<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 8, 1994
McCAW CELLULAR COMMUNICATIONS, INC.
A Delaware Commission File I.R.S. Employer
Corporation No. 1-9854 No. 91-1379052
5400 Carillon Point, Kirkland, Washington 98033
Telephone Number (206) 827-4500<PAGE>
<PAGE> 2
Item 5. Other Events.
On August 8, 1994, Bell Atlantic Corporation, Bell Atlantic
Mobile Systems, Inc., NYNEX Corporation and NYNEX Mobile
Communications, Inc. filed suit against AT&T Corp. ("AT&T") and
McCaw Cellular Communications, Inc. (the "Company") in the United
States District Court for the Eastern District of New York. A
copy of the complaint is attached hereto as Exhibit 99(a).
The complaint alleges that the Company's proposed merger
(the "Merger") with a subsidiary of AT&T would violate Section 7
of the Clayton Act by decreasing competition in local cellular
telephone service markets and eliminating competition between
AT&T and the Company in the long distance cellular service
market. The plaintiffs request a prompt hearing, a preliminary
injunction, a judgment that the Merger violates Section 7 of the
Clayton Act, and a permanent injunction prohibiting AT&T and the
Company from merging, consolidating or affiliating pursuant to
the Merger or otherwise and prohibiting AT&T from acquiring any
direct or indirect interest in the Company, in addition to costs
and reasonable attorneys' fees. The obligations of AT&T and the
Company to consummate the Merger are subject to the condition
that there be no preliminary or permanent injunction by any court
prohibiting consummation of the Merger or permitting such
consummation only subject to any conditions or restrictions
unacceptable to AT&T in its reasonable judgment. Although the
Company believes that the plaintiffs are not entitled to the
relief sought, there can be no assurance that AT&T and the
Company will prevail in this action.
The closing of the Merger is also subject to the receipt of
Federal Communications Commission approval and a waiver from the
United States District Court for the District of Columbia as
required by its April 5, 1994 Order in the case entitled United
States v. Western Electric Co. Inc., et al., Civil Action No. 82-
0192, declaring that AT&T's acquisition of the Company's interest
in cellular properties controlled by a Bell Operating Company
would violate section I(D) of the Modification of Final Judgment,
United States v. American Telephone & Telegraph Co., 552 F. Supp.
131, 225-34 (D.D.C. 1982), aff'd sub nom. Maryland v. United
States, 460 U.S. 1001 (1983). AT&T has filed its request for
such waiver and oral argument took place on July 21, 1994. There
can be no assurance as to whether, or when, the court will grant
any such waiver or modification.
<PAGE>
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial statements of businesses to be acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit
Number Description
99(a) Complaint, dated August 8, 1994<PAGE>
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
McCAW CELLULAR COMMUNICATIONS, INC.
ANDREW A. QUARTNER
-------------------------------
Andrew A. Quartner
Senior Vice President-Law
Date: August 10, 1994<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number
99(a) Complaint, dated August 8, 1994
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
- - --------------------------------------- )
BELL ATLANTIC MOBILE CORPORATION, )
BELL ATLANTIC MOBILE SYSTEMS, INC., )
NYNEX CORPORATION, and )
NYNEX MOBILE COMMUNICATIONS CO., )
)
Plaintiffs, )
)
v. ) Civil Action No. ___
)
AT&T CORP. and )
McCAW CELLULAR COMMUNICATIONS, INC., )
)
Defendants )
)
- - --------------------------------------- )
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF
NATURE OF ACTION
1. This is an action pursuant to Section 7 of the Clayton
Act for preliminary and permanent injunctive relief against a
merger that will create the only fully integrated telephone
company in the United States, with a unique and dominant position
at each level of the cellular industry. The challenged merger
would combine defendant AT&T, the largest supplier of long
distance phone service and cellular network equipment in the
U.S., with defendant McCaw Cellular Communications, the nation's
largest provider of local cellular phone service and an important
competitor of AT&T in supplying long distance service to those
markets.
2. This combination will allow AT&T to inflict severe
damage on its cellular competitors and to raise the price of
cellular service, harming competition and the public. The
proposed merger will have a particularly severe anticompetitive
effect on plaintiffs NYNEX and Bell Atlantic, and their principal
cellular subsidiaries, plaintiffs NYNEX Mobile and Bell Atlantic
Mobile. NYNEX Mobile and Bell Atlantic Mobile are important
competitors of McCaw in supplying cellular phone service,
including in the New York Metropolitan area, the nation's largest
cellular market. NYNEX Mobile and Bell Atlantic Mobile are
depending on AT&T to supply critical cellular network equipment
for their local cellular services. If the proposed merger
proceeds, AT&T will have 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.
