# United States v. Sprint Corporation and Joint Venture Co.; Proposed Final Judgment and Competitive Impact Statement > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A95-20834 ## Record - **Collection:** Federal Register - **Document type:** Notice - **Published:** August 24, 1995 - **Citation:** 60 FR 44049 ## Text 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. ---------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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]] --------------------------------------------------------------------------- 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 tr [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-20834. Public record. Not legal advice.