The opinion of the court was delivered by: GREENE
Harold H. Greene, United States District Judge
These actions are before the Court
for a determination whether a consent decree proposed by the parties is in the "public interest"
and should therefore be entered as the Court's judgment. Over six hundred comments from interested persons, many of them objecting to various aspects of the proposal, have been received, and the Court has considered briefs submitted by the parties and others, and it has heard extensive oral argument. This opinion discusses the principal questions raised by these interested persons, and it embodies the Court's decision on the appropriateness of the proposed decree under the Tunney Act's public interest standard.
The opinion is divided into twelve parts. Part I relates the history of the litigation and the terms of the proposed decree. The next two sections contain analyses of two underlying legal issues -- the standard of review to be applied by the Court under the Tunney Act (Part II) and the relationship between the decree and state regulation (Part III). The following section (Part IV) considers the question whether the divestiture of the local Operating Companies is in the public interest. Two sections discuss the removal of restrictions from AT&T -- Section V as a general matter, and Section VI in the context of the provision of information and of electronic publishing services. The next two sections directly relate to the Operating Companies: Section VII considers whether the proposed limitations on Operating Company activities are in the public interest and Section VIII whether the decree makes adequate provision for access by intercity carriers to Operating Company networks. Part IX discusses the issues arising from the division of assets between AT&T and the Operating Companies; Part X considers special issues and provisions; and Part XI deals with problems of implementation and enforcement. Part XII contains the Court's summary and conclusion.
A. History of the Litigation
On January 14, 1949, the government filed an action in the District Court for the District of New Jersey against the Western Electric Company, Inc.
and the American Telephone and Telegraph Company, Inc. (Civil Action No. 17-49).
The complaint alleged that the defendants had monopolized and conspired to restrain trade in the manufacture, distribution, sale, and installation of telephones, telephone apparatus, equipment, materials, and supplies, in violation of sections 1, 2, and 3 of the Sherman Act, 15 U.S.C. §§ 1, 2, and 3.
The relief sought included the divestiture by AT&T of its stock ownership in Western Electric; termination of exclusive relationships between AT&T and Western Electric; divestiture by Western Electric of its fifty percent interest in Bell Telephone Laboratories;
separation of telephone manufacturing from the provision of telephone service; and the compulsory licensing of patents owned by AT&T on a non-discriminatory basis.
The court record reveals little activity in the case between the date of the filing of the complaint in 1949 and the entry of a consent decree in 1956. Except for the notation that an answer was filed in April, 1949, there are no record entries until the Fall of 1951 when the government filed and the court ordered compliance with several discovery requests. Following the discovery order, there is another two-year gap, and it is not until April 27, 1953, that another record entry is found. This entry indicates that defendants were given two additional months to complete their compliance with the government's 1951 discovery requests. The next reference is to the transcript of a hearing held on January 24, 1956, during which the consent decree was approved as being in the public interest. See slip op. at 7-8 infra.
The gaps in the court record are partly filled by a report of a committee of the United States House of Representatives
which conducted an intensive investigation of the circumstances surrounding the entry of the consent decree. Report of the Antitrust Subcommittee of the House Committee on the Judiciary on the Consent Decree Program of the Department of Justice, 86th Cong., 1st Sess., January 30, 1959 (Committee Print) [hereinafter Subcommittee Report]. That report reveals that the parties were quite active between the time of the filing of the government's discovery requests in 1951 and the signing of the consent decree in 1956.
As early as February 28, 1952, the president of Bell Laboratories, Dr. M. J. Kelly, met with Secretary of Defense Robert A. Lovett and other members of the Department of Defense to enlist their help in persuading the Justice Department to suspend prosecution of the action
until the end of the Korean War,
a suspension the Attorney General refused to grant.
Shortly after this meeting, AT&T again urged the Defense Department "to intercede with the Justice Department to have the case settled on a basis that would not require divorcement of Western." Subcommittee Report at 55. To that end, Secretary of Defense Charles E. Wilson had a letter hand-carried to Attorney General Brownell urging him to end the litigation without divesting Western Electric. The rationale stated for this position was that the severance of Western Electric would "effectively disintegrate the coordinated organization which is fundamental to the successful carrying forward of these critical defense projects," and would "be contrary to the vital interests of the Nation." Subcommittee Report at 56. The Wilson letter was actually prepared by AT&T.
Periodic negotiations between AT&T and the government continued through 1954 and 1955, and by early December, 1955, the government and AT&T had reached an agreement.
Despite the substantial differences between the structural relief requested in the government's 1949 complaint and the relief actually provided by the proposed decree, the District Court for the District of New Jersey accepted the proposal on January 24, 1956, after a brief hearing, stating:
I feel that I can unhesitatingly accept the recommendation of the Attorney General, that this judgment is in the public interest, and that it is a satisfactory adjustment of this very, very vexatious problem; and I am therefore happy to go along with the recommendation made by the Attorney General and shall forthwith sign this judgment.
After the decree was approved, no major developments occurred in the case for the next several years. Until 1981, the entries in the court record
concern primarily the patent licensing provisions.
Pretrial discovery began shortly after the defendants filed their answer in February 1975, but during the next three-and-one-half years, that discovery was effectively halted for over thirty months.
On February 7, 1978, the Court referred the case to the United States Magistrate for preparation of a discovery schedule. Pursuant to that authority, the Magistrate issued two orders on April 27, 1978, but attempts at discovery led to various disagreements, and by the Summer of 1978, very little progress had been made.
Upon the completion of this process, and pursuant to a further pretrial order, the parties began a structured stipulation process. This process was designed to produce, and it did produce, stipulations of all uncontested facts and contentions, a catalogue of all contentions that remained in dispute, and the proof (both testimonial and documentary) that would be used to support each contention. As a result of this process, the case was essentially divided into 82 segments or episodes,
many of which constituted major antitrust disputes in their own right. These episodes provided the structure for the presentation of evidence at trial.
The trial itself began on January 15, 1981. At the request of the parties, the trial was recessed immediately after the opening statements
for a period of six weeks in order to afford an opportunity for a negotiated settlement.
When the settlement discussions proved fruitless, the trial resumed on March 4, 1981. The government presented close to one hundred witnesses, many thousands of documents, and additional thousands of stipulations. After the conclusion of the government's case, defendants moved to dismiss the action on a variety of grounds. That motion was denied on September 11, 1981. United States v. AT&T, supra, 524 F. Supp. 1336. Defendants commenced their case-in-chief on August 3, 1981, and during the next five months they presented approximately 250 witnesses
and tens of thousands of pages of documents.
Defendants were scheduled to complete the presentation of their evidence on about January 20, 1982, and it was expected that the government's rebuttal evidence would be presented between that date and February 10, 1982, when the trial would have ended. However, early in January, 1982, the Court was advised of the proposed decree described below.
