CLEC moving news from Tuesday evening WSJ(6/29): FCC
Weighs Unusual Limit On SBC Deal
By Kathy Chen and Stephanie N. Mehta
Staff Reporters of The Wall Street Journal
WASHINGTON -- The Federal Communications Commission may require SBC
Communications Inc. and Ameritech Corp. to invade competitors' markets as a
condition for approving SBC's $78 billion acquisition of Ameritech, people
familiar with the situation say.
The unusual requirement, which could be announced as early as today, is
part of a broad settlement package of about two dozen conditions, these
people say. The conditions also would address concerns about opening the two
Baby Bells' markets to rival local operators, broad deployment of high-speed
online services and other measures.
The proposed conditions reflect the FCC's desire to open up local phone
markets to competition, a goal of the landmark Telecommunications Act of
1996 that hasn't been met. Yet the proposed terms appear to be less
stringent than some that were considered earlier. FCC officials had
originally raised the possibility of making the acquisition contingent on
the two Bells first opening their networks to rival carriers in at least one
state - a condition that could have significantly delayed approval of the
deal.
The terms hadn't been finalized as of yesterday and could change. The FCC
is expected to seek public comment on the proposed conditions before putting
them to a vote by the agency's five commissioners.
The conditions would set the stage for the completion of SBC's acquisition
of Ameritech, which the companies announced more than a year ago. The
combined company would have a market capitalization of more than $180
billion and control about a third of the nation's local telephone lines.
SBC and Ameritech, based in San Antonio and Chicago, respectively,
wouldn't comment on the proposed conditions, saying that they agreed not to
talk about the terms until they are announced.
An FCC spokeswoman said late yesterday that the agency was still in
discussion with the companies and wouldn't comment further.
As part of its acquisition, SBC pledged to offer local phone services to
markets outside the SBC-Ameritech home territories. To enforce such
out-of-market competition, the FCC is considering imposing tough financial
penalties on SBC if it fails to meet certain conditions for entering planned
new markets. The agency also is looking to move up SBC's timetable for
rolling out service to these markets.
SBC is expected to agree to a "broad deployment" of its high-speed
Internet and data services, called digital subscriber line, as part of the
proposed conditions, people familiar with the situation said. The FCC is
keen to encourage more companies to invest in such broadband, or
high-capacity, technology. While AT&T Corp. has committed $120 billion to
buying cable-television companies - betting that cable lines will be the
main conduit for high-speed Internet access-local phone companies have been
slow to expand their high-speed networks.
SBC and Ameritech also are expected to agree to not impose minimum charges
for long-distance services-after they meet unrelated FCC requirements that
will allow them to offer such services. All Bell companies are prohibited
from offering long-distance services in their home territories until they
prove they have opened their markets to competitors.
People close to the situation said the conditions were designed to address
a series of concerns FCC Chairman William Kennard raised in a letter to
Edward Whitacre, SBC's chairman, and Richard Notebaert, Ameritech's
chairman. Mr. Kennard indicated concerns about making sure the deal served
the public interest and boosted local telephone competition.
The SBC-Ameritech deal is still awaiting approval from Illinois and
Indiana regulators.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
*DJ FCC To Hold 12:30 PM EDT News Conf On SBC/Ameritech Deal
*DJ FCC Staff To Recommend Approval Of SBC/Ameritech Deal
*DJ FCC Staff To Recommend SBC/Ameritech With Conditions
*DJ FCC Conditions Include 25% Discount For Competitors
*DJ FCC Says SBC Must Create Affiliate For Broadband Svcs
*DJ SBC/Ameritech Conditions To Last For 3 Yrs After Close
*DJ FCC To Hear Public Comment Before Vote On SBC/Ameritech
*DJ SBC Faces $2.1B In Fines If It Misses Merger Conditions
*DJ FCC Says SBC Must Enter 30 New Markets In 30 Months >SBC
=DJ FCC, SBC -2:FCC's Kennard 'Encouraged' By Merger Deal
By Mark Wigfield
WASHINGTON (Dow Jones)--The staff of the Federal Communications Commission
has recommended that the commissioners conditionally approve the proposed
merger between SBC Communications Inc. (SBC) and Ameritech Corp. (AIT).
It's not clear exactly when the FCC will vote on the matter. But FCC staff
plans to complete taking a final round of public comment on the extensive
conditions to the merger in about a month.
Staff must then write a final order upon which the FCC will vote.
"Our goal is to finish it as soon as possible," said Bob Atkinson, deputy
chief of the FCC's Common Carrier Bureau.
