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Bell Telephone Co. v. United States

decided: September 11, 1974.

THE BELL TELEPHONE COMPANY OF PENNSYLVANIA AND THE AMERICAN TELEPHONE AND TELEGRAPH COMPANY, PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS MCI TELECOMMUNICATIONS CORPORATION AND MCI-NEW YORK WEST, INC. N-TRIPLE-C, INC. DATA TRANSMISSION COMPANY (DATRAN) AMERICAN SATELLITE CORPORATION SOUTHERN PACIFIC COMMUNICATIONS COMPANY CPI MICROWAVE, INC. WESTERN TELE-COMMUNICATIONS, INC. CML SATELLITE CORPORATION WESTERN UNION TELEGRAPH COMPANY THE CHESAPEAKE AND POTOMAC TELEPHONE COMPANY THE CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF MARYLAND THE CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA CINCINNATI BELL, INC. ILLINOIS BELL TELEPHONE COMPANY INDIANA BELL TELEPHONE COMPANY MICHIGAN BELL TELEPHONE COMPANY MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY NEW JERSEY BELL TELEPHONE COMPANY NEW YORK TELEPHONE COMPANY NORTHWESTERN BELL TELEPHONE COMPANY THE OHIO BELL TELEPHONE COMPANY PACIFIC NORTHWEST BELL TELEPHONE COMPANY THE PACIFIC TELEPHONE AND TELEGRAPH COMPANY SOUTH CENTRAL BELL TELEPHONE COMPANY SOUTHERN BELL TELEPHONE AND TELEGRAPH COMPANY THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY SOUTHWESTERN BELL TELEPHONE COMPANY WISCONSIN TELEPHONE COMPANY UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION (USITA) RCA GLOBAL COMMUNICATIONS, INC. INTERVENORS



ON PETITION FOR REVIEW OF A DECISION AND ORDERS OF THE FEDERAL COMMUNICATIONS COMMISSION.

Hastie, Weis and Garth, Circuit Judges.

Author: Garth

Opinion OF THE COURT

GARTH, Circuit Judge.

Petitioners Bell Telephone Company of Pennsylvania and American Telephone and Telegraph Company call upon us to review*fn1 an order of the Federal Communications Commission dated April 23, 1974 (FCC Docket No. 19896).*fn2 The order, relevant portions of which are found in the appendix to this opinion, essentially requires the petitioners to provide certain communications services and facilities to other carriers and prohibits the petitioners from engaging in discriminatory practices. Specifically, the first two paragraphs of the order (paras 53-54) require the American Telephone and Telegraph Company and affiliated Bell System companies (hereinafter "A T & T") to furnish to MCI Telecommunications Corp. (MCI) and to all other specialized common carriers the interconnection facilities necessary to provide private line services.*fn3 The order requires that A T & T must provide the interconnection necessary for the delivery of two particular elements of private line service, Foreign Exchange service (FX) and Common Control Switching Arrangements.*fn4 The order further directs A T & T to cease and desist from practices which delay interconnection for the specialized common carriers and which deny services to these carriers on a par with A T & T's own private lines service division, the Long Lines Department. The third paragraph of the order (para 55) rejects tariffs submitted by A T & T to the extent that such tariffs are inconsistent with prior contracts entered into between A T & T and Western Union.

Inasmuch as the two matters before the Commission involve completely distinct legal issues, we shall treat the issues separately.

I. FX and CCSA

A. Background

To evaluate the FCC's mandate regarding FX and CCSA, it is necessary to examine the agency's prior involvement with the specialized common carriers. The Commission first considered the provision of private line services by specialized common carriers in In re Applications of Microwave Communications, Inc., 18 F.C.C.2d 953 (1969) (Docket No. 16509), reconsideration denied, 21 F.C.C.2d 190 (1970). MCI had proposed to construct facilities for the development of interoffice and interplant communication between St. Louis and Chicago. MCI agreed to be responsible only for the transmissions between microwave transmitters, leaving it to the individual customers to arrange for "loop service" (i.e. interconnection between MCI's transmitter/receiving terminals and the customer's own equipment). Concluding that it would be inconsistent with the public interest to deny MCI's applications, the Commission granted construction permits for this proposed point-to-point service. Recognizing that MCI's customers might have difficulties in obtaining loop service, the FCC declared:

Since [the existing carriers] have indicated that they will not voluntarily provide loop service, we shall retain jurisdiction of this proceeding in order to enable MCI to obtain from the Commission a prompt determination on the matter of interconnection. Thus, at such time as MCI has customers and the facts and details of the customers' requirements are known, MCI may come directly to the Commission with a request for an order of interconnection.

