United States v. U S West, Inc. & Continental Cablevision, Inc.; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. U S West, Inc. & Continental Cablevision, Inc.;

Proposed Final Judgment and Competitive Impact Statement

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. Section 16 (b) through (h), that a proposed

Final Judgment has been filed with the United States District Court for

the District of Columbia in United States of America v. U S West, Inc.

and Continental Cablevision, Inc., Civil Action 96-2529 (TPJ).

The Complaint in this case alleged that the proposed acquisition of

Continental Cablevision, Inc. by U S West, Inc. would tend to lessen

competition substantially in the sale of dedicated services in areas

within Denver, Colorado; Omaha, Nebraska; Phoenix, Arizona; and

Seattle, Washington in which Teleport Communications Group, Inc.

(``TCG'') provides such services, in violation of Section 7 of the

Clayton Act, 15 U.S.C. 18. Continental owns approximately 11% of TCG.

Under the terms of the proposed Final Judgment, US WEST must reduce its

share of TCG to no more than 10% by June 30, 1997. US WEST must divest

the remaining interest in TCG by December 31, 1998. The proposed Final

Judgment also prohibits US WEST from appointing members to or

participating in meetings of TCG's Board of Directors and contains

other provisions barring US WEST's access to confidential TCG

information pending completion of the divestitures.

Public comment is invited within the statutory 60-day comment

period. Such comments, and responses thereto, will be published in the

Federal Register and filed with the Court. Comments should be directed

to Donald J. Russell, Chief, Telecommunications Task Force, Antitrust

Division, Department of Justice, 555 4th Street, N.W., Room 8104,

Washington, D.C. 20001, (telephone: (202) 514-5621).

Constance K. Robinson,

Director of Operations, Antitrust Division.

United States District Court for the District of Columbia

United States of America, Plaintiff, v. U S West, Inc. and

Continental Cablevision, Inc., Defendants. No. 96 2529; (Antitrust)

filed: November 5, 1996.

Judge Thomas Penfield Jackson

Stipulation

It is stipulated by and between the undersigned parties, by their

respective attorneys, that:

A. The parties to this Stipulation consent that a Final Judgment in

the form attached may be filed and entered by the Court, upon any

party's or the Court's own motion, at any time after compliance with

the requirements of the Antitrust Procedures and Penalties Act (15

U.S.C. 16), without further notice to any party or other proceedings,

provided that plaintiff has not withdrawn its consent, which it may do

at any time before entry of the proposed Final Judgment by serving

notice on the defendants and by filing that notice with the Court.

B. The parties shall abide by and comply with the provisions of the

proposed Final Judgment pending entry of the Final Judgment, and shall,

from the date of the filing of this Stipulation, comply with all the

terms and provisions of the proposed Final Judgment as though the same

were in full force and effect as an order of the Court; provided,

however, that U S West's obligation to divest the TCG Interest shall

not arise until the Final Judgment is entered, except that the manner

and timing of any disposition of the TCG Interest by U S West before or

after the Final Judgment's entry shall be

[[Page 58704]]

done as provided in the proposed Final Judgment.

C. In the event plaintiff withdraws its consent, as provided in

paragraph (A) above, or if the proposed Final Judgment is not entered

pursuant to this Stipulation, this Stipulation shall be of no effect

whatever, and the making of this Stipulation shall be without prejudice

to any party in this or any other proceeding.

D. Defendants represent that the divestitures contemplated by the

proposed Final Judgment can and will be made and that defendants shall

raise no claims of hardship or difficulty as grounds for asking the

Court to modify any of the divestiture provisions in the Final

Judgment.

E. All parties agree that this agreement can be signed in multiple

counter-parts.

For the Plaintiff:

David Turetsky,

Deputy Assistant Attorney General.

Donald J. Russell,

Chief, Telecommunications Task Force.

Charles E. Biggio,

Senior Counsel.

Nancy M. Goodman,

Assistant Chief, Telecommunications Task Force.

Yvette Benguerel,

Attorney, Telecommunications Task Force.

Susanna Zwerling,

Attorney, Telecommunications Task Force.

Brent E. Marshall,

Attorney, Telecommunications Task Force.

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

N.W., Room 8104, Washington, DC 20001, (202) 514-5808.

Dated: ______________.

For the Defendants:

James Anderson,

Vice President & Treasurer, U S West, Inc.

Dated: ______________.

Robert J. Sachs,

Senior Vice President, Corporate & Legal Continental Cablevision, Inc.

Dated: ______________.

Final Judgment

Whereas, plaintiff, the United States of America, having filed its

Complaint herein on November 4, 1996, and plaintiff and defendants, by

their respective attorneys, having consented to the entry of this Final

Judgment without trial or adjudication of any issue of fact or law

herein, and without this Final Judgment constituting any evidence

against or an admission by any party with respect to any issue of law

or fact herein:

And whereas, defendants have agreed to be bound by the provisions

of this Final Judgment pending its approval by the Court;

And whereas, the essence of this Final Judgment is prompt and

certain divestiture of certain assets and the imposition of related

injunctive relief to assure that competition is not substantially

lessened;

And whereas, plaintiff requires U S WEST, Inc. to make certain

divestitures for the purpose of remedying the lack of competition

alleged in the Complaint;

And whereas, defendants have represented to plaintiff that the

divestitures ordered herein can be made and that defendants will later

raise no claims of hardship or difficulty as grounds for asking the

Court to modify any of the divestiture provisions contained herein

below;

And, therefore, before the taking of any testimony, and without

trial or adjudication of any issue of fact or law herein, and upon

consent of the parties hereto, it is hereby ordered, adjudged, and

decreed as follows:

I. Jurisdiction

This Court has jurisdiction over each of the parties hereto and the

subject matter of this action. The Complaint states a claim upon which

relief may be granted against the defendants under Section 7 of the

Clayton Act, as amended (15 U.S.C. Sec. 18).

