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UNITED STATES v. WESTERN ELEC. CO.

April 20, 1983

UNITED STATES OF AMERICA, Plaintiff,
v.
WESTERN ELECTRIC COMPANY, INC., AND AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Defendants; UNITED STATES OF AMERICA, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al. Defendants


Greene, J.


The opinion of the court was delivered by: GREENE

On August 24, 1982, a final judgment with modifications was entered in this case in accordance with an Opinion published on August 11, 1982. *fn1" One of the modifications included in the decree concerned the Court's role in reviewing the plan of reorganization by which the divestiture of the Bell Operating Companies from AT&T is to be accomplished. As the Court stated on August 11, the question "[whether] this decree will, in fact, provide the benefits which underlie the Court's public interest determination depends upon . . . the provisions of the plan of reorganization" 552 F. Supp. at 216. For that reason, the Court conditioned its approval of the proposed decree upon a modification requiring judicial approval of that plan as a prerequisite to its implementation. The decree, accordingly, was entered as a final judgment with the proviso that the "plan of reorganization shall not be implemented until approved by the Court as being consistent with the provisions and principles of the decree." Section VIII(J). *fn2"

On the parties' recommendation, *fn3" the Court agreed on September 14, 1982, to undertake the review of the plan of reorganization in two stages. The first stage, presently before the Court, concerns the division of all Bell territory in the United States into geographically-based "exchange" areas, or LATAs. *fn4" The second stage will deal with the remainder of the plan of reorganization.

 On October 4, 1982, AT&T submitted its LATA application to the Court. *fn5" The intervenors had an opportunity thereafter to comment on that proposal; the Department of Justice submitted its own approvals, disapprovals, and comments; *fn6" the Operating Companies responded to the intervenor comments; and several intervenors filed further replies. *fn7" All of these documents are presently on file with the Court. Before discussing the substantive issues presented by these filings, it is useful to explain initially the basic terminology employed herein and to delineate the standards the Court is applying in passing upon the AT&T-Department of Justice submissions.

 I

 General Considerations

 A. The LATA Concept

 It is perhaps most important, first of all, to describe what a LATA is and also what it is not.

 Pursuant to the decree, all Bell territory *fn8" in the continental United States is divided into LATAs, *fn9" generally centering upon a city or other identifiable community of interest. *fn10" Most simply, a LATA marks the boundaries beyond which a Bell Operating Company *fn11" may not carry telephone calls. What the Operating Companies will do in the services field after divestiture is (1) to engage in exchange telecommunications, that is, to transport traffic between telephones located within a LATA, *fn12" and (2) to provide exchange access within a LATA, that is, to link a subscriber's telephone to the nearest transmission facility of AT&T or one of AT&T's long-haul competitors. *fn13"

 Once the divestiture is completed, the Operating Companies will be allowed to transport communications only to and from telephones and other apparatuses located within the same LATA (intra-LATA traffic); because of their local monopoly position, the decree does not permit the Operating Companies to carry calls between different LATAs (inter-LATA traffic). *fn14" Only AT&T and its intercity competitors *fn15" -- such as MCI, Sprint, and Satellite Business Systems -- may carry telecommunications traffic which originates in one LATA and terminates in another. *fn16"

 Thus, contrary to much popular and even industry understanding, the purpose of the establishment of the LATAs is only *fn17" to delineate the areas in which the various telecommunications companies will operate; it is not to distinguish the area in which a telephone call will be "local" from that in which it becomes a "toll" or long distance call. To put it another way, the LATA is not an entity designed to supplant the local "exchange" as telephone users know it, *fn18" nor will the establishment of the borders of the LATAs affect what is commonly known as the local calling area, i.e., those areas, typically combining more than one local exchange, within which subscribers may place telephone calls without paying an extra charge. The distance at which a local call becomes a long distance toll call has been, and will continue to be, determined exclusively by the various state regulatory bodies. After divestiture, calls placed within any one LATA may still be either "local" or "toll" depending upon the requirements or rates established by state regulators. Neither the LATAs nor the decree in this case changes that situation in any way. *fn19"

 B. Purposes of the Decree and of the Plan of Reorganization

 The LATA line-drawing process pursuant to the decree implicates significant policy choices revolving primarily around the size of the LATAs. As a general matter, and in somewhat oversimplified form (see note 24 infra), it may be said that the establishment of many relatively small LATAs would tend to favor the various interexchange competitors (e.g., MCI, Sprint), principally because among the consequences of such a choice *fn20" would be a diminution of the number of points between which any particular local Bell Operating Company -- a potential competitor of the interexchange carriers for intra-LATA traffic -- may carry telecommunications. *fn21" On the other hand, the creation of relatively few, relatively large LATAs would tend to favor the Operating Companies, *fn22" inasmuch as such a choice would increase the area in which these local companies may carry telecommunications, thus augmenting their financial viability *fn23" and, not incidentally, decreasing the pressure for rate increases. *fn24"

