United States v. Western Elec. Co., Inc., Civ. A. No. 82-0192. Misc. No. 82-0025 (PI).

• Citation: 569 F. Supp. 990
• Decision Date: 20 April 1983
• Docket Number: Civ. A. No. 82-0192. Misc. No. 82-0025 (PI).
• 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. 990

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.

April 20, 1983.

COPYRIGHT MATERIAL OMITTED

James P. Denvir, Michael F. Altschul, Luin P. Fitch, J. Philip Sauntry, Jr., Jack D. Sidorov, Alan L. Silverstein, Antitrust Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff.

Howard J. Trienens, Alfred A. Green, Jim G. Kilpatric, Patrick F. Walsh, New York City, Lee M. Mitchell, Washington, D.C., for defendants.

OPINION

HAROLD H. GREENE, District Judge.

On August 24, 1982, a final judgment with modifications was entered in this case in accordance with an Opinion published on August 11, 1982.¹ One of the modifications included in the decree concerned the Court's role in reviewing the plan of reorganization by which the divestiture of the Bell Operating Companies from AT & T is to be accomplished. As the Court stated on August 11, the question "whether this decree will, in fact, provide the benefits which underlie the Court's public interest determination depends upon ... the provisions of the plan of reorganization" 552 F.Supp. at 216. For that reason, the Court conditioned its approval of the proposed decree upon a modification requiring judicial approval of that plan as a prerequisite to its implementation. The decree, accordingly, was entered as a final judgment with the proviso 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." Section VIII(J).²

On the parties' recommendation,³ the Court agreed on September 14, 1982, to undertake the review of the plan of reorganization in two stages. The first stage, presently before the Court, concerns the division of all Bell territory in the United States into geographically-based "exchange" areas, or LATAs.⁴ The second stage will deal with the remainder of the plan of reorganization.

On October 4, 1982, AT & T submitted its LATA application to the Court.⁵ The intervenors had an opportunity thereafter to comment on that proposal; the Department of Justice submitted its own approvals, disapprovals, and comments;⁶ the Operating Companies responded to the intervenor comments; and several intervenors filed further replies.⁷ All of these documents are presently on file with the Court. Before discussing the substantive issues presented by these filings, it is useful to explain initially the basic terminology employed herein and to delineate the standards the Court is applying in passing upon the AT & T-Department of Justice submissions.

I General Considerations

A. The LATA Concept

It is perhaps most important, first of all, to describe what a LATA is and also what it is not.

Pursuant to the decree, all Bell territory⁸ in the continental United States is divided into LATAs,⁹ generally centering upon a city or other identifiable community of interest.¹⁰ Most simply, a LATA marks the boundaries beyond which a Bell Operating Company¹¹ may not carry telephone calls. What the Operating Companies will do in the services field after divestiture is (1) to engage in exchange telecommunications, that is, to transport traffic between telephones located within a LATA,¹² and (2) to provide exchange access within a LATA, that is, to link a subscriber's telephone to the nearest transmission facility of AT & T or one of AT & T's long-haul competitors.¹³

Once the divestiture is completed, the Operating Companies will be allowed to transport communications only to and from telephones and other apparatuses located within the same LATA (intra-LATA traffic); because of their local monopoly position, the decree does not permit the Operating Companies to carry calls between different LATAs (inter-LATA traffic).¹⁴ Only AT & T and its intercity competitors¹⁵ — such as MCI, Sprint, and Satellite Business Systems — may carry telecommunications traffic which originates in one LATA and terminates in another.¹⁶

