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UNITED STATES v. WESTERN ELEC. CO.

March 7, 1988

United States of America, Plaintiff,
v.
Western Electric Company, Inc., et al., Defendants


Harold H. Greene, United States District Judge.


The opinion of the court was delivered by: GREENE

Under the terms of the decree, *fn1" the Regional Companies are prohibited from providing "information services." AT&T, 552 F. Supp. at 227. An information service is defined as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information which may be conveyed via telecommunications." Id. at 229. On September 10, 1987, the Court stated that it was prepared to exempt from the information services restriction the transmission of information generated by others, and it invited the parties and intervenors to submit proposed orders and memoranda detailing with particularity the necessary ingredients of an information transmission system. United States v. Western Electric Co., Inc., 673 F. Supp. 525, 597 (D.D.C. 1987) (hereinafter referred to as "Opinion, 673 F. Supp."). A total of some 59 organizations and individuals have filed comments, a number of them several documents (including responses, replies, and the like).

 As the Court has had occasion to indicate before, unlike the interexchange and manufacturing issues, which are largely open and shut, the information services questions are closer and more debatable. After carefully considering the matter once again, the Court, for the reasons elaborated on below, has made the following decisions, based upon competitive considerations and upon issues of public policy relating to the economic and social benefits that may be derived from a substantial expansion of information services.

 First, the Regional Companies will be permitted to engage in the transmission of information, but the generation of information content, one of the core ingredients of the decree growing out of the AT&T case, will continue to be prohibited. Second, for the present, the transmission system to be used will be that delineated in the Court's September 10, 1987 Opinion; however, the Regional Companies may freely develop and use differing applications of that system. Third, the Regional Companies will be allowed to employ alternative transmission systems as and when they are able to propose methodology that will in practice preserve the content-transmission dichotomy. Fourth, the Regional Companies will be permitted to enter the voice storage and retrieval markets.

 In brief, the Court's decision combines the grant of wide flexibility to the Regional Companies with respect to transmission systems and voice storage applications, with a continued prohibition on the generation and manipulation of information content. It is the Court's expectation that this easing of the information services restriction will avoid anticompetitive effects, and that it will at the same time bring this nation closer to the enjoyment of the full benefits of the information age.

 I

 Need for Retention of the Restriction on the Provision of Information Content

 In the consideration of the papers filed with the Court, it is useful, first of all, to consider, most broadly (1) what it is that the Regional Companies must continue to be prohibited from doing and why, and (2) what segment of the information services market may now be opened to them.

 The comments from several Regional Companies indicate that they may not have adequately understood the reasons for the line of business restrictions in the decree. Arguments are advanced again and again that, if only the companies were allowed to enter the markets forbidden to them under the decree, they would be able to innovate unlike independent corporations in the same markets, and that they would be able to improve America's foreign trade position, competing vigorously and effectively with foreign manufacturers and other providers. There are two major reasons why these recurring arguments are not well taken.

 At the most elementary level, the Regional Company contentions are irrelevant: the decree provides in so many words that the restrictions *fn2" "shall not be removed unless any particular Regional Company makes a showing . . .. that there is no substantial possibility that it could use its monopoly power to impede competition in the market it seeks to enter." Section VIII(C) of the decree.

 In the context of the triennial review of the decree, *fn3" the Regional Companies supported the Department of Justice motion for, inter alia, a complete removal of the restriction on the provision of information services, without distinction between content and transmission. The Court found, however, that the Regional Companies continue to possess bottleneck control over the local exchange facilities, *fn4" and that information services are especially vulnerable to even slight manipulation and discrimination by the entity providing transmission. Opinion, 673 F. Supp. at 562-67. Because the requirements of section VIII(C) had not been met, the Court concluded that the restriction on the sale by the Regional Companies of information content must be maintained. Id. at 567. The situation is thus unchanged and, inasmuch as the Regional Companies are unable to make the requisite section VIII(C) showing, they continue as a matter of law to be bound by the section II(D)(1) restriction.

