FCC approves AT&T-BellSouth merger

After months of partisan deadlock, the Federal Communications Commission approves the merger valued at roughly $86 billion.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
5 min read
The Federal Communications Commission approved the roughly $86 billion megamerger between AT&T and BellSouth on Friday, ending a partisan standoff.

The commission, which had been split between Democrats and Republicans for months on what--if any--conditions should be imposed on the merger, accepted conditions that AT&T had proposed in a formal letter sent to the commission on Thursday. The merger was approved by 4-0 vote.

First announced in March, the merger will create a super-size AT&T that will become the nation's dominant phone company, controlling more than half the telephone and Internet access lines in the U.S.

The merger follows two other major telecommunications mergers. In 2005, Verizon Communications announced the acquisition of MCI, and SBC Communications said it would acquire AT&T. Even though regulators approved these mergers only on the basis of certain conditions, the deal between AT&T and BellSouth easily won unconditional approval earlier this year from the antitrust division of the Department of Justice. This infuriated the two FCC Democratic commissioners, Jonathan Adelstein and Michael Copps, who had expected some conditions to be placed on the merger.

Meanwhile, the fifth commissioner, Robert McDowell, a Republican, had recused himself from the vote because before his confirmation to the FCC earlier this year, he had represented an industry group opposed to the merger. This left only four commissioners to decide the fate of the merger.

After it became clear that the Democrats would approve the merger only with certain conditions and that Republicans favored few if any conditions, the FCC's general counsel cleared McDowell to vote to break the tie. But McDowell reaffirmed his decision to stay out of the discussion and not to vote on the merger. Instead, he urged his colleagues to work out a compromise.

Finally, the two sides have come to an agreement. And AT&T's long struggle to further consolidate the communications market in the United States has ended.

"The commission concluded that significant public interest benefits are likely to result from the transaction," according an FCC statement (click for PDF) citing examples such more widespread broadband coverage, increased competition, improved products, and enhanced national security and disaster recovery.

The conditions of the merger proposed by AT&T and agreed to by the FCC included the sale of certain wireless airwaves in the 2.5 gigahertz band, a special $19.95 per month price tag for stand-alone basic high-speed Internet service and a promise for the next two years to adhere to specific Network neutrality rules.

One of the most important concessions is AT&T's commitment to a basic set of principles that establish a practical implementation of Net neutrality. Specifically, it agreed "not to provide or to sell to Internet content, application, or service providers, including those affiliated with AT&T/BellSouth, any service that privileges, degrades or prioritizes any packet transmitted over AT&T/BellSouth's wireline broadband Internet access service based on its source, ownership or destination."

Don't look at the FCC's decision, however, as a ruling on Net neutrality, Republican Commissioners Chairman Kevin Martin and Deborah Taylor Tate warned in a statement.

"Today's order does not mean that the commission has adopted an additional Net neutrality principle. We continue to believe such a requirement is not necessary and may impede infrastructure deployment," they wrote. "Thus, although AT&T may make a voluntary business decision, it cannot dictate or bind government policy. Nor does this order."

Several consumer groups, such as Public Knowledge and the Consumer Federation of America, praised AT&T's concessions. These groups have been strongly opposed to the merger from the beginning and have been working to make sure the FCC imposes some kind of conditions on the merger.

"Everyone who uses the Internet will benefit, at least in the short term, from AT&T's latest concessions in its takeover of BellSouth," Gigi Sohn, president of Public Knowledge, said in a statement. "AT&T has agreed to essential Net neutrality principles."

But not everyone is happy about the deal. Some Net neutrality purists have criticized the fact that AT&T proposed two exceptions to the Net neutrality principles. The first exception allows AT&T to deliver "enterprise managed IP services." These are services that AT&T sells to business customers to connect different offices or provide Internet connections to data centers. AT&T charges its customers a premium for guaranteed levels of service, which requires the company to manage or prioritize traffic when it runs over its network.

The second exemption is for AT&T's IPTV service, U-verse, which is currently rolling out in 11 markets. Because AT&T's IPTV service doesn't run over the public Internet, this should not be a big issue, said Tim Wu, a professor at Columbia Law School specializing in telecommunications law and a charter member of the SavetheInternet.com coalition.

"These services are IP in name only," he wrote in a blog posted on SavetheInternet.com on Friday. "These services use only the private infrastructure built by AT&T, and do not rely on the public Internet as described by IP addresses. Hence the exclusion of private IPTV services should be considered less controversial. In fact, were the Network neutrality rules to apply to IPTV, it is doubtful that AT&T could offer its competing cable television services, leaving the cable market with even less competition."

Mark Cooper, director of research for the Consumer Federation of America, said that some compromise between Net neutrality supporters and AT&T was necessary. His group was asked by the FCC to participate in the negotiations with AT&T over the weekend.

"I don't believe the exclusions swallow the definition of Net neutrality that AT&T has agreed to," he said. "People can hypothesize different ways that AT&T will try to define services as IPTV to get around the rules, but if you look at the language, it's pretty clear what is and is not included."

AT&T has agreed to adhere to specific rules for a period of two years. But consumer groups are hopeful that if the rules prove to be effective, Congress can use AT&T's own definition of Net neutrality to craft legislation for all carriers.

"The two-year term of the agreement should give policymakers in Congress and the FCC enough time to come up with a permanent Net neutrality policy that reflects the significant agreements AT&T has set out," Sohn said.