II. Definitions

A. ``U S WEST'' means defendant U S WEST, Inc., a Delaware

corporation with its headquarters in Englewood, Colorado and includes

its successors and assigns, its subsidiaries, and directors, officers,

managers, agents and employees acting for or on behalf of U S WEST.

B. ``U S WEST Communications'' means U S WEST Communications, Inc.,

a subsidiary of U S WEST, Inc., and its successors and assigns, its

subsidiaries and directors, officers, managers, agents and employees

acting for it or on its behalf.

C. ``Continental'' means defendant Continental Cablevision, Inc., a

Delaware corporation with its headquarters in Boston, Massachusetts,

and includes its successors and assigns, its subsidiaries, and

directors, officers, managers, agents and employees acting for or on

behalf of Continental.

D. ``TCG'' means Telephone Communications Group Inc., a Delaware

corporation with its headquarters in New York, New York.

E. ``TCG Interest'' means any and all of the TCG Common Stock owned

by Continental as of June 27, 1996, including any securities into which

such stock may subsequently be converted. ``TCG Common Stock'' means

TCG Class A Common Stock, with a par value of $.01/share, and TCG Class

B Common Stock, with a par value of $.01/share.

F. ``U S WEST/Continental Merger'' means the merger of Continental

into U S WEST, as contemplated by the U S WEST/Continental Merger

Agreement.

G. ``U S WEST/Continental Merger Agreement'' means the Agreement

and Plan of Merger dated as of February 27, 1996, as amended, with

respect to the merger of Continental into U S WEST.

H. ``U S WEST Communications Region'' means the collective area in

the states of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana,

Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah,

Washington and Wyoming in which U S WEST Communications is a local

exchange carrier.

III. Applicability

A. The provisions of this Final Judgment apply to each of the

defendants, its successors and assigns, its subsidiaries, directors,

officers, managers, agents, employees and all other persons in active

concert or participation with any of them who shall have received

actual notice of this Final Judgment by personal service or otherwise.

B. Defendants shall require, as a condition of the sale or other

disposition of all or substantially all the assets of the entity or

entities holding the TCG Interest at the time of such sale or

disposition, that the acquiring party or parties agree to be bound by

the provisions of this Final Judgment: provided, however, that this

obligation shall not apply in the case of the divestiture required by

Section IV or V hereinbelow.

IV. Divestiture of TCG Interest

A. U S WEST is hereby ordered and directed, in accordance with the

terms of this Final Judgment, on or before June 30, 1997, to divest a

portion of the TCG Interest sufficient to cause U S WEST to own less

than 10% of the outstanding shares of TCG Common Stock. U S WEST is

hereby further ordered and directed, in accordance with the terms of

this Final Judgment, on or before December 31, 1998, to divest any

remaining portion of the TCG Interest. Defendants agree to use their

best efforts to accomplish the divestitures as set forth in this Final

Judgment as expeditiously as possible.

B. Unless plaintiff otherwise consents in writing, the divestitures

made pursuant to Section IV or V of this Final Judgment, shall be made

(i) to a

[[Page 58705]]

purchaser or purchasers that, in the plaintiff's sole judgment, are

financially sound and have the intention of maintaining TCG as a viable

competitor and (ii) in a manner that, in plaintiff's sole judgment,

shall not injure TCG.

C. In accomplishing the divestitures ordered by this Final

Judgment, defendants promptly shall make known, by usual and customary

means, the availability of the TCG Interest. The defendants shall

inform any person making a bona fide inquiry regarding such a possible

purchase that the sale is being made pursuant to this Final Judgment

and provide such person with a copy of this Final Judgment: provided,

however, that the defendants are not obligated to provide such notice

to any purchaser(s) of TCG Common Stock in any proposed sale by U S

WEST or its broker if the identity of the ultimate purchaser(s) of the

shares is unknown to U S WEST at the time of such sale. Defendants

shall also offer to furnish all bona fide prospective purchasers in a

proposed private sale all current publicly-available information filed

with the Securities and Exchange Commission (``SEC'') regarding the TCG

Interest. Defendants shall make available such information to plaintiff

at the same time that such information is delivered by defendants to

any other person.

D. Defendants shall not finance any part of any divestiture

required by this Final Judgment without the prior written consent of

the Department of Justice.

V. Appointment of Trustee

A. In the event that U S WEST has not divested the TCG Interest

within the time periods specified in Section IV of this Final Judgment,

the Court shall appoint, on application of the plaintiff, a trustee

selected by the plaintiff to effect the divestiture of any remaining

portion of the TCG Interest not divested within the time periods set

forth in this Final Judgment.

B. After the trustee's appointment has become effective, only the

trustee shall have the right to sell the TCG Interest. The trustee

shall have the power and authority to accomplish the divestiture at the

best price then obtainable upon a reasonable effort by the trustee,

subject to the provisions of Sections V and VI of this Final Judgment,

and shall have other powers as the Court shall deem appropriate.

