Midnight Deal

Static over the AT & T accord

One of the many controversial issues tossed at Ronald Reagan last week was the tentative settlement of the Justice Department's six-year-old antitrust suit against A T & T that had been reached during the last days of the Carter Administration. Ma Bell's competitors immediately voiced fears that Carter officials had made too many concessions to A T & T in their rush to wrap up the case before the new President took office. Said William McGowan, chairman of MCI Telecommunications, which is battling Bell for the long-distance telephone market: "It sounds like a slap on the wrist." Added Herbert Jasper, Washington lobbyist for a group of telecommunications companies: "It appears to be a free ride for A T & T."

More than 40 firms, including MCI, Litton Industries and Southern Pacific Communications, have filed their own suits against A T & T. Bell was eager to settle the Government case so that evidence the Justice Department had been gathering would not be revealed in court and later used in the private suits.

Outgoing Administrations have often tried to leave a lasting impression on U.S. legal affairs by making important decisions just as they were turning over power to the rival party. Before President John Adams left office in 1801, he appointed more than 200 "midnight judges" in an effort to pack the judicial system with his fellow Federalists. On Lyndon Johnson's last working day in the White House, the Justice Department filed a monumental antitrust suit to break up IBM. Twelve years later, the case is still dragging through the court.

The Carter Administration's agreement to settle the A T& T case was a stunning anticlimax. Since the suit against the world's largest corporation (assets: $125 billion) was originally filed in 1974, the Justice Department has spent $10 million preparing its case, and A T& T has put out an astonishing $250 million. The long-awaited trial opened just four days before Reagan's Inauguration, with small armies consisting of 23 Government lawyers and 21 attorneys for Bell squaring off against each other. George L. Saunders, the chief A T& T trial lawyer, accused the Government of trying to destroy "the greatest enterprise on earth." Declared Gerald A. Connell, the Justice Department's prosecutor: "The trouble is that from time to time this big elephant might reach out and crush someone."

Rhetoric notwithstanding, the two sides had been feverishly negotiating an out-of-court settlement behind the scenes. The trial was suddenly suspended on its second day, after the lawyers announced that they had fashioned the outlines of a settlement. Federal Judge Harold Greene gave them until next week to iron out the details and obtain the approval of the Reagan Administration. No specifics have yet been announced, but industry analysts familiar with the case feel certain that the result will fall far short of the Government's original goal of dismantling the behemoth that controls some 80% of the U.S. telephone market.

A T & T is expected to agree to sell some parts of Western Electric, its manufacturing arm. Another possible action is reorganization of Bell's long-distance division into an independent subsidiary under separate management. Finally, A T& T will probably relinquish its holdings in one or more of the 23 regional Bell telephone companies. The most likely candidates: Pacific Telephone and Telegraph, Cincinnati Bell, and Southern New England Telephone.

Whatever A T& T is giving up, the company will probably receive a lot in return. The Justice Department made it clear that it was prepared to modify a 1956 decree that has effectively barred Bell from entering the fast-growing field of computer communications. The new ruling might, for example, allow A T& T to go head-on with IBM and Xerox in marketing machines that transmit information directly between computers.

Despite the static that is crackling through the telecommunications industry, President Reagan is not expected to reactivate the suit or hold out for stronger sanctions against A T& T. Though Reagan himself said nothing specific during the campaign about antitrust actions, some members of his task force on Government regulatory reform said privately that neither the IBM nor the A T & T case had much merit. Reagan swept into office on a pledge to "get the Government off the backs" of both the public and businesses. One of his first applications of that philosophy may be with Ma Bell.

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