United States v. Tele-Communications, Inc. and Liberty Media Corporation Comment and Response on Proposed Final Judgment

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Tele-Communications, Inc. and Liberty Media

Corporation Comment and Response on Proposed Final Judgment

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.

16(a) and (b), the United States publishes below the comments it

received on the proposal Final Judgment in United States v. Tele-

Communications, Inc. and Liberty Media Corporation, Civil Action No.

94-0948, United States District Court for the District of Columbia,

together with the response of the United States to those comments.

Copies of the response are available on request for inspection and

copying in Room 3233 of the Antitrust Division, U.S. Department of

Justice, Tenth Street and Pennsylvania Avenue, NW., Washington, DC

20530 and for inspection at the Office of the Clerk of the United

States District Court for the District of Columbia, Third and

Constitution Avenue, NW., Washington, DC 20001.

Constance K. Robinson,

Director of Operations, Antitrust Division.

Response to Public Comments

Pursuant to Section 2(b) of the Antitrust Procedures and Penalties

Act (15 U.S.C. 16(b)-(h))(``APPA''), the United States of America

hereby files its Response to Public Comments.

I.

Introduction

The United States has carefully reviewed the comments submitted on

the proposed Final Judgment and remains convinced that entry of the

proposed Final Judgment is in the public interest.

II.

Background

This action was commenced on April 28, 1994, when the United States

filed a complaint alleging that the defendant's proposed merger

violated Section 7 of the Clayton Act, as amended, 15 U.S.C. 18. On the

same date, the United States submitted a proposed Final Judgment and a

Stipulation between the United States and the dependents pursuant to

which the United States and the defendants consented to entry of the

proposed Final Judgment. The Stipulation provides that the proposed

Final Judgment may be entered by the Court after completion of the

procedures required by the APPA.

III.

Compliance With the APPA

Upon publication of this Response in the Federal Register, the

procedures required by the APPA prior to entry of the proposed Final

Judgment were completed, and the Court is free to enter the proposed

Final Judgment.

IV.

Response to Public Comments

The Department has received two comments relating to the proposed

Final Judgment. The first comment, filed by K. Lawrence Kemp, a

bankruptcy trustee, was filed on behalf of Dennis F. Gianotti, the

owner of GTV, a regional sports video programming company which has

filed for bankruptcy in the United States Bankruptcy Court for the

Western District of Pennsylvania. The second comment was submitted by

GTE Service Corporation, on behalf of its affiliated domestic telephone

operating companies and GTE Laboratories Incorporated.

The issue of the standard of judicial review, raised by the

comments, will be discussed below in Section IV(C).

A. K. Lawrence Kemp

Mr. Kemp submitted a copy of an antitrust complaint that has been

filed on behalf of Mr. Gianotti and GTV. The complaint alleges that KBL

Sports Network, Inc. and the defendants have attempted to monopolize

sports television programming of collegiate athletics for cable

distribution in Western Pennsylvania by interfering with Mr. Gianotti's

and GVT's exclusive rights to produce and distribute such programming.

Among other allegations, the complaint alleges that defendants refused

carriage of GTV programming as part of an attempt to monopolize. Mr.

Kemp asserts that for the reasons alleged in the aforementioned

complaint, he objects to the proposed Final Judgment.

The proposed Final Judgment does not directly address issues

relating to competition among firms seeking television production and

distribution rights for sports events.\1\ The Department has no basis

for a general concern that the proposed transaction will lessen

competition among firms competing for television rights for sports

events. However, to the extent that defendants discriminate against

non-affiliated programming in the selection, terms, or conditions of

carriage, such conduct is encompassed within the proposed Final

Judgment.

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\1\The omission of this issue from the proposed Final Judgment,

however, in no way signifies an opinion by the Department as to the

merits of the GTV private lawsuit, nor does entry of the proposed

Final Judgment in any way effect the private lawsuit.

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Section IV(A) of the proposed Final Judgment enjoins defendants'

cable systems and multichannel subscription television distributors

(``MSTDs'') from discriminating against non-affiliated video

programmers in the selection, terms, or conditions of carriage, where

the effect of such conduct is unreasonably to restrain competition.

This provision does not create an automatic right of access for any

individual video programmer to any of defendants' individual MSTDs, nor

is it intended to inhibit good faith negotiations between defendants

and unaffiliated programmers regarding the terms and conditions of

carriage. However, where the effect of discrimination by defendants is

to restrain competition, such conduct is prohibited.

In addition, Section IV(C) extends the prohibitions set forth in

Section IV(A) to prevent defendants from seeking or supporting, with

respect to any MSTD in which defendants have any financial interest but

do not control, conduct that would violate Section IV(A) if engaged in

by defendants.

By prohibiting conduct by defendants that might restrain

competition in the provision of video programming, the Department

believes that the anticompetitive effects of the proposed merger

alleged in the Complaint will be fully remedied. The Department's view

as to the sufficiency of this relief also rests on the existence of

Sections 12 and 19 of the Cable Television Protection and Competition

Act, Pub. L. 102-385, 106 Stat. 1460 (1992) (``1992 Cable Act''), and

its implementing Federal Communications Commission (``FCC'')

regulations, as well as the judgments recently entered in U.S. v.

