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

May 31, 2006

Judge Emmet G. Sullivan

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

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United States of America,	)

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

Plaintiff,	)

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v.	)

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SBC Communications, Inc. and	)

AT&T Corp.,	)

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Defendants.	)

)

)

United States of America,	)

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

Plaintiff,	)

)

v.	)

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Verizon Communications Inc. and	)

MCI, Inc.,	)

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Defendants.	)

)

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

On April 5, 2006, the United States moved this Court to determine that entry of the proposed Final Judgments in these matters would be in the public interest and then to enter them. In an opposition to this motion filed on May 5, 2006, and a supplemental submission filed on May 16, 2006, ACTel contends that the Court should deny the government's motion. As detailed in our prior filings and infra, the United States has satisfied the requirements of the Tunney Act, providing the Court with sufficient information to find that the settlements incorporated in the proposed Final Judgments are in the public interest.

The principal issue before this Court is whether the remedies negotiated and proposed by the United States and accepted by the defendants adequately address the harm identified in the Complaints, and are in the public interest. ACTel's filings raise no serious issues about the sufficiency or effectiveness of the proposed remedies to address the alleged harm. Rather, ACTel's arguments wander far from the appropriate focus of this proceeding. ACTel contends, in essence, that the United States should have brought a different, broader case, and that the 2004 Amendments to the Tunney Act ("2004 Amendments") allow the Court to substitute ACTel's view of the harm that should have been alleged for the view developed by the United States during its extensive investigation. The 2004 Amendments clarified certain aspects of the Tunney Act, but they do not permit such a result. Moreover, such a result would be untenable, as ACTel relies on limited factual support for its view. The United States considered a much wider evidentiary record – including hundreds of interviews (with customers, competitors, and consultants) and millions of pages of contemporaneous business documents from industry participants – in reaching its decision that the harm alleged in the Complaints was the only harm that was likely to result from the mergers.

Section I, infra, outlines in general terms the nature of the Court's Tunney Act review and the standard the Court is to apply under the amended statute. Section II explains why ACTel's arguments about the adequacy of the remedies proposed are meritless. Finally, Section III reviews each of the factors specified in the Tunney Act for the Court to consider, and shows how each supports entry of the proposed decrees.

I.	The Court's Task Is To Determine Whether, Based on the Factors Enumerated in the Tunney Act, the Proposed Final Judgments Fall Within the Public Interest

Before the Court may enter the proposed consent decrees here as the Court's final judgments, the Tunney Act requires it independently to determine, after considering at least a specified list of factors, that it would be in the public interest to enter them.1 The Court of Appeals has focused a district court's public interest inquiry on the relationship between the allegations in the government's complaint and the proposed remedy, viewed in light of the nature of settlements. It has explained that the proper standard for evaluating that relationship is whether the proposed decree is within the reaches of the public interest,2 which in this case means that the decrees adequately prevent the competitive harm the United States has alleged to follow from the mergers at issue, without imposing undue harm in the process.3 Moreover, Congress intended that the Court reach this determination as expeditiously as possible,4 and the Court of Appeals has made clear that due deference should be given to the government's predictions regarding the effect of its proposed remedies.5

In 2004, Congress amended the Tunney Act. Congress changed the statutory list of factors a district court considers from optional to mandatory, so that courts may not ignore any of the items on the list. But it did not change the standard the court is to apply in determining whether entry of the decree would be in the public interest. This Circuit's precedents accordingly remain authoritative on this issue.

A.	The Tunney Act Requires the Court to Determine Whether It Is in the Public Interest to Enter the Proposed Settlement as a Judicial Decree

When the parties to an antitrust case come before the Court in a Tunney Act proceeding, they have already resolved their dispute reflected in the antitrust complaint. The Court therefore does not face the typical task of adjudicating the merits of that dispute. Rather, the Court's task is to determine whether to perform the judicial act of entering the proposed decree.6 In cases involving only private interests, the decision to enter settling parties' agreements as judgments requires little judicial attention.7 But in considering whether it should enter a consent decree affecting the public interest, "[t]he court has a larger role,"8 most fundamentally because a court must avoid letting its decree become "an instrument of wrong" to the public.9

