The U.S. Department of Justice today approved the mergers of SBC-AT&T and Verizon-MCI, provided the two companies agree to lease fiber optic facilities in some cities to a third competitor. Both SBC-AT&T and Verizon-MCI have already agreed to the stipulations in a consent decree, the companies announced.

The two mergers still face scrutiny by the Federal Communications Commission and by some state commissions. SBC says its acquisition of AT&T will be completed by year’s end and Verizon is expecting to close its deal by January, 2006.

The DOJ ruled that competition would be adversely affected in eight metropolitan areas within Verizon’s local franchise footprint and 11 within SBC’s if the mergers were allowed to proceed without divestiture.

DOJ said it sought action where either Verizon-MCI or SBC-AT&T operate the only two direct wireline connections to about 350 total buildings each.

“Today's action by the Department ensures that business customers that provide or buy telecommunications services to locations in Verizon's and SBC's territories will continue to benefit from competition,” said Thomas O. Barnett, Acting Assistant Attorney General in charge of the Department's Antitrust Division, in a prepared statement.

Earl Comstock, president and CEO of Comptel, a lobbying group for competitive carriers, said, however, that the DOJ is protecting the interest of Bell monopolies over those of customers.

“COMPTEL is disappointed to see the DOJ kowtow to the monopoly interests of SBC and Verizon and bless a merger that, pursuant to the Department’s own merger guidelines, would have been quickly rejected had the government fulfilled its mandate to protect citizens from harm,” he said in a statement. “As standalone companies, AT&T and MCI competed against the Bell Companies throughout their entire regions, and for all classes of customers, resulting in deployment of innovative new services at lower prices. Today, the Department of Justice tosses the American consumer and small business aside, and ensures that a few businesses in a few hundred buildings in the country – less than one percent of the nation’s buildings – may have a chance at obtaining an alternative to the monopoly Bell Company.”

AT&T and MCI have operated the two largest CLECs in the U.S., competing with the Bell companies almost exclusively in the business arena. DOJ said its investigation showed that, once this competition was eliminated through mergers, businesses would pay more for telecom service in Verizon cities including the metropolitan areas of Washington-Baltimore; Boston; New York; Philadelphia; Tampa; Richmond, Virginia; Providence, Rhode Island; and Portland, Maine.

The same competitive issues arise given the merger of AT&T and SBC in the metro areas of metropolitan areas of Chicago; Dallas-Fort Worth; Detroit; Hartford-New Haven, Connecticut; Indianapolis; Kansas City; Los Angeles; Milwaukee; San Diego; San Francisco-San Jose; and St. Louis.

Under the terms of the proposed settlement, Verizon and SBC would have to find a single buyer to purchase connections to more than 350 buildings, using long-term leases known as IRUs or indefeasible rights of use.

Comptel, along with a group of competitive carriers, is pushing for the FCC to impose further conditions on the merged companies, including price protection for special access lines. The FCC is scheduled to discuss the mergers beginning tomorrow.