Full opinion text
OPINION HAROLD H. GREENE, District Judge. Defendants have moved to dismiss this action pursuant to Rule 41(b) of the Federal Rules of Civil Procedure, asserting that the government, having concluded its case-in-chief, has failed to demonstrate a right to relief. The complaint charges violations of section 2 of the Sherman Act, 15 U.S.C. § 2, by the American Telephone and Telegraph Company (AT&T) and two of its subsidiaries, the Western Electric Company (Western), and the Bell Telephone Laboratories, Inc. (Bell Labs), the basic allegation being that the defendants (Bell System) have monopolized the telecommunications market in the United States. Following a period of intensive pretrial activity, trial was begun on January 15, 1981, and the first witness was called on March 4, 1981. The presentation of evidence on behalf of the government spanned a period of four months, and it included the examination of close to one hundred witnesses and the introduction of thousands of documents and additional thousands of stipulations. In keeping with the massive nature of the action, defendants have filed a memorandum of over 550 pages in support of their motion, and the government’s brief in opposition is almost equally lengthy. Thus, there is a voluminous record before the Court. Although not every detail of the evidence is discussed in this opinion, it does consider fully all the principal issues (whether or not they are being finally decided) in order to provide to the parties the Court’s views on the structure of this factually and legally complex case. Before examining the specific issues raised by the record, the Court must resolve several preliminary questions. I General A. The first question to be determined concerns the standard to be applied in determining whether the government’s case is adequate to withstand the motion. Rule 41(b) provides in part that After the plaintiff, in an action tried by the court without a jury, has completed the presentation of his evidence, the defendant, without waiving his right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. The court as trier of the facts may then determine them and render judgment against the plaintiff or may decline to render any judgment until the close of all evidence. This Rule, and judicial interpretations thereof, grant to the courts considerable discretion in their treatment of motions to dismiss in non-jury cases. A court faced with a Rule 41(b) motion — unlike one passing on a motion for a directed verdict in a jury case — is not required to view the record in the light most favorable to the plaintiff, or to deny the motion if a prima facie case has been made out; rather, it is empowered to weigh and evaluate the evidence the plaintiff has presented and to grant the motion if it is convinced that, on the merits, the evidence preponderates against the plaintiff. Ellis v. Carter, 328 F.2d 573, 577 (9th Cir. 1964); Island Service Co. v. Perez, 309 F.2d 799, 803 (9th Cir. 1962) ; Huber v. American President Lines, 240 F.2d 778 (2d Cir. 1957). Yet a court is not required to grant a defendant’s motion at this stage of the proceedings even if under the law that motion might have been granted. SEC v. Murphy, 626 F.2d 633, 659 (9th Cir. 1980). Rule 41(b) and the case law permit a trial judge to decline to render any judgment at all until the close of all the evidence. Weissinger v. United States, 423 F.2d 795, 797 (5th Cir. 1970). The decision on the motion to dismiss is a “tentative and inconclusive ruling on the quantum of plaintiff’s proof,” which does not preclude a court from making findings and conclusions at the close of the case that are inconsistent with its prior tentative ruling. Armour Research Foundation v. Chicago, Rock Island & Pacific Railroad Co., 311 F.2d 493, 494 (7th Cir. 1963) . Several of the courts of appeal have admonished trial judges to grant Rule 41(b) dismissals sparingly. “Except in unusually clear cases the district judge can and should carry defendant’s Rule 41(b) motion with the case — or simply deny it, since the effect will be the same — let the defendant put on his evidence, and then enter a final judgment at the close of the evidence.” Riegel Fiber Corp. v. Anderson Gin Co., 512 F.2d 784, 793 n. 19 (5th Cir. 1975); cf. Poller v. Columbia Broadcasting System Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962). The reason for caution in such instances is that “an appellate reversal for error in granting the motion may require an entire new trial.” SEC v. Murphy, supra, 626 F.2d at 659; see White v. Rimrock Tidelands, Inc., 414 F.2d 1336 (5th Cir. 1969). This concern is particularly pertinent to the present action, in light of the lengthy course of the pretrial and trial proceedings up to this point, and the desire of no doubt all those involved to avoid the expenditure of time and resources that would result from the necessity of a second trial. In its weighing of the government’s evidence, the Court has kept these general principles in mind. B. Another preliminary question involves the manner in which the evidence presented by the government should be divided for the purpose of considering its sufficiency in light of the motion. Defendants have suggested that, should the Court decline to dismiss the case in its entirety, it should adopt an episode-by-episode approach — that is, that it should examine the sixty-odd episodes one-by-one, and separately determine the sufficiency of the evidence adduced with respect to each under the antitrust laws. The government, on the other hand, supports a “course of conduct” approach. It argues that the Bell System has engaged in a pattern of anticompetitive conduct since the end of World War II, that this overall pattern of conduct requires an interrelated examination of all the proof adduced thus far, and that the Court should therefore determine the sufficiency of the evidence in an aggregate, rather than a piecemeal fashion. The episode-by-episode approach must be rejected. From a purely technical point of view, there is but a single claim of violation of the Sherman Act before the Court, and procedurally that claim may not be segmented for dismissal purposes. Substantively, too, defendants’ approach is inappropriate. It is true that the government’s evidence may be weaker with respect to certain episodes than to others; for example, defendants have raised serious questions as to whether the misfortunes befalling certain of Bell’s competitors were caused by the Bell System or by defective products or mismanagement within the competing companies. See, e. g., p. 1351, infra. However, the theory of the government’s case is, basically, that the defendants engaged in a general, overall practice of anticompetitive behavior and that, in implementation of that practice, they resisted competition from weak and strong companies alike. Upon that basis, the government’s claim is not defeated by the circumstance that some of Bell’s competitors may have fallen prey to their own internal difficulties rather than to Bell System activities; even if actual injury to a competitor was not caused by the conduct of defendants, proof of that conduct may still be relevant as evidence of their intent to discourage all competitors, large and small. See Hecht v. Pro-Football Inc., 570 F.2d 982, 990 (D.C. Cir.1977). In any event, fragmentation of the government’s proof on the basis of “episodes” designed