By Cheryl Bolen

Consumer advocates and industry groups June 6 spoke out against the proposed merger of AT&T and BellSouth, arguing that the Federal Communications Commission should require them to divest certain spectrum licenses and potentially even Cingular, their jointly owned wireless operation.

Comments were due to the FCC June 5 on the proposed merger, which was announced in March (44 DER A-16, 3/7/06 ). The FCC must approve the merger using a "public interest" standard, while the Department of Justice must ensure there are no antitrust violations.

Many of the groups speaking out against the proposed AT&T/BellSouth merger also opposed the earlier merger proposals of SBC Communications and AT&T, and Verizon and MCI. These mergers were ultimately approved subject to certain conditions.

Among the conditions sought by the diverse groups for this merger are "enforceable" net neutrality requirements, which is a major topic of debate right now in the context of communications legislation (H.R. 5252, S. 2686) pending on Capitol Hill.

"There are always those who'll try to use these proceedings to advance their own, narrow special interests," an AT&T spokesman said. "We're confident the FCC will recognize the significant public interest and consumer benefits of our merger. And we look forward to a prompt review and speedy approval so we can begin delivering the benefits of innovative new services and increased competition to consumers."

Under the terms of the proposal, AT&T will acquire 100 percent of the common stock of BellSouth in an all-stock transaction with an equity value of $67.1 billion. The merger has been approved by the boards of directors of BellSouth and AT&T, but still must be approved by stockholders.

According to the companies, the new company will benefit customers by combining the Cingular, BellSouth, and AT&T networks into a single fully integrated wireless and wireline Internet Protocol network. As a result, the combined company will be better able to speed the convergence of new and improved services for consumers and businesses, and embrace the industry's shift to IP network-based technologies.

Conditions Needed

But Mark Cooper, director of research for the Consumer Federation of America, said SBC may have changed its name to AT&T, but it has not changed its anticompetitive nature.

The company was fined more than any other in the past 10 years for violating its obligations to allow new entrants into the telephone market and for breaking its promises to compete out of region, Cooper said. "And it is leading the charge to put toll booths and tire shredders on the Internet," he said.

AT&T also has made it clear to Wall St. that it does not intend to compete based on prices, but rather on large packages or bundles of services, Cooper said. "The big bundles that AT&T wants to push drive a wedge right down the middle, delivering to the upper income markets that AT&T wants to serve and leaving the remainder behind," he said.

So as AT&T extends its market power to almost half the country, the threats to competition are "legion," Cooper said. Thus, the FCC should impose a series of conditions to ensure this merger does not become anti-competitive, he said.

First, it should ensure that competitive local exchange carriers have access to local networks and consumers, Cooper said. Also, the FCC should require that AT&T offer stand-alone digital subscriber line (DSL) service and make it clear that it is available to consumers. It also should cap special access rates to prevent AT&T, which is the largest provider of both special access and Internet backbone service, from using control over these middle-mile facilities to undermine competition and discriminate, he said.

"It must require divestiture of licenses in the 2.4 [GHz] to 2.7 [GHz] band, so that we have the possibility of alternative competitors," Cooper said. "And it must impose enforceable network neutrality conditions on AT&T to prevent it from discriminating against content and application providers and undermining the vibrant competition we have enjoyed on the Internet," he said.

Wireless Net Neutrality

Andrew Schwartzman, president and chief executive officer of the Media Access Project, a not-for-profit public interest law firm, said it filed a petition to deny the merger on behalf of its client, the Center for Digital Democracy.

The petition emphasized the adverse effects that the merger would have on net neutrality, and particularly the wireless markets, Schwartzman said. CDD's concern is not just that the growth and innovation that has come from an open Internet could be impaired, but also the future of the Internet for democratic discourse, he said.

Cingular is a big player and its spectrum holdings are important to the future of the Internet, Schwartzman said. As a joint venture, the company has an incentive to compete against AT&T and BellSouth, and the two wireline carriers have an incentive to compete against Cingular, he said.

"Cingular offers the opportunity to bring a competing technology and a competing business model--a more neutral business model potentially--into competition and into the home. Wrapping up Cingular into AT&T along with BellSouth takes away a very important potential form of competition in the wireless market and in particular vis a vis net neutrality," Schwartzman said.

