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Judge Limits Right of Baby Bell Firms to Manufacture

December 04, 1987|From Reuters

WASHINGTON — A federal judge Thursday sharply narrowed the kind of businesses open to the regional telephone companies following the breakup of American Telephone & Telegraph.

U.S. District Judge Harold H. Greene said in a ruling that the so-called Baby Bell firms cannot design and develop phones and other telecommunications products because such activity violated the terms of the AT&T divestiture.

AT&T, which now competes with the regional phone firms, had complained that Baby Bells were improperly engaged in manufacturing equipment.

The judge, who presided over the landmark divestiture of the Bell System in 1984, also took aim at Justice Department lawyers and the head of the Federal Communications Commission who have disagreed with his decisions.

In the breakup, manufacturing and long-distance service were left to AT&T and local phone service to the seven regional firms.

The regional firms argued that the decree only prohibited fabrication of equipment and was flexible as to design and development of technology essential to a modern phone network.

AT&T Sought Ruling

"AT&T asked the court to clarify this issue because there had been controversy about what was included within the definition of manufacturing under the divestiture decree," Edie Herman, an AT&T spokeswoman, said.

"Judge Greene's interpretation should benefit the telecommunications industry by resolving that controversy," she said.

The decision was the second setback for the large regional phone companies since September when Greene ruled that they could not sell information services or long-distance phone service. He also said manufacturing remained out of bounds.

AT&T and trade groups for manufacturers had complained, first to the Justice Department and then to Greene of alleged violations.

They cited products and joint ventures with manufacturing firms by several of the regional firms, including BellSouth, US West, Ameritech and Pacific Bell.

The principal business of the regional firms was the design, maintenance and operation of local phone networks, Greene wrote in his order.

He rejected Justice Department arguments that it was impossible to set boundaries on what could be allowed. While design and engineering for the phone network was allowed, similar work on telecommunications products, including phone equipment used by consumers, was prohibited, the judge said.

In a reaction, BellSouth said Greene's ruling "just about slams the door on the rapid development of new telecommunications services for small business and residential customers."

Benefit to Overseas Firms

The company said AT&T and foreign manufacturers were the beneficiaries and the public was the loser in the decision.

Greene said AT&T and the others were justified in their complaints that the Justice Department was not enforcing the decree, but the judge said he was reassured that the department would enforce the decree in the future.

"Unfortunately, not all officers of government are behaving with a like sense of responsibility," Greene wrote.

He said FCC Chairman Dennis Patrick recently urged the phone companies to refuse to comply with orders issued by the court. "An incitement to non-compliance, if successful, could . . . have serious consequences," Greene wrote.

He said the court would continue to minimize interference with FCC jurisdiction but that there should be no doubt the the court would enforce the decree.

Patrick, in a statement, denied that he had urged the phone companies to disobey the court.

"It is astonishing that a U.S. district court judge chose to ignore the existence of lawful procedures to alter a district court order. These procedures, briefs, appeals and legislative remedies are obviously what I had in mind," Patrick said.

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