United States v. Sprint Corporation and Joint Venture Co.; Proposed Final Judgment and Competitive Impact Statement
Federal RegisterAug 24, 1995
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Sprint Corporation and Joint Venture Co.;
Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation and Competitive Impact Statement have been filed with the
United States District Court for the District of Columbia in United
States v. Sprint Corporation and Joint Venture Co., Civil Action No.
95-1304. The proposed Final Judgment is subject to approval by the
Court after the expiration of the statutory 60-day public comment
period and compliance with the Antitrust Procedures and Penalties Act,
15 U.S.C. 16(b)-(h).
The Complaint alleges that the proposed sale of 20% of the voting
shares of Sprint Corporation (``Sprint'') to France Telecom (``FT'')
and Deutsche Telekom A.G. (``DT''), and the proposed formation of a
joint venture among Sprint, FT and DT to provide certain international
telecommunications services, would violate Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, in the markets for international
telecommunications services between the United States and France and
the United States and Germany, and in the markets for seamless
international telecommunications services.
Under the proposed consents decree, Sprint and the joint venture
are subject to various restrictions affecting their relationship with
FT and DT. These restrictions operate in two distinct phases, lessening
over time as competition develops in France and Germany.
During the first phase, while DT and FT still have monopoly rights
in Germany and France and competitors have not been licensed, the
relationship that Sprint and the joint venture have with DT and FT will
be subject to close oversight. Sprint and the joint venture may not
acquire ownership or control of certain types of facilities from FT and
DT, may not provide services in which FT or DT have special rights
except in limited, non-exclusive circumstances, and may not benefit
from discriminatory treatment, disproportionate allocation of
international traffic, or cross-subsidization by FT and DT. In
addition, access to the French and German public switched networks and
public data networks cannot be limited in such a way as to exclude
competitors of Sprint and the joint venture.
During both the first phase and the second phase, after FT and DT
face licensed competitors in all areas of services and facilities in
France and Germany, Sprint and the joint venture must make detailed
information on their relationships with FT and DT available to
competitors, will be precluded from receiving competitively sensitive
information that FT and DT obtain from the competitors of Sprint and
the joint venture, and may not offer particular services between the
United States and France and Germany unless other United States
providers also have or can readily obtain licenses from the French and
Germany governments to offer the same services. These provisions of the
decree will remain in effect for five years beyond the end of the first
phase.
Public comment is invited within the statutory 60-day comment
period. Such comments, and the responses thereto, will be published in
the Federal Register and filed with the Court. Comments should be
directed to Donald Russell, Chief, Telecommunications Task Force,
Antitrust Division, Room 89104, 555 Fourth Street, N.W., Washington,
D.C. 20001 (202-514-5621).
Copies of the Complaint, proposed Final Judgment and Competitive
Impact Statement are available for inspection in Room 207 of the U.S.
Department of Justice, Antitrust Division, 325 7th Street, N.W.,
Washington, D.C. 20530. (telephone: (202) 514-2481), and at the office
of the Clerk of the United States District Court for the District of
Columbia, Third Street and Constitution Avenue, N.W., Washington, D.C.
20001. Copies of any of these materials may be obtained upon request
and payment of a copying fee.
Constance K. Robinson,
Director of Operations, Antitrust Division.
In the matter of United States of America, Plaintiff, v. Sprint
Corporation and Joint Venture Company, Defendants.
[Civil Action No. 1:95CV01304]
Filed: July 13, 1995.
Stipulation
It is stipulated and agreed by and between the undersigned parties,
by their respective attorneys, that:
1. The Court has jurisdiction over the subject matter of this
action and over each of the parties hereto and venue of this action is
proper in the District of Columbia. Defendants are hereby estopped from
contesting the entry or enforceability of the Final Judgment on the
ground that the Court lacks venue or jurisdiction over the subject
matter of the action or over any defendant. For purposes of this
stipulation defendant Joint Venture Company and any reference to Joint
Venture Company herein, shall be understood to have the same meaning as
the term ``Joint Venture Company'' in the attached proposed Final
Judgment.
2. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. 16), and without further notice to any party or other
proceedings, provided that plaintiff has not withdrawn its consent.
Plaintiff may withdraw its consent to entry of the Final Judgment at
any time before it is entered, by serving notice on the defendants and
by filing that notice with the Court.
3. Pending entry of the Final Judgment, defendants shall abide by
and comply with the provisions of the Final Judgment following
consummation of the Investment Agreement dated June 22, 1995 (and
related agreements), the Joint Venture Agreement dated June 22, 1995
(and related agreements), or any similar arrangement between any
defendant and France Telecom (``FT'') or Deutsche Telekom A.G.
(``DT''). This obligation shall not be affected by the timing of
execution of any agreements between defendants and FT or DT to provide
to Sprint and Joint Venture Co. information needed for compliance with
the requirements of Sections II.A.1-7 or III of the Final Judgment. Any
such agreements, which shall be executed prior to the entry of the
Final Judgment, shall be consistent with Section II.B of
[[Page 44050]]
the Final Judgment and shall be provided to the Department of Justice
upon execution.
4. The agreements governing disclosure to United States
international telecommunications providers (``providers''), referred to
in Section V.F. of the Final Judgment, will provide that: (1) Non-
public information received from the Department of Justice is intended
for use to complain to, or provide information to, any government
authorities in the United States or France or Germany, and to identify
and evaluate internally any conduct that may be made the subject of
such a complaint or provision of information, but may not be used for
commercial purposes; (2) such information may not be disclosed to
persons other than officers, directors, employees, agents, or
contractors of the provider, for permissible purposes under (1), and to
government authorities in the United States or France or Germany
(including, but not limited to, the Federal Communications Commission,
Direction Generale des Postes et Telecommunications, and the
Bundesministerium fur Post und Telekommunikation); (3) all persons to
whom the information is disclosed will be advised of the limitations on
use and disclosure of the information; and (4) if unauthorized use or
disclosure occurs, the Department of Justice may, in its sole
discretion, revoke or otherwise limit the provider's further access to
such information. Plaintiff, in its discretion, may add further
conditions to such agreements. Any actions taken by the Department to
redress unauthorized use or disclosure will not diminish or create any
ability in Sprint or Joint Venture Co. to pursue separately against
persons receiving such information from the Department any legal
remedies for unauthorized use or disclosure.
5. FT and DT have reached an agreement with Infonet Services
Corporation (``Infonet'') as of June 20, 1995, requiring FT and DT to
divest part of their shareholdings in Infonet by August 3, 1995 (the
``Initial Tranche'') and to divest fully their remaining shareholdings
in Infonet (the ``Second Tranche'') forty-five days after the earlier
of (1) the date as of which FT or DT directly or indirectly acquire any
of the securities of Sprint, or (2) six months after all approvals
necessary for the investment by FT and DT in Sprint and the
consummation of the joint venture between FT, DT and Sprint have been
received from the plaintiff, the Federal Communications Commission, the
Commission of the European Communities and the Cartel Office of the
Federal Republic of Germany. Infonet is a company that competes with
Sprint in providing some types of telecommunications and enhanced
telecommunications services and would compete with some of the planned
telecommunications and enhanced telecommunications services of Joint
Venture Co. Due to this competition between Sprint and Infonet, the
United States has indicated that it has competitive concerns about FT
and DT having ownership interests in both Sprint and Infonet and
representation on the boards of directors of both companies. Sprint
will not issue any equity of itself to be acquired by FT or DT, or
acquire an ownership interest in or contribute assets to form Joint
Venture Co., until FT and DT have each completed the divestiture of
their Infonet shares in the Initial Tranche. In addition, until the
complete divestiture of FT and DT shareholdings in Infonet is
accomplished pursuant to the above referenced agreement, Sprint and
Joint Venture Co. shall (a) be maintained as separate and independent
businesses with their assets (including proprietary technology,
customer base, management, operations and books and records) separate,
distinct and apart from those of Infonet; and (b) take all steps
necessary to assure that no proprietary business or financial
information specific to Infonet is transferred, or otherwise becomes
available to Sprint or Joint Venture Co., or is used by Sprint or Joint
Venture Co. to compete with Infonet. Moreover, Sprint will not allow
any director appointed by FT and DT to serve on the Sprint Board of
Directors for such period as any director appointed by FT or DT is
serving on the Infonet Board of Directors and exercises any voting
rights in connection therewith, and if any director appointed by FT or
DT serves on the Infonet Board of Directors, regardless of whether such
director exercises any voting rights, for more than 45 days after the
occurrence of the first of either of the following events: (i) FT or DT
has acquired directly or indirectly any of Sprint's securities, or (ii)
FT or DT has appointed any director to the Sprint Board of Directors,
Sprint will remove all FT or DT appointed directors from the Sprint
board.
6. Joint Venture Co. is necessary as a defendant in this action,
together with Sprint, for the relief specified in the proposed Final
Judgment to be effective. Until it has been demonstrated to the
satisfaction of the plaintiff, such satisfaction being confirmed in
writing, that Joint Venture Co. (i) has been created as a legal entity,
(ii) is subject to suit and is within the reach of the jurisdiction of
the United States courts, and (iii) will have full authority and power
to carry out all of the obligations imposed upon it by the proposed
Final Judgment as those obligations take effect, and Joint Venture Co.
has consented to and executed this Stipulation on the same terms as
Sprint, without reservation or qualification, Sprint agrees that it
will not issue any equity of itself to be acquired by FT or DT, until
Joint Venture Co. has been formed and made a party to this stipulation.
Sprint will not permit Joint Venture Co. to do any business until the
conditions in this paragraph pertaining to Joint Venture Co. are
satisfied. If for any reason the conditions pertaining to Joint Venture
Co. in this paragraph are not satisfied, plaintiff shall be under no
obligation to move for entry of the Final Judgment and may withdraw its
consent to entry of the Final Judgment, and defendants shall not move
for entry of the Final Judgment.
7. In the event plaintiff withdraws its consent to entry of the
proposed Final Judgment or if the proposed Final Judgment is not
entered pursuant to this Stipulation, this Stipulation shall be of no
effect whatsoever and its making shall be without prejudice to any
party in this or any other proceeding, except that if the Court decides
not to enter the Final Judgment, and the defendants and FT and DT have
consummated pursuant to paragraph 3 of this Stipulation, defendants
shall abide by and comply with the terms of the Final Judgment until
the conclusion of this action, unless the parties otherwise agree or
the Court otherwise orders.
8. The Stipulation and the Final Judgment to which it relates are
for settlement purposes only and do not constitute an admission by
defendants in this or any other proceedings that Section 7 of the
Clayton Act, 15 U.S.C. 18, as amended, or any other provision of law,
has been violated.
9. If the transactions contemplated by the Investment Agreement and
Joint Venture Agreement are not consummated in any form, and Sprint, FT
and DT withdraw their notifications under the Hart-Scott-Rodino
Antitrust Improvements Act, then this Stipulation shall be null and
void, and the parties shall be under no obligation to enter into or be
bound by the proposed Final Judgment.
Dated: July 13, 1995.
[[Page 44051]]
For Plaintiff United States of America:
Anne K. Bingaman,
Assistant Attorney General.
Steven C. Sunshine,
Deputy Assistant Attorney General.
Constance K. Robinson,
Director of Operations, U.S. Department of Justice Antitrust Division.
Donald J. Russell,
Chief, Telecommunications Task Force.
Nancy M. Goodman,
Assistant Chief, Telecommunications Task Force.
Carl Willner,
D.C. Bar #412841.
Susanna M. Zwerling,
D.C. Bar #435774.
Michael J. Hirrel,
Joyce B. Hundley,
Attorneys, Telecommunications Task Force.
Phillip H. Warren,
Attorney, San Francisco Field Office.
U.S. Department of Justice,
Antitrust Division.
For Defendant Sprint Corporation:
King & Spalding
By:
Kevin R. Sullivan,
D.C. Bar #411718.
J. Richard Devlin,
Executive Vice President and General Counsel, Sprint Corporation.
STIPULATION APPROVED FOR FILING
Done this ________ day of __________, 1995.
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UNITED STATES DISTRICT JUDGE
Disclosure Pursuant to Rule 108(k)
Pursuant to Rule 108(k) of the Local Rules of this Court, the
following is a list of all individuals entitled to be notified of the
entry of the foregoing Stipulation and of the entry of the proposed
Final Judgment:
Kevin U. Sullivan, Esquire, King & Spalding, 1730 Pennsylvania Avenue,
NW., Washington, DC 20006
Counsel for Defendant Sprint
and
Carl Willner, Esquire, Attorney, Telecommunications Task Force,
Antitrust Division, U.S. Department of Justice, 555 4th St. NW.,
Washington, DC 20001
Counsel for Plaintiff the United States
In the matter of: United States of America, Plaintiff, v. Sprint
Corporation and Joint Venture Co., Defendants.
[Civil Action No. 1:95CV01304]
Filed: July 13, 1995.
Final Judgment
Whereas, plaintiff, United States of America, filed its Complaint
on July 13, 1995.
And whereas, plaintiff and defendants, by their respective
attorneys, have consented to the entry of this Final Judgment without
trial or adjudication on any issue of fact or law,
And whereas, defendants have further consented after any
consummation as defined in the Stipulation entered into by defendants
and the United States on July 13, 1995, to be bound by the provisions
of this Final Judgment pending its approval by the Court,
And whereas, plaintiff the United States believes that entry of
this Final Judgment is necessary to protect competition in the United
States telecommunications and enhanced telecommunications markets,
Therefore, it is hereby ordered, adjudged, and decreed:
I
Jurisdiction
This Court has jurisdiction of the subject matter of this action
and of each of the parties consenting to this Final Judgment. The
Complaint states a claim upon which relief may be granted against the
defendants under Section 7 of the Clayton Act, 15 U.S.C. Sec. 18, as
amended.
