entire Bell System, including its local operations and cannot support any conclusion that there are no economies of scale in intercity services (Tr. 5755-56). Moreover, the results of Dr. Heckman's econometric study bear no relation to reality. For example, Dr. Heckman acknowledged that his study suggested that the cost of having two firms providing telecommunications services could be as much as 82 percent below the cost of the Bell System providing all such services (Tr. 5756-57). The Court finds such results to be unsound and entitled to no weight.
Dr. Heckman did concede that the perception of proposed entrants would be "ideal" data in determining whether economies of scale exist in the telecommunications industry (Tr. 5760). In fact, the record in this case is replete with such evidence. For example, Mr. Ginty, a representative of Arthur D. Little and Company who worked with General Electric in evaluating whether that company should construct a private microwave system, observed that "the Bell System could install and operate microwave systems at prices competitive with private systems and in fact lower than competitive systems since their capacity along major routes is much larger than private systems with the attendant economies of scale" (Ginty, S-T-47 at U.S. Tr. 18085-86; see also Phillips, Tr. 5455-56; S-2197; S-2420).
Because of the Bell System's demonstrated economies of scale and scope, there is no question in this record that defendants' costs are lower than those of plaintiffs for any given output (Rosse, S-T-43 at 48; Phillips, S-T-173 at 30; see also Ginty, S-T-47 at U.S. Tr. 18085-86; Smith, S-T-166 at 3-4). It is conceivable that such scale advantages might be somewhat offset if plaintiffs had access to different technologies (or could exploit technologies in ways not possible for defendants) or if plaintiffs' management were more efficient than defendants' management (Rosse, S-T-43 at 48). However, there is no evidence that this is the case. Indeed, as discussed in more detail below, the record evidence conclusively refutes the possibility that plaintiffs were more efficient than the Bell System. Thus, there is no question on this record that, because of these scale economies, defendants could compete effectively with plaintiffs or others in the provision of private line services if allowed to respond freely (Baumol, Tr. 3759-60).
In these circumstances, the Court concludes that it was defendants' effort to continue to provide the benefits of the economic advantages it enjoyed to the public, coupled with the continuing regulatory uncertainty with which it was faced, that lie at the heart of the specific issues in this case to which the Court now turns.
THE STANDARDS FOR ESTABLISHING A VIOLATION OF SECTION 2 OF THE SHERMAN ACT
The essential elements plaintiffs must establish to prove a private monopolization claim are not in dispute. These are: (1) that the defendant possesses monopoly power in a relevant market; (2) that the defendant has unlawfully exercised that power to attain, or maintain, a monopoly in the relevant market; (3) that the plaintiff has suffered injury in fact as a result of those unlawful acts; and (4) that damages in a reasonably ascertainable amount have been proved. United States v. Grinnell Corp., 384 U.S. 563, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977); Sargent-Welch Scientific Co. v. Ventron Corp., 567 F.2d 701 (7th Cir. 1977), cert. denied, 439 U.S. 822, 58 L. Ed. 2d 113, 99 S. Ct. 87 (1978); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), cert. denied, 444 U.S. 1093, 62 L. Ed. 2d 783, 100 S. Ct. 1061 (1980).
The application of these principles is qualified where the conduct being attacked involves the exercise of rights protected by the First Amendment. It is not a violation of the antitrust laws to speak out on public issues or to attempt to persuade a regulatory agency to change its policy, unless plaintiffs can demonstrate that such activity was a "sham" designed to deny them "free and meaningful access to the agencies and courts." California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 512, 30 L. Ed. 2d 642, 92 S. Ct. 609 (1972); Federal Prescription Service, Inc. v. American Pharmaceutical Ass'n, 484 F. Supp. 1195 (D.D.C. 1980), rev'd in part and aff'd in part, 663 F.2d 253 (D.C. Cir. 1981), cert. denied, 455 U.S. 928, 102 S. Ct. 1293, 71 L. Ed. 2d 472 (1982). In the absence of such proof by plaintiffs, the First Amendment "shields from the Sherman Act a concerted effort to influence public officials regardless of intent or purpose." United Mine Workers v. Pennington, 381 U.S. 657, 670, 14 L. Ed. 2d 626, 85 S. Ct. 1585 (1965); Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 5 L. Ed. 2d 464, 81 S. Ct. 523 (1961).
As the Court will now detail in considering plaintiffs' specific pricing, interconnection and other charges, SPCC has failed to present evidence satisfying these standards.
MONOPOLY POWER AND RELEVANT MARKET
The threshold showing required of plaintiffs in this case is proof that defendants possess monopoly power in a relevant market. Monopoly power is defined as the power to "control prices or exclude competition" in the relevant market. United States v. Grinnell Corp., 384 U.S. 563, 571, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966); see also United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391-92, 100 L. Ed. 1264, 76 S. Ct. 994 (1956).
Plaintiffs' position is that the relevant market consists of the market for all business and government intercity telecommunications services and is nationwide in scope (Owen, PX6-0005 at 4; Melody, PX6-0018 at 18). Plaintiffs have defined this product market to include not only private line services, which have been the focus of the issues in this case, but also ordinary long distance services, including MTS and WATS, as well as telegraph, data, facsimile, and broadcast services (Owen, PX6-0005 at 4-11; Melody, PX6-0018 at 17). Defendants, on the other hand, contend that insufficient evidence has been presented to support such an expansive market definition, and urge a relevant market which is narrower both in terms of services and geography (Pace, S-T-156). Defendants further contend that they lack monopoly power in any relevant market, regardless of which party's market definition is adopted.
