U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

29–938 PDF 2006

S. HRG. 109–584

THE AT&T AND BELLSOUTH MERGER: WHAT

DOES IT MEAN FOR CONSUMERS?

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 22, 2006

Serial No. J–109–90

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ARLEN SPECTER, Pennsylvania, Chairman 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MICHAEL O’NEILL, Chief Counsel and Staff Director 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

MIKE DEWINE, Ohio, Chairman 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

LINDSEY O. GRAHAM, South Carolina 

SAM BROWNBACK, Kansas 

HERBERT KOHL, Wisconsin 

PATRICK J. LEAHY, Vermont 

JOSEPH R. BIDEN, JR., Delaware 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

PETER LEVITAS, Majority Chief Counsel and Staff Director 

JEFFREY MILLER, Democratic Chief Counsel 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS

Page

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio ................................ 1

prepared statement .......................................................................................... 68

Kohl, Herbert, a U.S. Senator from the State of Wisconsin ................................. 3

prepared statement .......................................................................................... 82

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 5

prepared statement .......................................................................................... 83

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 4

WITNESSES 

Ackerman, Duane, Chairman and Chief Executive Officer, BellSouth Corporation, Atlanta, Georgia .......................................................................................... 8

Geiger, James F., Founder, President, and Chief Executive Officer, Cbeyond 

Communications, Atlanta, Georgia ..................................................................... 9

Rubin, Jonathan L., Senior Research Fellow, American Antitrust Institute, 

Washington, D.C. ................................................................................................. 9

Whitacre, Edward E., Jr., Chairman and Chief Executive Officer, AT&T Inc., 

San Antonio, Texas .............................................................................................. 8

QUESTIONS AND ANSWERS 

Responses of Duane Ackerman to questions submitted by Senators DeWine, 

Kohl, and Leahy ................................................................................................... 18

Responses of James F. Geiger to questions submitted by Senators DeWine, 

Kohl, and Leahy ................................................................................................... 34

Responses of Jonathan L. Rubin to questions submitted by Senators DeWine, 

Kohl, and Leahy ................................................................................................... 38

Responses of Edward E. Whitacre to questions submitted by Senators 

DeWine, Kohl, and Leahy .................................................................................... 49

SUBMISSIONS FOR THE RECORD 

Ackerman, Duane, Chairman and Chief Executive Officer, BellSouth Corporation, Atlanta, Georgia, statement ....................................................................... 61

Geiger, James F., Founder, President, and Chief Executive Officer, Cbeyond 

Communications, Atlanta, Georgia, statement .................................................. 70

Rubin, Jonathan L., Senior Research Fellow, American Antitrust Institute, 

Washington, D.C., statement .............................................................................. 86

Whitacre, Edward E., Jr., Chairman and Chief Executive Officer, AT&T Inc., 

San Antonio, Texas, statement ........................................................................... 91

(1)

THE AT&T AND BELLSOUTH MERGER: WHAT 

DOES IT MEAN FOR CONSUMERS? 

THURSDAY, JUNE 22, 2006 

U.S. SENATE, SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND

CONSUMER RIGHTS, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Subcommittee met, pursuant to notice, at 3:05 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Mike DeWine, 

Chairman of the Subcommittee, presiding. 

Present: Senators DeWine, Specter, Kohl, and Leahy. 

OPENING STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR 

FROM THE STATE OF OHIO 

Chairman DEWINE. Good afternoon. We welcome all of you 

today. Welcome to our panelists to today’s hearing to examine the 

merger between AT&T and BellSouth. This merger is another in a 

series we have seen recently in the telecommunications market, 

and it certainly is significant. This deal will create the largest 

telecom company in the U.S. In fact, with a market capitalization 

over $150 billion, the combined AT&T–BellSouth would be one of 

the largest companies in the world. This merger will also bring 

under one roof the largest cell phone provider in the country. 

As we evaluate this deal, we must keep in mind how much the 

market has changed. In 1984, when the Bell monopoly was broken 

up, most of us only had landline phones attached to the wall. Cell 

phones and the Internet were virtually unknown. Today, that type 

of old-fashioned phone service is just one part of a larger patchwork of data and communications services. In recent years, the 

cable television companies have started to offer high-speed Internet 

and telephone services, while the telephone companies are beginning to roll out video services. It is clear that soon data of all types, 

whether it be Internet traffic, phone calls, or television shows, will 

be delivered via the Internet by a wide range of different companies. 

So what does this merger mean for consumers? 

In terms of traditional home-phone consumer service, probably 

not all that much. AT&T and BellSouth both provide that type of 

service in their own areas, but do not compete in each other’s regions, so nothing in this market will change as a result of the deal. 

However, the merger may have an impact on consumers in other 

ways. A combined AT&T–BellSouth will have a unique portfolio of 

assets, which raises questions of how it will use those assets. For 

example, once Cingular comes under the ownership of a single comVerDate 0ct 09 2002 13:17 Sep 22, 2006 Jkt 029938 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29938.TXT SJUD4 PsN: CMORC
2

pany, the way in it is run may change. Some have expressed concerns that a Cingular under the ownership of a combined AT&T–

BellSouth will have the ability and incentive to manipulate connection fees in a way that will unfairly harm competition. This is an 

issue that we will explore today. 

At the same time, the wireless market is beginning to show 

promise as a medium that can provide new competition in a range 

of consumer services. The development of the so-called WiMax 

service means that cellular companies will be able to provide an alternative to traditional phone and cable companies for video and 

Internet offerings. However, there is some concern that this merger 

will consolidate so much wireless spectrum in the hands of AT&T 

that it may hinder the development of WiMax and diminish its potential as a competitive alternative. 

This merger will also have competitive implications for the future of the Internet. AT&T will become an even bigger presence in 

the so-called Internet backbone market. As telecommunications 

companies get larger, they are looking for different ways to manage 

their parts of the network, to get it to function more efficiently. 

