Mergers face new scrutiny

AT&T and Verizon will make arguments today in federal court that they hope will convince Judge Emmet G. Sullivan to approve what was once considered a routine consent decree as part of the AT&T-SBC and Verizon-MCI mergers.

Sullivan last Friday surprised many by raising concerns that the consent decrees negotiated by the U.S. Department of Justice with the two telecom giants may not go far enough to protect the public interest by preserving competition.

The DoJ had approved the two mergers based on agreements with both parties that some fiber optic facilities would be divested to ensure competition. The facilities in question involved instances in which either AT&T or MCI operated the only competitive fiber optic cables into a building in SBC or Verizon territory, respectively.

Sullivan has asked the parties involved, including the DoJ, to address whether he has the authority to challenge the settlements, in addition to raising his specific concerns. According to multiple sources familiar with the process, the real issues in this case may revolve around how much authority federal judges will wield over DoJ antitrust agreements. Sullivan is the first federal judge to review such an agreement since Congress voted in 2004 to give the federal judges greater review powers.

Although it isn’t clear whether the federal judge can retroactively change conditions of the two mergers, both of which closed months ago, Sullivan’s ruling could have an impact on how the DoJ looks at the proposed AT&T-BellSouth merger.

In a prepared statement, AT&T officials downplayed Sullivan’s actions.

“The judge has posed questions about issues that were raised and fully answered during the year-long review of the SBC-AT&T merger by 24 states, 14 nations, the FCC and the Department of Justice,” the statement read. “All concluded that the merger was in the public interest. We are confident that the Court will agree.”

Merger opponents are hoping, however, that Sullivan can trigger further action to protect competition in the mega-merger era. Comptel, the lobbying group for the competitive carrier industry, and the Consumers Union, issued a joint statement prior to today’s hearings.

“We applaud Judge Sullivan for recognizing the significant impact these mergers will have on the competitive communications market and consumers, and for providing Comptel with an opportunity to demonstrate to the Court why the consent decrees are a far cry from being in the public interest,” said Jonathan Lee, General Counsel for Comptel, in the prepared statement. “The prominent failure of antitrust law enforcement with regard to the simultaneous elimination of the two largest competitors to the Bell monopolies has paved the way for the communications industry to be controlled by just a handful of companies. In this instance, the DOJ has forsaken its responsibility to the American public and turned its back on the vital role competition plays in fostering technological innovation and protecting consumers from exploitation by the Bell monopolies.”