As 2006 closed, so too did the long-anticipated AT&T acquisition of BellSouth. We should note that we have previously supported this acquisition and don’t consider it anticompetitive.

The deal had been in regulatory limbo because the FCC had been unable to achieve a majority vote on what concessions (if any) AT&T would need to make in to order to assure a post-acquisition competitive environment. AT&T agreed to several concessions, many of which affect convergence.

The first concessions were around the company’s DSL offers. First, AT&T agreed to “unbundle” its DSL service in its 22-state local service area for a period of 30 months so that customers don’t have to buy a voice service to get a 768Kbps circuit for $19.99. Second, the company agreed to offer broadband Internet access (using a variety of technologies that may include satellite access) to 100% of its service area by 2007 - up from just under the 80% DSL availability AT&T disclosed in 2006.

We believe these concessions will benefit consumers, competitors, and AT&T. Consumers who want to buy their principal voice service voice from a third-party VoIP supplier like Vonage will now be able to do so over an AT&T DSL line without paying for AT&T’s voice service. And AT&T will be able to offer a “triple play” without the wireline voice component — serving customers who may want all their voice services delivered to a mobile handset from companies like Cingular. (Note that after the acquisition, AT&T now owns all of Cingular since BellSouth was also a part owner of the company.)

The second concession was on ‘Net neutrality. AT&T also agreed to keep its Internet connections “neutral” except for its own IPTV offer. Our take is that this isn’t such a big concession for AT&T because it may take 30 months for AT&T to put in place the necessary QoS infrastructure to its residential customers before AT&T can differentiate IP sessions based on the packet’s endpoint destination. The company will also need to get agreements in place with other IP service providers before it could guarantee a specific IP packet preferential treatment if the packet leaves the AT&T IP network.

So all in all, AT&T didn’t really lose out with its concessions and in fact the concessions will benefit consumers and may benefit those who support ‘Net neutrality for the next few years.

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