Their potential efforts to do so are part of the escalating tensions 

surround the debate about net neutrality, which the full Judiciary 

Committee began to examine in a hearing just last week. I think 

we need to examine and really understand whether this merger 

will create incentives to lessen competition—in markets for content 

as well as the carriage of that content—over networks controlled by 

bigger, more powerful companies, such as the newly merged AT&T. 

The deal will impact business customers as well. Businesses, for 

example, find that very few companies can currently offer services 

to fit their complex telecommunications needs, and, in fact, there 

are some businesses right now that can only be served by either 

AT&T or BellSouth. For them, this merger means that they will go 

from a market with two options to a monopoly. This is a market 

sector that will require close scrutiny. 

Today, we will hear from the CEOs of AT&T and BellSouth, as 

well as the CEO of Cbeyond, a smaller Internet-based telecom company, and an independent analyst. I hope these witnesses can give 

us an accurate and useful picture of what the competitive landscape will look like after this proposed merger and what it will look 

like in the next few years, specifically with regard to this section 

of the business market. 

We are also, of course, interested in hearing about the potential 

competitive benefits of this deal. For example, expanding the customer base of AT&T may well allow it to roll out its video service 

more quickly, and the greater size and scope of the company may 

enhance other competitive offerings as well. We look forward to examining these benefits with our witnesses today. 

Finally, of course, we need to continue to investigate some of the 

broader telecommunications issues currently being assessed by industry and policymakers, some of which the full Judiciary Committee examined last week, and many of which are being addressed 

now in draft bills to rewrite our telecommunications laws. Issues 

such as net neutrality, which I referred to previously, and regulations regarding common carrier and information services may also 

be affected by this deal, and so we need to consider the possible 

3

ramifications of the AT&T–BellSouth merger in these areas as 

well. 

So we have a range of important and very interesting topics to 

cover today. I look forward to hearing from our witnesses on all of 

them as well. 

Let me turn now to Senator Kohl for his opening comments. 

STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM 

THE STATE OF WISCONSIN 

Senator KOHL. I thank you, Mr. Chairman. Today, we return to 

a topic our Antitrust Subcommittee examined a year ago—continuing consolidation of the telecom industry. The $67 billion merger between AT&T and BellSouth we consider today follows closely 

on the heels of last year’s massive AT&T–SBC and Verizon-MCI 

mergers. These mergers and the rapid pace of the technological 

changes in this industry are fundamentally reshaping how Americans communicate in what we pay for these services. 

While examining the impact of these deals on competition, we 

must also carefully consider what this consolidation means for our 

fundamental civil liberties and our National security. The antitrust 

laws were written out of a concern with the political effects of 

undue concentrations of economic power, not only their effects on 

consumers’ pocketbooks. And the disturbing revelations in the last 

few months of the administration’s domestic surveillance demonstrate vividly that this deal—and the overall telecom consolidation wave of which it is but a part—may indeed have a profound 

effect on our civil liberties. It has been reported in the press that 

the NSA, allegedly with the cooperation of some of the Nation’s 

largest phone companies, including AT&T, is compiling a massive 

data base of whom nearly every American calls on the telephone. 

While, of course, we all recognize that we need to listen to any calls 

that al Qaeda may try to make into the United States, we must 

do so in a focused manner without trampling on the privacy rights 

of millions of innocent Americans. 

We must realize that the mergers and acquisitions in the telecom 

industry make overbroad domestic surveillance considerably easier. 

As the market consolidates, Government eavesdropping is possible 

merely with the assent of fewer and fewer large phone companies 

than before. Today, just a very few telecom giants have an enormous amount of personal information on virtually every American’s 

phone calls. As the market concentrates, the threat to our privacy 

grows. These considerations should be paramount to all of us who 

have the responsibility to review these mergers. 

We also, of course, must carefully examine the more traditional 

antitrust laws raised by the AT&T–BellSouth deal. Both companies 

defend this merger by pointing out that this is a merger of regional 

phone companies with adjacent territories rather than of direct 

competitors. Further, they argue, technological changes and innovation are bringing new forms of competition to the market. 

But as we watch as a formerly regional player grows into the 

dominant phone company in nearly half the Nation, we must be 

careful to examine several key questions. Will competitors be able 

to interconnect into the millions of consumers served by the AT&T 

network? Will the new AT&T have the ability to charge exorbitant 

4

rates for special access lines into its network? Will the combined 

company gain too high a share of wireless spectrum needed for new 

competitive alternatives? More fundamentally, how can we ensure 

this consolidation will not decrease the choices and increase the 

cost to consumers and to business customer, both large and small? 

Just as with the AT&T–SBC and the Verizon-MCI mergers, we 

expect that the Justice Department and the FCC will scrutinize 

these mergers very carefully to preserve competition. A good place 

to start would be the imposition of some of the same conditions 

these agencies imposed on last year’s deals on this one. We must 

be especially careful to ensure that the combined company’s 

broadband Internet services do not interfere with consumers’ ability to access all Internet content they wish. Securing merger conditions such as these will help ensure that the tremendous gains in 

telecom competition over the past 20 years are not lost in the midst 

of this industry consolidation. 

Thank you, Mr. Chairman. 

Chairman DEWINE. Senator Specter? 

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 

THE STATE OF PENNSYLVANIA 

Senator SPECTER. Thank you, Mr. Chairman. 

At the outset, I congratulate you, Chairman DeWine and Ranking Member Kohl, for your excellent work in this very, very important Subcommittee. Thank you for convening this hearing. There 

are very important antitrust issues raised here. The current AT&T 

is primarily composed of the former SBC Communications, a company that was formed through the combination of three Bells: 

Southwestern Bell, Pacific Telesys, and Ameritech. And now with 

the acquisition, if approved, of BellSouth, it puts the company one 

step closer to reconstituting the old Ma Bell monopoly. 

