Appendix — U S West, Inc. v. United States

" | S reme Cou

g6-776 | Frees

1 NOV 13 1986

ee JR.

In THE —

Supreme Court of the United States

OCTOBER TERM, 1986

U S WEST, INc.,

Petitioner,

UNITED STATES OF AMERICA

and

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

Respondents.

APPENDICES TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Of Counsel:

LAURENCE W. DEMUTH

—

DAVID S. SATHER

ROBERT B. MCKENNA

US WEST, INc.

1020 19th Street, N.W.

Suite 700

Washington, D.C. 20036

(202) 429-0303

L. ANDREW TOLLIN *

WILKINSON, BARKER, KNAUER

& QUINN

1735 New York Avenue, N.W.

Washington, D.C. 20006

(202) 783-4141

* Counsel of Record

Witeon - Eras Paiwrinc Co.. Inc. - 789-0096 - WASHINGTON, D.C. 20001

—

APPENDICES

Page

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. Opinion of the district court, dated January 13,

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. Modification of Final Judgment, dated August 24,

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. Amendment 5 to the United States Constitution;

Sherman Anti-Trust Act, Section 2; Tunney Act,

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APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 86-5118

UNITED STATES OF AMERICA

Vv.

WESTERN ELECTRIC COMPANY, INC., et al.,

BELL ATLANTIC CORPORATION,

Appellant.

No. 86-5163

UNITED STATES OF AMERICA

¥.

WESTERN ELECTRIC COMPANY, INC., et al.,

PACIFIC TELESIS GROUP,

Appellant.

No. 86-5164

UNITED STATES OF AMERICA

Vv.

WWUSTERN ELECTRIC COMPANY, INC., et al.,

US WEsT, INC.,

Appellant.

Argued May 16, 1986

Decided Aug. 15, 1986

2a

Before MIKVA, SCALIA and BUCKLEY, Circuit

Judges.

Opinion for the court filed by Circuit Judge BUCK-

LEY.

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 com-

panies (““RHCs”) to own and operate the BOCs,’ and it

subjected the BOCs to stringent line-of-business restric-

tions. 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 be-

cause 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 geo-

graphic regions. Bell Atlantic also appeals a subsequent

order requiring it to discontinue the extraregional activi-

ties of its paging service subsidiary. Finally, US West

appeals the district court’s denial of a request by Ameri-

tech for authorization to provide “shared tenant serv-

ices,” which would allow tenants of a building to use

1 The seven RHCs are American Information Technologies Corp.

(“Ameritech”), Bell Atlantic Corp., BellSouth Corp., NYNEX Corp.,

Pacific Telesis Group, Inc., Southwestern Bell Corp., and US West,

Inc.

3a

centralized facilities to route long distance calls in ac-

cordance with predetermined cost and traffic analysis

criteria.

We hold that the RHCs are bound by the consent de-

cree, that the decree does not prevent the RHCs from

providing exchange services outside their geographic re-

gions, and that the district court therefore erred in

ordering the RHCs to stop providing extraregional ex-

change 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 dis-

trict 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 pro-

viding common carrier communications services. In 1974

the government brought a second antitrust action alleg-

ing that AT & T had used its monopoly (or “bottle-

neck’’) control over local telephone service to the disad-

vantage of competitors in the long distance and telecom-

munications 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 Tele-

graph 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

4a

continue to have bottleneck control of local telecommu-

nications service. The competitive portion was to be re-

tained 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 telecommu-

nications 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. § 16(b)-(h), the district court conducted pub-

lic 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 rela-

tively minor changes in the proposed decree and author-

ized its implementation. United States v. American Tele-

phone and Telegraph Co., 552 F. Supp. at 225. The di-

vestiture 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 dis-

tributed 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 re-

strictions 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 serv-

ices or information services;

2. manufacture or provide telecommunications prod-

ucts or customer premises equipment (except for

5a

provision of customer premises equipment for emer-

gency services) ; or

3. provide any other product or service, except ex-

change telecommunications and exchange access serv-

ice, that is not a natural monopoly service actually

regulated by tariff.*

This provision is subject to section VIII(C) of the de-

cree, 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.* In a decision

2 The final consent decree is appended to the district court deci-

sion in United States v. American Telephone and Telegraph Co.,

552 F. Supp. 131, 226-34 (D.D.C. 1982).

3 Ameritech filed motions requesting that the decree be inter-

preted to permit the RHCs to provide, inter alia, cellular radio

services, including paging and mobile telephone services, outside

of their geographic regions and shared tenant services to long dis-

tance users within their regions. US West similarly asked for a

ruling that it could provide cellular radio services outside of its

region. US West’s district court brief supported Ameritech’s mo-

tion with respect to shared tenant services, but US West did not

join in that motion. Pacific Telesis asked that the decree be inter-

preted to permit it to provide exchange telecommunications services,

including paging and mobile telephone services, outside of its region.

Bell Atlantic filed a brief in support of Pacific Teiesis’ motion, but

did not join that motion. See United States v. Western Electric Co.,

627 F. Supp. 1090, 1093 n.1 (D.D.C. 1986).

6a

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 de-

cree prohibits the RHCs from selling certain “shared

tenant services” within their regions. Sales of such serv-

ices 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 com-

plete package of shared tenant services. Rather, Ameri-

tech proposed to sell such elements of shared tenant serv-

ice as “least-cost routing,” which involves programming

a switch to select interexchange carriers in accordance

with customers’ wishes, and “traffic analysis,” which in-

volves studying customers’ long distance usage patterns

in order to facilitate routing at the lowest cost. The

court explained that such services constitute “interex-

change telecommunications services,” which the BOCs are

prohibited from offering under section II(D) of the con-

sent decree.

In an order dated February 14, 1986, the district court

noted that Pacific Telesis, Southwestern Bell, and Bell

Atlantic were providing mobile telephone and paging

services outside of their regions and reviewed the plans

that the three companies had submitted for complying

with the court’s January 138 decision. Pacific Telesis and

Southwestern Bell had both pledged to discontinue all

extraregional exchange services within ninety days, and

Ta

the court agreed to grant these companies until April 17,

1986 to terminate their extraregional operations. Bell

Atlantic had promised to discontinue the extraregional

mobile telephone operations of its A Beeper Company

subsidiary, but it asked for permission to continue pro-

viding extraregional paging services pending Justice De-

partment review of its petition for a waiver under sec-

tion VIII(C) of the consent decree authorizing it to re-

main in that business. The court denied this request and

ordered Bell Atlantic to stop providing exchange services

outside of its region by April 17, 1986. This order was

subsequently stayed pending appeal of the court’s Jan-

uary 13 and February 14 orders.

On February 26 the district court granted a waiver to

Pacific Telesis authorizing it to provide certain extra-

regional paging and mobile telephone services. A waiver

was also granted to NYNEX on March 138, permitting it

to provide mobile telephone service outside of its region.

On May 14 the district court granted a waiver to Bell

Atlantic, authorizing its A Beeper Company subsidiary

to provide extraregional paging services. This waiver,

however, is subject to the limitation that A Beeper not

market paging services actually provided by other RHCs

and their BOC subsidiaries. Because much of A Beeper’s

extraregional business consists of marketing services pro-

vided by other RHCs, Bell Atlantic has continued to ex-

press dissatisfaction with the district court’s decisions.

In this appeal, US West, Bell Atlantic, and Pacific

Telesis seek reversal of the district court’s January 13

decision insofar as it prohibits the RHCs from providing

extraregional exchange services without prior court ap-

proval. Bell Atlantic also appeals the court’s February 14

order limiting the operations of its A Beeper Company

subsidiary. In addition, US West appeals the portion of

the January 18 decision that denies Ameritech’s request

for authorization to provide shared tenant services. The

court’s subsequent orders granting waivers to Pacific

8a

Telesis, NYNEX, and Bell Atlantic are not directly at

issue in this appeal.

II. DISCUSSION

A. Applicability of the Consent Decree to the RHCs

Alone among the RHCs, US West argues that the

consent decree does not bind the RHCs. US West ad-

vances two lines of analysis, either one of which it con-

tends compels the conclusion that the RHCs are free to

provide the services at issue in this case. First, it claims

that application of the consent decree’s restrictions to the

RHCs and BOCs offends due process because the RHCs

and BOCs were not parties to the underlying antitrust

proceeding, did not have independent legal representa-

tion, and never actually consented to the decree. Second,

it asserts that even if application of the decree to the

RHCs and BOCs does not offend due process, the RHCs

are nonetheless free from the decree’s restrictions because

the literal terms of the decree limit only the activities of

the BOCs and do not purport to constrain the RHCs.

We find neither of these arguments persuasive and hold

that the RHCs and BOCs are subject to the restrictions

of the consent decree.*

US West’s due process argument fails because it ig-

nores the facts that AT & T was a party to the antitrust

proceeding and both the RHCs and the BOCs were wholly

owned subsidiaries of AT & T at the time the consent

4 The government suggests that we need not reach the merits of

this issue because it was not raised by US West in the district

court. However, US West did express doubts as to the decree’s

applicability to the RHCs, Reply Comments of US West to Ameri-

tech’s Motion Regarding Shared Tenant Services at 2 n.2, and the

district court felt compelled to respond to US West's contention.

United States v. Western Electric Co., 627 F. Supp. at 1093 n.2.

Under these circumstances, our usual reluctance to reach issues

not raised in the district court does not prevent us from considering

this issue. See District of Columbia v. Air Florida, Inc., 750 F.2d

1077, 1084-85 (D.C. Cir. 1984).

9a

decree was entered. This intimate corporate affiliation

distinguishes the instant case from Sam Fox Publishing

Co. v. United States, 366 U.S. 683, 81 S.Ct. 1309, 6

L.Ed.2d 604 (1961), and Hansberry v. Lee, 311 U.S. 32,

61 S.Ct. 115, 85 L.Ed. 22 (1940), cited by US West,

which held only that class members not adequately repre-

sented by class representatives may not be bound by

judgments entered against the class. US West also cites

Federal Trade Commission v. Exxon Corp., 636 F.2d

1336 (D.C. Cir. 1980), which establishes that a company

being acquired by another company may be entitled to

independent legal representation. US West cites no au-

thority, however, for the remarkable proposition that a

parent may not bind its wholly owned subsidiaries with-

out affording them independent legal representation. It

is self-evident that due process does not require such

representation. Because the RHCs and BOCs were AT

& T’s privies in the antitrust proceeding, the consent de-

cree is binding on the former AT & T subsidiaries even

though they were not parties to the action. Southmark

Properties v. Charles House Corp., 742 F.2d 862, 870

(5th Cir. 1984).

US West’s related suggestion that AT & T breached

a fiduciary duty owed to the RHCs and BOCs by con-

senting to onerous restrictions on its former subsidiaries

is both specious and irrelevant. It is specious because

the only duty owed by AT & T was to its shareholders,

who were identical to the initial RHC shareholders. Even

if US West is correct in asserting that AT & T agreed

to restrictions on the RHCs and BOCs in order to free

itself of restrictions, there was nevertheless no injury to

the shareholders. AT & T was merely allocating Bell

System assets and liabilities among different portions of

the business in anticipation of divestiture. US West’s

fiduciary duty argument is irrelevant because even if

US West could show that AT & T breached such a duty,

this would at most demonstrate that the RHCs have a

cause of action against AT & T. It would not follow

10a

that the RHCs are entitled to judicial relief from the

obligations of the consent decree.

US West’s contention that the RHCs are not re-

stricted under the literal terms of the consent decree also

fails upon close examination of the decree. At least three

provisions of the decree make clear that the RHCs, as

well as the BOCs, are subject to the consent decree’s

line-of-business restrictions. First, section III of the de-

cree states “(t]he provisions of this [decree], applicable

to each defendant and each BOC, shall be binding upon

said defendants and BOCs, their affiliates, successors and

assigns ....” Section IV(a) defines “affiliate” to include

“any organization or entity, including defendant Western

Electric Company, Incorporated, and Bell Telephone Lab-

oratories, Incorporated, that is under direct or indirect

common ownership with or control by AT & T or is owned

or controlled by another affiliate.” As the district court

explained in its January 13 decision, because the RHCs

were wholly owned subsidiaries at AT & T prior to the

divestiture, they are “affiliates” within the meaning of

section IV(A) and therefore are bound under section

III of the decree. United States v. Western Electric Co.,

627 F.Supp. at 1093 n. 2.

Second, section IV(C) defines the term “BOC” to in-

clude “any entity directly or indirectly owned or con-

trolled by a BOC or affiliated through substantial com-

mon ownership.” Because the shareholders of the RHCs

directly own the RHCs and indirectly own the BOCs, the

RHCs and BOCs are “affiliated through substantial com-

mon ownership.” See Braun v. Insurance Co. of North

America, 488 F.2d 1066, 1067 (5th Cir.1974).

Finally, in setting forth the consent decree’s line-of-

business restrictions, section II(D) states that “no BOC

shall, directly or through any affiliated enterprise [en-

gage in conduct proscribed by the decree}.” For the rea-

sons stated above, the RHCs are affiliated with their sub-

—

lla

sidiary BOCs, and the RHCs are accordingly subject to

the restrictions of section II(D).

We are not troubled by US West’s observation that

the decree’s expansive definition of a BOC results in

broad application of the decree’s restrictions to RHCs

and other companies affiliated with BOCs. This result is

consistent with the decree’s objective of sharply limiting

the ability of businesses with bottleneck control of local

telephone service to utilize their monopoly advantages to

affect competition in competitive markets. United States

v. American Telephone and Telegraph Co., 552 F.Supp.

at 142. It is also consistent with the Supreme Court’s

recent recognition that, under the antitrust laws, corpor-

ations and their wholly owned subsidiaries function as a

single enterprise. Copperweld Corp. v. Independence

Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d

628 (1984). Moreover, the impact of the decree’s restric-

tions on companies affiliated with BOCs is mitigated by

section VIII(C), the decree’s waiver provision, which re-

quires that BOCs be granted the right to engage in activ-

ities otherwise proscribed “upon a showing by the peti-

tioning BOC that there is no substantial possibility that

it could use its monopoly power to impede competition in

the market it seeks to enter.”

B. Extraregional Exchange Services

Because the RHCs are bound by the decree, it is neces-

sary to reach the issues of consent decree interpretation

presented in this appeal. In an earlier decision the dis-

trict court ruled that two-way mobile telephone and one-

way paging services are “exchange telecommunications

services” within the meaning of the decree, United

States v. Western Electric Co., 578 F.Supp. 648, 645

(D.D.C.1983), and appellants US West, Bell Atlantic,

and Pacific Telesis do not now contest this conclusion.

They argue, however, that the district court erred in its

January 13 decision in ruling that they are prohibited

12a :

hy the decree from providing exchange telecommunica-

tions services outside of their respective geographic re-

gions. There contentions in this regard are supported by

amicus briefs filed on behalf of Ameritech, BellSouth,

NYNEX, and Southwestern Bell.

This court has held that the “construction of a con-

sent decree is essentially a matter of contract law... .”