18 F.C.C.2d at 965 (1969).

Less than two years later, the FCC conducted a full scale investigation into the provision of private line services. See Specialized Common Carrier Services, 29 F.C.C.2d 850 (Docket No. 18920), reconsideration denied, 31 F.C.C.2d 1106 (1971). The Notice of Proposed Rule Making, issued in 1970, indicated that the FCC was concerned with five basic issues:

A. Whether as a general policy the public interest would be served by permitting the entry of new carriers in the specialized communications field; and if so:

B. Whether comparative hearings on the various claims of economic mutual exclusivity among the applicants are necessary or desirable in the circumstances;

C. What standards, procedures and/or rules should be adopted with respect to such technical matters as the avoidance of interference to domestic communications satellites in the 6 GHz band, the avoidance or resolution of terrestrial frequency conflicts and route blockages both vis-a-vis the facilities of established carriers and among the applicants, and the use of frequency diversity;

D. Whether some measure of protection to the applicants' subscribers is called for in the area of quality and reliability of service; and

E. What is the appropriate means for local distribution of the proposed services?

24 F.C.C.2d 318 (1970). Of these five issues, the first and last have special relevance to the instant proceedings. As to issue "A", the Commission concluded that:

29 F.C.C.2d at 920 (1971). The Commission's conclusion with regard to issue "E" was as follows:

We reaffirm the view expressed in the Notice (paragraph 67) that established carriers with exchange facilities should, upon request, permit interconnection or leased channel arrangements on reasonable terms and conditions to be negotiated with the new carriers, and also afford their customers the option of obtaining local distribution service under reasonable terms set forth in the tariff schedules of the local carrier. Moreover, as there stated, "where a carrier has monopoly control over essential facilities we will not condone any policy or practice whereby such carrier would discriminate in favor of an affiliated carrier or show favoritism among competitors." In view of the representations of A T & T and G T & E in this proceeding, upon which we rely, and the self-interest of other independent telephone companies in not losing potential new business, there appears to be no need to say more on this question at this time. Should any future problem arise, we will act expeditiously to take such measures as are necessary and appropriate in the public interest to implement and enforce the policies and objectives of this Decision.

29 F.C.C.2d at 940 (1971).

A T & T did not appeal the order entered in Specialized Common Carrier Services.*fn5 Presumably as a result of this 1971 decision, A T & T and MCI began negotiating for the provision of interconnection services. However, in the late summer of 1973, A T & T and its affiliates broke off negotiations with MCI and submitted tariffs to public utility commissions in each of the states in which MCI sought interconnection. Pending approval of these tariffs, A T & T announced that it would not provide interconnection to MCI if such services "terminated" in A T & T supplied equipment.

On August 27, 1973, MCI wrote to the FCC, requesting that the Commission advise A T & T that:

(1) the [A T & T] affiliates providing services for the St. Louis-Chicago route are required to interconnect with MCI "in the provision of the interstate service which MCI is authorized by the FCC to provide";

(2) A T & T must provide interconnection services to MCI on the same terms that such services are provided to Western Union and the Long Lines Department of A T & T; and

(3) A T & T may not resort to state regulatory commissions as a method of delaying the provision of authorized services.

The Commission's response was prepared by Bernard Strassburg, Chief of the Common Carrier Bureau. In a letter to A T & T (dated August 31, 1973), Mr. Strassburg, after quoting from the MCI (Docket 16509) and Specialized Common Carrier Services (Docket 18920) decisions discussed above, stated that:

". . . It is our view that, as requested by MCI, the associated Bell companies are required to permit interconnection or provide local channel arrangements to MCI. As the Commission also stressed in its MCI and Specialized Common Carrier decisions, the Bell companies must treat MCI no less favorably in interconnecting its facilities than they do now for the Long Lines Department of A T & T or Western Union. It should also be apparent that the Associated Bell companies are not required to obtain approval from any state or local regulatory agency of any contract or tariff before they may provide interstate services or facilities to MCI for its interstate services."

Strassburg also informed A T & T that it was obligated to provide "local distribution services" (i.e. looping service; see p. 3, supra) to MCI customers in Chicago and St. Louis.