  For these reasons, the primary controversy over the LATA applications revolves around the size of the areas thus being carved out and, not surprisingly, the answers provided by a party to the question whether a particular LATA is too large or too small depends to a considerable extent on how that party ranks the various policies and interests underlying the decree in accordance with its own self interest. *fn25" The comments filed by States and state regulatory bodies tend to be concerned with the future financial security of the Operating Companies and the protection of low telephone rates, and they therefore opt most frequently in favor of large LATAs. Others, especially the existing and prospective competitors of AT&T, are primarily interested in advancing the more obviously competitive purposes of the decree, *fn26" especially as far as interexchange service is concerned, and they urge the establishment of many small LATAs.

 Since the plan of reorganization is required to conform to the provisions and principles of the decree, the Court necessarily must consider, and it has considered, whether the choices which were made by AT&T and the Department of Justice with regard to these issues correctly reflect these provisions and principles, especially in the areas of competition and Operating Company viability. *fn27"

 At the same time, the Court also expects to do what it legitimately can to strengthen the ability of the Operating Companies to function as viable entities, not dependent upon inordinate rate increases for their survival. Some, particularly MCI, maintain that the health of the Operating Companies is not a legitimate concern of the Court. *fn30" But the Court has taken similar factors into account before, *fn31" and it will do so again now. Under established legal principles, the Court is clearly free to consider the public interest in its broad sense as long as such consideration does not negate the objectives of the antitrust laws. 552 F. Supp. at 150-51.

 There can be no doubt that the continued viability of the Operating Companies is in the public interest. These companies will next January assume the responsibility of providing basic local telephone service, and it is upon them, too, that will depend the realization of the goal of universal service; i.e., the goal of providing affordable telephone service to all, including those who are not affluent or who reside in relatively isolated areas. *fn32" That objective will retain all of its vitality after the reorganization of AT&T. The Court will therefore approve LATAs which tend to preserve the effectiveness and the viability of the Operating Companies. *fn33"

 It may appropriately be generalized that local telephone service is relatively more relied upon by individuals and that long distance is more business-oriented. *fn34" If the objective of telephone service available at reasonable rates to all is not to be jeopardized, it is therefore most important that local rates not be burdened by unnecessary increases. As the Court repeatedly pointed out in its August 11, 1982, Opinion (especially in connection with the discussion of the access charge issue (see infra)) there is no legitimate basis for using the reorganization of the Bell System as a means for undermining the universal service objective or as an excuse for raising local rates. *fn35"

 The Court has therefore noted with considerable surprise and some dismay that the Federal Communications Commission, far from using the access charge tool as a means for easing the burdens on the users of local telephone service, *fn36" has opted instead, in a major decision issued since the Court's approval of the consent decree, to saddle the local subscribers with the access costs of interexchange carriers. *fn37" Curiously, although the FCC cites that decree and ostensibly regards its decision as assisting in its implementation, the agency's action runs directly counter to one of the decree's principal assumptions and purposes -- that the fostering of competition in the telecommunications field need not and should not be the cause of increases in local telephone rates.

 The Commission's action is undergirded by two premises: first, that long-distance revenues have been subsidizing local rates, and second, that the burden of the Operating Companies' new revenue needs to compensate for the lost "subsidy" must for reasons of policy and economics *fn38" be borne primarily by the residential subscribers. There is no basis for either of these premises.

 In the first place, it is not at all clear that the subsidy assumed by the FCC has ever existed. *fn39" In its extended oversight of AT&T, and in investigations extending over many years, the Commission was never able to determine whether, in fact, local rates had been subsidized by long distance rates. In spite of that record, the FCC in its December 1982 decision simply ignored the subsidy problem and went on to decide that, subsidy or not, the telecommunications system's fixed costs (see note 37 supra) shall ultimately be borne by the individual subscribers. *fn40" These subscribers, moreover, will bear this burden regardless of how frequently, if at all, they make use of their instruments for long distance calls.