Citizens for a Better Environment v. Gorsuch, 718 F.2d

1117, 1125 (D.C.Cir.1983), cert. denied, 467 U.S. 1219,

104 S.Ct. 2668, 81 L.Ed.2d 373 (1984). Accordingly,

the district court’s construction of the decree is subject

to de novo review by this court. See Willie M. v. Hunt,

657 F.2d 55, 59 (4th Cir.1981). The principles of con-

sent decree construction were elucidated by the Supreme

Court in United States v. Armour & Co., 402 U.S. 673,

682, 91 S.Ct. 1752, 1757, 29 L.Ed.2d 256 (1971), where

it observed that “the scope of a consent decree must be

discerned within its four corners, and not by reference

to what might satisfy the purposes of one of the parties

to it.” It has further held that in the enforcement of a

consent decree, “reliance upon certain aids to construc-

tion is proper, as with any other contract.” United

States v. ITT Continental Baking Co., 420 U.S. 228, 238,

95 S.Ct. 926, 935, 43 L.Ed.2d 148 (1975). These include

“the circumstances surrounding the formation of the con-

sent order ....” Jd. We need not decide whether this

is a case where it is appropriate to consider evidence ex-

trinsic to the consent decree, because in this case such

evidence does not change our result. We conclude that

neither the express language of the consent decree nor

the circumstances of its formation will support the ter-

ritorial restrictions imposed on exchange services by the

district court.

None of the parties to the instant case contends that

an explicit prohibition on the provision of extraregional

exchange services is contained within the four corners

of the consent decree. The district court found, however,

13a

that “it is clear for 4 number of reasons that the Oper-

ating Companies were intended to be limited to their

own local areas in furnishing exchange telecommunica-

tions services.” United States v. Western Electric Co.,

627 F.Supp. at 1106. The district court listed eight such

reasons, including both provisions of the decree that al-

legedly contain implicit geographic restrictions on RHC

operations, and evidence extrinsic to the decree that pur-

portedly reveals an intent to impose such restrictions.

Id. at 1106-08. We have considered the reasons identified

by the district court, as well as other “aids to construc-

tion” cited by the parties, but we are unable to conclude

that the parties to the decree reached any agreement

on the issue of extraregional exchange services.

We do not agree with the district court that various

provisions of the decree implicitly impose geographic re-

strictions on RHC and BOC operations. The fact that

the criteria set forth in section IV(G) for establishing

exchange areas are all local in nature has no bearing on

the question of whether a geographic restriction was in-

tended to be imposed on all subsequent RHC and BOC

exchange activities. The local nature of these criteria

was merely a function of the need, at the time of divesti-

ture, to divide the Bell System’s local operations into co-

herent units in which BOCs could function without enter-

ing the interexchange, or long distance, business.

Similarly, the fact that section IV(G) assigned the re-

sponsibility for establishing exchange areas within their

respective regions to the BOCs reflects nothing more than

simple necessity. Prior to January 1, 1984, when the sys-

tem of exchange areas came into effect, the BOCs were

the only providers of local telecommunications service

within their respective regions; there was no other logical

entity to draw exchange areas. It does not follow from

this that each BOC was precluded from providing ex-

change services in exchange areas drawn by other BOCs.

l4a

Identical logic explains why, pursuant to section I of

the decree, AT & T assets necessary to provide local tele-

phone service were distributed to the BOCs on a geo-

graphic basis. This plan of distribution merely shows

that the initial division of markets was geographic; it

does not mean that after divestiture the initial geo-

graphic boundaries were to be inviolable.

We are unable to understand the district court’s sug-

gestion that sections VIII(A) and VIII(B) of the decree,

which authorized the BOCs to sell customer premises

equipment and publish telephone directories, reveal an

intent to geographically restrict other BOC operations.

These sections, which were adopted as amendments to

the decree at the court’s insistence, merely authorize the

BOCs to enter lines of business that would otherwise be

prohibited to them under section II(D). Sections VIII

(A) and VIII(B) plainly do not purport to lift any geo-

graphic restrictions on these activities to which the

BOCs would be subject in the absence of the sections.

Thus, far from supporting the district court’s conclu-

sion, the fact that all parties to the decree have assumed

that the RHCs and BOCs may sell customer premises

equipment and publish telephone directories on a nation-

wide basis supports appellants’ claims. If the RHCs and

BOCs may engage in these activities outside of their

regions without a waiver of geographic restrictions, it

is not unreasonable to assume that other activities per-

mitted under the decree may be conducted nationwide as

well.

In view of the foregoing, we conclude that there is no

explicit or implicit geographic restriction of RHC and

BOC operations contained within the four corners of the

consent decree. When we look beyond the language of

the decree, we remain unpersuaded that the parties to

the decree intended to prohibit provision of extraregional

exchange services.

15a

We recognize that certain of the “aids to construction”

in this case suggest that the parties and the district court

assumed that the RHCs and BOCs would confine them-

selves to providing exchange services within their respec-

tive regions. For instance, in approving the proposed

consent decree, the district court stated that “[e]ach of

the divested Operating Companies will have a monopoly

in only one geographic portion of one [telecommunica-

tions] market{]—local telecommunications.” United

States v. American Telephone and Telegraph Co., 552

F.Supp. at 187. Later, in a portion of its opinion ap-

proving the plan of reorganization submitted by AT & T

pursuant to section I of the decree, the district court

observed that “[w]lith respect to exchange telecommuni-

cations . . . the Operating Companies and the Regional

Companies will, by definition, be limited to clearly de-

fined geographic areas... .” United States v. Western

Electric Co., 569 F.Supp. 1057, 1081 (D.D.C.1983). Cer-

tain RHC filings with the Federal Communications Com-

mission suggest that the RHCs may have shared the dis-

trict court’s understanding. See Comments of Associated

Bell System Companies at 18, FCC CC Docket No. 83-115

(Apr. 25, 1983); Reply Comments of Associated Bell

System Companies at 13, FCC CC Docket No. 83-115

(May 25, 1983); Joint Petition for Reconsideration of

Indiana Bell, Michigan Bell, and Ohio Bell at 13, 15, 16,

FCC CC Docket No. 83-115 (Feb. 10, 1984).

There are also indications in the record, however, that

the drafters of the consent decree did not intend to pro-

hibit the RHCs from furnishing exchange services out-

side of their respective regions. For example, both As-

sistant Attorney General for Antitrust Enforcement Wil-

liam F. Baxter and AT & T Vice President and General

Counsel Howard J. Trienens testified before committees

of Congress that it would have been possible under the

consent decree for AT & T to combine all of the BOCs

into a single nationwide operating company. See AT &

16a

T Proposed Settlement: Hearings Before the Senate

Comm. on Commerce, Science and Transportation, 97th

Cong., 2d Sess. 73 (1982) (testimony of William F.

Baxter) ; Department of Justice Oversight of the United

States v. American Telephone and Telegraph Lawsuit:

Hearings Before the Senate Comm. on the Judiciary,

97th Cong., 2d Sess. 112, 141-42 (1982) (prepared state-

ment of William F. Baxter; testimony of Howard J.

Trienens). This conclusion was compelled by section

I(A) (4) of the decree, which states that “nothing in this

decree shall require or prohibit the consolidation of the

ownership of the BOCs into any particular number of

entities.” The possibility of a single nationwide operat-

ing company is obviously inconsistent with the existence

of geographic limitations on exchange telecommunica-

tions, for if there were only one operating company it

would necessarily provide local telephone service through-

out the country.

The absence of geographic restrictions is also suggested

by events surrounding Bell Atlantic’s efforts to solicit the

views of the Department of Justice concerning its plans

to acquire A Beeper Company. As explained in affidavits

filed with the district court, the Justice Department in-

itially advised Bell Atlantic that the fact that A Beeper

provided exchange services outside of the Bell Atlantic

region would not place Bell Atlantic in violation of the

consent decree. See Affidavit of James H. Dickerson

77 4-6. In fact, there was internal disagreement within

the Justice Department as to whether the consent decree

prohibited the provision of extraregional services, but the

existence of this disagreement was not initially commu-

nicated to Bell Atlantic. See id. { 12; Affidavit of James

P. Denvir { 6; Supplemental Affidavit of James P. Denvir

"7 2, 3; Affidavit of Richard O. Levine { 12. We consider

the existence of internal disagreement to be significant,

for if the Justice Department found the decree ambigu-

ous in this regard, it is most unlikely that the parties to

17a

the decree ever reached an agreement on the issue of

extra-regional exchange services.

We suspect that the uncertainty surrounding this issue

has a simple explanation: the parties and the district

court never considered the possibility that the BOCs

might want to provide exchange services outside of their

geographic regions. It must be remembered that ex-

change service consists principally of local landline tele-

phone service, and it is hardly conceivable that one BOC

would want to enter another BOC’s area in order to pro-

vide such traditional service in competition with the

established BOC. This case, on the other hand, involves

special types of exchange service that can be provided in

competition with an established BOC, and we think it

likely that the drafters of the consent decree simply did

not consider such a possibility. Had they considered it,

they might have proscribed it (though in view of its pro-

competitive effect, that is far from certain). The ques-

tion before the court, however, is whether we may now

read such a proscripticn into the decree. Under Armour

and ITT Continental Baking, it is clear that we may not.

We therefore reverse the district court’s January 13 deci-

sion insofar as it held that the RHCs may not provide

exchange telecommunications services outside of their re-

spective regions.

C. Orders Requiring Termination of Extraregional

Exchange Services

Because the consent decree does not limit the RHCs to

providing exchange services within particular geographic

areas, it necessarily follows that we must vacate the dis-

trict court’s February 14 order requiring the RHCs to

cease providing extraregional exchange services. The

court’s subsequent orders granting waivers to Pacific Tel-

esis, NYNEX, and Bell Atlantic are not before us. We

assume, however, that the court will vacate these insofar

as they purport to restrict the right of the RHCs to pro-

18a

vide exchange services outside of their respective regions.

Like the court’s February 14 order, these orders incor-

rectly presuppose that the RHCs may not furnish such

services without court authorization.

D. Shared Tenant Services

The final issue presented in this appeal is US West’s

contention that the district court erred in ruling that

Ameritech’s proposal to furnish certain shared tenant

services would violate the decree’s proscription on BOC

involvement in the interexchange telecommunications

business. The district court reasoned that the types of

services Ameritech proposed to provide—least-cost rout-

ing and traffic analysis—would inject it into the inter-

exchange business and would therefore contravene sec-

tion II(D) of the decree. Ameritech has not appealed

this decision, and we hold that US West does not have

standing to independently appeal the decision.

It is axiomatic that “a party may only appeal to pro-

tect its own interests, and not those of a coparty.” Libby,

McNeill, and Libby v. City National Bank, 592 F.2d 504,

511 (9th Cir.1978). See also Barry v. District of Colum-

bia Board of Elections and Ethics, 580 F.2d 695, 697

(D.C.Cir.1978). It follows that the district court’s ruling

on the shared tenant services issue is properly before this

court only to the extent that it binds US West; Ameri-

tech’s failure to appeal leaves it subject to the ruling.

United Steelworkers of America v. University of Ala-

bama. 599 F.2d 56, 59 (5th Cir.1979). Because we con-

clude that the ruling does not bind US West, we must

dismiss US West’s ap»eal for want of standing.

As Ameritech acknowledged in the district court,

shared tenant services “are in the gray area of an ‘over-

lap’ between excnange and interexchange activities.”

United States v. Western Electric Co., 627 F.Supp. at

1099. A number of different types of services fall under

the shared tenant services rubric, and it is not evident

that all of them are properly characterized as interex-

Jen tee

19a

change services. In deciding Ameritech’s motion for clar-

ification, the district court was required to determine

whether the actual services that Ameritech intended to

provide were most akin to permitted exchange or pro-

hibited interexchange activities. The court’s conclusion

that Ameritech’s proposal most resembled interexchange

service cannot bind US West unless the actual services

that US West wishes to provide are identical to those

proposed by Ameritech. We have no basis for assuming

that US West’s proposal would be identical to Ameri-

tech’s and therefore we cannot find that US West is

bound by the district court’s ruling.

Were we to accept US West’s invitation to review

the ruling, we would have to speculate as to what serv-

ices US West might wish to provide, and our decision

accordingly would be little more than an advisory opin-

ion. The rules of standing exist precisely to avoid the

uncertainty that this course would entail. We accord-

ingly hold that the share tenant services issue is not prop-

erly before this court. If US West wishes to pursue

this issue, it should frame its own specific shared tenant

services proposal, obtain district court review of the pro-

posal if it deems such review prudent, and then appeal

any adverse decision to this court.

III. CONCLUSION

For the foregoing reasons, we hold that the RHCs are

bound by the AT & T consent decree, that the decree im-

poses no geographic restraints on the areas in which

RHCs may provide exchange services, and that the dis-

trict court erred in ordering the RHCs to stop provid-

ing exchange services outside of their respective regions.

We do not decide whether shared tenant services are pro-

hibited interexchange activities under the decree because

US West is without standing to obtain review of the

district court’s ruling on this issue.

It 1s so ordered.

20a

APPENDIX B

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civ. A. No. 82-0192

UNITED STATES OF AMERICA,

Plaintiff,

Vv.

WESTERN ELECTRIC COMPANY, et al.,

Defendants.

Jan. 13, 1986

OPINION

HAROLD H. GREENE, District Judge.

Pending before the Court for decision are a number of

motions by various Regional Holding Companies for

clarification of the decree.1 The motions represent the

view of several of the Regional Companies? that they are

1 Ameritech has filed three of these motions, requesting that the

decree be interpreted to permit Regional Companies to provide (1)

cellular radio services outside their geographic regions, (2) voice

storage and retrieval services to cellular customers, and (3) shared

tenant services. Pacific Telesis asks that the decree be clarified

to allow it to provide exchange telecommunications services outside

of California and Nevada. NewVector’s motion asks for a ruling

that its provision of cellular radio services outside of the U S West

region is authorized by the decree. Each of the motions is sup-

ported by several other Regional Companies.

2 Although the line of business restrictions in section II(D) of

the decree are addressed to the Operating Companies without any

2la

entitled under the decree to engage in a substantial range

of telecommunications activities without obtaining waiv-

explicit reference to the Regional Companies (which did not exist

when the decree was negotiated), they clearly also apply to the

latter, and arguments to the contrary (see note 18 infra) are with-

out merit.

Section III provides that the provision of the decree shall be

binding upon the parties and each of the Operating Companies,

including “their affiliates, successors and assigns. .. .” Section

IV(A) goes on in pertinent part to define an “affiliate” as any or-

ganization or entity under direct or indirect common ownership

with or control by AT & T, and “subsidiary” as any organization

er entity in which AT & T has stock ownership, and section IV(C)

defines the term “BOC,” i.e., Operating Company, inter alia, as

“any entity directly or indirectly owned or controlled by [an Operat-

ing Company] or affiliated through substantial common ownership.”

The Regional Companies were created prior to divestiture pur-

suant to the Plan of Reorganization as wholly-owned subsidiaries

of AT & T. That plan, submitted by AT & T to the Court for

approval pursuant to section VIII(J) of the decree, implemented

divestiture in part by requiring AT & T to contribute its stock in

the Operating Companies to the seven newly-created Regional

Companies and then separating these companies from AT & T.

The plan proceeded on the premise that regional centralization of

the ownership and management of the Operating Companies would

result in a more efficient and practical restructuring of the local

telephone industry than would have been possible with the establish-

ment of all twenty-two Operating Companies as entirely independent

-and unrelated entities. See Part IV(A) (6) of the Plan of Reorgani-

zation notes 422 and 423. See also, United States v. Western Elec-

tric Co., 569 F. Supp. 1057, 1062 n.5 (D.D.C. 1983), aff'd, California

v. United States, 464 U.S. 1018, 104 S.Ct. 542, 78 L.Ed.2d 719

(1983); Department of Justice Competitive Impact Statement, 47

Fed. Reg. 7170, 7174, 7175 (February 17, 1982).

The Department of Justice’s Competitive Impact Statement, in

discussing the possibility that the Plan of Reorganization might

be implemented by AT & T’s transfer of the portion of its business

providing local exchange service to new corporate entities, noted

that “‘the locai exchange enterprises would become [Operating Com-

panies] for the purposes of this .. . [judgment regardless of their

corporate name.” 47 Fed. Reg. at 7174.

