Petition — California v. Federal Communications Commission

Supreme Court, U. §.

FILED

SEP 15 1977

MICHAEL RODAK, JR., CLERK

In the Suprene Court

OF THE

Rnited States

OctToBER TERM, 1977

No. 777406

THE PEOPLE OF THE STATE OF CALIFORNIA AND

TRE Pusiic UTiiitres COMMISSION OF THE

STATE OF CALIFORNIA,

Petttioners,

vs.

FEpERAL COMMUNICATIONS COMMISSION AND

THE UNITED STATES OF AMERICA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

to the United States Court of Appeals

for the District of Columbia Circuit

JANICE E. KErr,

J. CALVIN SIMPSON,

Rurvs G. THAYER, JR.,

MartTIN A. MATTEs,

5066 State Building,

San Francisco, Californie 94/02,

Attorneys for Petitioners the People of the State of

California and the Public Utilities Commiss‘on

of the State of California.

Dated: September 14, 1977.

PERNAU - WALSH PRINTING CO. - 562 MISSION STREET - SAN FRANCIOCO, CA 94105

9

Page

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1. Proceedings before the CPUC ..............005. 5

2. Proceedings before the FCC ...............00.. 9

Reasons for granting the Writ ...........ceccceeeeeceeces 13

A. The FCC decision does not comply with the Com-

munications Act and disregards the intentions of

GEE Cocco Cioctusdecubaréecesbenceacdncssendes 15

B. The FCC order and the opinion of the court below

conflict with applicable decisions of this court ...... 17

1. FCC preemption was premature ..............+. 17

2. The FCC order and the decision of the court

below tend to undermine the federal system ...... 18

3. The FCC opinion and the decision of the court

below fail to demonstrate a high standard of cer-

tainty of irreconcilable federal-state conflict ......

C. The FCC order inequitably burdens intrastate rate-

NID. nin He bs ccddadededecesdubcbdas cdiUedene ae

D. The decision of the court below raises an important

question of federal law which has not been, but should

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Table of Authorities Cited

Cases Pages

Allegheny Airlines, Ine. v. Pennsylvania Publie Util.

Comm’n, 465 F.2d 237 (3d Cir. 1972) .............0. 18

American Tel. & Tel. Co. v. FCC, 551 F.2d 1287 (D.C.

GE, HEED . ccccccesecudddcdocacosscusesessecddceusaeds 20

Bell Tel. Co. of Pennsylvania v. FCC, 503 F.2d 1250 (3d

GC. FRED ccccckencdcbasecéiédccccesctaccdssswesescd 5, 9, 22

California v. FCC, No. 75-2060 (D.C. Cir., June 20, 1977) 12

California v. Zook, 336 U.S. 725, 93 L.Ed. 1005, 69 S.Ct.

BER (BOE) .nccccccccccccccccccsccccesecevecsssecess 18

Chicago, M., St. P. & P. R.R. v. Illinois,,355 U.S. 300, 2

L.Ed.2d 292, 78 S.Ct. 304 (1958) .........ceeeeeeeeee 19

Conway Corp. v. FPC, 510 F.2d 773 (5th Cir. 1975) aff’d

sub nom. FPC v. Conway Corp., 426 U.S. 271 (1976) .. 16

Florida v. United States, 282 U.S. 194, 75 L.Ed. 291, 51

A, Tie GED sn. cdicndscccedecsnssadecsdccksensccens 19

Florida Avocado Growers v. Paul, 373 U.S. 142, 10 L.Ed.2d

Se, Ge ey EP GED Seovocconcecccscvocdaneunces 17

Head v. Board of Examiners, 374 U.S. 424, 10 L.Ed.2d 983,

GB GGL. TEED CORE) co ccccctcccccccccccecesesccocess. 17

Houston E. & W. Texas R.R. v. United States, 234 U.S. 342,

58 L.Ed. 1941, 34 S.Ct. GBB (1914) ...... ccc cccccccess 15

Minnesota Rate Cases, 230 U.S. 352, 57 L.Ed. 1511, 33 S.Ct.

. FF eee ee Pe ees 21

Moss v. CAB, 430 F.2d 891 (D.C. Cir. 1970) ........... 20

North Carolina v. United States, 325 U.S. 507, 89 L.Ed.

SE Go Ge, Ge GD bow cbeecce sc cucseccestesccs: 19

North Carolina Util. Comm’n v. FCC, 537 F.2d 787 (4th

Gk, De -caccccanmdindedeecsemesaedeneneetaions 12, 13, 14

North Carolina Util. Comm’n v. FCC, 552 F.2d 1036 (4th

Tn, ME casduneks60ceesseceseatinabeeaeieinasteke 22

Publie Util. Comm’n of California v. United Air Lines,

Inc., 346 U.S. 402, 98 L.Ed. 140, 74 S.Ct. 151 (1953) ... 18

Publie Service Comm’n of Utah v. United States, 356 U.S.

