American Telephone & Telegraph Co. and MCI Communications Corp. met in U.S. District Court here today to determine how much in damages AT&T must pay its corporate rival.
MCI is seeking the largest damage award in U.S. corporate history, a total of $5.8 billion, as part of its 10-year antitrust case against AT&T. Whatever amount is awarded will be automatically trebled under antitrust laws as an additional deterrent to companies that engage in antitrust activities, which means that AT&T could be forced to pay $17.4 billion if MCI's position is upheld.
Five years ago, MCI was awarded $600 million in damages after a U.S. District Court jury found that AT&T had tried to stifle the then-fledgling MCI. MCI charged that AT&T had tried to monopolize the long-distance telephone market between 1969 and 1975 by charging prices below cost, delaying contract negotiations with its competitors and refusing to give MCI essential telephone hook-ups to the Bell System.
Although AT&T defended its actions by claiming it was following Federal Communications Commission instructions and protecting the public interest, the jury found AT&T guilty of 10 of 15 allegations and granted the $600 million award -- $300 million less than MCI had originally sought. That award was trebled to $1.8 billion.
The 7th U.S. District Court overturned the award in January 1983 and ordered a new trial to set damages. The appeals court rejected the jury's finding that AT&T had engaged in predatory pricing against MCI but essentially upheld the finding that AT&T had illegally refused to interconnect MCI to its local exchanges. The case was sent back to the lower court for a new trial on damages based solely on the interconnection charges. Only the amount of damages is in dispute in this proceeding, not the substance of the charges -- although MCI is reiterating some of its charges to support its claims for damages.
Yesterday, Chester Kamin, a lawyer with the Chicago law firm Jenner & Block who is representing MCI, recounted a series of AT&T actions that MCI contends economically damaged it, reducing revenue and profits and intefering with construction plans up until 1975.
Specific actions on AT&T's part that MCI has alleged in support of its request of $5.8 billion in damages include what it claims were AT&T's negotiations in bad faith about granting connections to the local network to keep MCI out of the long-distance market and AT&T's successful attempts to delay MCI's efforts to compete. MCI also charges that AT&T refused to grant it private line and sophisticated switching equipment connections and refused to connect distant customers to MCI. In addition, AT&T disconnected lines to keep MCI out of the market and knowingly provided technically inferior lines to MCI, said Kamin, the MCI lawyer.
"When the elephant steps on the mouse, the case is fatal, but MCI survived . . . succeeded and prospered," said Kamin. While AT&T generated revenue of $35 billion in long-distance business in 1984, MCI generated $2 billion, Kamin said. Still, based on studies MCI has conducted, the company would have made an additional $2.9 billion in revenue over the last 10 years if it had not been for AT&T's interference, he said. The company is asking $5.8 billion, Kamin said, because half the amount will be paid in taxes.
While MCI was off "to a solid start" in 1972 in construction and soliciting customers, "MCI needed one thing -- simple local telephone connections," he said. Although the FCC had required the connections to be made, "AT&T denied connections to MCI for only one reason . . . to keep the business for itself."
MCI Chairman and Chief Executive Officer William McGowan testified that AT&T's delays in contract negotiations for local connetions to complete MCI calls led to a postponement of MCI's construction plans for service to 15 out of 34 cities and began a vicious circle of borrowing to meet operating expenses. AT&T's actions also led to the layoff of about one-third of the engineering work force, McGowan said. "AT&T destroyed [our] business plan," McGowan said.
McGowan also said MCI was already going to introduce "Execunet" or a shared private-line service prior to 1975 but was unable to do so because AT&T did not grant private-line connections.
Only after wrangling with the FCC and the courts did AT&T grant connections in 1975, McGowan said. But in the meantime, AT&T had disconnected customers.
"AT&T's refusal to give interconnections destroyed the place because it destroyed the revenues we had projected to stay in business. We went from an operating company to one that was trying to survive day by day," McGowan said.
AT&T chief trial counsel Blair White, a lawyer with the Chicago firm of Sidley & Austin, said that "While the number of claims has shrunk, the damages have grown to $5 billion -- it just doesn't make sense.
"They have created a make-believe MCI that never could have existed, and the assumptions are inflated and wrong," White said.
White said MCI wasn't in the Execunet business, a form of regular long-distance service for businesses, at the time the claims encompass. MCI's estimated damages "will disappear after AT&T presents evidence," said White, because MCI actually "lost all the issues" in the last trial. At that time, the jury found that AT&T had not illegally underpriced its services or delayed connections, he said.
White said the only period involved in which MCI did not have private-line and sophisticated switching connections was a seven-month period prior to May 1974, and that there was only a week during which customers were disconnected. AT&T's damage estimate is less than $10 million, he said.
White said that in the last trial, MCI had said that Execunet service had no relevance to the case, and thus it was "unfair" to introduce the Execunet service into this trial.
White also disputed MCI's projected earnings that are part of the basis for its claims. The projected earnings are unrealistic giving increased competition in the industry, he said.
White said AT&T would present its own study separating private-line services from Execunet, which would show that "MCI's damage allocations are very small when compared to [not yet offered] Execunet." White suggested in cross-examination of McGowan that legal low-pricing of AT&T services and holdups in MCI's receiving permission from the government to build facilities on federal sites were the real reasons for a shortfall in revenue and profits.