UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, et al., National Association of
Broadcasters, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, et al., Consumer Federation of
America, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., CompuServe
Incorporated, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., The Dun & Bradstreet
Corporation, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., MCI Communications
Corporation, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., National Cable
Television Association, Inc., Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Newspaper
Association of America, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Prodigy Services
Company, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., ADAPSO, the Computer
Software and Services Industry Association, Inc.,
Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., ALC Communications
Corporation, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Information Industry
Association, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., and American Telephone and
Telegraph Company, GE Communications & Services,
Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., and American Telephone and
Telegraph Company, Cox Enterprises, Inc., Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Dialog Information
Services, Inc., Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Association of North
American Directory Publishers, Inc., Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Alarm Industry
Communications Committee, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., West Publishing
Company, Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., LO-AD Communications
of California, Inc., and LO-AD Communications of
Nevada, Inc., Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., McGraw-Hill, Inc.,
Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Mead Data Central,
Inc., Appellants.
UNITED STATES of America
v.
WESTERN ELECTRIC COMPANY, INC., et al., Commerce Clearing
House, Inc., Appellants.
Nos. 91-5263 to 91-5273, 91-5279 to 91-5288.
United States Court of Appeals,
District of Columbia Circuit.
Argued Dec. 1, 1992.
Decided May 28, 1993.
[
Chester T. Kamin, with whom Bruce J. Ennis, Jr., Michael H. Salsbury, Richard E. Wiley, Michael Yourshaw, William B. Baker, H. Barton Farr, III, and Richard G. Taranto, were on the joint brief, for appellants. Barbara L. Waite, Michael A. Jacobs, Ann J. LaFrance, Andrew D. Lipman, Richard M. Ridler, Jonathan W. Cuneo, Howard D. Polsky, Sue D. Blumenfeld, Robert P. Reznick, Werner K. Hartenberger, Laura H. Phillips, Alexander Humphrey, Robert J. Butler, Roy L. Morris, Joseph P. Markoski, W. Terry Maguire, Brenda L. Fox, Randolph J. May, Gene Kimmelman, and Henry L. Baumann, also entered appearances for appellants.
Peter G. Wolfe, entered an appearance for Public Service Com'n of the District of Columbia.
Frank W. Lloyd, III, entered an appearance for intervenor Leghorn Telepublishing Co.
John Glynn, Gary L. Lieber and Robert L. Duston, entered appearances for intervenor Maryland People's Counsel.
Nancy C. Garrison, Atty., Dept. of Justice, with whom Catherine G. O'Sullivan, Atty., Dept. of Justice, was on the brief, for appellee U.S.
Laurence H. Tribe, with whom Stephen M. Shapiro, Michael K. Kellogg, Walter H. Alford, Mark K. Hallenbeck, Richard W. Odgers, Margaret deb. Brown, Jeffrey S. Bork, [
Phillip D. Mink, entered an appearance for intervenor Action for Children's Television and Citizens for a Sound Economy Foundation.
Herbert E. Marks and James L. Casserly, entered appearances for intervenor Independent Data Communication Mfrs. Ass'n, Inc.
David W. Carpenter, entered an appearance for intervenor American Tel. & Tel. Co.
John W. Pettit and Thomas K. Crowe, entered appearances for intervenor Tandy Corp.
Laurence H. Tribe and Michael K. Kellogg, entered appearances for intervenor Ameritech, Bell Atlantic, BellSouth Corp., NYNEX Corp., Pacific Telesis Group, Southwestern Bell and US WEST, Inc.
Kathleen F. O'Reilly, entered an appearance for intervenor Wisconsin Citizens' Utility Bd. and Toward Utility Rate Normalization.
Phillip D. Mink, was on the brief for intervenor and amicus curiae Regional Telephone Co.
Robert Abrams, John R. Perkins, Robert T. Stephen and Thomas Udall, were on the brief, for amicus curiae Twenty-Seven States.
Robert L. Pettit, Gen. Counsel, Renee Licht, Deputy Gen. Counsel, and John E. Ingle, Deputy Associate Gen. Counsel, F.C.C., were on the brief, for amicus curiae F.C.C.
Martin T. McCue, Gen. Counsel and Rodney L. Joyce, U.S. Telephone Ass'n, were on the brief, for amicus curiae U.S. Telephone Ass'n.
