The Federal Communications Commission yesterday approved the merger of SBC Communications Inc. and Ameritech Corp., handing a single company control of nearly a third of the nation's local telephone lines, from San Francisco to San Antonio to Chicago.
But regulators attached significant conditions, negotiated earlier: Over the next 30 months, the resulting telephone power must expand into 30 major markets, including Washington, and offer competitive local telephone service -- or surrender $40 million in penalties for each one it misses. An additional $1.1 billion in penalties could apply if regulators find that SBC is discriminating against competitors in its local markets.
Highlighting those conditions as the key to the $74 billion deal, FCC Chairman William E. Kennard touted the merger as a decisive boost for consumers, one that will bring more choices into homes and businesses.
"What we've done is harness the powerful incentives that are pushing these companies to merge and use them as a lever to open up new markets for competition," Kennard said in an interview. "Most Americans still have no choice for local phone service. This is going to hasten competition."
Kennard celebrated another condition as well: SBC is required to accelerate its offerings of high-speed Internet access into low-income and minority areas.
The stock market cheered the news, even though it had long been expected, adding 87 1/2 cents to the price of SBC shares, which closed at $51.81 1/4. Ameritech shares gained $1.31 1/4 to close at $68.
Coming just a day after the nation's second- and third-largest long-distance forces, MCI WorldCom Inc. and Sprint Corp., announced plans to fuse in what stands to be the largest corporate merger in history, yesterday's announcement was more evidence that the telecommunications world is being remade by technology, deregulation, and a relentless momentum toward greater and greater size.
Some consumer advocates, however, accused federal regulators of shortchanging consumers by creating an enormous local phone company, with dominant positions across SBC's territory in the Southwest and West and Ameritech's stronghold in the Midwest.
"This is an enormous disappointment," said Gene Kimmelman, co-director of Consumers Union. "Adding one monopoly to another monopoly is no way to provide more choices or lower prices to consumers. . . . It's embarrassing that the chairman of the FCC is surrendering to the monopolies. This will only mean fewer choices and eventually, we fear, higher prices for most consumers."
SBC chief executive Ed Whitacre said his critics were failing to account for the fundamental changes in the industry as technology erodes old monopolies, delivering new ways to reach customers. Domination of local phone wires once was enough to gain a monopoly, but today copper wires are but one link to the customer, he said.
"Wireless is a big deal," Whitacre said. "There's satellite. . . . It's not like we have the only way into the home and business."
Some analysts doubted that SBC would satisfy the spirit of the conditions and really compete for local customers outside its home bases. While adding long-distance service is technically simple, offering local service in new markets presents a pair of equally difficult choices: establishing new wired or wireless links to customers, or buying service wholesale from the existing local franchise and reselling it -- an arrangement with tight profit margins.
"They'll go through the motions," said Brian Adamik, an analyst with Yankee Group in Boston. "They'll do the bare minimum to satisfy the FCC. We all know their real interest is in their operating region."
But Whitacre, the SBC chief executive, promised that would not be the case. "We're going to vigorously compete in both the consumer and business markets," he said.
Within a year, SBC plans to offer competitive local service in Seattle, Boston and Miami, building on its sizable presence near all of those cities: Two years ago SBC bought Pacific Bell, and last year it swallowed Southern New England Telephone.
For good or ill, yesterday's decision represents the hallmark of Kennard's tenure as the nation's top communications regulator. Ever since Congress adopted the Telecommunications Act of 1996, amid calls for more competition, his commission has packaged its policies as a means of nudging more competitors onto the field, even as consumer groups have sometimes blasted it for blessing ever more imposing mergers.
The FCC sided with AT&T this year when rival Internet service providers asked regulators to ensure the company did not hinder access to AT&T's cable customers. Now, he and the commission have allowed a single company to control one of every three phone lines in the country.
In every instance, the commission maintains that the effect on competition is the highest consideration. "Absent conditions, the record is compelling that the combination of SBC and Ameritech would not serve the public interest," said commissioner Susan Ness, who voted for approval.
But Mark N. Cooper, research director at the Consumer Federation of America, said the commission has focused solely on promoting the sort of competition that benefits the richest customers, who use the most services. "The rest of us have been abandoned by the FCC," he said.
Now that SBC is reaching more households than ever, the company is eager to expand the range of services it can offer, squeezing more revenue out of every customer. Whitacre said the company would file for federal approval to enter the long-distance market in Texas within weeks, the first of a slew of state applications to follow.
"Once they get permission, they will be very effective," said Rex G. Mitchell, an analyst with Banc of America Securities LLC. "Long-distance and local are a natural to package together."