Newly formed company agrees to network neutrality for two years; special access term already contentious

The FCC approved the merger between AT&T and BellSouth on December 29, 2006, by a 4-0 vote. Commissioner McDowell chose not to participate in the vote because he had represented local phone companies before joining the FCC. AT&T and BellSouth were eager to close the merger, and after the Department of Justice approval in October 2006, FCC approval was the last major hurdle.

After months of negotiations and a party-line split among commissioners, AT&T sent a letter to the agency agreeing to certain conditions. The FCC approval came just one day later, incorporating AT&T's concessions. The conditions include AT&T/BellSouth's commitments to observe the FCC's net neutrality principles for two years, with the exclusion of IPTV and broadband Internet access service; make broadband Internet services available throughout its residential territories by December 31, 2007; expand AT&T U-verse Internet protocol television service to BellSouth territory; provide special access offerings on equal terms to its wireline affiliates and other similarly situated special access customers; and divest 2.5 GHz of wireless spectrum.

AT&T proposed concessions in October to expedite the merger process, but they were rejected. AT&T's senior vice president for regulatory affairs, Robert W. Quinn, Jr., said that the conditions that were finally accepted were "significantly more extensive than those first offered by the company."

The special access terms of the merger have already become a point of contention. Under the merger agreement, AT&T is required to file an amended tariff that reduces its wholesale special access prices for DS1, DS3 and Ethernet services to some, but not all, companies. Certain carriers do not qualify for these rates unless they also lower their rates in their respective regions. These carriers, which include Verizon and Qwest, have already expressed their disagreement.

The $85 billion merger is one of the largest mergers in history. The merged company of AT&T and BellSouth will have operations in 22 states. The combination of these two companies will also result in 100 percent ownership of Cingular Wireless, the largest wireless operator in the U.S. The newly-formed company stated it will use this opportunity to provide content over television, PC and wireless handsets.

TIA is pleased that the FCC and the companies were able to come to agreeable terms and hopes the merger will increase investment in TIA member products and services and benefit the telecommunications industry as a whole. For further information, contact Danielle Jafari at (703) 907-7734 or email at djafari@tiaonline.org.

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On December 19, 2006, the Public Company Accounting Oversight Board (PCAOB) voted unanimously to propose for public comment whether to replace the current auditing standard, AS2, with Auditing Standard 5 (AS5). AS2 resulted from the Sarbanes-Oxley Act of 2002's mandate for an auditing standard over financial reporting. The proposed standard, AS5, would increase the focus on corporate managers and limit oversight to only the material risks in a company's financial report, resulting in a more economically feasible and less burdensome standard. Importantly, the proposed standard would extend the compliance deadline for non-accelerated filers until spring of 2009 at the earliest. TIA approves of the PCAOB ruling and believes the new audit standard would bring the compliance relief long advocated by its members. For further information, contact Daniel Jafari at (703) 907-7734 or email at djafari@tiaonline.org.

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TIA applauded the FCC's decision on December 20, 2006 to remove barriers to entry into the video franchise market on a nationwide level.

TIA has long urged the FCC to impose uniform requirements on local franchise authorities (LFAs) to minimize the adverse effects of the existing local franchise process. TIA believes the commission's decision is consistent with its momentum toward the deregulatory framework necessary to increase broadband deployment to all Americans.

Through its comments and ex partes in this docket, as well as reply comments through the High-Tech Broadband Coalition (HTBC), TIA has continued to argue that the local franchise process has acted as a regulatory barrier to entry that impedes timely investment in new facilities and capabilities. Such regulatory barriers can discourage investment, and, as a result, stifle innovation and competition. "Our industry believes that today's FCC decision will be of great benefit to consumers and to the economy by increasing both broadband deployment and competition in the video programming market," said former TIA President Matt Flanigan.

In its order, the FCC preempts local authority in regard to behavior on the part of LFAs that amounts to an "unreasonabl[e] refus[al] to grant a competitive franchise," under Section 621 of the Telecommunications Act of 1996. The order expressly preempts local authority, as well as state/local playing field provisions, but does not preempt statewide regimes.

"TIA member companies, consumers and businesses will see positive results from the FCC's decision to remove barriers to entry into the video services market, because this regulatory move can spur innovation, investment and the deployment of broadband," Flanigan added. "[This] action by the FCC was an additional step in the right direction, and we applaud the commission for its forward-looking approach."

For further information, contact Danielle Jafari at (703) 907-7734 or email at djafari@tiaonline.org.

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