An antitrust lawsuit against four major telephone companies will be going to the Supreme Court next. The Bell Atlantic v. Twombly class-action suit, No. 05-1126, claims that Verizon, AT&T, BellSouth, and Qwest commit an act of illegal collusion by not competing with each other in local phone service markets. It was originally dismissed in a lower court but revived by the 2nd US Circuit Court of Appeals in New York, and the nation’s highest court has now put the case on its fall 2006 docket.
The Justices will hear arguments from the four telecom giants in October. Verizon et al have argued that the case should be dismissed because of a lack of evidence. The companies further claim to stay out of each others’ local service territories for “independent reasons” that have nothing to do with price fixing or collusion. Mainly, they say that entering new markets takes a significant investment in new equipment. Finally, they claim that the lawsuit, if successful, will open up a whole new can of worms in the form of lawsuits against unwilling market competitors:
“Unless corrected, the decision will lead to mushrooming claims, imposing incalculable costs and distorting legitimate, unilateral business judgments,” the telecommunications companies argued in their appeal, filed in Washington.
Thanks to the Appeals Court decision, the phone companies now have to “answer questions about their business practices and turn over documents to the plaintiffs.” Perhaps they really do have nothing to hide, since all four baby Bells have been so eager to reach this stage, but I’ll believe that when I see it. The local phone business is a US$120 billion market, and the incumbents are clearly happy to defend their slice of that massive pie.
That’s also one of the reasons why network neutrality is anathema to these guys: the ability to control whose voice communication services can work well or not, through tiered network service agreeements, is an important safeguard against more unwanted competition. And the phone industry doesn’t stand alone, either. Among the many briefs filed in support of Qwest and friends, you’ll find the Alliance of Automobile Manufacturers, the American Petroleum Institute, Mastercard, du Pont, and the US Chamber of Commerce. It’s hard not to wonder about the motivations for this support. Maybe collusion is more prevalent than anybody thought, across many industries, and there could be plenty of eggy faces to behold if the feared volley of collusion-related lawsuits is ever fired.
So if the choice is between protecting American businesses from lawsuits that may or may not be frivolous, or protecting the American consumer from illegal and unethical business practices, I for one side with the latter. Let’s hope that the Supreme Court gets this one right.