Telecom Antitrust After Trinko“Waterloo or D-Day?”

NARUC Staff Subcomm. on Telecommunications

Winter Meeting 2004 — Washington, DC

Glenn B. ManishinKelley Drye & Warren LLP

<gmanishin@kelleydrye.com>

Cycles of Policy Conflict

Political and PolicyConflict

Pressure on LegacyRegulations

Pace of TechnicalChange

Business and Market Risks

The Old Rules Settled antitrust precedents sufficient to

embrace ILEC anticompetitive activities Regulation is not defense to antitrust

violation absent regulatory compulsion Monopolization (Sherman Act § 2)

Maintaining or extending monopoly power (even if lawfully acquired)

Anticompetitive or exclusionary conduct need not be otherwise unlawful

Attempted monopolization requires only “dangerous probability” of success

The Old Rules (con’t) Essential Facilities Doctrine

Interconnection refusal is exception to general rule of “no duty to deal” – Terminal Railroad

Applied in AT&T, MCI, etc. as basis for Bell System liability and divestiture

Predatory Pricing Below-cost pricing intended to drive out rivals Price “squeeze,” where wholesale price <

retail, is classic variant under Sherman 2

The Trinko Revolution Drawn from Goldwasser (7th Cir.) decision

on pseudo-immunity rationale 1996 Act violation is not necessarily

monopolization offense, and vice-versa, but “general” Sherman Act must give way to industry-specific regulation

Certiorari granted despite rejection of Goldwasser defense by majority of Circuits

Supreme Court declined opportunity to decide case on narrower ground of consumer class action standing

The “New” Rules 1996 Act “savings clause” does not

necessarily cover antitrust obligations “That Congress created these duties, however, does

not automatically lead to the conclusion that they can be enforced by means of an antitrust claim.”

Section 251 interconnection violations do not provide basis for monopolization offense

“The unbundled elements offered pursuant to § 251(c)(3) exist only in the bowels of Verizon; they are brought out on compulsion of the 1996 Act and offered not to consumers but to rivals, and at considerable expense and effort.”

The “New” Rules (con’t) Regulatory oversight can override

otherwise unlawful exclusionary conduct “Antitrust analysis must always be attuned to . . . the

existence of a regulatory structure designed to deter and remedy anticompetitive harm.”

Predatory pricing analysis (Matsushita) incorporated into broader monopolization law

“Aspen Skiing is at or near the outer boundary of § 2 liability. . . . The unilateral termination of a voluntary (and thus presumably profitable) course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end.”

Some Post-Trinko Lessons Antitrust scholars debating whether Trinko

represents broader retrenchment of general monopolization doctrines

Future telecom antitrust cases may turn on factual inquiry into effectiveness of regulatory oversight

Supreme Court’s refusal to endorse essential facilities doctrine places creates roadblocks to future monopolization cases against ILECs

Combined with USTA rejection of TRO “delegation” to PUCs, FCC should face increased pressure to adjust competitive analysis underlying interconnection rules

Other Recent Developments D.C. Circuit considering whether “voluntary”

FCC merger conditions mandating competition (SBC/Ameritech) are supplanted by later regulatory retrenchment

Federal courts looking skeptically at claims of horizontal collusion across local exchange markets.

“Given that each ILEC has reason to want to avoid dealing with CLECs and having to ‘subsidize’ their entry into the market, each ILEC would attempt to keep CLECs out, regardless of the actions of the other ILECs.” Twombly v. Bell Atlantic Corp. (S.D.N.Y. Oct. 2003).

Recent Developments (con’t) Even horizontal collusion used to coerce

group boycotts (2003 USTA Dinner) is less than persuasive to federal and state antitrust enforcement agencies

But “after the terms of the boycotters’ demands have been agreed upon, they must be communicated to its target. . . . That expressive component of the boycott is surely not unique. On the contrary, it is the hallmark of every effective boycott.” FTC v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990)

Where Do We Go From Here? Telecom history, e.g., MCI v. AT&T, is no longer

accurate predictor of judicial approach to asserted conflicts between regulation and antitrust

Extraordinary expense, complexity and duration of telecom antitrust cases provide few opportunities for constraining Trinko

Congress is divided over whether revisions to 1996 Act (Sen. Stevens) should include savings clause amendments

Doctrinal instability will increase if antitrust enforcers, regulatory agencies and private parties continue to temporize