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FCC approves pair of phone mergers

Conditions are placed on the takeovers by SBC and Verizon, but consumer advocates say they don't go far enough.

Associated Press
Published November 1, 2005

WASHINGTON - Regulators agreed Monday to approve SBC Communications' takeover of AT&T and Verizon Communications' purchase of MCI - deals that allow the nation's biggest phone companies to grow bigger - but with conditions.

By 4-0 votes, the Federal Communications Commission approved the multibillion-dollar mergers with conditions that drew praise from rivals of SBC and Verizon. Consumer advocates, worried about shrinking competition in the industry, said the conditions didn't go far enough.

The agency required that SBC and Verizon freeze for 30 months the wholesale prices they charge competitors to lease certain high-capacity business lines. It said the two companies had to guarantee for two years that they will sell their high-speed Internet access as a stand-alone service, so customers aren't forced to buy local phone service, as well.

To gain approval, the companies also promised not to hinder Internet access to consumers or the free flow of Internet traffic on their networks.

The acquisition by SBC Communications Inc. of AT&T Corp. is valued at $16-billion; the deal with Verizon Communications Inc. and MCI Inc. is said to be worth about $8.5-billion.

Most state regulatory agencies already have sanctioned the unions, although several more still are needed.

FCC chairman Kevin Martin had wanted the mergers approved without conditions. Concerned about competition, the two Democrats on the four-member panel balked. Martin postponed a vote scheduled for Friday and continued negotiations during the weekend to work out a deal.

"I believe that the affected markets would remain vibrantly competitive absent these conditions," Martin said. "Nevertheless, the parties involved have chosen to make these commitments now in order to obtain the certainty of immediate commission approval."

Critics of the deals had complained that asset sales in overlapping areas were needed for healthy competition, but regulators declined to approve selloffs for either company.

Democratic commissioner Michael Copps acknowledged that he would have liked to require more.

"Am I entirely satisfied? No," Copps said. "But this order is now conditioned on provisions designed to address numerous possible harms to competition and to consumers, as well as to protect the openness and innovation that must always characterize the Internet."

Qwest Communications International Inc., which had engaged in a three-month bidding war for MCI, praised the FCC conditions. These "actions will increase the likelihood that other firms will be able to fill the competitive gap created by the elimination of AT&T and MCI," the company said in a statement.

Consumer advocates warned that the impact on customers could be negative.

"Approval of these mergers undermines more than 20 years of efforts to introduce competition into the residential local and long-distance telecommunications market," said Gene Kimmelman, senior director of public policy for Consumers Union, which publishes Consumer Reports magazine.

"The FCC promises cross-technology competition with Internet phone service on cable and telephone systems, but the commission has failed to ensure that consumers will receive meaningful choices at fair prices," he said.

Verizon and SBC disagreed.

"After two federal reviews and strong approvals by shareholders and the international community, it is clear that this combination is undeniably in the public interest," said Tom Tauke, Verizon executive vice president of public affairs, policy and communications.

SBC's chief executive, Edward E. Whitacre Jr., said its merger with AT&T "will enhance competition, help bring new technologies to market faster, and provide real benefits to consumers and businesses."

The Justice Department cleared the mergers last week with more limited conditions. Its approval was contingent on Verizon and SBC leasing to rivals high-capacity lines serving business customers in 19 metropolitan areas, including Washington, Boston and Los Angeles.

[Last modified November 1, 2005, 04:58:03]

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