U.S. v. US WEST, Inc. and Continental Cablevision, Inc.; Public Comments and Response on Proposed Final Judgment

DEPARTMENT OF JUSTICE

Antitrust Division

U.S. v. US WEST, Inc. and Continental Cablevision, Inc.; Public

Comments and Response on Proposed Final Judgment

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

Sec. 16(c)-(h), the United States publishes below the comments received

on the proposed final judgment in U.S. v. US WEST, Inc. and Continental

Cablevision, Inc., Civil Action No. 96-2529 TPS, filed in the United

States District Court for the District of Columbia, together with the

United States' response to that comment.

Copies of the comments and response to the comments are available

for inspection and copying in Room 215 of the U.S. Department of

Justice, Antitrust Division, 325 7th Street, N.W., Washington, D.C.

20530 (telephone: (202) 514-2481), and at the Office of the Clerk of

the United States District Court for the District of Columbia. Copies

of these materials may be obtained upon request and payment of a

copying fee.

Constance K. Robinson,

Director of Operations.

In The United States District Court for The District of Columbia

United States of America, Plaintiff, v. US West, Inc. and

Continental Cablevision, Inc., Defendants.

[No. 96-2529 TPS (Antitrust)]

Comments Relating to Proposed Final Judgment and Response of The

United States to Comments

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 America

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 and remains

convinced that entry of the proposed Final Judgment is in the public

interest.

I.--Background

This action was commenced on November 5, 1996, 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 Continental Cablevision, Inc. (``Continental'') by US

WEST, Inc. (``US WEST''), would violate Section 7 of the Clayton Act,

as amended, 15 U.S.C. Sec. 18. US 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. 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 US 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.

Contemporaneously with filing its Complaint, the United States

submitted a proposed Final Judgment, a Competitive Impact Statement and

a Stipulation signed by the defendants consenting to entry of the

proposed Final Judgment. The proposed Final Judgment orders US WEST to

divest the TCG Common Stock by certain specified dates and contains

other provisions designed to bar US WEST's access to highly sensitive

TCG business information, and to treat TCG as a passive business

investment. The Competitive Impact Statement explains the basis for the

Complaint and the reasons why entry of the proposed Final Judgment

would be in the public interest. In the Stipulation, the defendants and

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

the Court after completion of the procedures required by the APPA.

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. 16(b). In this case,

the sixty-day comment period commenced on November 18, 1996, and

terminated on January 16, 1997. During this period, the United States

received only one comment relating to the proposed Final Judgment.\1\

The United States herein responds to this comment. Upon publication of

this comment and the following response of the United States to this

comment in the Federal Register pursuant to 15 U.S.C. 16(d) of the

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

proposed Final Judgment will be completed, and the Court may enter the

proposed Final

[[Page 8274]]

Judgment. The United States will move the Court for entry of the

proposed Final Judgment after the public comment and this response of

the United States have been published in the Federal Register.

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\1\ This comment is attached hereto as Exhibit A.

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III.--Response to Public Comments

The only comment received by the United States was filed by TCG.

TCG does not object to the substantive provisions of the proposed Final

Judgment. In particular, TCG does not object to the requirement that US

WEST divest its interest in TCG nor to the timing or manner in which

such divestiture must be carried out. Indeed, TCG's comments do not

relate to either the anticompetitive consequences of the acquisition or

the adequacy of relief provided by the proposed Final Judgment to

remedy the antitrust violations alleged in the Complaint. The only

objection that TCG raises with respect to the proposed Final Judgment

relates to the provision requiring US WEST to deliver to the United

States periodic affidavits setting forth the fact and manner of US

WEST's efforts to comply with the divestiture provisions of the

proposed Final Judgment. Because these affidavits are likely to contain

sensitive business information relating to the sale or attempted sale

of TCG Common Stock, TCG requests that the proposed Final Judgment be

modified so as to require that such affidavits ``be submitted

confidentially to the plaintiff and not filed in the public docket of

the Court.'' Letter from W. Terrell Wingfield to Donald J. Russell,

dated December 18, 1996, Exhibit A at 2.

The United States shares TCG's concerns about the potential

disclosure of highly confidential and sensitive business information.

