On November 30, Judge Sullivan held yet another hearing in his review of the mergers between SBC and AT&T and Verizon and MCI. The purpose of the hearing was to determine if the Court should hold an evidentiary hearing to examine the government’s witnesses or, if not, what the court’s next steps should. Although the first exchanges between the government’s lawyer, Mr. Claude Scott, and the court were fairly cordial and professional, Judge Sullivan took umbrage at Verizon’s suggestion that there was nothing the court could do to undo the completed parts of the merger, and Mr. Reback, representing ACTel, accused the government’s lawyers and economists of misrepresentation.

In the Government’s presentation, Mr. Claude Scott said that the Division had produced the most helpful evidence to the Court and reiterated the government’s position that the Court did not have the authority to look beyond the 700 buildings listed in the complaint as competitive problems. Although acknowledging that the 2004 amendments to the Tunney Act had changed what had been a discretionary review into a mandatory review, Mr. Scott noted that the amendments had not changed the fact that the Tunney Act focused upon the adequacy of the remedy to problem in the complaint, rather than the adequacy of the remedy to the overall effects of the merger. At times, the Court seemed in agreement with this limitation, as the Court noted that, just as a prosecutor may choose to charge an individual with none, some or all of the possible charges, so too the government may have chosen not to bring this case in the first place, and thus have totally avoided the review.

Although Ms. Lewis from AT&T emphasized the same points as the Government, Mr. Thorne from Verizon surprised the gallery when he emphasized to the judge that the merger was, in fact, closed as of January 2006. The judge then pointedly asked why we were here, if it was all a fait accompli. Mr. Thorne responded that they had gathered to discuss the validity of the remedy for the problems proposed in the complaint. Judge Sullivan responded by stating, “I will do the review and we’ll see if the merger ‘closes.’” Judge Sullivan also pondered aloud whether Congress should amend the Tunney Act to prevent parties from closing the transaction prior to the approval of the Judge.

The merger’s opponents used their time to attack the merits of the remedy and the integrity of the Antitrust Division. Although Mr. John Heinz from the Antitrust Bureau of the New York Attorney General’s office only stated that the Division had been led astray, Mr. Reback, from ACTel indicated that the government’s arguments were “beyond fraudulent” as the government had lied about “the facts, the law, and the economics.” On the facts, Mr. Reback argued that evidence the government had provided to the Court showed that CLECs were not a viable competitive option for most buildings, even when they had already wired certain floors of a building. On the law, Mr. Reback argued that the government had misdirected the Court’s focus to the restoring of the number of competitors within a building, rather than on whether the merger would affect prices. Finally, on the economics, Mr. Reback argued that the Government’s use of Bertrand competition was faulty, because Bertrand models were not as effective or plausible as others.

Finally, Mr. Christopher Wright, representing Sprint and former General Counsel of the FCC, argued that the Court should simply issue an opinion denying the remedy. Although Mr. Wright acknowledged that the government could respond by simply refusing to challenge any portion of the merger, Mr. Wright stated that the Antitrust Division’s lawyers would face heated questioning from Congressional committees if they attempted that. Mr. Wright dodged questions from the Court about whether he agreed with Mr. Reback’s arguments that the Antitrust Division’s lawyers and economists had been dishonest, and instead simply asked the Court just to do what Congress wanted.

Mr. Claude Scott, in his rebuttal for the government, vigorously defended the Division’s work and integrity, and noted that Mr. Reback had quoted passages of the evidence out of context and with numerous textual omissions in order to construct his points. Judge Sullivan agreed that Mr. Reback’s accusations were “startling” and that he would permit the Division, if it wished, to make a written reply to the accusations. Mr. Scott pointed out that Mr. Reback’s groups, far from being public interest organizations, were in fact primarily made up of competitors of the merging parties and that the vitality of the assets could be seen by the fact that the Division had 6 potential buyers lined up to purchase the assets. In addition, Mr. Scott pointed to specific evidence that the Division had explained its rationale in excruciating detail to John Heinz, who had claimed the that Division had never provided any rationale. Judge Sullivan concluded the hearing by stating that he was taking the issues under advisement.

The harsh tenor of Mr. Reback’s accusations may reflect a consensus that Judge Sullivan probably will issue a final order in the case, rather than order another hearing in which Mr. Reback could further complain. In fact, all of the parties and amici at least somewhat agreed that an evidentiary hearing would not add to the Court’s understanding, although Judge Sullivan mused that a hearing may give him the opportunity to judge the demeanor of the witnesses. Although Judge Sullivan at points seemed to be favoring a dismissal of the case, his ire at the closure of the merger prior to his approval may persuade him to force some other concessions from the government. Still, as one spectator in the gallery remarked upon leaving, “this is never going to end for them,” indicating that there may be future hearings. 

In the long run, the New York Attorney General’s joining of Mr. Reback in attacking the Division’s integrity and wisdom could hinder cooperation between the Antitrust Division and the Antitrust Bureau in the future, although Mr. Heinz did state that he felt only that the Division had been led astray. Finally, the strident tone of Mr. Reback’s attacks on the integrity of the process surprised many, including Judge Sullivan, and could indicate that Mr. Reback plans to appeal from a decision approving the consent decree.

Authored by:

Christopher Bowen

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