421, 2 L.Ed.2d 886, 78 S.Ct. 796 (1958) .............. 19

Public Service Comm’n of Utah v. Wyecoff, 344 U.S. 237,

97 L.Ed. 201, 73 S.Ct. 206 (19GB) ....... cc cccccccese 18

Tasie or AuTHoRITiIES CITED iii

Pages

Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 75 L.Ed. 255,

DS i i aia as ieee adeewennda rasa 21

Washington Util. & Transp. Comm’n v. FCC, 513 F.2d

ee ee Ss naddntans chucadeicusanseondeces 5, 22

Administrative Decisions

American Tel. & Tel. Co., Decision No. 75-1146, 56 FCC

Se Ee GD cancdicccnninamuebeessekehaubetennseed 2,11, 12

AT&T Offer of Facilities for Use by Other Common Carri-

ers, Decision No. 75-450 in Docket No. 20099, 52 FCC 2d

Sy Wy scassdanendtnsnsdenetnbessoconwbileasie 21

Bell System Tariff Offerings, Decision No. 74-457 in Docket

No. 19896, 46 FCC 2d 413 (1974) ...............0055- 5,9

Carter v. AT&T Co. (Carterfone), Decision No. 68-661 in

Docket No. 17073, 13 FCC 2d 420 (1968) ............. 22

Pacific Tel. & Tel. Co. v. Southern Pacific Communications

Co., Decision No. 84167 (Cal. Pub. Util. Comm’n, March

Ty nicadetandacennnedddenetbaadediunenrsdnndat 6, 7, 8,9

Simon Brick Co. v. Southern California Tel. Co., Decision

No. 14420, 25 C.R.C. 721 (Cal. R.R. Comm’n 1924) .... 7

Specialized Common Carrier Services, Docket No. 18920, 24

FCC 2d 318 (1970); 29 FCC 2d 870 (1971); 31 FCC

[i Ct CD Vcnndedcunieenbimibbeaienestbasterede 5

Suspension & Investigation of Tariff Schedules Filed by

Advice Letter No. 11631 of Pacifie Tel. & Tel. Co., Order

of Suspension & Investigation in Case No. 9933 (Cal. Pub.

ee GD, MN ED. 5 bn cn nscnsensteccoeses 21

Constitutions

California Constitution, Article XII, Sections 3,6 ........ 2,9

Statutes

California Public Utilities Code

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iv TABLE or AUTHORITIES CITED

Pages

Communications Act of 1934 as amended, 47 U.S.C. 151

GPrrerrrrrrrririiire iit 5, 9,11, 15, 18

Section 2(b), 47 U.S.C. 152(b) ........ 3, 9, 11, 12, 13, 14, 22

Section 3(e), 47 U.S.C. 153(e) ...........e.eeeeee 3,11,15

Section 221(b), 47 U.S.C. 221(b) ......... 3, 9, 11, 12, 15, 22

Section 402(a), 47 U.S.C. 402(a) .............6.005. 2

Section 40(j), 47 U.S.C. 405(j) ..........0 cece eeee 2

Section 410(c), 47 U.S.C. 410(¢) ..........-.. 00 eee 3,11

28 U.S.C.:

SD TEED ccsccccececoeceessesesesesueseneess 2

ES TE coccdéecceccecusdeececsosuseneeeneneal 2

Sts SD « ccccoces 0000e0beeseeseenenenee 2

Congressional Record

SB Game, Bae. BERD GHD ccccccccccscccccccsscccsvces 15

78 Cong. Rec. 8823, 8846-47 (1934) ...........cc eee eeeee 15

THE PEOPLE OF THE STATE OF CALIFORNIA AND

THE Pvs.iic Utrirres COMMISSION OF THE

StaTE OF CALIFORNIA,

Petitioners,

vs.

FEDERAL COMMUNICATIONS COMMISSION AND

THE UNITED STaTes OF AMERICA,

Respondents.

Petitioners, the People of the State of California

and the Public Utilities Commission of the State of

California (California) respectfully pray that a writ

of certiorari issue to review the judgment of the

2

United States Court of Appeals for the District of

Columbia Circuit entered on June 20, 1977.’

OPINIONS BELOW

The opinion of the Court of Appeals is not yet

reported and is printed in Appendix A. The declara-

tory order of the Federal Communications Commis-

sion (FCC) in American Telephone & Telegraph

Company, Docket No. FCC 75-1146, adopted October

9, 1975, and released October 16, 1975, 56 FCC 2d 14

(1975), is printed in Appendix B.’

JURISDICTION

The judgment of the Court of Appeals was entered

on June 20, 1977. The jurisdiction of this Court is in-

voked under 28 USC Section 1254(1) ; Section 402(a)

and 405(j) of the Communications Act of 1934 as

amended (47 USC 402(a), 405(j)); and 28 USC 2341,

2344 and 2350.