Subject to Section V.C. of this Final Judgment, the trustee shall have

the power and authority to hire at the cost and expense of defendants

any investment bankers, attorneys, or other agents reasonably necessary

in the judgment of the trustee to assist in the divestiture, and such

professionals or agents shall be solely accountable to the trustee. The

trustee shall have the power and authority to accomplish the

divestiture at the earliest possible time to a purchaser or in a manner

acceptable to plaintiff, and shall have such other powers as this Court

shall deem appropriate. Defendants shall not object to the sale of the

affected assets or interest by the trustee on any grounds other than

the trustee's malfeasance. Any such objection by defendants must be

conveyed in writing to plaintiff and the trustee no later than fifteen

(15) calendar days after the trustee has provided the notice required

under Section VI of this Final Judgment.

C. The trustee shall serve at the cost and expense of defendants,

on such terms and conditions as the Court may prescribe, and shall

account for all monies derived from the sale of the assets sold by the

trustee and all costs and expenses so incurred. After approval by the

Court of the trustee's accounting, including fees for its services and

those of any professionals and agents retained by the trustee, all

remaining monies shall be paid to defendants and the trustee's services

shall then be terminated. The compensation of such trustee and of any

professionals and agents retained by the trustee shall be reasonable in

light of the value of the divestiture and based on a fee arrangement

providing the trustee with an incentive based on the price and terms of

the divestiture and the speed with which it is accomplished.

D. Defendants shall take no action to interfere with or impede the

trustee's accomplishment of the divestiture of the affected assets or

interest and shall use their best efforts to assist the trustee in

accomplishing the required divestiture, including best efforts to

effect all necessary regulatory approvals. Subject to a customary

confidentiality agreement, the trustee shall have full and complete

access to the defendants' personnel, books, records, and facilities

related to the TCG Interest. Defendants shall permit prospective

purchasers of the TCG Interest to have access to any and all financial

or operational information in their possession as may be relevant to

the divestiture required by this Final Judgment.

E. After its appointment becomes effective, the trustee shall file

monthly reports with the parties and the Court setting forth the

trustee's efforts to accomplish divestiture of any of the TCG Interest

as contemplated under this Final Judgment; provided, however, that to

the extent such reports contain information that the trustee deems

confidential, such reports shall not be filed in the public docket of

the Court. Such reports shall include the name, address, and telephone

number of each person who, during the preceding month, made an offer to

acquire, expressed an interest in acquiring, entered into negotiations

to acquire, or was contacted or made an inquiry about acquiring, any or

all of the TCG Interest and shall describe in detail each contact with

any such person during that period. The trustee shall maintain full

records of all efforts made to divest any or all of the TCG Interest.

F. Within six (6) months after its appointment has become

effective, if the trustee has not accomplished the divestiture required

by Section IV of this Final Judgment, the trustee shall promptly file

with the Court a report setting forth (1) the trustee's efforts to

accomplish the required divestiture, (2) the reasons, in the trustee's

judgment, why the required divestiture has not been accomplished, and

(3) the trustee's recommendations; provided, however, that to the

extent such reports contain information that the trustee deems

confidential, such reports shall not be filed in the public docket of

the Court. The trustee shall at the same time furnish such reports to

the parties, who shall each have the right to be heard and to make

additional recommendations. The Court shall thereafter enter such

orders as it shall deem appropriate, which shall, if necessary, include

extending the term of the trustee's appointment.

VI. Notification

A. Within two (2) business days following execution of a definitive

agreement to effect, in whole or in part, any proposed divestiture by

private sale(s) pursuant to Sections IV or V of this Final Judgment,

or, in the event such divestitures are proposed to be made through

transactions in the public securities markets, (i) within two (2)

business days following defendants' request to convert any Class B

Common Stock to Class A Common Stock or (ii) prior to the filing of any

registration statement with the SEC for a proposed divestiture of such

shares, U S WEST or the trustee, whichever is then responsible for

effecting the divestiture, shall notify plaintiff of the proposed

divestiture or conversion, as the case may be. If the trustee is

responsible, it shall similarly notify defendants. The notice shall set

forth the details of the proposed transaction and list the name,

address, and telephone number of each person not previously identified

who theretofor offered to, or expressed an interest in or a desire to,

acquire any ownership interest in the assets that are

[[Page 58706]]

the subject of the binding contract or public offering, together with

full details of same. In the case of conversion, U S WEST or the

trustee shall include in such notice the then proposed manner in which

it intends to effect the divestiture of such converted shares.

