TELECOM Digest OnLine - Sorted: The Largest Telecom Merger in History

The Largest Telecom Merger in History

Associated Press News Wire (
Sun, 31 Dec 2006 17:33:01 -0600

Regulators OK AT&T-BellSouth merger
FCC OKs largest telecommunications merger in U.S. history
The Associated Press

WASHINGTON - AT&T Inc. extended its dominance as the nation's largest
provider of phone, wireless and broadband Internet services by
acquiring BellSouth Corp. in the largest telecommunications takeover
in U.S. history. It takes place officially on January 1, 2007.

The Federal Communications Commission unanimously approved the $86
billion buyout on Friday, a day after the company offered new
concessions for consumers and competitors.

Lawyers for AT&T and the two Democratic commissioners who had opposed
the merger hammered out a compromise, the details of which were
released Thursday night.

AT&T promised to observe 'network neutrality' -- not to favor Internet
content providers who pay the company more money -- and to offer $19.95
per month stand-alone digital subscriber line service. AT&T will also
divest some wireless spectrum.

AT&T offered the concessions after a little more than a week of marathon
negotiations with lawyers for the two Democrats on the commission,
Michael Copps and Jonathan Adelstein. The lawyers hammered on AT&T
all of last week.

The combination of San Antonio-based AT&T and Atlanta-based BellSouth
will have operations in 22 states. AT&T estimates that about 10,000
jobs will be phased out over three years.

Combined, the companies generate about $117 billion in revenue and
operate 68.7 million local phone lines stretching coast to coast
across the southern United States and up through the Midwest.

The buyout will also give AT&T complete control over Cingular Wireless,
the nation's largest wireless telecommunications provider, which it had
jointly owned with BellSouth. AT&T is also trying to roll out television
service to compete with cable operators.

Adelstein said Friday he was pleased with the agreement.

"We got substantial concessions that are going to mitigate a lot of the
harms that would otherwise have resulted from this merger," he said.

Copps said he was not fully satisfied with the deal that he and
Adelstein struck with AT&T, but he called the outcome 'a modest
victory for American consumers.'

But FCC Chairman Kevin Martin, a Republican who supported the merger
with no strings attachjed from early on, and fellow Republican Deborah
Taylor Tate complained that AT&T was forced to accept 'unnecessary'
conditions to win approval for the deal. He said that "AT&T was
bullied into going along with this."

Martin and Taylor Tate said the conditions "impose burdens that have
nothing to do with the transaction, are discriminatory, and run contrary
to commission policy and precedent."

Consumer advocates had opposed the merger from the start, but they put
the best face on the compromise, pointing to AT&T's promise of network

Mark Cooper, research director for the Consumer Federation of America,
said neutrality would protect a 'free and open Internet.'

The intense negotiations between AT&T and the FCC came after one of the
panel's three Republican members, Robert McDowell, removed himself
because he had been a lobbyist for Comptel, a trade group that opposed
the deal. That gave the two FCC Democrats more leverage.

McDowell said Friday he was delighted that a deal had been reached.

Under terms of the buyout, BellSouth shareholders will receive 1.325
shares of AT&T stock for every share of BellSouth. In March, when the
deal was announced, it was valued at $67 billion, but a runup in AT&T's
stock price has raised the value to about $86 billion.

The FCC vote on Friday was the last regulatory hurdle. The Justice
Department approved the merger on Oct. 11 without conditions, a move
that angered many Democrats.

In an effort to win over Copps and Adelstein, AT&T offered some
concessions in October, but they were rejected. AT&T's senior vice
president for regulatory affairs, Robert W. Quinn Jr., called the
conditions that were finally accepted Friday 'significantly more
extensive' than those first offered by the company.

The new offer extends the lifespan of many conditions from 30 months to
42 months or longer.

Among the promises that AT&T made:

1) An offer of stand-alone, DSL Internet service to customers in its
service area for $19.95 per month for 30 months. The offer lets
customers in AT&T and BellSouth service areas to sign up for high-speed
Internet access without being forced to buy other services.

2) To cap rates for four years on 'special access' customers, usually
competitors and large businesses that pay to connect directly to a
regional phone company's central office via a dedicated fiber optic line.

3) To divest all of the 2.5 GHZ spectrum currently licensed to BellSouth
within one year of the merger closing date.

4) To bring back to the United States by the end of 2008 some 3,000 jobs
that were sent overseas by BellSouth, with at least 200 of the jobs to
be in New Orleans.

The most difficult item in the negotiators was network neutrality.

1) AT&T promised to not to give an advantage to any content provider's
traffic over its high-speed Internet network. Consumer activists and
some Web sites had feared the company could have sold better-quality
transmission service to Internet companies that would pay it the highest

Martin was unconvinced the network neutrality provisions are

"The conditions regarding net neutrality have very little to do with the
merger at hand and very well may cause greater problems than the
speculative problems they seek to address," he wrote. "These conditions
are simply not warranted by current market conditions and may deter
facilities investment."

Meanwhile, Rep. John Dingell, D-Mich., incoming chairman of the House
Energy and Commerce Committee, indicated his displeasure in a statement
that said the process followed by the FCC may be "suitable for committee

Earl Comstock, president and CEO of Comptel, a group that represents
competitors of AT&T, said he would have preferred to see more even
conditions placed on AT&T, and questioned why the compromise came so
quickly. He feels Democrats 'gave it away' to AT&T.

"Compared to where it was in the fall, there was definite progress," he
said of the deal. But given the negotiating position (of the Democrats)
it could be better. Democrats should have demanded even more," he said.

Copyright 2006 The Associated Press.

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