Here Came the Judge

By John Greenwald

The court orders changes in AT&T's antitrust settlement

For seven months, executives of American Telephone & Telegraph Co. (1981 revenues: $59.2 billion) have not dared pop open champagne bottles to celebrate the settlement of the Government's antitrust suit against the company. Reason: they have waited nervously for U.S. District Court Judge Harold Greene to end the case by signing a consent decree for the landmark agreement that AT&T and the Justice Department reached in January. Greene had won a reputation for pulling surprises in the eight-year-old case, and nothing could be set until he approved the deal. Last week the judge did it again, ruling that unless both sides accepted some major modifications in the agreement within 15 days, the largest antitrust case in American history would have to resume.

Since the January accord, the judge had pored over 8,000 pages of public comment and several thousand more pages of lawyers' briefs. He accepted the core of the historic agreement, under which AT&T would be free to venture into unregulated businesses like data processing and computers in return for spinning off its 22 local operating companies. But in his 178-page court order, he also insisted on a series of new safeguards for customers and competitors. The key provisions:

Yellow Pages. Local telephone companies will retain the lucrative publishing rights to the Yellow Pages directories, which brought in about $3 billion in revenues in 1981. Under the January agreement, that part of the Bell empire would have gone to the national company. Telephone Equipment. Local companies will also be allowed to market, but not make, telephone and other related equipment. Both were to have been done by the national company.

Electronic Publishing. AT&T will be barred from gathering and transmitting its own news, information and advertising over its telephone lines for at least seven years. That would keep the firm from dominating the emerging electronic publishing industry by controlling both the medium and the message. Debt Ratios. AT&T must make certain that the local companies get off to a good start as independents by keeping down their debt loads. At least 55% of the capitalization for the new companies must be in the form of equity; only 45% can be debt. An exception will be made for the ailing Pacific Telephone & Telegraph Co., whose borrowings could range up to 50% of its total capital.

Some of the other court-ordered changes could have a noticeable impact on the service consumers receive. If the local phone companies bill customers for AT&T's long-distance service, for example, they would have to inform them that the same service is available from other firms. The operating companies would also be required to offer AT&T rivals equal-quality access to the local phone system. That particularly appealed to a competitor like MCI Communications Corp. Said a jubilant MCI Chairman William McGowan: "To use our alternative long-distance service now, the customer must have a push-button phone and dial 22 digits. Those requirements should disappear and make competition more real."

Telecommunications experts quickly called the proposals a major victory for local telephone customers as well as for the operating firms, which would be allowed to sell everything from fire-protection systems to computer terminals through telephone stores. The income from those activities and from the Yellow Pages will help hold down local phone rates, which analysts had expected to increase by perhaps one-third under the original agreement. Said Paul Gioia, chairman of the New York State public service commission: "Greene is sticking up for the little guys in this battle of the titans."

Some of the loudest applause came from Representative Timothy Wirth of Colorado, who last month conceded temporary defeat in a battle to pass legislation that included many of the changes Greene has now demanded. Said Wirth: "I am pleased that Judge Greene shares the view that while the settlement will significantly enhance competition in the telecommunications industry, it also needed major changes."

Even Wall Street joined in the general enthusiasm for the order. Said Ernest Liu, a senior vice president at Goldman, Sachs & Co.: "Greene stopped short of full approval, but his acceptance of the general framework is the green light we've been waiting for." AT&T shares finished trading at 52 7/8 last week, up 2 1/8.

Most analysts believe that the company and the Justice Department will agree to swallow Greene's changes. One possible question mark is the attitude of William Baxter, chief antitrust prosecutor, who would strongly prefer to keep the regulated operating companies from competing in unregulated areas like equipment marketing.

AT&T Chairman Charles Brown said last week that the firm was "pleased" that Greene was satisfied with the basic settlement and predicted that the modifications would be accepted. Said he: "After all we have been through, to have the thing run aground at this late date would be very frustrating." The loss of the Yellow Pages will clearly hurt the main company, however, as will the possible surrender of the local telephone stores where phone equipment is sold. AT&T had been planning to use the shops as a marketing arm for American Bell, the subsidiary that was created in June to develop and sell computer services.

AT&T and the Justice Department have until next week to respond to Judge Greene's changes. If, as expected, both accept them, it will at last be time to break out the bubbly.

-- By John Greenwald.

Reported by Gisela Bolte/ Washington and Bruce van Voorst/ New York

With reporting by Gisela Bolte, BRUCE VAN VOORST

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