WASHINGTON — Federal regulators gave final approval to the biggest merger in telecommunications history Friday after AT&T Inc. agreed to major concessions to resolve an impasse over its purchase of BellSouth Corp.
The $86-billion deal gives San Antonio-based AT&T a third of the nation's land lines, dominating local phone service in California and 21 other states. AT&T also becomes the nation's largest provider of high-speed Internet access and gains full control of Cingular Wireless, the country's biggest cellphone company, which was 40% owned by Atlanta-based BellSouth.
"AT&T will be an engine for innovation, competition and growth for our customers at home and abroad," AT&T Chairman and Chief Executive Edward E. Whitacre Jr. said in a statement. "We can't wait to show people what the new AT&T can do."
But consumer groups fear exactly that.
Worried that the enormous new AT&T will approach the reach of the old Ma Bell monopoly -- broken up in 1984 by the federal government -- public interest advocates and some key Democrats demanded regulatory restrictions to prevent the company from using its new market power to bully competitors and drive up prices.
Although the Justice Department unconditionally approved the deal in October, unusual circumstances gave the two Democrats on the Republican-controlled Federal Communications Commission leverage to hold up final regulatory approval until AT&T made the concessions. Desperate to close the deal by the end of the year, AT&T caved in to the commissioners' demands late Thursday.
The FCC approved the transaction 4 to 0 on Friday, removing the last regulatory hurdle to the takeover of the nation's third-largest phone company by the largest. The deal formally closed shortly afterward.
"This is a historic merger and I think it merits historic conditions," said FCC Commissioner Jonathan S. Adelstein, who with fellow Democrat Michael J. Copps forced AT&T's hand.
AT&T's most significant concessions were to provide high-speed Internet access to customers for $19.95 a month without requiring them to purchase phone or other services; to lower and freeze for four years the fees it charges other phone companies to use its lines; to sell some of its wireless spectrum to promote competition for high-speed Internet access; and to treat all Internet content equally as it travels over its lines.
Those conditions came on top of earlier AT&T pledges to offer broadband service for $10 a month to customers with AT&T phone service, give free high-speed modems to customers now using dial-up service and to install at least 30% of its new broadband lines in rural and low-income areas.
Natalie Billingsley, a supervisor with the California Public Utilities Commission's Division of Ratepayer Advocates, which advocates for consumer interests, said the new concessions improved the outlook for AT&T and BellSouth customers. But she said consumers would have been better off if the merger had not been approved and expressed skepticism that customer service would improve.
"You hope that service will improve, but it hasn't been seen with prior mergers," she said.
AT&T's foremost concession Thursday was its promise that for two years it would not charge websites for higher-speed delivery of video or other content over its Internet lines. Such nondiscriminatory treatment of data is known as "network neutrality" and has become a politically charged issue.
AT&T and other major high-speed Internet providers successfully lobbied to stop Congress from enacting such nondiscrimination regulations this year. The telecommunications companies said they needed the ability to charge Internet giants such as Google Inc. and Amazon.com Inc. for preferential treatment of data-heavy content to recoup the cost of building new high-speed networks.
Big Internet companies, backed by thousands of online activists, contended that the charges would amount to toll lanes on the Internet that would squelch innovation and free speech.
FCC Commissioners Adelstein and Copps took up their cause and forced AT&T to become the first telecommunications company to voluntarily agree not to sell or provide "any service that privileges, degrades or prioritizes" data over its high-speed Internet lines "based on its source, ownership or destination."
"We have taken steps that will preserve and encourage the truly transformative openness and power of the Internet," Copps said.
AT&T's decision to agree to the network neutrality restrictions could be a milestone in Internet history, said Timothy Wu, a law professor at Columbia University and co-author of the 2006 book "Who Controls the Internet?"
"You have the nation's now-largest broadband carrier basically agreeing to the basic standards of network neutrality," he said. "That will set the rules of the game going forward."
Paul Misener, vice president for global public policy at Amazon.com, said the issue was important for his company's customers.