United States v. GTE Corp., Civ. A. No. 83-1298.

Decision Date13 December 1984
Docket NumberCiv. A. No. 83-1298.
Citation603 F. Supp. 730
PartiesUNITED STATES of America, Plaintiff, v. GTE CORPORATION, Defendant.
CourtU.S. District Court — District of Columbia

Jeffrey Blumenfeld, Kevin R. Sullivan, U.S. Dept. of Justice, Washington, D.C., John M. Dempsey, Asst. Atty. Gen., Lansing, Mich., for plaintiff.

C. Daniel Ward, GTE Corp., Stamford, Conn., Kenneth R. Feinberg, Kaye, Scholar, Fierman, Hayes & Handler, Washington, D.C., Chester T. Kamin, Jenner & Block, Washington, D.C., Sean A. McCarthy, Satellite Business Systems, McLean, Va., Lee M. Mitchell, Washington, D.C., James D. Senger, Kirkland & Ellis, Washington, D.C., Herbert E. Marks, State of Hawaii, Squire, Sanders & Dempsey, Washington, D.C., for defendants.

OPINION

HAROLD H. GREENE, District Judge.

On May 4, 1983, the government filed this antitrust action under Section 15 of the Clayton Act, 15 U.S.C. § 25, challenging the acquisition by GTE Corporation of the telecommunications enterprises of Southern Pacific Company (which operates "Sprint" long distance service)1 as a violation of Section 7 of the Act, 15 U.S.C. § 18.

The complaint alleged that the effect of the acquisition may be substantially to lessen competition in the provision of interexchange telecommunications services2 (particularly in those areas where GTE provides local telecommunications services). In addition, the government challenged GTE's provision of information services under section 4 of the Sherman Act, 15 U.S.C. § 4, alleging that it creates a substantial probability that GTE will monopolize these information services in the markets it serves.3 On the same day the complaint was filed, the government and GTE also filed a proposed consent decree to settle the case. It is that consent decree that is presently before the Court.

I Factual Background

The decree, if approved and entered by the Court,4 would permit GTE to acquire the telecommunications enterprises of Southern Pacific subject to a number of conditions which may be summarized as follows: (1) GTE's local monopoly operations must be kept separate from its long distance and other competitive operations; (2) the GTE Operating Companies5 may not discriminate among interexchange carriers6 and they must provide equal access to all competitors on a phased-in basis; (3) the GTE Operating Companies may not provide interexchange services, they may not own facilities used to provide such services, and they must phase out their interexchange operations currently offered in conjunction with AT & T; (4) for a period of ten years, GTE may not acquire any other firm providing interexchange telecommunications services; (5) the GTE Operating Companies may not provide information services except through separate subsidiaries and subject to a number of limitations; (6) in the event that GTE violates the decree, the Department of Justice may return to the Court to seek further relief; and (7) the Court retains jurisdiction to construe, modify and enforce the terms of the decree.

Under section 2(b-h) of the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16(b)-(h), the decree does not become effective unless approved by the Court as being in the public interest (see generally, United States v. AT & T, 552 F.Supp. 131, 143-53 (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).7 Accordingly, the parties, in compliance with the Act, submitted the decree to the Court for its approval.8 Also in compliance with the Act, the Department of Justice filed and published a competitive impact statement which described the events that gave rise to the alleged antitrust violations and which explained the restrictions contained in the proposed decree and their anticipated effect on competition.9 The Court thereafter identified a number of issues on which oral argument would be helpful, and it heard argument on those issues from the Department of Justice, GTE, and the principal opponents of the proposed settlement.

II The AT & T Precedent
A. General

The antitrust theories underlying the government's lawsuit in this case are similar to those which were advanced in the AT & T case. It is the government's position here as it was there that when a single firm provides in the same market both local monopoly telecommunications services and competitive long distance services, it has the incentive and the ability to foreclose or to impede competition in the competitive (or potentially competitive) market by discriminating in favor of its own long distance carrier.10 The government also urges, as it did in AT & T, that the integration of long distance and local telecommunications services in a single enterprise creates the incentive and the ability to cross-subsidize the competitive operations with profits from the regulated monopoly operations and thereby to eliminate or impair competition.11

According to the Department of Justice, the objective of the proposed decree in this case, like that of the decree in the AT & T case, is to circumscribe this kind of interference with the free competitive market by such practices. To achieve that objective, the decree herein parallels the AT & T decree in several respects.

For example, both the Bell Operating Companies and the GTE Operating Companies are required under the respective decrees to provide equal access to all competing interexchange carriers and information service providers, and they are prohibited from discriminating against any such competitors.12 Both the decree in AT & T and the decree herein also provide for the separation of the local operations from the competitive operations. But the two decrees fundamentally differ with respect to the degree of separation required: in AT & T, the consent decree provided for and the Court ordered a complete structural separation, requiring AT & T to divest itself of the Bell Operating Companies, and prohibiting these companies from engaging in interexchange and information services.13 The decree in this case, by contrast, permits GTE to enter the interexchange business (by acquiring Sprint) and to remain in the information services business even though it will also continue to engage in the local telephone business. Instead of complete separation, the safeguard here adopted to protect against anticompetitive practices is the imposition, by way of an injunction, of various conditions and restrictions.

