MCI’s Damage Award Only $37.7 Million in AT&T; Antitrust Case
Although agreeing Tuesday that giant AT&T; illegally sought to keep its much smaller competitor MCI Communications out of the long-distance telephone business in the early 1970s, a federal court jury awarded MCI damages of only $37.7 million--a small fraction of the $5.8 billion that MCI sought.
Under federal antitrust law, the award automatically triples to $113.1 million.
“We are not happy with the damages,” declared William G. McGowan, MCI’s founder, chairman and chief executive. “We should have gotten a lot more.” McGowan said MCI would appeal.
An AT&T; spokesman called the award “in line with the evidence that was presented.” AT&T; had conceded that some of the damages were warranted but placed them between $7.5 million and $36.4 million.
The civil case went to jury last Wednesday after nearly seven weeks of proceedings. After three days of deliberations, the 11 jurors returned from the long Memorial Day weekend with their verdict.
It was the second trial on the antitrust charges--and a decidedly less successful one for MCI.
In 1980, a jury awarded MCI $600 million, tripled to $1.8 billion--the largest award in U.S. history. An appeals court later voided that award, however, threw out all but six of 21 antitrust charges against AT&T; and ordered a new trial.
Losses Recalculated
By the time the new trial began seven weeks ago, MCI had recalculated its losses. It submitted a financial study that showed projected losses based on its claims that AT&T;’s anti-competitive actions had hampered MCI’s planned expansion and development, depriving it of revenue.
Those projected losses, MCI maintained, totaled $2.9 billion, which it asked to be doubled to $5.8 billion to cover taxes on the award.
Thus, AT&T; could have been liable for up to $17.4 billion after tripling MCI’s claim for $5.8 billion in damages.
AT&T; conceded responsibility for some antitrust violations from 1972 through 1974 but argued that only actual--and not projected--losses should count in determining the amount of the award. It said MCI’s only damages stemmed from difficulties encountered by MCI’s original microwave network, which relied on AT&T-owned; local connections to originate and complete long-distance calls.
MCI claimed damages as well for projected losses from its Execunet system, as its current long-distance service is called. Although Execunet did not exist at the time of the antitrust violations, MCI maintained that its efforts to develop and expand operations were so hampered that at one point 200 of its 700 workers had to be laid off because MCI lacked access to adequate local connections for all its customers.
U.S. District Court Judge John F. Grady instructed the jurors to separate the award, if any, into two parts: damages to Execunet and damages to the actual service in operation at the time of the violations. The jury responded by awarding nothing for losses to Execunet.
Regionals to Share Liability
In the intervening years since the 1980 trial, AT&T; was forced to spin off its local telephone companies into seven independent regional companies in order to settle a longstanding antitrust suit brought by the federal government. The breakup of the Bell System left AT&T; with the long-distance service but gave local operations to the seven newly independent companies.
Under the terms of that breakup agreement, AT&T; and the seven regional companies are jointly liable for MCI’s damage award--AT&T; for 31.5% of the total, with the balance apportioned among the seven regional companies.
Denver-based US West has already settled privately with MCI for an estimated $63 million, exempting it from further liability. That leaves the remaining six regionals--including San Francisco-based Pacific Telesis Group, parent of Pacific Bell--to pay about $12 million each.
“It’s a major victory for AT&T;,” said Bradford L. Peery of Hicks-Peery, a Tiburon, Calif., investment banking firm specializing in telecommunications. “The settlement, I think, is a reasonable one.”
Peery saw the verdict as clearing the air for AT&T; and the regionals while possibly damaging MCI. “It could be a major negative shock for some investors,” he explained. “I’m sure there are some knowledgeable investors who were betting on a larger figure.”
Many securities analysts had estimated that MCI’s award would be in the $1-billion range after tripling.
MCI’s stock, which was the most actively traded over-the-counter stock Tuesday, closed at $8.125, down $1.75. Volume totaled more than 4 million shares.
AT&T; led the NYSE’s most-active list, closing up 87.5 cents to $24.125 with more than 2 million shares changing hands.
More to Read
Inside the business of entertainment
The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.
You may occasionally receive promotional content from the Los Angeles Times.