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November 1, 1983


The opinion of the court was delivered by: GREENE


 The Operating Companies have petitioned the Court for a ruling pursuant to section VIII(C) of the decree *fn1" that, in particular areas (see infra)2 they be permitted to offer mobile radio services across LATA boundaries. *fn3" The Operating Companies claim that, without the requested relief, they will be significantly hindered in their legitimate efforts to provide important new services, particularly cellular radio, *fn4" and they will be forced unnecessarily to dismantle existing systems *fn5" which have transmitters in two or more LATAs. Comments in response to the petition have been received from the Department of Justice, the Federal Communications Commission, and numerous intervenors, *fn6" some of them objecting to the requested relief.


 Mobile radio services are radio communication services in which, in contrast to the typical communication over the land-based telephone network, either the transmitting or the receiving station is mobile. *fn7" The Bell System companies presently provide several different types of mobile radio services which use radio frequencies to permit either one-way communications (such as with paging systems) or two-way communications (such as with mobile radio telephone systems) between mobile units and the land-based telephone network. *fn8" Although different technologies are used in the various types of systems, each requires the use of radio transmitters and receivers as well as central control facilities. *fn9" Transmission facilities connect the central control facilities to the radio transmitters, and they also connect the central control facilities to the landline telephone network. *fn10"

 All parties to this proceeding are in agreement regarding this basic technology as well as regarding two of the relevant issues. First, mobile radio services are "exchange telecommunications services" within the meaning of section II(D)(3) of the decree, and on this basis their provision by the Operating Companies within LATA boundaries does not, under the decree, require special Court approval. *fn11" Second, the transmitters of a number of existing systems send out powerful radio signals which do not and cannot conform strictly to the geographic boundaries of the LATAs: they will inevitably be received by mobile units located outside the LATA from which they originate. *fn12"

 The dispute here relates to those systems, existing or planned, which have a capability to provide wider service across LATA boundaries because (1) their transmitters are located in more than one LATA and (2) they are connected to a single central control facility to form an integrated, multi-LATA system. *fn13" Such systems constitute an "interexchange telecommunications service" which the Operating Companies may not offer under section II(D) absent Court approval. Hence this petition for an exception.


 The most important of the mobile radio services planned to be offered by the Operating Companies is cellular radio service. *fn14" Conventional mobile telephone systems -- which cover large service areas with one or two high-powered transmitters located at prominent elevations -- suffer from three defects: they cannot serve a large number of subscribers, their range is limited, and their technology limits the quality of voice transmissions. In contrast, cellular systems -- which employ several moderately-powered transmitters centered in small, hexagonal-shaped geographic areas called "cells" -- serve many more subscribers, *fn15" cover a wider service areas, and provide more consistent transmission quality. *fn16" It is predicted, moreover, that cellular radio will be far more affordable than conventional mobile telephone service. *fn17" With the petition presently before the Court, the Operating Companies seek permission *fn18" to build multi-LATA cellular radio systems in particular geographic areas to conform to FCC rulings. *fn19"


 As originally presented to the Court, the Operating Companies' petition was unclear as to the scope of the market they were seeking to enter; indeed, these companies appeared to seek the right to provide any and all mobile radio services without regard to LATA boundaries. This led the Department of Justice and several intervenors to oppose the petition. These opponents expressed particular concern that the Operating Companies would not only be permitted to combine several SMSAs into a single system but that, depending on new technology, they might be able to link distant metropolitan areas into one, expansive mobile radio system. See Department of Justice Memorandum, May 19, 1983, at 4, 18. Under such circumstances, telephone users would have had the option of routing long distance calls over either the landline interexchange networks or over a mobile radio system, thus in effect overriding on a large scale the decree's limitations on the territorial reach of the Operating Companies. Such a development would have been entirely inconsistent with the terms and purposes of the decree, and the Court would not have authorized it.

 Since that time, the original Operating Company petition has been -- depending upon the point of view -- either clarified or modified. The Operating Companies now request that they be permitted to construct and operate systems which have cells in more than one LATA in only nine specific geographic areas *fn20" each of them constituting one metropolitan complex. *fn21" The Court finds that, as so limited, the petition is meritorious, for the following reasons.

