Fight For The Future - Part 1 - Stuart Taylor, Jr.

THE BIG HEARING ROOM IN THE RAYBURN HOUSE OFfice Building was overflowing with top executives and lobbyists for some of America’s biggest companies and most influential industries. Nine made their pitches to the Judiciary Committee from the witness table. Another 150 or so were gauging members’ leanings, schmoozing, billing time- keeping abreast of an epic lobbying battle that will shape the future of telecommunications and electronic publishing in America.

The newspaper industry, American Telephone & Telegraph Company, and its rival MCI Communications Corporation were there in force, spearheading a broad but fractious coalition of groups ranging burglar alarm companies and telephone ratepayers to West Publishing Company and the cable ‘1W industry. They were united-for at least-in a desperate push to get Congress to protect them from seven regional Bell telephone companies.

These "Baby Bells" were barred, by the landmark 1982 consent decree that spun them off from AT&T, from markets in which they could use their local telephone monopolies to strangle competitors-electronic publishing, long distance services, and phone manufacturing.

Now that decree is unraveling in the courts. The Bells broke down the door to electronic publishing last October, despite a warning from Judge Harold Greene of the U.S. district court in Washington, D.C., that this would lead to disastrous monopolization. A Bell lawyer predicts that the courts may wipe out all the restrictions by 1995. So the newspapers and their allies bear the heavy burden of moving a bill through Congress-always a much harder task than blocking someone else’s bill-to get back some of the protection they are losing in court.

The carefully choreographed February 19 hearing was an opening gambit in a multisided, multimillion-dollar game with multibillion-dollar stakes- the most costly lobbying fight Washington has seen in years, generating late nights and large fees for hundreds of lawyers, consultants, and assorted propagandists, including some of the biggest names in the business.

This article is the first of two installments on how this game started in the Justice Department and the courts and is now beginning to unfold in Congress. It is a story about the messily intricate process by which national policy on issues of transcendent importance is being cobbled together by the three branches of government, with self-interested assistance from the legions who follow the bouncing balls between the Capitol and the federal courthouse a few blocks down the Hill. The cast of characters includes former Reagan Justice Department officials William Baxter, Edwin Meese 3d, and Douglas Ginsburg (now a judge), Judges Greene and Laurence Silberman, congressional leaders like Jack Brooks and John Dingell, lobbyists like Thomas Hale Boggs, Jr., and Richard Wiley, and scholarly heavyweights like Philip Areeda, Robert Bork, and Laurence Tribe.

The contest implicates two conflicting visions of the future. The Bells promise to accelerate us into a wonder world of affordable, easy-to-use new Bell services coming to all Americans through Bell wires (and, perhaps, through new Bell telephones with computer-like capabilities): online classified ads and shop-at-home services, sports scores, stock quotes, news summaries, horoscopes, and encyclopedias; doctors’ monitoring home-bound patients’ pulse rates or blood pressure by phone; voice-activated dialing and video readouts for the disabled; and video lectures by the nation’s best teachers and scientists, piped into classrooms coast to coast.

The anti-Bell forces’ say that we can have all this-much of it is available already, at a price-but that if the phone companies are free to generate the content of the electronic information sent through their wires, we will get much less in the long run, because monopolies start by squashing competition and end by stifling innovation and raising prices. Some envision an Orwellian nightmare of regulated phone companies gobbling up every source of news and information in the commu¨nity, from the local newspaper to the cable system.

Even mighty AT&T is worried that the courts’ move toward unchaining the Bells threatens a potential "disaster for the nation," in the words of its chairman, Robert Allen.

He was among the supplicants at the February 19 hearing, urging Congress to codify restraints on the Bells, and complaining about how the Justice Department had repudiated the arguments it had used to smash Ma Bell and was seeking to unleash her monopolis¨tic, ungrateful children.

"The Justice Department," Allen droned on unhappily, "has lost both its compass and …"He groped for a word from his prepared testimony.

"Its memory!" exclaimed Congressman Jack Brooks, the salty, cigar-smoking committee chairman. "Lost both its compass and its memory," Brooks enthused. "It’s a pretty good line."

An old-line Texas populist with a deep mistrust of monopoly power, Brooks closed the session by serving notice that the Bell System-"the most integrated and pervasive monopoly to develop on American soil"-would not be reborn as a seven-headed, mother-devouring, competition-squashing monster if he had anything to say about it.

Brooks has amassed considerable clout in 39 years in the House. But it is far from clear that he, and the American Newspaper Publishers Association, and their lobbying quarterback-Brooks’s friend Boggs-and AT&T, and MCI, and the Consumer Federation of America, and all their dozens of mutually suspicious allies can get Congress to stop the mighty Bells. Or even get Congress to slow them down.

HIGH STAKES

Neither Brooks nor his colleagues at the hearing had any illusions about the motivations of those seeking in the name of competition to bar the Bells from competing against them.

The newspapers in particular, which sought to stifle radio news in the 1930s, have now invoked antitrust and free speech principles to bar the Bells from electronic publishing-which is, after all, free speech-so as to protect their lucrative quasi-monopolies over local print news and advertising.

Free speech? John Dingell (D-Michigan), the powerful chairman of the House Energy and Commerce Committee, says that when publishers of’ "the most august of the daily news-papers" importune him to save them from the Bells, "they come in and tell me that it is a question of [the] bottom line to them."