The $78 billion merger of the two giant local telephone companies would be
subject to numerous conditions meant to guarantee that the company opens its
own markets to competitors, becomes a competitor itself in 30 new markets,
and hastens the rollout of high-speed Internet service by establishing a
separate affiliate for advanced telecommunications services that is open to
competitors.
The new company would face up to $2.1 billion in fines for failing to meet
the conditions, which would last for three years.
Atkinson said he was hopeful the company could meet all conditions.
Enforced by an independent auditor, the package of conditions and fines grew
in part out of the FCC's disappointment with Bell Atlantic Corp.'s (BEL)
compliance with conditions in its merger with the former Nynex, Atkinson
said.
In a statement, FCC Chairman William Kennard said he is "encouraged by SBC
and Ameritech's commitment to open their markets to competition, and their
agreement to suffer stiff penalties if they do not." But he added that he
looked forward to receiving additional comments from the public on the
proposal.
In a telephone news conference, SBC general counsel Jim Ellis said it is
"fair to say the merger is in the home stretch." He called the proposed
conditions are tough, fair, and "the most wide-ranging ever submitted to the
FCC to win approval."
But Ellis said he is "very confident" the company will avoid any fines.
"We'll be able to meet those requirements."
Scott Cleland, telecommunications analyst with the Legg Mason Precursor
Group, called the agreement a "win-win for almost everybody concerned." He
predicted the FCC will approve the deal.
"SBC can get its approval and still control its destiny," Cleland said.
"The FCC gets a lot of pro-competitive commitment and a way to enforce it."
Cleland said the deal could set a precedent for the pending merger between
Bell Atlantic and GTE Corp. (GTE). The deal is currently on hold pending
Bell Atlantic's attempts to provide long-distance service in New York.
Opponents of the merger were skeptical, however, of the deal. They were
also wary of commenting on the summary released by the FCC, and plan to
review details of the actual proposal when it is filed.
"Our greatest fear is that it will take an army of regulatory police to
enforce these conditions," said Gene Kimmelman, a lobbyist of Consumers
Union. "And even if SBC keeps all its promises, it's hard to see how this
consolidation will offer real mass-market competition for consumers."
Kimmelman said conditions requiring the company to provide life-line
accounts for low-income consumers, a prohibition on minimum fees for
long-distance services, and deployment of at least 10 percent of new
broadband services in poor rural and urban areas are "well-intentioned." But
until final details of the proposal are available, it's "impossible to say
what compliance will mean.
"The clean way for competition would be to say no to consolidation and
pressure them to compete head-to-head," Kimmelman said.
A spokesman for Sprint Corp. (FON), which has adamantly opposed the
merger, said the company would have no comment until details of the
agreement are available.
In a statement, AT&T (T) said it will review the conditions carefully. "As
we found in the case of the Bell Atlantic-Nynex merger, the devil is always
in the details - and in the parties' full compliance with the conditions."
SBC's agreement to set up a separate affiliate to provide high-speed data
services revives a widely criticized proposal by the FCC that is currently
on hold. The Baby Bell companies had said establishing such an affiliate
would be too costly.
The conditions also resemble many of the market-opening provisions of the
Telecommunications Act. Those provisions include providing equal access for
competitors to local telephone "loops" and support services used for billing
and connecting customers.
But added to that, SBC's Ellis said, are "significant discounts" to
competitors who resell SBC residential service or lease residential loops.
Moreover, these local competition conditions are enforced with $1 billion in
penalties.
Another $1.2 billion in penalties could be levied if SBC-Ameritech doesn't
launch its vaunted "national-local" strategy by entering 30 new markets. An
independent auditor, paid for by SBC but managed by the FCC, would monitor
compliance.
These and other provisions, analyst Cleland said, should help calm
concerns about reducing the number of regional Bell operating companies from
five to four and creating a company controlling about one-third of the
nation's local phone lines.
"Fewer Bells is not a problem if you have competitive safeguards," Cleland
said. "It's all about competitive safeguards."
Some $2.1 billion in fines and an independent auditor meant to enforce
proposed conditions on the SBC-Ameritech merger were in part prompted by
problems with the Bell Atlantic-Nynex merger, according to Bob Atkinson,
deputy chief of the Federal Communications Commission's Common Carrier
Bureau.
Would-be competitors have complained that Bell Atlantic's central offices
have made it difficult for customers to switch to a different local
telephone service provider. The SBC conditions include some $1 billion in
fines for failing to open markets.