Well before the Tunney Act was enacted, courts recognized that approving an antitrust decree required a determination that the decree was equitable and in the public interest, and, in making this "public interest" determination, they considered whether the government had acted in good faith, whether the settlement adequately and reasonably remedied the violations specifically alleged in the complaint, and whether the consent decree unnecessarily impaired public policies other than competition.10 This is the court's independent determination, but it is an independent determination about the prosecutor's proposed remedy for the alleged violation, not an independent determination of what remedy the court might have imposed after a trial for the alleged violation, and certainly not a determination of what remedy might be appropriate for a different violation that the government did not allege. The focus on the violations alleged recognizes the separate roles of judges and prosecutors in our constitutional system.11 The Tunney Act embodies the pre-existing public interest standard: "the court shall determine that the entry of such judgment is in the public interest."12 As Judge Greene explained in United States v. AT&T ("AT&T"), the Tunney Act "represents an endorsement of the line of cases in which courts examined proposed consent decrees to determine whether they were in the public interest."13

Although the Tunney Act does not define the term "public interest," the Court of Appeals for this Circuit has provided guidance as to its meaning, consistent with both historical practice and the Tunney Act's language and legislative history. In Microsoft, the court properly focused the inquiry on the relationship between the allegations of the government's complaint and the proposed remedy.14 It took into account the respective roles of the executive and the judicial branches in these matters, the fact that settlement agreements and proposed decrees ordinarily arise before any judicial determination that the allegations of the complaint have been, or are likely to be, proved, and that such settlements may therefore reflect compromise and "underlying weakness in the government's case."15 In this light, the court recognized that a proper public interest test is flexible, and does not require a uniquely right remedy. Thus, a district court is not "empowered to reject [the government's proposed remedies] merely because [it] believed other remedies were preferable"; the test, previously adopted by other courts, is whether the proposed settlement is "within the reaches of the public interest."16

This flexible standard, moreover, reflects the critical role that consent decrees play in public antitrust enforcement, a role the Tunney Act was intended to preserve.17 A consent decree is the product of negotiation. The parties weigh the benefits of prompt and certain resolution of the case against the possibility that continued litigation might improve their respective positions. Settlements potentially offer the public the benefits of more timely and certain relief, as well as significant savings in judicial and prosecutorial resources.18 But if courts refuse to enter any consent decree that does not match precisely the relief the court would have imposed in the absence of a settlement, "defendants would have no incentive to consent to judgment and this element of compromise would be destroyed. The consent decree would thus as a practical matter be eliminated as an antitrust enforcement tool, despite Congress' directive that it be preserved."19

The court thus properly looks to whether the proposed decree adequately achieves the purposes of an antitrust remedy,20 which in the context of these mergers is to prevent the competitive harm alleged to follow from the mergers. In determining whether a proposed decree would adequately achieve those purposes, the court necessarily gives significant deference "to the government's predictions as to the effect of the proposed remedies," since neither remedy nor liability has been litigated;21 the court is evaluating the relationship between the remedy and the public interest in light of the allegations. The question is whether "the Department of Justice's explanations [are] reasonable under the circumstances."22

Although the Tunney Act allows district courts to employ diverse means of obtaining information that could inform its public interest determination, 15 U.S.C. § 16(f), only the Competitive Impact Statement and the government's Response to Public Comments are required. Other means lie within the Court's sound discretion, guided by the principle that "the trial judge will adduce the necessary information through the least complicated and least time-consuming means possible."23 The 2004 Amendments imposed no change in the discretionary nature of these proceedings. Indeed, they specifically provide that "Nothing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene."24

Beyond the relationship between allegations and remedy, the court, which must "preside over the implementation of the decree,"25 also properly gives attention to whether the proposed decree is ambiguous or otherwise likely to generate difficulties in implementation. If it is, the court properly "insist[s] that these matters be attended to."26 And since a court seeks to do no harm, "if third parties contend that they would be positively injured by the decree, a district judge might well hesitate before assuming that the decree is appropriate."27

B.	The 2004 Amendments Did Not Overrule This Circuit's Tunney Act Jurisprudence

ACTel argues that this Court can disregard this Circuit's binding Tunney Act precedent, alleging that an entire "line of District of Columbia Circuit authority" was "overruled by legislation," i.e., the 2004 Amendments. This allegation has no basis in congressional action. The 2004 Amendments made a small number of changes to the Tunney Act.28 Congress changed "the court may consider" to "the court shall consider" a list of factors. This change ensures that a court does not ignore any of the list of factors, but it does not change the standard the court applies to determine whether entry of the judgment would be in the public interest after considering those factors.29 Congress did not change either the means or the data a court is to use in considering the factors.