At the Judiciary hearing, Representative Romano Mazzoli (D-Kentucky) looked toward a witness panel including AT&T’s Allen and Cathleen Black, the ANPA’s $600,000-plus-per-year president, and termed it "a battle between the rich and powerful and the rich and powerful.’"

So it is. But it’s much more than that. For what Congress does or does not do will have a vast impact not just on newspapers but on the American economy and the daily lives of us all.

With very little chance that the Bells’s victory will be reversed on appeal, the Bells are pressing to moot the debate by rolling out new information services as fast as they can. They are also pushing to get into long distance and manufacturing-a mortal threat to AT&T, MCI, and others.

While newspapers large and small have ample reason to worry-the regularly updated "electronic yellow pages" planned by the Bells could drain off so much in classified ad revenues that some papers will fold and others will have to decimate news staffs-a vast array of other businesses and consumer groups are also in¨volved, on both sides.

The ANPA, cast as the Bells’ leading adversary, badly wants legislation this year. The newspapers have opposed efforts by phone companies to get into electronic publishing for over a decade, and might love to bar them forever, or at least until the local phone monopolies give way to real competition. But they would settle for a lot less, at the expense, perhaps, of some of their coalition partners.

The publishers’ clout resides chiefly in their powers-large but inversely proportional to their ethics-to affect legislators’ reelection prospects. They also have a gaggle of outside lobbyists led by Boggs, of Patton, Boggs & Blow, a legendary congressional strategist and Democratic access-peddler, and Wiley, of Wiley, Rein & Fielding, a leading communications lawyer, Republican heavyweight, and former Federal Communications Commission chairman.

The Bells, with a combined $80billion in 1991 revenues and $82 billion in profits (more than Exxon Corporation, whose $6 billion was the largest profit of any U.S. company last year), are out-spending the newspapers on lobbying by several orders of magnitude-about twenty to one, in the (probably high) es¨timate of the ANP A’s Black.

Their assets include an enormous war chest for political action committee donations and advertising, which they use to reward legislators who please them and to finance bare-knuckled attacks on those who don’t; potent grass-roots support from their 500,000 employees (more than a thousand in just about every one of the 435 congressional districts), and from others; an army of well-connected former officials on the payroll; and a battalion of heavyweight lawyers like peripatetic constitutionalist Laurence Tribe of Harvard Law School, who wields against the newspapers the kinds of First Amendment arguments that they are so fond of quoting in other contexts. ("He certainly knows how to make a bundle of money," Boggs says, with apparent admiration.)

All the techniques of modern legislative advocacy are being exploited to the utmost: hundreds of visitations to members of Congress; highly orchestrated grass-roots organizing; telephone and letter-writing campaigns; radio and newspaper ads full of simplistic slogans, misleading hyperbole, futuristic promises, and appeals for the rhetorical high ground of "competitiveness," "choice," "diversity," and "privacy"; denunciations of opponents as liars; self-interested newspaper editorials; and millions in campaign contributions and entertainment expenses.

The Baby Bells and their allies claim that unchaining them will jump-start the still sluggish electronic information services market, bringing a cornucopia of futuristic services through phone lines to schools, hospitals, homes, and businesses, while creating jobs, girdling the nation with fiber optic cable, and advancing American competitiveness. They have convinced activists for the disabled that they will speed availability of voice-activated and video telephones and other services to improve the lives of the blind, the deaf, and the paralyzed. And they have already gone online with nifty new services such as "homework hotlines" in California, which students and parents can call to receive recorded assignments and leave messages for teachers. The Bells also argue that with their local exchange monopolies threatened by cream-skimming "bypass" carriers and wireless technology, they must grow into the electronic publishing and cable TV markets or they-and their network infrastructure, a critical national asset-will wither and die.

The newspapers, AT&T, and others in the anti-Bell coalition claim that letting regulated telephone monopolies move into adjacent markets will provide no otherwise unavailable services and will lead inexorably to strangulation of competitors who depend on the Bells’ local lines to reach customers. Indeed, says the coalition, a Bell victory would bring only wasteful cross-subsidization, gold-plating of the local networks, soaring phone rates, and the export of more manufacturing jobs.

When AT&T was broken up, MCI president Bert Roberts, Jr., told the Judiciary Committee, "monopoly pow¨er was simply passed along from Ma Bell to Baby Bell almost like a genetic trait."

AT&T’s stable of antitrust experts includes Harvard’s Philip Areeda and former judge Robert Bork, who have weighed in with papers concluding that Bell entry into long distance and manufacturing would harm competition and consumers (as well as AT&T)

The anti-Bell forces’ most persuasive expert witness is not on retainer: rather, it is Judge Greene, who has presided over the AT&T case and the consent decree for over a decade. While his domineering role as telecommunications czar has infuriated many in Congress, the FCC, and the administration, and his wings have been clipped by Silberman and others on the appeals court, he has one of the keener minds on the federal bench.

In an extraordinary opinion last July, Greene decided with great reluc¨tance that he could no longer bar the Bells from information services, because the U.S. Court of Appeals for the D.C. Circuit had given him marching orders to that effect in an April 1990 ruling reversing a prior Greene decision.

But Greene’s opinion also fired a shot across the appeals court’s bow, warning that "the most probable consequences" of letting the Bells into information services would be to wipe out competitors who depend on the Bells’ local lines to reach customers, leading to "the concentration of the sources of information of the American people in just a few dominant, collaborative conglomerates, with the captive local telephone monopolies as their base." He said this would damage’" the economic well-being of the American people."