3. The merger will also substantially lessen competition
in the national and regional markets for long distance cellular
telephone service. McCaw is an important competitor of AT&T:
AT&T and McCaw are the two largest providers of long distance
cellular service to cellular phone customers in many regional
markets, including the New York metropolitan area, and McCaw is
the second largest provider of long distance cellular service to
cellular phone customers nationally. McCaw's elimination as a
competitor of AT&T in these already highly concentrated markets
will further harm consumers and plaintiffs.
4. Because of the clear anticompetitive effects of the
merger, the Department of Justice has challenged the merger as a
violation of Section 7 of the Clayton Act. The government's
complaint specifically alleges that the proposed merger will
increase "AT&T's incentives and abilities to disadvantage its
locked-in equipment customers that currently compete against
McCaw," that the merger is "likely to reduce competition," and
that it will result in "higher prices and lower quality service
for consumers." This separate case by plaintiffs NYNEX, NYNEX
Mobile, Bell Atlantic and bell Atlantic Mobile is necessary
because, notwithstanding this substantial harm to competition,
the government decided not to seek to enjoin the merger.
Instead, the government agreed with AT&T not to pursue its case
in exchange for only limited conditions on the future conduct of
AT&T and McCaw that cannot prevent the serious and far-ranging
anticompetitive effects that will result from this transaction.
Only a preliminary and permanent injunction against the proposed
merger will prevent immediate, substantial and irremediable
injury to competition, plaintiffs and the public.
JURISDICTION AND VENUE
5. This action is instituted under Section 16 of the
Clayton Act, 15 U.S.C. Section 26, to prevent and restrain
violations of Section 7 of the Clayton Act, 15 U.S.C. Section 18.
This Court has jurisdiction pursuant to 28 U.S.C. Sections 1331
and 1337. Venue is proper in this District under Section 12 of
the Clayton Act, 15 U.S.C. Section 22, and 28 U.S.C. Section
1391, because each of the defendants maintains an office, has
agents, transacts business or is found in this District.
THE PARTIES
6. Plaintiff Bell Atlantic Corporation is a Delaware
corporation, with its principal place of business in
Philadelphia, Pennsylvania. Bell Atlantic was formed in 1983 as
the parent company of traditional wireline telephone companies
that operate in the mid-Atlantic region. Bell Atlantic's local
telephone subsidiaries provide wireline telephone service in New
Jersey, Pennsylvania, Delaware, the District of Columbia,
Maryland, Virginia and West Virginia. In addition to its
traditional phone service, Bell Atlantic provides cellular
service through several subsidiaries, including its wholly-owned
subsidiary, Bell Atlantic Mobile Systems, Inc.
7. Plaintiff Bell Atlantic Mobile Systems, Inc. is a
Delaware corporation, with its principal place of business in
Bedminster, New Jersey. Bell Atlantic Mobile, directly and
through affiliates, operates local cellular phone systems in 15
States and the District of Columbia. In addition to the States
served by Bell Atlantic's wireline telephone subsidiaries, Bell
Atlantic Mobile and its affiliates operate cellular phone systems
in New York, Connecticut, Massachusetts, Rhode Island, North
Carolina, South Carolina, Arizona, New Mexico and Texas. Bell
Atlantic Mobile's cellular service covers such major metropolitan
areas as New York, Pittsburgh, Philadelphia, Baltimore,
Washington and Wilmington.
8. Plaintiff NYNEX Corporation is a Delaware corporation,
with its principal place of business in New York, New York.
NYNEX was formed in 1983 as the parent company of traditional
wireline telephone companies that operate in the New York-New
England region. NYNEX's local telephone subsidiaries provide
wireline telephone service in New York, Connecticut,
Massachusetts, Rhode Island, Vermont, New Hampshire and Maine.
In addition to its traditional phone service, NYNEX provides
cellular service through its wholly-owned subsidiary, NYNEX
Mobile Communications Co.