I recall being in this room in 1981 or 1982 when Assistant Attorney General Baxter, who headed the Antitrust Division, testified 

when there was the break-up of Ma Bell. Senator Leahy will remember that. He was here. Senator DeWine and Senator Kohl, respectively, joined the Senate in the election of 1994 and the election of 1988, so they did not have the opportunity to participate in 

those hearings. But it was quite an event. 

I remember it especially because Senator Thurmond left, and I 

was the only Senator present. I had only been in the Senate a short 

time, and I thought it was terrific to be able to question the Assistant Attorney General. I spent about an hour at it. Nobody was listening, but it was something that I thought was worth doing. 

There is another issue which is very much on my mind, and I 

could not let the presence of the Chairman and CEO of AT&T and 

Chairman and CEO of BellSouth come to the Judiciary Committee 

room without my presence and raising an issue which is very much 

on my mind and on the minds of many people, and that relates to 

the question as disclosed by the USA Today report about telephone 

companies turning over identities of callers and calls, not content 

but callers and calls. 

I am not unaware of the position of the U.S. Government on this 

matter with respect to public disclosure, and it is a matter where 

I think there is a substantial public interest and the public ought 

5

to have an opportunity to know. And it may be that the details will 

come forward in closed session, or it may be that there will be another way of finding out exactly what is going on. 

The full Committee had considered the possibility on those subjects of a closed hearing. We considered the possibility of subpoenas, and we have put it on the agenda, but behind the NSA 

electronic surveillance program, which the President confirmed, 

and we are in discussions with the administration about the submission of that program to the Foreign Intelligence Surveillance 

Court, and candidly, that comes ahead of the issue of the disclosures by the telephone companies because content is more important, as I see it, and we are pursuing that on a priority basis. But 

we will return to this issue by the full Committee. 

I have seen a publication in the Chicago Sun Times dated today 

which reports from San Antonio: ‘‘AT&T Inc. is changing its privacy policy for Internet and television customers to specify that account information is a business record the company owns and can 

be disclosed to government and law enforcement and to protect the 

company’s ‘legitimate business interests.’ AT&T said the account 

information, including the customer’s name, address, phone number, and e-mail address, as well as information about the customer’s service, is owned by AT&T. The company said account information doesn’t include usage information, such as how a person 

uses the Web or what TV programs a person watches.’’ 

I am very interested to have this assertion of ownership interest; 

what its legal basis is, if any; when it was adopted; and what relationship it has, if any, to any prior disclosure to the U.S. Government. 

Thank you, Mr. Chairman. 

Chairman DEWINE. Well, we—Senator Leahy, I did not see you. 

Senator Leahy? 

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM THE STATE OF VERMONT 

Senator LEAHY. Mr. Chairman, I want to thank you and Senator 

Kohl for holding this hearing. I agree with Senator Specter that 

this is very, very timely. 

I was one of only five Senators to vote against the 1996 Telecom 

Act. I was concerned about the consequences of that bill. I argued 

that the promise of competition between the long distance and local 

telephone companies would ultimately prove to be a myth. I argued 

that the Act would allow the local regional Bells to reunite easily 

with unregulated local monopoly powers. 

Over the last decade, we have seen massive consolidation in the 

industry. Here we are again. Just 6 months ago, two of the biggest 

local phone companies acquired two of the biggest long-distance 

companies. 

When the AT&T monopoly was broken up, it was divided into 

seven Bell Operating Companies. Now, after this merger, there are 

going to be three. And the proposed merger would establish AT&T 

as the dominant company in 22 States. It seems it only took a few 

years to go right back and put us right back where we were before. 

I wonder what other consolidations this will bring about. As soon 

as AT&T and BellSouth announced the merger, one analyst said, 

6

‘‘Clearly, Verizon has to go after Qwest now. Verizon has got to 

keep AT&T from getting it.’’ 

You wonder where it ends. Six years ago, I introduced a bill to 

limit mergers among the RBOCs. I recalled that at my farmhouse 

in Middlesex, Vermont, and my house here, I had only one choice 

for local telephone service. And I know these never-ending mergers 

are not helping rural America, whether it is Vermont or Ohio or 

Pennsylvania or Wisconsin, very much. 

Old monopolies were simply regrouping and getting bigger. It 

was true then. It is true now. I do not think telephone companies 

should be able to gain concentrated control over huge percentages 

of the telephone access lines of this country through mergers. 

As President Reagan was wont to say, ‘‘Well, here you go again. 

Here you go again.’’ 

If Congress does not protect competition, then consumers are the 

ones who are going to suffer by having no choices. 

I know at my own home the choices I have are between mediocre 

and poor service. There is no competition there. Where will a consumer, enraged that her phone company is giving the Government 

records of her phone calls, call for an alternative? 

Now, Chairman Specter talked about the AT&T policy report 

today which AT&T asserts that private customer records are AT&T 

property. It was in one of a number of papers, actually, this one, 

USA Today, ‘‘AT&T: New privacy policy not ‘knee-jerk.’’’ Well, no, 

it is not knee-jerk. It is pretty amazing moving on its own. It would 

allow AT&T to divulge information to the highest bidder or just 

give it to the Government. It certainly would not make me feel very 

safe as a customer. It would worry the hell out of me. 

In the video services market, the telcos argue that competition 

is necessary for innovation and lowering prices for consumers. Of 

course, when it comes to broadband and voice services, apparently 

they do not feel as strongly about having to compete. 

So the merger is a lot more than just two of the biggest remaining wireline communications companies becoming one behemoth. 

It would put Cingular, the Nation’s largest wireless provider, in 

the hands of the largest wireline company. That takes care of any 

issue about competition between wireless and wireline. You wonder 

where it is going to end. We were told a few years ago, Boy, if we 

got competition, we are going to be in great shape. 

Well, Cingular is currently operating independently of AT&T and 

BellSouth. I thought it was a promising competitor for voice services and also the broadband access market. Of course, after this 

merger, it is only going to be part of the largest phone and 

broadband provider. 

