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

Supreme Court brief1977

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Supreme Court, U.S.

FILED |

SEP 16 1977

Nay = 42] [MICHAEL RODAK, JR., CLERK:

IN THE

Supreme Court of the United States

Ocrosper TERM, 1977

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

Petitioner,

MCI TevtecomMunicaTIONns CoRPORATION, ET XL.,

Respondents.

APPENDIX TO PETITION

FOR A WRIT OF CERTIORARI

Of Counsel: ‘MicuaeL Bovpin

Paul. J. Berman

¥. Mean — 888 Sixteenth Street, N.W.

195 Broadway Washington. D.C. 20006

New York, N. Y. 10007 —

Aurrep C. PaR roll.

Epwarp L. FRIEDMAN

195 Broadway

New Vork, New Vork 10007

Attorneys for American

Telephone and

September 1977 Telegraph Company

eee

TABLE OF CONTENTS

Apprenpix A

Page

Opinion of the United States Court of Ap for the

District of Columbia Circuit, July .

. Appenprx B

Decision of the Federal Communications Commission,

adopted June 30, 1976; released July 13, 1976 ... 1b

Appenpix C

- Pertinent Provisions of the Communications Act of

17%, ̃ bie cededGabieb be dbbuseseceees le

Appenpix D

Excerpts from Briefs and Decisions Respecting the

Specialized Carrier Decision .................. 1d

Appenpix E

Charts Illustrating Execunet and MT'S ............ le

AppENpiIx F

Applications and Grants of MCI and Associated

Fee 1

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-1635

MCI Teitecommuntcations Corporation, MICROWAVE

Commonications, Inc., anp N-Tarete-C Ixo.,

Petitioners

FeperaL CoMMUNICATIONS COMMISSION AND

Untrep States or America, Respondents

AmericAN TELEPHONE AND TeLeGraPH Company, UNITED

States InpEPeNDENT TeLePHONE AssociaTION, Dara

TransMission Company (DATRAN), ann SovurTHern

Paciric Communications Company, Intervenors

— ſ —— —

Petition for Review of Orders of the

Federal Communications Commission

Argued April 28, 1977

Decided July 28, 1977

Kenneth A. Com, with whom Michael H. Bader, William

J. Byrnes, and Raymond C. Fay were on the brief, for

petitioners.

John E. Ingle, Counsel, Federal Communications Com-

mission, with whom Werner K. Hartenberger, General

Counsel, and Daniel M. Armstrong, Associate General

Counsel, Federal Communications Commission, and Carl

D. Lawson, Attorney, Department of Justice, were on the

brief, for respondents. Ashton R. Hardy, General Counsel

for the Federal Communications Commission at the time

the record was filed, entered an appearance for respond-

ent Federal Communications Commission. James F.

Ponsoldt, Attorney, Department of Justice, entered an

appearance for respondent United States of America.

Michael Boudin, with whom Craig D. Miller, Alfred

C. Partoll, and F. Mark Garlinghouse were on the brief,

for intervenor American Telephone and Telegraph Com-

pany.

Thomas J. O’Reilly was on the brief for intervenor

United States Independent Telephone Association.

Jann M. Scorce and Kevin H. Cassidy were on the

brief for intervenor Data Transmission Company.

Herbert E. Forrest entered an appearance for intcr-

venor Southern Pacific Communications Company.

Before Wricut, Tamm, and Witkey, Circuit Judges.

Opinion for the court filed by Circuit Judge Wricut.

Waicut, Circuit Judge: This is a petition to review

two orders of the Federal Communications Commission,

each of which requires petitioner MCI Telecommunica-

tions Corporation to cease and desist from offering and

operating its ‘‘Execunet’’ telephone service.“ Finding that

the Commission has not taken the steps required by the

Communications Act of 1934, 47 U.S.C. $151 et seg.

(1970), to restrict the services MCI may offer over its

existing facilities, we reverse.

The orders are a letter order of July 2, 1975 (FCC 75-799)

and the Decision in MCI Telecommunications Corp., 60 FCC2d

25 (July 13, 1976). The letter order is set out at Appendix B

of the second order, 60 FCC2d at 62-64.

I. Backcrounp

MCI Telecommunications Corporation, Microwave Com-

munications, Inc., and N-Triple-C Inc. (hereinafter, col-

lectively, MCI) are affiliated communications common

carriers which operate a transcontinental point-to-point

microwave system catering to business and data com-

munications markets. In the vernacular of the trade MCI

is a specialized common carrier.“

The present dispute has its roots in MCI’s September

1974 filirg of revisions to its tariffs F.C. C. No. 1—the

tariff under which MCI furnishes all its interstate serv-

ices. Those revisions, which became effective October

10, 1974, established rates for a class of ‘‘metered use“

services, among which was Execunet.? With Execunet a

subscriber using qgny push-button telephone (or rotary

dial phone and tone generator) can reach any telephone

in a distant city served by MCI simply by dialing a local

MCI number followed by an access code and the number

in the distant city. Execunet customers are billed for

each call on a time and distance basis, subject to a monthly

minimum.“

* Apparently the tariffs do not themselves define Execunet service,

but define only certain modular services and rates therefor.

Putting these modular services together in a particular way results

in the Execunet service package. The term ‘‘metered use refers

to the fact that charges for some services are set on a usage basis.

0 Execunet’s characteristics are summarized as follows:

A customer in the calling city calls the local MCI office via

local exchange telephone service from any push-button tele-

phone in the local exchange area. A rotary-dial telephone can

also be used if the caller hes a tonch-tone pad (tone generator).

This device can be purchased in the open market from numer-

ous sources. He then pulses his customer code and the area

code and calling number of any telephone in one of a number

of distant cities. Connection at the distant end may again be

accomplished via the local exchange telephone service in that

area. Upon connection, the customer is charged a per-minute

In the spring of 1975 intervenor AT&T, after sub-

scribing to Execunet and procuring Execunet marketing

brochures, complained orally to the Commission that MCI

was offering interstate long distance message telephone

service (MTS) under the guise of Execunet and that

no such service could properly be tariffed by MCI. Ap-

parently AT&T representatives approached individual

commissioners and various Commission staff personnel

with this complaint and even held a demonstration of

Execunet in the Commission’s offices. Subsequent to the

ex parte complaints, AT&T filed with the Commission a

letter which repeated the allegations previously made.

The Commission forwarded AT&T’s letter to MCI and

indicated that MCI’s ‘‘comments on this matter would be

appreciated. MCI wrote a series of letters in return.

In the first it took the position that AT&T’s complaint

was untimely and should be rejected, but that in any case

Execunet was a private line service which MCI was

authorized to offer.“ By a further letter MCI complained

of AT&T’s ex parte lobbying and asked for an op-

portunity to present its side of the dispute to the Com-

toll, based upon the mileage to the city called, subject to a

connection charge and a monthly minimum charge. Any MCI

Execunet customer in the calling city can access the system

at any time to place a call, and presumably many such cus-

tomers — utilize the intereity facilities simultaneously. In

other words, none of the MCI plant, or indeed any of the plant

used in completing the call, is dedicated to the use of a par-

tieular customer during any specified time; rather it is avail-

able upon demand.

MCI Telecommunications Corp., supra note 1, 60 FCC2d at 26 n.1.

Letter from FCC to MCI, May 1, 1975, MCI Telecommunica-

tions Corp., supra note 1, Appendix B, 60 FCC2d at 64, JA 8.

Letter from MCI to FCC, June 5, 1975, MCI Telecommunica-

2 Corp., supra note 1, Appendix B, 60 FCC2d at 65-68, JA

mission.“ In a third letter MCI pointed out that its

licenses were not limited by anything in Section 21.705 of

the Commissicn’s rules’ pursuant to which point-to-point

microwave radio licenses are issued to communications

common carriers.“ It also called the Commission’s at-

tention to AT&T’s comments in Rulemaking Docket

19117, in which AT&T had taken the position that the

Commission had no statutory authority to require prior

approval of new services that were to be offered over

existing facilities of a domestic carrier, but instead could

regulate such services, if at all, only under the tariff

_ provisions of the Communications Act. In MCI’s view,

AT&T’s position in Docket 19117 v denies the authority

asserted by the Commission in the instant proceeding on

AT&T’s behalf. MCI also pointed out that the report in

Docket 19117 states that new service offerings could be

proposed by merely filing a tariff.”

* Letter from MCI to FCC, June 9, 1975, MCI Telecommunica-

tions Corp., supra note 1, Appendix B, 60 FCC2d at 69-70, JA

16-18.