‘The Publie Utilities Commission of the State of California

(hereafter ‘‘CPUC’’) is the agency in the Staite of California

charged with the responsibility, inter alia, of regulating tele-

communications offered to the public within the State of Cali-

fornia. (California Constitution, Article XII, Sections 3 and 6;

California Public Utilities Code, Sections 216, 233 and 234.) The

General Counsel of the California Commission is authorized, under

Section 307 of the California Public Utilities Code, to represent

and appear for the People of the State of California and the

California Commission in all actions and proceedings of this

nature.

*The appendices cited herein are separately bound and are

jointly submitted by these petitioners and by petitioner National

Association of Regulatory Utility Commissioners.

3

QUESTION PRESENTED

Whether the FCC may by declaratory order, un-

supported by an evidentiary record, eliminate Con-

gressionally protected state regulation of intrastate

private line telecommunications services rendered by

specialized communications common carriers used both

in interstate and intrastate communications, thereby

inequitably burdening intrastate ratepayers, upon the

asserted ground that it is technically and practically

too difficult to separate the two classes of communica-

tions.

STATUTORY PROVISIONS

Involved are Sections 2(b), 3(e), 221(b) and 410

(c) of the Communications Act of 1934 as amended,

47 USC Sections 152(b), 153(e), 221(b), 410(c).

These provisions are set forth in Appendix D.

STATEMENT OF THE CASE

This case arises out of the growing conflict between

effective state economic regulation of intrastate com-

munications expressly reserved to the states by the

Communications Act of 1934, and the policy of the

FCC to stimulate competition in interstate communi-

cations. In this case the FCC has not followed its

own statute and has disregarded the clear intent of

Congress. In affirming the FCC the court below has

decided an important federal question in a way in

conflict with applicable decisions of this Court. The

4

decision of the court below raises an important fed-

eral question of law which has not been, but should

be, settled by this Court.

A. Technical Background

Private line service provides the large scale tele

phone customer with circuits dedicated to his use

between locations specified by the customer. The cus-

tomer has continuous communication without requir-

ing the carrier to establish a new connection for each

call or message.

A Common Control Switching Arrangement (CCSA)

is a private line system for linking the various offices

of a large company through switches on a local tele-

phone company’s premises instead of through a PBX

switch on the customer’s premises. The private line

circuits furnished in a CCSA are provided for the

exclusive use of the CCSA customers. The switching

machines are shared with other private line service

customers.

Foreign exchange (FX) enables a business to main-

tain a local telephone at a distance from its office.

An example of intrastate FX is a call originating

in Los Angeles and terminating in the San Diego

exchange as if the call had originated in San Diego.

For a fixed monthly charge determined by the CPUC,

San Diego dial tone is provided at the point of call

origin in Los Angeles.

An example of an interstate FX call is a call origi-

nating in Chicago and terminating in San Diego with

San Diego dial tone being provided at the point of

5

origin in Chicago for a fixed monthly charge. In this

case the charge is determined by the FCC.’ (See

Bell System Tariff Offerings, Decision No. 74-457 in

Docket No. 19896, 46 FCC 2d 413 (1974) at 418 (fn.

5), and Bell Telephone Company of Pennsylvania v.

Federal Communications Commission, 503 F.2d 1250

(3d Cir. 1974) at 1254 (fns. 3 and 4).)

B. Procedural History

1. Proceedings Before the OPUC

Southern Pacific Communications Company (SPCC)

instituted interstate operations as a specialized com-

munications common carrier (SCCC) between San

Francisco, Los Angeles, Phoenix and Tucson in De-

cember 1973. SPCC does not provide the full range

of services contemplated by the Communications Act

of 1934, 47 USC 151 et seq.

After various preliminary filings with and rulings

by the CPUC, SPCC on October 31, 1974, filed Ap-

*The FCC treats FX service as private line service. The CPUC

treats FX service as a substitute for toll service.

Private line service is point to point service with both ends

terminating on a single customer’s premises. No exchange dial

tone is nn od In foreign exchange —_— dial tone of the

distant exchange is provided at a single

Until the FCC A ag herein was on distinctions in

rate treatment of FX service between state commission and the

FCC marked the traditional line of separation between state and

federal regulation of FX service.

‘The SCCC class of communications common carriers came into

being as the result of an FCC rulemaking docket in which the

FCC decided to permit competition in providing specialized inter-

state voice and data communication services to the public.

Specialized Common Carrier Services, Docket No. 18920. Notice

of Inquiry, 24 FCC 2d 318 (1970); First Report and Order, 29

FCC ba (870 wre reconsideration denied, 31 FCC 2d 1106

(1971) ; on Util. & T . Comm’n v. FCC, .

513 F.2d ne roth Cir. 1 5); cert. denied, U.S. 836 (1975).

plication No. 55284 before the CPUC to provide

intrastate private line specialized communications ser-

vices. The application was filed “under protest,” and

in conjunction with a motion to dismiss it. The pur-

pose of the application, without conceding the ne

cessity for a certificate of public convenience and ne-

cessity, was to request such a certificate for intrastate

operations, if the CPUC ruled that one was neces-

sary. :

The SPCC application was consolidated with a

docket containing an application by The Pacific Tele-

phone and Telegraph Corporation (PT&T) which was

a competitive response to SPCC. The consolidated

eases were heard during December 1974 and Febru-

ary 1975. On March 4, 1975, the CPUC issued an in-

terim opinion in Decision No. 84167, which is printed

in Appendix C.

