US signals approval for BT-MCI pounds 13bn merger

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The head of the US telephones watchdog last night gave the first clear signal that the regulatory authorities in Washington are likely to approve British Telecoms pounds 13bn merger with MCI.

Reed Hundt, chairman of the Federal Communications Commission, said he believed the FCC would approve the deal despite objections from rival carriers in the US and UK, including AT&T.

Mr Hundt said that, based on commitments to global competition made by the carriers: "I personally believe we can and should approve the BT-MCI merger as in the public interest." However, he suggested the FCC could demand stiffer conditions than those recently imposed by the European Commission for the merger to proceed.

Mr Hundt said he backed moves by the Commission to give rival carriers equal access to BT's UK network, undermining a key principle of the British competition experiment.

Equal access, the method used in the US to break up AT&T's monopoly in the 1980s, would give consumers the ability to select a single phone operator even if their only connection to the home was via BT wires.

The UK system, known as indirect access, means households taking long- distance services from operators such as Mercury continue to receive a bill for line rental and local calls from BT.

The European Commission's proposed directive, advocating equal access in all EU states, has been opposed by the British government. Oftel the UK watchdog, has strongly backed indirect access, arguing it was the only way to encourage cable companies to build rival local networks.

Don Cruickshank, the British regulator, gave a high-profile speech in Washington this year supporting the different UK regulatory framework, a move seen as highly favourable to BT.

A BT spokesman welcomed the comments last night, but doubted whether Mr Hundt has wholeheartedly backed equal access for the UK market. However, BT said that the general comments were "good news" and "another step in the process".

Mr Hundt's intervention also suggested the merger may get approval earlier than expected. It still requires a final ruling from the FCC itself, followed by a consultation process by both the FCC and the US Department of Justice. The comments indicated the deal could get the final go-ahead by September. The FCC's decision was previously expected in October.

The latest move comes as BT continues to debate whether to renegotiate the terms of the merger after MCI stunned investors with a profits warning a fortnight ago. Sir Peter Bonfield, BT chief executive, has just returned from the US, as part of a review of the deal.