9. Plaintiff NYNEX Mobile Communications Co. is a Delaware
corporation, with its principal place of business in Orangeburg,
New York. NYNEX Mobile, directly and through affiliates,
operates or owns interests in local cellular phone systems in New
York, Connecticut, Massachusetts, Rhode Island, New Hampshire and
Maine. NYNEX Mobile is a partner of Bell Atlantic Mobile in
providing cellular service in the New York metropolitan area.
Other major metropolitan areas served by NYNEX Mobile include
Boston, Hartford, Albany and Providence.
10. Defendant AT&T Corp. is a New York corporation, with
its principal place of business in New York, New York. AT&T is
the largest telecommunications company in the U.S., with 1993
revenues of over $67 billion. AT&T dominates two essential
inputs to cellular phone service: the development, manufacture,
supply and maintenance of cellular network equipment and the
supply of long distance service to local cellular systems and
cellular customers. In the United States, AT&T currently
provides approximately 65 percent of all long distance service,
over 80 percent of cellular long distance service and about 40
percent of cellular network equipment.
11. Defendant McCaw Cellular Communications, Inc. is a
Delaware corporation, with its principal place of business in
Kirkland, Washington. McCaw is the largest provider of cellular
phone service in the United States. McCaw and its affiliates
operate cellular phone systems in 25 states and 121 metropolitan
and rural markets, covering about 25 percent of the U.S.
population. McCaw is also an important supplier, both directly
and as a reseller, of long distance cellular service to many of
those markets, including the New York metropolitan area. McCaw
provides cellular phone service in competition with NYNEX Mobile
and Bell Atlantic Mobile in the New York metropolitan area.
Other major metropolitan areas served by McCaw include
Pittsburgh, Dallas, Houston, Los Angeles, Miami, Portland, St.
Louis, San Francisco and Seattle. The overlap of McCaw's
cellular service with cellular service provided by NYNEX Mobile
and Bell Atlantic Mobile in the greater New York metropolitan
market is shown on the map on the following page:
[Map of New York Metropolitan Area depicting the
NYNEX Mobile-Bell Atlantic Mobile vs. McCaw
Market Overlap]
TRADE AND COMMERCE
12. There are three separate product or service markets
that are relevant to this action.
a. the market for local cellular phone service, which
enables customers with mobile cellular phones, typically car
phones or portable phones, to place and receive telephone
calls within a local calling area;
b. the market for cellular network equipment, which
carries calls from cellular phones to their intended
destinations; and
c. the market for long distance cellular service (or
"interexchange" cellular service), which allows cellular
phone customers to place calls to locations outside their
local calling area.
Although each of these product or service markets has its own
technical and economic characteristics, there are closely
interrelated in the overall supply of cellular phone service to
the public.
Local Cellular Phone Service
13. Local cellular calls are carried through the air by
radio transmissions, rather than over the traditional wireline
telephone network. However, local cellular phone systems are
connected with traditional wireline telephone networks so that
cellular users can make and receive long distance calls and calls
to and from traditional wireline telephones.
14. Suppliers of local cellular phone service operate on
either of two bands of FCC-licensed radio frequencies, referred
to as the "A-side" and the "B-side." The FCC has awarded one A-
side and one B-side license in each of 306 metropolitan areas and
428 rural areas. Because of the FCC's licensing policy, there
are only two cellular phone networks operated in each licensed
area. This means that McCaw has only one network competitor in
the local service areas where McCaw or its affiliates operate.
In the New York metropolitan area shown in the map in paragraph
11, McCaw's only network-based competitor for over 15 million
people is the NYNEX Mobile-Bell Atlantic Mobile system.
15. Demand for local cellular phone service is growing
rapidly. NYNEX Mobile's subscriber base has been increasing by
approximately 60 percent per year, while Bell Atlantic Mobile's
subscriber base has been increasing by approximately 55 percent
per year. According to McCaw's 1993 Annual Report, its larger
subscriber base grew 46 percent in 1993.
Cellular Network Equipment
16. Cellular network equipment has two main components:
cell sites and mobile telephone switching offices. A cell site
is composed of radios and associated equipment that provides
radio connections to customers' cellular telephones. Each cell
site handles the cellular calls made or received within a
geographic area that is commonly called a "cell." Providers of
local cellular phone service divide the area they serve into a
number of different cells, each with its own cell site.
