July 25, 2006 7:59 AM PDT

Judge balks at closure of AT&T, Verizon mergers

WASHINGTON--A federal judge on Tuesday said he can't sign off on the mergers of SBC and AT&T and of Verizon and MCI until he gets more information.

"The court is not currently in a position to grant or deny the proposed consent decree," U.S. District Judge Emmet Sullivan said at a status conference here.

The pair of deals won approval last October from the Federal Communications Commission and the Justice Department's antitrust division. Both Verizon and SBC have already closed their books on the acquisitions.

At issue before Sullivan is whether proposed agreements between the Justice Department and the telecommunications companies satisfy the public interest under a 1974 federal antitrust law called the Tunney Act. (The federal judge overseeing the final half of the Microsoft antitrust trial invoked the Tunney Act when altering the settlement agreement before approving it.)

Sullivan has formally asked the government and the phone companies to submit "any materials" that show why the agreements reached between the Justice Department and the telecommunications companies satisfy the "public interest" requirements.

Federal judges picked up additional authority in such proceedings in 2004, when Congress made changes to the Tunney Act. The law now says judges "shall"--rather than "may," as in the previous statute--evaluate the effectiveness of consent decrees and whether those decrees will protect the public interest. Judges are also supposed to consider the impact of the deal on "competition in the relevant market or markets."

Justice Department Attorney Claude Scott said the government would attempt to distill the "millions" of documents scrutinized during their reviews of the mergers into a few affidavits for the judge.

"We will have to go back and determine what's useful to you," he told the judge.

When approving the deal, the Justice Department imposed minor requirements on SBC and Verizon--namely, that they ensure that their competitors could gain access to fiber-optic connections in a few hundred commercial buildings across the country where competition levels were questionable.

"There must have been reasons, there must have been facts, there must have been bases for those challenges," Sullivan said of the Justice Department complaint that prompted those conditions.

Sullivan said at a July 12 hearing that he was concerned the government and the phone companies hadn't submitted enough factual evidence to back up the agreements allowing for the megamergers. He also warned he was pondering the idea of holding an evidentiary hearing at which expert witnesses would describe why the mergers should go forward--an idea that drew misgivings from the Justice Department, Verizon and AT&T's lawyers.

Sullivan backpedaled on that idea on Tuesday, saying he is "firmly of the opinion that it is premature to commence evidentiary hearings at this juncture."

At the judge's request, the U.S. government last week filed with the court unredacted versions of the Federal Communications Commission orders approving the twin mergers. Those documents were submitted under seal because of their "highly confidential" and "competitively sensitive" contents.

The court has already heard objections to the deal from Comptel, a trade association representing the Bells' competitors, and the Alliance for Competition in Telecommunications, or Actel, a new organization that apparently formed just to oppose the mergers in question. Actel is represented by Gary Reback, a Silicon Valley lawyer who played a major role years ago in convincing the Justice Department to investigate Microsoft for possible antitrust violations.

Last week, the National Association of State Utility Consumer Advocates and the New Jersey Division of Rate Counsel, two consumer advocacy groups, and New York Attorney General Eliot Spitzer filed documents seeking to present the views of expert witnesses they had picked, all of whom were prepared to discuss what they perceived as drawbacks of the mergers. The judge on Tuesday said that the state utility groups, Spitzer and Sprint-Nextel--along with Comptel and Actel--would be allowed to respond to the government's new filings.

The judge's actions drew praise from Jeannine Kenney, senior policy analyst for the advocacy group Consumers Union. She said in a statement issued jointly with Comptel that the court "sent the encouraging message that it will carefully scrutinize, not merely rubberstamp, these merger agreements."

Sullivan gave the government until Aug. 7 to file the supporting documents with the court. Then the outside groups will have 10 days to respond to those filings, and the government will have 10 additional days to file its own response.

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Tunney Act, Actel, merger, antitrust, federal judge

 

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