The most critical point is that the standard of review set forth in this Circuit's precedents is entirely consistent with the revised language of the Tunney Act. Microsoft does not conflict with the 2004 Amendments: to the contrary, the decision contemplates that a court will consider essentially the same factors as in the current statute. Moreover, as we have previously explained,30 Microsoft is not contrary to the finding expressed in Section 221(a)31 that accompanied the changes to the operative language of the statute. Far from limiting a district court's discretion in the manner that the findings criticize, Microsoft adopted the flexible "reaches of the public interest standard" and did not limit district court discretion solely, or even in large measure, to "determining whether entry of those consent judgments would make a mockery of the judicial function."32 Thus, Congress plainly did not overrule the public interest standard addressed in this Circuit's precedents.

With no statutory language to support the asserted overturning of precedent, ACTel professes to find support in what it contends "[r]epeatedly in the legislative history, Congress made clear."33 Tellingly, every one of ACTel's citations to the legislative history is to one page of the Congressional Record.34 ACTel relies entirely on a portion of one statement of one Senator to establish what a reading of the amended Tunney Act itself does not reveal.35 But even according to Senator Kohl,36 the legislation only overruled Microsoft and MSL "[t]o the extent that these precedents are contrary to section 221(a)"37 which as discussed above they are not.

II.	ACTel's Contention That the Proposed Final Judgments Are Not Within the Public Interest Is Without Merit

ACTel's two court filings largely restate contentions to which the United States has previously responded. Its principal argument, relying mainly on an analysis of a limited set of data provided by four of its members, is that the proposed Final Judgments are not in the public interest because they fail to remedy competitive harm that the United States did not allege. Thus, ACTel contends that the United States should have brought a much more sweeping case, and therefore sought a much broader remedy. But the Court's public interest determination properly evaluates the remedy in light of the case the United States brought, not some hypothetical case that the United States concluded it should not bring. Even if ACTel's assertions were not beyond the appropriate scope of this proceeding, ACTel's description of the market structure here is flawed, and the empirical data it relies on is insufficient to support an allegation that the merger would result in harm beyond those buildings the United States identified. Reviewing a much broader array of information, including voluminous data and contemporaneous business documents from the merging parties and dozens of third parties, the United States determined that the only case that was warranted here is the one described in its Complaints. The proposed remedy adequately resolves the identified competitive problem.

A.	ACTel's Claim that the Proposed Final Judgments Should Be Rejected Because They Fail to Remedy Unalleged Harm Is Without Merit

ACTel's primary claim is that the proposed remedies dos not redress competitive harm that it contends will occur beyond 2-to-1 situations, such as in 4-to-3 and 3-to-2 "loop and transport situations," and it relies on Dr. Wilkie's analysis of a limited data set as support for the claim.38 ACTel also argues that the United States "accepted ACTel's showing of injury, filed complaints alleging that very injury, and proposed a remedy which the Government claims addresses the injury alleged by ACTel."39 This certainly is not the case.

Although ACTel (and Dr. Wilkie) argue that the mergers are likely to create widespread harm, affecting the vast majority of buildings to which AT&T or MCI have physical connections in their respective merger partner's franchised territory, the totality of the evidence before the United States did not suggest that such harm was likely, and thus the United States neither alleged such harm in its Complaints nor attempted to remedy it. Instead, the United States concluded that competitive harm from the mergers would be likely only in a limited number of buildings where the merger eliminated the only competitive alternative to the Regional Bell Operating Company ("RBOC") – i.e., certain 2-to-1 buildings.40 That is the only "injury" that the remedies seek, or properly could seek, to eliminate.41 Thus, ACTel's repeated complaint that the remedies are inadequate because "divesting a few circuits cannot possibly replace competition lost by the acquisition of the entire networks of AT&T and MCI,"42 is misguided. The purpose of the remedies is not to re-create AT&T's or MCI's network. It is simply to replace the competition that would otherwise be lost as a result of the mergers in the one situation where the United States alleged there would be a significant anticompetitive impact – in certain 2-to-1 buildings. As discussed below and elsewhere, by providing another carrier who is capable of being an effective competitor for Local Private Lines and related services with fiber-optic capacity to the buildings in question, the proposed Final Judgments achieve that goal.43

