

A list of conditions under review at the FCC builds on those imposed on SBC-AT&T and Verizon-MCI mergers consummated last year, sources opposed to and backing the merger agreed. “It’s a no-brainer that the Democrats will seek to put the conditions from that round onto this one,” a merger proponent said: “Those conditions include everything from caps on special access to net neutrality to naked DSL.” Whether the merger will get a vote at today’s agenda meeting is unclear, the source said: “It’s almost an hour-by-hour situation.”

“What’s in play right now is, is the meeting going to go forward tomorrow?” a merger opponent said: “In an ideal world the fact that DoJ put out a press release with no analysis makes it difficult for the Commission to rule 24 hours after that.” The FCC’s 2 Democrats seem to be signaling they would oppose an immediate vote on the merger, the source said: “In the AT&T-SBC and Verizon-MCI mergers the FCC relied very heavily on DoJ’s analysis.” Those merger orders contained extensive discussion of DoJ’s public interest analysis, antitrust analysis and remedy. This time around there is nothing, the source said.

Democratic Comrs. Copps and Adelstein sharply criticized DoJ’s decision not to seek a consent decree containing merger conditions. “The Justice Department has packed its bags and walked out on consumers and small businesses,” Copps said, though the AT&T-BellSouth merger is “the largest telecom merger the nation has ever seen.” Echoing others, he said the “abdication looks suspiciously like an end-run around the public interest review required by the Tunney Act: No consent decree, no way for the courts to conduct a review.” Copps said “huge questions” about competition, eliminating another Bell and concentrated Internet control remain unanswered in the DoJ approval’s wake, making it “all the more important for the FCC to ensure that consumer interests have a seat at the table.”

“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 said: “The timing of this announcement is particularly remarkable when one considers that the scant conditions imposed by DoJ in last year’s telecom mergers are under federal court review right now pursuant to the Tunney Act. Leading members of Congress on a bipartisan basis had urged DoJ to wait for the court’s Tunney Act review before moving forward with the proposed AT&T-BellSouth merger.”

With no consent decree “there’s nothing for the courts to act upon,” said Medley Global Advisors analyst Jessica Zufolo. She agreed with Copps that the move at least raises suspicion that the DoJ wanted to avoid judicial oversight of its merger review process. “The fact that the District Court is examining previous consent decrees means there’s at least some… scrutiny over the DoJ’s work that hasn’t been shown in a while,” she said, which could make the Dept. uncomfortable.

There’s uncertainty from increased judicial scrutiny (CD July 26 p1) and this week’s decree-less DOJ approval, Zufolo said. Uncertainty has been introduced by U.S. Dist. Judge Emmet Sullivan’s unusually close review of the SBC-AT&T and Verizon-MCI mergers (CD July 31 p3), which to investors “raises a level of risk that was unexpected, introduces a factor that is impossible to predict,” she said. Uncertainty also “raises a lot of risk for anyone interested in pursuing a merger in the next few years,” she said. On the other hand, regulators and legislators are “flustered that their concerns weren’t addressed…I don’t think anyone’s happy about how the DoJ addressed these issues,” she said.

There’s no basis to the accusation that the DoJ wanted to avoid judicial oversight, and so didn’t impose conditions, 2 Justice officials connected to the process told Communications Daily. In fact, they said, DoJ can’t “impose conditions” like the FCC -- it can only find a merger legal or not with respect to its effect on competition. “We determined there was not a substantial harm to competition and there’s no lawsuit we can bring,” one source said, pointing to the FCC’s “slightly broader standard.” The other official added: “Remember… this was the result of a 7- month investigation” involving many officials, many interviews and collecting data from both the merging and 3rd parties, all “taking into account [competitive] changes the industry has gone through.”

The DoJ officials challenged Copps’ criticisms about the merger’s size. “The actual dollar value of the deal doesn’t mean it creates an antitrust problem,” one told us, reacting to Copps’ assertion that the deal is the biggest telecom merger in U.S. history. She said that, contrary to merger opponents’ comments Wed., the DoJ isn’t “recreating the Bell system… we're not recreating anything.” She added “This is not 1970, 1980” and the technological landscape is profoundly different from what it was in those times, with wireless, Internet, cable, satellite and CLEC companies all vying for the same consumers.

“We continue to expect the FCC will impose conditions on the combined company in the BellSouth region similar to the generally modest conditions -- on UNE/wholesale rates, special access, Naked DSL, and network neutrality -- that it imposed last year in the SBC-AT&T transaction,” said analyst firm Stifel Nicolaus. “There is some question about whether the conditions would be extended in time, tweaked, or accompanied by new conditions. Bell rivals and other critics have asked for various new strings to be attached, such as baseball-style arbitration of special-access disputes, actions to prevent spectrum warehousing, and cable/VoIP interconnection guarantees.”

Conditions aren’t likely, said Jupiter Research analyst Joe Laszlo. With “the wave of telecom mergers” the past few years, he said, conditions have “become less and less onerous and less and less enforced over time.” He pointed to the SBC-Ameritech acquisition, on which he said the FCC imposed out-of-market competition conditions it never enforced. It would be “cynical” for the FCC to impose conditions the agency knows it won’t back up, Laszlo said.

Net neutrality advocates condemned the Justice Dept. move as failing consumers. “We are witnessing a wave of concentration in the telecommunications market that threatens to sweep away the free and open Internet,” said Free Press Policy Dir. Ben Scott. The merger shouldn’t be allowed to proceed without “permanent, binding protections for net neutrality,” he said: “The new AT&T wants all the market power of its old monopoly without any consumer protections.”

Prominent House Democrats scolded DoJ for approving the deal without showing concern for a growing phone monopoly. The merger of “these 2 Bell behemoths” shows how the Justice Dept. “has become the Executive branch’s version of Rip Van Winkle -- it appears to be deep in the throes of a multi-year slumber,” said House Commerce Telecom Subcommittee Ranking Member Markey (D-Mass.).

“The historic sound of its marketplace-watchdog bark has been replaced by a gentle snore,” Markey said. The agency ducked its responsibility and it’s now up to the FCC to safeguard consumer interests. House Commerce Committee Ranking Member Dingell (D-Mich.) accused the Justice Dept. of ignoring the “competitive harms it identified in prior telecom mergers and the conditions imposed to remedy those potential harms.” In past merger cases, the FCC has gone beyond the Justice Dept. in imposing conditions “to protect consumers and promote competition in the communications marketplace,” Dingell wrote in a letter Wed. to Martin.

DoJ chose “political expediency over the public interest” in approving the merger, Senate Commerce Committee Ranking Member Inouye (D-Hawaii) said. The agency ignored the deal’s “significant impact on business markets,” Inouye said, with the result that competitive alternatives will be reduced to 2 telecom providers - and, in some cases, one. He slammed DoJ for resting its reasoning on the “hope” that facilities-based competition will emerge to provide competition: “Now, more than ever, it will be essential for the FCC to stand up for consumers and to insist upon strong conditions to protect competition.”

“Given DOJ’s action today, the FCC process will be more important than ever,” the letter said. Comptel Pres. Earl Comstock agreed with Dingell. “It is now up to the FCC to protect the public,” he said. The merger violates Justice Dept. merger guidelines, recently applied in a wireless merger “among politically less well-connected companies,” Comstock said: “There is no doubt that re-assembling the Bell system that the Reagan Justice Department broke up is anti-competitive and bad for consumers.”