Final Fed OK to Telecom Mergers

WASHINGTON – Verizon and SBC won Federal Communications Commission (FCC) approval today for their mega mergers with long distance providers MCI and AT&T, but not before the FCC imposed several Internet-related mandates on the deals.

In order to clear the final federal hurdle to the mergers, the nation’s two largest incumbent telephone companies agreed to sell standalone DSL, legally committed to the FCC’s August network neutrality rules, and promised to maintain peering agreements with other Internet backbone providers.

The Department of Justice approved the mergers last week with only minor divestiture requirements.

“I believe that the transactions we approve today are consistent with and will further many of the Commission’s competition, broadband and public safety priorities,” FCC Chairman Kevin J. Martin said. “It is my expectation that these mergers will only increase the incentive and ability of the merged entities to invest in broadband infrastructure and spread the deployment of advanced service to all Americans.

Martin, who originally sought a no strings attached approach to the merger agreements, and fellow Republican Kathleen Abernathy finally agreed to the Internet provisions after an intense weekend of negotiations with Democrats Michael Copps and Jonathan Adelstein.

“Let me say that I do not believe that all of the conditions imposed today are necessary,” Martin said. “I believe the affected markets would remain vibrantly competitive absent these conditions.”

Consumer groups sharply disagreed with Martin.

“Approval of these mergers undermines more than 20 years of efforts to introduce competition into the residential local and long distance telecommunications market,” Gene Kimmelman, senior director of public policy for Consumers Union, said in a statement. “The FCC promises cross-technology competition with Internet phone service on cable and telephone systems, but the Commission has failed to ensure that consumers will receive meaningful choices at fair prices.”

Although Copps and Adelstein joined Martin and Abernathy in the unanimous vote, both Democrats expressed concerns about the deal.

“Maybe a better way to put it on this Halloween Day is to say, ‘It’s not a trick or much of a treat, but it’s all you get if you come knocking on the Commission’s door today.'” Copps said. “Yet, clearly, this is better than approving these mergers without any conditions.

Adelstein added, “While I am deeply concerned about the concentration and loss of wireline competition that may occur as a result of these mergers, I concur [with the merger approvals] because they each include a minimum set of conditions that tip the balance, albeit narrowly, in favor of approval.”

The standalone DSL provision requires Verizon and SBC to break their bundles of voice, data and video and offer broadband service as a separate product. Verizon already offers “naked” DSL in some markets while SBC has stuck with bundled offers.

“If savvy consumers have cut the cord and use only a wireless phone, why should they have to pay more for wireline voice service they don’t even want?” asked Copps.

Adelstein said when companies “unilaterally mandate” that broadband and phone services be bought together in a bundled package, the incentive declines for consumers to seek Voice over IP phone service from competitors or to rely on wireless service as their primary option.

“Consumers deserve the option of choosing the combination of services that fits their needs and encouraging greater purchasing flexibility through standalone DSL furthers this goal,” Adelstein said.

The open access provisions of the approval require Verizon and SBC to allow customers to access the lawful Internet content of their choice, run applications and services of their choice and plug in and run legal devices of their choice.

The peering agreements — the free exchange of traffic between various Internet backbone providers – require the two post-merger Baby Bells to continue peering with at least as many providers as they currently do.

“The more powerful and concentrated our facilities grow, the more they have the ability, and perhaps even the incentive, to close off Internet lanes and block IP pathways,” Copps said. “The conditions we adopt today speak directly to this issue before increased concentration of last-mile facilities and the Internet backbone make it intractable.”

Unsurprisingly, both Verizon and SBC hailed the FCC decision.

“After two federal reviews and strong approvals by shareholders and the international community, it is clear that this combination is undeniably in the public interest,” Tom Tauke, Verizon executive vice president of public affairs, policy and communications, said in a statement. “The Department of Justice and FCC approvals put us on firm footing as we seek the remaining few state approvals.”

In his own statement, SBC Chairman and CEO Edward E. Whitacre said, “The Commission vote demonstrates a recognition that the merger of SBC and AT&T will enhance competition, help bring new technologies to market faster, and provide real benefits to consumers and businesses.”