Petition — AMERICAN TELEPHONE & TELEGRAPH CO. v. MCI (Nos. 77-421, 77-420, 77-436)

Supreme Court, U. §, |

IL ED

SEP 16 1977

No.

EAN NOT CLERK

IN THE

Supreme Court of the United States

Ocroper TERM, 1977

97-421

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

Petitioner,

v.

MCI TELECOMMUNICATIONS CORPORATION, ET AL.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Of Counsel: ah eee

auL J. Berman

* og = 888 Sixteenth Street, N.W.

as York NY 10007 Washington, D.C. 20006

Aurrep C, Parton.

Epwarp L. FrrepMan

195 Broadway

New York, New York 10007

Attorneys for American

Telephone and

September 1977 Telegraph Company

So ae ee ae ate oS - ————

TABLE OF CONTENTS

Page

I ee des See es dbbe dees sees 1

I ye or Ny 2

QuEeTION PRESENTED 0.0... ccc cece eee enseeeees 2

i skbebesedeesedet 3

STATBMENT OF THE CASE ......... ccc secs cevesenes 3

A. The Regulatory Framework and Background .. 3

B. The Specialized Carrier Decision ............ 6

i I I APPPTT TTT TTITTTLL Ee 9

:, Midna dias tne dhas ahndbandnoehekievtees ll

I. The Decision Below Directly Conflicts With

the Decisions of the Ninth and Third Circuits

on the Lawful Scope of Specialized Carrier

TEE 666d 0.50:0.66466400006 69008000 60 beagess 12

II. The Lower Court Has Fundamentally Miscon-

strued the Governing Statute in Disregard of

Its Language, Purpose and. History ......... 18

Ill. The Lower Court’s Decision Will Seriously

Impair the Regulatory Plan and Provision of

Telephone Service at Affordable Rates ...... 25

Cee re a a 82

ii TABLE OF AUTHORITIES

Cases AND ADMINISTRATIVE PROCEEDINGS: Page

Aerovias Columbianas Limitada, 52 C.A.B. 447 (1969) 24

Arrow Transp. Co. v. Cincinnati, N.O. & T.P. Ry,

879 U.S. 642 (1965)... cece cece cece ee eeeeees

AT&T, 9 F.C.C.2d 80 (1967) coc ccc ee cence er eeees 5

AT&T v. FCC, 539 F.2d 767 (D.C, Cir, 1976) ...... 17, 28

ATAT v. FCC, 2d Cir., Nos, 77-4057, et al. oc. see ees 28

Bell Telephone Company of Pennsylvania v. FCC, 503

F.2d 1250 (8d Cir. 1974), cert. denied, 422 US. |

1026 (1975) oc ccsceseeeeceeeeeeeeesesene nes passim

(10GB) .ncvccrccccccvcccccscsccvscceccsccesces

— ee Co. v. FCC, 258 F.2d 440 (D.C.

ir. WETTTETETET ETAT TTL U Tee a

Commissioner v. Gordon, 391 U.S, 83 (1968) ........ 18

Consolidated Carriers Corp., 118 M.C.C, 695 (1973) .24, 26

Domestic Communications-Satellite Facilities,

F.C.C.2d 844, recon, denied, 38 F.C.C.2d 665

CRIED 0.0 dn.y000n000s0csgnaseases caccsushseaes 8, 23

Doniphan Telephone Co. v. ATA&T, 34 1'.C.C. 950, 96

1962), aff'd, 34 F.C.C, 949 (1963) ........000es 4

Eastern Microwave, Inc., 11 F.C.C, 146 (1967) ... 23

FCC v. Pottsville Broadcasting Co., 309 U.S. 134

CORED nonvacnneccccscecsecctccscepesecesseses 25

FCC v. RCA Communications, Inc., 346 U.S. 86

\ Seer ssim

FCC v. Sanders Bros. Radio Station, 309 U.S. 470

(1940) vec eeeeesceeeee serene sere eestor seen ses 15, 21

Plying Tiger Line, Inc. v. CAB, 204 F.2d 404 (D.C.

BD, BRU) cvccccccccccccccsgeserseeeessseocces 23, 24

Gradsky v. United States, 376 F.2d 993 (5th Cir. 1967) 28

Graphnet Systems, Inc., 61 F.C.C.2d (1975) ..... 23

Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322

WE, BES CIBER) once cccccvcopeccvcsseccseconces

Idaho Power Comm'n v. Idaho Power Co., 344 U.S.

BE GED ncccccessnvvccnpncccesccacpescentese 25

Microwave Communications, Inc., 18 F.C.C.2d 953

(1969), recon. denied, 21 F.C.C.2d 190 (1970) ... 5

MCI v. FCC, D.C. Cir., Nos. 76-2071, et al. ......... 29

Michigan & Nebraska Transit Co., Inc., 119 M.C.C.

ee GU 0.0b0knas chase chotessces daatersoocees 26

Nader v. FCC, 520 F.2d 182 (D.C, Cir. 1975) ....... 17

Patterson v. Lamb, 329 U.S. 589 (1947) ........6055 25

Perkins v. Standard Oil Company, 487 F.2d 672 (9th

Ge, BGBD ccccccvccccccccccccccccenccscccccces

Table of Authorities Continued iii

Page

Permian Basin Area Rate Cases, 390 U.S. 747 1968) 25

eve vent Ine. v. FCC, 264 F.2d 872 (D.C. Cir. -

EE cn 460s ob DRC AEs cAuselek is eodau dh tacos’

Press Wireless, Inc., 25 F.C.C. 1466 (1958), aff'd per

*sfeeepeeeeeeeeeaee

21

Thorpe v. Housing Authority, 398 U.S. 268 (1969) . .12, 20

United States v. FCC, D.C. Cir., Nos. 77-1249, et al... 29

me Aaa v. Southwestern Cable Co., 392 U.S. 157

Washington Utils. & Transp. Comm'n vy. FCC, 513

F.2d 1142 (9th Cir.) cert. denied, 428 U.S. 836

RRR SR tty Sti ra ic apa pram passim

Western Union Int’l., Inc., 9 F.C.C.2d 156 (1967) ... 28

Williams vy. Lee, 358 U.S. 217 ( BT 60 Ou dsb ews bake 24

ConstiruTion anp Statutes:

Communications Act of 1934:

Beotion 1, 47 U.S.C. 6181 ........ ccc cc cess cece, 30

Section 214, 47 U.S.C. OE i passim

iv Table of Authorities Continued

Page

Section 214(a), 47 U.S.C. § 214(a) .... cece eens 21

Section 050) 47 U.S.C. § 214(¢) .....606.. 12, 20-21

Section 303(a), 47 U.S.C. § 30B(Aa) ... 6. cee eens 12

Section ey 47 U.S.C. §308(b) .......00 ees 12, 20

Sections , 47 U.S.C. $$ 307-09 .......00 0 6, 19

Section 309, 47 U.S.C. § B09 oc. cece eee 26

Interstate Commerce Act, Section 1(18), 49 U.S.C.

GACER) scccccccccccccccvcececccvcvcvcscesevony

2B U.S.C. G$1QGA(1) cc creccccccrvvvevevvvvevevess 2

U.S. Constitution, Art. I, See. 8... 6. ee eee 28

MISCELLANEOUS:

Brief for the FCC and the United States, in Bell Tele-

fase someone of Pennsylvania v. FCC, 508 F.2d

1280 (8 ir, 1974), cert. denied, 422 U.S. 1026 .

