Public Comments and Response on Proposed Final Judgment, United States v. Sprint Corporation and Joint Venture Company

[[Page 3970]]

DEPARTMENT OF JUSTICE

Antitrust Division

[Civil No. 95-1304]

Public Comments and Response on Proposed Final Judgment, United

States v. Sprint Corporation and Joint Venture Company

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

16(b)-(h), the United States of America hereby publishes below the

comments received on the proposed Final Judgment in United States v.

Sprint Corporation, et. al., Civil Action No. 95-1304, filed in the

United States District Court for the District of Columbia, together

with the United States' response to the comments.

Copies of the comments and response are available for inspection in

Room 215 of the U.S. Department of Justice, Antitrust Division, 325 7th

Street, NW., Washington, DC 20530, telephone: (202) 514-2481, and at

the office of the Clerk of the United States District Court for the

District of Columbia, United States Courthouse, Third Street and

Constitution Avenue, NW., Washington, DC 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.

Comments Relating to Proposed Final Judgment and Response of the

United States to Comments

United States of America, Plaintiff, v. Sprint Corporation and

Joint Venture Company, Defendants.

[Civil Action No. 95-1304 (TPJ)]

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

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

American hereby files the public comments it has received relating to

the proposed Final Judgment in this civil antitrust proceeding, and

herein responds to the public comments. The United States has carefully

reviewed the public comments on the proposed Final Judgment. While the

United States remains convinced that entry of the proposed Final

Judgment is in the public interest, in this Response the United States

clarifies the meaning of several provisions of the proposed Final

Judgment in response to issues raised by the public comments to ensure

that there is no uncertainty as to how the proposed Final Judgment will

operate. The United States also explains why other provisions of the

proposed Final Judgment that were questioned or criticized in the

public comments need not be changed in light of the factual

circumstances, including developments in France and Germany and actions

taken by the European Commission and the Federal Communications

Commission.

At this time, it would be premature for the Court to render a

decision on entry of the proposed Final Judgment. The Joint Venture

must first be made a party to the Stipulation consenting to entry of

judgment, and the United States must have this Response and the public

comments published in the Federal Register, certify that all of the

requirements of the Tunney Act have been met, and move for entry of

judgment. It is anticipated that these steps will be completed in a

period between two weeks to a month from this filing. The filing of

this Response has been delayed as a result of the shutdown of

government functions in December and early January due to lack of

funding. Before the United States moves to enter the Final Judgment,

the United States and defendants expect to arrange with the Court for

the scheduling of a status conference, in order to determine what

further procedures the Court may wish to follow to complete the

proceedings under the Tunney Act.

I

Background

A. The Proceedings in This Case

This action was commenced on July 13, 1995, when the United States

filed a civil antitrust complaint under Section 15 of the Clayton Act,

as amended, 15 U.S.C. Sec. 25, alleging that the proposed acquisition

of 20% of the stock of Sprint Corporation (``Sprint'') by France

Telecom (``FT'') and Deutsche Telekom AG (``DT''), and the proposed

formation by Sprint, FT and DT of a joint venture to provide

international telecommunications services, would violate Section 7 of

the Clayton Act, as amended, 15 U.S.C. Sec. 18. The Complaint alleges

that because of the market power held by FT and DT in

telecommunications services in France and Germany, the acquisition and

the joint venture may substantially lessen competition in two markets:

(1) provision of international telecommunications services between the

United States and France, and between the United States and Germany,

and (2) provision of seamless international telecommunications

services.

Also on July 13, 1995, the United States submitted a proposed Final

Judgment and a Stipulation, and this Court subsequently approved the

Stipulation for filing. In the Stipulation, defendant Sprint and the

United States have consented to entry of the proposed Final Judgment by

the Court after completion of the procedures required by the APPA, and

agreed to certain other preconditions for consummation of the

transactions between Sprint, France Telecom and Deutsche Telekom.\1\

After the Joint Venture has been formed, and before the Court is

requested to enter the proposed Final Judgment, the United States and

all defendants expect to file an amended version of the Stipulation

including consent to entry of judgment by the Joint Venture.\2\

\1\ The United States has been advised by FT and DT that one of

those preconditions, the divestiture of the Initial Tranche of FT's

and DT's shares of Infonet Services Corporation, has now been

completed.

\2\ Paragraph 6 of the July 13, 1995 Stipulation signed by the

United States and Sprint provides that ``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.'' It further sets out required conditions pertaining to

Joint Venture Co. including ``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, * * *'' The stipulation further

provides that until these conditions pertaining to Joint Venture Co.

are satisfied, the United States ``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.'' The original stipulation signed by both

Sprint and the United States essentially makes the formation of the

joint venture and its execution of the Stipulation consenting to

entry of the proposed Final Judgment preconditions for entry of the

Final Judgment.

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On August 14, 1995, the United States filed a Competitive Impact

Statement explaining the basis for the Complaint and the provisions of

the proposed Final Judgment, including their anticipated effect on

competition in relevant markets. The terms and conditions imposed by

the Final Judgment are intended to safeguard against discriminatory and

other anticompetitive practices that would favor the defendants over

competing United States providers of international telecommunications

services and harm competition. The Competitive Impact Statement

addresses the reasons why entry of the proposed Final Judgment would be

in the public interest.

The proposed Final Judgment would subject Sprint and the Joint

Venture to various restrictions affecting their relationship with FT

and DT. These restrictions operate in two distinct phases, lessening

over time as

[[Page 3971]]

competition develops in France and Germany. During Phase I, while DT

and FT still have monopoly rights in Germany and France and competitors

have not been licensed, 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 Phase I and Phase II, 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 certain 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 German 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.

B. Other Significant Developments Affecting These Transactions

In the Competitive Impact Statement, the United States noted that

both the competition authorities of the Commission of the European

Union, and the Federal Communications Commission in the United States,

had pending investigations of these transactions. See Competitive

Impact Statement, 60 Fed. Reg. 44049, at 44065 (Aug. 24, 1995). The

issues in these separate investigations overlapped to a certain extent

with those considered by the United States under the Clayton Act, but

also differed significantly in some respects, both for jurisdictional

and substantive reasons. The European Commission and the FCC now have

both resolved their separate investigations of these transactions. Both

of these authorities have determined that the transactions should be

allowed to proceed, subject to various modifications, limitations and

safeguards addressing the concerns within their areas of

responsibility. Other relevant developments have also taken place in

the European Union and in France and Germany indicating further

progress toward removal of legal barriers to competition and the

establishment of effective regulatory regimes to protect competition.

1. The European Commission Decision

The competition authorities of the European Commission considered

not only the transactions between Sprint, France Telecom and Deutsche

Telekom leading to the formation of the ``Phoenix'' alliance referred

to in the proposed Final Judgment as Joint Venture Co., but also the

formation of the strategic alliance between France Telecom and Deutsche

Telekom in Europe known as ``Atlas,'' which was outside the scope of

U.S. antitrust review. Their decision, first reached and announced in

October 1995 shortly before the end of the public comment period on the

proposed Final Judgment, was officially published on December 15,

1995.\3\ It is subject to an ongoing public comment period before it is

finalized, which will likely occur sometime in the first half of 1996.

\3\ Case No. IV/33,337--Atlas, Notice pursuant to Article 19(3)

of Council Regulation No. 17 and Article 3 of Protocol 21 of the

European Economic Area Agreement concerning a request for negative

clearance or an exemption pursuant to Article 85(3) of the EC Treaty

and Article 53(3) of the EEA Agreement, 1995 O.J. No. C 337/2 (Dec.

15, 1995), and Case No. IV/35,617--Phoenix, Notice pursuant to

Article 19(3) of Council Regulation No. 17 and Article 3 of Protocol

21 of the European Economic Area Agreement concerning a request for

negative clearance or an exemption pursuant to Article 85(3) of the

EC Treaty and Article 53(3) of the EEA Agreement, 1995 O.J. No. C

337/13 (Dec. 15, 1995). For convenience these decisions have been

attached to this Response as Exhibit H.

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The European Commission recognizes in its decision that other

competitors of the Atlas and Phoenix ventures will be dependent in

France and Germany on the monopoly services of FT and DT, including the

public switched telephone network (PSTN) and other reserved services

such as leased lines. Moreover, FT and DT already have very high market

shares in various types of services in their home countries that the

parties had planned to provide through Atlas and Phoenix, including

standardized low-level packet-switched data communications services.

The European Commission gives DT's share of data communications

services in Germany as 79%, and FT's share of data communications

services in France as 77%. In order for the Atlas and Phoenix

transactions to be exempted from the prohibitions of European

competition law and enabled to proceed, FT and DT accepted various

conditions and modifications to the transactions, while the French and

German governments also committed to make important changes in their

national laws.

First, the French and German governments have made a written

commitment to the European Commission to permit competition in the

provision of telecommunications infrastructure for services other than

public switched voice by July 1, 1996, and to permit full competition

for voice telephone services and all types of telecommunications

infrastructure by January 1, 1998. This early liberalization for

infrastructure used for services other than public switched voice will

authorize competitors in France and Germany to begin developing and

operating alternative telecommunications networks a year and a half

before the date of full liberalization in France and Germany, and also

considerably before the earliest time that a shift from Phase I to

Phase II could occur under the proposed Final Judgment. For Phase II to

begin in either France or Germany, there must have been, among other

things, complete removal of all legal prohibitions on competition,

which would not occur before January 1, 1998 at the earliest based on

current schedules for liberalization in France and Germany.

Second, FT is precluded from integrating its Transpac public

switched X.25 data network in France into Atlas, and DT similarly is

precluded from integrating its Datex-P public switched X.25 data

network in Germany into Atlas, until January 1, 1998, the planned date

of full liberalization. Atlas may not acquire any form of legal

ownership or control over the Transpac network in France or the Datex-P

network in Germany before that date, although certain international

operations of Transpac outside of France can be contributed to Atlas.

In essence, the European competition authorities have extended to Atlas

the prohibition on integrating the Public Data Networks into Phoenix

during Phase I that is contained in Section III.B of the proposed Final

Judgment.\4\ The Transpac and Datex-P networks in France and Germany

are to be wholly owned subsidiaries of FT and DT during the period

before they can be integrated into Atlas, while Atlas will have

subsidiaries of its own in France and

[[Page 3972]]

Germany to provide its other services. FT and DT will have the ability

to cooperate with respect to Transpac and Datex-P, using Atlas as a

manager, only in certain specified areas involving the development of

common products and technical network elements, including network

planning and information systems.

\4\ There are minor differences between these integration

prohibitions. The European authorities have opted for a fixed date

on which the prohibition terminates, whereas the termination of

Phase I is flexible and depends on the satisfaction of certain

conditions, and also can differ for France and for Germany. Also,

the definition of the Public Data Networks in Section V.S. of the

proposed Final Judgment, with respect to Germany, is broader than

the Datex-P network and also includes some other data services.

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Third, FT has committed to divest its Info AG data network in

Germany, instead of integrating it into Atlas. This responds to

concerns on the part of the EU competition authorities about loss of

horizontal competition between Info AG and DT in Germany in data

services, similar to the concern of the United States about the loss of

competition between Sprint and Infonet Services Corporation in the

U.S., which was addressed by FT's and DT's agreement to divest their

interest in Infonet.

Fourth, Atlas and Phoenix will not act as agents for the

international half-circuits of DT and FT, a change to the original

agreements of the parties. These international half-circuits will

continue to be sold by DT and FT directly.

Fifth, the non-compete agreements of the parties to the Phoenix

joint venture will not apply to long distance services, except for

competition with entities providing long distance services that are

controlled by Phoenix.

Sixth, Atlas, Phoenix, DT, FT and Sprint and their affiliates are

precluded from making a telecommunications operator's ability to use

the Phoenix international carrier services (i.e., sales of switched

transit capacity to other telecommunications carriers), or the

commercial terms on which such services are offered, conditional upon

use or distribution by that telecommunications operator of services of

Atlas, Phoenix, DT, FT or Sprint.

Seventh, DT and FT have committed directly for Atlas, and DT, FT

and Sprint have committed for Phoenix, to certain undertakings

regarding forms of behavior that could have anticompetitive effects.

These undertakings, enforceable by the European competition

authorities, are similar in many respects to the obligations that would

be made binding on Sprint and the Joint Venture directly, and

indirectly affect FT's and DT's conduct, under the terms of the

proposed Final Judgment. They do not conflict with the proposed Final

Judgment in any way.

Several of these undertakings are directed at preventing

discrimination in public switched telephone network (PSTN) and reserved

services, such as leased lines. FT and DT will be required to give

similar terms and conditions of service (including availability, price,

quality of service, usage conditions, delays for installation and

repair and maintenance) to Atlas and Phoenix and other providers of

similar services, with respect to FT's and DT's PSTN services and other

reserved services. Atlas and Phoenix are not to be granted terms and

conditions or to be exempted from usage restrictions regarding the PSTN

and other reserved services that would enable them to offer services

that competing providers are prevented from offering. DT and FT are

prohibited from discriminating between Atlas and Phoenix and any

competing service provider in connection with substantial modifications

to interfaces for reserved services or the disclosure of technical

information relating to the operation of the PSTN. DT and FT also are

prohibited from discriminating between Atlas and Phoenix and other

competitors regarding the disclosure of commercial information,

including customer information derived from operating the PSTN or

providing reserved services, that would confer a substantial

competitive advantage and is not readily available elsewhere. While

these restrictions presumably would cease to apply to particular

services as they lose their reserved status, they would continue to

apply to the PSTN with no specific time limit.

Other undertakings are intended to ensure that access to the DT and

FT national public switched data networks remains available to

competitors. These services, though not considered to be PSTN or

reserved services, nonetheless are ones for which DT and FT remain the

dominant providers in their home countries. DT and FT will be required,

as of January 1, 1996, to establish and maintain third-party access to

their public switched data networks in Germany and France on a non-

discriminatory, open, and transparent basis, for all other providers of

X.25 packet-switched data communications services. In order to ensure

such non-discriminatory access to their national public switched data

networks, DT and FT will be required to establish and maintain

interfaces based on the X.75 standard (a form of protocol for

interconnection between data networks that is commonly used as an

international standard and is suitable for the provision of end-to-end

X.25 services) or any other generally used standard interconnection

protocol that may modify, replace or co-exist with the X.75 standard.

Access based on such protocols is to be offered on publicly available

standard non-discriminatory terms including price, availability of

volume or other discounts, and quality of interconnection, and FT and

DT are required to make available to the European competition

authorities the terms of any agreements concerning access. Atlas,

Datex-P and Transpac will not be prohibited, however, from developing

additional proprietary interfaces between their networks, provided that

access granted to Atlas through such interfaces is economically

equivalent to the access that third parties are able to obtain. Apart

from a prohibition on the sharing of customers' confidential

interconnection information between Transpac, Datex-P and Atlas, which

would be lifted once these networks can be combined into Atlas, the

obligations regarding access to the public data networks do not expire

at any predetermined time.

