Public Comments and Response on Proposed Final Judgment United States v. AT&T Corp. and Tele-communications, Inc.

[Federal Register Volume 64, Number 85 (Tuesday, May 4, 1999)]
[Notices]
[Pages 23869-23872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11075]


-----------------------------------------------------------------------

DEPARTMENT OF JUSTICE

Antitrust Division
[Civil No. 98CV03170]


Public Comments and Response on Proposed Final Judgment United 
States v. AT&T Corp. and Tele-communications, Inc.

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States of America hereby publishes below the 
comments received on the proposed Final Judgment in United States v. 
AT&T Corp. and Tele-communications, Inc. Civil Action No. 98CV03170, 
filed in the United States District Court for the District of Columbia, 
together with the United States' response to the comments.
    Copies of the comments and response are available for inspection in 
Room 8000 of the U.S. Department of Justice, Antitrust Division, 1401 H 
Street, N.W., Washington, D.C. 20530, telephone: (202) 514-5621, and at 
the office of the Clerk of the United States District Court for the 
District of Columbia, United States Courthouse, Third Street and 
Constitution Avenue, N.W., Washington, D.C. 20001. Copies of any of 
these materials may be obtained upon request and payment of a copying 
fee.
Constance K. Robinson,
Director of Operations, Antitrust Division.

Comment Relating to Proposed Final Judgment and Response of the 
United States to Comment

Judge Emmet G. Sullivan

    Pursuant to Section 2(b) of the Antitrust Procedures and Penalties 
Act (15 U.S.C. 16(b)-(h)) (``APPA''), the United States of America 
hereby files the public comment it has received relating to the 
proposed Final Judgment in this civil antitrust proceeding, and herein 
responds to the public comment. The United States has concluded that 
the change to the proposed Final Judgment that was suggested in the 
comment would be in the public interest. Accordingly, the United States 
has secured the consent of the defendants to modify the proposed Final 
Judgment in this respect. The APPA requires publication of the public 
comment and the United States' response. When that publication has been 
completed, the United States will file a Certificate of Compliance with 
the APPA and a Motion for Entry of the Modified Judgment with the 
court.

I. Background

    This action was commenced on December 30, 1998, when the United 
States filed a civil antitrust complaint under Section 15 of the 
Clayton Act, as amended, 15 U.S.C. Sec. 25, alleging that the merger of 
Tele-Communications, Inc. (``TCI'') with a wholly-owned subsidiary of 
AT&T Corp. (``AT&T'') and the resultant acquisition by AT&T of a 23.5 
percent equity interest in the mobile wireless telephone business of 
Sprint Corporation (``Sprint PCS'') would substantially lessen 
competition in the provision of mobile wireless telephone services in 
many geographic areas throughout the country.
    In June 1998, AT&T and TCI executed a Merger Agreement and Plan of 
Merger pursuant to which TCI would be merged into a wholly-owned 
subsidiary of AT&T. The proposed transaction would have resulted in the 
acquisition of a 23.5 percent interest in Sprint's mobile

[[Page 23870]]

wireless business, one of the principal competitors to AT&T's mobile 
wireless telephone business in many geographic areas throughout the 
country. The United States concluded that AT&T's incentives to compete 
with Sprint PCS could be lessened significantly as a result of the 
ownership of this substantial interest in Sprint PCS. Accordingly, on 
December 30, 1998, the United States filed a Complaint seeking to 
enjoin the merger. Contemporaneously with its Complaint, the United 
States also submitted a proposed Final Judgment, a Competitive Impact 
Statement, and a Stipulation signed by the defendants consenting to 
entry of the proposed Final Judgment by the Court after completion of 
the requirements of the Antitrust Procedures and Penalties Act (15 
U.S.C. 16).
    Among other things, the proposed Final Judgment requires the 
defendants to transfer the Sprint PCS stock to a trustee, who is 
required to divest the stock. See Section V.A., proposed Final 
Judgment. The proposed Final Judgment also contains a number of 
provisions to effect a ``hold separate'' arrangement until this 
divestiture has been completed. See CIS at 12-15. One of these 
provisions, set forth in Section VI.D. of the proposed Final Judgment, 
required that the trustee be instructed not to vote the Sprint PCS 
shares held by the trust.

