[Federal Register Volume 61, Number 223 (Monday, November 18, 1996)]
[Notices]
[Pages 58703-58710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29320]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. U S West, Inc. & Continental Cablevision, Inc.;
Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Section 16 (b) through (h), that a proposed
Final Judgment has been filed with the United States District Court for
the District of Columbia in United States of America v. U S West, Inc.
and Continental Cablevision, Inc., Civil Action 96-2529 (TPJ).
The Complaint in this case alleged that the proposed acquisition of
Continental Cablevision, Inc. by U S West, Inc. would tend to lessen
competition substantially in the sale of dedicated services in areas
within Denver, Colorado; Omaha, Nebraska; Phoenix, Arizona; and
Seattle, Washington in which Teleport Communications Group, Inc.
(``TCG'') provides such services, in violation of Section 7 of the
Clayton Act, 15 U.S.C. 18. Continental owns approximately 11% of TCG.
Under the terms of the proposed Final Judgment, US WEST must reduce its
share of TCG to no more than 10% by June 30, 1997. US WEST must divest
the remaining interest in TCG by December 31, 1998. The proposed Final
Judgment also prohibits US WEST from appointing members to or
participating in meetings of TCG's Board of Directors and contains
other provisions barring US WEST's access to confidential TCG
information pending completion of the divestitures.
Public comment is invited within the statutory 60-day comment
period. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to Donald J. Russell, Chief, Telecommunications Task Force, Antitrust
Division, Department of Justice, 555 4th Street, N.W., Room 8104,
Washington, D.C. 20001, (telephone: (202) 514-5621).
Constance K. Robinson,
Director of Operations, Antitrust Division.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. U S West, Inc. and
Continental Cablevision, Inc., Defendants. No. 96 2529; (Antitrust)
filed: November 5, 1996.
Judge Thomas Penfield Jackson
Stipulation
It is stipulated by and between the undersigned parties, by their
respective attorneys, that:
A. The parties to this Stipulation consent that a Final Judgment in
the form attached may be filed and entered by the Court, upon any
party's or the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. 16), without further notice to any party or other proceedings,
provided that plaintiff has not withdrawn its consent, which it may do
at any time before entry of the proposed Final Judgment by serving
notice on the defendants and by filing that notice with the Court.
B. The parties shall abide by and comply with the provisions of the
proposed Final Judgment pending entry of the Final Judgment, and shall,
from the date of the filing of this Stipulation, comply with all the
terms and provisions of the proposed Final Judgment as though the same
were in full force and effect as an order of the Court; provided,
however, that U S West's obligation to divest the TCG Interest shall
not arise until the Final Judgment is entered, except that the manner
and timing of any disposition of the TCG Interest by U S West before or
after the Final Judgment's entry shall be
[[Page 58704]]
done as provided in the proposed Final Judgment.
C. In the event plaintiff withdraws its consent, as provided in
paragraph (A) above, or if the proposed Final Judgment is not entered
pursuant to this Stipulation, this Stipulation shall be of no effect
whatever, and the making of this Stipulation shall be without prejudice
to any party in this or any other proceeding.
D. Defendants represent that the divestitures contemplated by the
proposed Final Judgment can and will be made and that defendants shall
raise no claims of hardship or difficulty as grounds for asking the
Court to modify any of the divestiture provisions in the Final
Judgment.
E. All parties agree that this agreement can be signed in multiple
counter-parts.
For the Plaintiff:
David Turetsky,
Deputy Assistant Attorney General.
Donald J. Russell,
Chief, Telecommunications Task Force.
Charles E. Biggio,
Senior Counsel.
Nancy M. Goodman,
Assistant Chief, Telecommunications Task Force.
Yvette Benguerel,
Attorney, Telecommunications Task Force.
Susanna Zwerling,
Attorney, Telecommunications Task Force.
Brent E. Marshall,
Attorney, Telecommunications Task Force.
U.S. Department of Justice, Antitrust Division, 555 4th Street,
N.W., Room 8104, Washington, DC 20001, (202) 514-5808.
Dated: ______________.
For the Defendants:
James Anderson,
Vice President & Treasurer, U S West, Inc.
Dated: ______________.
Robert J. Sachs,
Senior Vice President, Corporate & Legal Continental Cablevision, Inc.
Dated: ______________.