II
Substantive Restrictions and Obligations
Reporting and Disclosure Requirements
A. Sprint or Joint Venture Co. shall not offer, supply, distribute,
or otherwise provide in the United States any telecommunications or
enhanced telecommunications service that makes use of
telecommunications services provided by FT in France or between the
United States and France, or DT in Germany or between the United States
and Germany, unless the following information is disclosed in the
United States by Sprint or Joint Venture Co., or such disclosure is
expressly waived, in whole or in part, by plaintiff through written
notice to defendants and the Court:
1. By Joint Venture Co., within 30 days following any agreement or
change to an agreement--The prices, terms and conditions, including any
applicable discounts, on which FT or DT Products and Services are
provided by FT to Joint Venture Co. in France or by DT to Joint Venture
Co. in Germany pursuant to interconnection agreements;
2. By Joint Venture Co., within 30 days following any agreement or
change to any agreement, or the provision of service absent any
specific agreement--The prices, terms, and conditions, including any
applicable discounts, on which FT or DT Products and Services are
provided by FT to Joint Venture Co. in France or by DT to Joint Venture
Co. in Germany for use by Joint Venture Co. in the supply of
telecommunications or enhanced telecommunications services between the
United States and France or between the United States and Germany or
are provided by FT in France or DT in Germany in conjunction with such
Joint Venture Co. services where FT or DT is acting as the distributor
for Joint Venture Co.;
3. By Sprint, with respect to international switched
telecommunications or enhanced telecommunications services jointly
provided by FT and Sprint, or DT and Sprint, on a correspondent basis
between the United States and France or between the United States and
Germany, and to the extent not already disclosed publicly pursuant to
the rules and regulations of the Federal Communications Commission, or
otherwise to the corporations referred to in Section V.F:
(i) Within 30 days following any agreement or change to an
agreement, or the provision of service absent any specific agreement,
the accounting and settlement rates and other terms and conditions for
the provision of each such service, including the methodology by which
proportionate return of traffic is calculated; and
(ii) On an annual basis, for any such services for which more than
one accounting and settlement rate may be applicable (e.g., rates for
peak and off-peak services), or services with different accounting and
settlement rates which are pooled or otherwise combined for calculating
proportionate returns, if other United States international
telecommunications providers do not have or receive data sufficient to
determine whether they are receiving their appropriate share of return
traffic in each accounting rate category (e.g., the total volumes of
United States traffic to FT and DT, and total volumes of FT and DT
traffic to the United States, for each type of traffic with a different
accounting rate), Sprint's minutes of traffic to and from FT and DT in
each accounting rate category and any other applicable measure of
traffic volume;
4. By Joint Venture Co., on a semiannual basis-Schedules of FT or
DT Products and Services provided by FT to Joint Venture Co. in France
and DT to Joint Venture Co. in Germany for use by Joint Venture Co. in
the supply of telecommunications or enhanced telecommunications
services between the United States and France or Germany or provided by
FT in France or DT in Germany in conjunction with such Joint Venture
Co. services where
[[Page 44052]]
FT or DT is acting as the distributor for Joint Venture Co., showing:
(i) The types of circuits (including capacity) and
telecommunications services provided;
(ii) The actual average time intervals between order and delivery
of circuits (separately indicating average intervals for analog
circuits, digital circuits up to 2 megabits, and digital circuits 2
megabits and larger) and telecommunications services; and
(iii) The number of outages and actual average time intervals
between fault report and restoration of service for circuits
(separately indicating average intervals for analog and for digital
circuits) and telecommunications services; but excluding the identities
of individual customers of FT, DT, Sprint, or Joint Venture Co. or the
location of circuits or telecommunications services dedicated to the
use of such customers;
5. By Sprint--Schedules showing:
(i) On a semiannual basis, separately for analog international
private line circuits (``IPLCs'') and for digital IPLCs jointly
provided by FT or DT and Sprint between the United States and France or
Germany, the actual average time intervals between order and delivery
by FT or DT;
(ii) On an annual basis, separately for analog IPLCs and for
digital IPLCs jointly provided by FT and Sprint between the United
States and France, and by DT and Sprint between the United States and
Germany, the number of outages and actual average time intervals
between fault report and restoration of service, for any outages that
occurred in the international facility, in the cablehead or earth
station outside the United States, indicating separately the number of
outages and actual average time intervals to restoration of service in
each such area; and
(iii) On a semiannual basis, for circuits used to provide
international switched telecommunications services or enhanced
telecommunications services on a correspondence basis between the
United States and France or Germany, the average number of circuit
equivalents available to Sprint and the percentage of calls that failed
to complete during the busy hour.
6. By Sprint and Joint Venture Co., within 30 days of receipt, any
information from FT or DT relating to a Network Change. For purposes of
this Section II.A6, a Network Change is any material change or decision
relating to the design of, technical standards used in, or points of
interconnection to, the FT or DT public switched telephone networks
(``FT/DT PSTNs'') that would materially affect the terms or conditions
on which Sprint, Joint Venture Co. or any other person are able to have
access to, or intercorrect with, the FT/DT PSTNs for telecommunications
or enhanced telecommunications services within France or Germany or
between the United States and France or the United States and Germany.
7. By Sprint and Joint Venture Co., within 30 days of receipt of
any information from FT or DT, or otherwise learning of any discount or
more favorable term--Any discounts or favorable terms offered by FT or
DT to a customer of FT or DT, for FT or DT Products and Services, that
is conditioned on Sprint or Joint Venture Co. being selected as the
United States provider of telecommunications products or services for
such customer.
The obligations of Section II.A shall not extend to the disclosure
of intellectual property or other proprietary information of the
defendants, FT or DT that has been maintained as confidential by its
owner, except to the extent that it is of a type expressly required to
be disclosed herein, or is necessary for United States international
telecommunications providers to interconnect with the FT/DT PSTNs, or
for United States international telecommunications providers to use
FT's or DT's international telecommunication or enhanced
telecommunications correspondent services.
Restrictions on Sharing of Information Obtained by FT and DT
B. Sprint and Joint Venture Co. shall not receive or seek to
receive from FT or DT, or from any persons designated by FT or DT to
sit on the Board of Directors of Sprint:
1. Any information that is identified as proprietary by United
States telecommunications or enhanced telecommunications service
providers (and maintained as confidential by them) and is obtained by
FT or DT from such providers as the results of FT's or DT's provision
of interconnection or other telecommunications services to them in
France or Germany;
2. Any confidential, non-public information obtained by FT or DT as
a result of their correspondent relationships or agreements to connect
international half-circuits with other United States international
telecommunications or enhanced telecommunications service providers,
except to the extent necessary for Sprint to comply with its
obligations under Section II.A3(ii) concerning disclosure of the total
volume of traffic (but not the individual traffic volumes for other
providers) received by FT or DT from the United States and sent by FT
or DT to the United States that is subject to the Proportionate Return
Commitment, or under Section II.A.5 (but not including individual
information on other providers); and
3. Any non-public information about the future prices or pricing
plans of any provider of international telecommunications services
between the United States and France or the United States and Germany
with which Sprint competes in the provision of such services.
Further, Sprint and Joint Venture Co. may not employ any personnel
who (i) are at the same time employed by FT or DT and have access to
any types of information that Sprint and Joint Venture Co. are not
permitted to receive from FT or DT under this Section II.B, or (ii) are
employed by the Joint Venture or by Sprint, and have been employed by
FT or DT within the preceding six months, and had received within that
time any of the types of information that Sprint and Joint Venture Co.
are not permitted to receive under this Section II.B.
Ability of Competitors to Obtain Licenses and Authorizations for Entry
C. Sprint and Joint Venture Co. shall not offer (directly or
through FT or DT), and shall not provide facilities to FT or DT
enabling FT or DT to offer, any particular international
telecommunications or enhanced telecommunications service between the
United States and France or Germany, unless:
1. Offering such a service between the United States and France
does not require a license in France and offering such service between
the United States and Germany does not require a license in Germany; or
2. If a class license is required to offer such a service in France
or Germany, such a license is in effect for other United States
international telecommunications providers not affiliated with FT, DT,
Sprint or Joint Venture Co. in France and in Germany; or
3. If an individual license is required in France or Germany to
offer such a service, established licensing procedures are in effect as
of the time of the offering of the service by which other United States
international telecommunications providers are also able to secure such
a license, and (i) one or more United States international
telecommunications providers other than FT, DT, Sprint or Joint Venture
Co. and unaffiliated with FT, DT, Sprint or Joint Venture Co. have
secured such a license in France and in Germany, or (ii)
[[Page 44053]]
if Sprint or Joint Venture Co. or FT or DT is the first provider to
seek a license to offer such a service, other United States
international telecommunications providers are also able to secure such
a license within a reasonable time and in no event longer than the time
it took Sprint, Joint Venture Co., FT or DT to obtain such a license,
after having applied for such a license, unless the additional time
required is attributable to delay caused by the applicant.
This Section II.C. shall operate separately for France and Germany.
It shall not restrict Sprint or Joint Venture Co. from providing
existing correspondent services to France or Germany pursuant to
bilateral agreements with FT or DT that have also been made available
to other United States international telecommunications providers.
``License,'' for purposes of this Section II.C., means any form of
authorization, whether or not formally characterized as a license, that
must be obtained from a governmental body in order to offer a
telecommunications or enhanced telecommunications service.
III
Obligations While Phase I of This Final Judgment Is in Effect Prior
to Authorization of Facilities-Based Competition in France and
Germany
Scope of Activities of the Joint Venture
A. Joint Venture Co. and Sprint will not acquire an ownership
interest in, or control over, (i) any facilities in France or Germany
that are legally reserved to FT or DT, or (ii) any international half
circuits terminating in France or Germany that are used for
telecommunications service between the United States and France or the
United States and Germany, except to the extent that, and in no greater
than the aggregate quantity that, other providers unaffiliated with FT,
DT, Sprint or Joint Venture Co. actually own and control such
international half-circuits, or plaintiff and defendants agree that
meaningful competition exists to such international half-circuits
provided by FT or DT. ``Control'' for purposes of Section III.A and B
shall not include publicly available leases or other publicly available
uses of such facilities.
B. Joint Venture Co. and Sprint will not acquire an ownership
interest in, or control over, the Public Data Networks.
C. Joint Venture Co. and Sprint may provide FT or DT Products and
Services only pursuant to a sales agency or resale agreement, and
provided that (i) such agreements are not exclusive, and (ii) other
United States international telecommunications providers are able to
obtain FT or DT Products and Services directly from FT or DT on a
nondiscriminatory basis; provided, however, that such FT or DT Products
and Services may be used by Joint Venture Co. and Sprint as inputs to
their products and services to end users pursuant to the requirements
of this Final Judgment.
Conduct of the Joint Venture and Sprint
D. 1. Sprint and Joint Venture Co. shall not purchase, acquire or
accept from FT or DT any FT or DT Products and Services on any
discriminatory basis for use in the offer, supply, distribution or
other provision by Sprint or Joint Venture Co. of any
telecommunications or enhanced telecommunications service in the United
States or between the United States and France or the United States and
Germany.
For purposes of this Section III.D, ``discriminatory basis'' shall
mean terms more favorable to Sprint or Joint Venture Co. than are made
available to other similarly situated United States international
telecommunications providers with respect to:
(i) The prices (including but not limited to accounting and
settlement rates and division of settlements) of any FT or DT Products
and Services, whether or not purchased, acquired or accepted from FT or
DT alone or bundled with any other product or service of FT or DT;
(ii) The availability of volume or other discounts, or material
differences in non-price terms of service, including offers that while
not restricted to Sprint or Joint Venture Co. on their face are
available to Sprint or Joint Venture Co. but would not reasonably be
available to any United States international telecommunications
providers not affiliated with FT or DT, Sprint or Joint Venture Co.;
(iii) Material differences in the type or quality of any FT or DT
Products and Services, including but not limited to availability of
leased lines and international half-circuits of the same type and
capacity (including the average provisioning times, number of outages,
and time intervals between fault report and restoration of service),
and, for switched services, percentage of circuit equivalents available
during the busy hour and percentages of calls blocked;
(iv) Interconnection with the FT/DT PSTNs, including
interconnection at no less advantageous points in the network, and
comparable availability of numbers to the extent that FT and DT have
responsibility for number assignments; and
(v) Terms of operating agreements for correspondent services and
connection of international half-circuits.
Persons that are ``similarly situated'' shall mean United States
international telecommunications providers (including their
subsidiaries and affiliates) that are generally comparable to Sprint
and Joint Venture Co. with respect to the volume or type of FT or DT
Products and Services purchased, acquired or accepted from FT and DT,
provided that volume and type are relevant distinctions in establishing
service conditions. If defendants seek to rebut a claim of
discrimination by establishing the existence of a justification of
costs, defendants shall have the burden of proof to establish such
justification. Defendants shall make available to plaintiff all
information that was available to them, whether possessed by them or
obtained from FT or DT, in considering the relevance of such
distinctions.
2. Sprint and Joint Venture Co. may not benefit from any discount
or more favorable term offered by FT or DT to any customer for FT or DT
Products or Services, that is conditioned on Sprint or Joint Venture
Co. being selected as the United States provider of a
telecommunications or enhanced telecommunications service.
E. Sprint shall not accept any correspondent telecommunications
traffic from France or Germany, from FT or DT respectively, other than
in a manner consistent with their Proportionate Return Commitment and
the policies of the Federal Communications Commission concerning
proportionate return. Sprint shall not accept or benefit from any
alteration in the methodology (including assignment of new services to
proportionate return categories) by which FT or DT allocate
proportionate return traffic among United States international
telecommunications providers with whom they have operating agreements
if inconsistent with the policies of the Federal Communications
Commission with respect to Sprint, FT, and DT, or the change in
methodology has the effect of substantially favoring Sprint with
respect to all other United States international telecommunications
providers, either in the value of traffic (if types of minutes with
different accounting rates are pooled for purposes of calculating
proportionate return) or volume. In order to implement these
requirements:
1. Sprint and Joint Venture Co. shall disclose on a quarterly basis
the volume of correspondent telecommunications
[[Page 44054]]
traffic received by Sprint or Joint Venture Co. from France through FT
or from Germany through DT, respectively (either in the form of reports
received from FT or DT or from its own records, if no such reports are
received or Sprint has reason to believe they are not accurate), and
the volume of correspondent telecommunications traffic sent by Sprint
to FT or DT from the United States (either in the form of its reports
to FT or DT or from its own records, if no such reports are made),
separately showing the volume of traffic in each accounting rate
category, where types of correspondent traffic that have different
accounting rates have been pooled for calculation of proportionate
return, and also separately showing what volume of correspondent
traffic has been counted for purposes of proportionate return and what
has been excluded.
2. If plaintiff believes that, in any quarterly period, Sprint has
accepted correspondent telecommunications traffic in a manner
inconsistent with the Proportionate Return Commitment or the policies
of the Federal Communications Commission concerning proportionate
return, or has benefited from an alteration of the methodology of
proportionate return calculation in its favor, then it shall notify
Sprint of such belief and the reasons therefor, and may also bring this
notification and the supporting information to the attention of the
Federal Communications Commission. Within 90 days after receipt of such
notification, Sprint shall respond in writing thereto and take all
necessary measures to ensure that its conduct complies with its
obligations under Section III.E.
F. In order to ensure that the activities of Joint Venture Co. and
Sprint are not subsidized by FT and DT during Phase I of this Final
Judgment:
1. Joint Venture Co. shall be established and operated as a
distinct entity separate from FT and DT until Phase II takes effect for
both France and Germany;
2. Joint Venture Co. and Sprint shall obtain their own debt
financing on their own credit, provided that Sprint, FT and DT:
(i) May make capital contributions or commercially reasonable loans
to Joint Venture Co. as required to enable Joint Venture Co. to conduct
the venture business;
(ii) May pledge their venture interests in Joint Venture Co. in
connection with nonrecourse financings for Joint Venture Co.; and
(iii) May guarantee any indebtedness of Joint Venture Co., provided
that Sprint, FT and DT may only make payments pursuant to any such
guarantee following a default by Joint Venture Co. in respect of such
indebtedness;
3. Joint Venture Co. and Sprint shall maintain accounting systems
and records separate from FT and DT, that identify, individually,
payments or transfers to or from FT and DT relating to the purchase,
acquisition or acceptance of any FT or DT Products and Services, and
the Joint Venture services for which such FT or DT Products or Services
are used. Such accounting systems and records of Joint Venture Co. will
be made available pursuant to the visitorial provisions of Section VI;
4. Joint Venture Co. and Sprint may not allocate directly or
indirectly any part of their operating expenses, costs, depreciation,
or other expenses of their businesses to any parts of FT or DT's
business units responsible for FT or DT Products and Services
(including without limitation the proportionate costs based on work
actually performed that are attributable to shared employees or sales
or marketing of Sprint or Joint Venture Co. products and services by FT
or DT employees), provided, however, that nothing herein shall prevent
Sprint and Joint Venture Co. from charging FT and DT for products and
services provided to them by Sprint or Joint Venture Co., on the basis
of prices charged to third parties (in the case of products or services
sold to third parties in commercial quantities) or full cost
reimbursement or other arm's length pricing method (in the case of
products and services not sold to third parties in commercial
quantities); and
5. Joint Venture Co. and Sprint will not receive any material
subsidy (including forgiveness of debt) directly or indirectly from FT
or DT, or any investment or payment from FT or DT that is not recorded
in the books of Joint Venture Co. or Sprint as an investment in debt or
equity.