 Second, even if it be assumed that there was such a subsidy, it is quite clear that means other than rate increases for residential subscribers are available to make up for the lost funds. It was considered by everyone concerned, *fn41" including this Court when it approved the decree, *fn42" that if it were ever determined that AT&T's interstate rates had, in fact, been subsidizing local service, compliance with the law's universal service objective could and would be achieved by replacing the subsidy with access charges levied on the interexchange carriers. Thus, the Court stated in the August 11, 1982, Opinion *fn43" that the decree

 
leave[s] 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 (emphasis added). *fn44"

 The Court again emphasized in the concluding part of its Opinion that the Operating Companies would be permitted, under the supervision of state and federal regulators, "to levy access charges upon long distance carriers " *fn45" for use as a subsidy for local telephone rates (emphasis added). 552 F. Supp. at 224 n.376.

 During the public interest proceeding which preceded the entry of the decree no one -- including the FCC -- suggested that access charges should be shifted from the interexchange carriers (which require access to the local networks to enable them to do business) to the local users (who are already paying for those local networks through their telephone rates). *fn46" In the context of the objective of prescribing low local telephone rates and the goal of universal service that would have made no sense. *fn47" Yet, that is precisely what the Commission has now decided to do.

 The Court has considered it necessary to comment on this FCC action because that action significantly impacts on the Court's own responsibilities in three respects: (1) by its approval of the decree, the Court sought to establish machinery for ratepayer protection that is being jettisoned by the FCC; (2) the FCC action appears to be an effort unjustifiably to assign to the divestiture responsibility for a reallocation of charges which the Commission has decided upon for its own reasons; *fn48" and (3) the Court is making a considerable effort herein to protect the local rates of telephone subscribers, and it finds it unfortunate that the Commission's decision will tend to defeat that objective.

 In any event, irrespective of what others may do, the Court will continue to be guided in its consideration of the subjects before it now, as well as those which will come before it in the subsequent phases of the plan of reorganization, by the objective of achieving fair competition, on the one hand, and the protection of rates which will permit all segments of the population to enjoy telephone service, on the other. *fn49" In the context of the LATA applications, an appropriate resolution of these conflicting claims and purposes naturally also depends in many instances upon various local factors. These controversies are accordingly examined in specific detail in Parts V through X infra, where a LATA examination is conducted on a state-by-state basis.

 II

 Standard of Review

 As a preliminary to the specific decisions which must be made with respect to the LATA applications, it is appropriate to delineate the standard by which the Court is judging the AT&T-Justice submissions as well as the proper distribution of the burden of demonstrating whether that standard has been met.

 The Court's power to review the LATA application follows from its basic authority to evaluate the settlement under the Tunney Act (15 U.S.C. ยง 16(e)-(h)). Several intervenors argue that, since the Tunney Act places the independent responsibility for a public interest determination on the judiciary, "the Court must determine whether AT&T's proposal provides the most effective means of furthering the [decree's] competitive goals consistent with the Communications Act's universal service mandate." *fn50" That formulation of the standard by which the AT&T-Justice submission is to be judged is incorrect.

 The purpose of requiring the parties to submit the plan of reorganization to the Court for its approval was not to provide the Court with a means for substituting its judgment for that of AT&T and the Department of Justice with respect to subjects susceptible of more than one reasonable resolution. That was not the Court's intention nor, indeed, would it have the authority under the Tunney Act and the decree to make such decisions. Rather, the Court retained jurisdiction over the plan of reorganization in order to provide a process by which departures from the letter and the spirit of the decree could be identified and rectified.

 The Court will accordingly apply a standard akin to that employed in the basic proceeding, that is whether, given the language and the objectives of the decree, the LATAs proposed by AT&T and approved by the Department of Justice are consistent with that decree, or more simply, whether, considering the terms of the decree, the LATAs have been drawn in a reasonable manner.

 For purposes of the "burden of proof" questions, the LATA applications fall into three categories.

 First. With respect to many LATAs, some of the opposing intervenors have neither filed information nor advanced persuasive arguments. Instead, they stand on the proposition that the burden of persuasion is on AT&T and the Department of Justice, that these entities have failed to submit adequate information affirmatively to demonstrate consistency with the decree, and that the proposed LATA should therefore be disapproved. *fn51" In light of the standards discussed above, this argument fails to take account of the intrinsic presumption of reasonableness of the LATA applications, and it is therefore not well taken. *fn52" Accordingly, those LATAs not involving exceptions (see infra) and not appearing on their face to be unreasonable, will be approved as proposed. *fn53"

 Second. The situation is different with respect to the LATAs which have been proposed pursuant to section IV(G)(3) of the decree. *fn54" That provision requires the express consent of the Court with respect to the establishment of LATAs which include substantial parts of more than one standard metropolitan statistical area (SMSA). *fn55" It may reasonably be inferred from this requirement that LATAs in these categories should be permitted only upon an affirmative showing of consistency with the principles of the decree, and the Court is therefore requiring such a showing as a precondition of its approval.

