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Cingular Wireless LLC pushed hard to secure Federal Communications Commission approval for its $41 billion acquisition of AT&T Wireless Services Inc. before the Nov. 2 presidential election. On Tuesday, the wisdom of that strategy became clear. The two Democrats on the five-member FCC issued dissenting statements criticizing the Republican majority for reaching what they said was yet another agency decision that favors local phone monopolies, including Cingular parents SBC Communications Inc. and BellSouth Corp., and reduces the competitive threat to the Baby Bells. “Ultimately there were reasonable alternatives available to the commission to guard against the merger’s potentially negative impact on competition, but the majority declines to adopt any such protective measures,” FCC Commissioner Jonathan Adelstein wrote. Fellow Democratic Commissioner Michael Copps said it was inexcusable for the FCC not to have imposed a so-called non-discrimination requirement on Cingular and its parents. This would have forced SBC and BellSouth to charge all wireless providers, including Cingular, the same rate for accessing their wireline networks. Nondiscriminatory access is a critical element in preserving wireless industry competition because telecom rivals must be able to expand to compete for Cingular customers, Copps wrote. Otherwise, SBC and BellSouth can cripple competitors by charging them higher rates or offering inferior access to their wired networks. “We could have made clear that such behavior is unacceptable,” Copps wrote. The two Democrats also raise broader questions about the public policy benefits of permitting the Bells — which, including SBC, BellSouth and affiliates comprise Verizon Communications Inc., Qwest Communications International Inc., Ameritech Corp., Cincinnati Bell Inc. and Southern New England Telephone Co. — to own such a large in-market provider of wireless service. Copps said the FCC’s Republican majority already have made it harder for AT&T Corp. and other alternative phone companies to provide rival wireline service by curtailing requirements that the Bells resell network access at wholesale rates. With wireline competition hampered, consumers were looking toward wireless as offering a competitive threat to the Baby Bells. Now that hope is out the window, they said. “Can we expect that Bell-owned wireless carriers will compete tooth-and-nail against their wireline parents? I don’t think so,” Copps wrote. “Many Americans can expect intermodal competition by wireless carriers to suffer from this merger.” The objections the two Democrats raised already had delayed the merger for several weeks. Yet they had little power to postpone the fight until after the election because Cingular moved so swiftly to meet document demands by the government. Sources described the company’s efforts to produce the information as both massive and extremely costly. Yet they also credited it with advancing the timetable for government action by at least a few months. Those two months may have been critical, especially if Sen. John Kerry is elected president next week. Had the Cingular-AT&T Wireless merger come under review in early January, then Copps and Adelstein could have delayed matters until the inauguration. At that point, FCC Chairman Michael Powell, a Republican, would have resigned and a Democrat would have become acting chairman. The merger could then have been held in limbo for months until Kerry had three Democrats on the commission. Even a Bush victory could have complicated matters had the merger remained pending into January. Powell is widely expected to depart after the inauguration. If he left before the merger was cleared, then the deal could have been bogged down for months. Such delays are a distinct reality. Univision Inc. recently saw its purchase of a fellow Spanish-language broadcaster held up for nearly six months by an unrelated fight over media ownership rules. The two Democrats on the FCC launched their offensive despite efforts by Powell and his two fellow Republican commissioners to address their worries in approving the purchase of AT&T Wireless. This included a warning that the FCC “may take a different view” toward future wireless mergers if there is evidence they would harm competition between wireline and wireless providers. The agency also said that other FCC rules bar a Baby Bell from charging non-affiliated wireless companies higher access rates than they do to affiliated wireless companies. “In their partial dissent, my colleagues incorrectly assert that we confined our merger evaluation to wireless intramodal issues,” Powell writes. “To the contrary, I took very seriously the complex issues that arise from the combination of wireless and wireline companies.” FCC Commissioner Kathleen Abernathy said the loss of AT&T Wireless will not reduce the competitive pressure on SBC and BellSouth because other wireless providers will continue to fight for business. “Just as this transaction will benefit consumers of wireless services, I am likewise convinced that it will not undermine competition in the wireline communications market,” she wrote. Despite the party-line differences, neither Adelstein nor Copps voted against the merger outright. Rather, they objected to the FCC’s failure to impose additional conditions on the transaction. In the 100-page order clearing the deal, the agency required Cingular to sell wireless spectrum or customers in 22 markets. It also required the carrier to divest spectrum in markets where it would hold more than 80 MHz of the 190MHz of airwaves available for wireless service, and it barred Cingular from buying spectrum in an upcoming auction in markets where it already has at least 70MHz of spectrum. Legg Mason Inc. analysts Rebecca Arbogast and David Kaut said Tuesday in a research note that the FCC’s clearance of the merger indicates that the government would accept further consolidation in the telecommunications sector. “We believe, however, that by approving a merger that gives the Bell parents 50% to 55% of wireless market share, this approval, like the News Corp.-DirecTV merger, can be viewed as standing for the proposition that the government currently is not particularly troubled by this market structure,” they wrote. The AT&T Wireless buyout leaves five national mobile carriers that operate in the United States. In addition to Cingular, they include Verizon Wireless, the New York-based joint venture of Verizon Communications and Britain’s Vodafone Group plc; Overland Park, Kan.-based Sprint Corp.; Nextel Communications Inc. of Reston, Va.; and T-Mobile USA Inc., a Bellevue, Wash., unit of Deutsche Telekom AG. There has been scant talk of another major combination. “This industry still has a large number of players,” said Cannon Carr of CIBC World Markets Corp. “It is growing well this year, but over the next three to four years that growth has got to slow down.” Chris Nolter contributed to this report. Copyright �2004 TDD, LLC. All rights reserved.

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