US telco mega-mergers under scrutiny

The Bush administration's approval of the mega-mergers of telcos AT&T and SBC and of Verizon and MCI has been challenged by a federal judge.

US District Judge Emmet Sullivan said at the start of the hearing that he may not have enough information to permit the mergers to remain intact without major modifications.

Sullivan told attorneys for the telecommunications companies and the US Justice Department, which was defending the two deals, that he has "doubts" the mergers will boost competition. "The public indeed has to have some confidence in these proceedings," Sullivan said.

After hearing nearly seven hours of arguments and interjecting often with his own questions, Sullivan said he would take the case "under advisement". The judge scheduled a 25 July status conference where he promised to "inform the parties exactly what I intend to do".

Sullivan, who was appointed to the federal bench by former President Clinton, said he's considering extra steps - such as requiring the administration to republish the merger agreements in national newspapers or holding another hearing where expert witnesses would describe the mergers' potential impact on competition.

The deals got the green light last October from the Federal Communications Commission and the Justice Department's antitrust division, and both SBC and Verizon have since closed their books on the acquisitions.

It's unlikely that Sullivan would be able to unwind the deals but he could impose additional conditions or require the companies to spin off some of their business units. In an order issued last week, he posed a number of questions about how he should proceed with his review.

Under a 1974 federal antitrust law called the Tunney Act, judges may review mergers to see if they are within "the reaches of the public interest". The federal judge overseeing the final half of the Microsoft antitrust trial, for instance, invoked the Tunney Act when altering the settlement agreement before approving it.

Also added was an evaluation of the impact of the deal on "competition in the relevant market or markets".

An attorney for the Justice Department, Claude Scott, assured the judge that the settlement proposed by the government for each of the mergers "still leaves a vibrant market". He said the agency had devoted eight months and more than 24,000 hours of lawyers' time to distilling potential problems with the mergers and invited the judge to pose any questions he had about their methodology.

And Wilma Lewis, a former Justice Department prosecutor now representing AT&T, said nothing in the Tunney Act suggests a full evidentiary hearing with witnesses should be "the ordinary course of action".

Although Wednesday's arguments were supposed to centre on whether the mergers are in the "public interest," no consumer advocacy groups filed formal comments with the Justice Department or appeared at the hearing - an occurrence that Sullivan deemed "significant" at the hearing's outset.

"No one's asked me to participate," he said at day's end. "I would have granted it."

Verizon Deputy General Counsel John Thorne told the judge that "the public's absence is not due to lack of notice, it's due to their satisfaction with the mergers."

Separately on Wednesday, the advocacy group Consumers Union issued a joint statement with Comptel applauding the court's scrutiny of the mergers. Vice President Gene Kimmelman accused the federal government of failing "to fulfil its watchdog role by rubber stamping giant Bell mergers without even the thinnest of public interest protections."

Declan McCullagh writes for CNET News.com