II. Response to Public Comments

    The only comment received by the United States was filed by 
Sprint.\1\ Sprint's comment is focused on section VI.D. of the proposed 
Final Judgment. Sprint points out that some of its potential corporate 
transactions require the approval of a majority (or some other 
specified percentage) of all shares entitled to vote. For these 
matters, shares that fail to vote are the equivalent of shares voting 
against a proposal. Given the substantial portion of Sprint PCS shares 
that will be held by the trust, Sprint contends that its ability to 
obtain shareholder approval on such matters could be impeded by the 
non-voting requirement in section VI.D. of the proposed Final Judgment, 
and that Sprint's effectiveness as a competitor could be diminished by 
this constraint on its strategic flexibility. Comments of Sprint 
Corporation at 2.
---------------------------------------------------------------------------

    \1\ This comment is attached hereto as Exhibit A.
---------------------------------------------------------------------------

    The United States agrees that section VI.D. of the proposed Final 
judgment could have such an effect, and that the modification suggested 
by Sprint would be appropriate in order to address the concerns raised 
by Sprint. The United States' objective in negotiating the non-voting 
requirement in Section VI.D. was to protect competition by ensuring 
that the Sprint PCS shares would not be voted in a way that might 
reduce competition. In light of the information and analysis set forth 
in Sprint's comments, however, the United States has concluded that the 
underlying objective would be better served if section VI.D. is 
modified, to read as follows: ``The trustee shall be instructed to vote 
all of Liberty's Sprint Holdings that are entitled to vote for and/or 
against applicable matters in the same respective proportions as the 
other holders of the Sprint PCS Tracking Stock.'' This modification 
will fully neutralize the voting rights of the Liberty Sprint Holdings, 
yet avoids the unintended effects described by Sprint in its comment.
    The defendants and the United States have entered into a 
Stipulation, attached hereto, agreeing to the entry of a Final Judgment 
which incorporates this modification to section VI.D., but which is 
otherwise unchanged from the proposed Final Judgment filed on December 
30, 1998.

III. Standard of Review

    As set forth in Section VII of the Competitive Impact Statement, 
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.'' 15 U.S.C. 16(e). 
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. 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, 93d Cong. 2d Sess. 8-9 (1974), reprinted in U.S.C.C.A.N. 
6535, 6538. 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 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).
    Under this standard, the Court's role is limited to determining 
whether the proposed decree is within the ``zone of settlements'' 
consistent with the public interest, not whether the settlement 
diverges from the Court's view of what would best serve the public 
interest. United States v. Western Electric Co., 993 F.2d 1572, 1576 
(quoting United States v. Western Electric Co., 900 F.2d 283, 307 (D.C. 
Cir. 1990)); United States v. Microsoft Corp., 56 F.3d at 1457-58, see 
also 56 F.3d at 1460 (D.C. Cir. 1995). As the United States Court of 
Appeals for the District of Columbia Circuit recognized in reversing 
the district court's refusal to enter an antitrust consent decree 
proposed by the United States: ``Congress did not mean for a district 
judge to construct his own hypothetical case and then evaluate the 
decree against that case.'' United States v. Microsoft Corp., 56 F.3d 
at 1458-60. To the contrary, ``[t]he court's authority to review the 
decree depends entirely on the government's exercising its 
prosecutorial discretion by bringing a case in the first place,'' and 
so the district court ``is only authorized to review the decree 
itself,'' not other matters that the government might have but did not 
pursue. Id.
    Absent 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 . . . 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). The Court may reject the 
agreement of the parties as to how the public interest is best served 
only if it has ``exceptional confidence that adverse antitrust 
consequences will result. . . .'' United States v. Western Electric 
Co., 993 F.2d at 1577 (D.C. Cir.), cert. denied, 114 S. Ct. 487 (1993), 
quoted with approval in United States v. Microsoft Corp., 56 F.3d at 
1460.

IV. Conclusion

    For the reasons stated herein, the proposed Final Judgment, with 
section VI.D. of the proposed Final Judgment modified as indicated 
above with the consent of the Defendants, is consistent with the public 
interest.