In their settlement proposal, the parties proposed that the Court enter the following judgment with respect to both lawsuits.
Section I of the proposed decree would provide for significant structural changes in AT&T. In essence, it would remove from the Bell System the function of supplying local telephone service by requiring AT&T to divest itself of the portions of its twenty-two Operating Companies which perform that function.
The geographic area for which these Operating Companies would provide local telephone service is defined in the proposed decree by a new unit, the "exchange area." According to the Justice Department, an exchange area "will be large enough to comprehend contiguous areas having common social and economic characteristics but not so large as to defeat the intent of the decree to separate the provision of intercity services from the provision of local exchange service."
Court approval would be required for the inclusion in an exchange area of more than one standard metropolitan area or the territory of more than one State.
The Operating Companies would provide telephone service from one point in an exchange area to other points in the same exchange area -- "exchange telecommunications"
-- and they would originate and terminate calls from one exchange area to another exchange area -- "exchange access."
The interexchange portion of calls from one exchange area to another exchange area
would, however, be carried by AT&T and the other interexchange carriers, such as MCI and Southern Pacific Co.
The proposed decree sets forth general principles governing the configuration of the Operating Companies
which AT&T would be required to divest.
Under the proposal, AT&T would be required to endow the companies with sufficient personnel, facilities, systems, and rights to technical information to enable them to provide exchange telecommunications and exchange access services.
These personnel, systems, facilities, and rights would be drawn from the Operating Companies and from AT&T and its other affiliates. AT&T would be permitted to choose to transfer some of these elements directly to the new Operating Companies and to place others in a central entity jointly owned by them.
AT&T would be required by the proposed decree to formulate a plan of reorganization which complied with these principles, and to submit the plan to the Department of Justice within six months after the Court approved the decree. The plan would not be effective without the Department's approval.
After divestiture, the new Operating Companies would be required to provide, through a centralized body, a single point of contact for national security and emergency preparedness. They would be permitted to use this or a similar central body to provide those services, such as administration and engineering, which "can most efficiently be provided on a centralized basis." In addition, until September 1987, AT&T, Western Electric, and Bell Laboratories would have to provide on a priority basis, all research, development, manufacturing, and other support services necessary to enable the Operating Companies to fulfill the requirements of the proposed decree.
Section II of the proposed decree would complement these structural changes by various restrictions which are said to be designed (1) to prevent the divested Operating Companies from discriminating against AT&T's competitors, and (2) to avoid a recurrence of the type of discrimination and cross-subsidization that were the basis of the AT&T lawsuit.
The first group of these provisions would require the divested Operating Companies to provide services to interexchange carriers
equal in type, quality, and price to the services provided to AT&T and its affiliates.
In addition, they would be prohibited from discriminating between AT&T and other companies in their procurement activities, the establishment of technical standards, the dissemination of technical information, their use of Operating Company facilities and charges for such use, and their network planning. The Justice Department has indicated that it intends these provisions to be "construed broadly to encompass all potential areas of favoritism, subtle as well as overt, that may arise in relationship between the divested BOCs and AT&T and its competitors." Competitive Impact Statement at 26-27.
The second type of restriction imposed upon the Operating Companies is said to be intended to prevent them from engaging in any non-monopoly business so as to eliminate the possibility that they might use their control over exchange services to gain an improper advantage over competitors in such businesses. Thus, the Operating Companies would not be permitted (1) to manufacture or market telecommunications products and customer premises equipment; (2) to provide interexchange services, (3) to provide directory advertising such as the Yellow Pages; (4) to provide information services; and (5) to provide any other product or service is not a "natural monopoly service actually regulated by tariff." The Operating Companies would have the authority, however, to engage in what are called the "inherent" functions of procurement, engineering, marketing, and management.
Section III of the agreement provides that the decree would be binding on AT&T and the Operating Companies and their successors and that it would not constitute any evidence against, an admission by, or an estoppel against AT&T or the Operating Companies.
The proposed decree contains a number of enforcement provisions. Section V would impose a requirement upon AT&T and the Operating Companies to inform their employees of their obligations under the decree. Section VI would grant to the Department of Justice the right of access to AT&T and the Operating Companies to inspect books, interview and depose employees, and demand reports.
Section VII provides that the Court would retain jurisdiction for the purpose of issuing orders to construe or carry out the decree, to modify it, to enforce compliance, and to punish violations, upon application of the parties and, after the reorganization, upon the application of an Operating Company.
Finally, the proposed decree would vacate the final judgment entered on January 24, 1956 in the Western Electric case, eliminating the restrictions imposed upon AT&T by that decree.
On January 11, 1982, Judge Vincent Biunno of the District Court for the District of New Jersey, following a brief hearing, approved the proposed decree, interpreting it solely as a modification of the 1956 consent judgment, but he did not, initially, agree to the parties' request for a transfer of the Western Electric action to this Court.
The following day, this Court held a hearing and continued in effect its order that the stipulation of dismissal which the parties had attempted to file in the AT&T action here be simply lodged pending completion of the appropriate public interest proceedings. Judge Biunno thereafter granted the parties' motion for a transfer of the Western Electric action, that action was docketed here under Civil Action No. 82-0192 and, by order of this Court, it was consolidated with the AT&T action. At the same time, this Court vacated the order of January 11, 1982, which had approved the proposed decree, and it ordered that procedures equivalent to those required by the Tunney Act be applied to the consolidated actions.
C. Procedures in Connection with the Settlement Proposal
(1) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration or relief sought, anticipated effects of alternative remedies actually considered, and any other considerations bearing upon the adequacy of such judgment;
(2) the impact of entry of such judgment upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of public benefit, if any, to be derived from a determination of the issues at trial.
Procedurally the Court may
(1) take testimony of Government officials or experts or such other expert witnesses, upon motion of any party or participant or upon its own motion, as the court may deem appropriate;
(2) appoint a special master and such outside consultants or expert witnesses as the court may deem appropriate; and request and obtain the views, evaluations, or advice of any individual, group or agency of government with respect to any aspects of the proposed judgment or the effect of such judgment, in such manner as the court deems appropriate;
(3) authorize full or limited participation in proceedings before the court by interested persons or agencies, including appearance amicus curiae, intervention as a party pursuant to the Federal Rules of Civil Procedure, examination of witnesses or documentary materials, or participation in any other manner and extent which serves the public interest as the court may deem appropriate;
(4) review any comments including any objections filed with the United States under subsection (d) of this section concerning the proposed judgment and the responses of the United States to such comments and objections; and
(5) take such other action in the public interest as the court may deem appropriate.
When they filed the present proposed decree, the government and AT&T took the position that the Tunney Act did not apply because (1) their submission in the District Court for the District of New Jersey was merely a "modification" of an existing consent judgment, as distinguished from the entry of a judgment,
and (2) no consent judgment at all was filed in this Court, but only a dismissal of the pending action.