Further undertakings are directed at preventing cross-subsidization

by FT and DT of the Atlas and Phoenix ventures as well as Datex-P and

Transpac. These obligations last until the telecommunications

infrastructure and service markets in France and Germany are fully

liberalized, as is expected to occur by January 1, 1998. All entities

formed pursuant to the Atlas and Phoenix ventures must be distinct and

separate from DT and FT. Atlas, Phoenix, Datex-P and Transpac must

obtain their own debt financing, with certain exceptions similar to

those in the proposed Final Judgment. They are also prohibited from

allocating directly or indirectly any part of their operating expenses,

costs, depreciation, or other business expenses to any parts of FT's or

DT's business units, again with provisos similar to the proposed Final

Judgment. They are required to keep separate accounting records

identifying payments and transfers to and from FT and DT, and are

prohibited from receiving any material subsidy or any investment or

payment from FT or DT that is not recorded in their books as an

investment in debt or equity.

Atlas, Transpac and Datex-P will be subject to regular auditing

obligations to ensure that any transactions between them and FT or DT

are on an arm's length basis. FT, DT, Phoenix and Atlas will also be

subject to recording and reporting obligations, in order to enable FT's

and DT's undertakings not to discriminate or cross-subsidize to be

effectively monitored by the European Commission competition

authorities. These conditions will last until full telecommunications

liberalization takes place in France and Germany.

2. The FCC Decision

On December 15, 1995, the Federal Communications Commission

announced its decision on the proposed

[[Page 3973]]

acquisition by FT and DT of 20% of the equity of Sprint, and the

formation of the ``Phoenix'' joint venture between these three

companies, under the ``public interest'' standard of the Communications

Act of 1934 and relevant provisions of that statute, including 47

U.S.C. Secs. 214 and 310(b).\5\ The FCC, similarly to the United

States, has recognized in its decision that the 20% investment in

Sprint and formation of the Joint Venture will give FT and DT

incentives that they would not otherwise have to engage in various

types of anticompetitive behavior favoring Sprint and the Joint Venture

over other U.S. competitors, potentially raising prices and reducing

service quality and innovation.\6\ Based on the recent policy shift by

the French and German governments toward competitive telecommunications

markets and the potential benefits of the transactions for consumers,

the FCC has determined that allowing these transactions to be

consummated would be in the public interest notwithstanding the present

lack of ``effective competitive opportunities'' for U.S. providers in

France and Germany. However, it has also imposed several significant

conditions on the transactions.

\5\ In the matter of Sprint Corporation Petition for Declaratory

Ruling Concerning Section 310(b)(4) and (d) and the Public Interest

Requirements of the Communications Act of 1934, as amended, File No.

ISP-95-002, FCC 95-498 (released January 11, 1996) (hereinafter

``FCC Sprint Order''). Because this document is lengthy and is

publicly available in the U.S., it has not been attached as an

exhibit to this Response.

\6\ Id., Paras. 56-57.

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First, the FCC has restricted Sprint's ability to operate new

international circuit capacity to France and Germany for either its own

use or that of the Joint Venture, beyond the existing and idle capacity

it already has to those countries on several submarine cables, until

(1) infrastructure liberalization for facilities used to provide

services other than public switched voice has actually occurred in

France and Germany (as the European Commission's settlement requires to

take place by July 1, 1996), and (2) opportunities exist in France and

Germany for basic public switched voice resale services to be provided

on a competitive basis, including international traffic between France

and Germany and the U.S.\7\

\7\ Id., Paras. 109-115.

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Second, Sprint will be subject to regulation as a ``dominant

carrier'' with respect to traffic between the U.S. and France and

Germany, due to its relationship with FT and DT, which are considered

to be dominant carriers in their home markets, until Sprint

demonstrates that there is no longer a substantial risk of

anticompetitive effects in the U.S. arising from its relationship with

FT and DT. This would mean that Sprint would be required to notify the

FCC and obtain approval whenever it seeks to add new circuits to those

countries, either for itself or the Joint Venture, whereas nondominant

carriers only need obtain approval when first commencing service to a

particular country and can thereafter add capacity freely. It would

also mean that Sprint's tariffs filed with the FCC for basic

telecommunications services, such as switched voice, to France and

Germany would be subject to longer waiting periods before taking

effect, and that Sprint would have to file quarterly traffic and

revenuer reports.\8\

\8\ Id., Paras. 103-108.

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Third, Sprint will be obligated not to accept any ``special

concessions'' directly or indirectly from any foreign carrier or

administration, including FT or DT, with respect to traffic or revenue

flows between the United States and any foreign country, including

France or Germany. Other U.S. carriers that are considered to be

affiliated with a foreign telecommunications carrier under 47 C.F.R.

Sec. 63.14 have a similar obligation. This requirement will remain in

place indefinitely, unless removed by the FCC. ``Special concessions''

are defined by the FCC to include any arrangements that affect traffic

or revenue flows to or from the United States that are offered to a

particular U.S. carrier but not to other similarly situated U.S.

carriers that are authorized to serve a particular route. 47 C.F.R.

Sec. 63/01(r)(3)(1). The FCC's decision illustrates the effect of this

prohibition with detailed examples. Sprint would be precluded from

accepting disproportionate amounts of return traffic, preferential

changes in methods of allocating traffic, or discriminatory accounting

rates from FT or DT.

Furthermore, if FT or DT were to grant an operating agreement or

marketing arrangement to Sprint for a particular type of basic service

but to withhold such agreements from other similarly situated U.S.

carriers, or only offer agreements on discriminatory terms, Sprint

would be in violation of the ``no special concessions'' requirement

were it to offer service under the special operating agreement or

marketing arrangement. Sprint will also be precluded from accepting any

discriminatory interconnection or distribution arrangements from FT or

DT, or arrangements for the joint handling of basic traffic involving

third countries that are not available to other U.S. carriers. Sprint

could not receive directly or through the Joint Venture (i) information

about FT's or DT's basic network services that had not been publicly

disclosed and that would affect U.S. carriers' provision of service,

(ii) proprietary or confidential information that FT or DT have

obtained from other competing U.S. carriers, or (iii) FT's or DT's

telephone customer information that is not also available to U.S.

competitors. In furtherance of this obligation not to accept special

concessions, Sprint will also have to obtain a written commitment from

FT and DT not to offer or provide any special concessions to Sprint or

the joint venture relating to the provision of basic telecommunications

services or facilities. Sprint also will be obligated to maintain

records on its provisioning and maintenance of network facilities and

services with FT and DT (including services or facilities procured on

behalf of Joint Venture customers), to file various types of reports

with the FCC on its numbers of circuits, revenues, numbers of messages

and minutes for originating and terminating traffic between the U.S.

and France and Germany, and to make available its contracts and

agreements with FT and DT relating to routing of traffic and settlement

of accounts on the U.S.-France and U.S.-Germany routes.\9\ These

conditions are similar to the obligations the FCC imposed on MCI in

connection with its sale of 20% of its equity to British

Telecommunications plc and formation of a joint venture in 1994.\10\

\9\ Id., Paras. 116-127.

\10\ MCI Communications Corporation/British Telecommunications

plc, Joint Petition for Declaratory Ruling Concerning Section

310(b)(4) and (d) of the Communications Act of 1934, as amended, 9

FCC Rcd 3960, 3973 (released July 25, 1994).

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Fourth, Sprint will have to obtain a written commitment from France

Telecom to lower its accounting rates for U.S.-France traffic within

two years to the levels of the lower accounting rates between U.S.

carriers and British carriers for U.S.-U.K. traffic, and between U.S.

carriers and DT for U.S.-Germany traffic. The FFC has found that the

U.S.-France rates are 28% above the level of the others and that this

difference is unjustified.\11\

\11\ FCC Sprint Order, Paras. 90-92, 131.

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Fifth, Sprint will have to file annual reports, beginning in 1996,

concerning the status of telecommunications markets and regulatory

regimes in France and Germany.\12\ These reports are intended to enable

the FCC to evaluate how far France and Germany have progressed toward

meeting the

[[Page 3974]]

``effective competitive opportunities'' criteria that the FCC has

announced it will apply generally to foreign telecommunications carrier

acquisitions of over 25% of the equity in U.S. telecommunications

carriers leading to affiliation, or other investments likely to have

competitive significance.\13\ The reports will continue until the FCC

finds that ``effective competitive opportunities'' exist in France and

Germany, and the FCC has said that it will reconsider whether the

public interest continues to be served by Sprint's authority to provide

facilities to France and Germany if effective competitive opportunities

are not available by 1998.\14\

\12\ Id., Paras. 128-29.

\13\ The ``effective competitive opportunities'' criteria are

explained fully in the FCC's decision in Market Entry and Regulation

of Foreign-affiliated Entities, IB Docket No. 95-22, Report and

Order (released Nov. 30, 1995). In summary, they are: (1) whether

U.S. carriers can, as a matter of law, offer in the foreign country

international facilities-based services, including the ability to

obtain a controlling interest in a facilities-based provider and to

offer basic International Message Telephone Service traffic; (2) the

availability of reasonable and nondiscriminatory published charges,

terms and conditions for interconnection to foreign domestic

carriers' facilities for termination and origination of

international services; (3) whether competitive safeguards exist in

the foreign country to protect against anticompetitive conduct,

including cost-allocation rules to prevent cross-subsidization,

timely and nondiscriminatory disclosure of technical information

needed to use or interconnect with carriers' facilities, and

protection of carrier and customer proprietary information; and (4)

whether there is an effective regulatory framework in the foreign

country to develop, implement and enforce legal requirements,

interconnection arrangements and other competitive safeguards,

including separation between the regulator and the foreign operator

of international facilities-based services, and the existence of

fair and transparent regulatory procedures. A favorable competitive

opportunities finding can be made if effective competitive

opportunities currently exist or it is reasonably certain that they

will be available in the near future. The FCC places greatest

emphasis on the legal ability to provide international facilities-

based service, but if any of the factors of the test are completely

absent, the FCC will deny authority to provide facilities-based

service on an international route where the foreign carrier is

dominant at its end, unless other public interest factors lead to a

different result. Id. at Paras. 42-55.

\14\ FCC Sprint Order, para. 132.

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3. Other Significant Actions by European Union Authorities

The Competitive Impact Statement addresses the European Union's

overall plans for the introduction of full telecommunications

competition by January 1, 1998, and infrastructure competition for

services other than public switched voice in 1996. 60 Fed. Reg. at

44062. Over the past few months, the Commission of the European Union

has proposed several other major directives, all of which are necessary

steps on the road to full competition and an effective regulatory

framework, and together indicate the substantial progress that is now

being made toward telecommunications competition.

On July 19, 1995, the European Commission issued a proposed draft

directive governing interconnection in telecommunications, which has

now been submitted to the Parliament and the Council of Ministers who

are responsible for adopting it.\15\ This directive comprehensively

addresses the manner in which Member States of the European Union,

including France and Germany, would be required to ensure that

telecommunications operators such as France Telecom and Deutsche

Telekom provide interconnection to their networks for other

telecommunications network and service providers. Under the terms of

this directive, FT and DT, as entities with significant market power,

would have to establish transparent, unbundled, cost-oriented

interconnection charges, and would not be able to discriminate among

providers in interconnection. They would have to publish tariffs for

their standardized interconnection services, and not simply establish

interconnection terms through commercial negotiation as is more typical

today. Moreover, where any interconnection arrangements are negotiated,

regulatory authorities would have to ensure that agreements are reached

within specified times and provide for review with published decisions.

This directive is scheduled for final adoption by the end of 1996, and

member States, including France and Germany, would have to take the

measures necessary to bring themselves into compliance before the end

of 1997, so as to have an interconnection regulatory regime in place

prior to the start of full competition.

\15\ Commission of the European Communities, Proposal for a

European Parliament and Council Directive on Interconnection in

Telecommunications, COM (95) 379 final, O.J. No. C 313/7, November

24, 1995. Although only recently published, this directive was

submitted by the Commission on August 31, 1995, shortly after the

Competitive Impact Statement was filed in this case.

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On November 14, 1995, the European Commission also adopted a

proposed draft directive, to be acted upon by the Parliament and

Council of Ministers, to ensure a common framework in the European

Union for the grant of general authorizations and individual licenses

to provide telecommunications services by the Member States, including

France and Germany.\16\ This directive would apply to all types of

telecommunications services as they become open to competition. Under

this proposed directive, Member States would not be permitted to impose

limits on the number of licenses granted to provide particular services

or facilities, except as necessary in the case of radio-based services

because of limits on the availability of spectrum. Licensing procedures

would have to be open, transparent and nondiscriminatory, and any

denials of licenses would have to be justified and subject to appeal.

This directive is scheduled for final adoption by the fall of 1996, and

Member States would have to take measures to bring themselves into

compliance by July 1, 1997, six months before the start of full

competition, so as to enable competitors to be licensed in a timely

manner.

\16\ Commission of the European Communities, Proposal for a

European Parliament and Council Directive on a Common Framework for

General Authorizations and Individual Licenses in the Field of

Telecommunications Services, COM (95) 545, Nov. 14, 1995.

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Other existing European Union directives governing

telecommunications services are also being updated to account for the

plans for full introduction of competition by 1998. Under proposed

changes to the existing directive governing the framework for open

network provision, announced on November 14, 1995 by the European

Commission, Member States that retain a significant degree of ownership

or control of a telecommunications provider, as France and Germany both

still do, would have to take additional measures to ensure the

effective separation of regulatory activities from activities of the

government related to ownership or control of the telecommunications

provider.\17\ The regulatory authorities would have to be both legally

distinct from and functionally independent of all organizations

providing telecommunications networks or services, effective structural

separation from any activities associated with ownership or control of

such organizations would have to exist, and rights of appeal from the

regulator to an independent body would have to be provided. These

changes to the framework directive are also scheduled for final

adoption by the fall of 1996, and Member States would have to take the

measures needed to bring themselves into compliance by the end of 1997.

\17\ Commission of the European Communities, Proposal for a

European Parliament and Council Directive amending Council

Directives 90/387/EEC and 92/44/EEC for the purpose of adaption to a

competitive environment in telecommunications, COM (95) 543 final,

Nov. 11, 1995.

[[Page 3975]]

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4. Progress Toward Competition in Germany and France

Notwithstanding these important developments at the level of the

European Union, it is also necessary to consider actions taken by the

German and French governments to move towards a competitive

telecommunications environment. European Union measures must be

transposed into law at the national level, and national regulatory

authorities have the primary responsibility for implementing and

enforcing them. Even though the European Union telecommunications

directives do not discriminate among European and U.S.-owned providers

in the rights that would be accorded to firms doing business in Europe,

the Member States retain the authority to establish the terms on which

international services to countries outside the European Union will be

provided, as discussed in the Competitive Impact Statement, 60 Fed.

