Telecom Firms File Lawsuit Against AT&T;
Bell Atlantic Corp. and DSC Communications Corp. filed a $3.5-billion lawsuit against AT&T; Corp., accusing the company of stifling competition by building important telephone equipment to incompatible standards.
The suit alleges that AT&T;, the largest U.S. long-distance company and one of the largest makers of phone equipment, refused to build equipment that is compatible with gear made by other companies. Such practices would make AT&T;’s customers reliant on it for future purchases, such as software.
The suit, filed Wednesday in federal court in Texarkana, Texas, comes as AT&T; plans to spin off its equipment-making business, called Lucent Technologies Inc., and as Bell Atlantic prepares to compete with AT&T; in the long-distance market.
Philadelphia-based Bell Atlantic and DSC of Plano, Texas, claim in the suit that AT&T; delayed using new standards in some equipment that would make manufacturers’ equipment compatible. It charges that AT&T; hurt sales of “caller identification” services because AT&T; blocked certain information on long-distance calls. Caller ID services let people see the number of an incoming call.
The companies said they are seeking $3.5 billion to cover damages for lost profits and increased operating costs, and an order forcing AT&T; to build its communications switching equipment to industry standards. They alleged that the AT&T; practice has raised costs for local telephone companies.
“For years, AT&T; has been behaving in a monopolistic fashion,” said Eric Rabe, Bell Atlantic’s assistant vice president for corporate communications. “At some point you just reach a level when it has to stop.”
AT&T; spokesman Jim Byrnes said the company had not yet had a chance to study the complaint thoroughly.
“But from an initial review, it strikes us as specious,” he said. “It’s incredible that anyone could claim monopoly practices in a market as fully competitive as the telecommunications equipment market.”
Bell Atlantic shares closed down $2 at $70.25 on the New York Stock Exchange, and DSC shares rose $1 to close at $36.375 on Nasdaq. AT&T; was off 87.5 cents at $66.375 on NYSE.
One analyst said the suit is frivolous. “Bell Atlantic fully knew that AT&T;’s switches locked them into future AT&T; purchases when they bought them,” said Daniel Briere, president of TeleChoice Inc., a Verona, N.J., consulting firm.
AT&T; makes 58% of the digital switches used in the United States; Northern Telecom, a Canadian firm, accounts for 32%. In 1984, the lawsuit said, Bell Atlantic bought 400 of these special switches for more than $3 billion.
Bell Atlantic and DSC, which also manufactures switches, said AT&T; “disabled and sabotaged” the switches so that no one but AT&T; can connect with or make software changes to them.
For DSC, analysts said, the suit is an attempt to spark sales of its equipment to the Baby Bells. DSC said Jan. 16 that sales of its high-margin switching products were down and that as a result, the company would not meet analysts’ earnings expectations for the fourth quarter. DSC shares fell 14% on the news.
A week ago, President Clinton signed a bill designed to increase competition in the U.S. phone and cable TV industries. The bill takes away the virtual monopoly the Bells have had on the local phone market since they were created under the breakup of AT&T; in 1984.
To ensure competition in the local phone market, the bill requires the Baby Bells and their competitors to form “interconnection” agreements to unite their networks and set a price for buying minutes from the Bells’ networks.
