(BNA) AT&T-BellSouth Merger Approved After Controversial Net Neu trality Concession

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AT&T-BellSouth Merger Approved After Controversial Net Neutrality Concession
2007-01-03 16:06:25.0 GMT

AT&T-BellSouth Merger Approved After Controversial Net Neutrality Concession

By Cheryl Bolen
(BNA) -- AT&T won approval Dec. 29 from the Federal Communications Commission to merge with
BellSouth, but not before making a controversial concession to adhere to strong net neutrality
requirements for the next two years.
The two-year term of the agreement should give policymakers in Congress and the FCC enough time
to come up with a permanent net neutrality policy that reflects the significant agreements AT&T has set
out, commented Gigi Sohn, founder and president of Public Knowledge, a public interest advocacy
organization.
In stark contrast, FCC Chairman Kevin Martin made clear that the net neutrality requirements agreed
to by AT&T in no way bind the commission and that he will oppose such policies going forward.
$85 Billion Merger
The $85.8 billion merger of AT&T and BellSouth, which includes total control of the wireless company
Cingular, will result in the largest telecommunications company in the United States. Its closest
competitor is Verizon, headquartered in New York.
Approval from the FCC did not come easy to AT&T, which first announced its plans to merge with
BellSouth in March. A vote on the merger was postponed three times, followed by a setback when FCC
Commissioner Robert McDowell, a Republican, disqualified himself from the proceeding (9 MALR 1029,
12/25/06).
Thus, the companies were left to win over the commission's two Democrats in order to gain FCC
approval. In the end, the two Democrats concurred with the merger order, meaning they did not
object, but had concerns nonetheless.
Net Neutrality Backers Claim Victory
The key concession made by AT&T was a commitment to provide a neutral network and neutral
routing of Internet traffic through its wireline broadband network for two years from the merger
closing date or on the effective date of any legislation enacted by Congress, whichever occurred earlier.
However, AT&T stated that the commitment would not apply to its Internet Protocol-based television
service (IPTV) or the managed IP services that it provides to business customers, such as virtual private
networks.
By promising not to offer any service that privileges, degrades, or prioritizes any packet transmitted
over AT&T/BellSouth's wireline broadband Internet access service based on its source, ownership, or
destination,' AT&T has agreed to essential net neutrality principles, Sohn said.
This merger agreement is a milestone that may one day be remembered as an important moment in
Internet history, said Tim Wu, professor at Columbia University Law School and a charter member of

the SavetheInternet.com Coalition. Most notable is the agreement's striking inclusion of the first strong
network neutrality language yet seen in any broadband regulations, he said in a statement.
AT&T capitulated to supporters of an open and neutral Internet, said Ben Scott, policy director of
Free Press, a public interest advocacy organization. The agreement once and for all puts to rest the
bogus argument that no one can define net neutrality. The FCC just did it, and the sky hasn't fallen.
The conditions placed on this merger will show irrefutably that net neutrality and phone company
profits are not mutually exclusive, he stated.
Rep. John Dingell (D-Mich.), the incoming chairman of the House Energy and Commerce Committee,
said he was pleased that an agreement had been reached. At the same time, I have significant concerns
over the process followed at the FCC during these final weeks, and believe that such process may be
suitable for committee review.
Martin Blasts Concession
Although AT&T voluntarily agreed to abide by the net neutrality requirements as a way to win
Democratic votes for the merger, Martin and fellow FCC Republican Deborah Tate expressed serious
concerns.
These conditions are simply not warranted by current market conditions and may deter facilities
investment, Martin and Tate said in a joint statement. Accordingly, it gives us pause to approve lastminute remedies to address the ill-defined problem net neutrality proponents seek to resolve.
Importantly, however, while the Democrat commissioners may have extracted concessions from
AT&T, they in no way bind future commission action. Specifically, a minority of commissioners cannot
alter commission precedent or bind future commission decisions, policies, actions, or rules, Martin and
Tate wrote.
Thus, to the extent that AT&T has, as a business matter, determined to take certain actions, they are
allowed to do so.
There are certain conditions, however, that are not self-effectuating or cannot be accomplished by AT&T
alone. To the extent commission action is required to effectuate these conditions as a policy going
forward, we specifically do not support those aspects of the conditions and will oppose such policies
going forward, Martin and Tate stated.
In addition to the net neutrality concession, AT&T agreed to a lengthy list of conditions in order to
win approval from all the FCC commissioners. The 11-page list was submitted to the FCC on Dec. 28.
Among the concessions made by AT&T was the repatriation of 3,000 outsourced jobs to the United
States by Dec. 31, 2008.
Also, AT&T agreed to offer broadband service to 100 percent of its entire combined service territory
by Dec. 31, 2007; free broadband equipment; $10 per month broadband service for new customers; a
limited build-out plan for its new IP video service; and a freeze on rates for unbundled network
elements. For a period of four years, AT&T said it would freeze rates for high-capacity special access
services.
The company also agreed to divest all of BellSouth's spectrum holdings in the 2.5 GHz band within
one year of the merger closing date. In addition, the company agreed to offer service within the 2.3 GHz
band to one-quarter of the population in its combined service territory by July 2010.
IPTV: Information or Cable Service?
After further consideration, Sohn issued a second statement that pointed to a potential loophole in
AT&T's net neutrality commitment. In the past, AT&T has claimed that its IPTV video service is not a

cable service, and not subject to proposed legislative mandates that would apply to cable, such as a
build-out requirement, Sohn said.
Now, AT&T should not be allowed to claim that IPTV is a cable service, not a data service, and
attempt to circumvent the net neutrality conditions that apply to every other aspect of its Internet
services. Congress, not an AT&T sleight of hand maneuver, should ultimately decide whether net
neutrality should apply to cable and video services, Sohn said.
There are two issues at play here, a spokesman explained.
One, AT&T should not be allowed to call any traffic it wants IPTV and thereby avoid the net neutrality
commitment contained in the merger order. Two, AT&T should clarify generally whether its IPTV service
is an information service subject to net neutrality obligations, or a cable service subject to video
franchise requirements.
FCC Commissioner Michael Copps, a Democrat, said in a statement that AT&T had agreed to abide by
the commission's four broadband policy principles that it adopted in August 2005, as well as the
important fifth principle that requires the company to maintain a neutral network and neutral routing
of Internet traffic.
The company is prohibited from privileging, degrading, or prioritizing any packets along this route
regardless of their source, ownership, or destination. This obligation is enforceable at the FCC and is
effective for two years, Copps said.
Copps added that while he would have preferred a longer commitment than two years, it is in my
view sufficient to allow Congress to take longer-term network neutrality action if it chooses to do so.
A spokesman for the Its Our Net Coalition also commended the agreement. We look forward to
working with Congress to enact legislation in the new year ensuring that all network operators similarly
commit to guaranteeing consumers access to an open Internet free of discrimination.
For More Information
A summary of the FCC's order and a copy of AT&T's merger commitments may be found at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-269275A1.pdf.
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