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FCC Approves AT&T-BellSouth Merger

Late-Friday Vote Creates Telecom Giant Four Times Larger than Verizon

By Martin H. Bosworth
ConsumerAffairs.com

December 29, 2006
As 2006 ticked to a close, the Federal Communications Commission voted unanimously to deliver a Friday afternoon gift to mighty AT&T, approving its $85 billion takeover of BellSouth, over the objections of consumer groups who said the merger delivered no benefits to consumers.

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Broadband Access • Few Are Neutral in Net Neutrality Battles • Google Petitions FCC Over Verizon's Use of Wireless Spectrum • House Committee Grills FCC Over Wireless Auction • FCC's Martin: No Opening Of Wireless Networks • FCC Releases Broadband Report, Admits Data is Faulty • Verizon Wins Wireless Spectrum Auction • Bush Declares Broadband 'Connection Accomplished' • Google Will Bid In Wireless Spectrum Auction • Verizon Agrees to Stop 'Unlimited' Claims • Google Challenges Verizon Over Lobbying Of FCC • Sen. Kerry Wants New Broadband Policy • Verizon Wireless Challenges Spectrum Auction Rules • FCC Passes Compromise Rules For Wireless Spectrum Auction • Google, AT&T Square Off Over Wireless Broadband • Senate Wants Better Data On Broadband Deployment • FCC Takes a Closer Look at Broadband Deployment • Groups Urge FCC To Create Wireless Broadband Competition • FCC Chair Grilled By Congress Over Favorable Treatment of AT&T, Verizon • FCC Rolls Out New Rules On Video Franchising • FCC Approves AT&T-BellSouth Merger • AT&T Offers Net Neutrality Concessions To Win Merger Approval • FCC Plays Santa for AT&T, Verizon • Consumers Sidelined as Broadband Battles Rage • Wireless Broadband Still Expensive, Service Still Spotty • High-Speed Internet Overtakes Dial-Up in Market Share • U.S. Still Lags In Broadband Access • Municipal Wi-Fi: The Internet's Next Step? • Verizon Limits Its "Unlimited" Wireless Broadband Service • California Bill Seeks to Jumpstart Cable Competition • GAO: Broadband Access Difficult To Measure • Congress Wrestles with Net Neutrality --- More ...

It's a fondly-treasured Washington tradition to take actions likely to be unpopular with large segments of the electorate on a Friday afternoon, when they're least likely to be noticed. A Friday before a holiday weekend is even better.

The commission's action followed last-minute concessions by AT&T intended, although critics said some tricky legal language may end up costing consumers more in the end.

It's the largest deal ever in U.S. telecommunications history. The new AT&T will have a market capitalization of over $220 billion -- more than double that of Verizon. It will serve more than 70 million local phone customers in 22 states, as well as 10 million broadband users.

Among other things, the merger gives AT&T full control of Cingular Wireless, which it had operated as a joint venture with BellSouth. The company has said it will phase out the Cingular brand name, replacing it with the AT&T brand.

AT&T also says it will aggressively roll out its new Internet video service in what was previously BellSouth territory. It plans to reach 19 million homes in its own 13-state region by the end of 2008.

The 20-page list of concessions was delivered to the FCC late yesterday (Dec. 28) in the hope that the commission would vote on the merger before the end of the year.

The merger talks had been stonewalled between the 2 Republican and 2 Democratic members of the commission who can vote. Robert McDowell, the fifth FCC commissioner, formally recused himself on the grounds that he once represented competitors of AT&T as a lobbyist.

Chief among the concessions was a promise to maintain standards of "net neutrality" on AT&T's broadband services for 30 months from the date of the merger approval.

Net neutrality, the principle of maintaining free and equal access to all Internet content, was staunchly opposed by AT&T, which wants to offer high-speed premium services and prioritize delivery of that content at the expense of its existing service.

"[I]n the interest of facilitating the speediest possible approval of the merger by the Commission, Applicants agree to the attached merger commitments, which are significantly more extensive than those submitted on October 13," AT&T said in its statement.

Other concessions included a promise to reestablish 3,000 jobs in America that had been outsourced to other countries, and an offer of stand-alone DSL for $19.95 a month in BellSouth's territories.

Consumer groups hailed the agreement as a victory that enables low-income neighborhoods to breach the digital divide, as well as for supporters of net neutrality overall.

"This merger endangers long-term competition," said Consumers' Union vice president Gene Kimmelman. "But by making AT&T's high-speed Internet service available to consumers for less than $20 a month, the FCC could open the door for consumers to connect low-cost Internet telephone service to broadband and thereby pressure the market to keep delivering lower prices for all telecom services."

Ben Scott, policy director of media watchdog Free Press, agreed.

"Making Net Neutrality a condition of the largest merger in telecommunications history would set an important precedent," he said. "For free speech, democratic participation and economic innovation to thrive online, Net Neutrality must be the law."

Bait And Switch?

However, AT&T may have pulled a fast one.

In enumerating its net neutrality concession, AT&T said that, "This commitment also does not apply to AT&T/BellSouth's Internet Protocol television (IPTV) service."

AT&T's push for IPTV is the cornerstone of its new UVerse high-speed Internet project, and the agreement may allow its UVerse rollout to sidestep its own net neutrality guarantee.

Commenters at technology blog TechDirt noted that, "AT&T promises not to violate network neutrality on a network they never intended to use that way, and carves out permission to use it on their new network, where they had planned all along to set up additional tollbooths."

The AT&T peace offering comes on the heels of the FCC's decision to ease rules for telecom companies to offer video franchising in communities. The new rules eliminate requirements for companies to "build out" service to all parts of a town or region, and streamlines the approval process.

Critics charged the new rules will empower telecoms like AT&T to "cherry pick" by selling high-speed broadband and TV services only in the most affluent neighborhoods.

AT&T reiterated its commitment to deliver high-powered services like UVerse in the concession letter.

"AT&T is committed to providing, and has expended substantial resources to provide, a broad array of advanced video programming services in the AT&T in-region territory," the company said.

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