In any event, the parties have now stated in various ways and before various forums (including before this Court) that, irrespective of their opinion of the technical applicability of the Tunney Act, they are willing
to have the Tunney Act procedures applied by this Court.
In view of those representations, it became unnecessary for the Court to pass specifically upon the technical applicability of the Act. Instead, the Court on January 21, 1982, entered an order which, pursuant to the parties' consent and the Court's general equitable powers,
applied the substantive Tunney Act procedures to the instant settlement.
During the months of April and May, 1982, the Department of Justice filed with the Court the comments it had received during the preceding sixty days, and on May 20, 1982, it filed its response to those comments.
On May 25, 1982, the Court issued a Memorandum governing further proceedings. The Memorandum identified a number of key issues that were raised by the comments and the responses, and it invited the parties and the various interested persons to brief these issues in a form more suitable to judicial adjudication than the necessarily somewhat diffuse comments. A hearing was held on June 29 and 30, 1982, at which time the issues were further elucidated and refined.
The Court's substantive conclusions based upon the comments, responses, briefs, oral arguments, and the entire record herein, are discussed below.
Power of the Court in this Public Interest Proceeding
Under the Tunney Act, the Court may approve the decree proposed by the parties only if it first determines that such approval is "in the public interest."
Before discussing the substantive provisions of the proposed decree, it is appropriate to set out the standards which will guide the Court's public interest review.
In enacting the Tunney Act, Congress sought to ensure that the Justice Department's use of consent decrees in antitrust cases would fully promote the goals of the antitrust laws and foster public confidence in their fair enforcement.
The legislators found that prior practice, which gave the Department almost total control of the consent decree process, with only minimal judicial oversight, failed to accomplish these ends.
The legislative history shows that Congress was particularly concerned that the "excessive secrecy" of the consent decree process deprived the public of the opportunity to scrutinize and comment upon proposed decrees, thereby undermining confidence in the legal system.
In addition, the legislators found that consent decrees often failed to provide appropriate relief, either because of miscalculations by the Justice Department
or because of the "great influence and economic power" wielded by antitrust violators.
The history, indeed, contains references to a number of antitrust settlements deemed "blatantly inequitable and improper" on these bases.
To remedy these problems, Congress imposed two major changes in the consent decree process. First, it reduced secrecy by ordering disclosure by the Justice Department of the rationale and the terms of proposed consent decrees and by mandating an opportunity for public comment.
Second, it sought to eliminate "'judicial rubber stamping' of proposals submitted to the courts by the Department," by requiring an explicit judicial determination in every case that the proposed decree was in the public interest.
It is clear that Congress wanted the courts to act as an independent check upon the terms of decrees negotiated by the Department of Justice,
and this Court will review the instant settlement in that spirit.
B. Factors to be Considered
Although the statute is explicit as to the Court's obligation to make a public interest determination, it provides relatively little guidance regarding the meaning of "public interest" in this context.
What is clear is that, whatever other factors a court may take into account, it must begin by defining the public interest in accordance with the antitrust laws. S. Rep. No. 93-298, supra, at 3; H.R. Rep. No. 93-1463, supra, at 11-12. It is therefore to the basic purposes of the antitrust laws that we must first turn.
The Supreme Court has repeatedly held that, in enacting the Sherman Act, Congress sought to "preserv[e] free and unfettered competition as the rule of trade." Northern Pacific Railway Co. v. United States, 356 U.S. 1, 4, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). See also National Society of Professional Engineers v. United States, 435 U.S. 679, 692, 55 L. Ed. 2d 637, 98 S. Ct. 1355 (1978); United States v. Crescent Amusement Co., 323 U.S. 173, 187, 89 L. Ed. 160, 65 S. Ct. 254 (1944). Competition has not been endorsed by the Congress and the courts as a purely academic matter. The need to safeguard free competition is a direct result of the fundamental premise of our economic system that
Northern Pacific Railway Co. v. United States, supra, 356 U.S. at 4. See also National Society of Professional Engineers v. United States, supra, 435 U.S. at 695.
This policy is embodied in two types of legal standards -- those applied to the liability phase of antitrust cases and those which govern the relief phase. Since the Court's determination here is concerned solely with remedies, the decisions granting relief after a finding of liability form the most relevant yardstick for determining whether the proposed consent decree will further antitrust policies, and the Court will therefore use these decisions as its basic standard.
Antitrust remedies, it is usually said, must "effectively pry open to competition a market that has been closed by defendants' illegal restraints." International Salt Co. v. United States, 332 U.S. 392, 401, 92 L. Ed. 20, 68 S. Ct. 12 (1947). See also 2 P. Areeda & D. Turner, Antitrust Laws § 327 (1978). A decree must "break up or render impotent the monopoly power found to be in violation of the Act,"
that is, it must leave the defendant without the ability to resume the actions which constituted the antitrust violation in the first place. For these reasons, the decree should not be limited to past violations; it must also effectively foreclose the possibility that antitrust violations will occur or recur. As the Court noted in International Salt Co. v. United States, supra, 332 U.S. at 400,
it is not necessary that all of the untraveled roads to [anticompetitive conduct] be left open and that only the worn one be closed. The usual ways to the prohibited goals may be blocked against the proven transgressor.
See also National Society of Professional Engineers v. United States, supra, 435 U.S. at 697-98; United States v. United States Gypsum Co., 340 U.S. 76, 88, 95 L. Ed. 89, 71 S. Ct. 160 (1950); Associated Press v. United States, 326 U.S. 1, 22, 89 L. Ed. 2013, 65 S. Ct. 1416 (1945); United States v. Crescent Amusement Co., supra, 323 U.S. at 188; United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 346-47 (D. Mass. 1953), aff'd, 347 U.S. 521, 98 L. Ed. 910, 74 S. Ct. 699 (1954).
While the issue of competition and the effects on competition which are at the heart of the antitrust laws should thus be deemed matters of paramount concern, it is clear from the cases that other factors are not irrelevant.
As the Supreme Court has put it, antitrust violations should be remedied "with as little injury as possible to the interest of the general public" and to relevant private interests. United States v. American Tobacco Co., 221 U.S. 106, 185, 55 L. Ed. 663, 31 S. Ct. 632 (1911). See also, United States v. E.I. duPont de Nemours, 366 U.S. 316, 327-28, 6 L. Ed. 2d 318, 81 S. Ct. 1243 (1961). When choosing between effective remedies, a court should impose the relief which impinges least upon other public policies. United States v. American Tobacco Co., supra; United States v. E. I. duPont de Nemours, supra; United States v. Terminal Railroad Ass'n, 224 U.S. 383, 410, 56 L. Ed. 810, 32 S. Ct. 507 (1912).
