# Petition — A.T.&T. v. Federal Communications Commission

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1977
- **Citation:** 434 U.S. 874

## Text

IN THE

Supreme Court of the United States

Ocroser Trnu, 1976

— 8760-18677

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, ET AL.,
Petitioners,
V.

Fron AL COMMUNICATIONS COMMISSION and the
Untrep Srarrs or AMERICA, PT AL.,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

Of Counsel: — —
ruARr C. Stock
K. Man GARLINGHOUSE 38 Sixteenth Street, N. W.
AL D C. PARTOLL W D.C. 20006
195 Broadwa ——
New York, N.Y. 10007 FDpWaRD L. FarepMan
WuLIAM L. Leonarp
195 Broadwa
New York, N. V., 10007
Counsel for the

Bell System Companies

TABLE OF CONTENTS

Page
Z — =F
r V 2
. ED ccc coccccccccccoctsoesesese coe 8
Srarurzs Ax Db Recuiations INVOLVED ................ 4
, EOS Pe ere Trem 4
A. The Nature and Regulation of Telephone Service
and the Provision of Terminal Equipment 4
B. The FCC Registration Program and Other Perti-
TT eee eee 8
. Se cecunépeneune 12
Reasons ror GRaNTING THE Marre 15

I. The Decision Below Presents A Major Question
of Statutory Jurisdiction Which Has Not Been
But Should Be Considered By This Court ...... 16

Il. The FCC Lacks Power To Require Carriers To
Register Their Own Terminal Equipment, and Its
Rationale For Carrier Registration Conflicts with
this Court’s RCA Decision ...............+.4:: 25

III. The Court Below Plainly Violated the Chenery
Doctrine in Substituting its Own Economie Con-
8 for Findings the FCC Erroneously Failed

0

1E 30
D ̃ II.... .. eonens 38
TABLE OF AUTHORITIES
Cases: Page
ATI v. FCC, 487 F.2d 865 (2d Cir. 1973) ........... 27

Atlantic Refining Co. v. Public Service Comm’n, 360
e atlas iad acne ddceadadane 33

Burli 2 Truck Lines v. United States, 371 U.S. 156 2
es

Caminetti v. United States, 242 U.S. 470 (19177 17

Carter Mountain Transmission Corp. v. FCC, 321 F.2d
539 (D.C. Cir), cert. denied, 375 U.S. 951 (1963) .. 33

i’ Table of Authorities Continued

Page
Chemehuevi Tribe of ‘Indians v. FC, 420 US. 375 2
Fe
FCC v. RCA Communications, Inc., 346 U.S. 86
1 eens 8, 16, 28, 29
FPO v..Conway Corp., 44 U.S.L.W. 4777 (U.S. June
RR 20, 21
FPC v. Hunt, 376 U.S. 515 (1964)))))))) 33
FPC vy. Panhandle Eastern Pipe Line Co., 337 U.S.
% cc 27
FTC v. Bunte Bros., 312 U.S. 349 (1941777) 15
FTC v. Raladam Co., 283 U.S. 643 (193177) 27
Gardaer v. Providence Tel. Co., 49 A. 1004 (R. I.) re-
hearing denied, 50 A. 1014 (1901) .............. 5, 22
GTE Service Corp. v. FCC, 474 F.2d 724 (2d Cir.
1717171771777 ͤ—T—A—A . tébedene ¢ uns 27
Hawaiian Telephone Co. v. FCC, 498 F.2d 771 (D.C.
ccc 27, 28, 29
Kitchen v. FCC, 464 F. 2d 801 (D.C. Cir. 19727 23
NARUC v. FCC, 533 F.2d 601 (D.C. Cir. 1976) 23
NLRB v Waterman S. S. Co., 309 U.S. 206 (19400) 37

North Carolina v. United States, 325 U.S. 507 (1945). 15, 20
North Carolina Utilities Comm en v. FCC, 537 F.2d 787
(1976), cert. denied, 45 U.S. L. W. 3432 (U.S. Dec.

c 5, 13, 15, 16
Northern Indiana Public Service Co. v. lsaak Walton
e. i 37

Permian Basin Area Rate Cases, 390 U.S. 747 (1968) .. 31

or © Petroleum Co. v. Wisconsin, 347 U.S. 672
SEED Gnnnceneeennsouenbesecessanevcicseaneeas

Puerto Rico Telephone Company v. FCC, No. 76-1134

4, 9 > 5 een 23
SEC v. Chenery Corp., 318 U.S. 80 (1943) passim
SEC v. Chenery Corp, 332 U.S. 194 (1947) .......... 35
62 Cases v. United States, 340 U.S. 593 (1951 17
Stark v. Wickard, 321 U.S. 288 (1944) .............. 27
United States v. Southwestern Cable Co., 392 U.S. 157

q4•?öhtſſ.!· ĩ ᷣ— m3 20

FCC anp State ApMINistrative AGENCY PROCEEDINGS:

Allocation of Frequency in Bands Above 890 Mc, 29
r pees ee 8
AT&T, 56 F. C. C. 2d 14 (1975), pet. for review ing
sub nom. California v. FCC, D.C. Cir., No. 75-2060. 24

Table of Authorities Continued iii
Page

ATET, ‘‘Foreign Attachment“ Tariff Revisions, 15
F.C.C.2d 605 (1968), recon. dented, 18 F.C.C.2d

DT enen 8
Carterfone, 13 F.C.C.2d 420, recon. denied, 14 F.C.C.2d
r ˙ ˙c————— eee 8
Customer Interconnection, 46 F. C. C. 2d 214 (1974) .... 10
In re MCI, 18 F.C. C. 2d 853 (1969), recon. denied, 21
F ens 8
In re Telephone Companies, P.U.R. 1915A 1032 (S..
e eee 22

In re Telerent Leasing Corp., 45 F.C.C.2d 204 (1974),
aff'd sub. nom. North Carolina Utilities Comm 'n
v. FCC, 537 F.2d 787 (4th Cir. 1976), cert. denied, 45

U.S.L.W. 3432 (U.S. Dee. 13, 1976) ......... 5, 10, 18
Interstate and Foreign MTS and WATS, 35 FC. C. 2d

r es denen ese ese 6 ese 9
Jacobsen v. Northwestern Bell Tel. Co., 61 P. U. R. 2d

541 (S.D. Pub. Util. Comm 'n 19650) 22
King v. Pacific Tel. & Tel. Co., 16 P.U.R. (n.s.) 348

(Ore. Pub. Util. Comm’n 1936) *** 22
Littlepage v. Mosier Valley Tel. Co., P.U.R. 1918E 425

(Ore. Pub. Serv. Comm 'n 1918) n 22
Los Angeles v. Southern California Tel. Co., 2 P. U. R.

— 9 247 (Cal. R. R. Comm 'n 1933) ............ 7, 22
Netsky v. Bell Tel. Co. of Pa., 65 P. U. R.3d 145 (Pa.

1 22

Peters Sunset Beach, Inc. v. Northwestern Bell Tel.
Co., 60 P.U.R.2d 363 (Minn. R.R. & Whse. Comm 'n
1964), aff’d, Minn. Dist. Ct. 8th Jud. Dist., Case No.
, oka enc en ceases 7, 22

Quick Action Collection v. New York Tel. Co., P. U. -
1920D 137 (N.J. Bd. Pub. Util. Comm 'rs 1920) .

Racine Flash Cab Co. v. Wisconsin Tel. Co., 65 PUR.”

3d 321 (Wis. Pub. Serv. Comm 'n 1969) .......... 22
Re Farmers Fountain Tel. Co., P.U.R. 1926C 363 (III.
re eee dees 22

United too Department of Defense v. General Tele-

55 e Co., 38 F.C. C. 2d 803 (1973), review denied,

CC 73-854 (1973), aff’d per curiam sub nom. St.