Decision No. 84167 held that SPCC needed a certifi-

eate of public convenience and necessity from the

CPUC to commence its proposed California intra-

state service. A certificate was granted to establish

intercity private line communications service for voice

and data transmission between the cities of Bakers-

field, Fresno, Los Angeles, Merced, San Francisco and

Stockton including but limited to certain exchange

areas. It was also held that interim rates should be

set which would minimize rate differentials between

PT&T and SPCC and encourage SPCC to concentrate

upon expanding its business by offering innovative

services to its potential customers, rather than by

stressing large differences in rates.

7

The CPUC decided that this approach was neces-

sary to prevent excessive diversion of revenues from

public toll and private line services of the wire line

utilities. Such control through proper rate and tariff

regulation was held to be necessary to protect low den-

sity and exchange customers from the economic bur-

den of making up the revenues foreseeably lost by the

wire line utilities if wide rate disparities were per-

mitted to exist between the wire line companies and

the SCCC’s.

Accordingly, the CPUC ordered that any tie line

connections to PBX switchboards by SPCC should be

arranged to prevent through calls from being made

to or from the exchange network at either or both

ends of the tie line circuit. Moreover, any direct con-

nection to the exchange network of private line cir-

cuits, including any connection similar to foreign

exchange (FX) service, was prohibited.*

In March 1975 SPCC placed an order with PT&T

to connect the SPCC interstate private line circuit be-

tween Los Angeles and San Diego to the PT&T San

Diego telephone exchange. On May 16, 1975, PT&T

filed with the CPUC a Petition for Instructions with

Respect to Decision No. 84167.

®Since 1924, 10 years before the Communications Act became

law, the CPUC has considered intrastate FX service to be a

substitute for toll service. As explained more fully in the excerpt

from California Railroad Commission (now CPUC) Decision No.

14420, 25 C.R.C. 721, 761-63 (1924), in Appendix E hereto, this

treatment of intrastate FX service is intended to preserve eco-

nomic use of toll facilities and maintain toll revenue support for

exchange service.

8

PT&T’s petition stated that the connection re-

quested by SPCC would require PT&T to provide

the facilities and connections necessary to connect the

SPCC San Diego-Los Angeles lines (1) at the south-

ern end to PT&T’s San Diego local exchange, and (2)

at the Los Angeles end to PT&T central office switch-

ing machinery that would permit further connection

to the American Airlines private line network. The

particular arrangement requested would allow calling

to San Diego but not from San Diego. San Diego

foreign exchange service would be provided to a point

in Los Angeles where it could be accessed by any

telephone on the American Airlines network, includ-

ing telephones in Los Angeles, at other points in

California, and out-of-state points as well.’ The peti-

tion asserted that the service requested was similar

to a foreign exchange service, prohibited by Decision

No. 84167. Accordingly, instructions were requested

from the CPUC on how to deal with such requests.

On June 6, 1975, PT&T withdrew the Petition for

Instructions and filed a complaint, alleging that ser-

vice of the kind SPCC intended to provide has been

regulated consistently by the CPUC as intrastate for-

eign exchange service and has not been treated as

interstate private line service. PT&T also alleged

that it had been informed by the Chief of the Com-

mon Carrier Bureau of the FCC that, in his opinion,

PT&T was required to provide the connecting facili-

ties requested by SPCC. Accordingly, the requested

*Appendix F hereto is a schematic of connections requested

by SPCC,

9

facilities were connected under protest. Finally,

PT&T alleged that SPCC intended to provide intra-

state foreign exchange service between San Diego and

other points within California contrary to the certi-

ficate granted by Decision No. 84167. It was alleged

such service is within CPUC jurisdiction pursuant to

Article XII of the California Constitution, the Cali-

fornia Public Utilities Code, and Sections 2(b) and

221(b) of the Communications Act of 1934 (47 USC

152(b) and 221(b)).

2. Proceedings Before the FOC

About June 16, 1975, SPCC filed with the FCC

a Petition for Declaratory Rulings and for Enforce-

ment of Cease and Desist Orders.’ The SPCC petition

requested specific relief against PT&T and South-

western Bell Telephone Company by a declaratory

order enforcing a cease and desist order issued against

the American Telephone and Telegraph Company

(AT&T) and the Associated Bell System Companies

in the FCC Docket, Bell System Tariff Offerings,

Decision No. 74-457 in Docket No. 19896, 46 FCC 2d

413 (1974), affirmed sub nom. Bell Tel. Co. of Penn-

sylvania v. FCC, 503 F.2d 1250 (3d Cir. 1974), cert.

denied, 422 U.S. 1026 (1975).

