[Federal Register Volume 59, Number 165 (Friday, August 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20948]
[[Page Unknown]]
[Federal Register: August 26, 1994]
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DEPARTMENT OF JUSTICE
Antitrust Division
Proposed Final Judgment and Competitive Impact Statement; United
States of America v. AT&T Corp. and McCaw Cellular Communications, Inc.
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation and Competitive Impact Statement have been filed with the
United District Court for the District of Columbia in United States of
America v. AT&T Corp. and McCaw Cellular Communications, Inc. Civil
Action No. 94-01555 (HHG). The proposed Final Judgment is subject to
approval by the Court after the expiration of the statutory 60-day
public comment period and compliance with the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h).
The Complaint alleges that the propose acquisition by AT&T Corp.
(``AT&T'') of McCaw Cellular Communications, Inc. (``McCaw'') violates
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, in the markets
for cellular service, cellular infrastructure equipment and
interexchange service to cellular subscribers.
The proposed Final Judgment contains substantive obligations and
restrictions that should substantially mitigate the incentive and
ability of the merged AT&T-McCaw to constrain the actions of McCaw's
cellular service competitors. The proposed Final Judgment provides for
separate subsidiary requirements and restrictions on the flow of
certain confidential information within the combined AT&T/McCaw entity;
obligates AT&T to continue to deal with its customers on terms in place
prior to the merger, and on terms not less favorable than those offered
to McCaw; obligates AT&T to assist, and not to interfere, with an
incumbent customer's decision to change infrastructure suppliers; and
requires a buy-back provision that would reduce the lock-in effect by
lowering the cost for a competitor/customer to switch suppliers in the
event that AT&T fails to comply with its obligations to its customers
under the judgment.
Next, the proposed Final Judgment requires McCaw cellular systems
to provide equal access to interexchange competitors of AT&T, which is
not now provided in most McCaw systems, thereby increasing competition
in the provision of interexchange services to cellular customers.
Finally, the proposed Final Judgment restrains McCaw from providing
certain confidential information of other cellular infrastructure
equipment suppliers to AT&T's manufacturing division to prevent
anticompetitive harm to the cellular infrastructure equipment market.
Public comment is invited within the statutory 60-day comment
period. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to Richard Liebeskind, Assistant Chief, Communications and Finance
Section, Room 8104, U.S. Department of Justice, Antitrust Division, 555
4th Street, NW Washington, DC 20001.
Copies of the Complaint, proposed Final Judgment and Competitive
Impact Statement are available for inspection in Room 3229, Department
of Justice, Washington, DC and at the Office of the Clerk of the United
States District Court for the District of Columbia, Washington, DC.
Copies of any of these materials may be obtained upon request and
payment of a copying fee.
Steven C. Sunshine,
Deputy Assistant Attorney General, Antitrust Division.
Stipulation
United States of America, Plaintiff v. AT&T Corp. and McCaw
Cellular Communications, Inc., Defendants. Civil Action No. 1:94-
CV01555 Judge Harold Greene Filed: 7/15/94.
It is stipulated by and between the undersigned parties, by their
respective attorneys, that:
1. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act, 15
U.S.C. 16, and without further notice to any party or other
proceedings, provided that plaintiff has not withdrawn its consent.
2. The parties shall abide by and comply with the provisions of the
proposed Final Judgment pending entry of the Final Judgment, unless
AT&T or McCaw certify to the Department that this transaction has been
abandoned, and withdrew its applicable filing made under the Hart-
Scott-Rodino Antitrust Improvement Act, 15 U.S.C. 18a, in which case
the proposed Final Judgment or Final Judgment will be withdrawn or
vacated and the action dismissed.
3. Plaintiff may withdraw its consent to this proposed Final
Judgment at any time before the entry of the proposed Final Judgment by
serving notice thereof on defendants and by filing that notice with the
Court. In the event plaintiff withdraws its consent or if the proposed
Final Judgment is not entered pursuant to this Stipulation, this
Stipulation will be of no effect whatsoever, and the making of this
Stipulation shall be without prejudice to any party in this or any
other proceeding.
4. In the event of a final and unappealable order determining that
entry of this Final Judgment would be contrary to the public interest,
or otherwise constituting a decision on the merits that the proposed
Final Judgment should not be entered, and absent other agreement
between these parties, the parties will continue to abide by and comply
with Section III of this Final Judgment until this action is finally
adjudicated or dismissed.
5. The Stipulation by the United States to entry of this Final
Judgment is not intended to, does not, and shall not be deemed to
constitute a statement of position by the United States as to the
appropriate scope of local cellular service areas. Notwithstanding any
provision of the Final Judgment, the United States may at any
appropriate time seek orders from the Court eliminating one or more of
the exception to the general definition of Local Cellular Service Areas
contained in Section II.Q of the Final Judgment.
6. AT&T and McCaw hereby stipulate that it will not move to modify
the Final Judgment, if entered in the form attached hereto, for
eighteen months following commencement of this action, except with the
consent of the United States.
7. AT&T hereby irrevocably waives any right it may have to appeal
or otherwise challenge in any court any determination by the United
States or by any independent fact-finder pursuant to Section V.E. of
the Final Judgment, if entered in the form attached hereto.
Dated: July 15, 1994.
Anne K. Bingaman,
Assistant Attorney General.
Steven C. Sunshine,
Deputy Assistant Attorney General.
Antitrust Division, U.S. Department of Justice, Washington, DC
20530.
Richard L. Rosen,
Chief.
Richard Liebeskind,
Assistant Chief.
Luin P. Fitch, Jr.,
Jonathan E. Lee,
Deborah R. Maisel,
Brent E. Marshall,
Patrick J. Pascarella,
Don Allen Resnikoff,
N. Scott Sacks,
Kathleen M. Soltero,
Robert J. Zastrow,
Attorneys.
Communications and Finance Section, Antitrust Division, 555 Fourth
Street, NW., Washington, DC 20001, (202) 514-5621.
Attorneys for the United States.
John D. Zeglis,
Mark C. Rosenblum,
AT&T Corp., 295 North Maple Avenue, Basking Ridge, New Jersey 07920,
(908) 221-3539.
Attorneys for AT&T Corp.
Douglas I. Brandon,
McCaw Cellular Communications, Inc., 1150 Connecticut Avenue, NW.,
Washington, DC 20036, (202) 223-9222.
Attorneys for McCaw Cellular Communications, Inc.
Final Judgment
United States of America, Plaintiff, v. AT&T Corp. and McCaw
Cellular Communications, Inc., Defendants. Civil Action No. 1:94-
CV01555 Judge Harold Greene Filed: 7/15/94.
Plaintiff, the United States of America, having filed its complaint
herein on July 15, 1994; the parties, by their respective attorneys,
having consented to the entry of this Final Judgment; and without this
Final Judgment constituting any evidence or admission by any party with
respect to any issue of fact or law herein;
Now, therefore, before the taking of any testimony, without trial
or adjudication of any issue of fact or law, and upon the consent of
the parties, it is hereby Ordered, Adjudged, and Decreed as follows:
I
Jurisdiction
This Court has jurisdiction over the parties and the subject matter
of this action. The Complaint states a claim upon which relief may be
granted against the defendants under Section 7 of the Clayton Act, as
amended (15 U.S.C. 18).
II
Definitions
As used in this Final Judgment:
A. Affiliate means a corporation or partnership in which AT&T or
McCaw, as the case may be, has a direct or indirect voting interest of
greater than fifty percent, or the right, power or ability to control.
B. AT&T means AT&T Corp. and its Affiliates other than McCaw.
C. AT&T Equipped Cellular System means a Cellular System in which
the Cellular Carrier has obtained Cellular Infrastructure Equipment
from AT&T.
D. AT&T Network Wireless Infrastructure Unit means the division,
subsidiary or other business organization of AT&T's telecommunications
equipment manufacturing subsidiary (``AT&T Network Systems'') that
manufactures Cellular and Wireless Infrastructure Equipment.
E. Cellular Carrier means an entity that is a carrier within the
meaning of the Communications Act of 1934 and that provides Cellular
Services.
F. Cellular Digital Packet Data Services means a service that is
offered in accord with Internet TCP/IP Protocol Suite and OSI Suite as
defined by Internet RFC 791 or any functionally equivalent service in
which multiprotocol network services providing wireless packet data to
wireless communications users are offered by delivering data to a
centralized switching or routing point from which the data is
transferred or routed to a destination in the Local Cellular Service
Area (which may be an Internet node) designated by the customer or to
an Interexchange Carrier chosen by the customer on an unbundled and
nondiscriminatory basis at a point within the Local Cellular Service
Area in which the centralized switching or routing point is located.
G. Cellular Infrastructure Equipment means cell sites, mobile
switching equipment, and other telecommunications products (hardware
and software) which are purchased by Cellular Carriers for the
provision of Cellular Services. It does not include transmission media
or other Telecommunications Equipment not specifically developed for
use in a Cellular System (e.g., cable or fiber) unless such equipment
is not compatible with other manufacturers' Cellular Infrastructure
Equipment. It does include the equipment used to terminate transmission
media (e.g., D4 channel banks) and the radio equipment used to transmit
telecommunications within a Cellular System.
H. Cellular Services mean the Domestic Public Cellular Radio
Telecommunications Services provided pursuant to part 22, subpart K of
the rules of the Commission (47 CFR 22.900-22.945), whether provided
solely or principally on those frequencies designated in 47 CFR 22.902.
I. Cellular System means the integrated mobile switching, cell
sites, and other facilities which are operated or controlled by a
Cellular Carrier and used to provide Cellular Services in an area.
J. Commission means the Federal Communications Commission.
K. Control means the power to direct or to cause the direction of
the management and policies of a corporation or a partnership, whether
through ownership of voting securities, by contract, or otherwise.
L. Development Team means a discrete and identified group of
employees responsible for the development of Telecommunications
Equipment, i.e., the design and development of technology platforms,
products (including associated documentation and training), and
associated engineering and testing. The specific responsibilities of
Development Teams may be modified in compliance plans filed pursuant to
Section VII.A of this Final Judgment.
M. Exchange Access means services, functions, and activities that a
cellular carrier performs, or may hereafter choose to perform, in
connection with the origination, routing, or termination of
interexchange calls.
N. Interexchange Carrier means a firm that is a carrier within the
meaning of the Communications Act and that provides Interexchange
Services.
O. Interexchange Services means telecommunications service for hire
between one of the Local Cellular Service Areas specified in paragraph
II(Q) and a point in some other area.
P. Interexchange Traffic Routing means sorting interexchange calls
by destination and routing calls over different trunk groups or other
facilities depending on the call's destination.
Q. Local Cellular Service means the provision of Cellular Service
between points within areas (``Local Cellular Service Areas'') in which
the Bell Operating Companies or their affiliates are authorized today,
or hereafter become authorized, to provide cellular exchange services
without any equal access obligation under the provisions of the MFJ,
any orders entered under it, or any legislation that supersedes or
modifies it, including generic orders that for the purposes of this
Final Judgment shall be construed to apply to McCaw Cellular Systems as
if such Cellular Systems were Bell Operating Companies' Cellular
Systems, except that, for purposes of this order, and subject to
further order of this Court: (i) The Spokane (Washington) LATA 676
shall include all of Yakima MSA 191; (ii) the Seattle (Washington) LATA
674 shall include Tacoma MSA 82; (iii) the Portland (Oregon) LATA 672
shall include Eugene MSA 135, Medford MSA 229 and Salem MSA 148; (iv)
the Minneapolis (Minnesota) LATA 628 shall include Minneapolis MSA 15,
Rochester MSA 288, and St. Cloud MSA 198; (v) the Los Angeles
(California) LATA 730 shall include Ventura MSA 73; (vi) the San Luis
Obispo (California) LATA 740 shall include Santa Barbara MSA 124; (vii)
the Stockton (California) LATA 738 shall include Stockton MSA 107;
(viii) the Sacramento (California) LATA 726 shall include Sacramento
MSA 35, Redding MSA 254, Yuba City MSA 274, Reno MSA 171, and Chico MSA
215; (ix) the Fresno (California) LATA 728 shall include Visalia MSA
150; (x) the Austin (Texas) LATA 558 shall include Austin MSA 75 and
Bryan-College Station MSA 287; (xi) the Waco (Texas) LATA 556 shall
include Killeen-Temple MSA 160; (xii) the Shreveport (Louisiana) LATA
486 shall include Texarkana MSA 240, and Longview MSA 206; (xiii) the
Lafayette (Louisiana) LATA 488 shall include Lafayette MSA 174; (xiv)
the Dallas (Texas) LATA 552 shall include Sherman-Dennison MSA 292;
(xv) the Little Rock (Arkansas) LATA 528 shall include Pine Bluff MSA
291; (xvi) the Tulsa (Oklahoma) LATA 538 shall include Tulsa MSA 57,
Fayetteville MSA 182, Fort Smith MSA 165, Springfield MSA 163, and
Joplin MSA 239; (xvii) the Jacksonville (Florida) LATA 452 shall
include Jacksonville MSA 51, Ocala MSA 245, and Tallahassee MSA 168;
(xviii) the Gulf Coast (Florida) LATA 952 shall include Tampa MSA 22,
Sarasota MSA 167, and Lakeland MSA 114; and (xix) the Pittsburgh
(Pennsylvania) LATA 234 shall include Parkersburg MSA 200, Erie MSA
130, Wheeling MSA 178, Johnstown MSA 143, and Steubenville MSA 199.
R. Marketing Account Team means a discrete and identified group of
employees of AT&T, within AT&T's subsidiary, division or other business
unit responsible for the manufacture and sale of Telecommunications
Equipment, who are engaged in selling, and providing related services
in connection with selling, Cellular Infrastructure Equipment and other
Telecommunications Equipment to one or more specified customers. The
duties of the Marketing Account Team shall include sales and account
management functions, including customer relationship management, offer
and sale of products and services, pricing of products and services to
customers, preparation and presentation of bids and proposals, account-
level planning and forecasting, basic technical and engineering advice
and support, and contract management; sales operations functions,
including order processing and management and customer billing; and
project management functions, including ensuring that customer
satisfaction goals for specific products are met and that terms and
conditions of sale are satisfied. The specific responsibilities of
Marketing Account Teams may be modified in compliance plans filed
pursuant to Section VII.A of this Final Judgment.
S. McCaw means McCaw Cellular Communications, Inc., and its
Affiliates, including any McCaw Cellular System.
T. McCaw Cellular System means a Cellular System in which McCaw
controls, directly or through its affiliates, a direct or indirect
voting interest of more than fifty percent (50%), or the right, power
or ability to control, including any Cellular Systems in which AT&T or
McCaw acquires such interests after the commencement of this action.
U. McCaw Minority Owned Cellular System means a Cellular System in
which McCaw controls, directly or indirectly, a direct or indirect
voting interest of fifty percent or less, and does not have the right,
power or ability to control, including any Cellular Systems in which
AT&T or McCaw acquires such interests after the entry of this Final
Judgment.
V. MFJ means the Modification of Final Judgment entered in United
States v. Western Electric Corp., No. 82-0192, on August 24, 1982, 552
F. Supp. 131 (D.D.C. 1982), as subsequently modified.
W. MTSO means Mobile Telephone Switching Office and the equipment
used therein.
X. 1. Nonpublic Information means information not in the public
domain that is furnished (a) by a Wireless Carrier to AT&T in AT&T's
capacity as a supplier of Wireless Infrastructure Equipment or (b) by a
Wireless Infrastructure Equipment supplier to McCaw or to McCaw
Cellular Systems.
2. To be Nonpublic Information, information must be one of the
following:
(a) Information containing costs, profits, or profit margins; plans
for development of new products, services, or technologies; customer
names; pricing policies, prices, price schedules, or terms; number of
subscribers, sales, churn rates, or other output measures; capacity
measures; features and capabilities; technology plans or status of
implementation; marketing plans; costs of or prices paid for
infrastructure equipment and other inputs, including price credits, or
adjustments for a cellular carrier's used equipment; plans for
expansion; amounts of capital investment; or quantities and types of
equipment used by a wireless carrier or sold by a wireless
infrastructure equipment supplier;
(b) Other written information designated in writing by the Wireless
Carrier or Wireless Infrastructure Equipment supplier as proprietary
information by an appropriate legend, marking, stamp, or positive
written identification on the face thereof; or
(c) Other oral, visual, or other information that is identified as
proprietary information in writing by the Wireless Carrier or Wireless
Infrastructure Equipment supplier prior to or contemporaneously with
its disclosure to AT&T, or in the case of oral, visual, or other
information provided prior to the entry of this Final Judgment,
information that is so identified within 180 days of the entry of this
Final Judgment.
3. ``Nonpublic Information'' shall not include
(a) Information already known to AT&T by means of its independent
research, development, and analysis activities,
(b) Information that subsequently enters the public domain through
no violation by AT&T or McCaw of this Final Judgment or of any other
duty imposed upon them by law or contract,
(c) Information that subsequently is disclosed in writing to AT&T
by a third party not in breach of a confidentiality agreement with the
Wireless Carrier to whose business the information pertains,
(d) Except in the case of information specified in subsection
(2)(a) of this Section II.X, (i) information that the party furnishing
the information agrees, in writing, may be disclosed, or (ii)
information that was first disclosed to AT&T or McCaw over six (6)
years previously, or such other period as agreed to in writing by AT&T
and the Wireless Carrier or Wireless Infrastructure Equipment Supplier
that made the disclosure.
Y. Proprietary Development means development by AT&T of products,
features or functions for Cellular Infrastructure Equipment that is not
intended to be made available to more than one Cellular Infrastructure
Equipment customer not affiliated with each other through substantial
common ownership.
Z. Technical information means intellectual property of all types,
including, without limitation, patents, copyrights, know-how and trade
secrets, including planning documents, designs, specifications,
standards, practices and procedures, and training materials.
AA. Telecommunications Equipment means products (hardware or
software) other than customer premises equipment purchased by a carrier
to provide telecommunications services.
AB. Unaffiliated Cellular Infrastructure Equipment Customer means a
Cellular Carrier that is not an Affiliate of AT&T or McCaw nor a McCaw
Minority Owned Cellular System but that has purchased or, as of the
date of entry of this Final Judgment, has contracted to purchase, AT&T
Cellular Infrastructure Equipment for use in providing Cellular Service
in a Cellular Service Area.
AC. Unaffiliated Wireless Infrastructure Equipment Customer means a
Wireless Carrier that is not an Affiliate of AT&T or McCaw nor a McCaw
Minority Owned Cellular System but that purchases or contracts to
purchase AT&T Wireless Infrastructure Equipment for use in providing
Wireless Service.
AD. United States means plaintiff the United States of America.
Unless otherwise delegated by the Attorney General, the authority under
this Final Judgment to act on behalf of the United States is delegated
to the Assistant Attorney General in charge of the Antitrust Division
or to such personnel of the Antitrust Division as the Assistant
Attorney General may designate.
AE. Wireless Infrastructure Equipment means the cell sites, mobile
switching equipment and other Telecommunications Equipment which is
purchased by Wireless Carriers for the provision of Wireless Services.
It does not include transmission media or other equipment not
specifically developed for use in a Wireless System (e.g., cable or
fiber) unless such equipment is not compatible with other
manufacturers' Wireless Infrastructure Equipment. It does include both
the equipment used to terminate those media (e.g., D4 channel banks)
and the radio equipment used to transmit telecommunications within a
Wireless System.
AF. Wireless Services, Wireless Systems and Wireless Carriers,
respectively, mean those telecommunications services, systems, or
carriers that use radio transmission between the customer and the
network, and includes cellular, land mobile radio, commercial mobile
radio (as defined in 47 U.S.C. 332(d)(1), as amended), specialized
mobile radio (``SMR''), personal communications services (``PCS''), and
any other mobile radio services, systems, or carriers that has been or
might be authorized by the Commission or offered using radio
transmission between the customer and the network.
III
Separation of McCaw and AT&T
McCaw and McCaw affiliates that are involved in the operations of
Wireless Systems and the provision of Local Wireless Services shall be
maintained as corporations or partnerships engaged in such business
activities separate from AT&T so long as any provision of this Final
Judgment remains in effect. Separation for purposes of this Final
Judgment requires the following:
A. McCaw and McCaw affiliates shall be maintained as corporations
or partnerships with separate officers and personnel, and separate
books, financial, and operating records.
B. McCaw and McCaw affiliates shall retain all Wireless Service
licenses and title and control of the Wireless Infrastructure Equipment
used by its Wireless Systems to provide Wireless Services.
C. McCaw and McCaw affiliates shall retain responsibility for the
operation of their Wireless Systems and the marketing of their wireless
services, and may not by contract or otherwise delegate substantial
responsibility for the performance of such business activities to AT&T,
provided that AT&T may act as McCaw's agent to the extent authorized in
Section IV(F) of this Final Judgment. Nothing in this Final Judgment
shall prohibit AT&T from providing general corporate overhead and
administrative services to McCaw and McCaw affiliates.
D. AT&T may provide Interexchanges Services, Wireless
Infrastructure Equipment and related engineering services, and services
related to the marketing of Wireless Services to McCaw and McCaw
affiliates subject to the provisions of this Final Judgment, provided
that such products and services may be provided only pursuant to filed
tariffs or written contracts identifying the products and services to
be provided, the principal terms and conditions of their provision, and
the prices therefor.
E. A McCaw Cellular System or McCaw Minority Owned Cellular System
may use the name ``AT&T'' or any trademark or trade name of AT&T in its
corporate or service names only after such date as it has completed
conversion to equal access and balloted existing customers pursuant to
Section IV.B and IV.C of this Final Judgment. McCaw, AT&T and McCaw
Minority Owned Systems may not use the name ``AT&T'' or any registered
trademark or trade name of AT&T in the national marketing or
advertising of any Cellular Service until 60% of the McCaw Cellular
Systems (measured by subscribers, and without including McCaw Minority
Owned Cellular Systems that provide equal access pursuant to the MFJ)
have completed conversion to equal access.
IV
Equal Access
A. Prior to its conversion to equal access under Section IV.B
through IV.D, McCaw Cellular Systems may continue existing arrangements
for provision of Interexchange Services. No McCaw Cellular System shall
alter these arrangements in ways that discriminate in favor of AT&T in
the provision of Exchange Access.
B. Each McCaw Cellular System shall, on a phased-in basis and no
later than 21 months following the commencement of this action, cease
providing Interexchange Services and shall provide customers of each
McCaw Cellular System equal access to any Interexchange Carrier that
offers service to the system by
1. Providing each customer with Local Cellular Service under prices
and terms that do not depend upon the customer obtaining Interexchange
Service from AT&T or from any affiliate of McCaw. Except to the extent
specifically authorized by Section IV.F.1 of this Final Judgment,
McCaw, McCaw Cellular Systems, their employees, and their agents shall
not recommend, sell otherwise market the Interexchange Services of any
Interexchange Carriers, and shall administer Interexchange Carrier
selection procedures on a carrier-neutral and nondiscriminatory basis;
2. Permitting each customer automatically to route, without the use
of access codes, all of the customer's originating interexchange
communications to the Interexchange Carrier of the customer's
designation and to reach other Interexchange Carriers by dialing the
appropriate carrier identification code, with each McCaw Cellular
System prohibited from imposing any charges on its customers for
originating Interexchange calls unless the charges are
nondiscriminatory and imposed regardless of the identity of a
customer's Interexchange Carrier; and
3. Providing for each of its existing customers to designate the
Interexchange Carrier of the customer's choice within 60 days after the
System's conversion to equal access, and thereafter requiring each new
customer to designate the Interexchange Carrier of the customer's
choice. After such date, the McCaw Cellular Systems shall block
Interexchange Services to customers who both fail to designate an
Interexchange Carrier and place calls without using access codes,
except that they may allocate existing customers who fail to make such
a designation among Interexchange Carriers in proportion to the number
of customers subscribing to each of these Interexchange Carriers.
C. Each McCaw Cellular System shall provide complete lists of its
Cellular Service customers' names and addresses to Interexchange
Carriers unaffiliated with McCaw or AT&T for use solely in connection
with marketing their Interexchange Services to customers of that McCaw
Cellular System at least sixty days prior to the system's conversion to
equal access and at quarterly intervals thereafter. If customers'
names, addresses, telephone number or other information are provided to
or used by AT&T for the purpose of marketing Interexchange Services,
the lists shall be provided to other Interexchange Carriers at the same
time and under the same terms. A McCaw Cellular System shall not
provide AT&T with information about a cellular customer's Interexchange
Carrier or the customer's Cellular or Interexchange Service usage
unless (a) the customer is already a customer of AT&T's Interexchange
Services, and (b) the McCaw Cellular System provides other
Interexchange Carriers with the same information concerning their
customers at the same time and under the same terms.
D. After its conversion to equal access, each McCaw Cellular System
shall
1. Provide to all Interexchange Carriers Exchange Access on an
unbundled basis that is equal in type, quality, and price to that
provided to AT&T. Each McCaw Cellular System shall allow access to
MTSOs through switched connections by way of local exchange carrier
access tandems, and shall provide to the Interexchange Carrier dialed
digits, automatic calling number identification and other information
necessary to bill calls, answer supervision, carrier access codes, and
testing and maintenance of whatever facilities of the cellular system
are used by Interexchange Carriers, regardless of whether any of these
services are provided to AT&T. A McCaw Cellular System shall be
required to offer to each unaffiliated Interexchange Carrier to
establish dedicated access connections to MTSOs, to perform billing
services on reasonable terms, to provide interexchange traffic routing
services, provide customer location information for use in routing
calls, and to perform other activities or functions for Interexchange
Carriers in connection with the origination, routing, or termination
interexchange calls in the same manner as and on the same terms and
conditions, including price, that those services, activities, or
functions are provided to AT&T. If a McCaw Cellular System provides
information to AT&T to allow it to bill its Interexchange Service
customers for Cellular Service, it shall at each unaffiliated
Interchange Carrier's option provide sufficient information about the
usage and charges for Cellular Service to other Interexchange Carriers
to allow them to make commercially reasonable arrangements to bill
their customers for Cellular Service.
2. Be prohibited from discriminating in favor of AT&T (a) in
providing in a timely manner technical or other information about the
Cellular System or its customers, (b) in the interconnection or use of
the McCaw Cellular System's service and facilities or in the charges
for each element of service, or (c) in the provision of new Exchange
Access services and the planning for and construction or modification
of facilities used to provide Exchange Access.
3. Be prohibited from implementing any new Exchange Access service,
or imposing any charge on Interexchange Carriers for Exchange Access,
unless the service is available and the charge is applicable to all
Interexchange Carriers and has been announced a minimum of 60 days
before the service is provided or the charge imposed.