A chilling prospect, and not just for newspapers. But is it really likely? FCC chairman Alfred Sikes and the Bush administration say no. "We especially need to avoid ‘policy gridlock’ by rearguing the historical events which precipitated the government’s AT&T antitrust suit," Sikes asserts. He claims that unchaining the Baby Bells to compete in information services and cable TV would help fuel "’ America’s economic resurgence.’"

As the conflicting testimony and economic analyses presented at the February 19 hearing showed, these questions are fiendishly complicated. Lots of smart people-judges, lawyers, economists, technicians, conservatives, and liberals, many of whom have spent their professional lives wrestling with these issues-are deeply split.

A PAGE OF HISTORY

The case that the Bells would use predatory conduct to monopolize information services is rooted in the history of the lawsuits by MCI and the Justice Department against the Bell System, leading to the settlement a decade ago, in which the world’ largest corporation agreed to break itself into eight pieces.

As Judge Greene has written, "For thirty years prior to 1984, the Congress, the courts, the Federal Communications Commission, and state regulators wrestled with the problem of what to do about the Bell System monopoly, its arrogance in dealing with competitors and consumers, and its power to shut out competition."’

"History had shown," the Judiciary Committee was told on February 19 by none other than AT&T chairman Allen, "that controversy, stagnation, and harm to consumers is inevitable if a single firm both owns bottleneck monopolies and participates in closely related competitive businesses that depend on use of those bottlenecks."’

Allen added that the decree that was shoved down AT&T’s throat by the Justice Department and Judge Greene in 1982 "has proven to be one of the most successful antitrust remedies in our nation’s history," producing enormous "reductions in prices, and increases in choices for our consumers."

After an 11-month trial in 1981 had left it clear that Judge Greene was going to hammer AT&T, the company settled the case with Reagan-appointed antitrust chief William Baxter, on January 8, 1982.

AT&T had to divest itself of the seven Baby Bells and their local exchange monopolies as of January 1984; it kept its long distance, manufacturing, and research arms.

The decree also barred the Bells from entering certain lines of business, in particular long distance service, telephone equipment manufacturing, and electronic information services- then an embryonic market that was analogous to long distance in its dependence on the local exchanges to reach customers.

Baxter insisted on these drastic remedies for a very particular reason, which applied to the Baby Bells just as it did to Ma Bell: Regulated monopolies should be "quarantined" from adjacent markets that could be competitive because otherwise they will be driven by the profit incentive to monopolize them.

Greene found that AT&T had done just that, monopolizing the potentially competitive long distance market by having its local exchanges discriminate in favor of its own long distance armgiving competitors like MCI more expensive or inferior connections to local lines, delaying interconnections, and the like.

The judge also found that Ma Bell had engaged in cross-subsidization by misallocating costs from its long distance and manufacturing businesses to its regulated local phone monopolies, and by buying equipment from its Western Electric arm at infla…

Even mighty AT&T is worried that the courts’ move toward unchaining the Bells threatens a potential "disaster for the nation," in the words of its chairman, Robert Allen.

"The Justice Department," Allen droned on unhappily, "has lost both its compass and …"He groped for a word from his prepared testimony.

"Its memory!" exclaimed Congressman Jack Brooks, the salty, cigar-smoking committee chairman. "Lost both its compass and its memory," Brooks enthused. "It’s a pretty good line."

HIGH STAKES

Neither Brooks nor his colleagues at the hearing had any illusions about the motivations of those seeking in the name of competition to bar the Bells from competing against them.

So it is. But it’s much more than that. For what Congress does or does not do will have a vast impact not just on newspapers but on the American economy and the daily lives of us all.

When AT&T was broken up, MCI president Bert Roberts, Jr., told the Judiciary Committee, "monopoly pow¨er was simply passed along from Ma Bell to Baby Bell almost like a genetic trait."

A PAGE OF HISTORY

After an 11-month trial in 1981 had left it clear that Judge Greene was going to hammer AT&T, the company settled the case with Reagan-appointed antitrust chief William Baxter, on January 8, 1982.

AT&T had to divest itself of the seven Baby Bells and their local exchange monopolies as of January 1984; it kept its long distance, manufacturing, and research arms.

This anticompetitive conduct served Ma Bell’s self-interest because it increased the local monopolies’ profits along with their costs-an anomaly of the regulatory regime, which raised local phone rates as high as necessary to absorb both the misallocated costs and the guaranteed profit margin. Meanwhile, by squashing potential long distance and manufacturing competitors and dominating those markets, the Bell System was able to raise prices and profits to full monopoly levels, which rate regulation prevented it from doing in the local phone markets.

The consequences included monopolistic prices, misallocation of resources, and the lack of innovation that was symbolized by the longevity of the old black, rotary-dial telephones.

According to Baxter, Greene, and other experts, the same results would follow if the Baby Bells were allowed into adjacent markets like information services.

The 1982 consent decree was premised on evidence that the line-of-business restrictions were necessary because the FCC and state regulators were incapable of preventing anticompetitive conduct by the local exchanges-as long as they remained monopolies-given the dynamic, complex, and subjective engineering and accounting judgments involved.