When SBC and AT&T merged, AT&T agreed to a number of important but temporary conditions, including offering voice and 

Internet services unbundled and providing open access to the Internet. Of course, these conditions only remained for 18 months. It is 

anyone’s guess what happens next. 

Now, AT&T has made clear its intentions. Mr. Whitacre has infamously said that he is going to charge online businesses, discriminating among services. There goes the Internet as we have known 

it, and an Internet which has grown very well because Government 

has kept its hands off. I guess we should have known if you get 

7

a large enough monopoly, they can step in, but Government was 

wise enough to stay away. 

The Internet, which has opened windows on the world in oneroom schoolhouses in Vermont or to children from Africa to Indonesia, is the ultimate marketplace of ideas, where a better idea or 

a better service wins out because it is better. It is not going to be 

it will win out if it pays more. 

So let’s see what AT&T and BellSouth have to say about how 

this helps consumers. And, of course, I have some other questions. 

Chairman Specter has alluded to them, but I had my staff warn 

both companies that I am going to ask about this domestic surveillance and whether they act under the guise of law or just in an arbitrary fashion. And I can see by your expressions you can hardly 

wait for those questions. 

Thank you, Mr. Chairman. 

Chairman DEWINE. We thank you all for joining us. Let me ask 

the first question to all of you. Although the telecommunications 

industry has continued to consolidate, the number of phone company competitors has just decreased. We are seeing more and more 

competition from other industries, such as cable and Internet companies providing voice service. But at the same time, the phone 

companies are beginning to offer video service at the same time. In 

fact, many different types of providers are beginning to compete in 

providing a bundle of services. So we have begun to focus on this 

type of competition, known as intermodal, competition as the best 

hope for providing consumers with more choices. 

But, currently, broadband access is mostly available from cable 

and phone companies, and there is a widespread desire to see a socalled third pipe as a new way to deliver broadband access. Many 

in the industry believe that the wireless network is the best bet for 

providing this pipe, and WiMax service appears to be the technology for turning wireless into a viable broadband alternative. 

According to testimony from some of our witnesses today, both 

AT&T and BellSouth own a substantial amount of spectrum which 

might be suitable for WiMax service. The concern is that after this 

merger, AT&T will not have any incentive to develop a WiMax 

service because it would compete with AT&T’s existing broadband 

service. So many people are worried that AT&T will just warehouse 

the spectrum to prevent others from using it to compete in a 

broadband market. 

So I have two questions for all of you about this. One, how much 

spectrum is actually practically useful for WiMax? And of that 

total, how much do AT&T and BellSouth own? And, two, should we 

be concerned that AT&T and BellSouth will warehouse the spectrum to keep it from being used? 

Mr. Whitacre, why don’t we just start with you just because you 

happen to be to my left. And you need to pull that microphone pretty close to you, sir, and make sure it is on. The light should be on. 

Mr. WHITACRE. Is that better? Is that good? 

Chairman DEWINE. Yes, sir. 

8

STATEMENT OF EDWARD E. WHITACRE, JR., CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER, AT&T INC., SAN ANTONIO, TEXAS 

Mr. WHITACRE. From an AT&T standpoint, we do not have all 

that much spectrum, really a de minimis amount when you consider the total. BellSouth does have more, and I will let Mr. Ackerman speak to that. 

As far as warehousing spectrum, we use that spectrum. We do 

not warehouse it. WiMax does work. It is in its infancy, as you 

pointed out. It has a great future. There will be another way to 

provide broadband type services. I cannot tell you how far away 

that is, but I think it is months, not years, because we have it in 

trial at the laboratories. 

But as far as warehousing it, we do not warehouse it. We use 

that spectrum. That is our intent when we acquire it, and I think 

Mr. Ackerman has a better handle on what BellSouth has than I. 

[The prepared statement of Mr. Whitacre appears as a submission for the record.] 

Chairman DEWINE. All right. Mr. Ackerman? 

STATEMENT OF DUANE ACKERMAN, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, BELLSOUTH CORPORATION, ATLANTA, GEORGIA 

Mr. ACKERMAN. Thank you, Senator. 

To address your first question about the percentage of WiMax 

spectrum available and what percent AT&T and BellSouth will 

own, as we look at that, it will be somewhere close to approximately 16 percent of the total spectrum available for WiMax. So 

there is a lot of spectrum still out there. 

Having said that, Sprint Nextel has significant coverage. 

Clearwire has significant coverage. XO has significant coverage. 

And so there are a number of players and a lot of spectrum that 

is available for continued competition in this market. 

I think that in terms of warehousing versus use, I can only say, 

you know, some of the use that indeed we have put forward, for 

example, in Katrina, we used that spectrum to provide broadband 

services in the Bowl when there was a lack of other facilities due 

to the damage from the flooding that occurred during Katrina. We 

have provided services in rural areas that we did not have 

broadband facilities, so that indeed we could, you know, address 

that market there, places like Palatka. Certainly Athens is not 

rural, but we were looking next to a university to see how that 

would work. There were a number of other rural locations where 

we have provided that service. 

So we are experimenting on delivering this service in rural areas 

and trying to create a robust market there, and indeed, there is a 

great deal of spectrum still available. 

[The prepared statement of Mr. Ackerman appears as a submission for the record.] 

Chairman DEWINE. Mr. Geiger? 

9

STATEMENT OF JAMES F. GEIGER, FOUNDER, PRESIDENT, 

AND CHIEF EXECUTIVE OFFICER, CBEYOND COMMUNICATIONS 

Mr. GEIGER. I think that the pressure that comes to bear in our 

industry, in the competitive industry, is that there are very few 

choices. Broadband powerline is maybe an aspiration for the future. 

Cellular is not a substitute. Cable TV certainly has a network duopoly with the incumbent AT&T and BellSouth. 

I think what you find is, as the pressure for people to—for us in 

the industry to answer how do you intend to have your own network into these customers, we clearly cannot financially. It is not 

financially feasible to string our own networks. You know, it would 

be the equivalent of putting in new highways and railroad tracks. 

