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Justice Department Criticized For Approving Big AT&T Deal
By Amy Schatz and Siobhan Hughes
The Wall Street Journal
Thursday, October 12, 2006

WASHINGTON -- The Justice Department's unconditional approval of AT&T Inc.'s $67 billion buyout of BellSouth Corp. drew criticism from consumer advocates and lawmakers, raising the possibility that the deal could face delays at the Federal Communications Commission.

Hours before the Justice Department's decision was announced yesterday, FCC Chairman Kevin Martin changed course and proposed limited divestitures to protect big-business users of high-speed data lines in 32 office buildings, lawyers who have seen the proposal said.  The FCC was scheduled to approve the deal as early as today, but cancelled the vote last night, rescheduling it for tomorrow.

The Justice Department approved AT&T's purchase of BellSouth without any conditions after determining that the combination isn't likely to hurt competition in the telecommunications industries.  "After thoroughly investigating AT&T's proposed acquisition of BellSouth, the Antitrust Division determined that the proposed transaction is not likely to reduce competition substantially," Justice Department antitrust chief Thomas Barnett said.  "The division investigated all areas in which the two companies currently compete."

The clearance triggered an outcry from smaller phone-company rivals, Democrats on Capitol Hill and the FCC as well as consumer groups.  Opponents of the acquisition complained that the nation's top antitrust regulator had abdicated its responsibility to scrutinize whether the new company, which would control local phone lines from California to Florida, would be so big that it would lessen competition.  AT&T also would have sole control of Cingular Wireless, the nation's largest cellular carrier by number of subscribers.

"The Justice Department has packed its bags and walked out on consumers and small businesses by refusing to impose even a single condition in the largest telecom merger the nation has ever seen," Democratic FCC Commissioner Michael Copps complained.  The FCC's other Democrat, Jonathan Adelstein, agreed:  "By failing to issue a complaint, consent decree, or condition, it appears [the Department of Justice] took a dive on one of the largest mergers in history just to avoid further court scrutiny."

Although Mr. Martin, a Republican, has been pushing hard to wrap up the agency's review, it isn't clear that he has the three votes necessary to approve the acquisition.  Republican FCC Commissioner Robert McDowell has so far indicated that he might be recused from voting because he formerly worked for a group that opposes the transaction.  In addition to Mr. Copps, Mr. Adelstein has expressed concern about approving the acquisition without conditions.  That would leave Mr. Martin without a majority on the five-person commission.

AT&T, San Antonio, said it was elated with the quick Justice Department approval of the merger.  "This unequivocal and unconditional approval underscores the competitive nature of our industry and the pro-competitive benefits of this merger," General Counsel James Ellis said.

The BellSouth takeover was valued at $67 billion when it was announced in March.  Since then, BellSouth's stock price has risen and based on yesterday's 4 p.m. price, the deal is valued at $78.8 billion, BellSouth said.  AT&T shares rose 19 cents to $32.96 in New York Stock Exchange 4 p.m. composite trading, while BellSouth shares were up 24 cents to $43.44, also on the Big Board.

--Mark H. Anderson contributed to this article.

Write to Amy Schatz at Amy.Schatz@wsj.com and Siobhan Hughes at siobhan.hughes@dowjones.com

http://online.wsj.com/article/SB116058124083289458.html?mod=home_whats_news_us