Metro Mobile CTS v. Newvector Communications, Inc.

Citation661 F. Supp. 1504
Decision Date04 June 1987
Docket NumberNo. CIV 85-2109 PHX PGR.,CIV 85-2109 PHX PGR.
PartiesMETRO MOBILE CTS, INC. and Metro Mobile CTS of Phoenix, Inc., Plaintiffs and Counterdefendants, v. NEWVECTOR COMMUNICATIONS, INC. and Newvector Retail Service, Inc., Defendants and Counterclaimants.
CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Arizona


R. Stephen Berry, Peter John Lesser, Fleischman & Walsh, P.C., Washington, D.C., Bruce P. White, Snell & Wilmer, Phoenix, Ariz., for plaintiffs and counterdefendants.

James R. Martin, Mark Erich Weber, Phillip H. Rudolph, Gibson, Dunn & Crutcher, Los Angeles, Cal., Michael M. Grant, Shimmel, Hill, Bishop & Gruender, P.C., Donald M. Peters, Meyer, Hendricks, Victor, Osborn & Maledon, Phoenix, Ariz., Joseph C. O'Neil, Bellevue, Wash., of counsel, for defendants and counterclaimants.


ROSENBLATT, District Judge.


Cellular telephone systems involve a new technology of mobile radio communication, based on a computer coordinated series of cell sites situated throughout the coverage area. Each cell site contains a radio transmitter which services a portion of the total coverage area. When a call is placed on or to a mobile cellular telephone, the system locates the telephone, establishes a connection through the appropriate cell site, and transfers that connection to other cell sites as the telephone moves through the area served by the system. The control and switching facilities of the cellular system are interconnected to the general telephone network.

The Federal Communications Commission (FCC) regulates the cellular industry. See Cellular Communications Systems, 86 F.C.C.2d 469 (1981), on reconsideration, 89 F.C.C.2d 58, on further reconsideration, 90 F.C.C.2d 571 (1982). The FCC originally planned to license only one cellular provider per market, on the grounds that technical complexity and expense would make competing systems unviable. See Land Mobile Radio Service, 46 F.C. C.2d 752 (1974), on reconsideration, 51 F.C.C.2d 945, (1975), clarified, 55 F.C.C.2d 771 (1975). The FCC's decision to establish a monopoly in the wholesale cellular industry1 was affirmed on appeal as a reasonable exercise of administrative discretion under section 303(g) of the Communications Act, 47 U.S.C. section 303(g). National Ass'n of Regulatory Util. Comm'rs v. Federal Communications Comm'n, 525 F.2d 630 (D.C.Cir.), cert. denied, 425 U.S. 992, 96 S.Ct. 2203, 48 L.Ed.2d 816 (1976) (NARUC). The NARUC court, however, expressed concern over the anticompetitive effects of the FCC's plan. Id. at 636-38. The FCC eventually reconsidered and decided that two competing systems would best serve the public interest. 86 F.C.C.2d at 476.

The radio frequencies allotted by the FCC for cellular systems would only accommodate two systems per market. Id. Nonetheless, the FCC found that "even the introduction of a marginal amount of facilities-based competition into the cellular market will foster important public benefits of diversity of technology, service and price...." Id. at 478. The FCC reserved, for a period of two years, one of the cellular licenses in each market for the carrier of traditional wireline telephone service in that market. Id. at 483; 89 F.C.C.2d at 70. The rationale for this allocation was that there existed a pressing need for cellular service, 86 F.C.C. at 489-90, and "only AT & T is in a position today to place cellular systems in operation around the country in the immediate future," id. at 489. The other cellular license in each market was to be granted to a non-wireline carrier chosen through competitive bidding. Id. at 491. Because the wireline carrier would not likely be involved in the lengthy competition for a license, it would be able to provide cellular service to the market before the non-wireline carrier. In response to the concern that such a system would unduly favor the wireline carrier, the FCC found:

Because of the great unsatisfied existing and potential demand for cellular service, it is unlikely that many markets will be unable to support two cellular systems. We also consider it unlikely that the advantage from an early entry into the market would be sufficiently significant to outweigh the need to grant immediate relief in markets....

