Use of Phone Revenue Is Questioned by Judge
U.S. District Judge Harold Greene expressed concern Friday that the regional telephone companies created by the divestiture of American Telephone & Telegraph may be using revenue supplied by local telephone customers to finance their expansion into “nationwide conglomerates.”
“One can’t help but have the sense that rate payers, instead of financing their local telephone calls, are financing expansion into other things,” he said.
Greene, who presided over the court-supervised divestiture of AT&T;, made his comments at a hearing in which Pacific Telesis asked for approval to acquire Communications Industries, a Dallas-based paging and cellular mobile company. The deal would enable Pacific Telesis to operate cellular mobile telephone and paging services outside its present geographic area.
$282-Million Cost
Last May, San Francisco-based Pacific Telesis agreed to pay $432 million for Communications Industries, although the Dallas company’s cash on hand and the sale of some of its subsidiaries would reduce the actual cost to $282 million.
“We’ve saved our pennies and we will pay that in cash,” said Robert V. R. Dalenberg, an attorney for Pacific Telesis.
The agreement with Communications Industries requires that its shareholders be paid by Feb. 28. Dalenberg urged Greene on Friday to act quickly and sought to assure him that the focus of Communications Industries business was outside California and would not affect local telephone customers.
The antitrust decree that governs the breakup of AT&T; sets limits on the new businesses that the regional holding companies may enter.
Greene has said repeatedly that the prime obligation of the regional companies is to provide reasonable, reliable local telephone service. While approving a number of new business ventures, he has been reluctant to give the new companies blanket permission to offer new services and operate in broad geographic areas.
Spur Similar Purchases
At Friday’s hearing, opponents of the Pacific Telesis acquisition argued that the transaction would spur similar purchases by other regional Bell companies, to the detriment of the fast-growing cellular mobile telephone industry.
Michael Salsbury, representing MCI Communications, argued that cellular communication has the potential to become competitive with local telephone service. With a few key acquisitions, he said, the regional phone companies could use their vast monopoly power to control, and perhaps stifle, development of cellular communication.
“They have billions and billions of copper wires,” he said of the local Bell companies. “Why would they expose that to competition from cellular?”
MCI has sold its cellular interests to McCaw Cellular Communications of Bellevue, Wash., which is actively opposing the Pacific Telesis purchase. Attorney John Shenefield, who was the Justice Department’s antitrust chief during the Administration of President Jimmy Carter, argued for McCaw that allowing the regional Bell holding companies to move into this area could reduce competition. Greene’s ruling, he said, will be “pivotal” to the industry.
