The Justice Department today gave conditional approval to the $48 billion merger between AT&T and Tele-Communications Incorporated, clearing away the first regulatory barrier to the companies' marriage.
DOJ regulators agreed to give the merger a green light as long as TCI sheds its 23.5 percent stake in Sprint PCS Group, which competes with AT&T's own wireless phone unit.
"The settlement today will ensure that the merger will not blunt the move towards a more competitive market in wireless services," said assistant attorney general Joel Klein, the DOJ's chief antitrust regulator.
AT&T executives welcomed the news, saying they had already planned give control of the Sprint wireless unit to a trustee, an option allowed under today's DOJ consent decree. The trustee must sell the Sprint shares within five years, however.
"[We] made clear from the start that this interest would be placed in a trust arrangement as part of the approval process, and that is exactly what this decree accomplishes," AT&T general counsel Jim Cicconi said in a statement.
The two companies announced their intention to merge last June. AT&T plans to use TCI's cables to make an end run into local telephone markets, allowing it to offer local residential service without going through the telephone networks owned by the Baby Bells and other local competitors.
AT&T is the largest provider of long distance and mobile wireless telephone service in the country, while TCI is the second-largest cable television provider. TCI also holds the largest single interest in @Home, a leading cable Internet access service.
Merger moves to third base
Most telecommunications observers had expected the Justice Department to approve the deal without many conditions. But the two companies still must convince the Federal Communications Commission, in a review process that has proven far more controversial than the DOJ's relatively straightforward antitrust review.
"The DOJ is an easier hurdle," said Terry Barnich, president of the Chicago-based New Paradigm Resources Group and a former state telecommunications regulator.
The FCC uses a broader standard in its own review of mergers, which allows it to bring in issues outside the DOJ's purview, Barnich said. "Their review is based on a 'public interest' standard, which is loosely defined as anything regulators want to say it is."
That broader standard has allowed critics of the merger, such as America Online and consumer groups, to push for "open access" to TCI's cable broadband pipes as a condition of the FCC's approval. Allowing competing Internet service providers equal access to TCI's cables would increase consumer choice for cable-based data services, these critics say.
"These companies want to keep their network closed to competitors,"
Mark Roellig, US West's vice president
for public policy, said in a statement. "Given that, it's unconscionable that
the DOJ would allow these two giants to get together in record time."
Under that plan, outside companies would pay TCI a fee for using their broadband cable pipes to offer digital services. But AT&T and TCI argue that forcing them to allow other ISPs to piggyback on their networks would reduce the incentive to invest in and upgrade the cable systems. Any such condition could kill the merger altogether, AT&T executives have said.
"We know we've still got to spend some time with the FCC," said Wayne Jackson, an AT&T spokesman.
Nevertheless, several FCC commissioners have indicated they are leaning toward approval of the merger without the "open access" conditions, as the deal is expected to help open a new arena in local telephone competition.
Many industry observers expect the commission to approve the deal without adding much in the way of conditions.
"Given that regulators are feeling pressured to show some benefit from the telecommunications act, which was passed three years ago, it's our judgment that the FCC will approve the deal," said Brian Adamik, a telecommunications analyst for the Yankee Group in Boston. "We see few if any regulatory issues standing in the way."
The FCC still has several months to decide on the issue. European regulators gave their approval to the deal earlier this month.
In related merger news, the two companies said yesterday they will not comply with a requirement in Portland, Oregon, that TCI open its pipes to Internet competitors as part of its $48 billion merger with the long distance giant.
Local cable regulators in Portland today said the transfer of cable franchise licenses to AT&T from TCI may be automatically denied as the companies did not unconditionally approve the city's terms for the transfer. A formal legal opinion from the state and county counsel is expected next week.
Reuters contributed to this report.