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

1. Telecom Antitrust After Trinko“Waterloo or D-Day?” NARUC Staff Subcomm. on Telecommunications Winter Meeting 2004 — Washington, DC Glenn B. Manishin Kelley Drye & Warren LLP <gmanishin@kelleydrye.com>

2. Cycles of Policy Conflict

3. 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

4. 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

5. 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

6. 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.”

7. 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.”

8. 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

9. 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).

10. 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)

11. 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