FCC Signs Off on Embarq-CenturyTel Deal

The companies promised to offer broadband speeds of at least 3 Mbps in 80 percent of their territory within three years and 1.5 Mbps to 87 percent within two years. The broadband condition “goes significantly beyond the commitments of previous mergers, but it should not be construed as ideal,” acting Chairman Michael Copps said Thursday. “It should be regarded by no one as a standard or indicative of what to expect from the Commission when it considers future mergers or, for that matter, the national broadband plan that the Commission is currently pursuing.”

Commissioner Robert McDowell said he was concerned about some of the terms: Conditions “should be narrowly-tailored to remedy only merger-specific harms, not to implement policies that are better addressed in a rulemaking of general applicability.” McDowell also tweaked the commission for missing by 18 days its unofficial 180-day goal for merger reviews. “As we work to reform FCC processes going forward, I hope that the Commission will endeavor to meet its 180-day ’shot clock’ for merger reviews more consistently.”

The FCC’s order on the deal said it might have harmed competition without the commitments about the wholesale business. The carriers promised to apply Embarq’s service levels and automated processes across the combined company, as well as streamline number porting and interconnection agreement negotiations. “After careful consideration, we conclude that opponents have presented a theory of harm under which the proposed transaction might result in increased anticompetitive behavior,” the commission said. “We find that the Applicants’ voluntary commitments address these potential harms, and that, on balance, the proposed transaction will benefit the public interest.”

An Embarq spokeswoman called the commitments challenging but manageable. The broadband conditions reflect a growing emphasis of Congress and the FCC to push out broadband nationally, she said. “We expect that these national standards will push toward expanded geographic scope for broadband services at higher speeds than are generally available today,” she said. The companies will meet “the aggressive broadband commitments” over the next three years while maintaining a disciplined emphasis on capital deployment and leverage, she said.

The FCC order “is a solid win for competitors and their customers,” said John Heitmann, an attorney for competitive local exchange carriers. Though competitors didn’t “get every condition they proposed, they did get a package of significant conditions that will reduce costs, provide meaningful stability and improve wholesale processes.”

The companies said their deal has received all the approvals needed and should close Wednesday. The combined company will concentrate on infrastructure development and broadband deployment, said Embarq CEO Tom Gerke.

Embarq and CenturyTel have already begun work on system integration and at first will stress converting customers and choosing executives, said a CenturyTel spokeswoman. The integration is going well because the companies have many similarities, she said. The combined company’s new logo and name, CenturyLink, will be introduced in the fall or the winter, she said.

The merged entity is likely to face increasingly competitive conditions in the marketplace, DA Davidson analysts said. CenturyLink is likely to post significant cost synergies in 2010, they said, nevertheless calling the consensus projections for the merged company too high. A downward revision in the near future would have a negative impact on the company’s share price, they said. Although the company is likely to maintain its dividend, increased capital spending would restrict cash flows for some time, the analysts said.