It is clear from the decree, the Plan of Reorganization, the

Court’s Opinions, and the Competitive Impact Statement that the

22a

ers pursuant to section VIII(C) of the decree. In each

case, the proffered interpretation is opposed by other en-

tities, both commercial and governmental, which argue

that the particular activities are prohibited by the decree.

After careful scrutiny of all the relevant factors, the

Court has determined that the interpretations of the

decree advocated by the Regional Companies in these

motions are inconsistent with the language, history, and

purposes of the decree,* and that all the motions for

clarification * must therefore be denied. Before discuss-

ing the motions in detail, it is appropriate to restate the

basic purpose underlying the prohibitions imposed by the

decree on the local companies.

establishment of the Regional Companies served only logistical

purposes, and that it was not to have any substantive effect on the

obligations of the entities exercising local telecommunications au-

thority. It is likewise clear that the Regional Companies are bound

by the decree both as subsidiaries of AT & T prior to divestiture

and as affiliates of the Operating Companies subsequent thereto.

Insofar as the prohibitions in the decree are concerned, the Operat-

ing Companies and the Regional Companies occupy identical posi-

tions, and the two types of entities will generally be referred to

herein without distinction. See United States v. Western Electric

Co., 604 F. Supp. 256, 257 n.8 (D.D.C. 1984); United States v.

Western Electric Co., supra, 569 F. Supp. at 1062 n.5.

* See United States v. AT & T, 552 F. Supp. 131 (D.D.C. 1982),

aff'd, Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240,

75 L.Ed.2d 472 (1983) ; United States v. Western Electric Co., 592

F. Supp. 846, 855-58 (D.D.C. 1984).

*As MCI correctly points out, only a few months ago the Court

established a detailed procedure and guidelines for Regional Com-

panies to follow in requesting waivers from the line of business

restrictions of the decree. The “clarification” strategy employed

by the Regional Companies would undercut that process for the

securing of relief from the provisions of the decree by the simple

act of labelling the pleadings as requests for clarification rather

than as motions for waivers or for modifications. MCI Opposition

to Ameritech’s Motion to Provide Cellular Service at 2-3.

23a

I

General Considerations

A central rationale for the divestiture of AT & T was

the recognition that, when one company engages both in

monopoly activities—e.g., the provision of local telecom-

munications service—and in competitive activities—e.g.,

the provision of interexchange*® and information services

—it possesses the incentive and the ability improperly to

exploit its local monopoly power in at least two ways.

First, such a company may subsidize its competitive

ventures with income generated by the local telephone

ratepayers (who, unlike the customers of a competitive

enterprise, lack the ability to go elsewhere for their

telephone service and who can therefore be charged what-

ever rates the local regulators can be persuaded to ap-

prove) ;* and second, it can give preferential treatment '

to its own competitive affiliates, thereby impeding the

success of non-affiliated competitors or even forcing them

out of business." Evidence was adduced by the govern-

ment in the trial of this case that the Bell System was

guilty of such practices.’

5 Interexchange services will sometimes also be referred to herein

as long distance services, although some intra-LATA services—

which are permitted to the Operating Companies—may also be

regarded as long distance.

* See discussion in United States v. Western Electric Co., supra,

592 F. Supp. at 853-55.

TSuch preferential treatment might consist, inter alia, of slow-

downs in the interconnection of competitors’ networks to the local

switches; the grant of higher quality access to the monopoly pro-

vider’s own competitive services; abusive regulatory and legal tac-

tics; the manipulation of price for access; and the design of the

local networks in such a manner as to discourage competition in the

information field. See United States v. AT & T, 524 F. Supp. 1336,

1353-57 (D.D.C. 1981).

® See Cor netitive Impact Statement, supra, 47 Fed. Reg. at 7171.

* For example, there was evidence to support the Justice Depart-

ment’s claims that AT & T engaged in the types of practices re-

24a

The history of the government’s struggles with AT &

T © indicated to those who negotiated and approved the

current consent decree that, when the local companies

were divested to continue on their own the provision of

the local monopoly telecommunications services, they had

to be prohibited from engaging also in competitive long

distance and information services.'' Accordingly, a spe-

cific prohibition to that effect—one of the few decree pro-

ferred to above to impede interexchange competition from such

companies as MCI, and to hinder competition in the sale of tele-

communications equipment from a number of small manufacturers

and suppliers. See United States v. AT & T, supra, 524 F. Supp.

at 1848-57; see also, United States v. AT & T, supra, 552 F. Supp.

at 160-62.

© An antitrust suit brought against AT & T in 1949 resulted in

a consent decree signed in 1956, but that decree soon proved to be

inadequate to solve the problems created by AT & T’s status and

actions. Thereafter, the Federal, Communications Communication

conducted several studies and took a variety of actions but in spite

of these efforts it ultimately appeared that these activities could

not, by themselves, overcome the advantages possessed by the Bell

System, including its mixed monopoly-competitive position. It was

because of these advantages that the instant lawsuit under the

antitrust laws was brought in 1974 and maintained consistently

thereafter by the Ford, Carter, and Reagan Administrations in

spite of pressure to abandon it from both AT & T and several gov-

ernment departments. See generally, United States v. AT & T,

supra, 552 F. Supp. at 170; Competitive Impact Statement, supra,

47 Fed. Reg. at 7171-72.

11 Not one of the designated chief executive officers of the soon-

to-be established Regional Companies suggested or intimated in

the public interest proceeding held by this Court that, in addition

to the local monopoly role assigned to them by the decree, the com-

panies needed, required, or were at all interested in providing

interexchange or information services. Although the companies

which these executives represented were at the time still parts of

the Bell © -stem, they were encouraged by the Court, and they did,

speak candidly about a number of issues of concern to these com-

panies. See United States v. Western Electric Co., supra, 569

F. Supp. at 1062 and n.4.

25a

visions directly applicable to the local companies—was

incorporated in the decree.”

The logic of such a provision was as obvious as its

incorporation in the decree was crucial. Without it, the

result of the break-up would have been to exchange one

nationwide monopoly with the incentive and ability to

exploit monopoly power and injure competition for sev-

eral smaller monopolies with the identical incentives and

abilities. The only distinction between the “old” Bell

System and the present Regional Company system was

and is that the Bell monopoly was nationwide in scope

while each of the seven Regional Companies possesses an

equally powerful monopoly’ in a particular geographic

region.”

Insofar as the threat of injury to competition, com-

petitors, and ratepayers is concerned, that distinction is

one without a difference, for the “bottleneck” ** monopo-

lies continue to exist as before. These bottlenecks—i.e.,

the local companies with their ownership of the local

switching systems and thus of the pathways which the

interexchange and information providers must use if they

12 Section I1(D)(1) provides that after completion of the re-

organization, “no [Operating Company] shall, directly or through

any affiliated enterprise .. . provide interexchange telecommunica-

tions services or information services. .. .” The only other specific

prohibition, found in section II(D) (2), prevents local operating

companies from manufacturing customer premises equipment, and

was included in the decree because of concern over the potential

for similar types of anticompetitive behavior.

% The Regional Companies exercise these monopolies through

their affiliated Operating Companies.

See Parts III and IV infra, for a discussion of the current

efforts of the Regional Companies to break down even the geo-

graphic restrictions of the decree.

1 See United States v. Terminal R.R. Assn. of St. Louis, 224

U.S. 383, 32 S.Ct. 507, 56 L.Ed. 810 (1912); Otter Tail Power Co.

v. United States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359 (1973).

26a

wish to reach the ultimate consumers ‘°“—merely changed

hands: instead of being controlled by the management

of AT & T, they are now being controlled in each region

by the management of a particular Regional Company.

However, the ability to exploit the bottlenecks auticom-

petitively has remained precisely the same. It was on

this basis that the prohibition against the provision of

interexchange and information services became a central

part of the decree.

That prohibition has far from outlived its usefulness.”

Indeed, it could with some justification be argued that

the Regional Companies, though obviously smaller than

the Bell System, present dangers to competition that are

in some respects even greater than those presented by

that System.

AT & T was imbued with a service mentality, a tradi-

tion dating from the days of the chairmanship of Theo-

dore Vail and continued through that of John deButts

and Charles Brown. Although the company may have

engaged in some or all of the anticompetitive activities

with which it was charged, the balance wheel of the serv-

ice tradition was always present. By contrast, the Re-

gional Companies, or some of them, indicate by their

public statements, their advertisements, and their rush

to diversification, combined with their relative lack of

interest in basic telephone service itself,* that an ascent

16 Although there has been some “bypass” of the local telecom-

munications systems which could potentially decrease dependence

upon the bottleneck facilities controlled by the Regional Companies,

by and large the technology and the economics are still such that

the monopoly of these companies on leeal telephone service with

respect to the overwhelming majority of the population has not

been impaired.

17 See discussion infra, note 26, on provisions in the decree for

reviewing and removing decree’s restrictions on the Regional Com-

panies.

18 Some of these companies, although created by the decree as

providers of local telephone service, do not even acknowledge that

the provisions of the decree apply to them, and they insist that

27a

into the ranks of conglomerate America rates far higher

on their list of priorities than the provision of the best

and least costly local telephone service to the American

public."* Anyone faced with the prospect of permitting

the Court should not be concerned with the quality and price of such

service. Reply Comments of U S West to Ameritech Motion for

Shared Tenant Services at 2 note 2; U S West Post-Hearing State-

ment of August 14, 1985 at 10.

The assumption that high-quality, low-cost telephone service

would be provided by the local companies was an essential ingredient

in the Court’s determination that the consent decree was in the

public interest; in the Court’s successful request for several modifi-

cations of the decree (to grant authority to the Regional Companies

to market CPE and the Yellow Pages); and in the Court’s demand

for changes in the Plan of Reorganization (to transfer the “Bell”

name and logo to the local companies and to award them access to

AT & T’s patent licenses). United States v. American Telephone

and Telegraph Co., supra, 552 F. Supp. at 192-94; United States

v. Western Electric Co., supra, 569 F. Supp. at 1078-81; United

States v. Western Electrie Co., 569 F. Supp. 990, 996-97 (D.D.C.

1983). In light of that history, disdain shown by some Regional

Companies for their telephone obligations is as inexplicable as it

is disconcerting. Of course, not all the Regional Companies are

oblivious of their obligations. See, e.g., BellSouth Post-Hearing

Memorandum of August 14, 1985.

19 Although corporations engaged in competitive enterprises may

merge, acquire, be acquired, or enter into foolish or unprofitable

ventures, subject only to the discipline of the market and of such

antitrust considerations as may be applicable, public utilities are

not under such discipline and are in a different position: as the

name implies, their raison d’etre is to serve the public. See gen-

erally, Garfield and Lovejoy, Public Utility Economics, 1-36 (1964).

The public is entirely dependent upon the service they provide;

it has a vital stake in its continued availability; and it can therefore

always be depended upon to bail these companies out—through high

or repeated rate increases granted with the compulsion of law by

regulatory bodies—should they be neglectful or commit errors which

jeopardize the continued availability of the service. See United

States v. Western Electric Co., supra, 592 F. Supp. at 869-70. See

also, Re Tax Treatment of Accelerated Depreciation, 33 P.U.R.3d

209, 214 (1960).

As a necessary corollary of the ability to command rates that

generate profits, and in recognition of the public interest in such

sean

28a

these companies to enter competitive markets, particu-

larly the interexchange and the information markets,”

would therefore have to exercise considerable caution lest

the companies be empowered, even encouraged, to use

their local monopoly advantage as a means to decimate

the competition in these markets and thus to enhance

further their conglomerate ambitions.”

Moreover, unlike the Regional Companies, the Bell Sys-

tem was constrained significantly by the 1956 consent de-

cree in that many of the newer technological markets,

€.g., computers, were out of its reach, and the System’s

managers were therefore content to concentrate their ef-

forts on telecommunications. The Regional Companies, by

contrast, are already expanding in almost every conceiv-

able way, from real estate ventures to foreign trade,

from publishing to computer retailing. Financial subsi-

companies, most public utilities are closely regulated on both the

state and federal levels as to what non-utility businesses they may

operate. Holding companies owning public utilities are likewise

closely regulated as to other businesses they may acquire or retain.

See, e.g., Public Utility Holding Company Act of 1935, 15 U.S.C.

§ 79 et seq.; Michigan Consolidated Gas Co. v. SEC, 444 F.2d 913

(D.C. Cir. 1971) ; Re Pequot Gas Co., 53 P.U.R.4th 598, 617 (Conn.

1983).

20It is with respect to these markets that the local telecommu-

nications monopoly is most suspectible of successful anticompetitive

manipulation.

21 The decree in this case did not distribute the bulk of the assets

of the American Telephone and Telegraph Company to the Regional

Companies to enable the managers of these companies to use them

as building blocks for the establishment of conglomerates unrelated

or only marginally related to basic telephone service for the Ameri-

can public. See also, note 18, supra. These companies inherited

billions of dollars in tangible and intangible assets at the time of

divestiture because the Court and others concluded that these assets

would be used in the public interest, that is, in the provision of

excellent yet low-cost telephone service to American consumers, and

that this objective would be accomplished without the re-creation

of the dangers to fair competition that existed before. This Court

firmly intends to enforce the decree in light of that purpose.

29a

dies from ratepayer-supported local telephone activities

to these many types of operations are both easier to hide

and harder to detect than subsidies to only a few “out-

side” enterprises, and so are manipulations of the local

loops to disadvantage the many competitors in the myriad

of enterprises in which the Regional Companies are en-

gaged.”

Through the memoranda filed by the Regional Com-

panies in support of the Ameritech motion runs the

thread that greater competition and the participation of

more competitors in the telecommunications markets are

in the public interest *—certainly an unexceptionable

point as a generality. However, such arguments are

drained of much of their persuasive force when they are

applied to a situation where the would-be competitors

could readily take advantage of their monopoly status

in a variety of ways vis-a-vis their non-monopolistic com-

petition.

22 The Regional Companies claim here, as they have claimed

earlier in other matters before the Court, that protection against

anticompetitive practices and ratepayer gouging may safely be left

to the local regulatory bodies. See United States v. Western Electric

Co., supra, 592 F. Supp. at 854-55; see also, Ameritech Motion to

Provide Cellular Services Outside its Region at 14; Reply Comments

of U S West to Ameritech Motion to Provide Shared Tenant Service

at 18; U S West Post-Hearing Statement of August 14, 1985 at

10-13. That, too, was an argument used by the Bell System, but on

examination it was usually found to lack substance. See, e.g., Na-

tional Association of Regulatory Utility Commissioners v. F.C.C.,

525 F.2d 630, 636-38 (D.C. Cir. 1976). The broad sweep of the

Regional Companies, with their various competitive and non-

competitive subsidiaries and affiliates, constitutes a significant im-

pediment to effective oversight by local regulators who are confined

to a single State. In any event, the Court is not relieved of its

obligations under the decree (see section VII, VIII) because others

may have responsibilities in related areas.

23 See, e.g., Ameritech Motion to Provide Cellular Services Out-

side of Region at 3, 8-17.

24 An additional argument being advanced by the Regional Com-

panies is that, should they not be permitted to enter the inter-

30a

For that reason, the participation of the Regional Com-

panies in the markets they wish to enter *> would not be

exchange markets, their financial ability to render local service, and

hence that service, will suffer. See, e.g., Ameritech Motion to Pro-

vide Shared Tenant Services at 5, 8-9, 15; Comments of US West

in Support of Ameritech’s Motion, to Provide Shared Tenant Serv-

ices at 8-10. The Court has granted numerous waivers of the line

of business restrictions to allow the companies to engage in a great

variety of “outside” businesses. See, e.g., United States v. Western

Electric Co., supra, 604 F. Supp. at 257; Memorandum Order of

August 22, 1985; Order of August 14, 1985; Order of May 24,

1985; Order of March 1, 1985. There is no reason why they cannot

prosper financially in the exchange telecommunications and ex-

change access markets, the CPE and the directory advertising

markets, and the new and legitimate outside enterprises which they

have been allowed to enter. And in fact, they do appear to be

flourishing financially. See text to note 60, infra.

