United States v. Western Elec. Co., Inc.

• Decision Date: 05 August 1983
• Docket Number: Civ. A. No. 82-0192. Misc. No. 82-0025 (PI).
• Citation: 569 F. Supp. 1057
• Parties: UNITED STATES of America, Plaintiff, v. WESTERN ELECTRIC COMPANY, INC., and American Telephone and Telegraph Company, Defendants. UNITED STATES of America, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Columbia

569 F. Supp. 1057

UNITED STATES of America, Plaintiff, v. WESTERN ELECTRIC COMPANY, INC., and American Telephone and Telegraph Company, Defendants.

UNITED STATES of America, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al., Defendants.

Civ. A. No. 82-0192. Misc. No. 82-0025 (PI).

United States District Court, District of Columbia.

July 8, 1983.

On Motion for Partial Reconsideration July 28, 1983.

On Motions for Reconsideration and Clarification August 5, 1983.

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James P. Denvir, Michael F. Altschul, Luin P. Fitch, J. Philip Sauntry, Jr., Richard Lavine, Antitrust Div. U.S. Dept. of Justice, Washington, D.C., for plaintiff.

Howard J. Trienens, Jim G. Kilpatric, New York City, John D. Zeglis, Washington, D.C., Francine Berry, New York City, for defendants.

John Dempsey, Bruce Renard, National Ass'n of Regulatory Utilities Commissioners, Chester T. Kamin, MCI, Chicago, Ill., Lewis J. Paper, United Church of Christ, Malcolm Pfunder, Tandy Corp., Jeffrey Olson, Black Citizens for a Fair Media, Washington, D.C., for intervenors.

OPINION

HAROLD H. GREENE, District Judge.

Section I(A) of the decree entered on August 24, 1982, provides that "not later than six months after the effective date of the decree, defendant AT & T shall submit to the Department of Justice for its approval, and thereafter implement, a plan of reorganization," and section VIII(J) specifies that the plan of reorganization "shall not be implemented until approved by the Court as being consistent with the provisions and principles of the decree." In accordance with these provisions, AT & T has submitted its plan to the Court following approval by the Department of Justice.¹ The intervenors were thereafter given the opportunity to raise objections; a considerable number of such objections were, in fact, filed with the Court; and AT & T and the Department of Justice, in turn, filed their own responses.

Following receipt of these papers, the Court designated certain issues for more intensive briefing and for oral argument.² Voluminous briefs were received on these issues, and argument was had thereon on June 2, 1983.³ At that hearing, the Court also heard testimony from three of the designated chief executives⁴ of the seven newly-established Regional Companies.⁵ Additional documents were submitted after the hearing, including one — a letter with attachments from AT & T (see p. 1067 infra) — as late as June 29, 1983.

The Court has considered all issues raised with respect to the plan of reorganization on the basis of the written materials, the oral hearing, the testimony, and the entire record herein, and it has concluded that the plan of reorganization will be approved⁶ provided that certain inconsistencies with the provisions and principles of the decree are corrected.⁷

I Equal Access

The decree requires the Operating Companies to "provide to all interexchange carriers and information service providers exchange access, information access, and exchange services for such access ... that is equal in type, quality, and price to that provided to AT & T and its affiliates." Section II(A).⁸ As the stepping stone to increased competition in the field of intercity telecommunications, the decree's equal access requirements and the implementing provisions of the plan of reorganization have generated substantial controversy. Comments filed by Operating Company executives, interexchange carriers, regulatory commissions, consumer groups, and telecommunications associations indicate that at this stage of the proceedings⁹ there is a need to resolve three primary questions relating to equal access:¹⁰ what is it, how is it to be achieved, and who will pay for it?

A. What Does "Equal" Mean?

A number of the Operating Companies propose to connect AT & T's interexchange competitors to the homes or businesses of local telephone subscribers by using facilities built or upgraded specially for that purpose; AT & T, on the other hand, will in numerous LATAs gain access to subscriber lines through different facilities, many of which are already extant.¹¹ For that reason, the access provided AT & T's competitors will not be identical to that given AT & T in all places; rather, it will be technically different in certain areas and at certain times.

