WASHINGTON--The Bush administration's approval of the megamergers of AT&T and SBC Communications and of Verizon Communications and MCI was challenged Wednesday by a federal judge.
U.S. District Judge Emmet Sullivan said at the start of the hearing that he may not have enough information to permit the mergers to remain intact without major modifications.
Sullivan told attorneys for the telecommunications companies and the U.S. Justice Department, which was defending the two deals, that he has "doubts" the mergers would boost competition. "The public indeed has to have some confidence in these proceedings," Sullivan said.
After hearing nearly seven hours of arguments and interjecting often with his own questions, Sullivan said he would take the case "under advisement." The judge scheduled a July 25 status conference where he promised to "inform the parties exactly what I intend to do."
Sullivan, who was appointed to the federal bench by former President Clinton, said he's considering extra steps--such as requiring the administration to republish the merger agreements in national newspapers or holding another hearing where expert witnesses would describe the mergers' potential impact on competition.
The deals got the green light last October from the Federal Communications Commission and the Justice Department's antitrust division, and both Verizon and SBC have since closed their books on the acquisitions.
It's unlikely that Sullivan would be able to unwind the deals, but he could impose additional conditions or require the companies to spin off some of their business units. In an order issued last week (click for PDF), he posed a number of questions about how he should proceed with his review.
Under a 1974 federal antitrust law called the Tunney Act, judges may review mergers to see if they are within "the reaches of the public interest." The federal judge overseeing the final half of the Microsoft antitrust trial, for instance, invoked the Tunney Act when altering the settlement agreement before approving it.
In 2004, Congress changed the Tunney Act to grant federal courts more authority. Previously the law said judges "may" evaluate the effectiveness of consent decrees and whether they will protect the public interest--now the law says judges "shall" review such agreements.
Also added was an evaluation of the impact of the deal on "competition in the relevant market or markets."
An attorney for the Justice Department, Claude Scott, assured the judge that the settlement proposed by the government for each of the mergers "still leaves a vibrant market." He said the agency had devoted eight months and more than 24,000 hours of lawyers' time to distilling potential problems with the mergers and invited the judge to pose any questions he had about their methodology.
And Wilma Lewis, a former Justice Department prosecutor now representing AT&T, said nothing in the Tunney Act suggests that a full evidentiary hearing with witnesses should be "the ordinary course of action."
"You're doing a great job of articulating the facts the government considered, but I wasn't there," Sullivan said.
The Justice Department had filed suit to block the mergers unless certain conditions were imposed. As a result, the merger deals were modified to ensure that the companies' competitors could gain access to fiber-optic connections in certain commercial buildings. The government said it had determined after many hours of analysis that there was cause for concern about competition in some major metropolitan areas where Verizon and MCI or AT&T and SBC had been the only two companies supplying certain buildings with those "last-mile" connections.
The afternoon's arguments included a lengthy presentation by Gary Reback, a Silicon Valley lawyer, paid for by Microsoft's rivals, who played a major role years ago in convincing the Justice Department to pursue the software company on antitrust grounds. This time, Reback was representing a group called the Alliance for Competition in Telecommunications, which appears to have been formed last year principally to oppose the mergers in question.
Reback charged that the requirements imposed by the settlement negotiated for the mergers were far too narrow and "won't remotely restore competition."
"The government is confronted with an elephant, and instead of standing back and focusing on this multi-ton beast, the government is focusing on a toenail," he said.
Jonathan Lee, counsel for Comptel, which lobbies for the Bells' competitors, said he agreed that the consent decrees "fall woefully short" of ensuring requisite competition levels and urged the judge to probe more deeply into the proposed settlements before signing off on them.
Although Wednesday's arguments were supposed to center on whether the mergers are in the "public interest," no consumer advocacy groups filed formal comments with the Justice Department or appeared at the hearing--an occurrence that Sullivan deemed "significant" at the hearing's outset.
"No one's asked me to participate," he said at day's end. "I would have granted it,"
Verizon Deputy General Counsel John Thorne told the judge that "the public's absence is not due to lack of notice, it's due to their satisfaction with the mergers."
Separately on Wednesday, the advocacy group Consumers Union issued a joint statement with Comptel applauding the court's scrutiny of the mergers. Vice President Gene Kimmelman accused the federal government of failing "to fulfill its watchdog role by rubber stamping giant Bell mergers without even the thinnest of public interest protections."