Final Judgment
Whereas, plaintiff, the United States of America, having filed its
Complaint herein on November 4, 1996, and plaintiff and defendants, by
their respective attorneys, having consented to the entry of this Final
Judgment without trial or adjudication of any issue of fact or law
herein, and without this Final Judgment constituting any evidence
against or an admission by any party with respect to any issue of law
or fact herein:
And whereas, defendants have agreed to be bound by the provisions
of this Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is prompt and
certain divestiture of certain assets and the imposition of related
injunctive relief to assure that competition is not substantially
lessened;
And whereas, plaintiff requires U S WEST, Inc. to make certain
divestitures for the purpose of remedying the lack of competition
alleged in the Complaint;
And whereas, defendants have represented to plaintiff that the
divestitures ordered herein can be made and that defendants will later
raise no claims of hardship or difficulty as grounds for asking the
Court to modify any of the divestiture provisions contained herein
below;
And, therefore, before the taking of any testimony, and without
trial or adjudication of any issue of fact or law herein, and upon
consent of the parties hereto, it is hereby ordered, adjudged, and
decreed as follows:
I. Jurisdiction
This Court has jurisdiction over each of the parties hereto and the
subject matter of this action. The Complaint states a claim upon which
relief may be granted against the defendants under Section 7 of the
Clayton Act, as amended (15 U.S.C. Sec. 18).
II. Definitions
A. ``U S WEST'' means defendant U S WEST, Inc., a Delaware
corporation with its headquarters in Englewood, Colorado and includes
its successors and assigns, its subsidiaries, and directors, officers,
managers, agents and employees acting for or on behalf of U S WEST.
B. ``U S WEST Communications'' means U S WEST Communications, Inc.,
a subsidiary of U S WEST, Inc., and its successors and assigns, its
subsidiaries and directors, officers, managers, agents and employees
acting for it or on its behalf.
C. ``Continental'' means defendant Continental Cablevision, Inc., a
Delaware corporation with its headquarters in Boston, Massachusetts,
and includes its successors and assigns, its subsidiaries, and
directors, officers, managers, agents and employees acting for or on
behalf of Continental.
D. ``TCG'' means Telephone Communications Group Inc., a Delaware
corporation with its headquarters in New York, New York.
E. ``TCG Interest'' means any and all of the TCG Common Stock owned
by Continental as of June 27, 1996, including any securities into which
such stock may subsequently be converted. ``TCG Common Stock'' means
TCG Class A Common Stock, with a par value of $.01/share, and TCG Class
B Common Stock, with a par value of $.01/share.
F. ``U S WEST/Continental Merger'' means the merger of Continental
into U S WEST, as contemplated by the U S WEST/Continental Merger
Agreement.
G. ``U S WEST/Continental Merger Agreement'' means the Agreement
and Plan of Merger dated as of February 27, 1996, as amended, with
respect to the merger of Continental into U S WEST.
H. ``U S WEST Communications Region'' means the collective area in
the states of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana,
Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah,
Washington and Wyoming in which U S WEST Communications is a local
exchange carrier.
III. Applicability
A. The provisions of this Final Judgment apply to each of the
defendants, its successors and assigns, its subsidiaries, directors,
officers, managers, agents, employees and all other persons in active
concert or participation with any of them who shall have received
actual notice of this Final Judgment by personal service or otherwise.
B. Defendants shall require, as a condition of the sale or other
disposition of all or substantially all the assets of the entity or
entities holding the TCG Interest at the time of such sale or
disposition, that the acquiring party or parties agree to be bound by
the provisions of this Final Judgment: provided, however, that this
obligation shall not apply in the case of the divestiture required by
Section IV or V hereinbelow.
IV. Divestiture of TCG Interest
A. U S WEST is hereby ordered and directed, in accordance with the
terms of this Final Judgment, on or before June 30, 1997, to divest a
portion of the TCG Interest sufficient to cause U S WEST to own less
than 10% of the outstanding shares of TCG Common Stock. U S WEST is
hereby further ordered and directed, in accordance with the terms of
this Final Judgment, on or before December 31, 1998, to divest any
remaining portion of the TCG Interest. Defendants agree to use their
best efforts to accomplish the divestitures as set forth in this Final
Judgment as expeditiously as possible.
B. Unless plaintiff otherwise consents in writing, the divestitures
made pursuant to Section IV or V of this Final Judgment, shall be made
(i) to a
[[Page 58705]]
purchaser or purchasers that, in the plaintiff's sole judgment, are
financially sound and have the intention of maintaining TCG as a viable
competitor and (ii) in a manner that, in plaintiff's sole judgment,
shall not injure TCG.
C. In accomplishing the divestitures ordered by this Final
Judgment, defendants promptly shall make known, by usual and customary
means, the availability of the TCG Interest. The defendants shall
inform any person making a bona fide inquiry regarding such a possible
purchase that the sale is being made pursuant to this Final Judgment
and provide such person with a copy of this Final Judgment: provided,
however, that the defendants are not obligated to provide such notice
to any purchaser(s) of TCG Common Stock in any proposed sale by U S
WEST or its broker if the identity of the ultimate purchaser(s) of the
shares is unknown to U S WEST at the time of such sale. Defendants
shall also offer to furnish all bona fide prospective purchasers in a
proposed private sale all current publicly-available information filed
with the Securities and Exchange Commission (``SEC'') regarding the TCG
Interest. Defendants shall make available such information to plaintiff
at the same time that such information is delivered by defendants to
any other person.
D. Defendants shall not finance any part of any divestiture
required by this Final Judgment without the prior written consent of
the Department of Justice.