essentially only for pretrial procedural purposes (see note 7, supra) has no basis either in precedent or in logic. It is clear, moreover, that otherwise innocent or ambiguous behavior may violate the Sherman Act when considered together with the remainder of the conduct. See Poller v. Columbia Broadcasting System, Inc., supra, 368 U.S. at 468-69, 82 S.Ct. at 488-89; Maryland and Virginia Milk Producers Association, Inc. v. United States, 362 U.S. 458, 471-72, 80 S.Ct. 847, 855-56, 4 L.Ed.2d 880 (1960); Schine Chain Theatres v. United States, supra, 334 U.S. at 119, 68 S.Ct. at 952; American Tobacco Co. v. United States, 328 U.S. 781, 809, 66 S.Ct. 1125, 1138, 90 L.Ed. 1575 (1946). Such behavior may thus be relied upon to sustain other evidence so as to form a pattern of conduct made unlawful by that statute. The decisions cited in defendants’ pretrial brief in support of an episode-by-episode or a “discrete conduct” approach to the evidence involved private antitrust actions, where courts quite appropriately held that evidence of anticompetitive conduct involving injury to non-parties could not help a private plaintiff who was not able to show anticompetitive injury to himself. See, e. g., California Computer Products Inc. v. IBM, 613 F.2d 727, 743 (9th Cir. 1979). But this action is not a private suit, and the government’s case does not hinge upon proof of injury to every Bell competitor about whom evidence has been adduced. Notwithstanding all of these considerations, it is apparent that, in a case of this scope and size, it would be impossible to examine the evidence without somehow dividing it into separate parts, even if only for the purposes of analysis. The evidence introduced during the trial appears to divide naturally into supporting three major kinds of claims (within the overall Sherman Act claim): (1) claims relating to customer-provided terminal equipment (discussed in Part III of this opinion); (2) claims relating to intercity communications services (discussed in Parts IV, V, VI, VII and VIII of this opinion); and (3) claims relating to the procurement by the Bell System of telecommunications equipment manufactured by “general trade suppliers,” i. e., non-Bell companies (discussed in Parts IX, X and XI of this opinion). The validity of each of these major claims, in turn, depends upon the resolution of a number of factual and legal issues and, within the parameters of these claims, this opinion will consider these various issues under separate headings. This division and subdivision into issues should not obscure the fact, however, that the Court will be considering the evidence in the context of a single Sherman Act claim on a course-of-conduct basis. C. In addition to various fact-based issues, defendants raise certain legal defenses which, in their view, compel dismissal of all or part of the action at this time. These defenses are discussed hereinafter together with the major subjects to which they primarily relate. However, one of these defenses — that the present controversy is properly within the exclusive jurisdiction of the Federal Communications Commission (FCC) and that defendants’ activities are therefore impliedly immune from the antitrust laws — potentially governs all or almost all of the case. This claim has previously been addressed and rejected by the Court. See United States v. Am. Tel. & Tel. Co., supra, 461 F.Supp. at 1320-30. The intent of Congress to repeal the antitrust laws through a regulatory scheme must be clear if a court is to find an immunity from these laws, and the question whether such an intent should be imputed to the Congress is no more certain now, in light of the government’s evidence, than it was at the time of the Court’s previous ruling. Accordingly, that ruling will not be disturbed at this time. II Monopoly Power and Regulation Under United States v. Grinnell Corp., 384 U.S. 563, 570-71,86 S.Ct. 1698,1703-04, 16 L.Ed.2d 778 (1966), the offense of monopolization under section 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power. Part of the government’s burden herein is to define one or more relevant markets and to prove that defendants possess monopoly power in these markets — that is,'that they have the power to control price or to exclude competition therein. United States v. Grinnell Corp., supra, 384 U.S. at 570, 86 S.Ct. at 1703. The term “relevant market” refers to the “area of effective competition” in which the defendants operate. Standard Oil Co. of California v. United States, 337 U.S. 293, 299-300 n. 5, 69 S.Ct. 1051, 1055, 93 L.Ed. 1371 (1949). The government has identified three relevant markets: local telecommunications service, intercity telecommunications service, and telecommunications equipment. In addition, it has subdivided the equipment market, identifying two submarkets: (1) a terminal equipment market, and (2) a “Bell Market,” that is, a market consisting of the equipment purchased by the Bell Operating Companies and Long Lines. The government alleges that defendants have monopoly power in each of these markets and, to prove the existence of such power, evidence has been offered of market share, barriers to entry, size, and the exercise of power. There are two major issues between the parties with respect to the government’s market definition: (1) whether the government properly considered the impact of regulation, and (2) whether it properly defined and quantified the equipment market and the submarkets. In this part of the opinion, the Court will discuss only the first of these issues. The second issue, because it relates most directly to the procurement aspect of this case, is discussed in Part X below, in conjunction with the section dealing with procurement conduct. Defendants argue primarily that the government’s reliance upon high market shares is fundamentally unsound in the context of a regulated industry because such reliance ignores the substantial periods of time during which the Federal Communications Commission restricted entry, thereby effectively granting monopolies to the Bell System. See United States v. Marine Bancorporation, Inc., 418 U.S. 602, 631-32 n. 34, 94 S.Ct. 2856, 2874-75, 41 L.Ed.2d 978 (1974). In this view, the government’s demonstrations of market share “are almost totally irrelevant” because the “alleged markets [are treated] not as products of regulation, but as though they had come into being through a long history of open competition” (Memorandum, p. 26). Although defendants’ point may have some conceptual validity, it is not grounds for dismissal, for two reasons. First, a broad legal dispute exists between the parties concerning the relationship between the Communications Act (and FCC orders issued pursuant thereto) and the Sherman Act. Defendants argue that none of the markets for terminal equipment, point-to-point private line intercity service, FX and CCSA service, and MTS-type service (see infra) could become an “area of effective competition” within the meaning of the antitrust laws until the FCC had mandated interconnection to vendors in these areas. That argument, however, is but a variation of defendants’ broader claim that compliance with the communications laws satisfies all obligations under the antitrust laws, and as such it is vigorously contested by the government which contends that the antitrust laws impose obligations beyond whatever requirements are set by the FCC under the Communications