Reg. at 44063. They may elect to liberalize these services partly or

entirely on their own now, or to await the results of ongoing

multilateral trade negotiations on telecommunications services.

a. Germany. The German government set out its proposals for

liberalization in March 1995,\18\ and these proposals are generally in

line with the approach being taken by the European Union. Draft

legislation for a new Telecommunications Act was to be prepared by fall

1995, and the United States understands that this process is on

schedule. Draft legislation was in fact released by the German Post and

Telecommunications Minister in June 1995 and now is under consideration

at the highest levels of the German government. The legislation

originally was scheduled to be adopted by both houses of the German

federal legislature by summer 1996, and now is expected to be passed

even earlier, in the late spring of 1996. By the spring of 1997, even

more rapidly than the European Union would require, the German

telecommunications regulator expects to have awarded licenses to

applicants, and it will not restrict the numbers of licenses made

available, except where necessary due to scarcity of resources such as

frequencies, nor will it impose restrictions on foreign investment in

licensees. The new telecommunications law will take effect by January

1, 1998. As part of the new legislation, the German government also is

considering various alternatives to create a more independent

telecommunications regulator.

\18\ Federal Ministry for Post and Telecommunications, Corner

Stones of a Future Regulation Framework in the Telecommunications

Sector, March 27, 1995.

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Having agreed to authorize competition for infrastructure used to

provide services other than public switched voice, the German

government is also preparing legislation for this partial early

liberalization, which is planned to be adopted by the German federal

legislature by the spring of 1996, apparently as part of the larger

telecommunications reform law. The German government informed the FCC

by letter on October 17, 1995 that it is committed to allowing

alternative facilities providers to commence operations as of July 1,

1996.\19\ Also, in October 1995, the German telecommunications

regulator adopted a licensing regulation, which is to be used to

consider applications to operate competing telecommunications systems

pending the enactment of the new law.\20\

\19\ FCC Sprint Order, para. 67, citing Letter from Dr. Wolfgang

Boetsch, Federal Minister for Posts and Telecommunications, to Reed

E. Hundt, Chairman, Federal Communications Commission (Oct. 17,

1995).

\20\ Regulation on the Opening of Markets for Services as well

as on the Content, Scope and Procedure of Licensing in the

Telecommunications Sector, October 31, 1995.

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The German government has confirmed, in a letter from the

Bundesministerium fur Post und Telekommunikation (BMPT), the German

telecommunications regulator, to the Department of Justice,\21\ that

international telecommunications infrastructure, including submarine

cable ownership interests, will be included within the partial

liberalization of infrastructure planned to occur by July 1, 1996. At

that time, providers other than Deutsche Telekom will acquire the right

to set up and operate transmission lines for all services other than

public voice telephony. The BMPT has stated that Germany does not

require special licenses for submarine cable landing rights, and there

will be ``non-discriminatory, open and transparent access regulation in

Germany for submarine cables,'' without regard to the nationality of

the operator or owner of the cable. Thus, U.S. firms should lawfully be

able to acquire interests in the German end of submarine cables by mid-

1996 and use such facilities for services other than public switched

voice. The BMPT also has informed the Department that it intends to

issue a draft regulation governing interconnection with public

telecommunications networks immediately following the entry into force

of the proposed new Telecommunications Act in 1996, although the draft

of this regulation is not yet prepared and the exact date of its

submission has not yet been scheduled.

\21\ Letter from Dr. Witte, BMPT, to Carl Willner, Department of

Justice (December 13, 1995). This letter is attached to this

Response as Exhibit I.

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In Germany, there are several large firms that are already

providing some types of telecommunications services now open to

competition, and have announced plans to become telecommunications

carriers once they are able to obtain licenses, including Mannesmann/

CNI, Thyssen, Vebacom, RWE and VIAG. Mannesmann is the major competing

cellular radio provider and Thyssen also has a mobile radio license,

while the other firms all have some amount of wireline and fiber-optic

infrastructure that is used for their own internal or separate business

purposes today and might be offered for telecommunications networks

were they permitted to compete in this area. The German national

railway, Deutsche Bahn, also has internal telecommunications

capabilities and rights of way that it plans to make available to

others for telecommunications networks. Vebacom and VIAG have already

formed international alliances with the principal British

telecommunications carriers, British Telecom and Cable & Wireless. In

some major German cities, such as Frankfurt and Cologne, authorization

has already been granted for firms other than Deutsche Telekom,

including U.S. providers such as MFS, to establish local

telecommunications networks serving business users.\22\ These

developments do not mean that Deutsche Telekom is in imminent danger of

losing its dominant position in German telecommunications markets. For

the reasons indicated in the Complaint and Competitive Impact Statement

in this case, it is reasonable to expect that DT will continue to

exercise market power for some time. But these developments do indicate

that actual and potential competitors exist that may be willing to take

advantage of early infrastructure liberalization in Germany and begin

to develop alternative networks in advance of full liberalization.

\22\ These networks are being established under an exception to

the general DT monopoly still in effect on telecommunications

infrastructure that permits separate facilities to be established to

provide non-monopoly services, but only with a 25 kilometer limit.

At present they must use DT leased lines for interconnections

outside the 25 kilometer area.

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b. France. Progress toward liberalization in France has not been as

[[Page 3976]]

rapid as in Germany. Privatization of FT, if it occurs at all, will

only be partial, with the French government retaining a controlling

interest. Unlike Germany, no privatization legislation has been

introduced let alone enacted. Nor has the process of adopting

legislation governing the transition to full competition progressed as

rapidly as in Germany.

An important step, however, has been taken with the publication by

the French Ministry of Information Technologies and Postal Services and

the French telecommunications regulator, Direction Generale des Postes

et Telecommunications (DGPT), in October 1995, of a consultative

document outlining the steps to be taken and the timetable planned for

introduction of competition.\23\ This document indicates that the

French government plans in March 1996 to introduce telecommunications

reform legislation for the full introduction of competition by January

1, 1998, with passage of the legislation by Parliament expected during

the spring of 1996. By the end of 1996, regulations reflecting the new

law are to be established, along with the principles for

interconnection and licensing of competitors. Licenses are to be issued

to competing telecommunications operators in the spring of 1997. The

consultative document outlines the types of services for which

individual licenses, as opposed to general authorizations, will be

required. According to the DGPT, the number of licenses for services or

facilities should not be limited, unless this is justified by scarcity

of resources such as frequencies. Some telecommunications operators,

including France Telecom, will be required to publish their

interconnection terms in advance, rather than relying merely on

commercial negotiation, and the structure and pricing of their

interconnection terms will be subject to regulatory approval based on

auditable cost accounts. France Telecom will be expected to issue its

interconnection tariffs by July 1997, according to the consultative

document. This document also addresses the need for changes to give the

telecommunications regulator greater independence as part of the

opening of the French telecommunications markets to full competition

and considers options to do so, suggesting that this could be done as

early as January 1, 1997.

\23\ Ministry of Information Technology and Postal Services, New

Ground Rules for Telecommunications in France, October 1995.

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In one important respect, partial liberalization of infrastructure

for services other than public switched voice, France is able to move

more rapidly than Germany, since the regulator already has some

statutory authority to permit greater competition without the need to

pass new legislation as in Germany. The regulator has already granted

experimental licenses for some competitive pilot projects, and one U.S.

firm, MFS, has been authorized to establish competing local fiber-optic

infrastructure for closed groups of business users in Paris. The French

government has informed the FCC, by letter of October 20, 1995, that

legislation to provide for alternative infrastructure liberalization

for services other than public switched voice will be introduced in the

French Parliament in the spring of 1996 and will take effect by July 1,

1996.\24\

\24\ FCC Spring Order, para.65, citing Letter from Bruno

Lasserre, Director General, DGPT, to Reed E. Hundt, Chairman,

Federal Communications Commission, at 2 (Oct. 20, 1995).

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To date, not as many large potential providers of competing

telecommunications networks have emerged in France as in Germany. The

French telecommunications regulator anticipates that France Telcom's

dominant position will continue for some time.\25\ One major firm that

plans full-scale entry into liberalized telecommunications services and

infrastructure, however, is Compaignie Generale des Eaux (CGE). This

firm is already a provider of cable television infrastructure as well

as the largest shareholder of France's principal competing mobile

telephone services provider, SFR, and provides various types of

business telecommunications services that are already open to

competition in France. AT&T and the Unisource partners (the principal

telecommunications providers in Sweden, the Netherlands, Spain and

Switzerland) have reached an agreement to form a strategic alliance

with CGE's telecommunications subsidiary IRIS, much as British Telecom

has done with VIAG and Cable & Wireless with Vebacom in Germany. There

are other cable television companies in France such as Lyonnaise

Communications that are considering entering the telephone business

using their networks, and the French national railroad, SNCF, also has

an internal telecommunications network including fiber-optic cable that

it plans to make available to telecommunications network providers.

\25\ The October 1995 consultative document states that France

Telecom will continue to have ``strong dominant market positions''

after 1998 in several important telecommunications market sectors

and indicates that there may even be de facto monopolies in certain

services or market segments. Ministry of Information Technology and

Postal Services, New Ground Rules for Telecommunications in France,

at 24.

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In France, unlike Germany, it appears that international

telecommunications facilities to the United States may not be

liberalized automatically with the rest of the opening to partial

infrastructure competition due to take place on July 1, 1996 under the

agreement with the European Union. Although the French government has

stated in a letter from DGPT to the Department of Justice \26\ that it

``fully supports opening up all telecommunications services in all

markets,'' whether this liberalization actually occurs in the case of

international half-circuits and submarine cable landing rights for

competing providers on the France--U.S. route will depend on the

outcome of ongoing multilateral trade negotiations or separate

bilateral agreements. However, draft legislation in France that will

permit the granting of various experimental telecommunications service

licenses in 1996, including public voice telephony services in

geographically limited areas, does not contain any foreign ownership

restrictions for wireline networks.

\26\ Letter from M. Bruno Lasserre, Director General of DGPT, to

Carl Willner, December 8, 1995. This letter is attached to this

Response as Exhibit J.

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II

Compliance with the APPA

The APPA requires a sixty-day period for the submission of public

comments on the proposed Final Judgment, 15 U.S.C. Sec. 16(b). In this

case, the sixty-day comment period commenced on August 24, 1995, and

terminated on October 23, 1995. During this period, the United States

received comments by seven competitors of Sprint and the proposed joint

Venture or other interested persons, including AT&T Corporation, MCI

Communications Corporation, BT North America Inc., Cable & Wireless

Europe, ACC Corp., Esprit Telecom United Kingdom Limited, and Prof.

Charles M. Haar of the Harvard University Law School.\27\ The United

States responds herein to these comments. Upon publication in the

Federal Register of these comments and the following response of the

United States to these comments, pursuant to 15 U.S.C. Sec. 16(d) of

the APPA, the procedures required by the APPA prior to entry of the

proposed Final Judgment will be completed. The United States expects to

move for entry of the proposed Final Judgment after the public comments

and this response of

[[Page 3977]]

the United States have been published in the Federal Register and the

Joint Venture has been formed and has executed the Stipulation, binding

it as a party to the proposed Final Judgment under the terms specified

in the Stipulation.\28\

\27\ These comments are attached as Exhibits A-G.

\28\ Until these events have taken place, and the United States

has certified that the requirements of the Tunney Act have been met,

the Court should not rule on entry of the proposed Final Judgment.

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III

Response to Public Comments

In consenting to the entry of the proposed Final Judgment in this

case, the United States took into account various considerations

bearing on the risks of competitive harm affecting U.S. consumers and

the desirability of further litigation. These included the size of the

planned 20% investment by Deutsche Telekom and France Telecom in

Sprint, the potential for new services to be offered and other

efficiencies realized by the Joint Venture, the increasing progress

toward removal of legal and practical barriers to telecommunications

competition in France and Germany, and the involvement of foreign

telecommunications providers subject to distinct regulatory regimes in

their home countries. Competitive Impact Statement, 60 Fed. Reg. at

44075.

The public comments express various types of concerns about the

interpretation or the adequacy of the proposed Final Judgment, and

several contend that the Final Judgment should not be entered unless

substantial changes are made. It appears that many of these concerns

are based on misunderstandings or uncertainties on the part of the

commenters about the meaning of provisions of the proposed Final

Judgment or their application to the agreements between Sprint, FT and

DT, and conduct in which they might engage. The United States

accordingly provides further clarification of the meaning and

application of several provisions of the proposed Final Judgment below.

Some other concerns expressed in the public comments are simply not

germane to the problems associated with these transactions that are

identified in the Complaint and Competitive Impact Statement in this

case. It is not the role of the Court, in a proceeding under the Tunney

Act to approve an antitrust consent decree, to each beyond the terms of

the complaint and consider whether other cases might have been brought

and other violations alleged. United States v. Microsoft Corp., 56 F.3d

1448, 1459-60 (D.C. Cir. 1995).

A number of the comments question whether there is sufficient

relief in the proposed Final Judgment to remedy the problems alleged by

the United States, contending that further modifications should be

made. These commenters overlook, however, the context in which these

transactions take place. Two other government agencies in addition to

the United States Department of Justice have reviewed these

transactions, and have imposed additional relief that complements and

reinforces in important respects the terms of the proposed Final

Judgment. Moreover, an ongoing process of telecommunications reform and

opening to competition is taking place in the European Union, France

and Germany. In ruling whether this proposed Final Judgment is

sufficient to satisfy the ``public interest'' standard of the Tunney

Act, the Court should not limit its consideration to whether all of the

potential competitive problems arising from the monopoly rights and

market power of Deutsche Telekom and France Telecom in their home

countries are fully corrected within the four corners of the proposed

Final Judgment alone. Rather, it should ask whether the proposed Final

Judgment satisfies the ``public interest'' bearing in mind that it will

operate together with all of the other relief imposed by the European

Union competition authorities and the FCC, and with the liberalization

measures now planned in Germany and France. When the issue is properly

understood in these terms, it is apparent that the proposed Final

Judgment does indeed promote the ``public interest.''

Because the same types of issues are raised by many of the

commenters, this Response is structured in terms of the issues raised

rather than separately addressing each of the comments filed.

A. Transition from Phase I to Phase II of the Proposed Final Judgment

Several commenters, including AT&T, MCI, BT North America, Esprit

Telecom and Cable & Wireless, raise the issue of whether the proposed

Final Judgment will be effective in light of the possibility that the

transition from Phase I to Phase II could occur while DT and FT, though

deprived of their legal monopolies, still have de facto market power in

Germany and France. They point out that effective competition could

take substantial time to develop after removal of the monopoly rights

and licensing of competitors. Some, including BT, Cable & Wireless and

Esprit Telecom, are also concerned that the decree would not ensure

that effective regulatory regimes are in effect in France and Germany

at the time the transition to Phase II takes place to ensure rights

such as interconnection with the networks of the dominant carriers.

AT&T and MCI favor modifying the decree to keep the Phase I

restrictions in effect until ``actual'' or ``effective'' competitive

alternatives are found to exist in France and Germany, while BT

proposes keeping the various Phase I restrictions in effect for the

entire duration of the decree, essentially eliminating the distinction

between Phase I and Phase II.\29\ Esprit and Cable & Wireless also take

the position that alternative infrastructure must be in place in France

and Germany before these transactions are implemented, or at least

before the Joint Venture is formed.

\29\ Because many of BT's observations on the various provisions

of the proposed Final Judgment are in fact reiterations of this same

argument, not all of BT's comments about particular provisions of

the decree are separately discussed in this Response.