The Regional Companies would be assured of extra-substantial

financial profits in the interexchange and information markets only

if they behaved the way the Bell System was found in several law-

suits to have behaved: by artificially disadvantaging their competi-

tors in these markets with respect to ac. ss to the local networks

or by cross-subsidization. See United States v. AT & T, supra, 552

F. Supp. at 189 n.235.

25 To be sure, the current motions do not baldly assert that the

Regional Companies have the right under the decree to engage in

the interexchange and information businesses without limitation.

It is worthy of note, however, that representatives of these com-

panies are widely quoted in the press as desirous of breaking down

these prohibitions entirely, See, e.g., Washington Post, December

30, 1985, Washington Business Section at_1, 13; Business Week,

December 2, 1985, at 94, 97, 101; Wall Street Journal, November 25,

1985, at 1, 22; New York Times, December 2, 1985, Section D, at 4;

Wall Street Journal, February 24, 1984 at 40.

In any event. as discussed below, were the motions to be granted,

the effect wou-d be to position these companies on a slippery slope

from which they could readily move to yet broader participation

in the forbidden markets. That this concern is not chimerical is

borne out by experience. To cite but one example out of several,

in 1988 the Court granted the requests of some of the Regional

Companies for entry into cellular markets outside of their exchange

boundaries in several areas. United States v. Western Electric Co.,

Se ieds viernes

8la

likely to promote genuine, fair competition; the more

probable outcome would be that such entry would deny

to others engaged in commerce in those markets the level

playing field to which they are entitled under law, under

the decree, and in plain equity and justice.”®

The current motions must and will be considered in

that context.

II

Shared Tenant Services

In its shared tenant services motion, Ameritech’ is

asking for an order which would “clarify” the decree *

578 F. Supp. 648 (D.D.C. 1983). Although that granted was limited

to nine metropolitan areas with special problems, although it was

explicitly described as so limited, and alinough it was clearly only

a waiver of decree provisions, the Regional Companies are now

blandly claiming that this precedent entitles them to enter the

cellular market as of right, without a waiver, and on an unlimited,

nationwide basis. See Ameritech Motion to Provide Cellular Serv-

ices Outside of Region at 15 and note *; Ameritech Reply Memo-

randum on Motion to Provide Cellular Services Outside of Region

at 7-8; Reply of NewVector to Responses to Ameritech’s Motion at

3. The limitations at issue are too critical to the health of the

nation’s telecommunications industry to be so whittled away.

26 The Regional Companies also suggest as a justification for

being permitted to enter the markets at issue here that they are or

soon will be beset by competition for the local telecommunications

markets, in the form of bypass or otherwise. Section VIII(C) of

the decree provides for this eventuality by stating that an Operat-

ing Company may enter a prohibited market when there is “no

substantial possibility that it could use its monopoly power to im-

pede competition in the market it seeks to enter.” With respect to

interexchange and information services, that means that an Operat-

ing Company may enter these fields when its own local monopoly

has ended and there is substantial competition in the particular

local telecommunications market. United States v. Western Electric

Co., supra, 592 F. Supp. at 867-68. No movant has claimed that

this condition now exists, and it plainly does not.

27The Ameritech motion is supported by two other Regional

Companies, US West and Southwestern Bell.

28 As is true with respect to all the motions, if the decree were

“clarified” as the Regional Companies request, it would permit

32a

to the effect that it permits the Regional Companies to

provide certain shared tenant services,”9—the marketing

of automatic carrier selection and traffic analysis.*°

The shared tenant services market has developed sub-

stantially over the past few years,*' for such services pre-

sent several advantages to both developers and tenants.

them to avoid having to meet the test of section VIII(C)—that

there is no substantial possibility that they could use their monopoly

power to impede competition in the market they seek to enter.

29 Shared tenant services are the provision by a developer or

building owner of a package of telecommunications and related

services to tenants. Tenants’ needs are then served on a shared

basis using centralized voice and data switches and computers on

the building premises. Ameritech Motion to Provide Shared Tenant

Services, Exhibit A, at 2.

3© Automatic carrier selection, a feature which can be offered

through a shared PBX or Centrex, permits the switch to be pro-

grammed so as to select automatically an interexchange carrier for

the caller. Such selection may be but is not necessarily based upon

the lowest cost. In a shared tenant system, the provider programs

the switch, and when a tenant thereafter attempts to make an

interexchange call, the switch selects the pre-programmed carrier.

Traffic analysis involves the compilation and collation of data on

the tenants’ telecommunications usage—both individual and ag-

gregate. Such analysis, when performed by a Regional Company,

permits that company to recommend exchange and interexchange

services as well as CPE and access lines to handle the traffic.

31 According to Ameritech, before 1983 there were virtually no

buildings with advanced shared-service capabilities while today

there are some 70 such facilities in operation and another 50 ex-

pected shortly. Ameritech Motion to Provide Shared Tenant Serv-

ices, Exhibit C, p. 2. But see Reply of Multi-Tenant Telecommunica-

tions Association (MT'TA) to Comments on Ameritech Motion to

Provide Shared Tenant Services at 4-5. According to some, that

development is due to the competitive availability of interexchange

services.

32 Among the benefits to tenants are the cost savings associated

with the aggregated demand which, depending upon the pricing

policies of the providers of the services, may permit these tenants

to acquire customer premise equipment, exchange services, and

33a

Accordingly, several independent. companies have entered

these markets, and the Regional Companies now seek to

penetrate them as well. However, as will be seen, the

shared tenant services at issue in this motion are inter-

exchange services, and the local companies are therefore

prohibited by the decree from providing them.

A. Regional Company Contentions

The Regional Companies concede that the proposed

activities are in the gray area of an “overlap” between

exchange and interexchange activities,” but they go on

to argue that where this is the case, the decree permits

them to engage in all of the activities involved in the

overlapping areas, both exchange and interexchange.**

interexchange services at lower, volume-based prices. Tenants may

also have available to them a broader range of products and services

than would be true otherwise. See generally, Ameritech Motion to

Provide Shared Tenant Services, Exhibit A, at 4-5.

33 US West takes the position that the proposed activities are

neither interexchange in character nor in a gray or overlap area

but constitute exchange functions. Comments of US West to

Ameritech Motion to Provide Shared Tenant Services at 10-17.

There is no validity whatever to that contention. The US West

argument proceeds on the basis of two premises: (1) that all tele-

communications functions performed within an exchange area are

exchange services except only those which actually cross exchange

boundaries, and (2) that “interexchange telecommunications” and

“interexchange telecommunications services” represent identical

concepts. For the reasons discussed in the text below, both of these

premises are erroneous.

The only other Regional Company to file a memorandum on this

issue (Southwestern Bell) supports Ameritech. Oppositions were

filed by AT & T, MCI, TDX Systems, Inc., the North American

Telecommunications Association (NATA), MTTA, and the Depart-

ment of Justice. Sharetech (a partnership consisting of United

Technologies Building Systems Company and AT & T Information

Systems) initially filed comments opposing the Ameritech motion

but subsequently withdrew these comments.

34 Ameritech Memorandum in Support of Motion to Provide

Shared Tenant Services at 2-14, 15-16.

sales

34a

That reasoning is erroneous if only because it proves too

much. The very nature of modern telecommunications

requires the two functionally distinct systems to meet:

access to interexchange services is obtained through the

local exchange provider and both use the same equip-

ment.*°

The overlap is thus inherent in the technology,®** and

to cede the area it covers to the Regional Companies

would allow them to enter the interexchange market by

the back door on a wholesale basis*’ when their front-

door entry into that market is prohibited by the most —

basic provisions of the decree. See Section II(D) (1) of

the decree which provides, without exception or ambig-

uity, that “[a]fter completion of the reorganization . . .

no [Operating Company] shall . . . provide interexchange

35 In fact, the “exchange access,” over which the Operating Com-

panies have jurisdiction, is defined in section IV(F) of the decree

“as the provision of exchange services for the purpose of originating

or terminating interexchange telecommunications.”

36 The division between exchange and interexchange services is

fundamental, representing a line of certainty in an otherwise

volatile and rapidly developing industry. A grant of Ameritech’s

motion would introduce the kind of uncertainty into the system

that could be used by the Regional Companies to advance ever deeper

into the interexchange business even as they retain their local

monopolies. See note 25, supra; pp. 1097-98 infra; and see, Response

of NATA to Ameritech Motion to Provide Shared Tenant Services

at 3.

37 Ameritech goes so far as to assert that, since “[c]oordination

between exchange and interexchange services is essential to prevent

degradation of service,” and since “[c]oordination between CPE

and interexchange services is also vital,” the Regional Companies

must be allowed to operate over the entire range of the overlap

(Memorandum at 17), lest they be “imprison[ed] ... in a narrow,

unworkable range of activ.ties, threatening their competitive via-

bility in their permitte ‘ines of business” (Memorandum at 17-18).

If this |ine of argument were to prevail, it would completely under-

mine the prohibitions of the decree.

35a

telecommunications services ....” In short, the “over-

lap” argument entirely lacks merit.

B. Shared Tenant Services Are

Interexchange Services

There is an even more fundamental reason why the

requests of the Regional Companies must be rejected—

one that relates to the kinds of activities that are sub-

sumed under the rubric of shared tenant services.

Both from the point of view of the statutory language

and from that of the purpose of the decree, the prohibi-

tions in section II(D)} restrict the Operating Companies

not merely from providing transmissions from a point

in one exchange area to a point in a different exchange

area but also from engaging in activities that comprise

the business of providing interexchange services.

If the decree had been intended to restrict the local

companies only from the interexchange transmissions

themselves, a prohibition on the provision of “interex-

change telecommunications” would have been entirely

adequate. But the decree goes further to prohibit these

companies in section II(D) (1) from providing “interex-

change telecommunications services.” The term “serv-

ices” obviously has, and it must be accorded, meaning

and, as will now be seen, that meaning is far broader

than is implied by the construction of the statute ad-

vocated by the Regional Companies.

We begin with the obvious. The Operating Compa-

nies are excluded from the provision of interexchange

services in order to prevent them from becoming com-

petitors of the interexchange carriers. See Part I, supra.

On this basis, many of the arguments advanced by the

Regional Companies—designed to demonstrate that there

is little likelihood of their steering the shared tenant

customers to one interexchange carrier rather than an-

36a

other “—are largely beside the point,’ for they fail to

address the principal problem to which section II(D) (1)

of the decree is addressed: the threat of competition by

the Regional Companies themselves in the interexchange

business.

Interexchange transmission capacity is transformed

into an interexchange service that can be offered for

hire,” i.e., an interexchange business, by the perform-

ance of functions that are normally and necessarily per-

formed by those who are engaged in that business (and

who would therefore be competing with the Regional

Companies with respect to these functions if the mo-

tion were granted). The issue of what constitutes an

interexchange service or business is most usefully con-

*% See Ameritech Motion to Provide Shared Tenant Services

at 21.

*% That is not to say that the ability and the incentive of the

Companies to cooperate with particular interexchange carriers and

to favor them in various ways is not a problem in terms of local

company participation in shared tenant activities. Even though a

particular Regional Company might not be directly selecting a cer-

tain interexchange carrier, it would be a simple task so to perform

the traffic analysis and so to arrange the marketing that the carrier

favored by the Regional Company would emerge as the ultimate

selection. Further, the Regional Company would in any event be

marketing a telecommunications package that included interex-

change services—a fact that would give the company a strong

incentive so to manipulate the switching and the priorities that

the interexchange carrier selected for the shared system would

prevail over competing carriers.

Moreover, the success of a developer's offering of a shared system

would depend in significant part upon the success of the Regional

Company in “selling” to the tenants the interexchange services

included in the automatic carrier selection service. Thus, even if

the Regional Company did not itself select the interexchange

carrier, once it began marketing the package, it would have a direct

financial interest in ensuring that a particular mix of carrier—those

offered by the developer in conjunction with the Regional Company

—was selected.

# See section IV(P) of the decree.

87a

sidered in the context of what Regional Companies would

be doing with respect to shared tenant services in the

event the motion were granted and to compare these

activities with the activities of interexchange enterprises.

First. The Regional Companies would, at a minimum,

be aggregating demand within a building and purchas-

ing bulk interexchange services based on that demand

for resale to the end users, i.e., the tenants.*' The pur-

chase of interexchange capacity on a wholesale basis

(i.e., at prices that reflect total demand in a particular

context) and its sale at retail clearly constitutes the pro-

vision of interexchange services under the decree.”

Those engaged in such an activity are referred to as re-

sellers, that is, interexchange providers.“

If the Regional Companies performed such an activity,

that is, if they purchased interexchange services at a

bulk price based on the demand in a particular building

—— ee ed

*! To be sure, Ameritech argues that such aggregation of demand

by the Regional Companies allows tenants to obtain CPE, exchange,

and interexchange services at lower, volume-based prices than their

individual demand would justify. That may well be true, but

Ameritech does not discuss the alternative: that entities other than

monopoly exchange providers would perform this service for tenants,

and that they, too, could do so at volume-based prices. However,

the important fact for present purposes is that aggregation and

resale constitute interexchange business activities.

“2 The aggregation and resale function is crucial to the success

of a shared tenant services enterprise. See Ameritech Motion to

Provide Shared Tenant Services at 5, 8, 21; see also, Bell Atlantic

Reply at 9, 10-11; US West Response at 8; see also, the statement

of Ameritech’s Indiana Bell Communications subsidiary which de-

scribed a shared tenant service as a “resale of long distance” (July

27, 1984 presentation on Multi-Tenant Services in Indiana). De-

partment of Justice Memorandum of August 27, 1984, Appendix B.

* Many of the companies engaged in the interexchange telecom-

munications business do not own transmission facilities but are

resellers. Resellers are considered common carriers by the FCC.

See Competitive Common Carrier Service, Second Report and Order,

91 F.C.C.2d 59 (1982), on reconsideration, 93 F.C.C.2d 54 (1983).

Ks

38a

and then sold such services at retail at higher prices to

the building’s tenants—they, too, would be resellers in the

interexchange business, and they would be in direct com-

petition with other resellers and with facilities-based in-

terexchange carriers.

Second. The Regional Companies expect to perform

these functions by making selections of interexchange

capacity on what they deem the lowest-cost basis “* and

by marketing the services thus assembled.

Given the existing technology and the economics of the

interexchange business, the selection process is exceed-

ingly complex, involving many variables. Both facilities-

based carriers and resellers market their services based

on comparisons of their particular rates, or mix of rates,

with the rates of their competitors in the interexchange

business, in efforts thereby to persuade the ultimate users

to purchase their services rather than those of other

interexchange providers.

These marketing features are also integral to the

shared tenant services plan of the Regional Companies,

and these companies would thus be directly competing

with the legitimate interexchange providers through

their own rate comparisons. One example of such a rate

comparison already in being is a promotional brochure

published by the provider of shared telecommunications

services to the World Trade Center building in New

York City soliciting potential subscribers among the

** Ameritech Motion to Provide Shared Tenant Services at 19, 21.

* Facilities-based interexchange carriers, such as AT & T and

MCI, provide interexchange services through many offerings with

differing rates, from high-priced ordinary MTS service, through

discount WATS service, to even lower-priced dedicated network and

other bulk rate services. Special rates may be offered to customers

depending upon the volume of their business, and the cost of the

service may further vary depending upon the time of day, the

route, the relative occupancy of the circuits and switches, and other

factors.