Primestar Partners, L.P., et al.\2\ and State of New York, et al. v.

Primestar Partners, L.P., et al.\3\ (``Primestar cases'').

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\2\No. 93 Civ. 3913 (S.D.N.Y. Apr. 4, 1994).

\3\1993-2 Trade Cas. (CCH) 70,403-4 (S.D.N.Y. Sept. 14, 1993).

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B. GTE Service Corporation

GTE supports the entry of the proposed Final Judgment but argues

that its duration is too short. In addition, GTE expresses concern that

the proposed Final Judgment would allow defendants to withdraw highly

appealing programming from distribution--and specifically from

competing systems--upon expiration of the proposed Final Judgment.

GTE recommends (1) that the term of the existing provisions of the

proposed Final Judgment be increased from five to seven years; and (2)

that upon expiration of this seven year period, defendants should be

restrained from withdrawing any programming from distribution in a

particular market unless that market is found to be subject to

``effective competition'' within the meaning of Section 623(l)(1) of

the 1992 Cable Act\4\ or unless such programming is withdrawn from all

markets, specifically including any and all systems in which defendants

have an interest.

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\4\47 U.S.C. 543(l)(1).

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In the Competitive Impact Statement, the United States explains why

it limited the term of the proposed Final Judgment to five years. The

five year term reflects the United States' ``recognition that this

industry is one that has experienced major changes in MSTD technologies

that are on-going, and the effects of the 1992 Cable Act and its

implementing FCC regulations.''\5\ The United States continues to

believe that for this transaction in this industry, with changing

technology, substantial new entry as well as recent and substantial

government regulation, a term of five years is a sufficient period of

time and is in the public interest.

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\5\U.S. v. TCI, et al., Competitive Impact Statement at 8.

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The United States also believes that it is in the public interest

not to place additional restrictions upon defendants after the

expiration of the proposed Final Judgment. Federal antitrust laws as

well as the 1992 Cable Act and its implementing FCC regulations should

provide adequate protection against potential anticompetitive behavior

in programming distribution upon expiration of the proposed Final

Judgment.

C. Standard of Judicial Review

The APPA requires that proposed consent judgments in antitrust

cases brought by the United States are subject to a sixty-day comment

period, after which the court shall determine whether entry of the

proposed final judgment ``is in the public interest.'' In making that

determination, the court may consider:

(1) The competitive impact of such judgment, including termination

of alleged violations, provisions for enforcement and modification,

duration or relief sought, anticipated effects of alternative remedies

actually considered, and any other considerations bearing upon the

adequacy of such judgment;

(2) The impact of entry of such judgment upon the public generally

and individuals alleging specific injury from the violations set forth

in the complaint including consideration of the public benefit, if any,

to be derived from a determination of the issues at trial.

15 U.S.C. 16(e) (emphasis added). The courts have recognized that the

term ``public interest'' ``take[s] meaning from the purposes of the

regulatory legislation.'' NAACP v Federal Power Comm'n, 425 U.S. 662,

669 (1976); United States v American Cyanamid Co., 719 F.2d 558, 565

(2d Cir. 1983), cert. denied, 465 U.S. 1101 (1984). Since the purpose

of the antitrust laws is to ``preserv[e] free and unfettered

competition as the rule of trade,'' Northern Pacific Railway Co. v

United States, 356 U.S. 1, 4 (1958), the focus of the ``public

interest'' inquiry under the Tunney Act is whether the proposed final

judgment would serve the public interest in free and unfettered

competition. United States v Waste Management, Inc., 1985-2 Trade Cas.

66,651, at 63,046 (D.D.C. 1985). In conducting this inquiry, ``the

Court is nowhere compelled to go to trial or to engage in extended

proceedings which might have the effect of vitiating the benefits of

prompt and less costly settlement through the consent decree

process.''\6\ Rather, absent a showing of corrupt failure of the

government to discharge its duty, the Court, in making the public

interest finding, should * * * carefully consider the explanations of

the government in the competitive impact statement and its responses to

comments in order to determine whether those explanations are

reasonable under the circumstances.

\6\119 Cong. Rec. 24598 (1973). See United States v Gillette

Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest''

determination can be made properly on the basis of the Competitive

Impact Statement and Response to Comments filed pursuant to the

APPA. Although the APPA authorizes the use of additional procedures,

15 U.S.C. 16(f), those procedures are discretionary. A court need

not invoke any of them unless it believes that the comments have

raised significant issues and that further proceedings would aid the

court in resolving those issues. See H.R. Rep. 93-1463, 93rd Cong.

2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & Ad. News 6536,

6538.

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United States v Mid-America Dairymen, Inc., 1977-1 Trade Cas. 61,508,

at 71,980 (W.D. Mo. 1977).

It is also unnecessary for the district court to ``engage in an

unrestricted evaluation of what relief would best serve the public.''

