Civil Action No.: 1:05CV02102 (EGS)

Civil Action No.: 1:05CV02103 (EGS)

Judge Emmitt G. Sullivan

April 17, 2006

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

)

United States of America,	)

)	Civil Action No.: 1:05CV02102 (EGS)

Plaintiff,	)

)

v.	)

)

SBC Communications, Inc. and	)

AT&T Corp.,	)

)

Defendants.	)

)

)

United States of America,	)

)	Civil Action No.: 1:05CV02103 (EGS)

Plaintiff,	)

)

v.	)

)

Verizon Communications Inc. and	)

MCI, Inc.,	)

)

Defendants.	)

)

REPLY OF THE UNITED STATES TO COMPTEL'S OPPOSITION TO THE UNITED STATES' MOTION FOR ENTRY OF THE FINAL JUDGMENTS

The proposed Final Judgments in these matters fall within the reaches of the public interest, and nothing in COMPTEL's Opposition to the United States' Motion for Entry of the Final Judgments warrants a contrary conclusion. Accordingly, the Court should enter the proposed Final Judgments.

I.	The United States Has Correctly Stated the Standard for Determining Whether the Proposed Final Judgments Fall Within the Reaches of the Public Interest

As the United States explained in earlier filings, the Tunney Act, 15 U.S.C. § 16(e) (as amended), requires a court to find that entry of a proposed antitrust consent decree would be in the "public interest" before entering it, and, in making that determination, to consider specified factors relating to "the competitive impact of such judgment" and the "impact of entry of such judgment upon competition in the relevant market or markets." A court's statutory review is important, but nevertheless limited in scope by the Constitution and federal statute. In particular, the focus of the review is on "such judgment" – the one the United States proposes – not on some other proposal. And that judgment is evaluated in the context of the complaint filed by the United States – not some other hypothetical complaint.1 The only question before this Court is whether the proposed decree adequately remedies the complaint's alleged competitive harm so as to fall within the reaches of the public interest. COMPTEL largely ignores the basic Constitutional principle of separation of powers. The United States, acting through the Department of Justice, has the sole power to decide whether to prosecute wrongful conduct.2 The issue for the Court to review is limited to whether the proposed remedy is in the public interest, in light of the case the United States decided to bring.

Largely restating its earlier arguments, COMPTEL claims the United States misstated the standard for Tunney Act review and contends that the 2004 Tunney Act amendments "legislatively overruled" several of the cases the United States cited. As explained in the United States' Response to Public Comments,3 the text of the 2004 amendments is less sweeping. The amendments modified the list of factors a court is to consider in making its public interest determination, and made judicial consideration of each factor mandatory rather than discretionary.4 These changes neither suggest that the amendments altered the Tunney Act's fundamental purpose or standard, nor indicate that it would be appropriate for courts to investigate whether the United States should have alleged different harm in its complaint or engage in a wide-ranging search for the relief that would best suit the public.

These amendments neither overrule any cases nor conflict with the case law propositions on which the United States relied. COMPTEL relies not on the amendments themselves, but rather almost entirely on a single Congressional Record statement by one senator, Senator Kohl, in contending that Congress overruled certain decisions.5 But even Senator Kohl's carefully worded statement does not support COMPTEL's contention. Senator Kohl said only that"[t]o the extent that these precedents [Microsoft and Massachusetts School of Law6] are contrary to section 221(a) of our bill regarding the standard of review a court should apply in reviewing consent decrees under the Tunney Act, these decisions are overruled by this legislation."7 Section 221(a) contains a "finding" that "it would misconstrue the meaning and Congressional intent in enacting the Tunney Act to limit the discretion of district courts to review antitrust consent judgments solely to determining whether entry of those consent judgments would make a 'mockery of the judicial function.'"8 However, "these precedents" are not contrary to Section 221(a): as the United States noted earlier,9 neither Microsoft nor Massachusetts School of Law (nor any other case) construed the Tunney Act to limit judicial review solely to whether the proposed judgment would make a "mockery of the judicial function."10 Thus, even if it were entirely correct that a conflict with a congressional finding regarding prior congressional intent would overrule a judicial decision, Senator Kohl's statement does not support the claim that the amendments "overruled" either Microsoft or Massachusetts School of Law, much less any other Tunney Act cases.11

In any event, both the text of the statute and the case law make clear a court's Tunney Act role: far from playing rubber-stamp, the court is to examine the effect of a proposed antitrust consent decree and determine whether that judgment addresses the harms alleged in the complaint and therefore falls within the reaches of the public interest based on the factors enumerated in the statute. The proposed Final Judgments in these matters meet this standard.

