FCC Approves Long-Awaited AT&T-BellSouth Merger

After months of internal wrangling and false starts, the FCC late Friday unanimously approved the $84 billion merger of AT&T Inc. and BellSouth Corp.

Democratic Commissioners Michael Copps and Jonathan Adelstein said in separate statements that they finally agreed to the transaction once AT&T provided more conditions in the public interest. They noted they still were not wholly pleased with the largest telecommunications merger in history, but, Copps said, I believe that we have made this transaction at least minimally acceptable to American consumers.

Commissioners voted by computer instead of at a public meeting. Republican newcomer Robert McDowell abstained from the proceedings.

Previously scheduled FCC votes on the deal were postponed in October and November as Republican Chairman Kevin Martin was unable to secure agreement from Copps and Adelstein, who stood with groups such as Consumer Federation of America, COMPTEL and MoveOn.org in opposing the proposed merger. The commissioners and organizations all contended AT&T was not divesting enough resources or offering enough consumer and competitor protections, such as net neutrality and special access.

The stalemate started to ease the evening of Dec. 28 when AT&T reluctantly laid out more concessions in hopes of appeasing the two Democratic commissioners blocking the merger. The service provider aimed to break the impasse created by a 2-2 deadlock, as McDowell had earlier decided he would not vote on the deal. Before his appointment to the FCC, McDowell worked as a lawyer for competitive carrier association COMPTEL. And even though the FCCs general counsel said in early December McDowell could legally take part in the merger vote, McDowell announced on Dec. 18 he did not feel that would be ethical, and subsequently bowed out.

That put Martin back at square one with a single fellow Republican, Deborah Tate, on his side. It was a familiar scenario for the chairman, who spent much of the last two years without a Republican majority. Indeed, he honed his deal-brokering skills working to convince Democratic colleagues Copps and Adelstein to approve Verizon Communications Inc.s takeover of MCI Inc. and SBC Communications Inc.s acquisition of long-distance icon AT&T Corp. in 2005.

Then, nearly as soon as SBC closed its $16 billion buyout of AT&T and settled on using the AT&T moniker, industry watchers speculated a BellSouth merger was in the works. AT&T Chairman Ed Whitacre refuted those rumblings, telling BusinessWeek in November 2005 it would be nice to buy BellSouth, but added, I dont think the regulators would let that happen, in my judgment. He did not deny that he had considered buying BellSouth, yet told BusinessWeek, Im not going to do it now.

It seems no one really bought Whitacres assertions though, because when AT&T announced in March it planned to buy BellSouth, the news came as no surprise to insiders and analysts. We speculated in the past two years that AT&T/SBC and BellSouth would eventually come together, in large part due to their joint ownership of Cingular (60 percent AT&T, 40 percent BellSouth) and the contiguous proximity of their territories, said Stéphane Téral, an analyst for Infonetics Research Inc. on March 3.

The news was met with immediate criticism from competitive carriers, their affiliated associations, antitrust advocates and a number of consumer groups. Much of the resistance stemmed from Whitacres infamous comments regarding net neutrality, which spawned lively debates throughout the remainder of the 109th Congress and ultimately ended up on the sidelines as Republicans failed to get their version of a telecom act rewrite through the Senate.

There also were concerns about the antitrust implications of an apparently re-forming Bell monopoly and House Judiciary Chairman F. James Sensenbrenner, R-Wis., was among the first to vow to ensure consolidation receives the … scrutiny it deserves. And sure enough, a whole host of antitrust activities took place in the wake of the AT&T-BellSouth announcement, from the Tunney Act review  to the Twombly case to public interest group protests, even as the Justice Department declared it had no antitrust worries over the deal and gave it its blessing.

Overall, few people were certain how the merger drama would play out at the FCC, especially as the unexpected roadblocks from Congress, court cases and activists were in place right up to the final hours of 2006. Those fell to the wayside, however, just as the new year was about to begin, leaving critics to hope that AT&Ts concessions really would be enough to protect consumers and innovation.

AT&T Inc. www.att.com  

BellSouth Corp. www.bellsouth.com  

COMPTEL www.comptel.org  

Consumer Federation of America www.consumerfed.org  

FCC www.fcc.gov  

Infonetics Research Inc. www.infonetics.com