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Telecom Mergers And The Public Interest
by Sarah Lai Stirland
Public-interest groups are swooping in at the 11th hour to tell a federal district judge why a proposed antitrust merger of four large telecommunications companies into two new firms will not benefit the public.
But the big question is whether their last-minute appearance will make any difference. The groups have missed the deadline for making comments, and the constitutionality of the law providing the judge leeway to reject Justice Department conditions on the plan is in question.
If the groups' requests are granted, the judge would see a different portrait of the telecom market landscape than the one presented to him by Justice and the merging companies. The result could lead him to reject the deal among the long-distance and local telephone companies.
How Much Judicial Leeway Is There?
As of Monday, four public-interest and state-level government groups have asked the judge to intervene in the antitrust case. The groups oppose the mergers as they currently stand.
Their requests respond to the judge's queries during a July 12 hearing about independent experts who could verify that the mergers are in the public interest, and the groups have offered economists sympathetic to their positions. Justice and the telecom companies told the judge in court and in filings that he should rely on their statements and findings about the mergers, and that no additional witnesses are needed.
Judge Emmet Sullivan of the District of Columbia is scheduled on Tuesday to update the parties on how he intends to review the planned mergers of AT&T with SBC Communications and MCI with Verizon Communications. A 1974 law named after California Democratic Sen. John Tunney requires federal judges to review such settlements -- if they have not gone through full-blown trials complete with testimony -- and determine whether they are in the public interest.
Justice originally filed suit to block the mergers in October 2005 and then settled with the companies on the condition that they divest assets to hundreds of buildings in several states, and lease some of their networks on certain conditions for at least 10 years.
The overarching question now is how much leeway the amended 2004 law gives the judge to make decisions about the settlement. Both judicial opinions and academic thoughts on the question vary wildly. The latest word from lawmakers, however, is that the courts should be able to exercise discretion in the matter, and should even be able to appoint special masters and independent consultants to evaluate the public-interest impact of antitrust settlements.
Congress updated the Tunney Act in 2004 after the federal D.C. Circuit Court of Appeals established a legal standard for merger reviews that several members of the Senate Judiciary Committee said undermined the intent of the original law.
The D.C. circuit in 1995 overturned the district court's rejection of Justice's antitrust settlement with Microsoft. The appeals court said lower courts must only examine settlements in light of the violations charged by Justice, and should withhold approval "only if any terms appear ambiguous, if the enforcement mechanism is inadequate, if third parties will be positively injured, or if the decree otherwise makes a 'mockery of judicial power.'"
Revisiting Antitrust Precedent
The chairmen of the Senate Judiciary Committee and antitrust subcommittee and their Democratic counterparts disagreed with that interpretation of the Tunney Act. They said it would lower the legal standards of review.
"While this legislation is not intended to require a trial [anew] of the advisability of antitrust consent decrees or a lengthy and protracted review procedure, it is intended to assure the courts undertake meaningful review of antitrust consent decrees to assure that they are in the public interest and analytically sound," Sen. Herb Kohl, D-Wis., said when the Senate voted to approve changes to the 1974 law.
The amendments made judicial review and Justice's antitrust settlements mandatory, and gave courts more criteria for evaluating the impact of settlements.
When making his speech to explain the rationale behind the 2004 amendments, Kohl cited both a senatorial aide who worked on the original Tunney Act and the late D.C. federal District Judge Harold Greene. Greene oversaw the original breakup of "Ma Bell." He said when reviewing the history of the Tunney Act back then that "it is clear that Congress wanted the courts to act as an independent check upon the terms of decrees negotiated by the Department of Justice."
Kohl also noted a law review article by now-retired professor John Flynn. Flynn was special counsel to the Senate Antitrust Subcommittee at the time Congress approved the Tunney Act. He wrote that Congress "rejected the notion that courts must give deference to the [Justice Department] when determining if a consent decree is in the public interest."
Despite those statements, at least a couple of constitutional scholars have questioned the idea of courts "second guessing," Justice's prosecutorial role. Harvard University law professor Lawrence Tribe and Pepperdine University law school Dean Kenneth Starr in 2003 provided members of the Judiciary Committee an extensive analysis that questioned how "independent" courts could be in that context.
They said the court's role is to ensure that Justice completed the proper antitrust enforcement procedures rather than to question its substantive conclusions. They further noted that Chief Justice William Rehnquist himself questioned the premise of the 1974 law.
"The United States Supreme Court as currently composed would be even more emphatically concerned with the separation of power limits on a federal court's role in reviewing antitrust settlements of this sort ... because both Samuel Alito and Chief Justice John Roberts ... have manifested deep interest in these limits," Tribe said in an e-mail interview.
Two Views On What Can Happen Next
No observers of the process have suggested that Sullivan could reverse the pending telecom mergers. Rather, some said Sullivan could simply reject the merger by giving reasons and criteria as outlined in the law, or he could agree with the FCC's analyses when it approved the mergers. The agency last week provided the judge with those analyses under seal.
"He is perfectly entitled to say that the settlement is not in the public interest and to send the Department of Justice back to the drawing board, and the companies back to the negotiating table," said Jonathan Rubin, a senior fellow at the American Antitrust Institute. The group opposes the mergers and has asked to intervene in the court proceeding.
Other groups and officials who have requested to intervene include the National Association of State Utility Consumer Advocates, the New Jersey Division of Rate Council and New York Attorney General Eliot Spitzer. The Consumer Federation of America, Consumers Union and the U.S. Public Interest Research Group offered their input Thursday. They oppose the merger on the grounds that it would hurt competition in the residential telecom market.
In an interview, Rubin said the judge's behavior during the July 12 hearing gave him reason to believe that he may accept the various groups' offers to question their experts. But that is not a widely shared view.
"There's no history of the Tunney Act being an interventionist tool," Tier 1 telecom research analyst Daniel Berninger said. "The reform law is untested, and unproven and nobody else has shown it to have teeth." He added that he doubts the judge would risk jeopardizing his career prospects by denying the settlement.
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