 III

 Large vs. Small LATAs

 As stated above (slip op. at pp. 8-11) the objection that has most frequently been raised against the proposals of AT&T and the Department of Justice is that the proposed LATAs, or at least some of them, are too large. *fn57"

 MCI and Southern Pacific Communications Company, to date AT&T's most successful competitors in the interexchange market, argue that all of the proposed LATAs are too large. *fn58" Other intervenors do not go quite that far, many of them suggesting only that AT&T and the Department of Justice have in specific states departed from the standard contemplated by the decree. A variety of arguments have been made to support the contention that proposed LATAs are too large, and these will now be considered in turn.

 A. Proper Geographic Basis of LATAs

 The assertion that all the LATAs as proposed by AT&T are based on an erroneous standard and are therefore vastly larger than what was envisioned throughout the public interest proceedings is simply wrong.

 MCI and Southern Pacific suggest that all the LATAs be reconfigured to render them coextensive with the local calling areas on the ground that this is the standard envisioned by the decree. *fn59" As indicated slip op at pp. 4-7 supra, LATAs were established as a new territorial measure wholly unrelated to existing exchanges or calling areas. The calling areas reflect historic rate policies; these policies and hence the size of the areas involved have nothing to do with, or have only a coincidental relationship to, the characteristics of social and economic communities of interest that are made relevant to the configuration of LATAs by section IV(G)(1) of the decree. That section IV(G)(1) provides that

 
any [LATA] shall encompass one or more contiguous local exchange areas serving common social, economic, and other purposes, even where such configuration transcends municipal or other local governmental boundaries.

 There is nothing in that definition to require adherence to regulatory exchange concepts. Thus, the MCI-Southern Pacific contention is based on an erroneous reading of the decree's language and purpose. *fn60"

  Moreover, if the contention of these intervenors were adopted as the appropriate standard, perhaps as many as one thousand LATAs would have to be established *fn61" -- a development that would have unfortunate practical consequences. A division of responsibility based on the local calling area boundaries would most likely have as one result that there would simply be no competitive entry into remote regions of the country, *fn62" placing AT&T as a practical matter in a monopoly position, *fn63" and leaving these areas in a precarious situation with respect to both service and rates. Another by-product of the proliferation of LATAs would be that many integrated networks would have to be divided into a number of entities, *fn64" with the consequence that significant inefficiencies would be introduced into the telecommunications networks. *fn65" Thus, the simplistic approach of equating LATA boundaries with local calling areas must be rejected.

 B. Exchange Access for Intra-LATA Toll Service

 Several intervenors argue that the establishment of larger LATAs will have as its consequence a significant reduction in competition among the interexchange carriers because under the decree the Operating Companies are not expressly obligated to provide any exchange access to these carriers for intra-LATA toll service. *fn66" In view of that omission, it is claimed, the larger the LATAs, the more potentially lucrative toll traffic might be wholly beyond the reach of beneficial competition. *fn67" It follows, so the argument goes, that the proposed LATAs should be significantly reduced in size and increased in number.

 It is quite true that under the AT&T-Department of Justice plan, 50 percent of all intrastate toll revenues would be generated by calls within LATAs. *fn68" Several of the intervenors argue that it would be impossible for competition to develop for this intra-LATA toll traffic if the interexchange carriers were not guaranteed equal access with respect thereto. *fn69"

 The Court agrees with the intervenors that the lack of competition in this market would constitute an intolerable development. The opening up of competition lies at the heart of this lawsuit and of the decree entered at its conclusion, and the significant amount of the traffic that is both intrastate and intra-LATA should not be reserved to the monopoly carrier. However, the solution need not be the fragmentation of the proposed LATAs, for a remedy short of that measure and much more readily tailored to the equal access problem is readily available.