Act. As indicated below in Part V, and for the reasons there stated, a decision on that issue is premature. In the absence of a determination that the regulatory scheme confers antitrust immunity, the practical effect of regulation will therefore be considered by the Court “simply as another fact of market life.” International Tel. & Tel. Co. v. General Tel. & Elec. Corp., 518 F.2d 913, 935-36 (9th Cir. 1975). Second, even if defendants are ultimately sustained on this issue, the government’s market contentions would still not fail, for these contentions do not rely exclusively, or even primarily, upon market shares to prove monopoly power. While such shares clearly constitute one part of the proof, evidence has also been offered on barriers to entry, size, and conduct, all of which tend to prove such power. Although the size and conduct factors do not appear to be highly probative, a persuasive showing has been made that defendants have monopoly power (wholly apart from FCC orders with respect to interconnection) through various barriers to entry, such as the creation of bottlenecks, entrenched customer preferences, the regulatory process, large capital requirements, access to technical information, and disparities in risk. These factors, in combination with the evidence of market shares, suffice at least to meet the government’s initial burden, and the burden is then appropriately placed upon defendants to rebut the existence and significance of barriers to entry. On that basis, the defendants’ regulatory defense to the government’s claim of monopoly power must and will be rejected. The Court will next consider evidence concerning, and the various issues surrounding, the claim that defendants engaged in anticompetitive conduct. III Interconnection of Customer-Provided Terminal Equipment A. Until 1968, the connection to the public network of any piece of equipment not provided by an operating telephone company was prohibited by what was called the “foreign attachment provision” of Tariff No. 263. A principal rationale for this ban was that the interconnection of equipment of undetermined origin and quality might injure the network as a whole. The FCC struck down this tariff in its Carterfone decision (13 F.C.C.2d 420 (1968)), which determined the practice of prohibiting equipment interconnection “without regard to its effect upon the telephone system” to be unlawful and unreasonably discriminatory. 13 F.C.C.2d at 425. The FCC held that customers had a right to the unimpeded use of their own equipment, and that the Bell System could more appropriately protect the telephone network from harm (1) by preventing of the use of devices “which actually cause harm,” and (2) by establishing “reasonable standards to be met by interconnection devices.” 13 F.C. C.2d at 424. Defendants’ response to this decision forms the principal basis of the government’s claim in this area. That response was the filing of the “postCarterfone” tariffs. The pertinent provisions of these tariffs required that any piece of equipment provided by a customer for use in conjunction with Bell facilities could be connected with the public switched network only through a protective connecting arrangement (PCA) provided (and leased to the customer for a fee) by the Bell System. The questions here are whether this requirement and its implementation were intended unreasonably and anticompetitively to ensure that Western Electric would remain the dominant supplier of telecommunications equipment in the United States, and whether, in fact, they had that effect. B. The government’s proof may be summarized as follows. Evidence submitted under the aegis of ten of the eleven “equipment episodes” describes the experience with the PCA requirement of a number of individual companies which were engaged in the business of marketing terminal equipment directly to end users. The testimony and exhibits presented in support of the government’s contentions in these episodes tended to show that the PCA requirement was unnecessary; that the PCAs imposed by Bell were overly engineered and that their cost, when added to that of the terminal equipment itself, either foreclosed non-Bell manufacturers from the particular equipment market or made it difficult for them to compete with Western Electric; that PCAs were often unavailable, that their delivery was sometimes substantially delayed, or that they were incompatible with non-Bell equipment; and that the stated need for the PCA and the defects of some PCAs caused customers to fear that, unlike Western Electric products, non-Bell equipment was unsafe and unreliable. The eleventh episode is the “umbrella” package, concerning more generally Bell practices and policies with regard to the interconnection of customer-provided terminal equipment. The evidence presented in conjunction with this episode tended to show the following. As of 1968, the time of the Carterfone decision, defendants had considered at least two options to protect the network from harm by customer-provided equipment: the PCA requirement and a certification program. A certification program — that is, a means by which non-Bell equipment would be permitted to be connected to the network after it had been certified to meet certain technical standards — would have obviated the need for the PCAs, with their costs, problems, and drawbacks, and it would thus have been consistent with the FCC’s Carterfone mandate to liberalize interconnection policy. Nevertheless, defendants decided to implement a PCA tariff rather than the certification option. The government’s evidence further tended to show that, during the five-year period after 1968, defendants concluded that the implementation of some kind of certification program was feasible, but they nevertheless decided to oppose any liberalization of their interconnection policy (whether by certification or otherwise) out of concern over the effect on their revenues and market position. Defendants were at that time also aware of (and they encouraged) the barrier to competition created by the unavailability and inadequate maintenance of the PCAs as well as of the additional economic barrier these devices created because of their added cost. The government’s proof further indicated that defendants were unable ever to find empirical support for the proposition that the PCA policy was necessary to prevent actual harm to the telecommunications network. Finally, the evidence showed that, at approximately the same time that the FCC initiated its own certification docket on June 14, 1972, Bell decided to continue to withhold support from any effort to establish a certification program in order to “buy time” for internal restructuring so as to enable it to prosper in a competitive market. C. In the course of the trial, defendants made serious attempts to shake the credibility of each of the government’s witnesses through cross examination and to cause them to concede that the facts they had related and the conclusions they had drawn from these facts were inaccurate and unwarranted. Some of the witnesses did, to a greater or lesser degree, make concessions which detracted from the force of their direct testimony. However, by and large, the evidence adduced sustained the government’s charges. The Court will not comment upon the credibility of every single witness at this stage of the proceedings. Suffice it to say that when it is stated herein