Thus, the Court would be justified in rejecting the proposed decree or requiring its modification
if it concluded that the decree unnecessarily conflicts with important public policies other than the policy embodied in the Sherman Act.
C. Degree of Deference to the Proposal Submitted by the Parties
Where, as here, a court is evaluating a settlement, it is not as free to exercise its discretion in fashioning a remedy as it would be upon a finding of liability. For when parties enter into a consent decree, they
waive their right to litigate the issues involved in the case and thus save themselves the time, expense, and inevitable risk of litigation. Naturally, the agreement reached normally embodies a compromise; in exchange for the saving of cost and the elimination of risk, the parties each give up something they might have won had they proceeded with the litigation.
United States v. Armour & Co., 402 U.S. 673, 681, 29 L. Ed. 2d 256, 91 S. Ct. 1752 (1971). If courts acting under the Tunney Act disapproved proposed consent decrees merely because they did not contain the exact relief which the court would have imposed after a finding of liability, defendants would have no incentive to consent to judgment and this element of compromise would be destroyed. The consent decree would thus as a practical matter be eliminated as an antitrust enforcement tool, despite Congress' directive that it be preserved. See S. Rep. No. 93-298, supra, at 6; H.R. Rep. No. 93-1463, supra, at 6.
It follows that a lower standard of review must be applied in assessing proposed consent decrees than would be appropriate in other circumstances. H.R. Rep. No. 93-1463, supra, at 12. For these reasons, it has been said by some courts that a proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is "within the reaches of public interest." United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975). See also United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981); United States v. Carrols Development Corp., 454 F. Supp. 1215, 1222 (N.D.N.Y. 1978); United States v. National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D. Cal. 1978). Although these decisions are not necessarily binding,
this Court will follow a similar approach.
It does not follow from these principles, however, that courts must unquestioningly accept a proffered decree as long as it somehow, and however inadequately, deals with the antitrust and other public policy problems implicated in the lawsuit. To do so would be to revert to the "rubber stamp" role which was at the crux of the congressional concerns when the Tunney Act became law. This consideration is especially potent in these cases, for several reasons.
First. This is not an ordinary antitrust case. The American Telephone and Telegraph Company, with its various components and affiliates, is the largest corporation in the world by any reckoning,
and the proposed decree, if approved, would have significant consequences for an unusually large number of ratepayers, shareholders, bondholders, creditors, employees, and competitors. Beyond that, it is clear that the divestiture of the Operating Companies, combined with the entry of AT&T into new competitive markets, will be an enormous undertaking, fraught not only with many problems and difficulties, but also with a potential for substantial private advantage at the expense of the public interest. In view of these considerations, and of the potential impact of the proposed decree on a vast and crucial sector of the economy and on such general public interests as the cost and availability of local telephone service, the technological development of a vital part of the national economy, national defense, and foreign trade, the Court would be derelict in its duty if it adopted a narrow approach to its public interest review responsibilities.
Second. Some of those who during the legislative hearings took a narrow view of the judicial responsibilities under the Act suggested that the courts would generally not be able to render sound judgments on settlements because they would not be aware of all the relevant facts.
But that factor is of relatively little relevance here, for this Court has already heard what probably amounts to well over ninety percent of the parties' evidence both quantitatively and qualitatively, as well as all of their legal arguments.
It is thus in a far better position than are the courts in the usual consent decree cases
to evaluate the specific details of the settlement.
None of this means, of course, that the Court would be justified in simply substituting its views for those of the parties. But it does mean that the decree will receive closer scrutiny than that which might be appropriate to a decree proposed in a more routine antitrust case.
The Court concludes that, taking into account the various legislative and decisional mandates discussed above, it will apply the following standard to its evaluation of the proposed decree. After giving due weight to the decisions of the parties as expressed in the proposed decree, the Court will attempt to harmonize competitive values with other legitimate public interest factors. If the decree meets the requirements for an antitrust remedy -- that is, if it effectively opens the relevant markets to competition and prevents the recurrence of anticompetitive activity, all without imposing undue and unnecessary burdens upon other aspects of the public interest -- it will be approved.
If the proposed decree does not meet this standard, the Court will follow the practice applied in other Tunney Act cases
and, as a prerequisite to its approval, it will require modifications which would bring the decree within the public interest standard as herein defined.
Conflict Between the Proposed Decree and State Regulation
A number of interested persons, principally States and state regulatory commissions,
contend that this Court lacks the power to enter the decree proposed by the parties without the approval of the regulatory commissions acting under state law. The decree would require AT&T to take various actions for which regulatory approval is required under state law,
and it would restrict the Operating Companies with respect to activities which they are authorized to engage in under state regulation.
Because of this conflict, say the States, the decree may not be entered until the requisite permission from the various state agencies has been secured. The Department of Justice and AT&T assert in response that state law
is preempted to the extent that it bars execution of the decree.
This is not the first case in which States have argued that a federal court decree based upon federal law may not validly require actions prohibited by state law. These claims are almost as old as the Republic. One needs to recall only the great school desegregation disputes of the last thirty years, in the course of which a number of States justified their failure to comply with federal court injunctions by asserting that compliance was impossible because of the conflicting requirements of state law. The Supreme Court repeatedly and consistently held that the Supremacy Clause of the Constitution
rendered invalid any state authority that conflicted with the federal court order. North Carolina State Board of Education v. Swann, 402 U.S. 43, 46, 28 L. Ed. 2d 586, 91 S. Ct. 1284 (1971); Griffin v. County School Board, 377 U.S. 218, 231-34, 12 L. Ed. 2d 256, 84 S. Ct. 1226 (1964); Cooper v. Aaron, 358 U.S. 1, 3 L. Ed. 2d 5, 78 S. Ct. 1401 (1958); see also Morgan v. McDonough, 540 F.2d 527 (1st Cir. 1976); United States v. Indianola Municipal Separate School District, 410 F.2d 626, 630-31 (5th Cir. 1969). More recently, in Washington v. Washington State Commercial Passenger Fishing Vessel Ass'n, 443 U.S. 658, 695, 61 L. Ed. 2d 823, 99 S. Ct. 3055 (1979), the Court once again rejected the argument that state law restrictions could prevent a state regulatory agency from complying with a federal court's decree, reiterating that "state-law prohibition against compliance with the District Court's decree cannot survive the command of the Supremacy Clause of the United States Constitution."
While the basis for preemption is the Constitution, a preemptive effect in an individual case may be based on that document, on treaties, or on federal statutes such as the Sherman Act, which constitute valid exercises of federal power. See California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 63 L. Ed. 2d 233, 100 S. Ct. 937 (1980). In other words, if this Court has the authority under the Sherman Act to issue the proposed decree, state regulatory statutes are unenforceable to the extent that they prevent compliance with its terms.