    Dated: March 26, 1999.


[[Page 23871]]


        Respectfully submitted,
Peter A. Gray,
Attorney, Telecommunications Task Force, U.S. Department of Justice, 
Antitrust Division, 1401 H. Street, N.W., Suite 8000, Washington, D.C. 
20530, (202) 514-5636.

King & Spalding

1730 Pennsylvania Avenue, N.W., Washington, D.C. 20006-4706, 
Telephone: 202/737-0500, Facsimile: 202/626-3737

March 11, 1999.

By Hand Delivery

Mr. Donald J. Russell,
Chief, Telecommunications Task Force, Antitrust Division, U.S. 
Department of Justice, 1401 H Street, N.W., Suite 8000, Washington, 
D.C. 20530

Re: U.S. v. AT&T Corp. and Tele-Communications, Inc., Civil Action 
No. 98 CV 03170 (EGS (D.D.C.)

    Dear Mr. Russell: In accordance with the Antitrust Procedures 
and Penalties Act, 15 U.S.C. Sec. 16(b)-(h), Sprint Corporation 
submits the enclosed comments on the proposed consent decree in the 
above-entitled action.

        Sincerely,
Kevin R. Sullivan

Comments of Sprint Corporation

    Sprint Corporation (``Sprint''), pursuant to the Antitrust 
Procedures and Penalties Act, 15 U.S.C. 16(b)-(h) (the ``Tunney Act''), 
submits these comments on the Final Judgment proposed by the United 
States Department of Justice (the ``Department'') concerning the 
planned acquisition by AT&T Corporation (``AT&T'') of Tele-
Communications, Inc. (``TCI'').

Summary

    TCI owns about 22% of the outstanding shares of Sprint PCS Stock (a 
tracking stock which generally tracks Sprint's wireless operations). 
The proposed Final Judgment requires TCI to transfer its holdings in 
Sprint PCS Stock to a trustee for the purpose of accomplishing a 
complete divestiture of such holdings by May 23, 2004, See Final 
Judgment Secs. IV.A., V.A., 64 Fed. Reg. 2506, 2507-08 (January 14, 
1999). While the PCS Stock is held in the trust, the trustee is 
instructed by Sec. VI.D. of the proposed Final Judgment not to vote the 
stock 64 F.R. at 2509.
    Sprint believes that the non-voting provision of the proposed Final 
Judgment could have the anticompetitive effect of limiting Sprint's 
financial and operating flexibility. Certain Sprint corporate matters 
require the approval of a majority (or some other percentage) of all 
shares entitled to vote. For these matters, not voting has the same 
effect as a negative vote. Due to the large amount of Sprint PCS Stock 
the trust will hold, if the trustee does not vote the shares, it could 
be difficult for Sprint to obtain necessary shareholder votes. Many of 
the matters that could be affected involve important strategic options 
including the authorization of additional stock which could be needed 
to fund new products or technologies, the combination of PCS Group with 
the rest of Sprint, and the ``spin-off'' of the PCS Group. If Sprint's 
strategic flexibility is constrained, it could become a less effective 
competitor in the constantly-evolving telecommunications industry.
    In order to avoid these potential anticompetitive effects, the 
proposed Final Judgment needs to be modified to instruct the trustee to 
vote the Sprint PCS Stock pro rata in accordance with the votes of all 
other Sprint PCS shareholders. By ordering the trustee to vote its 
shares pro rata, the Final Judgment would neuter completely the voting 
power of the Sprint PCS Stock held by the trust without constraining 
Sprint.

