July 12, 2006

US judge questions telecom deal settlements

By Peter Kaplan

WASHINGTON (Reuters) - A U.S. judge on Wednesday expressed
doubts about government settlements reached last year that
permitted SBC Communications to buy AT&T, and Verizon
Communications to acquire MCI Inc.

U.S. District Judge Emmet Sullivan said at a hearing that
he could hold further proceedings and call witnesses to make
sure that the antitrust settlements reached with the companies
went far enough to resolve concerns about competition.

"I have doubts about that," he said at the beginning of a
hearing. "So I need to have the parties address that."

Sullivan's reservations could be an obstacle to the deals
because federal law requires antitrust settlements to be
reviewed and endorsed by a judge before becoming final.

Those reviews traditionally have been perfunctory. However,
Congress modified the antitrust laws in 2004 giving judges more
leeway to examine settlements more closely.

Sullivan questioned a lawyer for the Justice Department
about exactly what the court's role should be in the review
process. The judge said he could call expert witnesses to
testify about how the settlements were reached and how
effective they would be.

"I have a great deal of discretion," the judge said.

A telecommunications analyst who attended the hearing said
he did not think the judge's review would pose a serious
problem for the deals.

"I haven't heard anything in there that makes me think
there's a substantial threat to the ongoing implementation of
the mergers," said Paul Glenchur, of the Stanford Washington
Research Group.

A lawyer for the Justice Department, Claude Scott, told
Sullivan that the department had painstakingly reviewed the
transactions. It spent eight months and 24,000 hours of staff
time while conducting 300 interviews to investigate any
possible competition concerns.

Scott said the government's consent decrees leave "a
vibrant market where there are a lot of competitors out there."

The Justice Department's antitrust division in October 2005
agreed to allow the two large deals to go forward on the
condition that they lease competitors' access to
telecommunications lines in more than 350 buildings located in
each of the companies' territories.

SBC renamed the company AT&T Inc. and is the largest U.S.
telephone company. Verizon is the second-largest
telecommunications company.

At the time the agreement was reached, the department went
through a standard procedure of filing a legal complaint in
court outlining the competitive problems with the deal and a
settlement deal to resolve them.

Sullivan agreed with lawyers for the department and the
phone companies on one key point: His review of the deals could
not go beyond the narrow building-access issues listed in the
department's original complaint.

But the judge rejected suggestions that he make a decision
without calling any witnesses or further scrutinizing the
evidence the department considered.

Glenchur said the case could be important to future mergers
because it could set a precedent about how much the courts will
be able to "second-guess" settlement agreements reached by U.S.
antitrust authorities.

The proceedings were expected to continue through the
afternoon, with Sullivan hearing arguments from customers and
competitors who have raised objections to the deals.