Joseph Tel. & Tel. Co. v. FCC, 505 F.2d 476 (D.C.
EE re ee ee 60 66 7

iv Table of Authorities Continued

Page
STATUTES AND REGULATIONS:
L 2
SUüaaateh eeeee 13
Communications Act of 1934:
Section 1, 47 U.S.C. (1111 33
Section 2(b)(1), 47 U.S.C. § 1526 b)) passim
Section 4(i), 47 U.S.C. 5 1540 ʒ7777ʒʒ) 26
Section 4(j), 47 U.S.C. 5 1540 26
Sections 201-05, 47 U.S.C. §§ 2010555 6, 26
Section 208, 47 U.S.C. C 2999 26
Section 214, 47 U.S.C. § 21Iã́ã—ꝶKn ccc cece ees 6, 25
Section 215, 47 U.S.C. ( ss 26
Section 215(b), 47 U.S.C. § 2150-bk 26
Section 218, 47 U.S.C. § 219999999999. 26, 30
Section 221(b), 47 U.S.C. § 221( b)) passim
Section 301, 47 U.S.C. § 3ᷣ . passim
Sections 313-14, 47 U.S.C. §§ 313-114. 26
Section 402(a), 47 U.S.C, § 402(a) .............. 13
Sections 403-04, 47 U.S.C. §§ 403.) 26
Section 410, 47 U.S.C. § 41 .. 26,
Section 602, 47 U.S.C. § G02 ᷑ ã VMI... 26
Un. eee 20
Interstate Commerce Ae·tluͥkuuu;Q;ʒ 21
Mataval Gas Ast eee see 20
Va. Code Aun, . „% P 5
MISCELLANEOUS:
arne. . eee 28

Table of Authorities Continued *

Page
H.R. 8301, 73d Cong., 2d Sess, (1934) 20, 26
S. Rep. No. 781, 73d Cong., 2d Sess. (1934) .......... 20
H.R. Rep. No. 910, 93d Cong., Ist Sess. (1953) ....... 6
[. S. 2910 before the Senate Finance Com-
ittee on Interstate Commerce, 73d Cong., 2d Sess.
eee eee 622 20
Hearings on 8. 6 before the Senate Committee on Inter-
state Commerce, 71st Cong., Ist Sess. (1930) ..... 20
119 Cong. Ree. 30962 (1973g))))))j erences 19
78 Cong. Rec. 10316 (1934) .... 66... ec cece eee ees 5
78 Cong. Rec. 3275 (193))))))ꝛ e eens 26
78 Cong. Ree. 3367 (1984) .... 66.666 cee e nee 26
re v 6
Letter from Dean FCC Chairman, to Ben Wig-
gins, Chairman, NARUC Committee on Communi-
cations, Aug. 4, 177777 eee eee nees 32

National Academy of Sciences, A Technical Analysis
of the Common Carrier/User Interconnections
eee 7, 12, 30

National Association of Regulatory Utility Commis
sioners, Report After Investigation (1974) .... 10,32

President’s Task Force on Communications Policy,
Final Report (1968) «2... 6666 ccc cece eee newness 21

IN THE

Supreme Court of the United States

Ocroser Term, 1976

No.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, ET L.
Petitioners,
V.

FeperaL Communications Comission and the
Unrrep States or AMERICA, d AL.,

sespondents.

— C

PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

Petitioners, the American Telephone and Telegraph
Company and its 23 associated Bell System operating
companies, request that a writ of certiorari issue to re-
view the judgment of the United States Court of Ap-
peals for the Fourth Circuit in this case.

The opinion of the Court of Appeals, which is not yet
officially reported, appears at Appendix A to this peti-
tion.’ It affirmed, by a two-to-one vote, the Federal
Communications Commission’s First Report and Or-
der, which is reported at 56 F.C.C.2d 593 (1975) and
appears at Appendix B; the Commission's Second Re-

‘The appendices are separately bound in a companion volume
which is cited as Pet. App.

9
—

port and Order, which is reported at 58 F.C. C. 2d 736
(1976) and appears at Appendix C; the Commission's
Memorandum Opinion and Order released February
13, 1976 which is reported at 57 F.C.C.2d 1216 and ap-
_ pears at Appendix D; the Commission's Memorandum
Opinion and Order released March 15, 1976, which is re-
ported at 58 F.C.C.2d 716 and appears at Appendix E;
and the Commission’s Memorandum Opinion and
Order released April 28, 1976, which is reported at
59 F.C.C.2d 83 and appears at Appendix F.

The judgment of the Court of Appeals, which was
entered on March 22, 1977, appears at Appendix G.
The jurisdiction of this Court is invoked under 28
U.S.C. § 1254(1).

In this case the Federal Communications Commis-
sion has established a massive new federal regulatory
program requiring, with limited exceptions, FCC regis-
tration of telephone sets and other terminal equipment
supplied by customers in the United States. Almost all
such equipment is used for intrastate and exchange
service, and the FCC program will displace long stand-
ing and pervasive state regulation of such equipment
as well as drastically alter the way in which telephone
service has long been provided in this country. The
FCC’s program will also require registration and modi-
fication of telephone company supplied terminal equip-
ment, although such equipment has been safely con-
nected to the telephone network for over three quarters
of a century without prior federal registration (or
other form of prior federal approval) and the program
will impose vast direct costs on the carriers. In adopt-

3

ing the program, the FCC expressly declined to con-
sider the potentially enormous increases this program
will cause in telephone rates paid by the publie. Never-
theless, the Court of Appeals sustained the program
based on its on analysis of the potential [economic]
impact of the . . . program.“ Pet. App. 34a-35a. The
questions presented are:

1. Whether the FCC“ program, in requiring fed-
eral registration of terminal equipment used for intra-
state and exchange service, violates the explicit limits
on the FCC’s jurisdiction under the Communications
Act where Congress specifically declined te grant the
FCC jurisdiction which would have encompassed such
equipment and instead expressly provided in Section
2(b)(1) that (apart from radio licensing) nothing
in [the] Act” shall apply or give the Commission
jurisdiction with respect to facilities . . . for or in
connection with intrastate communication service’’—a
prohibition on FCC jurisdiction confirmed in Section
221 (b) „with respect to facilities . . . for or in con-
nection with . . telephone exchange service . . . even
though a portion of such exchange service constitutes
interstate or foreign communications“!

2. Whether, even if the express terms of the Com-
munications Act do not preclude a claim of general
FCC jurisdiction over terminal equipment, inclusion
of carrier equipment in the registration program re-
flects an unlawful assertion of FCC authority over
carrier equipment where the Communications Act
grants the FCC no authority to require its approval
of carrier equipment before it is attached to the tele-
phone network and where the FCC has acted without
any valid, rational reasons!

4

3. Whether the FCC erred in expressly refusing
to consider the multimillion-dollar adverse impact of
the program on telephone rates paid by the public and
whether the reviewing court violated the rule of SEC
v. Chenery Corp., 318 U.S, 80 (1943), by sustaining
the program based on the court’s own ad hoc economic
analysis ?*

STATUTES AND REGULATIONS INVOLVED

Pertinent provisions of the Communications Act ap-
pear at Appendix H. Pertinent portions of Part 68
of the FCC rules, setting forth the FCC’s registration

regulations, appear at Appendix I.

STATEMENT OF THE CASE

A. The Nature and Regulation of Telephone Service and the
Provision of Terminal Equipment

Telephone service in this country is provided
through a series of local telephone exchanges in in-
dividual cities. Within the local exchange area, service
is provided by using local lines to link “terminal
equipment“ — telephone sets, PBXs, answering de-
vices, ete.—ordinarily located at the customer“ home
or business to exchange switching facilities located at
the telephore company’s central office serving that ex-
change. Telephones or other terminal equipment are
connected with one another through the central office
switching facilities, which are controlled by the dial
or other signals generated by the terminal equipment.’

* If certiorari is granted, petitioners may also brief related ques-
tions involving the inadequacy of the registration program to pro-
tect the telephone network against harm from customer equipment
and the power of the FCC to regulate manufacturers of customer
supplied equipment.

* The local exchanges are connected with one another through ¢
complex network of intercity lines. Ordinarily, long distance calls

5

Terminal equipment is mainly used for intrastate
and exchange service.’ Consonantly, the states have
regulated the provision of terminal equipment vir-
tually from the outset of regulated service in this
country. E. g., Gardner v. Providence Tel. Co., 49 A.
1004 (R. I. 1901). Tariffs filed with the states have
long set forth the rates and conditions on which termi-
nal equipment is provided by the telephone companies ;
likewise, state tariffs contain regulations governing
the use of customer provided equipment with tele-
phone company facilities (see pp. 8-9, below). State
commissions exercise pervasive regulatory authority
over such tariffs and the terms for the use of customer
equipment. See, .., Va. Code Ann, Title 56.

When Congress passed the Communications Act in
1934 and established the FCC to regulate interstate
communications, it was well aware that facilities such
as terminal equipment were used mainly for intrastate
service (see p. 5, n. 3, above) and it ineluded Section
2000 () to preserve existing state regulatory juris-
diction over such facilities against possible federal
encroachment. Congress also included Section 221(b)
to preserve state jurisdiction over local exchange ser-
vice and facilities even though such service and facili-
ties may be used for interstate communications (e. 9.

are routed between exchanges along these lines by toll switching
facilities designed to handle interexchange (i.¢., intercity) traffic.

At the time the Communications Act was passed, the figure
was estimated at 97½ or 98% of all telephone communication”’
(78 Cong. Ree. 10316 (1934)). The figure has most recently been
estimated at approximately 97 percent. In re Telerent Leasing
Corp., 45 F.C.C.2d 204, 211 (1974), cd sub nom. North Carolina
Utilities Comm’n v. FCC, 537 F.2d 787 (4th Cir, 1976), cert.
denied, 45 U.S. L. W. 3432 (U.S. Dec. 13, 1976).