V. Appointment of Trustee
A. In the event that U S WEST has not divested the TCG Interest
within the time periods specified in Section IV of this Final Judgment,
the Court shall appoint, on application of the plaintiff, a trustee
selected by the plaintiff to effect the divestiture of any remaining
portion of the TCG Interest not divested within the time periods set
forth in this Final Judgment.
B. After the trustee's appointment has become effective, only the
trustee shall have the right to sell the TCG Interest. The trustee
shall have the power and authority to accomplish the divestiture at the
best price then obtainable upon a reasonable effort by the trustee,
subject to the provisions of Sections V and VI of this Final Judgment,
and shall have other powers as the Court shall deem appropriate.
Subject to Section V.C. of this Final Judgment, the trustee shall have
the power and authority to hire at the cost and expense of defendants
any investment bankers, attorneys, or other agents reasonably necessary
in the judgment of the trustee to assist in the divestiture, and such
professionals or agents shall be solely accountable to the trustee. The
trustee shall have the power and authority to accomplish the
divestiture at the earliest possible time to a purchaser or in a manner
acceptable to plaintiff, and shall have such other powers as this Court
shall deem appropriate. Defendants shall not object to the sale of the
affected assets or interest by the trustee on any grounds other than
the trustee's malfeasance. Any such objection by defendants must be
conveyed in writing to plaintiff and the trustee no later than fifteen
(15) calendar days after the trustee has provided the notice required
under Section VI of this Final Judgment.
C. The trustee shall serve at the cost and expense of defendants,
on such terms and conditions as the Court may prescribe, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining monies shall be paid to defendants and the trustee's services
shall then be terminated. The compensation of such trustee and of any
professionals and agents retained by the trustee shall be reasonable in
light of the value of the divestiture and based on a fee arrangement
providing the trustee with an incentive based on the price and terms of
the divestiture and the speed with which it is accomplished.
D. Defendants shall take no action to interfere with or impede the
trustee's accomplishment of the divestiture of the affected assets or
interest and shall use their best efforts to assist the trustee in
accomplishing the required divestiture, including best efforts to
effect all necessary regulatory approvals. Subject to a customary
confidentiality agreement, the trustee shall have full and complete
access to the defendants' personnel, books, records, and facilities
related to the TCG Interest. Defendants shall permit prospective
purchasers of the TCG Interest to have access to any and all financial
or operational information in their possession as may be relevant to
the divestiture required by this Final Judgment.
E. After its appointment becomes effective, the trustee shall file
monthly reports with the parties and the Court setting forth the
trustee's efforts to accomplish divestiture of any of the TCG Interest
as contemplated under this Final Judgment; provided, however, that to
the extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. Such reports shall include the name, address, and telephone
number of each person who, during the preceding month, made an offer to
acquire, expressed an interest in acquiring, entered into negotiations
to acquire, or was contacted or made an inquiry about acquiring, any or
all of the TCG Interest and shall describe in detail each contact with
any such person during that period. The trustee shall maintain full
records of all efforts made to divest any or all of the TCG Interest.
F. Within six (6) months after its appointment has become
effective, if the trustee has not accomplished the divestiture required
by Section IV of this Final Judgment, the trustee shall promptly file
with the Court a report setting forth (1) the trustee's efforts to
accomplish the required divestiture, (2) the reasons, in the trustee's
judgment, why the required divestiture has not been accomplished, and
(3) the trustee's recommendations; provided, however, that to the
extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. The trustee shall at the same time furnish such reports to
the parties, who shall each have the right to be heard and to make
additional recommendations. The Court shall thereafter enter such
orders as it shall deem appropriate, which shall, if necessary, include
extending the term of the trustee's appointment.
VI. Notification
A. Within two (2) business days following execution of a definitive
agreement to effect, in whole or in part, any proposed divestiture by
private sale(s) pursuant to Sections IV or V of this Final Judgment,
or, in the event such divestitures are proposed to be made through
transactions in the public securities markets, (i) within two (2)
business days following defendants' request to convert any Class B
Common Stock to Class A Common Stock or (ii) prior to the filing of any
registration statement with the SEC for a proposed divestiture of such
shares, U S WEST or the trustee, whichever is then responsible for
effecting the divestiture, shall notify plaintiff of the proposed
divestiture or conversion, as the case may be. If the trustee is
responsible, it shall similarly notify defendants. The notice shall set
forth the details of the proposed transaction and list the name,
address, and telephone number of each person not previously identified
who theretofor offered to, or expressed an interest in or a desire to,
acquire any ownership interest in the assets that are
[[Page 58706]]
the subject of the binding contract or public offering, together with
full details of same. In the case of conversion, U S WEST or the
trustee shall include in such notice the then proposed manner in which
it intends to effect the divestiture of such converted shares.
