Opinion
99 C 7232
June 22, 2001
MEMORANDUM AND ORDER
Plaintiffs, South Austin Coalition Community Council, Walter E. Ryan, Jr., Theodore Chabraja, Anita B. Hull, Robert Rifkin, and Patrick Steffes (collectively, "plaintiffs") bring this one-count antitrust suit under section 16 of the Clayton Act, 15 U.S.C. § 26, to obtain injunctive relief of divestiture and/or injunction enjoining the merger of Ameritech Corporation to SBC Communications ("SBC/Ameritech" or "SBC") alleging that the merger threatens to violate section 18 of the Sherman Act, 15 U.S.C. § 18 because the newly-merged corporation will have monopoly strength, and competition for local telephone service will be substantially lessened. SBC/Ameritech moves to dismiss the suit under Federal Rule of Civil Procedure 12(b)(1) on the basis that the plaintiffs lack standing. For the following reasons, the motion to dismiss the complaint is GRANTED.
I. Motion to Dismiss
When considering SBC's motion to dismiss under Fed.R.Civ.P. 12(b)(1), the dismissal is properly granted only if it is clear that no set of facts which the plaintiff could prove consistent with the pleadings would entitle him to relief. See, Kunik v. Racine County, Wis., 946 F.2d 1574, 1579 (7th Cir. 1991) (motion to dismiss under 12(b)(6) for failure to state a claim); Komorowski v. Townline Mini-Mart and Restaurant, 162 F.3d 962, 964 (7th Cir. 1998) (per curiam) (motion to dismiss under 12(b)(1) for lack of jurisdiction). See, e.g., McMath v. City of Gary, 976 F.2d 1026, 1031 (7th Cir. 1992); Gillman v. Burlington Northern R.R. Co., 878 F.2d 1020, 1022 (7th Cir. 1989). Dismissal is properly granted only if no set of facts which a Plaintiff could prove consistent with the pleadings would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-56, 78 S.Ct. 99, 2. L.Ed.2d 80 (1957); Kunik, 946 F.2d at 1579, citing, Hishon v. King Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).
II. Background
The following facts are taken from plaintiffs' complaint and are assumed true for the purpose of ruling on the motion to dismiss.
A. The Parties
Since 1976, plaintiff South Austin has been a "grassroots community organization" dedicated to improving the quality of life for citizens in the Austin area. South Austin was also a customer of Ameritech at the time of the merger with SBC — as were all of the individually named plaintiffs.
SBC is a Texas corporation headquartered in San Antonio, Texas. In 1983, when ATT was divested of its monopoly over local phone service, SBC was one of the seven regional bell operating companies ("RBOCs") which was formed by consent decree. United States v. American Tel. Tel., 522 F. Supp. 131 (D.D.C. 1982). Before the merger, SBC transacted business and served customers primarily in the southern and western states.
B. The Merger and Agency Reviews
Ameritech was a Delaware corporation and was headquartered in Chicago, Illinois. Ameritech was also an RBOC and it transacted business and served customers primarily in the midwest states.
On May 10, 1998, SBC and Ameritech agreed to merge their telephone service companies. The resulting corporation will result in SBC having control of the local telephone service in twelve states which allegedly equates to 31% of the national telephone service market share.
On April 8, 1999, the Public Utilities Commission of Ohio (or, "PUC Ohio") issued an order that approved the merger subject to certain conditions.
On August 2, 1999, the Department of Justice (the "DOJ") and SBC entered into a consent decree which was approved in the United States District Court, District of Columbia. See, United States v. SBC Comm. Inc., and Ameritech Corp., 1999 WL 121145 (D.D.C. August 2, 1999). The consent decree required SBC/Ameritech to divest themselves of ownership of cellular phone services in overlapping markets.
On September 23, 1999, the Illinois Commerce Commission (the "ICC") issued an order approving the merger subject to certain conditions.
Likewise, on October 6, 1999, the Federal Communications Commission an order approving the merger subject to certain conditions.
C. Previous Litigation
In January 1999, this court dismissed plaintiffs' original complaint because it was filed before the reviewing federal and state agencies were afforded the opportunity to review the merger. See, South Austin Coalition Community Council, v. SBC Comm., 1999 WL 955910 (N.D.Ill. January 26, 1999), aff'd, 191 F.3d 842 (7th Cir. 1999).
