552 F. Supp. 131 (D.D.C. 1982)
Among those who have sought to intervene, submitted procedural or substantive suggestions, or entered their appearances through counsel are the following: Alabama Public Service Commission; Alarm Industry Telecommunications Committee; State of California; Public Utilities Commission of California; Computers and Communications Industry Association; Continental Telephone Corporation; Independent Data Communications Manufacturers Association; Jack Faucett Associates, Inc.; the States of Maine, Alabama, Arizona, Colorado, Idaho, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Montana, New Hampshire, New Mexico, North Dakota, Oregon, Rhode Island, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, and Wyoming; MCI Communications Corp.; State of Michigan; Michigan Public Service Commission; State of Missouri; State of New York; New York State Consumer Protection Board; Public Service Commission of the State of New York; National Association of Regulatory Utility Commissioners; National Citizens Committee for Broadcasting; Public Citizen; Consumer Federation of America; Rep. Ron Mottl; Media Access Project; Consumer Utility Board of Wisconsin; State of New Mexico; North American Telephone Association; Southern Pacific Communications Corp.; Tandy Corp.; Tennessee Public Service Commission; U.S. Telephone Communications, Inc.; Public Service Commission of the District of Columbia; Public Advocate of New Jersey; Consumer Counsel of Ohio; National Association of State Consumer Advocates; General Communications, Inc.; Control Data Corp.; International Telephone and Telegraph Corp.; Federal Communications Commission; Illinois Commerce Commission; Citizens of the State of Florida; Office of Communications United Church of Christ; Public Service Commission of Wisconsin; General Telephone & Electronics Corp.
The order explained that under the Tunney Act, permission to intervene is strictly within the Court’s discretion; that it was premature to allow anyone to intervene because the public comment procedures provided ample protection for all legitimate interests at that stage of the proceedings; that at the end of the public comment period, the Court would establish a framework to ensure effective participation in further proceedings and would again consider what status should be given to participants; and that the denials to intervene were without prejudice to appropriate applications to intervene made at some later date.
Subsequent requests for intervention were disposed of on a similar basis. On March 25, 1982, for example, the Court denied the petition to intervene of the Public Service Commission for the District of Columbia and it reiterated (1) that there is no absolute right to intervene in these proceedings, and (2) that for the reasons stated in the February 5, 1982 order, no useful purpose would be served by allowing permissive intervention at this stage. Following the entry of that order, the Commission petitioned the United States Court of Appeals for a writ of mandamus directing this Court to permit it to intervene. In an order issued April 8, 1982, this Court denied a motion for a stay of all proceedings pending the appellate review, finding that none of the elements required for the granting of such relief had been satisfied. On June 1, 1982, the Court of Appeals denied the petition for a writ of mandamus, granted AT & T's motion to dismiss, and denied as moot the Commission’s motion for a stay of proceedings, its motion for oral argument, and its motion to expedite appeal. In an accompanying Memorandum, the Court of Appeals stated “[w]e conclude that the District Court was correct in denying intervention of right at this stage of the proceedings.”
United States v. AT & T, C.A. No. 82-1321, Order and Memorandum (D.C.Cir. June 1, 1982).
Petitions to intervene filed by other participants were denied in orders issued April 14, May 5, and June 4, 1982. In addition, on August 2, 1982, the Court of Appeals granted the motion of the State of Michigan to dismiss voluntarily its appeal of this Court’s denial of its motion to intervene.
United States v. AT & T, No. 82-1389 (D.C.Cir. Aug. 2, 1982). However, in an order issued May 25, 1982, which established further procedures to focus and sharpen the various issues raised during the public comment period, the Court invited all interested persons to apply for intervenor or amicus curiae status to the extent that they believed and could demonstrate that such status was necessary and appropriate to protect their particular interests. For subsequent developments regarding intervention, see Part XI infra.
In its February 5, 1982 order, the Court established a separate docket, Misc. No. 82-0025 (PI), for the filing of all documents relating to the public interest proceedings. The documents in this file have been treated as part of the record and have been utilized by the Court in considering the various issues raised in the public interest proceedings. For this docket, normal filing rules were waived to permit maximum participation by individual citizens as well as by persons and organizations represented by counsel.
On July 27, 1982, the chairman of the Subcommittee on Telecommunications, Consumer Protection, and Finance of the House Committee on Energy and Commerce, and four of his colleagues, forwarded to the Court a letter with a number of recommendations and copies of the subcommittee’s hearings on H.R. 5158, a bill to amend the Telecommunications Act of 1934. Copies of the letter were served on counsel for both parties; the Court ordered a copy placed in the court jacket; and it has considered these views pursuant to subsection (f)(2) of the Tunney Act.
The next day, pursuant to leave of Court, AT & T filed its own reply to the comments.
Twenty counsel from eighteen organizations presented oral argument during this two-day hearing.
15 U.S.C. § 16(e). While the Court has not held that the Tunney Act applies of its own force in this case, it is following the requirements of the statute in these proceedings. See pp. 144-145 supra.
The standards are the same whether the judgment is regarded as “new” or as a modification of the 1956 decree in the Western Electric action. See United States v. Motor Vehicle Manufacturers Ass’n, 1981-2 Trade Cas. ¶ 64,370 (C.D.Cal.1981) (applying Tunney Act); United States v. General Electric Co., 1977-2 Trade Cas. ¶ 61,659 (E.D.Pa.1977) (applying public interest test); United States v. Swift & Co., 1975-1 Trade Cas. ¶ 60,201 (N.D.Ill.1975) (applying public interest test). Courts have applied a stricter standard of review only when modifications of existing decrees are contested by one of the parties. See United States v. Swift & Co., 286 U.S. 106, 52 S.Ct. 460, 76 L.Ed. 999 (1932); Note, Construction and Modification of Antitrust Decrees, 77 Colum.L.Rev. 296, 304 (1977).
The importance of consent decrees as an antitrust enforcement tool — as evidenced by the fact that they were entered in approximately 80 percent of the government’s cases at the time the Tunney Act was passed — was the source of much of the legislators’ concern. See H.R.Rep. No. 93-1463, 93d Cong., 2d Sess. 6 (1974), U.S.Code Cong. & Admin.News 1974, p. 6535; 119 Cong.Rec. 3455 (1973) (Remarks of Sen. Gurney).
119 Cong.Rec. 24598 (1973) (Remarks of Sen. Tunney). See also 120 Cong.Rec. 36343 (1974) (Remarks of Rep. Mezvinsky); 120 Cong.Rec. 36343 — 44 (1974) (Remarks of Rep. Jordan).
Senator Tunney stated:
Regardless of the ability and negotiating skill of the Government’s attorneys, they are neither omniscient nor infallible. The increasing expertise of so-called public interest advocates and for that matter the more immediate concern of a defendant’s competitors, employees, or antitrust victims may well serve to provide additional data, analysis, or alternatives which would improve the outcome.
119 Cong.Rec. 3452 (1973). Senator Tunney further suggested that a lack of resources further hampered the Justice Department’s enforcement efforts (119 Cong.Rec. 24600 (1973)) and that the Department sometimes simply did not insist upon sufficient remedial action by the defendant. 119 Cong.Rec. 24598 (1973).
S.Rep. No. 93-298, 93d Cong., 1st Sess. 5 (1973); H.R.Rep. No. 93-1463, supra at 6, U.S. Code Cong. & Admin.News 1974, p. 6537. See also 120 Cong.Rec. 36341 (1974) (Remarks of Rep. McClory).
