Report: FCC may allow a Baby Bell to accquire WorldCom

Faced with the possibility that 20 million customers in the U.S. could soon be left without telecommunications services, the chairman of the U.S. Federal Communications Commission (FCC) may allow a Baby Bell telephone company to acquire ailing long-distance and Internet service provider WorldCom Inc.

In an article in Monday's Wall Street Journal, FCC Chairman Michael Powell describes the communications industry as in a state of "utter crisis," and says his commission could allow one of the Baby Bell companies to take over WorldCom. The telecommunications giant is on the brink of bankruptcy, fueled by its recent disclosure of nearly US$4 billion in accounting discrepancies that spurred government investigations. The FCC would consider such a deal if a Bell company were to propose one, Powell said. Baby Bells are the regional local telephone providers formed by the breakup of AT&T Corp.

"There's been a lot written and said in the last couple weeks (about the effects) of the demise of WorldCom, especially for Internet traffic and e-mail. If that's a real concern, I would think that the government would move heaven and earth to allow a financially viable company to take over WorldCom ... to keep that Internet traffic flowing," said Rick Brecher, an attorney with law firm Greenberg Traurig in Washington, D.C., who follows the telecommunications industry.

Allowing such a merger would be viewed as a significant departure for the FCC, since its regulations related to the Telecommunications Act of 1996 have been designed to promote competition to Baby Bells, not consolidation.

An FCC spokesman confirmed that Powell's quotes in The Wall Street Journal article were accurate, but stressed that the chairman answered a speculative question with speculation. The commission isn't currently considering such approval, the spokesman said.

The FCC has the authority to approve or deny proposed mergers in the telecommunications industry, so any Baby Bell looking to snap up WorldCom would need to go through the approval process and prove to the commission that the merger is in the public interest, the spokesman said. Any such acquisition proposal would not be guaranteed regulatory approval, Powell cautioned in the article.

There are other regulatory hurdles that Bell companies must pass to provide long-distance service. Under current telecommunications law, Baby Bell companies cannot provide long-distance services in their regions unless they have passed the FCC's criteria for opening their own local networks to competition. Referred to as Section 271, this requirement forces Baby Bells to provide competitors such as startup local phone companies and long-distance providers fair access to their local telephone infrastructures before they can launch long-distance services in their regions.

Currently, none of the Baby Bell companies have met the Section 271 requirements in all of the states in their regions, Brecher said, but a few Bells are coming close.

One consumer advocacy group spoke out against Powell's comments, saying that allowing a Bell company to acquire WorldCom would be a blow to competition.

The FCC "should ensure that the lucrative area of advanced telecommunications services, including high-speed Internet, is open to all competitors on a nondiscriminatory basis," said Mark Cooper, Director of Research with the Consumer Federation of America. "Chairman Powell's march toward unregulated monopoly will certainly not serve (the) consumer well."

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