489 F.Supp.2d 1 (D.D.C. 2007), C. A. 05-2102, United States v. SBC Communications, Inc.

Docket Nº:C. A. 05-2102
Citation:489 F.Supp.2d 1
Party Name:United States v. SBC Communications, Inc.
Case Date:March 29, 2007
Court:United States District Courts, District of Columbia
 
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489 F.Supp.2d 1 (D.D.C. 2007)

UNITED STATES of America, Plaintiff,

v.

SBC COMMUNICATIONS, INC. and AT & T Corp., Defendants.

United States of America, Plaintiff,

v.

Verizon Communications, Inc. and MCI, Inc., Defendants.

Civil Action Nos. 05-2102 (EGS), 05-2103(EGS).

United States District Court, District of Columbia.

March 29, 2007

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Claude F. Scott, Jr., Jared A. Hughes, Lawrence M. Frankel, David T. Blonder, James J. Schwartz, Matthew C. Hammond, U.S. Department of Justice, Washington, DC, for Plaintiff.

William Randolph Smith, Michael L. Lazarus, Wilma A. Lewis, Crowell & Moring, L.L.P., Aaron Martin Panner, Joseph S. Hall, Mark C. Hansen, Evan T. Leo, Joseph S. Hall, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, David Earl Wheeler, Washington, DC, John Thorne, Arlington, VA, for Defendants.

OPINION

SULLIVAN, District Judge.

In the span of a couple of weeks in early 2005, four of this nation's largest telecommunications companies announced that they had agreed to merge, leaving only two companies in their place. Mergers of this magnitude have, as can be expected, engendered heated opposition, which has

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been reflected in the filings of numerous interested parties in this case. Arguments have been put forth regarding the mergers' effects in several major industries, including residential telephone service, cellular telephone service, and internet services. This Court, however, is not tasked with deciding whether these mergers as a whole run afoul of the antitrust laws, nor whether they are altogether in the public interest, nor whether they should be approved by other branches of the federal government. This Court's role is much more limited. The only question facing this Court, under the procedures crafted by Congress, is whether the divestitures agreed upon by the merging parties and the Department of Justice are "in the public interest."

Pending before the Court is plaintiff United States' motion for entry of the proposed final judgements in each of these civil antitrust cases. The procedure governing acceptance of these proposed judgments is specified in Section 2(b) of the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16(b)-(h), otherwise known as the Tunney Act. Upon consideration of the motions and supporting memoranda, the filings of several amici curiae admitted for this case, the responses and replies thereto, the arguments made by all parties at multiple hearings, the applicable law, and the entire record, the Court determines that entry of the proposed final judgments is in the public interest. Therefore, for the reasons stated herein, plaintiff's motion for entry of final judgments in both cases is GRANTED.

BACKGROUND

I. Background of Proposed Final Judgments

A. SBC-AT & T Merger

SBC Communications, Inc. ("SBC"), formerly Southwestern Bell, is a regional bell operating company ("RBOC"), formed as one of the seven regional holding companies to result from the breakup of AT & T's local telephone business in 1984. United States v. SBC Comm., Inc., 05-2102-EGS, Compl. ¶ 7 (hereinafter "SBC Compl."). In 2005, after having acquired two other RBOCs, Pacific Telesis and Ameritech, during the 1990's, SBC served over 50 million switched access lines, both residential and business, in 13 states. Id. SBC has fiber optic or copper connections to virtually all of the commercial buildings in its franchised territory. Id.

AT & T Corp. ("AT & T") is the nation's largest interexchange carrier ("IXC"), offering traditional long distance telephone service, as well as one of the largest competitive local exchange carriers ("CLEC"), offering local network exchange and access for voice and data services. Id. ¶ 8. AT & T serves consumers and businesses across the United States and around the globe, and owns significant local network assets within SBC's 13-state operating territory including direct fiber optic connections to numerous commercial buildings. Id. Pursuant to an Agreement and Plan of Merger dated January 30, 2005, SBC agreed to acquire AT & T for approximately $16 billion. Id. ¶ 9.

B. Verizon-MCI Merger

Verizon Communications, Inc. ("Verizon"), formerly Bell Atlantic Corporation ("Bell Atlantic"), is the nation's largest RBOC. United States v. Verizon Comm., Inc., 05-2103-EGS, Compl. ¶ 7 (hereinafter "Verizon Compl."). Bell Atlantic was another of the seven regional holding companies to result from the AT & T breakup. Id. Since that time, Bell Atlantic acquired Nynex, another RBOC, and GTE Corporation, an ILEC that provided local exchange and other services in 28 states, and

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formed Verizon. Id. In 2005, Verizon served over 50 million switched access lines, both residential and business, in 29 states plus the District of Columbia. Id. Verizon has fiber optic or copper connections to virtually all of the commercial buildings in its franchised territory. Id.

