In yesterday's editions, The Washington Post reported that American Telephone & Telegraph Co. has 23 local operating companies it will have to relinquish. Under terms of Friday's settlement of its antitrust suit, AT&T will have to divest itself of the local telephone activities of 22 subsidiaries. Although AT&T operates 23 local operating companies, two are not wholly owned and will continue to be part of AT&T. Another Bell System subsidiary, Bell Telephone Co. of Nevada, usually included as part of Pacific Telephone Co., is being considered a separate AT&T subsidiary for purposes of the settlement.
The Reagan administration yesterday ended two of the biggest antitrust cases in the nation's history by forcing American Telephone & Telegraph Co. to divest its 23 local telephone companies and by admitting, after 13 years, that its case against International Business Machines was "without merit."
The settlement with AT&T amounts to the largest divestiture in U.S. corporate history. AT&T will be required to spin off about $80 billion, or two-thirds of its assets, into separate companies, including the Chesapeake & Potomac Telephone Co., but the company now will be able to enter the computer business.
In closing the government's 13-year case against IBM, William Baxter, assistant attorney general for antitrust, said "the ultimate horror in some respects would be to go forward" with the suit. Baxter called the government's case "very weak," and said chances of winning a significant reorganization of the company were "virtually out of the question."
On the last day of the Johnson administration, the government charged IBM with monopolizing the nation's computer business, and sought to split up the company. Baxter said that although IBM might have controlled as much as 75 percent of the computer markets during the 1960s that monopoly situation had been "obtained in an entirely legal way. The evidence of bad practices was flimsy, for the most part," he said.
Thomas D. Barr, the attorney who led IBM's defense from the outset, said, "This lawsuit was a vast mistake." The government tried to prove that size was a crime, said Barr. "Fundamentally, the case was a political act."
The government's case charged that IBM controlled more than 70 percent of the general computer market in the 1960s and sought to maintain its power through a series of allegedly illegal practices, such as premature announcements of new products to prevent competitors from taking IBM's customers away and price-cutting offensives designed to push new firms out of business.
That doctrine has never been accepted by the courts, Barr said. Baxter was the first antitrust chief willing or able to take the time to understand the case and when he did he stopped it, Barr said. However, some of IBM's competitors were dismayed by Baxter's decisions.
"The administration may believe this will stimulate competition between IBM and AT&T to the benefit of the consumer and nation, but past evidence introduced in both cases would indicate to the contrary, these companies do not compete; they monopolize the market," said A.G.W. Biddle, president of Computer and Communications Industry Association.
The two dramatic actions appear to end a postwar era of antitrust law in which the government tried to test the limits of federal antitrust laws, often by challenging the right of the country's largest corporations to use their enormous economic power as they saw fit in the marketplace.
Baxter acknowledged that "there is a sense in which the Antitrust Divison is backing off" from policies, but said clear antitrust violations will be dealt with in the Reagan administration.
"The Antitrust Division will be very, very tough when it thinks it has a good case, and will not accept cosmetic solutions when it has a bad one," he said.
The actions also open a whole new era in the telecommunications industry, unleashing the world's largest company, AT&T, from earlier government restraints that barred it from offering computer services or any other non-telephone related services.
Further, Baxter acknowledged that keeping IBM intact sets up an intense fight between the two firms for the telecommunications market of the 1980s. In addition to computers, IBM, through a partnership, Satellite Business Systems, is already competing with AT&T for long-distance telephone dollars.
For consumers, however, the AT&T settlement may bring about sharply higher local telephone rates because local telephone companies claim that revenues from long-distance phone calls can no longer be used to subsidize local telephone service. The president of AT&T's New York Telephone Co. yesterday predicted that the settlement will hasten the need for large rate increases the company is seeking.
Under the terms of the complex agreement with AT&T, the government is dismissing without prejudice its 1974 suit that accused the Bell System of trying to keep competitors out of the long-distance and equipment market.
In turn, AT&T has agreed to drastically reorganize its operations within 18 months to spin off its 23 local operating telephone companies.
The remaining company, which would retain the corporate AT&T name, would include the most profitable aspects of the Bell System's business: its equipment subsidiary, Western Electric; its long-distance division, and its research arm, Bell Telephone Laboratories.
This reorganization is achieved by a modification to an agreement AT&T made with the government 26 years ago to end a similar antitrust suit. That agreement barred AT&T from offering any unregulated services.
Thus, by modifying the old agreement, the restructured AT&T will be able to enter the highly profitable computer and information industries, such as cable television and electronic newspapers, that it has eyed for more than a decade.
With the settlement, the case that has been in trial for nearly 10 months will come to an end. Both sides had been expected to complete their arguments by the end of this month and a judge's verdict was expected by July.
However, before agreeing to dismiss the case, U.S. District Court Judge Harold H. Greene indicated that he first wants to hold a hearing. Last fall, Greene refused AT&T's request to dismiss the suit, saying the government had shown that AT&T had violated federal antitrust law. Greene has scheduled a hearing for Tuesday. According to Baxter and the government's team of lawyers trying the case, the settlement follows closely what the Justice Department had been requesting in the case: a breakup of the local operating companies to bring about greater competition in the increasingly lucrative telecommunciations industry.
Throughout the trial, AT&T lawyers had argued that this "dismemberment" would hurt the nation's telephone network by raising prices to consumers and resulting in a deterioration of the phone system the nation depends on for defense communications and other emergency situations.
Yet, yesterday, AT&T Chairman Charles L. Brown called the settlement "the right course, although clearly not the solution that we sought . . . . It clears the way for a new order in the telecommunications industry and encourages competition."
Although Brown said that the divestiture plan "was not our choice," he said he was pleased that AT&T will be able to keep Western Electric and Bell Laboratories. Among Greene's options might have been forcing AT&T to spin off these two entities instead of the local operating companies, and in fact the company had reportedly been willing to spin off pieces of Western Electric during negotiations in the last days of the Carter administration.
The settlement means the focus of the 5-year-old congressional effort to reorganize AT&T will change. Just last fall, the Senate, by 90 to 4, passed legislation revamping AT&T in a less dramatic way than yesterday's settlement. Similarly, the Federal Communications Commission has ordered a restructuring of the company, allowing AT&T to enter new markets through a separate affiliate.
The settlement may supersede both actions, and the leadership of key committees in the House and the Senate expressed concern about its impact on telephone users.
Sen. Bob Packwood (R-Ore.), chairman of the Commerce Committee, predicted that "local telephone users are going to suffer." Packwood said that if the settlement does not maintain protections designed to keep local rates reasonable, he would attempt to pass new legislation to accomplish that objective.
Rep. Timothy E. Wirth (D-Colo.), chairman of the House telecommunications subcommittee, said his panel will hold hearings Feb. 2 on the settlement and a bill he has introduced to restructure AT&T.
"My commitment to passage of telecommunications reform legislation in this Congress has not changed," Wirth said.
But it is also likely that representatives of industries that will compete with AT&T will seek congressional actions to restrict the new company's activities, perhaps to bar it from the cable television and electronic news and advertising fields.
Even so, several AT&T competitors that have called for breaking up the Bell System praised the settlement. "This is what we've been after all along," said William McGowan, chairman of MCI Communications Corp.