I. The Non-Voting Provision in the Proposed Final Judgment Would 
Constrain Sprint's Operating and Financial Flexibility

A. Background

    Sprint's PCS Stock is a ``tracking stock'' which generally tracks 
the performance of Sprint's wireless PCS operations. Sprint's other 
tracking stock, the FON Common Stock, tracks the performance of 
Sprint's other operations, including local and long distance telephone 
service. On most matters, the FON Stock has one vote per share and the 
PCS Stock has a fluctuating vote based on the market price of the PCS 
stock relative to the FON Stock.
    TCI, through a subsidiary, owns approximately 98.5 million shares 
of low-vote Series 2 PCS Stock. TCI's shares are equal to approximately 
22% of the total shares and share equivalents of the Sprint PCS Stock 
(not including the warrants and preferred stock owned by TCI). On most 
matters, the Series 2 PCS Stock owned by TCI has one-tenth of the vote 
per share of Series 1 PCS Stock.\1\ However, on matters for which the 
PCS Stock votes as a class (as opposed to voting with the FON Stock), 
the Series 2 PCS Stock has the same voting power as the publicly-traded 
Series 1 PCS Stock.
---------------------------------------------------------------------------

    \1\ Upon sale by TCI to an unrelated party, the Series 2 PCS 
Stock now owned by TCI will convert to Series 1 PCS Stock with full 
voting power.
---------------------------------------------------------------------------

B. The Proposed Final Judgment

    Under the terms of the proposed Final Judgment, TCI must, prior to 
the closing of AT&T's acquisition of TCI, transfer the Sprint PCS Stock 
it currently owns to a trustee. Final Judgment Sec. IV.A., 64 FR at 
2507. Pursuant to Sec. V.A., the trustee must divest by May 23, 2002, 
the portion of TCI's holdings sufficient to bring the holding to no 
more than 10% of the outstanding Sprint PCS Stock and must completely 
divest the Sprint PCS Stock by May 23, 2004. 64 FR at 2508. Section 
VI.D. of the Final Judgment states that ``[t]he trustee shall be 
instructed not to vote [the Sprint PCS shares] for so long as they are 
held in trust.'' 64 FR at 2509.

C. The Potential Anticompetitive Effects

    The trustee's inability to vote the shares in the trust will 
adversely affect Sprint's ability to obtain the necessary shareholder 
vote in any matter that requires a majority (or some other percentage) 
of all shares entitled to vote. On these matters, if the trustee does 
not vote, the large block of PCS stock held by the trust will 
effectively vote no.\2\ Because many important corporate actions 
require a majority of all shares entitled to vote, Sprint's operating 
flexibility will be constrained significantly.
---------------------------------------------------------------------------

    \2\ The trustee's inability to vote will not affect Sprint's 
ability to obtain shareholder approval in matters where a percentage 
of the shares that actually do vote at a given meeting is required.
---------------------------------------------------------------------------

    The difficulties caused if TCI's PCS shares don't vote are most 
significant where the Series 2 PCS Stock that the trust will hold has a 
full vote per share. Spring will be exposed to significant 
anticompetitive harm if it is unable to obtain shareholder approval for 
this category of actions.
    For instance, in order for Sprint to increase the number of 
authorized shares of PCS Stock, Article Sixth, Section 3.1(ii) of its 
Charter requires that the PCS Stock vote as a class (with the Series 2 
PCS Stock, that the trust will hold, having a full vote per share). For 
more PCS shares to be authorized, the approval of a majority of all 
shares entitled to vote is needed. Assuming, hypothetically, that at 
the time of a vote Sprint has 450 million shares of PCS Stock that vote 
and the trust holds approximately 22% of the PCS Stock or 98.5 million 
shares of Series 2 PCS Stock, Sprint would need approval of 225,000,001 
shares. If out of the 351.5 million non-trust shares, only 275 million 
are voted on this issue due to shareholders failing to send in proxy 
cards and if the trustee does not vote its shares, Sprint would be 
required to

[[Page 23872]]

