IP Democracy: Still No Approval for AT&T-BellSouth Merger

Business Week’s Steve Rosenbush has this piece about the continued delay faced by AT&T and BellSouth in getting their merger deal approved by the FCC. With the big Democractic sweep of Congress, getting a thumbs-up vote on the deal is even more problematic.

Representative John Dingell (D-MI), slated to head the House Energy and Commerce Committee next Congress, is giving the telcos a hard time. Incoming Senate Commerce Chairman Daniel Inouye (D-HI) has said he wants to drag things out until his committee has had a chance to look at the deal.

And even though the FCC is still dominated by Republicans, one commissioner, Robert McDowell, has recused himself under conflict of interest concerns that stem from his past job lobbying for small and independent telcos. That’s left the FCC deadlocked on the deal with two Democrats opposed to the deal with no tough conditions and two Republicans in favor of the deal with no conditions at all, or with conditions that AT&T can accept.

It’s possible that McDowell could be ordered to vote by the FCC’s General Counsel, but given his past job working for AT&T’s foes, it’s not clear that McDowell will tow the party line. In other words, the merger approval is still in limbo.

Worse, Rosenbush offers some calculcations that show how the deal has become even more expensive over time. What had been a deal valued at $67 billion is now valued at $79.3 billion due to the rise in stock prices for both companies since March 3, the last day of trading before the deal was announced.

In the meantime, vendors to the two telcos are growing increasingly anxious because the deal’s delay has also delayed spending by the companies. Companies such as Lucent, Tellabs and Redback had expected to book lower sales in Q3, but not Q4 of this year. Now, the pause in spending at AT&T and BellSouth could extend into next year, not a happy prospect for the tech suppliers.

Rosenbush, however, cites analysts who think that deal-cutting is underway and that the merger could get approved as soon as the FCC’s December 20 meeting. Stay tuned.

Update: Yikes! I don’t know how I missed this yesterday but Dave Burstein is speculating that AT&T CEO Ed Whitacre is willing to walk away from the deal because it has become too expensive. Burstein’s idea got picked up by a few influential blogs (see here, here and here.) Weirder things have happened, but I don’t for a second believe that AT&T will give up on the deal…if no other reason than CEOs like Whitacre typically have egos that match their paychecks. To back away from such a bold deal after so long, even if the price isn’t right, would be a blow to Whitacre’s pride and he isn’t going to let that happen.

Posted by Cynthia Brumfield on November 28, 2006 9:00 AM to IP Democracy