**STATEMENT OF**

**COMMISSIONER KATHLEEN Q. ABERNATHY**

> *Re: SBC Communications Inc. and AT&T Corp. Applications for Approval
> of Transfer of Control (WC Docket No. 05-65).*
>
> *Verizon Communications Inc. and MCI, Inc. Applications for Approval
> of Transfer of Control (WC Docket No. 05-75).*

It has often been said that nothing is constant except for change. And
we as telecommunications regulators need to be particularly mindful of
this because change is the engine that drives progress. Unfortunately,
today we focus too much on micromanaging the growth and pace of change,
rather than how to harness it to benefit consumers.

During my time as a Commissioner, I have spoken at length about the
enormous disruptions in the telecommunications marketplace being wrought
by convergence and the great progress it has brought. We now have
competition more vibrant than has ever been seen in the
telecommunications industry, and this has dictated a significant shift
in the business strategies of the companies in that industry.
Technological advances that spurred competition now allow us to consider
mergers that might have been unthinkable in the "natural monopoly"
pre-convergence era. Dramatic changes in the technology, the economics,
and the structure of the market have mooted prior concerns.

The principal question before us today is this: whether the particular
convergence of SBC and AT&T, on the one hand, and Verizon and MCI, on
the other, is compatible with the public interest and, more
specifically, whether the two mergers further innovation and the growth
of competition. While I am pleased that we are allowing the mergers to
go forward, some of the conditions in the Orders reflect a failure to
appreciate the degree to which the market has changed and how that
constrains market behavior by the applicants.

As the applicants know only too well, today's market for
telecommunications is vibrant and challenging and offers no guaranteed
rate of return on investment. Perhaps most importantly, the economic
foundations of the interexchange market have shifted dramatically as the
Bell Operating Companies have won approval to offer in-region
long-distance services. The local exchange market has also been
transformed as the growing demands of business customers have emphasized
the need for high-capacity networks with global reach. The market for
data services and Internet access - - something barely on our radar
screens 5 years ago - - has exploded as individuals and businesses alike
consume more and more high-bandwidth content and require faster and
faster broadband connections. And amidst all of this, the rise of
high-capacity next-generation networks and fierce competition from
wireless, cable-based, and VoIP providers has drastically undermined the
rationale for extensive regulation.

These mergers must be viewed in the context of these changes, precisely
because they are the natural outgrowth of these changes. As proposed,
each of these transactions would marry a Bell Operating Company's
extensive local residential facilities and broadband Internet access
offerings with an established interexchange carrier's business service
offerings, long-distance facilities, and Internet backbone assets. The
combination of these capabilities expands the merged companies' scope
and scale outside their own regions, improves operational efficiencies,
enlarges the companies' range of offerings, and reduces prices for
business and residential consumers alike. In short, these mergers are
intended to give birth to strong, nimble competitors, able to meet the
demands placed on twenty-first century providers by customers with
widely disparate needs.

As approved, however, I fear that many of these potential gains will be
delayed or compromised. In my judgment, the conditions included in the
Orders before us require the merged companies to provide offerings that
the market might not demand, to sacrifice synergies by needlessly
treating their affiliates at arms' length, and to maintain business
relationships based on current assumptions even if those assumptions
cease to reflect economic reality. Moreover, the companies will have to
abide by these conditions while their most aggressive competitors --
whether they use wireline, wireless, cable, or other, next-generation
facilities -- remain exempt.

I have consistently opposed this kind of micromanaged regulatory
oversight in situations where competitive forces discipline market
behavior. In addition, it is difficult for me to understand how this
approach is consistent with this Commission's support for regulatory
parity and competitive neutrality. It is no answer to say that the
applicants have agreed to accept these conditions, and therefore they
must certainly be good, or at least not all that bad. That position
fails to take into account that such conditions are the *quid pro quo*
that merger applicants must accept in order to get timely approval.

I would perhaps be less concerned about this aspect of today's decisions
if either (a) the Department of Justice had outlined problems arising
from the larger competitive impacts of these mergers; or (b) these
remedies were clearly needed to cure palpable existing problems. But
neither is the case here. While I recognize that the Commission's merger
review mandate implicates a broader standard of review than that of DOJ,
it remains nevertheless true that DOJ's review was focused on the same
issues we are asked to examine: competition in the various markets
involved. And all the expert economists, lawyers, and other
professionals reviewing these issues for DOJ found no significant cause
for concern in most of the areas subject to the conditions.

I am not suggesting that DOJ's evaluation is, or should be, co-extensive
with ours. But what I would suggest is that it effectively places on the
Commission the burden of showing the existence of other problems so
grave and immediate that conditioning the merger agreement is the only
effective remedy. It should not be standard operating procedure to craft
company-specific merger conditions to address unknown and hypothetical
competitive threats. After all, the customary administrative weaponry in
the Commission's arsenal -- rulemaking, enforcement, and so on -- does
not suddenly evaporate once a merger is approved. We always have these
tools and we can always use them when and if necessary.

The competition unleashed by the convergence of formerly separate lines
of business places an additional premium on taking a more circumspect
approach to conditioning mergers. Competition is a *process,* not a
*product.* This new competitive market is still developing, and it needs
to be given reasonable regulatory elbow-room to do so. Imposing *ad hoc*
conditions that do not reflect the realities of today's market
hamstrings this development rather than helps it and creates market
distortions. Therefore, it is my view that we should resort to imposing
such conditions only *first*, where the perceived harm is an obvious
consequence of the merger, not merely a prediction about what might go
wrong; and *second*, where other administrative remedies are inadequate
to address this harm. That simply isn't the case in these mergers, with
these conditions.

The applicants have looked at their business plans and determined that
change is not only inevitable, but necessary, if they are to continue to
respond to consumer demand for lower prices and better technology. I
agree. They argue that the explosion of competition has rendered
extensive conditions unnecessary. Again, I agree. These companies, their
customers, and their competitors all understand that we no longer live
in the monopoly world of years past and that our job as regulators is to
keep pace with change, embrace competition and focus on consumer
protection, not the protection of the status quo.