 In the first place, the Regional Companies have no experience with the generation of information. The production of and changes in the form of information are the province of hundreds of professions, occupations, and trades, from book publishers to stock market analysts to the providers of theater and music admission tickets. Those involved in these businesses possess the necessary expertise; the Regional Companies do not. It would be absurd to lift the restriction on the provision of information content based on the theory that the Regional Companies know more about and are better able to capitalize on these businesses than those who have made these endeavors their lives' work.

 Furthermore, the Regional Companies are not needed in these aspects of American business; they could flourish therein only if they used their telecommunication monopolies to disadvantage competitors in these markets; and their participation therein merely because they are in the business of transmission would be an aberration. *fn5"

 Furthermore, an entry of the Regional Companies into the content-generation markets would be positively harmful. Experience has shown that there is less innovation and hence less effective competition with products manufactured abroad when the significant players in the American market are monopolists than when the participants are free of monopoly pressure and thus have the incentive that exists, in a market characterized by vigorous and broad competition, to lower price and to offer better products. *fn6"

 The American economic system proceeds on the basis of the assumption -- closely related to the assumption underlying our political system -- that competition is far more likely to lead to the production of more and better products and their distribution to consumers at affordable prices than a market dominated by a monopoly, whether governmental or corporate. In fact, as the Court has previously noted, *fn7" more new and innovative telephone products have appeared on the shelves of this country's retailers in the four years since divestiture than in the preceding twenty. It is ironic that, at the very time that several of America's opponents -- e.g., the Soviet Union and the Peoples Republic of China -- have finally learned and have begun to implement the lesson that competition is superior to monopoly, *fn8" some of the largest American corporations *fn9" have been successful in persuading the Department of Justice that a return to monopoly, their monopoly, is in the public interest.

 In brief, even if the legal barrier of section II(D)(1) of the decree were not crystal clear, there would be no warrant for a removal of the restriction on the provision by the Regional Companies of the content of information services, one of the core restrictions of the decree. That restriction will accordingly remain.

 II

 Removal of the Restriction on Information Transmission

 In its analysis of the restriction on information services, the Court recognized last fall that substantially different considerations govern Regional Company entry into the transmissions aspect of information services, also known as information gateway services, *fn10" than would their participation in the market for the compilation, origination, or manipulation of information. Opinion, 673 F. Supp. at 587-97. The potential for anticompetitive behavior by the Regional Companies with respect to transmission only is very much limited, if only because, in the absence of their participation in the generation or manipulation of content, these companies have little incentive for discrimination against competitors in the information market.

 Moreover, broad public policies in addition to those stemming from antitrust law favor the elimination of the restriction on transmission. *fn11" The Court has previously found that the efficient, rapid, and inexpensive dissemination of specific information as called for by individuals in all segments of the population will benefit the nation and its economy. Opinion, 673 F. Supp. at 589-90. The Court now reaffirms and underlines that finding.

 The videotex *fn12" industry, which has the potential for furnishing wide varieties of information, as needed or wanted, to large segments of the population, has grown only slowly. This is so particularly with respect to the home videotex market. The fact is that, unlike in some foreign countries, consumer-oriented videotex services on a substantial scale remain largely in the future in the United States. Opinion, 673 F. Supp. at 587-88. *fn13"

 Yet if consumer-oriented videotex services were made available on a large scale, the economic and social welfare of the American people could be substantially advanced. It is difficult to overestimate the significance of this potential. Information services, as the experience of existing domestic providers and with the foreign systems has shown, can come in an amazing scope and variety. *fn14" If developed to their full potential, these services could in some ways revolutionize American intellectual, social, cultural, and economic life.

 In a practical sense, the pervasive services network necessary to create a large and vigorous nationwide market is unlikely to develop without the participation of the Regional Companies. *fn15" Because of their presence everywhere and their relationship with every user of the telephone, only these companies would be able to furnish the necessary infrastructure components for the distribution of efficient videotex services on an integrated basis; at a minimum they could furnish these components more easily and at less cost than other potential suppliers. Opinion, 673 F. Supp. at 591.