Brief for the FCC and the United States in Wash-

ington Utils. & Transp. Comm'n v. FCC, 513 F.2d

1142 (9th Cir.), cert. denied, 423 U.S. 836 (1975) 7-8

FCC Rutes:

Section 6.3, 47 C.F.R. $6.3 (1st ed. 1939) ...... 23

Section 21.2, 47 C.F.R. § 21.2 (1976) .........55. 3,5

Sector en et seq., 47 C.F.R. § 21.500, et seq.

Section a: 600, et seq., 47 C.F.R. § 21.600, et seq. mi

Section 21.706, 47 C.F.R. § 21.706 (1976) ........ 19

a — et seq., 47 C.F.R. § 21.800, et seq.

Section 2 1000, et seq., 47 C.F.R. § 21.1000, et seq. ‘

Section 63.01, 47 C.F.R. § 63.01 (1976) .......... 19

Hearings Before the Subcommittee on Communica-

tions of the House Committee on Interstate and

Foreign Commerce, 94th Cong., lst Sess., March

in SEE, €0.0b.0k0 000 nde cunbanaekseidestidbanies 9

Table of Authorities Continued v

Page

Hearings Before the Subcommittee on Communica-

tions of the Senate Committee on Commerce,

Science and Transportation, March 21,1977 .... 9

_ spemmnente, FCC Docket No. 18920, October 1,

pb 6d6 000s ¥o05 06 beendadesbactdukdaeranaeen 6

MCI Reply Comments, FCC Docket No. 18920, Decem-

Ge SO ore nkcbenccunsedusrdaustaateindaaad 20

Opposition of the Government, Sup. Ct. No. 74-1550 . .8, 20

Opposition of MCI, Sup. Ct. No. 74-1229 ............ 8

President’s Task Force on Communications Policy,

PE GE GE ode sh chek eles dc accedeusa

Supreme Court Rule 19(1)(b) ..................... 13

IN THE

Supreme Court of the United States

OcToBER TERM, 1977

No.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

3 Petitioner,

Vv.

MCI TELECOMMUNICATIONS CORPORATION, ET AL.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Petitioner American Telephone and Telegraph Com-

pany requests that a writ of certiorari issue to review

the judgment of the United States Court of Appeals

for the District of Columbia Circuit in this case.

OPINIONS BELOW

The opinion of the Court of Appeals, which is not

yet officially reported, appears at Appendix A to this

2

petition,’ The decision of the Federal Communications

Commission, which is reported at 60 F.C.C.2d 25, ap-

pears as Appendix B.’

JURISDICTION

The decision of the Court of Appeals, which consti-

tutes its judgment in this case, was entered on July 28,

1977. The jurisdiction of this Court is invoked under

28 U.S.C. § 1254(1).

QUESTION PRESENTED

Ordinary long distance telephone service in the

United States has been provided on a regulated, non-

competitive basis for over a half century. By statute,

new competitors require prior FCC authority before

they begin to operate, and the FCC may authorize a

new carrier to provide only a particular type or

‘‘elass’’ of service. Construing its own prior decisions

and grants to “‘specialized carriers’’ the FCC held in

this case that such carriers have been authorized to

provide a class of service known as ‘‘private line’’ but

have not been authorized to provide ordinary long dis-

tance telephone service. The question presented is:

Whether the Court of Appeals for the District of

Columbia Cireuit erred when, in direct conflict with

decisions of the Ninth and Third Circuits, it deter-

mined that a leading specialized carrier is authorized

1The appendices are separately bound in a companion volume

cited as ‘‘ Pet. App.’”’

*A prior letter-order of the FCC, reaffirmed by its principal

decision, is reprinted in the principal decision and appears at Pet.

App. 70b.

3

to provide ordinary long distance telephone service, de-

spite repeated pronouncements by the FCC that it has

authorized specialized carriers to provide only private

line service and has never authorized such carriers

to provide ordinary long distance service and never

found that such competition for that class of service

would serve the public interest.

STATUTES INVOLVED

Pertinent provisions of the Communications Act

appear as Appendix C.

; STATEMENT OF THE CASE

A. The Regulatory Framework and Background

For over half a century, AT&T has managed and

operated the interstate switched telephone network to

provide ‘‘switched public message services’’* through-

out the United States in cooperation with local tele-

phone companies. The most familiar service is

“MTS”, or ordinary long distance service,’ which

* The FCC’s rules define a ‘‘public message service’’ as one of-

fered on ‘‘a non-exclusive message by message basis, contemplating

a separate connection for each occasion of use.’’ 47 C.F.R. § 21.2

(1976).

* AT&T and the local telephone companies, which include 23 Bell

System operating companies and about 1,600 independent tele-

phone companies, operate as partners and do not compete with each

other ; in general, AT&T carries the call over its interstate network

between local exchanges, and the local operating company at the

origin and destination cities is responsible for local distribution of

the call through its local facilities.

*MTS means Message Telecommunications Service. WATS, or

Wide Area Telephone Service, i is another familiar switched public

message service.

+

allows any person to use any telephone connected to

the network in one city to call long distance to any

other connected telephone in the destination city. The

eall travels over a complex network of intercity cir-

cuits and is routed by switching equipment along the

most efficient path available. The caller must establish

a new connection for each call and pays for MTS on a

per call basis. See generally Doniphon Telephone Co.

v. AT&T, 34 F.C.C. 950, 962 (1962), aff'd, 34 F.C.C.

949 (1963).

The unified switched public network has achieved

extraordinary benefits for the public. By concentrating

all of the MTS traffic on this integrated system, AT&T

is able to utilize high capacity transmission systems

and drastically reduce unit costs;* in fact, a long dis-

tance call costs less today than it did prior to World

War II despite rising prices in almost every other

field. Provision of MTS under regulation, on a non-

competitive basis, has also permitted nationwide MTS

rates to be based on average costs so that along less

heavily used routes, where the cost of providing serv-

ice is relatively high, telephone service can be made

available at affordable rates.’

* For example, the investment for a small capacity cable system

providing 1,800 two way voice circuits is about $17.22 per circuit

mile, while the investment for a giant cable system providing

132,000 cireuits is about $1.68 per circuit mile. Realizing such

unit cost savings requires that sufficient traffic be concentrated on

the main routes of the unified network to justify the necessary in-

vestment in hi) capacity systems.

* Without such rate averaging—which has been sanctioned by

both the FCC and state regulatory agencies—long distance calls

between many points, especially small cities and rural areas, would

be much higher. In addition, the revenues generated by MTS con-

tribute through the ‘‘separations’’ process to holding down local

5

In addition to services like MTS, AT&T and the

local telephone companies have long provided various

types of ‘private line’’ service.’ A private line pro-

vides the user, for a fixed monthly charge, with an ex-

clusive circuit or circuits available for communication

by him between two or more fixed locations. For ex-

ample, a ‘“‘tie line’? that connects a manufacturer’s

warehouse in Baltimore with its bookkeeping center in

New York is a private line. Since the private line cir-

cuits are normally dedicated to the use of a partien-

lar customer, they can be tailored to meet his special-

ized needs such as the points to be connected, circuit

capacity provided, and type of circuit.

Although MTS has always been provided on a regu-

lated, non-competitive basis, the FCC has recently

taken a different approach to private line service. In

1969, it allowed the respondent MCT to construct on

an experimental basis a single system between Chi-

eago and St. Louis to provide private line service.

Microwave Communications, Inc., 18 F.C.0.2d 953

(1969), recon, denied, 21 F.C.C.2d 190 (1970). In 1970,

the FCC found itself faced with a large number of

applications from so-called ‘‘specialized carrier’’ ap-

plicants—including MCI—seeking to provide private

line service in competition with AT&T.

telephone rates, particularly basic residential rates, throughout the

country; this is accomplished by the use of interstate revenues to

defray local costs under procedures approved by the FCC and state

regulatory agencies. See AT&T, 9 F.C.C.2d 30, 88-94 (1967).