The Operating Companies assert that any such technical deviations will be so slight as to be imperceptible to all customers, whether of voice or of data.¹² Accordingly, they urge the Court to accept a definition of "equal access" as access whose "overall quality in a particular area is equal within a reasonable range which is applicable to all carriers,"¹³ and to reject a more stringent definition which would demand access that yields identical technical quality (i.e., identical values for loss, noise, and echo, and identical possibility of blocking).¹⁴

The Court accepts the Operating Companies' definition and will not insist on absolute technical equality. To do otherwise would necessitate substantial dismantling and reconstruction of local telephone networks without any real benefits either to the consuming public or to AT & T's intercity competitors. This ruling, however, is based squarely upon the Operating Companies' representations that both voice and data customers will perceive no qualitative differences between AT & T transmissions and those of its competitors — at least with respect to those portions of the transmissions carried by an Operating Company.¹⁵ The Operating Companies are well aware, however, that the Department of Justice will be monitoring the quality of the access they will provide and that the price of falling short of their assurance of equal quality will be enforcement proceedings brought by the Department.¹⁶

The interexchange competitors, as noted, would not be disadvantaged if the Operating Companies meet the standard they have proposed. Their real complaint is that the Operating Companies will be unable to meet that standard in many of the LATAs by the means they propose¹⁷ — a subject to which the Court now turns.

B. Which Switches Should Be Used for Access Arrangements?

First. Since the initial comments were filed regarding the first, or LATA, phase of the plan of reorganization, a number of intervenors have expressed concern over the kinds of switches the Operating Companies will use to route traffic from an interexchange carrier's point of presence in a LATA to a local Class 5 end office.¹⁸

The Court initially shared this concern, primarily because so little information about equal access planning for individual LATAs had been made available. In May of 1983, it therefore requested the Regional Companies to report in detail regarding their plans for equal access and their need in this respect for the efficient, state-of-the-art No. 4ESS switches.¹⁹ The Court asked to be apprised of any instances where an Operating Company believed that a particular switch should be assigned to it for equal access purposes even though that switch would belong to AT & T under the predominant use test.²⁰ The responses were extremely helpful. Their detail and the varied recommendations made with respect to each region revealed that, contrary to some speculation, the Operating Companies had carefully studied the alternatives for the provision of access within their respective territories, and that they had concluded, independent of pressure from AT & T, which arrangements would be most economical and efficient for them.

Most of the LATAs will be served by four-wire digital tandems,²¹ if not in 1984, then within two years.²² The Operating Companies are not planning to make as much use of the existing No. 4ESS switches, however, as might have been anticipated. The basis of that choice appears reasonable.

Because of the large capacity of the No. 4ESS switch, the cost to an Operating Company of leasing part of it would be, in most cases, greater than would be that of constructing a smaller-scale switch directly for that company. The other alternative — vesting ownership of the No. 4ESS switch in the Operating Company, in the expectation that it will be able to lease substantial capacity to AT & T — is problematic in many cases because AT & T may choose instead to build a new switch (and even if it did not, it would be required in any event under the plan to terminate the lease after eight years). In either event, the Operating Company would thus be left with the expense of stranded capacity.

For these reasons, the Operating Companies will instead engage in a substantial amount of new construction, and they have persuaded the Court that this is an appropriate decision. In some instances they will thereby be merely accelerating construction which would have occurred in any event, and new construction, as opposed to leasing, will have the advantage of facilitating network separation between AT & T and the Operating Companies.

Given the care which went into the Operating Companies' studies, the Court will not second-guess them by imposing upon them an assignment of switches which they do not endorse. The Court therefore rejects the position of some²³ that all No. 4ESS switches should be divested from AT & T and assigned instead to the Operating Companies.

Second. The New England Telephone Co. (NET) has suggested that it could provide access more economically if the Court were to override the predominant use test in its territory with respect to three advanced switching systems. NET wishes to make extensive use of No. 4ESS switches — which apparently would be more appropriate in its region than elsewhere because of existing population densities — and it states that it could benefit from the allocation of three existing No. 4ESS switches (in Manchester, New Hampshire; Springfield, Massachusetts; and Cambridge, Massachusetts).²⁴ NET has further informed the Court that if it were to receive the existing switches...