United States: SBC-AT&T and Verizon-MCI Merger Review Ends—Not With Bang, But With Whimper

On January 30, 2005, SBC agreed to acquire AT&T. Two weeks later, on February 14, 2005, Verizon agreed to acquire MCI. After its investigation, the Department of Justice Antitrust Division ("DOJ" or "Antitrust Division") filed complaints and proposed consent decrees in both cases on October 27, 2005. The SBC-AT&T merger closed on December 18, 2005, and the Verizon-MCI merger closed on January 6, 2006. However, the antitrust reviews of these mergers only ended on March 29, 2007, when the United States District Court issued a 56-page opinion concluding that the entry of the proposed final judgments is in the public interest. United States v. SBC Comm., Nos. 05-2102, 05-02103, 2007 U.S. Dist. LEXIS 22947, at *1 (D.D.C. March 29, 2007). Having said near the beginning of the 17-month Tunney Act proceeding reviewing the consent decrees that it would not be a "rubber stamp," the District Court gave out indications that it might expand the scope of Tunney Act review of government antitrust settlement, that it might second-guess the Antitrust Division’s analysis and approach, and that it might even send the DOJ and the parties back to the drawing board. In the end, it did none of these things.

In the complaints accompanying the consent decrees, the government argued that the mergers would "substantially lessen competition" with regard to hundreds of commercial buildings in metropolitan areas where the merging parties are the only firms that own or control a direct wireline connection to the building. In several buildings, AT&T and MCI were the only carriers with last-mile connections to the buildings and, thus, the DOJ asserted that the mergers would reduce from two to one the number of carriers with last-mile connections (so-called "2-to-1 buildings"). The DOJ also found that entry was unlikely to eliminate the competitive harms the mergers would cause.

In its proposed final judgments, the DOJ required SBC and Verizon to divest certain assets (the "Divestiture Assets") within 120 days after the closing of the mergers, or five days after notice of the entry of the final judgment by the court, whichever is later. The DOJ defined the Divestiture Assets in terms of an indefeasible right of use ("IRU"), which is a long-term leasehold interest giving the holder the right to use specified strands of fiber. The IRUs must be for at least ten years, cannot include a recurring fee, and cannot limit the right of the acquirer to use the desired asset. The Divestiture Assets include IRUs for last-mile connections to 2-to-1 buildings where the DOJ determined entry was unlikely and transport facilities sufficient to allow the purchaser to use the IRUs to provide telecommunications services.

Competitive carriers, represented by amici trade associations ACTel and COMPTEL filed oppositions to the proposed final judgments. They argued that the DOJ had not gone far enough in its complaint, and, most pertinently, that the remedies in the proposed consent decrees were insufficient to fix the violations alleged. They also suggested that amendments to the Tunney Act review standard enacted in 2004 gave the court broader authority than previously existed. While taking a long time to reach its conclusions, the District Court found that the 2004 amendments at best "effected minimal changes," leaving the scope of review "sharply proscribed." Applying the limited review standard to the two pending mergers, the court found no grounds for rejecting the settlements.

Standard of Review

The Tunney Act requires courts to determine whether proposed final judgments are "in the public interest." 15 U.S.C. § 16(e)(1). The Tunney Act does not define "in the public interest," but instead lists several factors courts must examine in making the determination. The court struggled with the meaning of the term because of the absent definition, and because the amendments to the Tunney Act in 2004 brought precedent into question. Ultimately, the court found that the 2004 amendments were designed to promote a court’s independent examination of the factors in the statute.

Legislative history of the 2004 Tunney Act amendments suggests that there was congressional concern that the case law resulted in an overly deferential review of prosecutors’ judgment so that final judgments should only be rejected by courts if they make a "mockery of judicial power." The court here concluded that the purpose of the 2004 amendments was to ensure that courts consider all of the enumerated factors in the statute, and thus, courts "cannot use the ‘mockery of justice’ standard as the general standard of review under the Tunney Act."

Nonetheless, and most importantly, the court held that under the 2004 amendments, a court cannot delve into matters outside of the scope of the government’s complaint in making its public interest determination. Some amici argued that courts should consider matters outside those addressed in the government’s complaint.

The court also addressed the degree of deference, if any, to be accorded to the government’s evaluation of the adequacy of the proposed final judgments. Under the Tunney Act, "[t]he overall standard for the Court is deciding whether the entry of the proposed settlements is ‘in the public interest.’" To the court, "[t]he relevant inquiry is whether there is a factual foundation for the government’s decisions such that its conclusions regarding the proposed settlements are reasonable." Courts must accord deference to the government regarding the "efficacy of its remedies." Accordingly, courts will "approve the proposed settlements if they are ‘within the reaches of the public interest.’ The government need not prove that the settlements will perfectly remedy the alleged antitrust harms; it need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms."

Review of the Two Consent Decrees

Having established the standard of review, the court separated the statutory factors loosely into two groups. The first group addresses the competitive impact of the proposed remedies, i.e., how well the settlement remedies the harms alleged in the complaints (consideration of "the competitive impact of such judgment, including termination of alleged violations"; "duration of relief sought"; "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"; and "any other competitive considerations bearing upon the adequacy of such judgment"). The second group addresses issues unrelated to the competitive impact of the settlement (e.g., "provisions for enforcement and modification"; "anticipated effects of alternative remedies actually considered"; "consideration of the public benefit, if any, from a trial"; and "whether its terms are ambiguous").

In this case, the government argued that the proposed settlements perfectly remedy the alleged antitrust violations because the proposed final judgments require asset divestitures at all buildings where harm is alleged—the 2-to-1 buildings where entry is unlikely. To the government economist whose testimony supported the settlement, the "proposed remedies are straightforward because the asset-buyers ‘step into the shoes of AT&T or MCI."’

The amici proffered a litany of shortcomings with the proposed settlements. The court found that two of them did represent "significant shortcomings":

  1. because network size matters, buyers of divestiture assets may not be able to fully replace AT&T or MCI; and
  2. since AT&T and MCI were especially competitive firms in the market, buyers might not be able to offer services of the same quality to customers.

Nonetheless, the court—while acknowledging these shortcomings could reduce the effectiveness of the settlements—found that the government had presented a reasonable basis for concluding that the settlements would replace much of the competition lost and, therefore, were "reasonably adequate, and thus within the reaches of the public interest."

The amici challenged the government’s formula for predicting entry. The court acknowledged that the government’s approach did not account for all relevant factors, but was sufficient as a "reasonable, practical prediction of likely entry."

As to the second category of factors, once the "government showed its work," i.e., delineated for the court that it considered detailed alternative remedies, the court found that factor met. The court found that the settlements contained standard provisions to maintain jurisdiction and ensure compliance, and that the terms of the proposed final judgments were not ambiguous.

Hence, at the end of the day, a long 17-month "day," this case found that the 2004 Tunney Act amendments did not alter much about judicial review of antitrust consent decrees. With a sufficient showing that provides a court a record to check off the various factors, even when some reasonable substantive arguments can be advanced as to the sufficiency of the remedies, the DOJ’s judgment will be upheld…if not rubber-stamped.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.