9 21.705 Permissible communications.

Stations in this service are authorized to render any kind

of communication service provided for in the legally applicable

tariffs of the carrier, unless otherwise directed in the appli-

cable instrument of authorization or limited by § 21.701 or

§ 21.703 [the latter rules relating to frequency use]. * * *

47 C. F. R. § 21.705 (1976).

Letter from MCI to FCC, July 1, 1975, MCI Telecommunica-

tions Corp., supra note 1, Appendix B, 60 FCC2d at 80-84, JA

39-48.

In the Matter of Establishment of Rules Pertaining to the Au-

thorization of New or Revised Classifications of Communications

on Interstate or Foreign Common Carrier Facilities, and Amend-

ment of Part 63.60—63.90 of the Rules, Notice of Propcsed Rule

Making, 27 FCC2d 36 (1971); Report and Order, 39 FCC2d 131

(1973). ,

1% See Letter, supra note 8, 60 FCC2d at 82-83, JA 44-46.

*The termination of the rule making proposed herein will

Without holding a hearing or even disclosing the de-

tails of AT&T’s arguments concerning the unlawfulness

of Execunet, the Commission on July 2, 1975 wrote a

letter to MCI which stated: ‘‘{YJour tariff F. C. C. No.

1 is hereby rejected insofar as it purports to offer

Execunet service, but without prejudice to MCI’s offer-

ing any other service which you are authorized to pro-

vide. : The rationale for this order was explained in

the body of the letter.

First, the Commission concluded that MCI could offer

only private line communications services over its ex-

isting facilities:

In the various Commission orders granting the Sec-

tion 214 applications of the MCI carriers to construct

and operate facilities (e.g., 32 F.C.C.2d 36 (1971),

FCC 72-456 (May 26, 1972), FCC 72-832 (Septem-

ber 22, 1972), FCC 72-852 (September 29, 1972)),

appears language similar to the following:

The service proposed is essentially private line

for the transmission of data, facsimile, control,

remote metering, voice and other communica-

tions.

Each grant refers to the paragraph which incorpo-

rates the above language as conditioning the grant

of construction and operating authority. As a result,

MCI is only permitted to operate its facilities for

private line services.

Further, in our Second Report on domestic satel-

lites, which followed the Specialized Common Carrier

make it possible for domestic carriers, as a general rule, to offer

new classes or subclasses of communications service over duly au-

thorized facilities merely by the filing of appropriate tariff revi-

sions * * *.’’ Report and Order, supra note 9, 39 FCC2d at 135.

12 MCI Telecommunications Corp., supra note 1, Appendix B

60 FCC2d at 64. N

decision, we pointed out (35 F. C. C. 2d 844, 853

(1972)):

In encouraging multiple entry and the develop-

ment of competition in the supply of domestie

communications, we have maintained a distinc-

tion between the so-called monopoly switched

telephone services now being furnished by AT&T

and all other classes of existing and potential

specialized services.

It is thus clear that MCI sought authorization to

offer only private line services, and that it was

granted authority to offer only such services. .

The Commission then rejected MCI’s arguments that

Execunet was a private line service like AT&T’s foreign

exchange (FX) service, deciding instead that the com-

bination of * * * similarities’? between Execunet and

AT&T’s MTS made Execunet ‘‘essentially a switched

public message telephone service * * *.’? *

MCI immediately filed a petition for review in this

court and sought a stay of the Commission’s order,

arguing that the Commission had failed to comply with

Section 4 of the Administrative Procedure Act," its own

rules governing informal complaints," its own rules gov-

erning ex parte contacts,” Sections 204 and 205 of the

Communications Act, 47 U.S.C. §§ 204-205 ( 1970), and

the Due Process clause. The request for a stay was

1 d. at 63.

14 Id.

*5 U.S.C. 5 553 (1970).

% 47 C. F. R. §§ 1.711-1.735 (1976).

"47 C.F.R. §§ 1.1201-1.1251 (1976). See also Rules Governing

Ex Parte Communications, 1 FCC2d 49 (1965).

granted.“ Subsequently the Commission, which had pre-

viously refused to allow MCI any kind of hearing, moved

to have the proceedings remanded so that it could con-

sider matters more fully than it had previously. This

motion was granted, although jurisdiction was retained.

In December 1975 the Commission issued an order

commencing the proceedings on remand. MCI Telecom-

munications Corp., 57 FCC2d 271 (1975), SA 49.“ It

announced that comments and reply comments would be

accepted and that oral argument or an evidentiary hear-

ing might be held if warranted by the written submis-

sions. The issue to be resolved was said to be ‘‘whether

or not Execunet is a service which MCI is authorized

to offer pursuant to its facility authorizations and policies

set forth by this Commission.“ » On March 26, 1976 the

Commission announced that it would hold oral argument

and designated the issues to be addressed at that time.

The issues the Commission identified as having been

raised by the comments and reply comments were the

following:

a. What class or classes of service is MCI permitted

to offer pursuant to its facility authorizations and

Commission policies?

b. What changes, if any were made to the permitted

classes of service by our Report and Order in

Docket 19117, 39 FCC2d 131 (1973)?

18 This court initially stayed the Commission’s order in its en-

tirety. After the proceedings on remand our order was modified to

allow MCI to continue to serve its present customers, but solicita-

tion of new customers was not permitted.

10 „8A“ refers to a two-volume Supplemental Appendix cover-

ing the proceedings on remand.

20 MCI Telecommunications Corp., 57 FCC2d 271, 271-272 (1975),

SA 49-50.

e. Is Execunet service, as presently offered, a private

line service?

d. Were any communications between parties to this

proceeding and the Commission, as developed by

filings herein, in violation of any applicable stat-

ute or regulation?

e. If any prohibited contacts occurred, what effect

have they had on the substance of this proceed-

ing?

f. Whether any further proceedings are required to

comport with the requirements of due process of

law.

MCI Telecommunications Corp., 58 FCC2d 962, 963

(1976), SA 812.

Prior to oral argument the Commission issued yet a

third order responding to procedural motions made by

MCI at various points during the comment period. MCI

Telecommunications Corp., — FCC24q —— (FCC 76-

441, May 17, 1976), SA 892. In this order the Com-

mission rephased the primary issue before it as

whether MCI’s facility authorizations and Commission

policies restrict in any way the broad categories of serv-

ice which MCI may offer. It also stated that the pro-

ceedings would not be expanded to include consideration

of “whether it is in the public interest for MCI to offer

Execunet regardless of whether it is within the class of

services it may offer. # Finally, the Commission for the

first time mentioned the statutory authority for its ac-

tions: ‘‘th[is] proceeding is an investigation into the

lawfulness of MCI's Execunet service offering, conducted

MCI Telecommunications Corp., —— FCC2d —— (FCC 76-

442, ay 17, 1976), SA 894.

2 Id., SA 895,

“ 7. ee

10a

pursuant to Sections 4(i), 4(j), 201, 204, 205, 208 and

403 of the Communications Act of 1934, as amended,

47 USC 154(i), 154(j), 201, 204, 205, 208 and 403.“““

After oral argument the Commission issued an exten-

sive opinion, again finding that MCI was not authorized

to offer Execunet. MCI Telecommunications Corp., 60

FCC2d 25 (1976). The approach taken in that opinion

is materially different from that taken in the July 1975

letter order, however. Whereas the letter order had re-

lied on express restrictions written into MCI’s facilities

authorizations (the certificates of public convenience and

necessity issued pursuant to Section 214(a) of the Com-

munications Act, 47 U.S.C. $214(a) (1970)),“ the opin-

ion on remand stated:

20 Id.

„ (a) No carrier shall undertake the construction of a new

line or of an extension of any line, or shall acquire or operate

any line, or extension thereof, or shall engage in transmission

over or by means of such additional or extended line, unless

and until there shall first have been obtained from the Com-

mission a certificate that the present or future public con-

venience and necessity require or will require the construction,

or operation, or construction and operation, of such additional

or extended line * *. * * * No carrier shall discontinue, re-

duce, or impair service to a community, or part of a community,

unless and until there shall first have been obtained from the

Commission a certificate that neither the present nor future

public convenience and necessity will be adversely affected

thereby * *. As used in this section the term ‘‘line’’ means

of channel of communication established by the use of ap-

propriate equipment, other than a channel of communication

established by the interconnection of two or more existing

channels: Provided, however, That nothing in this section shall

be construed to require a certificate or other authorization

from the Commission for any installation, replacement, or other

changes in plant, operation, or equipment, other than new

construction, which will not impair the adequacy or quality

of service provided.

lla

As MCI points out, however, not all of its authoriza-

tions contain similar language [i.e., restrictions],

some contain no such restrictions, and thus it is neces-

sary to look further, to our expressed policies and

to judicial statements, to ascertain the limits on

[specialized common carrier] services.“

The Commission’s further look’’ began with a review

of the seminal Specialized Common Carrier decision,“

pursuant to which most specialized carrier facilities au-

thorizations have been issued. The purpose of that de-

cision was to facilitate the Commission’s handling of

Section 214 applications by determining by rulemaking

Awihether as a general policy the public interest would

be served by permitting the entry of new carriers in the

specialized communications field . % While the

Commission apparently concedes that it did not define

the boundaries of the ‘‘ specialized communications field, *

it asserts that the services to be offered over the fa-

cilities covered in some 1,700 Section 214 applications

before it provided a touchstone for its analysis and that

all such services were private line.“ Accordingly, it is

the Commission’s position that it did not consider services

other than private line services in determining the public

interest ramifications of competition.“ As an example

*° MCI Telecommunications Corp., supra note 1, 60 FCC2d at 35.

