FCC Approves SBC-AT&T, Verizon-MCI Mergers

Legg Mason said it appeared “the merging parties have largely succeeded in beating back the more onerous conditions urged by competitors and other merger critics.” For example, instead of requiring special access rates be cut, the FCC “required the companies to commit to temporary freezes on their special-access rates,” the analysts said.

The FCC approved the 2 mergers subject to the same conditions, framed as “voluntary” agreements by the companies. Among them: The merged companies must provide stand-alone or “naked” DSL, which commissioners said would encourage VoIP to develop. EarthLink said it would mean millions of consumers will be able to use Internet access service without having to buy “legacy wireline local telephone service from the phone company.” EarthLink said the action will “foster more Internet competition and innovation.”

Other conditions: (1) The firms will continue settlement-free peering arrangements with at least as many Internet backbone providers as they do now. (2) They will post their peering policies on publicly accessible websites for 2 years, including posting any revisions “on a timely basis.” (3) They will follow FCC net neutrality goals. (4) The companies will not seek UNE rate hikes for 2 years. (5) They won’t increase the rates paid by existing in-region customers of AT&T or MCI for wholesale DS1 and DS3 local private line services. (6) They'll freeze special access rates for 30 months. (7) The Bells will recalculate so-called impairment triggers that indicate whether the Bells must make unbundled dedicated transport and/or high-capacity loops available to competitors. The one-time recalculation will exclude fiber-based collocation arrangements established by AT&T in SBC’s region and MCI in Verizon’s region. (8) The companies will report quarterly to the Commission on their performance in delivering interstate special access services. (9) SBC and AT&T “acknowledge” that the merger doesn’t change the “carrier of last resort obligations imposed by the State of Alaska on interexchange services provided by Alascom.” (10) The companies won’t provide special access services to themselves that aren’t available to other customers.

Most conditions have specific durations, generally 30 months or 2 years, depending on what the firms proposed in talks with the Commission, an FCC official said.

The Commission didn’t expand on Justice Dept. conditions aimed at easing the mergers’ competitive impact on office buildings now wired by both the Bells and their merger partners (CD Oct 28 p1). Comr. Copps said the mergers “would seem to call for more significant divestiture of overlapping facilities and routes, going beyond the minimalist consent decrees that were announced last week by the Department of Justice… but in the good faith back and forth between my colleagues and me, these are the results we were able to achieve.” Comr. Adelstein said “more substantial divestiture” than DoJ called for would have been appropriate because DoJ’s action “leaves 99.9% of commercial buildings in SBC and Verizon territory wholly unprotected from the loss of competition that AT&T and MCI brought to bear.”

FCC Wireline Bureau Chief Thomas Navin said the FCC looked at the mergers’ “vertical and horizontal effects” and decided “on balance they are in the public interest.” Pluses “outweigh” harm, Navin and other Commission staff members said in introducing the item at the FCC agenda meeting’s start. Among the pluses, according to staff: (1) More efficiency, thanks to integrated networks. (2) Improved national defense, thanks to larger U.S.-owned companies with financial strength. (3) More research and development, encouraged by the firms’ serving larger customers base with larger economies of scale.

However, CompTel Pres. Earl Comstock said, the FCC action was a “rubber stamp approval” with conditions that “will not come close to addressing the anti-competitive harm that will be caused by the mergers.” Consumers Union and the Consumer Federation of America (CFA) sounded alerts about the impact on residential consumers. A lack of “meaningful protections against pricing abuse means competitors can be squeezed out of the market and consumers face price increases,” said CFA Research Dir. Mark Cooper. “The FCC handed out Halloween treats to SBC and Verizon in its approvals” of the mergers, said Brian Moir, counsel for the eCommerce & Telecommunications Users Group. The action lets the Bells “continue to reap excessive monopoly profits from its local private line services,” he said. XO Communications said it is glad the FCC put some conditions on the mergers, which “recognized the impact the impact that these mergers would have on the competitive wholesale market.”

The FCC action came after days of intense negotiations among commissioners seeking a compromise. The agency hoped to act at a public meeting Fri. but when agreement proved elusive had to postponed the session until Mon. Asked for sticking points, Martin said a variety of issues required debate, including Internet neutrality and Internet access.

Comr. Abernathy said she thought the conditions “focused too much on micromanagement,” don’t acknowledge market change and even could harm the mergers’ potential synergies. Comr. Copps called the conditions inadequate but said the order “is clearly better than approving the mergers without conditions.” Copps said the terms are “the best we were able to achieve” and henceforth “the priority must be on vigilance” to make sure the companies follow the conditions.

The Ohio Consumers’ Counsel Office called it “disappointing that the mergers were approved without significant benefits for residential consumers.” Consumer Counsel Janine Migden-Ostrander acknowledged that the Commission included some broadband-related conditions, but “the FCC missed the opportunity to ensure that consumers receive their fair share of the benefits.” She said it’s up to the 11 states still considering the mergers “to do everything possible to secure consumer benefits.” The Ohio PUC plans to vote Nov. 4 on the SBC-AT&T merger.

The FCC vote ends the federal review process for the 2 mergers but some state reviews are still outstanding.