The Executive Branch is charged with responsibility for enforcing the antitrust laws, including Section 7 of the Clayton Act. To do that, the Department of Justice ("Department") conducts extensive investigations, often using compulsory process, and carefully examines the totality of the evidence, which typically includes the internal business plans and competition-
related documents of numerous companies. Ultimately, in order to pursue an enforcement action, the Department must be convinced that competitive harm is likely (i.e., that the merger violates Section 7), based on evidence that would be sufficient to carry its burden of proof in court.44 By itself, a single empirical study submitted by an interested party is rarely sufficient to meet that burden. Rather, the Department must examine all the relevant evidence it gathers, decide whether there is a plausible theory of harm, and determine whether there is sufficient admissible documentary evidence, witness testimony, and expert opinion to support filing a case. In so doing, it also needs to consider the evidence the merging parties will be able to put forth in their defense.
As ACTel notes, ACTel and its members presented certain data sets, and Dr. Wilkie's analysis, to government investigators,45 and contended that this evidence supports its allegations of broader harm than the United States alleged in its Complaints. Analyses of raw data pertaining to sales in markets that may be affected by a merger are valuable tools in the investigation of proposed transactions, and the Department welcomes the submission of any analyses of such data. However, such analyses often are based on limited data and may be produced by third parties with an interest in the outcome of the results of the investigation, so the investigative staff carefully reviews such submissions to test whether they are analytically sound and consistent with other evidence obtained by the Department.

The Department reviewed raw databases produced by ACTel's members (in response to compulsory process) as well as the analysis subsequently produced by Dr. Wilkie, and concluded that Dr. Wilkie's analysis could not be given great weight for several reasons. For example, Dr. Wilkie's analysis attempts to extrapolate market-wide effects from data sets that were quite limited in scope. The data was from only four CLECs,46 representing price requests for a relatively small number of circuits. In addition, simple and routine tests of the robustness of Dr. Wilkie's results (for example, his attempt to tie the predicted price effects back to the number or identity of bidders) often produced dramatically different results that did not support his conclusions. Perhaps most importantly, the United States considered a large evidentiary record – including millions of pages of documents, scores of interviews, network maps, lists of online buildings and other information from the parties and numerous other industry participants – but did not find significant reliable corroborating evidence47 to support the claimed competitive problem in 4-to-3 or 3-to-2 situations.48

Indeed, ACTel's contention that the anticompetitive impact of the mergers extends beyond that alleged in the Complaints is premised on a distorted view of competition in the markets for Local Private Lines – one that, among other things, greatly overstates the importance of AT&T and MCI. In most customer buildings, the respective RBOC (SBC or Verizon) is the only available provider of Local Private Lines; only a small minority of buildings have any CLEC alternative at all. Because CLEC prices tend to be lower than RBOC prices, wholesale purchasers frequently prefer to buy from a CLEC, if one is available. In each metropolitan area identified in the Complaints, the acquired firm (AT&T or MCI) is only one of several CLECs offering Local Private Lines; typically, the acquired firm is a CLEC alternative for only a minority of the relatively few buildings with any CLEC alternative.49 As a result, AT&T's and MCI's wholesale Local Private Line sales are relatively small.50 In many of their respective on-net buildings, AT&T and MCI face competition from other CLECs. Sometimes AT&T or MCI offers the lowest wholesale Local Private Line price, but many times it does not. Perhaps most importantly and contrary to ACTel's assertions, the overall body of evidence suggests no correlation between the price a carrier charges for a Local Private Line circuit and the "size and quality" of the rest of that supplier's network.51

ACTel now asks this Court to reject the proposed Final Judgments as not being in the public interest because the United States did not bring the kind of case ACTel wanted, the kind it contends was justified by its empirical study. The Court should reject this invitation. The focus of the Tunney Act public interest inquiry is on the proposed judgment as it relates to the specifically alleged harm, not the overall merits of the underlying mergers. Nor does the Act suggest that the Court should examine a case the United States did not bring and substitute its prosecutorial judgment for that of the Department of Justice.52 The United States had sound reasons for filing the case it did, and the proposed Final Judgments remedy the harm in all the buildings identified in the United States' papers, i.e., all the buildings where the United States believed the mergers were likely to cause harm.53

Although ACTel's principal complaint here is that the United States should have alleged harm in, and sought relief for, 4-to-3 and 3-to-2 buildings, ACTel also briefly argues that the proposed remedy will not be effective even in the 2-to-1 buildings covered by the proposed divestitures because "AT&T and MCI were the most aggressive and competitively priced sellers[,]" and the divestiture buyer "will not even be able to offer prices on the divested lines at the same low prices as AT&T and MCI charged . . . ."54 This is untrue. As discussed above, based on the totality of the record before it, the United States did not find either (a) that AT&T or MCI offered more aggressive pricing for Local Private Lines than other CLECs on a sustained basis, nor (b) that the price a carrier chooses to charge for Local Private Lines depends on the size of its network.55 A purchaser who is a viable provider of Local Private Lines in the metropolitan areas in question should be able to use the divested assets to compete aggressively to provide service to the buildings in question, thereby adequately remedying the harm alleged in the Complaints, even if its network is not as large as those of AT&T or MCI.