United States v Bechtel Corp., 648 F.2d 660, 666 (9th Cir.), cert.

denied, 454 U.S. 1083 (1981). Precedent requires that

[t]he balancing of competing social and political interests affected

by a proposed antitrust consent decree must be left, in the first

instance, to the discretion of the Attorney General. The court's

role in protecting the public interest is one of insuring that the

government has not breached its duty to the public in consenting to

the decree. The court is required to determine not whether

particular decree is the one that will best serve society, but

whether the settlement is ``within the reaches of the public

interest.'' More elaborate requirements might undermine the

effectiveness of antitrust enforcement by consent decree.\7\

\7\United States v Bechtel, 648 F.2d at 666 (quoting United

States v Gillette Co., 406 F. Supp. at 716). See United States v

BNS, Inc., 858 F.2d 456, 463 (9th Cir. 1988); United States v

National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D. Cal. 1978);

see also United States v American Cyanamid Co., 719 F.2d at 565

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A proposed consent decree is an agreement between the parties which

is reached after exhaustive negotiations and discussions. Parties do

not hastily and thoughtlessly stipulate to a decree because, in doing

so, they

waive their right to litigate the issues involved in the case and

thus save themselves the time, expense, and inevitable risk of

litigation. Naturally, the agreement reached normally embodies a

compromise; in exchange for the saving of cost and the elimination

of risk, the parties each give up something they might have won had

they proceeded with the litigation.

United States v. Armour & Co., 402 U.S. 673, 681 (1971).

The proposed consent decree, therefore, should not be reviewed

under a standard of whether it is certain to eliminate every

conceivable anticompetitive effect of a merger or whether it mandates

certainty of free competition in the future. The court may reject the

agreement of the parties as to how the public interest is best served

only if it has ``exceptional confidence that adverse antitrust

consequences will result * * *'' United States v. Western Electric Co.,

993 F.2d 1572, 1577 (D.C. Cir. 1993).

Court approval of a final judgment requires a standard more

flexible and less strict than the standard required for a finding of

liability. ``[A] proposed decree must be approved even if it falls

short of the remedy the court would impose on its own, as long as it

falls within the range of acceptability or is `within the reaches of

public interest.'''\8\ Under the public interest standard, the Court's

role is limited to determining whether the proposed decree is within

the ``zone of settlements'' consistent with the public interest, not

whether the settlement diverges from the Court's view of what would

best serve the public interest. United States v. Western Electric Co.,

993 F.2d at 1576 (quoting United States v. Western Electric Co., 900

F.2d 283, 307 (D.C. Cir. 1990).

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\8\United States v. American Tel. and Tel. Co., 552 F. Supp.

131, 150 (D.D.C.), aff'd sub nom. Maryland v. United States, 460

U.S. 1001 (1982) (quoting United States v. Gillette Co., 406 F.

Supp. at 716); United States v. Alcan Aluminum, Ltd., 605 F. Supp.

619, 622 (W.D. Ky 1985).

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Clearly, there has been no showing that the proposed settlement

constitutes an abuse of the Department's discretion or that it is not

within the zone of settlements consistent with the public interest. The

proposed Final Judgment would enjoin defendants' cable systems and

other multichannel subscription television distributors from

discriminating against non-affiliated video programmers in the

selection, terms, or conditions of carriage where the effect of such

conduct is unreasonably to restrain competition. Defendants also would

be enjoined, with respect to their video programming, from refusing to

license on nondiscriminatory terms to any competing multichannel

subscription television distributor where the effect of such conduct is

unreasonably to restrain competition. The Department believes that

entry of the proposed Final Judgment willfully remedy the

anticompetitive effects of the proposed merger alleged in the

Complaint, by prohibiting conduct by defendants that might restrain

competition in the provision of video programming or multichannel

subscription television distribution.

Respectfully submitted,

N. Scott Sacks, Patricia A. Shapiro,

Attorneys, U.S. Department of Justice, Antitrust Division, 555 4th

Street, N.W., Washington, D.C. 20001, (202) 514-5815.

May 31, 1994.

Richard L. Rosen, Chief, Communications and Finance Section,

Antitrust Division, Department of Justice, 555 Fouth Street, NW,

Room 8104, Washington, DC 20001.

Re: Telecommunications, Inc., and Liberty Media Proposed Final

Judgment and Competitive Impact Statement

Dear Mr. Rosen: Please be advised the I represent myself as

bankruptcy trustee and Dennis F. Gianotti t/d/b/a GTV in a civil

action pending in United States Bankruptcy for the Western District

of Pennsylvania which bears upon the suitability of the proposed

merger and its impact on competition in video programming. A copy of

that Complaint is enclosed for your review and for inclusion in the

record concerning this matter. For the reason stated in the

Complaint, objection is made to the proposed final judgment and

competitive impact statement.

Very truly yours,

K. Lawrence Kemp

KLK:jj

c. D.F. Gianotti

Encl.

United States District Court for the Western District of

Pennsylvania

Civil Action No. 93-1564

Amended Complaint

Dennis F. Gianotti, individually and trading and doing business as

GTV and K. Lawrence Kemp, Trustee in Bankruptcy for Dennis F. Gianotti,

bring this civil action against KBL Sports Network, Inc., for

compensatory damages in excess of $50,000.00 together with liquidated

damages, punitive damages and attorneys fees, and, in support thereof

respectfully represent as follows:

Jurisdiction

1. This Court has subject matter jurisdiction because this action

is based in part on 15 U.S.C. 1,2 and 18 and thus subject matter

jurisdiction is confered by 15 U.S.C. 15.

