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FCC Approves Verizon-MCI and SBC-AT&T

The FCC has approved the mergers of SBC Communications with AT&T Corp. and Verizon Communications with MCI. The approval announced Monday includes conditions designed to protect competition and freeze certain rates and services for two years.

The merger was approved by the commission in a 4-0 vote. In a statement, FCC Chairman Kevin Martin said the mergers would “create strong global carriers that will vigorously compete both internationally and domestically” and offer customers a more diverse array of services.

The Verizon-MCI deal is valued at about $8 billion, while SBC’s acquisition of AT&T merger is valued around $16 billion.

The commission's order requires Verizon and SBC to sell DSL for two years as a standalone service, so customers can buy broadband access without also having to purchase voice service. Also, the companies agreed to freeze for 30 months the wholesale rates they charge high-capacity customers.

The companies also agreed to continue “peering”—exchanging data traffic—with other providers, to encourage a free flow of traffic and to avoid network outages.

Martin and Commissioner Kathleen Abernathy both took issue with the conditions of the commission's order. Martin said the limitations of the approval “reflect a failure to appreciate the degree to which the market has changed and how that constrains market behavior by the applicants.”

Abernathy said SBC and Verizon will have to abide by the conditions while “their most aggressive competitors—wireline, wireless, cable or next-generation facilities – remain exempt.”

The conditions were a saving grace for the other two commissioners, Jonathan Adelstein and Michael Copps. In separate statements, the two expressed deep concern for competition in the wireline marketplace.

Copps said the conditions “address numerous possible harms to competition and to consumers, as well as to protect the openness and innovation that must always characterize the Internet.”

Gene Kimmelman of watchdog group Consumers Union sharply criticized the merger, particularly the limited term of the conditions. “Above all, today's action underscores how critical it is for Congress to jump in and prohibit any form of discrimination that prevents all consumers from receiving affordable, high-speed Internet from diverse commercial vendors,” Kimmelman said

Copps ended his statement by encouraging the commission to keep a careful watch over the deal’s consequences.

“If rates go up for residential and business users as a result of our decision today, if our broadband penetration rates fall further in comparison with what other countries with different policies are experiencing, and if consumers find that their Internet freedom is being shackled by monopoly or duopoly control,” Copps said, “then we have a clear and pressing duty to revisit what we have done."