For the following reasons, however, the United States does not believe

that a modification of the proposed Final Judgment is necessary to

protect affidavits containing such information. First, it is not the

standard practice of the United States to voluntarily disclose

affidavits submitted pursuant to a consent decree. Second, there are

only two situations in which disclosure could occur: (1) If the United

States is ordered or otherwise finds it necessary to file such

affidavits on the public docket in any legal proceeding; and/or (2) If

a request is made under the Freedom of Information Act, 5 U.S.C. 552 et

seq. (``FOIA''), and the United States determines that any such

affidavit does not fall into one of the FOIA exemptions to disclosure.

In the event that the United States receives an order, a subpoena

and/or otherwise intends to use such information in any legal

proceeding, Section IX.D of the proposed Final Judgment requires the

United States to give the defendants ten (10) calendar days notice

prior to divulging any material to which a claim of protection may be

asserted under Rule 26(c)(7) of the Federal Rules of Civil Procedure

and which the defendants have marked as being, ``Subject to claim of

protection under Rule 26(c)(7) of the Federal Rules of Civil

Procedure.''

In the event that the United States determines that any such

affidavit is not exempt from FOIA, then the United States would follow

the procedures set forth in 28 CFR 16.7. Section 16.7 provides, in

relevant part, that the United States:

shall, to the extent permitted by law, provide a submitter [of

confidential and sensitive business information] with prompt written

notice of a Freedom of Information Act request or administrative

appeal encompassing its business information. * * * in order to

afford the submitter an opportunity to object to disclosure * * *

Such written notice shall either describe the exact nature of the

business information requested or provide copies of the records or

portions thereof containing the business information.

16 CFR 16.7(c). Section 16.7(b) defines a submitter as ``any person or

entity who provides business information, directly or indirectly to the

Department.'' Absent exigent circumstances, the United States generally

gives the submitter ten (10) calendar days notice of a request or

intention to disclose the business information so as to allow the

submitter sufficient time to file an objection to disclosure or

otherwise move to protect the information. TCG has been informed of the

foregoing protections and has authorized the United States to inform

the Court that these protections are adequate to address TCG's

concerns. Given these facts, the United States does not believe that a

modification of the proposed Final Judgment is warranted in the public

interest.

IV.--Standard of Review

Pursuant to 15 U.S.C. Sec. 16(e), the proposed Modified 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 Modified 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 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 that 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 consequence 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

[[Page 8275]]

United States v. Microsoft Corp., 56 F.3d at 1460.

V.--Conclusion

After careful consideration of the comments and for the reasons

stated herein and in the Competitive Impact Statement, the United

States continues to believe that the proposed Final Judgment is

adequate to remedy the antitrust violations alleged in the Complaint.

There has been no allegation or showing that the proposed settlement

constitutes an abuse of the United States' discretion nor that it is

inconsistent with the public interest. Accordingly, entry of the

proposed Final Judgment should be deemed to be in the public interest.

Dated: February 7, 1997.

Respectfully submitted,

Yvette Benguerel,

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

Antitrust Division, 555 4th Street, N.W., Room 8104, Washington, D.C.

20001, (202) 514-5808.

[December 18, 1996--Via Federal Express]

Donald J. Russell, Esq.,

Chief, Telecommunications Task Force, Antitrust Division, U.S.

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

D.C. 20001.

Re: United States of America v. U S West Inc. and Continental

Cablevision, Inc., United States District Court for the District of

Columbia

On behalf of Teleport Communications Group Inc. (TCG), and in

accordance with the provisions of 15 U.S.C. Sec. 16(d), we hereby

submit the following comments in connection with the matter of

United States of America v. U S West Inc. and Continental

Cablevision Inc. TCG seeks an amendment to the Final Judgment

providing that the Affidavits submitted pursuant to Section VII will

be submitted confidentially and not be filed in the public docket of

the Court. The undersigned has been in communication with Robert J.

Sachs, counsel for Continental, and has been advised that they do

not oppose this request.

The proposed Final Judgment provides, inter alia, that U S West

use its best efforts to divest the approximately 11% interest of TCG

held by Continental as expeditiously as possible. The proposed Final

Judgment further provides that U S West divest a portion of its

interest in TCG sufficient to cause it to own less than 10% by June

30, 1997, and divest any remaining portion of the TCG interest by

December 31, 1998. The divestiture must be made to a purchaser or

purchasers in a manner that ``shall not injure TCG.''

The proposed Final Judgment orders U S West to deliver periodic

Affidavits to the plaintiff setting forth its efforts in connection

with the ordered divestiture. Said Affidavits are to include such

information as the names of potential purchasers contacted or

expressing interest, and describe ``in detail each contact.'' These

Affidavits could be subject to public disclosure unless they are

submitted confidentially pursuant to an Order of this Court.