119 Cong.Rec. 24598 (1973) (Remarks of Sen. Tunney). References were made, among others, to Cascade Natural Gas Corp. v. El Paso Natural Gas Corp., 386 U.S. 129, 87 S.Ct. 932, 17 L.Ed.2d 814 (1967), where the Supreme Court found that the Department of Justice had consented to a decree which completely failed to alleviate the conditions found to violate the antitrust laws; to the 1956 decree in the Western Electric action (see Part I supra); and to the questionable circumstances surrounding the consent decrees entered in 1971 in cases involving the International Telephone and Telegraph Corp. (see The ITT Dividend: Reform of Department of Justice Consent Decree Procedures, 73 Colum.L.Rev. 594, 603-06 (1973)). 120 Cong.Rec. 36342-43 (1974) (Remarks of Rep. Holtzman); 120 Cong.Rec. 36345 (1974) (Remarks of Rep. Gunter); Antitrust Procedures and Penalties Act: Hearings on S. 782 and S. 1088 Before the Subcomm. on Antitrust and Monopoly of the Senate Comm. on the Judiciary, 93d Cong., 1st Sess. 76, 120, 135-36, 142 — 43, 147, 163-64, 181 (1973) [hereinafter cited as Senate Hearings]; Consent Decree Bills: Hearings on H.R. 9203, H.R. 9947, and S. 782 Before the Subcomm. on Monopolies and Commercial Law of the House Comm. on the Judiciary, 93d Cong., 1st Sess. 162-68 (1973).
15 U.S.C. §§ 16(b)-(d), (g). These procedures have been fully applied in this case. See pp. 145-147, supra.
H.R.Rep. No. 93-1463, supra at 8, U.S.Code Cong. & Admin.News 1974, p. 6538. See also 120 Cong.Rec. 36344 (1974) (Remarks of Rep. Jordan); 119 Cong.Rec. 3452 (1973) (Remarks of Sen. Tunney). Thus, Congress rejected case law to the effect that courts should not “assess the wisdom of the Government’s judgment in negotiating and accepting [a] consent decree.” Sam Fox Publishing Co. v. United States, 366 U.S. 683, 689, 81 S.Ct. 1309, 1312, 6 L.Ed.2d 604 (1961). See also Swift & Co. v. United States, 276 U.S. 311, 331-32, 48 S.Ct. 311, 316-17, 72 L.Ed. 587 (1928). The statute represents an endorsement of the line of cases in which courts examined proposed consent decrees to determine whether they were in the public interest. E.g., United States v. Ling-Temco-Vought, Inc., 315 F.Supp. 1301 (W.D.Pa.1970); United States v. Carter Products, Inc., 211 F.Supp. 144 (S.D.N.Y.1962). See Senate Hearings, supra note 72, at 147-48 (Testimony of Hon. J. Skelly Wright).
Accord, United States v. National Broadcasting Co., 449 F.Supp. 1127, 1142 (C.D.Cal.1978); United States v. Morgan Drive Away, Inc., 1976-1 Trade Cas. ¶ 60,949 at 69,191 (D.D.C.1976); United States v. Gillette Co., 406 F.Supp. 713, 715 (D.Mass.1975).
The Court’s powers are not restricted by the circumstance that bills are pending in Congress concerning several of the issues raised in this case. The Tunney Act requires the Court to evaluate the decree proffered to it by the parties, and it is clear that it may not avoid this mandate merely because Congress might at some future date enact legislation in the same field. Just as the Court refused to delay the trial of the AT & T action when it was apprised of the possibility of legislative action (see order filed July 29, 1981; Transcript of Proceedings, July 29, 1981, at 8-10, 13-14) so it could not now abdicate its responsibilities with respect to the proffered decree because of possible future legislative activity. Congress may, of course, enact legislation overturning a decree entered by this Court.
The statute specifies several criteria which a court “may” consider in making its public interest determination (see 15 U.S.C. § 16(e)(1), (2)) but the legislative history indicates that the listing of these factors was not meant to limit the court’s inquiry. S.Rep. No. 93-298, supra, at 6; 120 Cong.Rec. 36344 (1974) (Remarks of Rep. Jordan); 119 Cong.Rec. 24599 (1973) (Remarks of Sen. Tunney). These criteria therefore cannot be regarded as embodying the standard against which a proposed decree is to be measured. For further discussion of these factors, see note 93 infra.
There is an obvious conceptual similarity between competition in commerce as the foundation of our economic system and competition in ideas as the basis of our political system.
United States v. Grinnell Corp., 384 U.S. 563, 577, 86 S.Ct. 1698, 1707, 16 L.Ed.2d 778 (1966). See also United States v. United Shoe Machinery Corp., 391 U.S. 244, 251, 88 S.Ct. 1496, 1500, 20 L.Ed.2d 562 (1968); Schine Chain Theatres, Inc. v. United States, 334 U.S. 110, 128-29, 68 S.Ct. 947, 957, 92 L.Ed. 1245 (1948).
On this basis, the Court may at the relief stage prohibit practices which have not been found unlawful if such a prohibition is necessary to avoid the recurrence of monopolization. United States v. United Shoe Machinery Corp., supra; see also Hartford-Empire Co. v. United States, 323 U.S. 386, 409, 65 S.Ct. 373, 385, 89 L.Ed. 322 (1945). In addition, restraints may be imposed upon the defendant which are designed to allow the development of nascent competition within the relevant market. Ford Motor Co. v. United States, 405 U.S. 562, 575, 578, 92 S.Ct. 1142, 1150, 1152, 31 L.Ed.2d 492 (1972).
The parties to this litigation as well as most interested third persons have expressly recognized that, in assessing whether the proposed decree is in the public interest, the Court may consider factors other than its effect on competition.
However, where only one form of relief will effectively remedy the antitrust violation, it is that relief which must be imposed, regardless of its impact on other interests. National Society of Professional Engineers v. United States, supra, 435 U.S. at 697-98, 98 S.Ct. at 1368; United States v. E.I. duPont de Nemours, supra, 366 U.S. at 327-28, 81 S.Ct. at 1250-51.
The Court has the power to insist that the proposed decree take account of these other values. See United States v. Ling-Temco-Vought, Inc., 315 F.Supp. 1301 (W.D.Pa.1970), where the court refused to enter a proposed consent decree until the parties acted to safeguard the pension rights of the employees of the defendant.
There is no authoritative precedent from the Supreme Court or the Court of Appeals for this Circuit on this issue.
The Bell System’s total operating revenues in 1979 were over $45 billion, and in 1980, they exceeded $50 billion. These sums represent almost two percent of the gross national product of the United States in each of these years. The Bell System’s net income for 1979 and 1980 was $5.6 billion and $6 billion, respectively. During 1979, the Bell System’s net assets devoted to telephone service were valued at approximately $99.3 billion. At the end of 1979, the Bell System employed over one million people, and it was thus the largest employer in the United States with the exception of the federal government. Episode 5/57A, stipulation pars. 6, 8-9, 20. For a more impressionistic account of AT & T’s size, see S. Kleinfeld, The Biggest Company on Earth (1982).
There have been suggestions by some that the issues in these cases, involving as they do national telecommunications policy, should be left by the Court for Congress to decide. For the reasons stated in note 76 supra and otherwise, this is inappropriate. At the same time, a subject of this importance should not be decided solely by an agreement between the Department of Justice and a single company. The involvement of the Judiciary under the Tunney Act thus provides a useful safeguard.
See, e.g., Senate Hearings, supra note 72, at 71.
In addition, the Court has received comments and briefs concerning the proposed decree from several hundred interested persons, as well as voluminous submissions from the parties.
In United States v. Ling-Temco-Vought, Inc., supra, 315 F.Supp. at 1309, the absence of a record forced the court to rely upon the parties’ assurances that the proposed decree was in the public interest.
In fact, the parties sought review of the proposed decree in this Court precisely because of its “substantial expertise on the competitive situation in the telecommunications industry.” Letter from Assistant Attorney General William F. Baxter, dated January 18, 1982.
