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OBSTACLES CLOUD MERGER

WASHINGTON-A merger between long-distance giant AT&T Corp. and local telco stalwart SBC Communications Inc. would raise wireless competition questions and face legal and regulatory hurdles that could prove insurmountable, according to antitrust policy experts.

At $50 billion, an AT&T-SBC marriage would be far and away the biggest in American history. A telecom juggernaut powered by 230,000 workers that could ring up $80 billion a year in revenue.

If confirmed by the Senate, it would be baptism by fire for acting Justice Department antitrust chief Joel Klein. Klein received mild rebuke during his confirmation hearing from Sen. Patrick Leahy (D-Vt.) for approving the Bell Atlantic Corp.-Nynex Corp. merger without imposing conditions similar to those required by several New England states.

San Antonio-based SBC, one of the seven regional Bells spun off from Ma Bell in 1984, dominates local telephone service in the Southwest and, as a result of its $16.5 billion purchase of Pacific Telesis Group, controls copper wire lines to homes and businesses in California and Nevada.

AT&T, for its part, towers over an increasingly competitive long-distance market. But with the departure of top executives, like Alex Mandl, and waning Wall Street confidence in the Basking Ridge, N.J., company, Chairman Robert Allen may have felt compelled to take the most daring and bold of steps.

And in so doing, he’s rekindled fears about putting Humpty Dumpty back together again.

“I think an SBC-AT&T merger would get a good hard look at the Justice Department and the FCC. And it would deserve a hard look,” said James Olson, a telecommunications lawyer and former chief of antitrust-competition policy at the Federal Communications Commission.

Olson said the vertical integration of such a partnership, strengthened by powerful AT&T branding, would raise questions about AT&T-SBC’s incentive and ability to thwart competition in wireless, local and long-distance markets where they have a presence.

Clearly, the FCC’s 45 megahertz spectrum cap would be exceeded in markets where SBC and AT&T, the number one mobile phone operator, own cellular and/or personal communications services licenses.

“We think it’s an awful idea. It can’t possibly pass regulatory scrutiny,” remarked Mark Cooper, director of research for the Consumer Federation of America.

Departing FCC Chairman Reed Hundt was quoted as saying, “We know that some mergers are good for competition and some are bad. But I don’t think government has yet drawn a clear line.”

One congressional staffer, who asked to remain anonymous, said lawmakers with antitrust oversight would be concerned about an AT&T-SBC merger.

A House Commerce Committee staffer said the 1996 telecom act shouldn’t be blamed for such mega-mergers. In fact, he pointed out, the new law prohibits AT&T and SBC from joining forces because local competition has not started in local telco markets dominated by SBC.

House telecommunications subcommittee Chairman Billy Tauzin (R-La.) expressed caution, but was less alarmed than others about the prospect of an AT&T-SBC deal.

“Before this merger is ultimately approved,” he said, “one important question needs to be answered: Who will provide competition in the region served? Many people will argue that this proposed move is the first step toward reassembling the old AT&T monopoly. But `big’ brings certain efficiencies that can allow a company to lower prices and offer new services. It only becomes `bad’ if consumers do not have choices.”

“Clearly,” he continued, “this is a different marketplace, a different environment, than it was 15 years ago. As long as other telephone companies, or perhaps cable, can provide competition in the service area, we shouldn’t be overly concerned by this proposed merger. As I have always said, it should be left up to the American consumers to pick the winners and losers in the marketplace, not government or the courts.”

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