Looks Into Modifying Terms of 2 Phone Mergers
Stephen Labaton New York Times
Saturday, July 8, 2006
WASHINGTON, July 7 — A federal district judge in Washington
is considering the imposition of major modifications to the
two largest telephone mergers in history: SBC
Communication's acquisition of
Verizon's purchase of MCI.
In a surprising order issued Friday afternoon, Judge Emmet
G. Sullivan raised a series of questions about the Bush
administration's review of the two deals that he said should
be answered by the Justice Department and the phone
companies at a hearing next week.
Both deals have already closed, and lawyers said that the
judge could not unravel them, although he could try to
impose significant conditions or divestitures.
The proceedings will probably shed light on the
administration's antitrust enforcement program at a time
when officials have put up virtually no roadblocks to deals
and imposed few restrictions in other areas of antitrust
Still, the proceedings could affect the government's review
BellSouth's proposed acquisition by AT&T, the name the
company took after AT&T was swallowed by SBC. The
proceedings are also the first significant test of changes
in the law that have given federal judges greater authority
to scrutinize antitrust settlements.
Federal judges have been examining such settlements since
the 1970's, when they were given the authority under the
Tunney Act, which was adopted in response to the scandal
involving the Nixon administration's decision to settle an
antitrust proceeding against ITT.
Ever since a federal appeals court ruled in 1995 that Judge
Stanley J. Sporkin of Federal District Court had acted
outside of his authority in striking down a proposed
antitrust agreement between the government and
Microsoft, judges have generally approved settlements
with relatively little scrutiny. But in 2004, Congress gave
judges greater latitude to consider such deals.
In his order Friday, Judge Sullivan asked the lawyers to
address what authority he had to question the settlements.
He then raised several questions that suggested he had
concerns with the settlements.
"Through the eyes of a layperson, the mergers, in and of
themselves, appear to be against public interest given the
apparent loss in competition," he wrote. "In layperson's
terms, why isn't that the case?"
Another question he posed asked, "What consideration should
the court give the arguments of the attorney general of New
Elliot Spitzer, that the mergers will adversely affect
digital subscriber lines (DSL)
and the Internet backbone?"
While he could ultimately reject the deals, lawyers involved
said they did not expect it would unravel them. At most,
they said, a rejection could lead to changes in the
settlements and possible divestitures, although the
government and phone companies would probably appeal any
decision that sought to rewrite the deals substantially.
Challenges to the two telephone deals have been filed by Mr.
Spitzer and by organizations representing smaller rivals,
some of whom buy the lines of the telephone companies at
wholesale rates and then resell them. The companies have
asked the court to find that the deals are not in the public
interest because the Justice Department failed to force the
companies to shed some overlapping assets.
The top lawyer for the companies challenging the settlements
has been Gary L. Reback, a California lawyer who was the
intellectual and tactical leader in the effort in the 1990's
by a group of companies that persuaded the government to
prosecute Microsoft for antitrust violations.
In a court brief filed last month, Mr. Reback attacked the
phone companies and the Justice Department.
"At issue is judicial review of the successful efforts of
the two largest local telephone monopolists, SBC and
Verizon, aided and abetted by the current administration of
the antitrust division of the Department of Justice, to
reconstitute as a nationwide local and long-distance duopoly
what was formally the Bell System monopoly," he wrote.
The Bush administration said that it had carefully examined
the deals and ordered the appropriate divestitures. It said
the judge's authority to review the government's handling of
the deals was limited.
"The purpose of a Tunney Act proceeding is for a court to
examine the proposed remedy, and determine whether it is in
the public interest," the Justice Department said in its
brief. "It is not for a court to reinvestigate the
underlying merger at the behest of disappointed competitors
or put the Department of Justice on trial to justify its
prosecutorial decision making."