6

exchange facilities in the Washington, D.C., metro-
politan area).“ Congress thus sought in the Communi-
cations Act to complement, not supersede, existing
state regulatory jurisdiction. The FCC was given au-
thority to regulate certain aspects of telecommunica-
tions—such as the rates for “ interstate“ calls (See-
tions 201-05, 47 U.S.C.§§ 201-05) and the construction
or operation of new ‘‘interstate lines“ (Section 214,
47 U.S.C. § 214)—which the states could not or did not
effectively control. However, the language and legis-
lative history of Section 2(b)(1) as well as of Section
221(b) confirms (see p. 17, below) that Congress ex-
pressiy withheld from the FCC any jurisdiction over
matters—such as terminal equipment used for intra-
state and exchange service—which are subject to effec-
tive state regulation.

In the decades since the Act was passed, states have
continued to regulate terminal equipment pervasively
and such equipment has continued to be provided by
telephone companies under tariffs filed with the state
agencies, See pp. 22-23, below.’ Equipment has not gen-
erally been provided under tariffs filed with the FCC;
nor has the FCC ever sought in past years to assert

Both Sections 2(b) (1) and 221(b) preserve the FCO power to
license radio frequencies under Section 301 (47 U.S.C, § 301) to
ensure that carriers, like any other users of the limited number of
available radio frequencies, do not use frequencies allocated to
others. See, e.g., H.R. Rep. No. 910, 83d Cong., Ist Sess. 1 (1953).
Section 221(b) also requires, as a condition of exemption, that state
regulation exists, which it does in every state.

Thus, AT&T's FCC Tariff No. 263, which offers long-distance
telephone service, makes no offering of telephones or other terminal
equipment; rather, it provides (para. 1.1) that the station equip.
ment is ‘‘furnished in accordance with Telephone Exchange Service
Tariffs, that is, tariffs filed with state regulatory agencies,

7

any general regulatory jurisdiction over terminal
equipment.“

Historically, in offering telephone service under
state regulation, the telephone companies provided
and maintained all the parts of the telephone system,
ineluding the telephone sets and other terminal equip-
ment connected to the local exchanges. By providing
and maintaining all the facilities necessary for tele-
phone service, the telephone companies sought to pro-
tect the telephone network from any harm and to
assure the highest quality of service possible.’ This
policy of “‘end-to-end service“ by regulated utilities
was followed with the explicit or implicit approval
of the state regulatory agencies,” and it comported

® For decades, the FPO never claimed any general jurisdiction
over terminal equipment merely because such equipment might oc-
casionally handle interstate calls. Only in relatively rare situations
iavolving equipment with a uniquely interstate communications
function—such as certain military facilities used in the interstate
military defense network—is terminal equipment tariffed with the
FCC. F.., United States Dept. of Defense v. General Telephone
Co., 38 F.C.C, 2d 803 (1973), review denied, FCC 73-854 (1973),
aff’d per curiam sub nom. St. Joseph Tel. & Tel. Co. v. FCC, 505
F.2d 476 (D.C. Cir, 1974).

7 As the National Academy of Sciences has reported to the FCC,
uncontrolled connection of customer supplied equipment would
create a variety of hazards including“ voltages dangerous to human
lite, impaired transmission quality, and improper network con-
trol signaling that could cause malfunctions in vital switching
machinery. National Academy of Sciences, A Technical Analysis
of the Common Carrier /User Interconnections Area 2-3, 4-7 /1970).

E.., Peters Sunset Beach, Inc. v. Northwestern Bell Tel. Co.,
60 P.U.R.3d 363 (Minn. R.R. & Whse Comm'n 1964), d, Minn.
Dist. Ct. 8th Jud. Dist. Case No, 8529 (Aug. 17, 1966); Los
Angeles v. Southern California Tel. Co., 2 P. U. R. (us.) 247 ( Cal.
R.R. Comm 'n 1933); Quick Action Collection Co. v. New York
Tel. Co., P.U.R. 1920D 137 (NJ. Bd. Pub. Util. Comm'rs 1920).

8

with the basie approach adopted in the Communica-
tions Act for interstate service, where Congress de-
termined that regulation rather than abstract and
mechanical reliance on competition would best serve
the public interest in the field of telecommunications.
See FCC v. RCA Communications, Inc., 346 U.S. 86,
92-97 (1953).

B. The FCC Registration Program and Other Pertinent Proceedings

Since the 1960's, the FCC has begun to substitute
a new policy of restricted competition for the regu-
lated utility concept of telephone service. It thus took
steps to promote competition in the field of interstate
private lines which the FCC regulates under Sections
214 and 301 of the Act.’ It took a further step in its
Carterfone decision” invalidating interstate tariff
provisions as applied to prohibit use of a non-carrier
device connecting two communications systems for
“interstate or foreign telephone service.“

Carterfone did not purport to interfere with intra-
state tariffs or the states’ historie jurisdiction over
terminal equipment in general, and the FCC subse-
quently made clear that its decision in Carterfone did
not authorize a customer to “substitute his own equip-
ment or facilities . . . for that furnished by the tele-
phone company. . . . Nevertheless, the Bell System

Allocation of Frequency in Bands Above 890 Me, 29 F.C. C. 825
(1960); In re MCI, 18 F.C.C.2d 953 (1969), recon. denied, 21
F.C.C.2d 190 (1970).

Carterfone, 13 F.C.C.2d 420, 441, recon. denied, 14 F.C. C 2d
571 (1968).

“ AT&T “‘Foreign Attachment Tariff Revisions, 15 FCC. 2d
605, 609-10 (1968), recon. denied, 18 F.C.C.2d 871 (1969).

9

and other telephone companies filed with the states
new tariffs that generally permitted customer provided
terminel equipment to be connected to the telephone
line through ‘‘protective connecting arrangements”’
which safeguard telephone company employees and
facilities against improper transmission of signals or
excessive voltages. As a further safeguard, the new
tariffs also required that the telephone companies pro-
vide the network control signaling units—the devices
which generate the control signals to operate the ex-
change switching equipment at the telephone com-
pany's central office.“

In June 1972, the FCC instituted the present pro-
ceedings to create opportunities for customers to sub-
stitute their own terminal equipment for carrier sup-
plied equipment. Interstate and Foreign MTS and
WATS, 35 F.C.C.2d 539 (1972). The FCC proposed
to eliminate the requirements that carrier connecting
arrangements and network control signaling units be
used where customers substituted thei: own terminal
equipment. Id. In a supplemental notice, the FCC
represented that the economic issues posed by its new
approach would be “‘cover[ed] . . . by further supple-
mental notices in the near future“ (40 F.C.C.2d 315,
318 (1973) ), and it requested comment on a proposed
registration program as a substitute for the carrier
connecting-arrangement requirements prescribed by
applicable tariffs. Id. at 316-17.

12 While connecting arrangements and network control signaling
units normally are furnished pursuant to state tariffs (except for
those uniquely interstate situations in which terminal equipment
is tariffed on an interstate basis, see p. 7, n. 6, above), the tele-
phone companies revised their interstate tariffs as well as their
state tariffs since the FCC had ordered them in Carterfone to re-
move existing restrictions with respect to interstate communications.

10

While the FCC was proceeding with its proposals,
state authorities were becoming increasingly con-
cerned about the economic consequences. The National
Association of Regulatory Utility Commissioners
(““NARUC”’) undertook a study which concluded that
expanded customer substitution would increase tele-
phone rates for ordinary local residential and business
telephone users by $360-740 million annually by 1980
and by almost $1 billion annually by 1984.“ Several
state regulatory authorities began to consider propo-
sals to limit the expansion of customer substitution
of intrastate and exchange facilities and services for
those provided by the telephone companies. See In re
Telerent Leasing Corp., supra, 45 F.C.C.2d at 204-05.

In response the FCC made a general declaration in
the Telerent case that the states could not disregard
FCC policy established within the ambit of FCC juris-
diction and that FCC jurisdiction extended to the
regulation of terminal equipment connected to local
exchanges. 45 F.C.C.2d at 221. Yet, in Telerent, the
FCC once again promised to expend its registration
case to consider the economic consequences of ex-
panded customer substitution. Id. at 222-23. Shortly
thereafter, the FCC established Docket No. 20003 as
a separate inquiry into the economic impact of inter
alia customer provision of terminal equipment,
acknowledging that the use of customer provided
facilities in lieu of those offered by the carriers may
affect the rates for services to other customers.“ Cus-
tomer Interconnection, 46 F.C.C.2d 214, 215 (1974).

* NARUC, Report After Investigation 19 (1974). NARUC is the
national organization of state commissioners responsible for utility
regulation in the states.

11

On November 7, 1975, with the economic inquiry in
Docket No. 20003 uncompleted, the FCC released its
First Report and Order in the registration p1oceed-
ing.“ 56 F.C.C.2d 593 (Pet. App. 1b). The First
Report and Order promulgated FCC regulations es-
tablishing a sweeping new program for federal regis-
tration of all types of terminal equipment with the
exception of certain categories of equipment including
PBXs, key telephone systems, and main station tele-
phones. A few months later, these last three categories
of equipment were also made subject to the program
by the FCC’s Second Report and Order, 58 F.C.C.2d
736 (Pet. App. 1c).”

Under the registration program, customer supplied
terminal equipment registered with the FCC may—
contrary to most existing state tariffs—be direct!)
connected to a carrier's exchange facilities without
the use of either a connecting arrangement or a car-
rier supplied network controlling signaling unit as is
presently required to protect the network and tele-
phone company employees from harm.” Pet. App. 6i.