See pp. 144 — 145 supra. Because of the method the parties chose, that proposal might either have escaped Tunney Act review altogether or it might at best have been reviewed only to the extent agreeable to them. See, e.g., the Memorandum in Connection with Stipulation and Modification of Final Judgment, filed by the parties in the District Court in New Jersey which refers to the procedures in restrictive terms, mentioning specifically only the publication and Federal Register requirements of the Tunney Act.
See also note 145 infra.
This standard encompasses the criteria specified in the Tunney Act except for “consideration of the public benefit, if any, to be derived from a determination of the issues at trial.” 15 U.S.C. § 16(e)(2). This factor directs the Court to consider the effect of the proposed decree upon the ability of private antitrust plaintiffs to recover against the defendant for injuries alleged to have resulted from the activity challenged in the government. See 119 Cong.Rec. 3452 (1973) (Remarks of Sen. Tunney). However, the legislative history indicates that this is a secondary factor in the assessment of the decree and that the government’s agreement to make information and evidence available to private plaintiffs will ordinarily be sufficient. S.Rep. No. 93-298, supra at 6-7; H.R.Rep. No. 93-1463, supra at 8.
The vigor with which several private plaintiffs have pursued actions against AT & T indicates that further prosecution of the government’s case is not warranted on this basis. In addition, the Justice Department has indicated its willingness to provide trial record materials to private plaintiffs. Competitive Impact Statement at 49 n. 34.
See, e.g., United States v. Gillette Co., supra, 406 F.Supp. at 714-15.
The Court finds no basis in law or policy for the suggestion made by the FCC and some others that it may have the power to modify the proposed decree over the objections of the parties and enter it on its own motion on that basis. If the parties decline to incorporate the Court’s recommended modifications, the 1956 decree in the Western Electric action will remain in effect, the AT & T trial will resume, and the Court will then make its own decision as to liability and, if appropriate, as to remedy. In view of the substantial completeness of the record, the parties might elect not to adduce additional evidence, in which event the Court would make its decision based on the present record.
All of these persons will be referred to hereinafter as the States.
Such as the transfer of assets.
For example, long distance telecommunications and the provision of customer premises equipment.
The District of Columbia Public Service Commission contends that the effect of the antitrust laws upon the District regulatory statutes cannot be analyzed under the preemption doctrine because both are congressional enactments. However, courts have characterized such local statutes as state laws for the purpose of reconciling them with national policies. See D.C. Federation of Civil Associations, Inc. v. Volpe, 434 F.2d 436 (D.C.Cir.1970); Columbia Plaza Limited Partnership v. Cowles, 403 F.Supp. 1337, 1341 (D.D.C.1975); District of Columbia v. Greater Washington Central Labor Council, 442 A.2d 110 (D.C.1982). The preemption doctrine would thus be an appropriate gauge of Congress’ intent concerning the relationship between the D.C. statutes and the antitrust laws.
The recent decision in Feldman v. Gardner, 661 F.2d 1295 (D.C.Cir.1981), cert. granted on other grounds, -U.S. -, 102 S.Ct. 3483, 73 L.Ed.2d 1366 (1982), in which the court held that the District of Columbia Court of Appeals is immune from antitrust liability, does not require a different result. That case concerned antitrust liability, not the respect to be accorded District of Columbia statutes in implementing an antitrust remedy. In light of the Feldman Court’s conclusion that the District “remains a federal enclave lacking the sovereignty inherent in statehood,” it would be anomalous if statutes concerning purely local affairs could thwart vindication of a national policy when the statutes of the sovereign States cannot have such an effect. 661 F.2d at 1307.
The Court must decide the preemption issue at this juncture even though no State has yet taken specific action which conflicts with the terms of the proposed decree. In the first place, many States have made it abundantly clear that, unless the Court acts, they will proceed in a manner inconsistent with the decree. Further, the Court must delineate its powers now with respect to the conflicting state claims so as to avoid issuing an overbroad decree. Finally, the possibility that provisions of the decree could be vetoed by regulators on a state-by-state basis, with the resulting “balkanized scheme of telecommunications service” (Joint Comments of Alabama, et al., at 12) would obviously have a bearing on the basic question whether the proposed decree would and could effectively open the telecommunications industry to competition. If the States’ claims are valid, the Court and the parties might have to search for different means to implement the mandate of the Sherman Act herein. It follows that a resolution of this legal issue is necessary if the Court is to render a proper determination under the Tunney Act. It may be noted, too, that the parties to the settlement as well as those who object thereto are in agreement that a decision by this Court at this time is both appropriate and necessary.
Art. VI, cl. 2 states:
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; .. . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
The fact that the decree would be issued pursuant to the parties’ consent is irrelevant to its status, for a consent decree has the same effect as a decree issued after a finding of liability on the merits. United States v. Swift & Co., 286 U.S. 106, 115, 52 S.Ct. 460, 462, 76 L.Ed. 999 (1932). Accordingly, courts have found that consent decrees displace state law to the same extent as do judgments on the merits. Brown v. Neeb, 644 F.2d 551, 563 (6th Cir.1981); United States v. American Society of Composers, Authors, and Publishers, 442 F.2d 601 (2d Cir.1971).
Art. I, § 8, cl. 3. See Heart of Atlanta Motel, Inc. v. U.S., 379 U.S. 241, 258, 85 S.Ct. 348, 358, 13 L.Ed.2d 258 (1964); Katzenbach v. McClung, 379 U.S. 294, 85 S.Ct. 377, 13 L.Ed.2d 290 (1964); Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942).
See generally, Gordon v. New York Stock Exchange, 422 U.S. 659, 95 S.Ct. 2598, 45 L.Ed.2d 463 (1975); Otter Tail Power Co. v. United States, 410 U.S. 366, 373-78, 93 S.Ct. 1022, 1027-30, 33 L.Ed.2d 359 (1973).
The Federal Communications Commission has consistently taken the same position. In the Matter of Amendment of Subpart F of Part 1 of the Commission’s Rules, 42 F.C.C. 905, 906, 910-12 (1959); In the Matter of the Applications of the Connecticut Water Co. & Woolridge Bros., Inc., 25 F.C.C. 1367, 1378 (1958). See also, Memorandum filed with this Court by the FCC as amicus curiae on December 30, 1975.
California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980); New Motor Vehicle Board v. Fox, 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978); City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978); Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976); see generally 1 P. Areeda & D. Turner, Antitrust Law, supra at §§ 212-220.
Even after the division of the network into various separate entities as a result of the divestiture, it will still be a national network in its operational sense. See Part X(A) infra.
See Phonetele, Inc. v. AT & T, supra; Sound, Inc. v. AT & T, supra, 631 F.2d at 1327-31, 1334-35; Essential Communications Systems, Inc. v. AT & T, supra, 610 F.2d at 1125; Northeastern Telephone Co. v. AT & T, 477 F.Supp. 251 (D.Conn.1978), rev’d on other grounds, 651 F.2d 76 (2d Cir.1981); United States v. AT & T, supra, 461 F.Supp. at 1320-30.
Brief on Topic Five of the Public Service Commission of Wisconsin, et al. at 8; Brief on Topic Five of State of California, et al., at 3.
To be sure, the States are closely regulating such activities as the transfer of assets by entities within their jurisdictions and the types of business operations in which the Operating Companies may engage. But these subjects of state regulation are not the target of antitrust actions before the Court; the conduct that is being challenged is that of AT & T in the intercity services and equipment markets, and, as indicated supra, that conduct is not being regulated by the States at all.
The same rationale applies to its equivalent, a consent decree. Although the States’ argument is directly addressed to the decree proposed by the parties, it is clear that the principle they espouse, if correct, would apply to judgments on the merits as well.