III. Applicable Law
A. Clayton Act
Plaintiffs seek an injunction under the Clayton Act, alleging that the merger poses a threat of antitrust injury. Section 16 of the Clayton Act, 15 U.S.C. § 26, provides:
Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws . . . when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity . . .
B. Sherman Act
Plaintiffs specifically allege that the "threatened loss or damage by a violation of the antitrust laws" exists because the merger violates Section 18 of the Sherman Act, "Acquisition by one corporation of stock of another," which provides that:
No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce., where in any line of commerce or in any activity affecting commerce in any section of the country the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.15 U.S.C. § 18.
Plaintiffs allege that the SBC/Ameritech merger poses a Sherman Act injury because it gives SBC monopoly power, lessens competition, and poses high barriers to entry for competitors.
IV. Discussion
A. Standing Requirements Under the Clayton Act
A plaintiff may bring suit under both Sections 4 and 16 of the Clayton Act. Section 4 requires a plaintiff to demonstrate that he has suffered an antitrust injury to business or property. Clayton Act, § 4, 15 U.S.C. § 15. Section 16 of the Clayton Act, 15 U.S.C. § 26, provides that a plaintiff "shall be entitled to sue for and have injunctive relief . . . against threatened loss or damage by a violation of the antitrust laws . . ."
In Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484 (1986), the Supreme Court noted that, unlike actions under § 4, a § 16 claim does not require a plaintiff to demonstrate actual injury, but only a showing of a "threatened" loss or damage. The threatened injury, though, must be of the kind that the antitrust laws were designed to prevent. 479 U.S. at 111, 107 S.Ct. at 489-490. Standing under § 16 "requires proof of a threatened loss or damage by a violation of the antitrust laws." Id., 479 U.S.C. at 111, 107 S.Ct. at 490; see, O'Neill v. Coca-Cola Co., 669 F. Supp. 217, 221 (N.D.Ill. 1987) ("Thus, a plaintiff seeking standing under Section 16 must show a threatened antitrust injury which is proximately caused by conduct constituting an antitrust violation. Unless each aspect of this test is met, standing under Section 16 will not exist.") The Supreme Court reiterated this position in California v. American Stores Company, when it held that "[a] private litigant . . . must have standing — in the words of § 16, he must prove `threatened loss or damage' to his own interests in order to obtain relief." 495 U.S. 271, 290, 110 S.Ct. 1853, 1867 (1990).
A. Agency Review and Conditions Imposed
SBC argues that this merger has been the subject of extensive agency review and substantial conditions have been implemented to secure consumer protection. Specifically, they argue that the FCC, the Ohio Public Utilities Commission ("Ohio PUC"), and the Illinois Commerce Commission ("ICC") reviewed and approved the merger and "each imposed substantial conditions promoting increased local competition." Further, SBC argues that the agency review followed the review conducted by the DOJ, which approved the merger subject to the condition that the two companies divest their cellular businesses which overlapped into each other's market.
1. The FCC Review
Both parties agree that the FCC reviewed the merger under the statutory public interest test. Under the Federal Communications Act, the FCC's determination under the public interest test requires the FCC to analyze if the proposed merger "demonstrated that the public interest would be served by transferring Ameritech's numerous licenses and lines used in interstate or foreign communications to SBC." In re Applications of Ameritech Corp., Mem. Op. And Order, DA 99-279, ¶ 46 (FCC Oct. 6, 1999). The public interest test required the FCC to inquire whether "on balance, the merger serves the public interest, convenience and necessity." Id.; see, 47 U.S.C. § 214 (a), 303(r), 310(d).
SBC hastens to add that the FCC's opinion stated that:
"[t]he Commission's analysis of public interest benefits and harms includes, but is not limited to, an analysis of the potential competitive effects of the transaction, as informed by traditional antitrust principles. While an antitrust analysis, such as that undertaken by the DOJ in this case, focuses solely on whether the effect of a proposed merger `may be substantially to lessen competition,' the Communications Act requires the Commission to make an independent public interest determination, which includes evaluating public interest benefits or harms of the merger's likely effect on future competition." See, FCC Order, ¶ 49., quoting, 15 U.S.C. § 18 (Sherman Act).