„The FCC issued a First Report in Docket No. 20003, belittiing
the potential impact of customer substitution, only after the present
ease had been argued and submitted to the court below. Although
apprised of the decision in Docket No. 20003, the majority opinion
placed no reliance on it (see p. 36, n. 62, below) and—given the
procedural errors and gross disregard of the evidence in Docket
No. 20003—the FCC could not have permissibly rested its registra-
tion program upon that decision. See pp. 35-36, below.

15 Two commissioners dissented from the FCC’s Second Report
and Order, one of whom explicitly argued that the Commission
should not extend the registration requirement to PBX equip-
ment without first having examined the social and economic impact
of this deeision. Pet. App. 24e.

Moreover, to facilitate the substitution of customer equipment,

12

Carriers must also register their own terminal equip-
ment before connecting it to their own network (Pet.
App. 15b-16b), even though they have safely utilized
their own equipment for decades and even though
this will require carriers to modify their equipment
needlessly and expend millions of dollars for registra-
tion. See pp. 27-28, below.“ Finally, despite its earlier
promise to consider the economic impact of expanded
customer substitution (see pp. 9-10, above), the FOC
declined to address this issue before adopting its regis-
tration program. See Pet. App. 14b, 6e-7e; pp. 32-33,
below.

C. The Decision Below

The FCC’s registration orders were affirmed by the
Court of Appeals for the Fourth Circuit by a two-to-
one vote. Pet. App. Ia.“ However, prior to reviewing

carriers must generally arrange their facilities so that connection
can readily be made through ‘‘standard plugs and standard tele-
phone company-provided Jacks. Pet, App. 61, Yet, even while the
registration program purports to establish technical requirements
that justify permitting easy, direct connection of customer equip-
ment, thereby facilitating customer substitution, the program con-
tains serious omissions in terms of adequate procedures and stand-
ards for quality control in the manufacture of terminal equipment
and for the maintenance and repair of such equipment after in-
stallation. The National Academy of Science has independently de-
termined that adequate procedures and standards in these areas are
essential to any program which would permit the direct electrical
connection of terminal equipment to the telephone network. Na.
tional Academy of Seienee, A Technical Analysis of the Common
Carrier / User Interconnections Area 5051 (1979),

One Commissioner dissented free ‘iy ix an of carrier
equipment, pointing out that the esr. 4 nut- in ineentive
to protect their own network from ha: a oe th own equipment
and thus carrier registration was merely ‘‘regulatory overkill
which cannot be supported by logie or experience, Pet. App. 540.

The orders affirmed by the Court of Appeals were the FCC's

13

the orders, the Court of Appeals stayed the major as-
pects of the registration program, recognizing that
the program’s impact would be largely irreversible.
Pet. App. 1j-12j. The court has continued that stay in
effect pending petitions for certiorari.” Pet. App. 13).

Prior to the decision below, another panel of the
Fourth Circuit had affirmed the FCC's Telerent deci-
sion in North Carolina Utilities Comm'n v. FCC, 537
F.2d 787 (1976), cert. denied, 45 U.S.L.W. 3432 (U.S.
Dec. 13, 1976) (“North Carolina 1“) and had ruled
that Sections 2(b)(1) and 221(b) do not bar the FCC
from claiming regulatory jurisdiction over terminal
equipment connected to local changes. This case,
however, involves not merely some abstract declara-
tion of FCC jurisdiction but rather a major federal
regulatory program displacing existing state author-
ity. Against this background, the panel below agreed
to reexamine the holding of North Carolina I, empha-
sizing that the FCC's action ‘‘implicat[ed] significant
state and federal interests. Pet. App. 12a. Neverthe-
less, on the merits, the panel adhered to North Caro-
lina I by a two-to-one vote.“

First and Second Reports and Orders and three supplemental or-
ders that were released February 13, 1976, March 15, 1976, and
April 28, 1976 and are set forth in Appendices D. K and F. The
court 's jurisdiction was invoked by petitions for review filed pur:
suant to 47 U.S.C, § 402(a) and 28 U.S.C, § 2342(1).

% The court s stay, which continues in effect, prevents the FCC
from implementing its registration program for all carrier equip-
ment and for PBXs, key systems, main stations and extension tele-
phones; the program has been allowed to commence only for cus
tomer provided data and ancillary equipment (e, answering de-
viees) other than extension telephones—a phase of ‘he program
having significantly less impact. Pet. App. 1)-12).

„ Because of disqualifications in the Fourth Cireuit, the dert
sion in North Carolina I was rendered by Judge Hastie, joined by

14

The majority also rejected the claim that the FCC’s
inelusion of carrier equipment in the registration pro-
gram was an irrational and unjustifiable exercise of
a non-existent power. Pet. App. 25a-26a, 27a-29a. The
majority could not cite any provision of the Act ex-
pressly granting the FCC authority to require prior
federal approval of carrier equipment. Nor did the
majority opinion address the carriers’ detailed argu-
ments that the FCC decision to require carrier-
equipment registration rested on irrational and im-
proper reasons, even assuming the FCC did possess
the requisite prior-approval power.

Finally, although the FCC explicitly refused to re-
solve the eeonomie impact of expanded customer sub-
stitution, the majority opinion found that this failure
to consider a pertinent public interest issue was not
fatal. Unable to point to any reasoned analysis by the
FCC of the registration program's economic impact
on the public, the majority opinion itself
despite the rule clearly established by SEC v. Chenery
Corp., 318 U.S. 80 (1943)—to provide the analysis
which the FCC should have performed. Pet. App. 30a-
Aa. Not surprisingly, the court's own post hoc con-
clusion that the registration program's economic im-
pact will not be severe rests on untested and ineorrect
analysis and assertions. See pp. 35-36, below.

Judge Tuttle; Judge Widener, the only available member of the
Fourth Cireuit, dissented. The decision in this case was rendered
hy Judge Tuttle, joined by Judge Rives; Judge Widener again
dissented. En bane consideration by the Fourth Cireuit has been
unavailable in both cases because of disqualifications.

15

This case involves the validity of one of the most
significant and far reaching administrative programs
ever undertaken by a federal agency. With the regis-
tration program, the FCC seeks to regulate generally
and pervasively over 100 million pieces of terminal
equipment which have routinely been the subject of
state—not federal—regulation for over 50 years. The
FCC's extraordinary action is premised on an er-
roneous claim to a regulatory jurisdiction which is
explicitly prohibited by the plain language of the
Communications Act, is directly contrary to Congress’
express intent in enacting the Act, and will have a
wide-ranging and severe impact on the way in which
telephone service has traditionally been provided and
regulated in the United States.

An abstract assertion of such regulatory jurisdic-
tion was considered in North Carolina I. It is only
with this case, however, that the FCC has sought to
adopt a specifie regulatory program based on its juris-
dictional claim over terminal equipment. Thus, this
ease, for the first time, brings into sharp focus the
extraordinary reach of the FCC's attempted regula-
tory grasp (see Pet. App. 11-391) and the immediate
displacement of state authority that has endured for
decades. Moreover, since the FCC has now adopted
a specific program, this case arises in the concrete
context in which this Court is accustomed to consider-
ing important issues involving allocation of regulatory
jurisdiction between state and federal authorities.”

—

n See, , Chemehuevi Tribe of Indians v. FPPC, 420 U.S. 395
(1975); FTC v. Bunte Bros., Inc, 312 US, 349 (1941); North
Carolina v. United States, 325 U.S. 507 (1945).

16

Ip short, the registration program presents a far dif-
ferent—and far stronger—case for certiorari than did
North Carolina I.”

Furthermore, unlike North Carolina I, this case
raises two other extremely important issues indepen-
dently warranting review by this Court. First, the
FCC is seeking to exercise an unprecedented and non-
existent regulatory power over carrier terminal equip-
ment simply to attain competition for competition's
sake, without regard to whether such competition is
consistent with the public interest. See FCC v. RCA
Communications, Inc., 346 U.S. 86, 97 (1953). Second,
the lower court’s attempt to sustain the program on
the basis of its own analysis of the potential [eco-
nomie] impact of the... program“ (Pet. App. 34a-
Wa) violates this Court’s long-standing rule that
agency action can be sustained solely on the basis of
“what the Commission did“ and not by what it
might have done. SEC v. Chenery Corp, 318 U.S. 80,
93-94 (1943).

I. The Decision Below Presents A Major Question of Statutory
Jurisdiction Which Has Not Been But Should Be Considered
By This Court.

1. The FCC's registration program is a major ex-
tension of agency jurisdiction in direct defiance of
Congress’ express statutory prohibition.” The statu-

This is emphasized by the fact that even the lower court com-
eluded that full reconsideration of the jurisdictional issue—as
starkly posed for the first time by the registration program—was
warranted in this case although the issue had previously been con-
sidered by another panel of the same court in North Carolina I.
Pet. App. lla-12a.