So I think what we look at in our industry is a financially viable 

way of doing that is wireless, and that spectrum would be very valuable to competitive companies. 

[The prepared statement of Mr. Geiger appears as a submission 

for the record.] 

Chairman DEWINE. Mr. Rubin? 

STATEMENT OF JONATHAN L. RUBIN, SENIOR RESEARCH FELLOW, AMERICAN ANTITRUST INSTITUTE, WASHINGTON, D.C. 

Mr. RUBIN. Thank you, Mr. Chairman. I am not sure what definition you are using for ‘‘warehousing,’’ but my understanding is that 

BellSouth has had quite a bit of spectrum— 

Chairman DEWINE. You have to pull your microphone up, and 

you are going to have to turn it on, sir. 

Mr. RUBIN. My mistake. Thank you, Mr. Chairman. I am not 

sure what your definition of ‘‘warehousing’’ is. I know that 

BellSouth has had spectrum that is suitable for WiMax in the 2.5 

gigahertz frequency range for about 10 years. To have taken 10 

years to roll out experimental WiMax in Palatka, Florida, and Athens, Georgia, to me I think that is warehousing. 

Whether or not in the future this spectrum is warehoused or not 

warehoused, either way it is a bad deal for consumers, and the reason is because this is the only hope really, at the moment the immediate hope of intermodal competition, that is to say, to have a 

separate, independent company providing broadband access. And if 

the post-merger company is able to control wireline broadband access, wireless broadband access, then there really will be no alternative but the cable-telco duopoly, which is the main problem here. 

[The prepared statement of Mr. Rubin appears as a submission 

for the record.] 

Chairman DEWINE. Thank you very much. 

Senator Kohl? 

Senator KOHL. Mr. Whitacre, many of us are concerned about recent press reports concerning the NSA domestic surveillance program and reports that AT&T and BellSouth have given the NSA 

records of the phone numbers called by millions of Americans. 

While, of course, we realize that there is a need to monitor phone 

calls by al Qaeda into the United States, obviously we want to do 

so in a way that protects Americans’ privacy rights as well. 

10

Mr. Whitacre, has AT&T or its predecessor, SBC, turned over 

customer phone records in bulk to the NSA without court order, as 

described by that article in the May 10th USA Today? 

Mr. WHITACRE. Thank you, Senator. Privacy of our customers is 

really utmost to AT&T. It has been for many years. Over the years, 

we have fired a lot of people for violating privacy. 

I will tell you that we follow the law, we don’t break the law, and 

that’s the story. 

Senator KOHL. Well, on May 11th, BellSouth issued a press release denying that it had any contact at all with the NSA or ever 

provided NSA with customer data. If AT&T did not supply such information to the NSA, why could you not also make the same statement that BellSouth made? 

Mr. WHITACRE. Senator, all I can say is the privacy of our customers is utmost, and we follow the law. That’s what we do. 

Senator KOHL. Thank you. 

Mr. Whitacre or Mr. Ackerman, one important consequence of all 

this consolidation in the industry is that it has become much easier 

for the Government to eavesdrop on consumer phone calls. There 

were once seven regional Bell companies and dozens of long-distance phone companies. After the merger, we will be left with just 

three regional phone companies—companies that have acquired 

their main long-distance phone company competitors and that 

owned the two largest cell phone providers. So now the privacy of 

consumers is left to the judgment of ever fewer and fewer people. 

So what are the implications for citizens’ privacy rights of concentration of this sort in our telecom system in so few hands? Do 

you believe that we should consider this in deciding whether to approve the merger? 

Mr. Whitacre, we will start with you, and then we would like to 

hear from Mr. Ackerman. 

Mr. WHITACRE. Well, certainly I can only speak for our company, 

but privacy, again, is utmost. We carefully guard that privacy. I 

don’t think that would change at all—in fact, I know it wouldn’t 

change with a merger or combining two. And, again, we are going 

to follow the law. The laws of the country are pretty plain. We 

know how to act on those. We have for many years. And we would 

follow the law, and I think it makes no difference. 

Senator KOHL. Mr. Ackerman? 

Mr. ACKERMAN. Yes, certainly in speaking for BellSouth and 

even anticipating the merger, you know, these two companies have 

a very similar history. I think they have a very similar culture. 

And, indeed, protecting the privacy of customers has been at the 

top of the list for a long, long time. And so I think as I speak for 

BellSouth, we are obviously very careful about protecting the privacy of our customer base, and I doubt seriously that there would 

be any impact as a result of this merger. 

Senator KOHL. Mr. Whitacre, the San Francisco Chronicle reported earlier this week that a new privacy policy will go into effect 

at AT&T tomorrow. The policy states that all confidential customer 

information is the property of AT&T and customer information can 

be used to ‘‘safeguard others or respond to legal process.’’ This is 

quite different from the current policy, which states that customer 

data can be used only ‘‘to respond to subpoenas, court orders, or 

11

other legal process, to the extent required and/or permitted by 

law.’’ 

So what has prompted AT&T to change its privacy policy to enable it to share customer data more freely? 

Mr. WHITACRE. Senator, that is not correct, but I’d be happy to 

talk about that. Again, we care very much about our customers’ 

privacy. We updated our privacy policy for our retail customers and 

our website visitors because of the SBC–AT&T merger, and we 

needed to put the two policies of the company together. 

We also updated the Yahoo! Internet policy, AT&T Yahoo! Internet policy, to include video customers and to reflect the fact that 

we are offering video, which we have not done before. 

The spirit of our policies, privacy policies and practices have not 

changed. We wanted to make our policies easier to read and easier 

to understand for our customers and to reflect the changes to our 

company and our new products. We have accomplished this, and 

we went outside to an organization called Trustee, and they give 

our new policies the thumbs up. We hope it is easier for them to 

read. They are in line with and they go in some cases beyond industry standards. I can’t think of a company—media company, 

communications company—that doesn’t have a similar policy. We 

don’t provide personal information to third parties for marketing 

purposes. We use customer information in order to prioritize or 

customize or personalize our customers’ viewing experience. 