Although plaintiffs did present evidence on the issues of market definition and monopoly power through the testimony of their experts, Drs. Owen and Melody, the Court has serious reservations concerning the credibility of both witnesses
and, in any event, is not satisfied that plaintiffs sustained their burden on either issue. As the Court will now explain, based upon the evidence of record, the Court concludes that the plaintiffs did not establish the relevance of the broad product and geographic market for which they contend; that the market in which the defendants' monopoly power must be assessed is the high-density intercity, interstate private line market to which plaintiffs limited their entry, or would have entered; and that no sufficient showing of defendants' monopoly power, in the private line market or any other market as it relates to this case, has been made.
THE RELEVANT MARKET
The relevant market in this case, as in any monopolization action, must be limited to the geographic area in which the parties effectively compete
( Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327, 5 L. Ed. 2d 580, 81 S. Ct. 623 (1961)), and to those products or services which are in fact reasonably interchangeable with one another. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395, 100 L. Ed. 1264, 76 S. Ct. 994 (1956). The purpose of the Court's inquiry into the relevant market, therefore, is to determine the "area of effective competition" in which it makes sense to measure defendants' alleged market power vis-a-vis the plaintiffs. Standard Oil Co. v. United States, 337 U.S. 293, 299-300 n.5, 93 L. Ed. 1371, 69 S. Ct. 1051 (1949).
The relevant market in this case is telecommunications service, which involves the electronic or electromagnetic transmission of information over distance from identified senders to identified recipients (Owen, PX6-0005 at 4). Local telephone service in all areas of the country is provided by the Bell Operating Companies (BOC's) and the more than 1500 independent telephone companies (Grant, PX6-0004 at 1-2; Owen, PX6-0005 at 4-5; Melody, PX6-0018 at 16 see also Testimony of Richard A. Lumpkin, S-6187, at 1-2). AT & T and the independents are the monopoly suppliers of local distribution facilities in areas served by SPCC (Grant Tr. 696). Neither SPCC nor all specialized common carrier firms compete with the BOC's or the independents in providing local service (Owen, PX6-0005 at 5; Grant, PX6-0004 at 3-4). It is thus the intercity portion of the telecommunications business that is relevant to this lawsuit (Owen, PX6-0005 at 5).
While plaintiffs have argued for a single relevant product market, including MTS/WATS as well as private line service, the Court is unable to conclude on this record that MTS and WATS services
were within the zone of effective competition between these parties during the relevant time period. Plaintiffs offered evidence to show that MTS and WATS services display cross-elasticity of supply and demand with private line services (Melody, PX6-0018 at 17-18; Owen, PX6-0005 at 12-15). This evidence included the testimony of several AT & T witnesses, including the immediate past and present Chairmen of the Board of AT & T (Brown, Tr. 5339-5345; Miller, S-2089 at 265; Miller, S-2091 at 415-16; Jones, S-T-53, tab A at 26; deButts, S-T-131, tab A at 85). In addition, defendants' own internal documents also exhibit AT & T's recognition that MTS, WATS and private line service are cross-elastic. (PX1-0003; PX1-0005; PX1-0009; PX1-0012; PX1-0013; PX1-0015; PX1-0018; PX1-0028; PX1-0032; PX1-0044; PX1-0045; PX1-0047; PX1-0048; PX1-0049; PX1-0053; PX1-0078; PX1-0080; PX1-0081; PX1-0092; PX1-0107; PX1-0109; PX2-0025). Moreover, the plaintiffs contend that because each of these services are provided on the same network of intercity transmission facilities, suppliers of these services can shift from supplying one service to supplying another in response to shifts in customer demand (Owen, PX6-0005 at 6-7, 13-14; Melody, PX6-0018 at 18). While there is no doubt that to some extent this is true, in the Court's opinion, the evidence on the degree of cross-elasticity is inconclusive and insufficient to support a determination that MTS and WATS are within the relevant market.
Important differences in the characteristics of these three services suggest that clear gaps in the chain of substitutability exist between them.
In fact, when one of plaintiffs' economic experts, Dr. Hieronymus, was asked how anyone could argue that MTS and WATS are in the same relevant market as private lines, he answered that "they are not in the same market" (Hieronymus, Tr. 2857).
Plaintiffs' experts were thus in disagreement on the question (Hieronymus, Tr. 2856-57), but Dr. Hieronymus' evaluation was consonant with that of defendants' expert, Dr. Pace, who determined that MTS and WATS should be excluded from the relevant market because of insufficient demand cross-elasticity (Pace, Tr. 4853). Moreover, this testimony is consistent with the practical realities of the marketplace, which suggest that a majority of MTS customers would not find private line services to be a practical or economic substitute for MTS.
As Dr. Pace further pointed out, a common carrier must serve the demand; thus, it cannot shift facilities from one service to another arbitrarily (Pace, Tr. 4854). This appears to be an important constraint in the determination of supply substitutability, and the Court accordingly concludes that the necessary interchangeability has not been shown.
This is not to say that there is no cross-elasticity between private line and MTS and WATS. The testimony of an AT & T witness reveals that the cross-elasticities were 0.1 or lower (Pace, S-T-156 at 35). Mr. Pace goes on to testify as follows (S-T-156 at 35-36):
For example, Bell Exhibit 4, submitted in Docket No. 19919 (Hi/Lo proceeding, 1973), attempts to estimate shifts from MTS to AT & T's own revised PLS rates or to SCC service. The shift factor developed is 0.1, indicating that a 10 percent reduction in PLS rates would result in only a 1 percent change in MTS revenue (p. 66c). The same document also considers shifts from WATS to PLS. It concludes that "a total shift from WATS to private line of approximately 3 percent was considered as the most that could reasonably be expected at even lower ranges of private line rates" (pp. 73-74).