 The Court has previously noted that intrastate as well as intra-LATA regulation is not preempted by the decree and, hence, that state regulatory bodies will control traffic within the LATAs themselves. *fn70" The Court, therefore, lacks the authority to require the opening-up of states and LATAs to internal competition over the objections of the states or their regulatory agencies. However, the Court does have the power to make certain that the Operating Companies themselves will not block competition for intra-LATA toll routes where such competition is permitted under state law -- as it is in almost all the states. *fn71" Hence, in order to open up intra-LATA traffic to competition, *fn72" the Court has decided to exercise its power with respect to the Operating Companies. *fn73"

 C. Competition from Operating Companies

 It has been suggested that even if interexchange carriers will be theoretically free to carry intra-LATA toll traffic, they may, as a practical matter, be deterred from doing so because of competition from the Operating Companies themselves. The interexchange carriers will have to depend upon access to the local network that will be provided by competitors -- the Operating Companies -- and this dependency, it is said, will create an incentive for the local companies to discriminate against the interexchange carriers and thereby to subvert the equal access requirements of the decree. Only much smaller LATAs will avoid this, according to some of the intervenors, who quote from the Court's August 11, 1982 Opinion, to the effect that "to permit the Operating Companies to compete in [the interexchange market] would be to undermine the very purpose of the proposed decree -- to create a truly competitive environment in the telecommunications industry." 552 F. Supp. at 188.

 The Operating Companies will not compete at all in any inter-LATA markets, *fn75" and they will have a strong incentive to promote overall interexchange carrier access in order to maximize access revenues. Indeed, through the access charges they will collect, these companies would obtain revenue even from the intra-LATA traffic handled by interexchange carriers -- and exchange access charges will most probably be a major component of the economic value of any intra-LATA toll call. *fn76" Because of that factor, the Operating Companies should not have a substantial incentive to subvert their exchange access obligations in this area, and they may therefore be expected not to do so. *fn77"

 AT&T's competitors currently do not serve many higher-than-average-cost areas and, with fewer points of presence, they are more dependent than AT&T on Operating Company local access facilities. Depending upon how access charges are computed, it is argued, the establishment of large LATAs could result in the payment of higher charges by the interexchange carriers to reach their subscribers than would be the case with smaller LATAs (where presumably the carriers could, at least temporarily, forego serving less densely populated, and therefore less profitable, areas). *fn78"

 As we have seen (slip op. at pp. 14-18 supra), the Federal Communications Commission has set the access charges under its jurisdiction to benefit the interexchange carriers and their commercial customers rather than the Operating Companies and the local ratepayers. In this respect at least, the fears of AT&T's competitors have already been proved to be unfounded. *fn79"

 Insofar as local regulation is concerned, the decree, to be sure, "leaves to the [local] regulators the decision as to what costs should be included in this calculation." *fn80" However, it may reasonably be expected that these regulators will be sensitive to the possibility that interexchange carriers, which are vital to the economic and social life of the various states, might be disadvantaged by the setting of access charges. In any event, it is these regulators, rather than the Court, which have jurisdiction to resolve the policy issues involved in the calculation of access charges.

 Approval of the LATAs cannot, as a practical matter, be postponed until more is known about the level of the access charges, because by necessity the LATAs must be configured first so that access charges may be calculated on the basis of the fixed costs of the facilities which will be used by the Operating Companies to provide access to the local networks. *fn81" In view of the uncertainties created by contingencies within the control of the regulators, as well as the fact that the same intervenors who point to the possible dangers of large LATAs with respect to the setting of access charges acknowledge that it is also possible that large LATAs will actually promote competitive entry, *fn82" a peremptory rejection of the proposed LATAs on this basis is not justified. However, as indicated elsewhere herein, the Court is closely scrutinizing those proposed LATAs which would involve consolidations of statistical areas, and which for that reason require express Court approval under section IV(G)(3) of the decree, in order to determine whether the consolidations are reasonable in light of the potential for anticompetitive practices or effects.

 IV

 Relationship With Independent Telephone Companies

 What remains to be considered as part of this general review are two aspects of the relationship between LATAs and Independent Telephone Companies (ITCs): *fn83" (1) whether the Court should require that the ITCs be given greater opportunity than is presently provided for participating in the process of classifying telecommunications traffic between their territories and the LATAs as either interexchange or intraexchange *fn84" under the decree; and (2) whether the plan submitted to the Court is faulty because a number of LATAs are not composed of contiguous areas.