*° Specialized Common Carrier Services, 29 FCC2d 870 (1971),

af d, sub nom. Washington Utilities & Transportation Comm’n v.

FCC, 513 F.2d 1142 (9th Cir.), cert. denied, 423 U.S. 836 (1975).

See also Bell Telephone Co. v. FCC, 503 F.2d 1250 (3d Cir. 1974),

cert. denied, 422 U.S. 1026 (1975); AT&T v. FCC [United States

Transmissions Systems, Inc.], 539 F.2d 767 (D.C. Cir. 1976).

* Specialized Common Carrier Services, supra note 26, 29 FCC2d

at 878.

78 See note 68 infra.

20 35. At the time of the Specialized Common Carrier deci-

sion, we had before us 1712 microwave applications from 33

a So

12a

of this the Commission points to its analysis of ‘‘cream-

skimming,“ the argument that specialized carriers will

upset the established rates of general carriers (such as

AT&T) by siphoning off high-profit business.“ The Com-

mission’s interpretation here of its discussion of cream-

skimming in Specialized Carriers is that it found allega-

tions of cream-skimming to be unfounded only because

the specialized carriers were not proposing to compete

to any substantial degree with AT&T’s monopoly serv-

ice offerings, MTS and WATS.”

applicants, 17 of which were affiliated with MCI. Accordingly,

the statements of MCI as to the types of services it proposed

to offer were of importance in the poliey determination made

therein and are helpful in ascertaining the limits, if any, im-

posed upon Specialized Common Carrier (SCC) service offer-

ings. The MCI applications considered were for ‘‘ portions of

a proposed nationwide network to provide specialized private

line communications services (emphasis added) 29 FCC2d

at 874. We further quoted MCI’s pleadings that the real

distinction which delineates MCI service from anything pro-

vided today by existing common carriers is not the facility

itself but the manner in which a customer may utilize it in

order to provide a customized intra-company point-to-point

communications system of his own design and capability’’ 29

FCC2d at 875. Finally MCI asserted that there was a distinet

difference between a public telephone service which is a natural

monopoly and a customized communications service offered on

a private line basis, Id. [sic] Thus, MCI sought herein to offer

only priyate line, point-to-point services.

MCI Telecommunications Corp., supra note 1, 60 FCC2d at 36.

See also FCC Letter Order, d., Appendix B, 60 FCC2d at 62:

Specialized Common Carrier Services, 29 F.C.C. 2d 870 (1971),

which established the Commission’s policies regarding entry

of the specialized common carriers in competition with AT&T,

contemplated such entry only in the private line field, not in

the area of switched public message telecommunieations ser-

vice.

°° See Specialized Common Carrier Services, supra 29

FCC2d at 910 (J 78). *

** MCI Telecommunications Corp., supra note 1, 60 FCC2d at

13a

Having concluded that the Specilized Common Carrier

decision makes no reference to competition in other than

private line areas, the Commission turned next to MCI’s

allegations concerning the meaning of the Commission’s

Rule 21.705, 47 C.F.R. § 1.705 (1976), and its orders

in Docket 19117.

Rule 21.705 governs the scope of licenses granted car-

riers in the point-to-point microwave service. Its opera-

tive language is that a carrier may offer any service

„provided for in the legally applicable tariffs of the car-

rier, unless otherwise directed in the applicable instru-

ment of authorization * * *’’ (emphasis added). MCI,

focusing on the second phase, had argued that the ab-

sence of any directions in its instruments of authorization

indicated that it was free to offer by tariff any com-

munications service that could physically be provided

on its existing system. The Commission, on the other

hand, took the position that the italicized language is the

key and that tariffs exceeding the bounds of the Special-

ized Carrier decision can never become legally appli-

cable.“ Thus in the Commission’s view Rule 21.705

merely ‘‘expresses the truism that a carrier need not

generally file an application [under Section 214] for each

new service it wishes to offer, [and therefore] it cannot

be used to reverse a clearly defined Commission policy.’’ *

The Commission takes a similarly narrow view of the

effect of its Report and Order in Docket 19117. That

docket was started to consider whether domestic carriers

should be required to get Commission approval before

filing tariffs proposing services not previously provided

or set out in a Section 214 application.“ The purpose

36, quoting Specialized Common Carrier Services, supra note 26,

29 FCC2d at 915.

* Id. at 38.

See Notice of Proposed Rule Making, supra note 9, 27 FCCad

at 38-39.

14a

of the proposed rules was threefold: to decide the public

interest ramifications of a service before it was com-

menced, thereby protecting the public from service dis-

ruptions that might be caused if the service were al-

lowed to go into effect and later enjoined; to put general

domestic carriers (such as AT&T and Western Union),

which could theretofore start a new service simply by

filing a tariff, on an equal footing with international and

domestic miscellaneous carriers whose facilities authori-

zations were always restricted so that new services re-

quired further Section 214(a) proceedings; and to pro-

tect entrants to the specialized carrier field who also

needed prior approval of entry under Section 214(a) from

unfair competition from the generalized carriers.“ The

proposed rules were never adopted, and restrictions in

facilities authorizations which had worked a result simi-

lar to the proposed rules were expressly declared ‘‘null

and void’’ in the order terminating the docket.”

MCI argued before the Commission that the result of

Docket 19117 was that any express restrictions in its

facilities authorizations were lifted and that it should be

free as a result of the order terminating the docket to

propose new services simply by filing a tariff, even if it

was not free before. The Commission’s response was

that Docket 19117 was not concerned with competition

except in the specialized carrier field—the only field in

which competition was allowed at the time of the Report

and Order in that docket. Thus the Commission’s view

apparently is that existing specialized carriers are ul-

lowed to offer private line services free of any prior

approval requirement as a result of Docket 19117, but

are required to proceed by Section 214 applieation with

respect to all other services.

d. at 39.

%5 See Report and Order, supra note 9, 39 FCC2d at 137.

36 MCI Telecommunications Corp., supra note 1, 60 FCC2d at 39.

15a

In the remainder of the opinion below the Commis-

sion again concluded that Execunet was not a private

line service.“ It also concluded that no facts were in

dispute which required an evidentiary hearing and de-

nied MCIs motion for one.“ The Commission for a second

time refused to consider whether Execunet should be

permitted regardless of the scope of the Specialized Com-

mon Carrier decision, and further indicated that it had

intended to confer on AT&T a monopoly over MTS and

WATS by its ruling in Specialized Carriers, a decision

that could not be changed absent a demonstration of

changed circumstances.” Finally, the Commission re-

fused to inquire further into the ex parte contact prob-

lem on the ground that all such contacts had occurred

before commencement of formal proceedings and were,

therefore, proper ‘under both court and Commission rul-

ings.“

On this petition for review MCI has challenged vir-

tually every ruling of the Commission in the proceeding

on remand and has renewed its attack on the July 1975

letter order.

5’ See id. at 40-44.

58 Td. at 44-48.

[[Wie disagree with MCI that we have never defined the areas

of telecommunications service which should be open to com-

petition and those which are a monopoly. Rather, that was the

principal purpose of our investigation in [Specialized Carrier

Services, supra note 26}. * * *

® eo e .

109. In essence MCI is * * asking us to reopen the Spe-

cialized Common Carrier decision to determine again what

services should be open to competition. We decline to do so.

