The Deal of the Century

by Coll, Steve;

  The man with the answers was at the same moment in his hotel room on the French portion of St. Martin in the Caribbean trying to hear through a crackling telephone connection what Jean Vita, his clerk in Washington, was saying about the settlement of U.S. v. AT&T. Vita had just called, and the connection was so bad that Greene wasn’t sure what had happened. The case had been settled, he thought she said, and the parties had tried to file something with the court in Washington.

  “Don’t let them file anything until I get back there,” Greene tried to tell her forcefully. But the connection was deteriorating. Greene yelled to Vita that he would call her back immediately.

  He dialed the hotel operator and asked for a line to Washington, preferably one that was audible. But Greene couldn’t get through, and the long-distance operator, who was French, was not in a mood to cooperate with a demanding American tourist. She told him to try some other time.

  His frustration at a peak, Greene charged down to the hotel lobby, briefly explained his dilemma to the desk clerk, and said, “I’m going to change hotels if you don’t get me connected to Washington.”

  A few minutes later, Greene had his line. Vita reassured him that as per his instructions, the clerk of the court had stamped the dismissal “lodged,” not “filed.” This was something the judge had actually discussed with the filing clerk the previous summer, when word of Malcolm Baldrige’s proposal to dismiss the case had leaked to the newspapers. Just before Greene left for St. Martin on New Year’s Eve, Justice had issued its cryptic press release about the resumption of settlement talks, and he had reminded the filing room clerks of his original instructions. Greene felt that he was just being cautious. Normally, if a judge was absent when something was filed on one of his cases, a designated “motions judge” was free to rule on the filing. Greene did not want a motions judge ruling on something as important as the dismissal of history’s biggest antitrust case, so he had devised his “lodged” strategy and passed the instructions on to the clerk.

  Now the judge told Vita that he wanted a hearing on the settlement scheduled for as soon as he returned to Washington, and he dictated a court order over the phone reiterating that dismissal of U.S. v. AT&T was not yet official.

  It didn’t seem that way at the National Press Club, where shortly before noon scores of reporters and a half dozen television crews began to arrive for a “major” press conference called by the department of Justice. The filings in court and some advance publicity material from Justice and AT&T had already made clear what the announcement would be, although until that morning no one in the media had been able to break through the secrecy surrounding the inter-intra split negotations—nor, for that matter, had there been any reporting about the S.898 injunctive settlement talks that had been taking place all through the fall.

  Outside the National Press Building entrance, across from the crumbling, historic Willard Hotel, Bill Baxter pulled up in his Justice department staff car. As the driver was letting Baxter and Richard Levine out, Charlie Brown arrived in a Buick from AT&T’s Washington motor pool. Baxter and Brown shook hands and rode the elevator together to the press club on the top floor. A draped table had been set up on a platform at the front of the room, and there were three chairs behind it for Baxter, Brown, and Howard Trienens. As soon as they were seated, photographers began crouching in front of them, their cameras snapping and whining. Baxter’s face, as always, was sallow and expressionless, and his eyes wandered aimlessly around the room. Brown and Trienens struck serious poses and tried to ignore the unrelenting photographers.

  “They always manage to catch you while you’re licking your lips,” Brown joked to Trienens, who laughed. It was one of the few times all day that Brown and Trienens smiled.

  Gerry Connell and George Saunders had arrived at the club by the time the conference began, and so had most of the lawyers on the Justice and AT&T trial teams. It was a strange encounter for all of them. As Justice lawyer Peter Kenney had put it before, they were the soldiers whose entire lives had been consumed by fighting someone else’s war. Now that the war had been abandoned—for reasons none of them would ever fully understand—the lawyers mingled uneasily, cautiously. When Connell had called his team from the courthouse to inform them that the deal was done and that the terms were “relief plan A,” everything they had wanted in court, he had let the cheering subside before saying sternly, “Now, when you see them, you should be gracious to the AT&T lawyers. Your exuberance will be matched by their lack of it. Do justice to yourselves, and don’t rub it in.” Certainly, after all the years of posturing and arguing, that was a temptation. But the young Justice lawyers knew that Connell was right, and they resisted. Saunders and the AT&T team were numb, befuddled, and somber, but some of them were also gracious toward their victorious Justice opponents. Saunders, particularly, was unequivocal in the admiration and respect he expressed for the case presented by Connell, Kenney, Denvir, Blumenfeld, and the others, although later he would occasionally annoy the Justice lawyers with goading compliments such as, “You should be exceptionally proud—it’s one thing to win a case, but to win a case you shouldn’t win is really quite an achievement for a lawyer.”

  When the reporters had been seated and the television cameras focused, a Justice press spokesman introduced the stone-faced men at the head table. Baxter was the first to step to the podium. His frumpy brown suit and unfashionably long sideburns emphasized his social awkwardness, as did his high-pitched voice. He spoke slowly and very deliberately, pausing often, as if each phrase was a crucially important choice.