The issue is whether Coagress by statute prohibited the FCC's
exercise of authority and not whether Congress could have per-

17

tory language is the concrete expression of Congress’
purpose and the hinge of any sound interpretation.”
Here, the statutory language is unequivocal:

“Subject to the provisions of Section 301 [regard-
ing the licensing of radio frequencies], nothing tn
this Act shall be construed to apply or to give
the Commission jurisdiction with respect to...
charges, classifications, practices, services, facili-
ties, or regulations for or in connection with in-
trastate communication service ...’’ (emphasis
added). Section 2(b)(1).”

No one denies that terminal equipment constitutes
„facilities“ or that the FCC’s registration program
asserts “jurisdiction” over and seeks to apply“ the
Act to such facilities. It is equally beyond rational dis-
pute that the vast preponderance of terminal equip-
ment embraced by the registration program is used
„for or in connection with’ intrastate“ (Section
2(b)(1)) and exchange“ (Section 221(b)) services:
generally, terminal equipment is connected directly to
local exchanges, is provided under terms contained in
state tariffs, and is used mainly for intrastate and
local service. See pp. 4-5, above.

mitted the FCC to displace state registration. Accordingly, the
question presented is one of Congressional intent, not one of power

„ Caminetti v. United States, 242 U.S. 470, 485 (1917) ; 62 Cases
v. United States, 340 U.S. 593, 596 (1951).

„ Similarly, Section 221(b) provides:
„Subject to the provisions of Section 301, nothing in this Act
shall be construed to apply, or to give the Commission juris-
diction, with respect to charges, classifications, practices, serv-
ices, facilities, or regulations for or in connection with...
tele erchange service... even though a portion of such
telephone exchange service constitutes interstate or foreign

communications .. (emphasis added).

18

The majority opinion did not directly deny that
Congress meant to prevent FCC regulation (apart
from Section 301) of all facilities embraced by Sec-
tions 2(b)(1) and 221(b); but it purported to find
latent in the provisions a question whether terminal
equipment constitutes ‘ ‘intrastate’ facilities over
which state jurisdiction is to be primary.“ Pet. App.
Ida, The majority then reasoned that the equipment
subject to the registration program was within the
FCC's jurisdiction since such equipment may be used
both for interstate and intrastate communication. Ac-
cording to the majority, the withdrawal of jurisdic-
tion over one [intrastate communications] cannot be
read to mean the withdrawal as to the other [inter-
state communications].“ Pet. App. 14a.

The lower court clearly misconstrued the statute—
contrary to its plain language—when it proceeded to
resolve the jurisdictional question by deciding that
terminal equipment should be treated as “ interstate“
rather than intrastate“ facilities (Pet. App. 14a) be-
cause such equipment may be occasionally used for
interstate as well as intrastate communication.” Under
the statute’s express terms, jurisdiction is allocated
on the basis of whether the facilities are used “ for or
in connection with“ intrastate or exchange service.
Not even the majority below denied that terminal

Even if the statute did pose a question as to whether termina!
equipment should be treated as interstate or ‘‘intrastate’’ fa-
cilities, it is inconceivable that such equipment should be deemed
interstate rather than ‘‘intrastate’’ in character when it is con-
nected directly into local exchanges as a part of the exchange
plant (see In re Telerent Leasing Corp., supra, 45 F.C.C2d at
215), is utilized almost all of the time for intrastate and exchange
calls (see p. 5, n. 3, above) and has been generally provided under
state tariffs for over 50 years (see pp. 22-23, below),

19

equipment is integrally employed for that purpose.
Once it is acknowledged that terminal equipment is
in fact used“ for or in connection with“ intrastate and
exchange service, the overriding prohibition of Section
2(b)(1) as well as of Section 221(b) explicitly ap-
plies and it is then irrelevant that intermittent inter-
state use might otherwise permit FCC regulation.”

Consistently with this construction, the FCC itself,
as recently as 1973, advised Congress that:

. .. lack primary jurisdiction over tele-
phone sets which are a primary part of the facili-
ties used in providing exchange telephone service,
As you know, the Communications Act specifically
excludes the Federal Communications Commis-
sion from any authority with respect to charges,
classifications, practices, services, facilities or reg-
ulations for or in connection with intrastate and
exchange telephone services of any telephone com-

ny.“ Letter from the FCC Chairman, 119 Cong.
Nec, 30962 (1973) (emphasis added).

The present subject of the FCC’s registration program
includes this same telephone set’’over which the FCC
disclaimed jurisdiction less than four years ago in
language borrowed directly from Sections 2(b)(1)
and 221(b).

This reading is confirmed by the express reservation in Section
2(b) as well as in Scetion 221(b) preserving the FCC's radio li-
censing authority under Section 301, A reservation clearly was
needed to preserve this otherwise applicable power from being eut
off for facilities, such as radio telephones, which use radio frequen-
cies. This express Section 301 reservation confirms that all other
FCC powers otherwise allegedly applicable to Seetion 2(b) (1) and
221 h) facilities are preeluded by the nothing in this Act prohi-
hit ion of these two sections. See also p. 25, n. 37, below.

20

The very purpose of the reservation of state juris-
diction in the Act was to protect the State commis-
sions against being overridden’’ by the FCC and to
preserve for the states exclusive“ jurisdiction in the
sphere expressly reserved to them by statute.” After
protests by thirty-seven state commissioners and the
state commissioners’ national association,” early ver-
sions of draft bills proposing the Act were revised to
omit language that would have facilitated federal con-
trol and to include the specifie prohibitions that
emerged as Sections 2(b)(1) and 221(b).” The legis-
lative history of the Act thus confirms Congress’ spe-
cifie intent to prevent the FCC from displacing exist-
ing state jurisdiction over terminal equipment.

The lower court’s failure to follow the plain lan-
guage of a governing jurisdictional statute is, stand-
ing alone, ample basis for review here. The court’s
error is multiplied by its disregard of the FCC’s own
prior disclaimer of jurisdiction and of Congress’ clear
intent. This case is the epitome of an important ques-
tion of regulatory authority’’ normally considered on
certiorari. United States v. Southwestern Cable Co.,
392 U.S. 157, 161 (1968).“

** Hearings on S. 2910 Before the Senate Comm. on Interstate
Commerce, T3d Cong., 2d Sess. 179 (1934); S. Rep. No. 781, 73d
Cong., 2d Sess. 3 (1934).

See Hearings on S. 6 Before the Senate Comm. on Interstate
Commerce, 7Ist Cong., Ist Sess. 2167 (1930).

See S. 2910, § 210, 73d Cong., 2d Sess. (1934), introduced 78
Cong. Ree, 3275 (1934); H.R. 8301, § 210, 73d Cong., 2d Sess.
(1934), introduced 78 Cong. Ree, 3367 (1934).

Sc also FPC v. Conway Corp., 44 U.S.L.W. 4777 (U.S. June
7, 1976) (Federal Power Act); Philiips Petroleum Co. v. Wiscon-
sin, 347 U.S, 672 (1954) (Natural Gas Act); North Carolina v.

21

2. The immediate impact and continuing implica—
tions of the FCC’s registration progran also argue
strongly for plenary review by this Court. This pro-
gram is one of the most far-reaching ever undertaken
by the FCC—affecting over 1600 telephone companies,
thousands of equipment suppliers, ultimately millions
of customers, and over 100 million pieces of terminal
equipment.” Even if the adverse impact on telephone
rates is only a fraction of the sums predicted by
NARUC (see p. 10, above), the program will result in
the increase of telephone bills by millions of dollars
over the next decade.

The registration program is certain to change dra-
matically the way in which telephone service has long
been provided in this country. It will permit massive
direct connection of customer equipment to the car-
riers’ network. See p. 31 & p. 34, u. 59, below. In every
realistic sense, the FCC’s plug-in“ registration pro-
gram will effectively destroy the policy of end-to-end
telephone service (see p. 7, above)—long encouraged
by regulatory authorities—which has given „the
United States. .. the finest telephone system in the
world.“ “

United States, 325 U.S. 507 (1945) (Interstate Commerce Act).
The majority opinion relied directly on FPPC v. Conway, supra
(Pet. App. 17a-18a), but Conway dealt only with the question
whether the FPC, in exercising its authority over matters clearly
within its jurisdiction, might consider matters outside its jurisdic-
tion. Here, by contrast, the question is whether the FCC may ex-
tend its jurisdiction over matters expressly excluded from its juris-
dietion by Congress.

* A evrsory review of the FCC's new regulations (see Pet. App.
11-391) confirms the magnitude of the registration program.

President's Task Force on Communications Policy, Final Ne-
port, ch. 6, p. 5 (1968).