* * * There is no allegation that the public interest considera-

tions upon which the Specialized Common Carrier [was] based

have changed at all * .

MCI Telecommunications Corp., supra note 1, 60 FCC2d at 56-57.

*° Td. at 48-54.

16a

II. ANALysis

The implicit restrictions argument advanced by the

Commission in its opinion on remand represents a sub-

statial departure from prior administrative practice. As

the Commission’s letter order suggests, the usual way

in which a carrier becomes restricted in the services it

may offer is for the Commission to write restrictions

into the facilities authorizations that must be obtained

pursuant to Section 214 of the Communications Act be-

fore any communications line may be built, operated,

or extended." Accordingly, a carrier can usually tell if

it is subject to service restrictions simply by examining

the instruments of authorization issued to it by the

Commission. Section 21.705 of the Commission’s rules,

47 C.F.R. § 21.705 (1976), which governs the manner in

which point-to-point microwave radio licenses can be used

by specialized carriers such as MCI, similarly recognizes

that the usual place to find restrictions on services is in

the applicable intrument of authorization.’’ See also

47 U.S.C. §309(h)(1) (1970) (which indicates that

restrictions will usually be found in the license instru-

ment); 47 C.F.R. 5 21.903 (b) (1976) (instrument of

authorization controls in part services that may be offered

on a multi-point distribution system). ‘

The Commission’s discussion of its administrative prac-

tice in Docket 19117 is also instructive. There the Com-

mission explained that in the absence of restrictions im-

posed under Section 214 in the facilities authorizations,

carriers could offer any service which could physically be

provided over their existing systems simply by filing a

tariff. This discussion clearly indicates that the Commis-

‘

ges text at note 13 supra; hote 24 supra.

** See Notice of Proposed Rule Making, supra note 9, 27 FCC2d

at 38; Report and Order, supra note 9, 39 FCC2d at 133.

17a

sion’s understanding of Section 214 of the Act has until

now been that explicit action is necessary to restrict a car-

rier to the service offerings it proposed when it sought

authority to build, operate, or extend its communications

lines.

Finally, as evidenced by the decision in Press Wire-

less, Inc., 25 FCC 1466 (1958), aff’d, sub nom. Press

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

(per curiam), the Commission has from time to time

exercised its express authority under Section 303(b) of

the Act, 47 U.S.C. §$303(b) (1970), to ‘‘[p]rescribe the

nature of the service to be rendered by each class of

licensed stations and each station within any class’’ by

promulgating rules setting out limitations on services to

be offered over radio facilities. See, e. g., 47 C. F. R.

§§ 21.509, 21.606, 21.903 (1976). In this regard it is

instructive to note that the Commission has not enacted

any comparable service restrictions for point-to-point

microwave licensees and in particular it has not made

the definition of private line service set out in 47

C.F.R. § 21.2 (1976) applicable to such licenses, although

this would certainly seem to be the natural thing to have

done had the Commission sought to restrict specialized

carriers to private line service offerings.

The fact that an administrative practice is novel does

not, of course, mean that it is wrong. However, novelty

is a warning signal that all may not be well, especially

in the instant case in which the Commission has itself

failed to discuss the statutory warrant for the new course

it has adopted. When the Communications Act is con-

sidered in detail, it becomes apparent that novelty has

led to error in this case.

To frame our analysis, we sketch at the ontset some

principles which are either uncontested or uncontestable.

18a

First, it is settled that ‘‘a tariff [may] be rejected if it

is unlawful without prior agency approval and approval

has not been obtained. Associated Press v. FCC, 448

F.2d 1095, 1103 (D.C. Cir. 1971); accord, Press Wire-

less, Inc. v. FCC, supra.“ Yet the power to require

prior agency approval is itself circumscribed, for it is

well recognized that the tariff provisions of the Com-

munications Act (Sections 203-205, 47 U.S.C. §§ 203-

205),** like the cognate sections of the Interstate Com-

«8 See also North Central Truck Lines, Inc. v. 100, —— F.2d

—.— (D.C. Cir. No. 76-1597 decided June 6, 1977) (slip op.

at 4); Delta Airlines, Inc. v. CAB, 543 F.2d 247, 254 (D.C. Cir.

1976) ; Municipal Light Boards of Reading & Wakefield, Mass. v.

FPC, 450 F.2d 1841, 1345-1346 (D.C. Cir. 1971), cert. denied, 405

U.S. 988 (1972).

MCI has vigorously argued that rejection of a tariff is not pos-

sible once a tariff has become effective. We need not decide whether

this is so since, as this case comes to us after remand, no facts

(1970) without more of a hearing than has already been afforded

MCI. Thus, even if the Commission was without power to reject a

tariff as that phrase is used as a term of art, it was empowered to

reject the Execunet tariff in a practical sense.

„Under the Communications Act the practices of existing car-

riers using existing facilities are regulated primarily through the

§§ 203-205 (1970). Section 203 obliges carriers to file tariff sched-

ules with the Commission and to make such schedules available

to the public. Section 203(b) expressly recognizes that changes in

the services a carrier may offer will be commenced with a tariff

filing. Operation except in strict compliance with applicable tariffs

is prohibited, 47 U.S.C. § 203 (e), as are discriminations and pref-

erences, id. § 202. Prior to the effective date of a tariff—a date cer-

tain that must be set out in the tariff, id. § 203(d)—the Commis

sion may suspend the tariff and hold a hearing concerning the law-

fuless thereof. Id. § 204. If the hearing has not been completed

within three months (five months as of 1976, see 47 U.S.C.A. § 204

(1977 pocket part) ) after the effective date of the suspended tariff,

19a

merece Act (49 U.S.C. §§ 15(1), 15(7) (1970)),“ embody

a considered legislative judgment that carriers should

in general be free to initiate and implement new rates

or services over existing communications lines unless and

until the Commission, after hearing, determines that such

rates or practices are unlawful, subject only to a limited

period of suspension set out in the statute. AT&T v.

FCC, 487 F.2d 865, 870-881 (2d Cir. 1973); see United

States v. SCRAP, 412 U.S. 669, 697 (1973) (interpret-

ing Interstate Commerce Act); Arrow Transportation Co.

v. Southern R. Co., 372 U.S. 658, 662-669 (1963) (same).

that tariff by law goes into effect. Id. After the effective date, and

without regard to whether a tariff has previously been suspended,

the Commission may hold a hearing on the }\.wfulness of the tariff,

although the tariff must be allowed to rer ain in effect pending the

outcome of such a hearing. Id. § 205; see AT&T v. FCC, 487 F.2d

865, 874-875 (2d Cir. 1973), Subsequent to a hearing under either

§ 204 or § 205 the Commission may prescribe such rates, classifica-

tions, regulations, or practices as shall be determined to be just,

fair, and reasonable, and it may enjoin the carrier from continuing

services except as prescribed. 47 U.S.C. §§ 204, 205.

** “*Section 204 * * * is adapted from section 15(7) of the Inter-

state Commerce Act so as to apply to communications, * * * Section

205 follows sections 15(1) and 16(8) of the Interstate Commerce

Act“ .““ S. Rep. No. 781, 73d Cong., 2d Sess. 4 (1934). See also

H.R. Rep. No. 1850, 73d Cong., 2d Sess. 5-6 (1934).

Since the most likely objection to MCI’s provision of Execu-

net service is its potential effect on AT&T’s MTS, it is useful to

note that the Supreme Court, in Arrow Transportation Co. v.

Southern R. Co., 372 U.S. 658, 669 (1963), rejected the claim that

a court should have the power to extend the statutory suspension

period to protect competitors of a carrier and their customers:

It must be admitted that Congress dealt with the problem

as it affected the relations between shippers and carriers, mak-

ing no express reference to the interests of competing carriers

and their customers such as are involved this case, We see no

warrant in that omission, however, for a difference jg re-

sult.* * * 9.

In noting that neither claims of a carrier’s customers nor those

bi i

20a

As the Second Cireuit explained in the AT&T case in

overturning a Commission requirement that AT&T obtain

approval prior to filing tariff revisions:

In enacting Sections 203-05 of the Communications

Act, Congress intended a specific scheme for carrier

initiated rate revisions. A balance was achieved after

a careful compromise. The Commission is not free

to circumvent or ignore that balance. Nor may the

Commission in effect rewrite this statutory scheme on

the basis of its own conception of the equities of a

particular situation.“

The Second Circuit, moreover, rejected the Commission 8

argument that the general grants of procedural authority

in Sections 4(i), 4(j), and 403 of the Act, 47 U.S. C.