that the evidence demonstrated or tended to show the existence of certain facts, the Court has determined that the witnesses and documents have credibly established these facts to be true. Defendants will, of course, have the opportunity, as part of their own case, to introduce evidence both to contradict the government’s proof and to show affirmatively that the facts are not what the government’s witnesses described them to be. But, as indicated, on a factual basis the government’s terminal equipment interconnection case presently stands unimpeached. D. The other defenses to that case must also be rejected, generally for similar reasons. First, defendants contend that the reasonableness of their actions should be judged in light of the Bell System’s affirmative legal responsibility to protect the telephone network from harm (13 F.C.C.2d at 424), and the fact that the government’s own witnesses conceded that at least a potential for harm to the network exists from the interconnection of substandard telephone equipment. But these contentions must be examined in light of the overriding consideration that, by controlling who could obtain PCAs, when, and at what cost, Bell was in a position to control the entry of potential competitors into the market— much as if it controlled the only source of a raw material essential to the manufacture of a particular product, or an essential facility such as a bridge or a stadium which competitors needed to use to conduct their business. See 2 Areeda & Turner, supra, ¶ 409f, pp. 305-06. Although the record at this point contains many suggestions that the interconnection of inferior equipment may cause harm to the network, it does not show that the actual, or even the potential, harms associated with such interconnection were sufficiently substantial to render a practice so fraught with anticompetitive implications as the PCA tariffs reasonable under the antitrust laws. See Northeastern Tel. Co. v. American Tel. & Tel. Co., supra, 651 F.2d 76, 1981-1 Trade Cas. at 76, 322. Any showing in that regard must therefore await defendants’ own evidence. Second, defendants claim (1) that they believed that the PCA requirement conformed to the approach prescribed by the FCC in Carterfone and was therefore reasonable, and (2) that the difficulties experienced by some competitors in entering the terminal equipment market were due not to the PCA requirement but to their own bad business judgment, their shoddy merchandise, and the like. While there is some evidence to support these claims, there is also considerable evidence to the contrary. Suffice it to say that on both of these issues, the government has made a more than adequate showing and that the burden falls upon defendants to refute that showing through their own proof. Third, defendants argue that, inasmuch as a number of the individual episodes involve devices for which Western Electric did not manufacture a competitive model, no inference of anticompetitive intent or behavior could be drawn from the evidence of defendants’ conduct contained in those episodes. But the theory of the government’s case is not simply that the Bell System acted to smother competition with regard to particular pieces of equipment manufactured by Western Electric. Rather, the contention is that defendants’ actions were designed to preserve Bell’s anti-interconnection stance and thereby to prevent encroachment by other manufacturers upon markets (whether or not served by Bell) from which inroads could be made into Western’s position as the dominant supplier of telecommunications equipment in the United States. For this purpose, the question of whether or not Western Electric actually manufactured a competing model of a particular device is of limited relevance. Fourth, defendants contend that the episodes containing evidence of the experience of individual competitors in the interconnect industry constitute an insignificant sampling of what occurred in that industry during the relevant period, and that they should be disregarded by the Court for that reason. However, the scope of this case is such that, were every single event having possible relevance to be presented before this Court, the trial might well, extend beyond the lifetimes of all current participants. Hence, it is not surprising that the government chose to present evidence of what it felt to be representative chapters in the relationship between the Bell System and those who sought to interconnect their equipment with the Bell network. There are at this time insufficient grounds for finding that these chapters are not representative. The Court concludes that the evidence sustains the allegation that defendants have used their local exchange monopolies to foreclose competition in the terminal equipment market by refusing unreasonably to interconnect equipment not provided by the Bell System, or by unreasonably impeding such interconnection, and that neither the government’s interconnection claim nor the subsidiary contentions relating thereto should be dismissed. IV Intercity Services Offered in Competition with AT&T Long Lines The government’s claims with regard to the intercity services offerings of non-Bell carriers revolve around one central point: that because the Bell System (with its Operating Companies) possesses a monopoly in the distribution of local telecommunications services, meaningful competition in the provision of intercity services is precluded unless the non-Bell carriers are able to obtain interconnection with the Bell local distribution facilities under non-discriminatory terms and conditions. Long distance and other intercity lines are essentially useless unless they can be connected to the local switches from which both business and residential customers may be reached. A. It may be helpful at the outset to state the applicable legal standard. Any company which controls an “essential facility” or a “strategic bottleneck” in the market violates the antitrust laws if it fails to make access to that facility available to its competitors on fair and reasonable terms that do not disadvantage them. United States v. Terminal R.R. Assn. of St. Louis, supra; Otter Tail Power Co. v. United States, supra; Hecht v. Pro-Football, Inc., supra; Gamco, Inc. v. Providence Fruit & Produce Building, Inc., 194 F.2d 484 (1st Cir. 1952); Woods Exploration and Producing Co., Inc. v. Aluminum Corp. of America, 438 F.2d 1286, 1300-09 (5th Cir. 1971). Such access must be afforded “upon such just and reasonable terms and regulations as will, in respect of use, character and cost of services, place every such company upon as nearly as equal plane as may be.” United States v. Terminal R.R. Association, supra, 224 U.S. at 411, 32 S.Ct. at 515. In the view of the Court, it is clear that the local facilities controlled by Bell are “essential facilities” within the meaning of these decisions and that, to the extent that the antitrust laws provide the legal standards governing the conduct here at issue, defendants are obligated to provide the kind of non-discriminatory access which the cases contemplate. B. The government introduced testimonial and documentary evidence tending to show that defendants have sought in a variety of ways to exclude the competition by restricting interconnection to the local facilities, as follows. First, during the period before the Carterfone decision (1940’s-1960’s) the defendants, hoping to