Thus, "[i]n order to find that a merger is in the public interest . . . the Commission must be convinced that it will enhance competition." Id. (quotations omitted). SBC argues that the FCC's review "imposed unprecedented and far reaching conditions on [SBC/Ameritech]" not only to see that competition was unharmed, but also set conditions that enhanced competition.
a. The FCC's Analysis and the Goals of the Conditions
The FCC noted that "unlike the role of the antitrust enforcement agencies, the Commission's public interest authority enables it to rely upon its extensive telecommunications regulatory and enforcement experience to impose and enforce certain types of conditions that tip the balance and result in a merger yielding overall positive public interest benefits." Id. at ¶ 52. To that end, the procedure to adopt conditions to the merger was conducted in the public forum "at which numerous citizens, representatives of citizen groups, and industry members spoke. The staff also met extensively in individual sessions, with dozens of individuals, groups and firms, both before and after the Applicants placed on the public record, for full public commentary, an initial version of their supplemental proffered conditions." Id. at ¶¶ 351-353.
As a result of the discussions and hearings, the FCC adopted, with modifications, conditions proffered by SBC. The conditions are effective for a period of 36 months after the date of the FCC's approval. The FCC's order stated that the conditions "are designed to accomplish five primary public interest goals: (a) promoting equitable and efficient advanced services deployment; (b) ensuring open local markets; (c) fostering out-of-territory competition; (d) improving residential phone service; and (e) ensuring compliance with and enforcement of the conditions." Id. at ¶ 355.
The FCC stated that the conditions were not intended to "limit the authority of state commissions to impose or enforce requirements that go beyond those adopted in this Order." Id. at ¶ 358. Therefore, the door was left open for state regulators to further protect the interest of consumers by adopting conditions in addition to those in the FCC order.
b. The FCC's Conditions
The FCC order sets forth approximately thirty different conditions for its approval of the SBC/Ameritech merger. The conditions are wide-ranging and require SBC to take measures to improve service for consumers and promote open markets.
The conditions fall within five different areas: 1) promoting equitable and efficient advanced services deployment; 2) ensuring open local markets; 3) fostering out-of-territory competition; 4) improving residential phone service; and 5) ensuring compliance with and enforcement of the conditions.
i) Promoting Equitable and Efficient Advanced Services Deployment
Under this classification, SBC is required to meet several conditions. SBC must create "one or more separate affiliates to provide all advanced services (defined as inter/intrastate wireline telecommunications services (DSL services)) in the newly-merged SBC/Ameritech region." In its order, the FCC stated that this condition "will greatly accelerate competition in the advanced services market by lowering the costs and risks of entry . . ." Id. at 363. SBC's compliance will be subject to an annual audit. Id. at 365.
SBC must offer other carriers a surrogate line-sharing discount. The FCC's order explains that a line can be separated into a voice channel and an advanced series channel which can be carried simultaneously. Hence, "line sharing potentially enables each service to be provided by a different carrier." Id. at 369. While the conditions do not call for SBC to allow for line sharing with unaffiliated carriers, the FCC approved an interim solution that compels SBC to provide to other carriers a "second loop" to competitors at a substantial discount: "In this manner, the conditions require SBC/Ameritech to offer competing carriers the economic equivalent of line sharing until line sharing becomes available to unaffiliated carriers." Id.
Further, the conditions require SBC to "develop and deploy common electronic OSS [operations support systems] interfaces across all 13 SBC/Ameritech states to be used by any telecommunications carrier, including the merged firm's advanced service affiliates . . ." The FCC's order explained that "this condition will guard against discrimination by the merged entity toward its rivals while, at the same time, lower those rivals' costs providing competing advanced services." Id. at 371.
SBC must also file with state commissions cost studies and proposed rates for conditioning loops used in the provision of advanced services. The FCC's order stated that the condition "is designed to ensure that SBC/Ameritech will not erect a barrier to the competitive deployment of advanced services by charging excessive rates for loop conditioning." Id. at 375. Further, SBC has agreed "[a]s a means of ensuring that the merged firm's rollout of advanced services reaches some of the least competitive market segments and is more widely available to low-income consumers, [it] will target their deployment of xDSL services to include low-income groups in rural and urban areas." Id. at ¶ 376.
ii) Ensuring Open Local Markets
The second classification of conditions, "ensuring local markets," was placed on the merger to promote competitiveness in local markets.