§§ 154(i), 154(j), 403 (1970), empowered the Com-

mission to erect prior approval requirements like that

imposed on AT&T, although it recognized that the Com-

mission would have the power to reject a tariff whenever

a section of the Act expressly establishes or authorizes “

a prior approval requirement.”

of its competitors’ customers in any way abridge the right of a

carrier to implement a new rate or service, we do not intend to

suggest that a showing of harm to competitors or competitors’ cus-

tomers would be insufficient to sustain a service restriction promul-

gated in accord with 47 U.S.C. § 214(¢) (1970) or 47 U.S.C. §303

(b) (1970). Our only point is that allegations of harm to com-

petitors or competitors’ customers do not in any way expand the

Commission’s suspension or rejection powers.

“ AT&T v. FCC, supra note 44, 487 F.2d at 880 (footnote

omitted ).

„Of course, if the statue merely authorizes the Commission to

impose a prior approal requirement, as is the case with § 303(b),

47 U.S.C. § 303 (t) (1970), that authority would have to be exer-

cised before rejection is proper.

* AT&T v. FCC, supra note 44, 487 F.2d 876-881 & 880 n.13,

citing Associated Press v. FCC, 448 F.2d 1095, 1103 (D.C. Cir.

1971).

21a

Applying these principles to the instant case, the issues

to be resolved are two: whether and to what extent Sec-

tion 214 of the Communications Act expressly authorizes

the Commission to impose prior approval requirements

through the facilities authorization mechanism, and

whether the Commission has properly excerised what-

ever authority it may have under Section 214.

Section 214 establishes the Commission’s regulatory

charter over entry into the common carrier communica-

tions field and states that no carrier shall construct,

extend, or acquire a line unless the Commission has first

affirmatively determined that such entry would be in the

public interest.“ The primary purpose of Section 214

(a) is prevention of unnecessary duplication of facilities,

not regulation of services." Because of this, Section 214

would appear to have a limited office with respect to

regulation of service offering on existing lines. We have

held as much,” and this view is confirmed by the final

proviso to Section 214(a) which states expressly that

*° See note 24 supra.

* See 78 Cona. Rec. 10314 (1934) (The section [§ 214] is de-

signed to prevent useless duplication of facilities, with consequent

higher charges upon the users of services.). It is also clear that

§ 214 was intended to apply only to construction or acquisition of

new lines. See id.; H.R. Rep. No. 1850, supra note 45, at 6; 8. Rep.

No. 781, supra note 45, at 5; accord, Western Union Telegraph Co.

v. FCC, 541 F.2d 346, 355 (3d Cir. 1976) ; United Telegraph Work-

ers v. FCC, 436 F.2d 920 (D.C. Cir. 1970).

Of course, § 214 also applies to abandonment of service, see note

24 supra, but no one has so far contended that Execunet will have

any impact, adverse or otherwise, on provision of pre-existing MCI

services.

In the first Western Union Mailgram case, United Telegraph

Workers v. FCC, supra note 51, the Telegraph Workers sought to

force the FCC to enjoin Mailgram service pending a hearing at

which § 214 issues could be ventilated. The Commission, on the

other hand, maintained that the Mailgram tariff should be processed

in the same manner as any other tariff filing. This court sided with

22a

nothing in this section [214] shall be construed to

require a certificate or other authorization from the

Commission for any * * * changes in plant, opera-

tion, or equipment, ot] r than new construction,

which will not impair le adequacy or quality of

service provided.“

Moreover, we do not agreed with the suggestion of Com-

mission counsel in brief“ that Judge Wilkey’s opinion

in Hawaiian Telephone Co. v. FCC, 498 F.2d 771 (D.C.

Cir. 1974), somehow transmogrifies Section 214(a) so

that carriers must now obtain Commission approval be-

fore they implement new services.“ In Hawaiian Tele-

phone this court reversed a grant of Section 214 au-

thority to RCA Global Communications, Inc. on the ground

that the Commission was allowing competition merely

for competition’s sake in direct violation of the teaching

of the Supreme Court in FCC v. RCA Communications,

Inc., 346 U.S. 86 (1953). In stating the proper standard

the Commission on the ground that (with exceptions not relevant

here) § 214 did not apply to even this novel use of existing facili-

ties. See 436 F. 2d at 924-925.

5347 U.S.C. §214(a) (1970) (emphasis added); see note 24

supra.

FC brief at 24 & n.14, 32 n.23.

‘If this were the case, then there would obviously have been

no need for the rulemaking in Docket 19117 which proposed rules

that would have required ‘‘common carriers [to] request prior

Commission approval before offering or discontinuing any new or

revised classification of communications, irrespective of whether

offered cver proposed new facilities or over facilities previously

authorized by the Vommission [sic].’’ Notice of Proposed Rule

Making, supra note 9, 27 FCC2d at 38-39. Similarly, if the Com-

mission is now correct, then both the Commission and this court

were in error in United Telegraph Workers v. FCC, supra note 51.

See note 52 supra. See also MCI Telecommunications Corp., supra

note 1, 60 FCC2d at 38 (Ca carrier need not generally file an appli-

cation [under § 214] for each new service it wishes to implement).

23a

to be applied under Section 214(a) Judge Wilkey wrote:

„When the FCC considers an application for certification

of a new line, it must start from the situation as it then

exists, and must * * * determine whether indeed the public-

convenience and necessity requires more or better serv-

ice. 498 F.2d at 776 (emphasis added). We do not read

this statement to suggest that every time a carrier seeks

to start a new service over existing facilities it must peti-

tion the Commission under Section 214(a), but rather it

is merely a matter of fact observation that it is analyti-

cally impossible to determine the need for a new facility

without considering the services to be provided over it.

In addition, the reading suggested by the Commission

would nullify the final proviso of Section 214(a) by re-

quiring a ‘‘certificate [and] other authorization from the

Commission’’ priér to changes in carriers’ operations

even if such changes did not effect the ‘‘adequacy or qual-

ity’’ of the carriers’ preexisting services. There is no in-

dication that the Hawaiian Telephone court contemplated

such a remarkable result. Nor indeed can such a result

be justified by reference to the primary purpose of Sec-

tion 214 because, so long as the ‘‘adequacy or quality“

of the service proposed in a Section 214(a) application is

not impaired by provision of other services, the public

need that justified construction of facilities will still be

met and there is no sense in which those facilities would

have become needlessly duplicative.

Notwithstanding the proviso to Section 214(a), See-

tion 214(¢) gives the Commission authority to“

5° Section 214 (e) provides:

The Commission shall have power to issue such certificate

as applied for, or to refuse to issue it, or to issue it for a por-

tion or portions of a line, or extension thereof, or discontinu-

ance, reduction, or impairment of service, described in the

application, or for the partial exercise only of such right or

privilege, and may attach to the issuance of the certificate such

24a

issue such certificate [facility authorization] as ap-

plied for * * or for the partial exercise only of

such right or privilege, and may attach to the issu-

ance of the certificate such terms and conditions as

in its judgment the public convenience and necessity

may require.

(Emphasis added.) Used to condition the services an in-

dividual carrier may offer, Section 214(c) would pro-

vide a power over individual carriers in all respects iden-

tical to its power over classes of carriers under Section

303(b), which was held in Press Wireless, Inc. v. FCC,

supra, to give the Commission authority to create a prior

approval requirement. For this reason Section 214(¢) does,

in our judgment, authorize the Commission to restrict

the services that may be offered over a communication

line once it is built, acquired, or extended. Cf. Western

Union Telegraph Co. v. FCC, 541 F.2d 346, 355 (3d Cir.

1976). However, since any prior approval requirement is

in derogation of the legislative compromise embodied in

Sections 203-205, the Commission must stricily follow the

terms of Section 214(¢) and it cannot impose any such re-

striction unless it has affirmatively determined that „the

publie convenience and necessity [so] require.“

terms and conditions as in its judgment the public convenience

and necessity may require. After issuance of such certificate,

and not before, the carrier may, without securing approval

other than such certificate, comply with the terms and condi-

tions contained in or attached to the issuance of such certifi-

cate and proceed with the construction, extension, acquisition,

operation, or discontinuance, reduction, or impairment of serv-

ice covered thereby. Any construction, extension, acquisition,

operaton, discontinuance, reduction, or impairment of service

contrary to the provisions of this section may be enjoined by

any court of competent jurisdiction at the suit of the United

States, the Commission, the State commission, any State af-

fected, or any party in interest.

