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Ohio Regulators Take Jab at Telco Merger

11/22/1998 7:00 PM Eastern

SBC Communications Inc. and Ameritech Corp. have failed to
demonstrate that their proposed $62 billion merger will benefit Ohio consumers, according
to a report released earlier this month by state regulators.

The Public Utilities Commission of Ohio's staff report also
raised serious concerns about the deal's effects on competition, about the power that the
merged entity would exert over the local market and about potential damage to the quality
of telephone service in the state.

Ohio cable operators were encouraged by the findings in the
23-page document, which will be a featured item at a Dec. 9 public hearing ordered by the
PUCO. Ohio is one of two Ameritech states with the regulatory authority to veto the deal.

"You can call it the staff socking it to SBC and
Ameritech: I call it a fair and impartial report," said Ed Kozelek, executive vice
president of the Ohio Cable Telecommunications Association. The OCTA wants conditions
placed on the transaction that will prevent the two regional Bell operating companies from
undermining competitors.

SBC and Ameritech officials said executives for both
companies will offer "expert testimony" during the hearing.

"We're confident [that the commission] will see the
benefits to Ohio consumers," SBC spokesman Selim Bingol said. "At the end of the
day, the merger will get done."

Bingol would not comment on whether the proposed merger
could be affected by any regulatory conditions placed on the deal.

In their report, the PUCO staff conceded that SBC's
acquisition of Ameritech would create a telecommunications giant that would be capable of
cashing in on the "globalization of the marketplace."

"However, the staff believes that the merger, as
announced, creates some potential concerns to competition, as well," the report said.
"In order to promote the public convenience, the staff believes that the benefits of
the merger must outweigh the potential harm."

One concern raised by the report was that the merged
companies could "easily engage in anti-competitive behavior" by not providing
adequate operation-support systems to competitors. To guard against that, the PUCO staff
proposed mandatory OSS-performance standards, with "self-actuating penalties"
for noncompliance.

One example of Ameritech's OSS failures was its failure to
provide timely number portability to consumers wishing to shift to a competing carrier,
said Marsha Schermer, spokeswoman for Time Warner Telecom, which offers competitive phone
service to businesses in Columbus and Cincinnati.

"This is a critical component in the market, because
people don't want to change their telephone numbers," Schermer said.

Meanwhile, the staff proposal also noted that SBC's
commitment to no net job losses in Ameritech's five-state region would not prevent future
work-force reductions from affecting the quality of telephone service in Ohio.

Moreover, the PUCO report said, the combined companies
could concentrate their efforts on competitive services, reasoning that the earnings
generated would "offset any symbolic and/or substantive penalties imposed by the PUCO
for failing to maintain the quality of noncompetitive telephone service."

"They've always looked at these penalties as the cost
of doing business," Kozelek said. "I would suggest that Ameritech not be allowed
to offer stock dividends. There is language in the Ohio code that allows the PUCO to do
that."

Mary Jo Green, a spokeswoman for Time Warner Cable, pointed
to a section in the report that found that the combined market power of the two telcos
could also represent "a significant additional barrier to the emerging competitive
market."

For example, the two companies could steer captive local
telephone customers toward unregulated services that they might offer, including cable
television, Green said.

"While they don't mention cable, per se, they do
mention captive, regulated customers who don't have a choice in phone service," she
said. "And when they call in for local phone service, they can sell them cable,
security systems, anything that they want. That's a tremendous marketing advantage."

PUCO spokesman Dick Kimmins warned that there was no
guarantee that the commission would act on the staff proposals.

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