II.	The Proposed Final Judgments Fall within the Reaches of the Public Interest

The United States has filed the Competitive Impact Statements (CISs) and Response to Public Comments that the Tunney Act requires. These documents outline in detail the United States' competitive concerns with the mergers as well as how the proposed Final Judgments will adequately remedy those concerns. The Court can rely on these documents in concluding that the proposed Final Judgments are within the public interest.12

COMPTEL argues that "DOJ has failed to comply with the Tunney Act's informational requirements."13 To the contrary, the United States filed the Competitive Impact Statements, public comments, and Response to Public Comments, as the statute requires.14 In those documents, the U.S. described the alternatives to the proposed Final Judgments that it actually considered, as required.15 The United States has not failed to disclose any "determinative documents," because no documents met the statutory standard.16

As discussed extensively in the CISs and Response to Public Comments, the United States conducted a detailed investigation of the competitive effects of the proposed mergers. It concluded that the evidence suggested a likelihood of competitive harm for Local Private Lines and related services provided to customers in certain buildings where each merger, respectively, would result in the merged firm being the only fully facilities-based provider of those services, i.e., 2-to-1 buildings where entry was unlikely. That was the only competitive harm that the United States concluded was likely as a result of the mergers. Accordingly, the United States sought a remedy from the merging parties that would replace the competitive alternative that would otherwise be lost in the buildings in question by providing another carrier with a fiber-
optic connection to those buildings. After considerable negotiation the parties agreed on such a remedy, and the proposed Final Judgments incorporate that remedy.17

COMPTEL raises several specific topics as to which it contends that the United States' explanations are inadequate. However, its arguments are without merit.

A.	The Proposed Remedy Addresses the Appropriate Set of 2-to-1 Buildings

First, COMPTEL contends that the United States "Fails to Explain that It Intended to Omit Specific 2:1 Buildings from Its Complaint."18 To the contrary, the Response to Public Comments specifically explains "[t]he Complaints did not allege, nor were intended to allege, harm in all 2-to-1 buildings."19 Moreover, the Response to Public Comments explains the United States' rationale and methodology for identifying which 2-to-1 buildings presented a competitive problem and needed to be included in the remedy.20 The proposed Final Judgments redress the harm in all of the buildings where a remedy was appropriate.21

B.	A Building-Specific Analysis Is Appropriate Here to Assess Competitive Harm

Second, COMPTEL again challenges the Complaints' definition of relevant geographic market, arguing that the geographic market cannot be as narrow as an individual building. Even if challenging allegations contained in the United States' Complaints were an appropriate exercise under the Tunney Act,22 as the United States already has explained the relevant geographic market here can be as narrow as an individual building. Markets are properly defined based on what options a customer faces. Because customers for Local Private Lines can select only from the set of providers that offer service to the particular building to which those customers need to connect, and the set of providers varies from building to building, it is appropriate to consider markets as small as an individual building. But regardless of whether the geographic market is as narrow as the individual building or as broad as the metropolitan area, the likely competitive harm here is limited to the set of 2-to-1 buildings for which the United States sought a remedy.23 "Metro-area-wide harm" as a result of the mergers is unlikely due in part to the number of other facilities-based providers of Local Private Lines and related services in each metropolitan area under consideration, and, absent a remedy, customers could plausibly expect to see their prices rise due to the mergers only in buildings where any competitive local exchange carrier ("CLEC") alternative would be eliminated as a result of the mergers.24

COMPTEL also suggests that a building-specific analysis is inappropriate because AT&T and/or MCI effectively constrain pricing throughout each metropolitan area by reselling RBOC circuits. But as the United States noted in its Response to Public Comments, its "investigation determined that AT&T's and MCI's sales of resold circuits are relatively small and of limited competitive significance. Moreover, because numerous other CLECs have extensive fiber-optic networks in the metropolitan areas under consideration, as well as contracts with Verizon and SBC providing them with discounts similar to those of AT&T and MCI, other competitors could likely replace any competition that might be lost by the elimination of AT&T and MCI as independent resellers in SBC's and Verizon's territories respectively."25 Therefore, the United States concluded that competitive harm was likely only in a specific set of 2-to-1 buildings.

