ATT & Antitrust
The history of antitrust law in the United States has been heavily affected by the AT&T Corporation. AT&T has been seemingly involved in one form of dispute or another with the U.S. Justice Department and other Government agencies regarding its business activities. Subsequent to the storied breakup of AT&T in the early 80’s, there has been little discussion regarding antitrust activity involving AT&T but with their recent announcement that they intend to takeover TMobile AT&T finds itself again in the center of antitrust controversy. How AT&T has responded to these antitrust charges will be reviewed herein.
AT & T. was, for many years, the dominant company in the United States telecommunication industry. Through its various subsidiaries (Western Electric, Bell Operating Companies, Bell Laboratories, and AT & T) AT & T. enjoyed many years when they faced few, if any, challenges to their domination. Through the years when they dominated the industry, AT & T. was forced to face anti-trust challenge in the courts, regulatory agencies, and the halls of the U.S. Congress and, for the most part, successfully withstood all challenges to its position in the market (United States v. American Tel. & Tel. Co., 1983). After many years of facing such battles, AT & T, recognizing that they might be forced to split into separate corporations by court order voluntarily split into independently owned and operated corporations known commonly as the “Baby Bells.”
The AT & T. split was the result of many years of negotiations. There had been considerable pressure on AT & T. As a result of complaints that the business was a monopoly and repeated concerns by the U.S. Government that the continued promotion of the AT & T. monopoly was causing artificially high telephone charges and was acting as a strain on the market place. The breakup of the massive AT & T corporation into the Baby Bells seemed to satisfy the consumer advocates and government lawyers who had argued for the breakup for many years and developments in the telecommunications’ industry such as the internet and cell phones caused a reshuffling of power (King, 2002). New companies were able to compete with AT & T. For long distance customers and these companies such as MCI and Sprint being able to effectively compete with AT & T. resulted in consumers and businesses paying long distance rates that were far less than they were prior to the AT & T. breakup (Madden, 2003). Offsetting the benefits of cheaper long distance rates, however, was the fact that the Baby Bells still controlled the local telephone service market and began charging local access fees that raised the overall cost of telephone service. To make matters worse, the seven Baby Bells created after the breakup of the AT & T. monopoly gradually began to merge until only four large telecommunication companies were formed: Verizon, SBC Communications, Qwest, and Bell South. The practical effect of this merger process is that the present state of the local telephone business is essentially the same as it was prior to the breakup of AT & T. In 1982.
On the outside looking in on the local phone business scenario was the old AT & T Corporation. Barred from competing in the local telephone market, AT & T, AT & T. began to enter the broadband cable industry. Through offering telephone service through coaxial cable AT & T. was able to run around the legislation which prohibited them from competing with the Baby Bells. In the process of building its coaxial cable business AT & T. began to aggressively purchase cable television companies such as TCI and MediaOne and large interests in companies such as Time Warner. These moves allowed AT & T. To again begin competing in the local telephone business which it desperately needed as the long distance business had shrunk considerably due to the proliferation of the Internet and cell phone business. AT&T’s success in the coaxial cable business became so phenomenal that within 20 years after the breakup AT & T. was again in position where critics were again clamoring for another breakup.
A recent development has brought the issue of AT & T’s influence and power in the telecommunication industry to the forefront once again (MCI Telecommunications v. American Telephone & Telegraph, 1994). Over the course of the past year, two giants in the industry, AT & T. And TMobile have been engaged in active negotiations to merge their two organizations. Unfortunately, for AT & T, its old nemesis, the U.S. Justice Department has stepped forward to actively stall such merger (Grunes, 2011). The Justice Department argues that such merger or takeover by AT&T would “substantially lessen competition” in the wireless industry and that such action should be blocked (United States v. AT&T INC., 2011). Like they had years earlier in antitrust actions against the original AT&T Corporation, the Justice Department has argued that allowing AT&T to take over TMobile would result in “higher prices, poorer quality services, fewer choices and fewer innovative products.” AT & T, on the other hand, and not unexpectedly, argued to the contrary (U.S. Department of Justice, 2011).