stave off the advent of intercity services competition made possible by the advances in microwave technology, attempted to use the interconnection provisions of their tariffs to compel all video transmissions to be made through AT&T facilities, to prevent interconnection of private microwave systems to the public switched network, and to terminate the liberalized interconnections traditionally afforded to the private networks of right-of-way companies. Second, after the Carterfone decision, defendants were able to erect a substantial barrier to entry into the intercity services market through the “customer premises” provision of their interconnection tariff. Under this provision, AT&T would interconnect its existing intercity facilities with those of a competitor only if the interconnection took place in switching equipment on the premises of the customer at a point where telecommunications either originated or terminated. One of the principal problems with this interpretation by AT&T of the tariff was that it had the effect of precluding competitors from entering the market on a gradual basis. For example, when the General Electric Company (GE) sought to phase in its own switch and microwave system, with the goal of eventually replacing the nationwide common control switching arrangement (CCSA) it had leased from AT&T with a GE-owned system, AT&T’s insistence upon its view of the tariff ultimately forced GE to choose between leasing the entire CCSA system from AT&T or providing the entire network itself. The customer premises restrictions were also used to prevent Microwave Communications, Inc. (MCI) from serving customers through multipoint networks containing both AT&T’s and MCI’s circuits. Essentially, these restrictions forced customers to use AT&T for intercity service even with respect to routes served by other companies if they wanted service on any connecting route which was served only by AT&T. Third, defendants refused interconnection for foreign exchange (FX) and CCSA service, first to the specialized common carriers and next to the domestic satellite carriers, until specifically ordered to do so by the FCC in 1974. The Specialized Common Carriers decision of the FCC in 1971 had authorized the specialized carriers to provide private line services (29 F.C.C.2d 870 (1971)). Testimony by government witnesses tended to show that the private line services authorized by the FCC in that decision were considered in the industry to embrace FX and CCSA service, and that AT&T could not have reasonably believed that interconnection of these services with the network was not required as of 1971. Other witnesses testified that the technical objections upon which AT&T based its decision to exclude the domestic satellite carriers from the FX and CCSA interconnections tariffed for the other specialized common carriers in 1974 (see note 78, supra) were unfounded. Fourth, defendants attempted to deny competitors meaningful access to local distribution facilities by pricing access thereto discriminatorily, by making the local distribution area arbitrarily small, and by establishing other terms and conditions of access that both prevented competitors from offering desired types of service and left them in doubt as to whether the local facilities provided might not be precipitously withdrawn. Fifth, AT&T conducted negotiations with competitors as to the possibility and terms of interconnection in bad faith, stringing the competing carriers along for long periods with groundless technical objections, intermittent delays and occasional concessions, and then inexplicably reverting to earlier positions, repudiating previously negotiated compromises, or unilaterally ceasing negotiations. Sixth, in the face of Datran’s public commitment to a digital data network (after Bell had considered and rejected the notion of offering such a service itself), the Bell System engaged in a crash development program for a competing Bell service, the Digital Data Service (DDS), preannounced its availability, and conducted an intensive marketing “blitz” over a period of two years before it was available. The result of these activities, according to the government, was the demise of Datran, which could not compete either with the DDS price (see notes 118 and 122, infra) or with the DDS fervor created by Bell’s preannouncement and marketing campaign, which had the effect of discouraging investors from financing Datran. Finally, with regard to the offering of MTS/WATS-like service (i. e., service similar to Bell’s common long distance service (MTS) and its wide area telephone service (WATS)), there was testimony to the effect that AT&T attempted to block MCI from offering its long-distance metered service (Execunet, tariffed initially in 1974), even though the interconnections used by MCI for this service did not differ from those used for FX or CCSA service. When the Court of Appeals for this Circuit held that “the Commission decisions in Specialized Carrier and Bell System Tariff Offerings [see note 78, supra] impose upon AT&T an obligation to provide interconnections for Execunet,” AT&T filed a new tariff with the FCC, known as ENFIA (Exchange Network Facilities for Interstate Access), which raised the rates charged to MCI for its Execunet connections to 3 Vi times what MCI had previously been paying for substantively identical FX connections. Negotiations between AT&T and non-Bell carriers resulted in an agreement upon an interim rate of approximately IV2 times the FX rate. This ENFIA rate has been in effect since April, 1979. The government also showed in that regard that under existing ENFIA arrangements, the non-Bell carriers receive treatment that differs from that afforded AT&T’s own Long Lines with respect to type, quality, and price of interconnection, precluding these carriers from serving certain types of customers, and causing inconvenience to the customers that these carriers do serve. Witnesses testified to difficulties in obtaining cooperation from the Operating Companies (with whom the carriers must interconnect and deal) with regard to deliveries, installations, and repair procedures, and to the fact that the Operating Companies generally treat the non-Bell carriers as competitors, rather than as companies which, like the Bell System’s own Long Lines Department, offer services complementary to their own. This recitation of events should not be read to imply that defendants do not contest the facts established by the government’s evidence or the inferences and conclusions that may be drawn therefrom. Indeed, they do. But evidentiary refutations, if any, will have to await the introduction of defendants’ own proof. The Court finds that, as of now, sufficient evidence has been adduced to dictate the conclusion that AT&T has monopolized the intercity services market by frustrating the efforts of other companies to compete with it in that market on a fair and reasonable basis. V Relationship Between Antitrust and Communications Laws While, as indicated, defendants vigorously contest the various factual premises for the government’s intercity claim, the central focus of their defense to that claim is that, in placing limitations on the interconnections permitted to non-Bell carriers, AT&T acted reasonably under the standards of the Communications Act. Basically, it is defendants’ theory that, even if they are not immune from the antitrust laws by