Dec. 30, 2006

Yesterday, the Federal Communications Commission has approved AT&T's acquisition of BellSouth, in a deal worth $86 billion, after AT&T gave additional commitments regarding billing, Internet availability and jobs.

One of AT&T's commitments included a promise to maintain net neutrality for at least 30 months.

Among other promises, the company agreed to fix at $10 the cost of high-speed Internet service to customers in traditional phone service areas, and the repatriation of 3,000 offshore jobs from BellSouth's overall operations.

Net neutrality allows all sites on the Internet equal access to the bandwidth consumers need in order to access them. Overall, telecommunications trade groups have been lobbying to end net neutrality in favor of a tiered-bandwidth approach.

To win FCC approval, AT&T also agreed to freeze prices and price caps for some wholesale rates to give competitors access to AT&T's network. The freeze will last at least 48 months, longer than AT&T's initial offer of 30 months.

In a letter to the FCC, AT&T called the commitments "wholly unnecessary in light of the demonstrated substantial public interest benefits of the merger," but said they were made to facilitate "the speediest possible approval of the merger by the commission."

"Even with these conditions, we will be able to realize the substantial benefits of this transaction for our customers, shareholders and employees," said Michael Coe, spokesman for AT&T.

The company plans to immediately integrate AT&T, BellSouth and Cingular wireless (a joint venture between the two companies) and traditional networks, combine product offerings and customer service operations, according to a press release.

The combined company will also be able to expand the reach of its broadband services in remote and rural locations in BellSouth's southeast area.

The four voting members of the FCC board were divided along party lines over the approval of the merger.

A fifth member, who had previously worked as a lobbyist in the industry before joining the FCC, had recused himself from voting on the matter.

Two Republicans had sided with the telecommunications companies and their trade representatives while two Democrats, along with industry watchdogs and consumer trade groups, had previously opposed the deal.

The FCC's two Democrats, Jonathan Adelstein and Michael Copps, criticized the Justice Department's antitrust division for backing the deal without imposing any conditions and saying it would not substantially hurt competition.

Now that the deal has been approved, Doug Christopher of Crowell, Weedon & Co. says AT&T should not have a difficult time integrating BellSouth in part because, "BellSouth was always the cleanest of all the Baby Bells."

"From the beginning, BellSouth never got entangled in the overspending and overbuilding that SBC and other Baby Bells did," Christopher said, noting also that BellSouth's region is a long growth area.

Crowell, Weedon & Co. and its partners own shares in AT&T and BellSouth.

The acquisition of BellSouth cements AT&T's No. 1 position against telecommunications rivals such as Verizon and Sprint Nextel.

Source: CNN Money