For example, the Department alleged that, "[b]y setting technical or compatibility standards and by either not communicating these standards to the general trade or changing them in mid-stream," the Bell System gave its manufacturing affiliate a "headstart" and insuperable advantages in designing equipment for use with the BOCs' local exchanges. See United States v. AT&T, 524 F. Supp. 1336, 1372 (D.D.C. 1981). This headstart allegedly assured that Western Electric would have the only products on the market that met the BOCS' requirements, such that the product could be purchased at inflated prices, and regulatory authorities would have no realistic alternative to passing these inflated prices through to ratepayers. See August 16, 1981, DOJ Memorandum, pp. 49-51; Competitive Impact Statement, pp. 15, 40-42. Second, the Department claimed that the BOCS had "subsidize[d] the prices of their equipment with the revenues from their monopoly services." See United States v. AT&T, 552 F. Supp. at 190. This allegedly permitted the BOCS to provide customer premises equipment to their customers below cost or without regard to cost, and it permitted Western Electric sales to the BOCS themselves at below-cost prices when necessary to assure that Western Electric products would be selected. Specifically, the Department and others charged that the product design and development expenses of Western Electric had been misallocated to the systems engineering and research functions that were funded by the BOCS' payments to AT&T under the License Contract, using revenues derived from their local services. See, e.g., Plaintiff's First Statement of Contentions and Proof, United States v. AT&T, No. 74–1698 (D.D.C.), p. 53 (November 1, 1978); August 16, 1981, DOJ Memorandum, pp. 366, 389-91; Competitive Impact Statement, PP. 40-42. This conduct would produce both predatory pricing that harmed competition and inflated rates that harmed consumers. Finally, the Department claimed that when Western Electric's "privileged access to information (and other conduct] failed to foreclose competition," the BOCs would simply favor their affiliate's products, even when better or less expensive alternatives were available from unaffiliated vendors. August 16, 1981, DOJ Memorandum, pp. 28-33, 376-88, 402-10; Competitive Impact Statement, p. 15. In episode after episode, the Department charged this misconduct and alleged that the monopoly character of the BOCs' local exchanges gave them the ability to buy equipment at inflated prices, to the detriment of competition and consumers alike. The Department argued such a use of vertical integration to "evade" rate regulation and inflate consumers' rates was a per se violation of Section 2 of the Sherman Act under Byars v. Bluff City News, 609 F.2d 843, 861 (6th Cir. 1979); 3 P. Areeda & D. Turner, Antitrust Law 218-19 (1978); and other like authorities. See August 16, 1981, DOJ Memorandum, pp. 362-64. The Department further contended that the mere existence of the vertically integrated Bell System created "suspicions" that would inhibit competition, whether or not the Bell System in fact engaged in any anticompetitive abuses. The Department claimed that, whether due to the efficiencies of integration or the perceived likelihood of abuses, firms would be inhibited from entering the American market and selling products to the BOCS so long as they were affiliated with a See United States v. AT&T, 524 F. Supp. manufacturer. - and at 1379-80 (quoting August 16, 1981, DOJ Memorandum, p. 51). Interexchange Services. The Bell System's control over local exchanges produced equally intractable controversies in the interexchange market. The Department contended AT&T could not dispute that the local exchanges were "essential facilities" for all participants in this market. The reality is that no long distance carrier can compete in this market unless it obtains access to the BOCS' local loops and other local distribution facilities that connect the long distance carrier's intercity network to consumers. Because these BOC facilities are a "natural monopoly" that no interexchange carrier can feasibly duplicate, all interexchange carriers are absolutely dependent on obtaining access to these local bottlenecks in a timely fashion and at reasonable and nondiscriminatory prices. The Department thus relied on a line of cases holding that firms controlling strategic bottlenecks must provide access to them on nondiscriminatory terms.* The Department analogized the BOCS local exchanges to such "essential facilities" as the stadium in Hecht v. (footnote continued on following page) The allegations in the many episodes in United States v. AT&T set forth a vast array of charges that Bell System companies had abused these local bottlenecks to impede interexchange competition. The Bell companies were charged with denying intercity competitors access to essential facilities; discriminatory pricing of essential facilities; negotiating in bad faith over new forms of interconnection to those facilities; misallocating joint and common costs between monopoly and competitive services to "cross-subsidize" interexchange services; engaging in "price squeezes" by charging inflated rates for local access while simultaneously lowering interexchange rates; delaying release of the interface information that long distance carriers need to develop new services; and continually "shifting from one anticompetitive activity to another." See United States v. AT&T, 552 F. Supp. at 167; August 16, 1981, DOJ Memorandum, pp. 67-285; United States v. AT&T, No. 74-1698, Plaintiff's First Statement of Contentions and Proof, pp. 74-258 (November 1, 1978). In the (footnote continued from previous page) Pro-Football, Inc., 570 F.2d 982 (D.C. Cir. 1977), cert. 194 F.2d 484 (1st Cir.), cert. denied, 344 U.S. 817 (1952); ! Department's view, all this actual or possible conduct foreclosed competition, inhibited entry, and injured consumers and competition alike. These allegations were not limited to the two government antitrust suits. More than 70 private antitrust cases were brought against Bell companies under these same leveraging theories by interexchange carriers,* equipment manufacturers,** and other competitors. A principal Bell System defense to these antitrust charges was that, almost without exception, the challenged See, e.g., Southern Pacific Communication Co. v. AT&T, ** See, e.g., International Telephone & Telegraph Corp. v. |