G. 1. Sprint may not offer, supply, distribute or otherwise provide
any correspondent telecommunications or correspondent enhanced
telecommunications service between the United States and France or
Germany pursuant to any operating agreement with FT or DT, unless with
respect to such service, at least one other United States international
telecommunications provider has also obtained an operating agreement
with FT and DT for the provision of such service between the United
States and France and Germany. This provision will operate separately
for France and for Germany.
2. If a licensed United States international telecommunications
provider has requested but has not received an operating agreement with
FT or DT for the provision of IDDD voice service or any other services
that make use of the FT/DT PSTNs, then Sprint shall offer to carry the
correspondent traffic of such United States international
telecommunications provider between the United States and the countries
for which an operating agreement has been requested, France or Germany,
at rates and on terms and conditions that are commercially competitive
to those on which other United States international telecommunications
providers that have operating agreements are able to provide service,
and at rate schedules to be updated on at least an annual basis (and
filed with the FCC, as required) which reflect the estimated value of
any adjustments in proportionate return traffic that may be received by
Sprint from France or from Germany as a result of the traffic
originated by United States international telecommunications providers
whose traffic is being carried over Sprint's facilities.
H. Sprint or Joint Venture Co. shall not offer, supply, distribute,
or otherwise provide in the United States any telecommunications or
enhanced telecommunications service that makes use of FT or DT Products
and Services, if, with respect to such FT or DT Products and Services,
(1) FT or DT have established any proprietary or nonstandardized
interface or protocol used by Sprint and Joint Venture Co. to obtain
access to such products or services, and (2) FT or DT no longer
continue to provide on a basis consistent with previous operations, a
non-proprietary or standardized interface or protocol used to obtain
access to such FT or DT Products or Services.
I. Sprint or Joint Venture Co. shall not offer, supply, distribute,
or otherwise provide in the United States any data telecommunications
or enhanced telecommunications service that makes use of the Public
Data Networks to complete data telecommunications in France or Germany,
unless the Public Data Networks that are based on the X.25 or any other
protocol, continue to be available to all other United States
international telecommunications providers on nondiscriminatory terms
to complete data telecommunications between the United States and
France and between the United States and Germany, and within France and
Germany for traffic originating within the United States, France or
Germany, using the X.75 standard protocol for
[[Page 44055]]
interconnection between data networks, or any generally accepted
standard network interconnecton protocol that may modify or replace the
X.75 standard. If these requirements are met, Joint Venture Co. and
Sprint may also offer data telecommunications services other than those
based on the X.25/X.75 protocols using the Public Data Networks.
IV
Applicability and Effect
The provisions of this Final Judgment shall be binding upon
defendants, their affiliates, subsidiaries, successors and assigns
(except for any Sprint business that is subsequently spun-off or
otherwise divested and in which neither FT nor DT have any ownership
interest), officers, agents, servants, employees and attorneys.
Defendants shall cooperate with the United States Department of Justice
in ensuring that the provisions of this Final Judgment are carried out.
Neither this Final Judgment nor any of its terms or provisions shall
constitute any evidence against, an admission by, or an estoppel
against the defendants. The effective date of this Final Judgment shall
be the date upon which it is entered.
V
Definitions
For the purposes of this Final Judgment:
A. ``Affiliate'' and ``subsidiary'' means any entity in which a
person has equity ownership, or managerial or operational control,
directly or indirectly through one or more intermediaries, provided
that these terms, when used in connection with Sprint do not include
Joint Venture Co., Atlas, FT or DT; when used in connection with FT do
not include Joint Venture Co., Sprint or DT but do include Atlas; when
used in connection with DT do not include Joint Venture Co., Sprint, or
FT but do include Atlas; and when used in connection with Joint Venture
Co. do not include Sprint, Atlas, FT or DT (but do include all entities
which Joint Venture Co. controls, or which are jointly controlled by
Sprint, FT and DT). Atlas, FT and DT shall not be deemed to be persons
in active concert or participation with Joint Venture Co. or Sprint for
purposes of this Final Judgment. Affiliates and subsidiaries of Sprint
and Joint Venture Co. that are not controlled by Sprint or Joint
Venture Co. do not have substantive compliance obligations under
Sections II and III of this Final Judgment.
B. ``Atlas'' means a joint venture identified in an agreement
entered into between FT and DT on December 15, 1994, as amended,
formed, or to be formed, by FT and DT to provide certain
telecommunications services in Europe, regardless of the name that
entity may subsequently have, or the percentages of ownership of FT or
DT or the services or geographic areas in which that joint venture may
operate, and any subsidiary, affiliate, predecessor, successor or
assign of that joint venture, or any other entity jointly owned by FT
and DT and having substantially similar purposes.
C. ``Control'' means, with respect to any entity's relationship to
another entity, any of the following, unless another standard of
control is specified in a provision of this Final Judgment:
(1) ownership, directly or indirectly, by such entity of equity or
other ownership interest entitling it to exercise in the aggregate 50%
or more of the voting power of the entity in question;
(2) the possession by such entity of the power, directly or
indirectly, to elect 50% or more of the board of directors (or
equivalent governing body) of the entity in question;
(3) the ability to direct or cause the direction of the management,
operations, or policies of the entity in question, provided, however,
that any party's obligations under the Joint Venture Agreement in the
form entered into on June 22, 1995 (exclusive of any subsequent
amendments) shall not constitute control under Section V.C. Where more
than one entity exercises joint control over an entity, each shall be
deemed to have control.
D. ``Correspondent'' means a bilaterally negotiated arrangement
between a provider of telecommunications services in the United States
and a provider of telecommunications services in France, or between a
provider of telecommunications services in the United States and a
provider of telecommunications services in Germany, by which each party
undertakes to terminate in its country through its public switched
network or its public data network traffic originated by the other
party, for provision of an international telecommunications or such
enhanced telecommunications service. A service managed by Joint Venture
Co., and provided without correspondent relationships with any other
provider, shall not be deemed to constitute a correspondent service.
E. ``Defendant'' or ``defendants'' means Sprint and Joint Venture
Co.
F. ``Disclose,'' for purposes of Section II.A.1-7 and III.E, means
disclosure to the United States Department of Justice Antitrust
Division, which may further disclose such information to any United
States international telecommunications provider that directly or
through a subsidiary or affiliate (i) holds or has applied for a
license from either the United States Federal Communications Commission
or the French Direction Generale des Postes et Telecommunications
(``DGPT''), or successors in responsibility to such agencies, to
provide international telecommunications or enhanced telecommunications
services between the United States and France, or actually provides
telecommunications or enhanced telecommunications services between the
United States and France, for services where no license is required, or
(ii) holds or has applied for a license from either the United States
Federal Communications Commission or the German Bundesministerium fur
Post und Telekommunication (``BMPT''), or successors in responsibility
to such agencies, to provide international telecommunications services
or enhanced telecommunications services between the United States and
Germany, or actually provides telecommunications or enhanced
telecommunications services between the United States and Germany, for
services where no license is required. Disclosure by the Department of
Justice to any provider described above shall be made only upon
agreement by such provider, in the form prescribed in the Stipulation
entered into by defendants and the United States on July 13, 1995, not
to disclose any non-public information to any other person, apart from
governmental authorities in the United States, France or Germany. Where
Joint Venture Co. is required to disclose in Section II.A particular
telecommunications services provided, this shall include disclosure of
the identify of each of the services, and reasonable detail about each
of the services to the extent not already published elsewhere, but
shall not require disclosure of underlying facilities used to provide a
particular service that is offered on a unitary basis, except to the
extent necessary to identify the service and the means of
interconnection with the service.
G. ``DT'' means Deutsche Telekom A.G., and any entity controlled by
DT, provided that DT does not include Joint Venture Co., FT, or Sprint,
but does include Atlas.
H. ``Enhanced telecommunications service'' means any
telecommunications service that involves as an integral part of the
service the provision of features or capabilities that are additional
to the
[[Page 44056]]
conveyance (including switching) of the information transmitted.
Although enhanced telecommunications services use telecommunications
services for conveyance, their additional features or capabilities do
not lose their enhanced status as a result.
I. ``Facility'' means: (i) Any line, trunk, wire, cable, tube,
pipe, satellite, earth station, antenna or other means that is directly
used or designed or adapted for use in the conveyance, transmission,
origination or reception of a telecommunications or enhanced
telecommunications service; (ii) any switch, multiplexer or other
equipment or apparatus that is directly used or designed or adapted for
use in connection with the conveyance, transmission, origination,
reception, switching, signaling, modulation, amplification, routing,
collection, storage, forwarding, transformation, translation,
conversion, delivery or other provision of any telecommunications or
enhanced telecommunications service, and (iii) any structure, conduit,
pole, or other thing in, on, by or from which any facility as described
in (i) or (ii) is or may be installed, supported, carried or suspended.
J. ``France'' means the Republic of France, excluding its overseas
departments and territories for which traffic is reported separately to
the Federal Communications Commission.
K. ``FT'' means France Telecom, and any entity controlled by FT,
provided that FT does not include Joint Venture Co., DT, or Sprint, but
does include Atlas and Transpac.
L. ``FT or DT Products and Services'' shall mean any of the
following telecommunications or enhanced telecommunications services or
facilities in France or Germany, or between the United States and
France or the United States and Germany, provided by FT or DT,
regardless of whether such services or facilities are considered to be
reserved exclusively to FT or DT under the national law of France or
Germany:
(i) Correspondent services (but not including enhanced
telecommunications services provided by Atlas, unless Atlas is acting
as a reseller or sales agent of such services or the services involve
interconnection to the Public Data Networks);
(ii) Dedicated or switched transit services;
(iii) Leased lines or international half circuits between the
United States and France or between the United States and Germany
(including leased lines or international half circuits that may be
provided with additional quality, provisioning or maintenance
guarantees or alternate routing features), unless plaintiff and
defendants agree that meaningful competition exists to such leased
lines or international half-circuits provided by DT or FT; or
(iv) Interconnection to the FT/DT PSTNs, including access to
customers using ISDN services.
M. ``Germany'' means the Federal Republic of Germany.
N. ``Interconnection,'' ``interconnect'' and ``interconnection
agreement'' mean interconnection under the FT Schedule of Obligations
(``Cahier des Charges'') (or any subsequent or other condition
governing interconnection with FT that may be imposed by government
authorities in France), and under the Telecommunications Installation
Act (``Fernmeldeanlagengesetz'') (or any subsequent or other condition
governing interconnection with DT that may be imposed by government
authorities in Germany), or access to the FT or DT public switched
telephone networks that may be obtained outside the terms of such legal
obligations.
O. ``Joint Venture Co.'' means the entities referred to in the
Joint Venture Agreement entered into by Sprint, FT and DT on June 22,
1995, as the GBN Parent Entity, the ROW Parent Entity, and the ROE
Parent Entity (including the governing boards or bodies of such
entities) to be formed in accordance with Sections 4.2, 5.2 and 6.2 of
the Joint Venture Agreement, and each other entity to be formed
pursuant to the terms of the Joint Venture Agreement (including the
Global Venture Board, Global Venture Committee and Global Venture
Office to be formed in accordance with Section 3.1-3.10 of the Joint
Venture Agreement), regardless of the name under which these entities
may subsequently do business, or any other entity jointly owned by
Sprint, FT and DT and having among its purposes substantially the same
purposes as described for the Joint Venture or any of these entities in
the Joint Venture Agreement, and any predecessor (whether the
predecessor is jointly owned by Sprint, FT and DT or separately owned
by any one of them and any one of them formed to conduct the Joint
Venture Co. business), successor, or assign of such entities, or any
entity controlled by any of these entities. Atlas, FT, DT and Sprint
shall not be deemed to be a Joint Venture Co. The individual members of
the Global Venture Board, Global Venture Committee and Global Venture
Office, are not personally defendants, but are responsible in their
official capacities as members of such entities for ensuring compliance
of Joint Venture Co. with this Final Judgment, and responding to
requests for documents and information under Section VI, in the same
manner as any officer of a defendant.
P. ``Phase I'' means that period of time after the entry of this
Final Judgment and before the conditions in Phase II have been met.
Q. ``Phase II'' means that time that begins when the national
governments of France and Germany have:
(1) Removed all of the legal prohibitions on provision of the
following services and facilities by entities other than FT and DT and
their subsidiaries and affiliates--
(i) The construction, ownership or control of both domestic and
international telecommunications facilities, and use of such facilities
to provide any telecommunications or enhanced telecommunications
services, and
(ii) The provision of public switched domestic and international
voice services; and
(2) Issued one or more licenses or other necessary authorizations,
to entities other than FT, DT, Sprint or Joint Venture Co. and
unaffiliated with FT, DT, Sprint or Joint Venture Co., for--
(i) The construction or ownership, and control, of both (a)
domestic telecommunications facilities to serve territory in which one-
half or more of the national populations of France and Germany reside,
and (b) international telecommunications facilities capable of being
used to provide a competitive facilities-based alternative, directly or
indirectly, between France and Germany and the United States, and
(ii) The provision of public switched domestic long distance voice
services, without any limitation on geographic scope or types of
services offered, and international voice service between the United
States and France and Germany.
Unless otherwise noted in this Final Judgment, Phase II applies
separately to France and Germany, and shall commence with respect to
services and facilities between the United States and a country when
the conditions are met for that country, even if they are not met in
the other country.
R. ``Proportionate Return Commitment'' means the commitment of each
of FT and DT to transmit correspondent voice telecommunications
services traffic to the United States, to licensed U.S. international
telecommunications carriers holding operating agreements for such
services with FT and DT, in the same proportions as the correspondent
voice telecommunications traffic from
[[Page 44057]]
the United States to France or Germany that FT and DT, respectively,
receive from such U.S. carriers. If the Federal Communications
Commission adopts proportionate return policies that are made
specifically applicable to the relationship between Sprint, FT and DT
and that conflict with this Proportionate Return Commitment, the
Proportionate Return Commitment shall be modified to be consistent with
such policies.