47 U.S.C. § 214 (e) (1970).

— 8

25a

With the framework of our inquiry in mind, we turn

next to the question whether the Commission was correct

in concluding that the Specialized Common Carrier de-

cision was a lawful exercise of Section 214(¢) authority.

As we understand the Commission’s opinion on remand,

there are two considerations supporting its view that the

Specialized Common Carrier decision restricted the serv-

ices specialized carriers can offer—first, the fact that only

private line services were before the Commission in See-

tion 214 applications“ and, second, that the Commis-

sion’s analysis of cream-skimming assumed that special-

ized carriers would be restricted to private line services.“

We consider these in turn.”

* See note 29 supra.

** (Ojur analysis of possible revenue diversion (29 FCC2d at

911-914) dealt only with the private line revenues of these

two carriers. Further, we recognized that SCCs would not com-

pete directly with the established carriers’ message services.

There is no reason to believe that [nationwide average]

pricing of the interstate message service offerings of the

Bell System and Western Union (such as MTT, WATS,

and public telegraph) need be altered by new entry into

the developing specialized communications market. Clear-

ly, none of the uniform rate structures of the existing

carriers for such services would appear in jeopardy since

those services are not being challenged competitively to

any substantial degree by the services proposed to be of-

fered by the aspiring new entrants. 29 FCC2d at 915

(emphasis added) I.]

MCI Telecommunications Corp., supra note 1, 60 FCC2d at 36.

The Commission offered two other considerations in support of

its interpretation of Specialized Common Carrier Services, supra

note 26. First, it concluded that specialized carriers would not

duplicate services already being offered, whereas in the Commis-

sion’s view Execunet would duplicate MTS. We fail to see the rele-

vance of this assertion in light of AT&T v. FCC, supra note 26.

The Commission also pointed to statements made by the Ninth

26a

We can assume, without deciding, that a service like

Execunet was not within the contemplation of the Com-

mission when it made the Specialized Carrier decision.

Nonetheless, it is readily apparent that failure to consider

the public interest ramifications of a service—either pro

or con—during resolution of a Section 214(a) applica-

tion is simply not the same thing as an affirmative de-

termination that the ‘‘public convenience and necessity

may require“ a restriction on a facility authorization

limiting a carrier to provision solely of those services pro-

posed in its Section 214 (a) application.

The Commission’s analysis of cream-skimming in the

Specialized Common Carrier decision similarly gives no

and Third Circuits in, respectively, Washington Utilities & Trans-

portation Comm 'n v. FCC, supra, note 26, and Bell Telephone Co.

v. FCC, supra note 26. In Washington Utilities, however, the scope

of the services authorized in Specialized Carriers was not at issue ;

the reference is simply a general description of the services pro-

posed in the applications before the Commission. The Bell Tele-

phone case involved a very different issue, namely, whether the

Commission had affirmatively determined that it would be in the

publie interest to require AT&T to interconnect with MCI for the

purpose of allowing MCT to offer FX and CCSA service. See 47

U.S.C. §201(a) (1970). The Commission’s view was that Spe-

cialized Carriers had settled the point, whereas AT&T argued that,

since MCI had never mentioned FX and CCSA services in its

§ 214(a) applications, MCI’s provision of those services had not

been approved even if some other carriers’ might have been. The

Third Cireuit held that the Commission in Specialized Carriers had

made an affirmative determination that interconnection for provi-

sion of private line services was a general matter in the public

interest and that MCI was covered by this general determination.

Bell Telephone therefore stands for the proposition that the Com-

mission in Specialized Carriers decided at least that specialized

carriers could provide all private line services. However, one can-

not reason from this proposition to its converse—that specialized

carriers may offer only private line services—yet the converse is

the issue relevant under § 214(c) as we explain in text.

27a

evidence that the Commission made an affirmative find-

ing that revenue diversion would be a problem if special-

ized carriers were allowed to compete on the fringes of

the message telephone service market as MCI allegedly

proposes to do. No such issue was before the Commis-

sion in that proceeding. As it has repeatedly asserted here,

all it had to consider was whether the competition pro-

posed in the Section 214 applications before it raised

serious revenue diversion problems threatening the public

interest. This is all it apparently did decide:

[W]e do not see how there could be any diversion of

revenues of a magnitude to have the impact claimed

by AT&T, in view of the very small percentage of

AT&T’s existing total market that is vulnerable to

competition of the kind proposed here, the growth

rate of Bell’s basic services, and the likelihood that

AT&T would obtain a very substantial share of the

potential market for specialized services. ten

Moreover, the Commission’: staff report, which formed

the basis for the Specialized Carrier decision, ruminated

more broadly on the issues posed by revenue diversion

and it appeared highly skeptical of the validity of AT&T’s

overall argument.“ Thus there ‘is simply nothing in

Specialized Carriers that would support a conclusion that

revenue diversion required restrictions on MCI’s facility

authorizations.”

* Specialized Common Carrier Services, supra note 26, 29 FCC2d

at 910.

*? See id. at 883-884.

28a

Finally, it should also be noted that the Comission

staff, in its report adopted by the Commission,“ dealt

explicitly with the question of how the Commission ought

to deal with possible adverse impacts of service offerings

other than those which were before the Commission in

the Specialized Common Carrier decision :

In the event that adverse consequences to the pub-

lie should develop, the Commission can take such ac-

tion on the relevant tariff filings as may be necessary

protect the public. We think that in the context of

the matters now before the Commission involving

proposed new and different services, a question of

this nature is more appropriately considered in con-

nection with the tariffs rather than upon authoriza-

tion of the facilities.!“

And, again, the staff wrote:

The results of any authorizations would be the object

of close and continuous scrutiny by the Commission.

Should adverse consequences develop or appear immi-

nent, the Commission can take such remedial action

or precautionary measures as may be necessary to

protect the public. As indicated, appropriate action

can be taken in connection with the tariffs. In addi-

tion, any renewal of license for the proposed facilities

would require a public interest finding and could be

subject to any needed conditions. Moreover, the Com-

mission’s broad rule making powers are always avail-

* See Specialized Common Carrier Services, supra note 26, 29

FCC2d at 920 ($103) (In light of all of the foregoing and the

record as a whole, we adopt our staff’s analysis * * * as amplified

and modified herein.’’). There is no indication that the Commission

modified the staff’s analysis of the points relevant to this appeal.

5 Specialized Common Carrier Services, supra note 26, 29 FCC2d

at 886 (emphasis added).

90 Jd. at 887 (emphasis added).

. Fy as

29a

The undeniable import of the staff’s analysis is that

questions related to the future impact of specialized

carrier service offerings other than those immediately

at hand in the Specialized Common Carrier case should

be resolved in other proceedings—in tariff procedings,

upon license renewal, or by further rulemaking. Strik-

ingly absent from this list is a mention of further Section

214 proceedings.

For the reasons stated above the Commission’s Special-

ized Common Carrier decision cannot reasonably be read

to have made an affirmative determination that the pub-

lic convenience and necessity required ‘‘private line’’ re-

strictions on the facilities authorizations of specialized

common carriers.“ Instead, it appears that the Commis.

sion saw benefits accruing to the public from the services

which were before it. In granting the facilities authori-

zations on the basis of that public interest finding, the

Commission did not perhaps intend to open the field

of common carrier communications generally, but its con-

stant stress on the fact that specialized carriers would

See Specialized Common Carrier Services, supra note 26, 29

FCC2d at 905-914 ( 65-86). Indeed, to the extent that any

definition of à specialized common carrier emerges from the Com-

simply

i to

its service offerings to the voice communications needs of the gen-

eral public. See id. at 882 ({ 29); id. at 906-907 (N 69-70).

30a

of public interest need for restrictions, MCI’s facility

authorizations are not restricted and therefore its tariff

applications could not properly be rejected.

As a final and somewhat collateral point, we are con-

cerned with a thread running through the Commission's

analysis that the Specialized Carrier decision granted

AT&T a de jure monopoly over MTS and WATS service

which would be undermined were MCI allowed to provide

Execunet—because any such assertion is plainly incorrect

and may have influenced the Commission’s disposition

of the instant case.

As the Commission staff explained in Specialized Car-

riers, absence of competition in the ‘‘general domestic

common carrier service field is due primarily to

the fact that until the filing of [MCI’s first Section 214

applications] the Commission had no occasion to con-

sider applications for competitive service in this area.