B. Except in the case of any proposed sale of TCG Common Stock by U
S WEST or its broker wherein the identity of the ultimate purchaser(s)
of the shares is unknown to U S WEST at the time of such sale, within
fifteen (15) calendar days of receipt by plaintiff of such notice,
plaintiff may request from defendants, the proposed purchaser or
purchasers, any other third party, or the trustee if applicable,
additional information concerning the proposed divestiture and the
proposed purchaser or purchasers. Defendants and the trustee shall
furnish any additional information requested within fifteen (15)
calendar days of the receipt of the request, unless the parties shall
otherwise agree. Within thirty (30) calendar days after receipt of the
notice or within twenty (20) calendar days after plaintiff has been
provided the additional information requested from defendants, the
proposed purchaser or purchasers, any third party, and the trustee,
whichever is later, plaintiff shall provide written notice to
defendants and the trustee, if there is one, stating whether or not it
objects to the proposed divestiture. In the event of any proposed
public sale of TCG Common Stock by U S WEST or its broker wherein the
identity of the ultimate purchaser(s) of the shares is unknown to U S
WEST at the time of such sale, within three (3) days of receiving
notice of defendants' request to convert the TCG Class B shares to
Class A shares, plaintiff may request from defendants, any third party,
or the trustee if applicable, additional information concerning the
proposed divestiture(s). Defendants and the trustee shall furnish any
additional information requested within three (3) days of the receipt
of the request unless the parties otherwise agree. Within ten (10) days
of the receipt of the notice or within four (4) days after plaintiff
has been provided the additional information from defendants, any third
party, or the trustee, whichever is later, plaintiff shall provide
written notice to defendants and the trustee, if there is one, stating
whether or not it objects to the proposed plan of divestiture(s). If
plaintiff provides written notice to defendants and the trustee that it
does not object, then the divestiture may be consummated, subject only
to defendants' limited right to object to the sale under Section V.B.
of this Final Judgment. Absent written notice that plaintiff does not
object to the proposed purchaser or objection by plaintiff, a
divestiture proposed under Section IV or V shall not be consummated.
Upon objection by plaintiff, or by defendants under the proviso in
Section V.B., a divestiture proposed under Section IV or V shall not be
consummated unless approved by the Court.
VII. Affidavits
A. Within twenty (20) calendar days of the filing of this Final
Judgment and every thirty (30) calendar days thereafter until the
divestitures have been completed, whether pursuant to Section IV or V
of this Final Judgment, U S West shall deliver to plaintiff an
affidavit as to the fact and manner of defendant's compliance with the
relevant section(s) of this Final Judgment. Each such affidavit shall
include, inter alia, the name, address, and telephone number of each
person who, at any time after the period covered by the last such
report, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring any or all of the TCG Interest, and shall
describe in detail each contact with any such person during that
period.
B. Defendants shall preserve all records of all efforts made to
preserve and divest any or all of the TCG Interest until the
termination of this Final Judgment.
VIII. Confidentiality
Until the divestitures required by the Final Judgment have been
accomplished:
A. U S WEST shall treat the TCG Interest as a passive investment,
and shall hold the TCG Interest separate and apart from the activities
and interests of U S West Communications.
B. Defendants shall not elect, appoint, or otherwise designate any
directors to the TCG Board of Directors.
C. Defendants and any representative of defendants shall not
participate in, be present at (whether in person, by telecommunications
link, or otherwise), or receive any notes, minutes, or agendas of or
any documents distributed in connection with any non-public meeting of
the TCG Board of Directors or any committee thereof, or any other
governing body of TCG. For purposes of this provision, the term
``meeting'' includes any action taken by consent of the relevant
directors in lieu of a meeting.
D. Defendants shall not be a party to any communication of any non-
public strategic or confidential information concerning TCG or any of
its subsidiaries or affiliates; provided however, that nothing in this
Final Judgment shall preclude or restrict defendants from being a party
to communications relating to the negotiation or conduct of arms-length
business transactions between defendants and TCG or any of its
subsidiaries or affiliates, relating to 1) the provision of facilities
and services outside the U S WEST Communications Region and 2) the
provision of interconnection and related services between U S WEST
Communications and TCG or any of its subsidiaries or affiliates, within
the U S WEST Communications Region; provided further that outside
counsel and financial advisors retained by U S WEST or Continental in
conjunction with the divestiture of TCG Common Stock required by
section IV.A. hereinabove may receive such information as is necessary
to effectuate those transactions and provided further, that no such
information shall be shared with Continental or U S WEST.
E. Defendants shall appoint a person or persons who will be
responsible for defendants' compliance with section VII of this Final
Judgment.
IX. Compliance Inspection
Only for the purposes of determining or securing compliance with
the Final Judgment and subject to any legally recognized privilege,
from time to time:
A. Duly authorized representatives of the United States Department
of Justice, upon written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division, and on
reasonable notice to defendants made to their principal offices, shall
be permitted:
(1) Access during office hour of defendants to inspect and copy all
books, ledgers, accounts, correspondence, memoranda, and other records
and documents in the possession or under the control of defendants, who
may have counsel present, relating to enforcement of this Final
Judgment; and
(2) Subject to the reasonable convenience of defendants and without
restraint or interference from them, to interview officers, employees,
and agents of defendants, who may have counsel present, regarding any
such matters.