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The United States has no fundamental disagreement with the

commenters on the importance of effective competitive alternatives, or

the crucial significance of the ability of competitors to interconnect

their networks and facilities with those of DT and FT on reasonable,

transparent and non-discriminatory terms. Nor does it disagree with the

desirability of having effective regulatory regimes to complement the

protections provided by competition, and afford a recourse to

competitors who experience anticompetitive practices by DT and FT. But

the United States parts company with the commenters at their evident

assumption that all of these protections must be contained within the

four corners of the proposed Final Judgment itself for it to be deemed

in the ``public interest.''

The proposed Final Judgment operates in conjunction with the relief

imposed by the European Commission and the FCC, and the various

liberalization measures in the process of being enacted by the EU and

the French and German governments. Early liberalization for provision

of competing infrastructure for non-monopoly services, to take effect

on July 1, 1996 in France and Germany, will give potential competitors

the opportunity to begin establishing alternative networks a year and a

half before the earliest time that Phase I is likely to expire, making

possible the ``actual'' or ``effective'' competition that AT&T and MCI

desire.

Because the EU and the German and French governments have all

announced that they will be adopting open

[[Page 3978]]

licensing policies and will not restrict the numbers of licenses

(except where necessary due to limits on radio frequencies, which would

not affect landline fiber-optic networks), potential providers of

alternative networks should not be deterred from entering the market

now by the fear of being denied full use of their network for voice

services for want of a license when full liberalization occurs.

Moreover, both the German and French telecommunications regulators plan

to license competitors during 1997, enabling them to prepare to provide

services in advance of full liberalization.

BT is mistaken in believing that Phase I could terminate if only

one competitor is allowed to provide competing facilities-based

switched voice services in France and Germany. In fact, the definition

of Phase II of the proposed Final Judgment is not intended to condone

any form of legal duopoly (such as still exists in the U.K. for

international facilities-based services but has otherwise been ended

there). Section V.Q specifies that among the conditions necessary for

Phase II to be reached, France and Germany must have ``removed all of

the legal prohibitions'' on competing provision of public switched

domestic and international voice services, and construction, ownership

or control of both domestic and international telecommunications

facilities and the use of such facilities to provide any services. The

existence of artificial restrictions on the numbers of domestic or

international licenses available for either telecommunications services

or facilities in France or Germany would mean that the conditions for

moving from Phase I to Phase II in that country would not be

satisfied.\30\ Moreover, should either France or Germany decline to

remove all of the legal prohibitions on competition in international

services and facilities to and from the U.S., even if liberalization

within the EU has taken place as required by the planned directives,

the transition to Phase II still would not take place for that country.

Since both France and Germany have announced that they will grant

licenses in 1997 under their planned open policies, and have not shown

themselves to date unwilling to license large foreign firms to provide

the types of services already open to competition (as evidenced by BT's

ability to provide data services in both France and Germany today),

BT's suggestion that the French and German governments might in

practice license only a small number of ineffectual competitors seems

conjectural.

\30\ This would not preclude France or Germany from having a

limited number of licenses available for radio-based services

justified for objective reasons of spectrum scarcity.

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The concerns expressed by commenters about the lack of an effective

system of transparent and reasonable interconnection with FT and DT are

addressed during Phase I by the nondiscrimination requirements of

Section III.D as well as the provisions ensuring standardized access

protocols in Sections III.H and III.I. The EU's planned interconnection

directive will require Member States, including France and Germany, to

have interconnection regimes in place that comply with the directive

before January 1, 1998, the earliest that Phase I is likely to expire.

Both the French and German telecommunications regulators are planning

to have new interconnection regimes based on the EU principles in

effect in their countries before that time.

The EU and the French and German governments all have recognized

the need for more independent regulatory authorities where state

ownership of telecommunications carriers continues, as will be the case

for several years in Germany and indefinitely in France. Both France

and Germany are contemplating changes to their regulatory systems

before 1998 to address this problem. In the interim, the full

protections of this decree and the EU settlement dealing with the

various risks identified by the commenters, including discrimination

and cross-subsidization, will be in effect as independent safeguards

against anticompetitive conduct. Some of the EU's safeguards, in

particular those involving nondiscrimination in access to and use of

the FT and DT PSTNs and availability of standardized interfaces for

Transpac and Datx-P, would continue beyond the date of full

liberalization in France and Germany as they have no predetermined time

limits. The FCC's general prohibition on ``special concessions,'' also

will be available to reinforce nondiscriminatory interconnection

rights, and the FCC's ability to act under its policy is not time-

limited.

It is not practical or necessary for the United States antitrust

authorities to maintain indefinitely the degree of oversight of the

relationship between DT, FT and the Joint Venture contemplated by Phase

I of the proposed Final Judgment, taking into account the clear

policies of moving toward full liberalization and more effective

regulation within a definite time that have been announced by the EU

authorities and the governments of France and Germany, and the

existence of other regulatory authorities, including the FCC, BMPT in

Germany and DGPT in France, that have ongoing responsibility for

regulatory oversight of the telecommunications industry. Fundamentally,

what is at stake here is the reasonableness of the United States'

judgment under the ``public interest'' standard that the transition to

more effective competition and better regulatory safeguards is likely

to continue to move forward in a reasonable time in France and Germany,

so that it is not necessary to stop these transactions altogether or

substantially alter the terms of the proposed settlement in order to

safeguard against DT and FT using their continuing market power in

anticompetitive ways to favor Sprint and the Joint Venture. This

judgment continues to be reasonable, given that the policies and

timetables that the EU and the French and German governments have

announced for the transition to full competition include not only

removal of legal barriers to competition and licensing of competitors,

but also the other key measures such as an interconnection regime that

are needed for real competition to develop. Moreover, AT&T, BT and

Cable & Wireless all have been forming strategic alliances with the

large firms that have entered telecommunications service markets in

Germany or France and are planning networks in anticipation of full

liberalization and licensing of competing providers. These alliances

make available to the German and French partners resources, expertise

and international access to customers that can help to make them more

effective rivals to DT and FT.

The judgment that these transactions should not be stopped, given

the progress of the liberalization process, is shared by the FCC and

the European Commission. These authorities have also shared the concern

of the United States about the ongoing ability of FT and DT to exercise

market power to the detriment of competition, and have imposed their

own remedies and safeguards to help ensure both that liberalization

advances and that no harm occurs to international telecommunications

competition during the transition period. In light of the circumstances

of this transaction and the actions taken by other authorities, the

United States does not believe that extending Phase I safeguards for

several more years, imposing some form of ``effective competition''

test in the proposed Final Judgment, or precluding the transactions

until significant

[[Page 3979]]

alternative infrastructure competition is ongoing are necessary steps

to protect the ``public interest.'' The United States will retain the

ability under this Final Judgment, pursuant to Section VIII, to seek

modifications should new events, such as any major breakdown of the

transition to competition underway in France and Germany, indicate the

need for additional measures within the context of the Final Judgment

to prevent substantial harm to competition and U.S. consumers.

B. Opening to Voice Resale Competition in France and Germany

ACC contends that entry and the effective date of the Final

Judgment in this case should be conditioned on DT and FT agreeing to

open their public switched voice services to resale competition. These

services currently are provided on a monopoly basis in France and

Germany, though DT and FT apparently could voluntarily open these

services to some resale competition. The United States agrees with ACC

that resale competition at the German and French ends of international

routes with the U.S. would likely benefit United States consumers of

international services to France and Germany, and indeed the FCC has

made this one of the conditions for the removal of the freeze imposed

on Sprint's ability to add circuits to France and Germany, in order to

limit Sprint's advantage over other U.S. providers from being the only

carrier with allies that can provide end-to-end service between the

U.S. and France and Germany. But the question for purposes of this

Tunney Act proceeding is whether, in light of the other restrictions in

the proposed Final Judgment as well as the FCC's action and the

announced intention of the European Union, Germany and France to remove

all restrictions on voice competition by 1998, it is necessary to

impose such a condition as part of this decree to prevent some

lessening of competition that would otherwise occur. The United States

does not view this as necessary for the decree to accomplish its

purposes. The transition from Phase I to Phase II cannot occur for

either Germany or France under this decree while any form of

prohibition on voice competition, resale or facilities-based, remains

in effect in that country. During Phase I, ACC and other prospective

U.S. international providers of resale services will be able to avail

themselves of all the protections against discrimination in Section

III.D, if Germany or France permits resale competition (as the FCC's

decision indicates is already legally permissible to some extent, based

on representations by the German and French governments \31\) but DT or

FT acts to favor its own affiliates over competitors in PSTN

interconnection, leased lines, or other FT or DT Products and Services

that would be used by switched voice resellers.\32\ Moreover, during

Phase I and Phase II, Section II.C of the proposed Final Judgment will

ensure that neither Sprint nor the Joint Venture provide voice resale

services, or any other type of services, or make facilities available

to FT or DT to do so (other than under existing bilateral correspondent

agreements that have also been made available to other U.S.

competitors), if competitors cannot obtain licenses in France and

Germany.

\31\ FCC Sprint Order, para. 112.

\32\ Contrary to the assertion of Cable & Wireless, the proposed

Final Judgment's protections are not limited only to ``reserved''

monopoly services such as public switched voice. Most of the

safeguards are defined in terms of FT and DT Products and Services,

and Section V.L. expressly states that the services defined as being

within this category will remain so regardless of whether the

services are considered to be reserved exclusively to FT or DT under

French or German law. Other safeguards, including Sections III.B.

and III.I, apply to Public Data Networks, which are legally open to

competition in France and Germany and are not even listed as FT and

DT Products and Services.

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C. Non-Exclusive Licensing Requirement

BT proposes a number of changes to Section II.C, as does Esprit

Telecom. This provision ensures that neither Sprint nor the Joint

Venture receive exclusive licensing advantages directly from French or

German authorities or indirectly by affiliation with FT or DT, and that

neither Sprint nor the Joint Venture provide facilities to FT or DT

enabling them to offer to the United States any services for which they

have exclusive licenses in France or Germany, other than existing

correspondent services that other U.S. providers can also offer under

operating agreements with FT and DT. Some of the changes recommended by

BT are already addressed implicitly within the language of the existing

provision, while the United States believes that the remaining

modifications are not necessary for this provision to accomplish its

purposes.

A principal concern for BT is the language in Section II.C.3(i)

requiring that, before Sprint, the Joint Venture, DT or FT are able to

provide an international telecommunications service pursuant to an

individual license granted by the French or German governments, ``one

or more'' other U.S. international telecommunications service providers

also have received a license. BT would prefer that at least three other

licenses be granted before the Joint Venture be allowed to offer a

service. However, BT's fear that under this provision the French or

German governments might be able to mandate a duopoly, or arbitrarily

delay granting licenses to all competitors but one, is not consistent

with other language of Section II.C.3 or with the licensing policies

announced by the French and German governments. Section II.C.3 also

mandates, for any services that require individual licenses in France

or Germany, that ``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 a

license.'' This means, as the United States and defendants have agreed,

that there must be licensing procedures in place that are reasonable

and neutral, that do not discriminate among providers or restrict the

entry of U.S. providers, and that do not arbitrarily limit the number

of licenses available. Clearly a duopoly licensing scheme for

international services would not meet the terms of this provision, for

once the one other license were awarded to a French or German firm,

United States providers would not be able to secure a license. In any

event, the EU authorities plan to mandate, and both the French and

German governments have indicated that they will adopt, open licensing

schemes that would meet the above criteria, and the French and German

telecommunications regulators will make their decisions on licensing

before 1998. Moreover, under Section II.C.3(ii), which ensures that

where Sprint, the Joint Venture, FT or DT applies for a license first

other competitors applying later can receive their licenses within no

less time than was needed for the first license to be granted, the

``reasonable time'' provision can mean in particular cases that the

time to grant additional licenses should be even less than for the

first licensee, whose application presumably raised the most difficult

regulatory issues about the service, if any.

BT expresses apprehension that the French or German governments may

deny or fail to act on license applications of competitors who seek a

license for a particular service before the Joint Venture does, so as

to delay their entry until the Joint Venture is ready to enter the

market. It does not, however, suggest a practical means of addressing

this concern, since United States authorities are not in a position to

direct the French or German governments to grant a license to any

particular provider, but only to ensure that the parties to the

transactions are not given

[[Page 3980]]

an advantage over others in the timing of their licenses. The United

States also believes that Esprit's proposal to require that German and

French regulators commit to some expedited schedule for licensing, with

suspension of Joint Venture services while any competitor applications

have been pending for over 60 days, is impractical and should not be

adopted, as it could perpetually postpone the entry of the Joint

Venture into the market as each new applicant comes forward. In fact,

under the proposals put forward by the EU authorities and the French

and German governments, most types of telecommunications services will

be subject to class licenses that will not require any individual

approval. BT also recommends that the full range of regulatory reforms

in France and Germany be in place before activities of the Joint

Venture are permitted to commence under this provision. The United

States continues to believe, however, that the service-specific

approach is preferable. For example, if reasonable, nondiscriminatory

open licensing procedures are in effect by which competitors can obtain

licenses to operate a data service, it does not appear necessary or

desirable to forbid the Joint Venture from offering that service to

consumers under II.C. because rules are not yet in place governing a

voice service.

D. Facilities Ownership Provisions

BT seeks clarification of the meaning of several aspects of

Sections III.A and III.B, which preclude during Phase I any ownership

or control by Sprint or the Joint Venture of (i) facilities in France

or Germany legally reserved to FT or DT, (ii) international half-

circuits terminating in France or Germany used for U.S.-France or U.S.-

Germany telecommunications services, or (iii) the Public Data Networks,

as defined in Section V.S.

The United States agrees with BT that the concept of ownership and

control in this provision includes Indefeasible Rights of Use (IRUs),

so that Sprint or the Joint Venture could not acquire IRUs in German or

French half-circuits while other providers legally could not do so. The

exclusion for ``publicly available leases or other publicly available

uses'' in Section III.A was simply meant to ensure that the definition

of ``control'' was not interpreted here to preclude Sprint or the Joint

Venture from such normal forms of generally available usage as leasing

a private line under tariff. Moreover, as a general matter, the

preclusion on Sprint or the Joint Venture acquiring ownership or

control over any facilities legally reserved to FT or DT would mean

that Sprint and the Joint Venture could not acquire such interests in a

type of facility (e.g., submarine cable) or a form of ownership or

control that remained reserved, even if some other type of facility

that might compete with it in some respects (e.g., a privately owned

satellite) or some other form of ownership or control of the same

facility is not reserved. The restriction on ownership of international

half circuits, with the ``aggregate quantity'' exception, under Section

III.A(ii) is in addition to the prohibition on ownership or control of

reserved facilities, not an alternative to it. The United States does

not agree with BT, however, on the interpretation of the ``aggregate

quantity'' exception as limited to the quantity of half-circuits held

by any other single provider. The FCC's freeze on operation of new

capacity by Sprint on the U.S.-France and U.S.-Germany routes will help

to counter BT's expressed fear that Sprint or the Joint Venture would

be able to use a quantity of circuits far greater than those of any

other single provider. Nor does the United States agree with BT that

modification of the restriction on international half-circuits ``where

plaintiff and defendants agree that meaningful competition exists'' can

only be done after public comment and hearing procedures, but there is

nothing to preclude the United States from seeking information from

other interested persons before agreeing to a modification.