B. Except in the case of any proposed sale of TCG Common Stock by U

S WEST or its broker wherein the identity of the ultimate purchaser(s)

of the shares is unknown to U S WEST at the time of such sale, within

fifteen (15) calendar days of receipt by plaintiff of such notice,

plaintiff may request from defendants, the proposed purchaser or

purchasers, any other third party, or the trustee if applicable,

additional information concerning the proposed divestiture and the

proposed purchaser or purchasers. Defendants and the trustee shall

furnish any additional information requested within fifteen (15)

calendar days of the receipt of the request, unless the parties shall

otherwise agree. Within thirty (30) calendar days after receipt of the

notice or within twenty (20) calendar days after plaintiff has been

provided the additional information requested from defendants, the

proposed purchaser or purchasers, any third party, and the trustee,

whichever is later, plaintiff shall provide written notice to

defendants and the trustee, if there is one, stating whether or not it

objects to the proposed divestiture. In the event of any proposed

public sale of TCG Common Stock by U S WEST or its broker wherein the

identity of the ultimate purchaser(s) of the shares is unknown to U S

WEST at the time of such sale, within three (3) days of receiving

notice of defendants' request to convert the TCG Class B shares to

Class A shares, plaintiff may request from defendants, any third party,

or the trustee if applicable, additional information concerning the

proposed divestiture(s). Defendants and the trustee shall furnish any

additional information requested within three (3) days of the receipt

of the request unless the parties otherwise agree. Within ten (10) days

of the receipt of the notice or within four (4) days after plaintiff

has been provided the additional information from defendants, any third

party, or the trustee, whichever is later, plaintiff shall provide

written notice to defendants and the trustee, if there is one, stating

whether or not it objects to the proposed plan of divestiture(s). If

plaintiff provides written notice to defendants and the trustee that it

does not object, then the divestiture may be consummated, subject only

to defendants' limited right to object to the sale under Section V.B.

of this Final Judgment. Absent written notice that plaintiff does not

object to the proposed purchaser or objection by plaintiff, a

divestiture proposed under Section IV or V shall not be consummated.

Upon objection by plaintiff, or by defendants under the proviso in

Section V.B., a divestiture proposed under Section IV or V shall not be

consummated unless approved by the Court.

VII. Affidavits

A. Within twenty (20) calendar days of the filing of this Final

Judgment and every thirty (30) calendar days thereafter until the

divestitures have been completed, whether pursuant to Section IV or V

of this Final Judgment, U S West shall deliver to plaintiff an

affidavit as to the fact and manner of defendant's compliance with the

relevant section(s) of this Final Judgment. Each such affidavit shall

include, inter alia, the name, address, and telephone number of each

person who, at any time after the period covered by the last such

report, made an offer to acquire, expressed an interest in acquiring,

entered into negotiations to acquire, or was contacted or made an

inquiry about acquiring any or all of the TCG Interest, and shall

describe in detail each contact with any such person during that

period.

B. Defendants shall preserve all records of all efforts made to

preserve and divest any or all of the TCG Interest until the

termination of this Final Judgment.

VIII. Confidentiality

Until the divestitures required by the Final Judgment have been

accomplished:

A. U S WEST shall treat the TCG Interest as a passive investment,

and shall hold the TCG Interest separate and apart from the activities

and interests of U S West Communications.

B. Defendants shall not elect, appoint, or otherwise designate any

directors to the TCG Board of Directors.

C. Defendants and any representative of defendants shall not

participate in, be present at (whether in person, by telecommunications

link, or otherwise), or receive any notes, minutes, or agendas of or

any documents distributed in connection with any non-public meeting of

the TCG Board of Directors or any committee thereof, or any other

governing body of TCG. For purposes of this provision, the term

``meeting'' includes any action taken by consent of the relevant

directors in lieu of a meeting.

D. Defendants shall not be a party to any communication of any non-

public strategic or confidential information concerning TCG or any of

its subsidiaries or affiliates; provided however, that nothing in this

Final Judgment shall preclude or restrict defendants from being a party

to communications relating to the negotiation or conduct of arms-length

business transactions between defendants and TCG or any of its

subsidiaries or affiliates, relating to 1) the provision of facilities

and services outside the U S WEST Communications Region and 2) the

provision of interconnection and related services between U S WEST

Communications and TCG or any of its subsidiaries or affiliates, within

the U S WEST Communications Region; provided further that outside

counsel and financial advisors retained by U S WEST or Continental in

conjunction with the divestiture of TCG Common Stock required by

section IV.A. hereinabove may receive such information as is necessary

to effectuate those transactions and provided further, that no such

information shall be shared with Continental or U S WEST.

E. Defendants shall appoint a person or persons who will be

responsible for defendants' compliance with section VII of this Final

Judgment.

IX. Compliance Inspection

Only for the purposes of determining or securing compliance with

the Final Judgment and subject to any legally recognized privilege,

from time to time:

A. Duly authorized representatives of the United States Department

of Justice, upon written request of the Attorney General or of the

Assistant Attorney General in charge of the Antitrust Division, and on

reasonable notice to defendants made to their principal offices, shall

be permitted:

(1) Access during office hour of defendants to inspect and copy all

books, ledgers, accounts, correspondence, memoranda, and other records

and documents in the possession or under the control of defendants, who

may have counsel present, relating to enforcement of this Final

Judgment; and

(2) Subject to the reasonable convenience of defendants and without

restraint or interference from them, to interview officers, employees,

and agents of defendants, who may have counsel present, regarding any

such matters.

B. Upon the written request of the Attorney General or of the

Assistant Attorney General in charge of the Antitrust Division, made to

defendants' principal offices, defendants shall submit such written

reports, under oath

[[Page 58707]]

if requested, with respect to enforcement of this Final Judgment.

C. No information or documents obtained by the means provided in

this Section IX shall be divulged by plaintiff to any person other than

a duly authorized representative of the Executive Branch of the United

States, except in the course of legal proceedings to which the United

States is a party (including grand jury proceedings), or for the

purpose of securing compliance with this Final Judgment, or as

otherwise required by law.

