AT&T; Gets Closer to Purchase of BellSouth

AT&T; Inc. cleared a major hurdle Wednesday in its proposed $78.8-billion purchase of BellSouth Corp. when the Justice Department blessed the deal, which would create a phone goliath that dominates the market in California and 21 other states.

But the final regulatory step -- approval by the Federal Communications Commission -- may be more difficult because the Justice Department did not attach conditions to the deal.

In giving approval, the department cited new technologies and existing competition, which are enough to protect customers and lead to “cost savings and other efficiencies,” said Assistant Atty. Gen. Thomas O. Barnett, head of the antitrust division.

But the decision outraged consumer advocates and competitors, who fear that San Antonio-based AT&T; is on the verge of resurrecting much of the old Ma Bell monopoly. It also angered the FCC’s two Democratic commissioners, who are expected to push for strong conditions before approving the deal. Late Wednesday, an FCC vote scheduled for today was delayed until Friday at the earliest.

“With the lights off at the Justice Department, it becomes all the more important for the FCC to ensure that consumer interests have a seat at the table,” Commissioner Michael J. Copps said.

FCC Chairman Kevin J. Martin is pushing to approve the deal without any conditions. He is expected to be joined by Deborah Taylor Tate, a Republican.

But Copps and fellow Democrat Jonathan S. Adelstein have unusual leverage on the issue because Robert M. McDowell, the other Republican commissioner, has recused himself. McDowell used to work for Comptel, a trade association of smaller phone companies that wants strong restrictions on the deal.

Copps and Adelstein can force a deadlock on the five-member commission unless their demands for conditions are met. They would like to require the companies to ensure “network neutrality,” which would prevent priority being given to certain services delivered over their Internet lines, or divest some of Atlanta-based BellSouth’s wireless spectrum, which could add high-speed Internet access offerings in the Southeast.

The merger would create a company that controls 22% of the residential telecommunications market nationwide and 37% of the business market, according to TNS Telecoms, a research firm. The new company would also include Cingular Wireless, the nation’s largest cellphone carrier, which is jointly owned by AT&T; and BellSouth.

Jessica Zufolo at Medley Global Advisors said Wednesday’s decision was a surprise because mergers of that size are normally approved with conditions. She and others said the Justice Department appeared to have had a strong motivation for not making its approval conditional: avoiding court review.

Under a 1974 law known as the Tunney Act, a federal court is required to review legal settlements by the Justice Department in merger cases to ensure they are in the public interest. The department uses legal settlements to impose conditions on mergers, as it did last year when it approved Verizon Communications Inc.’s purchase of MCI Inc., and SBC Communications Inc.’s acquisition of AT&T.;

But final approval of the mergers has been slowed by U.S. District Judge Emmet G. Sullivan, who has argued that the Justice Department did not provide enough documentation to back its approvals. Some members of Congress have written to Atty. Gen. Alberto R. Gonzalez to request that his department not act on the AT&T-BellSouth; merger until Sullivan finished his review.

The Justice Department ignored those requests. Adelstein said it apparently “took a dive on one of the largest mergers in history just to avoid further court scrutiny.”

A Justice Department official, who spoke on condition of anonymity because he was not authorized to comment, said the department was not trying to avoid judicial review. The approval contained no conditions because officials determined after a seven-month review that there was no antitrust basis to challenge the merger, he said.

“This unequivocal and unconditional approval underscores the competitive nature of our industry and the pro-competitive benefits of this merger,” AT&T; General Counsel James D. Ellis said.

AT&T; shares rose 19 cents to $32.96. BellSouth shares rose 24 cents to $43.44.

Gene Kimmelman, a vice president at nonprofit advocacy group Consumers Union, said the Justice Department’s decision was “astounding” and opened the door for the re-creation of the Bell monopoly.

“In saying there’s no problem with this merger, they’re essentially saying they’d have no problem with AT&T; and Verizon getting together,” he said. “It’s a very sad day for consumers.”

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jim.puzzanghera@latimes.com