S. ``Public Data Network'' means either or both of the public data
network operated by Transpac in France and the public data network in
Germany operated under the ``Datex'' designation (Datex-P, Datex-J, and
the Datex-L service) as of the signing of the Stipulation to enter this
Final Judgment, whether such networks are held by FT, DT, Atlas, or any
subsidiary or affiliate of FT or DT now or in the future.
T. ``Sprint'' means Sprint Corporation, and any entity controlled
by Sprint. Sprint does not include Joint Venture Co., Atlas, FT, or DT,
or any FT or DT employees who may serve on Sprint's Board of Directors.
U. ``Telecommunications service'' means the conveyance, by
electrical, magnetic, electromagnetic, electromechanical or
electrochemical means (including fiber-optics), of information
consisting of:
--Speech, music and other sounds;
--Visual images;
--Signals serving for the impartation (whether as between persons and
persons, things and things or persons and things) of any matter,
including but not limited to data, otherwise than in the form of sounds
or visual images;
--Signals serving for the actuation or control of machinery or
apparatus;
or
--Translation or conversion that does not alter the form or content of
information as received from that which is originally sent.
For these purposes ``convey'' and ``conveyance'' include
transmission, switching, and receiving, and cognate expressions
shall be construed accordingly. A telecommunications service
includes all facilities used in providing such service, and the
installation, maintenance, repair, adjustment, replacement and
removal of any such facilities. A service that is considered a
``telecommunications service'' under this definition retains that
status when it is used to provide an enhanced telecommunications
service, or when used in combination with equipment, facilities or
other services.
V. ``United States'' means the fifty states, the District of
Columbia, and all territories, dependencies, or possessions of the
United States.
W. ``United States international telecommunications providers''
means any person or entity actually providing international
telecommunications services or enhanced telecommunications services to
providers or users in the United States, and that is incorporated in
the United States, or that is ultimately controlled by United States
persons within the meaning of 16 C.F.R. 801.1., including its
subsidiaries and affiliates, or any provider of telecommunications
services with which such a United States international
telecommunications provider is affiliated. For purposes of this
definition, an affiliate shall mean any entity in which a person or
entity has a direct or indirect equity interest or whose equity is
owned directly or indirectly by a person or entity in the amount of 10%
or more.
VI
Visitorial and Compliance Provisions
A. Sprint and Joint Venture Co. each agree to maintain sufficient
records and documents to demonstrate compliance with the requirements
of this Final Judgment.
B. For the purposes of determining or securing compliance of
defendants with this Final Judgment, duly authorized representatives of
the plaintiff, upon written request of the Attorney General or the
Assistant Attorney General in charge of the Antitrust Division, and on
reasonable notice to the relevant defendant, shall have access without
restraint or interference to Sprint and to Joint Venture Co. in the
United States:
1. during their office hours to inspect and copy all records and
documents in their possession or control relating to any matters
contained in this Final Judgment; and
2. to interview or take sworn testimony from their officers,
directors, employees, trustees, or agents, who may have counsel
present, relating to any matter contained in this Final Judgment;
provided, however, that Joint Venture Co. officers who are or were
employees of FT or DT shall be required to produce information only
concerning Joint Venture Co., and that Joint Venture Co. or Sprint
directors who are or were employees of FT or DT shall be required to
produce only Joint Venture Co. and Sprint documents and to provide
information only concerning Joint Venture Co. and Sprint.
C. Joint Venture Co. consents to make available to duly authorized
representatives of the plaintiff, for the purposes of determining
whether defendants have complied with the requirements of this Final
Judgment and to secure their compliance:
1. at the premises of the Antitrust Division in Washington, D.C.,
within sixty days of receipt of written request by the Attorney General
or Assistant Attorney General in charge of the Antitrust Division,
records and documents in the possession or control of Joint Venture
Co.; and
2. for interviews or sworn testimony, in the United States if
requested by plaintiff but subject to their reasonable convenience,
officers, directors, employees, trustees or agents, who may have
counsel present;
provided, however, that Joint Venture Co. officers who are or were
employees of FT or DT shall be required to produce information only
concerning Joint Venture Co., and Joint Venture Co. directors who are
or were employees of FT or DT shall be required to produce only Joint
Venture Co. documents and to provide information only concerning Joint
Venture Co.
D. Upon the written request of the Attorney General or the
Assistant Attorney General in charge of the Antitrust Division, a
defendant shall submit written reports, under oath if requested,
relating to any of the matters contained in this decree.
E. No information or documents obtained by the means provided in
this Section VI shall be divulged by the plaintiff to any person other
than the United States Department of Justice, the Federal
Communications Commission, and their employees, agents and contractors,
except in the course of legal proceedings to which the United States is
a party, or for the purpose of securing compliance with this decree, or
for identifying to the DGPT or other appropriate French regulatory
agencies conduct by defendants or FT that may violate French law or
regulations or FT's license to operate its French public
telecommunications system (but no documents received from defendants
pursuant to this Section VI shall be disclosed to French authorities by
the Department of Justice), or for identifying to the BMPT or other
appropriate German regulatory agencies conduct by defendants or DT that
may violate German law or regulations or DT's license to operate its
German public telecommunications system (but no documents received from
defendants pursuant to this Section VI shall be disclosed to German
authorities by the Department of Justice), or as otherwise required by
law. Prior to divulging any documents, interviews or sworn testimony
obtained pursuant to this Section VI to the Federal Communications
Commission, or any French or German regulatory agencies, plaintiff will
obtain assurances that such materials are protected from
[[Page 44058]]
disclosure to third parties to the extent permitted by law.
VII
Retention of Jurisdiction
Jurisdiction is retained by this Court for the purposes of enabling
any of the parties to this Final Judgment to apply to this Court at any
time for such further orders or directions as may be necessary or
appropriate to carry out or construe this decree, to modify or
terminate any of its provisions, to enforce compliance, and to punish
any violations of its provisions.
VIII
Modification
A. Any party to this Final Judgment may seek modification of its
substantive terms and obligations and other parties to the Final
Judgment shall have an opportunity to respond to such a motion. If the
motion is contested by another party, it shall only be granted if the
movant makes a clear showing that (i) a significant change in
circumstances or significant new event subsequent to the entry of the
Final Judgment requires modification of the Final Judgment to avoid
substantial harm to competition or consumers in the United States, or
to avoid substantial hardship to defendants, and (ii) the proposed
modification is (a) in the public interest, (b) suitably tailored to
the changed circumstances or new events and would not result in serious
hardship to any defendant, and (c) consistent with the purposes of the
antitrust laws of the United States and with the telecommunications
regulatory regimes of the United States, France and Germany. If a
motion to modify this Final Judgment is not contested by any party, it
shall be granted if the proposed modification is within the reaches of
the public interest.
B. Neither the absence of specific reference to a particular event
in the Final Judgment nor the foreseeability of such an event at the
time this Final Judgment was entered, shall preclude this Court's
consideration of any modification request. This standard for obtaining
contested modifications shall not require the United States to initiate
a separate antitrust action before seeking modifications. The same
standard shall apply to any party seeking modification of this Final
Judgment. Where modifications of the Final Judgment are sought, the
provisions of Section VI of this Final Judgment may be invoked to
obtain any information or documents needed to evaluate the proposed
modification prior to decision by the Court.
C. In addition to VIII.A and VIII.B, it is not the intent of the
parties that Sprint should be competitively disadvantaged in such a way
as to harm competition. If defendants believe that changed
circumstances have caused any terms of the Final Judgment to operate in
a way that is harmful to competition, they may present to plaintiff the
reasons therefore and any supporting evidence, and if plaintiff in its
sole discretion agrees that modification of the Final Judgment is
appropriate, a request for modification shall be presented to the
Court.
IX
Sanctions
Nothing in this Final Judgment shall prevent the United States from
seeking, or this Court from imposing, against defendants or any other
person, any relief available under any applicable provision of law.
X
Further Provisions
A. The entry of this Final Judgment is in the public interest.
B. The substantive restrictions and obligations of this Final
Judgment shall be removed five years from the date that Phase II of
this Final Judgment has taken effect with respect to both France and
Germany, unless this Final Judgment has been previously terminated. The
substantive obligations of Section III of this Final Judgment shall be
removed on the date that Phase I of this Final Judgment ends,
separately with respect to France and with respect to Germany, unless
otherwise specified in this Final Judgment.
Dated:
----------------------------------------------------------------------
United States District Judge
In the matter of United States of America, Plaintiff, v. Sprint
Corporation and Joint Venture Co., Defendants.
[Civil Action No. 95 CV 1304]
Filed: July 13, 1995.
Competitive Impact Statement
The United States, pursuant to section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA'' or ``Tunney Act''), 15 U.S.C. 16
(b)-(h), files this Competitive Impact Statement relating to the
proposed Final Judgment submitted for entry in this civil antitrust
proceeding.
I
Nature and Purpose of the Proceeding
On July 13, 1995, the United States filed a civil antitrust
complaint under Section 15 of the Clayton Act, as amended, 15 U.S.C.
25, alleging that the proposed acquisition of a total of 20% of the
stock of Sprint Corporation (``Sprint'') by France Telecom (``FT'') and
Deutsche Telekom A.G. (``DT''), and the proposed formation of a joint
venture between Sprint, FT and DT to provide international
telecommunications services, would violate Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, by lessening competition in the markets
for international telecommunications services between the United States
and France and Germany, and for seamless international
telecommunications services, thereby depriving United States consumers
of the benefits of competition--lower prices and higher quality
services. Defendants are Sprint and Joint Venture Co., a term
collectively designating the entities which will become the joint
venture of Sprint, FT and DT upon consummation of the agreements
between them. The Complaint seeks injunctive and other relief.
The United States and Sprint have stipulated to the entry of a
proposed Final Judgment, after compliance with the Antitrust Procedures
and Penalties Act, 15 U.S.C. 16(b)-(h). Joint Venture Co. will also
enter into this stipulation once it has been formed and satisfied other
preconditions stated in the stipulation. Entry of the proposed Final
Judgment would terminate this action, except that the Court would
retain jurisdiction to construe, modify, and enforce the proposed Final
Judgment and to punish violations of the Judgment. The United States
and Sprint have stipulated, and Joint Venture Co. will also stipulate,
that the defendants will abide by the terms of the proposed Final
Judgment after consummation of the transactions between them, pending
entry of the Final Judgment by the Court, permitting the transactions
to go forward prior to completion of the Tunney Act procedures. Should
the Court decline to enter the Final Judgment, Sprint has also
committed in the stipulation, and Joint Venture Co. will commit, to
abide by the terms of the Final Judgment until the conclusion of this
action.
II
Events Giving Rise to the Alleged Violation
A. The Proposed Transactions
On June 22, 1995, Sprint, FT and DT entered into a Joint Venture
Agreement, providing for the formation of an international joint
venture to provide various types of international telecommunications
and enhanced
[[Page 44059]]
telecommunications services. In addition, FT and DT entered into an
Investment Agreement with Sprint on July 31, 1995, entitling FT and DT
to acquire a total of up to 20% of the voting equity in Sprint for a
variable price that could be as high as approximately $4.2 billion. As
a result of the acquisition of Sprint's equity, FT and DT would also
acquire special shareholder rights, including the right to appoint
directors to a number of seats on Sprint's Board of Directors in
proportion to their ownership interest (a 20% investment would give FT
and DT three of the fifteen seats on Sprint's Board of Directors), with
a minimum of two directors. These agreements finalize transactions that
have been contemplated since June 1994, when Sprint, FT and DT entered
into a Memorandum of Understanding concerning the creation of the joint
venture and the acquisition of equity in Sprint.
Consummation of the Joint Venture Agreement between Sprint, FT and
DT will establish Joint Venture Co., a group of related entities that
will engage in the joint venture business, including the offering of
(i) international data, voice and video business services for
multinational corporations and business customers, (ii) international
consumer services based on card services for travelers and (iii)
carrier's carrier services including transport services for other
carriers. In forming the joint venture, each of the parties will
contribute most of their existing operations outside their respective
home countries to Joint Venture Co., and will make capital
contributions, for a total value of approximately $1 billion. FT and DT
intend to hold and manage their interests in Joint Venture Co. together
through their own joint venture, known as Atlas, which when formed will
be owned 50% by DT and 50% by FT. Sprint, DT, and FT will have equal
representation on Joint Venture Co.'s Global Venture Board, which will
determine the strategic direction and oversee operations of Joint
Venture Co. The international telecommunications facilities of Joint
Venture Co., including switches, other transmission equipment, computer
hardware and software, and leased lines, will form an international
``backbone'' network used to carry the joint venture's services. This
backbone network will be owned 50% by Sprint and 50% by DT and FT
through Atlas. The Joint Venture Co. entity responsible for worldwide
activities outside the United States and Europe (the ``Rest of World''
or ``ROW'' entity) will have the same 50-50 ownership structure as the
backbone network. The Joint Venture Co. entity responsible for
activities in Europe but outside of France and Germany (the ``Rest of
Europe'' or ``ROE'' entity), however, will be owned 33\1/3\% by Sprint
and 66\2/3\% by DT and FT through Atlas.
Sprint will have the exclusive right to provide Joint Venture Co.
services in the United States, its home country, and FT and DT are to
refrain from competing with Sprint in the United States in the joint
venture's services and certain other telecommunications services.
Similarly, Sprint is to refrain from competing with FT and DT in their
home countries, France and Germany. Moreover, none of the owners of
Joint Venture Co. will compete with Joint Venture Co. Therefore, FT's
and DT's direct participation in the areas of business in which Joint
Venture Co. is engaged will be limited to their ownership interests in
the joint venture entities and sales of the joint venture services, and
they generally will only be able to participate directly in United
States telecommunications markets through their ownership interests in
Sprint.
B. The Parties to the Transaction and the Relevant Markets
1. The Parties
This transaction is a strategic alliance between three of the
largest telecommunications carriers in the world, creating vertical
affiliation between a major U.S. long distance carrier and two of the
largest foreign telecommunications monopolies. Together, DT, FT and
Sprint had approximately $85 billion in revenues in 1994, considerably
more than AT&T Corporation (``AT&T''), the largest carrier
worldwide,\1\ and more than twice as much as the total revenues of
British Telecommunications plc (``BT'') and MCI Communications
Corporation (``MCI''), the partners in the Concert strategic alliance
consummated in 1994.\2\ The United States, where Sprint's principal
network is located, is by far the most important location for
multinational customers of telecommunications services in the world.
The home countries of the other two partners, France and Germany, are
also key locations for multinational customers, matched in significance
by only a handful of other countries.\3\ To illustrate, more
multinational companies have their headquarters located in either
France or Germany, in combination, than in any single country other
than the United States or the United Kingdom. FT and DT are the
government-owned dominant telecommunications carriers in their home
countries, where they have monopolies over public switched voice
services and transmission infrastructure, representing more than 75% of
all telecommunications revenues, and market power in other key services
such as public data networks.
\1\ A large part of the revenues of AT&T do not even come from
telecommunications services markets, but from equipment
manufacturing and other businesses. Thus, the aggregate competitive
significance of the parties to this alliance, all of which derive
the great bulk of their revenues from telecommunications services
markets, is even larger relative to AT&T alone than a comparison of
total revenues would suggest.