D. If at the time information or documents are furnished by

defendants to plaintiff, defendants represent and identify in writing

the material in any such information or documents to which a claim of

protection may be asserted under Rule 26(c)(7) of the Federal Rules of

Civil Procedure, and defendants mark each pertinent page of such

material, ``Subject to claim of protection under Rule 26(c)(7) of the

Federal Rules of Civil Procedure,'' then ten (10) calendar days notice

shall be given by plaintiff to defendants prior to divulging such

material in any legal proceeding (other than a grand jury proceeding).

X. Retention of Jurisdiction

Jurisdiction is retained by this Court for the purpose of enabling

any of the parties to this Final Judgment to apply to this Court at any

time for such further orders and directions as may be necessary or

appropriate for the construction or carrying out of this Final

Judgment, for the modification of any of the provisions hereof, for the

enforcement of compliance herewith, and for the punishment of any

violations hereof.

XI. Termination

Unless this Court grants an extension, this Final Judgment will

expire upon the tenth anniversary of the date of its entry.

XII. Public Interest

Entry of this Final Judgment is in the public interest.

Dated: ______________.

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United States District Judge.

Competitive Impact Statement

The United States pursuant to Section 2(b) of the Antitrust

Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), files

this Competitive Impact Statement relating to the proposed Final

Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

The plaintiff filed a civil antitrust complaint on November 4,

1996, alleging that the proposed acquisition of Continental

Cablevision, Inc. (``Continental'') by U S WEST, Inc. (``U S West'')

would violate Section 7 of the Clayton Act, 15 U.S.C. 18. U S WEST is

the dominant provider of local telecommunications services, including

dedicated services, within its telephone service area in the states of

Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New

Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and

Wyoming. Continental is the third largest cable system operator in the

United States. At the time the acquisition was announced, Continental

owned 20% of Teleport Communications Group, Inc. (``TCG''), a

competitive access provider (``CAP'') providing dedicated services in

various cities across the nation, including Denver, Omaha, Phoenix and

Seattle.

The complaint alleges that U S WEST's acquisition of Continental's

interest in TCG would substantially lessen competition in the sale of

dedicated services in the areas within Denver, Omaha, Phoenix and

Seattle in which TCG provides such services. The prayer for relief

seeks: (1) a judgment that the proposed acquisition would violate

Section 7 of the Clayton Act, 15 U.S.C. 18, and (2) a preliminary and

permanent injunction preventing U S WEST and Continental from carrying

out the proposed merger.

Shortly before this complaint was filed, a proposed settlement was

reached that requires defendants to divest Continental's interest in

TCG by December 31, 1998. Continental had previously reduced its share

in TCG from the 20% it owned when the acquisition was announced, to

approximately 11%. Continental also relinquished its seats on TCG's

Board of Directors. In light of these events, the Department concluded

that there was no competition-based reason to seek to prohibit U S

WEST's acquisition of Continental. A Stipulation and proposed Final

Judgment embodying the settlement were filed simultaneously with the

complaint.

The proposed Final Judgment orders U S WEST, on or before June 30,

1997, to divest a portion of the shares of TCG Common Stock it will

acquire from Continental sufficient to reduce U S WEST's interest to

less than 10% of the outstanding shares of TCG Common Stock. The

proposed Final Judgment further orders U S WEST to divest its remaining

shares of TCG Common Stock on or before December 31, 1998. If U S WEST

does not divest the TCG Common Stock during the divestiture period, the

Court may appoint a trustee to sell the stock. The proposed Final

Judgment also prohibits defendants from appointing any members to or

participating in meetings of the TCG Board of Directors and contains

other provisions designed to bar U S WEST's access to highly sensitive

TCG business information. Further, the proposed Final Judgment requires

U S WEST to treat the TCG interest as a passive investment, and to hold

the TCG interest separate and apart from the activities and interests

of U S WEST. Finally, the proposed Final Judgment requires U S WEST to

give the United States prior notice of any proposed divestiture,

whether pursuant to a public or private sale, to insure that the

divestiture is made to an appropriate purchaser or purchasers and in a

manner that will not harm TCG.

The United States and U S WEST have stipulated that the proposed

Final Judgment may be entered after compliance with the APPA. Entry of

the proposed Final Judgment would terminate this action, except that

the Court would retain jurisdiction to construe, modify, or enforce the

provisions of the proposed Final Judgment and to punish violations

thereof.

II. Description of the Events Giving Rise to the Alleged Violation

A. The Defendants and the Proposed Transaction

Defendant U S WEST is a Delaware corporation with its headquarters

in Englewood, Colorado. U S WEST is one of the seven Regional Bell

Operating Companies (``RBOCs''). It is the dominant provider of local

telecommunications services, including ``dedicated services'' (defined

as special access and local private line services) within its telephone

service area in the states of Arizona, Colorado, Idaho, Iowa,

Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South

Dakota, Utah, Washington and Wyoming. In 1995, U S WEST reported total

revenues of approximately $11.7 billion.

Continental is a Delaware corporation with its headquarters in

Boston, Massachusetts. Continental is the third largest cable system

operator in the nation. Continental owns cable systems located in and

around St. Paul, Minnesota, as well as Twin Falls, Idaho

[[Page 58708]]

and Keokuk, Iowa.\1\ Continental also has a partial interest in TCG. In

1995, Continental's total revenues were approximately $1.4 billion.

TCG's 1995 revenues totaled approximately $184.9 million.

