Stephen Labaton

July 13, 2006

WASHINGTON, July 12 — Lawyers for the nation’s two largest telephone companies and the Justice Department urged a federal judge on Wednesday to swiftly approve the antitrust settlements that permitted SBC Communications to acquire AT&T and Verizon to buy MCI.

But the federal district judge, Emmet G. Sullivan, rebuffed the request and repeatedly emphasized that he was “not a rubber stamp.’’

In a courtroom packed with telecommunications lawyers, analysts and major investors, Judge Sullivan spent the day trying to figure out the extent of his authority. He indicated through his questioning that he might hold more extensive hearings and take testimony from experts and government officials before concluding whether the deals were in the public interest.

But in what appeared to be a partial victory for the two large phone companies, the judge also suggested that he would limit the scope of the proceedings, not permit extensive pretrial fact-finding known as discovery, and not embark on an attempt to rewrite the settlements.

A federal law, the Tunney Act, requires a federal judge to review antitrust deals between the government and companies before deciding whether they are in the public interest. The law was adopted in the Watergate era after a scandal involving political interference at the antitrust division. The Tunney Act was weakened by a court decision in the 1990’s in a case involving Microsoft, but strengthened two years ago by Congress.

The proceedings by Judge Sullivan represent the first time a district court has significantly scrutinized a major deal under the revisions to the Tunney Act — in this case, the two largest telephone acquisitions in American history. In both deals, the government forced relatively modest sales of some assets before approving them.

The two deals have already closed and even the small rival companies that continue to challenge them do not expect that the judge will have the ability to unwind them.

But lawyers for the large phone companies and the Justice Department have urged the judge to limit any further hearings, and it would be a significant political and legal setback for the antitrust division if the judge were to find that the deals were against the public interest.

The ruling could also affect the administration’s review of the proposed purchase of BellSouth by AT&T, the renamed company formed by the acquisition of AT&T by SBC.

At a time when neither the Bush administration nor Congress has shown much interest in vigorous antitrust enforcement, the proceedings by Judge Sullivan have stood in marked contrast, even though their outcome is uncertain. It was not lost on some of the lawyers that the review was being undertaken in the same courthouse where Judge Harold Greene of Federal District Court spent more than a decade supervising the telephone industry as he oversaw the breakup of AT&T.

But Judge Sullivan’s options are far more limited, and telecommunications lawyers at the hearing said that the challengers to the deals — smaller telephone rivals and the New York attorney general, Eliot Spitzer — faced an uphill battle even though they drew a judge who seemed willing to consider taking an aggressive role in considering the consent decree.

The judge struggled through the day to figure out his proper role in light of the 2004 changes to the Tunney Act. He repeatedly pressed the lawyers about how much authority he had to question the deals, whether he could hold evidentiary hearings and how broadly he could inquire into how the Justice Department had performed its job.

At one point, he said the court’s role “is to consider everything that the government considered,’’ but at another, he agreed with the lawyers for the large telephone companies that he would not start a review from scratch and that he could not look at evidence beyond what was contained in the consent decrees.

“I’m just trying to properly define what this court’s obligation is to do,’’ he said.

“It may well be that at the end of this hearing the court is satisfied that no further review is necessary,’’ he said. “I have doubts about that. I have doubts about that.’’

The companies’ lawyers said that the judge had little authority to scrutinize the deals and that any effort to consider anything beyond the actual allegations in the consent decrees would violate the constitutional separation of powers between the executive branch and the judicial branch.

But the lawyers representing smaller rival companies encouraged him to dig further. Gary L. Reback, a lawyer representing one group of rivals, the Alliance for Competition in Telecommunications, said that the government had ignored clear evidence that the deals would substantially reduce competition and that prices had already begun to rise in certain markets. Instead, he said, the government proposed a modest remedy that would do nothing to preserve competition and keep prices low.

“It is as if the government is standing there in front of an elephant and that instead of confronting this beast, it’s looked at its toenail,’’ Mr. Reback said.