39a

building tenants by comparing its offerings against the

offerings of other providers and by comparing its rates

those of AT & T, MCI, and Sprint.“

Third. The Regional Companies would not only be

purchasing and marketing interexchange services, they

would also be selecting carriers for their customers and

procuring additional interexchange services for them.

In connection with the phase-in of equal access,‘” the

interexchange carriers are undertaking elaborate and ex-

pensive campaigns, through the media and otherwise, to

induce individual customers to presubscribe to their par-

ticular services. The cooperation of the Operating Com-

panies is an essential element in that effort “ to bring

about free and fair competition among the various in-

terexchange carriers,” and the Operating Companies are

even “expected to assist the interexchange carriers by

“ Department of Justice Memorandum of August 27, 1984,

Appendix D. It may be expected that a prospective customer of a

shared tenant services system would compare the cost of the Re-

gional Company package with the cost of bulk rates offered by a

single interexchange carrier or perhaps a package of shared tenant

services offered by a joint or cooperative venture of interexchange

carriers. In that situation, there could be no question that the

customer would be choosing interexchange services between com-

peting businesses, and that the Regional Company managing its

shared tenant service would have every incentive to did whatever

it could to ensure that the customer chose its system. See, e.g.,

pp. 1102-03 infra.

* Appendix B of the decree. United States v. AT & T, supra, 552

F.Supp. at 232-34.

“ The purpose of this effort is to effect a change-over from the

AT & T de facto monopoly to a competitive interexchange market.

“See generally, United States ©. Western Electric Co., 578

F.Supp. 668, 677 (D.D.C. 1983). The Federal Communications

Commission has since modified the mechanics of the presubscription

process. See generally, Jmvestigation of Access and Divestiture

Related Tariffs, 50 Fed. Reg. 24982 et seq. (June 24, 1985).

40a

means of such measures as making lists of non-presub-

scribed customers available to them.” ®

An analysis of the shared tenant services proposal of

the Regional Companies indicates that they expect to

stand this presubscription process on its head. Instead

of assisting the interexchange providers in their efforts

to “sign up” interexchange customers, the Regional Com-

panies are seeking to offer a presubscription option of

their own. If the Ameritech motion were granted, the

tenant-customers would be expected to subscribe not to

a legitimate interexchange carrier but to the Regional

Companies, and those companies, in turn, would make

the arrangements for choosing the interexchange services

and options to serve those customers.

Here again it is clear that the functions involved—

the selection of carriers and the procurement of inter-

exchange services—constitute integral part of the inter-

exchange business, and that, by performing these func-

tions, the Regional Companies would be directly compet-

ing with the interexchange carriers for that business.™

United States v. Western Electric Co., supra, 578 F.Supp. at

676 note 41.

5t As the Department of Justice has pointed out, the existing

prohibition on the selection of interexchange carriers by the Re-

gional Companies does not mean that these companies may not

coordinate with such carriers in the installation of interexchange

services independently selected and procured by a customer, or that

they may not coordinate the testing and repair of interexchange

services where they provide the CPE or the exchange access facili-

ties that are links in such services. Memorandum of August 27,

1984 at 29.

Indeed, in order to minimize legitimate complaints from the

public about poor coordination between local and interexchange

carriers with respect to repair of equipment and otherwise, the

Regional Companies should undertake such tasks. To the extent

that they may have refrained from doing so in the past as a means

of control of these markets, including the interexchange market,

this Opinion may induce them hereafter to cooperate more fully

with other telecommunications service providers in good faith,

ee

4la

Fourth. The Regional Companies would be perform-

ing the interexchange switching and routing function,

which takes calls from customers and directs them to

their destination. That function would be performed by

these companies in lieu of its performance by an inte-

exchange carrier, particularly where the calls would not

simply be routed to a particular carrier but to a par-

ticular service of a carrier, such as a private line.”

However, the switching and routing functions quite

obviously constitute key parts of the interexchange busi-

ness, and the Regional Company activities in that re-

gard would be performed in direct competition with the

interexchange carriers in the interexchange business.

In addition to the general threat arising from the

Regional Companies’ monopoly there is a special threat

to fair competition by these kinds of activities, for at

least two reasons. In the first place, a Regional Company,

unlike any other competitor, could use its market power

in the provision of exchange access™ to maximize the

interexchange carriers’ costs with respect to such access

while minimizing the rates paid for interexchange serv-

ices by its own shared services enterprise. Furthermore,

a Regional Company, again unlike any other interex-

change competitor, could use its control over exchange

access to become the dominant purchaser of interexchange

services in its region, thereby further to establish its

dominance with respect to interexchange rates and hence

with respect to the interexchange market.

C. Potential for Expansion

All these problems are further exacerbated by the

virtually unlimited potential in the event of a grant of

52 For example, a Regional Company could direct an interexchange

call from City Y to City X by switching it with the City Y exchange

area to a private line ending in City X. See also, note 45, supra.

53 The Regional Companies presently have a monopoly with re-

spect to exchange access. See section II(D) (3) of the decree.

42a

the Regional Company request and the absence of a

logical stopping point.

As presently framed, the Ameritech motion is restricted

to shared services involving only tenants in a particular

building. However, neither principle nor technology re-

quire such a limitation.“ Just as it is aggregating the

demands of the tenants in a particular building, a Re-

gional Company could as easily aggregate demand with

respect to a group of buildings, a section of a city, cer-

tain types of businesses, or even among all subscribers

to its central office switch.“ Having done so, it could

offer interexchange services to all such subscribers on

the same basis as those services would initially be offered

to tenants in one building.

What would thus be likely to happen is that, in rela-

tively short order, the Regional Companies would become

the purchasers of interexchange services for all the tele-

phone subscribers in their exchange area, leaving to the

interexchange carriers only the role of providers of leased

facilities for integrated interexchange services marketed

and offered by the Regional Companies.

% As discussed above in note 25, the Regional Companies not

infrequently seek to carry limited precedents to unintended ex-

tremes. In this particular instance, they could enlarge the permitted

area with considerable justification, given the breadth of the prin-

ciple that would be established by a grant of the Ameritech motion.

5S According to the Department of Justice, in negotiations with

Ameritech that company indicated that shared switching arrange-

ments might be offered to commonly-owned buildings throughout

an exchange area, to a single business with multiple locaticns, or

to an organization composed of multiple users (¢.g., a bank clearing

house on behalf of all of its member banks). As the Department

correctly points out, an arrangement under which a Regional Com-

pany provided interexchange services to multiple users at diverse

locations from a centrally located switch would be an exact recon-

struction at the regional level of the pre-divestiture structure of the

Bell System. Department of Justice Memorandum cf June 29,

1984 at 27-28.

43a

That this scenario is not an implausible one is demon-

strated by Ameritech’s own submission to the Court.

In one of its memoranda,*® Ameritech states:

Shared-services arrangements can also be provided

for building complexes, such as a university campus

or an office park. In addition, large individual busi-

nesses and institutions may have some of the same

economies of scale and centralized management ad-

vantages as shared systems because of their heavy

usage of telecommunications and related products

and services. If desired by these individual cus-

tomers, Ameritech would provide equivalent pack-

ages of products and services.

Whatever one might think of the desirability of such

an arrangement in the abstract, it is apparent that,

given the historical experience with manipulation and

discrimination by those in control of monopoly bottle-

necks in the telecommunications market, it is not one

to be repeated in slightly different form. See Part I,

supra. In any event, such a development would be clearly

violative of the decree.

D. Marketing of Customer

Premises Equipment

As part of their arguments in support of the motion,

the Regional Companies complain that, should they not

be permitted to engage in the desired activities, they

would have difficulty selling CPE, a market from which

they are not foreclosed by the decree.™ For the reasons

56 Memorandum of March 23, 1984 at 3-4, n.*.

5T Ameritech Motion to Provide Shared Tenant Services at 5,

8-9, 15; US West Comments in Support of Ameritech’s Motion to

Provide Shared Tenant Services at 8-10.

58 Similar arguments are advanced by the Regional Companies

in support of the other motions before the Court. As explained in

Part IV, if these arguments were accepted as valid, they would

44a

cited above, even if this were true, it would be insuf-

ficient to override the direct prohibitions in the decree.

But the CPE argument is not persuasive in any event.

The most the Regional Companies could hope for in

this context would be the striking by the Court of some

kind of balance. On one side of that balance would be

the assumed possibility that, because of their absence

from the shared tenant services market, the Regional

Companies would find it marginally more difficult to

market some kinds of CPE. This difficulty, in turn,

could in theory have two adverse effects: it could re-

duce the income and profits of these companies, and it

could reduce competition in the CPE market.

When these assumed effects are analyzed, however,

they are seen to have little weight. Judged by any yard-

stick, the Regional Companies appear to be doing ex-

ceedingly well: their income, profits, and dividends have

been rising steadily, and they are prospering probably

beyond their own expectations—certainly beyond the ex-

pectations of financial analysts who contemplated their

future course at the time of the breakup.” The short of

it is that the companies do not urgently need the addi-

tional income that could be generated by their entry into

the prohibited markets.

result in a wholesale entry of the Regional Companies into pro-

hibited businesses, all on the premises that this was necessary to

protect their legitimate business enterprises. See pp. 53-54 infra.

59 According to some, the opposite is true. MCI contends that the

markets for shared tenant services and for CPE are entirely

different. MCI Opposition to Ameritech’s Shared Tenant Motion

at 5. Further, MTTA states that independent competitors are sig-

nificantly disadvantaged in the sale of both CPE and shared tenant

services when compared with Regional Companies. MTTA Com-

ments at 6. Only a record compiled in the context of an application

for a decree modification or for a waiver could reveal which of these

assertions is correct.

® See, e.g., Financial World, Jan. 7, 1986 at 57; New York Times,

November 29, 1985, Section D at 6.

45a

The second prong of the companies’ argument is equally

weak. The information services market is hardly a

monopoly market: a number of corporations engage in

| this business, both large and small, and the entry of

the Regional Companies is not needed to make it a com-

petitive one.

That is not to say that there would be no advantages

flowing from the companies’ entry into this market; but

any such positive developments must be measured against

the dangers. As elaborated on above, and as the several

successful lawsuits against the old Bell System confirm,

there is a serious danger that, when a company; mixes

both monopoly and competitive enterprises in closely re-

lated fields of business, the twin perils of discrimination

and cross-subsidization are ever present. It is, of course,

for that very reason that the decree prohibits such mix-

. ing (see Part I, supra) and for that reason, too, the

: CPE business may not be used as a springboard for

opening the door to markets which are closed to the Re-

gional Companies by the decree.

For the reasons stated, the Court rejects the request

that the decree be “clarified” to permit that which, ab-

sent a modification or a waiver, it plainly prohibits. The

Ameritech motion will therefore be denied.

Ill

Exchange Telecommunications

Outside Regions

Three of the motions raise the same issue *'—whether

the decree permits the Operating Companies to provide

61 Ameritech’s motion for clarification of the decree regarding

the provision of cellular radio services outside the Ameritech region;

the motion of Pacific Telesis group for a declaratory ruling that it

may provide exchange telecommunications outside of California and

Nevada; and the motion of NewVector Communications, Inc., a

subsidiary of US West, for a ruling that NewVector’s provision of

2

——e

46a

cellular exchange radio services outside the area served by Oper-

ating Companies owned by US West is authorized under the decree.

These three motions thus raise similar issues with respect to the

interpretation of the decree.

Despite this similarity, US West has insisted that both its views

and those of its subsidiary NewVector cannot be properly presented

unless each is allowed oral argument through its own counsel. New-

Vector Motion to Participate in Oral Argument at 6-7; US West

Statement of August 14, 1985 at 1. The point is totally without

merit. .

NewVector has filed a twenty-two page memorandum in support

of its motion; a twelve page reply to responses made to the Ameri-

tech motion, with thirty pages of attachments; a seven page reply

to responses to its own motion, and an eight page motion requesting

leave to participate in the oral hearing, which reiterates the sub-

stantive position stated in the other memoranda. US West has

filed an eighteen page memorandum in support of Ameritech’s mo-

tion for shared tenant services with five pages of attachments; a

twenty page reply to comments made on that motion; and a seven-

teen page post-hearing statement—all on the same subject and with

reasoning similar or identical to the NewVector submissions. In-

deed, the various Regional Companies and their subsidiaries have

filed a total of twenty-seven memoranda on the pending motions,

all making essentially the same points.

As the Court has noted in the past, all motions and written

memoranda and comments are carefully scrutinized on their own

merits, and of course it has done so here. The Court schedules oral

argument when it concludes that such argument may serve a useful

purpose in clarifying issues discussed in the memoranda. See also,

Rule 1-9(g) of the Local Rules of this Court. Where, as here, the

Regional Companies are arguing from substantially the same !egal

position and have exhaustively briefed the issues, it would be a

waste of the time of Court and counsel to permit each company

to argue separately, and the Court has declined to do so here (just

as has done in the past). The current motions were argued in sup-

port of the Regional Company positions by counsel for Ameritech

and counsel for Pacific Telesis, in conformity with selections made

by the Regional Companies themselves. Counsel for the United

States and for MCI argued in rebuttal, with a brief oral comment

from counsel for AT & T.

There is thus no basis for the US West insistence that it should

have been heard through oral argument, let alone for its complaint

that it had found it “discomforting to be precluded from oral argu-

ment while a non-party, MCI,” was invited to present its views.

47a

exchange telecommunications services outside their par-

ticular exchange areas.” While the immediate impetus

for these requests is the interest of some of the Re-

gional Companies in competing on a nationwide basis in

the cellular radio market, the scope of the motions is

far broader: it encompasses all exchange telecommuni-

cations services.“ The Court holds that, absent a waiver,

each Operating Company may under the decree provide

exchange telecommunications services, including cellular

radio services, only within its own exchange area.

Section II(D) of the decree prohibits the Operating

Companies from providing any product or service other

than exchange telecommunications services and exchange

access.“ The Regional Companies subscribing to the

motions argue“ that the service they are proposing to

NPC eal acetal ate

US West Statement of August 14, 1985 at 1. MCI was allowed to

argue orally because, in addition to the Department of Justice, it

was the principal opponent of the requests made by the seven

Regional Companies. The Court has no intention of complying with

the request implicit in US West’s complaint that it entertain oral

; argument from the seven Regional Companies and their subsidiaries

and affiliates whi. precluding a response from those “non-parties,”

i.e., intervenors, which are affected by the various Regional Com-

pany requests.

62 Indeed, the claim is that the Regional Companies may provide

this intra-LATA service outside their own regions.

63 See, e.g., NewVector Motion to Provide Cellular Service Out-

side of Region at 5 n. 10.

%4 Also listed in the decree is any other service “that is not a

natural monopoly service actually regulated by tariff.” Section

II(D) (3).

*5 Some of the arguments made by the Regional Companies on

this issue are actually couched in waiver, not clarification, terms

(NewVector Memorandum at 12) (“cellular radio . .. should not

be unnecessarily restricted”), or they are totally irrelevant (New-

Vector Memorandum at 19-21) (contending that the consent decree

approved by the Court in a different case—United States v. GTE—

somehow supports the request for clarification of the decree in this

case).

eT

48a

perform constitutes exchange telecommunications, and

that for purposes of the decree it is irrelevant that this

service would be provided outside the exchange areas—

inherited by the particular Operating Companies by vir-

tue of the decree. However, it is clear for a number of

reasons that the Operating Companies were intended to

be limited to their own local areas in furnishing ex-

change telecommunications services.”