virtue of the regulatory scheme of the Communications Act (see Part I-C supra), the FCC has, in one form or another, permitted the interconnection practices now alleged by the government to be illegal, and that on this basis these practices must be deemed “reasonable” under the antitrust laws. In that view, the Communications Act provides a scheme for the determination of the public interest (and hence of reasonableness) which has as its central premise the right of a carrier to refuse a request to interconnect unless and until the FCC has determined that the interconnection is in the public interest and should be made. Defendants argue that their actions in refusing or in restricting interconnection have stemmed from their striving to protect the public interest as they understood it to be perceived by the FCC. A related defense contention is that AT&T’s imposition of interconnection restrictions was reasonable in light of the need to protect the public against “cream-skimming” by non-Bell carriers — that is, the need to prevent competitors from preempting high-density, low-cost routes, leaving Bell with the low-density, high-cost routes. In defendants’ view, creamskimming is a problem because of the system of rate-averaging that calculates rates on a per-mile basis regardless of demand for service over a particular route, and regardless of differences in costs over different routes. If non-Bell carriers were allowed to concentrate on the low-cost routes, charge non-averaged prices, and thereby creamskim AT&T’s revenues, the inevitable result, according to defendants, would be that Bell would have to increase the rates it charges to the remainder of the public. Defendants claim that the use of interconnection restrictions to prevent creamskimming is an approach approved by the FCC in the past as in the public interest, and that they acted reasonably by perpetuating these restrictions in order to protect the public from increases in the price of local service (see note 97, supra). The government paints a wholly different picture, as follows. The defendants’ variant of a “rule of reason” is inapplicable. Regardless of whether or not the FCC has ordered interconnection with Bell facilities, and regardless of how AT&T appraises the public interest under the Communications Act, AT&T has a continuing obligation under the antitrust laws to permit interconnection if failure to interconnect is inconsistent with Sherman Act requirements. Compliance with the standards of the Communications Act does not in any way relieve defendants (or anyone else) of the obligation to comply with the antitrust laws. And it is significant that the FCC has never prohibited AT&T from making the interconnections requested by the competition; it has simply left Bell free to choose either to interconnect or not to interconnect. These differences in approach create a substantial dilemma. Adoption by the courts of the government’s theory could well end up undermining the operation of the Communications Act, for the delicate mechanism by which the FCC determines which developments in the telecommunications industry might best serve the public interest would be thwarted if AT&T had a continuing obligation to interconnect before the Commission had even had an opportunity to rule. On the other hand, if defendants’ view of the law on this issue were ultimately to prevail, AT&T would, in practical terms, have achieved precisely that immunity from antitrust scrutiny which this Court and many other tribunals have already rejected as not being consistent with the will of Congress. See Part I-C, supra. There is also the consideration that, as several witnesses (including the former chief of the FCC’s Common Carrier Bureau) have testified, that agency may realistically be incapable of effectively regulating a company of AT&T’s size, complexity, and power. The Court will defer choosing at this time which of these two very different views of the relationship between communications law and antitrust law is correct for purposes of this case. See Weissinger v. United States, supra. The question is obviously a difficult one, and there is little judicial precedent to guide the Court. More importantly, it is a question which need never be reached should defendants, when put to their proof, be unable to support their claims of reasonableness with evidence on the record under either body of law. (For example, the existence of the economies of scale, general cost differentials, or threats of creamskimming have yet to be proved, as they must be if defendants are to show that their struggle against interconnection has in fact been reasonable under the standards of the Communications Act). Therefore, just as the government has been given the opportunity to prove its case in accordance with the legal theories it regards as applicable, defendants will be permitted to introduce evidence in support of their theory that they did, in fact, comply with the regulatory standards and directives. Should they succeed in that effort, it will be time enough to examine the communications-antitrust law issue on the basis of a full record and possibly further briefing in a more focused manner. VI Interconnection Standards The parties are in sharp disagreement on the question of the standard to be applied by the Bell System in providing interconnection to competing carriers. Defendants appear to concede that they are now obliged to provide interconnection to the non-Bell carriers offering MTS-like service — both under the Execunet II decision and under the essential facilities doctrine of the antitrust laws. However, they differ with the government as to how the essential facilities doctrine should be applied. The government argues that AT&T is required to afford interconnection to the non-Bell carriers on terms of “parity” with those interconnections now enjoyed by Long Lines, while defendants contend that the essential facilities doctrine entitles Long Lines’ competitors not to parity but only to the use of facilities, essential for their service, on a reasonable basis. The government has not shown, according to defendants, that parity of interconnection would be reasonable. In the first place, they argue, there is no record presently before the Court upon which it could even arrive at a definition of parity, much less determine how such parity might be achieved. Moreover, they contend, what the government requests could not be accomplished without severe damage to network coordination; in order to avoid any taint of discrimination, AT&T would be forced to coordinate with no one, if only because individual coordination with everyone — with their various conflicting demands — would simply be impossible. The Court has concluded that absolute equality of access to essential facilities, without regard to the feasibility of such access or the burden it would impose upon the owner of the facilities, is not mandated by the antitrust laws. The Supreme Court ordered the defendants in United States v. Terminal R.R. Ass’n, supra, to provide for the use of essential facilities by their competitors “upon such just and reasonable terms and regulations as will ... place every such company upon as nearly as equal plane as may be ... as that occupied [by defendants].” 