"The competitive problems inherent in the joint provision of regulated monopoly and competitive service are otherwise insoluble," the Justice Department said in a 1982 filing.

A RELIGIOUS CONVERSION?

That was in 1982. But by 1987 the department had completed one of the most remarkable-though largely un-remarked-upon-reversals in its history.

Since then it has urged the courts to junk the information service and manufacturing restrictions, while indicating only lukewarm commitment to the long distance restriction, and a newfound faith in the ability of the FCC’s regulators (who are busy deregulating) to prevent Bell abuses.

And by last October the information services restriction was gone, a casu¨alty of the department’s flip-flop and of what appears (at least in hindsight) to have been a costly blunder by AT&T.

What happened?

The department, in court filings and other public statements, has attributed its evolution to changing technology and market conditions, evidence of efficiencies and competitive benefits that could be achieved by Bell information services, the foisting by Judge Greene on the antitrust division of a regulatory role better left to the FCC, and improved FCC regulatory safeguards.

But all this seemed a bit pretextual to most lawyers close to the case, as well as to AT&T’s Allen, who bitterly de-nounced Justice at the February 19 hearing for "erratic and unpredictable behavior."

"I don’t know of any career lawyer who felt that anything had changed that hadn’t been foreseen or understood in 1982," says a lawyer familiar with the department’s inner discussions.

But much had changed at Justice, including the departure of the frostily cerebral, fiercely independent Baxter in late 1983, to return to Stanford Law School; the arrival of Ed Meese-a devotee of deregulation who had opposed the AT&T breakup and the restrictions on the Bells all along-as attorney general in 1985; and the conversion (or, some suspect, the ambition) of Douglas Ginsburg, a former Harvard law professor, who had joined the Reagan administration as a deputy to Baxter and headed the antitrust divi¨sion under Meese, and who now sits on the D.C. Circuit.

Baxter, a conservative antitrust scholar, thought that many of the cases he had inherited at Justice and much of the Supreme Court’s case law were economic nonsense. There was one conspicuous exception: He believed strongly, and had written, that AT&T should be broken up. If the people who chose Baxter for his job in 1981 had done their homework, Ma Bell might well be intact today.

The late William French Smith, the first Reagan attorney general, thought the AT&T suit was a mistake and should have been dismissed. So, apparently, did President Reagan. But Smith could not participate in the case, because he had for years been a director of AT&T’s Pacific Telephone. Nor could Smith’s deputy, Edward Schmults, whose law firm, New York’s White & Case, had had dealings with AT&T. So Baxter was in charge of the case at Justice.

Facing down many more senior administration officials, including Cabi¨net secretaries and then-White House counselor Meese, Baxter vowed in the spring of 1981 to "litigate it to the eye¨balls." He pushed through a settlement that horrified many Reaganites.

After Baxter left, and after the Bell System breakup was consummated in January 1984, Ginsburg and the antitrust division repeatedly reaffirmed their strong support for the decree’s line-of-business restrictions, in the face of attacks by the Bells, the FCC, the Commerce Department, and members of Congress, including John Dingell.

Ginsburg was one of "the biggest defenders" of the decree, a former subordinate recalls, through 1984 and into the fall of 1985, after Meese had become attorney general and put him in charge of the antitrust division. This attitude was evidenced by a September 19, 1985, Ginsburg letter to Dingell, responding to a Dingell letter to Meese questioning the need for the restrictions on the Bells.

Ginsburg wrote that the restrictions were still very much needed, giving the same reasons for which Baxter had insisted upon them. He said that "it would be extremely unwise to consider a modification in the current ban" on Bell information services, at least until there was reason to believe the Bells would not discriminate against other information services dependent on local networks. "Experience shows," Ginsburg said, that the Bells "will have a substantial incentive to distort competition, "both by such discrimination and by "cross-subsidizing competitive information services from their monopoly rate bases." Ginsburg rejected the notion that the restrictions "will deprive consumers of the ability to obtain" electronic information services.

Except for some nuances, recalls a lawyer involved in the consent decree case, the letter "was pure Baxterism."’ He and others had been worried that Meese might tell Ginsburg to abandon the decree. "When the Dingell letter went out from Doug, we all breathed asigh of relief," he recalls. "Doug was still on board."

Not for long. Within less than a month Ginsburg had arrived at a dramatically different point of view.

On October 16, 1985, he sent Meese a confidential memo outlining a strategy to "carefully develop the public record for our policy and cautiously (but steadily) pursue a course that re¨moves the decree’s restrictions as early as possible."

The career lawyers in the antitrust division did not learn of this memo until much later, when it was quoted in the 1988 report of independent counsel James McKay on his investigation into possible conflicts of interest and other wrongdoing by Meese.

It’s not clear what, if anything, Meese said to Ginsburg between September 19 and October 16, 1985, to set in motion "One of the most important decisions in the history" of the antitrust division, in the words of Charles Rule. He had become Baxter’s special assistant in 1982, as a 27-year-old whiz kid, and rose to become Ginsburg’s deputy and then his successor as antitrust chief. Meese says, "My recollection is that I didn’t give [the antitrust division] any direction on that.’"

What is clear, according to the McKay report, is that in early October, Meese received a letter and then a phone call (the first of several) lobby-trust chief Douglas Ginsburg (left) unchaiing against the line-of-business restric¨tions from his longtime friend and fel¨low Reagan lieutenant William Clark, who had joined the board of the Pacific Telesis Group, one of the Baby Bells, after leaving the administration. (So had Meese’s predecessor, William French Smith.) Meese also had several meetings with Baby Bell officials during 1985 and 1986.

