WASHINGTON—The Justice Department’s unconditional approval of the $67 billion merger of AT&T Inc. and BellSouth Corp. ignited a firestorm of protest from consumer groups and the Federal Communications Commission’s two Democrats, setting the stage for a showdown at the FCC over whether to subject the transaction to restrictions on wireless broadband spectrum, special-access lines and other holdings.
“After thoroughly investigating AT&T’s proposed acquisition of BellSouth, the antitrust division determined that the proposed transaction is not likely to reduce competition substantially,” said Assistant Attorney General Thomas Barnett. “The division investigated all areas in which the two companies currently compete—including residential local and long distance service, telecommunications services provided to business customers, and Internet services—and the merger’s impact on future competition for wireless broadband services.
“The combination would not significantly increase concentration in the ownership of spectrum in any geographic area or give AT&T control over a large enough share of all spectrum suitable for wireless broadband services to raise competitive concerns,” Barnett stated. “Finally, the merger would likely result in cost savings and other efficiencies that should benefit consumers.”
The FCC has scheduled a vote on the AT&T-BellSouth deal for tomorrow, but action could be postponed because Chairman Kevin Martin appears to lack the votes necessary for approving the merger free of conditions.
Sprint Nextel Corp., T-Mobile USA Inc., Clearwire Corp., consumer advocates and two key lawmakers have pushed for conditions—including the divestiture of 2.3 GHz broadband wireless assets owned by BellSouth. AT&T and BellSouth argue no such sell-off is necessary, given the large amount of spectrum currently available and already controlled by their competitors—particularly Sprint Nextel.
“The Justice Department has packed its bags and walked out on consumers and small businesses by refusing to impose even a single condition in the largest telecom merger the nation has ever seen,” said Michael Copps, one of the two Democrats on the five-member, GOP-controlled FCC.
While Martin can rely on Republican Commissioner Deborah Taylor Tate for support, he is missing the vital third vote of the other Republican FCC member. RCR Wireless News yesterday confirmed Commissioner Robert McDowell’s decision to recuse himself from the AT&T-BellSouth matter on conflict-of-interest grounds. McDowell used to lobby for a group representing competitors of Bell telephone companies.
However, the FCC’s general counsel could decide at the 11th hour that McDowell is ethically qualified to vote on the merger. If the FCC decided that McDowell is qualifited, he would then have to vote.
“This abdication looks suspiciously like an end-run around the public interest review required by the Tunney Act: no consent decree, no way for the courts to conduct a review,” Copps said. “So huge questions go without serious analysis: What are the competitive implications of eliminating yet another Bell company? Of combining the largest wireline and wireless companies under one roof? Of giving one company such power over broadband and the Internet? The list goes on. In this largest of all telecom mergers, why wasn’t the Department of Justice able to suggest one safeguard for protecting consumers and ensuring a competitive marketplace? With the lights off at the Justice Department, it becomes all the more important for the FCC to ensure that consumer interests have a seat at the table.”
Commissioner Jonathan Adelstein, the other FCC Democrat, voiced similar outrage at the Justice Department’s antitrust analysis of the AT&T-BellSouth hook-up.
“Today’s move by the Department of Justice to approve the proposed AT&T-BellSouth combination without condition is a reckless abandonment of DoJ’s responsibility to protect competition and consumers,” Adelstein said. “The timing of this announcement is particularly remarkable when one considers that the scant conditions imposed by DoJ in last year’s telecom mergers are under federal court review right now pursuant to the Tunney Act. Leading members of Congress on a bipartisan basis had urged DoJ to wait for the court’s Tunney Act review before moving forward with the proposed AT&T-BellSouth merger.”
U.S. District Judge Emmet G. Sullivan is reviewing the Justice Department’s handling of AT&T-SBC Commissions Inc. and Verizon Inc.-MCI Inc. mergers approved last year by DoJ and FCC. Because the Justice Department did not sue to require conditions on the AT&T-BellSouth merger, federal judicial review of the deal is effectively pre-empted.
“By failing to issue a complaint, consent decree or condition, it appears DoJ took a dive on one of the largest mergers in history just to avoid further court scrutiny,” said Adelstein. “In a transparent effort to keep this out of the courts, DoJ failed to even include conditions consistent with those it imposed last year. The FCC now stands as the last venue for a meaningful examination of the effects of this combination on consumers and competition, making the task that much harder. Let’s hope the FCC does a better job than our nation’s antitrust authorities.”
AT&T and BellSouth want to close the transaction this year, a timetable that takes on added meaning with the prospect that Democrats—who tend to favor regulation over free markets—could reclaim at least control of the House in the Nov. 7 midterm elections.
“DOJ’s rubberstamp on this merger suggests the Justice Department has thrown in the towel on competition between the Bell phone companies,” said Gene Kimmelman, senior vice president for Consumers Union. “The Justice Department has abdicated responsibility to promote the competition it promised when it broke up AT&T 20 years ago,” he added. “In the end, the majority of consumers will end up paying inflated prices that result when Bell companies merge and dominate local, long distance, wireless and Internet services in their territories.”
Mark Cooper, research director for Consumer Federation of America, stated: “New Internet telephone service which could compete against phone companies can now be blocked by the merging AT&T and BellSouth giant. Consumers know that without real competition, prices will continue to go up and the drive for innovation will evaporate.”
