Yields to Seal BellSouth Deal
Broad Concession Package Aims to Win FCC Backing; Big Role
of 'Net Neutrality'
By Amy Schatz and Peter Grant
The Wall Street Journal
Friday, December 29, 2006
AT&T Inc. made numerous new consumer-friendly concessions on
the terms of its proposed $85 billion merger with BellSouth
Corp. in an effort to get approval by the Federal
Communications Commission before the end of the year.
In a 19-page letter filed with the agency last night, the
phone giant promised to observe numerous "network
neutrality" principles so it would treat all Internet
content equally. Consumer groups and some Internet
companies have been pressing the FCC for weeks to make this
a condition of approving the merger.
In addition, AT&T agreed to do such things as upgrade the
availability of high-speed Internet service in the areas it
serves and adhere to price caps on high-volume data lines
used by business customers. In a concession to labor
unions, the company agreed to repatriate 3,000 jobs
outsourced by BellSouth outside the U.S., locating at least
200 of them in the New Orleans area.
"This is a real capitulation by AT&T-BellSouth," said Harold
Feld, senior vice president of Media Access Project, a
Washington public-interest law firm.
The proposed deal, the largest in U.S.
telecommunications-merger history, could be approved by the
full commission as early as today. An AT&T spokesman
declined to comment.
The deal has some longer-term implications for all phone
companies because of the focus by the FCC's Democrats on net
neutrality and rates charged to businesses for high-volume
data lines. Democrats felt emboldened to take a hard line
during negotiations because of their new control of
Congress, where Democrats have been riled up about the
AT&T's concessions come after weeks of negotiations with the
FCC, which reached an impasse with two Democrats on the
five-member commission pushing for additional conditions and
the two remaining Republicans opposing them. The fifth
commissioner, Robert McDowell, a Republican who many thought
would break the tie, decided to abstain because he had
previously lobbied on behalf of CompTel, a trade group that
represents smaller phone companies.
Mr. McDowell's decision to abstain precipitated an intense
round of negotiations, which lasted through the Christmas
holiday. The FCC's Democrats insisted that AT&T abide by
Internet nondiscrimination rules and essentially came up
with a new one as part of this deal. AT&T basically agreed
that it wouldn't prioritize Internet traffic once it reached
the two dozen or so hubs around the country that process
Internet traffic. From that point until it reaches a
customer's home, the traffic must be treated equally.
That condition expires in two years. The combined company
will have about 11.5 million high-speed Internet
From a financial perspective, a more significant condition
involves reinstituting FCC price caps dropped after industry
deregulation on high-volume data lines used by corporate
customers throughout the combined company's 22 state
territory. Previously, price caps were required only in
areas where the FCC determined that no significant
competition existed. Under this deal, the use of price caps
for these "special access lines" would expand
significantly. The condition is far more extensive than
what was required last year when SBC Communications Inc.
acquired AT&T Corp, and also stays in place longer, for four
The deal would also help consumers and start-up Internet
phone companies, like Vonage Holdings Corp., by requiring
AT&T to offer stand-alone DSL Internet service for up to $20
a month. That would give consumers access to basically the
slowest broadband Internet access available, 768 kilobits
per second. But that is fast enough to use Internet phone
services provided by AT&T rivals.
AT&T also agreed to divest itself of wireless spectrum that
was intended to be used for wireless broadband services, a
condition that competitors like Clearwire Corp. have been
advocating. Critics have claimed that AT&T and BellSouth
had so much spectrum between them others wouldn't be able to
Amy Schatz at
Amy.Schatz@wsj.com and Peter Grant at