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How AT&T chewed up, and spat out Net Neutrality

Masterpiece of misdirection

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Analysis It sure would be nice, but it doesn't have much chance of happening because of market power, size, etc. I think it would be real hard to do. I don't think the regulators would let that happen, in my judgment." - Ed Whitacre on the possibility of taking over BellSouth, 2005.

The definition of a Southern Gentleman, it's said, is someone so charming they can hand you your guts back on a plate - and you thank them.

If that's the case, then AT&T CEO Ed Whitacre can have few peers in the charm sweeps. Whitacre has dispatched potential opposition to AT&T's corporate expansion with the insouciance of a lion swatting a fly with its tail. Victory was complete shortly before the New Year, when the FCC agreed to Whitacre's second mega-merger in the space of two years without hampering the emerging behemoth. The US regulator signed off on the AT&T-BellSouth merger that Whitacre himself had said he thought impossible, only 15 months earlier.

It's been a masterpiece of misdirection. Whether by happy accident or design, Whitacre sent the opposition down a dead end, focusing its attention on a non-issue - or more accurately, an "issue" he himself created. The FCC applied the coup de grace with just one one sentence on December 29.

As the product of a series of mergers, AT&T now employs over 300,000 people and turns over $115bn in revenue - eleven Googles, or four Intels. The deal signed off by the FCC over the holidays also gives AT&T full control of Cingular, the United States' second largest cellular network. Can there be anyone happier in the telecoms business tonight than Whitacre?

In a decade, American consumers have seen the number of Regional Bell Operating Companies (RBOCs), or Baby Bells, coalesce from six down to just three: the odd man out, Qwest, the RBOC which covers the sparsely populated Mountain states, is surely next on AT&T's menu.

The extraordinary thing is that all this took place at a time in the wake of the fall out from the telecoms bubble. The Bells enjoyed little affection from the public in any case, long before Global Crossing and MCI. and with an unpopular Republican President, Democrats can have been expected to push a few populist buttons, and hear some bells.

What actually happened is that Whitacre got everything he wanted, but only thanks to the aid of The Democratic Party, most of whom aren't aware how thoroughly they've been outwitted.

Now that's style.

Let's see how he did it.

Step One: Create Hysteria

In an interview with Business Week in October 2005, Whitacre said he thought taking over BellSouth would be rejected by the FCC. He also made another memorable comment that began the process which culminated in the FCC's approval in December.

It's worth citing in full, as we'll return to it - in light of what people thought he said.

Q.How concerned are you about Internet upstarts like Google, MSN, Vonage, and others?

A. How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!

That did the trick.

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