E. A Cellular System that becomes a McCaw Cellular System following
the entry of this Final Judgment shall comply with the provisions of
this Section IV within one year of the date on which it becomes a McCaw
Cellular System, or within 21 months of the commencement of this
action, whichever is later.
F. 1. Notwithstanding the provisions of this Section IV, and
following the dates upon which AT&T, McCaw and McCaw Minority Owned
Cellular Systems may use the name ``AT&T,'' its trademarks and trade
names pursuant to Section III of this Final Judgment, AT&T may act as
McCaw's agent in marketing Local Cellular Services and may jointly
market Local Cellular Services, Interexchange Services and other
services, provided that
a. AT&T must advise actual or prospective subscribers that they
have a right to presubscribe to competing Interexchange Carriers
following each McCaw Cellular System's conversion to equal access;
b. AT&T shall be required to state separately the prices, terms,
and rate plans for Local Cellular Services and Interexchange Services;
c. AT&T shall not sell or contract to sell Interexchange Services
at a price, term, or discount that depends upon whether the customer
obtains Local Cellular Service from McCaw; and
d. McCaw or a McCaw Cellular System shall not sell or contract to
sell Local Cellular Service at a price, term, or discount that depends
on whether the customer obtains Interexchange Service from AT&T.
e. Notwithstanding the provisions of Section III.C and of this
Section IV.F, AT&T may act as McCaw's agent in marketing Cellular
Services before a McCaw Cellular System or McCaw Minority Owned
Cellular System is converted to equal access under this Section IV,
provided that AT&T markets the Cellular Service under a McCaw trademark
or trade name, AT&T does not market the Cellular Service in connection
with AT&T's Interexchange Services, and does not use any AT&T trademark
or trade name in marketing McCaw Cellular Service. The procedures and
arrangements for marketing Cellular Service under this Section IV.E.1 e
shall be described in compliance plans filed pursuant to Section VII.A
of this Final Judgment before being implemented, except that
arrangements for marketing Cellular Service at AT&T Phone Centers that
were in existence before the commencement of this action may be
maintained pending the effective date of compliance plans.
2. Nothing in this Final Judgment shall prohibit AT&T from, without
separately stating charges for Interexchange Services and terminating
Local Cellular Service, providing services in which the calling party
pays for calls to a cellular telephone, provided that
a. AT&T obtains any underlying Cellular Services from McCaw
Cellular Systems or McCaw Minority Owned Cellular Systems at a
generally available rate, no higher than the rate offered to resellers
of the cellular service provided by that McCaw cellular system; and
b. The McCaw Cellular Systems or McCaw Minority Owned Cellular
Systems (or AT&T) contemporaneously discloses this rate to the other
Interexchange Carriers serving that system and describes it in the
Equal Access Plan filed for approval by the United States pursuant to
section VII.A of this Final Judgment.
G. Where there is insufficient demand by Interexchange Carriers for
access to McCaw Cellular Systems within the Local Cellular Calling
Areas specified in Section II(Q), McCaw Cellular Systems shall be
permitted, upon a showing to and certification by the United States, to
offer new services in which access to Interexchange Carriers is
provided at one or more centralized points. The showing required and
the certification provided pursuant to this Section IV.G shall state
specifically the services to be provided, the access arrangements
therefor, and the centralized points at which access to Interexchange
Carriers is to be provided.
H. Nothing in this Final Judgment shall prohibit McCaw from
offering Cellular Digital Packet Data Service.
I. Notwithstanding the requirements of this Section IV, AT&T may
provide Interexchange Service to customers of Unaffiliated Cellular
Carriers or McCaw Minority Owned Cellular Systems who (1) roam into
McCaw Cellular Systems, and (2) have not designated a presubscribed
Interexchange Carrier or who have designated a presubscribed
Interexchange Carrier that does not provide service to that McCaw
Cellular System.
V
Manufacturing
For so long as McCaw is affiliated with the AT&T Network Wireless
Infrastructure Unit, AT&T shall have the duties set forth in Section
V.A through V.D of this Final Judgment.
A. 1. a. AT&T shall not allow Nonpublic Information of its
Unaffiliated Wireless Infrastructure Equipment Customers to be
disclosed for any reason to (i) McCaw or any of its directors,
officers, or employees; (ii) any McCaw Minority Owned Wireless System
(except in the case in which the Nonpublic Information relates
specifically to such System); (iii) any person engaged in marketing any
McCaw service or AT&T Telecommunications service; (iv) any person
employed by a Marketing Account Team responsible for marketing to AT&T,
McCaw or any McCaw Minority Owned Cellular System; or (v) any person
performing Proprietary Development of Telecommunications Equipment for
AT&T, McCaw or McCaw Minority Owned Cellular Systems.
b. AT&T shall not disclose any Nonpublic Information relating to
the provision of any Wireless Service by McCaw or AT&T, obtained by
AT&T by reason of its provision of Wireless Infrastructure Equipment to
McCaw, to any Unaffiliated Wireless Infrastructure Equipment Customer.
c. To the extent that the President or senior officers of AT&T
Network Systems or members of AT&T's management executive committee are
persons identified in items (ii) through (v) of Section V.A.1(a) of
this Final Judgment, they shall be permitted to receive such Nonpublic
Information in connection with their capacities as President or senior
officers of AT&T Network Systems or members of AT&T's management
executive committee, but such persons shall not disclose any such
Nonpublic Information to other persons identified in (i) through (v)
above.
2. McCaw shall not allow Nonpublic Information of its Unaffiliated
Wireless Infrastructure Equipment suppliers to be disclosed for any
reason to any person involved in the design, development, fabrication,
or marketing of AT&T's Telecommunications Equipment. McCaw shall not
allow Nonpublic Information of any unaffiliated Interexchange Carrier
to be disclosed for nay reason to any person involved in the design,
development, fabrication, or marketing of any AT&T Telecommunications
service or product. Access to Nonpublic Information of any unaffiliated
Interexchange Carrier shall be limited to authorized persons within
McCaw and within AT&T's Network Wireless Infrastructure Unit having a
legitimate need to know such Nonpublic Information in order to conduct
their respective businesses.
3. AT&T shall establish, maintain, and strictly enforce procedures
designed to prevent the disclosures of Nonpublic Information prohibited
by this Final Judgment.
4. a. AT&T shall establish, maintain and strictly enforce separate
Marketing Account Teams for (i) McCaw and other AT&T Affiliates
providing Telecommunications services and (ii) Unaffiliated Wireless
Infrastructure Equipment Customers. Members of Marketing Account Teams
for Unaffiliated Wireless Infrastructure Equipment Customers shall not
be assigned to any AT&T or McCaw business (i) providing
Telecommunications Equipment to AT&T, McCaw or a McCaw Minority Owned
Cellular System, or (ii) providing or planning for any AT&T or McCaw
Wireless Service, except in compliance with the procedures to be
adopted pursuant to Section V.A.4.c of this Final Judgment.
b. If AT&T performs Proprietary Development for Unaffiliated
Wireless Infrastructure Equipment Customers, members of the Development
Teams who perform such Propriety Development shall not perform
Proprietary Development for McCaw or for any AT&T Telecommunications
service except in compliance with the procedures to be adopted pursuant
to Section V.A.3.c of this Final Judgment.
c. AT&T shall establish, maintain and strictly enforce procedures
designed to prevent the use or disclosure of Nonpublic Information of
Unaffiliated Wireless Infrastructure Equipment Customers gained as a
result of an employee's (i)(A) assignment to a Marketing Account Team
responsible for Unaffiliated Cellular Infrastructure Equipment
Customers, or (B) involvement in Proprietary Development for an
Unaffiliated Cellular Infrastructure Equipment Customer, and (ii)(A)
subsequent assignment to a Marketing Account Team responsible for
marketing Cellular Infrastructure Equipment to AT&T, McCaw or McCaw
Minority Owned Cellular Systems, (B) subsequent assignment to McCaw,
McCaw Minority Owned Cellular Systems, or any business providing or
planning for any AT&T or McCaw Telecommunications Service, or (C)
subsequent involvement in Proprietary Development for McCaw or AT&T.
B. AT&T shall have the following duties to its Unafiliated Cellular
Infrastructure Equipment Customers:
1. AT&T shall provide the Cellular Carrier and System with
a. Technical support and maintenance;
b. Installation, engineering, repair, and maintenance services;
c. Additional switching and cell site equipment to be deployed in
that system;
d. Upgrades and other AT&T cellular infrastructure equipment
developed for use with these systems; and
e. Spare, repair, or replacement parts, in accordance with the same
pricing and other business practices that prevailed prior to August 1,
1993. AT&T shall not discriminate in favor of McCaw Cellular Systems or
McCaw Minority Owned Cellular Systems in the way in which such services
or products are made available to Cellular Carriers or Systems, and the
terms on which such services and products are provided shall not vary
depending on whether the Cellular System that will use such service or
product competes with McCaw or a McCaw Minority Owned Cellular System;
and
2. In the event AT&T has discontinued, or hereafter discontinues,
the offering of any Cellular Infrastructure Equipment service, part, or
product, AT&T shall seek to arrange an alternative source of service or
supply for the Cellular Carrier and, if AT&T is unsuccessful, AT&T
shall provide the Cellular Carrier with licenses to use (and rights to
sublicense) whatever Technical Information is required to provide these
services, products, or parts, to the extent AT&T is able to grant such
licenses, in order to allow the carrier to obtain the service, part, or
product in question from another source. The terms of any such license,
including reasonable charges, shall be in accordance with reasonable
and nondiscriminatory licensing procedures.
C. 1. When AT&T engages in development of new features and
functions for use with AT&T Equipped Cellular Systems installed or
contracted for prior to the date of this Final Judgment that, if
successful, will be made available to two or more Cellular Carriers
that are not affiliated with each other through substantial common
ownership. AT&T shall disclose the enhancements to Cellular Carriers
not affiliated with AT&T at the time as it discloses them to McCaw, any
McCaw Cellular Systems, or any McCaw Minority Owned System, and shall
make them available to Unaffiliated Cellular Infrastructure Equipment
Customers at the same time as it makes them available to McCaw or any
McCaw Minority Owned Cellular System.
2. If AT&T develops for McCaw, a McCaw Cellular System, or a McCaw
Minority Owned Cellular System, features or functions that are
applicable only to McCaw or to that System because of its adjunct
hardware and software or because of its specific operations or network,
AT&T shall afford Unaffiliated Cellular Infrastructure Equipment
Customers substantially the same opportunity to contract for such
development work on substantially the same compensatory basis.
3. If AT&T performs for McCaw, McCaw Cellular Systems, or McCaw
Minority Owned Cellular Systems Proprietary Development, AT&T will be
required to perform upon reasonable request Proprietary Development for
Unaffiliated Cellular Infrastructure Equipment Customers under
reasonable terms and conditions not less favorable to the Unaffiliated
Cellular Equipment Customer than those provided to McCaw, McCaw
Cellular Systems or McCaw Minority Owned Cellular Systems.
D. If a Cellular Infrastructure Equipment Customers has deployed or
contracted to deploy an AT&T Equipment Cellular System in whole or in
substantial part prior to the date of entry of this Final Judgment, and
if that Cellular Infrastructure Equipment Customer wishes to redeploy
AT&T Cellular Infrastructure Equipment or, replace, or supplement the
AT&T Equipped Cellular System with another manufacturer's switching,
cell site and other Cellular Infrastructure Equipment in whole or in
part, AT&T shall
1. Provide the Cellular Infrastructure Equipment Customer with such
technical assistance and cooperation as may be reasonably necessary in
order for the Customer both to accomplish such replacement or
redeployment and to have the new manufacturer's equipment interoperate
with AT&T products in that area or in an adjacent area, with AT&T
providing this assistance in accord with reasonable pricing and
business practices, including AT&T's right to receive reasonable
compensation for such services and its right not to be required for
these purposes to provide competing equipment suppliers with
proprietary information that is not necessary to allow the
interoperation of AT&T and non-AT&T equipment; and
2. Waive any contractual requirements that it receive prior notice
of, or must consent to, redeployment by any customer of AT&T Cellular
Infrastructure Equipment to a new location. In the event of deployment
or sale, the Cellular Infrastructure Equipment Customer or new
purchaser will succeed to the original purchaser's warranty, license,
and other contractual rights, and AT&T's obligations under Sections
V.A, V.B, V.C, and V.D of this Final Judgment shall apply to any new
purchaser as if it had been the original purchaser.
E. In the event that the United States, in its sole and
unreviewable discretion, determines that AT&T has violated any of its
duties under Sections V.A through V.D of this Final Judgment to an
Unaffiliated Cellular Carrier in any area where that Unaffiliated
Cellular Carrier competes with McCaw or a McCaw Minority Owned Cellular
System, and where the Unaffiliated Cellular Carrier has deployed or
contracted to deploy an AT&T Equipped Cellular System prior to the date
of entry of this Final Judgment, AT&T shall be required to offer to buy
back the AT&T Cellular Infrastructure Equipment hardware purchased or
contracted for by that Unaffiliated Cellular Carrier for use in that
Cellular System prior to the date of the entry of this Final Judgment,
at their original purchase prices, less depreciation as calculated on a
straight line basis over a period of ten years for switches and eight
years for all other hardware, to offer to refund the proportionate
share of all monies paid for unused portions of any licenses for
software to be used with such hardware, and to offer to release the
Unaffiliated Cellular Equipment Customer from future obligations
relating to Cellular Infrastructure Equipment deployed in such Cellular
System. The United States may, in its sole discretion, appoint an
independent fact-finder to conduct the investigation or factual
determination of any issue raised in connection with any alleged
violation, reserving to the United States the right to make a final
determination. In the event of any such appointment, the losing party
(i.e., the customer or AT&T) shall pay all costs and fees of the fact-
finder. In stipulating to the entry of this Final Judgment, AT&T has
irrevocably waived any right it may have to appeal, contest or
otherwise challenge any adverse determination of the United States
pursuant to this Section V.E.
VI
Applicability and Effect
The provisions of this Final Judgment, applicable to each
defendant, shall be binding upon said defendants, their successors and
assigns, officers, agents, servants, employees, and attorneys, and upon
those persons in active concert or participation with each defendant
who receive actual motive of this Final Judgment by personal service or
otherwise. Each defendant and each person bound by the prior sentence
shall cooperate in ensuring that the provisions of this Final Judgment
are carried out. Neither this Final Judgment nor any of its terms or
provisions shall constitute any evidence against, an admission by, or
an estoppel against any party. The effective date of this Final
Judgment shall be the date upon which it is entered.
VII
Compliance
A. 1. AT&T will file plans for the implementation of the provisions
of this Final Judgment with the United States Department of Justice not
later than 90 days after the Final Judgment's entry. AT&T shall file a
Structural Separation implementation plan describing its implementation
of the provisions of Sections III and V.A.4; an Equal Access
implementation plan for each McCaw Cellular System, describing its
implementation of Section IV; and a Nonpublic Information
implementation plan, describing its implementation of Section V.A.
2. AT&T shall supplement the plans required by Section VII.A.1 as
necessary to describe the implementation of Equal Access in
subsequently acquired Cellular Systems, and to describe significant
changes in the matters reflected in the plans.
3. The plans shall be effective 90 days after filing with the
Department, unless disapproved by the Department by written notice to
AT&T, identifying the manner in which the plan is insufficient. The
Department may in its discretion approve a plan in fewer than 90 days.
In the absence of an effective plan, AT&T shall be enjoined as follows:
a. In the absence of an effective Separation plan, AT&T shall
comply with Section III of this Final Judgment without modification,
and shall not perform Proprietary Development for McCaw.
b. In the absence of an effective Equal Access plan, AT&T may not
provide Interexchange Services to customers of McCaw Cellular Systems,
except under arrangements that prevailed prior to the merger.
c. In the absence of an effective Nonpublic Information plan, AT&T
shall not sell Cellular Infrastructure Equipment to McCaw or McCaw
Minority Owned Cellular Systems, except that AT&T may sell Cellular
Infrastructure Equipment to such Cellular Systems if they were AT&T
Equipped Cellular Systems prior to the commencement of this action.
B. The defendants are ordered and directed to advise their officers
and other management personnel with significant responsibility for
matters addressed in this Final Judgment of their obligations
hereunder. AT&T shall undertake the following with respect to each such
office or management employee:
1. The distribution to them, within 30 days of entry of this Final
Judgment, or within 30 days of a person's becoming an officer or other
management personnel with significant responsibility for matters
addressed in this Final Judgment of a written directive setting forth
AT&T's policy regarding compliance with this Final Judgment, with such
directive to include: (a) An admonition that noncompliance with such
policy and this Final Judgment will result in appropriate disciplinary
action, which may include dismissal; and (b) advice that AT&T's legal
advisors are available at all reasonable times to confer with such
persons regarding any compliance questions or problems;
2. The imposition of a requirement that each of them sign and
submit to AT&T a certificate in substantially the following form:
The undersigned hereby (1) acknowledges receipt of a copy of the
1994 United States v. AT&T Corp. Final Judgment and a written
directive setting forth AT&T's policy regarding compliance with such
Final Judgment, (2) represents that the undersigned has read such
Final Judgment and directive and understands those provisions for
which the undersigned has responsibility, (3) acknowledges that the
undersigned has been advised and understands that noncompliance with
such policy and Final Judgment will result in appropriate
disciplinary measures determined by AT&T, which may include
dismissal, and (4) acknowledges that the undersigned has been
advised and understands that non-compliance with the Final Judgment
may also result in conviction for contempt of court and imprisonment
and/or fine.
VIII
Visitation
A. For the purpose of determining or securing compliance with this
Final Judgment, and subject to any legally recognized privilege, from
time to time:
1. Upon written request of the Attorney General or of the Assistant
Attorney General in charge of the Antitrust Division, and on reasonable
notice to a defendant, made to its principal office, duly authorized
representatives of the Department of Justice shall be permitted access
during office hours of such defendant to depose or interview officers,
employees, or agents, and inspect and copy all books, ledgers,
accounts, correspondence, memoranda and other records and documents in
the possession or under the control of such defendant, who may have
counsel present, relating to any matters contained in this Final
Judgment; and
2. Upon the written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division made to
a defendant's principal office, such defendant shall submit such
written reports, under oath if requested, with respect to any of the
matters contained in this Final Judgment as may be requested.
B. No information or documents obtained by the means provided in
this section shall be divulged by any representative of the Department
of Justice to any person other than a duly authorized representative of
the Executive Branch of the United States or the Commission, except in
the course of legal proceedings to which the United States is a party,
or for the purpose of securing compliance with this Final Judgment, or
as otherwise required by law.
C. If at the time information or documents are furnished by a
defendant to plaintiff, such defendant represents and identifies in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(7) of the Federal
Rules of Civil Procedure, and said defendant marks each pertinent page
of such material, ``Subject to claim of protection under Rule 26(c)(7)
of the Federal Rules of Civil Procedure,'' then 10 days' notice shall
be given by plaintiff to such defendant prior to divulging such
material in any legal proceeding (other than a grand jury proceeding)
to which that defendant is not a party.
IX
Retention of Jurisdiction
Jurisdiction is retained by this Court for the purpose of enabling
any of the parties to this Final Judgment to apply to this Court at any
time for such further orders or directions as may be necessary or
appropriate for the construction or carrying out of this Final
Judgment, for the modification of any of the provisions hereof, for the
enforcement of compliance herewith, and for the punishment of any
violation hereof.
X
Modification
A. If BOC Wireless Systems are relieved in whole or in part of any
or all of the comparable equal access or nondiscrimination obligations
of the MFJ as a result of legislation, judicial orders, or agency
orders that vacate, modify, supersede, or interpret the provisions of
the MFJ, the provisions of Article IV of this Final Judgment shall be
modified or vacated to provide the same relief to AT&T or McCaw upon
their showing that competitive conditions do not require a different
obligation for AT&T and McCaw and that his modification is equitable
and in the public interest.
B. If AT&T and McCaw seeks modification or removal of the
provisions of this Final Judgment upon grounds that include a showing
either (1) that enhanced specialized mobile radio services, personal
communications services licensed in the 1.8 to 2.1 GHz band, or other
services have developed as effective competitive alternatives to the
cellular services in existence at the time of entry of the Final
Judgment, or (2) that there have been other changes or developments
affecting a relevant market, AT&T and McCaw will be entitled to
modification of the provisions of Article IV or Article V of this Final
Judgment if it shows that intervening changes have made the retention
of the provision inequitable, irrespective of whether the intervening
changes or developments had been foreseen or were foreseeable when the
Final Judgment was entered. AT&T and McCaw have stipulated that they
will not move for any modification of this Final Judgment, except with
the consent of the United States, for eighteen months following the
date of the commencement of this action.
XI
Expiration
The provisions of this Final Judgment, to the extent they remain in
effect, shall expire on the date ten years after its entry.
XII
Public Interest
Entry of this Final Judgment is in the public interest.
United States of America, Plaintiff, v. AT&T Corp. and McCaw
Cellular Communications, Inc. Defendants. Civil Action No. 94-01555
(HHG) Filed: August 5, 1994.
Competitive Impact Statement
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act (``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), plaintiff, the
United States, submits this Competitive Impact Statement relating to
the proposed Final Judgment for entry with the consent of defendants,
AT&T Corp. (``AT&T'') and McCaw Cellular Communications, Inc.
(``McCaw'') in this civil antitrust proceeding.
I.
Nature and Purpose of the Proceeding
On July 15, 1994, the United States filed a civil antitrust
complaint, under Section 15 of the Clayton Act, as amended, 15 U.S.C.
25, against AT&T and McCaw, alleging that the proposed merger of
defendants violates Section 7 of the Clayton Act, as amended, 15 U.S.C.
18, by:
1. Decreasing actual and potential competition in the market for
cellular services because the merger would combine McCaw, a cellular
service provider with AT&T, the leading supplier of cellular
infrastructure equipment. That vertical integration may substantially
increase the merged firm's ability and incentive to raise the costs,
limit the capacity, or constrain the quality of service of McCaw's
cellular service competitors that are dependent upon AT&T for cellular
infrastructure equipment.
2. Decreasing competition in the market for cellular infrastructure
equipment by providing AT&T with access to competitively sensitive and
proprietary information of McCaw's principal equipment supplier, L.M.
Ericsson (``Ericsson'').
3. Decreasing actual and potential competition in the market for
interexchange services to cellular subscribers, because the merger of
AT&T and McCaw would combine AT&T, the largest interexchange carrier in
the United States with McCaw, one of only two cellular service
providers in many markets; and would combine the two largest providers
of interexchange service to cellular service customers in many areas
served by McCaw.
AT&T is the dominant supplier of interexchange telecommunications
service in the United States, providing interexchange service to
wireline and cellular telephone customers. AT&T is also the largest
supplier of the cellular infrastructure equipment (switches, cell site
radios and related equipment) used by cellular carriers to provide that
service in the United States and North America. AT&T, along with the
next two largest suppliers--Motorola and Ericsson--account for the vast
majority of the installed base of cellular infrastructure equipment in
the United States.
McCaw is the largest provider of cellular service in the United
States, with ownership interests in cellular systems serving
approximately 22 percent of all of the cellular subscribers in the
United States. These systems include the following cities: New York,
Los Angeles, Miami, Dallas, Houston, San Francisco, Philadelphia,
Pittsburgh, Seattle, Portland, St. Louis and Kansas City. McCaw owns
and operates a number of these systems in partnership with companies
with whom it competes in other service areas. These companies include
AirTouch Communications, Inc. (previously PacTel Mobile Services) and
BellSouth Corporation. McCaw operates many of its cellular systems
under the name ``Cellular One,'' a tradename owned by a joint venture
among a number of cellular licensees including McCaw and Southwestern
Bell Corp. McCaw also provides interexchange services to customers of
its cellular services, primarily over AT&T facilities.
Pursuant to an agreement dated August 16, 1993, AT&T agreed to
purchase McCaw. On July 15, 1994, the United States and defendants
filed a stipulation by which they consented to entry of a proposed
Final Judgment, after compliance with the APPA, 15 U.S.C. 16(b)-(h),
designed to eliminate the anticompetitive effects of the proposed
merger in each of the affected markets. Entry of the proposed Final
Judgment will terminate this action, except that the Court will retain
jurisdiction to construe, modify and enforce the Final Judgment, and to
punish violations of the Final Judgment.
As explained more fully below, the proposed Final Judgment would
substantially mitigate the incentive and ability of the merged AT&T-
McCaw to constrain the actions of McCaw's cellular service competitors,
by providing mechanisms to insure that AT&T could not use its position
as the incumbent supplier to those McCaw competitors that are locked in
to AT&T's equipment to disadvantage or discriminate against them in
favor of McCaw. These mechanisms include: separate subsidiary
requirements and restrictions on the flow of certain confidential
information within the combined AT&T/McCaw entity; obligations on AT&T
to continue to deal with its customers on terms in place prior to the
merger, and on terms not less favorable than those offered to McCaw;
obligations to assist and not interfere with an incumbent customer's
changing infrastructure suppliers; and a buy-back obligation that would
reduce the lock-in effect by lowering the cost for a competitor/
customer to switch suppliers in the event that AT&T fails to comply
with its obligations to its customers under the judgment.
To address concerns in the interexchange markets, the proposed
Final Judgment would require McCaw cellular systems to provide equal
access to interexchange competitors of AT&T, which is not now provided
in most McCaw systems, thereby increasing competition in the provision
of interexchange services to cellular customers.
Finally, to prevent anticompetitive harm to the cellular
infrastructure equipment market, the proposed Final Judgment restrains
McCaw from providing certain confidential information of other cellular
infrastructure equipment suppliers to AT&T's manufacturing division.
II
Events Giving Rise To The Alleged Violation
A. Background
1. Cellular Services Markets
Cellular carriers operate on either of two bands of radio
frequencies, referred to as the ``A-side'' and the ``B-side.''\1\ The
FCC awarded one A-side and one B-side license separately in 306
metropolitan areas, referred to as MSAs, and 428 rural areas called
RSAs. Initially, the FCC awarded the B-side license to the local
telephone company or an affiliate thereof and the A-side license to
firms other than the local telephone company.\2\ Cellular licenses are
transferable, and since the initial awards there has been considerable
consolidation of ownership. Telephone companies have acquired many A-
side licenses outside of the areas in which they provide local exchange
service. Cellular service is fully interconnected with landline
telephone networks, and subscribers can both originate calls to and
receive calls from landline subscribers, including long distance calls.
---------------------------------------------------------------------------
\1\For purposes of this Competitive Impact Statement, the term
``cellular'' is used to refer to the mobile and portable radio
telephone service today provided by two licensees in each geographic
area.
