AT&T finishes BellSouth deal

Merger linked to shift in Congress

December 30, 2006|By Jon Van | Jon Van,CHICAGO TRIBUNE

A compromise proposed by AT&T Inc. to win federal approval of its $85 billion acquisition of BellSouth Corp. signals how much the impending takeover of Congress by Democrats has shifted telecom's regulatory landscape.

The Federal Communications Commission approved the deal yesterday after reviewing the proposal submitted by AT&T Thursday night. The two companies finalized the deal shortly afterward.

The FCC's approval was the last major regulatory hurdle for the proposed deal, which is the largest telecommunications merger in U.S. history.

After opposing restrictions on its ability to prioritize Internet traffic it carries, AT&T agreed to "maintain neutral network and neutral routing in its wireline broadband Internet access service" for two years.

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

The concept of preserving "net neutrality" has been the paramount telecom issue for consumer advocates all year.

While specific Internet traffic abuses have been rare, activists fear that the economic interests of big telecom and cable companies that own Internet infrastructure will compel them to discriminate against smaller competitors whose Internet-based voice and video services undermine the cash cows operated by the giants.

For their part, large telecom carriers contend that they need flexibility to manage the trillions of bits and bytes that flow across their lines daily. Government restrictions intended to ward off potential anti-competitive moves could stifle technologic innovation, say executives at big telecom concerns.

AT&T's concessions sparked year-end celebrations yesterday among consumer advocates who had been stymied through most of 2006 in their efforts to pass network neutrality laws in the Republican-controlled Congress.

"We are no longer having a debate about whether net neutrality should be the law of the land," said Ben Scott, policy director for Free Press, a consumer advocacy group. "We are having a debate about how and when."

Another aspect of AT&T's compromise proposal would put a cap of $20 a month on its basic digital subscriber line high-speed Internet service for 30 months. At present, consumers who want to buy DSL without also getting an AT&T phone line must pay a minimum of about $45 a month.

Gene Kimmelman, vice president of Consumers Union, said that customers who cannot afford AT&T's prices today should soon be able to "get fast connections to the Internet at a reasonable price."

The phone giant also agreed to freeze some rates it offers to customers who buy bulk service, to sell wireless spectrum licenses held by BellSouth and to "repatriate" about 3,000 jobs outsourced abroad by BellSouth.

AT&T's takeover of BellSouth has received approval from relevant state regulators and the Justice Department, but it was hung up by two Democratic members of the FCC who wanted consumer-friendly concessions.

The three Republican FCC members could not override the two Democrats because one of them, Robert McDowell, had served as a telecom industry lobbyist before his federal appointment and recused himself for ethical reasons.

The buyout passed by a 4-0 vote with McDowell not participating.

While the symbolic significance of AT&T's compromise is considerable, some observers said the substance could be less so.

David Burstein, who operates the DSLPrime.com telecom newsletter, said that buried in AT&T's proposal is a sentence that exempts its own Internet-based television service from network neutrality restrictions.

"In a seemingly innocuous sentence, AT&T opened a huge loophole for itself," said Burstein. "In the future, they can take anything they want, call it IPTV, and have no restrictions. If someone objects, they'll tie it up in court for longer than their two-year neutrality commitment."

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 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 owns in partnership with BellSouth.

Jon Van writes for the Chicago Tribune.

The Associated Press contributed to this article.

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