The "carrier-to-carrier performance plan" condition requires SBC to file performance measurement data for each of the thirteen SBC in-region states. The data will reflect SBC's performance of their obligations to their competitors in more than twenty measurement categories. Id. at ¶ 377.
Further, as part of these conditions, the FCC's order states that "[e]ffective, nondiscriminatory access to OSS ["Operations Support Systems"] is critical for achieving the 1996 [Federal Telecommunications] Act's local competition objectives." This requirement calls for SBC/Ameritech to "establish, in consultation with competitive LECs [local exchange carriers], uniform OSS interfaces and systems across their 13 in-region states that are based on the best practices . . . of the two companies." Id. at ¶ 381.
SBC will also "assist smaller competitors and new entrants by requiring [SBC] to recover electronic OSS costs on a strict usage basis rather than through a flat monthly fee." The effect of this condition will be to "eliminate any flat-rate, up-front charge for the right to use the company's standard electronic interfaces for accessing OSS ( i.e., flat-rate monthly charges for access to SBC's remote Access facility and Information Services Call Center, amounting to approximately $3,600 per month)." Id. at ¶ 384.
Further, "as a means of reducing the barriers to new entry in its region," SBC must "provide special OSS assistance to any `qualifying' competitive LEC [less than $300m in total annual revenues]. Specifically, the merged firm will designate and make available for 36 months at no additional cost a team of OSS experts to assist these qualifying carriers with OSS issues." Id. at ¶ 385.
In response to concern from competing carriers that collocation costs have presented a formidable obstacle to entering the local service markets, SBC was required to "file a tariff or offer to amend interconnection agreements in each SBC/Ameritech state to demonstrate compliance with the Commission's collocation rules" before the date of the merger. Id. at ¶ 386. Upon completion of the merger, the conditions provided for an independent auditor to present an audit report to the FCC. If the report revealed problems with SBC's collocation practices, the FCC could "decide to take additional action as deemed necessary and appropriate" to assure compliance.
The "most-favored nation" condition requires SBC to "facilitate market entry throughout SBC/Ameritech's region . . ." Id. at ¶ 388. First, SBC is required to offer competing telecommunications carriers "operating within its service area any interconnection arrangement or UNE ["unbundled network elements"] that SBC/Ameritech . . . secures." Second, "where it is feasible given technical limitations, SBC/Ameritech will make available to any requesting telecommunications carrier in any of its 13 states any interconnection arrangement or UNE in any other of the same 13 states that was negotiated by an affiliate of SBC, subject to state-specific pricing." Id.
Further, "in addition to promoting market entry and assisting telecommunications carriers that want to operate in more than one SBC/Ameritech state, the conditions require SBC to offer to requesting telecommunications carriers an interconnection and/or resale agreement covering multiple SBC and/or Ameritech states . . ." Id. at ¶ 389. The FCC noted that this condition fosters competition because "negotiating a separate interconnection agreement between the same parties in multiple states can impose substantial unnecessary costs and delays on competitors and provides incumbent LECs (SBC/Ameritech) to game the process." Id.
The local market conditions also include a series of "carrier-to-carrier promotions." These conditions require SBC to: offer promotional discounts on the monthly charges for unbundled loops used in providing residential local service; offer a promotional resale discount on SBC/Ameritech's retail telecommunications services, where the services are, in turn, resold to residential customers; and "offer end-to-end combinations of all network elements required to be unbundled as of January 24, 1999 to competitive LECs providing residential local service . . ." Id. at ¶¶ 391-393.
To ensure open local markets, SBC must also "continue to make available to telecommunications carriers each UNE that was available under SBC's and Ameritech's interconnection agreements as of January 24, 1999, even after the expiration of existing interconnection agreements . . ." The conditions also provide for alternative dispute resolution as a means of expediting "carrier-to-carrier disputes." Id. at ¶ 395. The FCC's order noted that "this process supplements, rather than supercedes, any other options at the carrier's disposal for addressing disputes with SBC or Ameritech . . ." Id. However, no state or CLEC (community local exchange carrier) is required to take part in the process.
