Twists at FCC Review, AT&T Hurdles Loom
Republican Panel Member Abstains in BellSouth Vote; Odds of
The Wall Street Journal
By Amy Schatz
Tuesday, December 19, 2006
WASHINGTON -- AT&T Inc.'s $86 billion bid to buy BellSouth
Corp. could face a variety of unwanted conditions after a
Federal Communications Commission member said he won't vote
on the deal because of ethical concerns.
The decision yesterday by Robert McDowell, a
telecommunications lawyer, to abstain from voting was an
unwelcome development for the companies, which had been
counting on the Republican to break the impasse that has
paralyzed the agency's review of the deal.
The FCC's review had broken down during the past few weeks
amid partisan bickering, with the two Democrats on the
five-member commission pushing for certain conditions and
the two remaining Republicans opposing them. Mr. McDowell's
decision to step aside increases the likelihood that AT&T
will be forced to accept some conditions involving "net
neutrality," or the idea that all Internet traffic should be
treated equally. However, it also sweeps away uncertainty
about who will vote, which has slowed negotiations on merger
Mr. McDowell has expressed concern about whether he could
vote since the merger was announced in March, shortly after
he was nominated for the FCC job. Mr. McDowell previously
lobbied on behalf of CompTel, a trade group that represents
smaller phone companies and has energetically opposed the
deal. Mr. McDowell must abstain from voting on matters that
involve the group for a year.
Even without Mr. McDowell's vote, there is little question
the FCC will approve the deal. But his abstention will
change what conditions might be imposed.
The FCC's two Democrats are demanding that AT&T abide by
net-neutrality conditions, which would require the company
to treat all Internet traffic equally. The FCC's two
Republican members, notably Chairman Kevin Martin, agree
with AT&T that such a condition would hinder its ability to
manage its network and roll out new services for consumers.
Mr. McDowell had publicly sided with his Republican
colleagues on the net-neutrality issue, which is one reason
he was being pressed to vote on the deal.
Democrats want nondiscrimination rules to apply on AT&T's
lines all the way to the company's Internet backbone. AT&T
has so far been willing to agree to apply those rules to
portions of the network, but not all of it.
Another potential merger condition will center on the
pricing of wholesale high-volume data lines used by
corporate customers. Wireless phone companies and corporate
customers have complained that consolidation of those
high-volume lines will lead to significantly higher prices.
Similar concerns were raised during the merger of SBC
Communications Inc. and AT&T Corp. and Verizon
Communications Inc.'s acquisition of MCI Corp. In those
mergers, the Justice Department required limited
divestitures in some cities, and the FCC required limited
price caps for those lines.
The Justice Department approved the AT&T-BellSouth
transaction in October without any conditions.
Mr. McDowell's decision ended a week of drama and
hand-wringing about whether he should vote. The angst began
about 10 days ago, when the FCC's general counsel, in a
memo, gave legal justification for Mr. McDowell's
participation. It didn't make as strong a case as many
thought it would. Instead, it detailed concerns by the head
of the Office of Government Ethics, who suggested Mr.
McDowell shouldn't vote.
"While I expected the legal equivalent of body armor, I was
handed Swiss cheese," Mr. McDowell said yesterday. The
Virginia Bar Association, of which Mr. McDowell is a member,
also cautioned him on voting on the deal. "They did not
encourage me to go forward," he said.
For a week, Mr. McDowell remained quiet about his
intentions, while privately pressing his colleagues to
jump-start the merger talks in hopes of their reaching a
deal. Those efforts proved fruitless, however, and Mr.
McDowell decided to step aside now, an FCC official said,
rather than get involved in the merger talks and either vote
or abstain at the last minute.
Congressional Democrats immediately applauded Mr. McDowell's
decision. Democratic FCC Commissioner Michael Copps said it
provided clarity that "should give some juice to our ongoing
Washington politicians' recent debate about propriety and
ethics -- which helped Democrats retake Congress -- appears
to have played a role in Mr. McDowell's decision. Mr.
McDowell's concerns about protecting his integrity -- and
avoiding becoming a punching bag for Democrats on Capitol
Hill for the next two years -- appear to have won out over
merger proponents who wanted the deal approved with minimal
One reason for the FCC's delay in approving the merger has
been the continued uncertainty about whether Mr. McDowell
would participate. FCC board members negotiated but never
came close to cutting a deal while Mr. McDowell's
involvement remained an option. Negotiations ended about
two weeks ago, FCC sources say, when Mr. Martin suggested
that he was only willing to go so far on the net-neutrality
"The chairman has continued to be committed to working with
his colleagues and acting on the merger. But the sticking
points are still very sticky," said an FCC official close to
the negotiations. "We're not sure how quickly this merger
can be approved."
In a statement, AT&T said it would continue to work with the
FCC to get the deal approved. "We will -- as we have always
done -- do our part to bring the merger review to a
bipartisan completion as quickly as possible," said an AT&T
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