E. Antidiscrimination Provisions

1. ``Steering'' of Customers to Phoenix and Sprint

AT&T, MCI and Cable & Wireless all object to a provision of the

Joint Venture Agreement between Sprint, FT and DT, Section 10.6(b).

They are concerned that this provision would require DT and FT, when

customers approach them for international facilities or services over

which they have monopolies in their home countries, such as half-

circuits, to take measures to ``steer'' the customers to Sprint or

Phoenix to provide the U.S. end of these international facilities or

services, i.e., induce them to obtain the service from the Joint

Venture and disclose their identities to the Joint Venture, even if

they would prefer to use another U.S. carrier. AT&T requests that the

anti-discrimination provisions of the proposed Final Judgment in

Section III.D be clarified to preclude such activity.

AT&T has correctly understood the intent of Section III.D of the

Proposed Final Judgment. Sprint and the Joint Venture are precluded by

Section III.D from receiving more favorable terms from FT or DT than

other similarly situated United States international telecommunications

providers with respect to any FT or DT Products and Services, and are

also precluded from benefitting from any more favorable term that FT or

DT offer to any customer of FT or DT Products and Services, conditioned

on Sprint or the Joint Venture being selected as the United States

provider of a telecommunications or enhanced telecommunications

service. FT or DT Products and Services, under Section V.L, are defined

as correspondent services, transit services, leased lines or

international half circuits, and interconnection to the PSTNs provided

by FT or DT in France or Germany, or between the United States or

France and Germany, regardless of whether the service is exclusively

reserved to FT or DT as a matter of law. Accordingly, if FT or DT were

to ``steer'' customers of FT or DT Products and Services to Phoenix or

Sprint in the manner originally contemplated by Section 10.6(b), Sprint

and the Joint Venture would be placed in violation of Section III.D of

the Final Judgment. In order to eliminate any confusion on this point,

Sprint, FT and DT have agreed to amend Section 10.6(b) of the Joint

Venture Agreement, deleting any requirement that customers of FT or DT

Products and Services be ``steered'' to the Joint Venture.\33\ The FCC

also has stated that its ``no special concessions'' requirement would

preclude such ``steering'' with respect to basic services such as

private lines.\34\

\33\ Letter from Kevin R. Sullivan to Carl Willner, Nov. 21,

1995, and attached amendment to Phoenix JVA Section 10.6(b). This

letter and the modifying language are attached to this Response as

Exhibit K.

\34\ FCC Sprint Order, para. 125.

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2. Effect of Exclusion of DT and FT as Parties

BT objects to the exclusion of DT and FT as parties to the proposed

Final Judgment, even though BT similarly is excluded as a party under

the separate decree governing its joint venture with MCI. BT's

particular concern is that if the antidiscrimination provisions of

Section III.D are read to include some form of ``knowledge'' or

scienter requirement, it could prove difficult or impossible to enforce

them without the ability to get information directly from FT and DT.

BT's concern is based on a misunderstanding of the

antidiscrimination provisions of the proposed Final Judgment. There is

no requirement that Sprint or the Joint Venture have known of any

[[Page 3981]]

discrimination, for a violation of Section III.D.1 or III.D.2 to be

found. Rather, it is merely necessary that the discrimination have

occurred, as defined in Section III.D, for the United States to take

action to enforce the decree. Indeed, in the negotiations leading to

the proposed Final Judgment, the concept of requiring some knowledge of

discrimination on the part of Sprint or the Joint Venture was

explicitly rejected.\35\ Ordinarily, whether discrimination has

occurred would be evaluated by comparing the terms made available by DT

or FT to a complaining competitor (with which it would be familiar)

with the terms made available to Sprint or the Joint Venture (which

could be ascertained using the visitorial and compliance powers of

Section VI), and the disclosure requirements of Section II.A would

facilitate detection and reporting of such discrimination by

competitors. Thus, the United States reasonably concluded that the

antidiscrimination provisions of the proposed Final Judgment were

adequate without making DT and FT parties to the decree.

\35\ Issues of knowledge would thus only come into question to

the extent that they are relevant under established legal principles

to particular forms of culpability or sanctions, i.e., criminal

contempt, but would not affect civil enforcement.

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3. Other Issues Concerning the Antidiscrimination Provisions

BT recommends that Section III.D.1 be clarified to ensure that the

protection against discrimination applies to all similarly situated

providers. The United States agrees that the language prohibiting

Sprint and the Joint Venture from obtaining FT and DT Products and

Services on terms ``more favorable * * * than are made available to

other similarly situated United States international telecommunications

providers'' means that no similarly situated provider can be disfavored

in any of the ways proscribed by this provision, even if some other

similarly situated providers are being treated in the same way as

Sprint and the Joint Venture.

BT also proposes that Section III.D.2's prohibition on Sprint or

the Joint Venture receiving any ``benefit'' from more favorable terms

offered by FT or DT to customers of FT or DT Products and Services,

conditioned on Sprint or the Joint Venture being selected as a service

provider, be clarified to apply to situations where FT or DT is acting

as the distributor for the Joint Venture, and to cover both implicit

and express conditioning. The United States agrees that Section III.D.2

reaches all such conditioning of terms for FT or DT Products and

Services, express or implicit, and was intended to apply to situations

where FT and DT are distributing Joint Venture products and services.

Esprit Telecom urges that DT and FT should be prohibited from

providing leased lines for Joint Venture services unless such lines are

provided in a nondiscriminatory manner, including equal treatment on

all terms such as price and provisioning intervals, to all competitors.

This is already accomplished by Section III.D, since leased lines are

expressly treated as FT and DT Products and Services by Section

V.L(iii). Esprit also contends that DT and FT should be required to

provide leased lines at wholesale, cost-based rates to competing

carriers on a priority basis. The proposed Final Judgment does not

mandate that leased lines be provided at any particular price level,

nor would it be practical to do so for FT's and DT's leased lines,

which are located outside the U.S., are under the regulatory

supervision of foreign authorities and are also subject to EU

directives on open network provision and the terms of provisioning of

leased lines. While the United States is cognizant of the evidence that

FT's and DT's leased lines are priced far above U.S. levels and are

generally provided much more slowly than in the U.S., the concern of

the United States in this case is to ensure that neither those nor

other potential abuses of FT's and DT's monopoly positions lead to

advantages for Sprint or the Joint Venture that could harm competition.

This Clayton Act case is not a vehicle for addressing all difficulties

that competitors may face in doing business in France or Germany or all

harms that U.S. consumers may experience as a result of having to use

the services of the DT and FT monopolies. Whatever the prices at which

leased lines may be provided in France or Germany, or the time needed

to provide them, Sprint and the Joint Venture will not fare better than

other competing providers under the terms of this proposed Final

Judgment. Moreover, as competition develops in France and Germany due

to alternative infrastructure liberalization in 1996 and full

liberalization in 1998, leased line prices can be expected to decline

substantially and provisioning times improve, as has occurred in the

United States and the United Kingdom.

Cable & Wireless has brought to the attention of the United States

new evidence that Colisee International, a subsidiary of FT engaged in

reselling FT capacity, has behaved in an anticompetitive manner and

that complaints about Colisee have been confirmed by findings of the

French telecommunications regulator. These complaints and the

regulator's findings of FT's noncompliance with French law, according

to Cable & Wireless, relate to (i) sales by FT of leased lines and PSTN

interconnection at rates below the official tariffs from which other

competitors must buy capacity, and (ii) FT's grant of more favorable

access arrangements to its International Transit Center for Colisee

than for other competitors.\36\ The United States has examined

substantial information on this allegation, including the regulator's

findings of noncompliance and FT's plans to make substantial changes to

the Colisee service in response. In addition to being subject to

challenge under French law, it appears that the types of discrimination

alleged here are of the sort that would be covered by the

antidiscrimination provisions of the proposed Final Judgment, if Sprint

or the Joint Venture were to receive such favorable treatment through

FT or any of its subsidiaries. No modification to the proposed Final

Judgment is necessary to deal with this matter, but the Colisee

International evidence indicates that the antidiscrimination provisions

of the proposed Final Judgment are indeed focused on substantial

competitive concerns.

\36\ Comments of Cable & Wireless Europe, at 6.

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F. Protections Against Cross-Subsidization

BT's principal arguments on this provision, favoring extending it

through the life of the decree or until comprehensive protections

against cross-subsidization are determined to be part of the French and

German telecommunications regulatory systems, do not differ

substantially from its general arguments for extending the duration of

all of Section III, which the United States has already addressed and

declined to accept. Cross-subsidy risks were perceived here, by both

the United States and the European Commission competition authorities,

to be particularly substantial while DT and FT still have three-

quarters of their business legally protected from competition. During

this time, DT and FT enjoy a very large base of revenues into which

costs could be shifted, or from which subsidies could be obtained,

without risk of increasing entry by competitors into the services which

provide the subsidies and which would be priced at higher levels to

generate them. The evidence of past cross-subsidies of the Datex-P data

network by DT on a large scale, and the risk of use of cross-

subsidization to put

[[Page 3982]]

competitors in a ``price squeeze,'' Competitive Impact Statement, 60

Fed. Reg. at 44064, 44072, support having these restrictions in the

decree during Phase I. However, neither the United States nor the

European Commission's competition authorities extended the structural

separation of the Public Data Networks, or the specific cross-subsidy

safeguards, into the period following full liberalization in France and

Germany, when DT and FT will legally be subject to competition in all

their areas of business and will face actual licensed competitors. At

that point, while cross-subsidization potentially could still occur,

the risks of it substantially harming competition over a sustained

period will have been reduced owing to the possibility for competitive

entry into the markets providing the subsidies, and policing cross-

subsidization can with greater confidence be left to the national

regulators, who by then should have greater independence as well.

BT also seeks to give competitors and other interested parties

access to all of Sprint's and the Joint Venture's records to determine

if cross-subsidization has occurred. The United States does not

consider a modification of this sort to be necessary or desirable. The

disclosure provisions of Section II.A of the proposed Final Judgment

strike a careful balance between providing information competitors

would need to detect discrimination, and protecting Sprint's and the

Joint Venture's confidential business information from disclosure to

competitors. BT's disclosure proposal would expose far more of Sprint's

and the Joint Venture's business information to their competitors, in a

way that if abused could harm rather than help competition. The United

States notes, however, that nothing precludes it from using independent

auditors under contract to assist in reviewing Sprint's and Joint

Venture's documents for cross-subsidization, and that the EU

competition authorities have imposed an auditing requirement on Atlas,

Transpac and Datex-P during the pre-liberalization period.

Cable & Wireless argues that there should be structural separation

between the Atlas and Joint Venture entities and their parents. In

fact, the proposed Final Judgment already mandates such separation

between FT and DT on the one hand, and the Joint Venture and Sprint on

the other, through a combination of the facilities ownership provisions

of Sections III.A and III.B, the non-exclusive agency provisions of

Section III.C, the prohibitions on cross-subsidization in Section

III.F, and the prohibitions on sharing of confidential information in

Section II.B. The EU competition authorities have further reinforced

this separation through their treatment of Atlas, Transpac and Datex-P.

Esprit Telecom urges that DT and FT be precluded from predatory

pricing of end-user services. The cross-subsidization prohibitions of

the proposed Final Judgment will help to achieve that objective, as

will the EU's complementary safeguards, while predatory pricing remains

independently actionable under the antitrust laws as well.

G. Treatment of Operating Agreements

AT&T and BT both have raised issues regarding the operation of

Section III.G.1. This provision precludes Sprint from providing any

correspondent telecommunications or enhanced telecommunications service

between the United States and France or Germany pursuant to any

operating agreement with FT or DT, unless at least one other U.S.

international telecommunications provider has also obtained an

operating agreement with FT and DT for the provision of that service.

AT&T has requested that the interplay of Section III.G and Section

III.D.1(v), which prohibits discrimination between Sprint and other

similarly situated providers in the ``terms of operating agreements for

correspondent services and connection of international half-circuits,''

be clarified to preclude discrimination in the granting of operating

agreements by FT and DT. BT is concerned about the risk of allowing

Sprint to provide service if FT or DT has granted an operating

agreement to only one competitor, particularly if that one competitor

is an inadequate alternative.

The United States agrees that operating agreements already granted,

or granted in the future, could not thereafter be modified or withdrawn

on a discriminatory basis favoring Sprint or the Joint Venture, for to

do so would amount to a discrimination in the ``terms of operating

agreements'' prohibited under Section III.D.1(v). Existing operating

agreements, particularly those covering International Message Telephone

Service (IMTS) switched voice traffic and private lines, account for

what will likely continue to be the bulk of telecommunications

international traffic for the next several years at least. Moreover,

the terms of all operating agreements granted must be

nondiscriminatory, whatever the number of carriers that receive them.

AT&T is thus correct insofar as it says that Section III.G.1 does not

abrogate the requirement of nondiscrimination in the terms of operating

agreements under Section III.D.1(v), or any of the other requirements

of Section III.D.

Section III.G.1 affords an additional measure of protection with

respect to any correspondent services where agreements have not yet

been negotiated, or the service itself has not yet been developed,

ensuring that Sprint will not be able to obtain the only operating

agreement or to go first while entry of competitors is delayed, as a

result of its special relationship with FT and DT. It was not written

to require that all other carriers receive operating agreements for

such new services, since U.S. carriers may vary considerably in traffic

volumes and foreign carriers may be reluctant to incur the expense of

providing a facilities-based interconnection with a low-volume

provider. The counterpart Section III.G.2 provides a mechanism for such

smaller carriers to have their traffic delivered at reasonable,

nondiscriminatory rates accounting for the value of proportionate

return traffic from France and Germany.

It is implicit in the concept of Section III.G.1 that the other

U.S. international telecommunications provider that receives an

operating agreement not be a sham or subterfuge to circumvent the Final

Judgment, but a real provider capable of offering its own alternative

service. Should FT or DT grant operating agreements for new

correspondent services to Sprint and another alternative provider, but

withhold them from other similarly situated U.S. international

carriers, those carriers would still be able to complain to the FCC

that Sprint was receiving improper ``special concessions.'' The FCC's

policy is thus broader in one respect than that in the proposed Final

Judgment, but does not explicitly mandate, as does Section III.G.1,

that one other carrier already have an operating agreement before

Sprint can provide a service. These policies operate together to ensure

effective international competition by multiple U.S. carriers

notwithstanding the affiliation of FT and DT with Sprint.

The United States understands that there are relatively few issues

concerning the grant of operating agreements now outstanding between

U.S. international carriers and DT and FT. For the major longstanding

services such as IMTS, as well as for relatively new services such as

International Virtual Private Networks (IVPNs), FT and DT have now

granted operating agreements to multiple U.S. international

telecommunications carriers in addition to Sprint. Accordingly, in

light of the additional protections afforded by Section

[[Page 3983]]

III.D.1(v) and the FCC's ``special concessions'' prohibition, and

available evidence on the current practice of FT and DT, the United

States does not consider it necessary to modify Section III.G.1.