The SPCC petition requested the FCC to issue a

declaratory ruling that it has exclusive authority over

"It should be noted that SPCC did not attempt to test the

validity of Decision No. 84167 by petitioning the CPUC to

review its decision or petitioning the California Supreme Court

for a writ of review. (Cal. Pub. Util. Code 1731, 1956.)

10

interconnection by SCCC’s into the Bell System Com-

panies’ local exchange facilities for the purpose of

furnishing interstate FX service or for insertion into

Bell System Common Central Switching Arrange-

ments (CCSA) to provide private line interstate ser-

vice. The FCC was requested to declare specifically

that the Bell System Companies must provide a

CCSA or an FX interconnection at one end of a pri-

vate line circuit between two points, whether or not

the two points are located within a single state,

whenever the other end is connected by a switch to a

circuit in interstate service.

In July 1975 California filed with the FCC its

Comments by California in Opposition to the Peti-

tion for Declaratory Rulings by Southern Pacific

Communications Company. These comments pointed

out that historically the type of private line connec-

tion requested has been prohibited in California.

California stated that the requested connection is

comparable to foreign exchange service, the rates for

which are set in recognition of the toll revenue which

would be lost and the resulting increase in the cost of

exchange service to the ordinary citizen.

It was stated that the issues of fact in the Cali-

fornia proceeding involved matters of substantial local

concern and that SPCC was attempting to interpose

a declaratory ruling by a federal agency so as to

frustrate the local process which initially SPCC itself

had affirmatively invoked. California urged that

SPCC should he required to exhaust its remedies in

the California forum before seeking federal interven-

—>_

ll

tion. It was argued that denial of the SPCC petition

was necessary to maintain the delicate balance be-

tween concurrent federal and state regulatory proc-

esses.

California asserted that the type of service re

quested was intrastate in character and that the relief

requested by SPCC ignored the clear limitation in the

Communications Act of 1934, which reserves jurisdic-

tion over intrastate communications to the respective

states. (47 USC 152(b), 153(e), 221(b) (1970)). Fi-

nally, it was urged that if the SPCC petition was not

to be dismissed outright a federal-state joint board

should be convened pursuant to 47 USC 410(c) to

consider the probable effects of the requested relief.

On October 9, 1975, the FCC adopted Memorandum

Opinion and Order FCC 75-1146 (FCC Order), re-

view of which is sought herein. The FCC Order

declared that the questions presented required the

FCC to make legal determinations of the extent of

its authority, under the Communications Act, over the

subject facilities and services. It was determined that

the facilities in question are for use in facilitating

an interstate transmission, thus placing the facilities

within the jurisdiction of the FCC. Accordingly, it

was ordered that the requested facilities must con-

tinue to be interconnected to the SPCC system pur-

suant to applicable interstate tariffs. Although

ordering local exchange service to be interconnected

to the SPCC private lines in question, the FCC de-

clared it did not intend thereby to assert jurisdiction

over the local exchange service.

12

California promptly filed a petition for review of

FCC Order 75-1146 with the United States Court of

Appeals for the District of Columbia Circuit in

Docket No. 75-2060. In December 1975 the Court of

Appeals consolidated California’s petition for review

with those filed by the National Association of Regu-

latory Utility Commissioners (NARUC) and PT&T

in Nos. 75-2104 and 75-2157, respectively. The mat-

ter was briefed by the parties and oral argument was

heard on November 19, 1976.

The Court of Appeals, by per curiam opinion, one

judge dissenting, issued June 20, 1977, affirmed the

orders of the FCC. The Court of Appeals held that

the FCC properly recognized that it may regulate

facilities used in both inter- and intra-state communi-

cations to the extent it proves “technically and prac-

tically difficult” to separate the two types of commu-

nications (56 FCC 2d 14, 19, 20 (1975)). Noting that

the Communications Act specifically reserves to the

states authority to regulate intrastate communications

(47 USC 152(b), 221(b)), the court quoted North

Carolina Utilities Commission v. FCC, 537 F.2d 787,

793-94 (4th Cir. 1976), cert. denied, 50 L.Ed.2d 631

(1976) :

“We have no doubt that the provisions of section

2(h) deprive the Commission of regulatory power

over local services, facilities and disputes that in

their nature and effect are separable from and do

not substantially affect the conduct or develop-

ment of interstate communications. But beyond

that, we are not persuaded that section 2(b) sanc-

tions any state regulation, formally restrictive

13

only of intrastate communication, that in effect

encroaches substantially upon the Commission’s

authority under sections 201 through 205. In

view of the interrelation of the provisions of the

Act, the Commission’s declaratory statement of its

authority over the interconnection of terminal

equipment with the national telephone network is

a proper and reasonable assertion of jurisdiction

conferred by the act.” (Appendix A, p. 6.)

In a strongly worded dissent Judge Robinson con-

cluded that the FCC decision did not reach the nee-

essary high standard of certainty—that it was

technically and practically difficult to separate the

two types of communications—which would be re-

quired before the FCC could preempt legitimate state

regulatory interests. The FCC decision was charac-

terized as proffering “. . . only an ambiguous finding

unaccompanied by any evidentiary data whatsoever.”

