High Court Agrees to Hear ATandT-ISP Dispute

California broadband provider claims AT&T engaged in antitrust actions by setting unreasonably high wholesale rates.

When the Federal Communications Commission classified DSL as an information service in 2005, it put telephone broadband providers in the same category as cable modem broadband providers. The decision relieved both telephone and cable companies from legal obligations to lease broadband lines to competitors.

More importantly, telephone companies would not face the same antitrust laws that required dial-up carriers to lease their lines at a discount to independent dial-up companies. Or did it?

The Supreme Court decided June 23 to hear a case pitting California broadband provider linkLine against AT&T. The company, which leases broadband lines and resells broadband access to consumers, claims AT&T's wholesale broadband prices are so high, linkLine was unable to compete against AT&T's retail prices.

In the legalese of the case, linkLine accused AT&T of a "price squeeze" in violation of the Sherman act. The case was originally filed against Pacific Bell, which was later acquired by SBC, which, in turn, acquired AT&T and began to operate under the AT&T name.

AT&T contended the FCC's 2005 decision did not obligate it to lease any lines to linkLine and that the arrangement shielded AT&T from antitrust claims. After legal wrangling on the district court level, the Ninth Circuit Court of Appeals ruled the case could proceed. With the support of the Department of Justice, AT&T appealed the case to the Supreme Court.

"Defendants [AT&T] adopted procedures carefully calculated to deny ISPs access to an essential facility and to preserve and maintain its monopoly control of DSL access to the Internet," the Ninth Circuit ruled.

In accepting the case to be heard this fall, the Supreme Court said it would consider whether a "vertically integrated retail competitor with an alleged monopoly at a wholesale level but no antitrust duty to provide the wholesale input" could engage in price squeezing by leaving "insufficient margin between wholesale and retail prices to allow the plaintiff to compete."

According to the Ninth Circuit, a price squeeze occurs when a vertically integrated company sets its upstream prices or rates so high other companies are unable to compete.