First. Section IV(G) of the decree defines the nature

of the exchange areas as being strictly local by mandat-

ing their establishment in accordance with a number of

criteria, all of them of a local character.** Under the

same section, the responsibility for establishing each ex-

change area is that of the Operating Company servicing

the particular area—a provision that supports the con-

66 The Court has previously held that the prohibition on mobile

radio services which cross exchange area boundaries may be re-

moved only through a waiver proceeding. United States v. Western

Electric Co., supra, 578 F.Supp. at 645-46; see also, United States v.

Western Electric Co., supra, 604 F.Supp. at 256 et seq.

67 Section IV(G) provides that “exchange area” or “exchange”

means a geographic area established by an Operating Company

in accordance with the following criteria:

1. any such area shall encompass one or more contiguous local

exchange areas serving common social, economic, and other pur-

poses, even where such configuration transcends municipal or other

local governmental boundaries;

2. every point served by a BOC within a State shall be included

within an exchange area;

3. no such area which includes part or all of one standard metro-

politan statistical area (or a consolidated statistical area, in the case

of densely populated States), shall include a substantial part of any

other standard metropolitan statistical area (or a consolidated sta-

tistical area, in the case of densely populated States), unless the

Court shall otherwise allow; and

4. except with the approval of the Court, no exchange area

located in one State shall include any point located within another

State.

hee 4 a

49a

clusion that these companies were not intended to pro-

vide exchange services outside their own territorial limits.

Likewise, section II(D) (3) of the decree authorizes the

Operating Companies to provide, in addition to exchange

telecommunications and exchange access service, other

natural monopoly services “actually regulated by tariff,”

again indicating that the decree contemplates the provi-

sion by an Operating Company of services under that

section only in the area in which it is regulated by tariff;

i.e., its “home” area.

Second. The parties’ submissions and the Court’s deci-

sions with respect to the appropriate size of the exchange

areas were based on factors relating solely to the status

of the “home” Operating Company “—a definitional proc-

ess that would have been largely devoid of meaning if

the Operating Companies had been intended to have na-

tionwide reach with respect to exchange areas.

Similar reasoning was applied to the Bell System’s

assets. To the extent that they were not awarded to

AT & T, these assets were divided among the local com-

panies on the basis of the principle that each Operating

Company would provide telecommunications services only

in the exchange areas in which it was the dominant tele-

communications provider.

Le nd . “

Third. When describing the structural changes that

would take place following the separation of the Operat-

ing Companies from AT & T, the Court stated in the

Opinion which approved and explained the decree that

“(tlhe geographic area for which these Operating Com-

panies would provide local telephone service is defined in

the proposed decree by a new unit, the ‘exchange

area’,” ® and in the Opinion which approved the Plan of

8 United States v. Western Electric Co., supra, 569 F.Supp. at

995-97.

69 United States v. AT & T, supra, 552 F.Supp. at 141. See gen-

erally, United States v. ITT Continental Baking Co., 420 U.S. 223,

238, 95 S.Ct. 926, 935, 43 L.Ed.2d 148 (1975).

50a

Reorganization that “[w]ith respect to exchange telecom-

munications . . . the Operating Companies and the Re-

gional Companies [are] by definition . . . limited to

clearly defined geographic areas.” Further, in compar-

ing the Bell System before divestiture to the telecommu-

nications industry as it would exist after divestiture, the

Court noted that:

The Bell System is a vast, vertically integrated com-

pany which dominates local telecommunications, in-

tercity telecommunications, telecommunications re-

search, and the production and marketing of equip-

ment. Each of the divested Operating Companies

will have a monopoly in only one geographic portion

of one of these markets—local telecommunications.”'

Fourth. The regional and local companies themselves

have repeatedly espoused the view that the scope and

character of their exchange operations were to be geo-

graphically limited. Thus, on May 25, 1983, the Asso-

ciated Bell System Companies stated in a filing before

the Federal Communications Commission that “[n]one of

the divested [Operating Companies or Regional Compa-

nies] will have control over exchange facilities on a broad

national basis. No [Regional Company] will have more

7 United States v. Western Electric Co., supra, 569 F.Supp. at

1081.

71552 F.Supp. at 187. The Court thereafter consistently ad-

hered to these interpretations. For example, in deciding that the

decree did not permit the Operating Companies to provide “any and

all mobile radio services without regard to LATA boundaries,” it

noted that this proposal would permit telephone users to route long

distance calls over either the landline interexchange networks or

over a mobile radio system, “thus in effect overriding on a large

scale the decree’s limitations on the territorial reach of the Operat-

ing Companies. Such a development would have been entirely in-

consistent with the terms and purposes of the decree, and the Court

would not have authorized it.” United States v. Western Electric

Co., supra, 578 F.Supp. at 647.

5la

than regional ownership of such facilities... .” 7"? Simi-

lar statements were made by individual Operating Com-

panies, including a statement subscribed by several of

them that “[u]nder the AT & T Plan of Reorganization

(POR), approved by the Department of Justice and the

Divestiture Court, the Bell System has been divided both

geographically and functionally. Each divested BOC will

cerve a territory which is sharply confined.” ™

The oft-repeated assertion of the local companies that

they are geographically limited was adopted by the FCC

in a Report and Order which stated that “[a]t least

with respect to the provision of exchange telecommunica-

tions services, exchange access and information service

access, the [Regional Companies] will operate only with-

in their own geographic territories. The [decree] does

not prohibit the [Operating Companies] from offering

CPE outside the geographic area in which they provide

exchange telecommunications services.” “

In the face of the statements made to and by their

federal regulatory body, the Court finds disingenuous the

72 Reply Comments of Associated Bell System Companies, before

the Federal Communications Commission in the matter of Policy

and Rules concerning the furnishing of customer premises equip-

ment, enhanced services and cellular communications services by

the Bell Operating Companies, CC Docket No. 83-115 (May 25,

1983) at 18 (footnotes omitted).

73 Joint Petition for Reconsideration of Indiana Bell Telephone

Company, Inc., Michigan Bell Telephone Company, the Ohio Bell

Telephone Company, before the Federal Communications Commis-

sion in the matter of Policy and Rules concerning the furnishing of

customer premises equipment, enhanced services and cellular com-

munications services by the Bell Operating Companies, CC Docket

No. 83-115 (February 10, 1984) at 13. See also Reply Comments

of Associated Bell System Companies before the FCC, supra, at

13-18.

7449 Fed.Reg. 1190, 1192 (January 10, 1984).

u2a

present claims of these companies: They have always

clearly shared the understanding of the Court that, with

respect to exchange services, they were to be strictly local

entities, not national corporations providing such services

everywhere.

Fifth. Even arguments advanced here by the Regional

Companies support this construction. Ameritech and

others cite the fact that they are not limited to prescribed

geographical territories with respect to the provision of

directory advertising or customer premises equipment.”

But these activities are permitted to the local companies

on an unlimited geographic basis by an amendment of

the consent decree.”® Thus, the directory advertising and

CPE marketing exemptions, rather than buttressing the

position of the Regional Companies, undercut it: If a

special amendment to the decree was required to allow

them to engage in these enterprises on such a basis, they

can hardly be deemed to be free to engage in other “out-

side” ventures without a similar amendment (or a waiver

of the line of business restrictions) .”

7™ Ameritech Motion to Provide Cellular Service Outside of Region

at 5; Ameritech Reply Memorandum at 8; NYNEX Comments at

2 note **,

76 Sections VIII(A), (B) of the decree.

7 Likewise, to the extent that the Regional Companies are pro-

viding cellular radio to areas that do not correspond exactly to

exchange boundaries (e.g., New York-northern New Jersey) or

that one of them is participating in the provision of cellular services

in the Gulf of Mexico, they do so only pursuant to waivers, not as

of right (United States v. Western Electric Co., supra, 578 F.Supp.

at 647-49); United States v. Western Electric Co., supra, 604 F.

Supp. at 263-64), and they have never previously claimed that they

could do so as of right.

The Regional Companies argue that the Plan of Reorganization

contemplated that they would engage in extraregional cellular

rrr tn sa cs i NE ei lee estate at ae tReet

53a

Sixth. The local companies have reaped substantial

benefits from the interpretations they now seek to dis-

avow. For example, in denying the Department of Jus-

tice’s motion for reconsideration of the Court’s ruling

permitting the Operating Companies to market customer

premises equipment, the Court noted that these companies

will be relatively small, geographically dispersed

corporations. They will be limited to a narrow range

of products and services, ... [and they] will also

lack the ability to use various components and affili-

ates in the pursuit and concealment of anticompeti-

tive conduct.”

Seventh. The conclusion that the local companies may

not engage in exchange telecommunications outside their

own areas is also supported by policy underlying the de-

cree. In order to maintain a stable and effective national

telecommunications network, the local companies must

work cooperatively in many areas. Together they play

an important role in the support of national security and

operations because a footnote in the Plan (note 386 in Part II(A)

(3) (b) (ii) ) states that some cellular systems might be owned by

joint ventures of Regional Companies in areas that do not neces-

sarily correspond to the companies’ regions. This statement, how-

ever, occurs in a section of the Plan concerned only with effecting

the transfer of AT & T’s assets to the Operating Companies, and it

was thus referring only to a particular type of ownership arrange-

ment which might be necessary to effectuate that transfer. In con-

text, the footnote does not support the Regional Companies’ argu-

ment, particularly since these joint ventures were eventually not

necessary to effectuate the divestiture. In any event, nothing in the

Plan indicates that the Regional Companies would not have had to

obtain waivers prior to entering into a joint venture arrangement.

™ United States v. AT & T, 1982-2 Trade Cases 64,980 (CCH

1982); see also, United States v. Western Electric Co., supra, 592

F.Supp. at 852 n. 8.

54a

emergency preparedness functions, and they participate

in the establishment of national network standards.”

Competition among these companies with respect to ex-

change service could, and no doubt in short order would,

reduce their incentive to cooperate in these vital areas

and thus jeopardize both the quality of the services pro-

vided by the national telecommunications network as well

as the national defense and emergency requirements of

that network.

Eighth. The Regional Companies argue at great length

that their entry into the cellular markets on a nationwide

scale would not be anticompetitive but would promote

competition.*© However, even without the involvement of

the Operating Companies in each others’ exchange tele-

communications, competition may be expected to flourish

in the exchange areas as technology and economics ren-

der such competition by independent, non-monopoly com-

petitors feasible.

In any event, to the extent that this argument has any

validity, it should be made in support of an application

for a waiver pursuant to section VIII(C) of the decree,

not a request for clarification. This distinction is not a

mere technicality. The grant of waivers may be condi-

tioned by the Court upon provisions designed to protect

competition. As applied to waiver applications for cellu-

lar operations, the Court might, for example, wish to

explore the issue of the provision of “roaming” services

79 See United States v. AT & T, supra, 552 F.Supp. at 208-09;

United States v. Western Electric Co., supra, 569 F.Supp. at 1113-

14, 1118.

80 See, e.g., Ameritech Motion to Provide Cellular Service Out-

side of Region at 3, 18; Ameritech Reply in Support of Motion at

3-4; Southwestern Bell Memorandum in Support of Ameritech’s

Motion to Provide Cellular Service Outside of Region at 7-8.

55a

to Regional Company customers *! or the possibility that

these companies could make use of the cellular footholds

to construct national cellular service network or an offi-

cial services networks,** and to attach appropriate condi-

tions depending upon the results of the inquiry. If the

decree were “clarified” tewpermit Regional Company en-

try into the cellular market on a nationwide scale, no

such inquiries could be conducted and no necessary safe-

guards could be attached.

The response of the Regional Companies that waiver

proceedings are unnecessary because “there is no con-

ceivable threat to competition,” ** that they “would un-

necessarily preoccupy the Court and the parties,” ** and

that the dangers are “speculative,” * are unsatisfactory,

for they assume what only such proceedings can supply:

the answer to the question, in accordance with section

VIII(C) of the decree, whether competition could be im-

peded by these companies in the market they seek to

enter.

81 Roaming is the ability of a cellular subscriber in one system

to obtain cellular services in another system. Absent an arrange-

ment between the customer’s “home” cellular service provider and

the provider in another cellular system, roaming may be either

impossible or at least more expensive. Regional Companies may

enjoy a competitive advantage in this regard because of the regional

character of their monopoly wireline operations.

82 See Response of Telocator Network of Ameritech’s Motion to

Provide Cellular Services Outside of Region at 6-9; MCI Opposition

to Ameritech’s Motion to Provide Cellular Services Outside of

Region at 6.

83 Ameritech’s Reply in Support of Motion to Provide Cellular

Services Outside of Region at 13.

84 NewVector Motion to Provide Cellular Services Outside of

Region at 4.

85 NewVector Reply to Responses to Ameritech’s Motion to Pro-

vide Cellular Service Outside of Region at 8.

56a

For the reasons stated, the Court will not approve the

“clarification” of the decree the Regional Companies re-

quest,*® and the motions will be denied.*

86 By a letter dated December 19, 1985, Ameritech asserts that,

in a motion filed on December 9, 1985, for a waiver of the decree

regarding the application of Pacific Telesis to provide certain mobile

radio services, the Department of Justice agreed with Ameritech’s

substantive arguments regarding the instant motion except only

as to the necessity of a waiver. The Ameritech submission does not

cause a change in the Court’s decision announced herein, for several

reasons.

In the first place, Ameritech has stated its position in a letter

rather by a motion as required under the Rules, and in contra-

vention of the Court’s Memorandum dated September 27, 1983.

In accordance with that Memorandum, the Court declines to grant

leave to file the December 19 letter but has ordered the Clerk to

return it to its author. Further, while the Court gives substantial

weight to the position of the Department of Justice (see United

States v. Western Electric Co., supra, 604 F.Supp. at 262; see also,

592 F.Supp. at 873), the responsibility for interpreting the decree is

the Court’s, not the Department’s, and the Department’s views,

although always regarded as persuasive, are not binding on the

Court. Finally, Ameritech’s own memorandum interprets the De-

partment of Justice’s position to be that the decree does not permit

the Regional Companies to provide cellular service outside the

appropriate exchange areas or to provide voice storage service

in their cellular networks without a waiver. Ameritech Motion to

Provide Cellular Services Outside of Region at 2-3.

87 There is a suggestion in several of the papers submitted to the

Court that some Operating Companies may be engaged in the cellu-

lar business outside their own exchange areas without having

secured the necessary waivers. See, e.g., Ameritech Reply Memo-

randum at 8-9; Pacific Telesis Memorandum in Support of Pacific

Telesis’ Motion at 9; Bell Atlantic Motion to Provide Cellular

Services Outside of Region at 2. To the extent that this is so, the

offending companies must, of course, cease such operations forth-

with. Furthermore, the Court herewith requests the Department

of Justice to investigate whether such violations have occurred, and

if the answer is in the affirmance, to recommend appropriate sanc-

tions to the Court. See sections V, VI, and VII of the decree.

57a

IV

Voice Storage

Ameritech * has also moved for an order declaring that

the decree permits it to provide voice storage and re-

trieval features in conjunction with the provision of cellu-

lar radio services.*® The issues presented by this motion

are in some respects an amalgam of the questions dis-

cussed in Parts II and III above: as they do with re-

spect to shared tenant services, the Regional Companies

claim that they are not prohibited from engaging in the

voice storage and retrieval business as such; and, as they

assert with respect to the cellular services, they argue

that they are free to provide voice storage and retrieval

services outside their own regions.

Section II(D) (1) of the decree unambiguously states

that “no [Operating Company] shall, directly or through

any affiliated enterprise . . . provide . . . information

services.” Information services are defined in section

IV(J) as “the offering of a capability for generating,

acquiring, storing, transforming, processing, retrieving,

utilizing, or making available information which may be

conveyed via telecommunications. .. .”® As Ameritech

88 Ameritech’s motion is supported by NYNEX, BellSouth, and

Southwestern Bell.