17. Each cell site is connected by a wire or radio link to
a specialized computer, called a mobile telephone switching
office (a "switch"). The switch controls the "handoff" of calls
from one cell site to another as the customer using a mobile
phone moves between cells during a call. The switch also routes
calls between the appropriate cell site and the wireline
telephone network. A single switch hands scores of individual
cell sites. The NYNEX Mobile-Bell Atlantic Mobile New York
metropolitan system currently is divided into over 300 cells and
uses three switches. This is illustrated on the map on the
following page:
[Map of New York Metropolitan Area depicting
NYNEX Mobile-Bell Atlantic Mobile Partnership Markets, and
the AT&T Cell Sites (310) and AT&T Switches (3)
within those markets]
18. Currently, the principal method of expanding the
capacity of a cellular system is to add new cell sites. This
allows a cellular provider to use its radio frequencies more
efficiently. As demand increases, a cellular provider must also
install additional switches.
19. AT&T is the largest manufacturer of telecommunications
equipment in the U.S. It is also the largest manufacturer of
cellular network equipment, with approximately 40 percent of that
market. The market for cellular network equipment is national in
scope, is highly concentrated, and has high barriers to entry.
The top four manufacturers -- AT&T, Motorola, Ericsson, and
Northern Telecom -- account for well over 90 percent of the
cellular network equipment market.
20. AT&T is the principal supplier of cellular network
equipment to NYNEX Mobile and Bell Atlantic Mobile. AT&T
supplies all of their cellular network equipment in the New York
metropolitan area, where they are in direct competition with
McCaw. By the end of this year, NYNEX Mobile, Bell Atlantic
Mobile and their partners will have deployed over 1000 AT&T cell
sites and 16 AT&T switches at a cost of approximately $1 billion.
The investment in AT&T equipment for the New York metropolitan
system alone is approximately $275 million. This investment is
growing rapidly to keep pace with the growth of subscribers. In
1994 alone, NYNEX Mobile and Bell Atlantic Mobile will invest
over $200 million in AT&T equipment. This includes over $65
million of added AT&T equipment for the New York system,
including 2 new switches and 60 new cell sites.
21. AT&T has purposefully designed its cellular network
equipment in the U.S. so that it is not compatible with equipment
made by other manufacturers. For example:
a. AT&T has designed its U.S. cellular switches so
that they cannot be used with cell sites from other
manufacturers. The equipment interfaces between AT&T
switches and AT&T cell sites are "proprietary," not "open."
In order to expand capacity, therefore, a local cellular
provider with AT&T switches must obtain additional cell
sites from AT&T. By contrast, the switches that AT&T sells
in the European market can be used with cell sites from
different manufacturers -- i.e., there is an open interface
between the switch and the cell site. AT&T has opposed the
adoption of a U.S. equipment standard that would permit its
U.S. switches to connect to cell sites of different
manufacturers.
b. AT&T has also designed its switches to function
more efficiently with other AT&T switches than with switches
of other manufacturers. if a cellular provider does not use
exclusively AT&T switches for contiguous markets, customers'
calls across the market boundary are handled less
efficiently and less effectively -- with many more calls
improperly dropped -- and customers cannot use their
cellular service in the same way and with the same
specialized calling features as they move from place to
place. For these reasons, NYNEX Mobile uses only AT&T
switches in the contiguous Northeast systems it operates
from New York to New Hampshire, and Bell Atlantic Mobile has
deployed only AT&T switches in its mid-Atlantic markets from
greater New York to Virginia.
c. Finally, AT&T has designed is cellular network
equipment so that only AT&T can write additional or upgraded
software that functions with existing AT&T hardware and
software. Software upgrades typically are required for a
cellular carrier to offer new services and features, make
efficiency-enhancing improvements in its cellular network
and correct network problems. Because only AT&T can provide
this software, AT&T controls the introduction of new
features, services and network improvements by NYNEX Mobile
and Bell Atlantic Mobile.
22. AT&T's equipment customers are also critically
dependent on AT&T for ongoing engineering support, maintenance
and repair of their equipment. Only AT&T can install an AT&T
switch, perform critical testing of AT&T equipment, and perform
other types of support needed to maintain, expand and improve the
quality of a cellular network that uses AT&T equipment.