*A “‘private line service’’ is one ‘‘whereby facilities for com-

munication between two or more designated points are set aside for

the exclusive use or availability for use of a particular customer

and authorized users during stated periods of time.’’ 47 C.F.R.

§ 21.2 (1976).

6

Under the Communications Act and this Court’s de-

cision in FCC v. RCA Communications, Inc., 346 U.S.

86 (1953), the new carriers could not provide such serv-

ice or even initiate construction of the necessary facili-

ties without first obtaining FCC authorization based

on public interest findings of need and public benefit.’

MCI, like other applicants, represented to the FCC

that ‘‘MClI-type applicants propose to offer only cus-

tomized point-to-point services and have no intention

of attempting to compete with [AT&T] in providing

local exchange or long distance toll telephone service,

which account for the bulk of [AT&T] revenues,’’ MCT

comments, FCC Docket No. 18920, October 1, 1970, pp.

_ 27-28 (emphasis added).

B. The Specialized Carrier Decision

Instead of holding hundreds of route by route hear-

ings, the FCC determined to resolve the basic public

interest questions posed by the applications and es-

tablish the framework for future specialized carrier

operations in a single rulemaking proceeding. In its

1971 Specialized Carrier decision, the FCC created a

new class of limited-service ‘‘specialized carriers’’ to

provide private line service.” In the decision, the FCC

* Section 214 of the Communications Act, 47 U.S.C, § 214, re-

quires certificates of public convenience and necessity for new in-

terstate ‘‘lines’'—defined as ‘‘any channel of communication’’—

whether established by cable or radio. In addition, Sections 307-09

of the Act, 47 U.S.C. §§ 307-09, require station licenses based on

public interest findings wherever radio frequencies are to be used.

Specialized carriers use microwave radio to create lines and there-

fore need both certificates and licenses, and the FCC ordinarily

makes a single public interest determination in such cases.

Specialized Common Carrier Services, 29 F.C.C.2d 870, recon.

denied, 31 F.C.C.2d 1106 (1971), aff’d sub nome Washington Utils.

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

423 U.S. 836 (1975). The specialized carriers which have resulted

7

repeatedly said that it was authorizing specialized car-

riers to provide ‘‘private line’’ service; and its affirma-

tive public interest findings, including the erucial find-

ing of benefit required under FCC v. RCA Communi-

cations, Inc., related specifically to ‘private line serv-

ices proposed by [MCT] and other applicants.’’ "

Conversely, in considering the possible adverse im-

pact of the new competition, the FOO made elear that

it was not authorizing specialized carriers to provide

switched public message service such as MTS and

therefore saw no threat of increased MTS rates for the

public. Thus, it found the bulk of the Bell Svstem’s

revenues came from services (MTS and WATS)

‘which the applicants do not seek to provide,”’ whereas

interstate private line revenues amounted to onlv about

4 percent of total Bell System revenues, 29 F.0.C.2d

at 911. In addition, the Commission coneluded that na-

tionwide rate averaging used by the existing carriers

for MTS and WATS would not be jeopardized (see

p. 30, below), since the specialized carriers had not

sought to provide such services: Jd. at 915.

On review in the Ninth Cirenit, the FCC and the

Department of Justice represented that “the Com-

mission’s decision . .. to allow competition . . . involves

essentially private line offerings as distinguished from

local telephone exchange and long distance toll tele-

from that decision are merely one of a number of classes of limited-

service carriers which the FCC has created from time to time to

provide particular types of common carrier service. See p, 23,

below.

29 F.C.C.2d at 882, quoting staff analysis. Numerous other ref-

erences to private line service in the Specialized Carrier decision

are reprinted in a compilation contained in Appendix D to this

petition, Pet. App. 8d-10d.

8

phone services.’’ “ In affirming the Specialized Carrier

decision, the Ninth Circuit expressly adopted this in-

terpretation. 513 F.2d at 1155-56. The same interpreta-

tion was adopted by the Third Circuit, after similar

representations by the Government (Pet. App. 13d-

15d), in reviewing a related, subsequent order of the

FCC. Bell Telephone Company of Pennsylvania v.

FCC, 508 F.2d 1250, 1254-55, 1273-74 (3d Cir. 1974),

cert, denied, 422 U.S. 1026 (1975).”

Following the Specialized Carrier decision, the FCC

has issued thousands of grants and licenses to special-

ized carriers in reliance on its main decision and with-

out any further public interest findings. The applica-

tions and grants, excerpts of which are included in Ap-

pendix F to this petition, repeatedly either refer to

private line service or incorporate by reference the

Specialized Carrier decision itself. The central prem-

ise that the Specialized Carrier decision was confined

to authorizing only private line competition has been

repeated in subsequent FCC decisions," in briefs sub-

mitted by the FCC and the Department of Justice in

* Brief for the FCC and the United States, pp. 4-5, in Washing-

ton Utils, & Transp. Comm’n v. FCC, supra, MCI expressly

adopted the Government's statement of facts in its own brief (p. 1).

"In addition, both the Government and MCI represented to this

Court, in opposing certiorari, that the Spectalized Carrier case was

concerned with ‘private line’’ service. See opposition of the Gov-

ernment, Sup.-Ct. No. 74-1550, pp. 2-3 (Ninth Circuit) ; opposition

of MCI, Sup. Ct, No. 74-1229, p. 3 (Third Cireuit).

% B.g., Domestic Communications-Satellite Facilities, 35 F.C.C.2d

844, 853, recon. denied, 38 F.C.C.2d 665 (1972) ; Resale and Shared

Use of Common Services, 60 F.C.C.2d 261, 293 (1976), recon.

denied, 62 F.C.C.2d 588, 602-03 (1977), appeal pending sub nom.

AT&T v. FCC, 24 Cir., Nos, 77-4057, et al.

9

at least three circuits * and to this Court (see p. 8, n. 13,

above), and in statements by the FCC to Congress."

C. Proceedings Below

Although MCT began to provide private line service

in 1972, neither then nor later did MCT seek authority

to provide MTS. Instead, beginning in late 1974, MOT

sought to introduce a form of MTS under the pseu-

donym ‘‘Execunet.’’ What MCT did was to connect its

intercity lines to local telephone company exchanges

at both ends,” configure the circuits so that any cus-

tomer could utilize any telephone or intercity circuit

“EB.g., ‘‘The Specialized Common Carrier Services proceeding

involved rulemaking for the determination of basic, broad policies

with respect to provision of the full range of private line services

....* Brief of the FCC and the United States, pp. 41-42, in Bell

Telephone Company of Pennsylvania v. FCC, supra. Extracts from

briefs of the Government in the Third, Ninth and District of

Columbia Circuits appear at Pet. App, 10d, 12d-13d, 144-154.

“FE .g., ‘One thing you must understand—the competition we

have introduced has been in the private line and not the message

toll service... .’’ Hearings Before the Subcommittee on Communi-

cations of the House Committee on Interstate and Forcign Com-

merce, 94th Cong., Ist Sess., March 11, 1975, p. 46 (Statement of

Chairman Wiley). Various conaressional statements reflect the same

understanding, B.9., ‘‘It should be emphasized that the private line

and terminal equipment sectors of the industry are the only two

areas that the FCC has opened to competition. The public telephone

network has remained a regulated monopoly .. . .’’ Hearings Before

the Subcommittee on Communications of the Senate Committee on

Commerce, Science and Transportation, March 21, 1977, p. 14

(Statement of Senator Hart).