TCG is a publicly traded company with approximately 30 million

shares traded on the NASDAQ National Market. TCG is concerned that

information concerning efforts to sell a major block of the

company's stock could have a significant adverse impact on the

market for TCG stock. Traders may engage in speculative activity

based on information contained in these Affidavits causing

significant volatility in TCG's stock price. As a result, premature

disclosure of U S West's activities could significantly disrupt the

market for TCG's securities. Further, the information contained in

these Affidavits is subject to being available selectively to

certain investors and not others, thereby possibly requiring TCG to

fully disseminate such information so as to be in full compliance

with securities laws.

Additionally, there may be a chilling effect on some of the

prospective purchasers of U S West's interest in TCG if the

possibility exists that an inquiry or expression of interest is

subject to being publicly disclosed. Such prospective purchasers may

not even want their interests made public, much less risk a ``public

negotiation'' for TCG. This may have the effect of reducing the

universe of prospective purchasers, some of whom may be best suited

to insure the continued viability of TCG. Furthermore, public

disclosure of the negotiations may jeopardize or render unavailable

any exemption under federal and state securities law upon which the

parties intend to rely. This would cause additional expense and may

complicate or even terminate negotiations.

TCG proposes that the required Affidavits be submitted

confidentially to the plaintiff and not filed in the public docket

of the Court. In the event the divestiture is not accomplished in

the time frame set out in the Final Judgment, a Trustee is appointed

to effect the divestiture. Although the Trustee is similarly

required to submit monthly status reports, such reports are

specifically to be submitted confidentially. It appears the failure

of the proposed Final Judgment to contain similar confidentiality

protection was an oversight by the parties, and a similar

restriction should be imposed upon the pre-Trustee status reports as

well.

TCG believes the overriding principle in the Final Judgment is

to force a divestiture of U S West's interest in TCG in a fashion

that is not injurious to TCG and that could not lessen competition.

However, information contained in the status Affidavits could impact

TCG's financial well-being pending the disposition. If there is any

possibility that such an outcome may occur, it is in the best

interest of the public to support TCG's request and maintain the

confidentiality of such information.

TCG further submits that existing federal securities laws

provide an appropriate framework for the public disclosure of the

disposition of U S West's holdings in TCG. Because U S West will be

subject to the public reporting obligations under both Section 13

and 16 of the Securities Exchange Act of 1934 with respect to its

TCG stock, U S West is already required to make public filings as to

changes in its TCG stock holdings when it enters into binding

agreements to dispose of such stock. TCG believes that the public

disclosure mandated by these securities laws provides the best and

most orderly mechanism for the public disclosure of changes in U S

West's holdings.

In conclusion, TCG asserts that its request is consistent with

the underlying premise of the proposed Order--to cause a divestiture

of U S West's holdings in TCG in a manner that is not injurious to

TCG. In light of the fact that the request is not contested by

Continental, we request the United States concur and submit such

request to the Court.

Sincerely,

W. Terrell Wingfield, Jr.,

Vice President and General Counsel.

Service List

C. Loring Jetton, Jr., Wilmer, Cutler & Pickering, 2445 M Street,

NW., Washington, DC 20037.

John McGrew, Wilkie Farr & Gallagher, Three Lafayette Center, 1155

21st Street, NW., Washington, DC 20036-3384.

W. Terrell Wingfield, Jr., Vice President and General Counsel,

Teleport Communications Group, 429 Ridge Road, Dayton, NJ 08810.

Sean C. Lindsay, U.S. West, Inc., 7800 East Orchard Road, Suite 490,

P.O. Box 6508, Englewood, CO 80155-6508.

Robert J. Sachs, Senior Vice President, Corporate and Legal Affairs,

Continental Cablevision, Inc., The Pilot House, Lewis Wharf, Boston,

MA 02110.

Certificate of Service

I, Tracy Varghese, hereby certify under penalty of perjury that

I am not a party to this action, that I am not less than 18 years of

age, and that I have on this day caused the Comments Relating to

Proposed Final Judgment and Response of the United States to

Comments to be served on defendants, intervenors, and other

interested persons by mailing a copy, postage prepaid, to each of

the individuals and organizations on the attached service list.

February 7, 1997.

Tracy Varghese.

[FR Doc. 97-4377 Filed 2-21-97; 8:45 am]

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