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FCC Clears Telecom Mega-mergers
[October 31, 2005]

FCC Clears Telecom Mega-mergers


TMCnet Wireless and Technology Columnist


After a few delays, the Federal Communications Commission has conditionally approved the mega-mergers of SBC Communications with AT&T and Verizon’s bid to acquire MCI Communications, clearing the final federal regulatory hurdle that would allow the two regional Bell operating companies (RBOCs) to complete their respective deals.



However, in order to clear the FCC, the RBOCs made major concessions including opening up their networks to offer so-called “naked DSL” – that is, DSL broadband service without forcing customers to use incumbent phone service. In addition, regulators want to prevent Verizon and SBC from blocking consumers to access competing VoIP services.


“Let me say that I do not believe that all of the conditions imposed today are necessary.  I believe that the affected markets would remain vibrantly competitive absent these conditions.  Nevertheless, the parties involved have chosen to make these commitments now in order to obtain the certainty of immediate Commission approval for their mergers.  I understand their desire to move forward, and agree that the public interest will be well served by providing certainty sooner rather than later,” FCC Chairman Kevin Martin said in his statement.


The concessions are a stark contrast to last week’s decision by the Justice Department to approve the deals without any significant conditions such as the divestiture of key assets. On Thursday, Justice Department officials filed a consent decree with a federal court that stipulates Verizon and SBC must lease dark (unused) fiber connections to certain buildings within their respective footprints.


“The Commission found, however, that the Consent Decrees entered into on Oct. 27 between the U. S. Department of Justice and the applicants adequately address this potential harm,” the FCC said in its statement.


Without going into details in its own press statement, SBC characterized the conditions as “limited” – conditions that “will still allow the combined company to realize the benefits of the merger.” But in a more detailed release, Verizon explained, as part of the FCC approval, Verizon and MCI committed to continue the rollout of Verizon's stand-alone DSL service, continue to adhere to “network neutrality” principles adopted by the FCC earlier this year, cap temporarily certain special access and UNE rates, and maintain for a period of time the current number of settlement-free Internet peering arrangements.


Ironically, while Verizon had without a doubt many more bumps in the proverbial road, today’s FCC actions pose a greater challenge to SBC than to Verizon. SBC currently does not allow naked DSL service within its network while Verizon has already opened its doors. In fact, the vote was originally scheduled for last week but contentious, behind-the-scenes wrangling were interfering with the approval process.


“That [delay] doesn’t usually happen unless there is some maneuvering going on behind the scenes.  They’re certainly not going to stop either of the mergers but someone must be talking about concessions,” a source close to the FCC told TMCnet.


In a sense, VoIP may becoming a victim of its own success. In the midst of its examination, the commission found that “facilities–based intermodal competition, including cable VoIP and wireless services, is growing rapidly and will play an increasingly important role with respect to future mass market competition.”


The developments also help to explain the comments by SBC CEO Edward Whitacre that have sparked widespread controversy within the telecom and blogging communities. In an interview with BusinessWeek., Whitacre reasoned that any Internet start-up should be paying fees for the use of the pipes it has invested to install.


Since SBC and AT&T announced plans to merge in January, approvals have been received from 33 of 36 states with clearance processes and from the District of Columbia . Reviews are pending in Arizona, California and Ohio. Last week, SBC said it will adopt the AT&T name following completion of the merger.


For its part, Verizon first had to fend off Qwest Communications in a bidding war for the assets of MCI. And since Qwest has back off, competitors such as telecom carrier services company XO Communications and others have been hoping to force Verizon into key concessions in order for them to complete the deal.


Shareholders and European regulators have already cleared the Verizon/MCI deal.


“After two federal reviews and strong approvals by shareholders and the international community, it is clear that this combination is undeniably in the public interest,” said Tom Tauke, Verizon executive vice president of public affairs, policy and communications. “The Department of Justice and FCC approvals put us on firm footing as we seek the remaining few state approvals.”




Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.

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