U.S. v. Western Elec. Co., Inc., s. 86-5118

• Decision Date: 15 August 1986
• Docket Number: Nos. 86-5118,86-5163 and 86-5164,s. 86-5118
• Citation: 797 F.2d 1082
• Parties: , 55 USLW 2140, 1986-2 Trade Cases 67,234 UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC., et al., Bell Atlantic Corporation, Appellant. UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC., et al., Pacific Telesis Group, Appellant. UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC., et al., US West, Inc., Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1082

797 F.2d 1082

254 U.S.App.D.C. 415, 55 USLW 2140,

1986-2 Trade Cases 67,234

UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC., et al., Bell Atlantic

Corporation, Appellant.

UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC., et al., Pacific Telesis

Group, Appellant.

UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC., et al., US West, Inc., Appellant.

Nos. 86-5118, 86-5163 and 86-5164.

United States Court of Appeals District of Columbia Circuit.

Argued May 16, 1986.

Decided Aug. 15, 1986.

Robert B. McKenna, Jr., with whom L. Andrew Tollin and Kenneth D. Patrich, Washington, D.C., were on brief, for appellant U.S. West, Inc. Robert W. Barker, Washington, D.C., also entered an appearance for appellant US West, Inc.

Robert A. Levetown, with whom John M. Kelleher, John M. Goodman, Jane C. Luxton, and Michael J. Shortley, III, Washington, D.C., were on brief, for appellant Bell Atlantic Corp.

Stanley J. Moore and Robert V.R. Dalenberg, San Francisco, Cal., were on brief, for appellant Pacific Telesis Group.

Catherine G. O'Sullivan, Atty., Dept. of Justice, with whom Robert B. Nicholson, Kevin R. Sullivan, John P. Fonte, and Donald S. Clark, Attys., Dept. of Justice, Washington, D.C., were on brief, for appellee U.S.

Howard J. Trienens and David W. Carpenter, Chicago, Ill., were on brief, for intervenor/appellee AT & T. Jonathan S. Hoak, Chicago, Ill., also entered an appearance for intervenor/appellee AT & T.

Chester T. Kamin and Michael H. Salsbury, Chicago, Ill., were on brief, for intervenor MCI Communications Corp.

Richard E. Wiley and R. Michael Senkowski, Washington, D.C., were on brief, for amicus curiae Radio Common Carrier Div. of Telocator Network of America, urging affirmance.

Edgar Mayfield, Bedminster, N.J., Mary Whitten Marks, and Liam S. Coonan, Washington, D.C., were on brief, for amicus curiae Southwestern Bell Corp., urging reversal.

Richard Metzger, Chicago, Ill., was on brief, for amicus curiae American Information Technologies Corp., urging reversal.

Norman C. Frost and R. Frost Branon, Jr., Atlanta, Ga., were on brief, for amicus curiae BellSouth Corp., urging reversal.

John B. Messenger and Gerald E. Murray, New York City, were on brief, for amicus curiae NYNEX Corp., urging reversal.

Genevieve Morelli, Washington, D.C., entered an appearance for appellee Nat. Ass'n of Regulatory Utility Com'rs.

Before MIKVA, SCALIA and BUCKLEY, Circuit Judges.

Opinion for the court filed by Circuit Judge BUCKLEY.

BUCKLEY, Circuit Judge:

This case presents a number of questions arising from the 1982 antitrust consent decree under which American Telephone and Telegraph Company ("AT & T") was divested of the Bell operating companies ("BOCs")--the twenty-two AT & T subsidiaries engaged in the business of providing local telephone service. The consent decree provided for the creation of seven regional holding companies ("RHCs") to own and operate the BOCs, ¹ and it subjected the BOCs to stringent line-of-business restrictions. The district court has been asked on a number of occasions to interpret the scope of these restrictions, and in this case three of the RHCs challenge one such interpretation.

Appellant US West asks us to hold that the restrictions of the consent decree are not binding on the RHCs because they were not parties to it. Appellants US West, Bell Atlantic, and Pacific Telesis dispute the district court's finding that the consent decree prohibits the RHCs from providing "exchange telecommunications services," including two-way mobile telephone and one-way paging services, outside of their respective geographic regions. Bell Atlantic also appeals a subsequent order requiring it to discontinue the extraregional activities of its paging service subsidiary. Finally, US West appeals the district court's denial of a request by Ameritech for authorization to provide "shared tenant services," which would allow tenants of a building to use centralized facilities to route long distance calls in accordance with predetermined cost and traffic analysis criteria.