 A. ITC Role in Classification of Traffic

 The decree does not impose any obligations or restrictions on the ITCs, either directly or by way of the configuration of LATAs. *fn85" However, there now is and there obviously will continue to be telecommunications traffic between the LATAs and ITC territories. It clearly is necessary for purposes of the decree to classify this traffic as either "interexchange" or "intraexchange" because (1) if certain traffic is classified as "interexchange" it may not be carried by the Operating Companies (a prohibition which applies to interexchange traffic involving ITC territory as to all other interexchange traffic), *fn86" and (2) Bell System assets will be assigned at the time of the divestiture to either AT&T or the Operating Companies depending upon whether the predominant use of those assets is to provide interexchange or intraexchange service. *fn87"

 A procedure has been established whereby Bell-to-ITC classifications have been submitted to the Court for purposes of public comment and approval. *fn88" A number of ITCs, however, desire more than the opportunity to comment; they seek an order directing the Operating Companies to negotiate the treatment of the Bell-to-ITC traffic with the independents before any proposals are submitted to the Court. *fn89"

 The proposed ITC procedure will not be accepted, for several reasons. In the first place, the procedure suggested for the proposed negotiations is so amorphous as to be incapable of judicial enforcement. *fn90" Further, as indicated above, under the procedures established by the Court, the independents have a right and the opportunity to express their views to the Court with respect to the Bell-to-ITC traffic classifications. *fn91" Finally, although the division of particular Bell System assets is dependent upon the classification of Bell-to-ITC traffic, the ownership of independent telephone company facilities will in no way be affected, nor will the classification of such traffic as either interexchange or intraexchange under the decree limit the ability of independents to identify and serve their own territories in whatever manner they may choose.

 The proposed classifications will determine only whether the Bell Operating Companies may provide service between their LATAs and certain ITC territories. If an Operating Company is permitted to carry certain traffic between its LATA and an ITC's territory because that traffic is classified as "intraexchange," this does not exclude such service by AT&T or other interexchange carriers, *fn92" and the ITCs will retain the ability to deal directly with any such interexchange carrier. *fn93" On the other hand, if certain traffic is classified as "interexchange" under the decree, no negotiated agreement can overcome the prohibition on Operating Company transport of such traffic. Finally, regardless whether traffic is classified as interexchange or intraexchange, an ITC will have the option of establishing a relationship with the Operating Company whereby the ITC would be the carrier of traffic between the Operating Company LATA and the ITC's territory. *fn94" Thus, it is not true, as some have argued, that the Operating Companies will be classifying the independent's own traffic, for the classifications will restrict only the Operating Companies, not the ITCs. *fn95"

 B. The Contiguity Requirement

 Section IV(G)(1) of the decree provides that LATAs "shall encompass one or more contiguous local exchange areas . . . ." Several intervenors argue that many of the LATAs violate this requirement. For example, MCI claims that the commonly-accepted meaning of "contiguous" is "being in actual contact," and it argues that many LATAs are not in actual contact. According to MCI, the result is the establishment of LATAs which encompass considerable long-distance traffic, such as the Provo LATA (which consists of 19 segments extending over 400 miles) and the Witchita LATA (which consists of 18 segments and also extends some 400 miles). All these arguments rest on a flawed premise.

 The fact is that the proposed LATAs represent only Bell System territory, and areas served by independent telephone companies, which in one sense may be said to interrupt the contiguity, are therefore irrelevant in judging contiguity for purposes of the decree. None of the LATAs proposed by AT&T is interrupted by territory from a different LATA, and accordingly the LATAs as proposed fully satisfy the purposes of the contiguity requirement. The LATAs could well have been drawn so that every point in each state, including the areas served by the independent telephone companies, was within a LATA, in which case all of the proposed LATAs would be contiguous, uninterrupted territories. Instead -- apparently out of a desire to ensure that the decree not be interpreted as imposing obligations on the independent telephone companies -- AT&T proposed LATAs which encompassed only Bell System territory. That was an appropriate choice.

 The purpose of the contiguity requirement is to guarantee that the Operating Companies will not have the ability to structure the LATAs in such a way as to permit them to re-enter the interexchange market by means of a gerrymander of LATA boundaries. *fn96" That requirement was not intended to compel a drawing of LATA lines in such a way as to isolate Operating Company exchanges too small to stand on their own as local distribution networks. If LATAs were to be limited to contiguous Bell System territories, many integrated local networks would have to be splintered, *fn97" and separate LATAs would have to be created for areas that are far too small to be attractive to several interexchange carriers. Moreover, such an approach would lead to many LATAs smaller than the areas served by Class Four switches, producing inefficiencies which would be likely seriously to undermine the viability of the Operating Companies. The requests of the intervenors regarding the contiguity requirement are accordingly rejected.

 V

 New England

 The states of Maine, New Hampshire, Vermont, Rhode Island, and Massachusetts *fn98" are served by the New England Telephone Company. Except for issues concerning Boston, the New England area LATAs are relatively noncontroversial. The Court approves five of the LATAs as proposed and orders a division of the proposed Eastern Massachusetts LATA, for a total of seven LATAs in New England.