"The specialized carriers use local facilities of the telephone

companies to connect the end points of their intercity cireuits with

the customer's premises. However, use of the local facilities has

been mandated only for the specialized carriers’ authorized private

line services, See Beil Telephone Company of Pennsylvania v. FCC,

supra, 503 F.2d at 1273-74,

10

in turn, and thereby offer customers essentially the

same service as they currently receive from MTS."

As with MTS, an Execunet customer has access from

any telephone in one city to any telephone in a distant

city on a eall-by-call basis. Pet. App. 31b-32b, 64b-70h.

Subject to a monthly minimum charge, an Execunet

customer, like the MTS customer, is charged for each

call at a rate dependent on the distance called and the

length of the call. 7d. Neither Execunet nor MTS pro-

vides a customer with the exclusive use of an intercity

circuit; the Execunet customer, like his MTS counter-

part, uses whatever MCT intercity cireuits are avail-

able, as well as local telephone switching facilities and

eirenits. Id.

After a lengthy investigation, the FCC released its

decision in this case on July 13, 1976, unanimously af-

firming that Execunet was an unlawful service. MCI

Telecommunications Corp., 60 F.C.C.2d 25 (Pet. App.

1b). In its detailed decision, the FCC construed its

own Specialized Carrier decision and confirmed that

specialized carriers such as MCT have been authorized

to provide only private line service.” The FCC further

Charts comparing Execunet and MTS, introduced by AT&T

in the FCC proceeding, appear at Appendix E to this petition.

The chart of Execunet depicts its operation consistent with the

FCC's own findings. See Pet. App. 2b-3b & n.1,

1” Previously, the FCC had determined in a letter-order of July

2, 1975, thaf Execunet was beyond MCT's authority. Pet. App.

70b-76b, On review in the lower court, MCI raised new arguments ;

accordingly, the lower court held the case in abeyance so that MCI

could make its full presentation to the FCC. The jurisdiction of the

Court of Appeals rests on 28 U.S.C, § 2342.

*” The FCC cited the language and reasoning of its own Special-

ized Carrier decision, which ‘‘makes it quite clear that we intended

11

found on the undisputed facts that Execunet had ‘‘all

the essential characteristics’’ of switched public mes-

sage service and none of the characteristics of private

line service. Pet. App. 35b.

On July 28, 1977, the lower court reversed. It held

that MCI was free to provide any service, includ-

ing MTS, over the communication facilities which

the FCC had previously authorized and held to be

limited to private line service. Pet. App. la. The court

did not deny that Execunet was a form of switched

public message service (Pet. App. 26a), and it ac-

knowledged that the FCC had never specifically au-

thorized competition in the switched public message

service field or found that such competition would

serve the public interest. Pet. App. 29a, 31a. Neverthe-

less, the court asserted that the FCC could not grant

authorization limited to proposed services without

addressing the services the applicants do not propose

to provide and affirmatively finding that it would be

contrary to the public interest for them to provide such

additional, never-proposed services. Pet. App. 29a-30a.

Certiorari is warranted and urgently required on

several independent grounds. The lower court decision

is in direct conflict with decisions of the Ninth Circuit

and the Third Circuit. The latter two circuits clearly

construed the Specialized Carrier decision as properly

confined to authorizing private line service. That con-

struction is supported by the language and reasoning

and did open competition only in . .. private line services’’ (Pet.

App. 20b), and the FCC relied directly on the decisions of the Ninth

and Third Circuits. Pet. App. 22b-23b.

12

of the agency and by its consistent, subsequent ad-

ministrative interpretation. See generally Thorpe v.

Housing Authority, 393 U.S. 268 (1969).

In addition, the lower court’s decision involves clear

statutory error. The Communications Act permits ap-

plications to be granted ‘‘as applied for’’ (Section

214(c)) and allows the FCC to ‘‘classify’’ stations and

services (Section 303(a), (b)). MCI-type carriers only

applied for authority to provide private line service

and have never been authorized to provide switched

publie message service. Contrary to FCC v. RCA Com-

munications, Inc., the lower court’s reading of the stat-

ute would authorize competition for switched public

message service, even though the FCC has never found

that it would serve the public interest.

Finally, among numerous other adverse conse-

quences, the lower court’s decision undermines decades

of settled practice by which limited service carriers

have been created by the FCC and by similar agencies,

and it threatens the validity of dozens of classifications

and thousands of grants. Because of the lower court’s

statutory holding, this situation—which will cause se-

rious administrative and judicial disruption—can be

rectified only on certiorari and not by further agency

proceedings.

I. The Decision Below Directly Conflicts With the Decisions of

the Ninth and Third Circuits on the Lawtul Scope of Special-

ized Carrier Service.

The holding of the District of Columbia Circuit, that

specialized carriers are free to offer switched public

message service, conflicts with the decisions of the

Ninth Circuit in Washington Utils. & Transp. Comm’n

13

v. FCC and the Third Circuit in Bell Telephone Com-

pany of Pennsylvania v. FCC. In each ease, the Gov-

ernment represented that the FCC had only authorized

competition for private line service (see Pet. App.

10d, 14d-15d) ; and in each, this representation was an

essential preinise of the court’s decision. Unquestion-

ably, this is a case where a ‘‘court of appeals has ren-

dered a decision in conflict with a decision of another

court of appeals on the same matter,’’ so as to warrant

review by this Court. Sup. Ct. Rule 19(1) (b).

The Ninth Circuit, in affirming the Specialized Car-

rier decision, expressly found:

“The business involved is that of providing spe-

cializéd private or leased line communication

services through microwave transmission facilities

as distinguished from public exchange and lonq

distance toll telephone service.”’ 513 F.2d at 1155

(emvhasis added).

Summarizing the FCC’s own determinations, the

Ninth Circuit stated that new. entry in the specialized

field would not adversely affect existing carriers be-

cause the specialized services in question represented

only a ‘‘very small percentage of A.T.&T.’s total mar-

ket”’ and “‘[t]he market for standard voice communi-

cations services is not affected.’’™ The premise that

specialized carriers were limited to private line service

was essential to the Ninth Circuit’s decision in two

different respects.

™ Id. at 1156 n.21 (emphasis added). The court also stated that

“‘[t]he record as a whole indicates that entry by more than one

private line carrier should generally be reasonably feasible... .’’

Id. at 1167 n.33 (emphasis added).

14

First, the Ninth Circuit had to determine whether

the introduction of new competition rested on a show-

ing of public interest need, as required by the Act and

by this Court in FCC v. RCA Communications, Inc.”

The Ninth Cireuit found that the FCC had made such

a showing with respect to private line service.” The

Ninth Cireuit did not and could not make any such

finding with respect to switched public message service.

Thus, had the FCC authorized such competition in the

Specialized Carrier decision, the Ninth Cireuit would

have been compelled to reverse based on its own reason-

ing and the principles of RCA.

Second, the Ninth Circuit took note of the FCC’s

ultimate finding that ‘‘there is no reason to anticipate

that new entry would have any adverse impact on

service to the public by existing carriers”’ so as to out-

weigh the benefits of new entry. 513 F.2d at 1155-56.

However, as the Ninth Cireuit recognized, this deter-

mination itself rested on subsidiary FCC findings

confirming that specialized carrier competition would

22 The RCA decision, which the Ninth Circuit canvassed at length

(513 F.2d at 1158-59), determined that Congress had not intended

the FCC to permit new common carrier entry merely on the as-

sumption that ‘‘competition is bound to be of advantage ... .”’

346 U.S. at 97. Rather, this Court found that ‘‘the Commission must

at least warrant ... that competition would serve some beneficial

purpose’’ and that there be ‘‘ground for reasonable expectation’’

that this benefit would be achieved. Id. at 97.

