AT&T, BellSouth Merger Approved By Justice Dept.

WASHINGTON – The Justice Department approved AT&T's (T) buyout of BellSouth Corp. (BLS) on Wednesday, clearing a major hurdle for reuniting two modernized parts of the old Ma Bell phone monopoly that the government broke up in 1984.

The decision leaves the Federal Communications Commission as the final hurdle for a $78.5 billion deal to create the nation's biggest provider of phone, wireless and broadband Internet services.

The FCC is scheduled to vote on the matter Thursday, though there's been speculation the agency may hold off because of political pressures from Congress about the deal's possible impact on market competition.

If the deal wins final government approval, the merger would give San Antonio-based AT&T Inc. total control over the nation's largest cellular provider, Cingular Wireless, a joint venture of the two phone companies that serves 57.3 million customers.

"After thoroughly investigating AT&T's proposed acquisition of BellSouth, the antitrust division determined that the proposed transaction is not likely to reduce competition substantially," said Assistant Attorney General Thomas O. Barnett, who heads the department's antitrust division.

Though the FCC has the final say in approving the merger, the Justice Department said it coordinated with the FCC throughout its investigation.

In a statement praising the Justice decision, BellSouth said, "We look forward to getting approval from the Federal Communications Commission in the very near future."

The merger has raised concerns from consumer advocates and federal lawmakers who claim the government is well on its way to reconstituting the old Ma Bell monopoly, which was broken up in 1984 after a lengthy court battle.

The House Judiciary Committee's chairman, Rep. James Sensenbrenner, R-Wis., and other members of Congress had asked that the deal not be allowed to go through until details related to two previous telecommunications mergers are settled and other concerns are addressed.

Barnett said the Justice Department looked at all areas where AT&T and BellSouth currently compete, including local and long distance phone and Internet service for residential and business customers. It also examined the merger's impact on future competition for wireless broadband service.

Justice Department lawyers concluded that with other competitors in the marketplace, combined with changing regulatory rules and new emerging technology, the merger was unlikely to hurt consumers, Barnett said.

Instead, he said, the merger "would likely result in cost savings and other efficiencies that should benefit consumers."

The outcome at the FCC was far from certain. Republican Chairman Kevin Martin circulated an order recommending approval of the merger last month and probably will receive support from fellow Republican commissioner Deborah Taylor Tate.

However, the two Democrats on the commission, Jonathan Adelstein and Michael Copps, are expected to ask that conditions be placed on the deal.

That leaves Robert McDowell, the third Republican on the commission, who before joining the FCC lobbied in favor of competitors to companies like AT&T and BellSouth. McDowell has said he is proceeding as though he is recused from the case.

The combination of San Antonio-based AT&T and Atlanta-based BellSouth would create a company of 300,000 employees with operations in 23 states. AT&T estimates that about 10,000 redundant jobs would be phased out over three years.

The Justice Department decision came just seven months after AT&T announced its intentions on March 5 to buy BellSouth — a breakneck pace for a merger of its size and scope.

Combined, the companies generate $117 billion in revenue, operate 68.7 million local phone lines across 22 states stretching coast to coast across the southern United States and up through the Midwest. The merged company would employ 309,000 people, though AT&T said it plans to eliminate up to 10,000 jobs over three years to cut costs.

The deal will further the reunification of the Baby Bells, the seven regional telephone operators and one long-distance provider that were spun off from the national AT&T monopoly under a federal court order designed to introduce competition.

Including BellSouth, the new AT&T would consist of four Baby Bells and the long-distance business, which was acquired by the company late last year. The other two Bells are Verizon Communications Inc. (VZ), which dominates the eastern United States, and Qwest Communications International Inc. (Q), the phone company for most of the Rocky Mountain and Northwest regions.

With cable TV companies now selling phone services, AT&T and many industry experts argue that the loss of an independent BellSouth won't mean a sharp jump in prices charged to consumers and businesses. But some critics argue that past mergers have hurt competition.