Telecom deal could spur ‘net neutrality’

Seeking to win approval for its $86 billion buyout of BellSouth Corp., telecommunications giant AT&T Inc. has agreed to several concessions that have important implications for schools and other consumers.

Among these concessions is a pledge to offer broadband service wherever the new AT&T is the local telephone company, which could speed up the availability of broadband service to rural homes in some 22 states. Perhaps more importantly, AT&T has promised to abide by “net neutrality”-that is, the company will not favor internet content providers who pay it more money-for at least 30 months.

Supporters of net neutrality rules, which call for equal treatment of all traffic from the internet backbone to an end user’s computer, say AT&T’s agreement provides a blueprint for future net neutrality legislation and might at least temporarily discourage other telecommunications firms from charging organizations for the right to faster service.

“Anybody who violates this policy is going to run into a political buzz saw,” Jonathan Adelstein, one of two Democrats on the five-member Federal Communications Commission (FCC), told the Wall Street Journal.

The FCC unanimously approved the largest telecommunications takeover in U.S. history on Dec. 29, a day after AT&T offered its new concessions for consumers and competitors. The buyout extends AT&T’s dominance as the nation’s largest provider of phone, wireless, and broadband internet services.

Besides promising to observe net neutrality and to offer broadband service wherever it is the local telephone provider, AT&T also pledged to offer $19.95 per month stand-alone digital subscriber line (DSL) service and will divest some of its wireless spectrum (see related story).

AT&T offered the concessions after a little more than a week of marathon negotiations with lawyers for the two Democrats on the commission, Adelstein and Michael Copps, who both opposed the merger.

The combination of San Antonio-based AT&T and Atlanta-based BellSouth will have operations in 22 states. AT&T estimates that about 10,000 jobs will be phased out over three years.

Combined, the companies generate about $117 billion in revenue and operate 68.7 million local phone lines stretching coast to coast across the southern United States and up through the Midwest.

The buyout also will give AT&T complete control over Cingular Wireless, the nation’s largest wireless telecommunications provider, which it had jointly owned with BellSouth. AT&T also is trying to roll out television service to compete with cable operators.

Adelstein said he was pleased with the agreement.

“We got substantial concessions that are going to mitigate a lot of the harms that would otherwise have resulted from this merger,” he said.

Copps said he was not fully satisfied with the deal that he and Adelstein struck with AT&T, but he called the outcome “a modest victory for American consumers.”

But FCC Chairman Kevin Martin, a Republican who supported the merger from early on, and fellow Republican Deborah Taylor Tate complained that AT&T was forced to accept “unnecessary” conditions to win approval for the deal.

Martin and Taylor Tate said the conditions “impose burdens that have nothing to do with the transaction, are discriminatory, and run contrary to commission policy and precedent.”

The intense negotiations between AT&T and the FCC came after one of the panel’s three Republican members, Robert McDowell, removed himself because he had been a lobbyist for Comptel, a telecommunications trade group that opposed the deal. That gave the two FCC Democrats more leverage.

McDowell said he was delighted that a deal had been reached.

Consumer advocates had opposed the merger from the start, but they put their best face on the compromise, pointing to AT&T’s promise of net neutrality as a major step forward.

AT&T pledged to not to give an advantage to any content provider’s traffic over its high-speed internet network. Consumer activists had feared the company could have sold better-quality transmission service to internet companies that would pay it the highest rates.

Mark Cooper, research director for the Consumer Federation of America, said net neutrality would protect a “free and open internet.”

The major phone companies-most prominently AT&T-have suggested they would like to be able to charge large web companies like Google Inc. and Amazon Inc. for preferential treatment of their traffic, ensuring that, for instance, online movies they sell don’t stutter or break up because of internet traffic jams.

In a sometimes vehement debate over the past year, the web companies and consumer advocates have fought this idea, saying it runs counter to the egalitarian and public nature of the internet and will stifle innovation when smaller companies can’t afford the extra internet tolls.

Education groups also have weighed in on the debate, arguing that schools are large producers and users of internet content-and these activities depend on the availability of an open internet. (See “Why schools need net neutrality,”

When SBC bought AT&T Corp. to become AT&T Inc. and when Verizon Communications Inc. bought MCI, they both promised to uphold certain loose principles of net neutrality, but those promises expire next year. AT&T is now offering to go even further by refraining from offering any service that prioritizes or degrades any internet data based on its source, ownership, or destination. This would apply for two and a half years after the merger.

AT&T’s IPTV service, a competitor to cable TV, would be exempt, as would the internet backbone. But net neutrality proponents were largely pleased with the offer.

“This is a major step forward for supporters of an open internet and a great improvement on the conditions applied to the earlier mergers,” said Ben Scott at Free Press, a nonprofit group that promotes freedom of speech.

AT&T’s pledge could serve as a blueprint for members of Congress as they prepare to reintroduce bills intended to bar network operators like AT&T from charging extra fees to content providers for added perks. Bills that would have upheld net neutrality failed to pass in both the Senate and the House last year.

Specifically, AT&T said that for 30 months after the merger’s closure, it would not provide or sell “any service that privileges, degrades, or prioritizes any packet” of data transmitted over its network based on the packet’s “source, ownership, or destination.”

That description amounts to a “framework for rules that can be applied industry-wide to allow American consumers and small businesses to benefit from deployment of discrimination-free advanced networks,” Sen. Ron Wyden, D-Ore., said in a statement on Jan. 2.

Wyden, who wrote the first and perhaps most aggressive net neutrality bill to emerge last year, hopes to reintroduce his bill in similar form this month, according to an aide.

FCC chairman Martin was unconvinced that net neutrality provisions are necessary.

“The conditions regarding net neutrality have very little to do with the merger at hand and very well may cause greater problems than the speculative problems they seek to address,” he wrote. “These conditions are simply not warranted by current market conditions and may deter facilities investment.”

Under the terms of the buyout, BellSouth shareholders will receive 1.325 shares of AT&T stock for every share of BellSouth. In March, when the deal was announced, it was valued at $67 billion, but a runup in AT&T’s stock price has raised the value to about $86 billion.

The FCC vote on Dec. 29 was the last regulatory hurdle. The Justice Department approved the merger on Oct. 11 without conditions, a move that angered many Democrats.

In an effort to win over Copps and Adelstein, AT&T offered some concessions in October, but they were rejected. AT&T’s senior vice president for regulatory affairs, Robert W. Quinn Jr., called the conditions that were finally accepted “significantly more extensive” than those first offered by the company.

Meanwhile, Rep. John Dingell, D-Mich., incoming chairman of the House Energy and Commerce Committee, indicated his displeasure in a statement that said the process followed by the FCC might be “suitable for committee review.”

Earl Comstock, president and CEO of Comptel, a group that represents competitors of AT&T, said he would have preferred to see more conditions from AT&T, and he questioned why the compromise came so quickly.

“Compared to where it was in the fall, there was definite progress,” he said of the deal. “But given the negotiating position [of the Democrats], it could be better.”


AT&T Inc.

Federal Communications Commission

Consumer Federation of America

Free Press


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