By Red Herring Staff

AT&T completed its $85.8 billion acquisition of BellSouth Friday after the U.S. Federal Communications Commission voted 4-0 to allow the controversial deal to proceed.

The move came after AT&T agreed to a long list of concessions to end a partisan standoff that had held up the deal's approval for months. In a letter filed Thursday, AT&T said it would treat all data packets on its networks equally (see “AT&T Backs Net Neutrality”). It also promised to sell high-speed Internet service for $19.95 without requiring that customers also sign up for its phone service.

AT&T Backs Net Neutrality

The FCC’s vote reunites two more pieces of the Bell System broken up in 1984 to settle an anti-trust suit brought by the U.S. Justice Department. That move broke AT&T into a long distance company and a group of seven regional carriers. With its takeover of SBC, AT&T will become a giant once again, with a market capitalization of more than $220 billion and 67.5 million local phone customers.

However, this giant will face a far more dangerous environment than the old AT&T had to contend with. Internet-based voice services such as Vonage and Skype are stealing customers away from the aging phone system. Cable television companies such as giant Comcast are offering packages of broadband Internet and voice service. Mobile phone giants such as T-Mobile are vying with upstarts such as Helios to reshape how and where their customers communicate.

Such competition has forced struggling telephone giants to pair up to survive. The FCC’s moves comes just 13 months after U.S. regional phone company SBC closed its $16.9 billion acquisition of AT&T, taking AT&T’s better known brand name in the process. It also follows Verizon’s $8.5 billion purchase of scandal-plagued MCI in April 2005.

$16.9

Led by the management team from SBC, however, AT&T has begun reshaping itself into a powerhouse with a lineup of broadband, voice, and video offerings it can package to save off competitors. Over the past year, AT&T shares have risen 34.7 percent to $35.75 from $23.34.

With the deal done, AT&T now plans to push its Internet-based video service throughout the Southeastern United States, putting the pressure on its rivals in the cable television business. The company plans to offer the service in 19 million homes in the central and southwestern United States by the end of 2008.