December 19, 2006 1:20 am

AT&T/BellSouth deal in doubt

AT&T’s $86bn takeover of BellSouth was dealt a significant setback on Monday after a potential ally in its fight to gain regulatory approval at the Federal Communications Commission said he would abstain from deadlocked negotiations that will determine the deal’s future.

Robert McDowell, a Republican commissioner who formerly served as a telecommunications industry lobbyist, ended weeks of speculation by announcing on Monday that, following his “own personal sense of ethics”, he would disqualify himself from the matter.

Although Mr McDowell’s decision is not expected to derail the deal, the move will force the FCC’s four remaining commissioners, including its Republican chairman, Kevin Martin, to break their 2-2 stalemate and reach an agreement on the conditions that should be set on the proposed merger.

The announcement will bolster opponents of the mega-deal, who want it to be subject to tighter regulations than SBC’s earlier takeover of AT&T and increases the likelihood that it will not close this year.

Blair Levin, an analyst at Stifel, Nicolaus, said before Monday’s announcement that Mr McDowell’s abstention would also increase the chance that AT&T would be subject to concessions in the area of special access, which could cost the company.

Jonathan Adelstein, a Democratic commissioner, said he would continue to review the deal “with the goal of promoting competition and broadband deployment, safeguarding consumers, and advancing the public interest”.

Mr Martin said he respected his fellow Republican’s decision but added the FCC had a responsibility to make a “timely” decision on the deal.

Mr McDowell said he had not reached his decision lightly, even after the FCC’s general counsel this month gave the him the green light to weigh into the negotiations in spite of ethics prohibitions that bar regulators from ruling on matters within a year of acting as a lobbyist on the specific issue.

The commissioner said he found little comfort in the blessing, which “[did] not acknowledge crucial facts and analyses”.

Additional reporting by Paul Taylor in New York

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