US DOJ sets conditions for Verizon, SBC acquisitions

Other telecom carriers and consumer groups said two mergers will drive up prices

WASHINGTON - The U.S. Department of Justice (DOJ) has approved two major telecommunications mergers, with Verizon buying MCI and SBC buying AT&T, but will require the two merged telecom giants to divest some fiber-optic network facilities, the DOJ said Thursday.

The acquisitions, as originally proposed, would have caused higher prices for some business customers in eight metropolitan areas in Verizon's territory and 11 metropolitan areas in SBC's territory, the DOJ said.

But the agency also seemed to reject arguments made by some other telecom carriers and consumer groups, who said the two mergers would drive up prices for most customers. The DOJ's investigation found that the acquisitions are "likely to generate substantial efficiencies that should benefit consumers," the agency said in a press release.

The four companies applauded the DOJ's actions. The proposed settlement will result in no disruption to MCI customers, according to a Verizon statement.

"The Justice Department has a comprehensive view of the state of the communications industry, and its decision reflects a fair and impartial determination that, with these narrowly tailored conditions, the merger of SBC and AT&T will not harm competition,” said James Ellis, SBC senior executive vice president and general counsel, in a statement.

The DOJ on Thursday filed civil lawsuits in U.S. District Court for the District of Columbia to block the acquisitions. At the same time the agency filed proposed settlements that would resolve the DOJ's concerns.

The two acquisitions also need approval from the U.S. Federal Communications Commission (FCC) and a handful of states. The FCC is scheduled to discuss the mergers at a meeting Friday morning.

SBC Communications Inc. announced in January a plan to acquire AT&T Corp. in a stock deal worth about $16 billion. After a bidding war starting in February, MCI Inc.'s board in May approved a bid of about $8.4 billion from Verizon Communications Inc.

The DOJ complaint says Verizon Communications Inc. and MCI Inc. are the only two firms that control a direct wireline connection to hundreds of buildings in the metropolitan areas of Washington-Baltimore; Boston; New York; Philadelphia; Tampa, Florida; Richmond, Virginia; Providence, Rhode Island; and Portland, Maine. The merger would eliminate competition for facilities-based private-line service supplying voice and data services to those buildings, the DOJ said.

Similarly, SBC Communications Inc. and AT&T Corp. are the only two firms that control a direct wireline connection to some buildings in the metropolitan areas of Chicago; Dallas-Fort Worth; Detroit; Hartford-New Haven, Connecticut; Indianapolis; Kansas City, Missouri; Los Angeles; Milwaukee, Wisconsin; San Diego; San Francisco-San Jose; and St. Louis.

Under the terms of the settlements, Verizon and SBC must each divest connections to more than 350 buildings to a single buyer in each city. The carriers would generally use long-term leases common in the telecom industry called indefeasible rights of use or IRUs.

Earlier this month, six communications companies joined the Ad Hoc Telecommunications Users Committee, representing high-volume business customers, in calling for a range of conditions to be placed on the mergers. The group, including MCI suitor Qwest Communications International Inc. and XO Communications Inc., asked the FCC to require, among other things, the two merged companies to reduce rates for high-speed DS1 and DS3 circuits by 50 percent, and to allow AT&T and MCI customers to void their contracts without paying a penalty.

A spokesman for XO and other companies calling for conditions didn't have an immediate comment on the DOJ's actions.

In March, consumer advocacy group Consumers Union and think tank the American Antitrust Institute announced opposition to the mergers, saying the two deals will raise prices and squeeze out smaller competitors.

Copyright © 2005 IDG Communications, Inc.

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