Court voids SBC-Ameritech merger condition

By Jeremy Pelofsky, InfoWorld |  Business

(REUTERS) -- A U.S. appeals court on Tuesday voided a condition attached to SBC Communications Inc.'s 1999 purchase of Ameritech Corp. that had required the combined company to place its high-speed Internet operations into a separate affiliate.

The ruling could have broad implications for other local telephone companies, including Verizon Communications which set up its own separate advanced services affiliate when Bell Atlantic and GTE Corp. merged to form that company.

Local phone companies like Verizon and SBC, the second largest in the nation, are required by the Telecommunications Act of 1996 to open their markets to competitors and provide access to their networks at wholesale cost.

However, the local carriers, known as incumbent local exchange carriers (ILECs), have argued that advanced services should not be subject to those unbundling and resale obligations.

The Federal Communications Commission believed that if advanced services were controlled by an affiliate they would not be subject to the law's competition requirements.

SBC closed its deal to acquire Ameritech in October 1999 after agreeing to the FCC's demand that the merged company establish a separate entity to sell advanced services such as digital subscriber line (DSL) high-speed Internet service.

The Association of Communications Enterprises, a trade group representing telecommunications providers, and long-distance provider AT&T Corp. argued to the U.S. Court of Appeals for the District of Columbia that the FCC's order implicitly violated the law.

"The Commission may not permit an ILEC to avoid ... obligations as applied to advanced services by setting up a wholly owned affiliate to offer those services," said Judge Laurence Silberman in the three-judge panel's decision.

FCC General Counsel Chris Wright said in a written statement that the agency was reviewing the court's decision. The ruling could be appealed to the U.S. Supreme Court.

The agency's order setting the merger conditions anticipated that the affiliate condition could be overturned in the U.S. courts, according to SBC.

"The merger conditions provide that, if a court ruled that the affiliate were subject to the Act's resale and unbundling obligations, then the separate affiliate could be re-absorbed back into the telephone company, subject to certain conditions," Jim Ellis, general counsel at SBC, said in a statement.

The company will examine the option of bringing its advanced services affiliate, known as Advanced Solutions Inc., back into the San Antonio, Texas-based company, he said.

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