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FCC Chair Moves to Break AT&T Deadlock

Declaring an "impasse" on AT&T's proposed acquisition of BellSouth , Federal Communications Chairman Kevin Martin cleared the way Friday for a commissioner who had disqualified himself from the deliberations to break the deadlock.

Martin asked the FCC's general counsel to "consider whether the government's interest would be served" by permitting Commissioner Robert McDowell to vote on the $81.6 billion deal, according to a letter sent to members of the congressional committees that oversee the agency.

McDowell, one of three Republicans on the five-person commission, had recused himself because he is a former lobbyist for a trade group that opposes the merger.

Without McDowell, the vote has been deadlocked at 2-2, with Martin and another Republican appointee favoring approval of the deal, and the two Democrats demanding the companies offer additional concessions to ensure it doesn't harm consumers.

The Antitrust Division of the Justice Department cleared the deal on Oct. 11, declaring that there were no competitive concerns and opting not to require the combined company to divest any assets or make any other concessions. The proposed takeover, the biggest in U.S. telecommunications history, also has been approved by regulators in 18 states, leaving the FCC as the final hurdle.

The FCC's press office did not immediately respond to a phone call seeking comment.

In his letter, Martin wrote, "Despite working for months to reach consensus with my colleagues, three attempts over the past six weeks to have this item considered at an open meeting, and countless hours of internal deliberations, the commission has reached an impasse."

McDowell issued a short statement saying he looks forward to the general counsel's analysis "regarding my potential participation."

Both Democrats harshly criticized the move Friday night.

Michael Copps said allowing McDowell to vote would be "taking a mulligan" and "starting over with a changed set of players." He said the move would "create more problems than it resolves" and "short circuit discussions, and very likely shortchange consumers."

Commissioner Jonathan Adelstein said the decision "appears to be an effort to cut short the dialogue about measures to safeguard choice and competition for consumers and to promote affordable broadband services."

McDowell once worked for the trade association COMPTEL, which represents companies that compete with AT&T and the other regional Bell phone companies. Federal ethics regulations permit the FCC's general counsel to clear McDowell to vote as long as the "interest of the government in the employee's participation" outweighs any concerns about how the vote may affect the agency's integrity.

Though Martin is calling in a Republican ally in McDowell, the chairman still faces a difficult situation in seeking to get the deal approved without irking the new Democratic majorities in the Senate and House.

"There is some belief that the two Democrats will have more incentive to cut a deal with the Republicans once Mr. McDowell is activated, and that the Republicans would still prefer a bipartisan agreement in order to avoid the political storm," Blair Levin, an industry analyst for Stifel Nicolaus, said in a note to investors before Martin's request late Friday afternoon. "Others think that once Mr. McDowell is involved, it would become difficult to reach such an accord, inviting a 3-2 vote along party lines."

Levin predicted a 3-2 vote as the more likely outcome, saying, "If Mr. McDowell does participate, we continue to expect that he would seek some sort of compromise, though with a tilt toward Chairman Martin's positions in general."

It is unclear how long it will take for the general counsel to reach a determination on whether McDowell should be allowed to vote. The commissioner, who has declined to participate in any conversations about the pending deal, would need time to get up to speed, if he participates.

The next FCC meeting is scheduled for Dec. 20.

AT&T's acquisition of BellSouth, first announced in March, would create the nation's largest provider of traditional phone, Internet and cellular services. The combined company would generate $117 billion in revenue and operate across 22 states stretching coast to coast across the South and up through the Midwest.

Opponents of the deal are seeking caps on the rates that rivals have to pay to serve businesses using AT&T's local lines. Consumer groups and competitors also want the FCC to force AT&T to divest unused wireless spectrum unless it plans to use it.

Others are seeking pledges that AT&T not discriminate against certain kinds of Internet traffic and offer reasonably priced high-speed Internet service without requiring customers to buy phone service.

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