23 The Ninth Circuit quoted the FCC’s ultimate finding that ‘‘a

public need and demand [existed] for the proposed facilities and

services’ (513 F.2d at 1155) and summarized the supporting sub-

sidiary findings, including the FCC’s view that existing carriers

alone might not meet the needs of the specialized market ‘‘and still

meet the increasing requirements of the public monopoly services

{MTS and WATS]... .’’ 7d. at 1156 n.21.

15

not include MTS.” If these findings had not been aec-

cepted, the Ninth Circuit clearly could not have af-

firmed. Id. at 1159-60.”

The lower court decision also conflicts with the de-

cision of the Third Circuit in Bell Telephone Company

of Pennsylvania v. FCC. There, the Third Cireuit had

before it an order requiring local telephone companies

to provide local distribution facilities to specialized

carriers (see p. 9, n. 17, above) for two types of serv-

ice denominated FX and CCSA (described at 503 F.2d

at 1254 n.4). The scope of the Specialized Carrier de-

cision was directly in issue because the telephone com-

panies claimed that it did not authorize spec‘alized

carriers to provide FX or CCSA service. The tele-

phone companies also argued that the FCC’s intercon-

nection order before the court was too broad and am-

biguous to be sustained.

The Third Circuit concluded that the Specialized

Carrier decision was co-extensive with private line

service and therefore included FX and CCSA because

*In summarizing the supporting findings, the Ninth Circuit

mentioned inter alia the small percentage of the market involved

(td. at 1156 n.21), an obvious reference to the FCC’s determination

that private line services being opened to competition represented

only 4 percent of Bell System revenues. 29 F.C.C.2d at 911. In

noting that ‘‘ [t]he market for standard voice communications serv-

ice is not affected’’ and this ‘‘accounts for the bulk of A.T.&T.’s

revenue’’ (513 F.2d at 1156 n.21), the Ninth Circuit necessarily

referred to the FCC’s finding that MTS and WATS represented

87 percent of Bell System interstate revenues (29 F.C.C.2d at 911)

and were services the FCC did not authorize the specialized car-

riers to provide. 7d. at 915.

* See generally FCC v. Sanders Bros. Radio Station, 309 U.S.

470, 476 (1940) ; Carroll Broadcasting Co. v. FCC, 258 F.2d 440,

443 (D.C. Cir. 1958).

16

the FCC deemed them to be private line services. In

parsing the Specialized Carrier decision, the Third Cir-

euit found that specialized carriers were permitted to

provide services ‘‘within the rubric of ‘private line

services’? (503 F.2d at 1260-61), and that the FCC’s

evaluation demonstrated that ‘‘the public interest fa-

vored the entry of specialized carriers into the full field

of private line services.” Id. at 1270. If the Third Cir-

cuit had regarded the Specialized Carrier decision as

authorizing competition for any service including MTS,

then its entire course of reasoning would have been

superfluous and mistaken.”

Moreover, the Third Circuit made clear that it was

rejecting the overbreadth and vagueness attacks on

the interconnection order because of the limited class

of competitive services involved. The Third Circuit’s

decision said that it ‘‘would be inclined to agree with

[the telephone companies] that the order is somewhat

vague and, to a certain extent, overbroad’”’ if the order

were read in the abstract. 503 F.2d at 1273. However,

it found that the order took on adequate specificity as

a result of its context, which related the order to the

FCC’s determination to permit ‘‘competition in the

provision of the interstate private line communications

.... Id. (quoting the FCC’s own description of the

Specialized Carrier case).

In light of the language and reasoning of the Ninth

and Third Circuit decisions, the lower court in this case

* Not only would it have been unnecessary for the Third Circuit

to ascertain that the Specialized Carrier decision included the ‘‘full

field’’ of private line services (see id. at 1270), but it would have

been pointless for the Third Circuit to consider carefully, as it did,

whether FX and CCSA fell within the private line ‘‘rubric.’’ See

id, at 1261.

17

clearly erred when it sought to distinguish those deci-

sions on the ground that the ‘‘issues’’ in those eases dif-

fered. Pet. App. 25a-26a n.59. The Ninth and Third

Circuits did consider and had to conclude, as their own

language and reasoning showed, that the specialized

carriers had been authorized to provide private line

service but that competition beyond this boundary had

not been contemplated or authorized. Accordingly,

there is a direct conflict among the circuits.”

The conflict in the circuits is not limited to an ab-

stract or hypothetical disagreement. If the lower

court’s view of the Specialized Carrier decision were

correct, that decision—which is the basis for all of

MCI’s subsequent grants—would not have been sus-

tained by the Ninth Ciruit, and today MCI could offer

no service whatever, let alone Execunet. See p. 14,

above.” In short, the conflict has produced a result re-

** In fact, prior to the present case, the District of Columbia Cir-

cuit had itself rendered decisions that are inconsistent with the de-

cision below. In Nader v. FCC, 520 F.2d 182, 187 (D.C. Cir. 1975),

the court stated that ‘‘MTS and WATS are essentially monopoly

services .... AT&T’s [other] interstate revenue accrues from pri-

vate line service .... Unlike MTS and WATS, several specialized

earriers, including MCI, compete with AT&T in this part of the

market.’’

In an even more recent decision, the court construed the Special-

ized Carrier decision thusly: ‘‘In announcing a general policy in

favor of competitive entry the Commission decided broadly [in the

Specialized Carrier case] that the public interest, convenience, and

necessity would be served by permitting specialized common carriers

to provide a full range of private line communications services

....’ AT&T v. FCC, 539 F.2d 767, 773-74 (D.C. Cir. 1976)

(emphasis added).

** The FCC’s findings and the Ninth Cireuit’s affirmance clearly

do not provide a public interest basis for authorizing competition

18

specting Execunet itself that is logically impossible

and creates a special warrant for Supreme Court re-

view to resolve the conflict. Commissioner v. Gordon,

391 U.S. 83 (1968) (conflict on tax consequences of

same transaction).

Finally, the conflict involves a serious element of

misdirection. If the District of Columbia Circuit de-

cision stands, then the Ninth and Third Circuit each

acted on the basis of crucial misstatements by the Gov-

ernment and MCI concerning the scope of the Special-

ized Carrier decision. See Pet. App. 1d-16d. Indeed,

the representations were repeated not only in the cir-

euit courts but to this Court as well when the Govern-

ment and MCT successfully opposed certiorari from

the Ninth and Third Circuit decisions. See p. 8, above.

Accordingly, judicial review of this conflict is required

in order to vindicate the courts’ own processes.

II. The Lower Court Has Fundamentally Misconstrued the Gov-

erning Statute In Disregard of Its Language, Purpose and

History.

In holding that MCI could provide any service it

chose, the lower court construed the Communications

Act as precluding the FCC from granting a carrier

only limited authority—even though the carrier had

applied only for limited authority—‘‘unless [the FCC]

has affirmatively determined that ‘the public conve-

for switched public message services such as MTS, a necessary

predicate under the Act and RCA for validly authorizing un-

limited service. See p. 14, above. Accordingly if MCI's certificates

are read as unlimited, then they are themselves invalid.

19

nience and necessity [so] require’ ’’ such a limitation.

Pet. App. 24a. Since it discerned no such ‘‘affirmative

determination”’ in the Specialized Carrier decision (id.

at 29a-30a), the lower court concluded that MCI was

free to provide switched public message service includ-

ing MTS. The lower court’s reading of the statute is

at odds with the language of the Act. with its purpose,

with rationality, and with the FCC’s continuing ad-

ministrative construction of the Act for almost half

a century.

