Approval of the AT&T-BellSouth merger is once again up in the air, as Federal Communications Commissioner Robert McDowell announced today that he will not vote to break the current 2-2 deadlock.

In his statement, McDowell said the Ethics Agreement he signed when he was approved as an FCC commissioner stipulated he would not vote on matters involving his former employer, Comptel, for a year after his resignation from that organization on May 31. And while FCC General Counsel Sam Feder ruled that McDowell could choose to vote, because the other four commissioners had hit an impasse on the merger approval, that ruling did not take the Ethics Agreement into account, McDowell said.

“In all candor… I had expected a memorandum making a strong and clear case for my participation,” McDowell said. “Instead, [Feder’s] Authorization Memo is hesitant, does not acknowledge crucial facts and analyses, and concludes by framing this matter as an ethical coin-toss frozen in mid-air. The document does not provide me with confidence or comfort … While I expected the legal equivalent of body armor, I was handed Swiss cheese.”

After conferring with his personal ethics counselor, McDowell chose to remain recused from voting.

FCC Chairman Kevin Martin responded to McDowell’s decision with his own statement.

“I appreciate Commissioner McDowell's thoughtful consideration and respect his decision to abstain,” Martin said. “My goal in recent weeks has been to ensure that the Commission acted on the transaction. The Commission is not obligated to reach a particular outcome. However, the Commission is responsible for making a determination in a timely fashion. With Commissioner McDowell having made his decision, I will continue to try to work with my colleagues to bring our consideration of this merger to conclusion.”

With McDowell deciding not to vote, the AT&T-BellSouth merger approval will now come down to ongoing negotiations between the two companies and the four other FCC commissioners, predicted analysts at Stifel Nicolaus, who had correctly predicted McDowell’s decision.

What is likely, they said, is that negotiations between AT&T-BellSouth officials and the FCC will continue, with both sides knuckling down to resolve remaining issues.

If there is any positive news for AT&T, it is that the Democrats are not lining up to oppose the merger, so much as they are seeking more conditions to protect competition, and possibly impose Net neutrality provisions. According to Stifel Nicolaus, key Democrats such as Michigan Congressman John Dingell are likely to want to see the merger go through without substantial further delay, and to press the two Democratic members of the FCC--Jonathan Adelstein and Michael Copps--to get a deal done.

AT&T responded to McDowell’s decision by urging the FCC to consider the economic impact of delay.

“Our merger is in the best interest of consumers, the economy and the nation,” the company said through a spokesperson. “A broad range of individuals and organizations--including the Communications Workers of America--have voiced their support for the merger and the pro-consumer conditions we have offered. State regulators, minority organizations, small business groups, educational and community groups and elected officials from both the Democratic and Republican parties have all recognized the concrete benefits that our merger brings to consumers and the public interest. We have sought the support for this merger from every member of the commission since the very beginning and we will continue to do so. We will--as we have always done--do our part to bring the merger review to a bipartisan completion as quickly as possible.”

But the merger vote will now be delayed further, something that is of concern to the entire telecom industry. A growing list of equipment vendors is complaining that the merger uncertainty is affecting their bottom line.

One issue that is likely to come up at the Dec. 20 FCC meeting is the commission’s plan for video franchise rule changes which would benefit AT&T and Verizon as they seek to expand their video service territory.

The FCC is slated to vote on a plan that would require local governments to act on franchise applications from telephone companies within 90 days and would limit the conditions they can impose on franchisees. Video franchise applications that don’t currently own rights of way would face a 180-day review period.