AT&T-BellSouth merger gets FCC green light

The US Federal Communications Commission (FCC) has approved the roughly $86bn mega-merger between AT&T and BellSouth, 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 FCC. 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 US' dominant phone company, controlling more than half the telephone and internet access lines in the country.

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 the Democrats would approve the merger only with certain conditions and Republicans favoured 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 US has ended.

According an FCC statement: "The commission concluded that significant public interest benefits are likely to result from the transaction." The statement cited 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 2.5GHz 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 prioritises any packet transmitted over AT&T/BellSouth's wireline broadband internet access service based on its source, ownership or destination".

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

But not everyone is happy about the deal. Some net neutrality purists have criticised the fact 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 AT&T sells to business customers to connect different offices or provide internet connections to data centres. AT&T charges its customers a premium for guaranteed levels of service, which requires the company to manage or prioritise 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 specialising in telecommunications law and a charter member of the SavetheInternet.com coalition.

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.

Marguerite Reardon writes for CNET News.com