It may be for this reason that no court has ever applied the Parker doctrine to thwart an antitrust remedy when the conduct in question was not shielded from liability.
For example, in these cases, anticompetitive activity in the intercity carrier market would be protected because the remedy — divestiture — could be precluded by state regulations concerning the transfer of assets.
An antitrust defendant would need to find just one sympathetic local regulatory body to achieve immunity from structural relief at the behest of a federal antitrust court.
There is an obvious difference between direct state regulation and inchoate, general federal antitrust policy, on the one hand, and a conflict between such regulation and an explicit, valid federal court order, on the other. Parker deals only with the substantive scope of the antitrust laws, that is, with the situation which arises when a State has determined that, with respect to certain activities within its jurisdiction, the competition mandated by the Sherman Act is inappropriate for valid state public policy reasons. But there is nothing in the doctrine that would prevent the antitrust laws from prevailing when there is a conflict between a necessary antitrust remedy in a case in which the federal antitrust court has jurisdiction and in which the antitrust laws have been validly applied as a substantive matter and state regulatory schemes which would prevent such a remedy from being implemented. To hold otherwise, would be to stand proper deference to the policy of another political entity under the American constitutional system on its head.
For example, the principal alternative to divestiture, a detailed injunction governing defendants’ operations, would certainly conflict with state laws even more directly and on a continuing basis. While the remedy of damages would presumably still be available, it would not necessarily force defendants to cease any anticompetitive conduct. Moreover, there is no indication in the statute or in any court decision that the damages remedy is broader than the power to grant injunctive relief. The States’ other alternative — an immediate spinoff of the Bell Operating Companies — would not open the telecommunications market to competition and would have severe adverse effects upon the national telephone system. See Part XI(D) infra.
Nothing in the proposed decree would require a State to replace its regulatory system with a system of competition: it may continue to require a regulated monopoly in, say, local telephone service or intrastate toll service.
See Joint Comments of Alabama and twenty-three other States at 12.
It is presumably in reliance on these principles that the Department of Justice has conceded that “the Court should assure itself that the provisions of the proposed [decree] will not unnecessarily conflict with important state interests.” Brief at 70. Another manifestation of the respect accorded to state interests is the courts’ reluctance to impute to Congress an intent to bar the States from an entire field of regulation. See, e.g., Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 128, 98 S.Ct. 2207, 2215, 57 L.Ed.2d 91 (1978); Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963).
See, e.g., Ford Motor Co. v. United States, supra, 405 U.S. at 573, 92 S.Ct. at 1149; United States v. E.I. duPont de Nemours & Co., supra, 366 U.S. at 322, 81 S.Ct. at 1248.
See Part VII infra.
See p. 140 supra.
Under this provision, a competitor could interconnect with the AT & T network only if the interconnection occurred in switching equipment located on the customer’s premises where the telecommunication originated or terminated. The effect of this restriction was to prevent competitors from entering the intercity market gradually, and thus effectively from entering the market at all. For example, because of this restriction, a customer whose sole office was in St. Louis could not choose to use the services of an AT & T competitor for part of a route (e.g., from St. Louis to Chicago), and then AT & T’s services for the remainder of the route (e.g., from Chicago to Bethesda, Md.) because the St. Louis customer did not have the “premises” in Chicago that AT & T required for interconnection. Thus, to receive service for Bethesda as well as for Chicago, the customer was required to purchase both services from AT & T. See United States v. AT & T, supra, 524 F.Supp. at 1354.
FX (foreign exchange) service permits a customer to make or receive local calls through a distant switching center by effectively providing a long extension cord in the form of a dedicated line between the customer’s location and a telephone company switching system in the distant location (the foreign exchange). See United States v. AT & T, supra, 524 F.Supp. at 1355 n. 77. CCSA (common control switching arrangement) is essentially a miniature AT & T long distance network, except for the fact that it is used by only one customer, albeit a customer, such as the federal government, with large telecommunications needs.
The government also alleged inter alia that AT & T discriminated against competitors in providing access to local exchange facilities; that it conducted interconnection negotiations with competitors in bad faith; and that it engaged in predatory behavior to eliminate at least one company as a provider of digital data transmission services. United States v. American Telephone and Telegraph Co., supra, 524 F.Supp. at 1355-56.
Creamskimming is a term the Bell System used during the AT & T trial and elsewhere to describe the practice of its competitors to concentrate their intercity services on routes where the volume of business is high and the costs of service are low.
See, e.g., testimony of John D. deButts (August 27, 1981); Mark Garlinghouse (December 11, 1981); and William Ellinghaus (August 12, 1981).
Obviously, AT & T preferred to operate as a monopoly provider of intercity services rather than to be forced to compete with other common carriers. (This is particularly true because once the FCC adopted a policy of competition, AT & T would be required to allow competitors to interconnect with the AT & T network). Thus, AT & T’s self interest dovetailed neatly with its public interest argument.
Under the antitrust laws, the burden would be on AT & T to show that what would otherwise be clearly unreasonable restraints on competition were cleansed by the regulatory directives. See, e.g., National Gerimedical Hospital and Gerontology Center v. Blue Cross, 452 U.S. 378, 101 S.Ct. 2415, 69 L.Ed.2d 89 (1981); Sound, Inc. v. AT & T, 631 F.2d 1324 (8th Cir.1980); Mid-Texas Communications Systems, Inc. v. AT & T, 615 F.2d 1372 (5th Cir.1980); Essential Communications Systems, Inc. v. AT & T, 610 F.2d 1114 (3rd Cir.1979); United States v. AT & T, 524 F.Supp. at 1345, n. 14; United States v. AT & T, 461 F.Supp. at 1320-30.
See, e.g., United States v. AT & T, supra, 524 F.Supp. at 1364-65 n. 118; testimony of William Ellinghaus and Mark Garlinghouse on cross examination, note 127 supra. AT & T’s cost data were often confusing, incomplete, and inaccurate, and although some of its distinguished economists provided helpful and sophisticated economic analysis (e.g., William J. Baumol, December 7, 1981), others (e.g., Jules Joskow, October 23, 1981) did little to explain away the shortcomings of these data. At least on the basis of the evidence heard before the trial was recessed, the Court would be unable to conclude that AT & T’s past pricing strategy did not pose anticompetitive problems.
See Technical Analysis of the Common Carrier/User Interconnections Area by the Panel on Common Carrier/User Interconnections, National Academy of Sciences (1970), PX781 (admitted in evidence on behalf of defendants at Tr. 13500, August 24, 1981).
See, e.g., testimony of Charles Elmendorf (November 17, 1981); Robert B. Brunson (August 25, 1981).
Throughout the trial, AT & T referred to four harms to the network: hazardous voltages, longitudinal imbalance, excess signal power, and improper network control signaling. These harms, it was alleged, could cause a variety of problems, ranging from severe physical injury to humans to a small amount of noise on a telephone line.
See, e.g., direct and cross examination of Donald H. Erickson (August 6, 1981), Edward Goldstein (August 4, 1981), and William Ellinghaus (August 12, 1981). It should also be noted, however, that, with respect to a number of these problems, AT & T did provide factual explanations of varying degrees of persuasiveness. Compare the testimony of Lawrence A. Hohmann (August 24, 1981) with that of Robert B. Brunson (August 25, 1981) who was convincing notwithstanding severe cross examination by the government.
Under a certification program, non-Bell equipment may be connected directly to the AT & T network — without the use of a PCA — provided that the equipment has been certified as meeting certain technical standards.
There is some merit to AT & T’s claim that it was the FCC, rather than AT & T, that was responsible for the delay in the development of standards. Specifically, although the question of certification as opposed to PCA arose as early as 1968, the FCC did not request technical comments on the standards it had proposed until 1975.