 1. Maine, New Hampshire, Vermont

 New England Telephone (NET) has proposed that one LATA be formed for each of these three New England states, and the Department of Justice concurs in that proposal. No one has objected to the size of the three LATAs or to the SMSA consolidations *fn99" that would be required in New Hampshire *fn100" and in Maine *fn101" to arrive at single LATAs in those states. The Court approves the application to establish a single LATA each in Maine, New Hampshire, and Vermont. A single LATA is reasonable with respect to each of these states in view of the number of towns and telephone networking arrangements that would have to be divided were there instate LATA boundaries, and the high access charges that would be likely to result from smaller LATAs given the relatively sparse populations and the concomitant high cost of local facilities capable of serving the rural subscribers.

  Various exceptions requested by the Operating Company and the Department of Justice to extend the three LATAs beyond state boundaries in certain places are another matter, however. As proposed, the New Hampshire LATA would include seven Maine border communities *fn102" and ten Vermont areas; *fn103" the Vermont LATA would encompass seven New Hampshire communities *fn104" and one Massachusetts town; *fn105" and two other Vermont towns would be located within the Albany (New York) *fn106" and Western Massachusetts LATAs, *fn107" respectively. The states of Vermont and Maine and their respective public service commissions object to these proposed state line crossings *fn108" and request the Court to require that the LATAs conform to the perimeters of their states. Maine adds that, should New England Telephone's contention that facilities do not presently exist to accommodate the request prove to be correct, then the state line exceptions should be allowed but only on a temporary basis, and they should only be as broad as is necessary to be "consistent with economical construction planning."

 All the interested parties appear generally to agree that the placement of the 26 communities at issue in or out of their own states' LATAs would not affect the competitive purposes of the decree. In fact, the neutral impact of the state line exceptions on competition is the reason the Justice Department is largely indifferent to them. *fn109" However, as indicated in Part II supra, the decree implicates interests in addition to the promotion of competition, and as to two of these interests -- universal service and the equitable treatment of ratepayers -- the States of Vermont and Maine are clearly not indifferent. *fn110" Nor is the Court.

 Both states interpret the requested state line exceptions to mean that a call placed from a telephone in one of the affected border communities to a telephone outside that community but in the same state would become an inter-LATA call, capable of transmission only by an interexchange carrier. They opine that all services previously supplied to such communities by NET would have to be furnished after divestiture by an interexchange carrier, if at all. *fn111" In this regard, the states posit regulatory problems, and they speculate that telephone users in these 26 areas *fn112" may experience reductions and disruptions in services, as well as increases in rates -- all because New England Telephone finds it practical to deliver them their dial tones from wire centers located in adjacent states.

 The Court will approve the requested state line exceptions only if New England Telephone and the Department of Justice apprise the Court of their response to the concerns expressed by Maine and Vermont, stating in particular the impact the exceptions are likely to have on residents of the 26 affected communities. *fn113" Specifically, the Court expects the Operating Company and the Department, either jointly or separately, to provide it with information within 15 days of the date of this Opinion *fn114" on the question whether telephone users in these areas will, after divestiture, continue to be offered the same bundles of services at prices no different from other Maine and Vermont residents and, should the answer be in the negative, what variations are probable. *fn115"

 2. Rhode Island

 A single LATA has been proposed for Rhode Island by New England Telephone Company and approved by the Department of Justice. No intervenor has adversely commented on this proposal; it appears to the Court to be fully justified; *fn116" and it is hereby approved with the boundary exceptions proposed which are necessary to preserve existing wire center serving arrangements and existing local calling and non-optional EAS arrangements.

 3. Massachusetts

 The principal issue pertaining to Massachusetts is whether the extremely large Eastern Massachusetts LATA *fn117" should be divided, and if so, whether the division should result in two or three LATAs, the areas involved being those surrounding Boston, Worcester, and New Bedford. Since all three of these areas are New England County Metropolitan Areas (NECMAs), *fn118" if two or more of them are to be combined, it could be done only on the basis of the grant of an exception by the Court. *fn119"

 The Department of Justice, in a careful analysis balancing the competing interests, concluded that the establishment of one LATA for this area would be unreasonable, and the Court, in the main, agrees with this conclusion. It would constitute a substantial departure from the decree's single community of interest standard to combine all three of these long-established, varied, and active cities into one LATA, and it would give the decree little effect in Massachusetts, one of the more urbanized and populous states in the country.