Another condition to ensure open local markets requires SBC to provide shared transport to competitors "utilizing an advanced intelligent network software solution in each Ameritech state." Id. at ¶ 396. Shared transport refers to cable that connects facilities owned by different parties.
Further, SBC, "in order to provide information regarding possible options for additional competition in the provision of local service to multi-unit properties . . . will conduct a trial in five cities that will provide telecommunications carriers with access at a single point of interconnection to cabling owned or controlled by SBC-Ameritech" in multi-tenant residences and business properties. Id. at ¶ 397. Additionally, the conditions require SBC to "design and install all new cabling owned or controlled by SBC/Ameritech in a manner so that it can be accessed by any telecommunications carrier at a single point of interconnection . . ."
iii) Fostering Out-Of-Territory Competition
SBC must also, within thirty months of the merger closing date, "enter at least 30 major markets outside SBC's and Ameritech's incumbent service area as a facilities-based provider of local telecommunications services to business and residential customers." The FCC ruled that this condition will ensure that residential consumers and business customers outside of SBC/Ameritech's territory benefit from facilities-based competitive service by a major incumbent LEC. This condition effectively requires SBC and Ameritech to redeem their promise that their merger will form the basis for a new, powerful, truly nationwide multi-purpose competitive telecommunications carrier. We also anticipate that this condition will stimulate competitive entry into the SBC/Ameritech region by the affected incumbent LECs. Id. at ¶ 398. Thus, SBC is required to enter into outside markets in an effort to spur competition among carriers nationwide. SBC must pay $110,000 per day for each missed "entry requirement." Id. at ¶ 399. Therefore, "SBC would . . . be obligated to pay $39.6 million if it missed all 36 entry requirements in a market, or nearly $1.2 billion for missing the entry requirement in all 30 markets." Id.
iv) Improving Residential Phone Service
The FCC order states that "[a]s a direct benefit to consumers, particularly low-income consumers and low-volume long distance callers . . . SBC/Ameritech will not charge residential customers a minimum monthly or minimum flat rate charge for long distance service for a period of not less than three years. This requirement should not only benefit those customers that make few long distance calls, but also should help to ensure that long distance services continue to be available to all consumers at competitive prices." Id. at ¶ 400.
In another condition "designed specifically to ensure that the benefits of the merger extend to low-income residential customers throughout all of SBC's and Ameritech's regions . . . [SBC must] offer each of its 13 in-region states a plan to provide discounts on basic local service for eligible customers . . . Specifically, SBC/Ameritech will offer to provide a discount equal to the price of basic residential measured rate service, excluding local usage, in each state, up to a maximum discount of $10.20 per month . . ." Id. at ¶ 401.
Further, "to promote affirmative service quality improvement," SBC must make quarterly reports about the quality of service that it provides to customers. Id. at ¶ 403. The FCC's order states that "[b]y receiving such information on a quarterly basis, the Commission and others can take appropriate action in the event such reports show service quality degradation." Id. at ¶ 404.
v) Ensuring Compliance with and Enforcement of the Conditions
Stating that "[a]ttaching conditions to a merger without an efficient and judicious enforcement program would impair the Commission's ability to protect the public interest," the FCC established compliance mechanisms to ensure that the merger conditions are being satisfied.
The FCC's order calls for the implementation of a compliance program "to identify all applicable compliance requirements, establish and maintain the internal controls needed to ensure compliance, evaluate the merged firm's compliance on an on-going basis, and take any corrective actions necessary to ensure full and timely compliance." Id. at ¶ 408.
While the FCC order states that it wants SBC to be self-policing over its compliance with the merger conditions, it also stated that "the Commission plans to conduct target audits of various aspects of the Applicants' compliance programs. Only a strong corporate compliance program in conjunction with the independent audit and other enforcement mechanisms, will enable consumers to realize the full benefit of the conditions." Id. at ¶ 409. These measures include retaining an independent auditor to conduct an annual audit and a final report. Id. at ¶ 410. The FCC's order states that "the independent audit requirement establishes an efficient and cost-effective mechanism for providing reasonable assurances of SBC/Ameritech's compliance with its obligations under the conditions." Id. at ¶ 412.