By December 1985 Ginsburg had begun to "develop the public record" for the new policy by bypassing the department’s own pro-decree economists to hire Peter Huber, the brilliant law¨yer-engineer with a strong deregulatory bent, to do a sweeping study of the state of the telecommunications industry-which Justice was later to cite as a basis for gutting the decree’s restrictions.

As 1986 rolled by, antitrust division career lawyers were chagrined to learn that Ginsburg had become an advocate of relaxing the restrictions. One lawyer says that Ginsburg explained the change at a meeting with staffers by saying that the division was getting bogged down in regulating the Bells, a function better left to the FCC. There was no talk that this was a political decision except the theme that we were all part of the administration’s team," this lawyer recalls.

"Those of us in the trenches did a lot of anguishing about what was going on politically," the lawyer continues. "With Meese’s arrival the decree became politicized. Did Doug have a political conversion in terms of philoso¨phy or was it something that Meese needed to be done? I’ve always assumed that it had more to do with Meese. Meese had this dislike for the decree and the breakup, and as attorney general his views counted for something."

The lawyer adds, in a tone of resignation: "That’s the way the government should work." Bigshots make policy-not pipsqueak lawyers in the antitrust division.

Another lawyer close to the case saysm the Bells to please then-attorney generalof Ginsburg’s role: "I always thought, perhaps unfairly, that he had a kind of religious conversion-a vision of himself in black robes."

By mid-1986 Ginsburg and Rule had drafted, and Meese had approved, a bill to shift jurisdiction over the consent decree to the FCC, which had long clamored to unleash the Bells. The bill was introduced by Robert Dole (R-Kansas), then the Senate majority leader, but hit a wall of opposition from AT&T, the ANPA, and many others.

In February 1987 the Justice Department revealed the full extent of its flip-flop, using the occasion of a "tri¨ennial review’" of the decree scheduled by Judge Greene to submit a 210-page report arguing for dropping the infor¨mation service and manufacturing re¨strictions.

The report relied heavily on Peter Huber’s study. But a former Ginsburg subordinate says the recommendations for gutting the decree had been preordained by Ginsburg and Rule, and largely written, well before Huber submitted his report in November 1986. Ginsburg moved on that same month, to take the D.C. Circuit seat that Ed Meese had conferred on him. (Ginsburg’s ill-fated Supreme Court nomination came about a year later.)

The Justice Department’s bottom line was that any risks of anticompetitive activity by the Bells in information services and manufacturing could be controlled by FCC regulation.

"These assertions of regulatory ef¨ficacy are put forward with the zeal of the convert," wrote Philip Verveer, a former antitrust division lawyer who launched the AT&T case in 1974, in a 1989 telecommunications journal article. "What the antitrust division had believed for decades was impossible has suddenly become an article of faith." (Verveer, a partner in the D.C. office of New York’s Willkie Farr & Gallagher, represents the National Cable Television Association and other clients opposing the Bells.)

Judge Greene was infuriated by what he saw as Justice’s abandonment of the decree, as he has made clear in several decisions since 1987. He found in his opinion last July that the new Justice Department arguments on information services were precisely the opposite of its former views "on virtually every issue," and would have been greeted "with scorn and ridicule" by Justice had AT&T made them in 1982.

Ginsburg did not respond to a telephone inquiry left with his office.

But his friend Charles Rule, now a partner at Washington’s Covington & Burling, says Ginsburg "would not sell out his principles" just to get ahead.

Rule says that while he was not privy to any Ginsburg-Meese discussions, he himself had become concerned by early 1985 (with no real input from Meese) that the restrictions "were starting to do more harm than good," and "were shutting off some real efficiencies and really beneficial [information] services." He says he helped convert Ginsburg.

(A former Rule subordinate, however, recalls a memo from Rule to Meese after the latter became attorney general in February 1985, recommending that Justice continue supporting the restrictions. Rule’s own support seemed to soften perceptibly shortly thereafter, this lawyer says.)

Rule says that as devotees of Chicago School economic doctrines, he and (to a lesser extent) Ginsburg had always been skeptical of Baxter’s notion that the Baby Bells must be "quarantined" from competitive markets-"the notion that one can protect competition by saying one group cannot compete at all," he says.

In addition, Rule asserts, Judge Greene had "screwed up" the purity of Baxter’s idea of quarantining the Bells, by modifying the settlement negotiated by the parties to allow unprincipled exceptions, which encouraged the Bells to submit waves of requests for more.

This led Greene and the department ever deeper into a quagmire of definitional gray areas and technical judgments. "We were turning into a bunch of regulators," Rule recalls, usurping the role of the FCC. And Greene’s opinions increasingly evinced "the sense that he was going to run this industry, and he knew what was best, and [the Bells] were bad guys, and he wasn’t going to let them into these other businesses."

Baxter agrees that Greene created problems "by failing to carry [the decree] out in a principled and across-the-board and presumptively permanent manner," and by "appointing himself czar of the telecommunications industry… and sort of drafting the antitrust division to be his staff."

Greene has earlier rejected charges that he made himself czar, stressing that the case came to him, and that he has done what his interpretation of the law (not Baxter’s) required. (Greene could not be reached for comment.)