The States cannot and most of them do not dispute that the conditions sought to be remedied by the decree fall within the broad sweep of the Sherman Act. Like the Commerce Clause of the Constitution,
the Sherman Act "extend[s] beyond activities actually in interstate commerce to reach other activities that, while wholly local in nature, nevertheless substantially affect interstate commerce." McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232, 241, 62 L. Ed. 2d 441, 100 S. Ct. 502 (1980). See also Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 743, 48 L. Ed. 2d 338, 96 S. Ct. 1848 (1976). Similarly, the States do not dispute that the power of the Court under Section 4 of the Sherman Act, 15 U.S.C. § 4, to "prevent and restrain" violations of the statute is broad enough to encompass the decree proposed by the parties in this case. Their argument bypasses these general constitutional and antitrust principles to rely instead on certain specific aspects of the exercise of federal antitrust power, as follows.
Several States assert -- citing National League of Cities v. Usery, 426 U.S. 833, 49 L. Ed. 2d 245, 96 S. Ct. 2465 (1976) -- that the proposed decree would unconstitutionally invade powers reserved to them under the Tenth Amendment. In that case, the Supreme Court held that Congress was foreclosed from extending minimum wage and maximum hour employment standards to persons employed by the States themselves, ruling (426 U.S. at 851-52) that activities in areas such as
fire prevention, police protection, sanitation, public health, and parks and recreation . . . . are typical of those performed by state and local governments in discharging their dual functions of administering the public law and furnishing public services. Indeed, it is functions such as these which governments are created to provide, services such as these which the States have traditionally afforded their citizens. If Congress may withdraw from the States the authority to make those fundamental employment decisions upon which their systems for performance of these functions must rest, we think there would be little left of the States' 'separate and independent existence.' . . . The dispositive factor is that Congress has attempted to exercise its Commerce Clause authority to prescribe minimum wages and maximum hours to be paid by the States in their capacities as sovereign governments. . . . We hold that insofar as the challenged amendments operate to directly displace the States' freedom to structure integral operations in areas of traditional governmental functions, they are not within the authority granted Congress by Art. I, § 8, cl. 3. (footnotes omitted).
The Court made it abundantly clear that its decision was not to be regarded as a wholesale retreat from the principle of federal supremacy in the event of federal-state conflict; rather, the decision was strictly limited to the proposition that the Tenth Amendment imposes limitations on the "exercise of congressional authority directed . . . to the States as States." Id. at 845.
The progeny of National League of Cities has continued to distinguish sharply between federal regulation of States and such regulation of "private persons and businesses 'necessarily subject to the dual sovereignty of the government of the Nation and of the State in which they reside.'" Hodel v. Virginia Surface Mining & Reclamation Ass'n, 452 U.S. 264, 286, 69 L. Ed. 2d 1, 101 S. Ct. 2352 (1981), quoting National League of Cities v. Usery, supra, 426 U.S. at 845. See also, Federal Energy Regulatory Commission v. Mississippi, 456 U.S. 742, 72 L. Ed. 2d 532, 102 S. Ct. 2126, 50 U.S.L.W. 4566 (1982). As to the latter category of regulation, said the Court, there is "no Tenth Amendment impediment to congressional action." Hodel v. Virginia Surface Mining & Reclamation Ass'n, supra, 452 U.S. at 286.
The proposed decree imposes obligations only on private business. By its terms, it does not apply to the States at all; pursuant to the congressional power over interstate commerce it simply regulates private activities which are without any doubt subject to that power. To be sure, some of these activities may also be subject to state regulation; but such confluence is not, and has never been held to be, regulation of "States as States."
The Supreme Court recently considered an analogous problem in Federal Energy Regulatory Comm'n v. Mississippi, supra. One of the statutory provisions at issue in that case permitted the Federal Energy Regulatory Commission to exempt certain private facilities from state laws. While the Court divided as to the application of the Tenth Amendment to other sections of the statute, it was unanimous in upholding this particular provision because, as the majority noted, "the Federal Government may displace state regulation even though this serves to 'curtail or prohibit the States' prerogatives to make legislative choices respecting subjects the States may consider important.'" 50 U.S.L.W. at 4570, quoting Hodel v. Virginia Surface Mining & Reclamation Ass'n, supra, 452 U.S. at 290. See also 50 U.S.L.W. at 4575 n. 1 (O'Connor, J., dissenting).
Some States argue next that in enacting the Communications Act, Congress intended to prevent federal preemption of the state regulation of telecommunications permitted by that statute. There is no evidence whatever to support this proposition. Absent specific indication of congressional intent, the Court declines to read the Communications Act so as to immunize these state laws from preemption by other federal statutes.
Furthermore, the States' authority under the Communications Act is limited to "local services . . . that in their nature and effect are separable from and do not substantially affect the conduct or development of interstate communications." North Carolina Utility Commission v. FCC, 537 F.2d 787, 793 (4th Cir. 1976). The decree, of course, concerns matters which are beyond this limited grant of jurisdiction.
Finally, even if the Communications Act did support certain kinds of state regulation, it would not help the States here. This Court has heard a variation of the argument they make when it was raised, again and again, by AT&T and has rejected it every time. United States v. AT&T, supra, 524 F. Supp. at 1345; United States v. AT&T, supra, 461 F. Supp. at 1320-30. As the Court previously stated, regulation under the Communications Act is neither sufficiently explicit nor sufficiently pervasive
to allow it to stand in the way of the enforcement of the antitrust laws.
All other courts which have had occasion in recent years to consider the subject of telecommunications antitrust immunity on account of regulation under the Communications Act have reached the same conclusion. Phonetele, Inc. v. AT&T, 664 F.2d 716 (9th Cir. 1981); Sound, Inc. v. AT&T, 631 F.2d 1324, 1327-31 (8th Cir. 1980); Mid-Texas Communications Systems, Inc. v. AT&T, 615 F.2d 1372, 1377-82 (5th Cir. 1980); Essential Communications Systems, Inc. v. AT&T, 610 F.2d 1114 (3rd Cir. 1979). See also, National Gerimedical Hospital and Gerontology Center v. Blue Cross, 452 U.S. 378, 69 L. Ed. 2d 89, 101 S. Ct. 2415 (1981). If the Communications Act itself and direct regulation by the FCC pursuant to that Act do not impair antitrust liability, a fortiori mere implied recognition in the Act of state regulation -- assuming that there is such recognition -- cannot stand in the way either of a finding of such liability or of the taking of necessary remedial action in implementation of the mandate of the Sherman Act.
The States' primary contention is that the decree is barred by the state action exemption from the antitrust laws first announced in Parker v. Brown, 317 U.S. 341, 87 L. Ed. 315, 63 S. Ct. 307 (1943). In that case, the Supreme Court upheld a regulatory program which restricted competition among raisin growers by setting prices and limiting production. Finding no suggestion in the legislative history of the Sherman Act that such state action was to be restrained, the Court declined to find that the Sherman Act preempted the state law.
