Source: http://www.justice.gov/atr/cases/f6300/6360.htm
Timestamp: 2014-09-01 08:24:22
Document Index: 289659554

Matched Legal Cases: ['§18', '§ 22', '§ 15', '§ 16', '§ 20', '§ 22']

Competitive Impace Statement : U.S. v. SBC Communications Inc. and BellSouth Corporation
v. SBC COMMUNICATIONS INC. and BELLSOUTH CORPORATION, Defendants.
| Civil No.: Filed:
The United States filed a civil antitrust Complaint on August 30, 2000, alleging that the
proposed joint venture between SBC Communications Inc. ("SBC") and BellSouth Corporation
("BellSouth") would violate Section 7 of the Clayton Act, 15 U.S.C. §18, by lessening
competition in the markets for wireless mobile telephone services in 11 metropolitan statistical
areas ("MSAs") and rural service areas ("RSAs") in California, Indiana and Louisiana. In
addition, this combination affects five additional MSAs and RSAs where competing cellular
mobile wireless telephone businesses are owned in whole or part by SBC and BellSouth. These
areas are identified in the Complaint as the "Overlapping Wireless Markets."
Shortly before the Complaint in this matter was filed, the United States and defendants
reached agreement on the terms of a proposed Final Judgment, which requires SBC and
BellSouth to divest one of the wireless telephone businesses in each of the Overlapping Wireless
Markets. In each of the Overlapping Wireless Markets, defendants can choose which wireless
defendants consenting to its entry were filed simultaneously with the Complaint. The United States and defendants have stipulated that the proposed Final Judgment may
be entered after compliance with the Antitrust Procedures and Penalties Act, 15 U.S.C. §
SBC and BellSouth are two of the remaining four Regional Bell Operating Companies
against American Telephone & Telegraph Co. SBC and BellSouth each provide local
and outside of their local exchange service regions. SBC, with headquarters in San Antonio, Texas, is one of the largest RBOCs in the United
States, with approximately 60 million total local telephone access lines. In 1999, SBC had
revenues in excess of $49 billion. SBC provides local telephone services to retail customers in
Arkansas, California, Connecticut, Illinois, Indiana, Kansas, Michigan, Missouri, Nevada, Ohio,
Oklahoma, Texas and Wisconsin. With the exception of Nevada, SBC also provides cellular
mobile telephone services or other wireless mobile telephone services in those states as well as in
some areas outside its local exchange service region, including the District of Columbia and
areas within the states of Delaware, Hawaii, Kentucky, Louisiana, Maryland, Massachusetts,
New Jersey, New York, Pennsylvania, Rhode Island, Virginia, and West Virginia. SBC is the
nation's third largest wireless mobile telephone service provider, with approximately 11.2
million subscribers nationwide. BellSouth, with headquarters in Atlanta, Georgia, is the third largest RBOC in the United
States, with approximately 24 million total local telephone access lines. In 1999, BellSouth had
revenues in excess of $25 billion. BellSouth provides local telephone service to retail customers
in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina
and Tennessee, and also provides cellular mobile telephone service in these states, as well as in
some states outside its local exchange service region, including Arkansas, California, Indiana,
Pennsylvania, Texas and Virginia. BellSouth is a major wireless mobile telephone service
provider, with approximately 5.6 million subscribers nationwide.
On April 4, 2000, SBC and BellSouth entered into a Contribution and Formation
Agreement under which the two companies agreed to combine their wireless
telecommunications service businesses into a business with approximate annual revenues of
$10.2 billion. If this transaction is consummated, the combined total of SBC's and BellSouth's
cellular and other wireless mobile telephone service subscribers will be 16.2 million.