B.	The Proposed Remedy Addresses All the 2-to-1 Locations Where a Remedy Is Appropriate

In its initial comment, ACTel complained that the proposed Final Judgments did not require divestitures to all 2-to-1 buildings, claimed that the proposed Final Judgments should be rejected because not all 2-to-1 buildings were included in the remedy, and argued that the United States should explain the methodology it used to determine which 2-to-1 buildings posed a competitive concern.56 In response, the United States explained that the mergers were unlikely to cause harm in certain 2-to-1 buildings in the metropolitan areas identified in the Complaints because they were, e.g., vacant, occupied only by the merged firm, or likely to attract entry in response to a price increase, and that therefore no remedy was necessary with regard to these buildings. The United States also explained how it determined which buildings needed to be subject to the remedy using extensive data gathered via compulsory process in a building-by-
building analysis.57

In its May 5 filing, ACTel does not criticize the substance of the United States' methodology, but instead complains that the United States' methodology "bears more than a striking resemblance to the analysis prepared by AT&T's economic expert," and suggests that the United States "decided to just take what the merging companies were offering."58 If the methodology is sound, it is irrelevant who devised it, but in any event, the United States' approach differs substantially from that suggested by AT&T's expert.59 Rather than "take what the merging companies were offering," the United States expended considerable time and resources determining which buildings were likely to present a competitive problem, and then conducted extensive negotiations with the merging parties to secure an adequate remedy.60 The number of buildings included in the remedy is substantially greater than would have resulted had the United States just adopted the analysis performed by AT&T's expert.

ACTel also complains that the United States has not adequately supported "its contention that entry at some of the '2 to 1' sites would be so simple as to preclude the need for remedial relief."61 Entry is a fundamental part of the competitive effects analysis of any merger.62 In order for the United States to successfully prosecute a Section 7 case alleging harm in certain buildings, it would need to be able to prove that potential anticompetitive effects, such as price increases, would be unlikely to be deterred or counteracted by competitors building fiber to those buildings. In every metropolitan area under consideration, multiple CLECs have local fiber networks and continue to add new buildings to those networks as circumstances warrant. As previously noted, the best indicators of the likelihood of entry in a particular building are the capacity demand in that building (and thus the revenue opportunity) and the distance of that building from a carrier's fiber network (and thus the cost of extending that network to the building).63 Based on the evidence it gathered regarding the combination of capacity demand and proximity that tend to be sufficient for profitable entry, combined with building-by-building demand and proximity data, the Department determined which buildings should be excluded from a remedy because entry was sufficiently likely, and which should be included because entry was unlikely. The Department accordingly concluded that there was a category of buildings where entry would be likely in response to a price increase, and thus where it would be unable to prove an anticompetitive effect as a result of the mergers.

In ACTel's initial comment, it also complained that the remedy was inadequate because it addressed only the bottleneck for "loop" circuits and not the bottleneck for "transport" circuits.64 The United States responded that the Complaints did not allege a harm specific to transport circuits, and there generally is no bottleneck or competitive problem for transport circuits; nevertheless, for the tiny number of instances where the merger would decrease the number of providers to a central office from two to one and entry would be unlikely, the remedy addresses the problem because the United States treated central office locations as it treated any other AT&T or MCI on-net building.65 ACTel now complains that: (a) the proposed remedy addresses many fewer central offices than the "scores of wire centers" identified in information presented to the FCC as ones where AT&T was the only collocating CLEC, (b) the United States did not explain how it determined "which carriers were 'connected' to central offices"; and (c) the United States did not identify the specific central offices included in the remedy. These complaints go not to the adequacy of the remedy but to the United States' determination of which locations posed a competitive problem.

