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December 18, 2006

No FCC vote on $85bn AT&T-BellSouth deal

The sole US regulator who could vote to break a deadlock over approval conditions on AT&T Inc's proposed $85bn acquisition of rival BellSouth Corp has refused to do so because of potential ethical concerns.

By CBR Staff Writer

US Federal Communications Commission member Robert McDowell, a Republican, had previously worked as an industry lobbyist and said he, therefore, did not feel comfortable voting on the proposed mega merger.

McDowell had previously withheld his vote, but on December 1 FCC chairman Kevin Martin urged the agency’s general council to rule on whether McDowell should cast a tiebreaking vote. While the general council ruled it would be in the government’s interest for McDowell to vote, he also said McDowell could not be compelled to do so.

The two other Republican and two Democratic FCC commissioners had reached an impasse on sanctioning the deal.

McDowell said he had urged his FCC colleagues to negotiate in good faith – sadly, to no avail. It appears that the lingering question of my involvement is being used as yet another excuse for delay and inaction, he said, in a statement.

The FCC’s approval is the last regulatory hurdle AT&T needs to close the acquisition, which it first announced on March 5. The companies had hoped to close the deal by year’s end.

When McDowell was appointed an FCC commission, in early February, he was an SVP and assistant general counsel at Comptel, a trade group representing smaller telecom outfits and many that competed against AT&T and BellSouth. McDowell left Comptel to join the FCC. However, one month later, the trade group announced its opposition to the AT&T-BellSouth merger a day after it was announced.

McDowell noted that the conflict of interest he would bring to the FCC in deciding the fate of the merger was the primary topic of his March 9 confirmation hearing. McDowell noted that, at the time, he pledged the highest of ethical standards and that to now vote on the deal would be inappropriate.

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Chairman Martin issued a short statement of his own, saying he would continue to try to work with my colleagues to bring our consideration of this merger to conclusion.

The deadlock is over specific merger conditions. The commission’s Democrats want price controls, while the Republicans do not. The issue of airwave-license sales also is being debated.

Comptel also has urged the FCC to impose tougher conditions than what AT&T has proposed as part of the deal.

San Antonio, Texas-based AT&T is the largest telephone company in the country. If it is successful in buying Atlanta, Georgia-based BellSouth, which is the third-largest, it would expand AT&T’s local phone service footprint to 22 states.

The jewel in AT&T’s crown would be full control of Cingular Wireless LLC, the biggest mobile-phone carrier in the US, which currently is a joint venture between AT&T and BellSouth.

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