 As concerns the proposed consolidation of Worcester with the Boston-New Bedford area, the available information indicates that New England Telephone is exaggerating the costs associated with establishing a separate Worcester LATA. Not all trunking will have to be rearranged since non-optional EAS routes will be retained by Operating Companies after divestiture. *fn123" Moreover, to the extent that the costs are associated with the provision of access to subscribers in a separate Worcester LATA, the Court is not persuaded that NET would have to build an entirely new switch in Worcester in order to proivde equal access to all interexchange carriers. The No. 4 cross bar AT&T switch located in Worcester appears to be ideal for the provision of access according to several interexchange competitors. *fn124" NET would merely have to lease the space necessary for access *fn125" until such time as it became necessary and financially feasible to build a new facility. To be sure, it will cost something to dismantle parts of the Boston area system, but that is primarily due to the fact that this system was designed to operate as a monopoly and has been so operated for many years. Worcester is a large community with a clearly defined separate identity from Boston, and it is appropriately placed in a separate LATA.

 It is reasonable, however, to consolidate New Bedford and Boston. Although located at a greater distance from Boston than Worcester, New Bedford has about 70,000 fewer subscribers than Worcester (181,000 compared with 250,000). Thus, the consolidation of Boston with New Bedford has less anticompetitive potential viewed purely in terms of numbers than would that of Boston with Worcester. More important, the new No. 4ESS switch soon to be completed in Brockton, which is located between Boston and New Bedford, will enhance the efficiency of the Massachusetts telephone system since it will be able effectively to perform both intra-LATA transport and inter-LATA exchange functions for the Boston and New Bedford areas. Drawing a LATA boundary between Boston and New Bedford would limit the area the switch could serve, deny to many ratepayers the benefits of NET's modernization, and oblige all NET ratepayers to absorb the sunken investment for this switch.

 For the reasons stated, the Court approves the Department of Justice's recommendation that there be established in eastern Massachusetts two LATAs, one drawn around Boston and New Bedford, *fn126" the other centering on Worcester. The precise boundaries of these LATAs shall be drawn by New England Telephone *fn127" and submitted to the Court and the Department of Justice within 15 days of this Opinion. *fn128"

 The Western Massachusetts LATA, while far less controversial than that for eastern Massachusetts, nevertheless requires specific Court approval, for it would consolidate the Pittsfield NECMA and the Springfield-Chicopee-Holyoke NECMA. No comments were received objecting to the consolidation, *fn129" and it is fully justified by the fact that all of western Massachusetts either now receives, or shortly will receive, its Class Four tandem access from the No. 4ESS switch in Springfield. The consolidation will therefore be accorded an exemption, and the LATA is approved together with the requested exceptions for non-optional EAS.

  VI

  Mid-Atlantic

  The Mid-Atlantic states of New York, New Jersey, Pennsylvania, Delaware, Maryland, West Virginia, and the District of Columbia are served by several Operating Companies. Two of the LATAs proposed for these states, New York Metro and Philadelphia, are among the largest and most controversial of all the LATAs contained in the AT&T application. In all, AT&T proposed 19 LATAs for these states, 13 of which would require exceptions for the consolidation of two or more major cities. The Court approves 16 LATAs as proposed, withholds approval of two LATAs pending receipt of additional information, and orders division of the proposed New York Metro area into two LATAs, for a total of 18 LATAs in the Mid-Atlantic states.

  1. New York State

  a. New York Metropolitan Area

  The LATA proposed by the New York Telephone Company for the southeastern portion of New York encompassing New York City, Westchester County, and Long Island is the largest of the proposed 161 LATAs by most measures. If approved in its current form, it would include 12 million individuals, six million main and equivalent main stations, 23 toll switches and parts of 22 congressional districts. It would reach from the tip of Suffolk County in Long Island westward some ninety miles to the Hudson River, and from lower Manhattan northward to the Newburgh-Middletown and Poughkeepsie SMSAs, a distance of over 70 miles. Not only would the New York Telephone Company be able to transport a call between any two points in this expanse, but under the terms of a proposed "limited corridor" exception, it could also carry telecommunications traffic between New York City and five Northern New Jersey counties. *fn130"

  In its November 23, 1982 response to the Operating Company proposal, the Department of Justice formally announced its disapproval of the inclusion of the Poughkeepsie SMSA in the New York Metro LATA. New York Telephone has since advised the Court that it "will not continue to insist" on joinder of Poughkeepsie and New York City, *fn131" ...


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