(Appendix A, dissent, p. 9.)

REASONS FOR GRANTING THE WRIT

The decision of the Court of Appeals has applied

the decision in North Carolina Utilities Commission

v. FCC, supra, to the instant case in such a way as

virtually to read Section 2(b) out of the Communica-

tions Act. North Carolina involved the interconnec-

tion of customer provided terminal equipment to the

telecommunications network. The instant case involves

an entirely different area of telecommunications. The

instant case involves usage of transmission facilities,

14

not the connection of terminal equipment. Section

2(b) of the Communications Act does not distinguish

between private line intrastate communication and

other forms of intrastate communications. Thus the

decision of the court below could be applied to other

purely intrastate communications services which tra-

ditionally have been considered reserved to state reg-

ulation under Section 2(b). The important question

of federal law raised by the decision of the court

below has not been, but should be, settled by this

Court.’

The legislative history of the Communications Act

shows that Congress intended to reserve to the states

the regulation of all intrastate communications trans-

mitted by telecommunications carriers. Section 2(b)

of the Communications Act of 1934 as amended (47

USC 152(b)) provides in pertinent part that “. . .

nothing in this chapter shall be construed to apply or

to give the Commission jurisdiction with respect to

(1) charges, classifications, practices, services, facili-

ties, or regulations for or in connection with intra-

state communication service by wire or radio of any

carrier .. .”.

The fact that the SPCC communications network

is part of a dedicated nationwide system over which

hoth interstate and intrastate communications flow

*"The decision in North Carolina Utilities Commission v. FCC is

not challenged here. California does not oppose federal super-

vision of the standards for inter-connection of telecommunications

terminal ecnipment. California does assert that Congress intended

to leave revulation of intrastate telecommunications services to

the states.

15

does not render it exclusively subject to federal regu-

lation under the Communications Act. Virtually all

telecommunications equipment is capable of transmit-

ting both interstate and intrastate communications.

The conclusion of the court below and of the FCC

that it is technically and practically difficult to sepa-

rately identify service over the instant facilities is

simply a conclusion by the FCC untested on an evi-

dentiary record. Preemption by the FCC of the legiti-

mate state interest in regulating intrastate communi-

cations reserved to it by Congress was premature and

was in violation of the decisions of this Court holding

that a high degree of certainty is required that direct

irreconcilable conflict exists between the two schemes

of regulation before federal preemption will be found

to exist. Moreover, the FCC’s preemption order in-

equitably burdens intrastate ratepayers.

A. The FCC Decision Does Not Comply With the Communica-

tions Act and Disregards the Intentions of Congress

The legislative history of the Communications Act

shows that Congress intended to prevent application of

the Shreveport doctrine to the Act.’ Section 2(b) (1)

of the Communications Act, along with the defi-

nition of “interstate communications” in Section 3(e)

and 221(b) (47 USC 153(e), 221(b)), make clear

that Congress intended to reserve to the states ex-

*38 Cong. Ree. 10313 (1934); 78 Cong. Ree. 8823, 8846-47

(1934). The Shreveport doctrine, which permits federal authori-

ties to regulate intrastate rates to the extent necessary to

eliminate burdens on interstate commerce, derives from the case

of Houston E. & W. Texas R.R. v. United States, 234 U.S. 342,

58 L.Ed. 1341, 34 S.Ct. 833 (1914).

16

clusive jurisdiction over intrastate telephone and tele-

graph communications services.

The FCC has interpreted these sections of the Act

to permit intrastate private line and FX service to be

treated as interstate communication, based upon a de-

claratory ruling that identification of the intrastate

communications over the network would be technically

and practically difficult to separate and that it would

be impractical to require a customer to maintain two

redundant facilities or to invest in expensive addi-

tional equipment. The FCC refused to make an evi-

dentiary record upon which to base these findings. Its

ruling prematurely preempted a proceeding already

under way before the CPUC, which was attempting

to determine whether it was technically and practi-

cally feasible to separately identify the intrastate com-

~ munications transmitted over the network in question.

The FCC decision overlooks the fact that virtually

all telecommunications equipment is dual in func-

tion, serving both interstate and intrastate communi-

cations. The effect of the FCC order is te decrease

toll revenue support for local exchange customers in

California, thus interfering with a legitimate state

interest in maintaining exchange services at the low-

est reasonable cost. The decision of the FCC thus fails

to comply with the Communications Act, violating the

intent of Congress to reserve regulation of intrastate

communications to the states. Conway Corp. v. FPPC,

510 F.2d 773 (5th Cir. 1975), affirmed sub nom. FPC

v. Conway Corp., 426 U.S. 271 (1976).

17

B. The FCC Order and the Opinion of the Court Below Conflict

With Applicable Decisions of This Court

1. FOC Preemption Was Premature

By declaratory order after the filing of briefs by

interested parties the FCC has preempted a field of

regulation which Congress intended to reserve to the

states.

