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UNITED STATES v. WESTERN ELEC. CO.

December 14, 1984

UNITED STATES of America, Plaintiff,
v.
WESTERN ELECTRIC COMPANY, INC., and American Telephone and Telegraph Company, Defendants



The opinion of the court was delivered by: GREENE

 HAROLD H. GREENE, District Judge.

 This Memorandum and the accompanying orders dispose of all thirteen pending petitions for waivers of the "line of business" restrictions of the decree. *fn1"

 The decree in this case *fn2" restricts the Regional Holding Companies *fn3" primarily *fn4" to the provision of local telephone service, by providing in section II(D):

 
After completion of the reorganization . . ., no [Operating Company] shall, directly or through any affiliated enterprise:
 
1. provide interexchange telecommunications services or information services;
 
2. manufacture or provide telecommunications products or customer premises equipment (except for provision of customer premises equipment for emergency services); or
 
3. provide any other product or service, except exchange telecommunications and exchange access service, that is not a natural monopoly service actually regulated by tariff (emphasis added).

 These line of business restrictions were part of the decree when it was submitted by the Department of Justice and AT & T to this Court for its approval. As the parties' submissions show, and as the Court subsequently stated, the restrictions were required in order to prevent the occurrence or recurrence of anticompetitive conduct, on the theory, proved by experience, that if a company maintains a bottleneck monopoly on an essential gateway (i.e., here the local telephone monopoly), it has the means to discriminate in various ways against, and hence to disadvantage, those in competitive markets which also depend on that gateway. *fn5"

 At the demand of the Court, the parties added to the proposed decree a provision (section VIII(C)) which stipulates that "the [line of business] restrictions . . . shall be removed upon a showing by the petitioning [Operating Company] that there is no substantial possibility that it could use its monopoly power to impede competition in the market it seeks to enter." The Court has since stated that, in determining whether a particular line of business restraint must be maintained, it will consider the likelihood that a Regional Holding Company could use its monopoly power to impede competition in the market it seeks to enter, *fn6" as well as other public interest factors underlying the decree, *fn7" including the necessity of implementing equal access and the maintenance of quality telephone service. *fn8"

 Against these factors which support tight restrictions on the Regional Holding Companies, the Court has also always been mindful of the need to maintain the viability of the providers of local telephone service *fn9" and the contribution the Regional Holding Companies could make to competition in markets they might enter. *fn10" It is with these principles in mind that the waiver petitions have been considered.

 I

 Following divestiture, some of the Regional Holding Companies began to file requests for waiver of the line of business restrictions as they sought to enter a wide variety of markets, ranging all the way from computer sales to foreign operations and to real estate investment. *fn11" In order to promote certainty and uniformity, to reduce repeated and intrusive judicial involvement, and to facilitate the efficient processing of waiver requests, the Court, on July 26, 1984, established general guidelines it expected to follow in reviewing such requests. The Court stated at that time that four safeguards would generally be necessary to ensure that the decree's policies were not violated: (1) the establishment of separate subsidiaries to carry out the new line of business; (2) independent financing by the subsidiary without recourse to the parent; (3) agreements that the monitoring and visitorial provisions of Section VI of the decree will apply to the proposed competitive activities; and (4) a limit on the line of business investment not to exceed ten percent of a Regional Holding Company's estimated net revenues. *fn12"

 The procedure established for consideration of the requests consisted of a review by the Department of Justice, followed by a report by the Department to the Court and an opportunity for interested parties to object or otherwise to comment. *fn13" This process was designed to provide to the Court the benefit of the Department of Justice's expertise; to minimize direct Court involvement, particularly with respect to noncontroversial requests; and to give the Department and the Regional Holding Companies an opportunity to negotiate for appropriate conditions and safeguards in advance of submission to the Court.

 As indicated, presently pending before the Court are thirteen *fn14" requests for waiver of the line of business restrictions. *fn15" In its July 26, 1984 Opinion the Court stated that if the Department of Justice concluded that the particular Regional Holding Company had met its burden under that Opinion, and if the Department otherwise concurred in the proposed waiver, it was to submit to the Court a proposed consent order. That order would be entered as the order of the Court unless an interested party filed an objection within fourteen days or the Court sua sponte expressed reservations.

 II

 Each of the uncontested waiver requests explicitly adopts the four safeguards set forth in the July 26, 1984 Opinion. In addition, the Regional Holding Companies and the Department of Justice have agreed on limitations of some of the requests and on additional conditions which are designed to ensure ...


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