Megamergers a Go: FCC Approves Verizon-MCI, SBC-AT&T Combinations

The FCC today approved the merger of Verizon Communications Inc. and MCI Inc. and the SBC Communications Inc. takeover of AT&T Corp.

The Department of Justice late last week also gave the transactions its stamp of approval; todays FCC approval clears the way for the four companies to complete the deals.

The FCC was scheduled to approve the mergers on Friday, but kept rescheduling its monthly meeting as negotiations stalled. Commission Chairman Kevin Martin, who has a reputation for consensus-building, had to find the compromise points to get the groups two Democrats, Jonathan Adelstein and Michael Copps, to give their yes votes. Adelstein and Copps wanted more conditions than what the FCC and Department of Justice ultimately imposed, while Martin and Republican commissioner Kathleen Abernathy did not want any riders placed on the agreements.

The companies involved in the mergers also agreed to the terms, which require the combined companies to offer naked DSL; abide by network neutrality rules the FCC adopted earlier this year regarding access to a competitors’ VoIP or video services; agree to peering requirements not to block Internet traffic; and maintain special access pricing for 30 months and unbundled network element pricing for two years.

The conditions last for two years, which Copps and Adelstein said is not long enough. Still, they praised the requirement for the merged companies to offer naked DSL, saying that will promote VoIP competition and give consumers more choices. Verizon already offers standalone DSL services in much of its territory, while SBC does not.

Copps today called the pending mergers the epitaph of competition we thought we would enjoy after the 1996 Triennial Review Order. He said he fears the wireline market has become the province of the few and that VoIP will continue to be held back by high broadband costs. Despite those concerns, he said he conceded to the megamergers because the conditions, although they are temporary, are better than none.

Copps Democratic counterpart, Adelstein, agreed. He said he feels a deep foreboding that the conditions are only in place for two years. Like Copps, he wanted more divestiture requirements, as well as the enforcement of fair wholesale and retail pricing.

Abernathy, on the other hand, expressed her disappointment with the conditions, saying the markets vibrant competition renders the rules unnecessary. We no longer live in the monopoly world of years past, she said.

Martin concurred, noting, I do not believe that all the conditions imposed today were necessary. Still, he praised the FCCs approval of the mergers, which are expected to be completed by the end of this year or by early 2006.

Industry Approval, Disapproval

Not surprisingly, the companies seeking to merge praised the FCCs action.
After two federal reviews and strong approvals by shareholders and the international community, it is clear that this combination is undeniably in the public interest, said Tom Tauke, Verizon executive vice president of public affairs, policy and communications, in a news release. The Department of Justice and FCC approvals put us on firm footing as we seek the remaining few state approvals.

MCI, too, hailed the vote.

This approval represents a significant milestone in the regulatory approval process, and we look forward to delivering the benefits of this transaction to U.S. consumers and the enterprise market as a combined company, noted Jim Lewis, MCI senior vice president of policy and planning.

AT&T Chairman and CEO David W. Dorman said the decision brings his company a step closer to a new era in communications, information services and entertainment. Similarly, Edward E. Whitacre Jr., chairman and CEO of SBC, says the phone company combinations will enhance competition, help bring new technologies to market faster, and provide real benefits to consumers and businesses.

The Competitive Enterprise Institute (CEI), a public policy group, also applauded the FCC vote but called the conditions imposed on the deals unnecessary.

[T]he commissions conditions forcing unbundled DSL, regulating wholesale rates and freezing current arrangements for exchanging traffic still reflect a narrow perspective of competition, said Braden Cox, technology counsel, in a statement. Rapid developments in technology, along with an environment where cable, telephone, and wireless companies all compete against each other, will help ensure competition in the industry.

EarthLink, an ISP, also supports the mergers with the condition that SBC-AT&T and Verizon-MCI provide naked DSL. Today’s FCC decision in favor of mandatory ‘net neutrality’ provisions helps guarantee the rights of all consumers to access the Internet content and applications they choose, said Chris Putala, executive vice president for public policy of EarthLink, in a formal statement.

Meanwhile, one of the Bells most vocal critics, COMPTEL, criticized the FCC for approving the mergers so soon after the Department of Justice, and said the mergers take one more step toward recreating the old AT&T monopoly.

The public has had no chance to analyze or comment on whether the Justice Department conditions have even minimal consumer protection value, yet the FCC felt compelled to rush their decision to meet SBC and Verizon’s timetable, said Earl Comstock, president and CEO of COMPTEL, in a news release. Taken together, the conditions imposed by the FCC and Justice will not come close to addressing the anti-competitive harms that will be caused by the mergers. The conditions ‘won’ by the Democratic commissioners are mere fig leafs designed to give the appearance of consumer protection.