The Parker doctrine, which has been restated and applied a number of times since then,
"reflects Congress' intention to embody in the Sherman Act the federalism principle that the States possess a significant measure of sovereignty under our Constitution." Community Communications Co. v. City of Boulder, 455 U.S. 40, 70 L. Ed. 2d 810, 102 S. Ct. 835, 50 U.S.L.W. 4144, 4147 (1982). See also Areeda, " Antitrust Immunity for 'State Action' After Lafayette," 95 Harv. L. Rev. 435, 436 (1981). At the root of the rule is the principle that federalism permits the States to impose a regime of economic regulation which is different from and inconsistent with the free competition principle mandated by the antitrust laws.
There are several reasons why the States' reliance on the Parker doctrine is misplaced.
In any event, the Parker v. Brown line of cases does not establish that all state regulation per se serves to immunize activities from the federal antitrust laws. Such an immunity exists only if (1) the restraint is clearly articulated and affirmatively expressed as state policy, and (2) the policy is actively supervised by the State. California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., supra, 445 U.S. at 105. Moreover, preemption is precluded only under special circumstances and to achieve a specific goal: to allow the states to implement alternatives to the Sherman Act system of free competition. It is against these standards that the States' contention here must be tested.
The conduct that is the subject of these antitrust actions is clearly not beyond the reach of the federal antitrust laws
-- a conclusion with which the States are in agreement.
That is so because some of that conduct (i.e., the allegedly anticompetitive activity of AT&T in the intercity services market) is not under state regulation at all; and because the remainder (i.e., AT&T's activity in the local services and equipment markets) is regulated by the States only in the sense that the local Operating Companies are required to file tariffs with respect thereto -- actions which the courts have consistently held to be insufficient to qualify under the Parker-Midcal "active supervision" standard.
To put it another way, it is clear that state regulation would not be a defense during the liability phase of this or any other antitrust action based on similar conduct.
Since the conduct which is the subject of these lawsuits is thus well within the jurisdiction of the federal antitrust laws -- as distinguished from the regulatory jurisdiction of the States -- it would make no sense to hold that, in providing a remedy for the anticompetitive conduct,
the Court must refrain from interfering with state regulation.
Such a holding would in effect place this conduct in a no-man's land -- not regulated by the states sufficiently to meet the Parker-Midcal test, yet immunized from effective federal antitrust jurisdiction because the antitrust remedy is barred by state regulations unrelated to this conduct.
The practical consequences of such a rule to antitrust enforcement could be devastating.
Deference to state law in this type of situation would leave the Sherman Act powerless to eliminate anticompetitive activity,
even though the activity was not subject to state regulation sufficient to preclude application of the antitrust laws. This result is directly contrary to the thesis of the state action doctrine: that "the national policy in favor of competition" is supplanted only when state regulation will take its place.
California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., supra, 445 U.S. at 106.
In these particular cases, the rule proposed by the States would reduce the Court's judgment to little more than an advisory opinion: AT&T would have to obtain the approval of the public utilities commission of every State before that judgment would actually be implemented. As the States themselves have said, if their claim were accepted, they would have the "unassailable authority to veto" the divestiture and to cause a "balkanized scheme of telecommunications service" should they so choose.
The Court concludes that the state action doctrine does not restrict the judicial power to impose an appropriate remedy under the Sherman Act.
C. Avoidance of Unnecessary Conflict with State Law
It is well established that interference with state interests is not a favored approach; it is a measure to be employed only when necessary to vindicate federal law. Thus, a judicial remedy may infringe upon state law only to the extent necessary effectively to protect the federal interest. See Milliken v. Bradley, 433 U.S. 267, 280-81, 53 L. Ed. 2d 745, 97 S. Ct. 2749 (1977); Morgan v. McDonough, supra, 540 F.2d at 534.
Moreover, in exercising their discretion in fashioning antitrust remedies,
courts are obligated to minimize the impact of their decrees upon other public policies (see Part II supra), including, of course, the policy against unnecessary interference with state interests.
Were the Court to fashion its own remedy following a finding of liability, it would accordingly be obligated to minimize interference with state law to the extent that this may be done without vitiating or weakening the remedial measures required as a result of the findings made in the litigation. It is difficult to believe that when the parties arrive at a consent decree they have greater powers to override these principles than would the Court in drafting its own decree. In any event, whatever the parties may do, the Court would certainly be justified in taking the policy against unnecessary interference with state law and state policy into account when it passes upon the proposed judgment in a public interest proceeding.
It follows from what has been said that those provisions in the proposed decree which are necessary to vindicate the federal interest in the enforcement of the antitrust laws will be approved notwithstanding the fact that they may conflict with the state laws or interests. However, in its overall consideration of the public interest, the Court will also take into account that a particular provision may be merely peripheral to the federal interest but have a substantial adverse impact on state laws.
A key feature of the proposed decree is the divestiture of the Operating Companies from the remainder of AT&T. In order to determine whether that divestiture is in the public interest, the Court must decide first whether it is a remedy that is likely to eliminate anticompetitive conditions within the telecommunications industry. In addition, the Court must assess the efficacy of alternative remedies and it must also weigh the effect of the divestiture on the public interest generally, particularly on the level of charges for local telephone service.
A. Conditions Necessitating Antitrust Relief
1. Evidence of Anticompetitive Actions by AT&T
In its complaint and in documents filed thereafter (i.e., the several Statements of Contentions and Proof), the government asserted that AT&T monopolized the intercity telecommunications market and the telecommunications product market in a variety of ways in violation of the Sherman Act.
In its intercity case, the government alleged that AT&T used its control over its local monopoly to preclude competition in the intercity market. The government proved inter alia that after 1968 AT&T included a "customer premises" provision in its interconnection tariff which deterred potential competitors from entering that market;
that it refused to provide FX and CCSA services to specialized common carriers and domestic satellite carriers until 1974 when the FCC specifically ordered it to do so;
and that it attempted to prevent competitors from offering metered long distance service that would compete with AT&T's own regular long distance service.
AT&T's basic rationale for these policies was that it was attempting to prevent competitors from "creamskimming."
As viewed by AT&T, it would have been able successfully to combat creamskimming if it had priced each of its routes on the basis of the costs for operating that route. However, it concluded that the FCC had rejected this approach when it endorsed national rate averaging in the interest of promoting the goal of universal service. Accordingly, AT&T argued that, since rate averaging is inconsistent with competition, and since the basic rate averaging policy had been required by the FCC as being in the public interest, it was acting reasonably under the Communications Act in preventing competition as best and as long as it could.