obtain affirmative votes from 81.8% of the shares that are voted 
(225,000,001 out of 275,000,000 votes), a difficult percentage to 
obtain in any public vote. If less than 225 million shares were voted, 
then Sprint's proposal would fail, even if a full 100% of the shares 
voted in favor.
    Any difficulty in authorizing more PCS Stock could have substantial 
anticompetitive effects:
    •  Sprint might need to have more shares of PCS Stock 
authorized in order to issue more shares to raise capital for the 
buildout of its PCS network, or to raise substantial capital for events 
that are not foreseeable today, such as improvements or changes to 
technology that are necessitated by competitive developments in the PCS 
business.
    •  Sprint might desire to complete certain pro-competitive 
acquisitions using PCS Stock as consideration, which could require the 
authorization of additional shares.
    Without the ability to fund the buildout of its network and other 
activities that become necessary in the future, and without the ability 
to acquire strategic business partners that may become critical to the 
survival of Sprint PCS, Sprint could be placed in a position of 
substantial competitive disadvantage.
    There are numerous other examples of important Sprint corporate 
actions that require a majority of all shares entitled to vote and 
entitle the Series 2 PCS Stock that the trust will hold to a full vote 
per share including:
    •  Amendment to the Charter that would alter or change the 
powers, preferences or special rights of the shares of the PCS Stock so 
as to affect them adversely;
    •  ``Spin off'' of the PCS Group within 2 years of November 
23, 1998; and
    •  Acquisition by the FON Group or another Group of more than 
33% of the assets of the PCS Group.
    For each of these actions, the trustee's inability to vote could 
constrain Sprint anticompetitively by preventing Sprint from 
structuring itself most effectively.
    If the trustee does not vote TCI's PCS shares, the financial and 
operating flexibility of Sprint will be constrained. To be competitive 
in telecommunications, a company needs the ability to change its 
capital structure in order to provide new technologies and compete in 
new markets. In the past year alone, each of AT&T, MCI, and Sprint has 
undergone substantial structural changes in an effort to be more 
competitive. Exactly what will be demanded in the next five years is 
unknown, but it is certain that technology will progress and companies 
will need to organize themselves properly to efficiently deliver these 
developing technologies to their customers.

II. To Avoid Anticompeititive Effects, the Final Judgment Must 
Order Pro Rata Voting by the Trustee

    In order to avoid the anticompetitive effects discussed above, the 
Final Judgment must require the trustee to vote the Sprint PCS Stock 
held in the trust pro rata in accordance with the proportion of the 
votes of the other Sprint PCS shareholders. Under this proposal, the 
trustee would exercise no discretion in voting the stock, but the views 
of the other Sprint PCS shareholders would not be frustrated in those 
situations requiring a majority of all shares entitled to vote.
    For all votes in which the PCS shares held by the trust are 
eligible to vote, the trustee should be instructed to vote the shares 
in the same proportion as the other shares of PCS Stock are voted. 
Specifically, the proportion voted in favor and the proportion voting 
against (or, where shareholders are not provided the opportunity to 
vote against, the proportion of votes not voted in favor) should be 
equal to these respective proportions in light of all votes cast by the 
other holders of Series 2 PCS Stock, the holders of Series 1 PCS Stock, 
the holders of Series 3 PCS Stock, and the PCS Stock votes that are 
attributed to the shares of Class A Common Stock held by France Telecom 
S.A. and Deutsche telekom AG.
    Because the Sprint PCS Stock held by TCI has low voting power in 
most situations, the Department concluded that any concerns that AT&T 
would influence or control Sprint's competitive behavior are minimal. 
See Competitive Impact Statement Sec. II.C n.8, 64 FR 2506, 2511. 
Nevertheless, according to the Competitive Impact Statement filed by 
the Department, the voting prohibition embodied in Sec. VI.D. is meant 
to further address the concern that AT&T might ``influence [] the 
competitive behavior of [Sprint] in ways that reduce competition.'' See 
Id. By ordering the trustee to vote the PCS Stock held by the trust pro 
rata, the Final Judgment will eliminate completely any influence or 
control AT&T or the trustee has over Sprint's competitive behavior and 
avoids the anticompetitive effect of constraining Sprint's strategic 
flexibility caused by the no vote approach.

    Dated: March 11, 1999.

        Respectfully submitted,

Sprint Corporation by its attorneys

Kevin R. Sullivan (D.C. Bar No. 411718),
Peter M. Todaro (D.C. Bar No. 455430),
King & Spalding, 1730 Pennsylvania Avenue, NW., Washington, DC 20006, 
(202) 737-0500.

Bruce N. Hawthorne,
Andrew M. Tebbe,
King & Spalding, 191 Peachtree Street, Atlanta, Georgia 30303, (404) 
572-4600.

[FR Doc. 99-11075 Filed 5-3-99; 8:45 am]
BILLING CODE 4410-11-M