It should be noted, however, that the government’s procurement case was not extremely strong. In the first place, it consisted only of sixteen individual “episodes.” Measured against the large field of procurement decisions in which the Bell System was engaged, this was not a formidable number. It is difficult to evaluate, and the Court will not now evaluate, whether this relative paucity of evidence was due to intrinsic problems of proof when dealing with a company of the size of AT & T, or whether, having conscientiously and carefully surveyed Bell’s activities, the government was simply unable to produce more than sixteen questionable episodes because no more even arguably anticompetitive activity had taken place. Moreover, even as to those sixteen episodes the proof was not overwhelming. Where the government’s evidence tended to demonstrate anticompetitive acts, AT & T’s market share was generally not high; where market share was high, there was relatively little evidence of anticompetitive acts.
The part of the case dealing with pricing of equipment sold by Western Electric was dismissed on September 11, 1981. See, United States v. AT & T, supra, 524 F.Supp. at 1380-81.
See also 21 Cong.Rec. 2460, 2569 (1890) (Remarks of Sen. Sherman); 21 Cong.Rec. 2598 (1890) (Remarks of Sen. George).
A number of distinguished commentators have challenged this interpretation of the antitrust laws, claiming that the promotion of consumer welfare through ensuring free competition is their sole goal. See R. Bork, The Antitrust Paradox 50-89 (1978); 1 P. Areeda & D. Turner, Antitrust Law, supra at §§ 103-112. Resolution of this dispute may be crucial when the two objectives point to different solutions. Here, where the remedy necessary to promote free competition is also likely to reduce the concentration of economic power, consideration of the latter would appear to be less controversial. In any event, the cases and the legislative history of the Tunney Act empower the Court to consider broad public interest goals, such as this one, in evaluating the need for an antitrust remedy.
See, e.g., G. Robinson, ed., Communications for Tomorrow (1978).
Commentators from a wide range of the ideological spectrum agree on this conclusion. Thus, Professor Arthur Schlesinger, Jr. has been quoted as stating that “Karl Marx held that history is shaped by control of the means of production; in our times history is shaped by control of the means of communication.” T. White, America in Search of Itself at 101 (1982). Charles Marshall, AT & T executive vice president, and consumer advocate Ralph Nader have likewise both noted the displacement of the industrial age by the information age. Telecommunications Act of 1982: Hearings on H.R. 5158 Before the Subcomm. on Telecommunications, Consumer Protection, and Finance of the House Comm. on Energy and Commerce (Part 2), 97th Cong., 2d Sess. 111, 587 (1982).
One may speculate, for example, on the effect on the political life of this nation if a company or group with strong political or ideological opinions were to gain effective control of the present Bell System (particularly if the company, additionally, were not precluded from entry into information and electronic publishing services). See Part VI(C) infra.
Any cross subsidization of AT & T’s intercity services and equipment manufacturing operations with revenue from its monopoly local exchange services will likewise be eliminated.
This remedy was first proposed in the government’s complaint. See Complaint at 14.
Competitive Impact Statement at 50-51. The Operating Companies retained by AT & T would have been required to provide local telephone service through a separate subsidiary; several other problems would have been dealt with by injunctive provisions.
This proposal was considered by the parties in early 1981, just prior to the start of the trial in the AT & T action. At that time, in a successful effort to secure a continuance (see p. 140 supra), the parties advised the Court that a concrete settlement had been reached, with no substantive issues remaining to be resolved. See Memorandum Order filed January 16, 1981. However, the Competitive Impact Statement indicates that, to the contrary, no proposal was ever drafted. Competitive Impact Statement at 50.
Id. at 161-162. This proposal was discussed by the parties “shortly prior to the negotiations that gave rise to the [present settlement].” Id. at 161. It would have required AT & T to grant non-discriminatory access for intercity carriers to the Bell Operating Companies’ local exchange facilities, and it would have imposed limits on Western Electric’s sales to the Bell System, in addition to limiting the dissemination of information and the rotation of personnel within the Bell System. These injunctive provisions would have been monitored by special masters appointed by the Court.
The Court’s evaluation of these remedies is conducted strictly in the context of its decision on the adequacy of a negotiated settlement. If the AT & T action were to proceed to final judgment and liability were found, the Court might determine that the measures discussed in this segment of the opinion are appropriate remedies, either as alternatives to the divestiture of the Operating Companies or in addition to such divestiture.
Because of their conceptual similarities, the first and second alternate remedies are being discussed together.
The additional divestiture of several Bell Operating Companies would remedy this problem only as to the areas served by these divested companies.
Testimony of Solomon Buchsbaum (September 23, 1981); testimony of Edward E. David, Jr. (November 4, 1981); testimony of David Packard (November 6, 1981); see also Exhibit D-l-134.
Testimony of Morris Tanenbaum (September 8, 1981); testimony of William D. Nordhaus (November 5, 1981); testimony of Bruce C. Netschert (November 12, 1981); testimony of Paul R. Lawrence (November 6, 1981); testimony of Nathan Rosenberg (November 10, 1981).
This includes basic scientific advance, cheaper and better products for consumers, foreign trade, and national defense.
In light of AT & T’s agreement to divest the Operating Companies, the predictions made by a number of eminent witnesses regarding the dire consequences certain to follow from such divestiture appear in retrospect to have been vastly overrated.
It is claimed, for example, that after the legal defense against interconnection of non-Bell equipment became impossible to sustain, AT & T shifted to claims that inferior equipment was being produced by non-Bell manufacturers; alleged that harms to the network would result from such equipment; and sought regulation by state as distinguished from federal agencies; and the like. See Plaintiffs Memorandum in Opposition to Defendants’ Motion for Involuntary Dismissal in the AT & T action at 296-359.
For these reasons, and because of the enforcement problems discussed below, courts have generally rejected this type of detailed injunction in favor of the “surer, cleaner remedy of divestiture.” United States v. E.I. duPont de Nemours & Co., supra, 366 U.S. at 334, 81 S.Ct. at 1254. See also United States v. Paramount Pictures, Inc., 334 U.S. 131, 165-75, 68 S.Ct. 915, 932-37, 92 L.Ed. 1260 (1948); United States v. Crescent Amusement Co., supra, 323 U.S. at 189-90, 65 S.Ct. at 262.
Testimony of Walter Hinchman (June 18, 1981); testimony of Bernard Strassburg (October 14, 1981). Other persons with expertise in telecommunications regulation expressed similar views. Testimony of William Melody (June 8, 1981); testimony of Nina Cornell (June 19, 1981); testimony of Bruce Owen (June 22, 1981).
Recent developments in governmental policy point to a further reduction in the funding, the authority, and hence the effectiveness of regulatory agencies such as the FCC.
From a philosophical point of view, such a remedy could contravene the separation of powers doctrine because it would involve the creation of a substantial quasi-legislative, quasi-executive bureaucracy within the Judicial Branch of the government. Practically, the remedy could be impossible to administer because of the need for substantial budgetary authority and a large administrative apparatus.
Careful consideration and independent analysis have been particularly appropriate because these objections were primarily voiced by individual citizens who lacked the resources to present detailed briefs.
There is a dispute, reflected at the trial as well as in other forums, over the question whether local telephone service has ever actually been subsidized by intercity service as AT & T has consistently claimed. See Testimony of John D. deButts (August 27, 1981); testimony of William J. Baumol (December 7, 1981). The government contended that, to the contrary, local telephone revenues have subsidized AT & T’s intercity rates (see Testimony of William H. Melody (June 8, 1981); testimony of Nina Cornell (June 19, 1981); testimony of Bruce Owen (June 22, 1981)) and since the trial was aborted by the settlement, no final decision was reached on this issue.