The question whether AT&T should be granted a de jure

monopoly was not among those proposed to be decided

in Specialized Carriers, and nowhere in that decision can

justification be found for continuing or propagating a

monopoly that, according to the staff, had theretofore

just grown like Topsy. Of course, there may be very

good reasons for according AT&T de jure freedom from

competition in certain fields; however, one such reason

is not simply that AT&T got there first. Indeed, the

Commission’s attempt here to imbue AT&T’s existence

with public interest significance represents a retrench-

ment from the position it took in passing on a proposal

to enter the MTS field via domestic communications satel-

lites: ““[Wle should not reject any proposal that might

prove feasible and beneficial to the public simply because

it represents some departure from the established scheme.

Id. at 881.

III. Concrvston

We have today decided that the Commission erred in

rejecting MCI’s Execunet tariff as unauthorized. The

Commission has no general authority to insist that car-

have not had to consider, and have not considered, whe-

ther competitic like that posed by Execunet is in the

for competition’s sake,” it is not free to propagate

monopoly for monopoly’s sake. Th ultimate test of in-

dustry structure in the communications common carrier

. F. C. C. 76-622

BEFORE THE

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

Docket No. 20640

In the Matter of

MCI TeLecommunticatTions CorRPORATION

Investigation into the lawfulness of Tariff FCC No. 1

insofar as it purports to offer Execunet service

Decision

(Adopted: June 30, 1976; Released: July 13, 1976)

By tHe Commission: *“CHammMan WILEY NOT PARTICIPAT-

mo; ComMIsiONnER Hooks CONCURRING IN THE RESULT.

1. This matter is before us on grant of a Motion To Hold

in Abeyance we filed before the United States Court of

Appeals for the District of Columbia in the case of MCI

Telecommunications Corporation v. FCC, Case No. 75-

1635. That case involves MCI’s appeal of an earlier Com-

mission Order, FCC 75-799, adopted July 2, 1975, which

found Execunet to be essentially message telecommunica-

tions service (MTS) rather than private line service. Since

we found therein that MCI Telecommunications Corpora-

tion (MCI) was authorized to offer only private line serv-

ice, we rejected the tariff for Execunet and ordered MCI

to cease offering the service within thirty days. The D.C.

Circuit granted MCI a stay of that order.

» Commissioner Hooks issued a concurring statement to our

Memorandum Opinion and Order released May 17, 1976, FCC 76-

442, in which Commissioner Robinson joined. This statement is

attached to this Decision.

2. * granting our motion to hold the appeal in abey-

ance, the Court remanded the case upon our representa-

tion that we would consider certain arguments made by

MCI on appeal which had been mentioned only briefty be-

fore the Commission. Accordingly, we instituted the pres-

ent proceeding by Memorandum Opinion and Order re-

leased December 3, 1975, 57 FCC 2d 271. Because the

facts of this case were essentially not in dispute, and in

view of the Court’s order, to expedite the proceeding, the

procedures employed included two rounds of comments

from all interested persons, and oral argument. Comments

and reply comments were filed by MCI, American Tele-

phone and Telegraph Company (AT&T), American Satel-

lite Corporation (ASC), Southern Pacific Communication

Corporation (SPCC), GTE Service Corporation (GTE),

United States Independent Telephone Association

(USITA), Continental Telephone Company (Continental),

and RCA Global Communications, Inc., as trustee (RCA

Globeom). Oral argument was held on May 24, 1976.

BackGRrounpD

A. July and Order and Appeal

3. In our July 2, 1975 Order we rejected MCI Tele-

communication Corporation’s Tariff FCC No. 1 insofar as

a private line service.

* We found on the basis of MCI’s own description of

Execunet in its letter to the Chief, Common Carrier

(1) *. . the intercity facilities used for Execunet

are shared by all users of the service.”

(2) „... Execunet can be accessed directly from any

push-button telephone (or from any telephone,

using a separate tone generator) in the calling

city to call any telephone in any one of a num-

ber of distant cities’. 8

(3) „. the Execunet customer uses common local

exchange plant at both ends. , and

(4) „. . the Execunet customer is billed for each

5. We concluded that these were basic similarities to

MTS, the combination of which „under the factual situa-

tion presented here, inescapably leads the Commission

switehen m that . ... Hxecunet service is essentially 2

6. We then examined our policy as expressed in our

Specialized Carrier Decision in Docket No. 18920, 29 FCC

2d 870 (1971), as well as the conditions we had placed

upon MCI’s facility authorizations. Based upon MCI’s

description of Execunet, our specialized carrier policy and

the restrictions we had placed on MCI’s authorizations,

we concluded that MCI was authorized to offer only pri-

vate line service, not MTS, and therefore that this offer-

ing was unlawful on its face. We then rejected the tariff,

citing Press Wireless, Inc. v. FCC, 264 F.2d 372 (D.C.

Cir., 1959), and allowed MCI a thirty day period in which

to discontinue service, so that MCI’s customers could

arrange for alternative service. :

7. MCI petitioned the United States Court of Appeals

for the District of Columbia for review of our Order.

In its Stay motion, MCI argued that our action in the

Execunet proceeding violated basic concepts of funda-

mental fairness by failing to accord MCI (1) sufficient

notice of an investigation concerning its Execunet serv-

ice, (2) any opportunity for a hearing respecting the

facts of the service, or (3) any notice that we might take

action without instituting formal proceedings, and (4) that

the occurrence of ex parte presentations by representatives

of AT&T about the nature of Execunet obligated us to

hold an evidentiary hearing to allow MCT to set the record

straight. In addition, MCI argued that Docket No. 19117

had modified the specialized common carrier policy in a

manner to permit MCI to provide any common carrier

service merely by filing a tariff revision.

8. In Court, MCI claimed that the principal issue in

the Execunet proceeding was that we had ordered MCT

to discontinue Execunet service without notice and with-

out opportunity for hearing. MCI also contended that it.

had not been informed of the full extent of AT&T's off.

the-record arguments against Execunet. Without that in-

formation, it was deprived, it claimed, of any opportunity

to meet those arguments and, in turn, to present rebuttal

evidence. AT&T’s presentations, MCI contended, con-

stituted a systematic lobbying effort which effectively

predetermined the proceeding’s outcome and deprived MCI

of due process. Finally, MCI argued that we had a duty

to notify it of the pending adverse action and to supply

a summary of the factual basis for the , action, before

ordering the discontinuance of Execunet.

9. Since some of these arguments had not been fully

put before us and thus not fully addressed, we requested

the Court to remand the proceeding in order to ailow us

to review these arguments thoroughly. The Court granted

the motion and directed that further proceedings

conducted and concluded expeditiously. See MCI Tele.

communication Corporation v. FCC, supra. Consistent

with the Court’s order, we called upon MCT and other

interested parties to file comments and reply comments

regarding the lawfulness of MCI’s offering of Execunet

service.

10. On December 15, 1975, MCI filed a series of mo-

tions including a motion to modify procedures, a motion

for initiation and conduct of a special evidentiary hear-

ing to look at AT&T’s allegedly improper contacts with

the Commission, a motion to take the deposition of a cer-

tain AT&T employee, a motion to preserve evidence, and a

to preserve evidence since AT&T had stated it would

preserve all relevant information in its possession. In

addition, we stated we would act on MCI’s other motions

in a timely fashion and in accordance with due process.

II. We determined that prior to ruling on these mo-

tions the best procedure was to schedule oral argument.

In MCI Telecommunications Corporation, 58 FCC 2d 962,

released March 26, 1976, we asked parties participating

in the oral argument to be prepared to discuss, inter alia,

the following issues:

a. What class or classes of service is MCI permitted

to offer pursuant to its facility authorizations and

Commission policies?

b. What changes, if any, were made to the permitted

classes of service by our Report and Order in

Docket No. 19117, 39 FCC 2d 131 (1973)?

ce. Is Execunet service, as presently offered, a pri-

vate line service? .

d. Were any communications between parties to this

proceeding and the Commission, as developed by

filings herein, in violation of any applicable stat-

ute or regulation?

e. If any prohibited contacts occurred, what effects

have they had on the substance of this proceeding?

f. Whether any further proceedings are required to

comport with the requirements of due process o

law.

