U.S. v. Western Elec. Co., Inc.

• Decision Date: 17 February 1995
• Docket Number: No. 94-5252,94-5252
• Citation: 46 F.3d 1198
• Parties: , 63 USLW 2516, 1995-1 Trade Cases P 70,927, 31 Fed.R.Serv.3d 657 UNITED STATES of America, Appellee v. WESTERN ELECTRIC COMPANY, INC.; American Telephone and Telegraph Company, Appellees. BellSouth Corporation, Appellant. Bell Atlantic Corporation, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1198

46 F.3d 1198

310 U.S.App.D.C. 281, 63 USLW 2516,

1995-1 Trade Cases P 70,927, 31 Fed.R.Serv.3d 657

UNITED STATES of America, Appellee v. WESTERN ELECTRIC COMPANY, INC.; American Telephone and Telegraph Company, Appellees BellSouth Corporation, Appellant Bell Atlantic Corporation, Appellee.

No. 94-5252.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 16, 1994.

Decided Feb. 17, 1995.

Appeal from the United States District Court for the District of Columbia (82cv00192).

Nathan Lewin, argued the cause for appellant. With him on the briefs were Richard W. Beckler, Stephen M. McNabb, Michael P. Goggin, William B. Barfield, Walter H. Alford and John F. Beasley.

David W. Carpenter, argued the cause for appellee American Tel. and Tel. Co. With him on the brief were Peter D. Keisler, Howard J. Trienens and Marc C. Rosenblum.

Nancy C. Garrison, Atty. U.S. Dept. of Justice, argued the cause for appellee U.S. With her on the brief were Anne K. Bingaman, Asst. Atty. Gen., and Catherine G. O'Sullivan, Atty., U.S. Dept. of Justice.

John Thorne, filed the brief for appellee Bell Atlantic Corp.

Before: EDWARDS, Chief Judge, RANDOLPH and ROGERS, Circuit Judges.

Opinion for the court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge:

We have before us still another appeal dealing with the antitrust consent decree--the "Modification of Final Judgment"--issued in United States v. American Telephone & Telegraph Co., 552 F.Supp. 131, 226-34 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983). The question is whether, under Rule 60(b) of the Federal Rules of Civil Procedure, the district court properly granted American Telephone and Telegraph Company's motion to modify restrictions imposed by the decree. The court's order permitted AT & T to acquire McCaw Cellular Communications, Inc., an independent, "non-wireline" carrier and the largest cellular telephone service provider in the United States. United States v. Western Elec. Co., 158 F.R.D. 211 (D.D.C.1994).

Ten years ago, in compliance with the decree, AT & T divested itself of the Bell System's twenty-two companies that had been providing local telephone, or local exchange, service. "Thereafter, these regional Bell operating companies, or 'BOCs,' were to engage in two major activities: providing telephone service among parties within each local exchange and granting access to the exchanges to long-distance carriers." Illinois Bell Tel. Co. v. FCC, 988 F.2d 1254, 1257 (D.C.Cir.1993). "The consent decree also led to the creation of seven Regional Holding Companies (RHCs), each of which wholly owned and operated a set of BOCs." Id.

One of the RHCs, BellSouth Corporation, opposed AT & T's request for a modification and now brings this appeal. The United States and Bell Atlantic, an RHC, supported the modification and join AT & T in arguing in favor of affirming the district court's order.

I

A

The United States has twice sued AT & T for monopolization and other violations of the Sherman Act, 15 U.S.C. Secs. 1-3. The first action, begun in New Jersey federal court in 1949, ended with a consent decree in 1956. United States v. Western Elec. Co., Civil Action No. 17-49 (D.N.J.). The government sued again in 1974 in the United States District Court for the District of Columbia. AT & T then owned local exchange monopolies, competed in the long-distance market, and manufactured and marketed the equipment used not only by telephone subscribers but also in the telecommunications network. This placed AT & T in a position to impede competition in the long-distance and telephone equipment manufacturing markets, or so the government claimed. See generally American Tel. & Tel. Co., 552 F.Supp. at 222-23. After years of pretrial discovery and months of trial proceedings, but before the government had presented its rebuttal case, the parties proposed a settlement and a consent decree. The district court invited comments and held a hearing on the proposal. In August 1982, it issued a lengthy opinion approving the parties' proposed decree with ten modifications. American Tel. & Tel. Co., 552 F.Supp. 131.