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\1\ Continental also has a passive 34% interest in Insight

Communications Company, LP, which owns cable systems located in

Arizona and Utah.

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On February 27, 1996, U S WEST entered into an agreement to

purchase all of the stock and assets of Continental for approximately

$10.8 billion.\2\ At the time the acquisition was announced,

Continental owned 20% of TCG and held two seats on the TCG Board of

Directors. Therefore, Continental reduced its share of TCG to 11% and

relinquished its Board seats.

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\2\ The deal was subsequently amended and revalued at $11.8

billion.

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B. Sale of Dedicated Services

The complaint alleges that the provision of dedicated services in

areas within Denver, Omaha, Phoenix and Seattle in which TCG has

constructed facilities constitutes a line of commerce and section of

the country, or relevant market, for antitrust purposes. Dedicated

services include ``special access'' (the provision of dedicated lines

carrying traffic from the premises of high-volume end-users to the end-

user's long distance carrier, or between a given long distance

carrier's points-of-presence (``POPs'')); and ``local private line

services'' (dedicated lines connecting multiple locations of an end-

user within a given metropolitan area).

Initially, dedicated services were provided only by the RBOCs, GTE

and other local exchange carriers (``LECs''). The development of fiber

optics and digital electronic technology as well as changes in

regulation, has enabled new dedicated service providers to emerge. The

first of these new dedicated service providers were designated

``competitive access providers'' (``CAPs'') by the FCC, because they

provided the means for long distance carriers (such as AT&T, MCI and

Sprint) and high-volume end-users (such as large and medium-size

businesses) to bypass the monopoly LEC's facilities. The emergence of

CAPs has generally resulted in lower rates and/or higher quality

services in those areas in which CAPs have constructed their networks.

The complaint alleges that the provision of dedicated services are

a relevant product market. There are no other economically comparable

alternatives available to a dedicated services customer. A small, but

significant non-transitory increase in the price of dedicated services

would not cause enough customers to switch to other telecommunications

services to make the price increase unprofitable. The complaint alleges

the geographic markets are the areas within Denver, Omaha, Phoenix and

Seattle in which TCG provides dedicated services. Dedicated services

are local by definition. Consumers of dedicated services in a given

metropolitan area cannot turn to providers of dedicated services that

do not provide such services in that metropolitan area. Thus, consumers

of dedicated services would not turn to dedicated services providers

located outside of their area in response to a small, but significant

non-transitory price increase for dedicated services in the given

metropolitan area.

C. Anticompetitive Consequence of the Proposed Merger

The complaint alleges that U S WEST's proposed acquisition of

Continental (which would result in U S WEST's acquisition of

Continental's interest in TCG) would lessen competition substantially

in the provision of dedicated services in the areas of Denver, Omaha,

Phoenix and Settle in which TCG provides such services.

U S WEST is the dominant provider of dedicated services within the

relevant geographic markets. An acquisition by U S WEST of

Continental's interest in TCG in these markets would lessen competition

between U S WEST and TCG, leading to higher prices and/or reduced

quality. U S WEST's competitive strategy, including its pricing and

output decisions, will be influenced by its partial ownership of a

significant direct competitor. Because of its partial ownership of TCG,

losses of customers to TCG would not be as detrimental to U S WEST, and

it would have less incentive to lower prices or interest quality to

meet the emerging competition from CAPs in these areas.

Additionally, as a Class B voting shareholder of TCG, U S WEST is

entitled to receive advance and detailed notice of significant TCG

business transactions, including TCG's plans for proprietary

information strategically to raise the cost, increase the risk, and

reduce the profitability of entry and extension by TCG, thereby

limiting competitive entry and expansion that would serve to undermine

U S WEST's dominance of these markets.

There are no effective substitutes for dedicated services. A price

increase for dedicated services resulting from this acquisition would

not be defeated by consumers' switching to other telecommunication

services or providers of dedicated services located outside of the

relevant geographic areas. Moreover, entry into the relevant markets

sufficient to mitigate the competitive harm resulting from this

acquisition is unlikely within the next two years.

For these reasons, the Department concludes that the merger as

proposed would substantially lessen competition in the provision of

dedicated services in areas within Denver, Omaha, Phoenix and Settle in

which TCG provides dedicated services, and would result in increased

rates and/or reduced quality for dedicated services in these areas, in

violation of Section 7 of the Clayton Act.\3\

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\3\ TCG also competes directly with U S WEST in the provision of

local exchange services in those areas in which TCG has the

necessary facilities and in which it has been or has applied to

become certified as a local exchange carrier, e.g., Seattle. Because

the proposed Final Judgment order U S WEST to divest all of the

Common Stock of TCG it acquires from Continental, it remedies any

other competitive harm resulting from U S WEST's partial ownership

of TCG. Accordingly, it is unnecessary to determine whether the

acquisition would lessen competition in violation of Section 7 of

the Clayton Act in any other markets in which U S WEST competes with

TCG.