distance landline carriers, and with the networks of other wireless carriers. In 1999, revenues
from the sale of wireless mobile telephone services totaled approximately $40 billion in the
Communications Commission ("FCC") beginning in the early 1980s, within any given MSA or
RSA.(1) Providers of Specialized Mobile Radio ("SMR")
services typically were also authorized
to operate with some additional spectrum in these areas, including the Overlapping Wireless
to that offered by cellular providers and bundled with dispatch services, in a number of areas
including some of the Overlapping Wireless Markets. While the areas for which PCS providers
are licensed (major trading areas ("MTAs") and basic trading areas ("BTAs")) differ somewhat
from the cellular MSAs and RSAs, they generally overlap with them. In many areas, including
most of the Overlapping Wireless Markets, not all of the PCS license holders have started to
offer services or even begun to construct the facilities necessary to begin offering service. The
PCS providers have tended to enter in the largest cities first, entering in smaller markets only
later and not on as wide a scale. Moreover, even in those areas where one or more PCS
providers have constructed their networks and have started to offer service, including the
Overlapping Wireless Markets, the incumbent cellular providers, such as SBC and BellSouth,
SBC and BellSouth, or firms in which they have an interest, are competing providers of
wireless mobile telephone services in 16 cellular license areas in three states. These areas are
referred to in the Complaint as follows:
In the Overlapping Wireless Markets, the population potentially addressable by wireless
telephone systems exceeds 20 million.
SBC and BellSouth are direct competitors in wireless mobile telephone services in the
Cellular Overlap Areas. The cellular businesses owned in whole or part by SBC and BellSouth
are the only two providers of cellular mobile telephone services, and the two primary providers
of all wireless mobile telephone services, in the Cellular Overlap Areas. In addition, SBC and
BellSouth are direct competitors in wireless mobile telephone services in the PCS/Cellular
Overlap Areas. In each of the Overlapping Wireless Markets, the wireless businesses owned in
whole or part by SBC and BellSouth compete to sell the best quality service at the lowest
possible rates and are among each other's most significant competitors. In each of the
PCS/Cellular Overlap Areas, the cellular business owned in whole or part by BellSouth and the
PCS business owned by SBC are two of a small number of providers of wireless mobile
telephone services. Therefore, the SBC/BellSouth joint venture would cause the level of concentration
among firms providing wireless mobile telephone services in each of the Overlapping Wireless
Markets to increase significantly. A high level of concentration in the provision of wireless
mobile telephone services already exists in each of the Overlapping Wireless Markets. In the
Cellular Overlap Areas, SBC and BellSouth individual market shares, measured on the basis of
the number of subscribers, ranges from 20 to 70%. The combined market share of SBC and
BellSouth in the provision of wireless mobile telephone services, measured by the number of
subscribers, is in the range of 65 to 95%, taking into account other operational wireless mobile
competitors. As measured by the Herfindahl-Hirschman Index ("HHI"), which is commonly
employed by the Department of Justice in merger analysis and is explained in more detail in
Appendix A to the Complaint, concentration in these markets is already in excess of 2600, well
above the 1800 threshold at which the Department normally considers a market to be highly
concentrated. After the contribution of the wireless businesses to the joint venture, the HHI in
these markets will be in excess of 4800.
In each of the PCS/Cellular Overlap Areas, the BellSouth's cellular business has one of
the two largest market shares in the provision of wireless mobile telephone services, and SBC is
one of a small number of new PCS entrants into these markets. In one of these markets, such as
the Los Angeles-San Diego MTA, SBC was the first new PCS entrant, is the third largest
wireless firm in terms of number of subscribers, and has managed to garner a significant share. Competition between SBC and BellSouth, created by SBC's entry into markets that were
than would otherwise have existed absent such competition. There is already a high level of
concentration in the provision of wireless mobile telephone services in the PCS/Cellular Overlap
Areas. In virtually all, the individual shares of the two cellular carriers--one of which is owned
in whole or part by BellSouth--are in the range of 30 to 50% and the HHI exceeds 2000. In the
PCS/Cellular Overlap Areas, the combined market share of SBC and the cellular business in
question is generally in the 45 to 65% range.
If BellSouth and SBC combine their wireless telecommunications service businesses, the
PCS/Cellular Overlap Areas will become significantly more concentrated, and the competition
between SBC and BellSouth in wireless mobile telephone services in these markets will be
eliminated. As a result of the loss in competition between the SBC and BellSouth wireless
mobile telephone services, there will be an increased likelihood both of unilateral actions by the
combined firm in these markets to increase prices, diminish the quality or quantity of service
provided, or refrain from making investments in network improvements, and of coordinated
interaction among the limited number of remaining competitors that could lead to similar
anticompetitive results. Therefore, the likely effect of the joint venture between SBC and
BellSouth is that prices would increase, and the quality or quantity of service together with
telephone services in the PCS/Cellular Overlap Areas.
