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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[a] the prices of their equipment with the revenues

from their monopoly services."

See United States Ve 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, eden Plaintiff's First Statement of

Contentions and Proof, United States Y. 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 Byarsy. 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

manufacturer.

See United States V. AT&T, 524 F. Supp.

at 1379-80 (quoting August 16, 1981, DOJ Memorandum, p. 51).

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"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 Y. 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

oly 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 Y. 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)

Pre-Football, Inc., 570 F.2d 982 (D.C. Cir. 1977), cert.
denied, 436 U.S. 956 (1978); the warehouse in Gamco.
Inc. v. Providence Fruit & Produce Bldges Inc.,
194 F.2d 484 (1st Cir.), cert. denied, 344 U.S. 817 (1952);
the railroad terminal in United States v. Terminal R.R.
Ass'n, 224 U.S. 383 (1912); the pipeline in Woods
Exploration & Producing Co. v. Aluminum Co. of America,
438 F.2d 1286 (5th Cir. 1971), cert. denied, 404 U.S. 1047
(1972); and the power transmission facilities in Otter Tail
Power Co. v. United States, 410 U.S. 366 (1973). See
August 16, 1981, DOJ Memorandum, pp. 39, 76; United
States v. AT&T, 524 F. Supp. at 1352-53.

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

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charges was that, almost without exception, the challenged

See, eile, Southern Pacific Communication ce. V. AT&T,
556 F. Supp. 825 (D.D.C. 1982), aff'd 740 F.2d 980 (D.C.
Cir. 1984), cert. denied, 470 U.S. 1005 (1985); MCI
Communications Corp. V. AT&T, 708 F.2d 1081 (7th Cir.),
cert. denied, 464 U.S. 891 (1983); Data Transmission
Corp. V. AT&T, No. 76-1544 (D.D.C.); MCI Communications
Corp. Y. AT&T, No. 79-1182 (D.D.C.); Southern Pacific
Communications Corp. V. AT&T, No. 83-0094 & MDL 550 (N.D.
Cal.); United States Transmission Systems V. AT&T, No. 82
Civ. 1986 (S.D.N.Y.).

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See, eile, International Telephone & Telegraph Corp. Ve
AT&T, No. 77 Civ. 2854 (S.D.N.Y.); Conrac Corp. V. AT&T,
No. 82 Civ. 2330 (S.D.N.Y.); Telesciences V. AT&T,
No. 80-2445 (D.D.C.); General Dynamics Corp. Y. AT&T,
No. 82-C-7941 (N.D. 111.); Glictronix Corp. V. AT&T,
No. 82-4447 (D.N.J.); Gregg Communication Systems V. AT&T,
No. 82-C-6291 (N.D. 111.); Jack Faucett Associe Inc. V.
AT&T, No. 81-1804 (D.D.C.) (and four consolidated cases);
KWF Industries, Inc. Y. AT&T, No. 83-0431 (D.D.C.);
Phonetele. Inc. V. AT&T, No. 74-3566-FW (C.D. Cal.); Rice
International Corp. v. AT&T, No. 82-2573 (S.D. Fla.);
Selectron, Inc. y. Pacific Northwest Bell Telephone Co.,
No. 76-965-BE (D. Ore.); Sound. Inc. v. AT&T, No. 76-182-2
(S.D. Iowa) (and one consolidated case); DASA Corp. V.
AT&I, No. 83-2695 (E.D. Pa.); Amtel Communications, Inc. V.
AT&T, No. 82-8754 (S.D.N.Y.); Telephonic Equipment Corp. V.
AT&T, No. 82-C-8478 (S.D.N.Y.).

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