FCC Approves Takeovers Creating Telecom Giants

WASHINGTON - Federal regulators unanimously agreed Monday to allow the nation's two biggest phone companies, SBC Communications Inc. and Verizon Communications Inc., to take over the two leading long-distance providers.

But the Federal Communications Commission also prodded the companies into accepting some temporary price freezes, as well as safeguards to prevent them from gaining too much control over Internet service.

The FCC's approval was the last major potential impediment to SBC's purchase of AT&T Corp. for $16 billion and Verizon's acquisition of MCI Inc. for $8.44 billion.

As a merged company, Verizon and MCI together will have annual revenues exceeding $90 billion. Together, SBC and AT&T will have revenues of more than $70 billion, and the takeovers will extend both companies' access to the lucrative market for business customers.

Each of the new companies will be vastly larger than their competitors, including Atlanta-based BellSouth Corp., with revenue of $20 billion in 2004, and Reston, Va.-based Sprint Nextel Corp., with revenues of $41 billion.

Both SBC -- which will adopt the AT&T name once the transaction is final -- and Verizon plan to compete directly with cable companies to deliver video services.

By allowing the transactions, the FCC is helping "create strong global carriers that will vigorously compete" to provide voice, data and video services, FCC Chairman Kevin Martin said.

Still, some consumer advocates said regulators should have gone further.

"The commission has failed to ensure that consumers will receive meaningful choices at fair prices," Gene Kimmelman, senior director of public policy for Consumers Union, said in a statement.

The concessions demanded by the FCC include:

... The telecom companies cannot force consumers to take local phone service if they want only high-speed Internet access. Many customers with cell phones don't want to pay for old-fashioned phone service; they just want digital subscriber lines (DSL) for their computers.

... For two years, the companies must provide "neutral" Internet service by not restricting consumers' access to rivals' Web sites and software.

... For 30 months, they must freeze the rates they charge existing wholesale customers.

Last week, the Justice Department signed off on both transactions after demanding only that SBC and New York-based Verizon divest some fiber-optic network facilities they control.

Martin, a Republican, had not wanted any additional concessions.

But because the five-member FCC has one vacant seat, it is split evenly between two Republicans, Martin and Kathleen Abernathy, and two Democrats, Michael Copps and Jonathan Adelstein.

Copps and Adelstein pushed so hard for concessions that the vote, originally scheduled for Friday, was delayed until Monday. Marathon negotiations over the weekend concluded with both sides saying they were disappointed, but willing to live with the results.

"I believe the affected markets would remain vibrantly competitive absent these conditions," Martin said. However, SBC and Verizon were willing to accept the concessions because of "their desire to move forward," he said.

After the FCC vote, San Antonio-based SBC said it can accept the "limited conditions that will still allow the combined company to realize the benefits of the merger."

Copps said the compromise "falls far short of ideal," but would at least help to "protect against injurious consequences."

Chris Putala, executive vice president of Atlanta-based EarthLink Inc., an Internet service provider, said that while they might not be perfect, the concessions were "certainly positive news."

EarthLink fears that if SBC and Verizon were to require that DSL and local phone service be sold together, then customers would have less incentive to use EarthLink, with its option to make calls using the technology known as voice over Internet protocol, or VoIP.

Consumer advocate Kimmelman said the problem is that the FCC is not imposing the concessions across the entire industry.

"The absence of similar enforcement mechanisms for other telephone and cable companies means that Internet service providers and applications developers can be undermined" by the powerful telecom giants, he said.

Copyright 2005 Associated Press

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[TELECOM Digest Editor's Note: It is _good_ to see the FCC put this clamp on SBC where people do not have to accept their phone service in order to purchase their DSL. I wonder how how long it will take for SBC to comply with this new requirement. PAT]

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