FCC approves merger with conditions

The Federal Communications Commission today unanimously approved the mergers of SBC with AT&T and Verizon with MCI, including a wholesale line and special access price freeze and naked DSL requirements as part of the deal.

The approval came after extended negotiations to bring the two Republicans and two Democrats together on terms of the merger approval. The original meeting on the issue, scheduled for Friday, had been postponed by FCC Chairman Kevin Martin. Over the weekend, Democratic Commissiers Jonathan Adelstein and Michael Copps were able to attach conditions to the deal.

"I believe that the transactions we approve today are consistent with and will further many of the Commission’s competition, broadband, and public safety priorities," Martin said in a statement afterward. "For example, these mergers create strong global carriers that will vigorously compete both internationally and domestically."

Wholesale price controls

The wholesale price controls condition was one of those conditions sought by a group of competitors, including BT Americas, Broadwing Communications, Level 3 Communications, Qwest Communications International, Savvis Inc., and XO Communications. The group had asked the FCC to require a reduction in the price of T1 and DS-3 services as well as a freeze.

"XO is gratified that the Commissioners recognized the impact that these mergers would have on the competitive wholesale market," said Heather Gold, senior vice president of government relations for XO. "We thank the Commissioners and staff for their efforts to forge meaningful conditions designed to insure ongoing customer choice and price competition for millions of small to medium business customers, and we hope that the FCC will vigorously enforce its actions so that these conditions are not hollow promises."

Copps indicated in his statement that fighting for an open Internet was a priority for him, and while admitting this action "falls far short of ideal," said the conditions are an enforceable protection for consumers.

Naked DSL service would allow consumers to order a high-speed broadband line from a telephone company but get its voice service elsewhere, which could be a boon to Voice over IP service providers. The FCC also required Verizon and SBC to continue allowing consumers to surf wherever they wish for the next two years and to continue peering with the same number of other Internet service providers that they now serve, without requiring settlement payments, for the same time period.

Post-merger concerns

One major post-merger concern is that mega-carriers will begin restricting access to Internet-based competitors, and restrict consumer choices in the process. Consumer advocates and competitors believe that the FCC didn’t go farther in imposing conditions on the mergers in order to fully protect consumers.

“These conditions are not nearly enough,” said Mark Cooper, director of research at the Consumer Federation of America. “Even if the Commission were to follow-up vigorously – which is unlikely given the Chairman's opposition to even these minimal conditions – Congress will have to step in to restore an open communications network that supports competition, promotes innovation and protects consumers.”

Earl Comstock, President and CEO of Comptel, the leading lobbyist for competitive service providers, said the FCC essentially rubberstamped the merger.

“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,” he said. “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.”

Heralding the decision

Edward Whitacre, chairman and CEO of SBC, maintained the merger will enhance competition. SBC said at its third quarter earnings call that it expects to close the AT&T merger by the end of the year. Three states regulatory commissions must still give approval.

“The commission vote demonstrates a recognition that the merger of SBC and AT&T will enhance competition, help bring new technologies to market faster, and provide real benefits to consumers and businesses,” said Edward E. Whitacre Jr., SBC chairman and chief executive officer. “We commend the commission, under the leadership of Chairman Martin, for recognizing the reality of today’s communications marketplace and for fostering an environment where there will be greater choice in communications services and providers.”

Verizon, which said its merger with MCI will close in late 2005 or early 2006, also heralded the decision.

"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 prepared statement. "The Department of Justice and FCC approvals put us on firm footing as we seek the remaining few state approvals."