22

In addition, the registration program will effect a
major upheaval in the present allocation of regula-
tory jurisdiction over terminal equipment, displacing
authority long exercised by state regulatory agencies.
The majority opinion itself conceded that [the vast
majority of terminal equipment has been—and is—
regulated by the states. Pet. App. 23a. Since reg-
ulated telephone service began, state tariffs have con-
tained the rates, conditions and regulations governing
provision of almost all terminal equipment (including
the ordinary home telephone), as well as the regula-
tions governing the use of customer provided equip-
ment. Both before and after enactment of the Com-
munications Act, it is state authorities,“ not federal
authorities,” who have actively regulated nearly every

The following are merely a small sampling of the myriad of
state regulatory decisions concerning terminal equipment: see e..
Gardner v. Providence Tel. Co., 49 A. 1004 (R. I.), rehearing de-
nied, 50 A. 1014 (1901) ; In re Telephone Companies, P. U. R. 1915A
1032, 1046 (S.D. Bd. R.R. Comm ers 1915); Littlepage v. Mosier
Valley Tel. Co., P.U.R 1918E 425 (Ore. Pub. Serv. Comm 'n 1918)
Quick Action Collection Co. v. New York Tel. Co., P. U. R. 1920D 137
(N.J. Bd. Pub. Util. Comm ers 1920); Re Farmers Fountain Tel.
Co., P.U.R. 1926C 363 (Ill. Comm. Comm 'n 1926) ; Los Angeles v.
Southern California Tel. Co., 2 P.U.R. (ns.) 247 (Cal. R. R.
Comm 'n 1933); King v. Pacific Tel. & Tel. Co., 16 PUR. (n
348 (Ore. Pub. Util. Comm’n 1936) ; Peters Sunset Beach, Inc,, v.
Northwestern Bell Tel. Co., 60 P.U.R. 3d 363 (Minn. RR. & Whse
Comm 'n 1964), fd Minn. Dist. Ct. 8th Jud. Dist. Case No. 8529
(Aug. 17, 1966) ; Jacobsen v. Northwestern Bell Tel. Co., 61 P. UR.
3d 541 (S.D. Pub. Util. Comm 'n 1965) ; Netsky v. Bell Tel. Co. of
Fa., 65 P. UR. 3d 145 (Pa. Pub. Util. Comm 'n 1966); Racine
Flash Cab Co. v. Wisconsin Tel. Co., 65 P. U. R. 3d 321 (Wis. Pub.
Serv. Comm'n 1966).

In a few instances involving devices with a peculiarly inter-
state function (such as interstate defense facilities), terminal
equipment has been tariffed with the FCC, but until recently the
FCC has never asserted, much less exercised, any general regula-

aspect of terminal equipment, including the connection
of customer equipment.

The jurisdictional issue raised by the registration
program with respect to facilities will be a recurring
problem for the lower federal courts unless an au-
thoritative construction of Section 2(b)(1) as well as
of Section 221(b) is provided by this Court. The First
Cireuit has only recently been confronted with a ques-
tion of FCC jurisdiction over certain intrastate and
exchange facilities.” The District of Columbia Circuit
has had to resolve a similar question in a decision in
which it recognized the preclusive effect of the Act’s
reservation of state jurisdiction.”

tory jurisdiction over terminal equipment. See pp. 6-7, above. In
addition, the few FCC decisions claiming to regulate specific pieces
of terminal equipment for quite limited purposes normally framed
the claim of FCC authority—as the lower court admitted—to ap-
ply to the use of equipment for interstate purposes. Pet. App.
21a-23a.

„Hu rt Rico Telephone Company v. FCC, No. 76-1134 (ist
Cir. March 31, 1977). The First Circuit upheld FCC jurisdiction,
relying on North Carolina I. However, the First Cireuit opinion
also acknowledges that [read literally, these provisions [Sections
2(b)(1) and 221(b)] do appear to preclude the federal jurisdic-
tion extended elsewhere in [the Act! (p. 7) and—so far as See-
tion 2(b)(1) is concerned—*‘ [t]he conflicting statutory language
leaves the matter far from free of doubt (p. 8).

* Kitchen v. FCC, 464 F.2d 801 (D.C.Cir. 1972). There, the
court concluded that Section 221(b) barred FCC jurisdiction over
an exchange building despite the assertion that some traffic
switched through the facility was interstate and brought it within
the FCC’s authority under Section 214. Citing the statutory lan-
guage and legislative history, the court determined that even“
if Seetion 214 otherwise applied, ‘‘an exercise of jurisdiction would
still be preeluded by Section 221(b).’’ Id. at 803, See also NARUC
vy. PCC, 533 F.2d 601, 610-11, 617 (DC. Cir. 1976) (Section
2(b)(1)).

24

Nor is the impact of the jurisdictional issue limited
simply to „facilities.“ Sections 2(b)(1) and 221(b)
also apply to services“ and rates“ for and in con-
nection with intrastate or exchange services. The logic
of the jurisdictional claim will inevitably be invoked
beyond ‘‘facilities,”’ and in fact the FCC has already
begun to usurp state jurisdiction over intrastate serv-
ice“ and to threaten state jurisdiction over intrastate
rates.” The underlying jurisdictional issue should be
resolved now to avoid years of bitter and continuing
dispute about the reach of FCC authority under this
keystone jurisdictional limitation.

In fact, review of the jurisdictional issue cannot
be further delayed if it is to be truly meaningful.
Apart from future extensions of the FCC’s jurisdic-
tional claim, the registration program once fully im-
plemented will become irreversible; after millions of
pieces of customer terminal equipment have been di-
rectly attached to telephone lines, no one seriously
imagines that this process can or will be undone. Mil-
lions of dollars in costs for carrier equipment will be
incurred in the first year alone. See pp. 27-28, below.
The lower court’s stay implicitly acknowledges that
review must oecur now before the massive registration
program fully takes effect.

In AT&T, 56 F.C.C.2d 14 (1975), pet. for review pending sub
nom. California v. FCC, D.C. Cir., No. 75-2060, the FCC ordered
AT&T to allow a private line carrier to provide a particular type
of intrastate service specifically barred by California, in addition
to authorized interstate services.

In the course of examining the separation of interstate and
intrastate revenues, the FCC has just revealed that it is consider-
ing requiring revision of local telephone rates to insure that busi-
ness vertical services are not benefited by any increases in intra-
state revenues. FCC 76-1008, released Nov. 8, 1976.

Il. The FCC Lacks Power To Require Carriers To Register Their
Own Terminal Equipment, and Its Rationale For Carrier Regis-
tration Conflicts with this Court's RCA Decision.

1. Apart from the jurisdictional issue, certiorari
is warranted to review the FCC's unprecedented claim
of power to require registration of carrier equipment.
Most terminal equipment in the United States is still
provided by carriers so the registration program has
its most immediate and severe impact on the carriers
themselves.“ Under the registration program the FCC
would require carriers to obtain FCC approval before
they attach their own terminal equipment to their own
network.

The Communications Act does not confer any statu-
tory power on the FCC to require such prior approval
of carrier terminal equipment. Title II of the Act ex-
plicitly states the circumstances in which the FCC has
authority to require prior approval of common carrier
facilities, whether such prior approval is described
as licensing, certification or ‘‘registration’’: under Se-
tion 214, certificates of public convenience are required
where a carrier proposes to construct or operate any
new interstate line.“ No such power was conferred
with respect to carrier terminal equipment, and—since
Congress clearly knew how to confer this power when it

% For this reason most of the immediate multimillion dollar costs
of the program stem from carrier registration (see pp. 27-28, he-
low); by contrast, the ultimate economie impact of the program,
amounting to hundreds of millions of dollars in inereased rates,
derives from customer substitution. See pp. 31-32, below.

“Similarly, under Title III, where Congress delineated the
FCC’s authority over radio, prior approval is required before any
apparatus for transmitting radio signals is employed. See Seetion
301, 47 U.S.C. § 301.

26

wished to do so—the compelling inference is that it did
not wish to do so here.

The legislative history of the Communications Act
confirms this inference. In early drafts, the statute
did include provisions requiring any subsidiary or
parent of an interstate carrier to obtain FCC approval
prior to furnishing equipment“ to the carrier itself.
These provisions are as close as Congress came to
authorizing prior FCC approval of carrier equipment.
The concept was not accepted and the provisions were
not enacted.”

Neither the FCC nor the court below has provided
any firm statutory basis for requiring registration of
earrier terminal equipment. Without discussion, the
FCC provided only a string citation of miscellaneous
statutory provisions. Pet. App. 37b.“ Apparently even
the lower court did not find most of these provisions of
any help; it relied solely on Section 205 of the Act.
But that section does not even mention carrier facilities
or apparatus, and the court did not—and could not—

See Section 215(b) of S. 2910, 73d Cong., 2d Sess., and H.R.
8301, 73d Cong., 2d Sess., 78 Cong. Ree, 3275, 3367 (Feb. 27, 1994).
Compare the present Section 215(b), 47 U.S.C. § 215(b).