It is unlikely that new entry in response to a small but significant price increase by the
combined company for wireless mobile telephone services in the Overlapping Wireless Markets
would be timely and sufficient to mitigate the competitive harm resulting from this joint venture,
if it were to be consummated.
For these reasons, the United States concluded that the joint venture as proposed may
substantially lessen competition, in violation of Section 7 of the Clayton Act,
in the provision of
wireless mobile telephone services in the Overlapping Wireless Markets.
Markets. This divestiture will eliminate the change in market structure caused by the joint
venture. The divestiture requirements of the proposed Final Judgment, as stated in Sections IV.A
and II.C, direct defendants to divest one of their wireless telephone businesses (to be selected by
Overlapping Wireless Markets," as Section II.C states. Section II.C also specifies in detail the
service for wireless calls. Section II.C enumerates in detail, without limitation, particular types
complete ownership and/or other rights to the Wireless System Assets. However, the joint
venture will retain a number of other wireless businesses in areas that do not overlap, and prior
to the joint venture each defendant may have had certain assets that were used substantially in
the operations of its overall wireless business and that must be retained to some extent to
continue the existing operations of the wireless businesses not being divested. Section II.C
permits special divestiture arrangements for such assets if they are not capable of being divided
between the divested and retained wireless businesses, or if the divesting defendant and the
purchaser agree not to divide them. For these assets, the divestiture requirement is satisfied if
the divesting defendant grants to the purchaser, at the election of the purchaser, an option to
obtain a non-exclusive, transferable license for a reasonable period to use the assets in the
operation of the wireless business being divested, so as to enable the purchaser to continue to
operate the divested wireless businesses without impairment.
The definition of Wireless System Assets in Section II.C contains special provisions
filed with the Court as expeditiously as possible following the filing of the Complaint, in any
event, prior to any divestiture and before the Court approves the proposed Final Judgment. Defendants must explain the necessary consents and how a consent would be obtained for each
asset. This proviso is not intended to afford defendants any opportunity to withhold intellectual
property rights over which they have any control, which could impair the ability of a purchaser
to use the divested wireless business to compete effectively. It relates only to intellectual
property assets that defendants have no power to transfer themselves, and defendants must do all
that is possible to transfer the entire business of the divested wireless businesses. To make this
clear, Section IV.H obligates defendants to cooperate with any purchaser as well as a trustee, if
any, to seek to obtain the necessary third-party consents, if any assets require such consents
before they may be transferred to a purchaser. Another proviso relates to certain specific trademarks, trade names and service marks. Section II.C, defining the Wireless System Assets to be divested, generally requires the
divestiture of trademarks, trade names and service marks, with the sixteen specified exceptions
which contain names under which defendants' retained wireless businesses, or their corporate
parents or affiliates, do business. Such trademarks, trade names and service marks, like other
assets, are either to be divested in their entirety, except for marks and names that must be
retained to continue the existing operations of defendants' remaining wireless properties and that
are not capable of being divided (or that the divesting defendant and purchaser agree not to
divide), which are to be made available to the purchaser through a non-exclusive, transferable
Wireless System Assets in the Overlapping Wireless Markets. First, Section II.C provides that if
defendants elect to divest SBC's interest in a PCS business in one of the PCS/Cellular Overlap
PCS/Cellular Overlap Area upon completion of the divestiture of the Wireless System Assets. In this instance, defendants will still be required to divest the entire PCS business, including 20
MHz of broadband PCS spectrum, to insure that the market structure does not change as a result
of the joint venture and that the divested business will be able to compete as effectively under
new ownership as under its current ownership.