In addition, the Memorandum Opinion and Order (the ``Order''),

issued by the Federal Communications Commission (the ``FCC'') on

October 18, 1996, requires U S WEST to divest Continental's wholly-

owned cable systems located within U S WEST's telephone service area

by August 15, 1997, and to divest Continental's passive, minority

interest in the in-region systems owned by Insight Communications

Company, LP by April 1, 1998. On October 24, 1996, the FCC issued

another order clarifying that the wholly-owned systems which U S

WEST is obligated to divest by August 15, 1997, include ``nine cable

systems serving about 280,000 subscribers in and around St. Paul,

Minnesota,'' which systems Continental acquired from Meredith-New

Heritage Partnership after the U S WEST/Continental transaction was

first entered into. These divestitures are required by Section

652(a) of the Communications Act of 1934, as amended, which

prohibits any local exchange carrier from purchasing or otherwise

acquiring ``directly or indirectly more than a 10% financial

interest, or any management interest, in any cable operator

providing cable service within the ``local exchange carrier's

telephone service area.'' 47 U.S.C. Sec. 572(a). Section 652 was

enacted as part of the Telecommunications Act of 1996. The terms of

the FCC's Order regarding the divestiture of the in-region systems

obviates the need for the Department independently to determine

whether the U S WEST/Continental transaction would violate Section 7

of the Clayton Act. The divestiture of the in-region systems by a

date certain, pursuant to the Order, as amended, is substantially

similar to the divestiture relief the Department would seek in the

event the U S WEST/Continental transaction was deemed to violate the

Clayton Act, and thus will prevent any lessening of competition that

might have resulted from the transaction.

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II. Explanation of the Proposed Final Judgment

The proposed Final Judgment would preserve competition in the sale

of dedicated services in areas within Denver, Omaha, Phoenix and

Seattle in which TCG provides dedicated services. It requires U S WEST

to divest all of

[[Page 58709]]

Continental's interest in TCG, a direct competitor of U S WEST, in a

manner and over a period that will prevent short-term opportunities for

anticompetitive behavior while also minimizing any disruption to TCG.

The divestiture will help ensure that TCG will remain a strong

competitor to U S WEST and that rates for dedicated services in areas

within Denver, Omaha, Phoenix and Seattle in which TCG provides

dedicated services do not increase as a result of the acquisition.

The proposed Final Judgment orders U S WEST, on or before June 30,

1997, to divest enough shares of TCG Common Stock sufficient to cause U

S WEST to own less than 10% of the outstanding shares of TCG Common

Stock. The proposed Final Judgment further orders U S WEST to divest

any remaining shares of TCG Common Stock on or before December 31,

1998. If U S WEST does not divest the TCG Common Stock during the

divestiture periods, the Court may appoint a trustee to sell the stock.

If a trustee is appointed, the proposed Final Judgment provides that

the defendants will pay all costs and expenses of the trustee and any

professionals and agents retained by the trustee. The compensation paid

to the trustee and any persons retained by the trustee shall be both

reasonable in light of the value of the divestiture(s) and pursuant to

a fee arrangement providing the trustee with an incentive based on the

price and terms of the divestiture(s) and the speed with which it is

accomplished. After appointment, the trustee will file monthly reports

with the parties and the Court setting forth the trustee's efforts to

accomplish the divestiture(s) ordered under the proposed Final

Judgment. If the trustee has not accomplished the divestiture(s) within

six (6) months after its appointment, the trustee shall promptly file

with the Court a report setting forth (1) the trustee's efforts to

accomplish the required divestiture(s), (2) the reasons, in the

trustee's judgment, why the required divestiture(s) has not been

accomplished, and (3) the trustee's recommendations. At the same time,

the trustee will furnish such report to the parties, who will each have

the right to be heard and to make additional recommendations consistent

with the purpose of the trust.

The proposed Final Judgment requires U S WEST to treat the TCG

interest as a passive investment, and to hold the TCG interest separate

and apart from the activities and interests of U S WEST. The Judgment

also prohibits defendants from appointing any members to or

participating in meetings of the TCG Board of Directors and contains

other provisions designed to bar U S WEST's access to highly sensitive

TCG business information.

Finally, the proposed Final Judgment requires U S WEST to give the

United States prior notice of any proposed divestiture(s), whether

pursuant to a public or private sale, to insure that the divestiture(s)

is made to an appropriate purchaser or purchasers and in a manner that

will not harm TCG. If the plaintiff, in its sole judgment, objects to

any purchaser(s) and/or the manner in which the divestiture is being

carried out, the defendants shall not consummate the divestiture(s)

unless approved by the Court.

IV. Remedies Available to Potential Private Litigants

Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any

person who has been injured as a result of conduct prohibited by the

antitrust laws may bring suit in federal court to recover three times

the damages the person has suffered, as well as costs and reasonable

attorneys' fees. Entry of the proposed Final Judgment will neither

impair nor assist the bringing of any private antitrust damage action.

Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.

16(a), the proposed Final Judgment has no prima facie effect in any

subsequent private lawsuit that may be brought against defendants.

V. Procedures Available for Modification of the Proposed Final Judgment

The plaintiff and the defendants have stipulated that the proposed

Final Judgment may be entered by the Court after compliance with the

provisions of the APPA, provided that the United States has not

withdrawn its consent. The APPA conditions entry upon the Court's

determination that the proposed Final Judgment is in the public

interest.

The APPA provides a period of at least sixty (60) days preceding

the effective date of the proposed Final Judgment within which any

person may submit to the United States written comments regarding the

proposed Final Judgment. Any person who wishes to comment should do so

within sixty (60) days of the date of publication of this Competitive

Impact Statement in the Federal Register. The United States will

evaluate and respond to the comments. All comments will be given due

consideration by the Department of Justice, which remains free to

withdraw its consent to the proposed Final Judgment at any time prior

to entry. The comments and the response of the United States will be

filed with the Court and published in the Federal Register.