But Baxter says that "I’ve always felt that some of it was political with Mr. Meese." He says that Rule was "a good young assistant, but a good deal purer than I on the proposition that regulation was never needed, and that, of course, appealed to Mr. Meese."

The department’s change in position was "unfortunate," in Baxter’s view-especially because "prospectively, information services could reasonably be expected to represent a very large share of the GNP.

"The major concern," adds Baxter, "is that what you’re going to find ten years down the road is that most of such information services as there are will be a phone company monopoly."

THE DECREE UNRAVELS

In 1987, with the Justice Department asking Judge Greene to lift two of the consent decree’s line-of-business restrictions, and the Bells attacking all three, AT&T made a strategic decision that helped start the very unraveling of the decree-the process about which AT&T is now so alarmed.

AT&T strenuously opposed the bid by its offspring to compete (against it) in long distance and manufacturing. But the company raised no objection to Bell entry into information services.

This exercise in studied neutrality followed energetic lobbying of high-level AT&T officials by the Bells and their opponents, including the ANPA.

The Bells had more leverage: They were among the biggest buyers of AT&T’s telecommunications equipment, and they could (and, some say, did) threaten, at least tacitly, to take their business elsewhere.

So for AT&T, neutrality seemed the path of least resistance. Besides, there was no shortage of interveners like the ANPA to make the anti-Bell case on information services.

Judge Greene decided in 1988 to retain (with some modifications) all three line-of-business restrictions, in an opinion that included scathing asides on flip-flops by Justice.

"It is ironic that at the very time that several of America’s opponents-e.g., the Soviet Union and the People’s Republic of China-have finally learned and have begun to implement the lesson that competition is superior to monopoly, some of the largest American corporations have been successful in persuading the Department of Justice that a return to monopoly, their monopoly, is in the public interest," wrote Greene.

In their appeal the Bells gave the newspapers a dose of their own First Amendment medicine. Their brief argued that the information service restriction violated the Bells’ own free speech rights. It was signed by 26 lawyers, and featured Tribe-who helped argue the case along with Stephen Shapiro of Chicago’s Mayer, Brown & Platt-and Floyd Abrams of New York’s Cahill Gordon & Reindel, the newspapers’ favorite First Amendment champion.

The D.C. Circuit reversed and remanded Greene’s decision on the information services issue in April 1990. It did not mention the First Amendment. It did accord far more significance to AT&T’s position than any of the dozens of lawyers in the case had expected.

While upholding Greene’s refusal to lift the other two restrictions, the three-judge panel ruled that he had applied the wrong standard of review on information services, and should have held that AT&T’s nonobjection had, in effect, created a strong presumption that that restriction must go.

Judge Greene and all the parties had assumed that the only way the Bells could overcome any of the three restrictions was by proving that (in the words of a decree provision) there was "no substantial possibility" that they would be able to use their local phone monopolies to compete unfairly.

But the appellate panel held that provision inapplicable in the case of information services, because there was no objection from any of the original parties to the consent decree- AT&T, Justice, and the Bells. It said Greene must drop the information services restriction unless he could find that doing so "would be certain to lessen competition." Not just probable- certain.

The panel also said Greene must defer to the Justice Department’s expert "economic analysis and predictions of market behavior." (This was the same panel that, in the same opinion, noted that on the same question, the Justice Department, "with little warning or explanation… completely altered its stance" in 1987.)

The lengthy, unsigned per curiam opinion was so surprising in its rationale, and so internally inconsistent in its tone and reasoning, as to prompt much guesswork among the lawyers as to what had gone on in the judges’ conference room.

This speculation was fueled by the panel’s composition: Judges Abner Mikva (now the chief judge) and Harry Edwards, both Carter-appointed liberals philosophically in tune with Judge Greene, and Judge Laurence Silberman, the court’s senior and perhaps most influential Reagan-appointed conservative, who has exchanged bitter public and private barbs with Mikva over the years.

One lawyer close to the case says the most popular theory is that perhaps Mikva and Edwards wanted to uphold Greene across the board, but feared that Silberman would get them reversed by the en banc court’s Reagan-Bush majority. So (the theory goes) the three compromised, seizing upon AT&T’s nonobjection as a rationale for reversing Greene on information services while affirming him on manufacturing.

In any event, the D.C. Circuit panel expressed no view on whether the Bells would monopolize information services. But it left Greene hog-tied-or, at least, so he found on remand last July.

Greene ruled that because predicting competitive impact is not an exact science, nobody could be "certain" that the Justice Department’s post-flip-flop position was wrong. He held that therefore the appellate panel had left him "no choice but to remove the restriction."

At the same time Greene fired off a long opinion-"a letter to Congress," in a Bell lobbyist’s view-seething with sarcasm, and predicting that the appellate ruling would drive the burgeoning information services market toward the kind of monopolization that the AT&T case had been designed to end. This, the judge said, will harm "the objective of a competitive market, the purpose of the antitrust laws, and the economic well-being of the American people."

Greene stayed his decision so as to preserve the status quo in case he had misread his marching orders. But if (as lawyers speculated) he hoped that this might shame the appeals court into rethinking its position, he was soon disappointed: In October a D.C. Circuit panel (Judges Silberman, Edwards, and Stephen Williams) tersely vacated the stay as an "abuse of discretion," and the Supreme Court refused to revive it.