And so we are under obligation to assist law enforcement under 

proper circumstances, but trust with us and the trust our customers have in us come No. 1. We have done nothing but update 

our policy. There really is no change. We have made it easier to 

read. 

Senator KOHL. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman DEWINE. Senator Specter? 

Senator SPECTER. Mr. Whitacre, you say you do not provide customer data to third parties. Does that include law enforcement? 

Mr. WHITACRE. I said except under legal circumstances, Senator. 

Senator SPECTER. Well, answer my question. Does that include 

law enforcement? 

Mr. WHITACRE. If it’s properly asked of us and it’s the proper 

documentation and it’s legal and it’s lawful, we will cooperate. 

Senator SPECTER. Has AT&T provided customer information to 

any law enforcement agency? 

Mr. WHITACRE. Senator, we protect the privacy of our customers 

and we follow the law, and that’s all I can say about that. 

Senator SPECTER. Are you declining to answer my question, Mr. 

Whitacre? 

Mr. WHITACRE. We follow the law, Senator. 

Senator SPECTER. Does AT&T provide customer information to 

any law enforcement agency? 

Mr. WHITACRE. We follow the law, Senator. 

Senator SPECTER. That is not an answer, Mr. Whitacre. You 

know that. 

Mr. WHITACRE. That’s all I’m going to say is we follow the law. 

It is an answer. I’m telling you we don’t violate the law. We follow 

the law. 

12

Senator SPECTER. No, that is a legal conclusion, Mr. Whitacre, 

and you may be right or you may be wrong. But I am asking you 

for a factual matter. Does your company provide information to the 

Federal Government or any law enforcement, information about 

customers? 

Mr. WHITACRE. If it’s legal and we are requested to do so, of 

course we do. 

Senator SPECTER. Have you? 

Mr. WHITACRE. Senator, all I’m going to say is we follow the law. 

Senator SPECTER. That’s not an answer. That’s not an answer. 

It’s an evasion. 

Mr. WHITACRE. It is an answer. 

Senator SPECTER. If you are under instructions by the Federal 

Government— 

Mr. WHITACRE. We follow the law, Senator. 

Senator SPECTER. You said that. I don’t care to hear it again. 

Mr. WHITACRE. I don’t care to repeat it again, either, but— 

Senator SPECTER. Well, then don’t. 

Mr. WHITACRE.—we do. 

Senator SPECTER. Then don’t. If you are under instructions by 

the Federal Government as a matter of state secrecy not to talk, 

say so. 

Mr. WHITACRE. Senator, we follow the law. 

Senator SPECTER. Well, I think that answer is contemptuous of 

this Committee. 

Mr. Ackerman, does your company provide customer information 

to any law enforcement agency? 

Mr. ACKERMAN. Where we are given a subpoena, yes, we do. But 

in relationship— 

Senator SPECTER. Could you speak into the microphone so we 

can hear you, please? 

Mr. ACKERMAN. Yes. In relationship to the story in USA Today, 

NSA did not ask BellSouth for information. We did not provide 

bulk calling information to NSA, and we do not have a contract 

with NSA. 

Senator SPECTER. So you provided no information to NSA. 

Mr. ACKERMAN. No, sir. We have been unable to determine that 

we have. We do indeed provide— 

Senator SPECTER. You said you have been unable to determine? 

Mr. ACKERMAN. Well, that is proving a negative, but that is 

not—I am not splitting words there. I am simply saying we do not 

have a contract with NSA, they have not asked, and we have not 

provided. 

Senator SPECTER. OK. That is— 

Mr. ACKERMAN. But I do, you know, hasten to say that where we 

get a legal subpoena from a law enforcement entity and it is courtordered or any kind of lawful request, we do provide that information. 

Senator SPECTER. Mr. Ackerman, I respect that. That is the way 

the system works. If you get a subpoena or a court order, you provide the information. 

Mr. Whitacre, with that precedent in mind, has your company 

gotten a subpoena or a court order to provide any customer information? 

13

Mr. WHITACRE. Senator, we get court orders or subpoenas all the 

time to provide that information— 

Senator SPECTER. Let me rephrase— 

Mr. WHITACRE. If it’s legal, we do it. 

Senator SPECTER. Have you gotten any court order or subpoena 

or legal process to provide the information that was disclosed in the 

USA Today story? 

Mr. WHITACRE. I assume you are talking about the story that appeared several weeks ago. 

Senator SPECTER. That is a pretty safe assumption. 

Mr. WHITACRE. Well, Senator, I am not allowed to answer that. 

That is classified information. We follow the law. 

Senator SPECTER. Well, now you are saying a little more. Has 

somebody told you you are not allowed to provide that information? 

Mr. WHITACRE. Well, Senator, I have talked to a lot of lawyers 

on this, and, you know, the answer is just the one I have given you, 

that is, we abide by the law. 

Senator SPECTER. You were told you could not provide the information. You have testified to that. And you have testified that you 

could not provide the information because it is classified. 

Mr. WHITACRE. Senator, I was advised to say—and I agree—that 

we follow the law. We abide by the laws. 

Senator SPECTER. Well, you have said a little more. 

Mr. WHITACRE. I cannot say any more than that. 

Senator SPECTER. Who told you that you could not provide the 

information because it was classified? 

Mr. WHITACRE. I have certainly talked to several attorneys in 

AT&T, and— 

Senator SPECTER. Who are they? 

Mr. WHITACRE. Well, the general counsel, for example. But I am 

not at liberty to talk any more about it other than to inform you 

that we follow the law. 

Senator SPECTER. My red light is about to go on, and I respect 

the red light, and I respect you, and you and I will talk about this 

further. 

Mr. WHITACRE. Fine. That would be fine with me. 

