SBC, Ameritech Agree to FCC Conditions

From Times Staff and Wire Reports

SBC Communications Inc. and Ameritech Corp. reached a proposed agreement with Federal Communications Commission staff members on conditions for approval of SBC’s $61-billion purchase of Ameritech.

The combination of San Antonio-based SBC, which owns Pacific Bell, and Chicago-based Ameritech would create a telecommunications powerhouse with combined revenue of $46 billion and control of local access lines into a third of all U.S. households.

SBC, the No. 2 U.S. local phone service provider, and Ameritech, which is No. 5, agreed to 26 conditions aimed at addressing FCC concerns about opening the companies’ markets to rivals, broad deployment of high-speed Internet services and other pro-consumer measures. The firms would face fines of more than $2 billion if they failed to meet the conditions.

FCC Chairman William Kennard said the proposal appeared to resolve the concerns FCC staff members had about the merger.


“I am encouraged by SBC and Ameritech’s commitment to open their markets to competition and their agreement to suffer stiff penalties if they do not,” Kennard said in a statement. “I look forward to working with my colleagues to closely evaluate the companies’ proposal.”

SBC expects to complete the purchase of Ameritech in August, SBC general counsel Jim Ellis said. The conditions will be open to public comment, and FCC staff members expect to make a final recommendation to the five-member agency no earlier than August. The FCC will then vote on whether to accept the staff’s recommendation.

The companies agreed to enter 30 new markets within 30 months or face a $40-million per-market fine, up to a $1.2-billion cap. The companies also agreed to up to $1 billion in fines tied to performance measures that indicate how well the company served competitors.

SBC also agreed to set up a unit to provide new high-speed data services to consumers and said 20% of the lines it upgrades for the services will be in low-income rural and urban areas.


In another concession to merger opponents who argued that the combined company would have no incentive to allow competition in its 13-state region, the companies agreed to give competitors wanting simply to resell residential local service under a competitor’s brand name a 32% discount off retail prices.

Washington analyst Scott Cleland said the conditions contain “some goodies for everybody,” helping competitors and consumers alike. “It’s rare when a negotiation yields such positive results. This is pretty much a done deal now.”

The merger, announced in May 1998, was approved by the Justice Department in March, but state regulators in Illinois and Indiana are still reviewing the transaction.

Meanwhile, the FCC staff has yet to see a formal written proposal, said Robert Atkinson, deputy chief of the commission’s Common Carrier Bureau.


“But based on extraordinarily lengthy discussions and meetings [with the two companies], if there are no surprises in this document when we get it . . . then I can fully support the package,” Atkinson said. He said that means he would recommend the merger’s approval.

SBC Chairman Edward E. Whitacre Jr. said the proposed conditions “put consumers first.” Ameritech Chairman Richard C. Notebaert also noted his satisfaction with the package.

“Our companies have gone through an unprecedented and exhaustive level of review,” he said in a statement. “The net result is a set of conditions that are reasonable and fair for consumers, for competitors and for the companies.”

On the New York Stock Exchange, SBC shares rose 69 cents to close at $54.50; Ameritech was up $2.50 to close at $70.


In other telecommunications news, Britain’s Vodafone Group today will complete its $68.8-billion cash and stock purchase of San Francisco-based AirTouch Communications Inc., creating Vodafone AirTouch, the world’s largest wireless telecommunications firm.

In New York Stock Exchange trading Tuesday, AirTouch became the most active issue, as the stock was dropped from the Standard & Poor’s 500 index and today will be dropped from the NYSE.

AirTouch shares closed down $3.34 at $107.66, and Vodafone’s American depositary receipts closed down $7.88 at $197.