FCC Chief Blasts AT&T; Merger Proposal

WASHINGTON —  Aiming to head off efforts by AT&T; Corp. to enter the local phone business by merging with SBC Communications Inc., the nation’s top telephone regulator on Thursday issued a harsh and public rebuke of the possible combination, calling a merger of AT&T; and any of its progeny “unthinkable” and anti-competitive.

The remarks by outgoing Federal Communications Commission Chairman Reed Hundt--who is a close ally of Vice President Al Gore and the White House--were seen by observers as evidence that the Clinton administration would not only frown upon any merger deal reached by AT&T; and SBC, but is also having second thoughts about a laissez faire antitrust policy that has opened doors for massive consolidation in the booming telecommunications industry.

Although AT&T; and SBC have not announced any agreement, the companies have tacitly confirmed reports that they are discussing what would be the largest merger in U.S. history.

“We are at a watershed point in the evolution of the telecommunications industry,” Hundt told an audience of 100 at the Brookings Institution in Washington. “My belief is that a combination of AT&T; and an RBOC [regional Bell operating company] is unthinkable.”

Hundt “made it clear that a deal between AT&T; and SBC or any other regional Bell will not pass regulatory muster,” said Anna-Maria Kovacs, an analyst with Philadelphia-based investment house Janney Montgomery Scott. “He has taken an even stronger position than we anticipated in that he precludes a deal even if it is accompanied by” some separation of operations of newly merged partners.

Indeed, the strong words appeared to rock AT&T;, which issued a statement seeking a truce in the war of words over the rumored merger deal. AT&T; Chairman Robert Allen recently gave a speech defending the idea of an AT&T-RBOC; merger.

“All we have suggested is that partnership transactions should not be an unthinkable way of breaking the logjam and accelerating the process of bringing real competition to local markets,” said Mark Rosenblum, AT&T; vice president of law and federal government affairs. “If a partnership between a long-distance company and a local RBOC can be structured to increase competition . . . then it ought to be considered.”

Since President Clinton was reelected and signed legislation last year approving a sweeping deregulation of the $600-billion industry, two huge mergers have been announced. They are among four of the seven massive regional Bell telephone companies that were spun off in the 1984 breakup of AT&T.; SBC completed its $16.7-billion merger with Pacific Bell on April 1, and a $23-billion merger of Bell Atlantic Corp. and Nynex Corp. has been approved by the Justice Department and is pending before the FCC.

In addition, long-distance carrier WorldCom Inc. last year completed a massive $12.5-billion merger with MFS Communications Inc.

At the same time, the competition that the Telecommunications Act was supposed to produce has not materialized for the most part.

Some lawmakers have threatened to block Clinton’s nomination of Joel Klein as chief antitrust enforcer at the Justice Department. Sen. Ernest F. Hollings (D-S.C.), the ranking Democrat on the Senate Commerce Committee, has stalled a vote on Klein’s nomination, contending that Klein’s approval of the Bell Atlantic-Nynex deal is evidence that the acting assistant attorney general for antitrust won’t aggressively promote competition in the industry.