Chairman DEWINE. Senator Leahy? 

Senator LEAHY. Thank you, Mr. Chairman. I have enjoyed—not 

enjoyed, but I have noted Mr. Whitacre’s non-answers to Chairman 

Specter. I still don’t know whether NSA got the information or not. 

Mr. Ackerman says they did not. You do not respond. It would be 

interesting if they were able to in one and not in the other. It 

makes you wonder just how important the information is if you 

could leave such big gaps. 

Mr. Whitacre, you have said over and over again that the privacy 

of your customers is paramount. The Washington Post this morning reported your company has revised its privacy policy to claim—

and I was astonished at this—that AT&T owns personal customer 

records and the company has a right to disclose those records. In 

addition, the new policy apparently no longer assures customers 

that AT&T will not access, read, upload, or store data from private 

files without specific authorization. It seems to allow AT&T to collect Internet navigation and video viewing records. 

14

I am beginning to wonder if anybody who deals with your company, any American who deals with your company, whether they 

have any privacy at all left. The administration claims the right to 

eavesdrop on Americans’ telephone calls without a warrant. Now 

the Nation’s largest telephone company says that they can control 

these private telephone and Internet records, and in this report, 

you are not asking about any kind of a valid order. Your spokeswoman, Tiffany Nels, was quoted as saying, ‘‘These changes are 

principally motivated’’ by the proposed merger we are examining 

today. And I know that you were reading very carefully the statement in response—and I agree with him, the non-response—to 

Chairman Specter. At least you are not exactly taking the Fifth, 

but you are certainly not responding. If that was done to placate 

Chairman Specter on the Republican side or me on the Democratic 

side, it did not. 

Mr. Ackerman, let me ask you this: This newly announced AT&T 

policy, is that the current policy of BellSouth? 

Mr. ACKERMAN. Senator, I haven’t had an opportunity to see—

I read that in the newspaper this morning also. You know, again, 

I think that the spirit and the actuality of all this is that, you 

know, our customers are notified in advance. We put on our 

website when they apply for service the conditions under which we 

will share their information. And— 

Senator LEAHY. Well, let me go into that a little bit. Both Senator Specter and I are former prosecutors. Senator DeWine was. 

We know that you can get a subpoena for such records. I do not 

question that. But would that allow you to just go in and—do you 

interpret your company policy that you can just go in and sell data 

to somebody that may want it for advertising purposes or anything 

else? 

Mr. ACKERMAN. No, sir. As I was about to say, we do not disclose 

this information to third parties for marketing purposes or other 

purposes. We, in fact, do tell them that this information can be 

shared if we are trying to deal with some legal issue that, in fact, 

has had a subpoena or a lawful request for that data. And, indeed, 

we share this information with them. 

As far as laying everything down, again, I have not had an opportunity to look at that tit-for-tat, but I think in general, it is 

probably fairly similar. 

Senator LEAHY. Well, Mr. Whitacre, you—am I pronouncing your 

name correctly? 

Mr. WHITACRE. Yes, you are, Senator. 

Senator LEAHY. Mr. Whitacre, you said your new privacy policy 

does not represent a change. Apparently, the press probably did. 

But does that mean you have always taken the position you had 

complete control over private customer data? 

Mr. WHITACRE. Senator, as Mr. Ackerman just said, we carefully 

guard that information. The conditions are put out up front to each 

customer what that concerns. Those are business records. We use 

those to personalize the services we give. We do not market those 

or give those lists or any of that information to third parties. We 

have just simply tried to make the privacy policy more understandable to our customers, and I would dare say that every company 

15

has a privacy policy that is very similar, if different at all, to this 

one. 

Senator LEAHY. Let me ask you specifically about your privacy 

policy. Your privacy policy, if somebody signed a contract with you, 

with your company for your service, does that allow you to own the 

data? I am not talking about a valid court order or valid law enforcement subpoena. Does it allow you to own, under the contract 

they sign, does it allow you to own their data? 

Mr. WHITACRE. Well, it allows us to have information, Senator, 

to, for example, personalize their service, installation data, repair 

data if the problem goes in, but that data is held in the strictest 

of confidence. But it is business records of AT&T. 

Senator LEAHY. To personalize their—if they have broadband, 

would that include being able to tell companies which sites they go 

on the most? 

Mr. WHITACRE. No, sir, we would not do that. 

Senator LEAHY. Does it allow it to have people tailor ads for that 

particular customer? 

Mr. WHITACRE. No, sir, we would not do that. 

Senator LEAHY. My time is up, but I am disturbed by this testimony. I would also note, Mr. Chairman, we have votes on. I was 

going to ask Mr. Whitacre about why he opposes network neutrality, but I will submit that for the record. 

Chairman DEWINE. All right. Mr. Whitacre, members of the 

panel, we have a series of three votes. That is probably good news 

for you all. That means the hearing is going to end in just a moment. I am going to ask one question, and we will then turn it over 

to Senator Kohl. I am going to leave after I ask my question because I am going to start walking to the vote. 

Mr. Whitacre, it is a question for you, if you could take about 2 

minutes to answer it, and then that will give Senator Kohl time to 

ask one question, as well, maybe Senator Leahy. 

On several occasions, we have discussed your new video service, 

which you are beginning to roll out throughout the country. You 

have said that in certain areas this merger will increase the speed 

of the rollout. How are you going to—how are you doing with regard to your efforts to provide video service? What are the biggest 

problems you have encountered? Where are you having the most 

success? And, specifically, what are AT&T’s plans to provide video 

service in Ohio? And will this merger make service available any 

more quickly in Ohio? In about 2 minutes, if you can do that. 

Mr. WHITACRE. Well, we are doing well in the television services 

called IPTV. We now have it in operation in San Antonio. We have 

a schedule. We will cover 18 million of our current AT&T customers in the next 3 years. The BellSouth addition to that will 

make that number go up. I have not had a chance, nor can I yet 

tell you how many. 