C.	The Contemplated Resolution in Qwest/Allegiance Is Irrelevant to this Proceeding

Third, COMPTEL complains that the United States "Fails to Explain Why It Abandoned the Qwest/Allegiance Divestiture Remedy."26 Merger analysis is case-by-case and fact-specific, and remedies must be tailored to the particular competitive circumstances presented in each matter. The CISs and Response to Public Comments here accordingly explained why the proposed Final Judgments are appropriate in these matters, not why a remedy contemplated in another matter with different parties, different markets, and a different competitive situation is inapplicable. Qwest/Allegiance, moreover, is a particularly inappropriate comparison because in that instance the United States did not conduct a full investigation, did not conclude that competitive harm was likely in any relevant market, did not file a complaint, and did not seek to impose a remedy.27 It is not clear what, if any, remedy the United States would have sought to impose had it conducted a full investigation in that matter. In contrast, in the matters currently before the Court, the United States did conduct a very full and thorough investigation and concluded that the mergers posed a likely competitive problem limited to several hundred 2-to-1 buildings. The proposed Final Judgments adequately remedy that problem, and therefore are in the public interest.

D. The Proposed Final Judgments Do Not Enhance the Risk of Coordinated Interaction

Fourth, COMPTEL complains that the United States "did not respond" to COMPTEL's allegations that the proposed Final Judgments would facilitate coordinated interaction. This is incorrect.28 Even under COMPTEL's theory, the Final Judgments could facilitate coordinated interaction only if the merged firms purchased each other's divested assets. But the merged firms did not even bid on each other's assets, so this is no longer a relevant concern. COMPTEL's most recent submission makes clear that its concern is not that the Final Judgments will facilitate coordinated interaction, but that the mergers would facilitate coordinated interaction. Although the United States considered these issues as part of its investigation, they go beyond anything alleged in the United States' Complaints and do not relate to whether the proposed Final Judgments adequately redress the identified harm.

In any event, the evidence does not support COMPTEL's allegations: as previously noted, the United States "was unable to conclude that the change in market structure brought on by the mergers was likely to lead to competitive harm due to an increased risk of coordination."29 COMPTEL suggests that the combination of the mergers and the prevailing contracting structure will facilitate collusion in some relevant market by making the merged firms "more dependent" on each other and putting the merged firms in a "better position to monitor [each other's] wholesale and retail pricing."30 However, proving a Clayton Act Section 7 coordinated effects case requires more than theorizing about how a merger might lead to an enhanced ability to monitor and punish. Here, there are practical problems to coordination that will remain after the mergers. For example, in each metropolitan area in question, there are multiple other providers of retail and wholesale telecommunications services, including Local Private Lines. Because any attempt of the merged firms to coordinate could well be undercut and undermined by these other carriers, it is unlikely that the mergers will significantly increase the risks of coordination.31 That the proposed Final Judgments do not address a competitive concern that was not alleged in the Complaints – because it was not supported by the evidence obtained during the investigations – is not a ground on which the Court should withhold approval.

E.	The Interest of Several Sophisticated Telecommunications Carriers in Bidding for the Divestiture Assets Helps Confirm the Viability of the Proposed Divestiture

Finally, COMPTEL briefly argues that "the mere presence of a purchaser does not vindicate the DOJ's Remedy."32 In itself, that is, of course, a true statement.33 However, COMPTEL's original Comment raised a number of objections to the proposed remedy on the ground that the proposed divestiture package might not be viable, e.g., because it did not include customer contracts, it was in the form of IRUs rather than full ownership, and the divestiture was "only" for ten years. The United States responded to each of these points in detail, explaining why the form of the proposed divestiture should be adequate to attract carriers interested in acquiring the divestiture assets, and replace the competition that would otherwise be lost. That not one, but several large, sophisticated telecommunications carriers have bid to acquire the divested assets (and, in three cases, have reached agreements to acquire the assets) helps confirm the soundness of the United States' judgment that the form of the proposed divestitures is adequate to attract viable buyers.

III.	Conclusion

The United States has provided a detailed explanation of the competitive harm identified in its Complaints, and how the proposed remedy redresses that harm. COMPTEL has had a more than ample opportunity to present its views, and the United States has twice addressed COMPTEL's concerns.

Based on its extensive investigation, the United States concluded that the mergers in question presented a relatively narrow competitive problem for Local Private Lines and related services in certain 2-to-1 buildings, and it negotiated a relatively simple, straightforward divestiture remedy to replace the competition that would otherwise be lost. The Court should conclude that the proposed Final Judgments fall within the reaches of the public interest and enter them to ensure that the needed divestitures are swiftly completed.

Respectfully submitted,

/s/

Laury E. Bobbish

Assistant Chief

/s/

Lawrence M. Frankel (D.C. Bar No. 441532)

Matthew C. Hammond

Trial Attorneys

Telecom & Media Section

Antitrust Division

U.S. Department of Justice

1401 H Street, N.W., Suite 8000

Washington, D.C. 20530

(202) 514-5621

Attorneys for the United States