Supreme Court: No Telco Conspiracy

The Supreme Court ruled today that a class-action lawsuit alleging antitrust behavior by the nation’s largest telephone companies failed to prove a conspiracy existed to limit competition. The lawsuit focused on local calling and high-speed Internet services.

In a 7-2 decision, the high court said the plaintiffs did not provide proof in Bell Atlantic v. Twombly that the regional Baby Bells had any agreement to not compete in each other’s territory. The justices also ruled the lawsuit fell short in proving the Bells conspired to keep local competitive exchange carriers (ILECs) from entering the market.

“We hold that stating such a claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made,” Associate Justice David Souter wrote in the majority opinion. “When we look for plausibility in this complaint, we agree with the district court that plaintiffs’ claim of conspiracy in restraint of trade comes up short.”

The case arose in the aftermath of the 1984 breakup of the original AT&T and the subsequent 1996 Telecommunications Act. The Telecom Act required the Bells to open their networks to local competitors. The Bells were also allowed to move into each other’s territory, which none of the Baby Bells chose to do.

The court said the lawsuit’s complaint that the Bells resisted opening their networks to ILECs was nothing more than a “natural, unilateral reaction” to each Bell’s intent on keeping its regional dominance.

“The 1996 Act did more than just subject the [Bells] to competition; it obliged them to subsidize their competitors with their own equipment at wholesale rates,” Souter wrote. “The economic incentive to resist was powerful, but resisting competition is routine market conduct, and even if the [Bells] flouted the 1996 Act in all the ways the plaintiffs allege — there is no reason to infer that the companies had agreed among themselves to do what was only natural anyway.”

The original district court decision also tossed out the complaint, but a federal appeals court ruled that the “parallel actions” of the Bells was enough to justify the lawsuit moving forward.

“Lawful parallel conduct fails to bespeak unlawful agreement. It makes sense to say, therefore, that an allegation of parallel conduct and a bare assertion of conspiracy will not suffice,” the court ruled.

The original defendants in the lawsuit were Bell Atlantic, BellSouth, Qwest Communications and SBC Communications. Bell Atlantic eventually became Verizon while SBC bought AT&T and took over the AT&T name. The new AT&T then merged with BellSouth.

“The Supreme Court’s decision embraces an important principle about protecting the freedom of firms to make unilateral decisions on what markets to enter or not enter,” John Thorne, Verizon’s senior vice president and deputy general counsel, said in a statement. “Consumers benefit when companies of every size have the right to lower prices, choose suppliers, invest, expand output, and enter new markets freely.”

Souter closed his opinion with, “Because the plaintiffs here have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.”

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