There is a plan for Ohio, I am happy to report. I think you will 

like the service very much. I can’t tell you the specific date, but I 

can tell you it will be within the next 12 to 14 months. 

Chairman DEWINE. Senator Kohl, for about 2 minutes, and then 

Senator Leahy for 2, and we will be done. 

Senator KOHL. Mr. Whitacre, as part of the approval of the SBC–

AT&T merger, we recommended and both Justice and the FCC apVerDate 0ct 09 2002 13:17 Sep 22, 2006 Jkt 029938 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29938.TXT SJUD4 PsN: CMORC
16

proved a number of pro-competition merger conditions. These conditions included offering DSL Internet connections to consumers 

without also requiring them to buy phone service, a requirement 

that AT&T divest duplicative, overlapping networks, and several 

others. 

Could you commit to us today to follow similar merger conditions 

as a condition of approval of this merger today? If there are any 

merger conditions that you believe should not be applied to this 

deal, could you identify them and explain why? 

Mr. WHITACRE. Senator, I don’t believe that there should be any 

conditions applied. The industry has changed drastically. There are 

many competitors. There used to be one; now there are hundreds. 

There is wireless, there are CLECs, there are cable companies, 

there are voice over IP services. I don’t believe there should be any 

restrictions. 

In the previous one, we had some on special access where we had 

duplicative facilities and there was no other way to get in the 

building, if you would. Certainly we would agree with that this 

time. Beyond that, I don’t think there should be any conditions. 

Senator KOHL. Mr. Geiger, do you have any comment on that? 

Mr. GEIGER. Well, I think that this combined company is 

vertically integrated beyond which most people understand. You 

know, even in an intermodal environment, companies like Sprint 

and Nextel need to come to these companies for interconnection, for 

special access services. And I would tell you that as far as network 

intermodal—real network competition, there are very few. The 

cable company has real competition in residence but not to business, I am here to tell you—because I look for alternatives. 

BellSouth & AT&T are my two biggest suppliers, and we constantly are looking for alternatives. There aren’t any. 

So on a network basis, there isn’t much intermodal competition 

at all. 

Chairman DEWINE. Senator Leahy? 

Senator LEAHY. Thank you, Mr. Chairman. 

Mr. Whitacre, you have been one of the most outspoken opponents of network neutrality. You very openly, and I would say very 

honestly, express your intention to charge Internet companies for 

access and for priority in reaching consumers on your network. 

While I disagree with what you want to do, I admire your candor. 

If you are going to pick our pockets, you are going to let us know 

ahead of time. 

But last year, as part of the AT&T–SBC transaction, your company made, by the FCC, what they termed certain voluntary commitments. One of them was to comply for 2 years with their policy 

statements. That arguably permits broadband access providers to 

charge for better access. I understand you currently are not discriminating against providers. 

Why did you make that commitment to the FCC? And what circumstances would allow you to back off from it? 

Mr. WHITACRE. Senator, the FCC has put out a set of principles 

covering the Internet, which I think cover all facets of it. Maybe 

contrary to popular belief, AT&T is not the Internet. There are 

many other backbone providers to the Internet, not just AT&T. 

17

I really think it is probably a solution looking for a problem. We 

have openly stated, as I will again, we will not block, we will not 

impair anybody’s service on the Internet. But, Senator, this Internet is growing, and it is growing at an astounding rate. The facilities that back up the Internet, the backbone, if you will, continually 

have to be expanded. Somebody has to pay for that. You cannot expect any company, my company or anyone else, to pour in these billions of dollars that are required without some return. 

Senator LEAHY. But what you are saying is you could say we will 

charge more if you get this site than if you get this site. Is that 

what you are saying? 

Mr. WHITACRE. No, Senator. I am saying we would like to offer 

quality of service, or whatever the customer wants, for a fee. The 

alternative to that is to raise the fees for the end users if somebody 

is going to pay for this, and it has to be paid for. I don’t think that 

is a very good solution. 

Chairman DEWINE. Mr. Whitacre, I— 

Mr. WHITACRE. I think quality of service and those sorts of 

things would be healthy. Sorry, Senator. 

Chairman DEWINE. No. I know you have got to answer, but our 

time is up, and we have about 4 minutes to walk over there and 

vote. So we appreciate it. We appreciate all of you coming in. 

We will submit questions for the record, and we will give you all 

a chance to answer some more questions. But we appreciate you 

coming in. Thank you. 

[Whereupon, at 3:55 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

[Additional material is being retained in the Committee files.]

18


29938.001
19


29938.002
20


29938.003
21


29938.004
22


29938.005
23


29938.006
24


29938.007
25


29938.008
26


29938.009
27


29938.010
28


29938.011
29


29938.012
30


29938.013
31


29938.014
32


29938.015
33


29938.016
34


29938.017
35


29938.018
36


29938.019
37


29938.020
38


29938.021
39


29938.022
40


29938.023
41


29938.024
42


29938.025
43


29938.026
44


29938.027
45


29938.028
46


29938.029
47


29938.030
48


29938.031
49


29938.032
50


29938.033
51


29938.034
52


29938.035
53


29938.036
54


29938.037
55


29938.038
56


29938.039
57


29938.040
58


29938.041
59


29938.042
60


29938.043
61


29938.044
62


29938.045
63


29938.046
64


29938.047
65


29938.048
66


29938.049
67


29938.050
68


29938.051
69


29938.052
70


29938.053
71


29938.054
72


29938.055
73


29938.056
74


29938.057
75


29938.058
76


29938.059
77


29938.060
78


29938.061
79


29938.062
80


29938.063
81


29938.064
82


29938.065
83


29938.066
84


29938.067
85


29938.068
86


29938.069
87


29938.070
88


29938.071
89


29938.072
90


29938.073
91


29938.074
92


29938.075
93


29938.076
94


29938.077
95


29938.078
96


29938.079
97


29938.080
98

Æ


29938.081