FCC asks states to weigh in on SBC merger

At a meeting of utility regulators in San Francisco, FCC chairman William Kennard told his state counterparts they should feel free to impose their own new requirements on the corporate marriage.

"I don't want you to think that our conditions are meant to supplant any market-opening conditions you might choose to adopt," Kennard told his state colleagues. "If you do that, you do it with our blessing."

But some analysts saw Kennard's comment today more as a way to keep peace between state regulators and the FCC rather than a way to heap more conditions on an already contentious merger.

"The FCC and the states have had difficult relations," said Scott Cleland, a telecommunications analyst with the Legg Mason Precursor Group. "This is an easy thing for him to do. Why not do the gracious thing when he can't control their decisions anyway?"

Local regulators might impose some "state-specific" conditions, but are unlikely to impose stringent new requirements, Cleland added. "At this stage, these are political deals that need to get done. The states aren't going to block this merger."

If the deal is eventually approved, it will create one of the world's largest telecommunications companies, with a market capitalization of more than $193 billion at today's market value. The firms combined will control about one-third of the nation's local phone lines.

SBC Communications declined to comment.

FCC staff and the two companies agreed on conditions for the merger early this month, including requirements that SBC and Ameritech enter new local phone markets around the country. The firms were also required to set up a new, separate subsidiary for their high-speed Internet businesses.

With potential financial penalties ranging in the billions of dollars for missing deadlines or requirements, the federal conditions already would be the strongest ever imposed on a set of merging telephone companies. But the conditions still were less stringent than some proposed by competitors; reportedly, some were raised in negotiations between the FCC staff and the two companies.

Several reports prior to the close of negotiations raised the possibility that the companies would have to prove they had opened one or more of their local phone markets to competition by other local phone providers before the merger was approved.

That condition, which is already required by the 1996 Telecommunications Act, has not yet officially been met by any of the big local telephone companies. Some Washington insiders have speculated that growing Congressional pressure on the FCC helped keep this condition out of the final negotiated agreement.

A handful of states still are looking at the merger, with an eye to imposing conditions that protect individual telephone markets. Ohio regulators, consumer groups, and the companies, for example, have already agreed on a set of conditions similar to the FCC's list.

Final comments on the merger of the two companies are due at the FCC tomorrow. The full commission will vote on the merger after reviewing these comments.