FCC Sets Tough Tests For SBC-Ameritech

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Washington -- The Federal Communications Commission is
likely to impose an array of conditions and noncompliance penalties topping $2 billion in
order for SBC Communications Inc. and Ameritech Corp. to win the agency's approval of
their merger.

SBC and Ameritech -- a $60 billion combination of two
regional Bell operating companies -- reached a tentative deal with FCC staff last week
after commission chairman William Kennard signaled in April that he had serious concerns
about the public-interest benefits of the deal.

SBC-Ameritech Conditions


• Must compete for business and residential customers in 30 markets outside of
13-state region within 30 months or face up to $1.2 billion in fines.

• Must create a separate affiliate to provide DSL services and treat affiliate as
they would any other competitor.

• Must offer residential resellers a 32 percent discount off retail rates.

• For three years, must offer local loops ("the last mile") at roughly 25
percent discounts.

        Source: Federal Communications
Commission

"I am encouraged by SBC's and Ameritech's commitment
to open their markets to competition and their agreement to suffer stiff penalties if they
do not," Kennard said in a June 29 statement.

The FCC is expected to seek public comment on the proposal
before deciding whether to adopt it.

The agreement is a three-year, 26-point plan that would,
among other things, require SBC-Ameritech to offer competitors deep discounts on the lease
of network elements and the resale of retail services.

The FCC also wants SBC-Ameritech to guarantee that its
networks perform as smoothly for competitors as they do for itself. Failure to provide
equal treatment could result in fines totaling $1 billion over three years.

The commission would also require SBC-Ameritech to invade
30 new markets outside of its 13-state territory within 30 months. SBC-Ameritech agreed to
pay penalties of $40 million per market (or up to $1.2 billion total) for failing to
compete for residential and business customers under a five-part test that the agency will
oversee.

The FCC made no mention of Ameritech's cable operation,
even though Ameritech New Media is the largest competitive cable company in the country,
with about 200,000 subscribers in the Midwest.

SBC has scrapped or sold most of the wired and wireless
cable operations it built or acquired in recent years. But Ameritech is much further along
with cable build-outs than, for example, Pacific Telesis Group was after SBC bought it.

In February, Sen. Mike DeWine (R-Ohio) said he was assured
by SBC chairman Ed Whitacre that ANM would stay in business -- at least as long as it
remains "profitable and well-run."

Scott Cleland, a telecommunications analyst here with Legg
Mason Precursor Group, said the most significant feature was SBC-Ameritech's concession to
the FCC that it would create a separate affiliate to offer high-speed
digital-subscriber-line services to Internet-access subscribers

In recent months, Kennard has stated that the Bells could
compete for high-speed-data customers on a deregulated basis if they established separate
affiliates that received the same terms and conditions as other competitors.

"[SBC-Ameritech] is one-third of the industry now.
That gives the FCC powerful leverage over the rest of the industry," Cleland said.

John Bain, a telecommunications analyst with Hoak,
Breedlove, Wesneski & Co., said he considered the overall proposal "extreme"
in some parts and unenforceable in others.

"I don't know what it means to enter 30 new markets.
That's not clear to me," Bain said.

Bain added that he doubts that the FCC would impose similar
local-phone-market entry requirements on AT&T Corp.'s proposed $56.4 billion merger
with MediaOne Group Inc.

"AT&T is already a [competitive local-exchange
carrier] in a huge number of markets," Bain said.

George Reed-Dellinger, an analyst with Washington Research,
predicted that SBC-Ameritech wouldn't have to live up to the conditions

"This is awful big-time micromanagement. I think a
Republican FCC will get rid of the conditions -- which is another bet [the Bells] are
making," Reed-Dellinger said.

He added that the commitment by SBC-Ameritech to invade the
markets of the other Bells was unprecedented, and it would prompt Bell Atlantic Corp.,
BellSouth Corp. and U S West to challenge the conditions in court.

He expects AT&T and new local-phone-market entrants to
file legal challenges, as well. "It will get bogged down in court,"
Reed-Dellinger said.

Kennard's decision to force SBC and Ameritech to the
bargaining table was unpopular with FCC commissioner Harold Furchtgott-Roth, a Republican
who advocates a limited FCC role in the review of mergers

Furchtgott-Roth released a statement criticizing Kennard
for dealing with the companies in private. "What we have here are unprecedented ad
hoc and arbitrary ends from unprecedented ad hoc and arbitrary means," he said.

A pair of Congressmen -- House Telecommunications
Subcommittee chairman Billy Tauzin (R-La.) and Rep. John Dingell (D-Mich.) -- also blasted
the FCC. Tauzin said the SBC-Ameritech conditions amount to "extortion and legal
blackmail."

"It's another good example of why we need FCC reform
badly," Tauzin added.

Dingell said he thought "the FCC has again exceeded
its authority and duty in what is best described as an excess of enthusiasm."

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