\2\Cellular licenses held by AT&T or the Bell Companies, at the
time of AT&T's divestiture of those Bell Companies in 1984, were
retained by the Bell Companies and are now generally held by
affiliates of their respective parent Regional Holding Companies.
---------------------------------------------------------------------------
Cellular service is a relevant product market and a ``line of
commerce'' within the meaning of Section 7 of the Clayton Act. Unlike
conventional landline telephone service, cellular service provides
customers with the added feature of mobility, and landline telephone
service therefore is not a substitute. The relevant geographic markets
are those service areas in which the FCC has licensed cellular carriers
to provide cellular service.
With extremely limited exceptions, there are no providers of mobile
telephone services other than the two cellular carriers. At the current
time, the holders of these cellular licenses, including McCaw, exercise
market power in the provision of cellular service. These duopolies are
characterized by rapidly growing demand and minimal price competition,
resulting in high margins to cellular carriers.
2. The Cellular Infrastructure Equipment Market
A cellular system consists primarily of one or more mobile
telephone switching offices (``MTSOs'' or ``switches'') connected to
numerous cell sites. A cell site is a radio facility that receives and
transmits cellular calls. Cellular carriers provide cellular service by
dividing their licensed service areas into ``cells''--each with a
corresponding cell site--and reusing the radio channels in different
cells. The principal components of a cell site are radio units, radio
frames and software (referred to collectively as ``radio base
stations'').
A switch is a large central computer facility connected to cell
sites, other MTSOs and local and long distance telephone networks. The
MTSO controls the ``handoff'' of calls between the cells and transfers
calls between the cellular systems and the wireline networks of local
exchange carriers and interexchange carriers. A cellular system in a
large metropolitan area like New York City or Baltimore/Washington
might typically include two to four switches and more than one hundred
radio base stations.
One principal method of expanding the capacity of a cellular system
is to increase the number of cells. The creation of these new cells
requires the purchase and deployment of an additional radio base
station for each new cell. At some point in expanding the capacity of a
system it also becomes necessary to add additional switches. Another
method of capacity expansion currently being used is to convert the
radio transmissions from analog to digital. This conversion requires
the deployment of new radios and cell site equipment.
In North America, cellular switches made by one manufacturer are
not compatible with radio base stations made by another. Accordingly, a
cellular carrier seeking to expand the capacity of a particular system
must obtain additional switches and radio base stations from its
incumbent cellular infrastructure equipment supplier. Digital
conversion requires the deployment of switch and cell site equipment
and software that is noncompatible between manufacturers. Enhancements
that add customer features or improve a system's capacity or efficiency
are added to systems primarily through switch or cell site software
upgrades. Because the interfaces between the cellular infrastructure
equipment and software are proprietary, the equipment vendor is, today,
the only one who can provide these enhancements. In addition, cellular
carriers are largely dependent on their equipment vendors for ongoing
engineering support and maintenance, as well as efficiency and service
enhancing features.
Thus, once a cellular carrier has made the decision to deploy a
particular vendor's cellular infrastructure equipment in a particular
system, that carrier becomes locked in to that vendor's equipment and
must either continue to purchase equipment and software from that same
vendor or incur the substantial costs of replacing the deployed
switches and radio base stations of the incumbent vendor. As cellular
systems grow, so also does the cost of switching vendors.
Equipment providers typically have access to proprietary and
competitively sensitive information of their cellular carrier
customers. Some of this information is acquired in the performance of
installation, maintenance and other services provided by the
manufacturers to the cellular carriers. For example, through its access
to a cellular carrier's switch, a manufacturer has access to day-to-day
operating information about the switch, including usage patterns.
Manufacturers must also receive advance notice of planned system
expansions so that they may allocate equipment and other resources to
that customer. Manufacturers also work closely with their customers in
the development of new services and features, sometimes on a
proprietary basis, This development work necessarily provides the
manufacturer with insights into, and advance notice of, its cellular
carrier customer's marketing and sales plans.
Cellular infrastructure equipment is a relevant product market.
Cellular infrastructure equipment manufactured for use in North America
is based on a different standard than equipment manufactured for use by
European cellular providers. Accordingly, equipment used in North
America is not compatible with equipment manufactured for use in
Europe.
In many of the cities in which McCaw has an interest in the A-side
cellular system, the B-side competitor has deployed and is operating
its system using AT&T cellular infrastructure equipment. Major markets
in which McCaw competes with AT&T customers include, among others, New
York, Dallas, San Francisco, Miami, St. Louis, Tampa, Orlando, Salt
Lake City, Kansas City and Pittsburgh. McCaw uses Ericsson equipment in
the majority of its systems.
AT&T currently has the ability to raise the costs, inhibit the
ability to increase system capacity and capabilities and degrade the
quality of service of its locked in B-side equipment customers. AT&T
could achieve this by increasing the prices of its equipment and
software or by withholding or delaying the development or delivery of
necessary equipment, software, services or other upgrades.
3. Harm to Competition Arising from the Combination of McCaw's Cellular
Services and AT&T's Cellular Infrastructure Equipment Business
The proposed merger may substantially lessen competition in
cellular services markets. Although AT&T already has the ability to
disadvantage its cellular infrastructure customers, today AT&T has no
strong incentive to disadvantage one cellular carrier customer vis-a-
vis another, because AT&T is not providing local cellular service. As a
result of this merger, however, AT&T would gain the incentive to harm
McCaw's competitors that use AT&T cellular equipment, to McCaw's
advantage, by exploiting AT&T's control over the costs, capabilities
and capacity to those locked-in equipment customers. Thus, the combined
AT&T-McCaw would have the incentive and the ability to either raise its
cellular service rivals' costs or, through the threat of doing so,
reduce its rivals' incentive to compete. In either event the likely
outcome is increased prices and lower quality service to consumers of
cellular service.
The merger also will give McCaw access to competitively sensitive
and proprietary information of McCaw's competitors that AT&T acquires
through its role as cellular infrastructure equipment supplier to
Macaw's competitors. As described above, this information relates to
planned expansions, new service offerings and other efficiency
enhancing upgrades. McCaw's competitors could well decide to forgo or
limit their expenditures of resources in these areas if they believe
that they will not enjoy the competitive benefit of such expenditures
because McCaw will have immediate access to their competitive plans. As
a result, consumers of cellular service are likely to pay higher prices
and receive lower quality service.
The proposed merger may also harm competition in the sale of
cellular infrastructure equipment used by North American cellular
service providers, by giving AT&T access to competitively sensitive or
proprietary information of Ericsson that McCaw acquires through its
position as a customer for and user of Ericsson cellular infrastructure
equipment.
4. Harm to Competition Arising from the Combination of McCaw's Cellular
Services Business and AT&T's Interexchange Business
Interexchange services are telecommunications services that connect
calls between different local exchange areas or local cellular service
areas. AT&T is the dominant interexchange carrier for both wired and
cellular telephone service, with MCI and Sprint and a number of smaller
firms having much smaller shares.
The provision of interexchange services to cellular subscribers is
a relevant product market. Customers use cellular phones to meet their
needs away from landline telephones; access to interexchange service
over landline telephones is inconsistent with the needs motivating
cellular phone usage and thus is not a good substitute. Cellular
subscribers can only access interexchange service providers that have
exchange access to that cellular system.
Due to the lack of effective competition in the cellular service
markets, McCaw has been able to deny its cellular customers the ability
to select their interexchange service provider. In those markets in
which McCaw's systems are not controlled by a Bell Company that is
subject to equal access requirements,\3\ McCaw provides interexchange
service to its cellular customers on an exclusive basis (typically
reselling AT&T service), and does not generally allow its customers to
access other interexchange carriers directly. In systems operated by
Bell Companies subject to equal access requirements, interexchange
service is provided by the interexchange carrier of the customer's
choice. Thus, customers may choose between McCaw's A-side bundle of
local and interexchange services or the B-side carrier's local cellular
service and, where the B-side carrier is a Bell Company subject to
equal access, the interexchange service offered by the customer's
interexchange carrier of choice. (Where the B-side carrier is not a
Bell Company, the customer's choice is between two bundles of local
cellular and long distance service.)
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\3\Cellular companies that are affiliates of Bell Operating
Companies (``Bell Companies'') are required to provide equal access
to interexchange carriers under the consent decree that broke up the
Bell System. United States v. Western Elec. Co., 578 F. Supp. 643,
647 (D.D.C. 1983); Order, Sept. 27, 1987 (Southwestern acquisition
of Metromedia); Order, October 31, 1986 (BellSouth joint venture
with MCCA).
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The relevant geographic markets are cellular service areas in which
McCaw offers bundled cellular and interexchange services. These areas
include New York, Miami, Tampa, Minneapolis, Seattle, Pittsburgh, New
Orleans, Portland and Sacramento. Each of these markets is highly
concentrated. Among Bell Company cellular systems providing equal
access, AT&T is the dominant interexchange carrier, with more than 70
percent of subscribers, with MCI and Sprint sharing nearly all of the
remainder.\4\ McCaw is generally the exclusive provider of
interexchange service to customers of its A-side systems that do not
provide equal access.
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\4\Most but not all of the McCaw systems share the local market
with a Bell Company affiliate. In Tampa, and in some smaller cities,
McCaw faces GTE, which does not provide equal access.
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The merger may lessen competition substantially in the markets for
the provision of interexchange service to cellular subscribers. The
merger would foreclose competition between the two largest providers of
interexchange service in the highly concentrated markets in which McCaw
currently provides interexchange service to its cellular customers
without an equal access obligation. The merger also combines AT&T, the
leading provider of interexchange service, with McCaw, which has market
power over the provision of interexchange service by virtue of the fact
that it controls access by its cellular customers to interexchange
services. As a result, competition in the provision of interexchange
service to cellular customers in these areas may be substantially
lessened and cellular subscribers may pay higher prices for
interexchange service.
III
Explanation of the Proposed Final Judgment
The proposed Final Judgment addresses the competitive concerns
raised by the proposed merger and AT&T and McCaw in two principal ways.
First, to guard against harm to competition in interexchange
telecommunications, it requires AT&T to provide all interexchange
carriers with equal access to McCaw cellular systems. Second, the
proposed Final Judgment contains a group of provisions intended to
ameliorate the lock-in faced by AT&T cellular infrastructure equipment
customers, which should make it substantially less likely that AT&T can
raise the costs of its rivals in wireless service (or threaten to do
so), and therefore guard against anticompetitive effects in wireless
service markets. Finally, the proposed Final Judgment contains
restrictions intended to protect against anticompetitive effects in the
cellular infrastructure equipment market.
A. Equal Access
As described above, McCaw currently does not provide equal access
to interexchange carriers from its cellular systems. Section IV of the
proposed Final Judgment will change these arrangements by requiring
McCaw to offer all interexchange carriers equal access to all of its
cellular systems, permitting its customers to choose among
interexchange carriers. The need for these provisions is predicated on
the noncompetitive structure of current cellular service markets and
the market power currently possessed by McCaw and other providers of
cellular exchange service.
The equal access arrangements prescribed by Section IV are modeled
on the analogous provisions of the Modification of Final Judgment in
United States v. American Telephone & Tel. Co., 552 F. Supp. 131
(D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001
(1983) (``MFJ''). They are largely identical to the conditions
recommended by the United States for provision of interexchange
cellular service by the Bell Companies.\5\
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\5\See Memorandum of the United States in Response to the Bell
Companies' Motions for Generic Wireless Waivers and Proposed Order,
filed July 25, 1994, attached as Exhibit A.
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Section IV.B provides for the phased-in conversion of McCaw
Cellular Systems to equal access over a 21-month period after the
commencement of this action, pursuant to a plan to be approved by the
United States according to Section VII.A of the judgment. ``McCaw
Cellular Systems'' are defined in Section II.T to include systems in
which McCaw holds voting interests greater than 50 percent or in which
it has the right, power or ability to control. ``Control'' is defined
in Section II.K as the power to direct or cause the direction of the
management and policies of a corporation or partnership, whether
through ownership of voting securities, by contract, or otherwise.
McCaw would not, under this definition, be considered to control a
corporation or partnership in which another entity held a significantly
larger ownership interest unless McCaw had expressly been given the
right to control, such as through voting rights or by contract.
Section IV.A provides that, prior to its conversion to equal
access, no McCaw Cellular System may alter its arrangements for the
provision of interexchange service in ways that discriminate in favor
of AT&T in the provision of exchange access. Pursuant to Section III.E,
a McCaw Cellular System or McCaw Minority Owned Cellular System may use
the name ``AT&T'' or any trademark or trade name of AT&T in its
corporate or service names only after it has completed conversion to
equal access and balloted existing customers pursuant to Sections IV.B
and IV.C. In addition, neither AT&T, McCaw nor McCaw Minority Owned
Cellular Systems may use the name AT&T or any trademark or trade name
of AT&T in marketing or advertising cellular service until 60% of the
McCaw Cellular Systems, measured by subscribers (and not including Bell
Company cellular systems that provide equal access pursuant to the MFJ)
have completed conversion to equal access.
Sections IV.B, IV.C and IV.D of the judgment prescribe the basic
requirements of equal access. Section IV.B.1 requires each McCaw
Cellular System to provide local cellular service under prices and
terms that do not depend upon the customer obtaining interexchange
service from AT&T or a McCaw affiliate, i.e., on an unbundled basis.
Moreover, McCaw, McCaw Cellular Systems and their employees and agents
(including AT&T when it acts as agent for a McCaw Cellular System
pursuant to Section IV.F of the judgment) may not recommend, sell or
otherwise market the interexchange service of any interexchange
carriers, and are required to administer interexchange carrier
selection procedures on a carrier-neutral and nondiscriminatory basis.
Section IV.B also requires McCaw to ballot its existing customers
to permit them to choose an interexchange carrier to which all of the
customer's originating interexchange communications will be routed
automatically, without the use of any access codes (i.e., on a
1+basis), as well as to permit the customer to access other
interexchange carriers by dialing the appropriate carrier
identification code (i.e., on a 10-XXX basis). Balloting will occur
within 60 days of each McCaw Cellular System's conversion to equal
access. If, in the balloting process, any McCaw customer fails to
choose an interexchange carrier, those customers may be allocated to
interexchange carriers in proportion to the number of customers
subscribing to each carrier.\6\ Thereafter, interexchange services will
be blocked to any new customer that fails to choose a carrier and
attempts to place calls without access codes.
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\6\The specific balloting process will be described in the equal
access plans filed by defendants under Section VII.A of the proposed
Final Judgment. It is anticipated that there might be more than one
opportunity for each customer to select an interexchange carrier
prior to any allocation.
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To permit all interexchange carriers to have a meaningful
opportunity to market their services to customers of McCaw Cellular
Systems, those systems will be required to provide interexchange
carriers with the names and addresses of their existing customers at
least 60 days prior to conversion to equal access, and at quarterly
intervals thereafter. Similarly, under Section IV.C, any customer
information provided to AT&T by a McCaw Cellular System must be
provided to other interexchange carriers at the same time and under the
same terms. A McCaw Cellular System may not provide AT&T with
information about a customer's interexchange carrier or cellular or
interexchange usage unless the customer is already a customer of AT&T's
interexchange service and unless it provides the same information at
the same time to other interexchange carriers concerning their own
customers.
The post-conversion equal access requirements contained in Section
IV.D largely parallel the analogous requirements of the MFJ including
requirements that each McCaw Cellular System provide interexchange
carriers exchange access on an unbundled basis equal in type, quality
and price to that provided to AT&T.
That section also provides that if a McCaw Cellular System provides
information to AT&T to allow AT&T to bill its interexchange customers
for cellular service (subject to the restrictions of Section IV.F), it
must at the option of any other interexchange carrier provide that
carrier with sufficient information about the usage and charges for
cellular service to allow it to make commercially reasonable
arrangements to bill its interexchange customers for cellular service.
The last sentence of Section IV.D.1 does not impose any additional
obligation on AT&T or McCaw to bill for other interexchange carriers,
but does require them to provide competing carriers with sufficient
information so that they can make commercially reasonable arrangements
to perform billing themselves or have billing done by third parties.
The basis for this requirement is the concern that AT&T's
acquisition of McCaw could put it in the position of being the only
interexchange carrier with the ability to offer prospective customers
of wireless interexchange service the option of receiving a single bill
for both cellular and interexchange services. Given AT&T's already
dominant position in this segment of the interexchange market, this
added advantage could be sufficient to further increase AT&T's ability
to increase prices or exclude interexchange competitors by virtue of
its control of a cellular duopolist. The language used in Section
IV.D.1 was adopted in preference to a simple nondiscrimination
requirement out of a concern that, given its position as a possibly
major provider of billing services to McCaw, arrangements that could be
workable for AT&T could be totally uneconomic for other interexchange
carriers. Thus, it might not be practical for smaller interexchange
carriers to perform all of the rating and processing of local cellular
calls if they only provide interexchange service to a relatively small
number of McCaw customers. The chosen language was intended to assure
that sufficiently refined billing information was provided to such
interexchange carriers that they could readily incorporate it with
their interexchange bills with a minimum of additional processing and
programming required.
Section IV.F. permits AT&T to act as McCaw's agent in marketing
local cellular services and in jointly marketing local cellular,
interexchange and other services on specified conditions. These
conditions, which basically track those the United States has
recommended for the Bell Companies if they should be permitted to
provide wireless interexchange service, are first, if AT&T engages in
marketing local cellular service for McCaw, it must advise actual or
prospective subscribers of their right to resubscribe to the
interexchange carrier of their choice; second, AT&T must state the
price, terms and rate plans for local cellular and interexchange
service separately, meaning that it cannot sell bundled offerings of
local cellular and interexchange service; and third, AT&T is enjoined
from selling interexchange service at a price, term or discount that
depends on whether the customer obtains local cellular service from
McCaw, and McCaw and McCaw Cellular Systems are enjoined from selling
local cellular service at a price, term or discount that depends on
whether the customer obtains interexchange service from AT&T.
Notwithstanding the foregoing provisions, AT&T may, without
separately stating the charges for interexchange service and
terminating local cellular service, offer a ``calling party pays''
service for calls made to a cellular telephone. Ordinarily, the
cellular subscriber receiving the calls pays for the cellular airtime.
Section IV.E.2 would permit AT&T to charge a single price for the
interexchange portion of such a call and the terminating airtime (paid
by the caller, not the called party), under the following conditions:
First, AT&T must obtain the underlying local cellular service used to
terminate the call at a generally available rate which, to prevent
against artificially high transfer prices,is no higher than the rate
offered to resellers of local cellular service; and second, this rate
must be disclosed to other interexchange carriers and be described in
the Equal Access plan to be filed for approval by the United States.
These conditions will allow a potentially useful new service to be
provided while assuring that AT&T's competitors will have a fair
opportunity to compete with AT&T in providing this service.
Section IV.G provides that if the United States certifies, upon a
showing by AT&T, that there is insufficient demand by interexchange
carriers for access to McCaw Cellular systems within any Local Cellular
Service Area, McCaw Cellular Systems may provide new services in which
access is provided to interexchange carriers at centralized points.
Section IV.H permits McCaw to hand off cellular digital packet data
transmissions (as specified in Section II.F) to interexchange carriers
at centralized points. The United States understands that the transport
cost for packetized data, especially that using the Internet Protocol,
is small in comparison to other elements of the service, and, thus,
this service could be economically justified more easily (in more
locations) if providers did not need to implement switching or routing
points in each local Cellular Service Area. In addition, since
transport across the Internet does not involve distance-sensitive
charges, it will not make any difference to users where their messages
are transfered onto the Internet. Finally, the Internet protocol does
not have any position for indicating a customer's choice of access
provider and thus it would make use of the CDPD service less convenient
and probably more expensive for such users if they were required to
include addressing for separate access providers in addition to the
customary Internet address normally employed by such users.
Cellular systems in which McCaw has voting interest of fifty
percent or less and does not have the right, power or ability to
control are defined in Section II.U as ``McCaw Minority Owned Cellular
Systems.'' These systems are not subject to most of the equal access
requirements of Section IV of the proposed Final Judgment, but are
subject to the non-bundling requirements of Section IV.F.\7\ Section
IV.E provides that if AT&T or McCaw obtains control of a cellular
system after entry of the proposed Final Judgment, it will be converted
to equal access within one year (or within 21 months after the
commencement of this action, whichever is later).
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\7\Some of the cellular systems in which McCaw has an interest
are deemed ``Bell Companies'' under the MFJ and are subject to the
MFJ's equal access requirements. The United States has proposed an
order to the MFJ Court that would impose certain requirements in
order to protect the provision of equal access by those systems.
Whether these systems are also McCaw Cellular Systems, or are McCaw
Minority Owned Cellular Systems, depends on whether McCaw (as well
as the Bell Company) controls the system.
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The equal access obligations imposed by the proposed Final Judgment
apply to interexchange services, i.e., services that extend beyond the
boundaries of a Local Cellular Service Area. Section II.Q of the
judgment defines those areas as the areas in which the Bell Companies
are permitted under the MFJ, including any orders entered under it or
any legislation that supersedes or modifies it, to provide cellular
exchange service without an equal access obligation. The majority of
McCaw Cellular Systems are configured to provide cellular exchange
services in areas that would be permissible for the Bell Companies
under the MFJ and waiver orders entered under it. There are, however,
19 McCaw Cellular Systems whose local service areas extend beyond the
bounds that would be permitted for a Bell Company. Section II.Q allows
``grandfathered'' exceptions to the general definition of Local
Cellular Service Areas for those systems. As the stipulation expressly
notes, by permitting these exceptions, the United States has not
concluded that these areas are appropriate local calling areas for
cellular service, but agreed to these exceptions for the present time,
subject to further order of the Court, for the following reasons.
In some cases, McCaw has a single switch (or several interconnected
switches) located in one LATA but connected to some cell sites located
outside the LATA. In many of these cases, either no Bell Company is
licensed to serve the area in competition with McCaw, or a Bell Company
is licensed to serve only part of the area and thus could not feasibly
offer service throughout the same area even apart from MFJ constraints.
The FCC currently has under way a proceeding considering whether to
impose equal access requirements on all cellular or commercial mobile
radio service providers, in which the appropriate scope of local
calling areas is an issue. In light of these developments, the United
States determined not to require McCaw to reconfigure its existing
systems until other proceedings addressing the appropriate scope of
local cellular calling areas are concluded. If those proceedings result
in determinations that are inconsistent with the exceptions in Section
II.Q, or if it otherwise appears that any exceptions are not justified,
the United States has reserved the right to seek orders from the Court
eliminating any such exceptions. In such a proceeding, AT&T might
contend that such exceptions are consistent with prior practice under
the MFJ or are otherwise appropriate.
B. Manufacturing
The proposed Final Judgment addresses competitive concerns arising
from the fact that the merger will place AT&T, through McCaw, in
competition with its other wireless infrastructure equipment\8\
customers who rely on AT&T equipment and are locked in to AT&T. Section
V of the proposed Final Judgment contains several provisions designed
to restrict AT&T's ability and incentive to use its position as
equipment supplier to McCaw's wireless competitors to disadvantage
those customers/competitors vis-a-vis McCaw.\9\
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\8\Because AT&T is not only a leading supplier of cellular
infrastructure equipment, but is also developing and selling
infrastructure equipment for other wireless services that are being
developed and that may compete with cellular service in the future,
many of the provisions of Section V apply to ``wireless services''
and the infrastructure equipment used to provide those services.
``Wireless Service'' is defined in Section II.AF to include not just
cellular service, but those telecommunications services that use
radio transmission between the customer and the network, including
cellular, land mobile radio, commercial mobile radio, specialized
mobile radio, personal communications services, and any other mobile
radio services that have been or might be authorized by the FCC or
offered using radio transmission between the customer and the
network.
\9\The duties of Section V apply only so long as McCaw is
affiliated with an AT&T business unit that manufactures cellular or
other wireless infrastructure equipment, as will occur once the
merger is consummated. If AT&T, at a point prior to expiration of
the decree, were to divest control of either McCaw or its wireless
infrastructure equipment manufacturing business, the provisions of
Section V would no longer be in effect, except for any buy-back
liability under Section V.E accruing as a result of decree
violations during the period of affiliation.
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1. Misuse of Nonpublic Information
Section V.A seeks to prevent the potential for harm to competition
that might arise as a result of (1) AT&T gaining access to nonpublic
information of a competitor that is a supplier to McCaw or (2) McCaw
gaining access to nonpublic information of a competitor that is a
customer of AT&T. The details of procedures adopted by AT&T and McCaw
to implement the provisions of Section V.A will be set forth in
Nonpublic Information and Structural Separation implementation plans to
be filed for approval by the United States pursuant to Section VII.A.
of the judgment.
As one safeguard against improper disclosure of confidential
information, Section V.A.4.a requires AT&T to establish separate
Marketing Account Teams to serve (1) McCaw and other AT&T affiliates
and (2) unaffiliated wireless infrastructure equipment customers. These
Marketing Account Teams, as specified in Section II.R, will be
responsible for selling and related services in connection with selling
telecommunications equipment, including customer relationship
management, sales, pricing, presentation of bids, basic technical and
engineering advice, order processing and management, and project
management. The United States understands that most of the interaction
the AT&T Network Wireless Infrastructure Equipment Unit will have with
customers will be by the Marketing Account Teams. The responsibilities
of Marketing Account Teams will be specified in the Structural
Separation implementation plan. In order to assure effective
separation, that plan will provide procedures to prevent the disclosure
of nonpublic information in the event that members of Marketing Account
Teams serving Unaffiliated Wireless Infrastructure Equipment Customers
(defined in Section II.AC as customers that are neither affiliates of
AT&T or McCaw nor McCaw Minority Owned Cellular Systems) are assigned
to any AT&T or McCaw business that either provides telecommunications
equipment to AT&T, McCaw or a McCaw Minority Owned Cellular System, or
that provides or plans for any AT&T or McCaw wireless service.
Section V.A.4.b takes steps to assure that nonpublic information of
Unaffiliated Wireless Infrastructure equipment customers is not misused
by AT&T as a result of any proprietary development work it performs for
equipment customers. Section II.Y defines Proprietary Development as
the development of products, features or functions for cellular
infrastructure equipment that is not intended to be made available to
more than one customer or its affiliates. Section V.A.4.b contemplates
the formation of Development Teams to conduct Proprietary Development,
and requires AT&T develop procedures to prevent the disclosure of
nonpublic information in the event that members of Development Teams
that do such Proprietary Development for unaffiliated customers perform
Proprietary Development for McCaw or for any AT&T telecommunications
service. The principal goal of this provision is to assure that AT&T
Development Teams that obtain nonpublic information about the business,
plans or technology of an unaffiliated equipment customer in the course
of performing Proprietary Development work for that customer do not use
that information to the benefit of the telecommunications businesses of
AT&T or McCaw.
