Bell Atlantic, Nynex sue to bar AT&T-McCaw deal

August 09, 1994|By Michael Dresser | Michael Dresser,Sun Staff Writer

The $12.6 billion merger of AT&T Corp. and the nation's largest cellular phone company, conditionally approved by the Justice Department last month, ran into a new obstacle yesterday as Bell Atlantic Corp. and Nynex Corp. filed a lawsuit seeking to squelch the deal.

The suit, filed by the two regional Bell companies and their cellular subsidiaries under the Clayton antitrust law, asks the federal court in New York's Eastern District to issue an injunction forbidding AT&T's acquisition of McCaw Cellular Communications Inc.

After a lengthy review, the Justice Department on July 15 announced a settlement under which it would let the merger proceed so long as AT&T took steps to ensure that the deal wouldn't have anti-competitive effects. Yesterday, a Bell Atlantic spokesman denounced those conditions as "inadequate."

In their suit, Bell Atlantic and Nynex charge that AT&T has already abused its position as the nation's largest provider of cellular network systems to favor McCaw and put them at a disadvantage. They also allege that by acquiring McCaw, AT&T would eliminate an important competitor in the long-distance cellular market.

AT&T issued a statement saying the suit was "without merit" and that it was confident that the merger would be completed on schedule. A Justice Department spokesman said no antitrust officials were available for comment.

If completed, the merger would create a telecommunications giant that is expected to become the dominant carrier in the rapidly evolving wireless telephone market. The industry newsletter Telestrategies Insight recently predicted a combined AT&T-McCaw could seize 60 percent of the market for such "personal communications services," leaving the regional Bells to fight with MCI, Sprint, the cable television industry and other players for the scraps.

Yesterday's lawsuit seeks to prevent that outcome, contending that the merger will give AT&T "both the ability and a strong incentive to use its dominant market power in the supply of cellular network equipment to cripple Nynex Mobile and Bell Atlantic Mobile as competitors of McCaw."

The suit alleges that the impact of the merger would be felt especially severely in the New York market, where Bell Atlantic and Nynex have long operated a cellular telephone company as a joint venture that competes with McCaw. Nynex is the regional Bell company serving New York, while Bell Atlantic includes suburban New Jersey in its territory.

According to the plaintiffs, AT&T is the principal supplier of cell sites and cellular telephone switching systems to Bell Atlantic and Nynex. For that reason, the suit alleges, AT&T is privy to confidential information about its customers' plans for expansion, innovations and marketing.

Bell Atlantic and Nynex said in their suit that it would cost them almost $1 billion to replace AT&T as their equipment supplier. One reason, they allege, is that AT&T has designed its cellular network systems to be incompatible with other manufacturers' equipment.

The suit charges that since the McCaw merger was announced, AT&T has taken several steps to favor it over Bell Atlantic and Nynex. According to the suit, those include refusing to renew Bell Atlantic Mobile leases of space on its radio towers and delaying software upgrades for the Bell Atlantic-Nynex partnership until McCaw could catch up.

AT&T denounced the suit as a "double end-run" around the Justice Department and the federal District Court in Washington, where Judge Harold Greene is expected to review the merger settlement.

The Bell Atlantic-Nynex case is the second antitrust challenge to the McCaw acquisition to be brought by a regional Bell company. BellSouth Corp. has a case pending before Judge Greene in which it claims the deal would violate the consent decree that broke up the old Bell system a decade ago.

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