Id. at 491 n. 57. The FCC agreed to consider a request for a delay in the wireline system if the non-wireline carrier could bear the "heavy burden of demonstrating that such action would be in the public interest." 89 F.C.C.2d at 75 n. 32. This FCC "head start" doctrine was upheld in MCI Cellular Tel. Co. v. Federal Communications Comm'n, 738 F.2d 1322, 1330-33 (D.C.Cir.1984). The FCC found that the prohibition on restrictions on the resale of cellular service would further ameliorate the effect of the head start:

This prohibition is significant with respect to the headstart issue because it permits non-wireline entities to enter the cellular market, in a limited role, even before they obtain any license to provide cellular service. Thus, any carrier can establish a presence in the market through resale as soon as the wireline carrier begins operation, reducing the potential anticompetitive effect of early wireline entry.

89 F.C.C.2d at 74-75 n. 31.

Defendant NewVector Communications, Inc. (NewVector Wholesale) is a wholly owned subsidiary of U S West organized to provide wholesale cellular service in markets serviced by landline carriers affiliated with U S West. Defendant NewVector Retail Services, Inc. (NewVector Retail) is a wholly owned subsidiary of NewVector Wholesale organized for the purpose of providing retail cellular service in the Phoenix market. Both NewVector Wholesale and NewVector Retail will be referred to in this opinion as NewVector when a distinction between the two need not be made. Plaintiff Metro Mobile CTS, Inc. was formed to provide cellular service in several markets around the country. Metro Mobile CTS of Phoenix, Inc., a wholly owned subsidiary of Metro Mobile CTS, Inc., was formed to provide wholesale and retail cellular service in the Phoenix market.

The predecessor-in-interest of NewVector2 applied to the FCC for the wireline construction permit for the Phoenix market in 1982. The construction permit was awarded in January 1983. In January 1984 NewVector applied to the FCC for the operating license. Metro Mobile sought a moratorium under the FCC's head start policies. Its petition was denied in August 1984 and NewVector then began providing wholesale and retail cellular service in the Phoenix market. Metro Mobile and other resellers, and agents affiliated with NewVector and the resellers, began to sell at retail cellular service purchased at wholesale from NewVector. In October 1984 Metro Mobile was awarded the non-wireline construction permit for the Phoenix market. After delays in getting its system operable, Metro Mobile began providing wholesale cellular service in March 1986.

Metro Mobile seeks damages and injunctive relief pursuant to sections 4 and 16 of the Clayton Act, 15 U.S.C. sections 15 and 26, for violations of section 2 of the Sherman Act, 15 U.S.C. section 2. This court has jurisdiction pursuant to 15 U.S.C. sections 15 and 26 and 28 U.S.C. sections 1331 and 1337.

Metro Mobile's First Amended Complaint (Complaint) alleges that NewVector monopolized the wholesale and retail markets for cellular telephone service in the Phoenix metropolitan statistical area. Metro Mobile has since withdrawn its claims regarding the retail market.3 Plaintiff's Memorandum in Opposition to Defendants' Motion for Summary Judgment (Response) at 18-20. The Complaint alleges that NewVector enjoyed monopoly power in the wholesale market during the seventeen month head start period. Metro Mobile alleges that NewVector engaged in six different exclusionary acts with the intent of maintaining that monopoly power:

(1) NewVector set its wholesale prices at a rate that would prevent other retail providers from competing with NewVector at retail. This "price squeeze" was intended to prevent Metro Mobile from building a customer base at retail, thereby preventing it from competing with NewVector at wholesale when it entered the wholesale market.
(2) NewVector engaged in disparagement and misrepresentation of Metro Mobile's intent and ability to provide wholesale service.
(3) NewVector Wholesale supplied to NewVector Retail Metro Mobile's trade secrets, gained by virtue of NewVector Wholesale's servicing of Metro Mobile's retail accounts during the headstart period. NewVector Retail then allegedly used this information in soliciting retail customers.
(4) NewVector Wholesale refused to place Metro Mobile's block of wholesale telephone numbers on its system, thus necessitating that all of Metro Mobile's retail customers had to change their phone numbers to switch to Metro Mobile's wholesale service after the headstart period.
(5) NewVector Wholesale compelled Metro Mobile to promote NewVector Retail's service during the headstart period by identifying the service as "Vector One" on all calls to Metro Mobile numbers that could not be completed. "Vector One" is the servicemark of NewVector.
(6) NewVector unlawfully obtained from Mountain Bell a list of Mountain Bell customers using mobile telephone service other than cellular.

NewVector has moved for summary judgment on two separate theories. NewVector first argues that its conduct is immune from antitrust liability under the state action immunity doctrine. Second, NewVector argues that as a matter of law it did not and cannot have monopoly power in the wholesale market.


The state action immunity doctrine was first articulated in the case of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). In Parker the Supreme Court held that the Sherman Act did not prevent the state of California from establishing a program that restricted competition among growers and maintained prices in the...

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