As to the compliance measures, the FCC stated that "[w]e expect that this heavy burden of persuasion, coupled with the compliance mechanisms and significant financial exposure, will ensure that the public enjoys the full benefits of these conditions in a timely manner." Id. at ¶ 414. The FCC also noted that "the enforcement and compliance programs established in these conditions in no way supercede or replace the Commission's enforcement and investigative powers, but merely supplement our usual process. The Commission may, at its discretion and subject to its normal procedures, take additional enforcement action against SBC/Ameritech for failing to comply with any provision of this Order . . ." Id. at ¶ 415.
The conditions set forth in the FCC's order expire within thirty-six months after the merger is complete. Id. at ¶ 416.
c. FCC's Conclusion
The FCC's order concluded that with the conditions adopted, "the merger of SBC and Ameritech is likely to be beneficial for consumers and spur competition in the local and advanced services markets. Given that the conditions will subsequently mitigate the potential public interest harms of the proposed merger and will result in affirmative public benefit, we conclude that [SBC] ha[s] demonstrated that the proposed merger, on balance, will serve the public interest, convenience and necessity." Id. at ¶ 419. Thus, the FCC, in its review, concluded that, with the imposition of the aforementioned conditions, the SBC/Ameritech merger would be beneficial to consumers.
2. The Ohio Public Utilities Commission Review of the Merger
On April 8, 1999, the Ohio PUC issued an opinion and order which approved the SBC/Ameritech merger after a period of negotiations, discovery, and public commentary by several community organizations, associations, corporations, and the city of Toledo. The Ohio PUC also imposed some requirements before approving the merger, some of which are nearly identical to the FCC's list of conditions.
a. Ohio PUC Scope of Review
The Ohio PUC reviewed the SBC/Ameritech merger to determine whether it would "promote public convenience and result in the provision of adequate service for a reasonable rate, rental, toll, or charge." In the Matter of the Joint Application of SBC Communications Inc., SBC Delaware, Inc., Ameritech Corp., and Ameritech Ohio for Consent and Approval of a Change of Control, Case No. 98-1082-TP-AMT (Ohio Pub. Util. Comm'n April 8, 1999).
b. Conditions Imposed by the Ohio PUC.
i) OSS Conditions
SBC/Ameritech agreed to enter into certain stipulations and conditions required for the Ohio PUC's approval. The first class of conditions concern OSS. Within this set of conditions, SBC agreed with the Ohio PUC: to establish collaboratives to implement access to OSS in Ohio, especially to benefit new, smaller carriers; provide assistance, at no cost, to small carriers in Ohio for training and assistance for a period of four years following the merger. Id. at 14-16.
ii) Service Quality
Second, acknowledging the concern of the Ohio PUC about the potential for service quality to slacken, SBC has agreed to meet or exceed a service quality test, provide quarterly reports, and "conduct a series of studies as to the causes of non-telephone households in its service territory." Id. at 14-15.
iii) "Carrier-to-Carrier" Activities
A third set of conditions regard "carrier-to-carrier" activities. These conditions include an alternative dispute resolution process available to competing carriers. The Ohio PUC acknowledged that the process will not always create binding results, but it will be effective to "enable parties to focus more on reaching quick resolutions to problems, as opposed to pursuing litigation. That is a public benefit." Id. at 17.
The "carrier-to-carrier" conditions also provide for three promotions that SBC must offer to competing carriers: 1) UNE-loops "not purchased as a part of an Ameritech Ohio local switching combination;" 2) promotions for services resold to new carriers for their residential customers; 3) collocation promotions that require SBC to: install collocation requests within 90 days of the request, refund the pre-paid amount if the installation is not performed within 120 days, meet certain technical requirements, and reduce the prepaid rates; and lowered charges and payment options for access and service. Id. at 17-22.
iv) "Market Power"
The "market power" conditions require SBC to provide the Ohio PUC "with an assessment of competition and market power for a period of seven years . . ." Id. at 22. Further, "in the event that Ameritech Ohio does not demonstrate that it lost 200,000 residential access lines within four years of closing the merger, it will pay $15 million to its end users and [new carriers], $2.5 million to [Ohio's] education fund, and $2.5 million to [Ohio's] technology fund." Id. The Ohio PUC stated that these measures will mitigate SBC's market power and promote competition among the carriers.
v) The "Infrastructure" and "In-State" Conditions.
The "infrastructure" stipulation requires SBC to "invest at least $1.32 billion in Ameritech Ohio's local service infrastructure and network over the three years following the year in which the merger closes." Id. at 25.
