SBC merger spotlight turns to states

Illinois regulators open a full week of hearings on the $69 billion merger between SBC Communications and Ameritech.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
The spotlight on the $69 billion merger between SBC Communications and Ameritech tightens this week, as Illinois regulators open a full week of hearings on the deal.

The hearings take place against a background of substantial public criticism, as competitors, consumers, and state officials have warned of negative consequences from the proposed pairing.

Illinois state regulators have the power to derail or substantially modify the terms of the deal, which would bring nearly a third of the local phone lines in the country under the ownership of SBC.

Illinois officials have been critical of the two companies' claims of benefits resulting from the merger, and have asked for strict regulations to ensure the San Antonio, Texas-based SBC doesn't drain resources away from the state.

The state attorney general's office has recommended that regulators approve the deal, only if the merged company limits transfers of jobs out of state, and cuts phone rates in the state by $343 million.

Illinois Commerce Commission staffers also have said policy makers should impose strict conditions on the merger, such as returning savings from the deal to consumers.

Outside critics of the merger also have stepped up their legal and public relations campaign in Illinois in recent weeks, arguing that the deal could threaten consumer rates, send jobs out of the state, and lower investment in Ameritech's home territory.

A coalition of 14 consumer-oriented groups, joined by several state and municipal attorneys general, vocalized their opposition to the deal in a highly-publicized media campaign last week. The deal would concentrate too much power over local phone markets in too few hands, the groups said.

On a similar note, an AT&T-backed lobbying group dubbed the Illinois Partnership for Fair Telecommunications Policy has been running television and newspaper advertisements criticizing the merger. Cast from the same mold as negative political campaign ads, the commercials warn of the effect of an out-of-state corporation taking over consumers' home telephone company.

"SBC and Ameritech both operate as monopolies, and permitting them to merge will leave Illinois consumers at the mercy of one Godzilla telephone company," said Gary Mack, executive director of the AT&T-backed group, in a statement before today's hearings. "Any competitors will be squashed like bugs."

Ameritech's revenue totaled $2.6 billion in 1998, compared to AT&T's $53.2 billion.

Executives from SBC and Ameritech have begun to feel the pressure of the criticism. The two companies held a joint conference call and press conference this morning contesting the claims of the merger's critics.

"If you look at the entities who are talking about negative effects, almost all of them are competitors who don't want another strong competitor in their market," said Douglas Whitley, president of Ameritech Illinois.

The merger is needed to allow both companies to compete in phone markets that are becoming more nationally and internationally oriented, the executives said.

"If we sat back and did nothing, AT&T and MCI WorldCom would take away our largest customers," said James Kahan, SBC senior vice president for corporate development. "If we do not take action and the market erodes our position among business customers, that will seriously impact consumers in a negative way."

The companies challenged their critics point by point, promising that the deal would not lead to higher consumer rates and that there would be a net increase of jobs in Illinois as a result of the deal.

Illinois is one of only two states in Ameritech's regional territory where state law gives regulators the potential power to block the merger. Ohio regulators also recently held several days of hearings on this issue.

Regulators in other states have asked for briefings on the deal, but do not have as much legal authority to block the deal. California conducted similar hearings on SBC's merger with Pacific Bell, hearing opposition from a similar range of critics, but approved the deal with a list of conditions.

The Illinois Commerce Commission is expected to issue a final ruling on the issue in April or May. The Federal Communications Commission and the Justice Department also must approve the deal.