H. Standardized Interface Requirements

BT takes issue with the provisions ensuring the maintenance of

standardized PSTN and data network interfaces by FT and DT, Sections

III.H and III.I, which were closely followed by the EU competition

authorities in their own settlement. Apart from its general arguments

for extending these provisions through the duration of the decree, BT

also objects to the opportunity that these provisions give to Sprint

and the Joint Venture to develop proprietary interfaces with FT and DT.

BT is concerned that this could allow the parties to these transactions

to develop certain types of advanced services and interconnection

protocols that would not be available to competitors.

To the extent that competitors are similarly situated, of course,

the antidiscrimination provisions of Section III.D would remain

available to address any handling of interconnection to the FT and DT

PSTNs that disfavors competitors of Sprint and the Joint Venture.

Sections III.H and III.I go beyond the antidiscrimination provisions in

mandating availability of standard interfaces and protocols for FT and

DT Products and Services, and for the Public Data Networks, without any

proof of discrimination against similarly situated competitors. Neither

the United States nor the European Union competition authorities,

however, found it desirable to prohibit FT and DT from also developing

any proprietary or nonstandardized protocols, in the way BT advocates.

The various strategic alliances that have formed or are now forming to

provide seamless international telecommunications services, including

the BT-MCI partnership, AT&T's alliance with the Unisource partners in

Europe, and the FT-DT-Sprint combination, all will be seeking to

develop advanced telecommunications services which may require

nonstandardized or proprietary protocols not currently available. Some

competitive risks inhere in the ability of telecommunications providers

with monopoly rights, such as DT and FT, or market power, such as BT in

the UK, to develop nonstandardized protocols and interfaces that are

not universally available and might be used to favor particular

providers. In the case of these international strategic alliances,

however, there are also substantial competitive benefits to consumers

from the development of advanced seamless telecommunications services,

and all of the alliances will be competing with each other to produce

the most attractive advanced services and differentiate them from those

of the other competitors. These benefits could be reduced if FT and DT

were precluded from developing with their Joint Venture and Sprint any

proprietary or nonstandardized interfaces and protocols for new

services, as BT would have the United States do. Furthermore, the

prospect of full liberalization in France and Germany two years from

now and liberalization for alternative infrastructure used to provide

services other than public switched voice within six months means that

BT and other competitors should not remain indefinitely dependent on a

single provider in France and in Germany to supply all

telecommunications lines and network interconnections. Rather, they

will be able to have their local allies in France and Germany adopt

whatever proprietary and nonstandardized protocols they may develop

that are inconsistent with those used by DT and FT.

I. Access to FT's ``Orange List'' Customer Information

Charles M. Haar, a professor at Harvard University Law School who

is working as an expert for a company named Filetech, which is involved

in litigation with France Telecom in the United States District Court

for the Southern District of New York,\37\ has filed comments

requesting that entry of judgment in this case be conditioned on France

Telecom making available to competitors certain information about

customers, known as the ``Orange List,'' that it acquires in the course

of its responsibilities for maintaining the French telephone directory.

\37\ Filetech S.A.R.L. v. France Telecom, Civil Action No. 95-

1848 (CSH) (S.D.N.Y.).

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The United States expresses no view on the merits of Filetech's

litigation with France Telecom, but its allegations did not form any

specific part of the complaint in this case. While the complaint is

based on France Telecom's ability to use its monopoly rights and

dominant position in France to favor Sprint and the Joint Venture over

competitors in various ways, it does not appear that France Telecom

would be able lawfully to use preferential access to the Orange List to

favor Sprint or the Joint Venture, since France Telecom has represented

in its litigation with Filetech that this information is confidential

and under French law cannot be disclosed to others, except for the

limited purpose of publishing telephone directories.\38\ Moreover, the

FCC has indicated that preferential disclosure of telephone customer

information by DT and FT to Sprint would be an impermissible ``special

concession.''\39\ Thus, the United States does not believe that any

modifications to the proposed Final Judgment are needed to address this

issue.

\38\ Filetech S.A.R.L. v. France Telecom, Civil Action No. 95-

1848 (CSH), Memorandum of Law of France Telecom and France Telecom

Incorporated in Support of their Motion to Dismiss the Complaint at

10-15, and Declaration of Jacques Henrot (S.D.N.Y., filed June 2,

1995).

\39\ FCC Sprint Order, para. 123.

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IV

Standard of Review

Pursuant to 15 U.S.C. Sec. 16(e), the proposed Final Judgment

cannot be entered unless the Court determines that it is in the public

interest. The focus of this determination is whether the relief

provided by the proposed Final Judgment is adequate to remedy the

antitrust violations alleged in the Complaint. United States v. Bechtel

Corp., 648 F.2d 660, 665-66 (9th Cir.), cert. denied, 454 U.S. 1083

(1981), quoted with approval in United States v. Microsoft Corp., 56

F.3d 1448, 1457-58, see also 56 F.3d at 1459-60 (D.C. Cir. 1995). In

the recent Microsoft decision by the United States Court of Appeals for

the District of Columbia Circuit, which reversed the district court's

refusal to enter an antitrust consent decree proposed by the United

States, the court of appeals held that the provision in Section

16(e)(1) of the Tunney Act allowing the district court to consider

``any other considerations bearing upon the adequacy of such

judgment,'' does not authorize extensive inquiry into the conduct of

the case. 56 F.3d at 1458-60. The court of appeals concluded that

``Congress did not mean for a district judge to construct his own

hypothetical case and then evaluate the decree against that case.'' Id.

To the contrary, ``[t]he court's authority to review the decree depends

entirely on the government's exercising its prosecutorial discretion by

bringing a case in the first place,'' and so the district court ``is

only authorized to review the decree itself,'' not other matters that

the government might have but did not pursue. Id.

Under the public interest standard, the Court's role is limited to

determining whether the proposed decree is within the ``zone of

settlements'' consistent with the public interest, not whether the

settlement diverges from the Court's view of what

[[Page 3984]]

would best serve the public interest. United States v. Western Electric

Co., 993 F.2d 1572, 1576 (quoting United States v. Western Electric

Co., 900 F.2d 283, 307 (D.C. Cir. 1990)); United States v. Microsoft

Corp., 56 F.3d at 1460. Moreover, the Court should give a request for

entry of a proposed decree even more deference than a request by a

party to an existing decree for approval of a modification, for in

dealing with an initial settlement the Court is unlikely to have

substantial familiarity with the market involved. United States v.

Microsoft Corp., 56 F.3d at 1460-61.

Absent a showing of corrupt failure of the government to

discharge its duty, the Court, in making its public interest

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

government in the competitive impact statement and its responses to

comments in order to determine whether those explanations are

reasonable under the circumstances.

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

61,508, at 71,980 (W.D. Mo. 1977). The Court may reject the agreement

of the parties as to how the public interest is best served only if it

has ``exceptional confidence that adverse antitrust consequences will

result. * * *'' United States v. Western Electric Co. 993 F.2d at 1577

(D.C. Cir.), cert. denied, 114 S. Ct. 487 (1993), quoted with approval

in United States v. Microsoft Corp., 56 F.3d at 1460.

V

Conclusion

After careful consideration of the comments, the United States

continues to believe that, for the reasons stated herein and in the

Competitive Impact Statement, the proposed Final Judgment is adequate

to remedy the antitrust violations alleged in the Complaint. There has

been no showing that the proposed settlement constitutes an abuse of

the United States' discretion or that it is not within the zone of

settlements consistent with the public interest. Therefore, entry of

the proposed Final Judgment should be found to be in the public

interest, after the Joint Venture has been made a party to the

stipulation for entry of judgment and the United States has completed

the procedures mandated by the Tunney Act and moved for entry of

judgment.

Dated: January 16, 1996.

Respectfully submitted,

Carl Wilner,

Joyce B. Hundley,

Attorneys, U.S. Department of Justice, Antitrust Division.

Certificate of Service

I hereby certify that on this date I have caused to be served by

first class mail, postage prepaid, or by hand, if so indicated, a copy

of the foregoing Response to Public Comment upon the following person,

counsel for defendants in the matter of United States of America v.

Sprint Corporation: Kevin R. Sullivan, Esquire, King & Spalding, 1730

Pennsylvania Avenue, N.W., Washington, D.C. 20006, Counsel for

Defendants, Sprint Corporation and Joint Venture Company.

Dated: January 16, 1996.

By Hand:

Carl Willner,

Attorney, Telecommunications Task Force, Antitrust Division, U.S.

Department of Justice.

United States of America Plaintiff, v. Sprint Corporation and

Joint Venture Co., Defendants

[Civil Action No. 95 CV 1304 (TPJ)]

Comments of AT&T Corp.

AT&T Corp. (``AT&T), pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (the ``Tunney Act''), hereby

submits these comments on the proposed Final Judgment in the above-

entitled action concerning the planned acquisition by France Telecom

(``FT'') and Deutsche Telekom A.G. (``DT'') of 20 percent of the voting

shares of Sprint Corporation (``Sprint''), and the proposed formation

of a joint venture among Sprint, FT and DT to provide international

telecommunications services (the ``Joint Venture'').

AT&T will be adversely affected by the proposed acquisition and

joint venture. AT&T provides international telecommunications services

to customers in the United States in competition with Sprint. Moreover,

to provide these services, AT&T is required by law to sue the

bottleneck monopoly services of FT and DT to terminate its

telecommunications traffic to France and Germany respectively. AT&T and

its customers will suffer competitive injury if the proposed

transactions are allowed to proceed without the Department of Justice

(the ``Department'') clarifying certain provisions and procedures in

the proposed Final Judgment. Specifically, the Department should

condition its continuing consent to the proposed Final Judgment on the

adoption of clarifying changes making explicit that: (1) Sprint cannot

offer a new correspondent service unless other U.S. carriers can

provide such service with FT and/or DT on a non-discriminatory basis;

(2) Sprint and the Joint Venture cannot provide services to customers

who have been ``steered'' to Sprint or the Joint Venture by FT and/or

DT; and (3) the Phase I conditions will not expire until practical

alternatives, i.e., competitive networks, exist in France and Germany

for the termination of international telecommunications traffic,

including basic switched voice services.

Introduction and Summary

The Department has accurately concluded that the proposed

acquisition and Joint venture threaten U.S. competition and consumers.

As described in the Department's Competitive Impact Statement, the

acquisition and the joint Venture would provide FT and DT ``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 that United States competitors in

international telecommunications services. * * *'' \1\ As the

Department has elsewhere stated:

\1\ Competitive Impact Statement (``CIS''), Fed. Register, Vol.

60, No. 164, 44049, 44063 (Aug. 24, 1995).

The continued existence of telecommunications monopolies in

foreign countries results in higher prices, lower output,

inefficient quality of service and slower innovation for U.S.

consumers of international telecommunications services. Facilities-

based competition in foreign countries is the best solution to these

problems, and neither resale nor regulation is an equally effective

substitute.\2\

\2\ Market Entry and Regulation of Foreign-Affiliated Entities,

10 FCC Rcd. 4844 (1995) (``Market Entry NPRM''), Reply Comments of

the Department of Justice (filed May 12, 1995) at ii (emphasis

added).

AT&T believes that the threat to United States competition and

consumers would justify Department action to block the proposed

acquisition. In the exercise of prosecutorial discretion, however, the

Department has entered into a proposed Final Judgment with Sprint and

the Joint Venture containing nondiscrimination and other protections

designed to mitigate the competitive harms associated with the Sprint,

FT and DT transaction.

Under the Tunney Act, however, the Court must find that the

proposed Final Judgment ``is in the public interest'' in order to enter

it. Thus, the Court must determine whether the proposed decree

[[Page 3985]]

``would serve the public interest in free and unfettered competition.''

\3\ This inquiry appropriately involves an analysis of the clarity and

adequacy of the decree's essential nondiscrimination provisions and

compliance mechanisms, as well as an analysis of the injury that third

parties might suffer as a result of the decree.\4\

\3\ CIS at 44077 (citing United States v. Waste Management,

Inc., 1985-2 Trade Cas. para. 66,651, at 63,046 (D.D.C., 1985).

\4\ United States v. Microsoft Corp., 56 F.3d 1448, 1461-62

(D.C. Cir. 1995).

---------------------------------------------------------------------------

In determining whether the decree meets the public interest

standard, the Court will consider the explanations for the consent

decree contained in the Department's Competitive Impact Statement \5\

and whether the decree will protect third parties.\6\ In this

proceeding, the Department has accurately described in its Complaint

and the Competitive Impact Statement the monopolistic leveraging in

which FT and DT could engage absent the nondiscrimination provisions

set forth in Section III of the decree. This leveraging would severely

harm the third parties the decree is designed to protect. The clarity

and efficacy of the Section III nondiscrimination provisions thus are

central to the Court's public interest determination.\7\

\5\ United States v. Mid-America Dairymen, Inc., 1977-1 Trade

Cas. para. 61,508, at 71,980 (W.D. Mo. 1977) (Court carefully

considers explanations of the government in the Competitive Impact

Statement when determining if decree is in the public interest).

\6\ Microsoft Corp., supra, at 1462.

\7\ Id.

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AT&T's objections to the proposed Final Judgment all fall within

the areas appropriate for review by a court in its determination of

whether a proposed consent decree is in the public interest.

Accordingly, AT&T believes that the Department should condition its

continued support of the proposed Final Judgment on acceptance of the

proposed clarifications and change in implementation procedures for the

essential nondiscrimination provisions as set forth below.

First, the Department should clarify that the provisions of Section

111.G.1 of the decree do not abrogate the nondiscrimination

requirements of Section III.D of the proposed Final Judgment. Section

III.D prohibits Sprint and Joint Venture from accepting any FT or DT

Products and Services on a discriminatory basis. Section III.G.1 seeks

to protect competition further by restricting Sprint from providing a

correspondent service with FT or DT unless at least ``one'' other

carrier has reached an agreement with FT or DT to provide such a

service as well. The proposed Final Judgment should be clarified to

ensure that Section III.G.1 is not interpreted as absolving the parties

of their nondiscrimination obligations once one other carrier offers a

correspondent service with FT or DT.

The second area requiring clarification involves the Joint Venture

Agreement's attempt to require that FT and DT steer business to the

Joint Venture. Such a marketing strategy by the parties violates the

clear intent of Section III.D because, as noted in the Competitive

Impact Statement, the discrimination prohibited by that provision

``includ[es] activities involving the sale [sic] marketing, and

distribution of Sprint and Joint Venture Co. services by FT and DT.''

\8\ The consent decree should be clarified to prohibit expressly the

steering of customers by FT and DT to the Joint Venture because such

activity constitutes banned favoritism.

\8\ CIS at 44071.

---------------------------------------------------------------------------

AT&T's final concern rests with the mechanism chosen to trigger the

expiration of the nondiscrimination protections in Section III of the

decree (the ``Phase I Conditions''). The Phase I Conditions for each

country expire once France or Germany authorizes domestic and

international facilities-based competition in basic telecommunications

services and issues one license to a competitor to FT or DT. The

Department's rationale for the lifting of the Phase I Conditions upon

the authorization of competition and licensing of a competitor in

France and Germany is that U.S. carriers will have means other than

FT's and DT's bottleneck facilities to terminate their traffic to

France or Germany.\9\ Yet, the Department's own explanation for why the

Phase I Conditions are necessary, coupled with the Department's

acknowledgment that mere legal authorization to compete and issuance of

one license to do so may not result in a competitive alternative to FT

or DT, mandate that the Department ensure continuance of the Phase I

protections until FT and DT face actual competition.\10\

\9\ See pp. 16-17, infra.