\2\ In June 1994, the United States filed a suit and entered
into a proposed consent decree with MCI and the joint venture being
established by BT and MCI to provide international
telecommunications and enhanced telecommunications services, now
called Concert. The decree was approved by this Court in September
1994.
\3\ Only the United States, the United Kingdom and Japan surpass
Germany or France in numbers of headquarters of multinational
corporations, though several other countries, including Switzerland,
Sweden, Canada, the Netherlands, and Australia, also have a
substantial number of multinational headquarters. Only in the United
States and the United Kingdom have more multinational companies
located their operations than in Germany or France, though there are
a number of other countries, including Japan, Canada, the
Netherlands, Australia, Switzerland, Italy, Belgium, and Spain,
where many multinational companies have located their operations.
The countries identified here are not the only ones where
multinational corporations have a significant presence.
Sprint is one of the three principal domestic long distance and
international telecommunications carriers in the United States. It
provides long distance telecommunications and enhanced
telecommunications products and services in the United States and
international telecommunications and enhanced telecommunications
products and services between the U.S. and other nations, including
France and Germany. Sprint's 1994 revenues were more than $12.6
billion, about half of which came from domestic and international long
distance services. Sprint's principal long distance domestic and
international competitors in the United States are AT&T, the largest
carrier, and MCI, the second largest carrier. These three carriers
provide over 80% of domestic long distance service in the United States
and almost all international voice telecommunications services
originating in the United States; Sprint's market share in both
domestic and international U.S. voice traffic is about 10%. Sprint, MCI
and AT&T are also among the most important providers of international
enhanced telecommunications services and data services in the United
States, directly or through subsidiaries and affiliates (such
[[Page 44060]]
as the Concert joint venture between MCI and BT). Sprint is one of the
largest providers of domestic and international data telecommunications
services in the United States. For these types of services, Sprint's
market share is generally much larger than its share of voice services.
Indeed, for some data services Sprint is larger than any of the other
U.S. international carriers in terms of revenues.\4\
\4\ International data services are also offered by some
companies that are not voice carriers, such as Infonet Services
Corporation.
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FT is owned by the government of France, and is the fourth largest
provider of telecommunications services in the world. Its consolidated
annual revenues in 1994 were 142.6 billion FF (approximately $28.5
billion) and its net income for 1994 was 9.9 billion FF (approximately
$2.1 billion). FT provides local, long distance, and enhanced
telecommunications services in France, and international and enhanced
telecommunications services between France and other countries,
including the U.S. and Germany. FT owns and operates the French public
switched network, with about 32 million telephone access lines in
service. FT is the state authorized monopoly provider of all public
switched voice service, as well as all transmission facilities for
domestic and international telecommunications in France. FT also has
market power in the provision of public data network services in
France, even though that area has been legally opened to competition
since 1993.
DT is the second or third largest telecommunications company in the
world, and Europe's largest telecommunications carrier. Its 1994
revenues were 61.2 billion DM (approximately $44 billion). DT provides
local, long distance, and enhanced telecommunications services in
Germany, as well as international and enhanced telecommunications
services between Germany and other countries, including the U.S. and
France. Pursuant to a German telecommunications law enacted in 1994, DT
became a private corporation on January 1, 1995, but the German
government remains DT's sole shareholder. Sale of DT's shares to the
public will not begin until sometime in 1996, and the German government
is expected to hold a majority of DT's shares through 1999. DT owns and
operates the German public switched network, with more than 37 million
telephone access lines in service, and 87,000 kilometers of fiber optic
lines installed, representing over a third of its total network. DT is
the state authorized monopoly provider of all public switched voice
service, as well as all transmission facilities for domestic and
international telecommunications in Germany. DT also has market power
in the provision of public data network services in Germany, even
though this area of business has been legally opened to competition
since 1990.
2. The Product and Geographic Markets
Broadly speaking, there are two types of markets of concern under
the antitrust laws of the United States that are affected by the
vertical relationships created in this transaction: the markets for
international telecommunications services (including enhanced
telecommunications services) between the United States and France and
the United States and Germany, and the emerging markets for seamless
international telecommunications (including enhanced
telecommunications) services.\5\ These broad markets may further
encompass multiple distinct product markets. The various types of data
telecommunications services, for example, are distinct from voice
services in important respects, from the perspective of both consumers
and service providers. For purposes of analyzing the vertical effects
of this transaction, however, it is not necessary to distinguish
between individual telecommunication services, since the monopoly power
of DT and FT affects all of the possible markets at issue.
\5\ Other markets not within the scope of U.S. antitrust review,
including markets for various types of telecommunications and
enhanced telecommunications services in Europe, are also affected by
this transaction. Issues involving those markets are being
considered separately by the competition authorities of the European
Union in a pending investigation.
---------------------------------------------------------------------------
US-France and US-Germany international telecommunications services
are used by individuals and companies in the US to exchange voice, data
and video messages with individuals and companies in France and
Germany. These services typically are provided on a correspondent
basis, meaning that telecommunications providers in different countries
agree to interconnect their facilities and services in order to permit
international traffic to be completed.\6\ Correspondent relationships
are established between international telecommunications carriers by
entering into commercially negotiated operating agreements, and
separate operating agreements often exist for distinct types of
services and facilities. According to Federal Communications Commission
data for 1993, the most recent year available, all U.S. international
carriers received $600,869,527 in total revenues from traffic to
Germany billed in the United States, and $261,896,962 in total revenues
from traffic to France billed in the United States, for the standard
type of switched voice telephone service provided under the
correspondent system.\7\ France and Germany are among the most
important destinations for U.S. international switched voice traffic,
and in 1993 France and Germany in combination accounted for over 13% of
total international billed revenues of all U.S. international carriers
for switched voice service, a share surpassed only by Canada and
Mexico.\8\ No close substitute exists for international
telecommunications and enhanced telecommunications services between the
U.S. and France or the U.S. and Germany. In order to compete
effectively in providing international telecommunications services
between the U.S. and France and the U.S. and Germany, U.S. providers
must have nondiscriminatory access to FT's and DT's facilities and
services in France and Germany to terminate traffic from the U.S., and
to receive traffic from France and Germany.
\6\ International correspondent telecommunications services
primarily consist of the basic switched voice telephone call (which
is known either as International Direct Dial (``IDDD'') or
International Message Telephone Service (``IMTS'')), and
International Private Line Service (``IPLS''). They also include
certain other switched telecommunications and enhanced
telecommunications services.
``Switched'' traffic makes use of switching facilities and
common lines. Consumers typically obtain switched correspondent
services from the provider in the country where a call originates,
and calls are handed off to the provider in the other country
without direct customer involvement. IPLS consists of circuits
dedicated to the use of a single customer, and the providers of IPLS
in each country typically sell their ``half'' of the circuit to the
user separately. Switched services constitute the great majority of
international telecommunications services in terms of both traffic
and revenues.
\7\ Federal Communications Commission, Common Carrier Bureau,
Industry Analysis Division, 1993 Section 43.61 International
Telecommunications Data, International Traffic Data for All U.S.
Points, Table A1 (Nov. 1994) (hereinafter 1993 International
Telecommunications Data). The revenue retained by U.S. international
carriers from amounts billed to customers is greatly reduced, in the
case of France and Germany by nearly half, due to payouts to the
foreign carriers for delivering traffic, but at the same time
revenues of U.S. carriers are augmented by payments from the foreign
carriers for delivering traffic that is billed in the foreign
countries. In the case of Germany, amounts paid out by all U.S.
carriers for IMTS service to DT were $263,923,146, and amounts
received from DT were $119,430,422, in 1993. For France, amounts
paid out by all U.S. carriers for IMTS service to FT were
$105,449,969, and amounts received from FT were $76,536,312, in
1993. Id.
\8\ Id.
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Seamless international telecommunications services are an
[[Page 44061]]
emerging area of international telecommunications, developing in
response to the limitations of the traditional correspondent system,
over which the great majority of international telecommunications
traffic is still carried. Seamless services represent an important
market for the evolution of international telecommunications. Seamless
international telecommunications services would be made available by a
single provider using an integrated international network of owned or
leased facilities, and would have the same quality, features,
characteristics, and capabilities wherever they are provided, making
them significantly superior to ordinary correspondent
telecommunications services for many customers, particularly
multinational corporations and other large users of international
telecommunications. These services could overcome many of the
inadequacies and differences in standards that now exist in various
national telecommunications systems, and they could offer scale
economies by comparison with private networks individually organized by
users.
Some types of international telecommunications services, such as
data services, already are being offered between some countries in a
seamless fashion, as well as through the correspondent system. However,
creating seamless international networks that reach a large number of
countries with a wide range of services will require a major commitment
of resources and expertise that few firms can supply. While the
providers of seamless services aim eventually to have a global reach,
today there remain many differences between particular countries
affecting both the legality and the technical feasibility of offering
seamless services. Other participants in this market include the
Concert alliance of BT and MCI, and AT&T's international partnerships,
including Worldpartners (a non-exclusive partnership with several
foreign providers including Japan's KDD) and Uniworld (an alliance with
the national or principal telecommunications providers in Switzerland,
Sweden, Spain and the Netherlands). Though the BT-MCI alliance and
AT&T's partnerships share a general interest in the emerging market for
seamless international telecommunications services, these other
transactions are structured in somewhat different ways and vary in
their degrees of exclusivity and investment.
Where available, seamless international telecommunications services
will be used by multinational corporations and other users of
international telecommunications services in the U.S. to exchange
voice, data and video messages with corporate offices, vendors,
operations and persons in France and Germany as well as in other
countries. Other types of international telecommunications and enhanced
telecommunications services provided through the correspondent system
are not likely to be close substitutes for seamless international
telecommunications services as they fully emerge. Existing services
often lack international standardization or advanced features that
customers are expected to prefer, and may require that customers deal
with multiple providers. To compete effectively in seamless
international telecommunications services, providers must have
nondiscriminatory access to the U.S., France and Germany. All of these
countries are key locations for multinational customers. In
combination, the United States, France and Germany have nearly half of
all headquarters of multinational corporations, and most potential
customers of these services need telecommunications services into and
out of the U.S., France and Germany.
3. Monopoly Power of FT and DT
FT and DT occupy very similar market positions in their home
countries, as both are the government-owned dominant providers of
telecommunications services and continue to exercise extensive legal
monopoly rights, making competitors dependent on FT and DT even in
those areas of service that have been opened to competition. Access to
FT's and DT's public switched network and transmission infrastructure
is necessary for international telecommunications and enhanced
telecommunications services that originate or terminate in France and
Germany. FT's and DT's legal monopolies in the provision of public
switched voice telecommunications services and transmission
infrastructure together account for over 75% of all telecommunications
revenues in France and in Germany. Virtually all international
telecommunications traffic between the U.S. and France and between the
U.S. and Germany originates or terminates over FT's or DT's public
switched networks, their transmission infrastructure, or both.
FT currently has a monopoly in the provision of both domestic
leased lines in France and international half-circuits terminating in
France, and DT has a similar monopoly in the provision of domestic
leased lines in Germany and international half-circuits terminating in
Germany.\9\ Third party service providers that want to offer data or
value added services between France and the United States, or between
Germany and the United States, must obtain their transatlantic half-
circuits terminating in France from FT \10\ and in Germany from DT.
FT's domestic leased lines in France and DT's domestic leased lines in
Germany are essential inputs for many services that are open to
competition in those countries, such as data services and corporate
networks serving closed user groups. A very large portion of the costs
of competitors of FT and DT, both in domestic telecommunications and
enhanced telecommunications services in France and Germany and
international telecommunications and enhanced telecommunications
services originating or terminating in France and Germany, are the
costs of obtaining transmission infrastructure from FT and DT.
\9\ DT also offers a managed leased line service referred to as
DDV that is used by it and its competitors for transmission in much
the same way as the monopoly leased line service. DDV, however, has
better management and diagnostic facilities, back-up routing and
service guarantees. Though DT's DDV service has been classified
nominally as ``competitive'' under German law, DT effectively has a
monopoly over this transmission infrastructure as well, since there
is virtually no competition for DDV service.
\10\ FT markets such facilities through its wholly owned
subsidiary France Cables et Radio (``FCR'').
No other facilities outside of FT's or DT's control that are
permitted today to be used for transmission of some types of
telecommunications services in France and Germany, including satellite
``Very Small Aperture Terminal'' (VSAT) earth stations and cable TV
infrastructure, are effective substitutes for FT's and DT's point-to-
point leased lines for most telecommunications traffic, due to
technical or economic limitations, lack of sufficient geographic scope
or other factors. Indeed, unlike the U.S. and U.K., where cable
television infrastructure is owned by independent providers and
substantial penetration exists, in France a significant share of the
cable infrastructure is owned by FT and penetration is low overall,
while in Germany all of the cable infrastructure is owned by DT.
Although some competition to the FT and DT public switched voice
services and network would likely emerge were all legal restrictions on
competition lifted, replication of the entire public switched network
would be prohibitively expensive for any new entrant. Accordingly, any
provider of telecommunications or enhanced telecommunications services,
or
[[Page 44062]]
seamless international telecommunications services, whether in the
U.S., France, Germany or elsewhere, is and will continue to be
dependent to some extent for the foreseeable future on FT for
origination and termination of telecommunications between France and
anywhere else, and on DT for origination and termination of
telecommunications between Germany and anywhere else.
FT has a dominant market position and market power in France, and
DT has a dominant position and market power in Germany, in providing
public data network services. These are services that are offered to
the general public, rather than to an exclusive user or limited group,
to carry data telecommunications through a network of transmission
lines and nodes, the points of interconnection with the network. FT's
and DT's continuing market power in their home countries in public data
network services, which are legally open to competition,\11\ is
reinforced by their continuing monopolies over the transmission
infrastructure used by their own data networks as well as those of
their competitors. In addition, the German competition authority, the
Federal Cartel Office, has found that DT extensively cross-subsidized
its data network services from its transmission monopoly between 1989
and 1993, in the amount of 1.9 billion DM (approximately $1.3 billion).
\11\ To provide these services in France, operators must be
individually licensed.
---------------------------------------------------------------------------
FT offers these data network services through Transpac, a
subsidiary that operates several types of data services, including the
principal network based on the standard X.25 packet-switched protocol.
FT and Transpac had a statutory monopoly in provision of public data
network services in France until 1993, when competition in this area
was first permitted. By the most current measures available, Transpac
has a 94% share of French domestic data services, and a far more
extensive network in France than any other competitor, including 597
node sites \12\ and 105,000 customer connections.
\12\ The number of nodes in a data network provides a reliable
measure of the penetration of data services. Nodes are the points of
access for customers. Additional nodes bring the network physically
closer to more users, which generally makes it less expensive for
the users to access the services. Providers and users who face
distance-sensitive tariffs (including the choice of making a local
call or a more expensive long distance call to access the network)
are likely to be competitively affected by the penetration of a data
network.