 First. The LATA boundaries were drawn with reference to such factors as the existing arrangement of the landline telephone system, landline calling patterns, the location of toll switching centers, and the attractiveness of areas to interexchange carriers. See April 20, 1983 Opinion at 8-12. In contrast, the technological and competitive issues implicated by mobile radio services are, in some locations, significantly different. For example, while the existence of a high volume of daily automobile traffic across LATA boundaries was not a significant factor in the drawing of those boundaries (e.g., between New York and Northern New Jersey), it is of central importance to the design of cellular service areas, since subscribers will want and expect to be in communication with mobile units in this traffic which regularly crosses from one LATA to another.

 It is clear that if the Operating Companies' cellular systems were in all instances restricted to LATA boundaries, their customers would be substantially inconvenienced. Under such a system, whenever a mobile unit crossed a LATA boundary, the communication between that unit and another mobile unit or a landline telephone would be suddenly disconnected, simply because the MTSO in one LATA could not serve cells in another LATA. After the disconnect, the customer would have to redial and reestablish contact through the MTSO for the "new" LATA -- the one which the mobile unit had just entered. Indeed, a customer using a landline telephone might have to guess into which LATA the mobile unit had ventured, and he would therefore have to place more than one call to re-establish contact. If a mobile unit were traveling along a LATA border, repeated disconnections of this kind could occur. *fn22" None of this is at all practical. *fn23"

 Second. If the Operating Companies were confined to LATAs in the areas for which an exception is being sought, one consequence would be a substantial loss in the economic efficiencies which could be produced by integrated, multi-LATA systems. If, for example, the cellular system which is planned for the greater New York City area were limited by LATA boundaries, the Operating Companies would have to divide the system into two adjoining systems each to serve one LATA. Each cellular system would then need its own MTSO. The design changes in the New York area alone -- along with the land that would have to be purchased for the second MTSO and the building constructed to house it -- are estimated to increase the Operating Companies' costs by as much as $7.2 million. *fn24"

 Third. The Operating Companies have already incurred considerable expense in anticipation of cellular radio service they had planned to offer even before the decree in this action was entered. Real estate has been purchased in some locations, and construction of central control facilities has begun. If the Operating Companies' cellular services were restricted by LATA boundaries, substantial costs would be incurred to re-engineer the planned systems and to reassign cell site locations. *fn25"

 The major thrust of these considerations does not lie in the expense to the Operating Companies but in the significant competitive disadvantage to them were they strictly confined to LATA boundaries in all areas. That is so because the Radio Common Carriers will not be similarly restricted *fn26" and will be able to provide cellular service to areas as wide as the Federal Communications Commission will allow. The question that arises, then, is whether these significant disadvantages must be accepted in order to achieve the purposes of the decree in this case.


 Under section VIII(C) of the decree, a line of business restriction, such as the one involving mobile radio services which cross LATA boundaries, *fn27" may be removed only "upon a showing . . . that there is no substantial possibility that [the petitioner] could use its monopoly power to impede competition in the market it seeks to enter." The various Operating Company interests expressed supra must, of course, be evaluated against that standard.

 The effect on competition may be viewed from two aspects: (1) Operating Company competition vis-a-vis the interexchange carriers, and (2) Operating Company competition vis-a-vis the Radio Common Carriers in the mobile radio services market.

 With respect to the first of these, the crux of the matter is that the mobile radio services for which relief is sought are not substitutes for landline inter-LATA facilities such that the Operating Companies would, to any significant degree, be competing with AT&T or any other interexchange carrier. *fn28" Indeed, AT&T itself supports the petition of the Operating Companies -- which at this stage it would hardly do if the proposed mobile radio services were a serious threat to its own long distance network.

 Only a limited number of inter-LATA communications are transmitted over conventional mobile radio systems. *fn29" With respect more specifically to cellular radio, most cellular calls in the nine areas for which exceptions are sought would still be intra-LATA in character, and the total number of inter-LATA cellular calls would be only a very small fraction of total inter-LATA communications in the area. *fn30"

 In short, the mobile radio services at issue are either so fundamentally different from two-way landline service or are so much more limited and expensive that it is highly unlikely that Operating Company provision of these services across LATA boundaries in some selected areas could provide them with an incentive to fail in their obligation to provide equal access to interexchange carriers. *fn31" Thus, there does not appear to be a substantial possibility that the grant of the requested relief would impede competition in the interexchange market as a whole.

 Somewhat different questions are presented with respect to competition in the mobile radio service market itself, but the result is no different. In this market, the Operating Companies will, of course, be competing with the Radio Common Carriers within the LATAs in any event, but if the requested relief is granted, they will extend this competition beyond LATA boundaries in some locations. On that basis, the Department of Justice and several intervenors have argued that this could create incentives for various types of anticompetitive conduct, particularly in the cellular radio field. While these concerns are not wholly without substance, they do not justify denial of the petition. Several of the objections can and will be satisfied by the imposition by the Court of conditions upon the grant of the petition. As for the broader policy objection, it is not, on balance, sufficiently well founded to outweigh other considerations. See Part V infra.