about the Wireless System Assets in Section IV.E, and warranting that the Wireless System
Assets (except for the Wireless System Assets in the Los Angeles-San Diego MTA PCS/Cellular
Overlap) will be operational on the date of sale in Section IV.I. In addition, to ensure that a
purchaser will be able to operate the divested wireless businesses without impairment, Section
IV.G prohibits defendants from interfering with a purchaser's negotiations to retain any
employees who work or have worked with the Wireless System Assets since the date of the
announcement of the joint venture, or whose principal responsibility relates to the Wireless
In antitrust cases involving mergers or joint ventures in which the United States seeks a
divestiture remedy, it requires completion of the divestiture within the shortest time period
reasonable under the circumstances. The proposed Final Judgment in this case requires, in
Section IV.A, the divestitures of the Wireless System Assets in the Overlapping Wireless
Markets on a strict schedule, but provides defendants with some flexibility in recognition of the
special timing issues involved in a divestiture of this size and complexity. Under Section IV.A, defendants must divest the Wireless System Assets of one of the
two wireless businesses in the Cellular Overlap Areas and the Indianapolis MTA PCS/Cellular
Overlap Area on or before consummation of the transaction that gives rise to the overlap. The
divestitures of the Wireless System Assets for the Los Angeles-San Diego MTA PCS/Cellular
Overlap Area shall occur prior to or at the same time as consummation of the transaction that
gives rise to the overlap, or January 27, 2001, whichever is later. BellSouth's Wireless System
Assets in Los Angeles-San Diego MTA PCS/Cellular Overlap Area are held in partnership with
AT&T Wireless Services, Inc. Various provisions of Section IV and IX allow defendants
accomplish the objectives of the Final Judgment consistent with BellSouth's partnership
obligations. Section IV.A.2, which allows a longer time frame for defendants to complete the
divestiture in the Los Angeles-San Diego MTA PCS/Cellular Overlap Area, is one such
provision. Plaintiff may, in its sole discretion, extend this date for divestitures in the
PCS/Cellular Overlap Areas by up to two thirty-day periods. If one or more divestitures have
not been completed as of the date of the consummation of the transaction that gives rise to the
overlap, defendants will submit to plaintiff a definitive Divestiture List identifying the specific
Wireless System Assets in each of the Overlapping Wireless Markets that will be divested. The divestiture timing provisions of the proposed Final Judgment will ensure that the
contained in Section IX of the Final Judgment. In addition, the proposed Final Judgment requires in Section IV.B that, in carrying out
the divestitures, defendants comply with all of the applicable rules of the FCC, or any waiver of
such rules or other authorization granted by the FCC. These rules include 47 C.F.R. §
(spectrum aggregation) and 47 C.F.R. § 22.942 (cellular cross-ownership).(2) These FCC
conflict with the FCC's rules. Use of a Trustee Subsequent to Consummation of the Acquisition The proposed Final Judgment provides in Section IV.A that SBC and BellSouth must
divest the Wireless System Assets in each of the Overlapping Wireless Markets in accordance
with the schedule contained therein, either to purchasers acceptable to plaintiff in its sole
discretion, or to a trustee designated pursuant to Section V of the Final Judgment. As part of this
divestiture, SBC and BellSouth must relinquish any direct or indirect financial ownership
interests and any direct or indirect role in management or participation in control. Pursuant to
Section V of the proposed Final Judgment, the trustee will own and control the systems until
they are sold to a final purchaser, subject to safeguards to prevent SBC and BellSouth from
Wireless System Assets in each Overlapping Wireless Market to be divested; (2) the United
States to select a trustee and apply to the Court for appointment of a trustee; (3) defendants to
submit a form of Trust Agreement consistent with the terms of the Final Judgment, and which
form agreement must have received approval by the United States; and (4) defendants, after
receiving FCC approval for the license transfers, to divest irrevocably the unsold Wireless
System Assets to the trustee. The trustee will have the obligation and the sole responsibility, under Section V.B, for
the divestiture of any transferred Wireless System Assets. The trustee has the authority to
plaintiff may, in its sole discretion, require defendants to include in the Wireless System Assets
to be divested additional PCS spectrum it proposes to retain under Section II.C if it would
facilitate a prompt divestiture to an acceptable purchaser. This provision allows plaintiff, in its
discretion, to require defendants to divest additional PCS spectrum to insure that the trustee can
promptly locate and divest to a purchaser acceptable to plaintiff. Defendants are not entitled to
object to divestiture based on the adequacy of the price the trustee obtains or any other ground,
unless the trustee's conduct amounts to malfeasance. The terms of the trustee's compensation,
under Section V.D, will provide incentives based on the price and terms of the divestiture and
the speed with which it is accomplished. As provided by Sections V.B and V.D, defendants
will pay the compensation and expenses of the trustee, and of any investment bankers, attorneys
or other agents that the trustee finds reasonably necessary to assist in the divestiture and the
management of the Wireless System Assets.