James B. Gainer, Asst. Atty. Gen., entered an appearance for amicus curiae Public Utilities Com'n of Ohio, State of Ohio, Illinois Commerce Com'n, and State of Ill.
Steven M. Schur, Gen. Counsel and Michael S. Varda, Legal Counsel, Public Service Com'n of Wisconsin, entered appearances for amicus curiae Public Service Com'n of Wisconsin and State of Wis.
L. Andrew Tollin, entered an appearance for amicus curiae Media Institute.
Bruce J. Weston and David C. Bergmann, entered appearances for amicus curiae Nat. Ass'n of State Utility Consumer Advocates and Office of the Consumers' Counsel State of Ohio.
Before: BUCKLEY, WILLIAMS and SENTELLE, Circuit Judges.
Opinion for the Court filed by Circuit Judge STEPHEN F. WILLIAMS.
STEPHEN F. WILLIAMS, Circuit Judge:
When the government and AT & T settled the government's antitrust suit against AT & T, the Department of Justice pledged to report to the district court every three years as to whether there was a continuing need for the "line of business" restrictions that the settlement decree, the "Modified Final Judgment", imposed on the Bell operating companies (or BOCs). In 1987 the Department proposed that many of the restrictions be removed, including those on entry into the information services market. The district court rejected the information services proposal and several others. On review, this court largely affirmed, but reversed and remanded as to information services, finding that the district court had employed the wrong standard in reviewing the Department's proposal. See United States v. Western Electric Co.,
On remand, the district court modified the decree, in an opinion that is something of a pushmi-pullyu. See United States v. Western Electric Co.,
A variety of media and information services interests challenge the modification. Although the district court in certain places mischaracterized the standard under which it was to review the Department's proposal, the evidence was such that, under the standard laid down in the Triennial Review Opinion, rejection of the Department's proposal would have been error. We affirm.
The standard for review of modifications on mutual consent
Under the Antitrust Procedures and Penalties Act, 15 U.S.C. §§ 16(b)-(h), known as the Tunney Act, the district court reviewing a consent decree must determine whether the entry of such judgment is "in the public interest." Id. at § 16(e). Although application of the Tunney Act to decree modifications has been contested, see Note, Modifications of Antitrust Consent Decrees: Over a Double Barrel, 84 Mich.L.Rev. 134 (1985), all participants have assumed the point, as did we in the Triennial Review Opinion,
The court should bear in mind the flexibility of the public interest inquiry: the court's function is not to determine whether the resulting array of rights and liabilities "is one that will best serve society," but only to confirm that the resulting "settlement is 'within the reaches of the public interest.' "
Id. at 309 (emphasis in original) (citing and quoting United States v. Bechtel Corp.,
The appellants address the standard of review issue by selectively citing other language in the Triennial Review Opinion, assigning an absurd meaning to that language, and contending that therefore the language could not really be read to describe the standard for judicial evaluation of an uncontested modification. Finally--the point of their exercise--appellants leap to the conclusion that once we have banished the whipping boy of their creation, nothing will remain except a standard of de novo judicial evaluation. See Appellants' Brief at 54-68.
The language out of which appellants spin this argument is our statement that "Because the 'public interest' test must take its meaning from the nation's antitrust laws ..., the appropriate question ... is whether the proposed modification would be certain to lessen competition in the relevant market." Triennial Review Opinion,
This notion of utter certainty, and its correlative of abject deference to the Department, is a straw man. The focus of the [
The above view accords with other courts' understanding of the court-agency relation under the Tunney Act. As the Ninth Circuit found in Bechtel, "The balancing of competing social and political interests affected by a proposed antitrust decree must be left, in the first instance, to the discretion of the Attorney General."