Although the decree requires the Operating Companies to file “cost justified” tariffs for access charges, it leaves to the regulators the decision as to what costs should be included within this calculation. Department of Justice Response to Comments at 106-107; AT & T Reply Brief at 22-23. If the regulators chose to retain the cost allocation presently used in the separations and settlements process, the subsidy, if any, from interexchange revenues to local rates would remain at current levels. Under the proposed decree, state regulators will set access charges for intrastate interexchange service and the FCC will set access charges for interstate interexchange service. Department of Justice Response to Comments at 106-107; AT & T Reply Brief at 22-23. If a subsidy is required beyond that implicit in the access charges, it may be provided by state or federal legislation. See, e.g., H.R. 5158, 97th Cong., 2d Sess. § 234 (proposal for a National Telecommunications Fund).
Indeed, their incentive may be even greater after divestiture than it was before, since after divestiture Western Electric will have lost its anticompetitive advantage and will instead be forced to compete with other manufacturers on the basis of quality and price for the Operating Companies’ business.
The concerns of investors are similarly unfounded. They will retain all their legal remedies for any improper actions by AT & T in connection with the divestiture. See Part IX infra.
13 F.C.C.2d 420 (1968).
MCI Telecommunications Corp. v. FCC, 580 F.2d 590 (D.C.Cir.1978).
The only limitation regarding AT & T’s business activities is that it may not reacquire the Operating Companies.
This part of the opinion considers general restrictions on AT & T; Part VI deals with restrictions on the provision of information services.
See Part V(C) for a discussion of the claim that AT & T has monopoly power in the equipment manufacturing market.
In addition to advancing the cross-subsidization argument, those who advocate restrictions on AT & T also raise contentions based on discrimination. However, because these discrimination claims take on a variety of forms dependent on the context, the Court will address them in its discussion of the specific restrictions that have been proposed.
Estimates submitted by others were significantly higher, some contending that AT & T’s market share exceeds 90 percent. It is unnecessary for purposes of this proceeding to resolve the conflict, for the precise amount of the market share is not decisive to the Court’s holding.
The Department took a contrary position during the AT & T trial.
It must be remembered that the regulatory decisions which introduced competition into the interexchange market are themselves relatively recent. It was not until 1978 that the provision of regular long distance telephone service (i.e., MTS/WATS type service) became subject to competition. For a survey of the decisions leading to full competition in the interexchange market, see Docket 11866, Allocation of the Frequencies in the Bands Above 890 Me., 27 F.C.C. 359 (1959); Docket 16509, Microwave Communications, Inc., 18 F.C.C.2d 953 (1969), 21 F.C.C.2d 190 (1970); Docket 18920, Specialized Common Carriers, 29 F.C.C.2d 870 (1971), aff’d sub nom. Washington Utilities and Transportation Commission v. F.C.C., 513 F.2d 1142 (9th Cir.1975); Docket 16495, Establishment of Domestic Communications Satellite Facilities by Non-Governmental Entities, 35 F.C.C.2d 844 (1972); MCI Telecommunications Corp. v. FCC, 561 F.2d 365 (D.C.Cir.1977) (Execunet I); MCI Telecommunications Corp. v. F.C.C., 580 F.2d 590 (D.C.Cir.1978) (Execunet II).
The FCC decisions allowing interexchange carriers to expand their service offerings by reselling and sharing AT & T services have likewise been in force only for the last several years. Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services, 60 F.C.C.2d 261 (1976), reconsidered, 62 F.C.C.2d 588 (1977), aff’d. sub nom. AT & T v. F.C.C., 572 F.2d 17 (2d Cir.1978); Regulatory Policies Concerning Resale and Shared Use of Common Carrier Domestic Public Switched Network Services, Docket No. CC 80-54, 83 F.C.C.2d 167 (1981).
This reduction in the amount of capital investment is due in part to the development of new technologies, such as satellites and microwave towers, and in part to the recent regulatory decisions allowing for the resale and sharing of AT & T services. See note 172, supra.
See, e.g., MCI v. FCC, 561 F.2d 365 (D.C.Cir.1977); MCI v. FCC, 580 F.2d 590 (D.C.Cir.1978); MTS & WATS Market Structure, CC Docket 78-72, Report & 3rd Supplemental Notice of Inquiry and Proposed Rulemaking, 81 F.C.C.2d 177 (1980).
The Court does not find that there is no possibility that AT & T will use its still considerable market share in an anticompetitive manner. It does find, however, that for the reasons cited, both the incentive and the opportunity for anticompetitive conduct will after divestiture and on account of divestiture be greatly reduced.
To the extent that AT & T still has some potential for engaging in anticompetitive behavior, there is of course nothing in the proposed decree to immunize it from its obligations under the regulatory decisions or the antitrust laws.
Most of those who have submitted briefs or comments — including AT & T’s most major interexchange competitors (e.g., MCI Corp.) — either did not address the subject of restrictions on AT & T at all or they agreed with the decree’s provisions as drafted.
E.g., Topic 3 briefs submitted by Association of Data Communications Users and the Utilities Telecommunications Council at 11; Mobile Marine Radio Inc. at 10; and Satellite Business Systems at 17.
Such duplication might actually have its drawbacks, for it would make it impossible to alter the present requirements should they no longer appear to be in the public interest; (i.e., should the FCC find that, because conditions had become more competitive, the present interconnection requirements are no longer warranted). With the divestiture of the Operating Companies, regulation of interexchange services will in all probability become more effective since AT & T will no longer be able to shift costs in the manner that the government has alleged it has done in the past.
Additional reasons for a rejection of this proposal are discussed in Part IV supra.
In the interexchange equipment market, for example, Western Electric has a variety of competitors which produce switches and microwave equipment. In the area of equipment manufacturing for computers and computer-related services, far from being the dominant firm, Western Electric will be a new entrant forced to compete with well established domestic and foreign firms.
To the extent that manufacturers need information from Long Lines, market forces will help to ensure their access: since Long Lines will increasingly be forced to compete with other interexchange competitors, it will have the incentive to purchase the best equipment at the lowest prices without regard to corporate affiliation. It will therefore be in Long Line’s own interest to disseminate its own technical information and standards as broadly as possible to enable it to choose from among the widest range of products. Finally, as technology in interexchange services advances and carriers turn increasingly to the use of microwave towers and satellites, reliance on the AT & T network will decline and the need for obtaining information about the AT & T network will increasingly be reduced.
Far from enhancing competition, the establishment of quotas would produce anticompetitive results: the Operating Companies and Long Lines would be precluded from making purchasing decisions on the basis of quality and price.
Including the members of the House Telecommunications Subcommittee of the House Committee on Energy and Commerce who wrote to the Court on July 27, 1982. See note 63 supra.
Initially, this capacity would presumably be used primarily to connect to high-volume users; eventually the bypass technology may permit interconnection to all subscribers.
Indeed, the protection afforded by a ban on AT & T alone would probably be minimal because it is the carrier least likely to exploit the new technology to the fullest inasmuch as its facilities were designed to interconnect with those of the Operating Companies. Moreover, there is a safety valve against overreaching: before AT & T, or any other carrier, may install the facilities necessary to connect directly to the ultimate customers, it must secure approval from the state regulators. If these regulators find for public interest reasons unrelated to competition that bypass should be prohibited, they may do so irrespective of the decree in these cases.
To the extent that the local exchange facilities constitute monopoly bottlenecks, the development of alternative facilities actually furthers the competitive purposes of these laws.
The proposed decree does nothing to affect existing licensing contracts, most of which last for the life of the patent and contain provisions for the licensing of related new patents issued within five years of the execution of the contract. In addition, licenses held by the Operating Companies may be sublicensed to others.