** Sections 4(i), 4(j), 201-05, 208, 215, 218, 313-14, 403-04, 410
and 602, 47 U.S.C. §§ 154(i), 154(j), 201-05, 208, 215, 218, 319-14,
403-04, 410, and 602. Section 4/i) merely empowers the FCC to
make rules implementing authority otherwise conferred. Seetion
4(j) authorizes the Commission to ‘‘conduct its proceedings. See.
tions 201-05 conspicuously omit ‘‘facilities’’ in any respeet perti-
nent here. Section 208 allows anyone to complain to the Commis-
sion. Section 215 directs the Commission to examine and report to
Congress. Section 218 authorizes the Commission to ‘‘inquire inte
the management’’ of carriers. Sections 313-14 deal with radio ap-
paratus and transmissions. Sections 403-04 and 410 empower the
Commission to conduct inquiries and to establish joint beards, See.
tion 602 sets forth various repeals and amendments,

*

explein how the provision authorized the FCC to re-
quire prior registration of carrier terminal equip-
ment.“

The power of the FCC, like that of any administra-
tive agency, is cireumseribed by the authority
granted by Congress. Stark v. Wickard, 321 U.S.
288, 309 (1944). When the ageney summons vast new
powers out of thin air, it is the court's obligation to
restrain it.“ In the present case, review by this Court
is required because, just as the FCC has forgotten
that non-existent powers ‘‘cannot be merely assumed,”’
so the majority opinion has ignored the warning that
neither can such powers be ‘‘created by the courts in
the proper exercise of their judicial functions. FTC
v. Raladam Co., 283 U.S. 643, 649 (1931).”

2. The immediate direct costs of carrier registra-
tion are a further exigent reason why review is war-
ranted. Carrier registration will cost the Bell System
itself over $88 million in the first year alone,“ quite

*The fact that the FCC has never before claimed such a power
under Seetion 205, or under any other provision, is further potent
evidence that the power is imaginary. See PPC v. Panhandle Fast.
ern Pipe Line Co, 337 U.S, 498, 513 (1949),

The FCC, in its zeal to advance its new policy of restricted com-
petition, has repeatedly exceeded or misapplied its powers. See
AT@T v. FCC, 487 F.2d 865 (24 Cir, 1973); Hasan Telephone
Co. v. PC, 498 F.2d 771 (D.C. Cir, 1974); Gr Service Corp. v.
FCC

tupre, where the court found that a prior permiion power to har
rate changes could not be implied.

* Affidavit of Joe HI. Hunt, para. 6, filed with the Court of Ap-
peals, April 8, 1977. The cost estimate has changed several times

28

apart from the costs inflicted on 1600 other telephone
companies and continuing costs after the first year.
Tais Court has traditionally given weight to the prae-
tical impact of cases being considered for review; and
the impact of $88 million in first year costs, much of
which will ultimately be borne by the public through
increased rates, cannot be ignored when the statutory
basis for inflicting the loss is non-existent.

3. Even if the FCC had power to require prior
registration of carrier equipment, its basic reason for
exercising that power in this case conflicts in principle
with this Court’s decision in FCC v. RCA Communi-
cations, Inc., 346 U.S. 86 (1953) and that of the Dis-
trict of Columbia Circuit in Hawaiian Telephone Co.
v. FCC, 498 F.2d 771 (1974). Such a conflict is a set-
tled ground fer certiorari. Sup. Ct. R. 19(1).

The registration program was designed to facilitate
substitution of customer supplied equipment by allow-
ing registered customer sets to be used without con-
necting arrangements or carrier network control signal-
ing units. See p. 11 & n. 16, above. The FCC's reason
for also requiring registration of carrier equipment
was simply to ‘equalize’? competitive positions of car-
riers and non-carriers as equipment suppliers and
thereby—as the dissenting judge below observed—
[promote]... competition in the terminal equipment
market” (Pet. App. 43a). The FCC expressly stated

simply because the FCC keeps modifying its registration program
(see id. at para. 5), but all of the estimates involve multimillion
dollar costs. Nowhere has the FCC ever provided any analysis to
refute these detailed computations (see Pet. App. 15b-16b) despite
its generalized and incorrect claims that the expense will be mini-
mal. See, e.g., Pet. App. 4d.

that when one participant in a competitive market is
subject to regulatory constraints (c., registration of
equipment) while another is not, there exists the possi-
bility of using . . . [registration procedures] for com-
petitive advantage. Pet. App. 15b-16b.

Apart from the fact that this rationale for carrier
registration is patently illogical,” it defies the basic
principal of carrier regulation under the Communica-
tions Act: the touchstone of FCC action must be the
public interest and not mere enhancement of compe-
tition. FCC v. RCA Communications, Inc., supra, 346
U.S. at 97. Here, the FCC has sacrificed the public
interest by imposing a minimum of $88 million in first
year costs merely to pursue abstract goals of competi-
tive equality. As the District of Columbia Circuit said
in striking down another FCC order:

[I]t is all too embarrassingly apparent that the
Commission has been thinking about competition,
not in terms rily as to its benefits to the pub-
lie but i y with the objective of equalizing
ition among com petitors.”” Hawaiian Tele-
Co. v. FCC, 498 F.2d 771. 775-76 (1974)

(emphasis in original).

“Carrier registration would not lessen the delay in customer
registration but expand it by adding more, unnecessary applica-
tions to clog the bureaucratic gristmill. Moreover, as a dissenting
Commissioner observed : The FCC has ample means short of mean-
ingless carrier] registration’’ to preelude ** possible anticom peti-
tive practice. which are not in any case established by the record.
Pet. App. 54b-55b. And, in any event, carrier registration cannot
in fact equalize couspetitive opportunities: customer suppliers have
including the opportunity to
; yet, the PCC has not

i
j
|
1
Fi
3

30

This conflict in applying a central principle of the
Act warrants certiorari. The remaining explanations
given by the FCC for requiring carrier registration are
so plainly fabricated that they lend no support to the
requirement whatever.” In fact, so far as they are
considered at all, their makeweight character under-
scores the FCC’s main object to “‘equalize” competi-
tion and their irrationality further condemns its re-
quirement of carrier registration.

III. The Court Below Plainly Violated the Chenery Doctrine in
Substituting its Own Economic Conjectures for Findings the
FCC Erroneously Failed To Make.

The basic rules for judicial review of administra-
tive action are that an agency must consider all perti-

The FCC asserted that carrier equipment has the ame b
tential for harm as customer equipment (Pet. App. 15b); but it
also mitted that the carriers themselves have both the incentive
and to protect their own network from being harmed by
their own terminal equipment (Pet. App. 15b), and it made a

f any cakes of potential harm by *gvandtuthering 100

LRD
safely for years.

31

nent factors and consequences of its action, Permian
Basin Area Rate Cases, 3999 U.S. 747 (1968), and that
a reviewing court may sustain the agency only on the
basis of the agency’s own proper resolution of such
issues. SEC v. Chenery Corp., supra. In this case,
violation of these precepts is so patent that summary
reversal would be justified if plenary review on other
issues were not granted.

In eliminating connecting arrangements and net-
work control signaling units designed to protect the
network and telephone company employees from harm,
the registration program creates an open door“ to
customer substitution of terminal cquipment.” In-
creased replacement of carrier supplied equipment
threatens to cause substantial increases in the rates
paid by the publie for ordinary telephone service. Be-
cause certain carrier supplied terminal equipment,
such as complex business PBXs and key telephone
systems, is priced to provide revenues in excess of costs,
this contribution offsets common overhead for the tele-
phone system and helps to hold rates for basie residen-
tial telephone service below the levels that would
otherwise be necessary to produce the required over-
all return.”

Studies submitted to the FCC showed that the ag-
gregate impact of increased customer substitution will

The program requires carriers to permit direct connection of
customer supplied equipment, prohibits carriers from requiring
carrier connecting arrangements or network control signaling omits,
and requires (with narrow exceptions) that new line terminations
and registered equipment be equipped with standard plugs and
jacks for plug in installation. Pet App. 6i.

"See Response of the Bell System Companies, Third Supple-
mental Response of the Bell System Companies, and Bell Exhibits
1, 1A, 1B, 18 and 18A, in FCC Docket No. 20003.

32

be enormous. An investigation by the state commis-
sioners’ organization—not the telephone companies—
forecasts increased intrastate and exchange rates rep-
resenting 60-740 million annually by 1970 and $900
million to $1 billion annually by 1984." Lengthy analy-
ses made by the Bell System, Continental, and other
telephone companies consistently revealed that in-
creased rates would flow from customer substitution.”
This burden threatens to fall with special force on low-
income customers.

Initially, the FCC promised to consider in this case
the economic impact of increased customer replacement
of carrier terminal equipment (see pp. 9-10, above) ;
deed, its Chairman wrote to the state commissioners
that an in-depth study”’ of the ‘‘economie impact of
liberalized interconnection’? was a question “integral
to a fair resolution“ of the present docket." The FCC
then reversed course and established its new program
without considering this basic economic issue. In fact,

"NARUC, Report After Investigation 18-19 (1974). The
NARUC study concluded that:

[The effect of interconnection is likely to be equally ‘as sig-

nificant, if not more significant, for the independent industry

as for the Bell System, and further, that interconnection may

me yg Ay any the availability of service at reasonable

ae the less developed or rural areas of the country.
. at 0.

