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U.S.-Japan Undersea Cable Project Focus of Probe

Telecom: Justice Department is looking into whether AT&T-led group is hindering competition from rival Global Crossing.

July 01, 1999|From Bloomberg News

WASHINGTON — The Justice Department is investigating whether AT&T Corp. and other established telecommunications companies are using a $1-billion U.S.-Japan undersea cable project to squash competition from upstart Global Crossing Ltd.

Heeding Global Crossing's complaints, the Justice Department in recent days sent formal information requests to companies that are part of the AT&T group, including Sprint Corp. and MCI WorldCom.

Antitrust enforcers are "looking at the possibility of anti-competitive practices in the international undersea cable industry," said Justice Department spokeswoman Gina Talamona.

The probe could further shake up a business already encountering major changes because of the boom caused by Internet traffic. Cables laid by Global Crossing and Flag Ltd., a company whose investors include Bell Atlantic Corp., are vying for international traffic with lines owned by coalitions of established companies such as AT&T and Japan's Nippon Telegraph & Telephone Co.

Global Crossing, a 2-year-old, Bermuda-based company with offices in Los Angeles, claimed the 33-member AT&T group, known as the Japan-US Cable Network, doesn't give it a fair chance to fight for customers on that route.

Global Crossing said the coalition used the near monopolies enjoyed by two of its Japanese members--KDD Corp. and domestic leader NTT--to coerce small carriers into joining the group and shunning Global Crossing.

Japan-US Cable encountered similar arguments at the Federal Communications Commission, which is deciding whether to grant the group the necessary license for the transpacific project. Japan-US Cable's lawyer Phil Verveer said he expects approval within days.

"They essentially gave us a clean bill of health," Verveer said of the FCC. "That gives me a lot of confidence that when the antitrust division completes its work it will reach the same conclusion."

Global Crossing's shares rose 13 cents to $42.63 on Nasdaq. AT&T rose 19 cents to $55.81 on the New York Stock Exchange. MCI Worldcom shares plunged $7.56 to $86.06 on Nasdaq, but that appeared to stem largely from cautious comments by at least two Wall Street analysts about MCI's near-term earnings growth prospects.

The Wall Street Journal disclosed the Justice Department investigation Wednesday.

Global Crossing plans to begin providing service on its U.S.-Japan undersea cable in March. The company will compete for customers with Japan-US Cable, which has said its line will be ready by the middle of next year.

Both high-speed undersea cables could handle millions of simultaneous phone calls and boost capacity for phone and Internet traffic between the United States and Japan. In May 1998, Global Crossing began providing service on a cable connecting the U.S. and Britain, and it plans a network to connect 100 cities worldwide.

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