The complaint in the Western Electric action alleged that AT & T engaged in anticompetitive behavior in licensing its own patents and in acquiring the patents of others as part of its efforts to monopolize the telecommunications equipment market. United States v. Western Electric, supra, Complaint at 18-19. The 1956 consent decree contains no finding of patent abuse, but simply states that the terms of the judgment are consented to “without . . . constituting any evidence or admission by any party in respect of any such issues.” 1956 Consent Decree at 1.
At the same time, AT & T’s new-found need to finance its research and development like other competitive firms will exert some pressure on it to license its patents to others so that, reciprocally, it may receive patents and technical information from them.
Indeed, this disadvantage could discourage AT & T from spending funds for research and development. The resulting diminution of Bell Laboratories’ research effort would not be in the public interest. See Part IV supra.
In addition, the FCC requires the Operating Companies to make available network interface information necessary for interconnection. See, e.g., 47 C.F.R. § 68.110.
Should AT & T misuse its patents — for example by improperly refusing to license them — the aggrieved parties would be free to pursue their remedies under the patent and antitrust laws: there is nothing in the decree to diminish any of these rights and remedies.
In addition, until September 1, 1987, the Operating Companies may call upon AT & T, Western Electric, and Bell Laboratories to provide “on a priority basis all research, development, manufacturing, and other support services.” Proposed Decree, Section 1(C).
See Part I supra.
Section V of the 1956 decree provides,
The defendant AT & T is enjoined and restrained from engaging, either directly, or indirectly through its subsidiaries ... in any business other than the furnishing of common carrier communications services; provided, however, that this Section V shall not apply to . . . businesses or services incidental to the furnishing by AT & T or such subsidiaries of common carrier communications services.
Under Section II(i) of the 1956 decree, common carrier communications services are defined as “communications services and facilities, . .. the charges for which are subject to public regulation under the Communications Act of 1934.”
Section IV of the 1956 decree states that [t]he defendants are each enjoined and restrained from commencing, directly or indirectly, to manufacture for sale or lease any equipment which is of a type not sold or leased ... to Companies of the Bell System, for use in furnishing common carrier communications services.
Although the Court need not at this juncture decide the question whether AT & T could provide any of these information services were the 1956 consent decree to remain in effect, it would appear that, unless that decree is vacated, AT & T would be precluded from offering most, if not all, of these services. Specifically, it is difficult to imagine how the Court could find either (1) that the provision of computer services or electronic news services in competition with others satisfies the 1956 decree’s requirements that AT & T provide only common carrier communications services the charges for which are subject to public regulation under the Communications Act or (2) that these services are “incidental” to the furnishing of common carrier communications services.
Similarly, it appears that under the 1956 decree, AT & T would be precluded from offering the services described in the FCC’s Computer II decision. In that decision, the FCC ruled that AT & T could offer so-called “enhanced services” (which are essentially the equivalent of the “information services” described in the proposed decree), and customer premises equipment on a non-tariffed competitive basis, provided that AT & T does so through a fully separate subsidiary. The Commission’s decision simply means that AT & T is authorized, as opposed to required, to offer these services under the Communications Act; it does not relieve AT & T of its obligations under the antitrust laws, and more specifically under the 1956 decree. (The Commission’s decision is presently on review — see Computer & Communications Industry Ass’n v. FCC, D.C. Civ. No. 80-1471 (filed May 15, 1981) — but the appeal does not alter the underlying legal effect of the Commission’s decision in relation to the action before this Court.)
Finally, it should be noted that, if presented with the issue of whether AT & T is precluded by the 1956 decree from offering these non-tariffed competitive services permitted under Computer II, this Court would be deciding that issue de novo, because the opinion and order issued by Judge Biunno construing the decree to permit AT & T to offer these services has been vacated by order of the Court of Appeals for the Third Circuit. See note 17 supra.
Without control of the local exchange monopolies, AT & T will have no improper advantage over other competitors. See Part IV(B) supra. It will not be able to subsidize its offerings with monopoly profits in the interexchange or telecommunications equipment markets (see Part V, supra) and there is little likelihood of customer discrimination because these products and services, unlike information services, are not closely dependent upon access to the telecommunications network.
If a potential competitor poses no threat to the development of a healthy competitive market it should obviously not be barred from entering that market. The greater the number of competitors, the more likely it is that consumers will reap the benefits of lower prices and product improvements. AT & T is likely to be an especially potent competitor given its manufacturing expertise and the resources of Bell Laboratories.
Other examples of these services include AT & T’s Custom Calling II (which allows advance calling and call answering), telephone-operated burglar alarm systems, and office management systems (which may provide such diverse functions as inventory control, temperature control, and inter-office data communications).
Indeed, some of the providers of these information services may themselves have the resources to construct such transmission systems.
Absent the divestiture of the Operating Companies, that conclusion might, of course, be quite different.
For the reasons stated in Part VII infra, the Court also rejects the suggestion that AT & T be required to offer these services through a separate subsidiary.
The discussion of electronic publishing under the topic heading “1956 Consent Decree and Line of Business Restrictions” is for the sake of convenience only. The Court’s decision — that permitting AT & T to become an electronic publisher is not in the public interest — was made solely on the basis of the proposed decree here under review and without consideration of whether AT & T could offer these services under the terms of the 1956 decree. But see note 198 supra.
For purposes of this discussion, the Court will use the term electronic publishing. Use of this term is not meant to imply a limitation to a particular kind of transmission technology.
The kinds of services here under review have been discussed under a variety of labels in a number of forums. The telecommunications bill introduced in the House of Representatives, for example, used the term “information publishing service” which was defined as: provision to any unaffiliated person of any information—
(A) which the publisher has (or has caused to be) authored, originated, gathered, collected, produced, compiled, edited, categorized, or indexed; or
(B) in which the publisher has a direct or indirect financial or proprietary interest.
H.R. 5158, 97th Cong., 1st Sess. § 263(f)(3) (1982). (The bill was withdrawn by Congressman Wirth on July 20, 1982.)
A Senate bill on the same subject referred to “cable service” and “mass media services.” The former term was defined as “the retransmission of any television or radio broadcasting signal, or program origination, for distribution by cable or any other closed transmission medium to multiple subscribers who pay to receive such service.” Mass media services were defined as follows:
The term ‘mass media’ includes television and radio broadcasting, pay television, and printed or electronic publications (including newspapers, periodicals, and any service or product like or similar to a newspaper or periodical). Such term does not include—
(A) telephone number or address listings and directory assistance (limited to telephone number, address, and business category);
(B) weather, time, or sports information;
(C) any information service which AT & T or any affiliate was engaged in on April 7, 1981; or
(D) printed or electronic directory advertising.
S. 898, 97th Cong., 1st Sess. § 229(f) (1981).
Some persons who have commented in this proceeding have urged the Court to adopt the definition used in H.R. 5158; others have proposed their own definition. The National Association of Broadcasters, et al. (Topic 6 Brief at 2), for example, urges that electronic publishing be defined as
the provision of any information which the provider (the publisher), has, or has caused to be, originated, created, compiled, produced or selected, and which is intended for members of the public and is distributed via electronic means.
In addition to the one-way dissemination of information that is the norm in print publishing, electronic publishing also includes interactive transaction services. These services allow a consumer not only to receive information at home but also to send information back to the publisher. Thus, consumers using a “shop-at-home” service, for example, could use their home terminals to call up information on products being offered by a particular merchant, and then place their orders for the desired products by using their terminals to key in the necessary ordering information.
The kinds of information referred to in this definition include news, business and financial reports, editorials, columns, sports, features, and electronic advertising. The means of transmission include pay television, radio and television broadcasting, and electronic publications which appear either by audio means, on video screens, or in printed form. But see note 223 infra.
See also S.Rep. No. 97-170, 97th Cong., 1st Sess. 42 — 44 (1981).
These are the same problems that have been claimed to exist in other markets, but as is apparent from discussion below, they take on a different and more serious complexion in this context.