The Bells have been free since then to sell information services, although the ANPA and others are still pursuing long-shot appeals of Greene’s decision. And the prospect looms that the courts will dump the long distance and manufacturing restrictions too.

"When you have a package that hasn’t been opened," says Brian Moir, a lobbyist with Washington’s Fisher, Wayland, Cooper and Leader who supports restricting the Bells, "and you take a meat cleaver and slice off a third of it, it becomes easier to unpack the rest of it."

THE BIG ENCHILADA

Already, in fact, the Bells have unveiled a new theory that particularly worries AT&T, at the January 21 oral argument of a relatively minor consent decree issue.

Shapiro of Mayer, Brown, arguing for the Bells, and a Justice Department lawyer both asserted that if Justice supports any future Bell petitions to relax or lift the long distance restriction, the courts should give AT&T’s objections no special standing under the decree, and should give the same nearly absolute deference to the department’s views as was required in the case of information services.

After all, why should AT&T be given effective veto power over whether the Bells could compete against it?

The three judges-Silberman, Williams, and David Sentelle this time-perked up, aware that if they bought this corollary to the April 1990 decision, the judiciary would be reduced to a virtual rubber stamp anytime the Justice Department decides to dump the long distance restriction-the core of the decree.

"So that is what this case is about then," Silberman told Shapiro. "Your argument is really a big enchilada, indeed, which is that if six months from now the Department of Justice said, ‘Hey, we were all wrong on this entire antitrust suit,’ I mean, really fundamentally wrong, not just wrong the way [things] are evolving… that it would not be open to the judge to require a showing of no probable impeding of competition.

"That," added Silberman, "is a big, big, big, big case."

Later on he offered a wry aside to AT&T’s lawyer, David Carpenter of Chicago’s Sidley & Austin, about the Bells’ strategy: "They are just taking one bite at a time. One bite out of you, and one bite out of us."

Judge Silberman seemed shocked at how far the Bells wanted to run with the ball he and his colleagues had handed them in April 1990. "Look what I’ve done," he joked at one point.

But he and most of the en bane court’s ten other judges are widely thought to have an agenda consistent with that of Justice and the Bells: getting this monster case out of the courts, and deposing czar Greene once and for all.

In effect, says a Bell lobbyist, the Bells were telling the appeals court, "This is the way you get rid of the whole damn thing."

"If we win that one," this lobbyist adds, "the cat is really out of the bag. Manufacturing goes immediately because Justice is already down for that one…. If nothing happens on the Hill, eventually… in maybe three or four years, we’re going to be into those other lines of business and out from under these restrictions."

AN UPHILL BATTLE IN CONGRESS

So the challenge for the newspapers and their allies is to get Congress to give them back-this year-some of the protection that Judge Silberman and company have taken away.

And the Bells, which in the past have been unable to get Congress to do good things for them, now face the far easier task of preventing Congress from doing bad things to them.

Those afraid of Bell competition in electronic publishing know that time is against them: The Bells are rolling out new information services, and once they get entrenched in the market, it will be impossible to get Congress to push them back out.

The action this year has been in the House, because the publishers have a community of interest with Congressman Brooks, though they are in a bigger hurry.

Complaining that "this trillion-dollar industry is literally adrift," with no coherent policy for ensuring competition, Brooks wants to clamp tough antitrust law restraints and competitive safeguards on the Bells, curbing or conditioning their entry into previously forbidden markets until they lose their local telephone monopolies. That could happen someday, but probably not for at least ten years, through a combination of "bypass" phone lines, phone service through cable TV lines, and advances in wireless communications.

Comprehensive legislation of the kind Brooks would like is a good two-to-three-year project. And his hearing still left the newspapers and other electronic publishers on about their own ten-yard line, a touchdown behind, with the 1992 clock running out.

The obstacles to getting any legislation in this short, busy, election-year session include the fractiousness of the anti-Bell coalition in the face of the Bells’ formidable clout; the newspapers’ own unpopularity; John Dingell, the Democrat from Detroit who chairs the potent House Energy and Commerce Committee; Congress’s incentives to do nothing; and the threat of a presidential veto.

The broad but loose coalition of companies and interest groups seeking protection from the Bells calls itself the "No Name Coalition"-a reflection of its difficulty hanging together. "It’s all going to come apart when things get going," predicts one congressional staffer, "because they’re all going to have too much incentive to cut separate deals" with the Bells.

One lobbyist seeking restraints on the Bells requests anonymity because they are important customers and "we don’t want to piss them off." Another says that when anti-Bell forces get together to strategize on the consent decree litigation (pending on appeal), "you look around the room, and you know that at any time four or five of them are dickering with the [Bells] on something. Everyone’s wondering, ‘Who’s going to sell out first?’ Because they are only going to buy so many of us."

The most potent industry in the coalition may be the newspapers, but having them as an ally is a mixed blessing.

ANPA lobbyist Tommy (as he is called by friend and stranger alike in Washington) Boggs and his good-old-boy charm are beloved in the halls of Congress, where both his late father and his mother served with distinction. That’s why he costs $440 an hour.

But the ANPA and its members are not loved in Congress. Feared, perhaps. Not loved. And it doesn’t help, according to several lobbyists, that newspapers don’t have political action committees.

Boggs says that since he started representing the ANPA he has heard his share of complaints about the press. But he adds, "I didn’t truly appreciate the power of the press until I got involved on this issue.

