Bell Mergers Sealed on DoJ Approval

UPDATED: The U.S. Department of Justice (DoJ) Thursday afternoon approved the
SBC-AT&T and Verizon-MCI mergers, requiring only that Verizon and SBC divest
portions of certain local fiber-optic network facilities.

The mega-mergers of Baby Bells with the dominate long-distance carriers also
require the regulatory approval of the Federal Communications Commission
(FCC), which is meeting Friday to consider the matter.

The divestitures are considered minor details to the landmark mergers.
Verizon and SBC must each divest
connections to more than 350 buildings in their respective territories.
These local private-line connections are used to supply voice and data
telecommunications services to business customers.

According to the DoJ, the mergers, as originally proposed, would eliminate
competition for facilities-based local private-line service to those
buildings and result in higher prices. The divestitures affect lines in
eight metropolitan areas in Verizon’s territory and 11 metropolitan areas in
SBC’s territory.

“Today’s action by the [DoJ] ensures that business customers that provide or
buy telecommunications services to locations in Verizon’s and SBC’s
territories will continue to benefit from competition,” Thomas O. Barnett,
the DoJ’s acting assistant attorney general in charge of the Antitrust
Division, said in a statement.

In other antitrust aspects of the mergers, the DoJ said the transactions
would generate “substantial efficiencies” that should benefit consumers.

“The [DoJ] concluded that the transactions will not harm competition and
will likely benefit consumers due to existing competition, emerging
technologies, the changing regulatory environment and exceptionally large
merger-specific efficiencies,” Barnett said.

SBC’s $16 billion deal for MCI
gives the two Baby Bells the ability to provide local and long-distance
service in all 50 states, in addition to controlling the Internet backbones
of MCI and AT&T.

Both of the Baby Bells are also planning to enter the video market to
directly compete with cable companies, which have been siphoning off
traditional telephone customers from Verizon and SBC.

In approving the mergers, the DoJ said it “took into account competition
from cable companies as well as emerging technologies such as Voice over
Internet Protocol.”

Legg Mason telecom analyst Blair Levin said in a statement that the DoJ decision
is a “very significant victory for the Bells. Although opponents can
challenge the consent decree … we believe there is no chance the court would
overturn the settlement.”

SBC, which announced earlier Thursday it would be known as AT&T after the
merger, issued a statement praising the DoJ’s “fair and impartial”
determination that the mergers would not harm competition.

“The Justice Department has a comprehensive view of the state of the
communications industry,” said James D. Ellis, SBC senior executive vice
president and general counsel. “We applaud the DoJ staff … for recognizing
the competitive nature of today’s marketplace in reaching its decision.”

John Thorne, Verizon senior vice president and deputy general counsel, said in a statement, “We proved that the transaction is pro-competitive and will not lessen competition in any market.”

Legg Mason’s Levin, like many other analysts, doesn’t anticipate regulatory
problems from the FCC.

“We believe the FCC is considering a broad range of conditions related
primarily to special access, but continue to believe there will be no merger
requirement that the Bells reduce their special access rate or divest any
facilities,” Levin said.

With FCC approval, SBC said Thursday it expects to close the deal with AT&T
by the end of the year. Verizon anticipates finalizing all aspects of its
deal with MCI early next year.

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