Judge questions telecom merger agreements

A U.S. district court judge is questioning U.S. Department of Justice (DOJ) approvals of two major telecommunications mergers since late 2005, saying he has "doubts" that the deals were in the public interest.

Judge Emmet Sullivan of the U.S. District Court for the District of Columbia suggested Wednesday that he wants to call new witnesses to examine October agreements approved by the DOJ in SBC Communication's acquisition of AT&T and in Verizon Communication's acquisition of MCI.

Sullivan said he has concerns about the DOJ agreements, which required SBC and Verizon to divest some fiber-optic lines in areas where there was little competition for telephone service. But he also said he doesn't want to completely reopen the settlements.

Sullivan, in a hearing to review the two merger agreements, said changes in the antitrust Tunney Act made by the U.S. Congress in 2004 require him to take a comprehensive look at the two mergers. The SBC/AT&T merger closed in November, with the new company renamed AT&T Inc., while the Verizon/MCI merger closed in January.

Sullivan took no action Wednesday, but an attorney for Alliance for Competition in Telecommunications (ACTel) -- a group that represents competing telecom carriers and IT vendors -- asked Sullivan to take the unusual step of ruling that the settlement is not in the public interest. Even though the DOJ has already let companies complete the mergers, a ruling could force changes in the merger settlements, said Gary Reback, ACTel's lawyer.

The DOJ also could appeal such a ruling, or simply "give up" and let the mergers continue even though the settlements weren't in the public interest, Reback told Sullivan. If the DOJ lets the mergers continue contrary to the ruling, "at least we're not going to deceive the public any more," Reback said. "A court decision that the mergers were not in the public interest would be very powerful and very meaningful."

Reback argued the mergers have already caused prices to rise in some markets, and he suggested the DOJ ignored its own merger-approval rules in narrowly focusing its antitrust remedy on commercial buildings that had two providers and now have only one after the mergers.

In some of those cases, the DOJ required the new AT&T or Verizon to lease out the second fiber lines into those buildings, but the DOJ ignored the harm to competition in cases where there were three or more telecom competitors, and the mergers reduced competition, Reback said.

Reback called the settlements "minor" compared to the potential impact on customers. "I don't see how the deals would be allowed based on this record," he said.

Lawyers for AT&T and the DOJ called on Sullivan to limit the scope of his investigation by not calling new witnesses. The DOJ spent thousands of hours reviewing the mergers, and bringing in new witnesses could significantly stretch out the proceeding and create trade secret concerns for the companies, said Claude Scott, a DOJ lawyer.

It's not the judge's role to restructure the merger settlements, Scott added. "The question here is not whether this is the best deal," he said. "But is this a reasonable approach?"

Sullivan balked at the complaint that bringing in witnesses would drag out the proceeding. "You had a great opportunity to conduct your business," he told Scott. "I must have a fair opportunity to conduct mine."

AT&T lawyer Wilma Lewis argued there are three companies ready to purchase the telephone and data lines AT&T would be required to sell off in the settlement. They want to "get out there and compete," she said.

Lewis questioned why Sullivan needed to call witnesses, saying the court records were substantial. "What additional information is missing?" she said. "It's our position the current record addresses all the information the court needs."

Lewis also called on Sullivan to limit the scope of his inquiry to the DOJ complaint filed about the mergers and its approved settlement. The judge didn't have authority to force a new settlement, she said.

"The question is whether the relief the Justice Department has proposed addresses the problems the Justice Department found," she said.

She also disagreed with Reback's argument that the mergers have led to increased prices. Prices in some markets have increased, but not in the enterprise markets addressed by the settlement, she said.

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