2. This Court has personal jurisdiction over defendant, KBL Sports

Network, Inc., (hereinafter ``KBL'') as it regularly conducts business

in this state and within the geographic territory assigned to this

Court and maintains an office at 1301 Grandview Avenue, Pittsburgh,

Pennsylvania, and has in the past maintained a place of business in the

Ramada Hotel in Pittsburgh, Pennsylvania.

3. This Court has personal jurisdiction over Tele-Communications,

Inc., (hereinafter ``TCI'') as it regularly conducts or has conducted

business in the State of Pennsylvania and because the transactions and

occurrences out of which the causes of action arise took place within

the State of Pennsylvania.

4. This Court has personal jurisdiction over Liberty Media, Inc.,

as it regularly conducts or has conducted business in the State of

Pennsylvania and because the transactions and occurrences out of which

the causes of action arise took place within the State of Pennsylvania.

5. Venue exists in this Court pursuant to 28 U.S.C. 1391(b) because

all claims arose in this district; and pursuant to 28 U.S.C. 1391(c)

because defendant is a corporation which is doing business in this

district.

Parties

6. Dennis F. Gianotti is an individual who resides in the City of

New Kensington, Westmoreland County, Pennsylvania, and his traded under

the name of GTV and will hereafter be referred to as ``Gianotti.''

7. K. Lawrence Kemp was appointed interim trustee of the bankruptcy

case of Gianotti and Nancy C. Gianotti, his wife, at No. 91-03156 BM in

the United States Bankruptcy Court for the Western District of

Pennsylvania.

8. The claims made herein are assets of the said bankruptcy case

except to the extent exempted or surplus beyond that needed to pay

claims and administrative expenses.

9. Defendants are corporations organized under the laws of Colorado

which do substantial business in Western Pennsylvania.

Factual Background

10. Gianotti was engaged in the business of producing television

programs primarily for use on cable television and primarily of a

sports nature.

11. On or about October 19, 1989, Gianotti entered into a written

agreement with the University of Pittsburgh Athletic Department for the

production of certain sports telecasts. The Agreement was for a term of

two years from October 21, 1989, to October 21, 1991. The Agreement

gave exclusive broadcast and cable distribution rights to Gianotti. The

Agreement provided for an exclusive 30-day negotiating period following

October 21, 1991.

12. During the term of the said Agreement, Gianotti produced

various sports television programs involving University of Pittsburgh

athletic events and arranged for the viewing of such programs through

KBL.

13. Gianotti provided KBL with a copy of his said Agreement with

the University of Pittsburgh Athletic Department prior to the first

cable distribution of such a program.

14. Although Gianotti's dealings were formally with KBL, he was

paid for programming by checks of TCI mailed to his address is

Pennsylvania from TCI's office.

15. Before the end of the term of the said agreement, in August,

1991, KBL successfully negotiated directly with the University of

Pittsburgh Athletic Department to provide for the production of the

same sports events covered by the said Agreement.

16. In the spring of 1991, in order to harm Gianotti's chances of

extending his contractual relationship with the University of

Pittsburgh, KBL refused to provide cable distribution of University of

Pittsburgh men's baseball games and other sports events such as auto

racing from Gianotti.

17. In a concerted effort to take over Gianotti's business, KBL

cancelled his Steeler Talk Show and replaced it with its own Sports

Beat.

18. KBL directly approached and contracted with advertisers

developed by Gianotti, such as Carriage Limousine and Coors Beer.

19. In February, 1991, in a meeting between William Craig, a

managerial employee of KBL, and Gianotti, William Craig told Gianotti

that KBL would not distribute any University of Pittsburgh athletic

events unless KBL could distribute men's basketball. When Gianotti

offered to produce men's basketball, William Craig rejected the offer

and advised him that KBL wanted to negotiate that directly with the

University of Pittsburgh.

20. At and after the meeting, Gianotti offered to buy or barter

time to get his programs distributed by defendant, but KBL refused to

quote him a price.

21. KBL is and was owned directly or indirectly by TCI.

22. TCI directly or indirectly (through its subsidiary TCI of

Pennsylvania, Inc.) dominated the Metropolitan Pittsburgh cable

television market by having approximately half the cable television

subscribers in the said market.

23. Because KBL was owned by TCI and/or Liberty (the two of which

were related) which had more than half the cable subscribers in this

area, KBL could and did exercise market power over collegiate sports

television programming in the Metropolitan Pittsburgh area.

24. The existence of market power by KBL and TCI is evidenced by

the following:

(a) One of TCI's subsidiaries, TCI of Pennsylvania, refused to deal

with TCS, an entity which first acquired cable television transmission

rights to Pittsburgh Pirate baseball games.

(b) TCI through various of its subsidiaries refused to deal with

Sportschannel, an entity which offers sports programming of national

and regional interest. If TCI of Pennsylvania had carried

Sportschannel, Sportschannel would have competed with KBL for rights to

regional sports events.