The Communications Act clearly forbids a carrier

to construct or operate any channel of communication

(Section 214) or transmit any radio signal (Sections

301, 307-09) until the FCC has determined that the

public interest so warrants. In determining whether

the public interest would be served, the FCC necessar-

ily must first determine what service or class of serv-

ices the carrier proposes to provide, so that it can eval-

uate the public interest need and any adverse effects

that may result. Not surprisingly, Section 63.01 of the

FCC’s rules, which specifies the ‘‘contents of applica-

tions’’ under Section 214 of the Act, provides that the

application shall include a statement of ‘‘the nature

and classification of the communication services to be

provided (e.g.,... private line ... ete.).’’”

In the Specialized Carrier case, the FCC was econ-

fronted with applications from MOCT-type carriers

* 47 C.F.R. § 63.01 (1976) (emphasis added). Similarly, Sec-

tion 21.706 of the FCC’s rules which includes requirements for

applications to establish radio stations in the frequencies utilized

by MCI, requires the applicant te specify ‘‘[t]he nature and type

of services to be rendered (¢.¢., . . . private line . . . ete.).’’ 47

C.F.R § 21.706 (1976) (emphasis adde/).

20

solely to provide private line service.” The FCC’s lan-

guage and its findings, both as to need and adverse ef-

fect, contemplated that only private line service was

being authorized. See p. 7, above. The FCO has re-

peatedly and uniformly construed its decision in this

way." Accordingly, the only remaining question is

whether such a limited grant of authority could law-

fully be made in the absence of the ‘‘affirmative de-

termination’’ which the lower court deemed necessary

under the statute.

Section 214(c) of the Act expressly states that the

Commission ‘‘shall have power to issue such certificate

as applied for’’; and Section 303(b) of the Act, also ex-

pressly relied on in the Specialized Carrier decision

(29 F.C.0.2d at 941), allows the FCC to prescribe ‘‘the

nature of the service to be rendered by each class of

licensed stations and each station within any class.”’

Since the MCI-type carriers had only sought authority

to provide private line service, the FCC was entitled

under the plain language of the Act to establish such

% MCI itself stressed that it was not seeking authority to provide

‘‘long distance toll telephone service’’ (see p. 6, above), and it

also said that ‘‘the switched voice services’’ were the field ‘which

we do not seek to enter.’ MCI reply comments, FCC Docket No.

18920, Dee. 2, 1970, p. 27. Similarly, the Government advised this

Court that the FCC was faced with ‘40 applications . . . collec-

tively seeking more than 1,700 licenses’’ in order ‘‘to provide 4

variety of interstate private line services.’ Opposition of the Gov-

ernment, Sup. Ct. No, 74-1550, pp. 2-3.

"In view of the repeated references to private line service in the

decision and its uniform interpretation in subsequent FCC deci-

sions (see Pet. App. 8d-9d, 11d-12d), the FCC’s construction of

the intent of the decision is controlling. E.g., Thorpe v. Housing

Authority, 393 U.S. 268, 276 (1969) ; Udall v. Tallman, 380 U.S. 1,

16-17 my ; Bowles v. Seminole Rock & Sand Co., 325 U.S. 410,

414 (1945).

21

a ‘‘class’’ and grant MCI authority ‘‘as applied for.’’

Nothing in the statute compelled the Commission to

make any qualifying ‘‘affirmative determination”’

when it granted limited authority to the specialized

carriers to do only what they themselves had pro-

posed.”

The purpose of the Act also supports the FCC’s

understanding. In requiring prior approval, Con-

gress recognized ‘‘that competition between carriers

may result in harm to the public as well as in benefit’’

and ‘‘that when a [earrier] inflicts injury upon its

rival, it may be the publie which ultimately bears the

loss.’’"* Yet, on the lower court’s reading, the FCC

authorized duplicative new facilities to provide com-

"In affirming the Specialized Carrier decision, the Ninth Circuit

observed that ‘‘the Commission may determine general questions

relating to the public interest, convenience, and necessity in rule-

making proceedings ; and, specifically, mav determine that competi-

tion in the furnishing of a class of regulated service will lead not

to poorer but to better service to the public, and will otherwise be

in the public interest.’’ 513 F.2d at 1166 (emphasis added),

** The lower court's two statutory references to support its ‘‘af-

firmative determination’’ requirement are more puzzling than per-

suasive, It said that the FCC must ‘‘strictly follow the terms of

Section 214(c)'’ (Pet. App. 24a), but that provision itself says the

FCC may grant the certificate ‘as applied for’’ and does not refer

to ‘‘affirmative determinations.’’ The court also relied on ‘‘the final

proviso’’ of Section 214(a) (id. at 23a), but that merely permits

carriers to make minor alterations in the course of providing exist-

ing service and has nothing to do with attempts to provide new

services beyond the scope of the carrier's basic authority.

* These grounds are attributed by this Court to Section 1(18)

of the Interstate Commerce Act, 49 U.S.C. § 1(18), which was tho

direct predecessor of Section 214 of the Communications Act. Texas

& P. Ry. v. Gulf, C. & 8.F. Ry., 270 U.S, 266, 277 (1926) (Brand-

eis, J.), See also FCC v. Sanders Bros. Radio Station, 309 U.S.

470, 474 (1940) (analogizing the regulation of rail and telecom-

munications common carriers).

22

petition for MT'S even though on the lower court ’s own

view the FCC has never determined whether such

‘competition between carriers’? would result in harm

or benefit or whether it would inflict ‘‘injury’’ result-

ing in public ‘‘loss.’’ Compare FCC v. RCA Communi-

cations, Inc., supra, 346 U.S. at 96-97."

The lower court’s construction also fails the test of

rationality. It would be time-consuming and pointless

for an agency, asked to authorize new facilities or ra-

dio transmission for a limited use or service, to make

affirmative determinations about other uses or services

neither requested by the applicant nor intended to be

authorized by the agency. If and when a limited serv-

ice carrier wishes to expand operations beyond the

scope of its basic authority, it can always return to

the agency and apply for a broader certificate upon a

showing that such a grant would serve the publie in-

terest." Delay and needless litigation would result if

the agency were forced, before granting a limited serv-

ice certificate, to make findings about myriad other

possible activities which the carrier has not sought to

provide and which the agency does not propose to au-

* The lower court's reading is especially incongruous because the

Specialized Carrier decision, in its references to switched public

message service, recognized the serious public interest problems that

would be presented by MTS competition and made clear that no

such competition was being authorized, 29 F.C.C.2d at 910-15,

* Contrary to the lower court's suggestion, this procedure is not

in any respect ‘‘in derogation of’’ the tariff filing provisions of

the Act. (Pet. App. 24a). Although new tariffs may be filed on

the carrier’s own initiative, the tariff filing provisions ‘‘ presuppose

that a tariff tendered for filing relates to communications subject

to the act which a carrier may legally handle.’’ Press Wireless, Inc.,

25 F.C.C. 1466, 1472 (1958), aff'd per curiam sub nom. Press

Wireless, Inc. v. FCC, 264 F.2d 372 (D.C. Cir. 1959).

