A federal jury in Chicago yesterday reduced from $1.8 billion to $113.4 million the amount of damages American Telephone & Telegraph Co. must pay to MCI Communications Corp. for denying its long-distance rival access to local telephone lines in the early 1970s.
The verdict represented a serious defeat for MCI, which had sought $5.8 billion from the jury -- an amount that would have been tripled to $17.4 billion under federal antitrust laws.
The award is only 6 percent of the original 1980 award of $600 million, which under federal antitrust laws was tripled to $1.8 billion. Yesterday, the jury awarded MCI $37.8 million, which was tripled to $113.4 million.
A U.S. Court of Appeals overturned the $1.8 billion decision in 1983. Although the court upheld most of the jury's findings that AT&T had tried to stifle the then-fledgling MCI from entering the long-distance telephone business, it voided one of the jury's key findings -- that AT&T engaged in predatory pricing to drive MCI out of business. As a result of the decision, the appeals court ordered a new trial to reconsider the amount of damages AT&T owed MCI.
Minutes after yesterday's jury decision, MCI announced it would appeal. "We're obviously disappointed . . . and expect that our arguments will be upheld by the appeals court," MCI officials said. MCI Chairman William McGowan said U.S. District Judge John F. Grady failed to explain sufficiently to the jury that the award at issue is for "behavior already found to be illegal."
AT&T applauded the victory. "This verdict is certainly a lot more pleasing than the previous one," AT&T spokesman Pic Wagner said. "It is quite evident that this jury grappled successfully with the complex issues in rendering its verdict." The jury was allowed to consider only the amount of damages AT&T owed MCI, Wagner noted. AT&T has defended its actions on the grounds that it only was following rules set by the Federal Communications Commission.
"Clearly this is a victory for AT&T and a major setback for MCI," said Stephen G. Chrust, a financial analyst with Sanford C. Bernstein.
Nonetheless, Chrust and other analysts were quick to add that the decision should not hurt the financial health of MCI.
"MCI doesn't really need the money," said Harry Edelson, managing partner of Edelson Technology Partners. "It is in good financial shape, with over $1 million in cash and securities."
However, Edelson added, the decision may slow down the long-distance company's rapid expansion into new telecommunications areas, including its drive to set up an international network and become a major player in the mobile-telephone market.
"It may have to pull in its reins a little bit in trying to become an omnibus telecommunications company and not be able to be all things to all people in the telecommunications field," Edelson said.
MCI's stock took a beating nonetheless yesterday, dropping $1.75 a share to $8.12, with the bulk of the drop occurring an hour after the verdict was announced.
AT&T's stock climbed 75 cents on the New York Stock Exchange to $24.12.
In the current trial, which began April 8, MCI asked for $5.8 billion in damages based on an economic study of what it would have earned in revenue and profits if it weren't for AT&T's anticompetitive actions.
The study covered the years 1969 through 1974, when MCI was in the private-line business, setting up private telephone connections for business customers.
For the first trial in 1980, MCI had prepared a similar study, but only calculated damages through 1975, before it began offering its regular long-distance telephone service, known as Execunet. McGowan, one of 18 witnesses who testified in the case, said MCI would have introduced regular long-distance service before 1975 but could not because AT&T denied it line connections.
"AT&T's refusal to give interconnections destroyed the pace because it destroyed the revenues we had projected to stay in business,"' McGowan said at the start of the trial. "We went from an operating company to one that was trying to survive day by day."
AT&T, however, argued that MCI was entitled to no more than $10 million in damages, with its lead lawyer, H. Blair White, calling the study "totally artificial." Among other things, AT&T argued that MCI should not be compensated for any of AT&T's alleged damage to MCI's Execunet service, because the service was not an issue in the original trial. Using that argument, AT&T had unsuccessfully sought to bar MCI's $5.8 billion damage study from the trial.
Nevertheless, the jury sided with AT&T and found that none of the $37.8 million damages it awarded was due to a loss of profits from MCI's Execunet service.
"That will be one of the bases for our appeal," an MCI spokesman said yesterday.
Even if MCI fails in the appeals court, it will have another chance to bring up Execunet when its second antitrust suit against AT&T goes to trial in San Francisco some time next year. That suit, which charges AT&T with many of the same anticompetitive actions as the Chicago case, seeks damages for actions between 1975 and 1983.
The regional telephone companies that were a part of the Bell System until the 1984 breakup of AT&T are defendants in both suits, liable for a total of 70 percent of the award, with AT&T making up the rest of the amount.
One regional company, U S West Inc., recently settled both suits out of court with MCI for $60 million in cash and services.
The court verdict yesterday may lead to more settlements in a few months, financial analyst Edelson predicted. Up to now, MCI -- remembering a $1.8 billion verdict -- was reluctant to settle for small amounts, Edelson said. But after the latest award, MCI may have a change of heart, he said.