  “Ladies and gentlemen … the Justice Department … and AT&T … have reached an agreement … which will enable them to terminate … the various pieces of litigation … in which they are currently engaged. In substance … the agreement … calls for reorganization of the AT&T company … over the next eighteen months. It will have the consequence … of separating from the rest of the AT&T company … the several operating companies that provide local telephone service … exchange access … around the United States. The agreement … I think … is a very good one. It completely fulfills the objectives … which the Antitrust division has been pursuing in this litigation. It of course is not my place to say … but I think it is also very much in the best interest of the AT&T company and its shareholders.… The agreement … of course … is complex … as it would necessarily have to be in a controversy as complex and multifaceted as this one is.…”

  For many of the reporters in the room, it was their first encounter with the Reagan administration’s bloodless Antitrust chief, and one effect of Baxter’s stilted and dispassionate speech was to convey the impression that the Justice department hadn’t really won at all—if they had, wouldn’t Baxter seem just a little bit pleased about it? This suspicion was reinforced by Charlie Brown’s statement, which had been carefully prepared by Ed Block as the linchpin of AT&T’s ambitious public relations strategy.

  “Today’s action clears the way for a new order in the telephone industry,” Brown said. “It will encourage competition, and it will do so without sacrificing the American consumer’s need for economical, dependable, and readily available telephone service. It also does not sacrifice any part of the country’s leadership in communications research and development, and manufacturing.… Today’s action also disposes of a matter of importance to the AT&T company. It gets rid of restrictions which are contained in the 1956 consent decree. No one contemplated twenty-five years ago that a revolution in modern technology would largely erase the difference between computers and communications. As a consequence, the Bell System has been effectively prohibited from using the fruits of its own technology. And this new decree will wipe out those restrictions completely.…”

  But by the end of his statement, Brown had lost his salesman’s enthusiasm. As he talked about the Bell System’s long relationship with American consumers, its traditions of quality and reliability, its service to the country, the AT&T chairman momentarily lost
his grip. When he spoke the words, “We have served the public very well since the Bell System began,” his voice cracked, his mouth twitched, and he seemed ready to cry. As he went on, “… and we are going to continue to do that service job,” he focused his eyes on the paper resting on the podium, gathered himself, and forced a firm tone in his voice. “I speak for all of us in the Bell System when I tell you that we look forward to getting out of court and back to business.”

  The mixed signals from the podium—Baxter’s cold inscrutability, Brown’s simultaneous enthusiasm and despair—left the reporters in the room, some of whom didn’t know the difference between AT&T and ITT, understandably puzzled. Their questions reflected their befuddlement. Over and over they asked Brown and Baxter why AT&T had agreed to divest two-thirds of its assets, especially when Brown insisted that the case before Judge Greene was going fine and that AT&T expected to win on appeal. Brown could only insistently repeat the rhetoric prepared by Ed Block about how, given the history of the telecommunications industry over the last decade, there now appeared to be a “consensus” on a “new national telecommunications policy” that required the breakup of the AT&T phone monopoly. Baxter compounded the ambiguity when he was asked how the settlement compared to what Justice was seeking in court. Instead of answering emphatically that it was precisely what Justice wanted, he hesitated and lifted his eyes upward to consider his words, as if about to deliver a qualified answer.

  In the silence, Brown stepped back to the microphone and said, “I’ll answer that for Mr. Baxter. It’s exactly what the government wanted. He’s too modest to say so.” The remark brought loud laughter, but it also left the impression that AT&T was putting words in the Justice department’s mouth, confirming many reporters’ natural suspicion that the largest corporation in the world had somehow gotten its way with the Reagan administration. Since only a handful of trade press and Justice department “beat” reporters had a clear understanding of the issues and recent history of U.S. v. AT&T, the notion that Ma Bell had won again seeped in quickly. For the first time in a decade of political manuevering, the widespread distrust of the phone company’s motives was working to AT&T’s advantage. Instead of wondering whether the settlement was one of the great fiascos of American industrial history, as many reporters later decided that it was, the press began to conclude that divestiture of the low technology operating companies in exchange for the end of the 1956 computer restrictions was a deal that Charlie Brown had probably wanted all along.

  And as the questioning wore on, Baxter’s strange demeanor continued to frustrate the reporters. At one point, the Antitrust chief was asked how long he had been negotiating the settlement with AT&T. Baxter responded, “That’s a very difficult question to answer. Mr. Trienens and I have been seeing a great deal of one another for quite some time now. Things are said explicitly and things are said implicitly. I could answer your question by saying, ‘Since last April.’ I could answer your question by saying, ‘Only for the last few weeks.’ Both would be accurate.”

  In fact, Baxter was being honest, but his presentation was so typically abstruse and abstract that the reporters thought he was joking, and they laughed convulsively. The Antitrust chief never smiled, and he appeared confused by their reaction. When the reporter who had asked the question repeated it more forcefully, Baxter only said, “If you really mean the pieces of paper you have in front of you this morning, the answer is, ‘A week or ten days.’”

  Forty-five minutes after it had begun, the “historic announcement,” as Brown had called it, was over. The reporters bundled up again in their scarfs and overcoats and prepared to head out into the chill winter sunshine. But before they had left, Tom DeCair, the Justice press spokesman, announced, “Just to save us a lot of phone calls, I’d like to say that we’ll have another significant announcement at the Justice department this afternoon at four o’clock. Another one in the area of antitrust.”

