Opinion ID: 539780
Heading Depth: 2
Heading Rank: 1

Heading: Interexchange Services

Text: 35 The BOCs, supported by the FCC but not the DOJ, argue that the interexchange restriction should be removed in spite of the conceded persistence of their local exchange monopoly--upon which interexchange carriers rely for access to ultimate consumers--because changed circumstances since the decree would prevent them from impeding competition if they were permitted to enter the market. The DOJ opposes the BOCs' petition. 36 The district court noted that the interexchange market is currently competitive. Even though AT & T still retains a lion's share of the market, there are hundreds of long-distance carriers in the United States, eight of them serving twenty-five or more states. See 673 F.Supp. at 550. This apparently undisputed fact leads the district court to the curious observation that the entry of the [BOCs] into that market is not necessary to give it vitality. Id. Section VIII(C) does not put the BOCs in the Catch-22 that the district judge seems to imply by that statement--that the restriction will not be lifted if the market to be entered is not competitive because the BOC will grab and wield market power nor will it be lifted if the market to be entered is highly competitive because the BOCs' presence is not necessary. If the market to be entered is sluggish or concentrated, that might be an argument in favor of allowing BOC entry, although it might also make it easier for a BOC to acquire market power. But if the BOC wants to enter a competitive market, that is a powerful reason to grant the section VIII(C) petition since there is less of a danger that the BOC will be able to seize and wield market power. 37 Nevertheless, we agree with the district court's conclusion regarding the changes in the interexchange market. The crux of the BOCs' argument is that equal access for all interexchange carriers has been achieved and cross-subsidization eliminated, thus closing off the primary way for the BOCs to acquire market power anticompetitively. This has allegedly come about primarily through FCC regulation that was made more effective by the fragmentation of the Bell System's local exchange monopoly into seven BOCs. As we indicated above, even though the mere existence of the seven BOCs is not a significant consideration under section VIII(C), the break-up is critically important insofar as the FCC has been able to adapt its regulations to the more manageable task of overseeing seven regional monopolies instead of one national, vertically-integrated one. See 552 F.Supp. at 187. On this point, we think the DOJ's assessment of the FCC's regulations is entitled to significant weight. According to the DOJ, those regulations, combined with the BOCs' own equal access plans have eliminated most of the anticompetitive advantages AT & T formerly enjoyed. At the time this case was before the district court, however, the DOJ asserted that the FCC's equal access rules are based on the assumption that the BOCs will not provide interexchange services. Thus the FCC has not yet developed rules that would apply the nondiscrimination and cost separation principles of the Computer III 16 and Joint Cost 17 proceedings to BOC provision of interexchange services. And until those regulations are adjusted to take account of BOC entry into the interexchange market--entry which would, of course, provide an incentive to deny equal access and to cross-subsidize if possible--the DOJ represents that equal access and proper cost allocation cannot be assured. 38 The DOJ also points out that violations of the equal access policy are extremely difficult to detect and remedy, see 846 F.2d at 1424-25, thereby underscoring the danger of allowing entry before the FCC's regulations are designed to deal with the problem. Finally, the DOJ warns that the BOCs will have an easier time acquiring market power in the interexchange market than in other markets because many of the firms that began providing interexchange services after the decree have not yet become stable in the highly capital-intensive field. Since the BOCs raise no serious opposition on appeal to any of these points made by the DOJ and since we have no other reason to doubt the DOJ's assessments, we affirm the district judge's conclusion that the BOCs failed to show that there was no substantial possibility that they could use their monopoly power to impede competition in the interexchange market. 18