[Infowarrior] - AT&T Completes BellSouth Takeover After 4-0 FCC Vote (Update2)

[Richard Forno]

AT&T Completes BellSouth Takeover After 4-0 FCC Vote (Update2)
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6kTkXvAtGqY&refer=home

By Christopher Stern and Molly Peterson

Dec. 29 (Bloomberg) -- AT&T completed its $86 billion purchase of BellSouth
Corp. after federal regulators cleared the way for the U.S. telephone
industry's biggest takeover ever.

The 4-0 vote today by the U.S. Federal Communications Commission followed
AT&T's offer of concessions to appease the agency's two Democrats, who held
up the deal. Those included a pledge to offer low-cost Internet service and
a promise to provide companies such as Google Inc. equal network access.

The acquisition cements AT&T's position as the dominant U.S. supplier of
local, long-distance and wireless phone service, as well as the
second-largest provider of fast Internet access. San Antonio-based AT&T will
serve more than 35 million residential customers in 22 states and gain full
ownership of Cingular Wireless LLC.

``You're reassembling the old AT&T in 22 states,'' said Earl Comstock, chief
executive officer of Comptel, a Washington- based group that represents
competing phone companies. While praising the commissioners who pushed for
concessions, he questioned whether they go far enough.

Shares of AT&T advanced 25 cents to $35.75 at 4 p.m. in New York Stock
Exchange composite trading to their highest level in more than four years.
Atlanta-based BellSouth rose 31 cents to $47.11 and have gained 74 percent
this year.

FCC approval came less than 24 hours after AT&T agreed to conditions
including price cuts for large businesses and the divestiture of airwaves
that can be used for wireless broadband Internet service. The conditions
expire in two to four years.

`Historic Merger'

``We got more concessions to protect consumers than anybody thought possible
when this got started,'' FCC Commissioner Jonathan Adelstein, one of the
agency's two Democrats, said today in an interview. ``It's a historic
merger, and it needed the historic conditions that we were able to attach.''

FCC Chairman Kevin Martin, along with his Republican colleague Deborah
Taylor Tate, issued their own statement after the vote, highlighting the
differences on the commission.

``Some of the conditions impose burdens that have nothing to do with the
transaction, are discriminatory, and run contrary to commission policy and
precedent,'' Martin and Tate wrote.

The concessions ended a three-month stalemate between Martin, Tate and the
panel's Democrats, Adelstein and Michael Copps, who demanded price controls
and the other restrictions.

New Proposals

AT&T's proposals went beyond ones offered in October and underscored the
company's drive to extend its dominance in traditional and wireless phone
service. AT&T also promised to repatriate 3,000 BellSouth jobs now outside
the U.S. and pledged 200 jobs for New Orleans.

BellSouth is the dominant local phone company in nine southern states,
providing AT&T with broader reach not only for its wireline and wireless
phone businesses but also for the fledgling U-verse television service that
is designed to compete with cable TV companies.

AT&T said today advertising to adopt the AT&T name for BellSouth would begin
in days and the company plans a similar transition for Cingular next year.

Adelstein and Copps gained leverage in seeking tougher conditions after the
fifth commissioner, Republican Robert McDowell, said he would abstain from
voting because of his past work as a lobbyist for smaller phone companies.

Under terms of the deal, AT&T agreed to cap prices on large capacity
telecommunications lines that provide phone and data services for large
businesses for four years. In addition, the company agreed to cut prices on
some lines that had been deregulated during the late 1990s.

Divestitures

AT&T also will divest some wireless licenses in BellSouth's nine-state
region. The licenses cover airwaves suitable for high-speed Internet access.
Atlanta-based Cingular, co-owned by AT&T and BellSouth, is the biggest U.S.
mobile services company.

The purchase caps a 17-year spending spree that led AT&T Chief Executive
Officer Ed Whitacre, 65, to the top of the U.S. telephone industry. As head
of the former SBC Communications, Whitacre ran the smallest of the seven
local-phone companies or Baby Bells created from the 1984 breakup of AT&T.

Along the way, SBC purchased Pacific Telesis Group for $16.5 billion in
1997, and a year ago acquired AT&T Corp., the largest U.S. long-distance
service, also for $16.5 billion. Whitacre renamed his company AT&T Inc.

With today's takeover, three of the seven local phone companies remain:
AT&T, Verizon Communications Inc. and Qwest Communications International
Inc.

`Network Neutrality'

In a bow to backers of ``network neutrality,'' AT&T agreed to refrain from
charging companies such as Google premium fees for faster subscriber access.
Neutrality supporters have urged Congress not to let phone companies charge
higher fees for faster service, which they liken to tolls on the Internet.

The transaction won unconditional approval from the Justice Department and
18 states.

AT&T's 5.1 percent notes maturing in September 2014 fell 0.67 cent to 96.70
cents on the dollar today to yield 5.63 percent, according to Trace, the
bond reporting system of the NASD. BellSouth's 5.2 percent notes due in
September 2014 rose 2.09 cents to 99.30 cents to yield 5.31 percent.

The cost of credit-default swaps based on $10 million of AT&T debt was
little changed at $8,280 today, according to prices compiled by Bloomberg.
The price is down from as high as $40,000 in January. The contracts are
financial instruments based on corporate bonds and loans that are used to
speculate on a company's ability to repay debt. A decrease indicates
improving credit quality.

BellSouth investors will get 1.325 AT&T shares for each they now own,
representing an 18 percent premium based on the companies' stock prices on
March 3, the last trading day before the deal was announced. While that put
the value of the acquisition at about $67 billion, AT&T shares have risen 28
percent since then.

To contact the reporters on this story: Christopher Stern in Washington at
Cstern3 at bloomberg.net ; Molly Peterson in Washington at
mpeterson9 at bloomberg.net
Last Updated: December 29, 2006 19:34 EST