Company Replies

'Astonished,' It Says

Warns a Break-Up Would Raise Rates

By Eileen Shanahan
The New York Times

Washington -- Nov. 20, 1974 -- The Government filed an antitrust suit today to break up the American Telephone and Telegraph Company on the ground that it illegally monopolizes the telecommunications business.

The suit, which was. filed in the United States District Court here, seeks to force A. T. & T. to divest itself of its manufacturing subsidiary, the Western Electric Company, Inc., and to require the company either to get out of much of the long-distance telephone business or else to keep the long-distance business but to get rid of some or all of the 23 local telephone companies that it owns in whole or part.

Additional divestiture might be sought, such as separation of Bell Telephone Laboratories, Inc., into an independent company, a Justice Department official said. Whether such divestiture would be sought would depend on what is discovered during the trial of the suit about the relationship of the laboratory to other aspects of telephone company operations. Bell Laboratories is the nation's largest industrial laboratory.

Statement by deButts

In a statement issued following filing of the suit, John D. deButts, chairman of A.T.&T., said that the company was "astonished" at the Government's action.

The divestitures that the Justice Department is seeking "could lead to fragmentation of responsibility for the nation's telephone network," Mr. deButts continued. "If that happens, telephone service would deteriorate and cost much, much more."

Keith I. Clearwaters, Deputy Assistant Attorney General, said at a briefing for reporters that "I don't believe we can promise that winning this suit is going to lower rates. But it would force additional competition and that should bring a downward pressure on prices."

The suit charges the company with illegal methods of keeping out competitors mainly in the area of services provided to businesses, rather than home telephone users.

The suit charged that A. T. & T., Western Electric, Bell Laboratories and the 23 Bell System Telephone companies had conspired to keep other companies in the telecommunications business from interconnecting with the Bell System. Western Electric and Bell Laboratories were named defendants in the lawsuit and the 23 local telephone companies were named co-conspirators but not defendants.

The suit, which is expected to take years to try, will represent the second attempt of antitrust officials to break up A.T. & T.

A suit seeking divestiture of Western Electric was filed in 1949 by the Administration of President Harry S. Truman and settled, without such divestiture, by the Administration of President Dwight D. Eisenhower in 1956.

Information that came to light in 1958 about some of the circumstances leading to the settlement constituted one of the few major scandals of the Eisenhower Administration, although no one was ever charged with any illegal acts.

In brief, what was disclosed in hearings before a House antitrust subcommittee was that President Eisenhower's Attorney General, Herbert Brownell, had given the company's vice president and general counsel, T. Brooke Price, what Mr. Price called "a little friendly tip" on how to settle the case.

The "tip" was that the company should look at its operations and tell the Justice Department of "practices that we might agree to have enjoined with no real injury to our business."

The settlement that was reached mainly required the company to license all its existing patents and to get out of all business not directly connected with communications.

Company officials argued at the time of the hearings by the subcommittee, which was headed by then Representative Emanuel Celler, Democrat of Brooklyn, that the patent-licensing requirements would greatly reduce A.T. & T.'s dominance of the telephone business.

In the lawsuit filed today, the Justice Department said that 82 per cent of all the telephone business in the nation and 90 per cent of the long-distance business is done by companies that are part of the Bell System. These figures are almost the same as those for the nineteen-fifties.

Because of the settlement of the previous lawsuit, there had been both legal and political questions concerning whether the Justice Department could and would make another try at breaking up A.T. & T.

Mr. Clearwaters said he would expect the company to make the argument in court that the Government is "barred or stopped" from the filing any new suit because of the existence of the settlement.

He said the Government would counter this argument, among other ways, by pointing out that some of the types of services that A.T&T. is accused of monopolizing illegally did not even exist in 1949 or 1956. These services include such forms of telecommunications as private lines for businesses that make many calls between specific points and microwave communications.

The suit does not charge that A.T.&T. completely prohibited connections with private lines or microwave or other such competitive services, many of which now exists but merely that the company "attempted to obstruct and obstructed" potential competitors.

As for the presumed political influences on the case, there have been persistent rumors that the Justice Department's antitrust division has long wanted to reopen the A.T.&T. case but that it was blocked by the White House.

Mr. Clearwaters said that the White House in both the Nixon and Ford Administrations had been kept informed of the development of the case by "the Attorney General." There have been several attorneys general during the latest, intensive phase of preparation of the case, which is said to have been going on for about 14 months.

Mr. Clearwaters denied "unequivocally" that the filing of the suit against A.T.&T. could be taken as a sign that the Ford Administration has decided to "go after" big business in an attempt to counteract the image of the Republican party as subservient to business.

The Government's other pending antitrust suit against a huge corporation, the suit against the International Business Machines Corporation, was filed by President Lyndon B. Johnson's Attorney General, Ramsey Clark, in the final days of the Johnson Administration.

In announcing the filing of the lawsuit, Attorney General William B. Saxbe said that he was "fully aware of the service that the Bell System has provided. Nevertheless, I believe the law must be enforced. We have carefully considered the possible impact of this litigation and the requested relief."

Among the items of relief envisioned in the suit are the splitting of Western Electric into two or more companies, once it is separated from the rest of the Bell System.

Mr. Clearwaters said that he felt such an action could aid competition both within and outside of the telecommunications industry.

As of now, Western Electric provides almost all of the equipment used by the Bell System. If it is separated from the system, other suppliers of telephone equipment would be able to supply the telephone companies, he added, and in addition, Western Electric might move out of the telecommunications area to become a competitor in other industries.

Western Electric cannot manufacture non-communications equipment under the 1956 settlement agreement.

A.T.& T. has total assets of more than $67-billion and is the world's largest corporation in terms of size of assets.

Among the many offenses charged in the suit were that the various elements of the Bell System attempt to "prevent, restrict and eliminate competition from private communications systems, principally microwave systems constructed and owned by major corporations to satisfy their internal telecommunications requirements."

Among the many typed of services allegedly affected were transmission of television programs, use of land mobile radio for paging systems and telecommunications from automobiles.

c. 1974 New York Times Company