As previously noted, the United States obtained lists of on-net buildings (including central offices) from several dozen CLECs via compulsory process.66 That is how it determined which carriers were connected to central offices. Moreover, as previously explained, certain 2-to-1 buildings, including central offices, could not be shown to pose a competitive problem for various reasons, including the fact that entry would be likely to occur in response to a price increase.67 Central offices, not surprisingly, tend to have substantial amounts of traffic. Based on the demand and the proximity of competitive fiber (as identified through information gathered in response to compulsory process issued to third parties), the United States determined that for a significant number of central offices entry might well be likely in response to a price increase. That left a very tiny number of central offices where harm was likely, and those are included in the proposed remedy. Their specific identity is not material to the Court's public interest determination.68

III.	The Proposed Final Judgments Are in the Public Interest and Should Be Entered by the Court

The Tunney Act instructs the Court to consider certain factors in making its public interest determination:

(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and

(B) the impact of entry of such judgment upon competition in the relevant market or markets, 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 determination of the issues at trial.69

All these factors weigh in favor of entry of the proposed Final Judgments as being within the public interest.

A.	The Proposed Final Judgments Terminate the Alleged Violations

The competitive problem the United States alleged would result from these mergers is that for hundreds of buildings the number of carriers with a direct connection would be reduced from two to one, and entry is not sufficiently likely to deter anticompetitive price increases. The "last-
mile connection" to commercial buildings tends to be a bottleneck, and the mergers would likely eliminate the only competitive alternative to the RBOC for hundreds of these buildings. Thus, the Complaints allege that the mergers violate Section 7 of the Clayton Act because they tend to result in a substantial lessening of competition for Local Private Lines and telecommunications services that rely on Local Private Lines in hundreds of buildings.70 A decree that remedies the alleged substantial lessening of competition effectively terminates the violation.

A sufficient remedy to the alleged competitive problem is to provide another competitive carrier with a last-mile connection to the buildings that it can effectively use to provide Local Private Line and related services. Thus, the proposed Final Judgments require the merged firm to divest such connections to the hundreds of buildings requiring a remedy (listed in Appendix A to each proposed Final Judgment, respectively),71 principally in the form of a long-term indefeasible right of use ("IRU").72 To ensure that the buyer can effectively use these lateral connections immediately, without substantial additional capital expenditure, the proposed Final Judgments require the merged firm to also divest sufficient transport capacity to connect the lateral connections to the purchasing carrier's network.73 Moreover, to ensure that the purchaser of the assets is one that can be a viable and effective competitor (e.g., with the requisite expertise, assets, financial strength), the United States maintains the right to approve the buyer, in its sole discretion.74 In addition, the United States retains approval over the terms of the divestiture agreement to ensure that they are compatible with the purposes of the proposed Final Judgments, and that there are no provisions that would interfere with the buyer's ability to replace the competition that would otherwise be lost.75

A divestiture of fiber-optic capacity to the 2-to-1 buildings that pose a competitive problem to a purchaser that can effectively provide service to those buildings is adequate to remedy the violations alleged in the Complaints.76 That multiple competitive carriers have already bid for,77 and reached agreements to acquire, the assets in question should help provide assurance that the divestiture package is viable, and that the competitive problem will indeed be remedied if the proposed Final Judgments are entered.

B.	The Proposed Final Judgments Include Appropriate Provisions for Enforcement and Modification

The proposed Final Judgments include standard provisions that have been effective in numerous past decrees to maintain the Court's jurisdiction and ensure compliance with the decrees as entered.78 The Court retains jurisdiction over the action for further orders necessary to carry out, construe, modify, enforce, or punish violations of the proposed Final Judgments.79 To preserve the Divestiture Assets until divested, the proposed Final Judgments in conjunction with the Stipulations filed with the Court require the preservation of the Divestiture Assets and bar any actions that would interfere with the divestitures.80 To ensure all necessary actions are being taken to comply with the Final Judgments, the proposed Final Judgments require the defendants or trustees, if appointed, to make regular submission of affidavits describing efforts to comply with the Final Judgment.81 Finally, the United States may investigate any potential violations of the Final Judgments, including gathering documents, interviewing employees on the record, and requesting written submissions.82

C.	The Duration of Relief Specified by the Proposed Final Judgments Is Sufficient to Protect Competition

The proposed Final Judgments expire 10 years from their date of entry.83 This period coincides with the duration of the IRUs (or dark fiber services agreements) for the Divestiture Assets.84 Ten years is significantly longer than the typical customer contract for Local Private Lines and related services. In a dynamically changing industry, a 10-year remedy is likely more than sufficient to ensure that competition is replaced for the affected buildings.85 A longer decree period would have imposed an additional burden upon the defendants without a commensurate competitive benefit.86

D.	The Anticipated Effects of Alternative Remedies Indicate the Desirability of the Proposed Final Judgments

During the investigation, a number of competitors – including members of ACTel and COMPTEL – suggested certain remedies to the Department, and the investigative staff discussed those remedies.87 However, once it became clear that the only likely competitive problem was limited to certain buildings, it also became clear that a divestiture of fiber-optic capacity to those buildings could adequately remedy the harm. Thus, no remedy except for this sort of limited divestiture was "actually considered" at the conclusion of the investigation except, as is always the case, the alternative of an injunction completely barring the transactions.88 Enjoining the transactions, however, would not have been warranted given the relatively small magnitude of the harm that would result from the transactions compared to the billions of dollars in efficiencies that would potentially be lost from such an injunction.89 The more narrowly focused remedy was clearly the more pro-competitive.

