Verizon, Qwest Likely to Have to Cut Special Access Charges
Verizon and Qwest likely will have to slash prices they charge for special access services under merger conditions AT&T agreed to last week, leading to Commission approval of AT&T’s acquisition of BellSouth (CD Jan 2 p1), sources said Wed. Verizon raised a red flag on the provision in a letter to the agency as approval was being finalized Fri. Verizon warned: “Such a condition would be subject to serious legal challenge and likely would not be sustainable.”
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Verizon, previously not a presence in the merger docket, reacted to conditions proposed by AT&T and published late Thurs. on the FCC website. Chmn. Martin and Comr. Tate also raised the reciprocity issue in statements on the merger.
AT&T negotiators insisted on the condition, aimed at denying Verizon and Qwest an advantage at AT&T’s expense, sources said. FCC Democrats wanted rate cuts and price caps for special access without the reciprocal language. In the end, both sides agreed to the condition as a compromise.
“It is essentially an attempt to take an issue of AT&T’s regulation and make it into an issue of [other carriers'] regulation,” an attorney said: “What they're suggesting is that AT&T must reduce prices of their special services, but those price reductions can only apply to price cap carriers if they offer similar type reductions on their telco side.” As a result, the source said, Verizon Wireless would be able to buy special access service from AT&T at the lower rates only if Verizon also agreed to cut its charges. “Verizon Wireless would pay a higher rate than, for example, Sprint Nextel or T-Mobile unless Verizon was willing to lower special access rates on the teleco side,” the source said.
“This is the problem that we cited all along when you're trying to negotiate industrywide proceedings in a merger docket,” an industry source said: “[Negotiators] agreed to language that also affected parties outside of a proceeding… You get these unintended consequences.”
In a letter to the FCC Verizon called the condition “discriminatory on its face” and said it was likely to draw a legal challenge. “Not only would such a condition be unlawfully discriminatory, but merger conditions cannot be used as a backdoor way to impose requirements on a non-party to the merger,” Verizon said.
“To achieve the consensus needed to conclude the merger proceeding at the FCC, we made commitments relating to a wide range of issues that have no bearing beyond the context of that proceeding,” an AT&T spokesman said: “Now that the regulatory approval process is complete, we can turn our attention to bringing the benefits of the merger to consumers.”