The company most affected by the AT&T takeover of TMobile was industry midget, Sprint. Sprint executives and attorneys argued vehemently that allowing such an action would undo the progress that had been made in the telecommunication industry since the breakup of AT&T in the early 1980’s.
The strength of the Justice Department’s argument is somewhat different than that offered during the original AT&T breakup. During the original breakup there was really no one who could compete with AT&T in the development of new technology. AT&T was the only real innovator in the industry. In today’s market place, however, the situation has changed considerably. Today, part of the Justice Department’s argument against AT&T’s takeover is that the company that they are attempting to take over is one of the major innovators in the market. The Justice Department argues that TMobile has been highly influential in the development of competition in the wireless communication market and that allowing the merger/takeover would serve to deprive consumers of the presence of TMobile in the market place.
Joining the Department of Justice in opposing the AT&T’s action is the Federal Communication Commission. The FCC’s argument is related to what is perceives as a violation of the antitrust laws. FCC chairperson, Julius Genachowski in voicing his agency’s opposition argues that competition is vital to innovation, investment, economic growth and job creation. The FCC views the AT&T/TMobile merger as being a bar to competition in the telecommunication industry and has vowed to actively fight against its occurring.
The AT & T. organization of the 70’s that dominated the telecommunications industry would have fought vicariously the attempts by the Justice Department and the FCC to block its proposed merger with TMobile. The fact that AT & T. is presently contemplating abandoning its plans for such merger indicates how AT&T’s influence has diminished over the past thirty years and how the U.S. Government has increased its efforts at enforcing antitrust law AT & T. And TMobile announced the proposed deal in March of 2011, and yet, nearly 7 months later the outcome of such proposal is still unknown and there are many indications that AT & T. is actually contemplating backing down from the pressures being applied by the Department of Justice and the FCC.
Antitrust debates have surrounded the AT&T Corporation for decades. Since its rise as a corporate giant following the end of the Second World War, AT&T has seemingly been in constant litigation and debate relative to whether or not its activities constituted a violation of antitrust laws. In this latest debate, AT & T’s actions in defending its position relative to the TMobile merger are uncharacteristically reserved when compared with AT&T’s prior involvement in similar disputes. In the end, the merger may occur but, regardless, it is quite clear that the new AT&T is a different organization that the one that opposed the U.S. Justice Department endlessly for decades. The AT&T organization prior to the breakup would have never been intimidated into inaction by threats of litigation or even actual litigation. It would have fought vigorously to defend its position. Today’s company has obviously adopted a more compromising approach that may or may not prove successful in the corporation attaining its goal. What is clear, however, is that the AT&T Corporation has lost some of its ability to control the industry and that this fact alone indicates how the legal environment surrounding antitrust laws has advanced since the 1970’s. In the 1970’s it took vicarious litigation by the Justice Department to eventually force AT&T to agree to a breakup while today the mere threat of litigation causes the same Corporation to withhold going forward with a proposed merger.
References
Grunes, A.P. (2011). Antitrust Review of the AT&T/TMobile Transaction. Federal Communications Law Journal, 1-35.
King, J.L. (2002). Ma Bell’s orphan: U.S. Cellular telephony, 1947-1996. Telecommunications Policy, 189-203.
Madden, G. (2003). World Telecommunications Markets: The International Handbook of Telecommunications Economics. Northhampton, MA: Edward Elgar Publishing.
U.S. Department of Justice. (2011, August 31). Justice Department Files Antitrust Lawsuit to Block AT&T’s Acquisition Of T-Mobile. Retrieved November 28, 2011, from U.S. Department of Justice: http://www.justice.gov/atr/public/press_releases/2011/274615.htm
Table of Cases
MCI Telecommunications v. American Telephone & Telegraph, 512 U.S. 218 (U.S. Supreme Court 1994).
United States v. American Tel. & Tel. Co., 714 F. 2d 178 (Court of Appeals for the Distict of Columbia Circuit 1983).
United States v. AT&T INC., 11-01560 (U.S. District Court for the District of Columbia 2011).
Antitrust
