FCC OK rings up phone deal

$74 billion merger weds parent of Southwestern Bell with Ameritech.

By KALPANA SRINIVASAN

The Associated Press

WASHINGTON --- Ameritech Corp. and SBC Communications cleared the final hurdle Wednesday in their bid to reunite two offspring from the old Bell system into the nation's largest local phone company.

The Federal Communications Commission gave its approval to the $74 billion deal, subject to conditions requiring that the companies open their markets to rivals and enter new markets to compete with established local phone companies.

This is the final step for the merger, which earlier won approval from the Justice Department and state regulators. The combined business, which will keep the SBC name, would control 57 million, or one-third, of the nation's local phone lines spread across 13 states, including Kansas.

SBC is the parent of Southwestern Bell Telephone Co.

"It is the most momentous merger we have ever approved," Bill Kennard, the FCC's chairman, said in an interview. "These companies are tearing down the Berlin Wall of local monopoly to liberate their competitors and also liberate themselves to enter other markets."

The FCC adopted 30 conditions to ensure the deal would serve the public interest. The new SBC must enter 30 new markets within 30 months to compete with established local phone companies. The company is required to provide deep discounts on key pieces of its networks to rivals who want to lease them.

The business also must establish a separate subsidiary to provide advanced telecommunications services, such as high-speed Internet access. At least 10 percent of its upgraded services would go toward low-income regions.

The conditions "are unprecedented in their detail, their clarity and their enforceability and the vigor with which they inject competition in these monopoly markets," Kennard said.

Officials at the San Antonio-based SBC and Chicago-based Ameritech were relieved to see an end to the arduous 18-month review, but would have preferred fewer strings attached.

"I'd rather have no conditions or fewer conditions, but I'm sure we can operate with these," Edward Whitacre Jr., SBC's chairman, said in an interview.

The conditions include stiff fines. The companies could face up to $1.2 billion in penalties for failing to meet the new market deadline and could pay another $1.1 billion for not meeting performance standards related to opening up their markets.

"I don't ever plan to pay a dollar," Whitacre said. "I think we can certainly meet those standards."

Whitacre pledged that consumers would soon see the benefits of the union with packages of services and accelerated roll-out of high- speed Internet access.

The company also is poised to seek federal permission to provide long-distance service to its local phone customers, after getting a signal Wednesday from Texas regulators that it had met a list of statutory requirements to do so, Whitacre said.

If the new SBC eventually wins FCC permission to provide long- distance service to its local customers, the three long-distance leaders could face a formidable rival.

"I think it's going to be a very strong company," said Rex Mitchell, a telecommunications analyst with Banc of American Securities in San Francisco. The proposed merger between MCI WorldCom and Sprint is likely to make regulators more receptive to the new SBC's entering the long-distance market, he said.

MCI, Sprint and AT&T opposed the deal, arguing that the concessions offered by SBC-Ameritech were accompanied by too many limitations. They also are concerned about FCC enforcement of the conditions.

"Without swift and effective enforcement, we would face an unacceptable risk that the merged company could block local competition in order to protect its monopoly customer base," said Jonathan Sallet, MCI's chief policy counsel.

Consumer groups believe the merger conditions don't go far enough to protect the public interest.

The 13 states in the proposed merger are Arkansas, California, Connecticut, Kansas, Missouri, Nevada, Oklahoma, Texas, Illinois, Indiana, Michigan, Ohio and Wisconsin.

All five commissioners voted to approve the deal, but two dissented in part on the conditions.

The SBC-Ameritech union leaves just four remaining Bells out of the seven created in the breakup of the original American Telephone & Telegraph Co., which provided both local and long-distance phone service.

In trading on the New York Stock Exchange, SBC closed at $51.81 1/ 4, up 87.5 cents, while Ameritech was up $1.31 1/4 to $68.

FCC

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