A T & T answered Strassburg's letter on September 5, 1973. A T & T informed the Commission that it would provide local loop service to MCI, but that it could do so only after first receiving clearance from the appropriate state regulatory commissions. A T & T further declared that it had no intention of participating in a "through service" with MCI, Western Union, or any other private lines carrier. On September 28, 1973, A T & T reaffirmed its commitment to proceed first before the state commissions, noting that it had filed tariffs that would equalize rates amongst all private line carriers other than its Long Lines Department.

On October 4, 1973, the FCC Chairman responded by issuing a letter order informing A T & T that it was required to submit the tariffs to the FCC, and not to the state regulatory commissions. With regard to interconnection, the FCC stated that the MCI and Specialized Common Carrier Services decisions directed A T & T to provide "for interconnection facilities required by [specialized] carriers to terminate the services" authorized by the Commission. Furthermore, the Chairman wrote that:

". . . It has been alleged that it has been the policy of the local companies of the Bell System not to furnish exchange facilities to specialized carriers or their customers for certain services which those carriers are authorized to provide and which would be in direct competition with services offered by A.T. & T. It is not at all clear from your letter that the proposed tariffs would remove this apparent discrimination as between the treatment of A.T. & T. services, on the one hand, and authorized services of the specialized carriers, on the other hand. . . . We are of the view that effective implementation of our policy objectives and the statutory scheme of the Communications Act require that you promptly file tariff schedules with this Commission in accordance with Section 203 of the Communications Act, which tariff schedules will provide the interconnection facilities essential to the rendition by the specialized carriers of all their authorized services on terms and conditions which are just, reasonable and non-discriminatory. Until such tariffs are filed and effective, there should be no delay in honoring requests of specialized carriers for interconnection facilities required by such carriers to terminate the services they are authorized by the Commission to furnish. Such facilities can be provided under contracts on an interim basis and we assume that this will be done."

(A. 29-30).

MCI requested clarification of this order. On October 19, 1973, Bernard Strassburg informed MCI that the October 4th order contemplated A T & T's providing FX, CCSA, and other related services to the specialized carriers.*fn6 A T & T thereupon petitioned for review of the October 4th order before the Second Circuit.*fn7

Buoyed by Mr. Strassburg's interpretation of the FCC's orders, MCI commenced an action (on November 2, 1973) in the District Court for the Eastern District of Pennsylvania to compel A T & T to provide FX, CCSA, and other related services. Jurisdiction was predicated upon 47 U.S.C. § 406.*fn8 While the matter was pending before the district court, however, the Federal Communications Commission spoke again. On December 13, 1973, the agency released a memorandum opinion and order to show cause. See In the Matter of Bell System Tariff Offerings, 44 F.C.C.2d 245 (Docket No. 19896), modified 44 F.C.C.2d 914 (January 25, 1974). In its memorandum opinion, the FCC revealed that it had received requests for administrative action from A T & T (challenging the October 19, 1973 Strassburg letter) and from Western Union (seeking to prevent A T & T from proceeding before state regulatory bodies). Construing the requests as raising questions "concerning the lawfulness of the actions taken by A T & T and the Bell System companies with respect to the provision of interconnection facilities. . .", the Commission designated March 4, 1974 for oral argument on these questions. In paragraph 19 of the opinion and order, the FCC declared that:

IT IS FURTHER ORDERED, That the parties shall address themselves to the questions of whether (1) the Commission has heretofore ordered the telephone companies, pursuant to Section 201(a) of the Communications Act, to provide interconnection with MCI or whether such interconnection is otherwise required pursuant to rule or regulation within the meaning of Section 312 of the Act; (2) if so, (a) the scope of that order or rule or regulation with particular reference to interconnection for FX and CCSA services of MCI; (b) whether the telephone companies have complied with such order, rule or regulation and, (c) if they have not complied, the appropriate remedy, whether under section 312 of the Act or otherwise; (3) if interconnection has not hitherto been ordered or required by rule or regulation whether it should be and if so, upon what terms and conditions; and (4) whether the Commission should affirm, reverse or modify the Staff action of October 19, 1973 for which review is here requested.

44 F.C.C.2d at 251-252.

Prior to the date of oral argument before the Commission, the district court issued an extensive memorandum opinion and order in the action commenced by MCI. See MCI Communications Corp. v. A.T. & T., 369 F. Supp. 1004 (E.D. Pa. 1973). Inasmuch as 47 U.S.C. § 406 (n. 8, supra) is basically a mandamus statute, the district court was called upon to determine whether the FCC's prior orders had established a clear duty in A T & T to provide FX, CCSA and other related services. 369 F. Supp. at 1025. The court found that such a duty had been imposed and accordingly issued a preliminary injunction ordering A T & T to provide MCI with the subservices at issue. On appeal, however, this Court vacated the injunction.*fn9 The effect of our decision was to return to the FCC the responsibility for clarifying A T & T's duties to the specialized common carriers.