B. Upon the written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division, made to
defendants' principal offices, defendants shall submit such written
reports, under oath
[[Page 58707]]
if requested, with respect to enforcement of this Final Judgment.
C. No information or documents obtained by the means provided in
this Section IX shall be divulged by plaintiff to any person other than
a duly authorized representative of the Executive Branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), or for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by
defendants to plaintiff, defendants represent and identify in writing
the material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(7) of the Federal Rules of
Civil Procedure, and defendants mark each pertinent page of such
material, ``Subject to claim of protection under Rule 26(c)(7) of the
Federal Rules of Civil Procedure,'' then ten (10) calendar days notice
shall be given by plaintiff to defendants prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
X. Retention of Jurisdiction
Jurisdiction is retained by this Court for the purpose of enabling
any of the parties to this Final Judgment to apply to this Court at any
time for such further orders and directions as may be necessary or
appropriate for the construction or carrying out of this Final
Judgment, for the modification of any of the provisions hereof, for the
enforcement of compliance herewith, and for the punishment of any
violations hereof.
XI. Termination
Unless this Court grants an extension, this Final Judgment will
expire upon the tenth anniversary of the date of its entry.
XII. Public Interest
Entry of this Final Judgment is in the public interest.
Dated: ______________.
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United States District Judge.
Competitive Impact Statement
The United States pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), files
this Competitive Impact Statement relating to the proposed Final
Judgment submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
The plaintiff filed a civil antitrust complaint on November 4,
1996, alleging that the proposed acquisition of Continental
Cablevision, Inc. (``Continental'') by U S WEST, Inc. (``U S West'')
would violate Section 7 of the Clayton Act, 15 U.S.C. 18. U S WEST is
the dominant provider of local telecommunications services, including
dedicated services, within its telephone service area in the states of
Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New
Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and
Wyoming. Continental is the third largest cable system operator in the
United States. At the time the acquisition was announced, Continental
owned 20% of Teleport Communications Group, Inc. (``TCG''), a
competitive access provider (``CAP'') providing dedicated services in
various cities across the nation, including Denver, Omaha, Phoenix and
Seattle.
The complaint alleges that U S WEST's acquisition of Continental's
interest in TCG would substantially lessen competition in the sale of
dedicated services in the areas within Denver, Omaha, Phoenix and
Seattle in which TCG provides such services. The prayer for relief
seeks: (1) a judgment that the proposed acquisition would violate
Section 7 of the Clayton Act, 15 U.S.C. 18, and (2) a preliminary and
permanent injunction preventing U S WEST and Continental from carrying
out the proposed merger.
Shortly before this complaint was filed, a proposed settlement was
reached that requires defendants to divest Continental's interest in
TCG by December 31, 1998. Continental had previously reduced its share
in TCG from the 20% it owned when the acquisition was announced, to
approximately 11%. Continental also relinquished its seats on TCG's
Board of Directors. In light of these events, the Department concluded
that there was no competition-based reason to seek to prohibit U S
WEST's acquisition of Continental. A Stipulation and proposed Final
Judgment embodying the settlement were filed simultaneously with the
complaint.
The proposed Final Judgment orders U S WEST, on or before June 30,
1997, to divest a portion of the shares of TCG Common Stock it will
acquire from Continental sufficient to reduce U S WEST's interest to
less than 10% of the outstanding shares of TCG Common Stock. The
proposed Final Judgment further orders U S WEST to divest its remaining
shares of TCG Common Stock on or before December 31, 1998. If U S WEST
does not divest the TCG Common Stock during the divestiture period, the
Court may appoint a trustee to sell the stock. The proposed Final
Judgment also prohibits defendants from appointing any members to or
participating in meetings of the TCG Board of Directors and contains
other provisions designed to bar U S WEST's access to highly sensitive
TCG business information. Further, the proposed Final Judgment requires
U S WEST to treat the TCG interest as a passive investment, and to hold
the TCG interest separate and apart from the activities and interests
of U S WEST. Finally, the proposed Final Judgment requires U S WEST to
give the United States prior notice of any proposed divestiture,
whether pursuant to a public or private sale, to insure that the
divestiture is made to an appropriate purchaser or purchasers and in a
manner that will not harm TCG.
The United States and U S WEST have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment would terminate this action, except that
the Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Defendant U S WEST is a Delaware corporation with its headquarters
in Englewood, Colorado. U S WEST is one of the seven Regional Bell
Operating Companies (``RBOCs''). It is the dominant provider of local
telecommunications services, including ``dedicated services'' (defined
as special access and local private line services) within its telephone
service area in the states of Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South
Dakota, Utah, Washington and Wyoming. In 1995, U S WEST reported total
revenues of approximately $11.7 billion.