89 Ameritech defines voice storage as an optional feature that

enables a cellular subscriber to store, retrieve, and send messages

when his cellular telephone is busy or unattended. Ameritech

Motion to Provide Voice Storage at 16.

97 An exception exists with respect to the “use of any such

capability for the management, control, or operation of a telecom-

munications system or the management of a telecommunications

service.” Section IV(J) of the decree.

58a

itself has recognized *! voice storage and retrieval serv-

ices fall squarely within this definition.”

Since voice storage is an information service, and since

the Regional Companies are clearly prohibited from pro-

viding any information service, there is no basis for a

clarification motion: no “clarification” of the decree

could change those basic facts, and the motion could ap-

propriately be denied on that basis alone.

What Ameritech is really seeking, it would seem, is

an order to remove the information restriction in section

II(D). However, that result can be achieved only by a

request for modification ** ~vhich might require compli-

ance with the standard established by such decisions as

United States v. Armour & Co., 402 U.S. 673, 91 S.Ct.

1752, 29 L.Ed.2d 256 (1971), or by a motion for a

waiver which makes the showing required by section

VIII(C)—a motion which Ameyitech has chosen not to

file.

Notwithstanding these considerations, the Regional

Companies contend that they may legitimately market

voice storage and retrieval services without either a mod-

91 Ameritech’s Motion to Provide Voice Storage refers to the

service as being encompassed within the “information services pro-

hibition.” Memorandum at 9. Further, Ameritech’s counsel con-

ceded at oral argument that, were the services provided in con-

nection with the landline network, their offering by a Regional

Company would be prohibited by the decree. Transcript of hearing

of August 9, 1985 at 46.

92In fact, the Justice Department’s Competitive Impact State-

ment used voice storage as an example of the kind of information

service that would be prohibited under the decree. Competitive Im-

pact Statement, swpra, 47 Fed.Reg. at 7176.

93 US West, for one, appears to recognize that fact (US West

Statement of August 14, 1985 at 16), and, implicitly, so does

Ameritech when it requests that the Court “reverse the possible

competitive [sic] effect of the information services prohibition”.

Ameritech Motion at 9.

59a

ification or a waiver because, as they see it, the “decree’s

information services prohibition was intended to apply

to services provided over the operating companies’ land-

line networks, not to services provided over competitive

networks such as cellular radio.” ™

The basis for the companies’ conclusion is not clear.

Certainly, it could not rest on language in the decree,

for the language contains no such exception. Similarly,

that conclusion could not have been derived from any

expression of intent by the Court in the 1982 Opinion

which explained the decree*® or by the Department of

Justice which performed a like service in its Competi-

tive Impact Statement. Instead, the companies simply

assert that the prohibition cannot be deemed to apply

to the marketing of services in a competitive environ-

ment because the monopoly-competition dichotomy, so it

is claimed, forms the basic structure of the decree.”

That view of the decree is not only overly simplistic;

it is quite wrong. The Regional Companies are not

merely prohibited from providing certain types of serv-

*4 Ameritech Motion to Provide Voice Storage at 5-6; see also,

Memorandum of Southwestern Bell in Support of Ameritech’s Mo-

tion to Provide Voice Storage at 3-4. Ameritech appears to contend

that the Court could make the finding implied by its argument in the

context of a request for clarification as distinguished from a waiver

motion. Whatever may be the technical appellation of a particular

motion, the movant would still have to demonstrate the existence of

the condition prescribed by section VIII(C)—that there is no sub-

stantial possibility that the movant could use its monopoly power

to impede competition in the market it seeks to enter, and the Court

would still be required to attach such ccuditions as would be appro-

priate to achieve the results required oy that section.

*° Nor could it have been derived from any other Opinion of the

Court.

%6 See, e.g., Ameritech Motion to Provide Voice Storage at 6-7;

Ameritech Reply Memorandum in Support of Motion to Provide

Voice Storage at 3-5; NYNEX Comments in Support of Ameri-

tech’s Motion to Provide Voice Storage at 2-3.

60a

ice depending upon whether the services are in the mo-

nopoly or the competitive category; °*’ they are prohibited

from providing any product or service other than those

which they are explicitly permitted to market. Since the

time the consent decree was modified at the request of

the Court, and since the time the Court granted a num-

ber of waivers to the Regional Companies, the conceptual

neatness advocated at one time by the Department of

Justice has disappeared.** The Regional Companies now

legitimately engage in the monopoly services represented

by exchange telecommunications and exchange access

pursuant to the original consent decree; in the marketing

of two competitive services (CPE and Yellow Pages) in

accordance with the decree as modified at the request of

the Court; and in the provision of a number of other

competitive products and services as permitted pursuant

to waivers granted by the Court.

What does remain clear is that the Regional Com-

panies may not provide any product or service—other

than those enumerated in sections II(D) (3), VIII(A)

and VIII(B)—unless they are authorized to do so by a

modification of the decree or by a waiver pursuant to

section VIII(C). No Regional Company is attempting in

the current motions before the Court to avail itself of

either of these remedies.

Moreover, it is not at all certain that the Regional Com-

panies could make the showing required by section VIII

(C) with respect to voice storage and retrieval. As the

97 To be sure, as discussed in Part I, supra, the decree rests in

large part on the need to keep bottleneck monopolists out of competi-

tive markets where their monopoly could afford them an undue

advantage. However, as indicated below, it does not follow that a

claim of absence of such an advantage is sufficient to override spe-

cific decree prohibitions.

98 Compare Bell Atlantic Memorandum in Support of Pacific

Telesis’ Motion at 12.

6la

Court has previously noted,” part of the reason for bar-

ring the Operating Companies from entry into the infor-

mation services market was to allow competition to de-

velop in that market without hindrance from monopo-

lists. Although the cellular radio market may be com-

petitive, each Operating Company retains a monopoly

in its local exchange market, and the presence of these

companies on a broad scale in a market closely related

to that in which they retain such a monopoly raises some

of the very concerns that led to the information and

adoption of the decree.’”

Moreover, the generation of incentives to the Regional

Companies to design their local networks in such a man-

ner as to accomodate the maximum number of informa-

tion service providers was one of the stated reasons for

the imposition of the information services prohibition.’

% United States v. AT & T, supra, 552 F.Supp. at 188-89.

100 For that reason, among others, the Court rejects the conten-

tion that the cellular market presents a competitive situation where

“technological developments and different market structures negate

the purpose and reverse the possible competitive effect of the infor-

mation services prohibition.” Ameritech Motion to Provide Voice

Storage at 9. Only a request for modification or for waiver can

provide the context for an exploration of that contention as well

of other issues, such as the questions raised by Associated Telephone

Answering Exchanges, Inc. Response of ATAE at 7-8.

101 United States v. AT & T, supra, 552 F.Supp. at 189-90. See

also, United States v. Western Electric Co., supra, 578 F.Supp. at

659 n. 4, where the Court stated that

This prohibition is necessary because the Operating Com-

panies would have both the incentive and the ability to dis-

criminate against competing information providers either by

granting more favorable access to the local network to their

own information services or by subsidizing their services with

revenues from the local exchange monopoly. Moreover, the pro-

hibition against providing information services gives Operating

Companies an incentive to design their local networks to ac-

comodate the maximum number of information service pro-

viders.

62a

On this basis, as the Department of Justice correctly

points out,’ the decree’s requirement that the Operat-

ing Companies provide rondiscriminatory information ac-

cess applies equally te the activities sf their cellular sub-

sidiaries.

As for Ameritech’s concern that it would lose its cel-

lular customers if it could not supply such a service,’™

it is no more persuasive than is the argument made in

another motion that the Regional Companies will lose

CPE market share if they are not also permitted to

enter the shared tenant services business (see pp. 1103-

1104, sumra). The decree simply does not contemplate

that the Regional Companies may use claims of inability

to compete ** with respect to the services they are per-

mitted to provide as levers for prying open markets

that are prohibited to them. The Regional Companies’

fear of loss of cellular customers is best allevinted by

their design of their cellular systems to maximize ac-

cess of voice storage providers to the cellular network,

rather than by attempts to circumvent the decree’s pur-

pose through a “clarification” of section II(D) (1).

Ameritech’s final substantive argument *—that the

Regional Companies should be able to provide this service

102 Response of the United States to Ameritech’s Voice Storage

Motion at 6-10.

103 Ameritech Reply Memorandum at 17. The other Regional Com-

panies (BellSouth, Southwestern Bell, and NYNEX) make similar

arguments.

104 These claims are, of course, not supported by any record made

in the context of a waiver application, and they may well turn out

to be erroneous.

105 Ameritech makes two additional points which deserve only

brief mention.

First, the company claims that its position on information serv-

ices in the cellular market is supported by this Court’s decision of

November 1, 1983 authorizing service beyond exchange boundaries

by cellular carriers. Memorandum at 8, 13. See United States v.

63a

because AT & T is permitted to supply information serv-

ices **—is frivolous. AT & T no longer provides mo-

nopoly services *’—it is engaged in the competitive mar-

ketplace, and for that reason it is not subject to the

restrictions which the decree imposes on the Operating

Companies which continue to hold local telephone monop-

olies..°* To seek to equate the present AT & T with the

Western Electric Co., supra, 578 F.2d at 652-53. This argument is

incorrect for the reasons cited in notes 25 and 77, supra.

Second, the Regional Companies argue that there is no threat

of anticompetitive behavior in the cellular voice storage market

because they are required by the Court and the FCC to afford

competitors interconnections on the same terms and conditions they

afford to their own cellular subsidiaries (Ameritech Motion to Pro-

vide Voice Storage at 10 n. *; Ameritech Reply Memorandum at

11 n. *), and because their cellular operations are operated by

separate subsidiaries (Comments of BellSouth in Support of Ameri-

tech’s Voice Storage Motion at 3).

The Bell System was under an interconnection obligation with

respect to the services it provided, yet there was evidence that it

did not consistently abide by its responsibilities in that regard.

See United States v. AT & T, supra, 524 F.Supp. at 1348. This

lawsuit accordingly became necessary, and so did the decree in this

case. The Court therefore will not rely on injunctive remedies

alone. See United States v. AT & T, supra, 552 F.Supp. at 167-68.

Likewise, the separate subsidiary requirement, while helpful, is

obviously not adequately by itself to override the prohibitions in the

decree and the dangers that gave rise to their formulation and

adoption.

106 Transcript of hearing of August 9, 1985 at 46; Ameritech

Motion to Provide Voice Storage at 8; see also, Reply Comments of

US West on the Shared Services Motion at 8.

107 To be sure, AT & T still maintains a very high share in the

interexchange market. However, with the arrival across the nation

of equal access, as well as for other reasons, that market share is

diminishing. In any event, AT & T is faced with significant compe-

tition in its markets; the Regional Companies remain de jure and

de facto regulated monopolies.

108 See also, United States v. Western Electric Co., supra, 578

F.Supp. at 659 n. 6.

64a

Regional Companies not only flies in the face of the lan-

guage of the decree but also contradicts the thousands of

words which have been written since that decree was

issued—by the Court, by the parties, by the Regional

Companies themselves, and by numerous intervenors.

Ameritech’s attempt to equate the two situations thus

serves only to highlight the fundamental flaws in its

argument. See note 19, supra.

For the reasons stated, it is this 13th day of January,

1986 ORDERED that all the motions be and they are

hereby denied.

65a

APPENDIX C

UNITED STATES DISTRICT COURT

DISTRICT OF COLUMBIA

Civ. A. Nos. 74-1698, 82-0192

Mise. No. 82-0025 (PI)

UNITED STATES OF AMERICA,

Plaintiff,

Vv.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY;

WESTERN ELECTRIC COMPANY, INC.; and

BELL TELEPHONE LABORATORIES, INC.,

Defendants.

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.

66a

Aug. 11, 1982

_—

Modification of Final Judgment

Aug. 24, 1982

Judgment Affirmed Feb. 28, 1983

See 103 S.Ct. 1240

D. Participation of the Bell Operating Companies

Many persons and organizations have questioned the

lack of independent representation for the Operating

Companies in this proceeding, both prior to the entry of

judgment and in conjunction with the preparation of the

plan of reorganization. They contend that AT & T’s in-

terests under the proposed settlement are diametrically

opposed to those of the Operating Companies, and that

AT & T therefore cannot be relied upon to act in the

Operating Companies’ best interests. They suggest that,

for these reasons, the Court should ensure the proper

representation of the Operating Companies either by

divesting them immediately or by appointing a guardian

ad litem or similar officer to represent their interests.

Such participation will not be ordered at this stage of

the proceedings, both because it is not necessary, and,

more fundamentally, because there is no practical means

for effecting it.

First. It is not at all clear that AT & T will act

contrary to the interests of the Operating Companies.

Under the proposed decree, AT & T’s shareholders will

become the shareholders of the Operating Companies and,

should AT & T act to undermine the interests of these

Companies or fail appropriately to protect them, it and

67a

its managers might be liable civilly for breach of their

fiduciary duty to these shareholders. See Part IX supra.

Moreover, since the divested Operating Companies will

supply AT & T’s sole avenue of access to telephone sub-

scribers and will potentially be large purchasers of West-

ern Electric equipment, AT & T has additional incen-

tives to protect their interests.

Second. The views which the Operating Companies

might be expected to espouse have substantially been

presented in this proceeding. With respect to all of the

issues which presumably would concern the Operating

Companies—principally the distribution of the assets and

the corporate debt, the restrictions on Operating Com-

pany operations, the Operating Company access require-

ments—able parties with able counsel have presented to

the Court the factual, legal, and policy arguments bear-

ing upon these questions. In the main, the Operating

Companies would have no particular expertise that

would give special value to their participation: the

Court’s decision generally rests upon the rationale of im-

proved competition, and the relevant information on that

subject is available to those who are now before the

Court. That is not to say, certainly, that the Operating

Companies, if they had independent representation, would

not make a contribution; obviously they could and would.

But in the opinion of the Court that contribution is not

so critical as to outweigh the adverse factors recited

below.

Third. There is no existing procedural mechanism

which would lend itself to the expression of the views of

the Operating Companies. Two alternatives have been

advanced: an immediate spin-off of the Operating Com-

panies so as to enable them to bargain with AT & T and

the Justice Department concerning the terms of the pro-

posed decree, and the appointment of a guardian or

trustee to represent their interests in this and future

proceedings.

68a

An immediate spin-off of the Operating Companies,

while superficially appealing, would be entirely imprac-

tical and, notwithstanding the Court’s urging, none of

those who has advocated such a spin-off has presented a

plan that is even remotely feasible. In fact, such an ac-

tion would leave entirely unresolved all of the problems

of administrative coordination, interconnection, and con-

tinuity of service that are addressed in the proposed

decree. )

For example, as a consequence of such a spin-off, the

Operating Companies would be wholly independent of

AT & T, required to provide to AT & T neither services

nor assistance. At a minimum, this would leave AT & T

at a serious disadvantage relative to competitors who

have constructed their own complete networks among

major cities; *** at worst, this course would disrupt, for

months or perhaps years, the nation’s telecommunica-

tions network, with incalculable consequences to trade

and defense, as well as to ordinary communication and

interaction among citizens. At the same time, such a

spin-off would leave local and interexchange facilities in-

tegrated under the common ownership of the Operating

Companies, and it would thus be directly contrary to the

antitrust objectives of these lawsuits. The Court will

not attempt to catalogue all of the other problems and

difficulties that would inevitably accompany a separation

without advance planning or agreement similar to that

embodied in the proposed decree; but there can be no

question but that, in a separation of this magnitude, they

would be manifold and in all likelihood insurmountable.**

873 The Operating Companies own most of the facilities necessary

for the provision of interexchange service. See Exhibit D-24B-1011.