(c) KBL reasonably believed it could impose a seat fee on

commercial establishments such as bars which provide a television set

for its patrons to watch programs on KBL and actually did impose such a

fee.

(d) KBL refused to deal with Gianotti on programming it previously

found acceptable for the sole purpose of eliminating him as an

intermediary between sports programming sources such as the University

of Pittsburgh and other programming sources on the one side and KBL and

the cable television systems on the other.

(e) KBL and/or TCI is now attempting to acquire the Pittsburgh

Pirates so that it can control broadcast, telecast and cable casting of

Pirate games.

(f) TCI became a co-owner of K-Prime Partners, Limited Partnership

also known as Primestar on February 8, 1990, in an effort to dominate

video sports programming.

(g) TCI through its subsidiary TCI of Pennsylvania, Inc., has had

the only cable television service within the City of Pittsburgh between

1984 and the present.

(h) In December, 1993, TCI of Pennsylvania had approximately

385,000 cable television subscribers in the Metropolitan Pittsburgh

area, more than half the total subscribers in this area.

(i) TCI directly or indirectly through a subsidiary bought the City

of Pittsburgh cable television franchise from Warner Cable Corp. in

1984 for approximately $93,400,000.00.

(j) The Chief Executive Officer of TCI is John Malone, who also

owns 50.4% of the common stock of Liberty Media, Inc., a Colorado

business corporation. TCI and Liberty Media through their various

subsidiaries have 10 million cable television subscribers, more than

25% of the total number of cable television subscribers of the United

States.

(k) John Malone, TCI and Liberty Media during the past two decades

have embarked on a course of conduct designed to control cable

television and by acquiring control over programming sources,

technology and franchises. In particular, TCI and Liberty have, during

this period of time acquired

(1) 22% of Turner Broadcasting which provides TBS, TNT, CNN and the

Cartoon Network.

(2) 49% of QVC

(3) 49% of the Discovery Channel

(4) 42% of the Home Shopping Network

(5) 33% of Court TV

(6) 21% of Home Team Sports

(7) 68% of SportsCom

(8) 18% of Black Entertainment Network

(9) 90% of Encore

(10) 15.6% of The Family Channel

(11) 15% of Interactive Network

(1) In addition TCI and/or Liberty Media have become involved in

partnerships or joint ventures in The Children's Channel, the

Parliamentary Channel, TeleWest, The Sega Channel and Viewer Controlled

Cable Television.

(m) In April, 1993, KBL acquired exclusive broadcast rights for 4

years for the Pittsburgh Penguins for approximately $22,000,000.00.

This acquisition enabled KBL to sell rights to certain games to

broadcast stations such as KDKA-TV and to institute pay-per-view as to

certain games.

(n) KBL also acquired exclusive television broadcasting rights to

the Pittsburgh Pirates.

(o) KBL, after contracting with the University of Pittsburgh for

men's basketball, was able to charge an additional fee to cable system

operators for such programming, a fee over and above the regular charge

for KBL programming

25. John Malone, through TCI and its subsidiaries and liberty Media

and its subsidiaries has engaged in an effort to exercise monopolistic

control over programming sources by the above acquisitions and by

encouraging independent programming sources, such as The Learning

Channel, to merge into entities over which they have control such as,

The Discovery Channel.

26. The elimination of GTV as a programming source enabled KBL, an

entity controlled by Malone, TCI and/or Liberty Media, to deal directly

with the University of Pittsburgh on terms favorable to defendants for

basketball by tying the acceptance of minor sports programming to

basketball.

Count I

27. By its conduct Defendants have violated 15 U.S.C. Sec. 1 in

that KBL has, by contracting directly with the University of Pittsburgh

Athletic Department to produce and distribute sports events covered by

the Agreement with Gianotti, restrained trade and commerce by

interfering with Gianotti's opportunity to do business with the

University of Pittsburgh.

28. One of the purposes of KBL said conduct was to monopolize

sports television production of collegiate athletics for cable

distribution in Western Pennsylvania in violation of 15 U.S.C. Sec. 2.

29. Another of the purposes of KBL said conduct was to tie the

distribution of men's basketball to the distribution of other sports

events in order to deprive others from an opportunity to telecast or

distribute by cable men's basketball programs.

30. Defendants' conduct had a substantially adverse affect on

competition in that it eliminated a major cable television programming

source and left Defendants in the position to exercise market power

over the origination of sports programming for cable television in the

Pittsburgh Metropolitan Area.

31. KBL is capable of monopolizing this market because of its

relationship with TCI of Pennsylvania, Inc., which has more than half

the cable subscribers in the Pittsburgh Metropolitan Area.

32. In this instance and in the past, defendants and their

affiliated corporations have used refusals to deal with program sources

as a means to exercise their market power to control programming

sources.

33. The various actions taken by defendants and their affiliated

corporations have decreased competition by eliminating Gianotti and

possibly others such as TCS and possibly discouraging them and others

from entering this expanding market.

