Possible Conditions on the AT&T-Bell South Deal

The AT&T-Bell South deal will be approved, that much is certain. After approving the previous deal between T & SBC, regulators know it would be silly to oppose T’s deal for Bell South. The two firms don’t compete directly and the combination could offer significant scale economies as the telcos continue to dig in for full-fledged trench war with cable operators. On those grounds alone, the deal will get through. The only real question is: What conditions might regulators impose on the deal?

While the so-called “consumer groups” will ask for a litany of restrictions, I want to address just three here:

(1) Wireline – Wireless Separation: Once opponents of the deal come to grips with the fact that this deal is going to go through, I wouldn’t be at all surprised to see their opening salvo be a request for a line-of-business separation between the firm’s wireline and wireless networks / assets. Once T & BS combine, jointly operated Cingular wireless would come under one roof. That makes a great deal of sense from a business perspective, but consumer groups will claim that it eliminates the threat of wireless competition in AT&T’s big geographic footprint. This is nonsense, of course. There’s plenty of competition from other existing wireless telephone firms and satellite (video-delivery) operators such as DirecTV and EchoStar. That’s a strong check on T’s pricing power. Moreover, line-of-business restrictions or divestiture requirements are falling out of favor in Washington these days, and rightly so. In a world in which consumers expect to be offered a complete bundle of communications (wireline and wireless) services, video programming, and broadband connections, structural separation would be remarkably counter-productive and anti-consumer. And it wouldn’t be fair to deny AT&T the right to bundle their own wireless service while others in the cable industry are doing so.

(2) Rate freezes: As is always the case, there will be calls for at least temporary price controls on various aspects of service. I don’t really feel the need to get into an extended discussion of the insanity of price regulation and, luckily, I think most regulators are increasingly coming to see that controlling prices is a fool’s errand. So, I doubt any serious conditions will be imposed on this front, but you never know.

(3) Net neutrality mandates: This is the most likely condition to make it through. Indeed, with Net neutrality the most popular regulatory mandate du jour in policy circles today, I will go ahead and make two “no-duh” predictions: (a) the Net neutrality provisions imposed on the previous AT&T deal with SBC will be rolled onto the T-BS deal (and possible extended in some fashion); and, (b) this will seal the deal on Capitol Hill for a formal legislative Net neutrality mandate in any piece of legislation that advances this year or next.

For that last reason, somewhere in cable-land right now, cable CEOs are cursing AT&T. Thanks to T’s imperial ambitions, both telco and cable operators are now going to face an ambitious new regulatory regime for their broadband offerings. Welcome to the world of common carriage regulation for the Internet!

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