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SBC Communications Inc. is expected to win federal clearance for its purchase of AT&T Corp., but the telecommunications giant could have to make substantial divestitures. Indeed, experts said the deal faces a lengthy and politically sensitive campaign in getting the green light from U.S. antitrust and communications enforcers. Reviews of the transaction by the Department of Justice and Federal Communications Commission will take up to 18 months, a source said. European regulators, who in 2000 blocked WorldCom Inc.’s bid for Sprint Corp., also must approve the deal. “This is the first transaction involving one of the largest Bells merging with one of the largest traditional long-distance carriers, and that means it will get higher regulatory scrutiny by both the FCC and DOJ,” said Larry Blosser, telecom attorney at DLA Piper Rudnick Gray Cary US. Michael Salsbury, a partner at law firm Chadbourne & Parke in Washington, said the combined company would also have to sell AT&T’s consumer local and long-distance phone business in SBC’s core Western and Southern markets. In many of these regions SBC and AT&T are the No. 1 and No. 2 telecom carriers. Should regulators require SBC to divest AT&T’s consumer division in certain of its markets, the companies would need to decide whether they could get a better price selling the entire national residential business or just selling off customer accounts. The FCC also could require SBC to part with some of AT&T’s corporate telecom units, said Andrew Lipman, partner at law firm Swidler Berlin in Washington. That could include Teleport Communications Group Inc., an enterprise telecom services provider that AT&T bought in 1998. “Enterprise business is where the high margins are, so SBC may be discouraged if they have to sell too much of its enterprise business,” said a source close to AT&T. Although SBC does not currently dominate the enterprise phone segment, antitrust enforcers will try to assess the state of competition in that market two years from now, legal experts said. In that time SBC is expected to become a much bigger provider of corporate services, which could raise regulatory concerns. David Kaut, an analyst with Legg Mason Wood Walker Inc. in Washington, noted that Sprint’s proposed merger with WorldCom collapsed amid Justice Department concerns that the deal result in overconcentration in the enterprise phone market, among other problems. Consumer groups, sensitive to the rising cost of telecom and broadband services, are likely to attack the deal. They could seek to put particular pressure on state regulatory commissions and attorneys general in states affected by the deal. “The loss of in-region competition will be a key area of government review, in our opinion, and state attorneys general and regulatory commissions in SBC’s territory could have significant concerns and clout,” Kaut said in a statement. Richard Tong-Jun Shin, a principal at consulting firm LECG LLC in Washington, said the two companies may have wanted to complete a deal now, while the regulatory climate remains favorable. Although the FCC currently treats the wireless and wireline industries separately, which restricts dealmaking, the agency is moving toward grouping them with other kinds of telecom services, he said. That would have made pairing SBC and AT&T more difficult to complete. “If they are going to do it, this is the time to do it,” Lipman said. Copyright �2005 TDD, LLC. All rights reserved.

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