224 U.S. at 411, 32 S.Ct. at 515. That was not a requirement of absolute equality of treatment. Similarly, in the leading case in this Circuit concerning the essential facilities doctrine, Hecht v. Pro-Football Inc., supra, Judge Wilkey wrote for Court of Appeals that this principle must be carefully delimited: the antitrust laws do not require that an essential facility be shared if such sharing would be impractical or would inhibit the defendant’s ability to serve its customers adequately. 570 F.2d at 992-93. In short, problems of feasibility and practicability may be taken into account by the Court in determining the sufficiency under the law of the access to essential facilities granted by defendants to non-Bell carriers. To put it another way, parity is not necessarily required. But it does not follow that, as defendants request, this portion of the government’s case must be dismissed. The government has shown (and defendants concede) that AT&T and its subsidiaries now discriminate between Long Lines and non-Bell carriers with regard to access to Bell System facilities. It has also shown this discrimination to be anticompetitive in its effect. The burden is now upon defendants to show why, despite that anticompetitive impact, such unequal treatment is reasonable, whether because of technical infeasibility or otherwise. VII Regulatory Conduct and the First Amendment Defendants contend that the Noerr-Pennington doctrine shields them from liability on account of their participation in certain regulatory proceedings involving intercity services. That doctrine has its genesis in basic public policy. As Justice Black noted for the Court in Noerr (365 U.S. at 137-8, 81 S.Ct. at 529-30), ... a holding that the Sherman Act forbids associations for the purpose of influencing the passage or enforcement of laws ... would substantially impair the power of government to take action through its legislature and executive that operate to restrain trade. In a representative democracy such as this, these branches of government act on behalf of the people and, to a very large extent, the whole concept of representation depends upon the ability of the people to make their wishes known to their representatives. To hold that the government retains the power to act in this representative capacity and yet hold, at the same time, that the people cannot freely inform the government of their wishes would impute to the Sherman Act a purpose to regulate, not business activity, but political activity, a purpose that would have no basis whatever in the legislative history of that Act. Secondly, and of at least equal significance, such a construction of the Sherman Act would raise important constitutional questions. The right of petition is one of the freedoms protected by the Bill of Rights, and we cannot, of course, lightly impute to Congress an intent to evade these freedoms .... For these reasons, we think it clear that the Sherman Act does not apply to the activities of the railroads at least insofar as those activities comprised mere solicitation of governmental action with respect to the passage and enforcement of laws. The government argues that in each of the areas under consideration defendants acted in bad faith, making false and groundless claims before the FCC in order to frustrate or delay the entry of competitors into the markets, and that these activities are for that reason encompassed in the so-called “sham exception” to the Noerr-Pennington doctrine expressly recognized in California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972). In Noerr, the Court alluded to the possibility that “sham” use of the petitioning process for anticompetitive purposes might not receive protection from the antitrust laws. The sham exception was given full content when the Supreme Court in California Motor Transport, supra, distinguished between legitimately influencing public officials, on the one hand, and the effective barring of competitors from meaningful access to governmental bodies through manipulation, on the other. As the Court of Appeals for this Circuit said in Israel v. Baxter Laboratories, Inc., 466 F.2d 272, 278 (D.C.Cir.1972), the sham exception reflects a basic concern for the integrity of the regulatory process and, for that reason, “no actions which impair the fair and impartial functioning of an administrative agency should be able to hide behind the cloak of an antitrust exemption.” In practice, the distinction between the legitimate dissemination of views and the manipulation of governmental processes for anticompetitive purposes has been difficult to draw, and in various cases the courts have come to conclusions that are not always easy to reconcile. A tension inevitably exists between the First Amendment concerns expressed by Justice Black in Noerr and the fact that, as Professor Robert Bork has noted in The Antitrust Paradox, pp. 347-49 (1978), “[p]redation by abuse of governmental procedures .. . presents an increasingly dangerous threat to competition ... [and] offers almost limitless possibilities for abuse” and that therefore “[t]he antitrust laws [should] make a major contribution both to free competition and to the integrity of administrative and judicial processes by catching up with this means of monopolization.” The Court of Appeals for this Circuit recently prescribed rules to be applied in determining whether the sham exception is applicable. Federal Prescription Service, Inc. v. American Pharmaceutical Ass’n, 663 F.2d 253 (D.C.Cir.1981) was an action brought by a mail order prescription company against the national professional society of pharmacists with which state pharmaceutical associations and certain state boards of pharmacy examiners were joined as co-conspirators. Noerr-Pennington was pleaded as a defense, and the Court of Appeals held that all of the challenged activities were so protected. This decision rests upon several subsidiary holdings which have application here, as follows. First, the sham exception is not satisfied by a mere showing of anticompetitive intent or of a pattern of lobbying activities; there must also be proof that those being charged subverted the integrity of the governmental process, that they effectively barred access to it, or that the nature of the process made their invocation something other than political activity (see note 108, infra). Second, the sham exception clearly applies to attempts to influence governmental action through overtly corrupt conduct, such as bribes or misrepresentations, which are not normal and legitimate exercises of the right to petition but are subversions of the integrity of the process. Third, the exception also applies when the relevant activities were intended not to secure governmental action but to harm others through deliberate abuse of the governmental process. Fourth, Noerr-Pennington applies not only to governmental bodies acting in a political framework but also to regulatory agencies, the only exception being agencies which operate in a wholly economic framework (e. g., that of government procurement contracts). Insofar as the instant case is concerned, it appears that, under the Federal Prescription Service guidelines, the government, to escape the Noerr-Pennington doctrine, must show that defendants subverted the integrity of the governmental process through misrepresentations or similarly unprotected conduct, or that they effectively barred their competitors’ access to that process (i. e., the FCC). To the extent that such a showing has not been made, the various activities of defendants