Insofar as appellants claim that the deferential standard adopted in the Triennial Review Opinion (and in Bechtel and the other cases noted above) is at odds with the Tunney Act and other judicial interpretations, see Appellants' Brief at 28-54, the claim is one that they must pursue either by a suggestion for rehearing en banc or by petition for certiorari. We briefly note one special aspect of their argument, however. They suggest that it is inappropriate to defer to the Department when it is acting in a litigation mode, citing Crandon v. United States,
Insofar as appellants argue that our Triennial Review Opinion did not impose a standard of "strict certainty", see Appellants' Brief at 61, of course we agree--at least if that is understood to involve more deference than is conventional between court and agency on expert, predictive judgments. Despite the phrases quoted above from the Remand Decision, it is unclear what deference the district court actually extended. If it had demanded absolute certainty, i.e., indulged in total, rubber-stamp deference, we would have to remand for reconsideration under the correct standard--unless the record before the [
Record evidence on the effects of removing the ban on entry into information services
In advocating removal of the information services ban, the Department made the following contentions: (1) that there was no substantial risk that removal of the ban would lessen competition either through the BOCs' use of their "bottleneck" power over local loop connections (i.e., intra-exchange services) to discriminate against competing information service providers, or through cross-subsidization of their own information services; (2) that under current conditions regulation would play a substantial role in minimizing any anti-competitive risks; and (3) that removal of the ban would benefit consumers by enhancing competition in information services. See Memorandum of the United States in Support of Motions for Removal of the Information Services Restriction, Joint Appendix ("J.A.") 797; see also Remand Decision,
Participants on all sides of the dispute submitted affidavits on these issues, many by very distinguished economists. The issue before the court was limited: to determine whether the Department's views were well enough substantiated that it (the Department) could reasonably conclude that removal of the ban was in the public interest. The issue before us, under our self-imposed burden of deference to the district court, is whether that court was clearly erroneous to the extent that it found the Department's conclusion unreasonable.
(1) BOC power to discriminate against competing information service providers and to cross-subsidize. It is undisputed that the BOCs have monopolies over local telephone exchange service in their respective service areas. Remand Decision,
In assessing the ability of BOCs to raise rivals' costs, we assume arguendo that devices for avoiding the local loop altogether, such as satellite dishes, are inadequate. See Remand Decision,
This takes us to the customer end. See Noll Aff., par. 8, J.A. at 2584. Despite the local monopoly, the record indicates that even here there is much to undercut the threat of discrimination. First, it is evidently difficult, if not impossible, for BOCs to distinguish between information service provider messages and others, as both may come over regular voice lines. Carlton/Stigler Aff., par. 28, J.A. at 1854; Hausman Aff., par. 34, J.A. at 2235. Moreover, as Professor Fisher notes, a BOC would not only have to distinguish between voice and data messages, but also between those data messages coming from a competitor and those from a noncompetitor (e.g., interoffice transmissions by corporations). Fisher Aff., par. 17, J.A. at 2033. The necessary scale of BOC detections would be enormous; Fisher observes that on one information system alone (DunsNet) customers gain access 60,000 times a day. Id. at par. 18, J.A. 2033-34.
The discrimination hypothesis appears to assume, moreover, that local interconnections are a major element of the total costs of providing information services. This seems untrue. One major information service provider well-known to lawyers, Commerce Clearing House, reports that only 15-20% of its costs are due to telecommunications, of which 30% are local exchange costs. Fisher Aff., par. 19, J.A. at 2034. Thus only about 4.5% to 6% of CCH's costs are susceptible to BOC discrimination. Even a 50% increase in local exchange costs would raise CCH's costs by only 3%. Another affiant cites evidence that local exchange costs amount to only 1% of providers' total costs. See Hausman Aff., par. 24, J.A. 2231.
