SBC/AT&T merger: Full steam ahead


While a number of hurdles remain, SBC and AT&T are looking at a rather smooth merger process thus far.

As of last week, only seven states that can approve or reject the $16 billion merger had yet to weigh in. Twelve states require only formal notification about such a merger, and a few such as Texas do not require even that much.

California, the latest state to approve the deal, did include a condition. The state asked for a one-year price freeze for phone services purchased by other service providers from AT&T.

The deal also has received approvals from Australia, Austria, Estonia, Germany, Israel, Norway, Pakistan, Russia and South Africa.

SBC says the merger does not require European Union approval, even though AT&T is a sizable telecom service provider throughout Europe. A formula based on revenue generated in each country determines whether approvals are required, SBC says, and SBC does not meet those thresholds.

AT&T shareholders approved the merger in June, with 98% who voted going along. The carrier says those voters represent more than 70% of all AT&T shareholders.

"We remain confident that the merger will close in a timely manner in line with previous projections," AT&T President and CEO David Dorman said last week.

Officials from both companies have been saying the merger will close toward year-end or in early 2006.

"We now have cleared regulatory hurdles with two-thirds of the states and foreign governments, and we expect additional approvals in the weeks ahead," Dorman said at a second-quarter earnings press conference. "We continue to work closely with both the FCC and [the Department of Justice] to address their questions and gain all other regulatory approvals as quickly as possible."

SBC echoes Dorman's enthusiasm.

"We are extremely pleased at the pace and progress of merger proceedings. We remain confident of completing the process late this year," says Wayne Watts, associate general counsel at SBC.

Merger moving alongApprovals still lacking in:
SBC and AT&T still need approval in seven states, plus the Justice Department and the FCC.Arizona
New Jersey
New York
West Virginia

While state and foreign approvals have been coming through relatively easily, the FCC and Justice Department approvals could include more conditions. In areas where both companies own local infrastructure the federal agencies will likely require the divestiture of assets, says Lisa Pierce a vice president at Forrester Research. "Verizon and MCI will have similar stipulations," she adds.

But so far, no approval stipulations have been made public by either agency.

Pierce also points out that the Justice Department still does not have an assistant attorney general for its antitrust division. In June, Thomas Barnett became the acting head of the antitrust division. "I don't see how something of this magnitude could get through without a permanent appointment," Pierce says.

Not everyone is thrilled with the pending mergers between SBC and AT&T, and Verizon and MCI. The Consumer Union, Consumer Federation of America, U.S. Public Interest Research Group and the National Association of State Utility Consumer Advocates all have submitted comments to the FCC urging the agency to reject the mergers. These groups believe the mergers will decrease competition and ultimately result in higher telecom costs for consumers.

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