This Court has repeatedly decided “. . . that federal

regulation of a field of commerce should not be

deemed preemptive of state regulatory power in the

absence of persuasive reasons—either that the nature

of the regulated subject matter permits no other con-

clusion, or that the Congress had unmistakably so

ordained.” Florida Avocado Growers v. Paul, 373

U.S. 132, 142, 10 L.Ed.2d 248, 257, 83 S.Ct. 1210

(1963). As discussed in the preceding section, Con-

gress has unmistakably reserved regulation of intra-

state communications services to the states. It cannot

reasonably be determined that it is technically and

practically too difficult to separately identify com-

munications services over the network at issue with-

out having made an evidentiary record. This is what

the preempted CPUC proceeding was attempting to

do. The FCC refused to conduct its own evidentiary

proceedings. Without making such a determination

based upon evidence, the FCC has unlawfully inter-

fered with legitimate state regulation. Head v. Board

of Examiners, 374 U.S. 424, 10 L.Ed.2d 983, 83 S.Ct.

1759 (1963). If after an evidentiary proceeding it

can be determined that it is technically and prac-

tically feasible to identify intrastate communications

18

services over the network at issue, the state regula-

tory agency would have the jurisdiction to regulate

such services under the Communications Act. Cali-

fornia v. Zook, 336 U.S. 725, 93 L.Ed. 1005, 69 S.Ct.

841 (1949).

Therefore, it is clear that the FCC has acted

prematurely in preempting jurisdiction over the intra-

state communications service at issue herein.

2. The FOC Order and the Decision of the Court Below Tend to

Undermine the Federal System

By the vehicle of a declaratory ruling, the FCC

discouraged the CPUC from attempting to determine

the scope of its authority over the intrastate service

to be provided. The connection requested by SPCC

had been provided. Thus there was no threat of im-

minent interference with interstate communications

during the further conduct of the CPUC proeedings.

Preemption by the FCC at that point was incom-

patible with the federal-state relationship. Public

Service Commission of Utah v. Wycoff, 344 U.S. 237,

97 L.Ed. 291, 73 S.Ct. 236 (1952). Cf. Public Utilities

Commission of California v. United Atr Lanes, Inc.,

346 U.S. 402, 98 L.Ed. 140, 74 S.Ct. 151 (1953);

Allegheny Airlines, Inc. v. Pennsylvania Public

Utilities Commission, 465 F.2d 237 (3d Cir. 1972).

8. The FOC Opinion and the Decision of the Court Below Fail to

Demonstrate a High Standard of Certainty of Irreconcilable Fed-

eral-State Conflict

The decision of the court below merely accepts the

FCC declaratory conclusion that it is technically and

19

practically too difficult to separately identify the

intrastate communications flowing over the network

at issue and that it is impractical to require the cus-

tomer to maintain two redundant facilities or to

invest in expensive additional equipment. In a

strongly worded nine-page dissent, Judge Robinson

carefully reasons that the majority decision did not

demonstrate the high standard of certainty of ir-

reconcilable conflict between state and federal regu-

ation, which is a necessary prerequisite to federal

preemption.

Since regulation of intrastate communications has

been expressly reserved to the states by Congress, the

opinion of the FCC and the decision of the court

below violated decisions of this Court, cited by Judge

Robinson, requiring a high standard of certainty,

supported by evidence, of each element essential to

the exercise of the preemptory power. North Carolina

v. United States, 325 U.S. 507, 89 L.Ed. 1760, 65 S.Ct.

1260 (1945) ; accord Chicago, M., St. P. & P. R.R. v.

Illinois, 355 U.S. 300, 2 L.Ed.2d 292, 78 S.Ct. 304

(1958) ; Public Service Commission of Utah v. United

States, 356 U.S. 421, 2 L.Ed.2d 886, 78 S.Ct. 796

(1958); Florida v. United States, 282 U.S. 194, 75

L.Ed. 291, 51 8.Ct. 119 (1931).

The decision of the court below is inconsistent with

a decision rendered by a different panel of the same

court earlier this year involving strikingly similar

circumstances. There, the FCC was found to have

denied arbitrarily a telephone company request for

an evidentiary hearing to demonstrate the technical,

20

economic and operational benefits of a tariff require-

ment. The court remanded the case to the FCC.

American Tel. & Tel. Co. v. FCC, 551 P.2d 1287 (D.C.

Cir. 1977). Similarly, the FCC refused to hold an evi-

dentiary hearing in the present case.

C. The FCC Order Inequitably Burdens Intrastate Ratepayers

FCC preemption of the state regulatory interest

by means of a declaratory ruling effectively fences

out the California public from participating in the

determination of rates and services for intrastate

communications and tends to frustrate judicial review

because of the lack of an evidentiary record. Moss v.