MCI, Inc. ("MCI") is one of the nation's largest IXCs, offering traditional long distance telephone service, as well as one of the largest CLECs, offering local network exchange and access for voice and data services. Id. ¶ 8. MCI serves consumers and businesses across the United States and around the globe and owns significant local network assets within Verizon's 29-state operating territory including direct fiber optic connections to numerous commercial buildings. Id. Pursuant to an Agreement and Plan of Merger dated February 14, 2005, as amended on March 4, March 29, and May 2, 2005, Verizon agreed to acquire MCI for approximately $8.54 billion. Id. ¶ 9.

C. Alleged Competitive Harms

Plaintiff, the United States through the Department of Justice ("DOJ"), filed complaints in both of these cases on October 27, 2005. The government sought to enjoin the mergers on the grounds that the mergers would "substantially lessen competition for (a) Local Private Lines that connect hundreds of commercial buildings in [SBC and Verizon]'s franchised territory to a carrier's network or other local destination, and (b) other telecommunications services that rely on Local Private Lines." SBC Compl. ¶ 1; Verizon Compl. ¶ 1. Specifically, the complaints are concerned with hundreds of commercial buildings in metropolitan areas where the two merging parties (either SBC and AT & T, or Verizon and MCI) are the only two firms that own or control a direct wireline connection to the building. SBC Compl. ¶ 3; Verizon Compl. ¶ 3. The government alleged that due to these competitive harms, the mergers violated Section 7 of the Clayton Antitrust Act, 15 U.S.C. § 18. SBC Compl. ¶ 32; Verizon Compl. ¶ 32.

The complaints address the same type of competitive harm for each merger, and differ only in geographic scope due to the territorial coverage of the RBOCs, SBC and Verizon. The SBC Complaint addresses harms in metropolitan areas in SBC's territory, specifically with regard to buildings where SBC and AT & T are the only two firms that own or control direct wireline connections. SBC Compl. ¶ 3. Analogously, the Verizon Complaint addresses harms in metropolitan areas in Verizon's territory, specifically with regard to buildings where Verizon and MCI are the only two firms that own or control direct wireline connections. Verizon Compl. ¶ 3. Apart from that difference, and the identities of the parties, the complaints are drafted virtually identically.

The government's detailed description of the alleged competitive harm is based on "local loops" and "local private lines," which are components of telecommunications networks operated by the merging parties. Local loops, sometimes referred to as "last-mile" connections, are typically either copper or fiber-optic transmission facilities that connect commercial buildings to a carrier's network. SBC Compl. ¶ 12. These last-mile connections are necessary assets for providing service to business customers located in the building. Id.

The government defines a Local Private Line ("LPL") as a dedicated, point-to-point circuit offered over copper and/or fiber-optic transmission facilities that originates and terminates within a single metropolitan area and typically includes at least one local loop. Id. ¶ 13. LPLs are sold in both retail markets (to business customers) and wholesale markets (to other

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carriers). Id. LPL circuits are sometimes referred to as "special access." Id. Depending on how they are configured, LPLs can be used to carry voice traffic, data, or a combination of the two. Id. ¶ 14. LPLs may be purchased as standalone products, but are also an important input to value-added voice and data telecommunications services that are offered to business customers. Id.

For the vast majority of commercial buildings in its respective territory, either SBC or Verizon is the only carrier that owns a last-mile connection to the building. SBC Compl. ¶ 15; Verizon Compl. ¶ 15. Thus, in order to provide voice or data telecommunications services to customers in those RBOC-only buildings, competing carriers typically must lease the connection from SBC or Verizon as LPL service, i.e. special access. SBC Compl. ¶ 15; Verizon Compl. ¶ 15.

For a small percentage of commercial buildings (though accounting for a substantial percentage of customer demand and revenue), other competitors (CLECs) have built or acquired their own last-mile fiber-optic connections, separate from the RBOCs, to connect their networks to the buildings. SBC Compl. ¶ 16. 1 Once a CLEC has incurred the high fixed cost to construct a last-mile connection to a building, the CLEC can usually provide service to business customers in the building at a lower cost than it would otherwise be able to do if it had to lease the connection from the RBOC. Id. It can also provide alternative access to other CLECs seeking to serve business customers in the building, i.e., LPL service can be resold on the wholesale market. Id.

AT & T is among the leading CLECs in SBC's...

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