---------------------------------------------------------------------------
DT has 833 data nodes and more than 86,500 access lines in its
principal packet-switched data service network, Datex-P, which uses the
standard X.25 data protocol. In 1994, DT had a share of more than 80%
in packet-switched data network services in Germany. The next largest
provider had less than 10% of the market, and the third largest
provider was FT, through its 96.7% interest in its German-based
subsidiary Info AG, which had a market share of less than 5%. All other
providers of data network services in Germany depend on DT for access
to DT's transmission infrastructure, and such access represents 50% to
90% of their costs of doing business.
Other means of delivering data through landline-based private
networks, or through satellite-based telecommunications, are not fully
adequate substitutes for FT's public data network in France or DT's
public data network in Germany. FT and DT can be expected to continue
to possess a dominant position in public data network services in their
home countries, so long as they retain their legal or effective
monopolies on transmission infrastructure.
4. Regulation and Opening of the French and German Markets
The transaction between FT, DT and Sprint takes place within a
context of significant regulatory changes in Europe. Regulation of
telecommunications in Europe is carried out through a combination of
European Union (``EU'') and national law. EU directives provide an
overlay of requirements which all member states, including France and
Germany, are obliged to transpose into national laws. Although EU
authorities can intervene directly in some circumstances, such as
enforcement of the competition provisions of the EU's governing
treaties, for the most part telecommunications regulation is the
responsibility of the authorities of the member states. In Germany, the
Bundesministerium fur Post und Telekommunikation (Federal Ministry of
Posts and Telecommunication) (``BMPT'') is the regulatory authority
responsible for supervising the conduct of DT and granting licenses or
otherwise determining conditions of entry for new providers of
telecommunications services. BMPT also supervises the newly created
federal agency in Germany that holds the government's ownership
interest in DT. In France, the Direction Generale des Postes et
Telecommunications (Directorate General of Posts and
Telecommunications) (``DGPT'') is the regulatory authority, responsible
for supervising the conduct of FT and granting licenses or otherwise
determining conditions of entry for new providers of telecommunications
services. The French government's ownership interest in FT is held by a
separate government ministry.
During the time that this transaction has been under investigation
by the Department of Justice, regulatory developments in Europe have
made it increasingly likely that the French and German
telecommunications markets will be opened to competition within the
next few years. The European Union, through its Commission and Council
of Ministers, has set January 1, 1998 as the target date by which most
member states, including France and Germany, are expected to fully
``liberalize'' the existing monopolies on public voice
telecommunications services and transmission infrastructure, abolishing
all exclusive rights or prohibitions on competition. Voice services
liberalization had already been scheduled for 1998, but the Council of
Ministers' resolution to fully liberalize the infrastructure at the
same time was announced, much more recently, in June 1995. Carrying out
the political agreement of the Council, the Commission of the European
Union (``European Commission'') adopted, on July 19, 1995, a draft
directive that would mandate full liberalization of telecommunications
infrastructure and voice services in most EU member states, including
France and Germany, by 1998. Though the Council did not provide in its
resolution for any partial liberalization of infrastructure at an
earlier date, the European Commission's July 19 draft directive would
also require EU member states to permit alternative infrastructure
providers, such as electric, rail and water utilities, to begin using
their networks in 1996 to carry all telecommunications services other
than public switched voice. Although competitors would still need to
make use of at least some of DT's and FT's infrastructure, owing to the
much greater comprehensiveness of their networks, implementation of
this directive would offer at least a partial infrastructure
alternative to competitors and promote reductions in the prices for
leased lines in France and Germany, which currently are several times
higher than in the United States.
To achieve the 1998 target for liberalization, however, many other
specific directives, laws and regulations must still be developed and
adopted both by EU bodies and the governments of the member states.
This process is only now beginning at the EU level and in France and
Germany. The changes to be adopted included not only the formal lifting
of the legal monopolies, but also
[[Page 44063]]
the establishment of conditions for licensing of competitors and the
development of interconnection rights and requirements for the public
switched networks of FT and DT. The EU has anticipated the necessary
steps that will need to be taken and has outlined the principal
measures, but neither the EU nor the German and French governments have
reached a final resolution of the crucial regulatory issues
accompanying liberalization. Mere lifting of the legal prohibitions on
competition would not alone bring about real competition, since actual
competitors must also be licensed to operate.
The EU authorities have exercised a very significant role in
bringing about telecommunications liberalization in Europe, but there
are important limits on the scope of their authority. The decision
whether to privatize the government-owned telecommunications carriers,
and the pace at which this occurs, is wholly at the discretion of the
member states. Moreover, the EU's powers to compel liberalization and
protect competition relate to activities affecting commerce within or
between the member states. The decision of whether and how to regulate
the dealings of FT and DT with foreign telecommunications carriers
outside the EU, including the terms on which operating agreements and
leased lines are made available, has been left to the French and German
authorities. It is not yet clear whether the EU's liberalization
measures will confer any rights on providers from the United States and
other countries outside the EU, or only on firms operating within the
EU. The national governments at present are free to limit entry by such
non-EU competitors, subject to the results of ongoing multilateral
telecommunications trade negotiations.
C. The Competitive Effect of the Acquisition and Joint Venture
The Complaint alleges that the acquisition of 20% of Sprint by FT
and DT, and the formation of the joint venture between Sprint, FT and
DT may substantially lessen competition in the provision of
international telecommunications services between the United States and
France and Germany and in the provision of seamless international
telecommunications services. Sprint's and Joint Venture Co.'s
competitors in those markets must have access to the French and German
public switched networks, infrastructure and public data networks to
provide competitive services, and access to these services and
facilities is controlled by FT and DT. After this transaction is
consummated, FT and DT would benefit, through their ownership
interests, in the competitive success of the services offered by Joint
Venture Co. and Sprint.
FT and DT would therefore have increased incentives and the
ability, using their monopolies and dominant positions in France and
Germany respectively, to favor Sprint and Joint Venture Co. and to
disfavor their United States competitors in international
telecommunications services in various ways. This conduct would make
competitors' offerings less attractive in quality and price than those
of Sprint and Joint Venture Co., lessening the ability of Sprint and
Joint Venture Co.'s rivals to compete effectively in these services. As
a result of this anticompetitive conduct, the price of international
telecommunications services to France and Germany available to United
States consumers could be increased, and the quality lessened, relative
to what United States consumers would pay and receive in the absence of
this behavior.
First, FT's and DT's acquisition of a total of 20% of Sprint, and
their formation of the joint venture with Sprint, will increase their
incentives to use their market power over the public switched networks,
transmission infrastructure and public data networks in France and
Germany to discriminate in favor of Sprint and Joint Venture Co. vis-a-
vis other United States international carriers, in the markets for
international telecommunications services between the United States and
France or Germany and for seamless international telecommunications
services. Sprint could receive various forms of favorable treatment
from FT and DT with respect to its international correspondent services
between the United States and France and Germany. For example, FT or DT
could favor Sprint or disfavor its competitors with respect to the
prices, terms and conditions on which international services are
provided, or the quality of the provision of those services, and could
provide to Sprint advance information about planned changes to its
network that is not made available to other providers. FT or DT could
also alter protocols and network standards to exclude competitors'
services. Such discrimination could place other United States
international carriers at a competitive disadvantage to Sprint in
international correspondent telecommunications services, enabling
Sprint to charge more for its services or to provide a lower quality of
service than it would otherwise be able to do without losing customers.
It could also lessen the ability of the competitors of Sprint and Joint
Venture Co. to develop and offer new seamless international
telecommunications services to a compete effectively in these services.
As a result of this anticompetitive conduct, the quality of seamless
international telecommunications services available to United States
consumers could be diminished, and the price increased, relative to
what United States consumers would pay and receive in a competitive
market.
Second, FT and DT will have an incentive to favor Joint Venture Co.
and Sprint over their competitors, particularly new entrants and
providers of new services, by denying operating agreements to the
competitors, or by offering such agreements only on discriminatory
terms. In order to have international traffic terminate in France or
Germany through the correspondent system, an international carrier must
enter into an operating agreements with FT or DT, and FT and DT can
choose which carriers receive those agreements. The correspondent
system is the only way to send public switched voice traffic, which
represents the great majority of all telecommunications traffic, to
France or Germany today, because of the FT and DT public switched voice
monopolies. If new entrants and providers of new services are refused
operating agreements with FT and DT and cannot otherwise have their
traffic delivered to France and Germany and terms competitive with the
carriers that have agreements, that could prevent or inhibit the
development of competition in the markets for U.S.-France and U.S.-
Germany international telecommunications services.
Third, FT and DT will have an increased incentive and ability to
direct their switched telecommunications traffic from France and
Germany disproportionately to Sprint rather than other U.S.
international carriers, either directly as part of the correspondent
system, or outside that system through the Joint Venture Co. backbone
network. Because U.S. international telecommunications carriers
typically send more traffic to France and Germany than they receive,
they must make net settlement payments to FT and DT for delivery of
their switched traffic.\13\ Disproportionate return of
[[Page 44064]]
incoming traffic from FT and DT to Sprint would increase the liability
of Sprint's competitors to FT and DT for settlements paid on the net
amounts of traffic sent and received between the U.S. and France or
Germany, raising Sprint's competitors' costs of carrying such traffic.
Because the settlement rates paid by FT and DT and the U.S. carriers to
each other for delivering traffic are still well above the cost of
delivery, notwithstanding decreases in recent years, this return
traffic from France and Germany is of significant benefit to the
carrier who receives it. The expectation of receiving a proportionate
share of the return traffic has served to increase competition among
the U.S. carriers for the traffic outbound from the U.S. This
competition will be reduced to the extent that FT and DT are able to
disproportionately return their traffic to Sprint. Moreover, to the
extent that returning their traffic disproportionately to Sprint allows
FT and DT to send traffic to the U.S. at a rate other than the
settlement rate (which will still be the rate they receive from U.S.
carriers for traffic sent to France or Germany) FT or DT will have an
increased incentive to negotiate for higher settlement rates and resist
efforts to lower accounting rates.
\13\ The correspondent agreements governing switched services
establish an ``accounting rate'' per minute of traffic, for each
type of traffic sent over a particular international route. The
carriers in each country pay half the accounting rate (the
``settlement rate'') to their foreign correspondence for each minute
of traffic completed. Settlement payments for outgoing traffic are
offset by the settlement payments for incoming traffic. When there
is an imbalance in the amount of outgoing and incoming traffic
between carriers, the carrier with the most outgoing traffic makes a
net settlement payment to its correspondent. In 1993, according to
FCC data, the net outpayment of all U.S. international carriers to
FT for IMTS calls between the U.S. and France was $28,913,657, and
the net outpayment of all U.S. international carriers to DT for IMTS
calls between the U.S. and Germany was $144,492,724. 1993
International Telecommunications Data, International Traffic Data
for All U.S. Points, Table A1.
Today, United States carriers accept the same proportion of the
total switched traffic from each of their correspondents in a
foreign country as the proportion of total switched traffic to the
correspondent that each of the United States carriers send. Federal
Communications Commission policy supports this proportionate
allocation of switched traffic, although the FCC has not adopted
regulations governing proportionate allocation.
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Fourth, DT and FT will have an increased incentive and ability to
cross-subsidize Joint Venture Co. and Sprint by providing revenues from
the monopoly services or by shifting costs of Joint Venture Co. and
Sprint to the monopoly services. In both France and Germany, over three
quarters of the revenues of FT and DT are derived from services and
facilities that are legally protected against competition. These
monopoly activities can be used to cross-subsidize competitive
services. Such cross-subsidization would facilitate a strategy of
placing competitors of Joint Venture Co. and Sprint in a ``price
squeeze'' by keeping prices for the monopoly inputs they need well
above true economic costs, while simultaneously undercutting them on
price in the competitive markets through Joint Venture Co. and Sprint,
whose costs will have been artificially reduced. The result could be a
substantial lessening of competition in both international
telecommunications services and seamless international
telecommunications services in the U.S.
Fifth, FT's and DT's ownership interest in Sprint and Joint Venture
Co. would increase FT's and DT's incentives to provide Sprint and Joint
Venture Co. with confidential, competitively sensitive information that
FT and DT obtain from other United States carriers and competitors
through their correspondent relationships with FT and DT, or their
arrangements to obtain interconnection with the French and German
public switched networks or obtain transmission infrastructure from FT
and DT. In order to use FT's and DT's correspondent switched and
private line services and to negotiate terms of use, or to interconnect
with FT and DT in France and Germany and obtain transmission
infrastructure, United States international telecommunications
providers must provide FT and DT various types of competitively
sensitive information. This can include private line customer
identities, service requirements, plans for the introduction of new
services, changes in existing services, and future traffic projections.
If FT or DT were to share this information with Sprint or Joint Venture
Co., those firms could gain an anticompetitive advantage over their
United States competitors. Disclosure of this competitively sensitive
information to Sprint and Joint Venture Co. could substantially lessen
competition in both international telecommunications services and in
seamless international telecommunications services in the U.S. Allowing
Sprint access to such competitively valuable information about its
competitors would also increase the risk of price collusion.
(III)
Explanation of the Proposed Final Judgment
A. Prohibitions and Obligations
Under the provisions of the Antitrust Procedures and Penalties Act,
the proposed Final Judgment may only be entered if the Court finds that
it is in the public interest. The United States has tentatively
concluded that the proposed Final Judgment is in the public interest.
1. Overview of the Proposed Final Judgment
Section 7 of the Clayton Act, 15 U.S.C. 18, prohibits an
acquisition of stock or assets where ``the effect of such acquisition
may be substantially to lessen competition, or to tend to create a
monopoly.'' Thus, the United States has sought to address in the
proposed Final Judgment the competitive effects on United States
markets that would result from the consummation of the transaction
between Sprint, FT and DT. The issue properly considered by the United
States under Section 7 is how the creation of vertical relationships
between United States providers of international telecommunications
services and these foreign telecommunications monopolies could further
lessen competition in markets within the scope of the United States
antitrust laws.\14\
\14\ In addition to the vertical issues presented by the
affiliation between FT, DT, the joint venture and Sprint, the United
States also considered in its investigation horizontal competitive
issues involving Sprint and Infonet Services Corporation, which is
one of Sprint's principal competitors in the provision of various
types of domestic and international data telecommunications services
in the United States. FT and DT, as of the time of entering into the
Joint Venture Agreement and the Investment Agreement with Sprint,
were the largest shareholders of Infonet Services Corporation and
were represented on Infonet's Board of Directors. The United States
was concerned that violations would occur of both Section 7 of the
Clayton Act and Section 8 of the Clayton Act, which prohibits
interlocking directorates, had FT and DT become the largest
shareholders of both Sprint and Infonet, with representation on both
companies' boards of directors. This horizontal issue has now been
fully remedied, and so does not form a part of the terms of the
proposed Final Judgment. On June 20, 1995, FT and DT entered into a
separate agreement with Infonet, requiring FT and DT to sell a
substantial part of their shareholdings back to Infonet by August 3,
1995, and to fully divest the remainder of their shareholdings back
to Infonet 45 days after the earlier of (1) the date as of which FT
or DT acquire any of the securities of Sprint, or (2) six months
after all governmental approvals necessary for the consummation of
the investment in Sprint and the joint venture have been granted.
