Justice Department OKs AT&T-BellSouth Deal

The Justice Department approved AT&T's buyout of BellSouth Corp. 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.

Approval would raise concerns from consumer advocates who claim the government is well on its way to reconstituting the old Ma Bell monopoly, which was broken up after years of fighting in the early 1980s.

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.

The outcome at the FCC was far from certain. Republican Chairman Kevin Martin circulated an order recommending approval of the deal 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. The deal, originally worth $67 billion, has climbed 17 percent in value as AT&T shares have risen in that time. Under the agreement, AT&T is also assuming $22 billion in BellSouth debt.

AT&T is already the largest telecommunications company in the United States, reporting $62 billion in revenue in 2005 and serving customers in Texas, California and the Midwest. BellSouth provides service to nine states in the Southeast and reported $34 billion in revenue in 2005.

Both companies say the combination would help eliminate challenges they now face in their dual management of Cingular Wireless, 60 percent of which is owned by AT&T and the rest by BellSouth.

But critics charge the deal would reduce competition and drive up prices in the telecommunications industry.

Two consumers groups — Consumers Union and the Consumer Federation of America — had urged the Justice Department to block the deal, warning that increasing consolidation in the telephone industry would boost the prices for local, long-distance and cell phone services. Moreover, they argued, limited choices for phone service — dovetailing with a similar merger trend in the cable industry — threatens a reduced variety of broadband Internet services available to consumers.

BellSouth has struggled with recovering from equipment damage and disruptions to its customer base inflicted by Hurricane Katrina. The 2005 storm destroyed 11 of the company's central offices, downed 18,000 telephone poles and incurred costs to BellSouth of up to $900 million.