Now that the Supreme Court has heard arguments on the case some experts are calling the most important antitrust suit in two decades, several industries, not just telecommunications, are waiting to find out whether the case will proceed.
No one really knows when the justices will decide whether the Bell Atlantic v. Twombly suit will be sent back to district court for further action, which could mean a settlement or a trial. This session of the Supreme Court ends in June.
The crux of the case is this: William Twombly, a U.S. citizen, filed the suit with the help of Milberg Weiss, a law firm well-known for bringing class-action lawsuits against corporations. Twombly alleged the Bell companies (reduced from seven to four since the case was filed in 2003) illegally conspired to prevent competitors from entering their territories after Congress passed the 1996 Telecom Act. Twombly – who filed on behalf of everyone in the continental United States who bought Internet access and local telephone service from February 1996 to the present – also accused the Bells of agreeing not to compete in each others’ markets.
If that can be proved, it would go directly against an agreement SBC signed with the FCC once it acquired Ameritech, explains Victor Schnee, president of consulting firm Probe Financial Associates Inc. and a former antitrust attorney. The RBOC told the government in the late 1990s it would enter fellow RBOCs’ regions and compete. But, Schnee says, “they totally defaulted, and the FCC let them get away with it.” The question is whether that action – and the Bells’ lack of competition in one another’s territories – amounts to conspiracy, as Twombly claims.
The case has been through several courts after different judges disagreed on the nitty-gritty details. In essence, the Supreme Court now must decide whether there is enough evidence of intentional agreement not to compete to allow the case to proceed. If that happens, the next step is called “discovery,” says Schnee, the process of culling through e-mails, hand-scribbled notes, confidential memos, and other documents. “That’s what’s got the RBOCs trembling in their boots,” Schnee says, pointing out that accounting firm Arthur Andersen was brought down by e-mail evidence. As for the Bells, he says, “whether you could prove an antitrust agreement not to compete, there certainly was a tacit understanding that they wouldn’t compete, and their behavior was frankly outrageous.”
The RBOCs have fought hard in this case to convince Supreme Court judges they have done no wrong, and analysts for research firm Stifel Nicolaus predict the Bells will win. Blair Levin, Rebecca Arbogast and David Kaut note in a memo to clients that they expect most of the Supreme Court justices to conclude that an allegation of an agreement or conspiracy coupled with parallel conduct can be explained by business judgment and would not be substantive enough to permit discovery. “It is not uncommon for firms in the same industry, particularly in concentrated sectors, to take similar actions (or inaction), including declining to lower prices for fear of setting off a price war or bundling products and services,” they write.
If the Bells were to lose, however, they would be vulnerable to future lawsuits and, if they didn’t settle, would have to go through the discovery process, the Stifel Nicolaus analysts, and Schnee, say. Anyone from consumers to states’ attorneys general could come out of the woodwork and accuse the phone companies of antitrust actions in hopes of winning big dollars, Schnee says. The case, he adds, “is something which in and of itself could be important, but also could be the first little stone that drops off the hill and becomes a landslide.”
Stifel Nicolaus analysts also say the court’s decision could impact net neutrality rules and regulations. “One obvious restraint on Internet backbone providers' ability to increase charges to application providers is those firms' ability to move to a competing network owner,” they write. “The Twombly decision could affect the exposure of network owners to antitrust suits if, for example, AT&T started demanding payment for enhanced treatment and Verizon followed suit, or if all wireless operators started allowing only their own content over their networks.”
Probe Financial Associates Inc. www.probefin.com
Stifel Nicolaus www.stifel.com