E.	The Proposed Final Judgments Are Not Ambiguous

The proposed Final Judgments contain no significant ambiguities: they are clear and specific regarding the assets to be divested, how the divestitures will occur, to whom the assets may be divested, the circumstances in which modifications can be made, and how the judgments can be enforced.90 The building laterals that must be divested are listed by street address in Appendix A to each Final Judgment, respectively; more than 700 addresses are identified in total.91 For each building, the divestiture must include specifically defined "Lateral Connections," a specified number of fiber-optic strands, and sufficient transport.92 The proposed Final Judgments also specifically control other terms and aspects of the divestiture sales process including the timing of the divestitures, provisions for making the Divestiture Assets available to prospective buyers, necessary warranties that the defendants must make in relation to the Divestiture Assets, and a ban on reacquisition of the Divestiture Assets to avoid sham transactions.93

As is typically the case, some terms of the purchase agreement are left to negotiation by the purchasers and the defendants in a commercial arms-length agreement. This arrangement allows the purchaser to address its specific needs; the undesirable alternative would be to force a one-size-
fits-all solution on the potential purchasers. The purchasers' and defendants' exercise of this flexibility does not introduce any troubling ambiguity into the proposed Final Judgments, because the United States has approval rights over the terms of the sale to ensure that these are truly arms-
length agreements that do not undermine the purposes of the Final Judgments.94 Similarly, the proposed Final Judgments allow for minor modifications to the Divestiture Assets, at the purchaser's option with the approval of the United States, to permit the exclusion of assets that are not necessary for the purchaser to use the assets to replace the lost competition.95 This also does not constitute an ambiguity that would make the proposed Final Judgments difficult to implement and therefore not in the public interest.

F.	There Are No Other Competitive Considerations Bearing Upon the Adequacy of the Proposed Final Judgments or Upon the Court's Public Interest Determination

Congress provided for the Court to look at "any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest."96 After conducting an extensive investigation which included receiving and reviewing millions of pages of documents from the parties and dozens of third parties,97 the United States does not believe there are any additional factors that would indicate that the proposed Final Judgments are inadequate or not in the public interest,98 including those concerns specifically raised in the comments filed with the United States as part of the Tunney Act proceedings, or the subsequent COMPTEL and ACTel submissions.99 In particular, that the proposed Final Judgments do not remedy supposed harm that was not alleged in the Complaints has no bearing on the adequacy of the proposed Final Judgments in replacing the lost competition: the proposed Final Judgments adequately remedy the only competitive harm alleged in the Complaints.

G.	Entry of the Proposed Final Judgments Would Benefit Competition in the Relevant Markets

As discussed above, entry of the proposed Final Judgments will replace the competition that would otherwise be lost in the relevant markets (Local Private Lines and related services) in hundreds of buildings identified in the Final Judgments, while permitting the public to reap the benefits of efficiencies likely to result from the mergers. Regardless of whether the relevant geographic market is defined as the metropolitan area or the individual building, the divestitures will redress the only competitive problem identified by the United States: a loss of competition in certain 2-to-1 buildings.100 The divestitures will replace the acquired CLEC in those buildings where competitive harm is likely, ensuring that customers in those buildings continue to have a competitive option other than the RBOC.101

H.	Entry of the Proposed Final Judgments Will Likely Benefit the Public Generally

The proposed Final Judgments correct the limited competitive problem for Local Private Line and related services for several hundred buildings alleged in the Complaints in a minimally intrusive manner.102 Because the proposed Final Judgments correct the problem, and do so in a way that does not interfere with the realization of substantial efficiencies (potentially in the billions of dollars) that these transactions likely will generate, the general public will benefit from their entry.

