Can this marriage be saved? The SBC/Ameritech merger would create a telecom giant >BY VINCE VITTORE

If it were a soap opera, the proposed marriage between Ameritech and SBC Communications would be coming up to its first season finale. Or perhaps, if it were a weekly nighttime drama, the saga would have logged enough prime time minutes to be well into its third season. Most important, the story would have a nice, neat ending, packaged with a minor cliffhanger to bring us back next season.

But the merger, which will create a giant telecom company touching both coasts of the United States, encompassing much of the country's bread basket and dabbling heavily in Latin America and Europe, isn't a soap opera or nightly drama. That would be too simple.

Despite a slew of support from all sides of the political spectrum, overwhelming support from shareholders of both companies and a dozen or so local media endorsements, SBC and Ameritech still appear far from consummation.

If all goes according to plan, the deal could be sealed by the end of this month. But there's a big "if," and the "plan" varies greatly depending on who's making it.

Which road to success?

Under the Ameritech and SBC plan, regulators - whether they be state or federal - should be treating the proposed merger as they've treated previous big combinations, including Bell Atlantic/Nynex and SBC/Pacific Bell. Under that same version, combining the companies would create a global player that not only would open up opportunities for more local competition, but also would aggressively attack 30 markets dominated by other regional Bell operating companies. And, more important, they want it now.

In late April at what could have been Ameritech's last annual meeting, Chairman and CEO Richard Notebaert said he expected some delays but was encouraged by the small progress that the two companies were making toward an agreement with regulators. "The fact that we're eight to 12 months into the process means it's going to go forward," he said.

However, when pressed further on the time it has taken to push the merger through, Kelly Walsh, executive vice president and general counsel, acknowledged that it often is frustrating, particularly given the rapid change occurring in the telecom market.

"The overall review process on the telecom mergers is taking too long," says Walsh. "Of all industries to have that slow of a process, I think there's a growing recognition that that's a bad policy."

According to long-distance operators and competitive local exchange carriers, which are pushing a second version of the plan, delay is just fine. In their view, putting the two regional companies together would create an immovable Goliath that would not only have the market power to crush competition, but also would be so big it would have no incentive to open its network to competition.

"We have serious concerns about a merger of two recalcitrant and monopoly providers," says Julia Waysdorf, senior vice president of government affairs for ICG Communications, which competes against Ameritech in Ohio and against SBC in Texas and California. "I find the arguments almost funny. With the size of both Ameritech and SBC alone, if they feel they can't compete against the other RBOCs, how are we supposed to compete at our size? We feel it's making a monopoly even bigger."

Notebaert, however, points to the growing competition in Ameritech's major metro markets such as Chicago, Cleveland, Detroit, Indianapolis and Milwaukee as evidence that the company has opened up its network to competition. "It's like we're talking about a market share test," he said. "I don't know how you incent a competitor to compete in downstate Illinois if they don't want to."

Notebaert also emphasized that before AT&T merged with Tele-Communications Inc. - which went through with little interference from regulators - most competitors were content with cherry-picking the high-margin business sectors.

Competitors naturally say they heard that argument before and simply don't buy the reasoning behind the need for the merger.

"We don't pretend we don't serve the medium and small business as a way to get in the door," says Waysdorf. "We provide residential service in Colorado. It's not something we don't think we'll ever do."

That darned checklist

Yet a third version of the plan, often coming from regulatory staffs and other state officials, is attempting to link two issues that have always led separate lives - the 14-point checklist laid out in the Telecommunications Act of 1996 for RBOC long-distance relief and the public interest provisions of federal mergers law. And while Ameritech executives have said there is no legal basis for tying the two together, it now appears there will be some conditions co-opted from the 14-point checklist that the two companies will be forced to meet before merging. The $68 billion question is which ones and how fast.

According to Walsh, the company could accept some so-called pre-conditions, but to date there has been no suggestion that either company go through the arduous process of satisfying Section 271 of the telecom act before getting merger approval.

Indeed, throughout all the numerous hearings the merger has undergone, attorneys for both Ameritech and SBC have tried to assure commissioners and other regulators that combining the companies would increase competitive opportunities. "We want to assure CLECs that the merger won't effect them," says Walsh.

But competitors claim regulators should use merger approval as a reward for the two RBOCs further satisfying the 14-point checklist. More important is that conditions be satisfied before approval.

"To the extent practical, the conditions imposed by the commission should be fulfilled prior to the merger itself,"said Leon Kestenbaum, vice president of federal regulatory affairs for Sprint, before an FCC panel last month. "Obviously, after the merger, with the horse out of the barn, the commission has far less leverage in ensuring cooperation."

The checklist issue and RBOC compliance, however, may be coming to a head regardless of the merger's status as the flood of interconnection agreements signed immediately after passage of the Telecom Act in 1996 begin expiring.

"We're at this point where many CLEC interconnection agreements are coming up for renegotiation and we're no further than we were before," says Waysdorf. "I would have to say they really should be meeting all 14 of them already. We still have a long way to go."

CLECs also have a number of powerful players on their side. Early last month, attorneys general from Indiana, Michigan, Missouri and Wisconsin urged the FCC to force both companies to meet pre-conditions, though they did not specify which conditions should be met. Also in favor of pre-conditions is the staff of the Illinois Commerce Commission, which held a series of public forums on the merger in May.

Among the most contentious issues is the opening of operations support systems. While CLECs continue to complain about a general lack of cooperation from RBOCs, some specifically point to the slow order fulfillment process.

"I haven't noticed any marked decline in the behavior of the two companies since the merger was announced, but then I haven't seen a whole lot of improvement," says Waysdorf.

Ameritech and SBC certainly aren't alone in their fight; more than 200 organizations, political leaders and companies have thrown their support behind the merger (see sidebar on page 82). On the OSS issues, though, Ameritech said it has opened its systems and is processing orders as fast as possible.

But combining the two companies' OSSs is a ways off and could present a whole new set of problems, both internally and externally, says Walsh. "We have really tried to not disrupt our business or SBC's business in the process."

Regardless of what conditions are put on the merger, final approvals should be reached toward the end of the month, according to most. Then again, Notebaert concluded, anything still is possible. "The world of communications doesn't fit into a nice package," he said.

If the proposed merger between Ameritech and SBC has done anything, it has drawn together a number of groups that have traditionally opposed each other, including unions and management, political leaders from both major parties and other utilities.

Below is a partial list of groups, leaders and companies that have expressed their support for the Ameritech/SBC merger:

- The AFL-CIO

- BankOne

- California Hispanic Chamber of Commerce

- Commonwealth Edison

- Community Colleges System of Illinois

- Henry Cisneros, former U.S. secretary of Housing and Urban Development

- Hudson Institute

- Illinois Chamber of Commerce

- Indiana Chamber of Commerce

- Indiana Minority Health Care Coalition

- International Brotherhood of Electrical Workers - Local 21 (Chicago)

- Cruz Bustamante, lieutenant governor of California

- Mort Bahr, president of Communications Workers of America

- NAACP's Illinois, Indiana, Ohio and Wisconsin chapters

- Rainbow/PUSH Coalition

- 96 members of Congress

- Dennis Archer, mayor of Detroit

- Steven Foti, Wisconsin Assembly majority leader

- John Norquist, mayor of Milwaukee

- Walter Moore, mayor of Pontiac, Mich.

- Richard Riordan, mayor of Los Angeles