The provisions of Section V.A are intended to prevent the
inappropriate disclosure and use of Nonpublic Information obtained by
AT&T or McCaw from unaffiliated equipment customers or suppliers.
Section II.X contains a definition of Nonpublic Information. That
definition identifies or includes various categories of information
which, if inappropriately disclosed or used, could cause competitive
harm. The most sensitive categories of such information are specified
in Section II.X.2(a). Information enumerated in that subsection may not
be disclosed even with the consent of the supplier of the
information.\10\ An unaffiliated customer or supplier may designate in
writing as proprietary other documentary information (or, in the case
of oral, visual or other information, contemporaneously with the
disclosure), and such information will be treated as Nonpublic
Information. Information that was provided to AT&T or McCaw prior to
entry of the proposed Final Judgment may be designated as such by the
supplier of the information within 180 days after entry of the
judgment, in which case it will be subject to the same protections as
other Nonpublic Information. The definition of Nonpublic Information in
Section II.X excludes various categories of information obtained by
AT&T by means other than a breach of duty to its customers, as well as
information that is over six years old. In addition, an unaffiliated
customer or supplier may waive any or all of the protections against
the disclosure of Nonpublic Information, except for the categories
specified in Section II.X.2(a). This exception is intended to guard
against the use of such information for coordination among competitors.
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\10\This includes information containing costs, profits, or
profit margins; plans for development of new products, services or
technologies; customer names; pricing policies, prices, price
schedules, or terms; number of subscribers, sales, churn rates, or
other output measures; capacity measures; features and capabilities;
technology plans or status of implementation; marketing plans; costs
of or prices paid for infrastructure equipment or other inputs
including price credits, or adjustments for a cellular carrier's
used equipment; plans for expansion; amounts of capital investment;
or quantities and types of equipment used by a wireless carrier or
sold by a wireless infrastructure equipment supplier.
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Section V.A.1.a provides that AT&T shall not allow Nonpublic
Information of its Unaffiliated Wireless Infrastructure Equipment
Customers to be disclosed for any reason to (i) McCaw or any of its
directors, officers or employees; (ii) any McCaw Minority Owned
Wireless System (except for information relating specifically to such a
system); (iii) any person engaged in marketing any McCaw service or any
AT&T telecommunications service; (iv) any person employed by a
Marketing Account Team responsible for marketing to AT&T, McCaw or a
McCaw Minority Owned Cellular System; or (v) any person performing
Proprietary Development for AT&T, McCaw or McCaw Minority Owned
Cellular Systems. Likewise, AT&T is barred by Section V.A.1.b from
disclosing any Nonpublic Information relating to the provision of any
wireless service by McCaw or AT&T that it obtains by reason of being an
equipment supplier to McCaw to any unaffiliated equipment customer.
Under Section V.A.1.c, if certain senior officers of AT&T obtain any
such Nonpublic Information, they may not disclose it to other persons
identified in Section V.A.1.a.
McCaw is similarly enjoined by Section V.A.2 from allowing
Nonpublic Information it obtains from its unaffiliated equipment
suppliers to be disclosed for any reason to any person involved in the
design, development, fabrication or marketing of AT&T's
telecommunications equipment. Likewise, McCaw is enjoined from allowing
Nonpublic Information of any unaffiliated interexchange carrier to be
disclosed to persons involved in the design, development, fabrication
or marketing of any AT&T telecommunications product or service, and
access to such Nonpublic Information shall be limited to authorized
persons within McCaw and within AT&T's Network Wireless Infrastructure
Unit having a need to know such information.
2. Ongoing Support for Locked-In Customers
Section V.B of the proposed final judgment contains provisions
designed to prevent AT&T from raising the costs of McCaw's competitors
in connection with the provision of such products and services. Since
locked-in equipment customers are dependent on AT&T for a variety of
critical ongoing support functions and products, Section V.B.1 requires
AT&T to provide its unaffiliated cellular infrastructure equipment
customers with the following products and services, in accordance with
the same pricing and business practices that prevailed prior to August
1, 1993: (a) Technical support and maintenance; (b) installation,
engineering, repair and maintenance services; (c) additional switching
and cell site equipment to be deployed in that system; (d) upgrades and
other AT&T cellular infrastructure equipment developed for use with
these systems; and (e) spare, repair or replacement parts.
This provision is intended to assure that AT&T will deal with its
unaffiliated equipment customers in the same manner as it did prior to
announcement of the proposed merger with McCaw,\11\ and that such
customers will continue to obtain the products and services they need
to provide cellular service, including software upgrades and switching
and cell site equipment needed to expand the capacity of their systems.
AT&T also may not discriminate in favor of McCaw Cellular Systems or
McCaw Minority Owned Cellular Systems in the way in which such products
or services are made available to cellular systems, and the terms on
which such products or services are provided shall not vary depending
on whether the system to which they will be provided competes with
McCaw or a McCaw Minority Owned Cellular System.
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\11\August 1, 1993, shortly before the announcement of the
merger, was chosen as the benchmark for this comparison to allay
concerns that AT&T may have changed some of its pricing practices
vis-a-vis McCaw competitors after the merger was announced.
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Finally, if AT&T discontinues the offering of any cellular
infrastructure equipment service, part or product, it shall either
arrange an alternative source of supply for the product or, if
unsuccessful, provide any affected cellular carrier with the licenses
to use (and rights to sublicense) whatever technical information is
necessary to provide such services, parts or products (to the extent
AT&T is able to do so), so that the carrier can obtain the service,
part or product from another source. Such licenses shall be granted on
reasonable and nondiscriminatory terms.
3. Development of New Features and Functions
Section V.C contains provisions designed to prevent AT&T from
disadvantaging its locked-in customers that compete with McCaw with
respect to development of new features and functions, including
Proprietary Development (defined in Section II.Y). Under Section V.C.1,
whenever AT&T engages in development of new features or functions for
use with AT&T equipped cellular systems that, if successful, will be
made available to two or more cellular carriers that are not affiliated
with each other (i.e., developments that are not intended for a single
customer), AT&T shall disclose such enhancements to unaffiliated
carriers at the same time it discloses them to McCaw or McCaw Minority
Owned Cellular Systems, and shall make them available to unaffiliated
customers at the same time it makes them available to McCaw or any
McCaw Minority Owned Cellular System. This section is triggered only by
development of features pertaining to systems installed or contracted
for prior to the date of entry of the judgment, as it is specifically
intended to address a concern relating to existing locked-in customers.
The remainder of Section V.C addresses AT&T's obligations in the
event it performs development work specifically for McCaw, a McCaw
Cellular System or a McCaw Minority Owned Cellular System. AT&T has
advised the United States that, at present, AT&T occasionally develops
features or functions that are applicable only to a particular cellular
carrier or system because of its adjunct hardware or software or its
specific operations or network. If AT&T engages in such development for
McCaw, a McCaw Cellular System or a McCaw Minority Owned Cellular
System, AT&T must afford unaffiliated customers substantially the same
opportunity to contract for such development work on substantially the
same compensatory basis. If AT&T performs other Proprietary Development
for McCaw, a McCaw Cellular System or a McCaw Minority Owned Cellular
System, it will be required upon reasonable request to perform
Proprietary Development for unaffiliated customers under reasonable
terms and conditions that are not less favorable to the unaffiliated
customer than those provided to McCaw, McCaw Cellular Systems or McCaw
Minority Owned Cellular Systems. Under Section V.C.3, if AT&T performs
Proprietary Development for McCaw (or McCaw Minority Owned Cellular
Systems) it must honor any reasonable request by an unaffiliated
carrier to perform such development for it, but AT&T is entitled to
reasonable compensation and other terms so long as those terms are not
less favorable than the terms offered to McCaw or McCaw Minority Owned
Cellular Systems.
4. Redeployment of AT&T Equipment
In order to further reduce AT&T's ability to exploit its locked-in
equipment customers that compete with McCaw, Section V.D contains
provisions that should make it easier for customers that desire to
replace AT&T equipment to do so. In the event that a customer has
deployed or contracted to deploy an AT&T equipped cellular system prior
to the entry of the judgment, and the customer wishes to redeploy the
AT&T equipment (e.g., to facilitate its replacement) or to replace or
supplement it with another manufacturer's equipment in whole or in
part, AT&T is required to provide reasonably necessary technical
assistance and cooperation to allow the customer to accomplish such
replacement or redeployment and to permit interoperation of the AT&T
equipment with the new manufacturer's equipment in that area or an
adjacent area (as in an overlay or core swap-out). AT&T is permitted to
receive reasonable compensation for providing such assistance, and is
not required to provide its equipment competitors with proprietary
information that is not necessary to allow the interoperation of their
equipment with AT&T's.
In addition, to give AT&T cellular infrastructure equipment
customers greater freedom to redeploy AT&T equipment to a new location
or sell it, and to make it easier for customers wishing to do so to
change equipment suppliers, Section V.D.2 requires AT&T to waive
contractual requirements that it receive prior notice of or consent to
redeployment. It also provides that, in the event of redeployment or
sale, the original warranty, license and other contractual rights will
survive and pass to the transferee, as will AT&T's obligations under
Sections V.A, V.B, V.C and V.D of the judgment. AT&T's buy-back
obligations under Section V.E will not, however, pass to a new
purchaser of the equipment, inasmuch as that remedy is especially
designed to guard against raising the costs of the locked-in equipment
customers that compete with McCaw.
5. Buy-Back
The detailed requirements of Sections V.A through V.D of the
proposed Final Judgment are intended to mitigate the effects of lock-in
insofar as they make it possible for AT&T to raise the costs of McCaw's
rivals, and otherwise adversely affect competition in cellular or
wireless service or infrastructure equipment markets. To provide
additional assurance that AT&T will abide by these requirements,
Section V.E provides that AT&T may be required to buy back the cellular
infrastructure equipment it has sold to an unaffiliated customer that
competes with McCaw if it violates any of its duties under Sections V.A
through V.D.
The buy-back obligation will be triggered if the United States
determines that AT&T has violated any of its duties under Sections V.A.
through V.D to an unaffiliated cellular carrier in any area(a) where
that carrier competes with McCaw or a McCaw Minority Owned Cellular
System and (b) where the unaffiliated cellular carrier has deployed or
contract to deploy an AT&T equipped cellular system prior to entry of
the judgment. Thus, if a carrier currently uses AT&T equipment in a
market where it competes with McCaw, and AT&T were to fail to provide
software upgrades to that carrier's system in that market in violation
of Section V.B, the buy-back obligation of Section V.E might be
triggered. If, however, AT&T failed to provide software upgrades to
that carrier's system in a market in which that carrier did not compete
with McCaw or a McCaw Minority Owned Cellular System, the buy-back
obligation would not be triggered.
If AT&T is required by the United States to buy equipment back from
an unaffiliated customer, the price shall be the original purchase
price of the equipment purchased or contract for by the carrier for use
in that system prior to entry of the judgment, less depreciation as
calculated on a straight-line basis over a period of ten years for
switches and eight years for all other hardware. These periods were
selected as generally consistent with what the United States understood
to be the useful lives of such equipment. AT&T shall also refund the
proportionate share of all monies paid for unused portions of software
licenses, and shall release the customer from future obligations
relating to cellular infrastructure equipment deployed in that system.
In order to assure that buy-back is meaningfully available to
customers in a reasonably timely manner, Section V.D gives the United
States the sole and unreviewable discretion to determine whether that
AT&T has violated any of its duties under Sections V.A through V.D of
the judgment. An expeditious determination of whether buy-back has been
triggered is necessary if the locked-in customer is to decide whether
to replace a system, and subjecting that determination to litigation
delays would make the buy-back remedy ineffectual. AT&T has irrevocably
waived any right to appeal, contest or otherwise challenge the
determination of the United States. It is not intended that this
section create any private rights on behalf of any AT&T customer, nor
that any such customer have any right to appeal, contest or otherwise
challenge any determination by the United States pursuant to Section
V.E, inasmuch as the purpose of the section is to aid in the
enforcement of ad secure compliance with Sections V.A through V.D of
the judgment. It is the intention of Section V.E that buy-back be a
remedy to ensure compliance with the proposed Final Judgment, and that
in determining whether to impose the requirement the United States will
consider the seriousness of the violation, its effect on competition,
whether it is part of a pattern of noncompliance, and any other
relevant factors.
Section V.E also permits the United States, in its sole discretion,
to appoint an independent fact-finder to conduct the investigation or
factual determination of any issue raised in connection with any
alleged violation, reserving to the United States the right to make a
final determination. In the event of such an appointment, the losing
party (i.e., the customer or AT&T) shall pay all costs and fees of the
fact-finder. The United States will not undertake proceedings to
determine whether buy-back should be required except on the application
of and with the consent of the affected customer, including consent to
the payment of costs and fees.
C. Other Provisions
1. Separation Provisions
To help give effect to the equal access and manufacturing
provisions of the proposed Final Judgment, Section III requires that,
so long as the judgment is in effect, McCaw and McCaw affiliates that
are involved in the operation of wireless systems and the provisions of
local wireless services shall be maintained as corporations or
partnerships separate from AT&T as specified in that section and in the
Structural Separation plan to be filed for approval by the United
States pursuant to Section VII.A. Section III requires that McCaw and
McCaw affiliates shall be maintained as corporations and partnerships
with separate officers and personnel and separate books, financial or
operating records; retain all wireless service licenses and title and
control of the wireless infrastructure equipment used by its systems;
and retain responsibility for the operation of their wireless services,
and may not delegate substantial responsibility for such business
activities to AT&T, provided that AT&T may act as McCaw's agent to the
extent authorized in Section IV.F and may provide general corporate
overhead and administrative services to McCaw and its affiliates.
In order to facilitate the monitoring of AT&T's compliance with
equal access and the manufacturing provisions of Section V of the
proposed Final Judgment, Section III.D requires that any interexchange
services, wireless infrastructure equipment and related engineering
services or services related to the marketing of wireless services AT&T
provides to McCaw or its affiliates be provided only pursuant to
detailed filed tariffs or written contracts.
Finally, as discussed above, Section III.E limits the use by McCaw
and McCaw Minority Owned Cellular Systems of AT&T trademarks and trade
names prior to and during the conversion of McCaw Cellular Systems to
equal access.
2. Compliance Plans
Section VII.A obliges AT&T, not less than 90 days after entry of
the judgment, to file plans for implementation of the judgment's terms
with the United States. This framework is drawn from similar procedures
established in the MFJ for the implementation of equal access and other
nondiscrimination obligations imposed on the Bell Companies, although
in this proposed Final Judgment the Department of Justice has the
authority to disapprove plans, and such disapproval would have
significant consequences. In particular, AT&T must file a Structural
Separation implementation plan describing its implementation of
Sections III and V.A.4; an Equal Access implementation plan for each
McCaw Cellular System, describing its implementation of Section IV; and
a Nonpublic Information implementation plan, describing its
implementation of Section V.A. AT&T must supplement the plans as
necessary to describe the implementation of equal access in
subsequently acquired cellular systems and to describe significant
changes in the plans. The plans shall be effective 90 days after filing
with the United States, unless disapproved by the United States by
written notice to AT&T that identifies the manner in which the plan is
insufficient. The Department may in its discretion approve a plan in
fewer than 90 days.
The requirement to file plans to implement the detailed
injunctions, and to obtain the approval of the United States for such
plans is intended to give AT&T, McCaw and the United States flexibility
to adopt procedures that best accomplish the purposes of the judgment,
so long as those procedures conform to the language of the judgment,
and will permit the United States to assure that AT&T complies with its
obligations under the judgment. In the absence of an effective
Structural Separation plan, AT&T must comply with Section III without
modification and may not perform Proprietary Development for McCaw. In
the absence of an effective Equal Access Plan, AT&T may not provide
interexchange services to customers of McCaw Cellular Systems, except
under arrangements existing prior to the merger. In the absence of an
effective Nonpublic Information plan, AT&T would be enjoined from
selling cellular infrastructure equipment to any McCaw Cellular Systems
or McCaw Minority Owned Cellular Systems that were not equipped with
AT&T equipment prior to the commencement of this action.
3. Modification
The duration of the proposed Final Judgment is ten years. Because
it is possible that during that period there could be major changes
affecting competition in wireless telecommunications that could be
material to the matters addressed in this judgment, Section X provides
certain grounds for modification in addition to the standards provided
by the common law applicable to the modification of government
antitrust consent decrees.
First, the equal access provisions of the judgment are modeled on
those that the United States has recommended be imposed on the Bell
Companies if they are permitted to provide interexchange service from
their wireless systems. Accordingly, Section X.A permits AT&T or McCaw
to seek modification of the equal access provisions of Section IV of
the proposed Final Judgment if Bell Company wireless systems are
relieved in whole or in part of the comparable equal access and
nondiscrimination provisions of the MFJ as a result of legislation,
judicial orders or agency orders that vacate, modify, supersede or
interpret the provisions of the MFJ. In such an event, the provisions
of Section IV of the judgment shall be modified or vacated to provide
the same relief to AT&T or McCaw upon their showing that competitive
conditions do not require a different obligation for AT&T and McCaw and
the modification is equitable and in the public interest.
Section X.B provides that changes in wireless telecommunications
markets that could be foreseen at this time shall not be a bar to
modification. Specifically, if AT&T or McCaw show that other wireless
telecommunications services have developed as effective competitive
alternatives to today's cellular services, or that there have been
other changes or developments affecting a relevant market, a showing
that intervening changes have made retention of a provision of the
judgment inequitable shall be sufficient to justify a modification,
irrespective of whether those changes were foreseen or foreseeable when
the judgment was entered.
Finally, to assure that the procedures, practices and obligations
of the proposed Final Judgment are implemented without delay or
distraction, AT&T and McCaw have stipulated that they will not move for
any modification of the judgment, except with the consent of the United
States, for eighteen months following the commencement of the action.
The United States will not unreasonably without its consent to
modifications, and will consent to motions seeking reasonable
modifications that are justified by competitive conditions and are
consistent with the purposes of the judgment and the public interest.
IV
Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as the result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorney's fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust action under
the Clayton Act. Under the provisions of Section 5(a) of the Clayton
Act, 15 U.S.C. 16(a), the proposed Final Judgment has no prima facie
effect in any private lawsuit that may be brought against the
defendants.
V
Procedures Available For Modification Of The Proposed Final Judgment
As provided by the APPA, any person believing that the proposed
Final Judgment should be modified may submit written comments within
the sixty (60) day period from the date of publication in the Federal
Register to Richard Liebeskind, Assistant Chief, Communications and
Finance Section, Antitrust Division, U.S. Department of Justice, 555
Fourth Street, NW., Room 8104, Washington, DC 20001. These comments,
and the Department's responses, will be filed with the Court and
published in the Federal Register. All comments will be given due
consideration by the Department of Justice, which remains free to
withdraw its consent at any time prior to final entry. The proposed
Final Judgment provides that the Court retains jurisdiction over these
actions, and any party may apply to the Court for any order necessary
or appropriate for their modification, interpretation or enforcement.
VI
Alternatives To The Proposed Final Judgment
As an alternative to the proposed Final Judgment, the United States
considered litigation to seek an injunction to prevent the proposed
merger between AT&T and McCaw. The United States rejected that
alternative because the relief in the proposed Final Judgment should
prevent the possible occurrence of conduct the effect of which may be
substantially to lessen competition in the relevant geographic markets
for cellular service, wireless infrastructure equipment and
interexchange service to cellular customers. The equal access
provisions imposed by the proposed Final Judgment will open McCaw's
cellular systems to competition among interexchange carriers. Because
the United States believes that the proposed Final Judgment adequately
protects against possible anticompetitive effects that might flow from
the proposed merger, seeking to enjoin the merger could only serve to
prevent the achievement of economic efficiencies and other potential
procompetitive effects that might result from the merger of AT&T and
McCaw.
VII
Standard For Review Under The Tunney Act For Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States are subject to a sixty-day comment
period, after which the court shall determine whether entry of the
proposed final judgment ``is in the public interest.'' In making that
determination, the court may consider--
(1) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) The impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of the
public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. 16(e) (emphasis added). The courts have recognized that the
term ``public interest'' ``take[s] meaning from the purposes of the
regulatory legislation.'' NAACP v. Federal Power Comm'n, 425 U.S. 662,
669 (1976). Since the purpose of the antitrust laws is to ``preserv[e]
free and unfettered competition as the rule of trade,'' Northern
Pacific Railway Co. v. United States, 356 U.S. 1, 4 (1958), the focus
of the ``public interest'' inquiry under the Tunney Act is whether the
proposed final judgment would serve the public interest in free and
unfettered competition. United States v. American Cyanamid Co., 719
F.2d 558, 565 (2d Cir. 1983), cert. denied, 465 U.S. 1101 (1984);
United States v. Waste Management, Inc., 1985-2 Trade Cas. 66,651, at
63,046 (D.D.C. 1985). In conducting this inquiry, ``the Court is
nowhere compelled to go to trial or to engage in extended proceedings
which might have the effect of vitiating the benefits of prompt and
less costly settlement through the consent decree process.''\12\
Rather,
\12\119 Cong. Rec. 24598 (1973). See United States v. Gillette
Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest''
determination can be made properly on the basis of the Competitive
Impact Statement and Response to Comments filed pursuant to the
APPA. Although the APPA authorizes the use of additional procedures,
15 U.S.C. 16(f), those procedures are discretionary. A court need
not invoke any of them unless it believes that the comments have
raised significant issues and that further proceedings would aid the
court in resolving those issues. See H.R. Rep. 93-1463, 93rd Cong.
2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & Ad. News 6535,
6538.
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Absent a showing of corrupt failure of the government to
discharge its duty, the Court, in making the public interest
finding, should * * * carefully consider the explanations of the
government in the competitive impact statement and its responses to
comments in order to determine whether those explanations are
reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. 61,508,
at 71,980 (W.D. Mo. 1977).
It is also unnecessary for the district court to ``engage in an
unrestricted evaluation of what relief would best serve the public.''
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) quoting
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir.), cert.
denied, 454 U.S. 1083 (1981). Precedent requires that
The balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.\13\
---------------------------------------------------------------------------
\13\United States v. Bechtel, 648 F.2d at 666 (citations
omitted); see United States v. BNS, Inc., 858 F.2d at 463; United
States v. National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D.
Cal. 1978); United States v. Gillette Co., 406 F. Supp. at 716. See
also United States v. American Cyanamid Co., 719 F.2d at 565.
A proposed consent decree is an agreement between the parties which
is reached after exhaustive negotiations and discussions. Parties do
not hastily and thoughtlessly stipulate to a decree because, in doing
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so, they
Waive their right to litigate the issues involved in the case
and thus save themselves the time, expense, and inevitable risk of
litigation. Naturally, the agreement reached normally embodies a
compromise; in exchange for the saving of cost and the elimination
of risk, the parties each give up something they might have won had
they proceeded with the litigation.
United States v. Armour & Co., 402 U.S. 673, 681 (1971).
The proposed consent decree, therefore, should not be reviewed
under a standard of whether it is certain to eliminate every
anticompetitive effect of a particular practice or whether it mandates
certainty of free competition in the future. Court approval of a final
judgment requires a standard more flexible and less strict than the
standard required for a finding of liability. ``[A] proposed decree
must be approved even if it falls short of the remedy the court would
impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of public interest.' (citations
omitted).''\14\
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\14\United States v. American Tel. and Tel. Co., 552 F. Supp.
131, 150 (D.D.C.), aff'd sub nom. Maryland v. United States, 460
U.S. 1001 (1982) quoting United States v. Gillette Co., supra, 406
F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F. Supp.
619, 622 (W.D. Ky 1985).
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VIII
Determinative Documents
Although it was not determinative in the Department's deliberations
in the sense specified in Section 2(b) of the APPA, 15 U.S.C. 16(b),
the United States is attaching as Exhibit B a June 14, 1994 letter from
Richard L. Rosen to Michael K. Kellogg, which concerns the equal access
provisions recommended by the United States as a condition of Bell
Company entry into wireless interexchange service.
Dated: August 5, 1994.
Anne K. Bingaman,
Assistant Attorney General,
Steven C. Sunshine,
Deputy Assistant Attorney General,
Constance K. Robinson,
Director, Office of Operations,
Antitrust Division,
U.S. Department of Justice, Washington, DC 20530.
Richard L. Rosen,
Chief,
Richard L. Liebeskind,
Assistant Chief,
Luin P. Fitch, Jr., Jonathan E. Lee, Deborah R. Maisel, Brent E.
Marshall, Patrick J. Pascarella, Don Allen Resnikoff, N. Scott
Sacks, Kathleen M. Soltero, Robert J. Zastrow, Attorneys,
Communications and Finance Section, Antitrust Division, 555 Fourth
Street, NW., Washington, DC 20001 (202) 514-5621,
Attorneys for the United States.
United States of America, Plaintiff, v. Western Electric Company, Inc.
and American Telephone and Telegraph Company, Defendants. Civil Action
No. 82-0192 HHG.
Memorandum of the United States in Response to the Bell Companies'
Motions for Generic Wireless Waivers
Anne K. Bingaman,
Assistant Attorney General,
Robert E. Litan,
Deputy Assistant Attorney General, Antitrust Division, U.S. Department
of Justice, Washington, DC 20530.
Richard Liebeskind,
Jonathan M. Rich,
Assistant Chiefs,
Luin P. Fitch, Jr.,
Deborah R. Maisel,
Brent E. Marshall,
Don Allen Resnikoff,
N. Scott Sacks,
Kathleen M. Soltero,
Attorneys,
Communications & Finance Section, Antitrust Division, U.S.
Department of Justice, 555 Fourth Street, NW., Washington, DC.
20001, (202) 514-5621, Attorneys for the United States.
TABLE OF CONTENTS
Introduction
Summary of Argument
Argument
I. THE BELLSOUTH AND SOUTHWESTERN BELL MOTIONS, SEEKING TO REMOVE
THE DECREE'S EQUAL ACCESS OBLIGATIONS AS APPLIED TO CELLULAR
EXCHANGE SERVICES, SHOULD BE DENIED
A. To Remove Equal Access, Movants Must Show at a Minimum that
the Removal of Equal Access from their Cellular Exchanges Would Not
Reduce Competition in Long Distance Services from those Exchanges.
B. As this Court Has Held Repeatedly, Cellular Exchange Service
Is ``Exchange Service'' Subject To the Decree's Equal Access
Requirements.
C. Allowing a BOC to Provide Interexchange Service from Cellular
Exchanges, Without Equal Access, Would Reduce Competition for
Cellular Interexchange Service.
