The next major hurdle is approval from the Federal Communications Commission (FCC). That, however, may not be as easy to navigate.

The FCC’s vote was initially scheduled for Thursday and has apparently been delayed again today. The reason: fierce opposition on the part of the commission’s two Democrats to passing the deal without conditions.

Jonathan Adelstein called the Justice Dept’s ruling “a reckless abandonment of responsibility to protect competition and consumers.”

Fellow Democrat Michael Copps, meanwhile, said the Justice Dept “has packed its bags and walked out on consumers and small businesses by refusing to impose even a single condition on the largest telecom merger the nation has ever seen.”

By virtue of holding the White House, Republicans control three seats on the five-member FCC. Chairman Kevin Martin has already circulated a proposed order recommending unconditional approval of the merger. And fellow Republican Deborah Taylor Tate is expected to support him.

However, the vote of the FCC’s third Republican, Robert McDowell, the FCC’s newest member, is a bit iffier. For one thing, McDowell’s last job was as vice president and general counsel for a trade association that fought numerous regulatory battles with Big Tel. In fact, he’s allegedly been proceeding under the assumption that he won’t participate in the vote to avoid conflict of interest.

McDowell may be allowed to join in the vote if the FCC’s general counsel clears him to do so. If so, he’s likely to get a call from his ultimate boss, President Bush, who will lean on him to support the merger between two companies that have been regular contributors.

The other alternative is that Martin will throw the two Democrats a bone, such as reviving now-moribund efforts to enact some kind of safeguards to ensure free use of the combination’s broadband systems--the so-called net neutrality concept that was roundly defeated by Congress this year. He could also force the newly merged company to divest some assets, such as what the FCC ordered with the AT&T/SBC and MCI/VERIZON (NYSE: VZ) mergers.

Ultimately, there are just too many tools available to proponents of this merger for it not to go through. At worst, it’s merely facing a delay. Martin himself is slated to leave for China next week. And it’s also possible the parties will wait until after the November elections to reach a deal, once current partisan passions cool.

The good news for shareholders of AT&T and BellSouth is, though some conditions seem likely, ultimate merger approval now seems virtually assured. That’s a major shift from several months ago, when a judge decided to launch a review of the already-consummated merger between the old AT&T and SBC, as well as the union of Verizon and the former MCI.

The combined AT&T will comprise the vast majority of the old Bell system, but with the powerful kicker of the nation’s largest wireless network. The only old territories it will not control are the old US West--which is now QWEST COMMUNICATIONS (NYSE: Q)--and Verizon, which itself comprises the old Bell Atlantic, NYNEX, GTE and the nation’s second-biggest wireless network.

Unlike the old Ma Bell, however, it will face considerable competition. In wireless, SPRINT NEXTEL (NYSE: S) continues to founder, with the CEO’s resignation this week only the latest blow to its prospects. But Verizon Wireless is rapidly overtaking its number one market share, while DEUTSCHE TELEKOM’S (NYSE: DT) T-Mobile is also growing rapidly.

Also, consumers increasingly enjoy a choice in wireline services, as Voice over Internet Protocol (VoIP) catches on. Cable television providers like COMCAST (NSDQ: CMCSA) and TIME WARNER (NYSE: TWX) continue to snatch away its telephone customers without damage to their profit margins, as they effectively leverage their existing networks.

Growing industry competition was the major reason the Justice Dept decided not to press a host of demands--such as asset sales--as it had in previous deals. And it will continue to pose a challenge to AT&T’s management in the 22 states where the company operates wireline networks.

The greatest fear of this deal’s critics--at least the honest ones who aren’t outright competitors of AT&T--is that the merger represents a restriction of choice for consumers. It’s hard to argue this deal on its own will increase choices. But it’s also difficult to see how it represents a crowding out of competition either, as these companies’ territories currently don’t overlap anywhere.

As for wireless, there’s also no overlap, as the pair shares ownership in the same entity, Cingular. The deal won’t add to the combination’s power in any cellular market. Nor will it increase Cingular’s financial muscle. It merely consolidates ownership in the hands of a single entity.

What the deal could mean is that greater resources will be applied to BellSouth’s territory, in an effort to compete with cable giants.

The result should be enhanced network quality and a greater array of services and maybe even lower prices, as competition from Big Cable continues to grow.

From a shareholders’ point of view, I expect the AT&T/BellSouth combination to continue to grow revenue, as the whole industry has done under Wall Street’s radar for the past several years. That will ultimately add up to growing earnings, strong finances, solid dividends and a higher share price.

That’s a benefit well worth riding out through the final weeks until the merger is at last completed. Note that because there’s still some regulatory risk that could collapse the deal at the last minute--and given the narrow gap between BellSouth’s share price and takeover value--AT&T is the better holding.

As for the telecom industry, the best bets are the other giant, Verizon, and the emerging group of dividend-paying, rural-based wireline companies. As I’ve pointed out previously in U&I, Verizon’s advanced broadband FiOS system is exceeding expectations, even as its wireless network is beating its rivals hands down, including Cingular. Ultimately, that’s going to translate into exceptional returns for patient, long-term investors.

As for the rural wireline companies, they remain one of the least-respected sectors on Wall Street, as investors continue to obsess about their losses of basic phone connections. As I’ve pointed out, these are occurring at a very slow rate, owing to the lack of competition for phone service in rural areas. And whatever losses there are have been dwarfed by new sign-ups for broadband.

RATES RISE

Realization that the Federal Reserve isn’t going to cut interest rates any time soon has again triggered a retreat in the bond market. The benchmark 10-year Treasury note yield is again rising, with a return to the 5 percent area looking increasingly likely.

As I noted last week, this continues to trigger a sector rotation out of many interest-rate sensitive stocks and into more traditional Wall Street fare, such as the Dow Jones Industrials. This week, many pundits in the financial media were positively crowing about the new all-time highs set on widely watched Dow 30 average, and the airwaves were full of touts for the well-known names.

No doubt some are heeding the call to dump high-yielding fare in search of a new bull market in technology, for example. That kind of rotation is folly, unless you’re a professional money manager or mutual fund manager whose very livelihood depends on fourth quarter numbers.

For one thing, these shares have dramatically underperformed over the long haul and they’ve already been bid up in the stampede. For another, it’s very hard to imagine this type of stock continuing to outperform if interest rates continue to rise and the economy keeps slowing.

If rates do tick up and economy continues to slow, you’re going to want to own those safe stocks that you do now. And, unlike the Dow 30, utilities, real estate investment trusts, Canadian trusts, regional banks, preferred stocks and bonds are going to keep paying you to own them with generous dividends.

As readers of Utility Forecaster, Personal Finance and Canadian Edge know, I’m very stingy when it comes to setting buy targets, even for the stocks I know and love the best. The best thing about a rise in interest rates now is that it will produce better buy prices for a huge range of high yielding investments backed by strong businesses.

If you’re patient, you’ll be able to reinvest cash in some very profitable and secure places in the coming weeks. In the meantime, continue to stick with the stocks, bonds and preferred shares of strong companies. They may take a dip from time to time, depending on how violent the overall market action becomes. But over the long haul, they won’t let you down.

The only time you really want to sell an income stock is when the company’s basic business has stopped becoming more valuable. At that point, it always makes sense to cut and run, as ultimately your income stream is going to come under attack. Barring that, however, the best idea is to ride out the ups and downs and keep collecting those dividends.

That’s always your surest return.