But in a statement, Bell Atlantic lobbyist Tom Tauke said he was puzzled
by Atkinson's comments because Bell Atlantic "is in full compliance" with
its merger conditions. "Periodically, some of our competitors have raised
questions, but in each case, Bell Atlantic has demonstrated adherence to the
conditions."
On Capitol Hill, Sen. Mike DeWine, the Ohio Republican who chairs an
antitrust subcommittee, and the panel's ranking Democrat, Sen. Herb Kohl of
Wisconsin, said they were pleased with the FCC staff's position on the
merger. But they said the process took too long.
SBC and Ameritech made their initially filing in the merger review on July
24 of last year. The senators have introduced a bill that could limit FCC
merger reviews to six months - although requests for more information can
trigger an extension.
But telecommunications analyst Anna-Maria Kovacs of Janney Montgomery
Scott said the conditions don't include anything that should delay closing
of the merger by much.
The conditions, however, are stiff and meant to ensure that the new
company follows through by opening its local markets to competitors and
enters new markets itself, Kovacs added.
She predicted final closure of the merger sometime in the third quarter,
if approval by state commissions in Indiana and Illinois are completed by
September.
(END) DOW JONES NEWS 06-29-99
06:09 PM
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WSJ(6/30):FCC SBC-Ameritech Conditions Get Positive Reactions
By Kathy Chen
Staff Reporter of The Wall Street Journal
WASHINGTON -- The Federal Communications Commission's proposed conditions
for approving SBC Communications Inc.'s $79.7 billion acquisition of
Ameritech Corp. appear to benefit both the companies and competition.
"This looks like a win-win for everyone," said Jeffrey Kagan, an
Atlanta-based independent telecommunications analyst. "This is not only good
news for SBC and Ameritech, but also for the customers inside and outside
their regions, and even their competitors."
As expected, the two sides yesterday announced that they had agreed to a
broad settlement package of 28 conditions aimed at ensuring that the Baby
Bell deal helps open local phone markets to competition. The conditions
include timetables for the Bells to enter new markets, discounted rates for
competitors that want to lease network space and promises to offer
high-speed data services to low-income areas. Many of these conditions will
be backed by the threat of hefty fines, potentially totaling more than $2
billion.
Bob Atkinson, who led the FCC staff team that helped shape the conditions,
said the team will recommend that the commission approve the deal with the
conditions. The settlement package will be open to public comment for a
month before being finalized and put to a vote by the agency's five
commissioners.
FCC Chairman William Kennard said he was "encouraged" by SBC's and
Ameritech's commitment to open their markets to competition.
The companies were enthusiastic. "We're joining with Ameritech to keep up
with the competition and keep ahead of our customers' telecommunications
needs," SBC Chairman Edward Whitacre Jr. said. "Through these conditions,
we're putting this commitment in writing." Ameritech Chairman Richard
Notebaert called the conditions "reasonable and fair for consumers, for
competitors and for the companies."
While the conditions will require SBC and Ameritech to jump through
numerous hoops, industry analysts said the companies stand to gain in the
long term. With FCC approval of the deal, SBC and Ameritech will be large
enough to compete nationally and globally and offer a wide range of
services; the combined company would have a market capitalization of more
than $180 billion and control about a third of the nation's phone lines.
Meeting the conditions would also facilitate the two Bells' efforts to
enter the long-distance telephone business. Bell phone companies are
prohibited from offering such services in their home regions until they meet
a 14-point checklist aimed at forcing them to open their markets to
competitors. So far, no Bell has won approval from the FCC to provide
long-distance services. "A lot of the conditions are things that the
companies really need to do to gain long-distance entry," said Gail Jones, a
senior analyst at Boston-based Yankee Group. "This could step up the
process."
The conditions - as long as they are enforced - could also benefit rival
phone companies and consumers. The two Bell companies will offer discounts
to competing carriers that want to resell the Bells' residential services or
lease parts of their residential-customer networks.
"That would be helpful for competitive carriers and residential
competition," said John Windhausen, president of the Association for Local
Telecommunications Services.
Still, Gene Kimmelman, co-director of Consumers Union, said he doubts the
package will benefit residential consumers as much as it would high-end
business customers. Besides, he added, "It will take an army of regulatory
policemen to oversee these conditions."
In composite trading yesterday on the New York Stock Exchange, SBC closed
at $54.50, up 68.75 cents, and Ameritech closed at $70, up $2.50.
(END) DOW JONES NEWS 06-29-99
09:50 PM
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