may not be used as evidence of liability. Upon examination of the evidence adduced by the government in light of these guidelines, the Court holds that, with but one exception, all of AT&T’s “petitioning” activities which defendants claim to be protected by Noerr-Pennington are, in fact, protected by that doctrine. Typical of the acts upon which the government relies are those related to the MCI initial application for authorization to construct a Chicago-St. Louis microwave system. Bell argued to the FCC that there was no public need for the sharing and part-time use features of MCI’s proposed service, while at the same time it was offering an experimental tariff (Series 11,-000) which included a sharing feature. Taken in the light most favorable to the government, this evidence indicates that in its advocacy AT&T did not indicate all of the relevant facts; but this is a far cry from being a misrepresentation in the “overtly corrupt conduct” sense required under Federal Prescription Service. Moreover, the representation was not one that defendants sought to conceal or that went unnoticed, and it clearly does not rise to the level of a “sham” so as to work an impairment of the fair and impartial functioning of the FCC. Another typical incident is that relating to the application of the Collier Electric Company to relay video signals on a microwave system from Denver to three community antenna systems. AT&T filed an opposition and a competing application (which presupposed the use of sites owned by Collier) even though at the time of the hearing on the applications AT&T had neither existing nor prospective customers available for its proposed service. In the Court’s opinion, incidents of this character are insufficient to fit within the sham exception: the evidence shows little more than that Bell opposed new entrants, that it made contentions which were not wholly correct, and that the FCC ultimately ruled against Bell. The sham exception, as the Court of Appeals strongly suggested in Federal Prescription Company, must be narrowly construed so as not to chill the rights of individuals and corporations to access to courts and to legislative and regulatory bodies. This principle would be hindered by a ruling which exposed an entity to antitrust liability on the basis that an official body found its contentions to be unsupported by the facts or otherwise without merit. To be a sham, the representation must go beyond the normal and legitimate exercises of the right to petition; it must amount to a subversion of the integrity of the process. And, absent special circumstances, this standard is not breached unless there is evidence of a series of misleading statements, of representations having the effect of actually barring access to an official body, or of an intent to mislead the body concerning central facts. The Court finds that the Bell statements at issue here are not in any of these categories. The one instance cited by the government which does, on the basis of the government’s proof, fall within this standard relates to the application of Datran to construct a nationwide digital network. It appears from the evidence that AT&T opposed an FCC application by Datran for authority to construct a nationwide network, claiming that Datran had not demonstrated a need for the proposed service and that the economic and technical feasibility of the proposal was highly questionable. Internal Bell documents introduced into evidence revealed, however, that defendants recognized at that very time that the Datran proposal was “carefully planned” and “well financed”; that they viewed it as a threat to AT&T’s monopoly in network transmission; and that, in their opinion, a strategy of delay was necessary, to be implemented by a petition to the FCC requesting a general inquiry into the public interest aspects of the subjects raised by the Datran application. The Court can reasonably infer from this evidence that AT&T’s sole purpose in opposing the Datran application was to preserve its monopoly and that it well knew that the positions it took before the FCC were baseless. In short, with respect to the Datran episode, the government has presented sufficient evidence to remove defendants’ activities from the shelter of the Noerr-Pennington doctrine, and the burden is upon defendants to rebut that showing. In all other respects, however, the defendants’ Noerr-Pennington defense will be sustained. VIII Intercity Pricing The government has charged that defendants have priced their intercity services without regard to the cost of these services, on the following basis. Subsequent to the time the Above 890, the MCI, and the Specialized Common Carriers decisions were issued the Bell System has had to contend with competition in the intercity private line services field, but pri- or to 1978 no such competition was allowed in the provision of MTS- or WATS-type service. Under these circumstances, the government claims, Bell had an incentive to set its prices high in the MTS and WATS areas (where it enjoyed a monopoly) and low in private line areas (where it was faced with competition) so as to exclude the existing competition and to deter further entry into the intercity services market. Bell accomplished its objective, according to the government, by deliberately pricing its intercity services without regard to their costs, with the objective of maintaining maximum flexibility for such cross-subsidization. Specifically, it is contended that Bell failed to calculate accurately the costs of providing intercity private line services or, to the extent that costs were calculated, to consider these costs in setting prices. From these failures, it is said, the Court may infer that Bell deliberately intended to exclude competition on the basis indicated. Defendants’ principal responses to the government’s pricing claim are (1) that the government’s pricing-without-regard-to-cost theory fails to meet the standards established for violations of the antitrust laws, is unsupported by legal precedent, and is meaningless under economic analysis, and (2) that, even if the charge is valid in principle, it is unsupported by evidence in the record. For ease of analysis, it is convenient to discuss these two defenses in inverse order. A. The evidence adduced by the government with respect to intercity pricing falls into four general categories. First, there is a catalogue of alleged abuses and deficiencies in defendants’ private line service cost analyses, from which the Court is asked to infer a deliberate manipulation of cost calculations. In this regard, the government claims that, as one witness put it, defendants, rather than engaging in cost-based pricing, practice price-based costing. Thus, sometimes no cost studies were filed; sometimes costs were inaccurately estimated; sometimes cost studies were deliberately terminated; and at other times no account was taken of predictable revenue effects of user shifts from one service to another. The government claims that these various manipulations bear upon the issue of defendants’ intent to price anticompetitively because all of the errors tended to understate costs in competitive services and to overstate costs in services in which entry was prohibited, and because no firm which priced according to competitive factors could afford to, or would wish to, fail to determine its costs as precisely as possible. Defendants re