Continental is a Delaware corporation with its headquarters in
Boston, Massachusetts. Continental is the third largest cable system
operator in the nation. Continental owns cable systems located in and
around St. Paul, Minnesota, as well as Twin Falls, Idaho
[[Page 58708]]
and Keokuk, Iowa.\1\ Continental also has a partial interest in TCG. In
1995, Continental's total revenues were approximately $1.4 billion.
TCG's 1995 revenues totaled approximately $184.9 million.
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\1\ Continental also has a passive 34% interest in Insight
Communications Company, LP, which owns cable systems located in
Arizona and Utah.
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On February 27, 1996, U S WEST entered into an agreement to
purchase all of the stock and assets of Continental for approximately
$10.8 billion.\2\ At the time the acquisition was announced,
Continental owned 20% of TCG and held two seats on the TCG Board of
Directors. Therefore, Continental reduced its share of TCG to 11% and
relinquished its Board seats.
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\2\ The deal was subsequently amended and revalued at $11.8
billion.
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B. Sale of Dedicated Services
The complaint alleges that the provision of dedicated services in
areas within Denver, Omaha, Phoenix and Seattle in which TCG has
constructed facilities constitutes a line of commerce and section of
the country, or relevant market, for antitrust purposes. Dedicated
services include ``special access'' (the provision of dedicated lines
carrying traffic from the premises of high-volume end-users to the end-
user's long distance carrier, or between a given long distance
carrier's points-of-presence (``POPs'')); and ``local private line
services'' (dedicated lines connecting multiple locations of an end-
user within a given metropolitan area).
Initially, dedicated services were provided only by the RBOCs, GTE
and other local exchange carriers (``LECs''). The development of fiber
optics and digital electronic technology as well as changes in
regulation, has enabled new dedicated service providers to emerge. The
first of these new dedicated service providers were designated
``competitive access providers'' (``CAPs'') by the FCC, because they
provided the means for long distance carriers (such as AT&T, MCI and
Sprint) and high-volume end-users (such as large and medium-size
businesses) to bypass the monopoly LEC's facilities. The emergence of
CAPs has generally resulted in lower rates and/or higher quality
services in those areas in which CAPs have constructed their networks.
The complaint alleges that the provision of dedicated services are
a relevant product market. There are no other economically comparable
alternatives available to a dedicated services customer. A small, but
significant non-transitory increase in the price of dedicated services
would not cause enough customers to switch to other telecommunications
services to make the price increase unprofitable. The complaint alleges
the geographic markets are the areas within Denver, Omaha, Phoenix and
Seattle in which TCG provides dedicated services. Dedicated services
are local by definition. Consumers of dedicated services in a given
metropolitan area cannot turn to providers of dedicated services that
do not provide such services in that metropolitan area. Thus, consumers
of dedicated services would not turn to dedicated services providers
located outside of their area in response to a small, but significant
non-transitory price increase for dedicated services in the given
metropolitan area.
C. Anticompetitive Consequence of the Proposed Merger
The complaint alleges that U S WEST's proposed acquisition of
Continental (which would result in U S WEST's acquisition of
Continental's interest in TCG) would lessen competition substantially
in the provision of dedicated services in the areas of Denver, Omaha,
Phoenix and Settle in which TCG provides such services.
U S WEST is the dominant provider of dedicated services within the
relevant geographic markets. An acquisition by U S WEST of
Continental's interest in TCG in these markets would lessen competition
between U S WEST and TCG, leading to higher prices and/or reduced
quality. U S WEST's competitive strategy, including its pricing and
output decisions, will be influenced by its partial ownership of a
significant direct competitor. Because of its partial ownership of TCG,
losses of customers to TCG would not be as detrimental to U S WEST, and
it would have less incentive to lower prices or interest quality to
meet the emerging competition from CAPs in these areas.
Additionally, as a Class B voting shareholder of TCG, U S WEST is
entitled to receive advance and detailed notice of significant TCG
business transactions, including TCG's plans for proprietary
information strategically to raise the cost, increase the risk, and
reduce the profitability of entry and extension by TCG, thereby
limiting competitive entry and expansion that would serve to undermine
U S WEST's dominance of these markets.
There are no effective substitutes for dedicated services. A price
increase for dedicated services resulting from this acquisition would
not be defeated by consumers' switching to other telecommunication
services or providers of dedicated services located outside of the
relevant geographic areas. Moreover, entry into the relevant markets
sufficient to mitigate the competitive harm resulting from this
acquisition is unlikely within the next two years.