What is significant about these events is that AT&T was able to adopt the policies described above in large part because of its control over the local exchange facilities. For example, it was because of its ownership and control of the local Operating Companies -- whose facilities were and are needed for interconnection purposes by AT&T's competitors -- that AT&T was able to prevent these competitors from offering FX and CCSA services. Similarly, AT&T was able to deter competition by manipulating prices for access to the Operating Company networks.
AT&T's control over the local Operating Companies was central also to the anticompetitive behavior alleged with respect to the second facet of the government's case, that involving customer-provided terminal equipment.
Additionally, the alternative option of certification
was available but never seriously pursued by Bell.
Moreover, when ultimately certification was directly mandated by the FCC as a substitute for the protective connecting arrangement, the telephone network -- AT&T's predictions to the contrary notwithstanding -- did not cease to function in its customary fashion. Indeed, AT&T was unable during the trial to prove any actual harm to the network from the elimination of the PCAs.
In its procurement part of the case, the government alleged, and there was proof, that AT&T used its control over the local Operating Companies to force them to buy products from Western Electric even though other equipment manufacturers produced better products or products of identical quality at lower prices. Here, too, AT&T's control of the Operating Companies was central to the allegedly anticompetitive behavior.
Without making definitive findings on any or all of the issues, it is certainly clear that -- to the extent that the proposed decree is offered by the government on the premise that it will destroy the basis of past anticompetitive behavior -- the Court would not be justified in rejecting it as constituting a remedy for non-existent anticompetitive acts.
2. Concentration of Power in the Telecommunications Industry
There is an additional reason, largely independent of the factors discussed above, which supports some type of antitrust relief in this case: AT&T's substantial domination of the telecommunications industry in general.
The antitrust laws are most often viewed as only a means for ensuring free competition in order to achieve the most efficient allocation of society's resources. See slip op. at 28-29 supra. However, Congress and the courts have repeatedly declared that these laws also embody "a desire to put an end to great aggregations of capital because of the helplessness of the individual before them." United States v. Aluminum Company of America, 148 F.2d 416, 428 (2d Cir. 1945) (footnote omitted). See also Standard Oil Co. v. United States, 221 U.S. 1, 50, 55 L. Ed. 619, 31 S. Ct. 502 (1911); United States v. Trans-Missouri Freight Ass'n, 166 U.S. 290, 323-24, 41 L. Ed. 1007, 17 S. Ct. 540 (1897).
The legislators who enacted the Sherman Act voiced concerns beyond the effects of anticompetitive activities on the economy: they also greatly feared the impact of the large trusts, which then dominated the business world, on the nation's political system, and they regarded the power of these trusts as an evil to be eradicated. Thus, Senator Sherman stated:
If the concentrated powers of [a] combination are intrusted to a single man, it is a kingly prerogative, inconsistent with our form of government, and should be subject to the strong resistance of the State and national authorities. If anything is wrong, this is wrong. If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life.
21 Cong.Rec. 2457 (1890).
These views have been repeatedly echoed since that time, as, for example, during the congressional debates at the time of the enactment of the 1950 amendments to the Clayton Act. See 96 Cong. Rec. 16450 (1950) (Remarks of Sen. Kefauver); 95 Cong. Rec. 11494 (1950) (Remarks of Rep. Bryson); 95 Cong. Rec. 11486 (1949) (Remarks of Rep. Celler). See also Brown Shoe Co. v. United States, 370 U.S. 294, 344, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962). As Justice Douglas stated in his dissenting opinion in United States v. Columbia Steel Co., 334 U.S. 495, 536, 92 L. Ed. 1533, 68 S. Ct. 1107 (1948):
Power that controls the economy should be in the hands of elected representatives of the people, not in the hands of an industrial oligarchy. Industrial power should be decentralized. It should be scattered into many hands so that the fortunes of the people will not be dependent on the whim or caprice, the political prejudices, the emotional stability of a few self-appointed men. The fact that they are not vicious men but respectable and social-minded is irrelevant. That is the philosophy and the command of the Sherman Act. It is founded on a theory of hostility to the concentration in private hands of power so great that only a government of the people should have it.
Our political system is designed so that the power of one group may be checked by the power of another. The antitrust laws require this same approach in the economic sphere. Obviously, if one company controlled an essential part of the economy, it would be in a position to gain an undue influence over economic decisions and, as a result, most likely over political decisions. Thus, the antitrust laws seek to diffuse economic power in order to promote the proper functioning of both our economic and our political systems. See generally, A.D. Neale, The Antitrust Laws of the United States of America, 422-23 (1962); Blake & Jones, Antitrust Dialogue: Defense, 65 Colum. L. Rev. 337, 384 (1965).
The only pervasive two-way communications system is the telephone network. It is crucial in business affairs, in providing information to the citizenry, and in the simple conduct of daily life. In its present form, AT&T has a commanding position in that industry. The men and women who have guided the Bell System appear by and large to have been careful not to take advantage of its central position in America's economic life. There is no guarantee, however, that future managers will be equally careful.
In any event, it is antithetical to our political and economic system for this key industry to be within the control of one company.
For these reasons, the Court concludes that the loosening of AT&T's control over telecommunications through the divestiture of the Operating Companies will entail benefits which transcend those which flow from the narrowest reading of the purpose of the antitrust laws.
B. Effect of the Divestiture
The remedy in an antitrust action -- whether imposed by a court or agreed upon between the parties -- is measured both by how well it halts the objectionable practices and by its prospects for minimizing the likelihood that such practices will occur in the future. See Part II supra. Where, as here, the Court has heard substantially all of the evidence, it is appropriate that it weigh the proposed remedy against the evidence in that context.
As indicated in Part IV(A) supra, the ability of AT&T to engage in anticompetitive conduct stems largely from its control of the local Operating Companies. Absent such control, AT&T will not have the ability to disadvantage competitors in the interexchange and equipment markets.
For example, with the divestiture of the Operating Companies AT&T will not be able to discriminate against intercity competitors, either by subsidizing its own intercity services with revenues from the monopoly local exchange services, or by obstructing its competitors' access to the local exchange network. The local Operating Companies will not be providing interexchange services, and they will therefore have no incentive to discriminate. Moreover, AT&T's competitors will be guaranteed access that is equal to that provided to AT&T, and intercity carriers therefore will no longer be presented with the problems that confronted them in that area. See Part VIII, infra.
To the extent, then, that the proposed decree proceeds on the assumption that the structural reorganization will make it impossible, or at least unprofitable, for AT&T to engage in anticompetitive practices, it is fully consistent with the public interest in the enforcement of the antitrust laws. The soundness of this remedy becomes even more apparent when it is compared with other relief alternatives.
In order to determine whether the divestiture proposed by the parties is the remedy which will most effectively fulfill the goals of the antitrust laws, it is appropriate for the Court to evaluate the various alternative remedies that may have been considered or proposed. See 15 U.S.C. § 16(e)(1).