\10\ CIS at 44074.

---------------------------------------------------------------------------

The Department Must Clarify the Scope of Certain Conditions and Change

Implementation Procedures of the Proposed Final Judgment

As the Department recognizes in its Competitive Impact Statement,

FT and DT--the world's largest government-owned monopoly

telecommunications carriers--have absolute control over

telecommunications services in France and Germany, respectively. FT is

the fourth largest provider of telecommunications services in the

world, while DT is the second or third largest.\11\ FT and DT are each

the state authorized monopoly provider of public switched voice

service, as well as all transmission facilities for domestic and

international telecommunications in their respective home

countries.\12\ As a result, ``[a]ccess 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,'' and ``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.'' \13\

\11\ CIS at 44060.

\12\ Id.

\13\ Id. at 44061.

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Under the proposed joint venture, FT and DT are required to refrain

from competing with Sprint in the United States in the Joint Venture's

services and in other services.\14\ FT and DT thus ``generally will

only be able to participate directly in United States

telecommunications markets through their ownership interests in

Spring.'' \15\ Moreover, the United States is ``by far'' the most

important location of those customers who desire global seamless

telecommunications services, i.e., multinational corporations who seek

one stop shopping for their communications needs irrespective of

national borders.\16\ Because FT and DT can participate in the U.S.

market only through the Joint Venture, they will have increased

incentives and the ability, using their monopolies and dominant

positions in France and Germany, respectively, to favor Sprint and the

proposed Joint Venture and to disfavor their United States

international telecommunications services competitors and their

customers.\17\

\14\ Id. at 44059. Similarly, Sprint must refrain from competing

with the Joint Venture anywhere in the world and must refrain from

competing with FT and DT in France and Germany. Id.

\15\ Id.

\16\ Id.

\17\ Id. at 44063

---------------------------------------------------------------------------

The Competitive Impact Statement sets forth in detail the myriad

ways that FT and DT could use their control over essential facilities

in France and Germany to favor Sprint and to harm Sprint's U.S.

competitors and their

[[Page 3986]]

customers.\18\ Although this threat to U.S. competition and consumers

would justify the Department's blocking of the proposed acquisition,

the Department has exercised its prosecutorial discretion and entered

into the proposed Final Judgment, which seeks to prevent such

anticompetitive conduct through conditions. However, unless the

clarifications and change to implementation procedures set forth herein

are made, FT and DT will be able to leverage their monopoly power

contrary to the Department's intent, and to the public interest test in

the Tunney Act.

\18\ Id. at 44063-64.

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A. The Department Should Make Clear That Sprint and the Joint Venture

Cannot Offer a New Correspondent Service Unless Other U.S. Carriers Can

Provide Such Service With FT and/or DT on a Non-Discriminatory Basis

Because FT and DT each has the ability to leverage its monopoly

power over telecommunications in France and Germany, respectively, in

favor of Sprint or the Joint Venture and against other U.S. carriers,

the proposed Final Judgment prohibits any discrimination in favor of

Sprint. Section III.D thus explicitly prohibits Sprint and the Joint

Venture from accepting any FT or DT Products and Services on a

discriminatory basis for the provision of any telecommunications or

enhanced telecommunications service in the United States or between the

United States and France or the United States and Germany.

As a result of FT's and DT's monopolies over the provision of basic

telecommunications services in their countries, U.S. carriers can

provide U.S.-to-France service and U.S.-to-Germany service only through

agreement with FT and DT for the termination of such calls. Such

services are referred to as correspondent services. The provision of

correspondent services is included within the nondiscrimination

protections of Section III.D. Sprint and the Joint Venture cannot

accept ``FT or DT Products and Services'' that are provided on a

discriminatory basis, and ``FT or DT Products and Services'' are

defined to include correspondent services.\19\ Further, Sprint and the

Joint Venture are specifically prohibited from receiving discriminatory

``terms and conditions of operating agreements for correspondent

services and international half-circuits.'' \20\ The Final Judgment

thus would prohibit Sprint or the Joint Venture from offering

correspondent services between the U.S. and France or the U.S. and

Germany where FT or DT has not made such correspondent services

available to other U.S. carriers on a nondiscriminatory basis.

\19\ Final Judgment, Sec. V.L.(i).

\20\ Id. Sec. III.D.1(v).

---------------------------------------------------------------------------

In order further to protect U.S. competition and consumers from

monopoly leveraging, Section III.G.1 of the proposed decree provides

that Sprint may not provide a correspondent service with FT or DT

unless at least one other carrier has reached agreement with FT or DT,

as the case may be, to provide such a correspondent service:

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 Germany.

This provision is designed to ensure that Sprint does not have an

exclusive or preferential arrangement with FT or DT, which would limit

competition in the provision of U.S.-to-France or U.S.-to-Germany

services in the U.S. In addition, it balances that interest with the

public interest of permitting new services to be offered to U.S.

customers on an expedited basis by allowing Sprint to introduce a

correspondent service as soon as another U.S. carrier also has reached

agreement with FT and DT to do so. Sprint need not wait to offer the

service until FT and DT have reached nondiscriminatory operating

agreements covering such service with all U.S. carriers.

Section III.G.1 must be interpreted, however, consistent with the

antidiscrimination protections of Section III.D. Otherwise, Section

III.G.1 could permit FT and DT to introduce a new correspondent service

with Sprint once that service is offered by any other U.S. carrier

selected by FT or DT--without regard to the practical ability of that

other carrier to compete effectively with Sprint. Moreover, such an

interpretation could be used to limit FT's and DT's obligation to

provide the same correspondent service to other U.S. Carriers that

today serve the route or that seek to do so in the future. Limiting

FT's and DT's nondiscriminatory treatment merely to one other carrier

would be inconsistent with Section III.D and clearly was not intended.

The Department thus should clarify that Section III.G.1 does not

abrogate any of the nondiscrimination requirements of Section III.D.

Specifically, the Department should make clear that the Final Judgment

requires FT and DT to offer correspondent services to all U.S. carriers

on a nondiscriminatory basis, and prohibits Sprint from offering a

correspondent service where FT or DT has discriminated in offering to

provide such correspondent services with other U.S. carriers.\21\

Further, this obligation should be viewed as a continuing obligation.

Were FT or DT has a service arrangement with other U.S. carriers that

is later offered with Sprint, FT or DT should be required by Section

III.D.1 to extend any different terms and conditions it has offered to

Sprint to the other U.S. carriers.

\21\ Section II.C of the proposed Final Judgment confirms this

reading. That section prohibits Sprint and the Joint Venture from

participating in the provision of a service that requires a license

in France or Germany unless other carriers can obtain the necessary

authorization on the same terms and conditions, including the same

time frame as FT or DT. It would be inconsistent to permit Sprint or

the Joint Venture to benefit from FT or DT discrimination in

providing authorization (via an operating agreement) that is solely

under their control, when Sprint and the Joint Venture are not

permitted to benefit from discrimination by France or Germany in

granting governmental authorization.

---------------------------------------------------------------------------

B. The Department Should Make Clear That Sprint and Joint Venture Co.

Cannot Provide Services to Customers Who Have Been ``Steered'' to

Sprint or the Joint Venture by FT and/or DT

Section 10.6(b) of the Joint Venture Agreement between Sprint, FT

and DT specifically requires FT and DT to steer customers toward Joint

Venture services even where the customer has affirmatively requested

that another U.S. carrier provide the U.S. half of the service:

If a Party or any of its Affiliates receives an unsolicited

request from a customer of a Party or any of its Affiliates or of

the Joint Venture to enter into a Contract to provide to such

customer in conjunction with other persons a service that is

currently offered by the Joint Venture, such Party or its Affiliates

will use commercially reasonable efforts to persuade such customer

to purchase such service from the Joint Venture. If despite such

Party's efforts, the Customer prefers not to purchase such service

from the Joint Venture, such party will refer such matter to the

Global Venture Office which, within ten (10) Business Days, will

present its observations regarding such matter. * * *

For example, if a customer comes to DT (which the customer must do

in Germany) and requests that DT arrange for private line service

between Germany and the U.S. and requests that

[[Page 3987]]

MCI provide the U.S. half-circuit, DT must use ``commercially

reasonable efforts'' to persuade MCI's customer instead to use the

Joint Venture for such service.\22\ Further, DT must refer the

customer's request to the Joint Venture (including Sprint's

representatives) if it fails to convince the customer to purchase Joint

Venture services.\23\

\22\ It is unclear what would constitute ``commercially

reasonable efforts'' if one is a monopolist to whom all customers

must come for service.

\23\ Sprint's representative to the Joint Venture thus would be

informed of every unsuccessful attempt in Europe to steer global

customers to the Joint Venture (i.e., every time a customer wanted

to use a U.S. carrier other than Sprint or the Joint Venture). Such

market leads obtained solely because of FT's and DT's monopoly

status would permit Sprint to target the U.S. offices of these

customers for follow-up persuasion.

---------------------------------------------------------------------------

Such discriminatory marketing activity by a company controlling

essential facilities in favor of its affiliate is precisely the type of

monopoly leveraging that the Final Judgment seeks to prohibit.\24\ The

Department should clarify that the receipt of such favored treatment by

Sprint or the Joint Venture would violate the prohibition against

discrimination contained in Section III.D.1 of the proposed Final

Judgment.

\24\ Sprint does not dispute AT&T's interpretation of FT's and

DT's obligation under the Joint Venture Agreement, and does not deny

its intent to engage in such steering of customers. Indeed, Sprint

argues that the steering of customers by a monopolist to its U.S.

affiliate merely reflects ``economic self-interest'' and is not

improper. Market Entry NPRM, Sprint Supplemental Reply (filed Sept.

15, 1995) at iv.

---------------------------------------------------------------------------

C. The Department Should Make Clear That the Phase I Conditions Will

Not Expire Until Practical Alternatives Exist in France and Germany for

the Termination of International Telecommunications Traffic, Including

Basic Switched Voice Services

The Final Judgment would impose two sets of conditions on Sprint

and the Joint Venture, one set that continues for the term of the

decree and one set that expires upon the happening of certain events.

The Phase I protections against discrimination will terminate

(separately for each country) once France or Germany authorizes

domestic and international competition and issues a license to one

competitor of FT or DT. The restrictions contained in Section II will

continue through the entire term of the consent decree.

As the Department explains, stricter prohibitions during Phase I

are necessary ``because there is considerably greater potential for

competitive abuses to occur in the period while competitors have no

legal alternative to using FT's and DT's facilities and services and

before the French and German governments finish implementing their

program of regulatory reform.'' \25\ Further, in order for Phase II to

begin, ``the licensed competitors must have authority to construct or

own a sufficiently large amount of international capacity that other

providers would have a realistic alternative to the use of the

international facilities of FT or DT. * * *'' \26\ In short, the

Department's rationale for the lifting of the Phase I Conditions is

that, once Phase II begins, U.S. carriers will have means other than

FT's or DT's bottleneck facilities to terminate their traffic to France

or Germany. Moreover, if ``the entry of licensed competitors in France

or Germany has been significantly delayed after the granting of

licenses, or has otherwise not proven sufficient to provide a

competitive alternative [to FT or DT],'' the Department would request

reinstatement of the Phase I Conditions.\27\

\25\ CIS at 44066.

\26\ Id. at 44065.

\27\ Id. at 44074.

---------------------------------------------------------------------------

Despite the stated rationale for the Phase I conditions, the Final

Judgment appears to provide for their termination upon the mere removal

of legal restrictions and the issuance of a license to a potential

competitor in France and Germany. There is no demonstration required by

the parties that effective competition exists in France and Germany for

the termination of international traffic. Thus, the Phase I Conditions,

which include the prohibitions against discrimination, would terminate

once France and Germany each legally authorizes competition in

international and domestic services and issues one license to do so,

regardless of whether the recipient of that license is capable of

providing U.S. carriers any practical alternative to FT or DT for

terminating calls to France or Germany. This result would conflict with

the Department's own underlying rationale for the proposed two-phased

decree. To remedy this problem, the Department should modify the

implementation provisions of the decree to require Sprint to

demonstrate to the Department that an actual competitive alternative to

FT and DT exists in France and Germany, respectively, for the

termination of telecommunications traffic, including basic switched

voice services, in order for the Phase I Conditions to be lifted.

Conclusion

As set forth above, the application of key provisions of the

proposed Final Judgment must be clarified in order for the decree to be

applied in the manner intended by the Department and in order to

prevent anticompetitive abuse. Unless the Department adopts the

clarifications and implementation modification set forth herein, the

Final Judgment will not satisfy the Tunney Act's requirement that the

decree be in the public interest. The Department therefore should

clarify that (1) Sprint cannot offer a new correspondent service unless

other U.S. carriers can provide such service with FT and/or DT on a

non-discriminatory basis, and (2) Sprint and the Joint Venture cannot

provide services to customers who have been ``steered'' to Sprint or

the Joint Venture by FT and/or DT. The Department also should modify

the implementation provisions of the decree so that the Phase I

Conditions will remain in effect until Sprint demonstrates to the

Department that practical alternatives exist in France and Germany for

the termination of international telecommunications traffic, including

basic switched voice services.

Dated: October 23, 1995.

Respectfully submitted,

Judith A. Maynes,

Mark C. Rosenblum,

Stephen C. Garavito,

Karen L. Itzkowitz,

Attorneys for AT&T Corp.

Comments of MCI Communications Corporation on Proposed Consent

Judgment

United States of America, Plaintiff, v. Sprint Corporation and

Joint Venture Co., Defendants.

[No. 95-CV-1304 (TPJ)]

Dated: October 23, 1995.

Anthony C. Epstein,

J. Paul Oetken,

Jenner & Block, Attorneys for MCI Communications Corporation.

Of Counsel:

Michael H. Salsbury,

Executive Vice President and General Counsel, MCI Communications

Corporation.

To: The Department of Justice

Comments of MCI Communications Corporation on Proposed Consent

Judgment

United States of America, Plaintiff, v. Sprint Corporation and

Joint Venture Co., Defendants.

[No. 95-CV-1304 (TPJ)]

Pursuant to Sec. 2 (b), (d), and (f)(4) of the Antitrust Procedures

and Penalties Act (the ``Tunney Act''), 15 U.S.C. Sec. 16 (b), (d), and

(f)(4), MCI Communications Corporation (``MCI'') submits these comments

regarding the consent

[[Page 3988]]

judgment proposed by the United States Department of Justice (``DOJ'')

in this proceeding.

I. Introduction and Summary

If the proposed transactions among Sprint Corporation (``Sprint''),

France Telecom (``FT''), and Deutsche Telekom A.G. (``DT'') are

consummated, FT's and DT's monopoly power in France and Germany would

pose a serious and long-term threat to U.S. consumers and competition.