"Members of Congress frequently are frustrated with you guys," he says. "I don’t know if they call their publishers or the editors, but they sure have remembered my phone number. For an industry without PACs, newspapers still get the attention of members, for better or for worse."

Among those with little apparent interest in helping the newspapers is a man with ample power to deep-six any legislation on information services: the tough, domineering Dingell, whose committee shares jurisdiction over telecommunications with Brooks’s Judiciary Committee.

"If you ask Dingell, ‘Do you want to help the newspapers?’ the answer is, ‘Screw ’em,’ " says a Bell lobbyist. "They just did a number on him and his wife a couple months ago, and he took that personally." The reference is to newspaper articles that included criticism of Dingell’s sometimes hardball methods and social gossip about his wife Deborah, a descendant of a General Motors founder and a former GM lobbyist who is now an executive in the company’s Washington office.

Dingell is a man whose usual nickname in Congress-Big John-sometimes gives way to "Iron Bladder" for his notorious reluctance to allow bathroom breaks for witnesses squirming in his marathon oversight hearings.

To get past Dingell, a former House aide says with a laugh,’ ‘the newspaper publishers will have to get real humble, real fast, and come in and grovel at his feet."

While scoffing at such talk and denying any animus against the press, Dingell says that "in this matter I appear to have my choice of monopolies-on one hand the telephone companies, on the other hand the newspapers. Most cities only have one newspaper."

Noting that the cable companies are united with the newspapers in fear of Bell competition, and sometimes are jointly owned with newspapers, he adds: "Cable television, they are also a monopoly. They, like the newspapers, are unregulated monopolies."

Dingell likes his monopolies regulated-by him, when possible, via the FCC, on which he rides herd as head of its oversight committee.

He has been doing a slow burn for a decade over Judge Greene’s use of the consent decree to make himself the telecommunications czar, displacing the FCC. Greene may be a clever fellow, but he doesn’t have a mandate from Congress, or the staff, to oversee the gargantuan industry over which he has held sway. And he doesn’t report to John Dingell.

Dingell goes out of his way to note that the April 1990 D.C. Circuit opinion-with which he has "no reason to quarrel"-dealt Judge Greene "one of the most judicially nasty rebuffs I’ve ever heard" by an appeals court.

"I don’t feel strongly impelled to move anything on this matter this year," Dingell says of the newspapers’ save-us-from-the-Bells-before-they-eat-us drive.

One gets the impression that as far as he is concerned, anyone who wants to restrict the Baby Bells had better have a more compelling reason than the concerns of Harold Greene and a bunch of fat-cat publishers.

Besides, Dingell’s legendary determination to protect his committee’s turf from encroachments could spell trouble for Jack Brooks’s attempt to take the lead on the issue. "Up here the first cut is always jurisdictional," a House staffer says, "and Dingell wants to keep this issue in his bailiwi (Image Not Clear in this Cloumn)

One way to do that would b? few years, until the courts for raveling the AT&T consent and with it their jurisdiction, a nd the Judiciary Committee, ? Baby Bells.

So it will be interesting to w? dynamic between Dingell and who does not usually beat the just to make noise. "Brooks is ?plex, wily, close-to-the-vest ? guy," says a Bell lobbyist, "a never know what the full hand is he lays them down."

Brooks also happens to be a friend of John Dingell’s.

Brooks announced at the February 19 hearing that those who were dieting "simply a dogfight between two strong, powerful commitment might prove mistaken. "We’ve ? had a serious disagreement in ? years," he adds in an interview.

Dingell, for his part, stresses ? "Brooks and I are old friends, ? friends, and we like much better work together than to be opposed."

(Asked who is the better shot w? he and Brooks go hunting together Dingell asserts, "We are both very good.")

Whatever Dingell and Brooks might work out, many others in Congress have their own reasons to do nothing this year.

Presidential election years make for especially frantic, distracted legislative sessions. Members are preoccupied with redistricting, reelection, and things that resonate with voters, like the popular Senate-passed bill to curb cable TV rates. It’s not an atmosphere conducive to deep thinking about the future of telecommunications and electronic publishing-issues so complex and thorny that Congress has been unable to pass comprehensive legislation in decades.

Besides, letting the whole mess simmer helps with fund-raising. A Bell lobbyist says, "A number of members have suggested to me, ‘Why should we solve this issue this year? It’s hard to understand and dangerous to mess with, and it’s good for a lot of campaign contributions. Why dry up that well?’ "

Michael Salsbury, a partner in Jenner & Block’s Washington office who has represented MCI in the endless litigation for more than a decade, has a similar perspective: "A cynic would say that the last thing Congress wants to do is pass legislation in this area. They get money from everybody on all sides…. And there’s no way they can take a step in any direction without stepping in it."

Then there is the presidential election. The Bush administration has threatened to veto any effort to kick the Bells out of electronic publishing; indeed, it wants to let them into cable television too. A Democratic administration might have a different view. So each new round of internecine warfare among Democratic candidates, each new sex or draft scandal, gives the Bells a bit more leverage.

Unless the president signs something into law this year-almost inconceivable unless the Bells feel enough pressure to make a deal-the newspapers lose. And if they lose the battle of 1992, they will be well on their way to losing the war.

Stuart Taylor, Jr.

Online Archive

Fight For The Future – Part 1

by Stuart Taylor, Jr