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AT&T, BellSouth Merger Denounced

UPDATED: The proposed merger of AT&T and BellSouth means the death of the Internet and the unmasking of fictional competition between telecom companies, charged two Washington, DC-based consumer groups.

The Consumer Federation of America and the Consumer Union urged regulators to reject the $67 billion proposal.

The combination would give AT&T 70 million phone subscribers, more than 50 million wireless users and 10 million DSL connections, ensuring the carrier's No. 1 position.

"The fiction that a lot of competition will protect the public is dead," Mark Cooper, director of consumer research for the (CFA), told internetnews.com.

"We've gone from a regulated monopoly to an unregulated duopoly," Cooper said, adding that the issue "will be a major public issue."

Cooper believes the proposal "gives AT&T more ability to kill the Internet. They want to cableize the Internet."

The Consumer Union was equally opposed to the blockbuster merger.

"Congress and federal regulators need to look carefully at the lifeless 'competition' their flawed policies have created and reject this merger," Gene Kimmelman, Consumer Union vice president for federal and international affairs, said in a statement.

Where once AT&T, MCI, SBC, Bell South, Sprint and Verizon competed for long-distance, local and wireless subscribers, the landscape has been altered by the increasing urge to merge.

With previous mergers between Verizon and MCI, the AT&T, SBC, Bell South, Cingular deal would mean the telecomm market is reduced to two larger players.

The merger plans between AT&T and BellSouth come less than two months after SBC purchased AT&T for $16 billion and adopted the AT&T name. In 1986, the U.S. Justice Department broke up AT&T into eight regional baby bells.

AT&T CEO Edward Whitacre Jr., called the move "the next logical step that creates substantial value for customers and stockholders of both AT&T and BellSouth" in a statement.

"This was the right time for this merger," according to a statement from Duane Ackerman, chairman and CEO of BellSouth. "This combination is good for our employees, our customers and our stockholders."

Earlier this month, the Internet Nondescrimination Act of 2006 was introduced in the U.S. after some telcos, such as AT&T, suggested Google, Amazon and other high bandwidth users pay extra to deliver their content across the company's broadband pipes.

"Ma Bell is coming back together," Joe Laszlo, a JupiterResearch broadband analyst, told internetnews.com. Even with a larger base of subscribers, the larger AT&T will still be No. 2 to Comcast's broadband reach, according to Laszlo. (JupiterResearch and internetnews.com are owned by Jupitermedia.)

What's prompting the merger? It's in the blood, argued Laszlo. Although the 1996 Telecom Act was designed to foster competition among the baby bells, the companies found it wasn't in their interest to compete, says Laszlo.

Although we won't see the complete reformation of a single Ma Bell, "we'll probably see two gigantic companies" offering wired, wireless and Internet access, according to the analyst.

Consumer groups have valid points about loss of competition, said Laszlo. "I hope regulators take a hard, long look" at the proposed merger."

"AT&T has had its eye on BellSouth for years," Gartner telecom analyst Jay Pultz told internetnews.com.

The telecom giant has been waiting for a favorable regulatory atmosphere, according to Pultz. Laszlo agreed that a similar deal would not have been possible seven years ago.

Pultz said AT&T also saw the chance to wholly-own the profitable Cingular Wireless service it shared control of with Bell South. "Joint ventures are hard to control," Pultz said.

While Pultz believes this is somewhat of a negative loss for consumers, he is quick to qualify that assessment.

"It's going to be hard to make an antitrust case. There will be viable competition."

That competition will evolve into an AT&T-centric group versus Verizon-led competition.

Pultz said "telcos still have blinders on about how Yahoo and others will impact" the VoIP and IP TV space. Both are areas telcos are eagerly looking to enter.

In February, AT&T announced it would team with Yahoo to offer telephone subscribers $12.95 broadband access.

"Some will see this as the apocalypse while others see this as natural evolution," Laszlo told internetnews.com.