1. Cellular Exchange Service Markets are Not Competitive Today.
2. Given the BOCs' Market Power in Cellular Service, Eliminating
Equal Access Will Reduce Competition in Cellular Long Distance.
D. The Movants Have Not Demonstrated any Significant Changed
Circumstances Warranting Relief.
II. THE BOCS' RESALE OF SWITCHED INTEREXCHANGE SERVICES TO THEIR
CELLULAR SUBSCRIBERS, SUBJECT TO SUFFICIENT EQUAL ACCESS SAFEGUARDS,
SHOULD NOT RESULT IN AN ABILITY TO RAISE PRICES FOR INTEREXCHANGE
SERVICE.
A. BOC Entry as an Additional Choice, Subject to Equal Access,
Should Not Result in an Ability to Raise Prices.
B. Appropriate Safeguards are Required To Protect Against
Discrimination in Access or Presubscription by the Cellular Exchange
Operator.
1. The Department's Proposed Order Will Substantially Prevent
Discrimination in the Provision of Access
a. Basic Injunction.
b. Services from Which Interchange Service May Be Provided.
c. Entities Bound by the Waiver.
d. Equal Access Plans.
2. The Resale Restriction Will Eliminate Most Risks of
Discriminatory Interconnection.
3. Marketing and Unbundling Requirements Are Necessary To Ensure
that Presubscription Provides a Genuine Opportunity for Competing
Interexchange Carriers.
C. Appropriate Safeguards Are Also Required To Prevent Abuse of
the Landline Exchange.
D. Provisions for Incidental Relief from the Decree's Equal
Access Requirements.
III. THE COURT SHOULD DEFER CONSIDERATION OF THE BOCS' REQUEST FOR
GENERIC MODIFICATION OF CELLULAR EXCHANGE AREAS.
Conclusion
United States of America, Plaintiff, v. Western Electric Company,
Inc. and American Telephone and Telegraph Company, Defendants.
Civil Action No. 82-0192 HHG.
Memorandum Of The United States In Response To The Bell Companies
Motions For Generic Wireless Waivers
Introduction
The United States submits this memorandum in response to three
motions by the Bell Companies for generic wireless relief:
1. The United States would support, if modified, that portion of
the motion, dated June 20, 1994, of the Bell Companies for a waiver of
the interexchange line of business restriction of Section II(D)(1) of
the Decree\1\ in connection with their ``cellular and other wireless
services'' (the ``BOCs' Motion''),\2\ which seeks the authority to
provide interexchange services between cellular exchanges subject to
equal access. A proposed order is attached to this memorandum.
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\1\Modification of Final Judgment, United States v. American
Telephone & Tel. Co., 552 F. Supp. 131 (D.D.C. 1982) (``Decree
Opinion''), aff'd sub nom. Maryland v. United States, 460 U.S. 1001
(1983).
\2\The record before the Department on the Bell Companies'
motion was submitted to the Court with the Bell Companies' June 20,
1994, filing. The principal ``wireless'' service here at issue is
cellular telephony, sometimes referred to by the Court, Congress or
the Federal Communications Commission as ``mobile radio,'' ``land
mobile radio'' or, most recently, as ``commercial mobile radio
service.'' 47 U.S.C. 332(d)(1), as amended. The term ``cellular,''
describing a radio telephone service in which frequency is reused by
dividing a service area into ``cells,'' also describes the
technology of services that might come to be offered by potential
newcomers to these markets (i.e., licensees of special mobile radio
(``SMR'') or personal communications services (``PCS'') spectrum).
However, for simplicity, the mobile and portable radio telephone
service today provided by two licenses in each geographic area is
referred to in this memorandum as ``cellular'' service, as
distinguished from SMR or PCS services. Other wireless services,
specifically paging and radiolocation, are discussed below at pp.
42-45.
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2. The United States opposes at this time that portion of the BOCs'
Motion that seeks to redraw the existing cellular exchange areas to
include Rand McNally's Major Trading Area (``MTA''), and adding to
those MTAs all prior geographic relief. The United States would support
the BOCs' request for certain incidental relief, if clarified, and the
attached proposed order contains those clarifications.
3. The United States opposes the motions by BellSouth, dated April
15, 1994, and Southwestern Bell, dated June 20, 1994, to remove Section
II(A)'s equal access requirement and Section II(D)(1)'s interexchange
prohibition, as applied to their wireless services.
All seven BOCs sought that broader relief--the complete removal of
the equal access requirement and the interexchange prohibition--in
their waiver request filed with the Department on December 13, 1991.
The United States opposes this relief because none of the BOCs can make
the showing required to remove or modify the decree's equal access
requirements.\3\ After extensive investigation and analysis, the
Department has determined that the removal of equal access would
substantially reduce competition in interexchange services from
cellular exchanges, but that provision of resold switched interexchange
services subject to rigorous equal access conditions would not be
likely to reduce competition, and so advised the BOCs by letter dated
June 14, 1994 (copy attached as Exh. 1; exhibits separately bound).
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\3\As the United States has advised the Court, the legal staff
of the Antitrust Division advised the BOCs in May 1993 that it would
recommend against removal of equal access, and the BOCs then chose
to pursue a waiver limited to line-of-business relief. Memorandum of
the United States in Opposition to Motion of BellSouth Corporation
for Generic Wireless Relief, pp. 4-5 (Apr. 29, 1994). Thus, there
was no request for removal of equal access from BOC cellular
exchanges pending when BellSouth or Southerwestern Bell filed their
instant motions. Nonetheless, the Department's investigation and
analysis of the BOCs' requests has given it ample basis to oppose
these motions on the merits, even though these motions are, as the
Court has recognized, procedurally improper. Order, July 8, 1994, at
4 & n.2.
---------------------------------------------------------------------------
Summary of Argument
Simply put, BellSouth and Southwestern seek to terminate their
cellular exchange subscribers' ability to obtain interexchange service
from competing interexchange carriers, and to require those subscribers
instead to obtain that service from the exchange carrier--subject only
to whatever competitive constraint is provided by the existence of a
second cellular carrier. The Department concluded that that minimal
constraint was insufficient to prevent a reduction of competition in
cellular long distance. To the contrary, the market power of each
cellular duopolist appears to be sufficient to permit supracompetitive
pricing of cellular service; allowing a cellular carrier to provide
interexchange service on an exclusive basis would permit that carrier
to charge supracompetitive pricing for interexchange services as well.
The BOCs' unconstrained ability to abuse control of the local exchange
provides additional means to impede competition in interexchange
services for cellular customers. See pp. 6-26 below.
If, however, a BOC or its affiliate were to be one of several
interexchange carriers available to be chosen by a celluar subscriber,
the presence of that additional choice does not appear likely to result
in higher prices for long distance--provided that genuine equal access
is preserved. If the arrangements under which the exchange carrier
provides access were not in fact equal, were discriminatory, or were
administered to give the BOCs' own long distance service a significant
advantage, the likely effect would be that other interexchange
competitors would be excluded unfairly from competing for that
business. As a result, absent genuine equal access, the Department is
not persuaded that BOC entry into cellular long distance from their
cellular exchanges would not reduce competition in the market they seek
to enter.
Whether genuine equal access can be preserved when a BOC is
providing access to itself and to its competitors is probably the most
difficult issue presented here.\4\ The Department believes that genuine
equal access can exist in this situation, and has attempted to define
the appropriate equal access arrangements where a Bell Company stands
on both sides of the equal access interface. The BOCs have said that
certain of these safeguards are acceptable to them, and have asked the
Department to explain others.\5\ The United States conditions its
support for the BOCs' motion on these additional safeguards because,
without them, the requested relief does not pass muster under Section
VIII(C) of the Decree. See pp. 29-40 below.
---------------------------------------------------------------------------
\4\The Court has recognized the dangers of allowing a BOC to
provide access to itself and to its competitors. E.g., United States
v. Western Elec. Co., 1986-1 Trade Cas. 66,987, at 62,061 (D.D.C.
1986) (``once a Regional Company is permitted to offer VSR services
that are accessed through its own exchange network, it will have
every incentive to design the exchange system in a manner that
disadvantages suppliers of competing VSR service'').
\5\See Memorandum of the Bell Companies in Support of their
Motion for a Modification of Section II of the Decree to Permit Them
To Provide Cellular and other Wireless Services Across LATA
Boundaries, June 20, 1994 (``BOC Mem.''), at 15-19.
---------------------------------------------------------------------------
The BOCs also request generic modification of cellular exchange
areas, purportedly along MTA lines but grandfathering all prior
cellular geography relief. The United States urges the Court to defer
considering this issue. Wholesale redrawing of the cellular exchange
map seems unwise at this time, since the FCC has recently announced
that it will be considering this exact issue in its current rulemaking
to decide whether to require that all cellular carriers grant equal
access to interexchange carriers.\6\ Had the BOCs made a compelling
showing for the relief they seek, the Court might nonetheless act on
that showing. However, the BOCs have not demonstrated that MTAs
generally or individually reflect communities for cellular telephony.
---------------------------------------------------------------------------
\6\Notice of Proposed Rulemaking and Notice of Inquiry. In re
Equal Access and Interconnection Obligations Pertaining to
Commercial Mobile Radio Services. 56-70 (F.C.C. June 9, 1994) (CC
Docket 94-54) (``FCC Equal Access NPRM'').
---------------------------------------------------------------------------
If the Commission mandates equal access, and devises a cellular
exchange area map, that map may--but probably will not--correspond with
the LATA map, as adjusted by the Court in the past. The Court will then
be faced with the question whether to modify the Decree map to conform
to the FCC map. It would make little sense for the Court to determine
whether yet a third map should be adopted, when the Commission is
likely to consider the same issue and where inconsistent results would
be especially problematic. See pp. 46-49 below.
Because the Department's analysis of the BOCs' Motion turns in
large measure on the vitality of equal access, Part I of this
Memorandum argues that BellSouth and Southwestern have failed to
demonstrate that the equal access requirement should be removed. Part
II then explains the Department's view that, subject to appropriate
equal access safeguards, BOC entry into cellular interexchange service
should not reduce competition, and then describes those safeguards.
Part III discusses the BOC's requests for geographic relief.
Argument
I. The Bellsouth and Southwestern Bell Motions, Seeking to Remove the
Decree's Equal Access Obligations as Applied to Cellular Exchange
Services, Should be Denied.
The Court has twice determined that Bell Company provision of
interexchange service from cellular exchanges without equal access
would be unacceptable. Before diverstiture, the Court concluded that
``such a development would have been entirely inconsistent with the
terms and purposes of the decree, and the Court would not have
authorized it.'' United States v. Western Elec. Co., 578 F. Supp. 643,
647 (D.D.C. 1983) (``Mobile Services Decision''). And in the Triennial
Review, the Court again rejected the BOCs' application for authority to
provide, without equal access, interexchange services from their
cellular exchanges. United States v. Western Elec. Co., 673 F. Supp.
525, 551 (D.D.C. 1987), aff'd in part and remanded in part on other
grounds, 900 F.2d 283 (D.C. Cir.), cert. denied sub nom. MCI
Communications Corp v. United States, 498 U.S. 911 (1990). BellSouth
and Southwestern again seek that relief.
The Court's Order of July 8 asks BellSouth whether, in light of the
filing of its motion to vacate the Decree in its entirety, its motion
to exempt wireless services from Section II should be deferred.
BellSouth has answered in the negative.\7\ The United States does not
agree that the Court should indulge BellSouth in its filing of multiple
overlapping motions, taxing the resources and patience of the Court.
---------------------------------------------------------------------------
\7\Response of BellSouth Corp. to the Court's Memorandum Order
of July 8, 1994 (July 14. 1994).
---------------------------------------------------------------------------
However, the United States believes that its ressponse to
BellSouth's motion, and to the similar motion of Southwestern, will
provide a useful framework for analyzing the BOCs' joint motion. In
order to understand how equal access should work in preventing
competitive harm, it is first necessary to understand why equal access
is essential to prevent that harm.
A. To Remove Equal Access, Movants Must Show at a Minimum that the
Removal of Equal Access from their Cellular Exchanges Would Not Reduce
Competition in Long Distance Services from those Exchanges.
The sought-for removal of the Decree's restrictions on cellular
exchanges requires to separate modifications, subject to two different
standards of review. The removal of the interexchange restriction
implicates the familiar standard for contested waivers under Section
VIII(C): Will ``the entering BOC will have the ability to raise prices
or reduce output in the market it seeks to enter''? Triennial Review,
900 F.2d at 296.
The removal of the equal access restriction is not governed by
Section VIII(C), which by its terms applies only to modifications of
the line-of-business restrictions of Section II(D)(1). Instead, the
motion to remove equal access is governed by Section VII and the common
law standard it incorporates. This Court recently discussed that
standard:
[A] party seeking an opposed modification of a consent decree
``bears the burden of establishing that a significant change in
circumstances warrants revision of the decree.'' Such a change may
be either a ``significant change in factual conditions or in law.''
Modification may also be appropriate when ``enforcement of the
decree without modification would be detrimental to the public
interest.''\8\
---------------------------------------------------------------------------
\8\United States v. Western Elec. Co., 154 F.R.D. 1, 7-8 (D.D.C.
1994; internal citations omitted) (``AT&T/McCaw Decsion''), quoting
Rufo v. Inmates of Suffolk County Jail, 112 S. Ct. 748, 760 (1992).
The Court determined that Rufo, rather than United States v. Swift &
Co., 286 U.S. 106 (1932), provided the correct standard for
evaluating contested modifications of consent decrees ``not without
considerable hestitation.'' 154 F.R.D. at 8. As the Court noted,
Swift, long the standard for modifying antitrust consent decrees,
presented ``a context strikingly similar to that in this case,''
unlike Rufo, which dealt not with antitrust decrees but with prison
reform litigation. ld.
Although these are alternative grounds for modificaton, this Court
correctly recognized that a contested modification should not be
granted if the modification is contrary to the public interest. AT&T/
McCaw Decision, 154 F.R.D. at 9.
Therefore, at a minimum, a modification should not be granted,
under either Section VII or Section VIII(C)--where it appears that the
result of the modification would be to reduce competition in an
affected market. On this application, it is the movants' burden to
demonstrate at a minimum that the relief they seek is unlikely to
reduce competition in interxchange markets. They plainly have failed to
make any such showing. See pp. 13-23 below.
B. As this Court Has Held Repeatedly, Cellular Exchange Service Is
``Exchange Service'' Subject To the Decree's Equal Access Requirements.
Alone among the Bell Companies, BellSouth urges the Court to
declare that the Decree's equal access and interexchange provisions
``do no apply'' to wireless services. (BellSouth Mem. 6, Apr. 15, 1994)
BellSouth has not withdrawn this argument, which the United States
rebutted in its earlier opposition to BellSouth's Motion (U.S. Mem. 6-
10, Apr. 29, 1994) BellSouth nonetheless argues that Section II should
not be interpreted to have been intended by the parties and the Court
to be limited to the landline local exchange.
As more fully set forth in our prior brief, BellSouth's argument is
frivolous. Whether or not the issue was ``fully litigated'' (BellSouth
Mem. 11) as part of a trial that addressed all aspects of the
telecommunications industry, the Decree's interpretation is settled.\9\
The Decree's terms are not themselves limited to landline
telecommunications (see Section IV.O, defining ``telecommunications''),
and that understanding was set forth in the Department's filings prior
to the Decree's entry.\10\ AT&T and regional company executives
committed prior to divestiture that cellular systems would provide
equal access.\11\ This Court has repeatedly ruled that cellular
services are subject to Section II of the Decree, e.g., Mobile Services
Opinion, 578 F. Supp. at 645; Triennial Review, 673 F. Supp. at 551;
AT&T/McCaw Decision, 154 F.R.D. at 4, and has likewise entered more
than 49 waiver orders premised on the proposition that cellular
services are subject to Section II. The Court of Appeals has likewise
proceeded on that assumption without questioning this premise. United
States v. Western Elec. Co., slip op. (D.C. Cir. Nov. 5, 1992) (No. 92-
5065) (remanding decision on PacTel's out-of-region cellular service
area request for northern Ohio).
---------------------------------------------------------------------------
\9\The Tunney Act contemplates the filing and entry of consent
decrees in cases in which no testimony has been taken, 15 U.S.C.
16(a), much less that the issues address had been ``fully
litigated.'' If BellSouth were correct, consent decrees otherwise
authorized by the Tunney Act could not be enforced.
\10\``As set out in the Department's Competitive Impact
Statement, the proposed modification would not prohibit the BOCs
from offering either cellular radio or land mobile radio. These
types of services fall within the definition of exchange
telecommunications.'' Response to Public Comments, 47 FR 23320,
23335 (May 27, 1992); accord, Mobile Services Decision, 578 F. Supp.
at 645 (``mobile radio services are `exchange telecommunications'
within the meaning of Section II(D)(3) of the Decree'').
\11\AT&T's Memorandum Replying to the Responses to the Court's
Order of April 22, 1983, at 5 & n.* (May 19, 1983); Affidavit of
Joseph T. Ambrozy (Mid-Atlantic Region), sworn to May 18, 1983, p.
9; Affidavit of Delbert S. Staley (Northeast Region), sworn to May
18, 1983, p. 15. These representations are quoted at U.S. Mem. 8,
Apr. 29, 1994. BellSouth's assertion--ignoring all these
statements--that ``the contemporaneous statements of the parties
further confirm that they did not intend to impose equal access
obligations and interLATA restrictions on wireless networks''
(BellSouth Mem. 8) is at best uninformed.
---------------------------------------------------------------------------
Southwestern Bell does not join BellSouth in arguing that Section
II does not apply to cellular services--although it comes close,
arguing that concerns about market power in cellular ``are illegitimate
under the decree.'' (Southwestern Mem. 15) Southwestern argues that
``the wireless switch is not an `essential,' `bottleneck,' or monopoly
facility.''' (Southwestern Mem. 7-11, June 20, 1994)\12\ This
argument--if it is meant to suggest that the cellular duopoly is not a
source of competitive concern because there are two cellular carriers
permitted to operate in any particular market\13\--is without merit,
whether argued as a matter of decree interpretation or as a matter of
competitive analysis.
---------------------------------------------------------------------------
\12\AT&T made the same argument in support of its effort to
acquire McCaw. Memorandum in Support of AT&T's Motion for a Waiver
of Section I(D) of the Decree insofar as it Bars the Proposed AT&T/
McCaw merger, pp. 50-57 (May 31, 1994) (``AT&T I(D) Mem.''). Before
announcing its plans to acquire McCaw, AT&T recognized that the
integration of cellular and interexchange services without equal
access ``would extend the cellular exchange duopoly--and the
apparent noncompetitive pricing of cellular `air time'--into the
provision of interexchange services to all cellular customers.''
AT&T's Opposition to RBOCs' Motion To ``Exempt'' Wireless Services
from Section II of the Decree, p. 7 (Apr. 27, 1992). Two years
later, after AT&T announced its proposed acquisition of McCaw, AT&T
offered exactly the opposite view. ``These [cellular] systems are
not monopolies that can be leveraged into long distance and
manufacturing markets.'' AT&T I(D) Mem. 52.
\13\Southwestern argued to the FCC that it would promote
competition if the cellular duopolists were awarded all of the new
PCS spectrum. ``[A] choice among service providers stimulates and
ensures competition. * * * [A] choice would exist * * * because
there are already at least two such providers in each market.''
Comments of Southwestern Bell Corp., In the Matter of Amendment of
the Commission's Rules to Establish New Personal Communications
Services, p. 12 (F.C.C. Nov. 9, 1992) (Gen. Docket No. 90-314).
Southwestern makes the same claim here. ``[N]o provider has the
ability to leverage anything at all, regardless of its incentives.
There is always a competing mobile provider down the road.''
Southwestern Mem. 12. As we show below, two providers is
insufficient for genuine competition in these markets, and
Southwestern itself observes internally that these duopolies are
``highly attractive'' because of their ``absence of significant
price competition.'' [SWB 218486]
The BOC documents quoted in this memorandum, and exhibits
derived from cellular company data cited in this memorandum, have
been submitted to the Court under separate cover. Documents produced
to the Department in its investigation are grouped by producing
party, and within those groupings by document number, and are cited
in this memorandum by party name or abbreviation and document
number. The exhibit volume has been provided to the Court. It will
be provided to any party to this proceeding that signs the non-
disclosure agreement the Department submitted to the Court today.
The Department plans to file the exhibit volume and to make it
available to the public on August 1. We request that any producing
party objecting to disclosure of a particular document do so by July
27 so that, if warranted, any confidential documents will be filed
under seal.
---------------------------------------------------------------------------
Landline local exchanges can be used to impede competition between
cellular providers. Triennial Review, 673 F. Supp. at 551; see pp. 40-
42 below. Cellular carriers and interexchange carriers both rely on
local exchange facilities for access, interconnection and transport.
The Court has recognized that the dangers from BOC control of an out-
of-landline-region cellular system are no greater than BOC control of
in-region cellular systems, but has required both to provide equal
access and prohibited both from providing interexchange services.
United States v. Western Elec. Co., 1986-1 Trade Cas. 66,987, at
62,055 (D.D.C.) (PacTel/CI''), rev'd on other grounds, 797 F.2d 1082,
1089-91 (D.C. Cir. 1986), cert. denied sub nom. US West Inc. v. United
States, 480 U.S. 922 (1987). Applying the Decree's equal access
restrictions only to the ``landline switch,'' as the movants propose,
would be insufficient to prevent abuse of the landline exchange.\14\
---------------------------------------------------------------------------
\14\By contrast, the Department's proposed order adds to the
protections against discrimination by the landline exchange by
prohibiting the BOCs from building and owning their own
interexchange facilities, and limiting them to the resale of
switched interexchange services obtained from multiple vendors. See
p. 37 & n.50 below.
---------------------------------------------------------------------------
There is no reason to believe that the Decree's purposes end where
the local landline exchange ends. The Decree's terms plainly apply to
cellular exchanges--as this Court's latest opinion and eight years of
consistent application of the Decree to out-of-region BOC exchange
services makes clear. This Court has specifically applied Section II's
interexchange prohibition and other Decree requirements to an out-of-
region cellular system, notwithstanding the fact that the BOC did not
control local exchange facilities in the cellular service area. PacTel/
CI, 1986-1 Trade Cas. at 62,060. Subsequent orders, including orders
sought by BellSouth and Southwestern, have also applied Section II to
cellular exchanges where the BOC does not provide landline local
exchange service.\15\
---------------------------------------------------------------------------
\15\Order, Sept. 27, 1987 (Southwestern acquisition of
Metromedia); Order, Oct. 31, 1986 (BellSouth joint venture with
MCCA).
---------------------------------------------------------------------------
Attempts to limit the applicability of the Decree to the local
landline ``bottleneck monopoly'' read the Decree too narrowly.\16\ This
request for a modification turns on whether the modification is
necessary to the public interest. Rufo, 112 S. Ct. at 760. The
determination of the public interest, in this specific context, asks
whether eliminating equal access from cellular systems will reduce
competition in interexchange markets. The cellular carriers' duopoly
status gives them the monopoly or market power--terms the Court of
Appeals has used interchangeably\17\--and that market power makes abuse
of the cellular exchange an issue of competitive concern.\18\
---------------------------------------------------------------------------
\16\Cellular exchanges are ``bottlenecks'' if they can be used
to prevent or deter a customer's access to interexchange carriers,
since customers have to go through one of the two cellular exchanges
to reach their interexchange carrier. See pp. 19-23 below.
\17\``Whatever it means to `leverage' one's monopoly power, the
DOJ is surely correct that no damage can come to competition--
through `leverage' or otherwise--can occur unless the BOCs can
exercise market power.'' Triennial Review, 900 F.2d at 296 (emphasis
added).
\18\Standard economics and antitrust texts recognize that
monopoly power and market power are functionally identical concepts.
``Pure monopolists, oligopolists and monopolistic competitors . . .
all possess some degree of power over price, and so we say that they
possess monopoly power or market power.'' F. Scherer & D. Ross,
Industrial Market Structure and Economic Performance 17 (3d Ed.
1990) (hereafter ``Scherer & Ross''); accord, e.g., 2 P. Areeda & D.
Turner, Antitrust Law 504, 507, at 325, 330 (1978) (hereafter
``Areeda & Turner''); D. Carlton & J. Perloff, Modern Industrial
Organization 97 (1990) (hereafter ``Carlton & Perloff''). Any
purported distinction between ``monopoly power'' and ``market
power'' would hardly be meaningful. See, e.g., Hay, ``Market Power
in Antitrust,'' 60 Antitrust L.J. 807, 817-21 (1992). Professor Hay
discusses varying definitions of ``market power'' and ``monopoly
power'' by courts and commenters, noting that at best the
distinction appears to be only that ``monopoly power'' is taken to
mean ``a high degree of market power.'' Id. at 817, 818 n. 44.
citing Landes & Posner, ``Market Power in Antitrust Cases,'' 94
Harv. L. Rev. 937, 952-60 (1981). Professor Hay concludes that ``the
key to monopoly (or market) power is the power to control price
(i.e., the power to charge prices above the competitive level), and
the power to exclude competition is an ingredient of that power to
control price.'' Hay, 60 Antitrust L. J. at 821.
---------------------------------------------------------------------------
C. Allowing a BOC to Provide Interexchange Service from Cellular
Exchanges. Without Equal Access. Would Reduce Competition for Cellular
Interexchange Service.
The crux of the BOCs' original waiver application to the
Department, seeking the removal of equal access and the unrestricted
removal of the interexchange prohibition on their wireless businesses,
the BOCs argued that ``competition in radio services is extremely
robust,'' that ``competition is flourishing in mobile service
markets,'' and that ``without a showing of market power, the bell
companies are plainly entitled to the relief they seek.''\19\
---------------------------------------------------------------------------
\19\Memorandum of the Bell Companies in Support of their Motion
for Removal of Mobile and other Wireless Services from the scope of
the Interexchange Restriction and Equal Access Requirement of
Section II of the Decree, pp. 6, 16 (Dec. 13, 1991). Contrary to
that last claim, the burden is on the movant to show a lack of
market power. Rufo. 112 S. Ct. at 760 (``a party seeking a
modification of a consent decree bears the burden * * *'');
Triennial Review, 900 F.2d at 296 (``the ultimate burden under
section VIII(C) remains on the petitioning BOC'').
---------------------------------------------------------------------------
Specifically, all of the BOCs argued in 1991, and the movants argue
again, that equal access raises prices for long distance by permitting
non-BOC cellular carriers to buy long distance in bulk but charge
retail rates; if equal access were eliminated, the cellular duopolists
would purportedly compete with each other on long distance, driving
down the price. BOC Mem. 45 (Dec. 13, 1991); BOC Reply Mem. 21-26 (Aug.