The FCC made its determination on April 23, 1974 in the decision and order now before us. (Docket No. 19896)*fn10 46 F.C.C.2d 413. Reviewing the complete history as outlined above, the Commission made a dual announcement. First, it concluded that it had, in its prior actions, required A T & T to provide FX and CCSA services to MCI and other specialized common carriers on a nondiscriminatory basis (and under appropriate financial arrangements). Then, recognizing that its prior orders may not have been clear, the Commission reviewed the entire question of interconnection anew and concluded again that A T & T is required to provide such services on a nondiscriminatory basis. In short, the FCC found:

46 F.C.C.2d at 426-427.

On the basis of this conclusion, the Commission issued orders (see Appendix) requiring A T & T to provide FX and CCSA to the specialized carriers on a nondiscriminatory basis.

In petitioning for review, A T & T assails the FX/CCSA orders in three regards. A T & T contends that the interconnection orders are invalid because: (1) the FCC did not conduct an evidentiary hearing, (2) the FCC utilized substantively infirm justifications in support of its orders, and (3) the FCC's mandate is expressed in overbroad terms. We shall evaluate these contentions in order.

B. Nature of the Proceedings

We are unable to evaluate A T & T's contentions without first resolving a question that cuts across many of the issues facing this Court. A T & T asserts that the April 23rd orders (see Appendix) represent the first time in which the Commission, as a whole, required A T & T to provide FX and CCSA to the specialized carriers. A T & T views the prior (1971) proceeding -- Specialized Common Carrier Services (Docket 18920)*fn11 -- as requiring no more than the furnishing of "local loops" (i.e., the interconnection of specialized carrier terminals with customer systems). See Petitioner's Brief at 35. Accordingly, in lodging its procedural and substantive attacks upon the April 23rd FX and CCSA orders, petitioner characterizes Docket 19896 as an independent proceeding. The Commission and several of the intervenors view Docket 19896 differently. According to the Commission, A T & T's responsibility to supply FX and CCSA was fixed by the Specialized Common Carrier Services decision (Docket 18920-1971). Respondent argues that the second proceeding (Docket 19896-1974) and the resultant orders merely represent the Commission's method of enforcing a previously announced mandate.

At first glance, A T & T's characterization of the proceedings appears to have merit. There is no mention of FX or CCSA in the Specialized Common Carrier Services decision. Instead, the Commission speaks only generally of "private line services," without reference to the components of such service. Nevertheless, upon closer examination, we are convinced that the Commission's decision in Docket 18920 includes a direction to the established carriers to provide FX and CCSA to the specialized carriers on a non-discriminatory basis. We base this conclusion upon a number of factors.

First, we reject the suggestion that Docket 18920 dealt only with "local looping."*fn12 In framing the issues for consideration, the Notice of Proposed Rule-Making identifies as separate matters the following issues:

A. Whether as a general policy the public interest would be served by permitting the entry of new carriers in the specialized communications field; and if so:

E. What is the appropriate means for local distribution of the proposed services?

24 F.C.C.2d at 327 (1970). In short, before reaching the issue of local distribution (issue "E"), the Commission proposed to consider a more general topic: entry of new carriers into the private line service field.

Secondly, we note that in assessing the extent to which the established carriers' revenues might be diverted by competition from the specialized carriers, the FCC focused upon the total revenues earned by the established carriers in private line services.*fn13 We find this focus to be significant. Implicit in the FCC's evaluation is the assumption that the new entrants will provide services similar to those provided by the established carriers within the rubric of "private line services." As A T & T conceded in oral argument before this Court, it has traditionally provided FX and CCSA within its private line services.*fn14 It follows a fortiori that if the Commission contemplated the diversion of revenue attributable to A T & T's FX and CCSA services, the Commission must have assumed that FX and CCSA would be within the services provided by the specialized common carriers. See n.16, infra.

Third, in the same vein, we note the Commission's instruction that:

"we do contemplate full and fair competition in the specialized field among all carriers, both established and new . . . ."

29 F.C.C.2d at 916 (1971). Given this objective of full competition, it is difficult to understand why the Commission would authorize the new carriers to offer an incomplete "package" of private lines services. In the absence of any suggestion to the contrary, we read the "full competition" mandate as an indication that the Commission intended to authorize the new carriers to ...


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