See Parts V(A) and VI(A) supra.
AT & T has already played a major role in developing technical standards for that industry as evidenced by its involvement in writing the “Presentation Level Protocol” which will be used to code electronic publishing signals and which may become the major protocol used by publishers in the United States.
See, e.g., Testimony of Lowell Hoxie (March 10, 1981); Pier Abetti (March 11, 1981); and Luther R. Hinton (March 20, 1981).
For example, the networks of the other common carriers may not be extensive enough to connect a publisher, or a publisher’s customers, to the required data bases without relying at least in part on facilities provided by AT & T. Moreover, because competing facilities are not as extensive as AT & T’s, the likelihood of congestion on their transmission lines, which causes the calls to receive busy signals, is far greater.
It is of course possible that these publishers could use any alternate transmission systems developed to service the needs of providers of other types of information services. However, it is not clear that those networks will develop in ways which will meet the needs of electronic publishers. Therefore, they cannot be relied upon to serve as a check upon AT & T’s power.
The court further explained that this diversity is essential because the First Amendment “presupposes that right conclusions are more likely to be gathered out of a multitude of tongues, than through any kind of authoritative selection. To many this is, and always will be, folly; but we staked upon it our all.”
Both the chairman of the House Subcommittee on Telecommunications, Consumer Protection, and Finance and AT & T agree with this principle. Congressman Timothy E. Wirth has aptly pointed out that “the information market provides much more than economic good, for assuring a diversity of information sources is critical to the proper functioning of the entire democratic system.” Hearings on H.R. 5158, supra, note 141, at Part 3, at 1. Similarly, Charles Marshall, an AT & T executive vice president, recently testified before the same subcommittee that “the best way to assure a diversity of these kinds of information services to the American public is to assure a diversity of sources.” Hearings on H.R. 5158, supra, note 141, at Part 2, at 137.
FCC policies prohibit formation or transfer of co-located newspaper-broadcast combinations (FCC v. National Citizens Committee for Broadcasting, supra, 436 U.S. 775, 98 S.Ct. 2096, 56 L.Ed.2d 697); common ownership of more than one broadcast station in the same area (47 C.F.R. §§ 73.35, 73.240, 73.636); operation of cable systems by a telephone company (47 C.F.R. § 63.54); and ownership of cable systems by a television network (47 C.F.R. § 74.1131).
The Court of Appeals, speaking in the same case, was even more explicit.
... Congress moved under the spur of a widespread fear that in the absence of governmental control the public interest might be subordinated to monopolistic domination in the broadcast field [citing case] .... The First Amendment “rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public [citing case]. The ‘public interest’ standard necessarily invites reference to First Amendment principles .... ” Although no provision of the Communications Act expressly grants the Commission authority to restrict newspaper ownership of broadcast stations, such express authority is not essential to the validity of Commission regulations. 47 U.S.C. § 309(a) requires the Commission to find the ‘public interest, convenience and necessity will be served’ by the grant of a license.
National Citizens Committee for Broadcasting v. FCC, 555 F.2d 938, 948-51 (D.C.Cir., 1977), aff’d in part, 436 U.S. 775, 98 S.Ct. 2096, 56 L.Ed.2d 697 (1978).
De Tocqueville observed with his usual prescience long ago that revolutions by means of the press would most likely come about from its centralization in a few powerful organs. A. de Tocqueville, Democracy in America (1835) chapter XI. Richard Reeves who recently retraced de Tocqueville’s travels, took note of the development of two-way telecommunications which allowed citizens instantaneously to record their thoughts on the political issues of the day, and he commented that
[w]hoever decides which questions are to be asked and how they are to be worded has enormous power .... The results of these instant referenda would then be flashing in front of each legislator. A member of Congress, knowing public opinion in the district or the country, would then have the dubious honor and politically dangerous duty of voting, perhaps testing his or her conscience against the recorded will of the majority.
R. Reeves, American Journey 89-90 (1982).
The Court explicitly rejected Ford’s argument that the manufacturing prohibition removed a potential competitor from the market, finding that the restriction was necessary to allow the development of competition in the industry.
Such a prohibition will not have anticompetitive consequences because AT & T has no special expertise in creating information which would make it a potent competitor in this market. It could overwhelm competitors only because of its ability to engage in anticompetitive conduct.
The Court notes that AT & T has stated that, although it does not wish to be legally bound, “it now has no intention to provide information services that would be competitive with the news and features of newspaper or with broadcasting or traditional cable television services.” AT & T Reply Brief at 116.
AT & T may engage in this activity if the information is delivered over transmission facilities in which AT & T has no interest. In that case, there would be no possibility of anticompetitive activity, because AT & T would have no control over the transmission of its publishing services.
Beyond that, the Bell System has long been engaged in providing a variety of services which, although relatively minor in character, could loosely be regarded as falling into the category of electronic publishing. Because of that involvement without significant adverse consequences, it is not necessary in the public interest that AT & T be precluded, and AT & T will not be precluded, by the modification required below, from offering the following: electronic directory services including listings of general product and business categories, and of the service or product providers under these categories, and their names, telephone numbers, and addresses; such traditional Bell System services as time, weather, and such other audio services as are being offered as of the date of the entry of the decree to the geographic areas of the country receiving those services as of that date; and the dissemination of information to and from AT & T’s affiliates.
The Court expects to allow any opponents of the removal of the prohibition to comment on the question whether its continuation will be in the public interest, and, should they be able to show that competitive conditions clearly require the maintenance of the ban, it will not be lifted. However, the burden will at that time be on such opponents to demonstrate that the public interest requires the continued exclusion of AT & T from electronic publishing.
These are the directories currently produced by the Operating Companies or under their auspices, for each geographic region which they serve. These directories contain subscriber listings grouped by subject matter along with advertisements.
No specific provision of the proposed decree deals with directory advertising, but the parties have stated that the general prohibition against provision of non-monopoly services includes production of the Yellow Pages. See Competitive Impact Statement at 29 n. 24.
It appears that the Department is the principal proponent of the restrictions on the Operating Companies. AT & T has generally taken the stance that it agreed to these restrictions as part of the overall settlement.
Response to Comments at 54. See also id. at 53-61; Competitive Impact Statement at 27.
The Court cannot accept the proposition advanced by some that state and federal regulation alone will eliminate the possibility of anticompetitive abuses by the Operating Companies. If regulation could effectively prevent these practices, there would have been no need for the AT & T action. See Part IV supra.
There is no basis for the government’s contention that the participation of the Operating Companies in these markets would be of little competitive value. Their expertise in telecommunications and their large customer base would make them natural competitors in these fields.
Including the members of the House Subcommittee on Telecommunications, Consumer Protection, and Finance who submitted their views to the Court. See note 63 supra.
Evidence introduced during the AT & T trial indicated a definite correlation between increases in local telephone rates and the number of homes with a telephone. See Testimony of Louis J. Perl (November 23, 1981); Exhibit D — 4—1518.
Some have contended that the Court should not assess the propriety of the restrictions without holding evidentiary hearings with regard to the need therefor, their effect upon local rates, and related matters. The legislative history of the Tunney Act indicates that the court reviewing a proposed consent decree has broad discretion in fashioning the procedures for the public interest review. Both congressional committees stated, “Only where it is imperative that the court should resort to calling witnesses for the purpose of eliciting additional facts should it do so.” S.Rep. No. 93-298, supra, at 6-7; H.R.Rep. No. 93-1463, supra, at 8, U.S.Code Cong. & Admin.News 1974, p. 6539. The record in the AT & T action contains extensive information about the competitive structure of the entire telecommunications industry. This Court has relied upon that record in assessing the competitive significance of the proposed restrictions, and an evidentiary hearing concerning such matters is therefore not necessary.