U.S. District Judge Harold Greene yesterday rebuked the Justice Department for reversing its position on telephone industry competition, calling the department's antitrust theories "farfetched."
Judge Greene's sharp comments were an inauspicious start for the seven regional phone companies, including Bell Atlantic, which are urging the judge this week to lift restrictions that prohibit them from offering long distance service and high technology information products such as electronic publishing. The regionals' request is backed by the Justice Department.
Opening three days of oral arguments that will address the basic structure of the telephone industry, Greene upbraided the Justice Department for changing its mind about whether the local telephone companies could compete fairly in new businesses while controlling the "bottleneck" monopoly of local telephone service.
(Judge Greene retains control over many telephone policy issues because he oversees the consent decree that defines the rules of AT&T's breakup.)
While bringing its massive antitrust suit against AT&T during the 1970s and early 1980s, the Justice Department argued that it was impossible for the phone company to compete fairly while controlling the local bottleneck. The breakup of AT&T, implemented in 1984, was designed to solve that structural problem.
At the time of the breakup, Justice expected the divested regional companies to confine themselves primarily to providing local telephone service. Now that the regionals are asking Greene for permission to expand into long distance, manufacturing and information services, many of the same concerns about AT&T's antitrust compliance during the 1970s are being raised about the regional phone companies.
Justice, however, contends that the old antitrust concerns no longer apply because of increased competition and new regulations enforced by the Federal Communications Commission. Greene expressed strong skepticism yesterday about the department's policy switch.
Saying that he heard Justice lawyers argue "almost daily" during the AT&T trial that the local telephone bottleneck impeded competition, Greene asked, "Was that a different Justice Department that was speaking then?"
"That was different people," Nancy Garrison, a Justice attorney, responded.
Greene called Justice's reversal "puzzling to say the least." He asked Garrison several times whether the department still believed that the purpose of the antitrust laws was to protect consumers. Garrison responded that Justice now believes that lifting restrictions on the regional phone companies will work "to the benefit of consumers."
The oral arguments before Greene yesterday addressed the prohibitions that keep the regional companies from marketing long distance services.
Lawyers involved in the proceedings consider it highly unlikely that Greene will lift the long distance restrictions, but they believe the judge might consider lifting prohibitions on manufacturing and information services. Separate hearings on those topics are scheduled for today and Wednesday.
Greene's opening remarks and tough questioning of the Justice position signaled that the judge will not easily be persuaded that competitive conditions in the phone industry have changed enough to justify unleashing the regional companies. Greene called the regional restrictions "one of the two pillars on which the consent decree rests."
Raymond Burke, general counsel of NYNEX, the northeastern regional company, told the judge that he hoped arguments in favor of lifting the restrictions would not be regarded as "a voice crying in the wilderness." The majority of the telephone interest groups arguing yesterday opposed lifting restrictions on the regionals. Greene said, however, that he was concerned only about the "quality" of the arguments presented, not the numbers of groups for or against the restrictions.
A number of lawyers argued that lifting restrictions on the regionals would invite a new round of antitrust suits similar to those filed against AT&T a decade ago. AT&T attorney Howard Trienens, quoting Yogi Berra, the former baseball manager, called the regional companies' arguments "deja vu all over again."
Trienens said that if AT&T's offspring were permitted to market long distance services, "it would be competition by people who would have a tremendous advantage by virtue of their control of the local bottleneck."
But Burke argued that enhanced federal regulation and implementation of "equal access" rules designed to even up competition among AT&T, MCI, Sprint and other long distance providers had substantially altered the competitive environment.