Business Impact

U.S. Justices rule against consumers in suit against phone companies

May 21, 2007

WASHINGTON (AP) – The Supreme Court on Monday sided with the largest U.S. local phone companies in a lawsuit by consumers alleging anticompetitive business practices.

The court ruled 7-2 that the suit lacked any specifics in accusing the companies of secretly agreeing not to compete in each other’s territories for local telephone and high-speed Internet service.

It is not enough to make a bare assertion of conspiracy, Justice David Souter wrote in the majority opinion.

Souter said the complaint alleging restraint of trade ”comes up short.” He said the consumers who filed the suit ”have not nudged their claims across the line from conceivable to plausible.”

In dissent, Justice John Paul Stevens objected to the lower court’s dismissal of the case without requiring a response from the phone companies. Federal rules, previous rulings and ”sound practice mandate that the district court at least require some sort of response,” Stevens wrote.

The case stems from changes to the telecommunications law in 1996. The local phone companies were to open their monopoly markets to competition. In return, they were given the opportunity to enter long-distance business. At the time, the four companies controlled more than 90 percent of the market for local phone service.

The defendants were Bell Atlantic Corp., BellSouth Corp., Qwest Communications International Inc., and SBC Communications Inc. Bell Atlantic is now Verizon Communications Inc. and SBC bought AT&T Inc. and the renamed company, AT&T, merged with BellSouth.

The Supreme Court decision ”embraces an important principle about protecting the freedom of firms to make unilateral decisions on what markets to enter or not enter,” said John Thorne, senior vice president & deputy general counsel of Verizon Communications.

Consumers represented by a prominent firm of plaintiffs’ attorneys sued when the companies kept to their own territories rather than competing. The consumers also alleged the local phone companies conspired to keep smaller companies from competing successfully in the larger companies’ markets.

The Bush administration supported the phone companies, saying the lawsuit ”fails to provide concrete notice of the alleged wrongdoing.”