REGULATORY OUTLOOK : Although Approval Is Nearly Assured, Deal Still Faces Scrutiny

Although at least four federal and state agencies will review the proposed merger of SBC Communications Inc. and Pacific Telesis Group, the deal is likely to face few regulatory hurdles and will probably be approved before the end of the year, experts say.

But with throngs of industry rivals and consumer watchdog groups looking over their shoulders, regulators will be under intense pressure to use the deal to draw the line on how much consolidation will be allowed in the local telephone industry--which is now being turned on its head by new federal legislation designed to encourage competition.

“There’s going to be a lot of hearings and a lot of talk from people that this is not a ‘rubber stamp kind of deal,’ but at the end of the day I don’t see how they can stop it,” said William Deatherage, a telecommunications analyst at Bear Stearns & Co. in New York.

At the federal level, the two companies will be scrutinized by the Federal Communications Commission and the U.S. Justice Department. The FCC must approve the transfer to SBC Communications of licenses for mobile radio and general market wireless personal communications services in Southern and Northern California as well as 11 licenses for a wireless form of cable TV that PacTel last week acquired for $21 million.

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The FCC will base its approval on whether granting the transfers is in the public interest, said Rosalind K. Allen, associate bureau chief of the wireless telecommunications bureau at the FCC. Although the agency reviews dozens of requests for such license transfers and has rarely blocked them in the past, consumer groups and even some telephone industry rivals are expected to object to the deal when the FCC, as required by law, seeks public comment on whether to approve the license transfers.

The Justice Department, for its part, will undertake a general antitrust review. Justice officials declined to comment on their review role, but the agency beefed up its telecommunications staff in the wake of passage last month of a sweeping telecom reform bill. Still, since SBC and PacTel do not offer services in the same markets, most analysts consider it unlikely that Justice will object.

Long-distance giant AT&T; voiced its disapproval of the deal in a prepared statement Monday, saying that “it’s hard to see how” the promise of telephone competition “is to be realized if existing monopolies simply combine into larger ones.”

“I think there’s a big risk that customers of basic plain old telephone service are going to be lost and forgotten in the merger,” said Thomas Long, senior telecommunications attorney for Toward Utility Rate Normalization, a San Francisco-based consumer group.

Regulators in California and Texas are also gearing up to review the transaction. Although the California Public Utilities Commission appears to have the broadest authority among regulators to review the transaction--with power to analyze everything from the deal’s economic impact on the state to whether it would improve service for telephone customers--consumer advocates say the commission has traditionally been outmaneuvered by the powerful Baby Bells.

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“The PUC has to determine if this deal offers benefits to consumers but the phone companies are going to do their best to make sure they don’t have much time to” investigate, Long said. “Typically what [phone companies] do is set [an unreasonably short] date by which the transaction has to be approved. That raises market expectations that the deal will be done by that date and puts all kinds of pressure on the PUC” to deliver.

In Texas, state Public Utilities Commission spokeswoman Anne Roussos said a new state law “made a lot of changes in the telecommunications industry. . . . We are looking at our new statute to determine the extent of our jurisdiction in this matter.”