3, 1992); BellSouth Mem. 22-23; Southwestern Mem. 27. To support this
logic, it must be shown that the cellular duopoly is competitive. The
facts, however, are just the opposite. Cellular duopolists plainly have
market power in cellular service, and the major premise of the BOCs'
argument therefore fails. It follows inexorably that if the BOC has
market power in cellular service, and can exclude competitors in long
distance, it can exclude the benefits of competition that those
competitors bring.
1. Cellular Exchange Service Markets are Not Competitive Today.
These cellular systems have substantial market power. The FCC has
so concluded on four separate occasions in the last three years,\20\
and the General Accounting Office has reached the same conclusion.\21\
The Department's extensive investigations into the cellular industry
likewise indicate that cellular duopolists have substantial market
power: ``the ability to raise prices or restrict output.'' Triennial
Review, 900 F.2d at 296.
---------------------------------------------------------------------------
\20\FCC Equal Access NPRM. 36; Notice of Proposed Rulemaking
and Tentative Decision, In the Matter of Amendment of the
Commission's Rules to Establish New Personal Communications
Services, 7 F.C.C. Rcd 5676, 5702 (1992) (``PCS NPRM''); Report and
Order, In the Matter of Bundling of Cellular Customer Premises
Equipment and Cellular Service, 7 F.C.C. Rcd 4028, 4029 (1992); see
also Second Report and Order, In the Matter of Amendment of the
Commission's Rules to Establish New Personal Communications
Services, 8 F.C.C. Rcd. 7700, 7744 (1993) (``FCC PCS Order''). The
FCC's recent decisions--particularly its 1993 PCS Order--were
entered after and despite the cellular industry's intensive (but
unpersuasive) efforts to argue that the cellular duopoly is
competitive. See Reply Comments of the Department of Justice, In re
Personal Communications Services, at 17-22 (F.C.C. Jan. 19, 1993)
(citing and rebutting arguments).
\21\Report to Hon. Harry Reid, U.S. Senate, Concerns About
Competition in the Cellular Telephone Service Industry, pp. 2-4
(Gen. Acctg. Ofc. 1992).
---------------------------------------------------------------------------
The basic structural problem with cellular markets is well known--
the fact that they are and have been duopolies with (at least until
very recently) absolute barriers to entry. While the FCC's decision to
issue two cellular licenses--rather than only one--was motivated by a
desire to stimulate competition. Cellular Communications, 89 F.C.C.2d
58, 61 (1982), two-firm markets are not particularly competitive.\22\
The noncompetitiveness of two-firm markets is exacerbated here by the
overlapping alliances of the cellular carriers, so that firms that
``compete'' with each other in one market are partners in another.\23\
---------------------------------------------------------------------------
\22\Economic theory generally predicts that prices will be
higher and output less in markets with fewer rather than more
competitors, or in markets that are more highly concentrated, absent
mitigating factors, See. e.g., Scherer & Ross at 277-78; 4 Areeda &
Turner, 910b at 55 (``there is general agreement that beyond some
point the smaller the number of firms and the larger the share of
the market dominated by one or a relatively few firms, the greater
the likelihood of substantial departures from competitive
performance, particularly with regard to price''); Stigler, ``A
Theory of Oliogopoly, 72 J. Political Econ. 44-61 (1964). Studies
indicate that markets dominated by duopolies are particularly
troublesome. ``Large market shares for the two leading firms seem
most decisive for industry price-cost margins, with a depressing
effect from a sufficiently large third share.'' Kwoka. ``The Effect
of Market Share Distribution on Industry Performance,'' 61 Rev.
Econ. & Statistics 101, 108 (1979). Many studies have found a
statistically significant positive correlation between price and
market concentration. See Schmalensee, ``Inter-Industry Studies of
Structure and Performance,'' in 2 R. Schmalensee & R. Willig,
Handbook of Indus. Org. 987-88 (1989) (collecting studies); L.
Weiss, Concentration and Price 268 (1989) (``overwhelming support''
for concentration-price hypothesis).
\23\For example, AirTouch (the former PacTel cellular
properties) is a partner with McCaw in operating a cellular system
in San Francisco, and competes against a McCaw/BellSouth system in
Los Angeles, BellSouth, McCaw's partner in Los Angeles, is McCaw's
rival in Miami. Southwestern Bell partners with McCaw in operating
the ``Cellular One'' marketing organization, but competes against
McCaw in Dallas, St. Louis and Kansas City.
---------------------------------------------------------------------------
The BOC's internal documents, written at the same time that they
were telling the Department that cellular is ``robustly competitive,''
demonstrate that in the BOCs' view cellular is comfortably
noncompetitive. Southwestern, which argues that ``wireless markets
today are vigorously competitive'' (SWB Mem. 11), observed in 1991--the
year it and the other BOCs filed for this waiver--that there was an
``absence of significant price competition'' in cellular, and that the
market is ``highly attractive'' for that reason. [218486] Southwestern
further observed:
The FCC predicted sufficient levels of rivalry from a duopoly.
In actuality, the two players in each market have been able to avoid
serious competition in this rapid growth environment. [218492]
In the current environment, characterized by rapid growth and
limited rivalry, relative position is less relevant than in mature,
competitive industries * * * In the future, as new competitors enter
the market and subscriber growth eventually levels off, positioning
will become increasingly important. [218517]
More recently, Southwestern observed that ``new industry entrants will
not be effective competition before 1996'' (emphasis in original).
Southwestern assessed that threat of new entrants as ``medium,'' and
the bargaining power of buyers as ``low''--recognizing that the
``threat of substitute products or services [is] low'' and that
``extensive time periods for regulatory determinations, license awards
and infrastructure construction will occur prior to the emergence of
effective competitors.'' [SWB 203264-65]
Other BOCs have made similar observations about cellular markets.
The duopoly structure is a continuation of the status quo. * * *
Under this scenario, competitive intensity is greatly reduced. This
enables direct cellular competitors to improve margins * * *. In
fact, the most significant element of this structure is the
probability that profit margins for all competitors would tend to
increase under prolonged restricted competition. (AM00385-86,
Ameritech, July 1990)
Cellular industry--unusually attractive structural
characteristics--government-mandated duopoly providing very high
barriers to entry--essentially unregulated with regard to rates and
rate of return * * * overall competitive rivalry is low to moderate
* * * to date little competition on service pricing. (PT00008-12,
Pac Tel, Sept. 1, 1987)
The burgeoning demand for cellular service when coupled with the
duopolistic market structure mandated by the FCC has led most
investment analysts to conclude that the cellular industry will be
even more profitable than cable TV, to which comparisons are
constantly made. * * * While BAMS believes that providing quality
cellular service requires considerably more investment in the
infrastructure of the business * * * than does cable, it must be
acknowledged that the investment community has been generally
correct in forecasts of thriving cellular revenues. It is also
important to note that increased market penetration in the absence
of downward price pressures will buy alot of infrastructure.
(106707, Bell Atlantic 1989)
In June 1992, six months after filing this waiver application asserting
that cellular was ``robustly competitive,'' US West observed: ``Current
duopoly structure and market growth limits competitive intensity.''
[USW 875]
Cellular carriers often have the ability to raise prices for
cellular service, particularly by raising prices in a manner that is
less visible to the customer. A review by Southwestern Bell of its
cellular markets demonstrate the phenomenon:
Chicago has made a number of changes to improve subscriber
revenue. These include: November 1987--changed prime hours from 8 am
to 8 pm to 7 am to 9 pm; March 1990 began charging for `ring time';
* * * December 1990 increased foreign roamer rates from 50 cents/min
to $2/day and 75 cents/min; May 1991 increased basic monthly access
charge to $19.95. This impacts about 40% of the base. For the
future, with rates in general being so low, it is our intent to
continue to increase rates * * * We are also evaluating charges for
the Telco interconnection fees associated with their usage. [203139]
Over the past few years, Boston has initiated several key rate
changes to improve subscriber revenue per customer. The changes
include the following: July 1989 roamer surcharge introduced; April
1990 changed the billing increment from the 6-second rounding to
full minute; July 1990 introduced a free of peak plan with a premium
monthly access charge; June 1991 increased foreign roamer rates 32%;
June 1991 raised monthly access charge $2. * * * [A]t this writing,
while we are implementing a rate increase in June 1991. Nynex has
filed a tariff which would lower rates and price their plans below
ours across the board. Their actions seem illogical and appear to
contradict the steps needed to offset declining customer usage. * *
* As for the future, SBMS believes there are other opportunities to
increase rates in Boston, somewhat dependent on our competitor. * *
* With monthly access charges relatively low, SBMS will continue
efforts to move this fixed charge upward. [203140-41]
The Washington/Baltimore property historically has had the
highest subscriber revenue per customer of all the SBMS properties.
* * * Washington/Baltimore was one of the last SBMS properties to
fall below the $100/month average subscriber revenue. * * * Plan F,
a plan designed to add new customers quickly * * * resulted in a
large addition of customers, [but] it was priced so inexpensively *
* * that it drove the Washington/Baltimore average downward. Plan F
has been subsequently dropped. Despite the obvious failure of Plan
F, Washington/Baltimore has introduced a number of changes to
improve subscriber revenue per customer * * * Changed the billing
increment to full minute rounding; increased roaming rates; * * *
changed peak hours * * *; increased access charges on low end plans.
Washington/Baltimore's future changes will focus on gradually
increasing rates. This will be accomplished mostly through higher
access charges and possibly increased per minute rates.'' [203141-
42]
Dallas subscriber revenue per customer has always been good for
a large market. * * * Over the last couple of years, the Dallas
property has been the SBMS leader in implementing changes to improve
subscriber revenue. Subscriber revenue per customer has declined
113.8% since 1988 while peak minute usage per customer has dropped
24%. Major factors contributing to this performance are as follows:
Changed from 30 second to full minute billing increments; raised
access charges on economy and basic plans; introduced `free off-
peak' which initially resulted in higher peak usage. Once
established, eliminated the offering from low-end plans; increased
foreign roamer rates * * * Dallas has also increased activation
fees, voice mail rates, and other miscellaneous charges. * * *
Dallas is also reviewing charging customers the interconnection fees
charged by the Telco associated with customer usage. In Dallas, this
could be as much as 2 cents/min, which would be a significant boost
to subscriber revenue. [203143-44]
[In l]ate 1989 [in Oklahoma City,] * * * roaming rates were
increased. In early 1990 billing increments were changed to full
minute rounding. [203146]
Similar to the other SBMS markets, the West Texas properties
have been gradually increasing rates by changing the billing
increment, raising access charges and increasing roamer rates.
Additional increases in rates will be gradual as in the past so as
not to create a competitive disadvantage. Further upward movement of
the access charges is the most likely course with the de-emphasis of
the economy plans close behind. [203146-47]
Examination of pricing data shows a similar ability to raise
prices.\24\ A look at BellSouth's pricing practices in Florida, a state
in which BellSouth claims to be at a competitive disadvantage against
its A block competitor, McCaw,\25\ is most revealing. Over the 1990-
1993 time period in Miami, the state's largest market, BellSouth's
average per minute revenues for cellular service rose 21 percent, while
its market share of service revenues rose from 48 percent in 1990 to 50
percent in 1993, despite McCaw's larger share of minutes of use. For
the years 1991-1993, BellSouth's per minute revenues were two percent,
nine percent, and 15 percent higher than McCaw's, respectively (in
1990, BellSouth was one percent lower). In Jacksonville, over the same
1990-1993 period, BellSouth's per minute revenues rose more than 30
percent, while McCaw's per minute revenues varied from
---------------------------------------------------------------------------
\24\The simplest way to examine cellular service prices is to
divide service revenues by minutes of use. This calculation permits
an observation undistorted by pricing plans and the like, and often
is used by the cellular carriers themselves to measure their
performance. The pricing information in this memorandum is based on
comparing service revenue and minutes of use, based on data provided
to the Department by the BOCs and McCaw in connection with our
investigations, and is submitted as Exh. 7.
\25\See, e.g., BellSouth Corporation's Opposition To AT&T's
Motion for a Waiver of Section of Section I(D) of the Decree Insofar
as it Bars the Proposed AT&T-McCaw Merger, pp. 18-22 (June 28, 1994)
(claiming that BellSouth is at a competitive disadvantage due to
McCaw's ``City of Florida'' plan that allows its subscribers to have
service throughout McCaw's service areas within the entire state at
a single ``local'' price). 16 to 25 percent less over the same
period. Despite this disparity, BellSouth retained the greater share
of both service revenue (1990's 66 percent share has not
surprisingly dropped to 1993's still impressive 55 percent share)
and minutes of use.
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Nonetheless BellSouth claims that it is at a competitive
disadvantage to McCaw by reason of the Decree restrictions. (BellSouth
Mem. 28, 33, 41) The Decree does not appear to be preventing BellSouth
from charging higher prices than does its rival.
2. Given the BOCs' Market Power in Cellular Service, Eliminating
Equal Access Will Reduce Competition in Cellular Long Distance.
Today these cellular systems provide equal access, as the Court has
required of BOC cellular systems since 1983. A contrary ``development
would have been entirely inconsistent with the terms and purposes of
the decree, and the Court would not have authorized it.'' Mobile
Service Decision, 578 F. Supp. at 647. As a result, their subscribers
can choose their long distance carrier and have the benefit of whatever
competition is present in the long distance market.
Cellular systems ``can prevent their customers from reaching the
interchange carriers of their choice by programming their switches to
send all long distance (calls) to one carrier.''\26\ Therefore, the
operators of those cellular systems could reduce competition for long
distance service by denying access to competing carriers and requiring
cellular subscribers to obtain long distance at prices not set by
competition between those competing carriers, subject to whatever
constraint exists through competition in the cellular market. As the
BOCs have recognized, non-BOC cellular carriers have done just
that,\27\ BellSouth and Southwestern seek to do the same.
---------------------------------------------------------------------------
\26\Mandl Aff. 6, submitted with AT&T's Motion for a Waiver of
Section I(D) of the Decree insofar as it Bars the Proposed AT&T-
McCaw Merger (May 31, 1994). Accord, BOC Mem. 9-10.
\27\E.g., BOC Reply Mem. 23-24 (Aug. 3, 1992).
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The Department's investigation indicated that cellular subscribers
value the choice that equal access gives them. This is particularly
true for larger businesses, which seek to connect their cellular
services to private networks offered by interexchange carriers. By
doing so, the business user obtains not only access to the features of
the private network, but also the very substantial discounts on long
distance prices that are sold as part of the service.\28\ These are the
very discounts that the BOCs seek to obtain (BOC Mem. 26, June 20,
1994); today they can be obtained by customers of equal access systems,
but generally not by others. Indeed the availability of equal access
from BOC systems has pressured non-BOCs (notably McCaw) to offer
connections to large customers' private networks, in order to retain
their business. Businesses that do not obtain cellular service from
equal access cellular systems have no access to these discounts and
services, and have been frustrated in their efforts to reduce their
cellular long distance costs.\29\ While the largest businesses might
have the leverage with their cellular providers to gain access for
their private interexchange services, smaller businesses and
individuals cannot get those benefits--except where equal access
requires it.
---------------------------------------------------------------------------
\28\``The one segment of the long-distance market that appears
most competitive is the market for large customers.'' P. Huber, M.
Kellogg & J. Thorne, The Geodesic Network II: 1993 Report on
Competition in the Telephone Industry 3.17, see id. 3.39-44
(describing means whereby interexchange carriers discount rates to
large users); see also Kelly Aff. 26-27 (Apr. 29, 1993). Submitted
with Letter to Richard L. Rosen from Michael H. Salsbury (MCI). Apr.
30, 1993.
\29\For example, Dow Chemical pays 25 to 50 percent more for
cellular long distance than for landline long distance because its
cellular carrier does not provide equal access. Dow chose to pay
these higher prices rather than have its sales people change
cellular telephone numbers, which they would have to do if Dow
changed carriers. Jacobs Aff. 3-5 (Exh. 8 hereto) ``Dow Chemical
believes that when cellular providers offer Dow Chemical the option
to select the carrier from whom the company purchases long distance
cellular service, Dow Chemical benefits in the form of lower
cellular long distance prices.'' Id. at 5.
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Southwestern also argues that, even if it has market power, it
would have no incentive to raise prices of long distance. ``[A]
hypothetical provider of mobile services that enjoyed real market power
would simply exploit that market power directly; there would be no
advantage in attempting to leverage that power into ancillary services
such as mobile long distance service or mobile information services.''
(Southwestern Mem. 8; see also BOC Mem. 28) This attempt to argue that
there is only ``one monopoly rent''\30\ is contrary to fact and well
reasoned theory.
---------------------------------------------------------------------------
\30\Southwestern quotes AT&T's economists, who made the same
argument in support of AT&T's efforts to acquire McCaw: ``Since the
monopolist can only charge the monopoly rent once, it has no
generally applicable incentive to favor its affiliate if another
competitor can provide the good or service more efficiently.''
Southwestern Bell Mem. 9, quoting Willig & Bernheim Aff. 9. The
argument that vertical integration cannot increase a monopolist's
profits is often attributed to Robert Bork, who expanded upon
economic theory and popularized this argument among antitrust
lawyers. R. Bork. The Antitrust Paradox 229 (1978); see Scherer &
Ross at 522.
---------------------------------------------------------------------------
The fact, as indicated in Southwestern Bell's own documents, is
that a successful strategy for raising prices is to focus on ancillary
services. See pp. 16-18 above. Southwestern Bell has found that it can
``aggressively change(e) elements of subscriber revenue to mitigate the
effect of lower customer usage'' by raising the costs of ancillary
services, for example, by ``increased monthly access charges * * *
slightly higher roaming * * * eliminating `night hours' and extending
peak hours in many of the markets.'' [SWB 203136-37] If Southwestern
Bell finds that the best method of increasing revenue is to raise the
price of roaming rates and access charges, it stand to reason that it
would find it equally feasible and attractive to rise the rates of long
distance charges.
Southwestern's ``one monopoly rent'' argument is contrary to theory
as well as fact. The theoretical model on which Southwestern relies
depends, in general, on the presence of many key and restrictive
conditions, at least four of which are not present here. First, as
Southwestern Bell acknowledges, the theory is limited to unregulated
monopolists. Cellular duopolists are not universally unregulated: in
California, home of 20 percent of the nation's population, cellular
prices are regulated.\31\ Second, the theory requires that the two
inputs (here, cellular service and long distance service) be used in
fixed proportions; if the integrator or user can vary the proportions
(by making more or fewer long distance calls) the general argument
fails. Third, the argument does not apply where the firm cannot price
discriminate in the downstream market--the long distance market--
without vertical integration. Fourth, and most important, the argument
applies only to the situation in which a monopolist is integrating with
a firm in a competitive market; here we have decidedly imperfect
competition in cellular, and (as the BOCs acknowledge) imperfect
competition in long distance. The ``one monopoly rent'' model does not
speak to the situation of integrating oligopolists.\32\
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\31\Cal Pub. Util. Code Sec. 401 et seq.; 17 CPUC 2d 499 (1985)
In California, ``the Public Utilities Commission has jurisdiction
over rates charged for cellular service.'' Cellular Plus, Inc. c.
Superior Court, 18 Cal. Rptr. 308, 311 (1993). Cellular carriers
must file financial statements, receive approval for wholesale rate
increases, and receive approval to install new transmitter sites.
See also BOC Mem. 28 (``half of the States do not regulate cellular
or paging providers at all''; the other half presumably do, even if
they ``typically impos[e] no price regulation at the retail (i.e.,
reseller) level''). Regulation of BOC landline exchanges further
distorts the ``one monopoly rent'' argument.
\32\Carlton & Perloff 517, 510.
---------------------------------------------------------------------------
The theory embraced by Southwestern argues that there are no means
(except efficiency means ) by which monopolists can vertically
integrate and increase their monopoly profits. See R. Bork, The
Antitrust Paradox, at 229. That theory has been rejected by economists
of all persuasions, who recognize that there are conditions under which
a monopolist or oligopolist can vertically integrate and increase its
monopoly profits.\33\ And it is directly contrary to the observable
facts here: Southwestern has raised prices of ``ancillary'' services,
such as roaming, rather than raise more visible prices (see SWB 203136-
37), and the BOCs all observe that non-equal access carriers, such as
McCaw, charge top dollar for long distance services that are
``ancillary'' to their cellular service, rather than simply raising the
price of cellular service.
---------------------------------------------------------------------------
\33\Carlton & Perloff 510; R. Warren-Bolton, Vertical Control of
Markets 64, 80 (1978); J. Tirole, Theory of Industrial Organization
179-80 (1988); Scherer & Ross at 521-22.
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D. The Movants Have Not Demonstrated any Significant Changed
Circumstances Warranting Relief.
Under Rufo, the party seeking modification ``bears the burden of
establishing that a significant change in circumstances warrants
revision of the decree.'' 112 S.Ct. at 760. As this Court noted, a
significant change is a ``significant change in factual conditions or
in law'' that could not have been anticipated at the time the Decree
was entered. AT&T/McCaw Decision, 154 F.R.D. at 7-8, quoting Rufo, 112
S. Ct. at 760.
Since the Court rejected the BOC's application to provide
interexchange service from cellular exchanges without equal access in
1987, Triennial Review, 673 F. Supp. at 551, the BOCs must show that a
significant change since then would warrant their instant motion to
provide such service. The changed circumstance necessary, and which has
not occurred, would be a substantial increase in competition in
wireless services, so that cellular carriers would not have significant
market power. See Decree Opinion, 552 F. Supp. at 195. They have not
established that there has been such a change.
The movants point to two developments to support their argument
that there has been a significant change in circumstances. First, they
argue that AT&T's acquisition of McCaw, if permitted by this Court and
the FCC, will substantially change the cellular business by permitting
entry of the nation's largest long distance carrier into the local
cellular exchange business. This entry, they argue will place the BOC
cellular systems at a substantial competitive disadvantage, thereby
harming consumers. Second, they argue that entry into the wireless
business is imminent in the form of SMR and PCS. They suggest that
entry of these new providers will eliminate the need for equal access
to preserve competition in the provision of long distance services to
cellular subscribers. Neither of these developments justify the relief
the BOCs seek.
The proposed final judgment that the Department has negotiated with
AT&T refutes the BOCs' argument that AT&T will have different equal
access rules. Rather, that proposed decree and the order proposed for
the BOCs' motion applies consistent rules to both the BOCs and AT&T.
The terms of the AT&T/McCaw judgment, if approved, would expand the
scope of equal access to apply to McCaw cellular exchanges that do not
currently provide equal access. As a result, that judgment will
eliminate the competitive disadvantage that the BOCs claim they
currently face. Ironically, granting the BOCs' motion would create the
harm they claim they want to end--placing a cellular provider in a
position where it must provide equal access while competing with a
provider that need not do so.
The BOCs' other contention is likewise without merit. As yet, there
are no SMR or PCS providers of wireless telephony generally available
today. It is, of course, possible that at some point these new
technologies will offer wireless service in competition with today's
cellular duopolists. When it will happen and what effect, if any, it
will have on competition in the market for cellular telephone service
is now unknown.
The FCC has not yet assigned PCS licenses. Indeed, the Commission
has not yet even said when licenses will be awarded. Once the licenses
are assigned, the licensees must take a number of time-consuming steps
before they can offer service. They must develop the necessary
technology, obtain financing and build networks. The very nature of
PCS, including the services to be provided and the technology to be
employed, is not yet settled.\34\ BellSouth itself told the FCC that
``cellular systems and new PCS licensees will be competitors only to a
very limited degree.''\35\ It is, of course, impossible to say how long
it will take to develop PCS, but it appears that it will be some time
before PCS service will have any impact on competition for wireless
telephony. Any assertion that PCS has changed the competitive
environment is premature at best.
---------------------------------------------------------------------------
\34\See Peterson, ``Positioning PCS on the Telecom Landscape,''
Telephony, 26 (December 13, 1993). Mr. Peterson is Manager of Market
Research at Motorola's General System Sector, a prospective PCS
manufacturer, and is positioned to be well informed on PCS.
\35\PCS Comments of BellSouth, In the matter of Amendment of the
Commission's Rules to Establish New Personal Communications Services
48 n.96 (F.C.C. Nov. 9, 1992). BellSouth relied on a forecast by
Telocator that ``shows cellular service prices in 2002 remaining 14-
67% higher than the price for `personal telecommunications service'
and as much as three times as expensive as telepoint service.'' Id.
---------------------------------------------------------------------------
Several firms are in the process of accumulating radio spectrum
currently allocated to Special Mobile Radio (SMR) with the stated
intention of offering wireless telephone service. While that service
might be closer to deployment than PCS, when and if it will be
available is not yet known. SMR providers currently offer a dispatch
service that is functionally distinct from cellular telephone
service.\36\
---------------------------------------------------------------------------
\36\Dispatch service is used by fleet dispatchers, such as those
that issue assignments to taxicabs and utility repair trucks. Some
SMR providers offer interconnection with the public switched
telephone network; such service, however, is far less convenient
than cellular service and is used infrequently. SMR customers who
need mobile telephone service usually have SMR and cellular
telephone equipment in their vehicles.
---------------------------------------------------------------------------
Three firms are attempting to convert SMR spectrum to wireless
telephone use. Nextel Communications Inc. is the only firm that has
begun construction of an SMR system that would provide cellular-like
telephony service. Nextel has noted that it could still face a number
of difficulties, including having substantially less radio spectrum
than that allocated to cellular telephone providers (which could cause
its costs to be substantially higher), a limited number of equipment
suppliers and a current inability to offer nationwide service. Nextel's
filing also indicates that its service might not have adequate voice
quality.\37\
---------------------------------------------------------------------------
\37\Nextel Communications, Inc., Securities and Exchange
Commission, Form S-3, pp. 28, 36 (February 8, 1994).
---------------------------------------------------------------------------
This voice quality problem has also been noted by McCaw's Chief
Operating Officer, who testified that Nextel's voice quality is
currently poor. Mr. Barksdale noted that Nextel might have to halve its
capacity to improve its voice quality, further increasing its
costs.\38\ As with PCS, the BOCs' assertion that SMR deployment
constitutes a significant change in circumstances is, at best,
premature.
---------------------------------------------------------------------------
\38\Deposition of James Barksdale, June 28, 1994, 218-221 (Exh.
I hereto). Mr. Barksdale's deposition was taken during the
Department's investigation of the AT&T/McCaw transaction.
Presumably, Mr. Barksdale had an incentive to emphasize the
likelihood of Nextel's success as an entrant into the mobile
telephone business.