Written comments should be submitted to: Donald J. Russell, Chief,

Telecommunications Task Force, Antitrust Division, United States

Department of Justice, 555 4th Street, N.W., Room 8104, Washington, DC

20001.

The proposed Final Judgment provides that the Court retains

jurisdiction over this action, and the parties may apply to the Court

for any order necessary or appropriate for the modification,

interpretation, or enforcement of the Final Judgment.

VI. Alternatives to the Proposed Final Judgment

The plaintiff considered, as an alternative to the proposed Final

Judgment, a full trial on the merits of its complaint against

defendants. The plaintiff is satisfied, however, that the divestiture

of the TCG Common Stock and other relief contained in the proposed

Final Judgment will preserve viable competition in the provision of

dedicated services in areas within Denver, Omaha, Phoenix and Seattle

in which TCG provides dedicated services. Thus, the proposed Final

Judgment would achieve the relief the government would have obtained

through litigation, but avoids the time, expense and uncertainty of a

full trial on the merits of the complaint.

VII. Standard of Review Under the APPA for Proposed Final Judgment

The APPA requires that proposed consent judgments in antitrust

cases brought by the United States be subject to a sixty (60) day

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

the proposed Final Judgment ``is in the public interest.'' In making

that determination, the court may consider--

(1) the competitive impact of such judgment, including

termination of alleged violations, provisions for enforcement and

modification, duration or relief sought, anticipated effects of

alternative remedies actually considered, and any other

considerations bearing upon the adequacy of such judgment;

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

generally and individuals alleging specific injury from the

violations set forth in the complaint including consideration of the

public benefit, if any, to be derived from a determination of the

issues at trial.

15 U.S.C. Sec. 16(e) (emphasis added). As the United States Court of

Appeals for the D.C. Circuit recently held, this statute permits a

court to consider, among other things, the relationship between the

remedy secured and the

[[Page 58710]]

specific allegations set forth in the government's complaint, whether

the decree is sufficiently clear, whether enforcement mechanisms are

sufficient, and whether the decree may positively harm third parties.

See United States v. Microsoft, 56 F.3d 1448, 1461-62 (D.C. Cir. 1995).

In conducting this inquiry, ``[t]he Court is nowhere compelled to

go to trial or to engage in extended proceedings which might have the

effect of vitiating the benefits of prompt and less costly settlement

through the consent decree process.'' \4\ Rather,

\4\ 119 Cong. Rec. 24598 (1973). See United States v. Gillette

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

determination can be made properly on the basis of the Competitive

Impact Statement and Response to Comments filed pursuant to the

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

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

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

have raised significant issues and that further proceedings would

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

Cong. 2d Sess. 8-9 (1974), reprinted in U.S.C.C.A.N. 6535, 6538.

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[a]bsent 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).

Accordingly, with respect to the adequacy of the relief secured by

the decree, a court may not ``engage in an unrestricted evaluation of

what relief would best serve the public.'' United States v. BNS, Inc.,

858 F.2d 456, 462 (9th Cir. 1988), citing United States v. Bechtel

Corp., 648 F.2d 660, 666 (9th Cir.), cert. denied, 454 U.S. 1083

(1981); see also Microsoft, 56 F.3d at 1460-62. Precedent requires that

the balancing of competing social and political interests affected

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

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

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

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

the decree. The court is required to determine not whether a

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

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

interest.'' More elaborate requirements might undermine the

effectiveness of antitrust enforcement by consent decree.\5\

\5\ Bechtel, 648 F.2d at 666 (emphasis added); see BNS, 858 F.2d

at 463; United States v. National Broadcasting Co., 449 F. Supp.

1127, 1143 (C.D. Cal. 1978), Gillette, 406 F. Supp. at 716. See also

Microsoft, 56 F.3d at 1461 (whether ``the remedies [obtained in the

decree are] so inconsonant with the allegations charged as to fall

outside of the `reaches of the public interest' '').

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The proposed Final Judgment, therefore, should not be reviewed

under a standard of whether it is certain to eliminate every

anticompetitive effect of a particular practice or whether it mandates

certainty of free competition in the future. Court approval of a final

judgment requires a standard more flexible and less strict than the

standard required for a finding of liability. ``[A] proposed decree

must be approved even if it falls short of the remedy the court would

impose on its own, as long as it falls within the range of

acceptability or is `within the reaches of public interest.' '' \6\

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\6\ United States v. American Tel. and Tel Co., 552 F. Supp.

131, 151 (D.D.C. 1982), aff'd sub nom., Maryland v. United States,

460 U.S. 1001 (1983), quoting Gillette Co., 406 F. Supp. at 716,

United States v. Alcan Aluminum, Ltd., 605 F. Supp. 619, 622 (W.D.

Ky. 1985).

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VIII. Determinative Documents

There are no determinative materials or documents within the

meaning of the APPA that were considered by the United States in

formulating the proposed Final Judgment.

Respectfully submitted,

Donald J. Russell,

Chief, Telecommunications Task Force, U.S. Department of Justice,

Antitrust Division, 555 4th Street, NW., Room 8104, Washington, DC

20001, (202) 514-5621.

Dated: November 5, 1996.

[FR Doc. 96-29320 Filed 11-15-96; 8:45 am]

BILLING CODE 4410-01-M