23. Because of these design, interface, supply and support
constraints, AT&T has effectively "locked-in" NYNEX Mobile and
Bell Atlantic Mobile to AT&T's equipment. If NYNEX Mobile or
Bell Atlantic Mobile were to replace an AT&T switch with another
manufacturer's switch, they would be required to replace all of
the cell sites connected to that switch. Similarly, because of
the reduced quality of service resulting from the connection of
different manufacturers' switches, if NYNEX Mobile or Bell
Atlantic Mobile were to replace one or more AT&T switches with
another manufacturer's switches, they would be compelled to
change out additional switches and cell sites to avoid loss in
the quality of service.
24. Undertaking such a massive change out of AT&T as NYNEX
Mobile's or Bell Atlantic Mobile's equipment supplier is neither
financially nor commercially feasible. It would cost Bell
Atlantic Mobile over $750 million to change out its AT&T
equipment, including the New York market where Bell Atlantic
Mobile and NYNEX Mobile are partners. It would cost NYNEX Mobile
approximately $200 million more to change out its AT&T equipment
excluding the New York market. These amounts are continually
increasing because of the rapid growth in cellular systems. Such
a change out of the AT&T equipment would also result in severe
service degradation that would have a substantial adverse impact
on NYNEX Mobile's and Bell Atlantic Mobile's customer base.
25. AT&T's position as cellular equipment supplier to NYNEX
Mobile and Bell Atlantic Mobile also gives AT&T access to large
amounts of their confidential operating and customer information.
For example, in maintaining the software for switches, AT&T
personnel have access to NYNEX Mobile's and Bell Atlantic
Mobile's highly-sensitive customer usage data, operating
statistics, and information about locations where they are
experiencing network problems. AT&T also obtains advance
information about planned service expansions, service
innovations, and marketing and sales plans long before such
information is announced publicly.
Long Distance Cellular Service
26. In addition to the ability to place and receive local
calls, cellular phone customers demand the ability to place calls
to, and receive calls from, locations beyond the local calling
area. There are both national and regional markets for such long
distance cellular service. Some firms -- such as AT&T, MCI and
Sprint -- provide long distance cellular service nationally,
while others have limited their services to particular regions of
the country and to service between particular cities where there
is a high volume of calls.
27. In both the national and regional markets, there are
two types of providers of long distance service to cellular
customers (i) facilities-based carriers -- i.e., firms that sell
long distance service over their own facilities to individual
cellular phone users and others, and (ii) resellers -- i.e.,
firms that buy long distance service in bulk at a low "wholesale"
rate from facilities-based carriers and then resell the service
to cellular customers at a "retail" rate in competition with
facilities-based carriers. Some long distance providers (such as
AT&T) are only facilities-based carriers; some are only
resellers; and some (such as McCaw) are both.
28. All of the long distance cellular markets are highly
concentrated and have high barriers to entry. This is true
whether long distance cellular markets are examined nationally or
regionally. From the perspective of facilities-based providers
of long distance service, AT&T provides over 80 percent of the
long distance cellular service sold to resellers and individual
cellular phone users.
29. McCaw is an important competitor of AT&T in both the
national and certain regional markets for long distance cellular
service as both a reseller and a facilities-based carrier:
a. As the country's largest supplier of cellular
service, with approximately 3 million customers nationwide,
McCaw is able to buy long distance service at very
attractive bulk rates, which it then resells to its cellular
customers at retail rates in competition with AT&T.
b. McCaw also uses its own facilities (i.e.,
switches, microwave links, etc.) to compete with AT&T as a
carrier of long distance cellular service. Prior to the
announcement of McCaw's agreement to merge with AT&T, McCaw
had begun an aggressive build out of its facilities-based
long distance network.
c. From the perspective of ultimate purchasers of
long distance cellular service (individual phone users),
McCaw is the country's second largest provider of long
distance cellular service, accounting for approximately 20
percent of long distance cellular service nationally.
Moreover, in certain regional markets such as the New York
metropolitan area, McCaw provides in excess of 50 percent of
long distance cellular service. McCaw's presence as a
reseller and facilities-based carrier in the long distance
cellular service market exerts substantial competitive
pressure on AT&T.
30. In contrast to McCaw, plaintiffs are barred by a 1982
decree from providing long distance service to their customers.
Consequently, NYNEX Mobile and Bell Atlantic Mobile cannot pursue
McCaw's practice of constructing its own long distance facilities
or buying long distance services at bulk rates and offering them
to its customers at retail rates. Instead, NYNEX Mobile and Bell
Atlantic Mobile are dependent on AT&T and other long distance
carriers to provide their cellular customers with long distance
service at rates that will let them compete with McCaw and
others.