of the Wireless System Assets to be divested following consummation of their joint venture, as
provided by Section V.I, other than the right to receive the proceeds of the sale, and certain
in Section V.E. Defendants are precluded under Section V.I from communicating with the
trustee, or seeking to influence the trustee, concerning the divestiture or the operation and
management of the wireless businesses transferred, apart from the limited communications
necessary to carry out the Final Judgment and to provide the trustee with the necessary resources
and cooperation to complete the divestitures. Defendants and the trustee are subject to an
absolute prohibition on exchanging any non-public or competitively sensitive marketing, sales or
pricing information relating to either of the wireless businesses in the Overlapping Wireless
Markets. These safeguards will protect against any competitive harm that could arise from
coordinated behavior or information sharing between the two wireless businesses during the
limited period while sale of the Wireless System Assets is not yet complete. They ensure that
the trusteeship arrangement is consistent with the FCC's rules.
Section V.G requires the trustee to divest the Wireless System Assets to a purchaser or
to a purchaser, Section V.G provides that if applications for transfer of a wireless license have
granted. Criteria for the United States' Approval of Purchasers Under the proposed Final Judgment, the United States has an important role in the
approval of purchasers for each of the divested wireless businesses, to ensure that the purchasers
chosen by defendants or the trustee are adequate from a competitive viewpoint. The United
States' approval or rejection of a purchaser is at its sole discretion, as Section IV.A specifies, but
the consent decree also embodies certain criteria that the United States will apply in making the
In the case of any divestiture, by defendants or the trustee, it is important to ensure that
defendants or the trustee.
Other Provisions of the Decree Section III specifies the persons to whom the Final Judgment is applicable, and provides
binding agreement with a purchaser. It enables the United States to obtain information to
evaluate the chosen purchaser as well as other prospective purchasers who expressed interest and
establishes a procedure for the United States to notify defendants and the trustee whether it
objects to a divestiture. The United States' notification of its lack of objection is necessary for a
divestiture to proceed. This section also provides for an objection by defendants to a sale by the
trustee under the limited situation of alleged malfeasance, but in that case it is possible for the
Court to approve a sale over defendants' objection.
the Wireless System Assets prior to consummating their joint venture, and their actions to
preserve the Wireless System Assets to be divested. Under V.F, the trustee also has monthly
reporting obligations concerning the efforts made to divest the Wireless System Assets.
Section VIII prohibits defendants from financing all or any part of a purchase made by
both defendants and both wireless businesses in any Overlapping Wireless Market, obliging
them to ensure that such wireless businesses continue to be operated as separate, independent,
ongoing, economically viable and active competitors to the other wireless mobile
telecommunications providers in the same area. Section IX.A requires separation of the
operations of the two wireless businesses and their books, records and competitively sensitive
information. The requirements of Section IX.A serve to ensure that defendants maintain their
two wireless businesses in the Overlapping Wireless Markets as fully separate competitors prior
to consummating their joint venture, notwithstanding their expectations that the joint venture
will take place, and reinforce the provisions of Section V.I concerning the separation of
defendants and the trustee after the joint venture is consummated but while there are still
Wireless System Assets awaiting sale. Section IX.B requires the defendant whose assets will be divested (or both, if it has not
IX.C reinforces the other provisions of the Hold Separate Order by requiring defendants to
appoint a specific manager for the Wireless System Assets, who will not participate in the
management of any of defendants' other businesses. Section IX.D obliges each defendant,
during the period while they still control Wireless System Assets, to appoint persons not
affiliated with the other defendant to oversee the Wireless System Assets to be divested and to
be responsible for compliance with the Final Judgment. In order to ensure compliance with the Final Judgment, Section X gives the United States
various rights, including inspection of defendants' records, the ability to conduct interviews and
and information the United States obtains using these powers is protected by specified
access to information. The Court retains jurisdiction under Section XII, and Section XIII provides that the
considerably shorter time, defendants are also precluded from reacquiring the divested spectrum
licenses and all other licenses, permits and authorizations within the term of the decree, pursuant
to Section XI.