  Amid the murmuring that followed a reporter called out, “That sounds like the IBM case,” and he was right. By the end of the day, two of the biggest antitrust cases in American history would be over.

  On the network news that evening, the stories emphasized both AT&T’s astronomical legal expenses—$360 million, Brown had said—and the many benefits that would accrue to the phone company by its act of self-destruction. Bill Greenwood of ABC News reported, “There are some big pluses for AT&T. It loses its most heavily regulated subsidiaries. It loses eighty percent of its costly physical plant, while retaining its most profitable operations. It’s nothing for AT&T stockholders or employees to worry about. They are not expected to suffer any losses, but it could spell trouble for IBM, since the agreement would let AT&T compete in data processing.…”

  On the twenty-sixth floor of 195 Broadway in New York, Ed Block was fielding the first of several thousand press calls his department would receive over the weekend, and he was too busy to congratulate himself on a job well done. Later, however, he would remark to his colleagues, “What a shame that the finest performance the PR department ever put on was associated with the destruction of the company.”

  Chapter 32

  “This Case Is History”

  What happened in New Jersey on Monday morning made Judge Greene very angry, mainly because he didn’t understand it, and his anger was not quelled by assurances that no one else understood it, either.

  If it hadn’t been for the eccentricities of Vincent Biunno, a wiry, white-haired federal judge in Newark, the whole mess might have been avoided. As it was, the public’s first impression of the settlement of U.S. v. AT&T, already somewhat distorted by the Friday press conference, had been thrown completely out of whack by the middle of the following week. By then, Judge Greene was talking publicly about resuming the trial and rejecting the settlement altogether, and a loud clamor was rising about whether the Reagan administration’s Justice department was trying to subvert the law by avoiding altogether public scrutiny of its deal with AT&T.

  Ron Carr, the Justice lawyer who had principally masterminded the plan that caused so much trouble, believed as he flew to Newark on Monday morning that it was all going to turn out fine. Gerry Connell had not been able to warn Judge Greene about all the complex legal maneuvering on Friday, but Carr expected that by the time the judge returned to Washington from the Caribbean on Tuesday, everything would be in order for him. The proposed inter-intra settlement, now attached as a proposed modification to the 1956 consent decree in New Jersey, would be transferred by Judge Biunno down to Judge Greene. Greene would then be free to devise and enforce whatever Tunney Act-like “public interest” hearings and procedures he thought appropriate. At the same time, the Antitrust front office would avoid setting a precedent about whether the Tunney Act applied to consent decree modifications. Everyone would be happy.

  The purpose of Carr’s trip to Newark Monday morning was to attend a hearing called by Judge Biunno to consider whether he should do as Justice and AT&T were asking and transfer the 1956 decree, with the proposed settlement attached, down to Washington. It had occurred to Carr and other Justice and AT&T lawyers that out of ego or resentment or caprice, Biunno might not want to give up so prestigious a matter as determining whether the breakup of the world’s biggest company was in the public interest. In case Biunno refused a transfer and decided to hold the Tunney proceedings himself, Justice and AT&T had already prepared a joint petition to appeal his decision immediately to the U.S. Appeals Court, and if necessary, the U.S. Supreme Court.

  And there was some reason to be concerned about what Biunno might do. Though he was not very well-known among the Justice and AT&T lawyers in Washington, Biunno did not enjoy a favorable reputation. Some described him as “a little eccentric” or “difficult”; others said outright that he was not one of the federal bench’s better judges. About one thing there was no question: Biunno loved to talk. In a hearing he would ramble on and on about any subject that was remotely relevant, and even on some that weren’t. Before he l
eft for Newark on Monday, Carr asked Jim Denvir, who had once appeared before Biunno for Justice, what the most effective strategy was in the judge’s courtroom. Denvir advised that Carr say as little as possible and try not to antagonize Biunno, who sometimes ranted at lawyers. Carr was also warned about the judge’s tendency to talk on and on. When Denvir had appeared before Biunno, he said, the judge had begun a two-hour-long diatribe about the state of modern communications by saying, “It all started with the smoke signal …”

  So Carr arrived in Biunno’s court prepared for an unusual morning. But he did not anticipate the disaster that was about to unfurl.

  The bearded Justice lawyer began by explaining that the settlement he filed with the New Jersey court on Friday was a proposed modification of the 1956 consent decree. He was about to say that both parties intended for the whole matter to be transferred to Greene when Biunno interrupted.

  “This modification is the equivalent in the legislative field of the technique of receiving a bill. Let’s say a bill originates in the Senate and goes to the House. The House may choose not to amend the Senate bill. It may introduce a House substitute.”

  “Substitute, correct,” said Carr. It was impossible to determine what Biunno was talking about.

  “Which replaces, but it’s still the same bill.”

  “That’s correct.” Carr was along for the ride now.

  “It’s this concept.”

  “Yes.”

  “Or, you can take the common example of long-term leases, where problems arise. Long-term leases may have provisions that didn’t take into account things that happen in the future. Long-term leases, by their definition, run for long periods of time …”