For these reasons, the Department concludes that the merger as
proposed would substantially lessen competition in the provision of
dedicated services in areas within Denver, Omaha, Phoenix and Settle in
which TCG provides dedicated services, and would result in increased
rates and/or reduced quality for dedicated services in these areas, in
violation of Section 7 of the Clayton Act.\3\
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\3\ TCG also competes directly with U S WEST in the provision of
local exchange services in those areas in which TCG has the
necessary facilities and in which it has been or has applied to
become certified as a local exchange carrier, e.g., Seattle. Because
the proposed Final Judgment order U S WEST to divest all of the
Common Stock of TCG it acquires from Continental, it remedies any
other competitive harm resulting from U S WEST's partial ownership
of TCG. Accordingly, it is unnecessary to determine whether the
acquisition would lessen competition in violation of Section 7 of
the Clayton Act in any other markets in which U S WEST competes with
TCG.
In addition, the Memorandum Opinion and Order (the ``Order''),
issued by the Federal Communications Commission (the ``FCC'') on
October 18, 1996, requires U S WEST to divest Continental's wholly-
owned cable systems located within U S WEST's telephone service area
by August 15, 1997, and to divest Continental's passive, minority
interest in the in-region systems owned by Insight Communications
Company, LP by April 1, 1998. On October 24, 1996, the FCC issued
another order clarifying that the wholly-owned systems which U S
WEST is obligated to divest by August 15, 1997, include ``nine cable
systems serving about 280,000 subscribers in and around St. Paul,
Minnesota,'' which systems Continental acquired from Meredith-New
Heritage Partnership after the U S WEST/Continental transaction was
first entered into. These divestitures are required by Section
652(a) of the Communications Act of 1934, as amended, which
prohibits any local exchange carrier from purchasing or otherwise
acquiring ``directly or indirectly more than a 10% financial
interest, or any management interest, in any cable operator
providing cable service within the ``local exchange carrier's
telephone service area.'' 47 U.S.C. Sec. 572(a). Section 652 was
enacted as part of the Telecommunications Act of 1996. The terms of
the FCC's Order regarding the divestiture of the in-region systems
obviates the need for the Department independently to determine
whether the U S WEST/Continental transaction would violate Section 7
of the Clayton Act. The divestiture of the in-region systems by a
date certain, pursuant to the Order, as amended, is substantially
similar to the divestiture relief the Department would seek in the
event the U S WEST/Continental transaction was deemed to violate the
Clayton Act, and thus will prevent any lessening of competition that
might have resulted from the transaction.
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II. Explanation of the Proposed Final Judgment
The proposed Final Judgment would preserve competition in the sale
of dedicated services in areas within Denver, Omaha, Phoenix and
Seattle in which TCG provides dedicated services. It requires U S WEST
to divest all of
[[Page 58709]]
Continental's interest in TCG, a direct competitor of U S WEST, in a
manner and over a period that will prevent short-term opportunities for
anticompetitive behavior while also minimizing any disruption to TCG.
The divestiture will help ensure that TCG will remain a strong
competitor to U S WEST and that rates for dedicated services in areas
within Denver, Omaha, Phoenix and Seattle in which TCG provides
dedicated services do not increase as a result of the acquisition.
The proposed Final Judgment orders U S WEST, on or before June 30,
1997, to divest enough shares of TCG Common Stock sufficient to cause U
S WEST to own less than 10% of the outstanding shares of TCG Common
Stock. The proposed Final Judgment further orders U S WEST to divest
any remaining shares of TCG Common Stock on or before December 31,
1998. If U S WEST does not divest the TCG Common Stock during the
divestiture periods, the Court may appoint a trustee to sell the stock.
If a trustee is appointed, the proposed Final Judgment provides that
the defendants will pay all costs and expenses of the trustee and any
professionals and agents retained by the trustee. The compensation paid
to the trustee and any persons retained by the trustee shall be both
reasonable in light of the value of the divestiture(s) and pursuant to
a fee arrangement providing the trustee with an incentive based on the
price and terms of the divestiture(s) and the speed with which it is
accomplished. After appointment, the trustee will file monthly reports
with the parties and the Court setting forth the trustee's efforts to
accomplish the divestiture(s) ordered under the proposed Final
Judgment. If the trustee has not accomplished the divestiture(s) within
six (6) months after its appointment, the trustee shall promptly file
with the Court a report setting forth (1) the trustee's efforts to
accomplish the required divestiture(s), (2) the reasons, in the
trustee's judgment, why the required divestiture(s) has not been
accomplished, and (3) the trustee's recommendations. At the same time,
the trustee will furnish such report to the parties, who will each have
the right to be heard and to make additional recommendations consistent
with the purpose of the trust.
The proposed Final Judgment requires U S WEST to treat the TCG
interest as a passive investment, and to hold the TCG interest separate
and apart from the activities and interests of U S WEST. The Judgment
also prohibits defendants from appointing any members to or
participating in meetings of the TCG Board of Directors and contains
other provisions designed to bar U S WEST's access to highly sensitive
TCG business information.