THE PROPOSED MERGER AND ITS
PROBABLE ANTICOMPETITIVE EFFECTS
31. AT&T has announced its intention to consummate its
proposed merger with McCaw by September 30, 1994. AT&T
reportedly will acquire all of McCaw's stock in exchange for
$12.6 billion in AT&T stock. In addition, AT&T will assume $4.9
billion of McCaw debt, bringing AT&T's cost for the transaction
to $17.5 billion. AT&T has further announced that it will
finance McCaw's purchase of the remaining shares of LIN
Broadcasting, a cellular affiliate of which McCaw presently owns
52 percent and which provides cellular service to the New York
metropolitan area. The LIN transaction will be consummated in
early 1995 at a cost of approximately $3 billion to AT&T,
bringing AT&T's total acquisition costs to over $20 billion.
32. AT&T, as the surviving entity, will be the country's
largest provider of local cellular phone service, its largest
manufacturer of cellular network equipment, and its largest
supplier of long distance cellular service. As a result of this
far-reaching horizontal and vertical combination, AT&T will
occupy the unique position of being the only fully integrated
company in the U.S. cellular industry. In the current regulatory
and economic environment, no other company is in a position to
match the degree of integration and the immense size of the
merged AT&T-McCaw.
33. AT&T has announced post-merger plans to begin reselling
local cellular phone service, in combination with its cellular
long distance service, in markets where McCaw does not currently
operate. As a result, the combined AT&T-McCaw will likely become
a competitor of NYNEX Mobile and Bell Atlantic Mobile in many
additional local cellular phone service markets.
34. If the merger is allowed to proceed, AT&T will have the
clear market power and an enhanced economic incentive
substantially to lessen competition in each of the relevant
markets. In particular, by combining McCaw's commanding position
in local cellular service with AT&T's dominance over the cellular
equipment and long distance markets, and by eliminating McCaw as
a competitor in the long distance cellular markets, AT&T will be
able to cause substantial harm to competition, to plaintiffs and
to cellular consumers in at least two respects.
Anticompetitive Effects From AT&T's Control Over Cellular Network
Equipment
35. As previously alleged, AT&T currently enjoys
substantial power over NYNEX Mobile and Bell Atlantic Mobile
because they are "locked-in" to AT&T for the cellular network
equipment and related service that they need in today's rapidly
expanding cellular phone service markets. Because of AT&T's
power, it has the ability to raise NYNEX Mobile's and Bell
Atlantic Mobile's equipment costs, constrict the flow of
equipment needed to expand capacity, and limit or delay the
supply of new features -- all of which are critical to their
ability to serve existing and new cellular customers.
36. Before the proposed merger, AT&T had no reason to cause
injury to NYNEX Mobile or Bell Atlantic Mobile, which were
customers of AT&T but not its competitors. After the merger,
however, AT&T will have a powerful incentive to harm NYNEX Mobile
and Bell Atlantic Mobile both in markets where they currently
compete with McCaw (such as the greater New York metropolitan
area) and in new markets where AT&T enters into alliances and
resale agreements with other cellular carriers that compete with
NYNEX Mobile or Bell Atlantic Mobile.
37. Because of its power over NYNEX Mobile and Bell
Atlantic Mobile with respect to cellular network equipment, AT&T
will be able to harm consumers, NYNEX Mobile and Bell Atlantic
Mobile in several important respects:
a. AT&T will have both the ability and incentive to
harm NYNEX Mobile and Bell Atlantic Mobile by delaying the
supply of the new equipment, software upgrades and on-going
support and maintenance services needed to keep their
networks in efficient and competitive operation. AT&T can
do this by delaying the development, engineering and
delivery of new equipment and modifications that are crucial
to success in the fast-growing cellular industry. Such
discrimination need not be overt, since AT&T can determine
the time and effort allocated to re-engineer a customer's
cellular network, prioritize its engineering projects and
decide on the number and quality of personnel assigned.
because local cellular systems are expanding at a rate of
more than 50 percent per year, and NYNEX Mobile and Bell
Atlantic Mobile are currently adding 4000 new subscribers
each business day, NYNEX Mobile and Bell Atlantic Mobile are
installing, on average, more than one new cell site each
business day and have plans to add three new AT&T cellular
switches in the next six months. Thus, even short delays in
AT&T's responsiveness to NYNEX Mobile's and Bell Atlantic
Mobile's equipment and software needs will impose on them
substantial competitive harm.