 First. It has been argued that to allow the Operating Companies to offer inter-LATA mobile radio services would give them an incentive to discriminate against competing mobile radio systems with respect to interconnection. *fn32" Since the Operating Companies already have the right to provide mobile radio services within LATA boundaries, such an incentive may be said to exist already to some extent. The relatively limited expansion of areas across LATA boundaries in some locations would not appear to be a significant additional factor. *fn33" However, in order to alleviate any problems in that regard, the Court hereby requires as a condition of the grant of the petition that the Operating Companies offer to each non-wireline mobile radio licensee interconnection on the same terms and conditions as they provide to their own mobile radio systems. *fn34"

 Second. The Department of Justice states that competing mobile radio service providers will be at a significant disadvantage if the Operating Companies do not impose an inter-LATA access charge on their own inter-LATA mobile radio services while collecting such charges from their radio service competitors. *fn35" That concern is legitimate, and in order to meet it, the Court hereby requires that the Operating Companies shall provide access to their own regional cellular corporations on the same terms -- including price -- as are offered to competing cellular systems. *fn36"

 Third. It has been argued that the construction of inter-LATA landline facilities for mobile radio systems might, in the short term, be cross-subsidized from local monopoly services, and that such facilities might then interconnect with the local telephone network in a manner unavailable to the Radio Common Carriers. *fn37" The Operating Companies have stated that they intend, upon divestiture, to lease all inter-LATA facilities for their mobile radio systems from interexchange carriers on the same terms as are offered to their competitors. *fn38" This expectation, too, is hereby made a specific condition of the grant of the Operating Companies' petition. *fn39"


 The Department of Justice contends more broadly that the requested relief might give the Operating Companies the incentive and the ability to subsidize inter-LATA mobile radio services in the long term with monopoly revenues. While it may be true that, the larger the Operating Companies' mobile radio operations, the more opportunity there is theoretically for cross-subsidization, the Department itself recognizes that an Operating Company


has existing incentives to cross-subsidize its cellular offerings with revenues derived from the provision of regulated monopoly exchange services, whether those public radio services are offered only within LATA boundaries, or on an inter-LATA basis as well. *fn40"

 No persuasive reason has been given why the expansion of the Operating Companies' cellular service areas across LATA boundaries in nine locations would increase to any appreciable degree the ability and incentive of these companies to cross-subsidize. *fn41" To the extent that such a risk exists, it is substantially outweighed by the gains that will accrue to competition from the removal of the Operating Companies' competitive *fn42" disadvantage vis-a-vis the Radio Common Carriers, who are not confined by the LATAs. Even though the grant of the petition would directly affect only a small fraction of all inter-LATA communications in any particular area, its denial would greatly reduce the Operating Companies' profits from mobile radio services, for the Operating Companies' systems in their entirety might then be unable to compete effectively with the Radio Common Carriers' systems. Such a disadvantage would, of course, tend to reduce the profits of the Operating Companies' mobile radio services -- profits which could otherwise contribute to their financial strength. It would follow that projections of return on investment might not be commensurate with the risk involved, and this, in turn, might lead the Operating Companies to cancel altogether their plans to provide cellular radio, at least with respect to some areas.

 It must finally be remembered that the petition before the Court would not involve the Operating Companies in a business venture in an unrelated field, for these companies are already legitimately in the mobile radio service business. Under the petition, they will simply be allowed to enlarge on that business, with safeguards imposed by the Court to eliminate any risks to competition.

 As in the past, the Court's approach to the issues is being dictated by pragmatic rather than ideological considerations. Where, as here, there is, realistically, no danger that the relief would harm competition, the court will not deny it merely because abstractly the activities may be classified as being in the competitive rather than in the monopoly area. At the same time the Court will, of course, vigilantly enforce the provisions of sections II(D) and VIII(C), and where there is no showing that "there is no substantial possibility" that the Operating Companies could use their monopoly power to impede competition -- whether by means of cross-subsidization or otherwise -- they will be precluded from entering the relevant markets.

 The Operating Companies' petition pursuant to Section VIII(C) is hereby granted, subject to the three restrictions described at slip op. pp. 18-20 supra.43

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