Mergers Win First Approval
SBC and Verizon Pass Justice Dept.; FCC Yet to Rule
By Arshad Mohammed, Staff Writer
Friday, October 28, 2005
The Justice Department yesterday gave conditional approval to a pair of mergers that make the nation's two largest phone companies far bigger than any other competitors, clearing the way for the Federal Communications Commission to act on the deals, perhaps as soon as today.
The department said it would permit SBC Communications Inc.'s $16 billion acquisition of AT&T Corp. and Verizon Communications Inc.'s $8.5 billion purchase of MCI Inc., provided the companies take steps to maintain competition for some business customers. SBC said yesterday that it will adopt the venerable AT&T name once the merger is completed, preserving a brand whose roots go back to the invention of the telephone.
The resulting companies will control the vast majority of traditional telephone service in many regions of the country. Critics say that power will lead to rising phone bills for consumers, but the companies argue that technology has remade the telecom industry and that competition now comes from wireless, cable and Internet phone companies.
The mergers also must pass muster with the FCC, which is scheduled to meet today and might impose more conditions than those sought by the Justice Department.
The Justice Department negotiated agreements with New York-based Verizon and San Antonio-based SBC to lease certain high-capacity lines to competitors for at least a decade. Each company must do this with lines serving more than 350 buildings around the country.
Without the condition, the businesses in these buildings -- including dozens in the Baltimore-Washington area -- would have had only one choice for service, which critics think would have allowed the merged companies to raise prices with impunity.
The Justice Department did not impose conditions that directly affect residential consumers, a decision that reflects the view that people increasingly can get local telephone service from cable, Internet and mobile phone providers.
Critics said the mergers would push up prices, arguing there are still only two main pipelines to consumer homes -- phone and cable wires -- and that wider competition will take years to build up.
"These mergers undermine growing competition in telecom markets and will surely lead to inflated prices for all telecom and Internet-based services for years to come," said Gene Kimmelman, senior director of public policy at Consumers Union.
In permitting the mergers, the Justice Department is reassembling parts of the AT&T system broken apart in 1984 when the government forced the monopoly to sever its lucrative long-distance arm from the Bell local phone companies in an effort to foster competition.
The fact that it is allowing the mergers to go forward reflects the diminished state of Bedminster, N.J.-based AT&T and Ashburn-based MCI, whose long-distance profits have been eaten away by competition from other providers and mobile and local phone companies.
FCC Chairman Kevin J. Martin has proposed approving the mergers with no conditions but he needs the votes of at least one of the FCC's two Democrats to prevail.
Among other things, the Democrats want SBC and Verizon to sell stand-alone digital subscriber line (DSL) high-speed Internet access at prices that make Internet phone service a viable competitor.
They also want to make sure rates don't go up for business customers with their own "special access" lines. In addition, the Democrats want to prevent the "backbone" companies that carry Internet traffic from arbitrarily cutting each other off, and favor "net neutrality" protections to keep local phone companies from using their networks to interfere with people accessing Internet-based services.