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Although the Department of Justice on Thursday approved SBC Communications Inc.’s proposed $16 billion purchase of AT&T Corp. and Verizon Communications Inc.’s $8.4 billion union with MCI Inc., the Federal Communications Commission’s review of the deals is proving thornier. Although the telecommunications agency is set to clear the deal, as of Thursday FCC commissioners were still negotiating possible concessions for SBC and Verizon to address concerns that the mergers could raise prices and reduce options for consumers “There are several ideas on the table right now,” an FCC staffer said. “They’re still talking.” If the commissioners fail to reach agreement by Thursday, the agency could postpone its ruling on the transactions until the FCC’s next scheduled meeting on Nov. 3 or some other future date. Complicating the FCC’s review of the mergers is a partisan split on the commission. The panel, which usually includes five commissioners, now has only four members. That has given Democratic commissioners Michael Copps and Jonathan Adelstein leverage to press FCC Chairman Kevin Martin, who needs at least one of their votes to approve the deals, for more significant concessions from the companies. A source close to the FCC said Copps and Adelstein are unified in their views on how the deals could affect telecom industry competition. “Everyone is trying to work together,” she said. Antitrust enforcers at the Justice Department cleared the telecom deals with minimal divestitures. As part of the agreement, Verizon and SBC will be required to lease to rivals any spare capacity on their networks in buildings where the mergers eliminate competition for business customers. The government’s consent decree covers about 350 buildings serviced by Verizon and roughly the same number by SBC. In the FCC review, one condition on the deals the commissioners are considering would require the merging companies to offer broadband digital subscriber line service without forcing DSL users also to sign up for their phone services. Specifically, the Democrats on the commission are urging Martin to ensure that SBC and Verizon will offer broadband separate not only from traditional “circuit-switched” voice service, but also from increasingly popular Internet-based, or voice-over-Internet Protocol, service. Some commissioners also favor requiring the merging companies to expand their businesses outside of their traditional regional service areas. The Bell companies have generally refrained from competing in each other’s territories. Critics of the deal worry that consolidation in the marketplace will perpetuate this de facto lack of competition even as SBC and Verizon extend their businesses. Michael Salsbury, a partner at law firm Chadbourne & Parke in Washington, said the FCC included such a condition for preserving competition in local business markets as part of its approval of SBC’s acquisition of Ameritech Inc. in 1999, but noted that the agency never enforced it. A related concern is whether the FCC should specifically bar the giant telecoms from colluding. If Verizon-MCI and SBC-AT&T collaborate on pricing, for instance, smaller telecom providers could have to accept less favorable rates to access their networks. SBC said Thursday that after closing the acquisition it would adopt the AT&T brand name, as had been widely expected. Unlike SBC, which is known primarily in the Southwest and a few other markets, AT&T’s brand is recognized nationally and globally. CIBC World Markets analyst Tim Horan suggested that San Antonio-based SBC could use the brand name for its Cingular Wireless joint venture with BellSouth Corp. “Using one brand name would result in substantial operating synergies for SBC, particularly if it were to use this brand for Cingular,” he wrote in a Thursday report. The branding shift could presage larger strategic moves, including another round of industry consolidation. Horan wrote that “if SBC adopts the AT&T brand name, it may try to acquire [BellSouth] next year.” The analyst said such a deal would help SBC grow, manage its brands and simplify plans for wireless and wireline video services, among other benefits. Atlanta-based BellSouth would be a sizeable acquisition. The telecom, which has a market capitalization of roughly $47 billion, has an enterprise value of about $62 billion. BellSouth has a minority stake in Cingular, and some believe SBC’s acquisition of AT&T will create tension within the venture. In pairing with SBC, AT&T’s business unit will compete with BellSouth for corporate and government clients. Copyright �2005 TDD, LLC. All rights reserved.

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