Sunday, October 30, 2005

FCC Sets Conditions for SBC/AT&T and Verizon/MCI Mergers

The FCC voted to approve the acquisition of AT&T by SBC Communications and of MCI by Verizon Communications, concluding that consumers will benefit and that these mergers will create stable, reliable U.S.-owned companies that will provide improved service to government customers and benefit national defense and homeland security.

Significantly, the FCC imposed a set of conditions aimed at alleviating anticompetitive concerns. These include the following:

  • The applicants committed not to seek an increase in state-approved rates for unbundled network elements (UNEs) for two years (except for rates that are subject to current appeals in specific states).


  • The applicants committed to a one-time recalculation to exclude fiber-based collocation arrangements established by AT&T in SBC's region and MCI in Verizon's region in identifying wire centers in which SBC or Verizon claims there is no impairment pursuant to the UNE triggers in the Triennial Review Remand Order so that dedicated transport and/or high-capacity loops need not be unbundled.


  • The applicants committed to implement a "Service Quality Measurement Plan," which will provide the Commission with quarterly performance results for interstate special access services. This commitment will terminate the earlier of 30 months and 45 days after the beginning of the first full quarter following the closing of the mergers, or the effective date of a Commission order adopting general special access performance measurement requirements.


  • The applicants committed, for 30 months, not to increase the rates paid by existing in-region customers of AT&T in SBC's region or MCI in Verizon's region for wholesale DS1 and DS3 local private line services.
    SBC/AT&T and Verizon/MCI committed, for a period of 30 months, not to provide special access services to themselves, their interexchange affiliates, or each other or their affiliates, that are not generally available to other similarly situated customers.


  • The applicants committed that for a period of 30 months, before they provide new or modified contract tariffed service to their own section 272(a) affiliate(s), they will certify to the Commission that they provide service pursuant to those contract tariffs to unaffiliated customers other than each other or their wireline affiliates.


  • The applicants committed for a period of 30 months not to increase rates set forth in SBC's and Verizon's interstate tariffs for special access services, including contract tariffs, that they provide in their in-region territory that are on file with the Commission on the Merger Closing Dates.


  • The applicants committed, for a period of three years, to maintain settlement-free peering arrangements with at least as many providers of Internet backbone services as they did in combination on the Merger Closing Dates.


  • The applicants committed for a period of two years to post their peering policies on publicly accessible websites. During this two-year period, the applicants will post any revisions to their peering policies on a timely basis as they occur.


  • SBC/AT&T acknowledged: (1) that the merger does not change carrier of last resort obligations imposed by the State of Alaska on interexchange services provided by Alascom; (2) that the merger will not alter statutory and regulatory geographic rate averaging and rate integration rules that apply on the merger closing date to Alascom; and (3) after the merger closing date, they will operate Alascom as a distinct, though not structurally separate, corporate entity.


  • The applicants committed to provide, within 12 months of the Merger Closing Dates, DSL service to in-region customers without requiring them to also purchase circuit-switched voice telephone service. The companies will make the offering for two years from the time it is made available in a particular state.


  • The applicants committed for a period of two years to conduct business in a way that comports with the Commission's Internet policy statement issued in September.


Some industry commentary:

FCC Chairman Kevin Martin: "It is my expectation that these mergers will only increase the incentive and ability of the merged entities to invest in broadband infrastructure and spread the deployment of advanced services to all Americans."


FCC Commissioner Michael Copps: "These mergers can also be seen as an epitaph for the competition that many of us thought we would enjoy as a result of the Telecommunications Act of 1996. That legislation, I am convinced, envisioned a vastly different communications landscape than the one we find ourselves living in today.


SBC chairman and CEO Edward E. Whitacre Jr. "The commission vote demonstrates a recognition that the merger of SBC and AT&T will enhance competition, help bring new technologies to market faster, and provide real benefits to consumers and businesses."


AT&T chairman and CEO David W. Dorman: "Today's decision brings us one step closer to a new era in communications, information services and entertainment. Combined, SBC and AT&T will deliver superior network services and a portfolio of solutions that will help both businesses and consumers."


Verizon VP of Public Affairs Tom Tauke: "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."


Qwest: "Today, the FCC stood with millions of telecommunications users against two mega-firms trying to turn back the clock. By imposing meaningful conditions on the plans of SBC and Verizon to acquire their largest competitors, the FCC has reaffirmed its commitment to open and competitive telecommunications markets.


XO Senior Vice President, Government Relations, Heather Gold: "By helping safeguard competition in the wholesale market, today's decision by the FCC is an important victory for the competitive local telecom industry - and for millions of business customers... We thank the Commissioners and staff for their efforts to forge meaningful conditions designed to ensure ongoing customer choice and price competition for millions of small to medium business customers, and we hope that the FCC will vigorously enforce its actions so that these conditions are not hollow promises."


EarthLink's Chris Putala, executive vice president for public policy: "We applaud today's Federal Communications Commission decision that requires SBC and Verizon to offer Stand-Alone DSL as a condition for their separate merger approvals. As a result of this decision, more than 80 million consumers will now be able to take advantage of emerging Internet voice and data applications without also having to buy legacy wire-line local telephone service from their phone company. Today's FCC decision in favor of mandatory 'net neutrality' provisions helps guarantee the rights of all consumers to access the Internet content and applications they choose."


Global Crossing CEO John Legere: "The FCC's decisions reflect the concerns expressed by many telecommunication companies, including Global Crossing, that these mergers might alter the competitive balance in the special access and Internet backbone market. The fact that the FCC was willing to freeze special access prices for 30 months and require continued Internet peering for three years (among other important safeguards) gives Global Crossing confidence in our ability to compete on a level playing field in years ahead."http://www.fcc.gov

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