Schwartzman said there is also a problem with the loss of potentially competitively neutral wireless broadband spectrum in the 2.3 GHz to 2.5 GHz band. This band offers one of the greatest opportunities to bring broadband to the public, he said. To date, AT&T and BellSouth have "sat" on this spectrum, he said.

The FCC should facilitate competition and promote net neutrality by requiring the divestiture of Cingular and the divestiture of this spectrum in the 2.3-2.5 GHz band, Schwartzman said.

Special Access Concerns

Jonathan Lee, senior vice president of regulatory affairs at CompTel, which represents competitive local exchange carriers, said their comments focused on a "critical input" for all competitive carriers, which is special access. This is a dedicated point-to-point transmission service, he said.

What is significant is that the FCC has allowed more and more concentration, and that this merger would create even more, Lee said. Going back to the passage of the Clayton Act in 1914, the whole purpose of merger regulation is to prevent market power in its incipiency and prevent it from getting so large that there is a monopoly, he said.

"We today have such a monopoly in AT&T and in Verizon," Lee said. "The FCC since they allowed those mergers have actually relaxed regulation with respect to those firms--going so far as to removing from Verizon any obligation to provide any high bandwidth service at all," he said.

There are some prior merger conditions that will remain in effect for another 18 months or so, but after that, there are no regulations on the prices, terms, or even whether it has to offer transmission to competitors, independent wireless firms, or others seeking interconnection, Lee said. FCC Chairman Kevin Martin has indicated he plans on giving the same relief to AT&T, he said.

With the expanded ability to increase prices and as the single owner of Cingular, there will be no incentive for AT&T to keep its special access pricing moderated, Lee said.

Free Press Grassroots Effort

Craig Aaron, communications director at Free Press, a public interest group, said "regular people" have been left out of this debate. Although the conventional wisdom among business analysts is that this merger is a "done deal" and there is no problem, thousands of Americans feel differently, he said.

Through its Web site, some 15,000 people have filed comment with the FCC urging the agency to stop the merger, Aaron said. Another 20,000 people sent letters to the FCC and Justice Department opposing the merger when it was first announced, he said.

These people are saying "enough is enough," Aaron said. These companies are big enough, they have enough power, and people are tired of higher prices, lousy service, fewer choices, and no innovation. "They're saying it's time to stop the merger mania," he said.

AT&T keeps promising this will be a good deal for consumers, Aaron said. But this is the same company that promised to roll out high-speed Internet service for everyone if only it was given more tax breaks, subsidies, and government favors, he said. "And billions of dollars later, we still have the digital divide," he said.

This also is the same company that promises not to block, degrade, or discriminate against Internet content providers, so long as no law is passed requiring network neutrality, Aaron said. "Trust us, again, trust us they say, even as their own executives make clear that they intend to erect a toll booth on the info superhighway," he said.

In this merger, AT&T is saying "trust us" again, promising that this deal is somehow good for consumers, "but they don't give us any reason we should trust them," Aaron said.

ACLU Raises Privacy Concerns

Separately, in comments filed with the FCC, the American Civil Liberties Union argued that the FCC could not approve the merger until it investigates whether the companies provided customers' calling records to the National Security Agency.

In its written comments, the ACLU stated that it had previously written to the commission asking that it reconsider the chairman's decision not to investigate whether AT&T and/or Bell South has violated telecommunications law by providing the NSA with a large volume of customer records without a court order (100 DER A-11, 5/24/06 ).

"If these published accounts are accurate these actions would be a violation of 47 U.S.C. § 222 and the commission's implementing rules, and we therefore believe the FCC cannot approve the merger of AT&T and BellSouth until it adjudicates the merits of those allegations," the ACLU stated.

AT&T and BellSouth bear the burden of proving, by a preponderance of the evidence, that the proposed transaction "will not violate or interfere with the objectives of the act or the commission's rules," and that "the predominant effect of the transfer will be to advance the public interest."

In reviewing the merger application, the commission must weigh the potential public interest harms of the proposed transaction against the potential public interest benefits, the ACLU stated.

"As part of its merger analysis, the commission must therefore consider whether AT&T and BellSouth are in compliance with the Communications Act and the FCC's implementing rules, and whether this merger will result in any additional harm to consumer privacy," it stated.