With the AT & T precedent fresh in the mind of the telecommunications industry, opponents of the proposed decree contend that here, too, nothing short of a complete separation will protect competition and the public: on that basis, they argue that it would be inconsistent with AT & T and illogical for the Court to approve the acquisition of Southern Pacific's telecommunications enterprises (including Sprint) by GTE. These opponents suggest that, notwithstanding the various conditions and restrictions incorporated in the decree, the merger in one company of Sprint's long distance and GTE's local telephone operations will permit GTE to stifle competition in the interexchange and information markets through abuse of its local monopoly bottlenecks.

B. Differences from AT & T

The difference between the solution proposed by the Department of Justice with respect to the GTE lawsuit and that which was proposed by the Department and agreed to by the Court in AT & T thus lies at the heart of the determination the Court must make. After careful consideration of that issue, the Court has concluded that, notwithstanding a number of similarities between the two cases, the factual differences between them are so substantial that it would not be justified in rejecting the decree proposed by the parties14 on the basis of the AT & T precedent. These differences may be summarized as follows.

First. The telecommunications operations of a combined GTE-Sprint company differ markedly in size and scope from those of AT & T. Prior to divestiture, the Bell System dominated every aspect of the telecommunications industry—its intercity enterprise served every one of its local monopolies, and in combination, they provided local telephone service to over eighty per cent of the nation's telephones. Although, to be sure, Sprint (which began service in late 1973), is now the third largest interexchange carrier, even at that it accounts for only one per cent of all long distance telephone calls.15 Locally, GTE, through its ownership of seventeen Operating Companies, is the largest of the "independent" telephone companies; yet it provides local exchange services to only eight per cent of the nation's telephones. Different standards are appropriately applied where there is this great a difference in size.16

Second. Unlike the Bell Companies which were dominant almost everywhere, the GTE companies are relatively thinly dispersed over 31 states. In fact, in terms of concentration, the GTE companies serve roughly half as many telephones per square mile as do the Bell Operating Companies.17 This dispersion has, of course, substantial consequences in terms of monopoly control.18 And, while the Bell Operating Companies serve the vast majority of the high-density, heavily-populated metropolitan areas (the areas most attractive to the interexchange carriers which are the potential long distance competitors), the GTE Operating Companies serve primarily the nation's rural and suburban areas.19 The effect on potential competition of a local-long distance consolidation is thus likely to be quite different.20

Third. AT & T in its pre-divestiture mode was a vertically integrated company which had existed in its then-current form for more than a century. Its interexchange enterprise served every one of its local monopolies. In addition, the network which served both the local and intercity enterprises was characterized by predominantly common costs. In contrast, the GTE Operating Companies and Sprint have not enjoyed any...

To continue reading

Request your trial
13 cases
  • BellSouth Corp. v. F.C.C.
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • October 20, 1998
    ...GTE to provide information services, subject to structural separation and non-discrimination requirements. See United States v. GTE Corp., 603 F.Supp. 730, 742 (D.D.C.1984).10 While in 1993 we somewhat disparaged the distinction then drawn between GTE and the BOCs on the basis of relative d......
  • US v. Western Elec. Co., Inc.
    • United States
    • U.S. District Court — District of Columbia
    • September 10, 1987
    ...effects of improper GTE actions will be both less probable and more easily detectable (footnotes omitted). United States v. GTE Corp., 603 F.Supp. 730, 737 (D.D.C.1984). Nothing of significance has occurred since the GTE decree was entered to alter that It is also worth noting that, when co......
  • U.S. v. Western Elec. Co.
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • April 6, 1990
    ...a consent decree in an antitrust action against GTE that did not include line of business restrictions. See United States v. GTE Corp., 603 F.Supp. 730 (D.D.C.1984). This claim was not raised on appeal and so we do not discuss it. We also have no occasion to discuss the suggestion made by t......
  • Centurytel of Chatham, LLC v. Sprint Commc'ns Co.
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • June 27, 2017
    ...optional basis, including interexchange carriers using those facilities to provide enhanced services."); see also United States v. GTE Corp., 603 F.Supp. 730, 733 (D.D.C. 1984) ("The decree in this case, by contrast, permits GTE to enter the interexchange business (by acquiring Sprint) and ......
  • Request a trial to view additional results
2 books & journal articles
  • Table of Cases
    • United States
    • ABA Antitrust Library Mergers and Acquisitions. Understanding the Antitrust Issues. Fourth Edition
    • December 6, 2015
    ...(1971), 271, 272, 273, 274, 276, 534 United States v. Grinnell Corp., 384 U.S. 563 (1966), 11, 130, 131, 543 United States v. GTE Corp., 603 F. Supp. 730 (D.D.C. 1984), 377 United States v. H&R Block, 2011 WL 5438955 (D.D.C. 2011), 180 United States v. H&R Block, Inc., 833 F. Supp. 2d 36 (D......
  • Vertical Mergers
    • United States
    • ABA Antitrust Library Mergers and Acquisitions. Understanding the Antitrust Issues. Fourth Edition
    • December 6, 2015
    ...regulation on the regulated assets. See 1982 MERGER GUIDELINES, supra note 44, § IV(B)(3). 48 . See United States v. GTE Corp., 603 F. Supp. 730 (D.D.C. 1984). This was the same theory that underlay the DOJ’s case to modify a final judgment with AT&T. See United States v. AT&T, 552 F. Supp.......
1 provisions

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT