By: Jon Van

October 6, 2006, Chicago Tribune

The drive by AT&T Inc. to take over BellSouth Corp. by New Year's will be tested next week when the Federal Communications Commission will either rule on the merger or decide to delay taking action.

Congressional leaders from both houses and both parties have cautioned federal regulators against haste in deciding the fate of AT&T's deal, which could provide a speed bump in what had appeared to be a smooth course.

Last month Kevin Martin, the FCC chairman, circulated a proposed order to his colleagues that would approve AT&T's deal without imposing any conditions, a move interpreted to open negotiations with the FCC's two Democrats.

Following Martin's actions, Republican and Democratic leaders of key committees in the House and the Senate sent letters to the FCC and to the Department of Justice urging delay on AT&T's case until a decision is returned in a federal court case that is reviewing last year's megamergers that combined AT&T Corp. and SBC Communications Inc. to form the new AT&T Inc. and that merged Verizon Communications Inc. with MCI Inc.

That review by U.S. District Judge Emmet Sullivan is required by the federal Tunney Act, which requires the courts to examine mergers approved by the Department of Justice to assure they protect the public interest.

In their letters, lawmakers expressed concern that last year's telecom mergers were approved and closed before the Tunney Act review was begun. They suggest regulators should withhold further action at least until the review of the past mergers is completed.

"It's very unusual for lawmakers to intervene in a matter like this at this level," said Shane Greenstein, a professor at Northwestern University's Kellogg School of Management. "Usually, they discuss things more at a higher policy level."

In their letter, Sens. Mike DeWine (R-Ohio) and Herb Kohl (D-Wis.) got very specific, mentioning that a merged AT&T/BellSouth would hold considerable radio spectrum suitable for wireless broadband.

Because AT&T will be the largest wired phone company in the country and will also own the largest cell phone carrier, Cingular, the senators suggested the company may have little financial incentive to roll out a new broadband wireless service to compete with itself. Requiring the companies to sell their spectrum before approving the merger was mentioned.

"The lawmakers have a legitimate point," said Andrew Klevorn, a partner with the Chicago law firm Eimer Stahl. "This probably means a delay in approval."

Congress passed the Tunney Act because of concerns dating back to the Nixon administration that the Department of Justice's antitrust lawyers didn't sufficiently protect the public interest when reviewing giant mergers, Klevorn said.

Two years ago, Congress strengthened the act by making judicial reviews mandatory rather than voluntary, he noted.

It's not clear when Sullivan may issue his findings on the previous mergers, but Daniel Berninger, an analyst with Tier 1 Research, said the judge's statements so far haven't commended the Justice Department's handling of the matter.

"He's said they've done a crummy job justifying their actions," said Berninger.

Dave Pacholczyk, an AT&T spokesman, said the carrier sees no reason why review of the BellSouth merger, announced in March, should be delayed any longer.

"The reasons for the merger are no different now than they were when we announced it," he said. "The competitive environment is more strenuous, cable companies are jumping into our business, there's a convergence of technologies and networks."

Pacholczyk said that regulators in 18 states have reviewed the merger and approved it without imposing conditions.

"All 18 states looked at the same record we have now before the FCC," he said.

In a research report issued by the Prudential Equity Group this week, Susan A. Lynner and Erin Dwyer wrote they doubt that congressional intervention will significantly delay regulatory approval of AT&T's deal, but they said that imposing conditions aimed at promoting competition is likely.

Jason Oxman, a spokesman for a group opposing the merger, the Competition Coalition, called the matter "a test of AT&T's political power. It will be interesting to see if that power can overcome bipartisan concerns about harms to the nation in this deal."

Jim Speta, a member of Northwestern University's law faculty specializing in telecom issues, said that "AT&T has pushed very hard for merger approval. I'm sure that the justice department and FCC will listen to what influential lawmakers say, but I couldn't predict what effect it'll have.

"One thing is sure, though. If the Bush administration goes ahead to give approval, these congressional leaders will know they've been ignored."