Consumer Effects of AT&T-Bell South Combination

By PETER SVENSSON, AP Technology Writer

The concessions AT&T Inc. made to win regulatory approval of its mammoth merger with BellSouth Corp. has many implications for consumers.

With Friday's approval of the plan by the Federal Communications Commission, here's what consumers can expect in the combined company's service areas in 22 states:

  • DSL to new customers for a month, for 30 months. This looks like a good deal for high-speed Internet, as the Digital Subscriber Line is even cheaper than the cheapest plan AT&T now has, at a month. It's even better in BellSouth's territory, where the company has kept prices higher than other phone companies -- BellSouth's cheapest plan is now a month. AT&T is likely to lose money on this because current DSL plans are no cash cows. However, to be eligible, you must never have had AT&T or BellSouth DSL, and you need local phone service.

  • Free broadband modem to those who replace AT&T or BellSouth dial-up services with DSL. This is not a major benefit, and there's nothing to prevent AT&T from recouping the cost by raising general prices (except on the mandated plan). AT&T is currently offering a mail-in rebate that covers the cost of a DSL modem.

  • A pledge to offer broadband wherever the new AT&T is the local phone company. This sounds good, but AT&T is allowed to use satellite broadband, which is comparatively slow and expensive, to cover the last 15 percent of homes. This means rural homes that are too far from phone-switching stations may still not get DSL.

AT&T already sells satellite broadband in partnership with WildBlue Communications Inc. Service starts at $50 a month for downloads at up to 512 kilobits per second, slower than AT&T's $15 DSL plan. The equipment costs $300. One emerging alternative: fixed wireless broadband, which is cheaper than satellite, but is only available in a few areas so far.

  • DSL service without local phone service. This is something consumer advocates have fought for because many broadband users make phone calls over that connection and feel no need for a traditional landline. But so-called "naked" DSL is something that appeals mostly to the technically sophisticated, and they're unlikely to be thrilled by the relatively slow plan that AT&T has offered to sell, with a download speed of 768 kilobits per second. At a month or less, it'll cost a bit more than the cheapest DSL plans but you can drop charges for phone services. This pledge will be good for 30 months. After that, there's a good chance AT&T won't make any new demands of current customers, but there's no promise.

  • A pledge to sell wireless broadband licenses held by BellSouth. This is intended to open up competition in providing broadband to the home, a market that now has only two main competitors in each area: the phone company and the cable company. BellSouth already uses this spectrum to provide broadband service in parts of 15 cities in eight states. The technology is similar to that used in Wi-Fi hotspots, but allows for longer range.

Cell-phone carrier Sprint Nextel Corp. has announced plans to build a competing wireless network and would probably love to get its hands on the frequencies to be surrendered by BellSouth. But there's nothing in AT&T's offer that says it has to sell the frequencies in an open process, so it may well chose a less-threatening buyer.

  • A pledge to uphold "net neutrality" principles. This is the most abstract promise, but some consumer groups say it's the most important. The major phone companies -- most prominently AT&T -- have suggested they would like to be able to charge large Web companies like Google Inc. and Amazon Inc. for preferential treatment of their traffic, ensuring that, for instance, online movies they sell don't stutter or break up because of Internet traffic jams.

In a sometimes vehement debate over the past year, the Web companies and consumer advocates have fought this idea, saying it runs counter to the egalitarian and public nature of the Internet and will stifle innovation when smaller companies can't afford the extra Internet tolls.

When SBC bought AT&T Corp. to become AT&T Inc. and when Verizon Communications Inc. bought MCI, they both promised to uphold certain loose principles of "net neutrality," but that promise expires next year. AT&T is now offering the FCC to go even further and to refrain from offering any service that prioritizes or degrades any Internet data based on its source, ownership or destination. This would apply for two years after merger.

AT&T's IPTV service, a competitor to cable TV, would be exempt, as would the Internet backbone. But "network neutrality" proponents were largely pleased with the offer on Friday.

"This is a major step forward for supporters of an open Internet and a great improvement on the conditions applied to the earlier mergers," said Ben Scott at Free Press, a nonprofit that promotes freedom of speech.

Copyright 2006 The Associated Press.

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