Three alternatives to the divestiture of the Operating Companies emerged in the course of the AT&T litigation. The first would have required the divestiture of Western Electric and Bell Laboratories from AT&T.
The second, similar in concept if not in detail, would have had as its most salient feature the divestiture from AT&T of portions of Western Electric and Bell Laboratories and of several Bell Operating Companies.
The third was a strictly injunctive, non-structural remedy, which would have imposed detailed constraints upon AT&T's activities.
None of these alternatives would be as efficacious as the divestiture of the Operating Companies embodied in the proposed decree.
1. Divestiture of Western Electric and Bell Laboratories
The divestiture of all or part of Western Electric and Bell Laboratories from AT&T, with or without the divestiture of some, but not all, of the Bell Operating Companies,
suffers from several defects in comparison with the parties' present proposal: (1) it would not be as effective in eliminating anticompetitive conduct, and (2) it would have a greater adverse impact on future contributions of the Bell System to the national economy.
The divestiture of Western Electric and Bell Laboratories would suffer from an additional defect. Considerable evidence was adduced during the AT&T trial concerning the central role of Bell Laboratories -- and to a lesser degree of Western Electric -- in innovation in the telecommunications industry and, more broadly, in industrial research.
AT&T argued vigorously that the present structure of the Bell System was in significant part responsible for this admirable record because the researchers were linked with a manufacturer -- Western Electric -- and with two service organizations -- the Operating Companies and the Long Lines Department.
The Court is of the opinion that there is considerable merit to these contentions. Bell Laboratories has been a positive force both in basic and in applied research, and this research has had a beneficial effect on the nation's economic position in all of its varied aspects.
It also seems to be true that the links between Bell Laboratories and the manufacturing and service arms of the Bell System have been of assistance in the achievement of these technological successes.
On this basis, then, the separation of Bell Laboratories from all of these functions could have an adverse effect upon future research and development,
and it may for that reason be regarded as less desirable than the present proposal which would leave Bell Laboratories associated with a manufacturer and two service organizations -- Long Lines and AT&T's new information services -- which would supply the practical experience that would be useful in stimulating the research operations.
The second major alternative to the proposed decree is an injunction which would be enforced by special masters appointed by and responsible to the Court. This alternative, too, suffers from a number of defects.
It would be difficult to formulate an order that would effectively deal with all of the different kinds of anticompetitive behavior that are claimed to have occurred over a considerable period of time, in various geographical areas, and with respect to many different subjects. There is evidence which suggests that AT&T's pattern during the last thirty years has been to shift from one anticompetitive activity to another, as various alternatives were foreclosed through the action of regulators or the courts or as a result of technological development.
In view of this background, it is unlikely that, realistically, an injunction could be drafted that would be both sufficiently detailed to bar specific anticompetitive conduct yet sufficiently broad to prevent the various conceivable kinds of behavior that AT&T might employ in the future.
An even more formidable obstacle is presented by the question of enforcement. Two former chiefs of the FCC's Common Carrier Bureau, the agency charged with regulating AT&T, testified that the Commission is not and never has been capable of effective enforcement of the laws governing AT&T's behavior.
In their view, this inability was due to structural, budgetary, and financial deficiencies within the FCC as well as to the difficulty in obtaining information from AT&T. Whatever the true cause, it seems clear that the problems of supervision by a relatively poorly-financed, poorly-staffed government agency over a gigantic corporation with almost unlimited resources in funds and gifted personnel are no more likely to be overcome in the future than they were in the past.
These difficulties would be exacerbated if enforcement of a broad injunction were vested in court-appointed special masters. To be sure, such officials have proved in the past to be capable of performing relatively narrow, short-term responsibilities, and to perform them well. But the type of broad injunctive relief that would be needed in these cases would require quasi-permanent supervision of all of AT&T's activities by not one or two special masters but by a vast staff. In short, what would be required would be a re-creation of the FCC's Common Carrier Bureau in the guise of an arm of the Judiciary. Such a development would be undesirable for many different reasons.
Furthermore, there is no reason to believe that, in the end, a judicially-created bureaucracy would be any more capable than the FCC itself of performing the unending task of vigilance and oversight that would be required to ensure that an integrated Bell System did not engage in anticompetitive conduct.
D. Effect of the Divestiture Upon Other Interests
The divestiture of the Operating Companies will not necessarily have an adverse effect upon the cost of local telephone service.
The decree would leave state and federal regulators with a mechanism -- access charges -- by which to require a subsidy from intercity service to local service. By means of these access charges, the regulators would be free to maintain local rates at current levels or they could so set the charges as to increase or decrease local rates.
As to the second claim, there is simply no evidence or reason to believe that, funding aside, the quality of service will decline as a result of divestiture. The divested Operating Companies will not be technical backwaters: they will have substantial incentives to upgrade their networks and to provide high-quality interconnections for other carriers in order to maximize revenues from access charges and from local rates.
As noted above, it is unlikely that the divestiture will impair the research capabilities of Bell Laboratories. See slip op. at 61-62 supra. The scientists and engineers working in that organization will retain their incentive to improve the equipment and technology used to provide local telephone service, if only because the largest potential customers of Western Electric -- Bell Laboratories' companion in the "new" AT&T complex -- will be the divested Operating Companies.
In addition, AT&T's information services and interexchange services can be provided to customers only over the Operating Companies facilities, again creating large incentives for continued improvement and upgrading of these facilities.
In the final analysis, it is apparent that, as with so many public issues, a choice must be made.
The history of the American economic system teaches that fair competition is more likely to benefit all, especially consumers, than an industry dominated by a single-company monopolist. There is no reason to believe that the experience of the telecommunications industry will be contrary to that rule.
For all of these reasons, the Court concludes that the divestiture from AT&T of companies providing local telephone service is in the public interest.
Absence of Restrictions on AT&T
Under the terms of the proposed decree, the line of business restrictions and the licensing requirements imposed by the 1956 consent decree in the Western Electric case would be removed and AT&T would be free to compete in all facets of the marketplace.
Some of the opponents of the proposed decree argue that several of the restrictions contained in the 1956 decree should not be eliminated, and others contend that the Court should also impose additional restrictions, not present in the 1956 decree. For the reasons explained in this part of the opinion and Part VI below,
the Court finds that, with one exception (see Part VI(B) infra), the imposition of restrictions on AT&T would not be in the public interest.
The antitrust laws do not require that a company be prohibited from competing in a market unless it can be demonstrated that its participation in that market will have anticompetitive effects. Past restrictions on AT&T were justified primarily because of its control over the local Operating Companies. With the divestiture of these local exchange monopolies, continued restrictions are not required unless justified by some other rationale.
A. AT&T Power in the Interexchange Market