The BOCs also offered evidence that non-BOC local exchange companies such as GTE have entered the information services market without using their bottleneck control anti-competitively. Remand Decision,
Bafflingly, the district court characterized the BOCs' evidence on the bottleneck issue as "half-hearted", Remand Decision,
The district court also alluded to a cross-subsidy theory that was by no means central to appellants' objections--the possibility that BOCs might discourage others' entry by "acquiring a reputation for strategic predatory pricing" (by responding to entry by lowering prices), financing the predation by shifting costs to its price-regulated monopoly operations in the local loop. See Remand Decision,
(2) Efficacy of regulation. The BOCs and the Department of Justice pointed to regulatory safeguards that could limit anticompetitive effects even if the BOCs otherwise had the incentive and ability to discriminate or cross-subsidize. The district court dismissed these contentions. It believed instead that regulators had never been successful in stopping the Bell system from engaging in anticompetitive activities, and that there were no changes tending to enhance their ability to do so. It disposed of references to current FCC rules that require the BOCs to charge themselves the same access rates as they charge others, for instance, with the observation that a comparable rule did not work before the Bell system break-up. Remand Decision,
There is a lot of evidence that the break-up and other recent developments have enhanced regulatory capability. The seven independent BOCs are not the old AT & T. As this court noted in the Triennial Review Opinion, the existence of seven BOCs increases the number of benchmarks that can be used by regulators to detect discriminatory pricing. See id.,
Changes independent of the AT & T break-up also support the likelihood of more effective regulation. For example, Professor Kahn pointed to the FCC move in the direction of price cap regulation, which the FCC has in fact extended to the BOCs since his affidavit. See National Rural Telecom Ass'n v. FCC,
Similarly, Kahn argued that it was by no means valid to assume the prevalence of regulatory "capture". Noting state agencies' overwhelming concern for keeping the rates for local residential service low, he reasoned that this would inhibit any effort by the BOCs to shift costs into those (monopoly) services. He also noted that nearly every state allowed competitive resale of inter-LATA service--a rule clearly inconvenient to the BOCs and incompatible with an assumption of successful capture. Kahn Aff., pars. 10-11, J.A. 2391. Given Professor Kahn's careful analysis, not to mention his distinguished experience as a regulatory economist, it would take far more than a reference to the district judge's own experience in the AT & T matter to vindicate his disparagement of Kahn's testimony as "completely in error". See Remand Decision,
Of course, proponents of the entry ban submitted affidavits in its favor. The district court attached preeminent importance to that of Professor Noll, who argued that increasing product diversification would make strategic cost accounting and discriminatory practices hard to detect. Noll Aff., pars. 74-75, J.A. 2597-98; see Remand Decision,
It is not, however, for us to choose among the opposing positions of distinguished economists. The issue is whether the Department of Justice's position had substantial factual support and was grounded in reasonable analysis. On the proposition that regulation would be a substantial obstacle to anticompetitive behavior, the Department passed this test.
(3) Competitive benefits of BOC entry. Parties favoring removal of the ban pointed to substantial benefits that they believed likely to follow. For example, they pointed to several segments of the information services market that are highly concentrated (e.g., alarm services, financial transactions, and airline reservations), arguing that BOC entry would make the market more competitive. Arrow/Rosenfield Aff., par. 23, J.A. 1753. Further, there is reason to believe that BOCs entering the information services market will have some economies of scope (the capacity to produce related goods or services at an aggregate cost lower than the total for each produced separately), with resulting consumer benefits. See Carlton/Stigler Aff., pars. 17-22, J.A. at 1846-50.
The district court brushed these contentions aside as "preposterous", Remand Decision,
Instead of consumer benefit, the court envisioned a nightmare in which the BOCs would drive out the current competitors and perhaps "extinguish[ ]" competition altogether. Remand Decision,
It is worth noting here the character of some of the firms that the BOCs would have to drive out. They include GE (with annual revenues about five times those of a BOC), AT & T itself (revenues three times those of a BOC), IBM and Sears with their Prodigy service, Merrill-Lynch, ITT, Mead Corporation, [
If appellants are right, BOC entry will raise prices and reduce output in the information services industry; if the Department is right, BOC entry will lower prices and expand output. Firms that sell goods and services that are inputs to the production and use of information services stand to gain an expanding market if the Department's prediction is right, and have the incentive to make a completely unbiased judgment on the matter. It is something of a vindication of the Department's view that representatives of those firms, the Computer and Communications Industry Association and the United States Telephone Association (which includes about 1000 independent local telephone companies), filed briefs with the district court supporting removal of the ban. See CCIA Brief 17-18, J.A. 78081; USTA Brief 1, 5-7, J.A. 784-87.
We stress again that the judicial role here is not to determine whether removal of the information services ban is an optimizing move. Under the arrangements made by Congress, that task (in the present context) is for the Department of Justice, subject to judicial review. The distinguished experts marshalled by the appellants may, in the eyes of an omniscient being, be "right". Conversely, the fact that removal of the ban is supported by an array of prominent economists (including two Nobel laureates, Stigler and Arrow) does not in itself make that action right. The quality of their presentations is enough, however, to establish an ample factual foundation for the judgment call made by the Department of Justice and to make its conclusion reasonable. Insofar as the district court may be considered to have found the contrary, the finding was clearly erroneous.
We affirm the judgment removing the information services line of business restriction from the Modified Final Judgment.
So ordered.
Notes
For this court's identification of "parties" for purposes of the above, see United States v. Western Electric Co.,