AT&T closes BellSouth buyout after FCC approval

Thursday, December 28th 2006, 8:54 pm

By: News On 6

DALLAS (AP) AT&T Inc. completed its $86 billion buyout of BellSouth Corp., the largest telecommunications takeover in U.S. history, shortly after the Federal Communications Commission unanimously approved the deal on Friday.

The FCC action came one day after the company offered new concessions for consumers and competitors.

Lawyers for AT&T and the two Democratic commissioners who had opposed the merger hammered out a compromise, the details of which were released Thursday night.

AT&T promised to observe ``network neutrality'' _ not to favor Internet content providers who pay the company more money _ and to offer $19.95 per month stand-alone digital subscriber line service. AT&T will also divest some wireless spectrum.

AT&T offered the concessions after a little more than a week of marathon negotiations with lawyers for the two Democrats on the commission, Michael Copps and Jonathan Adelstein.

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

Combined, the companies generate about $117 billion in revenue and operate 68.7 million local phone lines stretching coast to coast across the southern U.S., up through the Midwest and into the Northeast.

The buyout will also give AT&T complete control over Cingular Wireless, the nation's largest wireless telecommunications provider, which it had jointly owned with BellSouth. AT&T is also trying to roll out television service to compete with cable operators.

Adelstein said Friday he was pleased with the agreement.

``We got substantial concessions that are going to mitigate a lot of the harms that would otherwise have resulted from this merger,'' he said.

Copps said he was not fully satisfied with the deal that he and Adelstein struck with AT&T, but he called the outcome ``a modest victory for American consumers.''

But FCC Chairman Kevin Martin, a Republican who supported the merger from early on, complained that AT&T was forced to accept ``unnecessary'' conditions to win approval for the deal.

Martin said the conditions ``impose burdens that have nothing to do with the transaction, are discriminatory, and run contrary to commission policy and precedent.''

Consumer advocates had opposed the merger from the start, but they put the best face on the compromise, pointing to AT&T's promise of network neutrality.

Mark Cooper, research director for the Consumer Federation of America, said neutrality would protect a ``free and open Internet.''

The intense negotiations between AT&T and the FCC came after one of the panel's three Republican members, Robert McDowell, removed himself because he had been a lobbyist for Comptel, a trade group that opposed the deal. That gave the two FCC Democrats more leverage.

McDowell said Friday he was delighted that a deal had been reached.

Under terms of the buyout, BellSouth shareholders will receive 1.325 shares of AT&T stock for every share of BellSouth. In March, when the deal was announced, it was valued at $67 billion, but a runup in AT&T's stock price has raised the value to about $86 billion.

The FCC vote on Friday was the last regulatory hurdle. The Justice Department approved the merger on Oct. 11 without conditions, a move that angered many Democrats.

In an effort to win over Copps and Adelstein, AT&T offered some concessions in October, but they were rejected. AT&T's senior vice president for regulatory affairs, Robert W. Quinn Jr., called the conditions that were finally accepted Friday ``significantly more extensive'' than those first offered by the company.

The new offer extends the life span of many conditions from 30 months to 42 months or longer.

Among the promises that AT&T made:

_An offer of stand-alone, DSL Internet service to customers in its service area for $19.95 per month for 30 months. The offer lets customers in AT&T and BellSouth service areas to sign up for high-speed Internet access without being forced to buy other services.

_To cap rates for four years on ``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.

_To divest all of the 2.5 GHZ spectrum currently licensed to BellSouth within one year of the merger closing date.

_To bring back to the United States by the end of 2008 some 3,000 jobs that were sent overseas by BellSouth, with at least 200 of the jobs to be in New Orleans.

The most difficult item in the negotiators was network neutrality.

AT&T promised to not to give an advantage to any content provider's traffic over its high-speed Internet network. Consumer activists and some Web sites had feared the company could have sold better-quality transmission service to Internet companies that would pay it the highest rates.

Martin was unconvinced the network neutrality provisions are necessary.

``The conditions regarding net neutrality have very little to do with the merger at hand and very well may cause greater problems than the speculative problems they seek to address,'' he wrote. ``These conditions are simply not warranted by current market conditions and may deter facilities investment.''

Meanwhile, Rep. John Dingell, D-Mich., incoming chairman of the House Energy and Commerce Committee, indicated his displeasure in a statement that said the process followed by the FCC may be ``suitable for committee review.''

Earl Comstock, president and CEO of Comptel, a group that represents competitors of AT&T, said he would have preferred to see more conditions from AT&T, and questioned why the compromise came so quickly.

``Compared to where it was in the fall, there was definite progress,'' he said of the deal. ``But given the negotiating position (of the Democrats) it could be better.''