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FCC may approve U.S. mergers without mandating asset sales

Sun, 10/09/2005 - 8:00pm

Copyright 2005 World Markets Research Limited;

All Rights Reserved

World Markets Analysis

October 10, 2005

By Julian Watson

From Lexis Nexis

The Federal Communications Commission (FCC) looks likely to approve the mergers between SBC and AT&T, and Verizon and MCI without demanding that they dispose of assets. This is according to unnamed sources close to the FCC, cited by the Associated Press. The FCC's four commissioners look likely to vote in favour of the SBC-AT&T and Verizon-MCI tie-ups, which are valued at US$16 billion and US$8.5 billion respectively.

Critics of the mergers have argued that the mergers will reduce the level of competition in the consumer and business local voice, long-distance and broadband Internet markets, as well as the data-communications markets and therefore negatively impact on end-user choice.

A majority vote by the FCC to approve the mergers without the requirement to dispose of assets will likely mean a similar decision by the Department of Justice, which must also mandate the deals.

Significance: Since the FCC's decision to phase out state-set wholesale prices for unbundling, the ability of AT&T and MCI to remain independent has looked increasingly unlikely. Neither operator has been able to transform themselves from leading players in the declining long-distance markets to providers of integrated voice, broadband and wireless services to end-users. The fact that SBC and Verizon will take on AT&T and MCI's long-distance assets are of primary concern to opponents of the deals.

Some critics are calling to force SBC and Verizon to actively compete against each other in their respective regional markets, as well as providing so-called naked DSL services, the availability of which would be a spur to VoIP-based competition. However, the worst fears - that of higher prices for end-users following the deals - may be overstated. Recent data has shown that competition in the wireless market is still robust following the mergers of Cingular Wireless and AT&T Wireless, and Sprint and Nextel. Cable-based VoIP is also growing strongly at the expense of the Baby Bells.

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