The functioning of AT & T’s Long Lines Department would be

substantially impaired if the Operating Companies were divested

intact.

374 Much of the impetus for an immediate spin-off results from the

belief that there should be arm’s length bargaining regarding the

69a

As indicated, beyond expressing the general expectation

that all those matters may somehow be worked out, not

one person or organization has even attempted to sug-

gest practical solutions. For all these reasons, then, the

Court has concluded that it will not require an immedi-

ate spin-off.

While the Court’s power to appoint a guardian, trus-

tee, or similar officer to represent the interests of the

Operating Companies is far from clear, its rejection,

again, must be bottomed primarily upon the practical

difficulties inherent in this approach. If a guardian were

appointed at this time, even before the plan of reorganiza-

tion has been formulated, he could be expected to face

considerable difficulty in obtaining the type of detailed

information from the Operating Companies which would

be the raison d’etre of his participation. The personnel

of the Operating Companies and the information they

possess would remain under the control of AT & T and

it is unlikely that a guardian could secure sufficient

assistance from them at this stage to warrant the dis-

ruption his appointment would entail. Development of

an independent expertise by the guardian would be likely

to take years, further delaying resolution of this litiga-

tion without the promise of any real benefits to the

decision-making process.

Participation by the Operating Companies, through

their own chief executive officers, will be appropriate,

however, with respect to the process of implementation

of the decree. At the time the plan of reorganization is

presented, the seven new regional Operating Companies

and their chief executives will be a long way on the road

toward independence, with a substantial incentive to rep-

valuation of the assets being divided between AT & T and the

Operating Companies. That argument in favor of an immediate

spin-off is meritless, however, because the Court has concluded that

net book value rather than market value is the appropriate standard

for this division. See Part IX supra.

70a

resent and advocate their own interests. Moreover, their

familiarity with the facilities required to provide local

and intercity service and exchange access would give

them special expertise concerning the adequacy of the

reorganization plan in regard to the division of assets.

The Court accordingly intends to require that, at the

time the plan of reorganization is submitted to the Court

by the Department of Justice, the designated chief execu-

tive officers of the seven regional Operating Companies

file with the Court sworn statements certifying that, to

the best of their knowledge, the plan will leave the com-

panies which they head as viable entities with the re-

sources necessary to perform the functions described in

the decree. These statements will also be expected to

discuss any element of the plan of reorganization that

may have been imposed by AT & T over the objections

of any chief executive officer.** The Court expects, addi-

tionally, to call upon the chief executive officers or their

staffs to participate in other respects as well in the pro-

ceedings held at the time the plan of reorganization is

presented for judicial approval.

375 In order to enable the Court to assess the weight to be accorded

to the statements of these individuals, they will also be invited, but

not required, to reveal any continuing relationship.

T1la

APPENDIX D

UNITED STATES DISTRICT COURT

DISTRICT OF COLUMBIA

Civ. A. Nos. 74-1698, 82-0192

Mise. No. 82-0025 (PI)

UNITED STATES OF AMERICA,

Plaintiff,

v.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY;

WESTERN ELECTRIC COMPANY, INC.; and

BELL TELEPHONE LABORATORIES, INC.,

Defendants.

UNITED STATES OF AMERICA,

Plaintiff,

v.

WESTERN ELECTRIC COMPANY, INC., and

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

Defendants.

UNITED STATES OF AMERICA,

Plaintiff,

Vv.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al.,

Defendants.

72a

Aug. 11, 1982

Modification of Final Judgment

Aug. 24, 1982

Judgment Affirmed Feb. 28, 1983

See 103 S.Ct. 1240

MODIFICATION OF FINAL JUDGMENT

Plaintiff, United States of America, having filed its

complaint herein on January 14, 1949; the defendants

having appeared and filed their answer to such com-

plaint denying the substantive allegations thereof; the

parties, by their attorneys, having severally consented

to a Final Judgment which was entered by the Court

on January 24, 1956, and the parties having subsequently

agreed that modification of such Final Judgment is re-

quired by the technological, economic and regulatory

changes which have occurred since the entry of such

Final Judgment;

Upon joint motion of the parties and after hearing by

the Court, it is hereby

ORDERED, ADJUDGED, AND DECREED that the

Final Judgment entered on January 24, 1956, is hereby

vacated in its entirety and replaced by the following

items and provisions:

I

AT & T Reorganization

A. Not later than six months after the effective date

of this Modification of Final Judgment, defendant AT &

T shall submit to the Department of Justice for its ap-

73a

proval, and thereafter implement, a plan of reorganiza-

tion. Such plan shall provide for the completion, within

18 months after the effective date of this Modification of

Final Judgment, of the following steps:

1. The transfer from AT & T and its affiliates to the

BOCs, or to a new entity subsequently to be separated

from AT & T and to be owned by the BOCs, of sufficient

facilities, personnel, systems, and rights to technical in-

formation to permit the BOCs to perform, independently

of AT & T, exchange telecommunications and exchange

access functions, including the procurement for, and en-

gineering, marketing and management of, those func-

tions, and sufficient to enable the BOCs to meet the equal

exchange access requirements of Appendix B;

2. The separation within the BOCs of all facilities,

personnel and books of account between those relating

to the exchange telecommunications or exchange access

functions and those relating to other functions (including

the provision of interexchange switching and transmis-

sion and the provision of customer premises equipment

to the public); provided that there shall be no joint

ownership of facilities, but appropriate provision may

be made for sharing, through leasing or otherwise, of

multifunction facilities so long as the separated portion

of each BOC is ensured control over the exchange tele-

communications and exchange access functions;

3. The termination of the License Contracts between

AT & T and the BOCs and other! subsidiaries and the

Standard Supply Contract between Western Electric and

the BOCs and other subsidiaries; and

4. The transfer of ownership of the separated por-

tions of the BOCs providing local exchange and exchange

access services from AT & T by means of a spin-off of

stock of the separated BOCs to the shareholders of AT &

T, or by other disposition; provided that nothing in this

Modification of Final Judgment shall require or prohibit

74a

the consolidation of the ownership of the BOCs into any

particular number of entities.

B. Notwithstanding separation of ownership, the

BOCs may support and share the costs of a centralized

organization for the provision of engineering, adminis-

trative and other services which can most efficiently be

provided on a centralized basis. The BOCs shall pro-

vide, through a centralized organization, a single point

of contact for coordination of BOCs to meet the require-

ments of national security and emergency preparedness.

C. Until September 1, 1987, AT & T, Western Elec-

tric, and the Bell Telephone Laboratories, shall, upon or-

der of any BOC, provide on a priority basis all research,

development, manufacturing, and other support services

to enable the BOCs to fulfill the requirements of this

Modification of Final Judgment. AT & T and its affili-

ates shall take no action that interferes with the BOCs’

requirements of nondiscrimination established by section

II.

D. After the reorganization specified in paragraph

I(A) (4), AT & T shall not acquire the stock or assets

of any BOC.

II

BOC Requirements

A. Subject to Appendix B, each BOC shall provide to

all interexchange carriers and information service pro-

viders exchange access, information access, and exchange

services for such access on an unbundled, tariffed basis,

that is equal in type, quality, and price to that provided

to AT& T and its affiliates.

B. No BOC shall discriminate between AT & T and

its affiliates and their products and services and other

persons and their products and services in the:

1. procurement of products and services;

75a

2. establishment and dissemination of technical in-

formation and procurement and_ interconnection

standards;

3. interconnection and use of the BOC’s telecom-

munications service and facilities or in the charges

for each element of service; and

4. provision of new services and the planning for

and implementation of the construction or modifica-

tion of facilities, used to provide exchange access

and information access.

C. Within six months after the reorganization speci-

fied in paragraph I(A) (4), each BOC shall submit to

the Department of Justice procedures for ensuring com-

pliance with the requirements of paragraph B.

D. After completion of the reorganization specified

in section I, no BOC shall, directly or through any af-

filiated enterprise:

1. provide interexchange telecommunications serv-

ices or information services;

2. manufacture or provide telecommunications prod-

ucts or customer premises equipment (except for

provision of customer premises equipment for emer-

gency services) ; or

3. provide any other product or service, except ex-

change telecommunications and exchange access serv-

ice, that is not a natural monopoly service actually

regulated by tariff.

Ill

Applicability and E ffect

The provisions of this Modification of Final Judgment,

applicable to each defendant and each BOC, shall be bind-

ing upon said defendants and BOCs, their affiliates, suc-

cessors and assigns, officers, agents, servants, employees,

all

— 76a

and attorneys, and upon those persons in active concert

or participation with each defendant and BOC who re-

ceive actual notice of this Modification of Final Judg-

ment by personal service or otherwise. Each defendant

and each person -bound by the prior sentence shall co-

operate in ensuring that the provisions of this Modifica-

tion of Final Judgment are carried out. Neither this

Modification of Final Judgment nor any of its terms or

provisions shall constitute any evidence against, an ad-

mission by, or an estoppel against any party or BOC.

The effective date of this Modification of Final Judg-

ment shall be the date upen which it is entered.

IV

Definitions

For the purposes of this Modification of Final Judg-

ment:

A. “Affiliate’ means any organization or entity, in-

cluding defendant Western Electric Company, Incorpo-

ratec, and Bell Telephone Laboratories, Incorporated,

that is under direct or indirect common ownership with

or control by AT & T or is owned or controlled by an-

other affiliate. For the purposes of this paragraph, the

terms “ownership” and “owned” mean a direct or in-

direct equity interest (or the equivalent thereof) of more

than fifty (50) percent of an entity. “Subsidiary” means

any organization or entity in which AT & T has stock

ownership, whether or not controlled by AT & T.

B. “AT & T” shall mean defendant American Tele-

phone and Telegraph Company and its affiliates.

C. “Bell Operating Companies” and “BOCs” mean

the corporations listed in Appendix A attached to this

Modification of Final Judgment and any entity directly

or indirectly owned or controlled by a BOC or affiliated

through substantial common ownership.

77a

D. “Carrier” means any person deemed a carrier un-

der the Communications Act of 1934 or amendments

thereto, or, with respect to intrastate telecommunications,

under the laws of any State.

E. “Customer premises equipment” means equipment

employed on the premises of a person (other than a car-

rier) to originate, route, or terminate telecommunica-

tions, but does not include equipment used to multiplex,

maintain, or terminate access lines.

F. “Exchange access” means the provision of ex-

change services for the purpose of originating or termi-

nating interexchange telecommunications. Exchange ac-

cess services include any activity or function performed

by a BOC in connection with the origination or termina-

tion of interexchange telecommunications, including but

not limited to, the provision of network control signalling,

answer supervision, automatic calling number identifica-

tion, carrier access codes, directory services, testing and

maintenance of facilities and the provision of informa-

tion necessary to bill customers. Such services shall be

provided by facilities in an exchange area for the trans-

mission, switching, or routing, within the exchange area,

of interexchange traffic originating or terminating within

the exchange area, and shall include switching traffic

within the exchange area above the end office and de-

livery and receipt of such traffic at a point or points

within an exchange area designated by an interexchange

carrier for the connection of its facilities with those of

the BOC. Such connections, at the option of the inter-

exchange carrier, shall deliver traffic with signal quality

and characteristics equal to that provided similar traffic

of AT & T, including equal probability of blocking, based

on reasonable traffic estimates supplied by each interex-

change carrier. Exchange services for exchange access

shall not include the performance by any BOC of inter-

exchange traffic routing for any interexchange carrier.

In the reorganization specified in section I, trunks used

78a

to transmit AT & T’s traffic between end offices and class

4 switches shall be exchange access facilities to be owned

by the BOCs.

G. “Exchange area,” or “exchange” means a geo-

graphic area established by a BOC in accordance with

the following criteria:

1. any such area shall encompass one or more con-

tiguous local exchange areas serving common social,

economic, and other purposes, even where such con-

figuration transcends municipal or other local gov-

ernmental] boundaries;

2. every point served by a BOC within a State

shall be included within an exchange area;

8. no such area which includes part or all of one

standard metropolitan statistical area (or a consoli-

dated statistical area, in the case of densely popu-

lated States) shall include a substantial part of any

other standard metropolitan statistical area (or a

consolidated statistical area, in the case of densely

populated States), unless the Court shall otherwise

allow; and

4. except with approval of the Court, no exchange

area located in one State shall include any point lo-

cated within another State.

H. “Information” means knowledge or intelligence

represented by any form of writing, signs, signals, pic-

tures, sounds, or other symbols.

I. “Information access” means the provision of spe-

cialized exchange telecommunications services by a BOC

in an exchange area in connection with the origination,

termination, transmission, switching, forwarding or rout-

ing of telecommunications traffic to or from the facili-

ties of a provider of information services. Such special-

ized exchange telecommunications services include, where

necessary, the provision of network control signalling,

answer supervision, automatic calling number identifica-

79a

tion, carrier access codes, testing and maintenance of fa-

cilities, and the provision of information necessary to bill

customers.

J. “Information service’ means the offering of a

capability for generating, acquiring, storing, transform-

ing, processing, retrieving, utilizing, or making available

information which may be conveyed via telecommunica-

tions, except that such service does not include any use

of any such capability for the management, control, or

operation of a telecommunications system or the man-

agement of a telecommunications service.

K. “Interexchange telecommunications” means tele-

communications between a point or points located in one

exchange telecommunications area and a point or points

located in one or more other exchange areas or a point

outside an exchange area.

L. “Technical information” means intellectual prop-

erty of all types, including, without limitation, patents,

copyrights, and trade secrets, relating to planning docu-

ments, designs, specifications, standards, and practices

and procedures, including employee training.

N. “Telecommunications equipment” means equip-

ment, other than customer premises equipment, used by

a carrier to provide telecommunications services.

O. “Telecommunications”’ means the transmission, be-

tween or among points specified by the user, of informa-

tion of the user’s choosing, without change in the form

or content of the information as sent and received, by

means of electromagnetic transmission medium, includ-

ing all instrumentalities, facilities, apparatus, and serv-

ices (including the collection, storage, forwarding, switch-

ing, and delivery of such information) essential to such

transmission.

P. “Telecommunications service’ means the offering

for hire of telecommunications facilities, or of telecom-

munications by means of such facilities.

80a

Q. “Transmission facilities’ means equipment (in-

cluding without limitation wire, cable, microwave, satel-

lite, and fiberoptics) that transmit information by elec-

tromagnetic means or which directly support such trans-

mission, but does not include customer premises equip-

ment.

V

Compliance Provisions

The defendants, each BOC, and affiliated entities are

ordered and directed to advise their officers and other

management personnel with significant responsibility for

matters addressed in this Modification of Final Judgment

of their obligations hereunder. Each BOC shall under-

take the following with respect to each such officer or

management employee:

1. The distribution to them of a written directive

setting forth their employer’s policy regarding com-

pliance with the Sherman Act and with this Modi-

fication of Final Judgment, with such directive to

include:

(a) an admonition that non-compliance with such

policy and this Modification of Final Judgment will

result in appropriate disciplinary action determined

by their employer and which may include dismissal;

and

(b) advise that the BOC’s legal advisors are avail-

able at all reasonable times to confer with such per-

sons regarding any compliance questions or prob-

lems;

2. The imposition of a requirement that each of

them sign and submit to their employer a certificate

in substantially the following form:

The undersigned hereby (1) acknowledges re-

ceipt of a copy of the 1982 United States v.

Western Electric Modification of Final Judg-

8la

ment and a written directive setting forth Com-

pany policy »egarding compliance with the anti-

trust laws and with such Modification of Final

Judgment, (2) represents that the undersigned

ha

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