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SBC agrees to conditions on Ameritech merger

Federal regulators make a deal with SBC on a set of strict conditions allowing the company's merger with Ameritech to go forward.

Federal Communications Commission staffers have agreed with SBC Communications on a set of strict conditions allowing the company's merger with Ameritech to go forward.

The agency announced the conditions today, after two months of closed-door negotiating with the Baby Bell phone companies. The plan still needs to be opened to public comment--a process that will likely take until the end of July--before the commissioners officially approve the deal.

"I am encouraged by SBC and Ameritech's commitment to open their markets to competition, and their agreement to suffer stiff penalties if they do not," FCC chairman William Kennard said in a statement accompanying the news. "I look forward to working with my colleagues to closely evaluate the companies' proposal."

If the deal is eventually approved, it will create one of the world's largest telecommunications companies, with a market capitalization of more than $181 billion at today's market value. The firms combined will control about one-third of the nation's local phone lines.

The conditions agreed to by federal regulators and the two telcos include some of the same items already promised by the companies to soothe state regulators' concerns. But in several items, the conditions go well beyond what has previously been imposed on other merging companies.

SBC and Ameritech have agreed to begin competing for residential and business customers in 30 new markets in the course of 30 months. This goal accelerates the companies' earlier promises that they would take their business to new markets over the next three years.

The FCC's conditions would also impose a fine of $40 million per market, up to a total of $1.2 billion, for every missed deadline.

"They're trying to ensure that SBC does what it has said it will do," said Scott Cleland, a telecommunications analyst with the Legg Mason Precursor Group. "The company doesn't have a problem with that."

The companies already have said they would expand services into the Seattle, Miami, and Boston areas within 12 months after their merger is approved, and add Phoenix, New York City, and Washington within 18 months.

Separately, the FCC conditions would require SBC and Ameritech to create a separate subsidiary to offer high-speed digital subscriber line (DSL) Internet services.

This comes as a blow to the firms, as SBC has been quickly introducing DSL service through its Pacific Bell subsidiary. SBC has hoped to offer broadband services across its territories without setting up a corporate firewall between its telephone and Internet operations.

The new affiliate would be free to cross-market SBC's telephone services, but SBC would have to give it access to the array of copper telephone wires that carry residential DSL service, just as it does for other broadband competitors.

SBC also will be required to offer its DSL service on a large scale, even as at least 10 percent of the urban and rural offices it plans to upgrade now serve low-income areas.

The conditions do stop well short of some ideas originally considered, however. Some early reports had predicted that the FCC might force the companies to open their local phone markets to competitors before approving the mergers--a process that would have significantly delayed the deal's completion.

SBC said the conditions were acceptable, as long as they didn't go any farther after the public comment period. "We're happy with this," said SBC spokesman Selim Bingol. "We're satisfied with way [the conditions] are now."

"Both sides wanted more," Cleland said. "But this was a 'getting to yes' process. The important thing for the company is that their merger will be approved."

The companies' merger also has to be approved by regulators in Indiana and Illinois before being finalized.