34. Although broadcast television stations also show some local

sports events, they are restrained by two factors:

(a) Because of their necessity to maintain certain minimum numbers

of viewers and correspondingly certain minimum advertising rates, they

cannot show minor collegiate athletic events or other sports and non-

sports programming not designed to appeal to significant segments of

the Viewing population.

(b) Defendants through their acquisition of exclusive rights to

University of Pittsburgh Basketball, the Pittsburgh Penguins and the

Pittsburgh Pirates now control which of these events can be shown on

regular broadcast stations. For example, WPXI Channel 11 had to

contract with KBL to be able to show certain University of Pittsburgh

Basketball games.

35. Because of the conduct of defendants, Gianotti was forced out

of the business he was building which in 1990 generated gross receipts

of $325,102.65 and a net profit to him of $12,273.80.

36. Gianotti was the largest source of independent local video

programming in the Pittsburgh Metropolitan area between 1988 and 1990.

37. Had defendants not so conducted themselves, Gianotti's business

would have grown and he would have been able to earn far more than

$50,000.00.

38. The fair market value of Gianotti business prior to the said

course of conduct of defendants was in excess of $100,000.00.

39. Pursuant to 15 U.S.C. 15 plaintiffs are entitled to recover

threefold the damages sustained plus prejudgment interest plus

attorneys fees.

Wherefore, Plaintiffs request judgment against Defendant for

$300,000.00 plus interest from October 21, 1991, at the federal

judgment rate plus reasonable attorneys fees.

Count II

40. In violation of 15 U.S.C. 18, KBL acquired an asset of Gianotti

in the form of his exclusive right to negotiate a renewal of his

contract with the University of Pittsburgh Athletic Department, where

the effect of such acquisition substantially lessened competition by

driving Gianotti out of business chilling interest in entry into this

market by others, depriving advertisers and sports teams of

alternatives and tended to create a monopoly in the production of

sports television programming for cable distribution.

41. Because of the conduct of defendants, Gianotti was forced out

of the business he built up which in 1990 generated gross receipts of

$325,102.65 and a net profit to him of $12,273.80.

42. Had defendants not so conducted themselves, Gianotti's business

would have grown and he would have been able to earn far more than

$50,000.00.

43. The fair market value of the Gianotti's business prior to the

said course of conduct of defendants was in excess of $100,000.00.

44. Pursuant to 15 U.S.C. 15 plaintiffs are entitled to recover

threefold the damages sustained plus prejudgment interest plus

attorneys fees.

Wherefore, Plaintiffs request judgment against Defendant for

$300,000.00 plus interest from October 21, 1991, at the federal

judgment rate plus reasonable attorneys fees.

Count III

45. By dealing directly with the University of Pittsburgh Athletic

Department before the expiration of the exclusive negotiating period

under the Department's contract with Gianotti, KBL tortiously

interfered with his advantageous contractual and business relationship

with the Department.

46. By dealing directly with Gianotti's advertisers such as

Carriage Limousine and Coors Beer, KBL tortiously interfered with his

advantageous business relationships with them.

47. Because of the conduct of KBL, Dennis F. Gianotti was forced

out of the business he built up which in 1990 generated gross receipts

of $325,102.65 and a net profit to him of $12,273.80.

48. Had KBL not so conducted itself, Gianotti's business would have

grown and he would have been able to earn far more than $50,000.00.

49. The fair market value of the Gianotti's business prior to the

said course of conduct of defendants was in excess of $100,000.00.

Wherefore, Plaintiffs demand compensatory damages of at least

$100,000.00 and such punitive damages as the court deems just.

K. Lawrence Kemp,

Kemp and Kemp, Attorneys for Plaintiffs, 953 Fifth Avenue, New

Kensington, PA 15068, (412) 339-4363, PA ID #21926.

Certificate of Service

I, K. Lawrence Kemp, hereby certify that on February 7, 1994, I

served the foregoing Amended Complaint by sending a true and correct

copy of the same by first class United States Mail, postage prepaid,

addressed as follows: Michael E. Lowenstein, Reed, Smith, Shaw &

McClay, P.O. Box 2009, Pittsburgh, PA 15230.

K. Lawrence Kemp

United States District Court for the District of Columbia

Civil Action No. 94-0948

Comments of GTE

GTE Service Corporation, on behalf of its affiliated domestic

telephone operating companies and GTE Laboratories Incorporated (GTE),

herewith respectfully submits these Comments to the proposed Final

Judgment in the above-captioned action.

I. Introduction

Although the proposed Final Judgment (hereinafter, Consent Decree)

is a worthy attempt to stem the anti-competitive conduct rampant in the

cable industry today--of which Tele-Communications, Inc. (TCI) and

Liberty Media Corp. (Liberty) are major players--it suffers from two

primary flaws. First, the term of the Consent Decree is clearly

inadequate. Second, the Consent Decree would permit TCI/Liberty to

withdraw high appealing programming from distribution--and specifically

from competing systems--upon expiration of the term of the Consent

Decree. To remedy these flaws, GTE recommends: (1) That the term of the

existing provisions of the Consent Decree be increased to seven years,

and (2) that upon expiration of this seven year period, TCI/Liberty

should be restrained from withdrawing any programming from distribution

in a particular market unless that market is found to be subject to

``effective competition'' within the meaning of Section 623(l)(1) of

the Act\1\ or unless such programming is withdrawn from all markets,

specifically including any and all systems in which TCI or Liberty has

an interest.

