WASHINGTON-Federal Communications Commission member Robert McDowell could be drawn into the AT&T Inc.-BellSouth Corp. merger debate as early as today in order to break a 2-2 deadlock on the $79 billion deal, according to telecom analysts at Stifel, Nicolaus & Co. Inc.
“Barring a last-minute breakthrough, we believe that FCC Chairman (Kevin) Martin is likely to call on his Republican colleague, Commissioner McDowell, who has stayed on the sidelines in the proceeding due to concern about a potential conflict of interest,” said Stifel.
The five member, Republican-led FCC has twice postponed votes on the deal since early October, when Democrats and consumer advocates raised an uproar over the Justice Department’s unconditional approval of the transaction and 11th-hour negotiations between Martin’s staff and AT&T officials. The FCC recently moved back its open meeting this month until Dec. 20.
Democratic FCC Commissioners Michael Copps and Jonathan Adelstein have insisted on consumer and competitive safeguards as prerequisites to merger approval.
While noting signs that merger differences were narrowed this week, Stifel said it believes “that disagreements continue, particularly over special access and possibly other issues. We have not heard of any progress in the last couple of days, and we are skeptical a bipartisan agreement is imminent.”
Yesterday the Government Accounting Office released a report concluding competition in special-access rates is generally lacking in major U.S. cities.
“The release of this report comes at an inconvenient time for AT&T, which continues to face pressure from competitors and Democratic (Capitol) Hill and FCC officials to adopt conditions as part of the merger. In particular, pressure is likely to increase on AT&T to freeze special-access rates for longer than the 30 months currently on offer and possibly require the FCC to reexamine its rules permitting Bells to increase special-access rates,” said Jessica Zufolo, a telecom analyst at Medley Global Advisors. “As we have said in previous reports, the final set of conditions agreed upon between the parties will probably not manifest in any material harm to AT&T.”
Sprint Nextel Corp. and T-Mobile USA Inc., the No. 3 and No. 4 U.S. mobile phone carriers, have urged the FCC to subject the merger to strict conditions on special-access lines. In the context of the mobile phone industry, the lines are dedicated links used to carry traffic from a wireless base station to a mobile-switching center and/or onto the public switched telephone network. The country’s largest wireless operator Cingular Wireless L.L.C., currently co-owned by AT&T (60 percent) and BellSouth (40 percent), would be held in total by AT&T if the merger manages to gain final regulatory consent by the FCC.
“The GAO report confirms that prices for special-access services have been falling for the past five years, including where pricing restrictions have been lifted. This conclusion stands in stark contrast to the claims of those who have been urging the commission to re-regulate special access, a step the GAO specifically refuses to endorse,” stated AT&T.
Another flashpoint in the deal is BellSouth’s control of 2.3 GHz and 2.5 GHz wireless broadband spectrum. Clearwire Corp., the wireless broadband firm founded by Craig McCaw, claims an AT&T-BellSouth alliance would have a strong incentive to warehouse and underutilize its broadband spectrum in Southeast region markets.
AT&T has offered concessions on special access and wireless broadband issues, but telecom competitors and consumer groups reply that proposed conditions are woefully inadequate.
