Democrats, consumer groups sour on McDowell’s participation in AT&T-BellSouth vote

WASHINGTON-Key House Democrats and consumer groups said Federal Communications Commission member Robert McDowell should remain on the sidelines of AT&T Inc.’s stalled $79 billion acquisition of BellSouth Corp., arguing the agency’s general counsel offered feeble legal reasoning for authorizing McDowell to participate in reviewing the deal and that his involvement at this stage would invariably taint the outcome.
FCC Chairman Kevin Martin, unable to reach an agreement on conditions for the deal with Democratic Commissioners Michael Copps and Jonathan Adelstein, has three times rescheduled votes on the acquisition in the past two months. There were expectations Martin might shoot for a vote on the deal at the FCC’s scheduled Dec. 20 meeting, but the merger was not included on the meeting agenda released last week.
On Dec. 1, Martin told congressional leaders he asked FCC General Counsel Samuel Feder to determine whether McDowell-who recused himself from the merger review on conflict-of-interest grounds owing to past lobbying for a trade group that represents competitors to Bell telephone companies-can be ethically cleared to break the 2-2 party-line deadlock.
Sen. Daniel Inouye (D-Hawaii), incoming chairman of the Senate Commerce Committee when the newly configured Democratic-led Congress begins a new session, urged Martin to reconsider his action. But Martin did not back down, and secured a favorable finding from the FCC’s top lawyer.
After Feder authorized McDowell to participate in the AT&T-BellSouth merger proceeding on Dec. 8, he followed up last week with responses to questions on the matter from Reps. John Dingell (D-Mich.) and Edward Markey (D-Mass.). The lawmakers, poised to become the new chairmen of the House Commerce Committee and telecom subcommittee, respectively, were not impressed.
“I find the general counsel’s response inadequate in convincing the American people that Commissioner McDowell’s participation is necessary, proper or wise,” said Dingell. “The general counsel has not provided a thoughtful and appropriate explanation for departing from the advice of the Director of the Office of Government Ethics, which could lead reasonable people to question the integrity of the agency’s decision in this very important matter.”
The mammoth telecom deal, unconditionally approved by the Justice Department and requiring only FCC consent to become final, would consolidate AT&T’s 60-percent and BellSouth’s 40-percent ownership stakes, respectively, in No. 1 wireless operator Cingular Wireless L.L.C.
“Nothing in the general counsel’s response surmounts the ethical hurdle placed before the commission by the Director of the Office of Government Ethics Robert I. Cusick, who indicated to the FCC that if the decision were up to him, he would not authorize Commissioner McDowell’s participation in the AT&T-BellSouth merger proceeding,” said Markey. “Instead, the FCC general counsel’s response highlights that there is no direct or persuasive precedent for ‘un-recusing’ Commissioner McDowell. I trust that Commissioner McDowell will find the FCC general counsel’s weak legal arguments, and even weaker rationale for a compelling government interest, of little comfort when deciding whether to abandon the ethical high ground upon which he currently stands.”
Consumer concerns
Consumer advocates agreed.
“We reject the contention that the merger negotiations are inextricably deadlocked,” Consumers Union, the Consumer Federation of American and others jointly told the FCC. “We do not doubt that an agreement could be reached through good-faith negotiations among the agency’s four participating commissioners. Those negotiations cannot move forward, however, when the prospect of forcing participation of Commissioner McDowell remains in play. Furthermore, we view the general counsel’s ‘un-recusal’ of Commissioner McDowell as a violation of the public’s trust, sacrificing a valid process of good-faith negotiation for political expediency and the convenience of the merging parties.”
The organizations said McDowell’s motives will be questioned if he decides to vote, regardless of which way he jumps.
“Should he decide not to abstain, an appearance of impropriety or conflict of interest is inevitable,” they said. “Having first recused himself due to his own perception that a conflict exists, if Commissioner McDowell now votes to approve the merger, the public will be left with the impression that his participation is the result of pressure by the merging parties and their political allies. If he votes against the merger or seeks conditions sought by competitive telephone providers, the public will rightfully be concerned that he is reflecting the interests of his former employer’s membership.
“In the short term, critical public-interest conditions on the merger may be denied. In the long term, the reputation of the agency will be damaged and the integrity of the recusal process undermined. Neither result is in the public interest.”
Just do it
Meantime, Republican lawmakers and telecom vendors urged the FCC to move forward promptly on the AT&T-BellSouth deal.
“Telecom manufacturers and telecom investment analysts alike are concerned that a further delay in approving this particular merger threatens to harm the manufacturing industry by slowing telecom investment,” Alcatel-Lucent CEO Patricia Russo told the commission.
Russo added: “Not only should the commission approve the merger this month, it should grant approval without imposing new network neutrality requirements on AT&T and BellSouth.”
Top wireless operators insist conditions are critical to any FCC approval of the deal.
Sprint Nextel Corp. and T-Mobile USA Inc. and others have urged the FCC to subject the merger to strict conditions on special-access lines controlled by AT&T and BellSouth.
In the wireless industry, the dedicated links are used to carry traffic from a wireless base station to a mobile-switching center or onto the public switched telephone network. The Government Accountability Office concluded in a recent report that competition in special-access rates is generally lacking in major U.S. cities.
Clearwire Corp. has pushed for conditions on AT&T’s and BellSouth’s 2.3 GHz and 2.5 GHz broadband wireless assets, with the sale of the latter holdings in the Southeast one possibility.
AT&T has offered to launch 10 new 2.3 GHz or 2.5 GHz wireless broadband trials by the end of 2007 and proposed merger conditions on special access lines, but consumer groups and telecom competitors want more.