Thus, contrary to much popular and even industry understanding, the purpose of the establishment of the LATAs is only¹⁷ to delineate the areas in which the various telecommunications companies will operate; it is not to distinguish the area in which a telephone call will be "local" from that in which it becomes a "toll" or long distance call. To put it another way, the LATA is not an entity designed to supplant the local "exchange" as telephone users know it,¹⁸ nor will the establishment of the borders of the LATAs affect what is commonly known as the local calling area, i.e., those areas, typically combining more than one local exchange, within which subscribers may place telephone calls without paying an extra charge. The distance at which a local call becomes a long distance toll call has been, and will continue to be, determined exclusively by the various state regulatory bodies. After divestiture, calls placed within any one LATA may still be either "local" or "toll" depending upon the requirements or rates established by state regulators. Neither the LATAs nor the decree in this case changes that situation in any way.¹⁹

B. Purposes of the Decree and of the Plan of Reorganization

The LATA line-drawing process pursuant to the decree implicates significant policy choices revolving primarily around the size of the LATAs. As a general matter, and in somewhat oversimplified form (see note 24 infra), it may be said that the establishment of many relatively small LATAs would tend to favor the various interexchange competitors (e.g., MCI, Sprint), principally because among the consequences of such a choice²⁰ would be a diminution of the number of points between which any particular local Bell Operating Company — a potential competitor of the interexchange carriers for intra-LATA traffic — may carry telecommunications.²¹ On the other hand, the creation of relatively few, relatively large LATAs would tend to favor the Operating Companies,²² inasmuch as such a choice would increase the area in which these local companies may carry telecommunications, thus augmenting their financial viability²³ and, not incidentally, decreasing the pressure for rate increases.²⁴

For these reasons, the primary controversy over the LATA applications revolves around the size of the areas thus being carved out and, not surprisingly, the answers provided by a party to the question whether a particular LATA is too large or too small depends to a considerable extent on how that party ranks the various policies and interests underlying the decree in accordance with its own self interest.²⁵ The comments filed by States and state regulatory bodies tend to be concerned with the future financial security of the Operating Companies and the protection of low telephone rates, and they therefore opt most frequently in favor of large LATAs. Others, especially the existing and prospective competitors of AT & T, are primarily interested in advancing the more obviously competitive purposes of the decree,²⁶ especially as far as interexchange service is concerned, and they urge the establishment of many small LATAs.

Since the plan of reorganization is required to conform to the provisions and principles of the decree, the Court necessarily must consider, and it has considered, whether the choices which were made by AT & T and the Department of Justice with regard to these issues correctly reflect these provisions and principles, especially in the areas of competition and Operating Company viability.²⁷

As its approval of the decree and the basic divestiture plan indicates, the Court believes not only that competition in telecommunications services and products markets is required by law but also that such competition will be healthy and will benefit the American people, including particularly the American consumer.²⁸ The Court is continuing strongly to foster the objective of competition, including by such measures as the conditioning of judicial approval of exceptions from the standard provisions of the decree upon the grant by the Operating Companies of fair and equal access to carriers who wish to compete for the intra-LATA business. See pp. 1004-1006 infra. In a similar vein, the Court intends to see to it that the division of AT & T's assets will not leave the Operating Companies with out-dated equipment for the access of the smaller interexchange carriers while AT & T retains the most modern, the most efficient switches and other facilities.²⁹

At the same time, the Court also expects to do what it legitimately can to strengthen the ability of the Operating Companies to function as viable entities, not dependent upon inordinate rate increases for their survival. Some, particularly MCI, maintain that the health of the Operating Companies is not a legitimate concern of the Court.³⁰ But the Court has taken similar factors into account before,³¹ and it will do so again now. Under established legal principles, the Court is clearly free to consider the public interest in its broad sense as long as such consideration does not negate the objectives of the antitrust laws. 552 F.Supp. at 150-51.

There can be no doubt that the continued viability of the Operating Companies is in the public interest. These companies will next January assume the responsibility of providing basic local telephone service, and it is upon them, too, that will depend the realization of the goal of universal service; i.e., the goal of providing affordable telephone service to all, including those who are not affluent or who reside in relatively isolated areas.³² That objective will retain all of its vitality after the reorganization of AT & T. The Court will therefore approve LATAs which tend to preserve the effectiveness and the viability of the...