Comments of GTE Service Corp., April 21, 1975, App. I-A,
p. 10, in Doeket No. 20003; Bell System Ex. 45, p. 31, in Docket
No, 20003; Economic Impact of Competition on Telephone Opera-
tions in the Continental Telephone System, p. 6, submitted by Con-
tinental Telephone Corporation in Docket No, 20003.

“Letter from Dean Burch, FCC Chairman, to Ben Wiggins,
Chairman, NARUC Committee on Communications, Aug. 4, 1972
(emphasis added ).

it expressly declared that its decisions promulgating
and implementing the registration program are con-
cerned ‘‘only’’ (Pet. App. 14b) and solely“ (Pet.
App. 7e) with the mechanics of the program and not
its economic impact. As Judge Widener observed in a
dissent below, this case involves nothing less than a
‘stout refusal [by the FCC] to conduct a reasoned in-
quiry into the economic implications’’ of its actions.
Pet. App. 36a.”

Clearly the FCC was obligated to consider the eco-
nomie impact of its registration program before adopt-
ing a major new federal program that, onee fully im-
plemented, will be largely irreversible. The Communi-
ent ions Act makes service nt reasonable charges“ a
specific goal (Section 1, 47 U.S.C, 6151) and decisions
under the Act and under allied statutes make plain
that it is reversible error for a regulatory agency to
refuse to consider a significant adverse economic im-
pact on the public.” The majority opinion admitted

"The majority opinion attempts in fact to convey the impres-
sion that the FCC actually did give some consideration to economic
impact and thus asserts that [what the FCC has done is make
reasonable assumptions about economic impact based on the evi-
dence currently available. Pet. App. 35a. The majority opinion
nowhere indicates what evidence formed the basis for the supposed
FCC “‘assumptions’’; nor does it cite any portion of the FCC's
orders where the asserted assumptions were made. The fact is that
the FCC did not make any such assumptions, much less pursue the
requisite analysis of economic impact. Rather, the FCC explicitly
refused to consider the economic issues, clearly stating that it con-
sidered such issues not (to] fall within the scope of |the registra-
tion] proceedings.’’ Pet. App. Te.

F. g., Atlantic Refining Co. v. Public Service Comm’n, 360 US.
378 (1959); PPC v. Hunt, 376 US. 515 (1964); Carter Mountain
Transmission Corp. v. FCC, 321 F.2d 359 (D.C. Cir.), cert. denied,
375 U.S. 951 (1963).

34

that it would be ‘‘remiss”’ if it permitted a registration
program having major effects on telephone rates to
be implemented“ without even considering that poten-
tial economic impact.“ Pet. App. 33a.

However, since the FCC had conspicuously failed
to analyze the economic impact, the majority opinion
was forced to supply this deficiency itself. To fill this
gap, the court sought to provide its own conjectures
and assumptions in its own attempt to show that the
economic impact of the registration program would
be slight. Pet. App. 30a-32a. Not surprisingly, its at-
tempt—unsupported by facts and untested by ad-
ministrative proceedings—is riddled by unproved
premises,”, faulty logie“ and even disregard of the
program’s full consequences.”

For example, to construct its analysis the lower court was
forced to brush aside the significant direct costs of registration
and engage in guesswork about the costs of connecting arrange-
ments and network control signaling units, the costs for non-carrier
suppliers in registering their equipment, and possible future price
changes by such suppliers. Pet. App. 28a-29a, 30a-32a.

In an astonishing leap of imagination, the court asserted that
past substitution of customer equipment had not been shown to
diminish carrier terminal equipment sales. Pei. App. 32a, Not
only have such replacements necessarily diminished carrier rev-
enues but there is no basis for reasoning that past experience in
any way measures the economic consequences of the FCC’s new
registration program providing for ‘‘plug in’’ substitution of eus-
tomer supplied equipment. See pp. 31-32, above.

Without support, the lower court made the incredible asser-
tion thet the registration program can hardly be expected to cause
a significant ‘substitution effect’’’ Pet. App. 32a (emphasis in
original). This is simply untenable, for—as the dissenting judge
below emphasized—the registration program for the first time
accords each telephone subscriber . . . a right of virtually un-
restricted interconnection of his own equipment. Pet. App. 39a.

35

Regardless of the merits or demerits of the majority
opinion’s reasoning and assumptions, they are an im-
permissible surrogate for agency findings made in this
case and themselves subject to judicial review. At least
since this Court’s decision in SEC v. Chenery Corp.,
supra, 318 U.S. at 93-94, it has been settled that ad-
ministrative action must be measured by what the
[agency] did, not by what it might have done.“ The
registration program must be upheld, if at all, on the
same basis articulated in the order[s]’’ of the Commis-
sion. Burlington Truck Lines v. United States, 371
U.S. 156, 169 (1962). Since the grounds set forth in
those orders were ‘‘inadequate,”’ the court below was
„powerless to affirm the administrative action.“ SEC
v. Chenery Corp., 332 U.S. 194, 196 (1947). Neverthe-
less, the court proceeded to affirm the FCC’s orders
on the basis of its own analysis which is filled with the
very sort of errors that the Chenery doctrine was in-
tended to prevent.

Realizing the error it had committed, the FCC itself,
after briefing and argument in this case, rushed out
an initial report in Docket No. 20003 and transmitted
it to the court below.” Predictably, the initial report
sought to belittle claims of economic impact from cus-
tomer substitution. But even this report, manifestly
shaped as a litigation document, admits that any loss
of terminal equipment ‘‘can’’ produce ‘‘a net redue-
tion in local operating company revenues“ (para. 27);
that any impact would probably be felt most severely
by small independent telephone companies’’ (para.
28); that revenue shifts might possibly’’ result where
„small independent telephone companies might be

* First Report in Docket No. 20003, released September 27, 1976,
and sent to the court by the FCC on October 22, 1976.

36

most seriously affected“ (para. 31); and that there is
„the possibility“ of an adverse impact on the smaller
companies. Para. 260."

The report cannot provide any support for the
FCC’s refusal to consider the economic impact of its
registration program. It was hurriedly produced, after
the court below stayed the registration program, with-
out any opportunity for parties to the proceeding to
comment on the validity or correctness of the studies
relied upon; no proposed findings were ever prepared ;
and no briefing or argument to the Commission has
ever occurred. Most important, the report—carefully
framed not to include an order—has never been sub-
ject to judicial review and its unreviewed findings
cannot be smuggled into this case through the back
door.”

The FCC’s error in refusing to consider the ultimate
economic impact of its registration program is both
manifest and virtually self confessed; it alone would
warrant certiorari. In addition, the lower court’s af-
firmance of the FCC’s error, based on the court’s own
substituted analysis, has frustrated the proper alloca-
tion of responsibility between court and agency. Such
a departure from established practice by a reviewing
court ‘‘;aises questions of high importance“ requiring
action by this Court to ensure that the bounds of judi-

As a dissenting commissioner correctly summarized the mat-
ter: ‘‘[T]he majority herein recognizes for the first time that the
fears voiced by the independent telephone companies of serious
financial harm and those voiced by the state regulators of the likely
necessity for increased residential rates could have a valid basis
if the Commission’s recent policies are completely successful.
(Emphasis in original.)

“= Even the lower court expressly diselaimed any relianee on the
report in Docket No. 20003. Pet. App. 10a n.6.

37

cial review remain both understood and respected. Cf.
NLRB v. Waterman S.S. Co., 309 U.S. 206, 209 (1940).

Indeed, this Court has previously concluded that
where a court has strayed as clearly as has the court
below from established principles governing judicial
review of administrative action, summary reversal of
the lower court’s decision is appropriate. See Northern
Indiana Public Service Co. v. Isaak Walton League,
423 U.S. 12 (1975). Consistently with this view, we
submit that even if this Court should conclude that the
other issues raised by this petition do not warrant re-
view on certiorari, the Court should at the very least
grant certiorari and summarily reverse the majority’s
decision insofar as it sustains the registration program
through its own independent analysis of the program’s
economic consequences.

CONCLUSION

The Court should grant certiorari and the case
should be set for plenary review of the issues posed
by (1) the FCC’s attempt to promulgate its registra-
tion program in clear violation of the limits expressly
fixed on its jurisdiction by Section 2(b)(1) as well as
of Section 221(b) of the Communications Act, (2) the
FCC’s unlawful inclusion of carrier equipment in the
program and (3) the lower court’s clear failure to
adhere to the limits on judicial review of administra-
tive action fixed by this Court’s decision in SEC v.
Chenery Corp., supra. Alternatively, the decision below
should be summarily reversed on the third issue to en-
sure that the established limits on judicial review re-
main clear and unimpaired.

Respectfully submitted,

Of Counsel: MICHAEL —
„er STUART C. Stock
F. MARK GARLINGHOUSE 88 Sixteenth Street, N. W.
ALFRED C. PARTOLL Washi D.C. 20006
195 Broadway ashington, D.C.

New York, N.Y. 10007 Epwarp L. FrrepMan
WuLIXu L. Leonarp
195 Broadway
New York, N. V., 10007

Counsel for the
Bell System Companies
May 1977

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1914%3A01. Public record. Not legal advice.