CAB, 430 F.2d 891 (D.C. Cir. 1970). The specialized

common carrier services at issue in this proceeding

are not comprehended within the existing elaborate

nationwide scheme of separation of costs and settle-

ment of revenues with respect to telecommunications

equipment used in common for interstate toll and

intrastate toll and exchange services. The FCC order

makes no mention of this fact or of the effect of the

order on local toll or exchange costs under existing

separations procedures. While this difficulty may be

the subject of further proceedings before the FCC,

the intrastate ratepayer in the meantime is left in

the basically unfair position of supporting specialized

intrastate services he does not use and which are

being provided at the lower interstate rate. Moreover,

the FCC order affirmed by the court below puts the

CPUC in the position of not having the power to

correct the inequity among intra-California rate-

21

payers. Smith v. Illinois Bell Telephone Co., 282 U.S.

133, 75 L.Ed. 255, 51 S.Ct. 65 (1930) ; Minnesota Rate

Cases, 230 U.S. 352, 57 L.Ed. 1511, 33 S.Ct. 729

(1913).

This problem was addressed by the CPUC in its

June 24, 1975, Order of Suspension and Investigation

of tariff changes filed by PT&T in order to expand

the interconnection of interstate services by Other

Common Carriers (OCC’s), of which SPCC is one.

In this order the CPUC observed as follows:

“Such arrangements could be used to by-pass

and avoid the normal rates and charges provided

by message toll and foreign exchange service. If

such intrastate connections can, in fact, be made,

the result would be a highly preferential rate

treatment given to customers of other common

carriers, but not available to customers of the

telephone utilities in California.”

D. The Decision of the Court Below Raises an Important Ques-

tion of Federal Law Which Has Not Been, But Should Be,

Settled By This Court

This petition involves only one of a series of recent

FCC decisions affecting federal-state regulation of

telecommunications following the decision by the FCC,

*Suspension & Investigation of Tariff Schedules Filed by

Advice Letter No. 11631 of Pacific Tel. & Tel. Co., Order of

Suspension & Investigation in Case No. 9933 (Cal. Pub. Util.

Comm'n, June 24, 1975), at 2. The PT&T tariff changes were

allegedly filed in compliance with FCC Decision No. 75-450 in

Docket No. 20099, 52 FCC 2d 727 (1975), which called for

expansion of interconnection of OCC interstate services including

FX and CCSA services. The CPUC Order was issued following

receipt of a protest by the City of Los Angeles, which alleged

that the tariffs sought could significantly increase the monthly

rates for basic residential and business services.

22

in the landmark Carterfone case, to open the field of

telecommunications to competition. Carter v. AT&T

Co. (Carterfone), Decision No. 68-661 in Docket No.

17073, 13 FCC 2d 420 (1968). By this petition Cali-

fornia does not intend to challenge the Carterfone

decision or other decisions flowing from Carterfone,

some of which this court has declined to review.”

It is respectfully submitted that this petition

presents the Court with a crystalized issue, ripe for

review, with respect to the meaning of Sections 2(b)

and 221(b) of the Communications Act, in light of

recent FCC and court decisions. The question now

presented to this Court for the first time is whether

intrastate communications services provided by an

interstate, specialized common carrier are subject to

state regulation pursuauct to Sections 2(b) and 221

(b) of the Communications Act.

The broader question which must be decided by

the Court is whether a federal agency may preempt

a field of dual regulation established by Congress by

“Bell Tel. Co. of Pennsylvania v. FCC, 503 F.2d 1250 (3d

Cir. 1974), cert. denied, 422 U.S. 1026 (1975); Wash. Util. &

Transp. Comm’n v. FCC, 513 F.2d 1142 (9th Cir.), cert. denied,

423 U.S. 836 (1975); North Carolina Util. Comm’n v. FCC,

537 F.2d 787, (4th Cir.), cert. denied, ....... US. .... (1976);

North Carolina Util. Comm’n v. FCC, 552 F.2d 1036 (4th Cir.

1977), petition for writ of certiorari pending. A year before the

FCC implemented its terminal equipment registration program,

approved in North Carolina Utilities Commission, 552 F.2d 1036,

supra, the CPUC had implemented its own certification program

by which ecustomer-provided equipment could be directly con-

nected to the network. In the proceedings now preempted by the

FCC, the CPUC had already issued an interim order permitting

limited competition by SCCC’s with established wire line carriers

(Appendix C).

23

simply declaring, without an evidentiary hearing, that

the dual regulatory interests are technically and

practically too difficult to separate. It is respectfully

submitted that if such federal agency preemption is

now the law, the decisions of this Court cited in this

petition will have been drained of their judicial force.

CONCLUSION

California respectfully submits that this petition

for a writ of certiorari to the United States Court of

Appeals for the District of Columbia Circuit should

be granted.

Respectfully submitted,

JANICE E. KErr,

J. Cavin Srmpson,

Rurvus G. THAYER, JR.,

MartTIN A. MArrss,

5066 State Building,

San Francisco, California 94102,

Attorneys for Petitiuners the People of the State of

California and the Public Utilities Commission

of the State of California.

Dated: September 14, 1977.