Finally, the proposed Final Judgment requires U S WEST to give the
United States prior notice of any proposed divestiture(s), whether
pursuant to a public or private sale, to insure that the divestiture(s)
is made to an appropriate purchaser or purchasers and in a manner that
will not harm TCG. If the plaintiff, in its sole judgment, objects to
any purchaser(s) and/or the manner in which the divestiture is being
carried out, the defendants shall not consummate the divestiture(s)
unless approved by the Court.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The plaintiff and the defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register. The United States will
evaluate and respond to the comments. All comments will be given due
consideration by the Department of Justice, which remains free to
withdraw its consent to the proposed Final Judgment at any time prior
to entry. The comments and the response of the United States will be
filed with the Court and published in the Federal Register.
Written comments should be submitted to: Donald J. Russell, Chief,
Telecommunications Task Force, Antitrust Division, United States
Department of Justice, 555 4th Street, N.W., Room 8104, Washington, DC
20001.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The plaintiff considered, as an alternative to the proposed Final
Judgment, a full trial on the merits of its complaint against
defendants. The plaintiff is satisfied, however, that the divestiture
of the TCG Common Stock and other relief contained in the proposed
Final Judgment will preserve viable competition in the provision of
dedicated services in areas within Denver, Omaha, Phoenix and Seattle
in which TCG provides dedicated services. Thus, the proposed Final
Judgment would achieve the relief the government would have obtained
through litigation, but avoids the time, expense and uncertainty of a
full trial on the merits of the complaint.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty (60) day
comment period, after which the court shall determine whether entry of
the proposed Final Judgment ``is in the public interest.'' In making
that determination, the court may consider--
(1) the competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) the impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of the
public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. Sec. 16(e) (emphasis added). As the United States Court of
Appeals for the D.C. Circuit recently held, this statute permits a
court to consider, among other things, the relationship between the
remedy secured and the
[[Page 58710]]
specific allegations set forth in the government's complaint, whether
the decree is sufficiently clear, whether enforcement mechanisms are
sufficient, and whether the decree may positively harm third parties.
See United States v. Microsoft, 56 F.3d 1448, 1461-62 (D.C. Cir. 1995).
In conducting this inquiry, ``[t]he Court is nowhere compelled to
go to trial or to engage in extended proceedings which might have the
effect of vitiating the benefits of prompt and less costly settlement
through the consent decree process.'' \4\ Rather,
\4\ 119 Cong. Rec. 24598 (1973). See United States v. Gillette
Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest''
determination can be made properly on the basis of the Competitive
Impact Statement and Response to Comments filed pursuant to the
APPA. Although the APPA authorizes the use of additional procedures,
15 U.S.C. Sec. 16(f), those procedures are discretionary. A court
need not invoke any of them unless it believes that the comments
have raised significant issues and that further proceedings would
aid the court in resolving those issues. See H.R. Rep. 93-1463, 93rd
Cong. 2d Sess. 8-9 (1974), reprinted in U.S.C.C.A.N. 6535, 6538.
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[a]bsent a showing of corrupt failure of the government to
discharge its duty, the Court, in making its public interest
finding, should * * * carefully consider the explanations of the
government in the competitive impact statement and its responses to
comments in order to determine whether those explanations are
reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. para.
61,508, at 71,980 (W.D. Mo. 1977).
Accordingly, with respect to the adequacy of the relief secured by
the decree, a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS, Inc.,
858 F.2d 456, 462 (9th Cir. 1988), citing United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th Cir.), cert. denied, 454 U.S. 1083
(1981); see also Microsoft, 56 F.3d at 1460-62. Precedent requires that
the balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.\5\
\5\ Bechtel, 648 F.2d at 666 (emphasis added); see BNS, 858 F.2d
at 463; United States v. National Broadcasting Co., 449 F. Supp.
1127, 1143 (C.D. Cal. 1978), Gillette, 406 F. Supp. at 716. See also
Microsoft, 56 F.3d at 1461 (whether ``the remedies [obtained in the
decree are] so inconsonant with the allegations charged as to fall
outside of the `reaches of the public interest' '').
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The proposed Final Judgment, therefore, should not be reviewed
under a standard of whether it is certain to eliminate every
anticompetitive effect of a particular practice or whether it mandates
certainty of free competition in the future. Court approval of a final
judgment requires a standard more flexible and less strict than the
standard required for a finding of liability. ``[A] proposed decree
must be approved even if it falls short of the remedy the court would
impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of public interest.' '' \6\
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\6\ United States v. American Tel. and Tel Co., 552 F. Supp.
131, 151 (D.D.C. 1982), aff'd sub nom., Maryland v. United States,
460 U.S. 1001 (1983), quoting Gillette Co., 406 F. Supp. at 716,
United States v. Alcan Aluminum, Ltd., 605 F. Supp. 619, 622 (W.D.
Ky. 1985).
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Respectfully submitted,
Donald J. Russell,
Chief, Telecommunications Task Force, U.S. Department of Justice,
Antitrust Division, 555 4th Street, NW., Room 8104, Washington, DC
20001, (202) 514-5621.
Dated: November 5, 1996.
[FR Doc. 96-29320 Filed 11-15-96; 8:45 am]
BILLING CODE 4410-01-M