---------------------------------------------------------------------------
II. The Boc's Resale of Switched Interexchange Services to Their
Cellular Subscribers, Subject to Sufficient Equal Access Safeguards,
Should Not Result in an Ability to Raise Prices for Interexchange
Service.
The BOC's generic wireless waiver motion, unlike the motions by
BellSouth and Southwestern, does not seek a modification of Section
II's equal access requirement. The only modification sought is that of
Section II(D)(1)'s interexchange prohibition. In light of AT&T's
opposition, the standard for review is that of Section VIII(C): whether
the BOCs have demonstrated that ``there is no substantial possibility
that (they) could use (their) monopoly power to impede competition in
the markets (they) seek to enter.'' In the Court of Appeals'
formulation, that standard requires the BOCs to demonstrate that they
will not ``have the ability to raise prices'' in those markets. 900
F.2d at 296. The United States believes that, in an environment in
which appropriate equal access safeguards prevent discrimination
against interexchange competitors, that showing is made.
A. BOC Entry as an Additional Choice, Subject to Equal Access,
Should Not Result in an Ability to Raise Prices.
As discussed above (pp. 13-23), the reason that the elimination of
equal access would reduce competition is that it would prevent cellular
customers from obtaining the benefit of whatever competition there is
in the interexchange market.\39\ By contrast, if genuine equal access
can be preserved, it seems unlikely that BOC entry into cellular long
distance, in competition with existing providers, would reduce
competition in that market. Their entry might be competitively neutral,
or might actually result in lower prices; there does not seem to be a
clear reason that--again, subject to genuine equal access--their entry
might raise prices.
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\39\There plainly is some competition in interexchange services,
notwithstanding the BOCs' arguments. Indeed their arguments are
premised on the proposition that competition in bulk long distance,
which they seek to purchase, drives prices far below AT&T's
regulated Tariff 1 rates. See p. 20 & n.28 above. Even at the retail
level, the benefits of divestiture and the equal access regime it
created have substantially reduced long distance prices, as the
Court has often noted E.g., AT&T McCaw Decision, 154 F.R.D. at 10.
---------------------------------------------------------------------------
The BOCs will enter the long distance market with no market share,
no existing long distance customers, and no ability to convert their
current cellular customers to their own long distance services--except
by persuading customers that the BOC offers a better service or the
same service at a lower price. To the extent the BOCs offer service at
prices below AT&T Tariff 1 prices,\40\ their customers (and the
customers of other interexchange carriers, who may either demand lower
prices or switch to BOC long distance service) benefit. To the extent
the BOCs offer service at prices higher than AT&T's highest rates,
customers have alternatives.
---------------------------------------------------------------------------
\40\The rates contained in AT&T's Tariff No. 1 (sometimes
referred to as ``Basket 1'' or ``MTS'' rates) are AT&T's
``undiscounted'' retail rates, from which AT&T offers discounted
rate plans. MCI, Sprint and other long distance carriers likewise
offer discounted rate plans based on volume.
---------------------------------------------------------------------------
The interexchange carriers' arguments against the waiver, as made
to the Department during its investigation, do not challenge this
proposition. They challenge instead whether the BOC's provision of
access to itself and its competitors can ever be considered ``equal,''
and whether the BOC's control of the landline exchange overwhelms the
analysis.\41\ The adequacy of equal access (under the Department's
proposal, rather than under the BOC's) is discussed at pp. 29-40 below;
whether control of the landline exchange dictates a different result is
discussed at pp. 40-42 below.
---------------------------------------------------------------------------
\41\AT&T's Further Opposition to RBOCs' Motion to Exempt
``Wireless'' Services from Section II of the Decree, pp. 11-14 (May
3, 1993); Kelly Aff. 19-21 (MCI submission Apr. 30, 1993).
---------------------------------------------------------------------------
If genuine equal access is provided, the BOC will not have an
unfair advantage over its competitors by reason of its providing access
to itself and to its competitors. If they have an equal chance to gain
customers, the BOCs' competitors will not be foreclosed from the
cellular exchange. If the BOCs can only gain business by charging lower
prices, that would not seem likely to lead to the higher prices that
the Court of Appeals noted was the test for Section VIII(C). These
arguments may seem tautological, but their import is that the focus of
the inquiry should be on the question whether, and under what
conditions, a BOC cellular system can provide access to itself and its
competitors without creating a substantial risk that it will
discriminate in providing that access. We now turn to that question.
B. Appropriate Safeguards are Required To Protect Against
Discrimination in Access or Presubscription by the Cellular Exchange
Operator.
The structure of the Decree rests on equal access. AT&T's
discrimination against competing long distance carriers formed the
basis of the antitrust violation, and preventing discrimination by the
exchange access provider was and is the key to allowing competitive
long distance markets to develop. Decree Opinion, 552 F. Supp. at 165.
Recognizing that merely enjoining discrimination would be insufficient
to prevent that discrimination, the Decree required a permanent
separation of AT&T's exchange and long distance businesses, id. at 165,
172, and prohibited the Bell companies from integrating into the long
distance business. Id. at 177. However, the Court recognized that the
BOCs might lose their monopoly power over time; the Court therefore
added Section VIII(C) to the Decree, to permit entry by the BOCs when
that entry would be unlikely to reduce competition. Id. at 195.
To determine whether that entry is now appropriate, the Court
should consider whether sufficient safeguards exist or have been
proposed to prevent the danger that the access provider, in providing
access to itself as well as its competitors, could discriminate against
those competitors in the provision of exchange access.\42\ As in 1982,
simply enjoining discrimination is insufficient protection; specific
proscriptions are appropriate in light of the dangers presented, and
those proscriptions should be adopted in a manner that will make
detection and prosecution of any violations reasonably likely.\43\
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\42\As noted above, wireless access markets cannot today be
considered to be especially competitive. Those markets are
nonetheless not nearly as tightly controlled as landline exchange
access markets, where local telephone companies appear to have well
over 90 percent of the market.
\43\To further the enforcement of these conditions, the
Department believes that the grant of authority to provide
interexchange services should be subject to the following sanctions.
First, that the Court should have the authority to withdraw the
waiver if a BOC violates the equal access requirements of the waiver
and of the Decree; and, second, that the Court reserve the authority
to impose civil fines for violations. Proposed Order,
Sec. VIII(L)(5).
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The Department has considered these questions in the limited
context of cellular services, and believes that appropriate safeguards
can be devised--although the Department also believes that the
safeguards offered by the BOCs are insufficient, and recommends
additional safeguards to prevent the discrimination that could reduce
competition in cellular interexchange markets.\44\
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\44\The Department does not believe that the BOCs should be
prohibited from providing any interexchange services until they can
demonstrate that competition would not be reduced were they allowed
entry into interexchange services generally. The Department is aware
of, and shares, the Court's concern about ``piecemeal waivers.''
Triennial Review, 673 F. Supp. at 545; see also United States v.
Western Elec. Co., 777 F.2d 23, 29 (D.C. Cir. 1985), but believes
that wireless markets (as defined in the Department's proposed
order) are sufficiently discrete to allay these concerns.
---------------------------------------------------------------------------
The BOCs have said that ``for the most part, [the Department's]
conditions and clarifications appear to be acceptable, though some
clarifications may be necessary.'' (BOC Mem. 16) We discuss these
issues in Section 1, pp. 31-36 below. The BOCs have, however, objected
to the Department's resale and marketing restrictions. (BOC Mem. 16-19)
We therefore explain our reasoning for those restrictions separately,
in Sections 2 and 3, pp. 36-40 below.
1. The Department's Proposed Order Will Substantially Prevent
Discrimination in the Provision of Access.
The following specific terms and safeguards appear to be necessary
and appropriate to prevent discrimination by a cellular exchange
against competing interexchange carriers:
a. Basic Injunction. The Department's proposed order states
explicitly the basic injunction necessary to protect against
discrimination:
Each BOC local telephone exchange company and Wireless Exchange
System shall offer to all interexchange carriers interconnection,
exchange access, and exchange services for such access, on an
unbundled basis that is equal in type, quality and price to that
provided to any interexchange service provided by that BOC or any
affiliate thereof.
Proposed Order, Sec. VIII(L)(3)(a)(1).\45\ This language, which
paraphrases Section II(A) of the Decree, makes clear that the equal
access obligation applies to cellular carriers and that the benchmark
for discrimination is the access the BOC provides to itself, rather
than what it provides to AT&T, the original language of Section II(A).
Section VIII(L)(3)(a)(3) of the proposed order also makes explicit the
implicit requirement of equal access, that the prices for cellular
exchange not vary with the interexchange carrier chosen:
\45\The Department's proposed order adds a new Section VIII(L)
to the Decree. Section VIII(L)(1) contains definitions. Section
VIII(L)(2) provides the authorization for specific interexchange
services to be provided in connection with wireless exchange
services. Section VIII(L)(3) contains specific equal access
requirements related to that authority. Section VIII(L)(4) provides
for the filing of compliance plans with the Department, and Section
VIII(L)(5) specifies sanctions for violations of the modification or
of equal access.
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A BOC or any affiliate thereof shall not sell or contract to
sell Wireless Exchange Service at a price, term or discount that
depends upon whether the customer obtains interexchange service from
the BOC or any affiliate thereof.\46\
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\46\Section VIII(L)(3)(a)(4) imposes an equivalent restriction
on the sale of interexchange services; i.e., to the extent a BOC
provides interexchange services to the customers of its cellular
affiliates and to the customers of competing cellular affiliates, it
may not vary the price depending on which cellular exchange service
the customer buys. This requirement, which has been questioned by
the BOCs (BOC Mem. 22), is necessary to give meaning to the
unbundling requirement. Absent this constraint, the BOC could adjust
the price of its interexchange service to create combinations of
services that its long distance competitors could not match.
Moreover, it would be decidedly procompetitive if the BOCs were to
compete for long distance from each other's cellular exchanges and
from McCaw cellular exchanges. A similar requirement is imposed upon
AT&T and McCaw under the consent decree agreed to between them and
the United States. AT&T McCaw Decree, Sec. IV.F.l.c.
In addition, the Department's proposed order explicitly makes
Section II(B)'s requirements of nondiscrimination in the provision of
technical information, interconnection and provision for planning of
facilities binding on BOC commercial mobile service providers. The
Department objected to the BOCs' earlier request to be allowed to give
themselves preferential routing and collocation. The BOCs' proposed
equal access plan as presented to the Court affirms that they will not
give themselves those preferences. (BOC Model Equal Access Plan, p. 2).
The Department believes that 60 days' notice of changes to the network
is reasonably necessary to allow competing interexchange carriers
sufficient time to modify their networks, and the BOCs have accepted
that requirement. Id.
b. Services from which Interexchange Service May Be Provided. The
scope of the proposed relief--i.e., the exchange services from which
originating interexchange services may be offered--needs to be defined
beyond the use of the recently added statutory term ``commercial mobile
services.''\47\ The Department proposes to use the term the following
definition:
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\47\This term, added by the Omnibus Budget Reconciliation Act of
1993, Pub. L. 103-66, 107 Stat. 312 (1993), defines ``commercial
mobile services'' as ``any mobile service * * * that is provided for
profit and makes interconnected service (a) to the public or (b) to
such classes of eligible users as to be effectively available to a
substantial portion of the public * * *.'' 47 U.S.C. 332(d)(1).
Wireless Exchange Services mean commercial mobile services, as
defined in 47 U.S.C. 332(d)(1); provided, however, that BOC Wireless
Exchange Services are limited to services provided by corporations
that have been established as separate subsidiaries from the BOC's
local telephone exchange companies (``LECs''), and provided,
further, that the principal facilities used to provide Wireless
Exchange Services, including the MTSO and radio base stations, are
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physically and operationally separate from LEC facilities.
Proposed Order, Section VIII(L)(1)(c). The purpose of this restriction
to ``physically and operationally separate'' networks is to distinguish
wireless networks that are physically separate from the landline
exchange, such as today's cellular networks, from networks that might
be tightly integrated with the local exchange. It is unclear whether
such a PCS service could be offered by anyone other than the local
exchange itself, and therefore it might not be appropriate to allow
BOCs to provide interexchange services from the network, just as it is
not appropriate today for the BOCs to provide interexchange services
from their landline exchanges, on these conditions. The BOCs based
their proposal, and the Department evaluated this proposal, in light of
current cellular architectures, and the Department therefore recommends
limiting the waiver to commercial mobile services offered from networks
that are fully distinct and separated--both physically and
structurally--from the local exchange.\48\
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\48\As with the BOCs' proposed form of order, the waiver would
not extend to interexchange telecommunications originated on
cordless telephones or on ``wireless PBXs,'' i.e., private mobile
radio services provided within an office complex or similar
environment. (BOC Mem. 12) The BOCs do not intend their relief to
extend to the sorts of LEC-provided PCS services excluded by the
Department's proposed order (BOC Mem. 12); the Department's proposal
makes that limitation explicit on the face of the order.
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The BOCs should also be authorized to provide certain long distance
service for calls inbound to the cellular exchange, and the authority
to provide such services is included in the Department's proposed
order, which authorizes the provision of
Call Completion Services, i.e., interexchange services resulting
when a caller directs a call to a subscriber of a Wireless Exchange
Carrier that has instructed that carrier to forward calls to a
location in another exchange area. Such remote locations may include
a network address (such as a telephone or paging number) stored at
the MTSO, or a voice mailbox or similar storage facility. In such
cases, the BOC may provide only the interexchange portion of the
call from the point where it is redirected by the subscriber's
Wireless Exchange Carrier's MTSO.
Proposed Order, Section VIII(L)(2)(b). This proposal reflects what the
BOC's seek: the right to forward calls to the cellular subscriber's
chosen destination (including a voice mailbox), according to the
subscriber's PIC, rather than that of the call originator. The call
originator might have thought he was making a local call, when the
subscriber had forwarded her phone to a distant city; the subscriber
pays for that long distance segment and, if she chose the BOC as her
PIC, the BOC would carry the call. (See BOC Mem. 13)
The authority in this paragraph does not include the authority to
provide an ``800 access to cellular'' service, which the BOCs have not
sought. However, in the proposed consent decree with AT&T arising from
AT&T's proposed acquisition of McCaw, the Department has agreed that
AT&T arising from AT&T's proposed acquisition of McCaw, the Department
has agreed that AT&T should have the right to market a ``calling party
pays'' cellular service. AT&T/McCaw Decree, Sec. IV.F.2, and
competition will be served if the BOCs can offer a similar service.\49\
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\49\This service which would be offered to subscribers of
Wireless Exchange Carriers would permit use of a number that the
subscriber could give out that would permit callers that were
willing to pay charges for wireless services to reach the subscriber
through the wireless terminal. It is the Department's understanding
that the availability of this service may be important to the
continued rapid growth of the wireless industry and that the
feasibility of this offering is likely to depend on whether the
caller will know in advance what the charges for the call will be.
Thus, it is contemplated that for this service to be successful,
carriers may need to average airtime and toll charges so that a flat
per-minute rate may be associated with the service. Thus, an
exception to the requirement that separate charges for wireless
access and interexchange services is appropriate in this instance.
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c. Entities Bound by the Waiver. Unlike the BOCs' proposed order,
the Department's proposed order applies to any entity that is a ``BOC''
within the meaning of the Decree. The Department does not proposed to
redefine ``BOC'' for the purposes of this order.
d. Equal Access plans. The Department concurs in the BOC's proposal
that they provide equal access plans, but Section VIII(L)(4)(b) of the
Department's proposed order specifies the matters that those plans
should describe:
Each BOC's compliance plans shall include a plan for
implementing equal access on a nondiscriminatory basis in the
context where the BOC access provider is also a competing
interexchange carrier. These plans shall include detailed procedures
for implementing equal access from any Wireless Exchange System
where a BOC acquires a controlling interest after the effective date
of this Section VIII(L), procedures for identifying to new Wireless
Exchange Service customers their choices for interexchange services,
the terms and conditions whereby unaffiliated interexchange carriers
will be offered the opportunity to interconnect at any BOC Wireless
Exchange Systems MTSO, the procedures for disseminating to
interexchange carriers any planned changes in network services or
plans for implementing new services that may affect such carriers
services, procedures for assuring that any personnel of a BOC
Wireless Exchange Carrier that is involved in the marketing of
interexchange services shall not have access to proprietary
information of other interexchange carriers, including but not
limited to network interconnection arrangements and lists of
interexchange carrier customers or their usage statistics; a plan
for the separation of the personnel that market interexchange
services from the personnel that administer presubscription; a plan
for implementing Calling Party Pays service if the BOC wishes to
offer such a service; a plan describing its procedures to assure
compliance with Section VIII(L)(2)(e) of this Decree (including a
plan for providing nondiscriminatory access to IS-41 or similar
databases for all carriers); and a plan for implementing CDPD
service.
The effect of these sections is to make clear what matters the equal
access plans should discuss, and that there is no authority to provide
interexchange services in the absence of an effective plan. A plan is
only effective if not disapproved by the Department. The requirement to
submit plans and the Department's responsibility to review them--and
the Department's right to reject inadequate plans--should relieve the
Court of the need to administer the minutiae of equal access, and
should provide the BOCs sufficient flexibility in the offering of
services, without the need to return to the Court for ministerial
matters. Interested parties will have an opportunity to review the
equal access plans and to alert the Department to deficiencies they
perceive.
2. The Resale Will Eliminate Most Risks of Discriminatory
Interconnection.
The Department proposes that the BOCs' authority to provide
interexchange services be limited to the resale of switched
interexchange services provided by others. The Department has also
indicated that its current view is that the BOCs should purchase no
more than 45 percent of their interexchange needs from single source.
The BOCs tell the Court, as they told the Department in seeking the
Department's support, that ``as a practical matter, * * * it is likely
that the BOCs will mostly act as resellers of switched services in this
context.'' (BOC Mem. 16) Nonetheless, the BOCs seek the authority to
build and use interexchange facilities. The Department believes that
limiting the BOCs to switched resale will substantially reduce the
dangers of discrimination, and proposed that limitations on that basis.
By limiting the BOCs to reselling switched interexchange services,
the BOCs will not be able to construct or operate facilities, and
therefore they will be unable to give their own facilities favorable
treatment. Since they will be reselling other carriers' services, any
discrimination aimed at favoring the BOC's service would be readily
apparent at least to the carriers whose services the BOC was reselling.
The benefits of that discrimination would flow to that carrier for all
of its traffic, and that carrier would be competing with the BOC.
Therefore, the risks of discrimination are here accompanied by a
proportionately smaller benefit, reducing the likelihood of that
discrimination. These dangers are further reduced by the requirement
that the BOC obtain not more than 45 percent of any system's
interexchange services from any one provider, thereby requiring the BOC
to use three carriers and leaving less opportunity for the BOC to
discriminate against other carriers, and likewise increasing the
difficulty of collusive behavior.\50\
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\50\The BOCs have objected to this requirement as preventing
them from obtaining the bulk discounts on long distance services
that would make it possible for them to resell interexchange
services. (BOC Mem. 17) However, the BOCs have not provided any
evidence that the anticipated volumes will not entitle them to
substantial discounts under currently filed tariffs, at reasonable
volume predictions. The Department has requested further information
from the BOCs on this subject. Although the BOCs argue that the 45
percent ``condition would prevent the BOCs from putting price
pressure on any'' interexchange carrier (BOC Mem. 17), the Supreme
Court's recent holding that all interexchange carriers must file
tariffs, MCI Telecommunications Corp. v. American Telephone & Tel.
Co., 114 S. Ct. 2223 (1994), limits the concern that the BOCs would
be unable to take advantage of tariffed bulk discounts.
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3. Marketing and Unbundling Requirements Are Necessary To Ensure
that Presubscription Provides a Genuine Opportunity for Competing
Interexchange Carriers.
Meaningful equal access is premised on the idea that procedures can
be put in place to provide competing interexchange carriers a
reasonable opportunity to complete for customers' business. Merely
requiring the BOC to offer presubscription seems insufficient, if the
BOC can bundle cellular and interexchange services together in blended,
single-price offerings that do not permit customers the opportunity to
compare the BOC's offerings with its competitiors'; if the BOC can
market its interexchange service together with its cellular service,
while requiring the customer to make separate inquiries to discover the
availability of competing carriers; or if the BOC can provide a
combined bill for its cellular and long distance service, while
requiring its competitors' customers to receive and pay two separate
bills.
The Department's proposed order prevents these measures, and thus
prevents the BOC from marketing or offering services that its
interexchange competitors cannot match by reason of the BOC's control
of the duopoly cellular exchange. To the extent the BOC designs service
offerings that are attractive to customers, and successfully markets
them, the BOCs will properly obtain business. But their interexchange
competitors will likewise be able to make offerings that might be
attractive to customers, on the same basis as the BOCs can.
The specific restrictions, which are set forth in Section
VIII(L)(3)(f) and (g) of the Department's proposed order, require a
separation of the persons responsible for administering presubscription
(referred to as the ``wireless exchange sales force'') from persons who
market the BOC's interexchange services (the ``long distance sales
force''). However sold, the BOCs would be required to state separately
the prices for cellular service and long distance service, and would
not be permitted to offer blended or bundled service offerings.
Proposed Order, Sec. VIII(L)(3)(a)(5). Nothing would prohibit them from
making claims in marketing or advertising that either their cellular
service or their long distance service is more favorably priced than
their competitors'. If a BOC provides its customers with a single bill
for cellular and interexchange service, it would be required to permit
similar billing arrangements by its long distance competitors. Proposed
Order, Sec. VIII(L)(3)(b).
The Department would not seek to preclude the BOCs from marketing
the long distance services it believes they should be allowed to
provide, and believes that the long distance sales force should be
permitted to sell cellular service as well. However, this sales force
should not be given any advantages not also given to the BOC's
interexchange competitors: It should receive any cellular customer
lists at the same time and under the same terms as the BOCs'
competitors, and should not receive any additional information about
those customers (eg. their cellular telephone numbers, their usage
patterns) unless the same information is provided to competing
interexchange carriers.\51\ The long distance sales force is also
required to advise customers that they have a right to choose
interexchange carriers. Proposed Order, Sec. VIII(L)(3)(g)(3).
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\51\Those carriers would be restricted in their use of that
information to the marketing of interexchange services;
interexchange carriers affiliated with wireless carriers would not
be able to use this confidential information to market wireless
services. The largest interexchange carrier, AT&T, is subject to the
same separation and marketing restrictions. AT&T/McCaw Decree,
Section IV.C.
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The ``wireless exchange sales force,'' the group responsible for
administering presubscription, includes salespersons in retail stores
and those who receive inquiries. Those salespersons, like persons
selling BOC cellular service today, would be required to provide the
customer with a ballot to select an interexchange carrier, and would
not be allowed to sell long distance service or advocate that the
customer purchase BOC long distance service. Proposed Order,
Sec. VII(L)(3)(f).
The Department does not agree with the BOCs that these restrictions
are ``unduly restrictive.'' (BOC Mem. 18) Rather, these marketing and
billing restrictions are necessary to allow the BOCs to market their
interexchange services while providing their competitors with the
opportunity to compete on equal terms, thereby providing consumers with
a meaningful opportunity to make an informed choice. By comparison, the
BOC proposed order and equal access plan are silent (or at best
ambiguous) as to whether bundled service offerings are permitted, and
whether competing interexchange carriers will be permitted to create
their own bundles.\52\ The Department's proposal requires unbundled
offers, and requires the BOCs to provide their long distance
competitors with customer lists at the same time as that information is
provided to their long distance sales force.\53\ Under these
arrangements, carriers that do not control cellular exchanges, and
cannot themselves provide both cellular and long distance service,
nonetheless have an opportunity to market long distance services to BOC
cellular customers.
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\52\The BOC order does require that exchange access and exchange
services of such access be provided to interexchange carriers ``on
an unbundled basis, that is equal in type, quality and price to that
provided to any interexchange service provided by the Bell company
or an affiliate thereof.'' BOC Proposed Order Sec. I.4,p.3. If there
were separations between the cellular and long distance sales
operations, this language presumably would prohibit the BOC from
``selling'' cellular service to an affiliated packager at lower
prices than offered to competing interexchange carriers, and the BOC
could not bundle cellular and long distance services in combinations
that other interexchange carriers could not match. However, in the
absence of such separations, it is unclear whether the BOCs'
proposed order would in fact prevent discriminatory bundling, and it
would be difficult for the Department to determine, in attempting to
enforce the conditions to this waiver order, whether the BOC had
discriminated. The Department's proposed order makes these
discriminations clearly prohibited and more easily detected.
\53\The BOC equal access plan provides that a Bell cellular
affiliate ``may use customer names, addresses and mobile numbers to
market its own interexchange operations only if it provides that
information on the same terms and conditions to unaffiliated''
interexchange carriers. (BOC Model Equal Access Plan, p. 4) However,
absent separation between the cellular and long distance sales
forces, there can be no genuine assurance that the BOC will in fact
not receive these customer names before its competitors do, and
little opportunity to enforce this requirement.
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C. Appropriate Safeguards Are Also Required To Prevent Abuse of the
Landline Exchange.
It is also true, as AT&T has stressed, that the possibility exists
that the BOCs could use their control of the local exchange to
discriminate against competing interchange carriers, who rely on the
local exchange for their access to both the wireline and nonwireline
cellular exchanges. Cellular exchanges likewise relies on the local
exchange for interconnection to local exchange customers, for access to
interexchange carriers, and often for transport between cellular
switches and cell sites within the cellular network.
While the dangers of discrimination in these local landline
exchange facilities is present, that danger can be constrained by
injunction. The Department's proposed order specifically enjoins
discrimination by the local exchange, directed either at competing
wireless providers or at competing interexchange providers. Proposed
Order, Sec. VIII(L)(3)(a) (1), (2). In addition, Section VIII(L)(1)(c)
and VIII(L)(2) make clear that the authority to provide interexchange
services is limited to the BOC's Wireless Exchange Service, which must
be physically and structurally separate from its local telephone
operations. The long distance sales force in particular must be a
distinct sales force, with separate managers, from any sales force that
sells products or services of any local telephone company. Proposed
Order, Sec. VIII(L)(3)(g)(1).
These requirements are sufficient to prevent discrimination in this
narrow circumstance. Not only would such discrimination be prohibited
explicitly, and subject to civil fine and loss of the authority to
provide wireless interexchange services, Proposed Order,
Sec. VIII(L)(5), but it would also be quite difficult to accomplish
effectively, under the restriction that the BOCs be limited to
reselling other carriers' switched interexchange services. The resale
requirement reduces the risk of discrimination in the local exchange,
possibly even more than in the cellular switch. The BOCs will be
sending their own long distance traffic over several carriers'
facilities, which are also handling traffic originating in the local
exchange (for which the BOCs may not compete). In addition, the BOCs
will be sending their interexchange calls to interexchange carriers
that will presumably also be serving their own customers that are
subscribers of the BOC wireless service. If the quality of
transmission, for example, was significantly better for the BOC's
customers, it would be readily apparent to the interexchange carrier.