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\1\47 U.S.V. Sec. 543(l)(1).

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II. Statement of Facts

Currently, the distribution of multichannel video programming is

overwhelmingly dominated by the cable industry. Cable systems are

accessible to ninety-six percent of television households in American

and over sixty percent of those households subscribe. Annual cable

revenues now exceed twenty-one billion dollars, and the industry has

been increasingly controlled by large Multiple Systems Operators

(MSOs), including TCI and Liberty.\2\ From the customer's perspective,

ninety-nine percent of all cable customers have only one cable operator

to choose from.\3\ As the industry exists today, the transport of video

programming to consumers is a monopoly service.\4\

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\2\See National Cable Television Association, Cable Television

Developments (March, 1993). The merged TCI and Liberty entities will

serve more than thirteen million customers--a quarter of the

nation's cable subscribers--and have financial interests in a wide

range of programming services including a number of the most popular

and widely-carried services. See Competitive Impact Statement, 

ll.A, at 3.

\3\Pub. L. No. 102-385, section 2(a)(2), 106 Stat. 1460; see

also S. Rep. No. 92 102d Cong., 1st Sess. 8 (1991), reprinted in

1992 U.S.C.C.A.N. 1133, 1141.

\4\Chesapeake & Potomac Telephone Co. v. United States, 830 F.

Supp. 909, 927 (E.D. Va. 1993), appeal pending, No. 93-2340 (4th

Cir).

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The most promising potential competition to entrenched cable

interests comes from local exchange carriers (LECs), including GTE's

domestic telephone operating companies. While LECs are presently

prohibited from providing video programming to customers in their own

service territories,\5\ recent action by the Federal Communications

Commission (FCC) allows LECs to provide common carrier transport of the

video signals of unaffiliated programmers, know a video dialtone

(VDT).\6\ While LECs look forward to providing consumers with a

competitive alternative to incumbent cable operators like TCI and

Liberty, these operators have fought vigorously to stave off

competition at every turn.\7\

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\5\47 U.S.C. 533(b); 47 CFR 63.54(c). GTE has challenged this

ban on video programming. GTE California Incorporated v. Federal

Communications Commission, No. 93-70924 (9th Cir.). Two district

courts have already struck down the ban as unconstitutional.

Chesapeake & Potomac, supra; US East, Inc. v. United States, No C

93-1523 R, Order Granting Plaintiffs' Motion for Summary Judgment

(W.D. Wash., June 15, 1994). Numerous other district court actions

are also pending. See, e.g., Pacific Telesis Group v. United States,

No. C 93-20915 JW EAI (N.D. Cal.). Additionally, Congress is

considering lifting the ban. See H.R. 3636 (103d Cong., 2d Sess.),

S. 1822 (103d Cong., 2d Sess.).

\6\Telephone Company-Cable Television Cross-Ownership Rules,

Sections 63.54-65.58, Second Report and Order, Recommendation to

Congress, and Second Further Notice of Proposed Rulemaking, CC Dkt.

87-266, FCC 92-327, 7 FCC Rcd 5781 (1992) (Video Dialtone Order),

pets, for recon. pending, appeal pending sub nom. Mankato Citizens

Telephone Co. v. Federal Communications Commission, No. 92-1404 et

al. (D.C. Cir.). See Competitive Impact Statement,  II.C, at 7.

\7\See, e.g., the National Cable Television Association's July

5, 1994 Petition to Deny the Applications of Contel of Virginia,

Inc. d/b/a GTE Virginia, GTE Florida Incorporated, GTE California

Incorporated and GTE Hawaiian Telephone Company, Inc. for authority

under Section 214 of the Communications Act to construct, own,

operate and maintain video dialtone facilities, Nos. W-P-C 6955,

6956, 6957, 6958.

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III. The Consent Decree Must be Modified

To its credit, the Consent Decree seeks to discourage TCI/Liberty's

anti-competitive conduct with respect to multichannel subscription

television distributors (MSTDs) and video programming providers

(VPVs).\8\ However, TCI/Liberty's existing monopoly position, the cable

industry's long history of anti-competitive conduct, coupled with their

current attempts to derail all potential competition, present a clear

and present danger that the provisions of the Consent Decree will be

woefully inadequate. In particular, the restraints imposed by the

Consent Decree appear to be lifted at the very point in time when

competition will likely be becoming a reality.

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\8\See Proposed Final Judgment  II.D and E, at 2. Sections 616

and 628 of the Act, 47 U.S.C. 536 and 548, refer to these entities

as multichannel video programming distributors and video programming

vendors.

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A consent decree is not merely a private contract between the

parties; it is a judicial decree backed by the contempt power of the

Court. Thus, in approving the decree, ``the Court performs a judicial

function and is called upon to decide whether it is equitable to enter

the decree as proposed by [the parties].'' United States v. Carter

Products, Inc., 211 F.Supp. 144, 147-48 (S.D.N.Y. 1962). The decree

``must be scrutinized carefully and approved, both as to form and

content, by the court entering it, prior to such entry.'' Esso Corp. v.

