FCC facing hot week

Normally, the Washington power structure winds down around holiday time, but the Federal Communications Commission is winding up the year with two hot issues--the AT&T-BellSouth merger and federal video franchise rules--on the table.

Neither one is guaranteed a vote at the Dec. 20 FCC meeting, but the odds now are on franchise rule changes that would benefit AT&T and Verizon as they seek to expand their video service territory.

The FCC is slated to vote on a plan that would require local governments to act on franchise applications from telephone companies within 90 days and would limit the conditions they can impose on franchisees. Video franchise applications that don’t currently own rights of way would face a 180-day review period.

The FCC’s had the AT&T-BellSouth merger under review for a much longer time, but is unlikely to bring that issue to vote this week. That’s because Washington insiders are now saying that FCC Commissioner Robert McDowell could well decide not to participate in the AT&T-BellSouth merger vote after all. McDowell, who originally recused himself from the vote because of his previous work as a lobbyist for Comptel, was cleared to vote by Sam Feder, general counsel to the FCC, in early December.

That appeared to open the door for McDowell to side with fellow Republicans Kevin Martin and Deborah Tate and break the 2-2 deadlock on the merger approval. After several influential Democrats complained about the process of allowing McDowell to vote after he had recused himself, the commissioner now seems less likely to reverse his decision, according to analysts at Stifel Nicolaus.

“The ‘unrecusal’ process has sparked substantial resistance and controversy, and over the last week, we have seen a variety of signs that the scenario may not unfold all the way to the end,” they wrote in an investor note released today. The problem, said the Stifel Nicolaus team, is that Feder essentially said McDowell could vote if he chose to do so, but didn’t compel him to.

“…By making it clear that Mr. McDowell was free to choose whether or not to participate, the letter complicated the decision for Mr. McDowell, particularly in light of the revelation that they head of the Office of Government Ethics would not have advised an authorization and in light of statements from incoming Democratic congressional leadership pressuring him to stay recused,” they said.

What is more likely, they said is that negotiations between AT&T-BellSouth officials and the FCC will continue, with both sides knuckling down to resolve remaining issues. Key Democrats such as Michigan Congressman John Dingell are likely to want to see the merger go through, without substantial further delay, and could put pressure on the two Democratic members of the FCC--Jonathan Adelstein and Michael Copps--to get a deal done.

There is also mounting pressure within the telecom community for something to break the current deadlock, as a growing list of equipment vendors complain that the merger uncertainty is affecting their bottom line.

If McDowell doesn’t choose to vote, the Stifel Nicolaus analysts said, it is bad news for AT&T and sets up the likelihood of more conditions being attached to the merger.