In fact, any effort by the BOC to degrade the transmission of
competitors' traffic might well result in adversely affecting its own
interexchange customers. Moreover, since there are two cellular
providers in each market, a BOC considering a strategy of degrading
competitors' interexchange connections might be concerned that
customers would not associate their service problems with the
interexchange service, and thus might switch cellular carriers.
It is also significant that the direct connection option exists for
interexchange carriers deciding to obtain exchange access to their
wireless customers without routing their calls through the LEC's
switched network. The existence of this possibility could well deter
discriminatory behavior out of concern that to do so would risk loss of
access charge revenues. The benefits of discrimination in these
circumstances are slight, and the risks of detection may be more
substantial.
D. Provisions for Incidental Relief from the Decree's Equal Access
Requirements.
The BOC's motion also seeks some incidental relief from the
Decree's equal access requirements in connection with their paging and
radiolocation businesses, and in connection with certain aspects of
their cellular businesses. Subject to some minor clarification, the
Department believes that these modifications (which AT&T has not
previously opposed) are in the public interest.
Section VIII(L)(2) of the Department's proposed order, which
parallels Section II(a) of the BOCs' proposed order, states that the
Decree's equal access and nondiscrimination requirements shall not
apply to paging (with acknowledgement) or radiolocation. These are
substantially competitive businesses, without the market power of
cellular, and the Court has already granted generic interexchange
relief for one-way paging.\54\ The equal access relief confirmed here
was implicit in that paging order, but this order confirms that a BOC
paging affiliate may combine interexchange services necessary to
provide paging with the paging services itself, and need not hand off
interexchange links within the paging network to other carriers. The
department's proposed order confirms that this relief does not relive
BOC local exchanges of their equal access and nondiscrimination
obligations towards unaffiliated paging companies; and that it does not
implicitly grant the BOCs' motion for a waiver for 800 access to
paging, which is now pending with the Court (and which the Department
supports). (U.S. Mem., Feb. 1, 1993)
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\54\Memorandum and Order, United States v. Western Elec. Co.
(D.D.C. Feb. 16, 1989). Paging with acknowledgement does not seem to
be any more likely to pose competitive risks than one-way paging.
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Section VIII(L)(2)(e) of the Department's proposed order, which
parallels Section II(b) of the BOCs' proposed order, provides that BOC
cellular systems can transmit IS-41 and comparable administrative
messages on a non-equal access basis, so long as they do not
discriminate in favor of their own interexchange carrier in doing so.
IS-41 is an industry standard that permits cellular systems to signal
each other in order to, among other things, locate roaming subscribers
and determine whether their cellular phones are available to receive
calls. Only if the signaling messages indicate that the call can be
completed is a voice path established to complete the call. The
proposed order will permit the BOC cellular systems to use IS-41 to
locate their subscribers; they will then be required to turn over the
call to the customers's PIC (which could be the BOC or an unaffiliated
carrier) to complete the call.
Section VIII(L)(2)(3) of the Department's proposed order permits
the BOCs to resell other cellular carriers' cellular services, whether
or not those other carriers provide equal access. Today the BOC can
resell other BOCs' cellular services, but not the services of cellular
carriers that bundle cellular and interexchange services. This relief
will permit the BOCs to resell the services of non-BOC cellular
carriers, and thereby attempt to provide greater regional or national
coverage, in competition with other providers who may seek to offer
national presence (such as AT&T). This section also addresses the
situation in which the customer of a non-equal access cellular system
roams into the BOC cellular system. If that customer does not have a
PIC, the BOC may complete that customer's long distance calls by using
the BOC's long distance services.\55\
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\55\This section also permits the BOCs to handle these default
calls where the roaming customer has selected an interexchange
carrier that does not serve the BOC system.
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The proposed modification, section VIII(L)(2)(f), would permit the
BOCs to provide interexchange telecommunications services in connection
with the offering of Cellular Digital packet Data Service (``CDPD'').
Although not specifically requested by the BOCs, the department is
including this service in its Proposed Order in view of the fact that a
similar provision was included in the Final Judgment proposed in
connection with AT&T's acquisition of McCaw. AT&T/McCaw Decree,
Sec. IV.H, see id. Sec. II.F. This provision would allow interexchange
transport of packetized data from the cell sites to centralized points
before it is routed through a switching or routing device that is
capable of handing it off onto separate facilities specified by the
customer. At this centralized point the modification specifies that the
CDPD provider will hand the message off to (or receive a message from)
an Internet Node within the same exchange area, or transfer it to a
private network facility or interexchange carrier specified by the
customer. Interexchange facilities used by a BOC to transport the
messages to and from the centralized points must be obtained from an
unaffiliated interexchange carrier and the BOCs are not authorized to
provide the interexchange carrier service of transporting the messages
from the centralized points. The procedures for specifying the
selection of the customer interexchange carrier for CDPD must be
specified in the BOC's compliance plans before they may implement this
provision. The Department's recommendation for this provision is based
on our understanding that it will significantly facilitate the early
provision of this important service especially in area of relatively
low demand.
These provisions give the BOCs the ability to offer and provide
cellular services in a reasonably efficient manner, without seriously
impairing the objectives of the decree's equal access provisions. None
of these modifications will prevent a cellular customer from obtaining
interexchange services from the carrier of their choice; these
provisions will only permit the BOCs to offer cellular services to more
customers more efficiently.
III. The Court Should Defer Consideration of the BOC's Request for
Generic Modification of Cellular Exchange Areas
The BOCs also seek relief expanding the areas in which they are
permitted to offer local service to Major Trading Areas defined by Rand
McNally, plus existing cellular service areas as they have been
expanded by the Court in 49 cellular waiver orders, plus adjacent Rural
Service Areas (``RSAs''). As a result, several of the calling areas
that would be created by the BOCs' waiver are substantially larger even
than MTAs.\56\
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\56\For example, see the following maps attached to the
Affidavit of Peter A. Morrison (June 15, 1994), submitted by the
BOCs: Cincinnati-Columbus-Dayton, El Paso, Knoxville, Clarksville,
Oklahoma City, Phoenix, Portland, Salt Lake City, Tulsa, Wichita.
Although the BOCs' memorandum makes no mention of the fact that they
seek relief that is broader than MTAs, that is the effect of their
proposed order's provision that, ``where a LATA or integrated
service area authorized by a prior waiver overlaps two or more major
trading areas, the major trading area in which the largest portion
of the LATA or integrated service area falls (as determined by
geographic area) shall be deemed to include the entire LATA or
integrated service territory.'' BOC Proposed Order, p. 5.
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Enlarging local calling scopes moves traffic from the interexchange
market, which is at least somewhat competitive, to the celluar market,
which in the Department's view is less competitive. By AT&T's estimate,
fully 25 percent of all interexchange traffic is within MTAs.\57\ Thus,
the proposed relief could move as much as 25 percent of cellular-
originated long distance traffic from more competitive interexchange
markets to less competitive cellular markets.
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\57\AT&T's Supplemental Opposition to RBOCs' Motion to Exempt
Wireless Service from Section II of the Decree, p. 17 (Oct. 25,
1993). This 25 percent estimate would be reduced in light of
existing cellular waivers, which have expanded the BOCs' coverage
areas. See BOC Mem. 44 (``the switch to MTAs would not involve a
very large expansion''). To the extent that current coverage areas
approach MTAs in size, less traffic would be ``duopolized,'' but
there is likewise less need for relief.
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Recognizing the consequences of expanding local calling areas, the
Court has held that it would only do so upon a showing of ``community
of interest,'' so that the Court could be satisfied that ``the public
benefits accruing from slight departures from the strict LATA
boundaries to accommodate motorists with cellular phones were so
substantial that they outweighed, on this limited basis, the dangers to
fair competition.''\58\ Traffic patterns and ``metropolitan complexes''
have been the Court's primary guideposts in making these exceptions, as
the BOCs acknowledge. (BOC Mem. 41)
---------------------------------------------------------------------------
\58\Triennial Review, 673 F. Supp. at 552, quoted, United States
v. Western Elec. Co., 1990-2 Trade Cas. 69,177, at 64,455 (D.D.C.
1990).
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The BOCs had 23 waivers pending at the end of 1991, when they
agreed to hold those waivers in abeyance pending their pursuit of this
generic wireless waiver. Many of these waivers, such as BellSouth's
waiver for all of the State of Florida,\59\ cannot be justified by
reference to traffic patterns or metropolitan complexes except in the
most attenuated fashion. Rather, MTAs reflect patterns of commercial
activity (BOC Mem. 43), not the patterns of personal movement on which
the Court has relied. While ``patterns of traffic'' may exist among any
two cities chosen at random (in that someone probably went between them
once), MTAs do not purport to represent areas within which people move
on a daily basis.\60\
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\59\Motion of BellSouth Corporation for a Waiver of Section
II(D) of the Modification of Final Judgment to Allow BellSouth
Corporation To Provide Integrated MultiLATA Cellular Service, May 9,
1991. BellSouth made virtually no attempt to show a community of
interest for the State of Florida. Rather, BellSouth relied
principally on arguments that its cellular service faces
competition. The only evidence of community of interest for the
State of Florida that BellSouth offers is that the Department of
Transportation has observed that a certain number of vehicles
crossed LATA boundaries on a particular day. The fact that vehicles
left the Tampa LATA on a particular day provides no support for the
proposition that ``subscribers will want and expect to be in
communication with mobile units in this traffic which regularly
crosses from one LATA to another,'' Mobile Services Decision, 578 F.
Supp. at 648, much less that people drive from Tampa to Miami as
regularly as they drive from New York City to northern New Jersey.
See also Southwestern Bell's Response to Comments (March 1, 1990)
(``there is no requirement in Section VIII (c) that a BOC must make
a showing that a ``community of interest'' exists before the Court
can grant a MultiLATA cellular waiver'').
\60\Thus, for example, the Los Angeles MTA includes Las Vegas;
the New York City MTA includes Burlington, Vermont; the San
Francisco MTA includes Reno, Nevada; and the Spokane, Washington,
MTA includes Billings, Montana--a distance of nearly 1,000 miles
(according to Rand McNally).
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It is also suggested that the FCC's decision to license some PCS
spectrum blocks using MTAs indicates that MTAs are appropriate local
calling areas. (BOC Mem. 43-44) The FCC has also ``embraced'' Basic
Trading Areas, which are substantially smaller than LATAs. FCC PCS
Order 76, at 7733. None of these determinations of the appropriate
size of radio licenses--the context in which the Commission considered
MTAs as providing ``economies of scale and scope necessary to promote
the development of low cost PCS equipment'' (BOC Mem. 44, quoting FCC
PCS Order 75, at 7733)--reflects a determination by the Commission of
the appropriate local calling ares for cellular systems providing equal
access.
That issue will be taken up if the Commission decides to impose
equal access on cellular or other wireless carriers, an issue now open
for comment before it. The United States proposes that the Court defer
redefining cellular local calling areas until the Commission has acted;
the BOCs, having argued that the Commission's ``embrace'' of MTAs in
another context is determinative, resist allowing the expert agency to
attempt to address this issue.
It would not be sensible for the Court and the Department to embark
on this mapmaking project again, at the same time as the Commission is
considering the issue. The result could be that, instead of the one
cellular calling area map now devised by the Court, there could be
three maps: The old adjusted LATA map, the new map drawn by the Court
(whether MTAs or something else), and a different map developed by the
FCC.
It seems more sensible for the FCC to act first. If the Commission
adopts equal access, and draws a map, then the Court can determine
whether that map addresses the needs of the Decree and, if so, conform
the Decree's cellular LATAs to the FCC's decision. If the FCC
determines not to impose equal access, then the Court can revisit this
issue--and the BOCs can attempt to make a more persuasive case, or seek
a more reasonable alternative. In the meanwhile, the Department will
consider the pending cellular geography waivers, which had been
deferred, to be ripe for decision, and will advise the BOCs shortly
whether it will support or oppose specific waivers.
Conclusion
For the foregoing reasons, the Court should deny the motions of
BellSouth and Southwestern Bell for complete removal of the equal
access and provisions of the Decree as applied to wireless businesses;
and should grant the motion of the Bell Companies for a waiver of the
interexchange restriction subject to the terms and conditions set forth
in the accompanying proposed order.
July 25, 1994.
Respectfully submitted,
Anne K. Bingaman,
Assistant Attorney General.
Robert E. Litan,
Deputy Assistant Attorney General.
Antitrust Division, U.S. Department of Justice, Washington, DC
20530.
Richard Liebeskind,
Jonathan M. Rich,
Assistant Chiefs,
Luin P. Fitch, Jr.,
Deborah R. Maisel,
Brent E. Marshall,
Don Allen Resnikoff,
N. Scott Sacks,
Kathleen M. Soltero,
Attorneys.
Communications & Finance Section, Antitrust Division, U.S.
Department of Justice, 555 Fourth Street, N.W., Washington, DC
20001, (202) 514-5621.
Attorneys for the United States.
June 14, 1994.
Michael K. Kellogg, Esq.,
Kellogg, Huber & Hansen, 1301 K Street, NW., Suite 1040 East,
Washington, DC 20005.
Re: United States v. Western Electric Co., et al., Bell Companies'
Request for a Generic Wireless Waiver
Dear Mr. Kellogg: The Department has concluded its investigation
and analysis of the Bell Companies' request, submitted as modified
on November 12, 1993, for a waiver of the interexchange line of
business restriction of Section II(D)(1) of the Modification of
Final Judgment (``MFJ'') as applied to their ``wireless''
businesses, and other relief (the ``Generic Wireless Waiver''). The
Bell Companies (``BOCs'') may proceed to file their motion for that
waiver with the Court.
The Department intends to support the Generic Wireless Waiver,
as proposed in the Bell Companies' submissions of September 24 and
November 12, 1993, only to the extent stated in this letter. The
Department reserves its right and responsibility to modify its
position if it appears to the Department, in light of comments of
interested persons, further investigation or subsequent
developments, that a change of position is appropriate. The
discussion herein follows the form of the BOCs' proposed order of
September 24, 1993, as modified by your letter of November 12, 1993.
I. Interexchange Services. the Department intends to support the
BOCs' request for a waiver of the interexchange prohibition, subject
to the conditions stated in the proposed order and model equal
access plan, on the following conditions:
a. That the authority to provide interexchange services is
limited to the provision by resale of switched interexchange
services. Our current views is that not more than forty-five percent
of any BOC cellular system's resold interexchange service should be
purchased from any one interexchange carrier.
b. That the conditions on the proposed waiver apply to any
entity that is a BOC within the meaning of the MFJ.\1\
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\1\These conditions likewise apply to the relief sought in
Sections II(b), II(c) and III of the proposed order, and to the
transmission of IS-41 or comparable administrative messages pursuant
to Section II(a). The Department recommends that Section II(a) be
separated into two sections for ease of reference.
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c. That the scope of the authority to provide interexchange
services is restricted to
(1) Telecommunications originating in a cellular exchange,\2\ as
currently configured, or other similarly configured networks,
distinct from the landline local exchange, wherein radio is used to
connect the network with a customer who is not at a fixed location.
The BOCs have based their reasoning supporting a waiver and the
design of their proposed order and equal access plan on the
architecture of their existing cellular systems, and the Department
will not support a waiver that is not limited to such systems or
systems with similar architectures.
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\2\``Cellular exchange'' within the meaning of this letter
refers to an exchange service offering commercial mobile services,
as defined in 47 U.S.C. Sec. 332(d)(1), in the 800 MHz radio bands.
The Department understands that such exchange services are provided
by companies that are, pursuant to FCC regulation, separate
subsidiaries from local telephone exchange companies (``LECs''), and
that the principal facilities used to provide cellular exchange
service, e.g., switching equipment and radio base stations, are
physically and operationally separate from LEC facilities.
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(2) Telecommunications intended by the originator to be directed
to a cellular exchange, as described above, but that the cellular
exchange subscriber has forwarded to another destination (including
a voice mailbox or similar storage facility). The authority to
provide interexchange services under this condition is limited to
that portion of the interexchange service from the cellular system
to which the telecommunication was directed by the originator to the
ultimate destination. This condition specifically does not authorize
the provisions of interexchange services from the point of
origination to the cellular system (e.g., an ``800 access to
cellular'' service), which the BOCs have not sought in this
proceeding.
d. That the authority be conditioned on an explicit requirement
that:
``Each Bell operating telephone company shall offer to all
interexchange carriers exchange access and exchange services for
such access on an unbundled basis that is equal in type, quality and
price to that provided to any interexchange service provided by the
Bell company or any affiliate thereof.''
e. That the authority to provide interexchange services be
conditioned on an explicit requirement that:
``Each Bell operating telephone company shall not discriminate
between any mobile service provided by the Bell company or an
affiliate thereof and any nonaffiliated mobile service provider or
between an interexchange service provided by the Bell company or an
affiliate thereof and any nonaffiliated interexchange carrier in
the:
``(a) establishment and dissemination of technical information
and interconnection standards;
``(b) interconnection and use of the Bell operating telephone
company's telecommunications service and facilities or in the
charges for each element of service; and
``(c) provision of new services and the planning for and
implementation of the construction and modification of facilities
used to provide exchange access.''
f. That the authority to provide interexchange services be
conditioned on an explicit requirement that:
``Each Bell Operating Company or affiliate thereof providing
commercial mobile service within the meaning of 47 U.S.C. 332(d)(1)
shall offer to all interexchange carriers exchange access and
exchange services for such access on an unbundled basis that is
equal in type, quality and price to that provided to any
interexchange service provided by the Bell company or any affiliate
thereof.''
Implicit in this concept and in the concept of equal access is that
the price, quality and terms upon which cellular service is offered
shall not vary with the customer's choice of interexchange carrier.
That proposition should be affirmed explicitly:
``A Bell Operating Company or affiliate thereof shall not sell
or contract to sell wireless service at a price, term or discount
that depends upon whether the customer obtains interexchange service
from the Bell Operating Company or an affiliate thereof.''
In addition, the Department believes that the same proposition
should apply to the sale of interexchange service:
``To the extent that a Bell Operating Company or affiliate
thereof provides interexchange services pursuant to this order to
unaffiliated wireless services providers or customers thereof, the
Bell Operating Company shall not sell or contract to sell
interexchange service at a price, term or discount that depends upon
whether the customer obtains wireless service from the Bell
Operating Company or an affiliate thereof.''
Finally, in order for these guarantees to be meaningful, the
Department believes that the Bell Operating Companies should be
required to state separately the prices, terms or rate plans for (a)
wireless services and (b) interexchange services.
g. That the authority to provide interexchange services be
conditioned on an explicit requirement that:
``Each Bell Operating Company or affiliate thereof providing
commercial mobile service within the meaning of 47 U.S.C. 332(d)(1)
shall not discriminate between any interexchange service provided by
the Bell company or an affiliate thereof and any nonaffiliated
interexchange service carrier in the:
``(a) establishment and dissemination of technical information
and interconnection standards;
``(b) interconnection and use of the Bell Operating Company's or
affiliate's telecommunications service and facilities or in the
charges for each element of service; and
``(c) provision of new services and the planning for and
implementation of the construction and modification of facilities
used to provide exchange access.''
h. That the BOCs shall file with the Department of a mobile
equal access plan, which plan shall not be effective (1) until 90
days after filing, if not disapproved by the Department, or (2) if
disapproved by the Department; that there be no authority to provide
interexchange services pursuant to this waiver until an equal access
plan has become effective; and that the plan at a minimum contains
the specifications contained in the BOC Model Equal Access Plan
submitted on September 24, 1993, as modified by your letter of
November 12, 1993, except in the following particulars:
(1) The Department believes that it is necessary in the
provision of equal access that interexchange services not be sold by
the persons selling exchange services and who are required to
administer presubscription (the ``cellular sales force''). It is the
Department's contemplation that this restriction would apply to
retail store agents and to other BOC salespersons who receive
inquiries by prospective subscribers, i.e., salespersons who handle
``incoming'' prospects or requests for service.
(2) Persons selling long distance services (the ``long distance
sales force'') may sell cellular services and long distance services
on the following conditions:
(a) That the long distance sales force be a distinct group of
individuals, with separate managers, from the cellular sales force
and from any sales force that sells products or services of the Bell
Operating telephone companies.
(b) That the long distance sales force receive any list of the
BOC's wireless customers on the same terms, and at the same time, as
that list is received by competing interexchange carriers. The
Department anticipates that a BOC cellular carrier will at regular
intervals provide all long distance carriers with listings
identifying the names, addresses and telephone numbers of all
cellular subscribers, regardless of the distribution channel through
which the subscriber was retained. It is a condition to the BOCs'
direct marketing of cellular long distance that this information be
made available to all competing interexchange carriers.
(c) That the long distance sales force must advise actual or
prospective subscribers of their right to presubscribe to competing
interexchange carriers.
(d) That the long distance sales force not receive any
information about the identity of the BOC's wireless customers'
interexchange carrier or the wireless customer's cellular or long
distance usage, unless the customer is already a customer of the
BOC's interexchange service.
(e) That the long distance sales force be a distinct group of
individuals, with separate managers, from any sales force that sells
the products or services of any Bell Operating telephone company.
(2) The Department understands that the marketing restrictions
applicable to ``existing customers'' (as specified in your letter of
November 12, 1993) apply not only to customers existing as of the
date of any Order, but also to persons who become customers of the
BOC wireless service thereafter. When such persons become customers,
marketing of long distance service to such persons are subject to
the provisions on ``marketing restrictions: new customers''; after
such persons become customers, they are subject to the provisions on
``marketing restrictions: existing customers.'' The Department
conditions its support of this waiver on this understanding, and on
the further condition that the BOC personnel marketing long distance
services not receive wireless customer names, addresses and
telephone numbers until that information is also available to
competing interexchange carriers.
(3) The Department conditions its support for a waiver on the
requirement that, if the BOC or its wireless affiliate bills its
long distance customers for that service in the same billing as for
its wireless exchange service, it makes that billing arrangement
available to competing interexchange carriers on reasonable and
nondiscriminatory terms. It is the Department's understanding that
most BOCs currently make such billing arrangements available to
interexchange carriers; if this relief is granted, the Department
believes that the BOCs should not be permitted to terminate those
arrangements for competing carriers.
(4) The Department opposes any authority pursuant to which the
BOC might discriminate in the provision of interexchange routing or
in the colocation of interexchange points of presence in cellular
MTSOs.
(5) The Department believes that the BOCs should be required to
notify competing interexchange providers of changes to existing
network services or the addition of new services that affect the
interexchange carriers' interconnection at least 60 days prior to
implementation.
(6) The Department does not understand the Proposed Order to
permit a BOC to treat its long distance service as the default
carrier for a customer that fails to make the required selection of
an interexchange carrier. The Department understands that customers
who fail to select an interexchange carrier will not receive
interexchange service from their wireless telephones, and conditions
its support for the waiver on that understanding.
Finally, we believe that in this instance it is appropriate to
condition the continued provision of interexchange service on
compliance with the equal access conditions and requirements of this
waiver and of the MFJ. We also believe that the waiver order should
grant the Court the authority to impose civil fines, not to exceed
$10 million, for violations of equal access conditions and
requirements of this waiver or of the MFJ in the provision of
interexchange services from wireless exchanges.
II. Paging, etc. The Department intends to support the relief
specified in Section II of the Proposed Order, subject to the
following clarifications:
a. That the ``IS-41 or comparable'' functions specified in
paragraph II(a) not be used to discriminate in favor of the BOC's
own interexchange service.
b. That the default traffic specified in paragraph II(c) be
explicitly limited to interexchange telecommunications initiated by
roaming customers.
III. Local Calling Areas. The Department believes that this
issue should not be presented to the Court at this time and, if
presented, intends in the absence of further developments to urge
the Court to defer ruling on this issue. On June 9, 1994, the
Federal Communications Commission announced the issuance of a Notice
of Proposed Rule Making and Notice of Inquiry, pursuant to which the
Commission indicated that it has tentatively concluded that imposing
equal access obligations on cellular telephone companies would be in
the public interest. The text of the Notice is not yet available to
the public or to the Department.
The Department understands that any such equal access obligation
necessarily requires the adoption of a map defining local calling
areas and delimiting the respective areas of local and long distance
service. Therefore, if the Commission acts in accord with its
tentative decision, it will need to consider the appropriate local
calling areas for cellular service, the issue raised by this portion
of the BOCs' proposal. The FCC's conclusions may result in the
imposition by regulation of a local calling area map that is
different from either (1) the current cellular calling areas, as
defined by the MFJ and subsequent orders, and (2) the relief the
BOCs seek here. Given the possibility of inconsistent results, it
would not be productive for the Court to consider a comprehensive
redefinition of local calling areas at the same time that the FCC is
considering the same issue. If the FCC does not adopt a final rule
on cellular equal access, the Court may then consider whether it
wants to make substantial changes to the cellular equal access map.
The Department will, during the pendency of the FCC proceeding,
evaluate pending calling area waiver requests to determine whether
they meet the standards for such relief.
IV. FCC Preemption. The Department does not support the relief
sought in Section IV of the Proposed Order. If the FCC adopts an
equal access order that reasonably achieves the purposes of the
Decree, including equal access, but differs in some technical
respects in its implementation of those purposes, it may be
appropriate for the Department and the Court to consider whether it
is necessary or wise to maintain two sets of equal access
obligations. However, it would in our view be inappropriate to make
that determination before the Commission adopts a final rule on this
subject.
Sincerely,
Richard L. Rosen,
Chief, Communications and Finance Section.
Certificate of Service
I, J. Philip Sauntry, Jr., hereby certify under penalty of perjury
that I am not a party to this action, that I am not less than 18 years
of age, and that I have on this day caused the Competitive Impact
Statement of the United States in the matter United States of America
v. AT&T Corp., and McCaw Cellular Communications, Inc. to be served on
defendants by mailing a copy, postage prepaid, to each of the
individuals and organizations at the addresses listed below:
1. John D. Zeglis, AT&T Corp., 295 North Maple Avenue, Basking Ridge,
New Jersey 07920.
2. Douglas I. Brandon, McCaw Cellular Communications, Inc., 1150
Connecticut Avenue NW., Washington, DC 20036.
August 5, 1994.
J. Philip Sauntry, Jr.
[FR Doc. 94-20948 Filed 8-25-94; 8:45 am]
BILLING CODE 4410-01-M