Page images
PDF
EPUB

precisely the role federal courts have historically played in overseeing the numerous similar decrees entered under federal

law, and there is thus no basis to consider changing or

[blocks in formation]

The Modification of Final Judgment (or "Decree")

granted the United States the structural antitrust relief that

the Justice Department had sought in over three decades of

antitrust litigation with the formerly integrated Bell System. The January 1, 1984, divestiture split the Bell System between

its monopoly local exchange businesses (assigned to the BOCs)

and its competitive long distance and manufacturing businesses

(assigned to AT&T).

The Decree originally contained four line

of business injunctions and barred the BOCs from

(1) interexchange services, (2) equipment manufacturing,

(3) information services, and (4) nontelecommunications

businesses.

The line of business injunctions are the "necessary

counterpart" of this divestiture.

By precluding the BOCs from

reentering the long distance and manufacturing businesses, the

line of business injunctions assure that the divested BOCs will

not recreate the very combinations and controversies that the

divestiture was designed to end.

At the same time, the Decree

was carefully fashioned to create an industry structure for

telecommunications that would not only promote competition in

long distance, manufacturing, and other markets, but also

protect ratepayers, prevent balkanization of the national

network, and promote America's international competitiveness

and balance of payments.

Both the divestiture and the corresponding line of

business injunctions received broad support among the 600

commentors that participated in the public interest proceedings

which led to the entry of the Decree by District Judge

Harold H. Greene.

And each rests on a fact that the District

Court, the Court of Appeals for the District of Columbia

Circuit, and numerous other antitrust courts have recognized: it creates profound competitive controversies and threatens vital national interests for a BOC both to control local

exchange networks on a widespread basis and to participate in

competitive businesses that depend on "access" to these local

exchanges or information about them.

These points are demonstrated by a brief review of

(1) the antitrust litigation against the Bell System, (2) the

fact that state and federal public utility regulation could not prevent these controversies, (3) the enormous costs that this antitrust problem imposed on the nation, and (4) the explicit antitrust findings that the District Court made when the Decree was entered and that appellate courts have since reaffirmed.

A.

The 1949 and 1974 Government Antitrust Cases And
The More Than 70 Private Suits

Prior to 1984, the Bell System had been a single

enterprise that participated in monopoly and related

competitive businesses alike.

Through the BOCs, the Bell

System owned the local telephone exchanges, which everyone

recognized to be natural monopolies that could not feasibly be

duplicated.

Through AT&T and Western Electric, the Bell System

also participated in three actually or potentially competitive

businesses that depended on access to the local exchange monopolies: (1) long distance or "interexchange" services,

which require access to local telephone facilities to originate

and terminate calls; (2) the manufacture of telecommunications

equipment (including equipment located on customer premises),

most of which was purchased by the BOCs and all of which

requires access to information about the evolving technical

characteristics of the network's local exchanges; and (3) the

provision of a very few “information services" (i.eu, time,

weather, and sports information), which similarly require use

of local telephone facilities for transmission of the

information.

In the 35 years that led up to the Decree, the United

States brought two separate antitrust actions to break up the

Bell System:

the first in 1949 (United States y. Western

Electric, No. 17-49 (D.N.J.)) and the second in 1974 (United

States v. AT&T, No. 74-1698 (D.D.C.)).

The basis for each was

the Justice Department's contention that the structure of the

Bell System was inherently anticompetitive.

The Department proceeded under the theory that a firm

with a lawful monopoly violates Section 2 of the Sherman Act if

it "leverages" that monopoly to impede or foreclose competition

in a related market

even if the firm neither monopolizes nor

attempts to monopolize that second market

and that a

monopolist acquires special duties if it controls an "essential facility" or a "strategic bottleneck" to which competitors

require nondiscriminatory access.

Judge Greene and other courts

found that this dual control over the local telephone exchange

monopolies and related competitive business gave the Bell Companies both the "ability" and the "incentive" to foreclose

competition in the long distance and equipment manufacturing markets through discrimination and cross-subsidization.

See,

eiler United States v. AT&T, 552 F. Supp. 131, 187 (D.D.C.

1982), aff'd sub nom. Maryland y. United States, 460 U.S. 1001

(1983); Litton Systems, Inc. V. AT&T, 700 F.2d 785, 798-802

(2d Cir. 1983), cert. denied, 404 U.S. 1073 (1984).

See Otter Tail Power Co. Ve United States, 410 U.S. 366,
377 (1973); Northwestern Pacific Railway v. United States,
356 U.S. 1, 11 (1958); Times-Picayune Publishing Co. v.
United States, 345 U.S. 594, 608-09 (1953); United
States v. Griffith, 334 U.S. 100, 107 (1948); M.A.P. Oil
Co. y. Texaco, 691 F.2d 1303, 1305-06 (9th Cir. 1982);
Berkey Photo. Inc. v. Eastman Kodak Co., 603 F.2d 263,
275-76 (2d Cir. 1979), cert. denied, 444 U.S. 1093 (1980);
Sargent-Welch Scientific Co. y. Ventron Corp.,
567 F.2d 701, 709, 711-13 (7th Cir. 1977), cert. denied,
439 U.S. 822 (1978).

Equipment Manufacturing. The Department claimed that the Bell System's control over the local telephone exchanges

inherently foreclosed competition in equipment manufacturing

markets.

In the Department's view, the Bell System could, and

had, misused its local monopolies to foreclose competition in

these markets in three different ways.

First, in numerous episodes in United States v. AT&T,

the Department charged that the BOCs and their centralized

engineering affiliate, Bell Laboratories, had "discriminated"

[blocks in formation]

information about the BOCs' needs and requirements, and other

information about the evolving characteristics of the local

exchanges that was essential to the design and manufacture of

equipment for sale to the BOCS.

See Plaintiff's Memorandum in

Opposition to Defendant's Motion For Involuntary Dismissal,

United States y. AT&T, No. 74-1698 (D.D.C.), pp. 49-51,

296-359, 366-410 (August 16, 1981) (hereinafter cited as

*August 16, 1981, DOJ Memorandum"); Competitive Impact Statement, United States v. AT&T, No. 74-1698 (D.D.C.), p. 15 (February 10, 1982) (hereinafter cited as "Competitive Impact

Statement").

« PreviousContinue »