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

Heading: The Triennial Review

Text: 10 When the decree was entered, the DOJ pledged to report to the court on the third anniversary of divestiture and every three years thereafter on the continuing need for the line of business restrictions. Since divestiture was not actually accomplished until 1984, the first such Triennial Review was held in 1987. The DOJ hired an independent consultant, Peter Huber, to conduct in-depth research on the telecommunications industry as a whole as well as on each of the relevant sub-markets. The Huber Report provided the factual basis for the DOJ's preliminary submission, filed with the district court in February 1987, in which it recommended the complete removal of the manufacturing, non-telecommunications, and information restrictions as well as the modification of the interexchange restriction. Quite clearly, the DOJ's position--which conceded the continued existence of the BOCs' local exchange monopoly--represented a significant change from its position when the decree was entered that mere monopoly power in local exchange services necessitated the restrictions. 11 After studying the comments of the parties and intervenors on its recommendations, the DOJ formally moved the court--apparently under section VIII(C) of the decree--for the removal of all the line of business restrictions, with the exception of the interexchange restriction. The DOJ was evidently persuaded to alter its position on interexchange services, and it instead asked the court to leave the restriction intact but to grant waivers as soon as local regulation in a given area is lifted. The Department believes that the BOCs' bottleneck monopolies persist primarily because of local regulation which, if removed, would allow potentially competitive access alternatives to be made available by new technology. The seven BOCs also filed motions under section VIII(C) of the decree asking for complete removal of all the line of business restrictions. 12 The district court held proceedings in which interested persons were invited to comment and respond to the report and the motions. With respect to the non-telecommunications and information services restrictions, all of the parties to the original decree--AT & T, the BOCs, and the DOJ--as well as the FCC agreed that the restrictions should be removed. 7 AT & T opposed any modification of the other restrictions, thus making those BOC motions undeniably contested. Not surprisingly, numerous existing participants in the markets that the BOCs sought to enter intervened and vigorously opposed each of the proposed modifications. And, as noted above, the DOJ opposed the complete removal of the interexchange restriction. 13 After discussing the standard for removal of restrictions under section VIII(C) of the decree, the district judge determined that the BOCs still possessed a bottleneck monopoly over local exchange service. See 673 F.Supp. at 536-40. The court then analyzed each line of business restriction to decide whether the BOCs had nevertheless met their burden under section VIII(C) to warrant removal. In reviewing the restriction concerning nontelecommunications businesses, the court noted that it had routinely reviewed and granted requests to waive this restriction since the decree became operational in 1984. Despite losing the safeguards that the waiver process afforded by virtue of the conditions imposed whenever a waiver was granted, 8 the district court removed the restriction entirely because potential competitors did not actively oppose the removal and because cross-subsidization is more difficult in enterprises unrelated to telecommunications. See 673 F.Supp. at 599. In addition, the court asserted that lifting the restriction would eliminate a significant burden on BOCs' business planning and free the court from unnecessary and detailed oversight of BOC decisions. See id. 14 The district judge left largely intact the decree's so-called core restrictions--those regarding interexchange services, manufacturing, and information services. The manufacturing and interexchange restrictions remained completely unchanged since the district court rejected arguments that circumstances had changed since the issuance of the decree so as to justify the BOCs' entrance into those markets under the standard imposed by section VIII(C). The district judge did grant partial relief to the BOCs on the information services provision but rejected the request of the DOJ and the BOCs to remove the restriction entirely for much the same reasons as he left the manufacturing and interexchange restrictions in place. The court asserted that information services are vulnerable even to slight manipulation and discrimination in access or transmission quality, thereby making it especially easy for the BOCs to use their bottleneck monopolies anticompetitively if they entered the market. See 673 F.Supp. at 566. Nevertheless, the information restriction was lifted insofar as it prevented the BOCs from providing transmission of information services generated by others. See 673 F.Supp. at 587-97. The district judge described the economic and social advantages of making information services more widely available and noted that the telephone system was perhaps the only means of accomplishing that goal, because it uniquely offers providers a means to reach large, dispersed audiences over reasonably priced, interactive facilities. 673 F.Supp. at 564. So long as the BOCs do not compete with the companies that generate the information services, the district judge reasoned, they would have an incentive to afford the widest, fastest, and highest quality access and transmission to all information providers, thereby maximizing their own revenues. This determination was further explained and substantially reaffirmed by the district judge following a separate proceeding held to work out the details of the information services restriction. See 714 F.Supp. at 1. All of these rulings have been appealed.