Martin: FCC Comrs. ‘Long Way Apart’ on AT&T-BellSouth Deal

The AT&T-BellSouth merger appeared to be on temporary hold at the FCC at least until today (Mon.), after the agency pulled it from the agenda for Fri.’s open meeting. “Everyone is taking a break,” a source said: “Discussion is on hiatus today.” Another FCC staff member said no talks were expected over the weekend. The FCC hasn’t set a new target for action on the merger but it almost certainly won’t come until after the Nov. 7 election. It’s probably going to take “a couple more months,” said Stifel Nicolaus analyst Blair Levin.

FCC Chmn. Martin said commissioners will keep trying to reach accord on conditions to attach to the $80 billion merger but “we seem a long way apart on some issues… progress has slowed.” Martin said there’s been some progress but “I just don’t think we're there yet… We need to take a step back and decide where we should be going from here.” The FCC already delayed action on the merger in mid-Oct. because commissioners couldn’t agree.

An AT&T source blamed “unreasonable demands” by CLEC, cable and wireless parties for the FCC’s inability to come to terms. The FCC has to base its decision on the public interest, not industry segments’ interests, the official said. “A number of the demands from competitors and other commercial interests are difficult to reconcile with the public interest,” he said. CLECs’ demands go well beyond “what they thought was sufficient just a year ago” as part of the SBC-AT&T merger, he said: “The debate is less about merger approval than what can be added as conditions, and the demands of opponents are extreme and unreasonable.”

The AT&T official said the company isn’t willing to discuss adding conditions beyond what it has proposed. “Our proposals were exhaustive and comprehensive [and] cover every area where the public interest is a question,” he said. AT&T has offered things like $10 broadband service, while CLECS seek “a price cap re-regulation of special access,” he said. Others pushed industry-specific moves such as spectrum divestitures, which he said would help some wireless companies accumulate spectrum, or cable interconnection rights, which he said would circumvent a broader rulemaking. “The Commission shouldn’t let a decision like this drag on indefinitely,” he said.

This merger is far bigger than 2005’s SBC-AT&T merger, so it needs more stringent conditions, said a CLEC official. “This has played out as AT&T wanted,” he said, accusing AT&T of trying to force FCC Comr. McDowell’s participation in the vote. McDowell has stayed out of the proceeding owing to his former employment at merger opponent CompTel. As a result, only the other 4 commissioners are involved in negotiations of proposed conditions.

If forced to participate, McDowell might hesitate to back additional conditions for fear of criticism and that would play into AT&T’s hands, said the CLEC source. AT&T’s refusal to discuss other conditions isn’t “good faith negotiations,” he said. Despite talk of impasse, Democratic commissioners’ staffs say they see progress, another source said: “I get the feeling impasse is considered a necessary prerequisite to bringing in Commissioner McDowell.”

Alternatively, the FCC could seek a hearing by an administrative law judge on the merger’s public interest merits, said CompTel Gen. Counsel Jonathan Lee. Sec. 309 of the Communications Act allows that step, which would be preferable to “unrecusing” a commissioner with ethics concerns, he said. “I don’t think that’s a credible idea,” the AT&T source said: “I doubt that Congress would think the FCC was acting appropriately were it to delegate to an administrative law judge an $80 billion merger,” he said.

The next step is “getting past the election and recognizing the 5th commissioner needs to be brought in,” Levin said, suggesting that the ALJ route is “probably not a direction the FCC wants to go.” Levin doesn’t see the latest delay as reflecting FCC inability to act on the merger, he said: “From what I can tell, everyone is acting in a rational manner.”