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House to require the Bell System to divest its equipment

manufacturing operations within three years and to interconnect with all other carriers. H.R. 13015, 95th Cong., 2d Sess.

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1st Sess. (1979); H.R. 6121, 96th Cong., 1st Sess. (1979);

s. 611, 96th Cong., 1st Sess. (1979); s. 622, 96th Cong..

1st Sess. (1979); s. 2827, 96th Cong., 2d Sess. (1980).

For

example, H.R. 6121 was approved by the House Commerce Committee

in August 1979.

It would have required the Bell System to move

any research and manufacturing operations that supported

unregulated services or products to a separate subsidiary, and

would have prohibited Bell companies from providing any

information services that might compete with newspapers or

periodicals, such as "electronic" Yellow Pages.

In 1981, the Senate passed s. 898, which is the source

of several of the provisions of the Modification of Final

Judgment.

S. 898, 97th Cong., 1st Sess. (1981).

S. 898

attempted to protect competing equipment manufacturers and

suppliers from abuse of the BOCs' bottleneck position by

ordering structural separation of the Bell System's research,

development and manufacturing operations and by imposing

restrictions on the Bell Companies. purchases of equipment from

its manufacturing affiliate.

S. 898 sought to protect

competing interexchange carriers by requiring the establishment

of "exchange telecommunications areas" within the states, and

further establishing a timetable for the phase-in of "equal

exchange access" by the BOCS.

These interexchange and exchange

access provisions of s. 898 were later incorporated directly

into the Decree.

See Modification of Final Judgment,

Sections II(A), IV(G), and Appendix B, S A.

After s. 898 passed the Senate, legislation was

introduced in the House in November of 1981 (H.R. 5158,

97th Cong., 1st Sess. (1981)) that adopted radically different

solutions to the threats of competitive abuses by Bell exchange

companies.

The FCC pursued similar regulatory solutions. *

The Bell System thus was confronted not only with the

claims in United States v. AT&T and the private antitrust

suits, but also with a host of proposed and actual FCC

regulations and several legislative proposals.

These all

sought to limit the Bell System's ability to abuse its

exchanges through such devices ranging from structural

requirements, to procurement quotas, to information flow rules, to interconnection standards, to pricing regulations.

See, e.ge, Amendment of Section 64.702 of the Commission's
Rules and Regulations (Second Computer Inguiry),
77 F.C.C.2d 384 (1980), aff'd sub nom. Computer &
Communication Industry Association y, FCC, 693 F.2d 198
(D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983); FCC CC
Docket No. 78-72 (exchange access); FCC CC Docket
No. 80-742 (license contracts); FCC CC Docket No. 80-53 and
No. 19129 (Phase II) (Bell System procurement practices);
AT&T. Manual and Procedures for the Allocation of costs,
84 F.C.C.20 384, modified, 86 F.C.C.2d 667 (1981), aff'd
sub nom. MCI Telecommunications Corp. y. FCC, 675 F.2d 408
(D.C. Cir. 1982).

As the District Court found in 1982, the resulting

uncertainty over industry structure and ground rules threatened

the entire industry and the legitimate interests of all its

participants.

See United States v. AT&T, 1982-2 Trade Cases

64,726 at 71,526 (D.D.C. 1982).

For while the regulatory,

legislative and antitrust initiatives were pending, the

industry participants had to wait, month after month, year

after year, to learn what the "rules" and industry structure

would be.

While they waited, industry participants often could

not move forward with new services and new investment, for fear

of having to backtrack when the new "rules" were determined.

Worse, industry participants bent their efforts toward

prosecuting or defending the litigation (or agency or legislative proceedings) in order to influence the resulting

"rules" to each participant's best advantage.

As the

Department of Justice contended, the mere existence of the

integrated Bell System and its potential to abuse its

bottleneck position inhibited many firms from entering the long distance and equipment manufacturing markets in competition

with AT&T.

In short, the costs of dispute dragged down all

industry participants

large and small companies, actual and

potential investors, and customers of all sizes.

Under the bottleneck leveraging theory, there was only corresponding line of business injunctions that would prevent

one antitrust remedy that could end the crippling uncertainty

and incessant controversies:

AT&T's divestiture of the local

exchange monopolies of the BOCs and the imposition of

the divested BOCs from reentering related competitive

businesses.

The Department sought this precise remedy in its

1974 case, both in the pret.ial proceedings and at trial through three different administrations and the tenures of five

different Attorneys General.

The fact that this antitrust

remedy was dictated by the Government's antitrust theory is vividly illustrated by the cover note that the then Assistant Attorney General for Antitrust (William Bakter) attached to the

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Although the Decree was not AT&T's idea, AT&T decided

that it was the best of the available alternatives and the only

way to end the turmoil and the industry's paralysis.

On

January 8, 1982, AT&T consented to entry of the Department's

proposed decree.

Thus, the Department contended that divestiture and the
Decree's line of business injunctions were "necessary
complement's" to one another and that the Decree's line of
business injunctions are the "opposite side of the
divestiture coin . an integral part of the
divestiture ... and proceed on precisely the same theory
(as divestiture)." United States v. AT&T, No. 74-1698,
Tr. 25179; ide, Brief of United States, p. 30 (June 14,

Before this Decree could be entered, however, the Tunney Act required Judge Greene to conduct extensive proceedings to determine whether the proposed relief was in the public interest and to make explicit findings as to the appropriateness of this remedy. Over 600 entities submitted written comments on the Decree, including competitors in each of the relevant markets, the FCC, state utility commissions, public interest groups, and members of Congress. The commentors almost uniformly agreed that divestiture was a good idea. They also broadly agreed with the concept of line of business injunctions on the divested BOCs, although some commentors challenged some of the injunctions that the

Department had proposed.

On the basis of this record and the voluminous trial record, Judge Greene found that AT&T's divestiture of the BOCS was "plainly in the public interest." United States v. AT&T,

552 F. Supp. at 223.

Judge Greene similarly approved the line

of business injunctions that would prevent the divested BOCS from reentering the interexchange and manufacturing markets that had been the subject of so many years of litigation.

The Court found that the interexchange services

injunction was necessary because access to the BOCs local

exchanges is "essential" for interexchange carriers and any BOC that provided these services could disadvantage interexchange carriers in a variety of ways so long as the local exchanges

remained monopolies.

Id. at 188.

The Court concluded that the

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