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that any person who has
15 U.S.C. § 16(a), the proposed Final Judgment has no prima facie effect in
V. PROCEDURES AVAILABLE FOR MODIFICATION OF THE
The proposed Final Judgment provides, in Section XII, that the Court retains jurisdiction
and to punish any violations of its provisions. VI. ALTERNATIVES TO THE PROPOSED FINAL JUDGMENT
an injunction to block consummation of the joint venture and a full trial on the merits. The
United States is satisfied, however, that the divestiture of Wireless System Assets and other
relief contained in the proposed Final Judgment will preserve competition in the provision of
wireless mobile telephone services in the Overlapping Wireless Markets. This proposed Final
Judgment will also avoid the substantial costs and uncertainty of a full trial on the merits on the
violations alleged in the complaint. Therefore, the United States believes that there is no reason
under the antitrust laws to proceed with further litigation if the divestitures of the Wireless
System Assets are carried out in the manner required by the proposed Final Judgment. VII. STANDARD OF REVIEW UNDER THE APPA FOR PROPOSED
decree may positively harm third parties. See United States v. Microsoft, 56 F.3d
1448, 1461-62
costly settlement through the consent decree process."(3) Rather,
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. (CCH)
¶ 61,508, at 71,980
Corp., 648 F.2d 660, 666 (9th Cir.), cert. denied, 454 U.S. 1083 (1981));
see also Microsoft, 56
F.3d at 1460-62. Precedent requires that
effectiveness of antitrust enforcement by consent decree.(4) The proposed Final Judgment, therefore, should not be reviewed under a standard of
reaches of public interest.'" United States v. American Tel. & Tel Co., 552 F.
Supp. 131, 151
(D.D.C. 1982), aff'd sub nom., Maryland v. United States, 460 U.S. 1001 (1983)
Gillette Co., 406 F. Supp. at 716); United States v. Alcan
Aluminum, Ltd., 605 F. Supp. 619, 622
that case." Microsoft, 56 F.3d at 1459. Since "[t]he court's authority to review the
have but did not pursue. Id. VIII. DETERMINATIVE DOCUMENTS There are no determinative materials or documents within the meaning of the APPA that
were considered by the United States in formulating the proposed Final Judgment. Consequently, the United States has not attached any such materials to the proposed Final
Joel I. Klein Assistant Attorney General A. Douglas Melamed Principal Deputy Assistant Attorney General Constance K. Robinson Director of Operations and Merger Enforcement Donald J. Russell
Telecommunications Task Force __________________________________
Hillary B. Burchuk D.C. Bar # 366755 Lawrence M. Frankel D.C. Bar # 441532 Cynthia R. Lewis Trial Attorneys U. S. Department of Justice Antitrust Division Telecommunications Task Force 1401 H Street, N.W., Suite 8000 Washington, D.C. 20530 (202) 514-5621
1. 25 MHz of spectrum was allocated to each cellular system in an
MSA or RSA. MSAs
by the FCC used to define the license areas for rural cellular systems outside of MSAs. 2. The FCC's spectrum aggregation rules, in 47 C.F.R. § 20.6,
do not permit a licensee to
have an attributable interest in more than 45 MHz of spectrum licensed for cellular, PCS or SMR
with significant overlap in any geographic area. The FCC will attribute an interest if it is
of the licensee. The FCC's cellular cross-ownership rules, in 47 C.F.R. § 22.942, also
unless such interests pose "no substantial threat to competition." 3. 119 Cong. Rec. 24598 (1973). See
United States v. Gillette Co., 406 F. Supp. 713, 715
resolving those issues. See H.R. Rep. 93-1463, 93d Cong. 2d
Sess. 8-9 (1974), reprinted in
4. Bechtel, 648 F.2d at 666
(emphasis added); see BNS, 858 F.2d at 463; United States v.
National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D. Cal. 1978);
Gillette, 406 F. Supp. at
716. See also Microsoft, 56 F.3d at 1461 (whether "the remedies [obtained in the
decree are] so