Dec. 29 (Bloomberg) -- AT&T completed its $86 billion purchase of BellSouth Corp. after federal regulators cleared the way for the U.S. telephone industry's biggest takeover ever.

The 4-0 vote today by the U.S. Federal Communications Commission followed AT&T's offer of concessions to appease the agency's two Democrats, who held up the deal. Those included a pledge to offer low-cost Internet service and a promise to provide companies such as Google Inc. equal network access.

The acquisition cements AT&T's position as the dominant U.S. supplier of local, long-distance and wireless phone service, as well as the second-largest provider of fast Internet access. San Antonio-based AT&T will serve more than 35 million residential customers in 22 states and gain full ownership of Cingular Wireless LLC.

``You're reassembling the old AT&T in 22 states,'' said Earl Comstock, chief executive officer of Comptel, a Washington- based group that represents competing phone companies. While praising the commissioners who pushed for concessions, he questioned whether they go far enough.

Shares of AT&T advanced 25 cents to $35.75 at 4 p.m. in New York Stock Exchange composite trading to their highest level in more than four years. Atlanta-based BellSouth rose 31 cents to $47.11 and have gained 74 percent this year.

FCC approval came less than 24 hours after AT&T agreed to conditions including price cuts for large businesses and the divestiture of airwaves that can be used for wireless broadband Internet service. The conditions expire in two to four years.

`Historic Merger'

``We got more concessions to protect consumers than anybody thought possible when this got started,'' FCC Commissioner Jonathan Adelstein, one of the agency's two Democrats, said today in an interview. ``It's a historic merger, and it needed the historic conditions that we were able to attach.''

FCC Chairman Kevin Martin, along with his Republican colleague Deborah Taylor Tate, issued their own statement after the vote, highlighting the differences on the commission.

``Some of the conditions impose burdens that have nothing to do with the transaction, are discriminatory, and run contrary to commission policy and precedent,'' Martin and Tate wrote.

The concessions ended a three-month stalemate between Martin, Tate and the panel's Democrats, Adelstein and Michael Copps, who demanded price controls and the other restrictions.

New Proposals

AT&T's proposals went beyond ones offered in October and underscored the company's drive to extend its dominance in traditional and wireless phone service. AT&T also promised to repatriate 3,000 BellSouth jobs now outside the U.S. and pledged 200 jobs for New Orleans.

BellSouth is the dominant local phone company in nine southern states, providing AT&T with broader reach not only for its wireline and wireless phone businesses but also for the fledgling U-verse television service that is designed to compete with cable TV companies.

AT&T said today advertising to adopt the AT&T name for BellSouth would begin in days and the company plans a similar transition for Cingular next year.

Adelstein and Copps gained leverage in seeking tougher conditions after the fifth commissioner, Republican Robert McDowell, said he would abstain from voting because of his past work as a lobbyist for smaller phone companies.

Under terms of the deal, AT&T agreed to cap prices on large capacity telecommunications lines that provide phone and data services for large businesses for four years. In addition, the company agreed to cut prices on some lines that had been deregulated during the late 1990s.

Divestitures

AT&T also will divest some wireless licenses in BellSouth's nine-state region. The licenses cover airwaves suitable for high-speed Internet access. Atlanta-based Cingular, co-owned by AT&T and BellSouth, is the biggest U.S. mobile services company.

The purchase caps a 17-year spending spree that led AT&T Chief Executive Officer Ed Whitacre, 65, to the top of the U.S. telephone industry. As head of the former SBC Communications, Whitacre ran the smallest of the seven local-phone companies or Baby Bells created from the 1984 breakup of AT&T.

Along the way, SBC purchased Pacific Telesis Group for $16.5 billion in 1997, and a year ago acquired AT&T Corp., the largest U.S. long-distance service, also for $16.5 billion. Whitacre renamed his company AT&T Inc.

With today's takeover, three of the seven local phone companies remain: AT&T, Verizon Communications Inc. and Qwest Communications International Inc.

`Network Neutrality'

In a bow to backers of ``network neutrality,'' AT&T agreed to refrain from charging companies such as Google premium fees for faster subscriber access. Neutrality supporters have urged Congress not to let phone companies charge higher fees for faster service, which they liken to tolls on the Internet.

The transaction won unconditional approval from the Justice Department and 18 states.

AT&T's 5.1 percent notes maturing in September 2014 fell 0.67 cent to 96.70 cents on the dollar today to yield 5.63 percent, according to Trace, the bond reporting system of the NASD. BellSouth's 5.2 percent notes due in September 2014 rose 2.09 cents to 99.30 cents to yield 5.31 percent.

The cost of credit-default swaps based on $10 million of AT&T debt was little changed at $8,280 today, according to prices compiled by Bloomberg. The price is down from as high as $40,000 in January. The contracts are financial instruments based on corporate bonds and loans that are used to speculate on a company's ability to repay debt. A decrease indicates improving credit quality.

BellSouth investors will get 1.325 AT&T shares for each they now own, representing an 18 percent premium based on the companies' stock prices on March 3, the last trading day before the deal was announced. While that put the value of the acquisition at about $67 billion, AT&T shares have risen 28 percent since then.

To contact the reporters on this story: Christopher Stern in Washington at Cstern3@bloomberg.net; Molly Peterson in Washington at mpeterson9@bloomberg.net

Last Updated: December 29, 2006 19:34 EST