23

thorize. See Flying Tiger Line, Inc. v. CAB, 204 F.2d

404 (D.C, Cir. 1953),

In addition, the lower court’s decision disregards

the FCC’s understanding of the Act reflected in the

entire history of FCC classification of, and grants to,

limited service carriers. Compare Red Lion Broadcast-

ing Co. v. FCC, 395 U.S. 367, 381 (1969). The FCC has

repeatedly created classes of common carriers to pro-

vide only limited types of service;" and it has done

so in numerous different ways including codified rule,"

general rulemaking proceedings,” and decisions and

grants in individual cases.” So far as we are aware, the

FCC has never in any of these situations made the ‘‘af-

firmative <determination’’ which the lower court now

deems to be necessary, i.e., that it would be contrary

For example, a class of limited service carriers ‘‘to provide

fixed public press service’’ was provided for in the first set of rules

adopted by the FCC, on July 11, 1934, reflecting a similar classifica-

tion in the rules of the superseded Federal Radio Commission. See

47 C.F.R. § 6.3 (1st ed. 1939).

* Examples include carriers designed to carry radio and TV

signals between broadcast stations, 47 C.F.R. § 21.800, et seq.

(1976) ; carriers to provide rural radiv services, 47 C.F.R, § 21.600,

et seq. (1976); carriers to provide land mobile radio telephone

service, 47 C.F.R, § 21.500, et seq. (1976) ; and carriers to provide

telephone service to off-shore oil drilling rigs, 47 C.F.R. § 21.1000,

et seq. (1976).

** Examples include both the Specialized Carrier decision and

the FCC's decision creating counterpart private line carriers using

domestic satellite facilities. See Domestic Communications-Satellite

Facilities, supra.

“ Examples include so-called international record carriers which

provide eervices such as teletype and fascimile to foreign countries,

¢.9., Western Union Int'l, Inc. 9 F.C.C.2d 156 (1967), so-called

value-added carriers, ¢.g., Graphnet Systems, Inc., 61 F.C.C.2d 685

(1976), and carriers to transmit signals to CATV systems, C.J

Eastern Microwave, Inc., 11 F.C.C.2d 146 (1967),

24

to the public interest for the limited service carrier to

provide services which it has never proposed to pro-

vide. Nor are such findings made by other licensing

agencies when they authorize limited service carriers

under parallel statutory provisions.”

Until today, the courts and agencies have uniformly

understood that a carrier, authorized to provide a par-

ticular service or class of service, was limited to that

service or class of service unless and until it returned

to the agency, filed a new application, and obtained an

expansion of its basic authority.” The lower court’s

departure from this long-standing construction in-

volves an important question of regulatory authority

appropriate for this Court’s review (United States v.

Southwestern Cable Co., 392 U.S. 157, 161 (1968) ) and

represents so ‘‘doubtful [a] determination”’ of an im-

portant question that certiorari is doubly warranted.

Williams v. Lee, 358 U.S. 217, 218 (1959).

Finally, it should be emphasized that the lower

court’s decision in this case is indefensible even if—

contrary to fact—the lower court’s construction of the

Act and the Specialized Carrier decision were correct.

“ B.g., Consolidated Carriers Corp., 118 M.C.C. 695 (1973)

(motor carrier authorized to carry ‘‘ wearing apparel and materials,

supplies, and machinery used in the manufacture thereof’’ be-

tween designated points but no ‘‘affirmative determination’’ ex-

eluding other commodities); Aerovias Colombianas Limitada, 52

C.A.B, 447 (1969) (authority to carry property and mail between

specified points but no ‘‘affirmative determination’ excluding pas-

sengers).

“See Press Wireless, Inc., v. FCC, 264 F.2d 372 (D.C. Cir.

1959) affirming Press Wireless, Inc. 25 F.C.C. 1466 (1958) (FCC).

Flying Tiger Line, Ino, v. CAB, 204 F.2d 404 (D.C. Cir. 1953)

(CAB); W. J. Dillner Transfer Co, v. United States, 214 F. Supp.

941 (W.D. Pa. 1963) (ICC).

25

Even if the Specialized Carrier decision was deficient

in seeking to limit the specialized carriers to private

line service, the court could not lawfully determine on

this basis that MCT held authority to provide unlimited

service. Instead, consistent with the allocation of au-

thority between courts and agencies, the lower court

could only have invalidated MCT’s authority as a

whole and allowed the FCC to decide afresh what au-

thority, if any, should be afforded to MCT. See Idaho

Power Comm’n v. Idaho Power Co., 344 U.S. 17, 20-21

(1952)."

Ill. The Lower Court's Decision Will Seriously Impair the Regu-

latory Plan and Provision of Telephone Service at Affordable

Rates. .

This Court has given weight, in granting certiorari,

to the practical effect of the lower court decision. In

this case, the adverse consequences of that decision are

severe and ramifying. It undermines the FCO’s entire

regime of grants to limited service carriers, seriously

disrupts administrative and judicial proceedings, and

threatens the provision of afforuable long distance and

local telephone service.

**In that case, this Court held that a lower court, invalidating a

condition in a license, usurped the administrative function when it

sought to affirm the license on an unconditioned basis. Instead, the

Court held that the lower court could only affirm or vacate the

license as conditioned and, if the condition were struck down, then

the agency was entitled to decide anew whether to grant the license

in unconditioned form. The basic principle is well established. See,

¢.9., FCC v. Pottsville Broadcasting Co., 309 U.S. 134 (1940);

Arrow Transp. Co. v. Cincinnati, N.O. & T.P. Ry., 379 U.S, 642

(1965).

“ E.9., Patterson v. Lamb, 329 U.S. 539, 541 (1947); Permian

Basin Area Rate Cases, 390 U.S. 747, 755 (1968) ; United States v.

Standard Oil Cc., 332 U.S. 301, 302 n.2 (1947).

26

First. The lower court’s reading of the Act demol-

ishes the FCC’s regulatory structure under which

many types of limited service carriers have been au-

thorized to supplement the basic switched public mes-

sage services offered by the telephone companies. Over

the last forty years, the Commission has created num-

erous classes of limited service carriers.” Thousands

of Section 214 certificates and Section 309 radio li-

censes have been granted to implement service in these

categories. Lacking the type of ‘‘affirmative determi-

nations” called for by the lower court, the careful allo-

eation of functions among carriers now appears to be

totally frustrated.“

Quite apart from impairing numerous carrier clas-

sifications and thousands of individual authorizations

already granted, the lower court’s decision will cause

havoe in future licensing proceedings. Henceforth, ev-

ery time a certifying agency like the FCC proposes to

make a limited service grant, it will have to make and

support “affirmative determinations” that it would be

contrary to the public interest for the limited service

carrier to provide services which it has never sought

These include CATV relay carriers, television transmission

carriers, carriers providing multipoint distribution service, off-

shore radio carriers, specialized carriers, domsat carriers, interna-

tional record carriers, value-added carriers, carriers to provide

rural radio service, carriers providing mobile telephone service, and

carriers to provide news transmission service.

“ This appears to be equally true for other licensing agencies. For

example, the numerous ICC motor carriers certified to haul only

specific commodities (¢.g., Michigan & Nebraska Transit Co., Inc.,

119 M.C.C. 846 (1972); Consolidated Carriers Corp., supra) are

now presumptively free to carry any products they choose ; rarely,

if ever, will there have been an ‘‘affirmative determination’’ in the

certifying decision that it would disserve the public interest for the

carrier to carry items for which it never sought authority.

27

to provide. This means that every proceeding for a lim-

ited service grant, for which no opposition might oth-

erwise exist, will be transformed into an open-ended

inquiry into whether a new unlimited service carrier

should be authorized for the particular route. The mul-

tiplication of issues, the unnecessary litigation, and the

attendant delay are manifest.

These consequences—both for past classifications

and for future grants—will occur whatever the FCC

may do about specialized carriers in any subsequent

proceeding under the lower court’s decision. The lower

court’s interpretation of the statute is obviously not

limited to Execunet ; any FCC decision to authorize a

limited service carrier or class of carriers is now sub-

ject to the same requirement. Thus, whatever limita-

tions the FCC might ultimately impose on specialized

carriers in subsequent proceedings, all other past car-

rier classifications remain invalid and all other future

grant proceedings will be seriously warped and pro-

longed.

