AT&T Compromise May Get Merger Approved

Posted 29 December 2006 @ 10:36 am EET     Print     Reprint     E-Mail     Comments

WASHINGTON (AP) - While much of Washington enjoyed a holiday break, lawyers for AT&T Inc. and the government worked marathon hours to forge an agreement that would allow the company to complete its $85 billion purchase of BellSouth Corp.

The proposed deal could lead to the largest telecommunications merger in U.S. history. AT&T on Thursday night put forth what is expected to be its last and best offer, and it appeared it was good enough to lead to a vote on the merger by the Federal Communications Commission as early as Friday.

AT&T has offered concessions beyond what it had promised in October, including a significant pledge to observe standards regarding network neutrality basically, equal treatment for all Internet traffic. This issue appeared to be the biggest roadblock to a deal.

Among the other concessions were an offer of affordable stand-alone digital subscriber line service and a pledge to "repatriate" 3,000 jobs that had been outsourced by BellSouth. Final approval requires a vote of the commissioners. An open meeting is not required; rules allow them to vote via computer.

AT&T offered the concessions after a little more than a week of marathon negotiations with lawyers who work for the commission's two Democrats, Michael Copps and Jonathan Adelstein, documents show.

Consumer advocates praised the compromise.

Gene Kimmelman, vice president of federal and international affairs for Consumers Union, who has worked closely with the Democrats, said AT&T's new concessions are "an enormous improvement from where we were a month ago."

Ben Scott, legislative director for Free Press, a reform group that has fought the merger, said the network neutrality provision was a "big step forward for the supporters of an open Internet."

The agreement came together 10 days after Republican Commissioner Robert McDowell announced he would not vote on the deal, despite being authorized to do so by the FCC's general counsel.

McDowell had decided to recuse himself because of his former position as a lobbyist for Comptel, a trade organization that opposes the merger.

FCC Chairman Kevin Martin, a Republican, who supported approval of the merger without conditions, had bet that McDowell would vote for the deal following the legal opinion and break a 2-2 partisan deadlock.

But with McDowell's firm declaration that he would not vote, the pressure shifted to AT&T, which had hoped to close the transaction by the end of the year. The development put the two Democrats in a much stronger position.

In an effort to get the merger approved, AT&T submitted a set of concessions on Oct. 13, but the Democrats rejected them as insufficient.

AT&T's letter of commitment, written by Robert W. Quinn Jr., the company's senior vice president for regulatory affairs, noted that the new concessions were "significantly more extensive than those submitted on Oct. 13."

Among the promises made by the company:

An offer of stand-alone, high-speed Internet service to customers in its service area for $19.95 per month for a total of 30 months. The "naked DSL (digital subscriber line)" offer would allow those who live in AT&T and BellSouth's service areas to sign up for fast Internet access without being required to buy a package of other services.

A greater commitment to network neutrality, or nondiscrimination involving Internet traffic. AT&T said it would "maintain a neutral network and neutral routing in its wireline broadband Internet access service" for two years.

To freeze rates for "special access" customers, usually competitors and large businesses that pay to connect directly to a regional phone company's central office via a dedicated fiber optic line, for 48 months.

To "assign and/or transfer to an unaffiliated third party" all of its 2.5 GHZ spectrum currently licensed to BellSouth within one year of the merger closing date.

To "repatriate" 3,000 jobs that were outsourced by BellSouth outside the U.S. by Dec. 31, 2008, with at least 200 of them to be located in New Orleans. The Justice Department on Oct. 11 approved creation of the new telecommunications giant without conditions.

The combination of San Antonio-based AT&T and Atlanta-based BellSouth would have operations in 22 states. AT&T estimates that about 10,000 jobs would be phased out over three years.