I.	Entry of the Proposed Final Judgments Will Not Adversely Affect Individuals Alleging Specific Injury from the Violations Set Forth in the Complaints

The divestitures required by the proposed Final Judgments will replace the lost competition alleged in the Complaints, preventing competitive harm to any individuals (including harm to COMPTEL's and ACTel's members in their capacity as customers) that would otherwise arise from the violations set forth in the Complaints.103 Entry of the proposed Final Judgments has no preclusive effect on any action that any individual nevertheless claiming to be harmed by the defendants conduct may want to bring.104 Nor do the proposed Final Judgments or the sales of the Divestiture Assets as a practical matter limit the remedies that any individual harmed by the mergers could seek on its own, including broader divestitures.

J.	Determination of the Issues at Trial Will Not Result in Any Significant Public Benefit

Determination of the issues alleged in the Complaints at trial would provide no significant public benefit, but would serve only to delay the implementation of an effective remedy. The case brought by the United States involves a loss of competition for Local Private Lines and related services in certain 2-to-1 buildings. If this case were to proceed to trial, that is all the United States would attempt to prove. Litigation would impose substantial costs and burdens on the United States, the parties, and the Court. Even litigation of this limited case would involve considerable complexity, detailed evidence, and difficult confidentiality issues. But more important, even if the United States were to be successful in proving liability, a remedy very much like that proposed to the Court here would adequately replace the competition that would otherwise be lost and alleviate the alleged harm. Because an adequate remedy for the harm alleged is now before the Court, there is no significant benefit to adjudicated liability at trial.105

IV.	Conclusion

Clearly, ACTel – an association of competitors to the merging firms – wishes the United States had brought a broader case and insisted on a broader remedy. That is not unusual: many firms in investigations of mergers concerning their direct competitors seek broad, sweeping relief106 and produce information that they claim justifies seeking such relief.107 But as sometimes happens, the United States here concluded that the sum total of evidence did not support the complaining party's claims, and instead brought a narrow case seeking appropriately focused relief. ACTel, not content with this decision, asks this Court to reject the proposed Final Judgments because they fail to redress harm that ACTel contends is likely to occur.

The purpose of a Tunney Act proceeding is for a court to examine the proposed remedy, and determine whether it is in the public interest based on the factors listed in the statute; it is not for a court to re-investigate the underlying merger at the behest of disappointed competitors, or put the Department of Justice on trial to justify its prosecutorial decision-making. The United States has not only provided a detailed explanation of the competitive harm identified in its Complaints, and of how the proposed remedy redresses that harm, but also twice addressed in detail the concerns of two commenters.108 The Court should conclude that the proposed Final Judgments fall within the reaches of the public interest, and enter them to ensure that the necessary divestitures are swiftly completed.109

Respectfully submitted,

/s/

Laury E. Bobbish

Assistant Chief

/s/

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

Claude F. Scott, Jr. (D.C. Bar No. 414906)

Matthew C. Hammond

Trial Attorneys

Telecom and Media Enforcement 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

CERTIFICATE OF SERVICE

I hereby certify that on the 31st day of May, 2006, I caused a copy of the foregoing Reply of the United States to ACTel's Opposition to the United States' Motion for Entry of the Final Judgments to be mailed, by U.S. mail, postage prepaid, to the attorneys listed below:

FOR DEFENDANT

SBC COMMUNICATIONS, INC.

Wm. Randolph Smith (D.C. Bar No. 356402)

Crowell & Moring LLP

1001 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 624-2700

FOR DEFENDANT AT&T CORP.

David L. Lawson (D.C. Bar No. 434741)

Sidley Austin Brown & Wood LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8088

FOR COMPTEL

Kevin R. Sullivan (D.C. Bar No. 411718)

King & Spalding LLP

1700 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

(202) 737-0500
FOR DEFENDANT

VERIZON COMMUNICATIONS INC.

John Thorne (D.C. Bar No. 421351)

Verizon Communications, Inc.

1515 North Courthouse Road

Arlington, Virginia 22201

(703) 351-3900

FOR DEFENDANT MCI, INC.

Mark C. Hansen

Kellogg, Huber, Hansen, Todd, Evans

& Figel, P.L.L.C.

1615 M Street, N.W., Suite 400

Washington, DC 20036

(202) 326-7900

FOR ACTEL

Gary L. Reback (D.C. Bar No. 218594)

Carr & Ferrell LLP

2200 Geng Road

Palo Alto, CA 94303

(650) 812-3489

/s/

Jared A. Hughes

Attorney

Telecommunications & Media Section

Antitrust Division

U.S. Department of Justice

City Center Building

1401 H Street, N.W., Suite 8000

Washington, D.C. 20530