U.S. Probing Pacific Telesis Cellular Deals : Justice’s Antitrust Inquiry May Have Big Effect on Industry

In a probe that could have a major effect on the development of the nation’s cellular telephone system, the U.S. Department of Justice is investigating whether Pacific Telesis Group’s actual and planned purchases of certain companies in the cellular field violate antitrust laws.

Attorneys for Pacific Telesis, whose Pacific Bell unit already provides conventional local telephone service in most of California and Nevada, said Wednesday that two batches of documents have already been provided to department investigators and that a third set of documents is being assembled.

Cellular telephone technology can accommodate many more calls than traditional mobile telephone systems and is expected to vastly expand the market for car phones. In a little more than a year of operation, for example, PacTel Mobile Access of Costa Mesa, the Pacific Telesis unit offering cellular phone service in Los Angeles, has attracted 28,000 customers and is the largest such system in the world.

Objections Voiced

The current Justice Department probe was apparently triggered by Pacific’s attempt to enter the San Francisco Bay Area’s potentially lucrative cellular phone market. In March, Pacific bought a 23.5% stake in Bay Area Cellular Telephone, one of two licensees authorized to provide service in the area.

Pacific purchased its stake over the strenuous objections of McCaw Cellular Communications, which owns a 35.25% interest in Bay Area Cellular.

McCaw expressed further objections in May when Pacific Telesis agreed to buy Communications Industries of Dallas for $432 million. Communications Industries has interests in cellular systems in six of the nation’s top 30 markets--including a 23.5% stake in Bay Area Cellular.

In a civil antitrust suit filed here last month, McCaw charged that Pacific’s purchases were designed to prevent Bay Area Cellular from competing effectively with Pacific Bell’s existing monopoly for standard local phone service.

If the proposed acquisition of Communications Industries goes through, the lawsuit predicted that “the result will be that the development of cellular telephone service in the market will be retarded, that competition from cellular telephone technology will be suppressed and that Pacific Telesis’ longstanding monopoly position will be protected.”

McCaw has been cooperating with Justice Department investigators, a McCaw attorney said.

No Direct Competition

Pacific Telesis has yet to file its answer to McCaw’s complaint, but in an interview Wednesday, an attorney for the company dismissed McCaw’s charges.

“The very quick introduction of our cellular system in Los Angeles demonstrates that Pacific Telesis has a strong desire to bring cellular services with state-of-the-art technology to the public as soon as possible,” he said.

The attorney argued that cellular and standard phone services don’t really compete because of big differences in pricing and constraints on the capacity of cellular systems. And a Pacific Telesis spokesman noted that the Federal Communications Commission had approved the company’s purchase of its initial 23.5% stake in Bay Area Cellular.

Under FCC regulations, two franchises for cellular service are being awarded in each city, one to a local phone company and one to any other company or combination of companies (the so-called non-wire-line companies). The idea was to spur competition.

If its acquisition of Communications Industries goes through, Pacific Telesis would pick up stakes in non-wire-line franchises in such other major markets as San Diego, Atlanta, St. Louis, Dallas and Tampa-St. Petersburg, Fla.

Pacific has said it would sell off the San Diego franchise since the company already has a franchise there.

Justice Department investigators are also scrutinizing the transaction because it marks the first time that a regional phone company has made a foray into cellular franchises outside its own service area. But “the inquiries directed to us in the cellular area have dealt with the California operations,” Pacific Telesis lawyers said.

The outcome of the Justice probe will probably decide the direction of the cellular industry.

“This industry is still in its infancy. The game is so new that everybody is still trying to figure out the rules. This will help shape them,” said Robert W. Maher, executive director of the Cellular Telecommunications Industry Assn., a Washington trade association.

Threat Doubted

Robert B. Morris III, a telecommunications analyst with San Francisco-based Montgomery Securities, said he doubted that Pacific Telesis’ purchases pose a threat to competition.

He noted that the FCC has mandated that cellular franchisees make their services available to third-party “resellers” to enhance competition.

In addition, the agency has withheld some radio frequencies from existing licensees with the idea of later adding a third player if markets seem uncompetitive.

Finally, he noted that regional phone companies like Pacific Telesis have more financial clout than many of the non-wire-line franchisees.

“It’s in the interest of competition to have two strong competitors in each market,” he said.

A spokesman for GTE-Mobilnet, the other franchisee in the Bay Area, declined comment on the Justice Department probe.