Transcripts

The $86B AT&T & BellSouth Merger Connects

JEFF YASTINE: An $86 billion merger of AT&T and BellSouth is a done deal tonight. The two companies closed on the pact late today after the Federal Communications Commission OKed it. That FCC vote was 4-0 with the two Democratic commissioners voting in favor after AT&T offered to make concessions. As Darren Gersh reports, one big concession came in a crucial area.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumer groups say this is the first time a telephone company agreed to define what's known as "net neutrality." In practice, that means a merged AT&T-BellSouth would not charge more to direct traffic onto the Internet equivalent of the fast lane, while forcing those who don't pay into a traffic jam. The Consumer Federation's Mark Cooper says that will help keep the Internet open to competition and innovation.

MARK COOPER, RESERCH DIRECTOR, CONSUMER FEDERATION OF AMERICA: They can't privilege somebody's traffic. They can't degrade other peoples. They can't prioritize. They can't sell priority privilege to anybody. They have to operate in a neutral fashion.

GERSH: In a letter to the FCC, AT&T agreed to maintain net neutrality for two years. The company will offer a stand-alone DSL service for $19.95 a month. And it will spin off radio spectrum that could be used to develop a new competitor using next-generation wimax broadband service. AG Edwards analyst Kent Custer who has a "hold" recommendation on AT&T, says the merger concessions sacrifice flexibility but not finances.

KENT CUSTER, TELECOM & CABLE ANALYST, A.G. EDWARDS: What the concessions do is they promote competition without really significantly harming AT&T, so I wouldn't expect them to, these concessions to impact their financial guidance or our valuation of the company.

GERSH: Analysts say in recent years phone companies have been rapidly losing their residential phone customers to cable competitors. A bigger AT&T might be able to drive better bargains with suppliers and roll out video competition more aggressively. And with more customers after the merger, AT&T could also strike better deals with big media networks. AT&T is now trying to run video service through traditional phone lines, but is still a couple of years behind cable.

CUSTER: They're rolling out new Internet protocol television or IPTV technology to make that work. It has been working. They've been testing it for several months, but their rollouts now are on a very small scale and we'll have to wait and see if everything works as expected.

GERSH: Despite AT&T's concessions late today, FCC Chairman Kevin Martin said net neutrality protections were not necessary and would hurt new investment in the Internet. But consumer groups now plan to push the new Democratic Congress to write a definition of net neutrality into law and apply it to the entire telecom industry. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.