Further, the "in-state presence" condition requires SBC to "maintain a state headquarters in Ohio for at least five years after the merger closing, maintain the number of full-time equivalent employees for two years, improve its customer-interfacing employees expertise, and regularly report the numbers of customer-interfacing employees for two years." Id. at 26. The Ohio PUC stated that the terms of this condition would be sufficient to provide adequate service to customers and competitors. Id. at 27.
vi) The "Books and Records" Condition
Under the "books and records" condition, SBC must provide its books and records to "any affiliate that engages in transactions with any SBC/Ameritech affiliate that operates in Ohio as a public utility." Id. at 29. The Ohio PUC held that this condition will allow them to ensure compliance with the terms of the merger. Id.
c. The Ohio PUC Conclusion
The Ohio PUC concluded that "the merger, under the terms of the [conditions] will promote the state's telecommunications policy, competition, diversity, and customer choice." Id. at 35, 40. It stated that the conditions imposed upon the merger resulted from "serious bargaining among capable, knowledgeable parties." Id. at 40.
3. The Illinois Commerce Commission's Review of the Merger
On September 23, 1999, the ICC issued an order approving the merger. The ICC's opinion followed evidentiary hearings held in January 1999, and interventions filed by corporations, associations, community organizations, the Illinois Attorney General, Cook County, the City of Chicago, and the ICC Staff. Several of the intervenors filed both initial and reply briefs. SBC Communications Inc., SBC Delaware Inc., Ameritech Corporation, Illinois Bell Telephone Company d/b/a Ameritech Illinois and Ameritech Illinois Metro, Inc., 98-0555 (Illinois Commerce Comm'n September 23, 1999).
a. ICC Scope of Review
In its order, the ICC stated it "shall not approve the proposed reorganization of a public utility if it finds that the reorganization will adversely affect the utility's — in this case, [SBC's] — ability to perform its duties under the [Public Utilities Act]." Id. at 7.
b. The ICC's Conditions On Approval of the Merger
The ICC's order states that "the record . . . reveals that conditions to our approval need to be imposed in order to protect the interests of the Company and its customers."
Several of the conditions the ICC imposed are similar to those imposed by the Ohio PUC: SBC must maintain headquarters in-state for at least five years; infrastructure modernization; OSS reports; OSS services and access to CLECs; state agency access to books and records; and enforcement and compliance measures with monetary damages as a consequence for non-compliance. SBC also agreed with the ICC to several other conditions to foster and promote competition and consumer protection.
i) "Interconnection Agreements"
SBC must meet several "interconnection commitments." Interconnection condition "A" requires: SBC to provide to Illinois CLECs services, facilities, or interconnection agreements/arrangements offered by SBC ILEC ["incumbent local exchange carriers"] affiliates in their in-region states subject to certain conditions. The ICC held that the condition is "valuable to CLECs and the expansion of the competitive market in Illinois . . ." Id. at 246-47. This condition also requires SBC to make optional payment plans available to CLECs for non-recurring charges. Id. at 247.
Interconnection condition "B" requires SBC to "convene a workshop or collaborative process with Staff and CLECs to discuss the UNEs, services, facilities or interconnection agreements." Id. at 248.
Interconnection condition "C" requires that SBC "shall provide . . . information regarding all interconnection agreements from other states to the [ICC] . . ." Id. at 249. The ICC explained that "this condition will make information available that may be useful to the [ICC] . . . during the collaborative process . . . to monitor [SBC's] continued compliance with the condition of offering agreements from other states in Illinois." Id. at 249-250.
Interconnection condition "D" provides that "if a CLEC affiliate of [SBC] obtains a UNE or interconnection arrangement from an [ILEC] through negotiation of that arrangement or through arbitration initiated by the [SBC] CLEC under 47 U.S.C. § 252, then [SBC] shall make available to requesting CLECs in Illinois, through good-faith negotiation, the same UNE or interconnection arrangement of the same terms (exclusive of price)." Id. at 250.
ii) "Shared Transport" Conditions
The ICC imposed a series of "shared transport" conditions. The conditions required SBC to provide shared transport to CLECs, first on an interim basis, then — within one year of the merger — the conditions require SBC to have a long-term solution. Id. at 250-253.
c. The ICC's Conclusion
The ICC's order concluded that "with the adoption of the conditions set forth herein, the proposed reorganization will not adversely affect the ability of [SBC] to perform its duties under the Illinois Public Utilities Act." Id. at 261.