The heart of DOJ's complaint is that the transactions threaten

substantially lessened competition because of the danger that FT and DT

will ``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 [Phoenix] vis-a-vis

other United States international carriers'' and to engage in other

anticompetitive conduct.\1\ In addition to financial incentives, the

proposed transactions would create contractual and corporate duties on

the part of FT and DT to discriminate in favor of Sprint and

Phoenix.\2\

\1\ Competitive Impact Statement, 60 Fed. Reg. 44,058, 44,063

(filed Aug. 14, 1995) (``CIS'').

\2\ See infra at 11-12 and n. 29.

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However, the proposed consent decree falls conspicuously short of

alleviating these dangers. Most significantly, it allows the shift from

a de jure to a de facto monopoly in France and Germany to trigger the

lifting of its crucial substantive protections against anticompetitive

behavior. The critical question is whether FT's and DT's monopoly power

persists, not whether their monopolies are de jure or de facto. Under

DOJ's proposed consent decree, however, the substantive protections

against abuse of FT's and DT's monopoly power immediately and

automatically expire as soon as competition is legally authorized and

just one competitor has been licensed in France or Germany. By removing

Phase I protections before the development of genuine, effective

facilities-based competition in France and Germany, the decree

substantially undermines its own force.

The competitive problems posed by these transactions stem mainly

from three facts. First, FT and DT have market power in France and

Germany, and international telecommunications carriers are completely

dependent on them in connection with services to France and Germany.

Second, even after effective facilities-based competition is legally

permitted in France and Germany, it will take, at a minimum, several

years to develop, and effective regulation of FT and DT will be

essential during the transition period. And third, as government-owned

and government-controlled monopolies, FT and DT lack any independent

regulator in their home countries.

The proper benchmark for when such anticompetitive behavior ceases

to be a threat is not the legal possibility of competition, but rather

the actual development of facilities-based competition. As DOJ itself

recently stated in a related proceeding, ``facilities-based competition

is by far the best solution to the problems * * * that arise today from

[foreign] monopoly provision of key network facilities and services.''

\3\ DOJ recommends the imposition of these restrictions because of FT's

and DT's monopoly power, so they should remain in effect as long as

that monopoly power persists.

\3\ Reply Comments of DOJ, at 17, Market Entry and Regulation of

Foreign-affiliated Entities, IB Docket No. 95-22, RM-8355, RM-8392

(FCC) filed May 12, 1995).

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FT's and DT's monopoly power--and hence the anticompetitive

threat--will persist for years after the triggering events for

termination of the Phase I competitive safeguards (formal authorization

of competition and licensure of one competitor). First, new entrants

will need time to construct networks and develop a customer base.

Second, numerous regulatory implementation issues will have to be

resolved by French and German authorities after the formal licensing of

competitors. And third, regulation is especially unlikely to be

effective when, as in the case of FT and DT, ``foreign authorities are

regulating government-owned monopoly carriers.'' \4\ There is no basis

for equating the elimination of legal entry barriers and the licensing

of one competitor with the immediate reduction, much less elimination,

of FT's and DT's market power.

\4\ Id. at 27.

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DOJ attempts to justify the premature expiration of Phase I's

competitive safeguards by relying on the ``assumption'' \5\ that the

French and German governments eventually will provide equivalent

protection, even though the governments will continue to own FT and DT.

As DOJ itself has observed, however, ``[f]oreign regulation normally

should not be considered a sufficient alternative to protect U.S.

consumers in the absence of any meaningful facilities-based

competition, however effective that regulation may be represented to

be.'' \6\ Such foreign regulation may not be adopted for years in

France and Germany and is unlikely effectively to rein in FT's and DT's

monopoly power--particularly given that the regulators would also be

the owners of the regulated entities. In any event, DOJ's independent

responsibility to enforce the U.S. antitrust laws and to protect U.S.

consumers is not shared by French and German regulators.

\5\ CIS, 60 Fed. Reg. at 44,066.

\6\ Reply Comments of DOJ, at 27.

---------------------------------------------------------------------------

By permitting anticompetitive conduct to occur under the de facto

monopolies of FT and DT after de jure protections have been eliminated,

the proposed consent decree fails to prevent serious harms to

competition and consumers during a crucial period of years. Therefore,

the proposed decree is not in the public interest unless it is modified

to provide that the restrictions remain in effect until actual,

effective facilities-based competition is found to exist in France and

in Germany.

II. Background

A. Legal Standards Under the Tunney Act

The Tunney Act provides that proposed consent judgments in

antitrust cases brought by the United States are subject to a 60-day

period during which written comments may be filed.\7\ The United States

is required to ``receive and consider'' any such comments.\8\

\7\ 15 U.S.C. Sec. 16 (b) and (d).

\8\ Id. Sec. 16(d).

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In requiring consideration of public comments, the Act contemplates

a critical reexamination of the decree by DOJ in light of the points

made in any submitted comments. DOJ has the authority to withdraw its

consent to the decree at any time before it is entered.\9\ Therefore,

if the public comments persuade DOJ that the decree should be modified,

it is free to condition its continued consent on these modifications.

\9\ See Stipulation para. 2, 60 Fed. Reg. 44,049 (``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.'').

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If DOJ decides that no modifications are appropriate in light of

the public comments, the Court must determine whether entry of the

proposed consent judgment ``is in the public interest.'' \10\ In making

that determination, the Court may consider:

\10\ 15 U.S.C. Sec. 16(e).

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(1) the competitive impact of such judgment, including

termination of alleged violations, provisions for enforcement and

modification, duration or relief sought, anticipated effects of

alternative remedies actually considered, any other considerations

bearing upon the adequacy of such judgment;

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

generally and individuals alleging specific injury from the

violations

[[Page 3989]]

set forth in the complaint including consideration of the public

benefit, if any, to be derived from a determination of the issues at

trial.\11\

\11\ Id.

The Court is specifically authorized in making its public interest

determination to review any comments of interested parties and DOJ's

response to such comments.\12\

\12\ Id. Sec. 16(f)(4).

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Although an antitrust consent decree proposed by DOJ is entitled to

deference, the Tunney Act was ``intended to prevent `judicial rubber

stamping' '' of such decrees,\13\ and to require ``an independent

determination as to whether or not entry of a proposed consent decree

[was] in the public interest.'' \14\ Thus, while the D.C. Circuit made

clear in its recent Microsoft decision that ``Congress did not mean for

a district judge to construct his own hypothetical case and then

evaluate the decree against that case,'' \15\ it also reaffirmed the

district court's duty to inquire into ``the purpose, meaning, and

efficacy of the decree,'' \16\ and to determine whether the remedies

proposed are ``inconsonant with the allegations.'' \17\

\13\ United States v. Microsoft Corp., 56 F.3d 1448, 1458 (D.C.

Cir. 1995) (quoting H.R. Rep. No. 1463, 93d Cong., 2d Sess. 8

(1974)).

\14\ Id. (quoting S. Rep. No. 298, 93d Cong., 1st Sess. 5

(1973)).

\15\ Id. at 1459.

\16\ Id. at 1462.

\17\ Id. at 1461.

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DOJ accurately describes the character of the ``public interest''

determination in the context of this case:

The courts have recognized that the term ``public interest''

``take[s] meaning from the purposes of the regulatory legislation.''

NAACP v. Federal Power Comm'n, 425 U.S. 662, 669 (1976); United

States v. American Cyanamid Co., 719 F.2d 558, 565 (2d Cir. 1983),

cert. denied, 465 U.S. 1101 (1984). Since the purpose of the

antitrust laws is to ``preserv[e] free and unfettered competition as

the rule of trade,'' Northern Pacific Railway Co. v. United States,

356 U.S. 1, 4 (1958), the focus of the ``public interest'' inquiry

under the Tunney Act is whether the proposed final judgment would

serve the public interest in free and unfettered competition. United

States v. Waste Management, Inc., 1985-2 Trade Cas. para. 66,651, at

63,046 (D.D.C. 1985).\18\

\18\ CIS, 60 Fed. Reg. at 44,076-44,077; see also United States

v. Western Elec. Co., 900 F.2d 283, 308 (D.C. Cir.) (``To remain

consistent with antitrust policy, the court should revise the decree

that is shown to lessen competition substantially in present

circumstances.'') (quoting 2 P. Areeda & D. Turner, Antitrust Law

para. 330, at 141-42 (1978)), cert. denied, 498 U.S. 911 (1990).

A proposed consent decree that fails to cure the antitrust violation is

not in the public interest.\19\

\19\ See United States v. AT&T, 552 F. Supp. 131, 150

(D.D.C.1982), aff'd mem. sub nom. Maryland v. United States, 460

U.S. 1001 (1983).

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B. The Proposed Transactions

Two related transactions are the subject of DOJ's antitrust

complaint and consent decree. First, Sprint, FT, and DT have entered

into an agreement providing for the formation of an international joint

venture, now known as ``Phoenix,'' to provide a variety of voice,

video, and data services. Under the agreement, each party would

contribute most of its existing operations outside its home country to

the Phoenix joint venture. FT and DT would hold and manage their

interests in Phoenix together through their own proposed two-party

joint venture, known as ``Atlas.'' Phoenix would have a board on which

FT, DT, and Sprint would be equally represented. Sprint would have the

exclusive right to provide Phoenix services in the United States, and

FT and DT would not compete with Sprint in the United States with

respect to such services. Sprint similarly would not compete with FT

and DT in their home countries. None of the three owners would compete

against Phoenix.\20\

\20\ See CIS, 60 Fed. Reg. at 44,058-44,059.

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Second, Sprint, FT, and DT have entered into an agreement entitling

FT and DT each to acquire a 10-percent equity interest in Sprint, and

thus to become Sprint's largest shareholders. FT and DT would acquire

special shareholder rights, including the right to appoint three

members of Sprint's 15-member Board of Directors.\21\

\21\Id.

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C. The Proposed Consent Decree

On July 13, 1995, DOJ filed a civil antitrust complaint alleging

that the proposed Sprint-FT-DT transactions would violate Sec. 7 of the

Clayton Act \22\ by lessening competition in the markets for

telecommunications services between the United States and France and

between the United States and Germany. On the same date, Sprint and DOJ

stipulated to the entry of a proposed consent decree, which purports to

remedy the fundamental problem created by an alliance between Sprint

and two foreign, government-owned monopoly carriers that are among the

largest telecommunications providers in the world. The danger addressed

by DOJ's complaint and consent decree is that FT and DT will ``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 [Phoenix] vis-a-vis other United

States international carriers'' and to engage in other anticompetitive

conduct.\23\

\22\ 15 U.S.C. Sec. 18.

\23\ CIS, 60 Fed. Reg. at 44,063.

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The proposed consent decree imposes restrictions and obligations in

two separate phases. Phase I terminates, for France and Germany

independently, when legal prohibitions on competition against FT and DT

have been removed and one or more competitors have been licensed to

provide facilities and services in each country.\24\ Phase II continues

for five years after the end of Phase I.\25\

\24\ Id. at 44,065; Final Judgment V.Q, 60 Fed. Reg. 44,051,

44,056.

\25\ CIS, 60 Fed. Reg. at 44,074; Final Judgment X.B, 60 Fed.

Reg. at 44,058.

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The provisions of the decree that apply during both Phase I and

Phase II include:

requirements of disclosure of the terms and conditions of

dealings among Sprint, FT, DT, and Phoenix (II.A)

restrictions on the sharing of information (II.B)

limitations on the ability of Sprint and Phoenix to offer

international services involving France or Germany, or to provide

facilities to FT or DT for such services, if other United States

international telecommunications providers are not permitted to provide

the same services (II.C)\26\

\26\ CIS, 60 Fed. Reg. at 44,067-44,070; Final Judgment, 60 Fed.

Reg. at 44,051-44,053.

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The provisions that are applicable only during Phase I include:

restriction against the acquisition by Sprint or Phoenix

of ownership interests in or control over facilities legally reserved

to FT or DT, and limitations on their ability to acquire international

half-circuits terminating in France or Germany (III.A)

prohibition of the acquisition by Sprint or Phoenix of

ownership interests in or control over FT or DT public data networks

(III.B)

prohibition against Sprint or Phoenix providing FT or DT

products and services on an exclusive basis (III.C)

prohibition against Sprint or Phoenix obtaining FT or DT

products and services on a discriminatory basis (III.D)

prohibition of Sprint's acceptance of correspondent

telecommunications traffic on a disproportionate basis (III.E)

restrictions designed to guard against cross-subsidization

of Sprint or Phoenix by FT or DT (III.F)

[[Page 3990]]

prohibition of any exclusive operating agreements between

Sprint and FT or DT (III.G)

requirements that Sprint and Phoenix not provide

telecommunications or enhanced telecommunications services using FT or

DT products and services or public data networks, if FT or DT has

established proprietary or nonstandardized protocols or interfaces and

has failed to continue to provide other competitors with access to

those services and networks on a standardized basis (III.H-I)\27\

\27\ CIS, 60 Fed. Reg. at 44,070-44,073; Final Judgment, 60 Fed.

Reg. at 44,053-44,055.

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III. The Proposed Decree Should be Modified so That its Safeguards

Against Abuse of FT's and DT's Monopoly Power Continue as Long as Their

Monopoly Power Continues

The proposed transactions pose a well-established threat to U.S.

consumers and competition. DOJ recognizes that the transactions

threaten substantially lessened competition because they give FT and DT

``increased incentives and the ability, using their monopolies and

dominant positions in France and Germany respectively, to favor Sprint

and [Phoenix] and to disfavor their United States competitors in

international telecommunications services in various ways,'' including

discrimination, cross-subsidization, and sharing of confidential

information.\28\ The proposed transactions also would create

contractual and corporate duties on the part of FT and DT to

discriminate in favor of Phoenix and Sprint. For example, the Joint

Venture Agreement would require FT and DT to ``use commercially

reasonable efforts to persuade'' customers to use Phoenix services when

they have requested the services of another U.S. carrier.\29\ DOJ does

not point to any procompetitive benefits created by the transactions

that would mitigate their anticompetitive effects.

\28\ CIS, 60 Fed. Reg. at 44,064-44,064.

\29\ Section 10.6(b) of the Joint Venture Agreement (p. 81)

provides:

If a Party or any of its Affiliates receives an unsolicited

request from a customer of a Party or any of its Affiliates or of

the Joint Venture to enter into a Contract to provide to such

customer in conjunction with other Persons a service that is

currently offered by the Joint Venture, such Party or its Affiliates

will use commercially reasonable efforts to persuade such customer

to purchase such service from the Joint Venture. If despite such

Party's efforts, the customer prefers not to purchase such service

from the Joint Venture, such Party will refer such matter to the

Global Venture Office which, within ten (10) Business Days, will

present its observations regarding such matter. * * *

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The proposed consent decree fails in a basic respect to prevent the

injury that DOJ alleges arising from FT's and DT's monopoly power. In

particular, it allows the shift from a de jure to a de facto monopoly

in France and Germany to trigger the lifting of its substantive

protections against anticompetitive behavior. By providing for the

removal of Phase I restrictions before the development of genuine,

effective facilities-based competition in France and Germany, the

decree fundamentally fails to solve the anticompetitive problems that

would result from the transactions.

A. The

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