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No 'rubber stamp' on telecom mergers, judge says

Judge says he'll do "independent review" of deals between AT&T-SBC and Verizon-MCI, but offers no hints of when a ruling will come.

WASHINGTON--A federal judge on Thursday continued to press the Department of Justice to explain why he should approve twin mergers involving some of the nation's largest telephone companies, but did not say when he will make a final decision.

Emmet Sullivan of the U.S. District Court for the District of Columbia warned multiple times that he has no intention of "rubber-stamping" the mergers--proposed between AT&T-SBC Communications and Verizon-MCI--and plans to issue an opinion only after an "independent review" of the materials presented to him.

"Don't I have to scrutinize that merger to determine if it's in the public interest?" Sullivan asked at the outset of an afternoon hearing here that lasted more than two hours.

Emmet Sullivan Emmet Sullivan

The pair of deals got the green light more than a year ago from the Federal Communications Commission and the DOJ's antitrust division, which collectively imposed only minor conditions aimed at alleviating competition concerns.

Both AT&T and Verizon have since closed the books on their respective acquisitions, which prompted Sullivan to remark Thursday with some measure of disdain: "It's a done deal. The MCI Center became the Verizon Center, and everyone goes on their own way." (He was referring to the Washington D.C.'s downtown sports and entertainment complex.)

Some observers say Sullivan's actions could also affect the outcome of another megamerger, between AT&T and BellSouth, which won unconditional approval from the Justice Department this fall. The FCC has repeatedly postponed a decision on that deal because of reported disagreements over what restrictions to impose.

Sullivan has maintained that it's his duty to give the deals a thorough look. A 1974 federal antitrust law called the Tunney Act calls for the courts to vet agreements negotiated between the Justice Department and the companies involved to ensure the deals satisfy the "public interest." During the infamous Microsoft antitrust trial, a federal judge invoked the Tunney Act to alter the settlement agreement in that case before approving it. In 2004, Congress rewrote the law to make court review more a requirement than a voluntary undertaking.

When the telecommunications giants and the government appeared before the judge in July, Sullivan scolded the Justice Department for allegedly failing to present enough facts. He said he would not be able to sign off on the mergers until he received more information about the deals' potential impact on the public.

He said Thursday that "it remains to be seen whether the record is complete yet" and questioned whether the government was withholding "significant documents." Justice Department attorney Claude Scott replied that the government had submitted to the court a "fair representation" of the thousands of documents and interviews they had gathered while vetting the deals.

Attorneys for the government and the telephone companies continued to assert that the deals would not stifle competition or harm consumers. The merger agreements had already been modified in an attempt to ensure the companies' competitors could gain access to fiber optic connections in certain commercial buildings where Verizon and MCI or AT&T and SBC had been the only two companies supplying "last-mile" connections, leaving no immediate competition after the merger.

"As we indicated before, the violation is addressed 100 percent," Wilma Lewis, an attorney for AT&T, told the judge.

Such claims by the government and the telephone companies have drawn an outcry from a number of outsiders, including the Alliance for Competition in Telecommunications, a group led by Silicon Valley attorney Gary Reback, who played a major role in convincing the Clinton Justice Department to pursue an antitrust case against Microsoft; Comptel, a trade organization representing Bell competitors; and New York State Attorney General Eliot Spitzer.

In a lengthy slide show, an animated Reback accused the government of lying about or withholding important information about the competitive impact of the mergers. He criticized antitrust authorities for focusing only on situations in which the number of competitors was reduced from two companies to one and questioned why reductions from three companies to two or four companies to three, for instance, weren't equally worrisome.

"The government can't just make up facts," he said.

The Justice Department's Scott disputed the picture painted by Reback, saying Reback had skewed the analysis by "taking snippets of information ands pieces of data out of context."

Sullivan again raised the possibility of holding an evidentiary hearing on the matter but seemed to be leaning against that option. He said he didn't believe it was Congress's intent to have a court "duplicate" what the Justice Department has vowed was a painstaking analysis. "I can't draft my own complaint," he added.

But a particularly testy exchange with Verizon deputy general counsel John Thorne indicated that Sullivan may not go easy on the dealmakers. When Thorne suggested that the merger was closed and already pleasing Verizon's business customers, Sullivan shot back with, "If the merger is closed, why are we here then?"

"You say it's a done deal, a fait accompli," he went on. "The merger's not finished, either. The merger has not been approved by this court."