AT& T Deal Wins A Key Go-Ahead

By Alan Sipress
Washington Post Staff Writer
Thursday, October 12, 2006

The Justice Department yesterday endorsed AT&T Inc.'s proposed $78.5 billion purchase of BellSouth Corp., clearing the way for the Federal Communications Commission to approve as early as this week the creation of a corporate giant that would be the country's largest provider of telephone, wireless and broadband services.

But the outcome of the FCC consideration, scheduled for tomorrow morning, remains in doubt because the prospective swing vote on the five-member board has maintained since summer that he is sitting out the case to avoid a possible conflict of interest.

The merger, proposed in March, would reunite two major parts of the old AT&T telecommunications empire that was broken up by the federal government in 1984. The deal would also give AT&T complete control over Cingular Wireless, the country's largest cellular telephone provider, now owned jointly by AT&T and BellSouth.

The deal, originally valued at $67 billion, is now worth substantially more because of increases in stock prices.

While consumer advocates say the merger would lead to higher prices for a range of telecommunications services, the companies have argued it would foster greater innovation.

If the FCC's newest commissioner, Robert M. McDowell, is ultimately recused, this could leave the board split along party lines and deny the merger the majority required for approval. That would put pressure on Chairman Kevin J. Martin, a Republican, to offer some concessions on consumer protection and competition that the panel's two Democratic members have sought but he has been reluctant to make. Martin has previously urged that the deal be approved without conditions.

Though a Republican appointee, McDowell has already shown an independent streak and said he is recusing himself because he previously worked as senior vice president for Comptel, an association that has lobbied on behalf of companies competing with AT&T and BellSouth. A spokeswoman in his office said yesterday that McDowell has continued to act as if he is recused.

But the final decision on whether he will participate could rest with the FCC's general counsel, raising the prospect that McDowell could be called on to decide the matter, even though he has said he has intentionally steered clear even of reviewing written submissions in the case. McDowell has never said publicly how he would vote if forced to participate, but industry analysts speculate he would likely side with his fellow Republicans.

Martin, saying little in public about the standoff, has signaled only that it remains unresolved.

Late yesterday, the commission announced that formal consideration of the merger, originally scheduled for today, would be delayed until Friday. Though no explanation was given, sources close to the FCC said negotiations between the two sides on the commission had only begun in recent days, leaving it unprepared to take up the matter as quickly as first envisioned. The sources spoke on condition of anonymity because they are not authorized to speak publicly on the matter.

By approving the merger, a step industry analysts expected, the Justice Department gave additional ammunition to advocates of the deal. The department concluded that there are enough other corporate competitors and emerging technologies to ensure that consumers are protected, and it placed no conditions on the approval.

"After thoroughly investigating AT&T's proposed acquisition of BellSouth, the antitrust division determined that the proposed transaction is not likely to reduce competition substantially," said Assistant Attorney General Thomas O. Barnett. The ruling came after the antitrust division examined the areas in which AT&T and BellSouth now compete, including local and long-distance telephone service and Internet service for homes and businesses, he said. The impact on future competition in wireless Internet service was also considered.

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