b. AT&T will also have the ability and incentive to
charge its non-McCaw cellular network customers higher
prices than it charges McCaw for comparable equipment and
software. AT&T can purport to "justify" higher prices to
NYNEX Mobile and Bell Atlantic Mobile on the ground that
they have "different" network equipment requirements than
McCaw. Moreover, even if AT&T did not engage in such price
discrimination, it would still have the ability and the
increased incentive to raise prices of cellular network
equipment across the board, because the prices that it
charges to its new cellular division would be merely
accounting transfers, not real costs to AT&T, whereas the
increased costs to Bell Atlantic Mobile and NYNEX Mobile
would result in more profits for AT&T.
c. Finally, the proposed merger will give AT&T the
incentive to abuse the comprehensive competitive information
that it acquires as the major equipment supplier to NYNEX
Mobile and Bell Atlantic Mobile. Even if there were an
airtight barrier preventing AT&T from sharing this
information with McCaw, AT&T's own personnel -- including
those with detailed knowledge of NYNEX Mobile's and Bell
Atlantic Mobile's strategic business plans -- will be making
decisions affecting McCaw's ability to compete with NYNEX
Mobile and Bell Atlantic Mobile. AT&T's personnel will have
a powerful motive to favor McCaw's interests in such matters
as the allocation of development resources, the assignment
of personnel, the introduction of new features and service
enhancements, and the scheduled delivery of hardware and
software.
38. AT&T will also have a greatly enhanced incentive to use
these tactics to discipline NYNEX Mobile and Bell Atlantic Mobile
if they compete too vigorously with McCaw. For example, to
prevent NYNEX Mobile and Bell Atlantic Mobile from offering a
lower price than McCaw, AT&T will have the market power and
incentive to increase their costs by refusing to supply or
delaying shipments of additional equipment and upgrades, by
degrading the quality of AT&T's equipment support services, and
by raising equipment prices.
39. In anticipation of the consummation of its merger with
McCaw, AT&T has already begun to engage in anticompetitive acts
to the disadvantage of NYNEX Mobile, Bell Atlantic Mobile and
consumers. For example, shortly after the announcement of the
merger:
a. AT&T told Bell Atlantic Mobile that AT&T would not
enter into, or renew, long-term agreements to lease space on
AT&T radio towers that are needed to install and maintain
cell sites.
b. AT&T unilaterally imposed a significant increase
in software prices.
c. AT&T delayed the implementation of software
upgrades necessary for the NYNEX Mobile/Bell Atlantic Mobile
partnership in New York to lower cellular rates for certain
calls within localized calling areas. AT&T did not make the
required software changes available until McCaw was in a
position to provide comparable service.
d. AT&T slowed its development of the digital-capable
equipment requested by NYNEX Mobile and Bell Atlantic Mobile
for the greater New York area. McCaw's equipment provider
for the New York system -- Ericsson -- has already developed
digital-capable network equipment.
40. All of these actions by AT&T, as well as others it
could employ to disadvantage NYNEX Mobile and Bell Atlantic
Mobile in their competition with McCaw, would substantially harm
consumers and plaintiffs by increasing prices and degrading the
quality of service in the market for local cellular phone
service.
<PAGE>
Anticompetitive Effects from McCaw's Elimination as a Long
Distance Cellular Service Provider
41. In recent years there has been no effective price
competition among AT&T, MCI and Sprint in the pricing of their
long distance cellular services. To the contrary, AT&T, with its
dominant market power, functions as a price leader.
42. The proposed merger will aggravate the already highly
concentrated structure of the long distance cellular service
market by eliminating McCaw as an important competitor in that
market, both as a reseller of long distance service and as an
expanding facilities-based carrier. With the elimination of
McCaw, the downward pressure that McCaw's presence exerts on
prices will also be eliminated, thus making it easier for AT&T to
implement price increases for long distance cellular service,
adversely impacting competition, consumers in the long distance
cellular service market and plaintiffs.
43. The merger of AT&T, as the largest long distance
provider, with McCaw, the largest cellular provider that also
provides long distance service, would result in a unique and
severe harm to competition that would not occur as a result of
other combinations, such as AT&T's acquisition of a local
cellular company not currently providing long distance service or
the merger of a local cellular company with a non-dominant long
distance provider, such as Sprint or MCI.
