Completes BellSouth Takeover
FCC Approves $85 Billion Deal
By Alan Sipress and Sara Kehaulani Goo, Staff Writers
Saturday, December 30, 2006
The Federal Communications Commission yesterday overcame a
seven-month deadlock and approved AT&T's $85 billion
purchase of BellSouth, creating a new corporate giant that
will stand astride the telecommunications industry like none
other in the generation since the old AT&T empire was broken
up in 1984.
The acquisition, which closed yesterday, reunites large
parts of AT&T's former domain by folding BellSouth's
nine-state territory into AT&T's existing operations
spanning the Midwest, Southwest and West Coast. It gives
AT&T complete control of Cingular Wireless, the country's
largest mobile-telephone provider, at a time when wireless
is the newest frontier for reaching the Internet. Cingular
is jointly owned by AT&T and BellSouth.
Unequaled in capital and geographic reach, the new AT&T
could be a tough adversary for cable companies by offering
television service over the Internet, possibly lowering
rates for customers in its service area. Several conditions
imposed on the acquisition to protect consumers could
encourage the availability of affordable broadband. AT&T
agreed to offer high-speed Internet for $19.95 a month over
the next 30 months without requiring customers to purchase
phone service from the company.
AT&T's size could also give it more power to set prices for
telephone and other services -- although it agreed
temporarily not to impose new charges on Web companies that
use its lines -- and to influence political debate over
telecommunications well beyond its service area. In the
Washington area, where Verizon Communications is the primary
phone company, the immediate impact of the merger is likely
to be limited, FCC officials said.
"AT&T will be an engine for innovation, competition, and
growth for our customers at home and abroad," chief
executive Edward E. Whitacre Jr. said in a written
statement. "In the Southeast, we will build on BellSouth's
excellent record of serving customers and communities. And
we are ready to lead the way in a new era of integrated
wireless services nationwide."
The FCC had long been deadlocked over AT&T's purchase of
BellSouth as Republican and Democratic commissioners sparred
over what conditions to impose on the deal. But in the past
10 days, AT&T redoubled its efforts to break the impasse,
pressing for a resolution before the end of the year. On
Thursday, the company offered significant concessions to
protect consumers and ensure competition and, with only
minutes remaining before the close of the year's business,
the board's two Democrats set aside their objections to join
with two Republicans to approve the acquisition.
Kevin J. Martin, the FCC chairman and the deal's principal
advocate on the commission, said it would help realize his
goal of extending broadband Internet service across the
nation by fostering competition. "This deployment is
critical to our nation's competitiveness in the global
economy and to our national security," Martin and fellow
Republican commissioner Deborah Taylor Tate said in a joint
statement. "All consumers should expect to benefit from
AT&T's last-minute commitments include a two-year pledge to
abide by "net neutrality" -- agreeing not to discriminate
against Web companies in pricing or in access to lines.
That was an about-face for the company, which has argued
that it should be allowed to give priority to Internet firms
such as Google, Yahoo and Microsoft if they pay for it.
Whitacre said last year that anyone expecting to use the
phone lines free was "nuts."
Besides offering to sell stand-alone Internet service for
$19.95 a month, AT&T also agreed to give up some wireless
licenses suitable for high-speed Internet so that other
companies could compete. The company also said it would
freeze the rates for "special access" lines that serve some
large businesses and move 3,000 BellSouth jobs to the United
States from overseas.
"A historic merger warrants historic conditions," said
Jonathan S. Adelstein, a Democrat on the commission who had
refused to support the deal without consumer protections.
"We won far more concessions to benefit the public than
anyone predicted when this deal was announced."
With a market capitalization of $225 billion, the new AT&T
will vastly outgun its leading competitor, Verizon, which
was born six years ago in a $52 billion merger between GTE
and Bell Atlantic.
But while the merger creates a new AT&T behemoth, the
combined company is far different from the one that reigned
for 70 years as a government-regulated monopoly and
architect of the world's most advanced, comprehensive and
affordable telephone system. That corporation, at the time
the largest in the United States, had so cornered the market
on communications that many Americans referred to it simply
as the phone company.
Even as the new AT&T faces limited competition from other
telephone operators, it is challenged by cable and computer
companies playing in a far larger, more complicated
marketplace encompassing television, broadband and wireless,
as well as local and long-distance land-line telephone
service. In recent years, cable companies have been more
successful at poaching the phone business -- bundling it
with TV and broadband and selling it to subscribers -- than
traditional telephone operators have been in crossing over
Earlier this month, a divided FCC approved a measure aimed
at helping telephone companies move into cable television
markets by significantly limiting what local officials can
demand in return for franchises.
Gary Arlen, president of Arlen Communications, a Bethesda
research firm, said AT&T's acquisition of BellSouth
"reflects a natural oligopoly." In the early days, "public
utilities were a natural monopoly. In our digital era today,
competition is now not between the Bell companies, but
between Bell and cable operators and some wireless
[companies] in there."
Gigi B. Sohn, president of the Public Knowledge advocacy
group, praised the FCC for approving the merger with strong
conditions, especially on net neutrality, and urged the
commission make sure that AT&T complies. In particular, she
said the company might try to evade part of its
net-neutrality commitment by claiming that the television
service it provides over the Internet is akin to cable
television and thus not subject to the condition.
Though the merger represents a landmark in U.S.
telecommunications, it would be misleading to cast the
corporate takeover as an epic tale of AT&T reconstituting
itself from the wreckage of the 1984 breakup and its
disastrous business decisions. The decline began with the
divestiture, when AT&T gambled that it would be more
lucrative to keep its long-distance business and cut loose
the regional phone companies. But that meant jettisoning
the huge number of employees and customers who gave the
company political clout. In 1996, the regional companies
and others won the right in Washington to compete for
long-distance and the tide started turning against AT&T.
As intense competition forced prices for long-distance to
fall, AT&T struggled to find a new calling and looked to
cable. It again splintered six years ago, into four
separately traded companies for broadband, wireless,
business services and consumer services.
AT&T today is an utterly different corporation than the old
Ma Bell, sharing little more than the name. The company
that now flies the AT&T flag was until last year known as
SBC Communications Inc. SBC, one of the original Baby
Bells, gobbled up the relatively meager, sickly remains of
the old AT&T, then took its venerated name before turning
its appetite earlier this year to BellSouth.
Staff researcher Richard
Drezen contributed to this report.