DoJ gives green light to telecoms deals

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The US Department of Justice on Thursday gave the green light to two large telecommunications deals with minimal requirements for divestitures.

Thomas Barnett, the newly installed antitrust chief at the justice department, said the $16bn takeover of AT&T by SBC and Verizon’s $8.5bn merger with MCI would generate “substantial efficiencies” that should benefit consumers.

The DoJ also concluded the mergers would reduce competition in some markets for business customers – an issue the antitrust authority remedied with modest conditions.

Under the terms of the DoJ’s approval, Verizon and SBC will have to divest connections to more than 350 buildings in their respective areas to a single buyer in each city using long-term leases known as indefeasible rights of use (IRUs).

Blair Levin, an analyst at Legg Mason, said Verizon had lobbied the DoJ for the remedy – instead of a full divestiture of the lines – for “some time”. “This represents a very significant victory for the Bells. Although opponents can challenge the consent decree . . . we believe there is no chance the courts would overturn the settlement,” Mr Levin said. Another antitrust expert said the relatively swift and widely anticipated, approval of the deals by the DoJ raised the prospect that SBC’s chairman, Ed Whitacre, would soon begin casting his net out for other deals.

“This is going to pave the way for a BellSouth deal. It has emboldened SBC . . . I would expect after a short, decent interval,” said Andy Lipman, an antitrust lawyer at Swidler Berlin who represents alternative carriers.

The DoJ said its decision took into account increases in competition from cable companies and voice over internet protocol.

Jim Rill, a partner at Howrey who represented Verizon on the deal, said the DoJ’s review had been done “quickly but intensively”. with substantial document requests on selective issues early on in the process.

The Federal Communications Commission, the telecoms and media watchdog, led by chairman Kevin Martin, is expected to approve both mergers at a meeting today. The Consumers Union, a consumer watchdog, said the “rubber-stamping” of the deals by the DOJ represented an “embarrassing milestone” because it would put an end to hopes of real competition in the telecoms industry.

Mr Levin of Legg Mason said the FCC was pushing ahead to identify additional conditions to impose on the deal related primarily to special access issues, but that the conditions were not expected to include divestitures. Unlike the DOJ merger review, which is strictly examines a deal’s antitrust implications, the FCC votes on transactions based on a public interest test.

Mr Martin has been forced to reach out to the FCC’s two democratic commissioners because a vacancy on the five-person commission since March has left the FCC without a clear Republican majority.

Jim Cicconi, AT&T executive vice president and general counsel, said on Thursday that he expected to receive FCC approval shortly, as well as approval from three remaining states that have not signed off on the deal.

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