Pursuant to the stipulation between Sprint and the United States
entered on July 13, 1995, Sprint is prohibited from issuing any
equity to be acquired by FT or DT, or acquiring an ownership
interest in or contributing assets to the joint venture, until the
initial divestiture of FT and DT shares in Infonet has been
completed. The United States has been informed that as of the date
of the filing of this Competitive Impact Statement, all but one of
the several other shareholders of Infonet have completed repurchase
of the initial divestiture of the FT and DT shares, but because a
part of the shares included in the initial divestiture has not yet
been sold, the initial divestiture has not yet been completed. The
sale of the remaining shares in the initial divestiture is now
scheduled to occur by the end of August 1995. Additionally, the
stipulation requires Sprint and Joint Venture Co. to be maintained
as separate and independent businesses from Infonet, with no
transfer of proprietary business or financial information, pending
completion of the full divestiture. Sprint is precluded by the
stipulation from permitting any FT or DT directors to serve on its
board if FT or DT directors of Infonet are still exercising voting
rights, or if those directors remain on the Infonet board for more
than 45 days after FT or DT have acquired any of Sprint's
securities.
[[Page 44065]]
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This narrow question differs significantly from the issues relating
to this transaction that are still under consideration by other United
States and European authorities. Both the Federal Communications
Commission (``FCC'') and the European Commission have separate pending
investigations of this transaction, and the European Commission is also
investigating the formation of the Atlas alliance between FT and DT.
These authorities, based on their public statements, are expected to
complete their investigations before the close of 1995. The FCC's
review of this transaction, under the ``public interest'' mandate of
the Communications Act of 1934, may involve broader issues of foreign
market access and the appropriateness of permitting substantial
investments in United States telecommunications carriers by foreign
monopolists whose conduct already causes harm to United States
consumers, subjects on which the FCC also has a general rulemaking
procedure in progress.\15\ The European Commission's jurisdictional
responsibilities differ from those of United States antitrust and
regulatory authorities, being focused on commerce among and within EU
member states. The European Commission has already indicated that it
has serious concerns about the loss of actual or potential competition
between FT and DT in Europe resulting from the formation of the Altas
alliance, an issue that is outside the scope of United States antitrust
review and so is not addressed by the relief in the proposed Final
Judgment.\16\ Thus, the entry of this Final Judgment is not intended to
affect the ability of the FCC or the European Commission to take
additional measures they may find necessary to address the issues
within their areas of responsibility.
\15\ See Market Entry and Regulation of Foreign-affiliated
Entities, IB Docket No. 95-22, FCC 95-53, Notice of Proposed
Rulemaking (released February 17, 1995), and the Reply Comments of
the United States Department of Justice, filed in this FCC
rulemaking proceeding on May 12, 1995.
\16\ On May 23, 1995, the European Commission sent a ``warning
letter'' to FT and DT advising them of the intent of Commission
staff to take a negative position with regard to the Atlas
transaction and to propose to the Commission that the transaction be
prohibited. The European Commission has expressed particular concern
about the dominant positions of FT and DT in their home markets and
the loss of competition in data telecommunications services. FT and
DT have been given until September 15, 1995 to present proposals to
change their transaction to meet the European Commission's
competition concerns. If no satisfactory action is taken by that
time, the next step in the European Commission's investigation would
be to issue a formal ``statement of objections,'' the European
equivalent of an antitrust complaint.3
The proposed Final Judgment in this case has many features and
provisions in common with the consent decree previously entered by this
Court on September 29, 1994 in United States v. MCI Communications
Corp., No. 94-1317 (TFH) (D.D.C.), and published in the Federal
Register at 59 Fed. Reg. 33009 (June 27, 1994), following the United
States' investigation of the strategic alliance between BT and MCI to
form Concert. That transaction aimed to provide similar international
telecommunications and enhanced telecommunications services, and also
involved a 20% equity investment by a foreign telecommunications
provider in a United States international carrier. There are, however,
crucial differences between this transaction and the BT-MCI alliance.
Although BT continued to have some market power in basic
telecommunications services and facilities and control over local
bottlenecks in the United Kingdom at the time it formed its alliance
with MCI, all of its lines of business were already open to competition
and BT actually faced facilities-based competition to some extent at
all levels, from independent carriers and cable television companies.
Moreover, since 1993 BT has ceased to be government-owned, so that it
is independent from its government regulator in the United Kingdom.
Here, in contrast, FT and DT retain legal monopolies over three-
quarters of all telecommunications business in France and Germany, as
measured by revenues, and have market power over additional types of
services such as public data networks that have already become
competitive in the United Kingdom. FT and DT do not have the same
degree of independent regulatory oversight of their conduct by national
authorities as BT, because of their continuing government ownership.
Accordingly, in this transaction it was necessary to impose more
stringent conditions governing the relationship between FT and DT on
the one hand, and Sprint and the joint venture on the other,
particularly in the period before France and Germany fully liberalize
their telecommunications markets pursuant to EU requirements, in order
adequately to protect competition.
The proposed Final Judgment reflects the differences between the
French and German telecommunications markets and that in the United
Kingdom by operating in two phases. The first phase, ``Phase I,'' is
that period of time after the entry of this Final Judgment and before
all of the conditions that must be met to commence Phase II have been
satisfied. Essentially, Phase I of the proposed Final Judgment will be
in effect until all prohibitions on competition have been removed, and
actual competitors have been licensed, in France and Germany. The shift
from Phase I to Phase II is assessed separately for France and for
Germany, so that the development of a competitive market in one country
will be taken into account notwithstanding delays in the other.
Phase II begins for France, and for Germany, when the national
government of that country has taken two key steps, as stated in
Section V.Q. First, the government must have removed all of the legal
prohibitions on (a) the construction, ownership or control of both
domestic and international telecommunications facilities, and use of
such facilities to provide any telecommunications or enhanced
telecommunications services, and (b) the provision of public switched
domestic and international voice services, by entities other than FT
and DT and their affiliates. Second, the government must have issued
one or more licenses or other necessary authorizations, to entities
other than and unaffiliated with FT, DT, Sprint or Joint Venture Co.,
for all of the following: (a) The construction or ownership, control,
of both (i) domestic telecommunications facilities to serve territory
in which one-half or more of the national populations of France and
Germany reside, and (ii) international telecommunications facilities
capable of being used to provide a competitive facilities-based
alternative, directly or indirectly, between France and Germany and the
United States; and (b) the provision of public switched domestic long
distance voice services, without any limitation on geographic scope or
types of services offered, and international voice service between the
United States and France and Germany. The phrase ``competitive
facilities-based alternative,'' as used herein, signifies that the
licensed competitors must have authority to construct or own a
sufficiently large amount of international capacity that other
providers would have a realistic alternative to the use of the
international facilities of FT or DT, and is not satisfied by
authorization to construct or own an insubstantial number of
international circuits. The requirement herein that all legal
prohibitions on the provision of services and facilities have been
removed refers only to prohibitions on entities' ability to provide
service and to construct, own
[[Page 44066]]
and operate facilities. It is not intended to apply to the
establishment of neutral conditions for the provision of service by the
national governments of France or Germany, such as contributions to the
funding of universal service or obligations to obtain a license.
The substantive restrictions and requirements contained in Section
II of the proposed Final Judgment continue throughout the entire term
of the decree, which is five years from the commencement of Phase II in
both France and Germany. The Section II restrictions are for the most
part similar to those in the MCI decree, including transparency and
confidentiality requirements, though in some respects they are broader,
in particular with respect to open licensing of other United States
competitors. Other restrictions, those contained in Section III,
terminate at the onset of Phase II, separately for France and for
Germany unless specifically stated otherwise. The Section III
restrictions lasting through Phase I include limits on the scope of
activities of Sprint and Joint Venture Co., and behavioral prohibitions
applicable to Sprint and Joint Venture Co. These provisions are
intended to foster competition in international telecommunications
services and seamless services, by ensuring that Sprint and Joint
Venture Co. do not receive various types of advantages over competitors
from their association with the FT and DT monopolies.
Generally speaking, during Phase II the proposed Final Judgment
relies to a greater extent on enforcement by national regulatory
authorities in Europe, the EU itself, and the FCC in the United States
to protect competition, while during Phase I the proposed Final
Judgment provides for additional types of injunctive relief to ensure
that Sprint and Joint Venture Co. do not benefit from anticompetitive
conduct by FT and DT. This distinction is reasonable in the
circumstances of this transaction, because there is considerably
greater potential for competitive abuses to occur in the period while
competitors have no legal alternative to using FT's and DT's facilities
and services, and before the EU and the French and German governments
finish implementing their program of regulatory reform, which is
necessary in order to ensure nondiscriminatory licensing and
interconnection for competitors and provision of services by dominant
carriers on an open and nondiscriminatory basis. Although the proposed
Final Judgment does not specifically reference all of the directives
and measures envisioned by the European authorities, an underlying
assumption is that these authorities will carry out their publicly
announced intention of having all the key regulatory measures needed
for development of effective competition in place by the time full
liberalization is to take effect in 1998.
The various requirements and restrictions of this proposed Final
Judgment, in combination, will substantially diminish the risk of abuse
of FT and DT's market power to discriminate or otherwise afford
anticompetitive advantages to Sprint and Joint Venture Co.\17\ They
will do so by making discrimination, disproportionate return of traffic
and cross-subsidization easier to detect and prevent, by precluding the
misuse of confidential information obtained by FT and DT from Sprint's
and Joint Venture Co.'s competitors, by precluding Sprint and Joint
Venture Co. from benefiting by delays in licensing of competitors or
refusal to license competitors by the French and German governments, by
ensuring that Sprint and Joint Venture Co. are not the exclusive
recipients of operating agreements from FT or DT for any services, and
by ensuring that access to the public switched networks and public data
networks in France and Germany is not impaired by adoption of
proprietary or nonstandard protocols. The object of these substantive
terms is to ensure that Sprint, as the result of its direct affiliation
with FT and DT or its position as the exclusive distributor of Joint
Venture Co. services in the United States, as well as Joint Venture Co.
itself, are not given an advantage over their competitors in the United
States to the detriment of competition or consumers.
\17\ Joint Venture Co. is broadly defined in Sections V.A and
V.O to ensure that the entire joint venture will be subject to the
Final Judgment, regardless of the forms that it may take or
restructuring that may occur.
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Several key terms are employed throughout the substantive
obligations and restrictions of Sections II and III of the Final
Judgment, defining the scope of these provisions. ``Telecommunications
service'' (as defined in Section V.U) includes ordinary switched voice
telephony and private circuits as well as conveyance (including
transmission, switching and receiving) of data and video information,
and signaling, translation and conversion in the network. These basic
telecommunications services are the bulk of existing
telecommunications, and are licensed and regulated to some degree in
the United States and in France and Germany, although not in the same
manner in each country. There are relatively few major providers of
these services in the United States, and in France and Germany FT and
DT remain the monopoly or the dominant providers of most of these
services. In contrast, an ``enhanced telecommunications service'' (as
defined in Section V.H), uses telecommunications services as a
foundation to provide various advanced and intelligent applications of
additional value to users. Enhanced telecommunications services are
subject to little or no regulation in the United States, and face
considerably less regulation than basic services in France and Germany,
with few if any legal restrictions on entry.\18\ The number of
providers of enhanced telecommunications services is often greater than
for basic telecommunications services, although all such providers must
have access to basic telecommunications services, including network
interconnection and transmission facilities, in order to do
business.\19\
\18\ The definitions of ``telecommunications services'' and
``enhanced telecommunications services'' in the Final Judgment are
based on the distinction between basic services and enhanced
services recognized by the FCC, as well as similar concepts in EU
law and in France and Germany, where ``value-added services'' are
referred to in a sense similar to enhanced services. The definitions
do not duplicate those used by any of the national regulatory
authorities, which differ somewhat in terminology, but they
incorporate as much as possible the underlying concepts, while
ensuring consistent treatment within the context of this judgment
for services offered in the United States, France and Germany.
\19\ If an activity is a ``telecommunications service'' as
defined in the Final Judgment, it remains so when it is offered or
bundled with enhanced services or other equipment, facilities, or
services, or if it is called a ``package of facilities'' or
something other than a telecommunications service.
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``FT or DT Products and Services'' (as defined in Section V.L) are
also referred to throughout the Final Judgment. This term encompasses
any of an enumerated list of telecommunications and enhanced
telecommunications services or facilities in France or Germany, or
between the United States and France or the United States and Germany,
that are provided by FT or DT. These services are correspondent
services,\20\ dedicated or switched transit services, leased lines,
international half circuits between the United States and France and
the United States and Germany,\21\ and interconnection to the FT and DT
public
[[Page 44067]]
switched telephone networks (including Integrated Services Digital
Network interconnection). All of the services covered by this term are
ones over which FT and DT continue to exercise market power in their
home countries, and many of the services described as ``FT or DT
Products and Services'' are those within the scope of FT's and DT's
legal monopolies, but the list of FT or DT Products and Services is not
limited to services or facilities that are reserved exclusively to FT
or DT under the laws of France or Germany.
\20\ Correspondent services, under this proposed Final Judgment,
include not only the standard switched IDDD international voice
call, but also other services such as Virtual Private Networks
offered on a correspondent basis.
\21\ Leased lines and international half-circuits may be
excluded from the list by mutual agreement of the United States and
the defendants if they concur that effective competition exists to
such facilities provided by DT or FT.
One significant category of services over which FT and DT continue
to have market power in their home countries, public data networks, is
not included in the list of FT or DT Products and Services. Because
data networks operate in significantly different ways from the public
voice networks, and face some actual competition in France and Germany,
the competitive risks arising from this transaction due to FT's and
DT's market power in data services differed from the competitive risks
associated with FT's and DT's provision of correspondent services,
transit services, leased lines or connection to the French and German
public switched networks. Several specific provisions of the proposed
Final Judgment do, however, place restrictions and obligations on the
relationship of the joint venture and Sprint with FT's and DT's public
data networks in their home countries, in order to limit risks of abuse
of FT's and DT's market power in this area. Moreover, the most
important components of the public data networks, the leased lines, are
included in the definition of FT or DT Products and Services.
Although the proposed Final Judgment generally makes no distinction
between FT, DT, and their Atlas alliance, but treats them all together
so as to ensure that Atlas is not used as a vehicle to circumvent the
decree, the definition of FT or DT Products and Services does not
include enhanced correspondent services that Atlas provides on its own,
rather than by reselling or acting as a sales agent for FT or DT,
unless the enhanced correspondent services involve interconnection to
the public data networks. This limited exception was intended to
facilitate the development of enhanced services through Atlas, and not
to permit FT or DT simply to transfer their existing correspondent
activities into Atlas to escape the obligations of the proposed Final
Judgment.