We hold that the RHCs are bound by the consent decree, that the decree does not prevent the RHCs from providing exchange services outside their geographic regions, and that the district court therefore erred in ordering the RHCs to stop providing extraregional exchange services. We do not reach the merits of the shared tenant services issue because Ameritech did not appeal the district court's denial of its request for a ruling that the decree permitted such services, and US West is without standing to obtain review of the district court's decision.

I. FACTUAL BACKGROUND

The January 1, 1984 breakup of the Bell System stems indirectly from an antitrust action brought against AT & T by the Justice Department in 1949. This action led to the entry of a consent decree in 1956 that prohibited AT & T from conducting any business unrelated to providing common carrier communications services. In 1974 the government brought a second antitrust action alleging that AT & T had used its monopoly (or "bottleneck") control over local telephone service to the disadvantage of competitors in the long distance and telecommunications equipment markets. While this action was being tried in the district court, the parties announced an agreement by which they proposed to settle the case. See generally United States v. American Telephone and Telegraph Co., 552 F.Supp. 131, 135-40 (D.D.C.1982), aff'd mem. sub nom., Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983).

The proposed consent decree split the Bell System into two basic parts--the competitive portion of the business, which would provide long distance service, manufacture telecommunications equipment, and conduct research, and the noncompetitive portion of the business, which would continue to have bottleneck control of local telecommunications service. The competitive portion was to be retained by AT & T and its Western Electric and Bell Labs subsidiaries, while the noncompetitive portion was assigned to the RHCs and their BOC subsidiaries. The distinction between the two portions of the business was to be preserved by creating "exchange areas," generally centering on a metropolitan area, within which BOCs would provide "exchange telecommunications services" consisting principally of local telephone service. The right to provide long distance "interexchange telecommunications services" was reserved to AT & T and its non-Bell System competitors. See generally id. at 140-43.

In accordance with the provisions of the Tunney Act, 15 U.S.C. Sec. 16(b)-(h), the district court conducted public proceedings to determine whether the proposed consent decree was in the public interest. As a result of these proceedings, the district court made a number of relatively minor changes in the proposed decree and authorized its implementation. United States v. American Telephone and Telegraph Co., 552 F.Supp. at 225. The divestiture formally took place on January 1, 1984, when ownership of the twenty-two BOCs was transferred to the seven RHCs, and the stock of the RHCs was distributed to AT & T's shareholders.

This case involves the extent to which the RHCs and BOCs are prohibited by the consent decree from engaging in certain business activities. The principal business restrictions on the BOCs are set forth in section II(D) of the consent decree, which provides that:

After completion of the reorganization ... no BOC shall, directly or through any affiliated enterprise:

1. provide interexchange telecommunications services or information services;

2. manufacture or provide telecommunications products or customer premises equipment (except for provision of customer premises equipment for emergency services); or

3. provide any other product or service, except exchange telecommunications and exchange access service, that is not a natural monopoly service actually regulated by tariff. ²

This provision is subject to section VIII(C) of the decree, which states:

The restrictions imposed upon the separated BOCs by virtue of section II(D) shall be removed upon a showing by the petitioning BOC that there is no substantial possibility that it could use its monopoly power to impede competition in the market it seeks to enter.

Because of uncertainty over whether certain proposed business ventures were permissible under section II(D), such that no waiver under section VIII(C) would be necessary to engage in them, several RHCs filed motions for clarification with the district court. ³ In a decision dated January 13, 1986, the district court denied all of the motions. See United States v. Western Electric Co., 627 F.Supp. 1090 (D.D.C.1986).

Two district court determinations are pertinent to this appeal. First, the court held that RHCs may not provide two-way mobile telephone and one-way paging services outside of their geographic regions absent a section VIII(C) waiver. The court reasoned that such services are "exchange telecommunications services" under the consent decree and that the decree implicitly prohibits the RHCs from providing exchange services outside of their geographic regions. Second, the court ruled that the decree prohibits the RHCs from selling certain "shared tenant services" within their regions. Sales of such services essentially involve bulk purchase of long distance service from interexchange carriers and discount resale of this service to groups of office building tenants. The proposal before the court did not involve sale of a complete package of shared tenant services. Rather, Ameritech proposed to sell such elements of shared tenant service as "least-cost routing," which involves programming a switch to select interexchange carriers in accordance with customers' wishes, and "traffic analysis," which involves studying customers' long distance usage patterns in order to facilitate routing at the lowest cost. The court explained that...