January 21, 2007 / 6:07 AM / 12 years ago

AT&T closes $86 billion BellSouth deal

WASHINGTON (Reuters) - AT&T Inc. closed its $86 billion purchase of BellSouth Corp. on Friday after getting final regulatory approval, in a deal that will widen its lead in U.S. phone and Internet services.

The corporate headquarters for BellSouth is pictured in Atlanta, Georgia on March 6, 2006. AT&T Inc. cleared the final U.S. regulatory hurdle for acquiring local telephone carrier BellSouth Corp., bolstering the company's position as the top U.S. telephone provider. REUTERS/Tami Chappell

The U.S. Federal Communications Commission voted 4-0 to approve the deal after AT&T promised to maintain “network neutrality” of its high-speed Internet platform for two years, meaning it will not charge certain Web media providers more to carry data-heavy Internet content such as video.

It was one of several key concessions that the top U.S. phone provider pledged late on Thursday to quiet concerns that the takeover would stifle competition. Some investors had begun to expect a delay into 2007 as talks with the FCC dragged on.

The San Antonio, Texas-based company also reaffirmed forecasts it gave when the merger was announced in March, saying it expected total cost savings of $18 billion from the deal, with $2 billion of that coming in 2008.

Shares in AT&T rose 28 cents, or 0.7 percent, to $36.03 in after-hours trading. Since hitting a trough in mid-May, AT&T shares have climbed more than 40 percent and closed at $35.75 on the New York Stock Exchange on Friday.

AT&T, which dates back more than 125 years to the invention of the telephone, has been trying to bolster its bottom line through acquisitions and expand into the television business as profits from traditional phone service have waned.

The company was formed in 2005 when local phone carrier SBC Communications Inc. acquired AT&T and kept that name.

Now four of the seven companies that were spun off from the original AT&T in 1984 are back under one roof, and it includes 66.1 million telephone lines, 58.7 million Cingular Wireless customers and 11.6 million high-speed Internet customers.

That clout is viewed as key to profitability in a consolidating telecoms industry, as everyone from cable operators to Internet phone companies offer combined voice, video and Web services.

AT&T’s concession on net neutrality was of particular note because it had strenuously objected to any restriction on how it charged for services.

The provision was praised by the FCC’s two Democratic commissioners and criticized by Chairman Kevin Martin and Commissioner Deborah Taylor Tate.

“Today’s order does not mean that the commission has adopted an additional net neutrality principle,” the two Republicans said in a joint statement.

“We continue to believe such a requirement is not necessary and may impede infrastructure deployment,” they said. “Thus, although AT&T may make a voluntary business decision, it cannot dictate or bind government policy.”


A new legislative push to require net neutrality is expected in 2007 from Rep. Edward Markey, the top Democrat on the House subcommittee on telecommunications. In a statement, Markey said the AT&T concession would be an “important keystone” for future legislation.

To win FCC approval, AT&T agreed to offer Internet access for $10 a month and broadband for $19.95 per month. It also agreed to freeze prices and to price caps for some wholesale rates to give competitors access to its network for 48 months, longer than an initial offer of 30 months.

Rivals had complained that the initial conditions would undermine competition, particularly for high-speed Internet service. They advocated restrictions lasting several years.

By buying Atlanta, Georgia-based BellSouth, AT&T gets a foothold in the southeastern United States.

“Moving forward, AT&T will work to integrate these services for customers in the southeast, across the country and around the world,” said AT&T Chief Executive Ed Whitacre, who will be chairman and CEO of the combined company.

AT&T’s closest rival is Verizon Communications Inc. with almost 46 million access lines, 56.7 million wireless subscribers, and 6.6 million broadband customers. That company is also moving into the television business.

Cable TV provider Comcast Corp. has about 11 million broadband subscribers and 2.1 million voice customers.

AT&T said it would repatriate 3,000 jobs outsourced by BellSouth, but did not give details or say how that would affect its expectation, announced in March, that the deal would result in 10,000 job cuts by 2009.

Additional reporting by Jeremy Pelofsky in Washington and Scott Hillis in San Francisco

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