Section I of the consent decree, as modified, required AT & T to divest itself of those portions of the twenty-two Bell Operating Companies that had been providing monopoly local exchange services. AT & T was to separate the assets of the BOCs used to provide local exchange and exchange access services, and then transfer ownership of those separated portions to seven Regional Holding Companies, each of which would provide local exchange services in a specific region of the country. Id. at 226-27. Section II prohibited the divested BOCs from providing interexchange (long-distance) telecommunications services, and from manufacturing or providing "telecommunications products" either "directly or through any affiliated enterprise." Id. Other provisions in the decree directed the cancellation of contracts that had economically integrated the monopolies and the competitive portions of the Bell System; and required that, upon divestiture, each BOC undertake to eliminate any discrimination between AT & T and its long-distance and manufacturing competitors. Id. at 226-27 (sections I(A) and II(A)-(C)).

B

Cellular radio is a service enabling mobile customers to place or receive telephone calls wherever they are located. It provides this capability over separate systems of radio and switching facilities that are interconnected to and dependent on the local bottleneck "landline" telephone monopoly. The Federal Communications Commission began receiving applications for cellular radio licenses before the district court entered its consent decree in this case. By the time AT & T divested itself of the BOCs--January 1, 1984--many licenses in the top thirty markets had been granted. The Commission had initially decided to allocate two bands of the radio spectrum to the development of cellular service in each of the country's regional telephone areas. "A" block licenses were awarded to companies not associated with the local BOC; "B" block licenses were awarded to the BOCs. Each divested RHC succeeded to each of the Bell System's "B" block cellular licenses and license applications in that RHC's region. Since then, "B" block licenses have generally remained under the control of the RHCs. Interests in the "A" block licenses, however, have frequently changed hands. In the mid-1980's, the RHCs began seeking to purchase "A" block cellular systems outside their regions. At the urging of the Department of Justice, the district court ruled that the consent decree prohibited such acquisitions. United States v. Western Elec. Co., 627 F.Supp. 1090, 1104-09 (D.D.C.1986). This court reversed. The court thought it likely that "the parties and the district court never considered the possibility that the BOCs might want to provide exchange services outside of their geographic regions." United States v. Western Elec. Co., 797 F.2d 1082, 1091 (D.C.Cir.1986). As a result, they could not have agreed to bar such extraterritorial business ventures and the decree itself contained no such express or implied geographic prohibition. Id. at 1089-92. After this court's decision, the Commission approved the RHCs' acquisition of "A" block licenses outside their own regions. See In re James F. Rill & Pacific Telesis Group, 1 F.C.C.R. 918 (1986).

C

McCaw Cellular Communications, Inc., the nation's largest provider of cellular services, has a majority or minority interest in many "A" block cellular radio systems that provide local telephone service and thus compete with the BOC or other carrier possessing the "landline" telephone monopoly in the relevant geographic region. McCaw originally acquired many of its cellular interests through partnerships with other nonwireline carriers. After the Federal Communications Commission altered its licensing policies, and after this court ruled in United States v. Western Electric Co., 797 F.2d 1082, RHCs began acquiring McCaw's former partners and their controlling interests outside the particular RHC's region, thus rendering the RHCs McCaw's de facto partners.

In April 1994, several months after AT & T announced its intention to acquire McCaw, the district court decided that the merger would violate section I(D) of the consent decree. United States v. Western Electric Co., 154 F.R.D. 1, 4-5 (D.D.C.1994). The RHCs' post-divestiture acquisitions of McCaw's partners had converted each of the extraregional cellular systems in which an RHC had a majority or other controlling interest into a "Bell Operating Company" within the meaning of the consent decree. Section IV(C) of the decree defines a "Bell Operating Company" as any one of the original twenty-two BOCs and "any entity directly or indirectly owned or controlled by a BOC or affiliated through substantial common ownership." ¹ Western Elec. Co., 552 F.Supp. at 228. Section I(D) of the decree provides in its entirety:

After the reorganization specified in paragraph I(A)(4), AT & T shall not acquire the stock or assets of any BOC.

Id. at 227.

The district court further held that it could not modify the decree to allow the transaction unless AT & T satisfied Rule 60(b), FED.R.CIV.P., as interpreted in Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 383-85, 112 S.Ct. 748, 760, 116 L.Ed.2d 867 (1992). ² Western Elec. Co., 154 F.R.D. at 8. The court denied AT & T's waiver request, finding the record insufficient to support it, but said the company could refile, which it did on May 31, 1994. The United States and one RHC supported AT & T's renewed waiver request. BellSouth objected. On August 25, 1994, the court issued an Order and Opinion granting AT & T a limited waiver of section I(D) to allow the merger. ³ Western Elec. Co., 158 F.R.D. at 212-13. AT & T and McCaw consummated their transaction on September 19, 1994, after this...