FCC Struggles for Accord on AT&T-BellSouth Merger

FCC Chmn. Martin leaves Sat. for China and Japan on a State Dept. trip lasting at least a week, further complicating the process. Martin could join discussions from the road, but that could make the process more difficult. An AT&T official told reporters Thurs. the company is willing to accept any “reasonable” conditions to get the process moving and assure a unanimous vote.

Commissioners and aides were mum on conditions under negotiations. “Everyone is very engaged,” said an 8th floor staffer. Outside sources said a variety of issues are under discussion, including a condition, like one placed on the Verizon-MCI and SBC-AT&T mergers, that encourages competitive access to commercial buildings only the merger partners serve. There also was talk about assuring that the merged companies don’t warehouse spectrum. Martin and the 2 Democratic commissioners were “quite far apart on several… high profile items, including network neutrality rules, special access pricing and performance benchmarks,” Medley Global Advisors said Wed. in a report.

“It remains questionable whether the four FCC commissioners involved in the proceeding will be able to agree on an order this week, which could push back action beyond next week, given the chairman’s planned trip to Asia,” Stifel Nicolaus said in an analysts’ note. Wild card #2: FCC Comr. McDowell has recused himself, leaving the vote to his 4 colleagues. If there’s a tie, McDowell might be pressed into service, perhaps further delaying the process, since he would need to bone up on the issues, said the analysts. McDowell hasn’t been participating in the merger review, for example not taking meetings with industry and public interest groups.

“We're continuing to still work on the merits of the issues that people are raising,” Martin told reporters after the Thurs. agenda meeting. “I'm not focused on the politics of it either. I'm focused on the merits of the issues that people have raised.”

Martin wouldn’t say if he would ask Gen. Counsel Sam Feder to review whether to recuse McDowell from voting on the order. McDowell hasn’t participated in any meetings on the item since an order was circulated. “I'm focusing on trying to make sure that I work with the concerns of my Democratic colleagues and try to address the concerns that they've raised in a way that we can try to get their support,” Martin said: “Has there been any progress? Yeah, I think whenever we're engaging in a dialogue you wind up making progress.”

AT&T Senior Vp Robert Quinn told reporters his staff stayed late Wed. to answer Commission questions and was prepared to work Thurs. evening, too. AT&T made clear to the Commission’s Democrats it wants a unanimous vote on the merger, he said: “We have always been willing to work with the Democratic offices before. We were able to work with them last year [on the AT&T-SBC merger]… I'm not going to negotiate in the press but if the Democrats are willing to engage with us we'll get to four.”

AT&T will consider “any reasonable proposal” FCC Democrats air, Quinn said. AT&T is assuming McDowell won’t vote on the merger order, he said, adding that even if the FCC fails to pass the order today (Fri.) Martin seems committed to keeping the order on circulation and open for a vote outside a formal meeting. “My only fear has always been we're in an election year,” Quinn said: “A lot of things get political in an election year… Tomorrow is a good point to get this finished. I fear that if we don’t get it done tomorrow election year politics will overtake everything.”

An argument for the merger remains that without it BellSouth can’t offer video to compete with cable in its 9- state territory, Quinn said. “BellSouth didn’t have a video proposal in large part because of the programming costs,” he said. “How successful have the overbuilders been? Well one of the reasons they're not successful is they don’t have a big enough base of subscribers to basically get programming costs in line with the competition.”