Second. The lower court’s decision will immediately

cause administrative and judicial disruption on a

grand scale, regardless of anything the FCC may ulti-

mately do about restricting specialized carriers in a

future proceeding. The FCC has made numerous

grants to authorize specialized carrier service on the

premise that the carriers were restricted to private line

service; and two courts have been induced to affirm

major FCC rulemaking proceedings concerning spe-

cialized carriers on that assumption. See p. 8, above.

If the lower court’s decision is allowed to overturn

that assumption, then all of these past grants and judi-

cial affirmances have been based on a fundamental mis-

28

understanding and on incorrect representations, and

all of them are subject to being reopened and voided.“

The premise that specialized carriers were validly

limited to providing private line service has also been

relied upon in other types of cases. It has been utilized,

for example, to create a parallel class of domestic sa-

tellite carriers to provide private line service (see p.

8, above); and it has been a basic assumption in a

major FCC proceeding requiring existing carriers to

change their practices regarding the resale and shared

use of their services.“ These are merely examples of

structural changes and decisions that will have to be

reexamined and untangled if the lower court’s de-

cision becomes final.

In sum, a great part of what the FCC has done for

almost a decade in the field of common carrier regula-

tion has been based on the proposition nullified by the

lower court in this case. Decisions in appellate proceed-

ings concerning these regulatory steps have occurred or

are occurring in a number of different circuits.” To

‘It is well settled that the courts can recall their mandates and

vacate prior decisions to prevent fraud or injustice and to protect

the integrity of judicial processes. Hazel-Atlas Glass Co. v. Hart-

ford-Empire Co., 322 U.S. 238 (1944); Perkins v. Standard Ow

Company, 487 F.2d 672 (9th Cir. 1973) ; Gradsky v. United States,

376 F.2d 993 (5th Cir. 1967).

“See Resale and Shared Use of Common Services, 60 F.C.C.2d

261 (1976), recon. denied, 62 F.C.C.2d 588 (1977), appeal pending

sub. nom. AT&T v. FCC, 2d Cir., Nos. 77-4057, et al.

** Past and pending cases which involve the premise include

United States v. FCC, D.C. Cir., Nos. 77-1249, et al. (grant for joint

venture of IBM and others) ; Bell Telephone Co. of Pennsylvania

v. FCC, supra (3rd Cir.) ; AT&T v. FCC, 2d Cir., Nos. 77-4057, et

al. (resale and sharing) ; AT&T v. FCC, 539 F.2d 767 (D.C. Cir.

1976) (grant to ITT subsidiary); Washington Utils. & Transp.

29

alter this premise on the basis of a single lower court de-

cision is, mutatis mutandis, as if the District of Colum-

bia Circuit were permitted to void the Commerce

Clause, without regard to years of congressional legis-

lation and of judicial decisions depending directly

upon its validity. Such an upheaval ought not +o be

permitted until this Court has reviewed the decision.

Third. The lower court’s decision will have a severe

adverse impact on affordable telephone service in the

United States. If the lower court’s decision stands, the

telephone companies will be threatened with a massive

diversion of MTS traffic from the switched network.”

This diversion ean oceur at an extraordinary rate—

literally in a matter of months—because the specialized

carriers have thousands of intercity circuits in opera-

tion and they utilize existing local distribution facilities

already in place. Past experience confirms the severity

and speed of this threat.”

Comm’n v. FCC, supra (9th Cir.); MCI v. FCC and Southern

Pacific Communications Corp. v. PCC, D.C. Cir., Nos. 76-2071, et al.

(‘‘Sprint’’ and ‘‘SPLS’’ services).

*° This does not result from any inherent advantage of specialized

carriers, which use the same microwave technology long utilized by

the existing carriers. The rates charged by existing carriers on

major routes are based on nationwide averaged costs to reflect the

need to assure affordable service to customers in low density and

rural areas; such rates are also designed to make a contribution to-

ward affordable local telephone rates. See p. 4, n.7, above. Specialized

carriers assume no responsibility for nationwide service and make

no such contribution so it is easy for them to underprice the tele-

phone companies on major routes.

**In the period 1975-76, MCI expanded its Execunet revenues

over 70 times, based on its own figures. Roberts affidavit, July

1975, para. 7, filed in the court below; MeGowan letter, Aug. 1976,

filed in the court below. In the same period, it expanded the num-

ber of customers from a handful to ‘‘approximately 10,000.’’ Me-

Gowan aff., Sept. 1976, para. 8, filed in the court below.

30

The sudden massive diversion of traffic from the

existing MTS network would have very serious effects

on the public. The consequence would include a mas-

sive loss of MTS revenues and the need for correspond-

ing increases in telephone rates,” a reduction of traffic

needed to justify the use of high capacity transmission

systems presently used to reduce unit costs and long

distance rates throughout the system, a loss in the

‘‘separations’’ revenue now used to hold down rates

for local exchange services,” and the destruction of

nationwide rate averaging used to provide affordable

long distance rates in low density and rural areas. Ulti-

mately, the victim of these consequences will be the

ordinary telephone user, and Congress’ policy of un‘-

versal telephone service at affordable rates will be

jeopardized. Section 1 of the Act, 47 U.S.C. § 151.

It is no answer to say that the FCC may conduct

further proceedings and reimpose on specialized car-

riers the limitations which everyone has heretofore

assumed to exist. Under the lower court’s decision,

specialized carriers have every incentive to prolong

any such proceeding; whatever the Commission de-

cided would be followed by stay applications to the

mous.

** This separations revenue is extremely important in maintain-

ing affordable local telephone service. Approximately 32 percent

of all MTS revenue goes to support facilities used primarily for

local exchange service.

31

District of Columbia Circuit and judicial review. See

Pet. App. 30a-31a. Years could pass before the FOC’s

restriction was made effective, even assuming the in-

quiry itself was not hopelessly prejudiced in the delay.”

The Communications Act requires that the impact

of new competition would be appraised before, and not

after, it is authorized and implemented. See FCC v.

RCA Communications, Inc., supra. Yet if the lower

court’s decision stands, the entire field of long distance

telephone service—where regulation has provided the

United States with “‘the finest telephone system in the

world’”’ (President’s Task Force on Communications

Policy, Final Report, ch. 6, p. 5 (1968) )—will be op-

ened to full seale competition without any prior de-

termination of the public interest impact of such com-

petition. The lower court’s decision directly frustrates

both the Act and this Court’s RCA decision.

** Quite apart from the multimillion doilar losses inflicted in the

meantime, this very delay could serve to expand and entrench

existing Execunet-type services to the point where effective ulti-

mate FCC relief would probably be impossible. As the FCC ex-

plained in relation to CATV, ‘‘Once entrenched it is difficult, if

not wholly impracticable in light of the disruption which would

result, to take effective action or to attempt to roll back the situa-

tion ... .’’ Second Report and Order on CATV, 2 F.C.C.2a 725,

782 (1966), aff'd sub nom. Black Hills Video Corp. v. FCC, 399

F.2d 65 (8th Cir. 1968).

32

CONCLUSION

For the reasons stated, certiorari should be granted.

Respectfully submitted,

Of Counsel: ene ee

F. Mark GaRLINGHOUSE pty arene

888 Sixteenth Street, N.W.

195 Broadway Washington, D.C. 20006

New York, N.Y. 10007

Aurrep C. ParToLu

Epwarp L. FrrepMan

195 Broadway

New York, New York 10007

Attorneys for American

Telephone and

September 1977 Telegraph Company