United States, 340 F.2d 1000, 1005 (9th Cir. 1965). Indeed, the Court

is required ``to make an independent determination of the propriety and

equity of the decree proposed.'' United States v. F.&M. Schaefer

Brewing Co., 1968 Trade Cas. (CCH)  72,345 (E.D.N.Y. 1967).

As presently proposed,the Consent Decree fails this standard.

Because the Consent Decree does not adequately serve the public

interest, it must be modified or rejected by the Court. See, e.g.,

United States v. AT&T, 552 F. Supp. 131,216 (D.D.C. 1982); State of New

York v. Dairylea Cooperative, 547 F.Supp. 306, 308 (S.D.N.Y. 1982). It

is therefore incumbent upon the Department of Justice, consistent with

its responsibilities under the Tunney Act,\9\ to seek modification of

the Consent Decree before any request for entry of judgment is made to

the Court.

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\9\Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h).

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The development of viable competition to entrenched monopoly cable

interests is wholly contingent upon two requirements: competitors'

access to appealing programming, and use of existing and proposed

distribution networks. To be viable, a competitor must be able to

assemble an attratctive package of programs to offer to consumers and

have the ability to distribute its offerings. Because of these

requirements, the merged TCI-Liberty entitles constitute a bottleneck--

if not a stranglehold--upon the development of viable competition in

the video marketplace. Only the closest scrutiny of the merged entity's

conduct will ensure that the public interest is served in the

development of effective alternatives to cable.

The primary flaw in the Consent Decree is its term. The five-year

period proposed is simply inadequate. The video dialtone facilities

proposed by LECs--the principal potential competition to cable--will

not reach a payback point for least seven years.\10\ During this

period, as nascent competition to cable more fully develops, LECs'

video dialtone networks may be particularly vulnerable to anti-

competitive conduct by TCI/Liberty. Indeed, as actual competition

develops toward the end of this period, TCI/Liberty will have even

greater incentives to engage in anti-competitive conduct to stem the

loss of market share. In order to cure this deficiency, the term of the

Consent Decree must be not less than seven years.

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\10\For example, Bell Atlantic has projected a seven year

payback period. Ameritech has projected seven to nine years. Pacific

Bell has projected nine years. US West has projected seven to eight

years.

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A transition period is also necessary as the Consent Decree period

comes to an end. In particular, at that point, it would be in TCI/

Liberty's interest to withdraw appealing programming from competitive

systems and packages. To prevent this from happening, the Consent

Decree must be modified to prohibit TCI/Liberty from withdrawing any

programming from a particular market unless the market in question is

found to be subject to ``effective competition,'' as defined by Section

623(l)(1) of the Act. Of course, TCI/Liberty might have legitimate

reasons for the withdrawal of some programming. Therefore, this

prohibition would not apply to the extent that TCI/Liberty also

withdrew the same programming from all systems in which it has an

interest. Once withdrawn, this programming could not be made

subsequently available to any TCI/Liberty system unless made generally

available to all MSTDs under similar terms and conditions.

In addition to these serious deficiencies, the Consent Decreee

allows TCI/Liberty broad latitude for de facto discrimination. For

example, TCI/Liberty could construct a price per volume table so that

most local packagers could not afford appealing programming. TCI/

Liberty could also set the volume price for programming high, charge

this high price to its own systems and utilize the greater profit to

reward those systems meeting market retention and growth incentive

objectives. In essence, TCI/Liberty could provide its own systems with

both incentives and a discount. Careful scrutiny on a going-forward

basis is therefore required if TCI/Liberty is to be restrained from

crushing developing competition.

Without rectification of these inadequacies, the court will not be

able to affirmatively find ``the propriety and equity of the decree

proposed.'' Since the Consent Decree, as presently proposed, does not

serve the public interest, it must be modified or rejected by the

Court.

IV. Conclusion

For the reasons stated hereinabove, GTE beleives that the

Department must withdraw its stipulation to the Consent Decree unless

(1) the term of the existing provisions of the Consent Decree be

increased to at least seven years, and (2) upon expiration of this

seven year period, TCI/Liberty is further restrained from withdrawing

any programming from distribution unless such programming is similarly

withdrawn from all markets, specifically including all systems in which

TCI or Liberty has an interest, or the specific market from which it is

withdrawn has been found to be subject to ``effective competition''

within the meaning of Section 621(l)(1) of the Act.

Respectfully submitted,

Gail L. Polivy,

D.C. Bar No. 941963, An Attorney for GTE Corporation, 1850 M Street,

N.W., Suite 1200, Washington, D.C. 20036, (202) 453-5214.

Of Counsel:

C. Daniel Ward, An Attorney for GTE Corporation, One Stamford

Forum, Stamford, CT 06904, (203) 965-3071.

John F. Raposa, an Attorney for GTE Service Corporation, P.O.

Box 152092, Irving TX 75015-2092, (214) 718-6969.

Dated: July 1994.

[FR Doc. 94-19050 File 8-3-94; 8:45 am]

BILLING CODE 4410-01-M