Step in Phone Deal: P.R.
Lobbyists Face a Tough Road Amid Changes in Telecom Law, FCC
By Amy Schatz and Anne Marie Squeo
The Wall Street Journal
Tuesday, March 7, 2006
WASHINGTON -- As
AT&T Inc. and
BellSouth Corp. make the case for their $67 billion
merger, they'll be counting on their vaunted lobbying clout
to win over skeptical lawmakers and regulators.
Their efforts could be complicated by two factors: The
changing makeup of the Federal Communications Commission and
a push to rewrite the landmark 1996 telecommunications law.
In a statement yesterday, FCC Chairman Kevin Martin said the
agency would "carefully weigh" the deal. Regulatory experts
say that given Mr. Martin's push last year to impose minimal
conditions on SBC Communications Inc.'s purchase of AT&T
Verizon Communications Inc.'s acquisition of MCI, it
would be surprising if he reversed his stance.
Mr. Martin, though, represents just one vote on a
five-member commission. The two Democrats likely will cast
a skeptical eye toward such a transaction, especially given
talk by phone companies to charge technology companies extra
to guarantee speedy delivery on their networks. And the
Bells may not be able to count on Mr. Martin's two
Republican colleagues because of a shift in the makeup of
Deborah Taylor Tate is a Republican commissioner sworn in
earlier this year. Ms. Tate is a former Tennessee regulator
who remains largely an unknown figure in Washington. Ms.
Tate, whose term expires in June 2007, has kept her home in
Tennessee and is expected to return there and possibly run
for office, so she may not want to adopt a position that is
perceived as anticonsumer.
The other Republican seat is vacant. President Bush has
nominated veteran telecommunications attorney Robert
McDowell to fill that slot. Mr. McDowell is assistant
general counsel for Comptel, a group that represents small
phone companies that have fought pitched battles with the
Bells over access rates and interconnection issues.
It would be unwise to assume Mr. McDowell might
automatically side with small companies while considering
conditions for the merger, says Earl Comstock, chief
executive at Comptel. "He's good at representing his
Mr. McDowell faces a confirmation hearing Thursday in the
Senate and is expected to be questioned by senators about
his thoughts on competition and the need for some sort of
"Internet neutrality" legislation, which says consumers can
use the Internet as they choose and network owners can't
slow or discriminate against rivals' data traffic. If his
confirmation drags on and the commission is deadlocked, it
can't approve the AT&T-BellSouth transaction.
Another element muddying the waters is the looming rewrite
of the nation's telecommunications law. The current laws
were written in 1996 when most consumers relied on
traditional telephones for local and long-distance calling.
Now, wireless phone and Internet phones are taking up a
greater share of the market, which has led phone companies
to seek new revenue streams, notably pay-TV service, to
replace that lost business.
There are all kinds of new issues on the table because of
increased reliance on the Internet. The phone companies were
looking to Congress to make it easier to launch video
services across the country by adopting a national video
franchising requirement, which would allow phone companies
to avoid seeking permission from local authorities to offer
Former Rep. Thomas Bliley, one of the key authors of the
1996 Telecom Act, sees competition among traditional phone,
wireless and cable as the future. "But right now, the only
meaningful choice other than the Verizons and AT&Ts,
especially for business customers," are small phone
companies, he said. "Many of these companies are spending
billions to build their own networks. And if we move too
fast, these companies could get shut out and business and
residential customers would have less choice."
Business customers protested last year's big deals, saying
they would further consolidate the industry and result in
higher prices for high-volume data lines. "When I'm at
home, I have choices. At least it's a duopoly of phone and
cable. In the enterprise market, we don't have any
choices," said Brian Moir, a Washington attorney who
represents large corporate users of telecom services and
wants regulators to impose conditions, as part of the deal,
to protect business customers.
Sen. Daniel Inouye (D., Hawaii), the top Democrat on the
Senate Commerce Committee yesterday said that the proposed
recombination "will call into question our commitment to
promote competition in the communications marketplace and to
preserve fair rules that guarantee nondiscriminatory access
to new services."
In a statement, he said that "coming only 125 days after the
FCC's approval of the SBC-AT&T merger, AT&T's proposal to
purchase BellSouth would remove yet another potential
competitor from the communications marketplace and calls
into question whether the future of communications policy
will be marked by strategies to promote vigorous competition
or by further efforts to facilitate new mergers."
Philip Verveer, who filed the lawsuit that led to the 1984
breakup of the Bell System monopoly, said he doesn't expect
the Justice Department to block the deal. "This is a
reassembly of many of the pieces we worked to take apart,
but the circumstances are completely different today," said
Mr. Verveer, now a partner at Willkie Farr & Gallagher in
Mr. Verveer, though, said he expects the FCC to require that
AT&T agree to accept the "net neutrality" nondiscrimination
principles pledged to the FCC last fall as a condition of
the SBC-AT&T deal.
In the end much will depend on AT&T's government-relations
executives. Indeed, lobbyists in town frequently remark
that one of the best elements of SBC's purchase of AT&T was
its inheritance of AT&T's lobbying shop, which has deep
relationships with Republicans and Democrats.
Jim Cicconi, a Texan with close ties to President Bush, was
the head of AT&T's Washington office before its
acquisition. Afterward, he bypassed SBC's team to become
the senior executive vice president of external and
legislative affairs for the combined company. He served in
both the Reagan and first Bush administrations and is close
to James Baker and former President George H.W. Bush.
BellSouth's Washington operation isn't too shabby either.
Led by Herschel Abbott Jr., who has been with the company
since 1991, BellSouth has been a force in key issues in the
telecom industry. Mr. Abbott played a critical role in
persuading the White House in mid-2004 not to appeal a court
ruling about fees the Bells charged others to lease access
to their local-phone networks. Recently, BellSouth tried to
persuade lawmakers to launch a narrowly focused telecom
rewrite that only addressed the video franchising issue.
--John R. Wilke
contributed to this article.
Write to Amy Schatz at
Amy.Schatz@wsj.com and Anne Marie Squeo at