C. Do Plaintiffs Show a Threat of Antitrust Injury arising out of the SBC/Ameritech Merger to Warrant Standing under 15 U.S.C. § 26?
Plaintiffs argue that they have successfully pled a threat of antitrust injury as a result of the SBC merger. First, they claim that their complaint pleads a threatened loss by "the recombination [of] the RBOCs and their exercise of monopoly power." Plaintiffs argue that the merger: will create the nation's largest local phone company; expands SBC's service area to cover two-thirds of the U.S. population; puts SBC first among U.S. telecommunications companies in terms of access lines; makes SBC the largest non-European telecommunications company in Europe; re-combines three of the seven regional bell operating companies ("RBOCs") which frustrates the purpose of breaking up the ATT telephone industry monopoly over twenty-five years ago; provides SBC monopoly power within the new geographic area; provides SBC with 31% of the telephone access line market in the United States.
Second, plaintiffs argue that it pled a threat of an antitrust injury by the barriers to CLECs entering into the market leading to a lack of competition to [SBC]. The corresponding allegations in their complaint state that "while [CLECs] are growing, they still only controlled less than 1% of local telephone lines." Further, plaintiffs assert in their complaint that the FCC's order did not accurately depict the CLECs market strength.
Third, plaintiffs argue that they have pled a threatened antitrust injury by alleging that the merger creates a highly-concentrated marketplace, "indicating an antitrust violation . . ." Plaintiffs specifically allege, that according to the HHI ("Herfindahl-Hirschman Index"), the merger drastically increases market concentration for local telephone services.
Finally, plaintiffs, in their response, argue that their complaint alleges a threat of antitrust injury through less actual and potential competition. Plaintiffs allege that the merger eliminates what it calls a "substantial present likelihood" that SBC and Ameritech were going to be competitors. Therefore, the merger unravels whatever potential competition may have occurred between the two companies. Plaintiffs object that the FCC did not impose, as a condition of the merger, a requirement that other RBOC's enter SBC/Ameritech's service area.
SBC responds that plaintiffs have raised only speculative arguments and do not demonstrate a threat of an antitrust injury resulting from the merger. SBC contends that plaintiffs' allegations ignore the analysis of the three regulatory agencies which have thoroughly reviewed the merger and set conditions upon it that seek to foster the growth of competition and protect consumers. Specifically, referring to the FCC's review, SBC notes that the conditions the agency imposed "applied the public interest standard not only to prevent harms covered by the Clayton Act but also to facilitate the development and enhancement of competition within and outside the local service areas served by the merging companies."
Plaintiffs do not account for the conditions placed on the merger by the reviewing regulatory agencies and attempts to argue that an antitrust threat exists as though the conditions SBC entered into were not a factor in this court's determination of plaintiffs' claims. This court, does, however, rely on the agencies' decisions in its determination of whether plaintiffs have standing to bring this suit under 15 U.S.C. § 26. See, SACCC I, 191 F.3d at 845.
Plaintiffs' complaint is only an invitation for the court to marvel at the size of the SBC/Ameritech merger and conclude that it must automatically present a threatened antitrust injury sufficient to confer standing to them under the Clayton Act. Put another way, plaintiffs argue that they have standing by simply alluding to the proportions of the merger, and leaving it to the court to infer a threat of an antitrust violation simply because the merger is now a fact. Doing so would signal an automatic vote of no confidence to the three regulatory agencies, whose thorough examination of the merger crafted a solution that did more than ensure that competition did not suffer as a result, but saw to it that competition thrived.
It is not the court's holding that because this merger was reviewed by the three agencies, the court automatically defers to their conclusions. However, in light of their determinations, coupled with the fact that plaintiffs only allege merely speculative and vague claims that the SBC/Ameritech merger threatens an antitrust injury, the court concludes that plaintiffs have not made a showing for standing under section 16 of the Clayton Act.
CONCLUSION
For the foregoing reasons, defendant SBC's motion to dismiss Plaintiffs' complaint is GRANTED. IT IS SO ORDERED.