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Tunney Act Review

New weapon in disgruntled competitors' arsenal

The competitive local exchange carriers are always looking for another shot in the arm by peddling their familiar “pro-competitive” theory of antitrust that would require the government to pick winners and losers and would have a chilling effect on investment. Yesterday they renewed their effort to force Verizon and AT&T to divest all network fiber they acquired in last year’s mergers if it overlaps what they already had. 

Under the merger conditions approved by the Department of Justice, Verizon and AT&T will divest fiber only to office buildings that were left without a competitive alternative following the merger — if, judging by the distance and likely demand, it would be uneconomical for competitors to lay their own connections to those buildings. But CLEC attorney Gary Reback argued that Verizon and AT&T are sitting on a lot of redundant fiber couldn’t be sold and isn’t being used. Jonathan Lee added that if CLECs could buy it cheap (my words) the dark fiber would really help them offer more large enterprise customers a one-stop shop, particularly when the customer does business in multiple locations. None of those potential customers showed up yesterday in support of these arguments, let alone the notion that there isn’t enough competition. 

The Tunney Act requires that a federal court enter antitrust settlements. A court has virtually unlimited discretion in how it carries out the proceeding. Former Washington Post Managing Editor Steve Coll, who authored a book about the breakup of Ma Bell, wrote that the Tunney Act review of that settlement lasted more than seven months and was “laborious and contentious.” He also described it as “a field day for Washington communications lawyers.” It led to the continuing oversight of the Baby Bells by former Judge Harold Greene which created gridlock and blocked significant innovation.

Well, pursuant to the Tunney Act, U.S. District Court Judge Emmet Sullivan must now find that the mergers are in the public interest. The simple test — although you won’t find it in any statute — is: If competitors are unhappy, a merger must be pro-customer. If competitors are happy, it isn’t. Courts used to be able to pass on antitrust settlements without getting too involved. But in 2004, Congress altered the process the courts must follow. 

Then-Senate Judiciary Chairman Orrin Hatch (R-UT) explained the need for the changes in the following floor statement:

“This legislation also amends the Tunney Act to end what some have seen as courts simply “rubber-stamping” antitrust settlements reached with the Justice Department without providing meaningful review. As I have stated, while I agree with the principle behind this proposal, I had significant concerns with the specific language that was reported out of the Judiciary Committee. After several months of discussions, I am happy to say that the current language appears to have answered most, if not all, of the principal concerns that were raised regarding the amendments to the Tunney Act.”

Verizon attorney John Thorne pointed out this legislative history during his oral arguments before Judge Sullivan.

The amendments to the Tunney Act started out with language that, in all cases, could have been read to require, at a minimum, an evidentiary hearing and an opportunity for interested parties to intervene, whereas the final language left it all up the court’s discretion.

Here are excerpts from the original amendment, as reported out of committee:

“Before entering any consent judgment proposed by the United States under this section, the court mayshall independently determine that the entry of such judgment is in the public interest. 

….The Court shall not enter any consent judgment proposed by the United States under this section unless it finds that there is reasonable belief, based on substantial evidence and reasoned analysis, to support the United States’ conclusion that the consent judgment is in the public interest. In making its determination as to whether entry of the consent judgment is in the public interest, the Court shall not be limited to examining only the factors set forth in this subsection, but may consider any other factor relevant to the competitive impact of the judgment.”

Now compare that to the final amendment, as substituted on the floor:

“Before entering any consent judgment proposed by the United States under this section, the court may shall determine that the entry of such judgment is in the public interest.

….Nothing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.”

Judge Sullivan is looking for an efficient means of evaluating the public interest benefits of the merger, while the CLECs have every incentive to draw the process out in the hope that Verizon and AT&T will settle their concerns for the sake of expediency. If the courts start routinely conducting extensive inquiries, the additional process alone will make future mergers more costly because competitors will get another bite of the apple and the merger applicants will have less incentive to reach a settlement with the Department of Justice.

The best advice Judge Sullivan received yesterday came from Wilma Lewis, representing AT&T, who recommended “something between a ‘rubber stamp’ and de novo review.” A de novo review would place the court in the position of having to second-guess each one of the Department of Justice’s conclusions. The legislative history demonstrates that Congress rejected the idea of requiring courts to do this. However, the pre-existing language of the Tunney Act permits them to do it. If Judge Sullivan wanted to be the next Judge Greene, he could decide to do that.

Even if he does not, there is still the danger of a “Pandora’s Box” here if the court decides to require new evidence or permit new arguments on a limited basis. It would take active management and determination to contain the proceeding given the $take$ for the CLECs and other potential intervenors, not to mention Verizon and AT&T.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.