2. Restrictions in Effect for the Term of the Decree
Section II contains substantive restrictions and obligations which
continue throughout the full duration of the decree. These include
transparency requirements (Section II.A), confidentiality requirements
(Section II.B.), and limitations on the ability of Sprint and Joint
Venture Co. to offer international services involving France or
Germany, or provide facilities to FT or DT for such services, if other
United States international telecommunications providers are not
permitted to provide the same services (Section II.C).
a. Transparency Requiremnts. Section II.A. forbids Sprint or Joint
Venture Co. from offering, supplying, distributing, or otherwise
providing any telecommunications or enhanced telecommunications service
that makes use of telecommunications services provided by FT in France
or between the United States and France, or DT in Germany or between
the United States and Germany, unless Sprint or Joint Venture Co.
disclose certain types of information. Because these transparency
requirements may be affected by changes in regulation or other
circumstances, Section II.A provides the United States with the ability
to waive these requirements in whole or in part.
Pursuant to Section V.F., Sprint and Joint Venture Co. will provide
the information to the Department of Justice, which may then disclose
the information to any United States international telecommunications
provider that holds or has applied for a license, from either the FCC,
the French DGPT or the German BMPT, to provide international
telecommunications services between the United States and either France
or Germany, or who actually provides international telecommunications
services between the United States and either France or Germany, for
services where no license is required. This will enable the principal
competitors of Sprint and Joint Venture Co. to monitor whether either
of these companies is receiving more favorable treatment from either FT
or DT than competitors receive, and would provide them with evidence
that could be used to make a complaint to any governmental authorities
in the United States or France or Germany. In particular, this
information could be used by competitors to identify violations of the
Phase I restrictions of the proposed Final Judgment to the Department
of Justice while those provisions remain in effect, and the Department
of Justice could also use the information to detect violations on its
own initiative.
``United States international telecommunications provider,'' as
defined in Section V.W., includes subsidiaries and affiliates of such
providers, as well as entities with which a United States international
telecommunications provider is affiliated, where a 10% or greater
equity interest exists, so that international joint ventures and
foreign strategic allies with equity investments in a U.S. provider, as
in the BT-MCI Concert relationship, can qualify for access to the
information.
Disclosure by the Department of Justice to any provider described
above will be made only upon agreement by the provider, in the form
prescribed in the Stipulation entered into by Sprint and Joint Venture
Co. and the United States on July 13, 1995, not to use such non-public
information for commercial purposes and not to disclose such non-public
information to any other person, apart from governmental authorities in
the United States, France or Germany. The term ``governmental
authorities'' is used broadly and includes independent agencies.
Entities receiving this information from the Department of Justice
would be required to sign a confidentiality agreement with the
Department, obligating them not to disclose non-public information to
any persons other than governmental authorities. The stipulation
between the defendants and the United States describes the form of a
confidentiality agreement in more detail. This confidentiality
provision was adopted to prevent wider dissemination of defendants'
non-public business information than is necessary to detect and prevent
anticompetitive conduct.
Seven categories of information must be disclosed pursuant to the
transparency provisions in Section II.A. Three of the categories apply
to Joint Venture Co., two apply to Sprint, and two apply to both
companies.
Joint Venture Co. will make extensive use of interconnection with
the public switched telephone networks of FT and DT in France and
Germany to provide telecommunications and enhanced telecommunications
services, as well as obtaining leased lines and international half-
circuits from FT and DT for Joint Venture Co.'s backbone network. These
relationships make it necessary to impose disclosure obligations on
Joint Venture Co. in the following areas.
First, under Section II.A.1, Joint Venture Co. must disclose the
prices, terms and conditions, including applicable discounts, on which
FT or DT Projects and Services are provided in France or Germany to
Joint Venture
[[Page 44068]]
Co. pursuant to interconnection agreements. Interconnection agreements
are specific arrangement (see Section V.N) by which other service
providers in France and in Germany receive rights to connect their
systems to FT's or DT's public switched telephone networks and have FT
and DT complete delivery of traffic, on terms that may differ from
those available to retail customers. Section II.A.1 will compel Joint
Venture Co. to disclose to competitors that actual prices FT and DT
charges it for interconnection, as well as non-price terms. Such
publication is not required under current French or German law, which
permits FT and DT to enter into individual commercial negotiations with
their competitors for interconnection and not disclose the terms to
other providers, thereby increasing opportunities for discrimination.
Second, Section II.A.2 imposes similar disclosure obligations on
Joint Venture Co. for the prices, terms and conditions, including any
discounts, of any other FT or DT Products and Services it obtains in
France from FT or in Germany from DT for use in providing
telecommunications or enhanced telecommunications services between the
United States and France or the United States and Germany. Among the
most important FT or DT Products and Services covered by this provision
are the leased lines and international half-circuits that would be used
in Joint Venture Co.'s own backbone network for seamless services.
Although some of these types of information are already disclosed by FT
and DT in their retail tariffs pursuant to French and German
regulation, Section II.A.2 ensures comprehensive transparency to
prevent discrimination, including disclosure of any commercially
negotiated off-tariff discounts or special service arrangements, and
disclosure of arrangements for international facilities, which are
subject to less regulatory oversight than are domestic services in
France and Germany. This provision also applies to the terms on which
FT and DT Products and Services are provided to customers in France and
Germany in conjunction with Joint Venture Co. services when FT or DT is
acting as the distributor for Joint Venture Co., thus facilitating
detection of discrimination in bundling of services.
Third, Section II.A.4 requires Joint Venture Co. to provide
additional information about the specific FT or DT Products and
Services that it receives from FT in France and DT in Germany for use
by Joint Venture Co. to supply telecommunications or enhanced
telecommunications services between the United States and France or
Germany, as well as the services FT provides directly to customers in
France and the services DT provides directly to customers in Germany as
the distributor for Joint Venture Co. Joint Venture Co. is required to
disclose (i) the types of circuits, including their capacity, and other
telecommunications services provided, (ii) information concerning the
actual average times between order and delivery of circuits, and (iii)
the number of outages and actual average times between fault report and
restoration for various categories of circuits. These types of
information are not otherwise disclosed under existing regulations in
France or Germany, which only provide for disclosure of much more
general and non-provider specific information concerning service
quality. The mandated disclosures here are important to the detection
of various types of discrimination involving provisioning and quality
of services. Where Joint Venture Co. has to disclose particular
telecommunications services provided, it is required to identify the
services and provide reasonable detail about them (if not already
published). However, if a product or service is sold as a unit,
separate underlying facilities need only be disclosed to the extent
necessary to identify the product or service and the means of
interconnection. Joint Venture Co. is not required to identify
individual customers or the locations of circuits and services
dedicated to particular customers.
Sprint's relationship with FT and DT in the provision of
international telecommunications services will be less complex than
Joint Venture Co.'s, because of Sprint's agreements not to compete with
Joint Venture Co. and not to compete with FT and DT in their home
countries, France and Germany. Spring will continue to provide
international correspondent switched services and private line services
together with FT and DT. To ensure greater transparency in Sprint's
dealings with FT and DT, Section II.A contains two sets of disclosure
obligations specifically applicable to Sprint.
Section II.A.3 applies to any international switched
telecommunications or enhanced telecommunications services provided by
Sprint and FT or by Sprint and DT on a correspondent basis between the
United States and France or between the United States and Germany. It
requires Sprint to disclose both the accounting and settlement rates,
and other terms and conditions, applicable to any of these services,
including the methodology by which proportionate return of
international traffic is calculated. When there is no specific
agreement between Sprint and FT or between Sprint and DT setting forth
this information, Sprint must state the rates, terms and conditions on
which the service is actually provided. In addition, where different
accounting rates exist for types of services that FT or DT combine for
purposes of calculating the proportionate return due to United States
international telecommunications providers, Sprint must disclose its
own minutes of traffic in each separate accounting rate category so
that the other United States providers can determine whether they are
being sent the appropriate shares of traffic from FT or DT, unless they
already receive the necessary data (such as total traffic volumes in
each rate category). This latter obligation addresses a particular type
of possible discrimination in international services, known as
``grooming,'' by which a foreign carrier can favor particular United
States correspondents with traffic of superior value while appearing to
allocate minutes of traffic on a proportionate basis. Today some of the
types of information covered by Section II.A.3, such as agreed-upon
accounting rates, are supplied to the FCC and are published, but other
types of information, including proportionate return data, are only
provided at the discretion of FT and DT pursuant to voluntary
arrangements with U.S. Carriers. Where information has already been
made available to competitors, Section II.A.3 of the Final Judgment
does not require Sprint to provide it to the Department of Justice.
Section III.E, however, contains additional and more extensive
obligations concerning disclosure of information on proportionate
return traffic that are in effect during Phase I.
Section II.A.5 requires Sprint to provide information about the
United States-France and the United States-Germany international
circuits it provides jointly with either FT or DT. Sprint must disclose
for international private circuits (i) the actual average times between
order and delivery by FT or DT, and (ii) the actual average time
intervals between fault report and restoration in specific areas of the
international facility and the overseas network. This information is
similar to types of information Joint Venture Co. provides under
Section II.A.4 and serves similar purposes. Sprint is also required,
for circuits used to provide international switched services on a
correspondent basis between the United
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States and France and between the United States and Germany, to
identify (i) average numbers of circuit equivalents available to Sprint
during the busy hour and (ii) the percentage of calls that failed to
complete during the busy hour. None of the information disclosed under
Section II.A.5 is made public today under existing regulation, and this
information would have substantial value in facilitating detection of
discrimination in the provision and quality of services.
Two types of information must be disclosed by both Joint Venture
Co. and Sprint, as either company might be the beneficiary of
discrimination in these areas. First, under Section II.A.6 Sprint and
Joint Venture Co. are required to disclose information that either
entity receives from FT or DT about any material change or decision
relating to the design of, technical standards used in, or points of
interconnection to the FT or DT public switched telephone networks that
would materially affect the terms or conditions on which Sprint, Joint
Venture Co. or any other person is able to have access to, or
interconnect with these networks for telecommunications or enhanced
telecommunications services within France or Germany or between the
United States and France or the United States and Germany. Disclosure
of information of this nature is important to ensure that Joint Venture
Co. and Sprint, due to their affiliation with FT and DT, are not given
commercial advantages over competitors through advance notice of
network changes by FT and DT.
Second, under Section II.A.7, Sprint and Joint Venture Co. are
required to disclose any discounts or more favorable terms offered by
FT or DT to their customers, for FT or DT Products and Services, that
are conditioned on Sprint or Joint Venture Co. being selected by the
customers as the United States provider of a telecommunications or
enhanced telecommunications service. This provision is closely related
to section III.D.2, which prohibits during Phase I any such bundling or
tying arrangements, but it continues for the duration of the decree to
ensure that even after competition has been authorized, any such
arrangements by FT and DT will have to be disclosed, permitting
complaints to be made to regulatory authorities.
Under Section II.A, Sprint and Joint Venture Co. are required to
disclose intellectual property or proprietary information only if it is
one of the types of information expressly required to be disclosed by
any of the transparency obligations, or if it is necessary for United
States international telecommunications providers to interconnect with
the public switched telephone networks of FT or DT, or is necessary for
United States international telecommunications providers to use FT's or
DT's international telecommunications or enhanced telecommunications
correspondent services. Sprint and Joint Venture Co., as well as FT and
DT indirectly, are thus protected against overly broad disclosure of
such valuable commercial information.
b. Confidentiality Requirements. Section II.B of the proposed Final
Judgment constrains the ability of Sprint and Joint Venture Co. to
receive, or seek to receive, from FT or DT (including FT or DT-
appointed directors on the board of Sprint), various types of
confidential information that FT or DT obtain from Sprint and Joint
Venture Co.'s United States competitors. Existing regulatory
requirements do not adequately protect any of this information from
disclosure.
Under Section II.B.1 Sprint and Joint Venture Co. cannot receive
information from FT or DT that other United States international
telecommunications providers identify as proprietary and maintain as
confidential, but that has been obtained by FT or DT as the result of
their provision of interconnection or other telecommunications services
to U.S. providers in France or Germany. In order to obtain
interconnection with FT or DT, other providers would have to provide FT
and DT with detailed information about their planned services and
interconnection needs. As interconnection needs change over time, FT
and DT would receive more confidential information. FT and DT may also
learn the identities and service needs of particular customers of their
competitors who need to have private circuits interconnected with FT or
DT. Of course, there is no alternative to interconnection with either
FT or DT because of their monopolies in France and Germany,
respectively, and even after these monopolies are lifted, competitors
will still need to interconnect with FT and DT to some extent because
of their dominant market positions and the ubiquity of their networks
in France and Germany.
Section II.B.2 similarly forbids Sprint and Joint Venture Co. from
receiving from FT or DT confidential, non-public information that FT or
DT obtain from other United States international telecommunications
providers through correspondent relationships. United States
international telecommunications providers have no alternative at
present to using FT or DT for the origination and termination of
international correspondent traffic in France and Germany, and even
after current monoploy restrictions are lifted, they are likely to
remain at least partly dependent on FT and DT for delivery of much
correspondent traffic. A limited exception is provided to allow Sprint
to obtain certain types of aggregate information it may need to comply
with its transparency obligations under Sections II.A.3(ii) and II.A.5,
but in no circumstances may Sprint use this exception to receive
individual information about other providers that is otherwise
prohibited by this section.
Finally, Section II.B.3 addresses a specific competitive risk in
the context of international correspondent relationships, by
prohibiting Sprint or Joint Venture Co. from seeking or accepting from
FT or DT any non-public information about the future prices or pricing
plans of any competitor of Sprint in the provision of international
telecommunications services between the United States and France or the
United States and Germany. FT and DT and their United States
correspondents, in the course of accounting rate negotiations, exchange
considerable information including business plans and traffic
projections. Section II.B.3 addresses the substantial risk of violation
of Section 1 of the Sherman Act that would arise if FT or DT were to
obtain non-public pricing information from Sprint's competitors once FT
and DT become Sprint's largest owners, by precluding any sharing of
price information through FT or DT. Risks of price collusion, tacit or
explicit, are considerable in an industry with a small number of large
providers offering similar types of services.
Finally, Section II.B.3 safeguards against the circumvention of the
above prohibitions by prohibiting Sprint and Joint Venture Co. from
employing personnel who either (i) are also employed by FT or DT and
have access to the types of information that Sprint and Joint Venture
Co. are not permitted to receive from FT or DT under Section II.B, or
(ii) have been employed by FT or DT within the preceding six months if
during that time, they received any of the types of information that
Sprint and Joint Venture Co. are not permitted to receive under Section
II.B.
c. Open Licensing. Continued government ownership of FT and DT
creates risks that other United States international telecommunications
providers may not receive licenses or other authorizations for the
French and German governments that are needed to provide international
telecommunications and enhanced telecommunications services, or may
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have their applications substantially delayed. This is a particular
concern in the emerging areas of seamless services, where a provider
needs to able to offer a service on an end-to-end basis in both the
United States and France or Germany. Conversely, Sprint and Joint
Venture Co. may have more advantageous opportunities to obtain licenses
in France and Germany due to their affiliation with FT or DT, or to
provide seamless services using the licenses of their monopoly
partners. Because the entire area of public voice services has not yet
been opened to competition in France and Germany, and other new
services may also be developed, it is not possible to identify each
service for which this type of concern may arise. International voice
resale services, however, clearly come within the area of potential
concern. Competition in international telecommunications and enhanced
telecommunications services between the United States and France and
Germany, including seamless se
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