DEPARTMENT OF JUSTICE SUIT AND PROPOSED CONSENT DECREE
44. As required by the Hart-Scott-Rodino Antitrust
Improvements Act, 15 U.S.C. Section 18a (1982), AT&T and McCaw
provided notification and supplied required information regarding
the proposed merger to the Antitrust Division of the Department
of Justice in the fall of 1993. During the government review
that followed, the Department requested and obtained a
substantial number of documents from AT&T and McCaw concerning
the anticompetitive effects of the merger.
45. On July 15, 1994, the United States Department of
Justice filed suit in the United States District Court for the
District of Columbia charging that "the proposed merger is likely
to reduce competition in the United States in the markets for
cellular service, cellular infrastructure equipment and
interexchange services to cellular customers" in violation of
Section 7 of the Clayton Act.
46. The present suit by plaintiffs is necessary because the
government, rather than pursuing its suit to obtain a preliminary
and permanent injunction, entered into a stipulation with AT&T
and McCaw agreeing to a proposed consent decree that was filed
with the court at the same time as the complaint. Instead of
enjoining consummation of the merger or providing other
meaningful relief, the proposed consent decree would permit the
AT&T-McCaw transaction to go forward with only ineffective
relief. AT&T's Vice President of Law and Public Policy stated on
the day the proposed consent decree was announced that it
"doesn't change the substance of the transaction." (Wall Street
Journal, July 18, 1994, at p. A5)
VIOLATION ALLEGED
47. The effect of the proposed merger of AT&T and McCaw may
be substantially to lessen competition in interstate trade and
commerce in violation of Section 7 of the Clayton Act, U.S.C.
Section 18, in the following ways, among others:
a. It will decrease competition in local cellular
telephone service markets by providing the combined AT&T-
McCaw with the ability and incentive to use AT&T's power in
the cellular network equipment market to restrict supply,
reduce quality, impose higher costs on and otherwise
disadvantage NYNEX Mobile and Bell Atlantic Mobile.
b. It will eliminate competition between AT&T and
McCaw in the highly concentrated market for long distance
service, thereby increasing the price of long distance
cellular service to the customers of NYNEX Mobile and Bell
Atlantic Mobile and harming plaintiffs.
RELIEF REQUESTED
WHEREFORE, plaintiffs ask for the following relief:
A. A prompt hearing to consider the entry of a preliminary
injunction.
B. A preliminary injunction to maintain the status quo by
preventing and restraining AT&T and McCaw, and all persons acting
on their behalf, from consummating the merger described in
paragraph 31 until the Court has ruled on the merits of this
complaint.
C. A judgment that AT&T's proposed acquisition of and
merger and consolidation with McCaw violates Section 7 of the
Clayton Act.
D. A permanent injunction enjoining (1) AT&T and McCaw
from merging, consolidating or affiliating pursuant to the merger
described in paragraph 31 or otherwise, and (2) AT&T from
hereafter acquiring any direct or indirect interest in McCaw.
E. An award to plaintiffs of relief, including their costs
and reasonable attorney's fees, as provided in Sections 4 and 16
of the Clayton Act, 15 U.S.C. Sections 15 and 26.
F. Such other and further relief as the Court deems just
and proper.
Dated: August 8, 1994
DONALD G. KEMPF, JR.
---------------------------
William R. Jentes, P.C. Donald G. Kempf, Jr. P.C.
Paul T. Cappuccio (DK-7304)
Steven G. Bradbury KIRKLAND & ELLIS
Jonathan F. Putnam 153 East 53rd Street
KIRKLAND & ELLIS New York, NY 10022-4675
Tel: (212) 446-4800
Mark L. Evans Fax: (212) 446-4900
MILLER & CHEVALIER
Counsel for Plaintiffs Bell
Stephen D. Susman Atlantic Corporation, Bell
Kenneth S. Marks Atlantic Mobile Systems, Inc.,
SUSMAN GODFREY, L.L.P. NYNEX Corporation, and NYNEX
Mobile Communications Co.
James R. Young
John Thorne
BELL ATLANTIC CORPORATION
S. Mark Tuller
BELL ATLANTIC MOBILE SYSTEMS, INC.
Raymond F. Burke
John M. Clarke
Gerald E. Murray
NYNEX CORPORATION
Donald C. Rowe
Katherine S. Abrams
NYNEX MOBILE COMMUNICATIONS CO.