 To be sure, some of the requisite services can be and currently are being provided through the customer premises equipment market, *fn16" and through existing independent videotex suppliers. What is missing, however, is the easy access, both for the providers of information services and for consumers, to a vast, pervasive system that only the local telephone companies, operating in every state of the Union, can readily supply. It is only on that basis that the mass market can be created that will allow information services to become available and used on a truly national basis. *fn17"

 Beyond that, while entry of the Regional Companies into information gateway services entails some risk to fair competition, such entry, by a group of companies which collectively serve practically every business and household in the country, may actually lead to an increase in competition, as awareness of the services and their potential grows, and as the customer base becomes much more widespread.

 Having weighed the wide benefits potentially accruing to the American economy and its consumers against the narrow likelihood of monopolistic behavior on the part of the Regional Companies were they to be permitted to enter *fn18" the transmission market, the Court concluded on September 10, 1987, that a limited relaxation of the information services restriction was warranted. It is on this basis that the Court announced its intention to modify the decree pursuant to section VIII(C) so as to permit the Regional Companies to compete for the provision of transmission facilities to the information services industry, and that it invited comments from interested parties and intervenors with respect to modes of implementation. Opinion, 673 F. Supp. at 597. Having received and considered these comments, the Court sees no reason to alter its view on the fundamental question at issue.

 The Court was and is an enthusiastic supporter of large-scale information services for the benefit particularly of individual consumers and small businesses. Members of these groups will be able to partake of these revolutionary new services only if a mass market therefor is established, while vast commercial enterprises generally have access to such services now.

 The decree in this case has been responsible for a number of favorable developments: long distance rates have dropped substantially; *fn19" the price of telephone equipment has similarly been reduced; *fn20" innovations in telephone equipment available to the average person have appeared on retail shelves in astounding numbers and configurations; *fn21" and although the Regional Companies, which retain their local monopolies, initially raised local rates, that increase appears to have been largely halted during the current year.

 Now would appear to be the time for adding to the achievements built on the competitive market established by the decree a system of broad-based, efficient, reasonably-priced information services available to all who want them. On this basis, the Court will rescind the restriction on the provision of information services in section II(D)(1) of the decree insofar as the transmission of such services is concerned. What remains to be discussed are the specific applications of this decision.

 III

 The Teletel System

 In its September 10, 1987 Opinion, the Court relied heavily upon the description of the services provided by Teletel, the French videotex system, in reaching conclusions about the feasibility and the likely structure of information services in the United States. This was so largely because the French system was and is the best known, the most widespread, and the one technologically most advanced, at least on a large scale basis. Moreover, Teletel had been supported by various parties to this litigation as an example of the technological benefits the Regional Companies could supply if the decree restrictions were relaxed. U.S. West especially *fn22" called the Minitel network "the model upon which we would build" the American system. *fn23" That company also repeatedly touted the French experience as representing the cutting edge of the Information Age. *fn24"

 However, the French experience is merely one of the possible permutations that a coherent information services network in this country might take. In the first place, the United States is not France. This country, unlike France, has a healthy and growing personal computer market with which direct interaction will be possible. Also, there has been here some movement into the information services field by non-telephone enterprises. *fn25" Most importantly, the French government's subsidization of millions of "dumb" terminals *fn26" would be difficult to duplicate in this country either on a government-subsidy or a telephone company-subsidy basis. *fn27"

 It is obvious from this discussion that here the most effective method of interconnection between the information providers, through the Regional Companies, to the consumers could turn out to be different, at least in theory and in the longer run, from that employed in France, and so could the infrastructure.

 Additionally, advances in the communications and computer fields are said to have occurred since the unveiling of the French system, and further and broader advances are likely to occur in the future. On that basis, too, the existing Teletel system should not be cast in concrete as the sole option available to United States providers of transmission services.

 IV

 Other ...


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