MCT then filed motions requesting an evidentiary hear-

ing on certain specified ‘‘disputed questions of fact. It

sought a hearing to determine the accuracy of our state-

ment that the staff had raised questions about the lawful-

ness of MCI’s metered use tariff prior to the AT&T con-

tacts and pleadings. MCI also renewed its motion for an

evidentiary: hearing concerning AT&T’s presentation and

asked that the oral argument be held in abeyance pending

the outcome of the proceedings it had requested. By an

Order, released May 17, 1976, we stated that we would

determine whether further proceedings were warranted

at the conclusion of the oral argument. On May 20, 1976,

— — Ci

13. In early September, 1974, MCT initiated a meeting

with the Bureau staff to lain a proposed metered use

Service to be instituted by a tariff revision. The metered

Private line subscribers on a time and distance sensitive

basis. The conversations with the staff served mainly to

alert the staff that MCT would ‘file within a short time

tariff modifications effecting the metered use service and

other private line communications features MCI con-

to provide. MCT, however, filed an amendment to clarify

the meaning of its tariff. This amendment i iy how

and private Hees un mee bosiness telephone lines

ers shared a local business telephone line, MCI would pro-

rate the monthly charge. The tariff did not indicate that

the sharing would involve an unlimited number of un-

specified customers, i.e., all subscribers to a particular

service. To help clarify the meaning of its tariff, the

staff requested MCI to file a glossary of complete and

clear definitions of the terms in its tariff. MCI promised

to do so and the revisions became effective pursuant to

law on October 10, 1974.

14. The staff and MCI met again in November to dis-

cuss the filing by MCI of a glossary defining terms used

in the tariff filings and also the services contained in

marketing brochures. A third meeting was held in De-

cember concerning the glossary MCI had promised to pro-

vide. At this time representatives of MCI explained that

some additional time was still necessary to provide the

glossary since the tariff was organized on a modular

framework, rather than in terms of marketing packages

offered to customers. According to MCI, this approach

allowed it to tailor services to a particular customer’s

needs. However, MCI stated that to retain this flexibility

each functional component must be set forth separately

in the tariff, thus making it difficult to set forth clearly

the various service arrangements possible under the tar-

iff. According to an MCI affidavit dated July 3, 1975

and filed with the Court, MCI also indicated at that meet-

ing, or shortly thereafter, that it would begin market-

ing the Execunet service in January 1975, and agreed

that Execunet would be included in the glossary when

it was prepared.

15. According to an affidavit filed with us, AT&T be-

came aware in late October, 1974, that MCI was ordering

a substantial number of local exchange lines, MCI had

informed AT&T 's local operating companies that it in-

tended to use those local exchange lines in conjunction

with its newly instituted metered use service. After ap-

16. By January, 1975, MCT was offering Execunet serv-

ice to the public. MCT states that at that time it infor-

providing Execunet. AT&T then orally informed various

Commission Personnel of its beliefs and the reasons for

- * . ° ‘- >» wrés K * ~~ 5 © «@eds-e

10b

phones with the occasional aid of a touch tone pad. Ac-

cording to AT&T’s affidavit, no other materials were used

in its presentations. In the course of its conversations,

AT&T urged the Commission personnel to take action to

stop what it considered an unlawful service. Without in

any way indicating what action we might take on our own

motion, the Bureau staff reminded AT&T that there were

both formal and informal complaint procedures which it

could follow. Accordingly, AT&T filed a complaint on May

19, 1975 requesting the Commission to take action against

Execunet. AT&T states in its affidavit that it ceased dis-

cussing Execunet service with the Commission on May 15,

four days before it filed its informal complaint.

18. On May 21, 1975, the Common Carrier Bureau re-

ferred a copy of the AT&T letter to MCI. The cover let-

ter stated that AT&T had alleged that Execunet service

is not properly tariffed with this Commission, and that

the service constitutes the provision of long distance mes-

sage telephone service which MCI is not authorized to

provide.’’ The Bureau then requested MCI to comment

on AT&T’s allegations.

19. On June 5, 1975, MCI replied stating that Execu-

net is a private line service comparable to other private

line offerings, and that the tariff contained a description

of all the components necessary to offer and provide the

service and determine charges. In addition, MCI described

in detail the fundamental characteristics of Execunet.

20. On June 9, 1975, MCT filed a letter stating that while

its letter of June 5 had ‘‘competently and completely“

answered AT&T’s objections about Execunet service, it

was concerned about the staff’s handling of AT&T’s writ-

ten allegations as well as about the matter of “‘lobbying’’

at the Commission. MCI claimed that AT&T had used

sophisticated presentation techniques . . to spur some

members of the Commission’s staff to pre-judge the mat-

ter before MCI had had even the chance to present its

1lb

side of the story.’’ It stated that it (was not requesting

a hearing on this matter.“ Instead it asked for ‘‘equal

submitting an analysis of the diffe private

line services and Execunet, AT&T attacked MCI’s lack

of candor” in sy itting ‘‘con inadequate’?

22. On June 16, 1975, the Chief, Common Carrier Bu-

reau responded to MCT’s Protest of June 9 about the man-

ner and depth of AT 's off. the record Presentations.

The letter reminded MCT of the staff's initial view that

its tariff revisions filed in September were in need of

such i

practice was implicitly recognized by MCI and formed the basis

for its request for equal time.

prompt exchange of correspondence unusual. He added

that AT&T’s letter ‘merely highligh — an important

i mem

problem by of the staff. In

problem aioe stated that the Burean was of the OF ers

that conversations between a mem the Commission

time.

93. MCI filed a third letter on July 1, 1975. The letter

stressed MCI’s concern that we might act on

in the near future Uitnout having heard both sides of the

ease. While stating that lilt agrees informal communi-

of the specialized common carrier policy. Taking into con-

sideration all the arguments before us, we adopted an

Order directing MCI to discontinue Execunet service. As

is evident from the order itself, our decision was based

only on the materials filed with us by AT&T and Mor.

13b

C. Substantive Arguments

24.

This section summarizes the parties’ position as to

the lawfulness of MCI’s offering of Execunet service and

our right summarily to reject MCI’s tariff. MCI puts

forth

six principal alleged errors in the July 2 Order

which rejected the service offering and asserts the follow-

ing counter arguments under which the service would be

luwfully offered:

(a) Eaecunet is within the class of service which MCI is

(b)

authorized to offer. The Specialized Common Car-

rier decision, supra, permitted competition for

„specialized and innovative services and did

not limit competitors to the private line field. Even

if that decision did limit the competitors, the Com-

mission’s Report and Order in Establishment of

Rules “Pertaining to the Authorization of New or

Revised Classifications of Communications on In-

terstate or Foreign Common Carrier Facilities,

Docket No. 19117, 39 FCC 2d 131 (1973) removed

all restrictions which appeared in the Specialized

Common Carrier decision and domestic facility au-

thorizations as to the types of services which could

be offered using those facilities. Accordingly, a car-

rier need not obtain prior Commission authoriza-

tion of new services.

Section 21.705 of the Commission’s Rules permits

a carrier to introduce new services by filing a tariff

revision. That section reads in part: ‘‘Stations in

the [domestic public radio] service are authorized

to render any kind of communication service pro-

vided for in the legally applicable tariffs of the

carrier, unless otherwise directed in the applicable

instrument of authorization . . .’’ Simce Docket

19117 removed all restrictive conditions on MCI’s

authorizations, this section permits MCI to offer

any new service which uses existing facilities

through the filing of a tariff revision.

Commission can examine it only through a hearing

Commicripursuant to Sections 204 and 205 of the

Act.

(d) Execunet ts an entirely new service offering, not

(e) The Commission has never determined that AT&T

should have 4 monopoly over interstate MTS.

Therefore, even if Execunet were characterized a8

MTS, MCI could lawfully offer it in competition to

Bell.

nications service.

15b

26. The other attachments to MCI’s comments consist

of lengthy affidavits from Bert C. Roberts, Jr., Vice Presi-

dent, and William G. McGowan, President and Chief Ex-

ecutive Officer of MCI. These affidavits expand upon cer-

tain of the substantive allegations made in MCI’s com-

ments. Mr. Roberts lists what he contends to be the dif-

ferences between Execunet and MTS and the similarities

between Execunet and private line services. These will be

discussed infra. He also enumerates five alleged errors in

the discussion of similarities between Execunet and MTS

which appeared in our July 2 Order. These are:

(a) “. . . both use nondedicated local and intercity fa-

cilities . . .’”” Mr. Roberts characterizes the inter-

city lines used for Execunet as dedicated to users

of this service and not used by subscribers to any

other -MCI service. In addition, he contends that

the local business lines subscribed to by MCI are

likewise dedicated to Execunet customers’ use. Fi-

nally, customers have the option of subscribing to a

dedicated local loop for use in connection with this

service.

(b) ‘‘. . . both are accessible on demand by any cus-

tomer .. .’” While MTS can be used by any person

anywhere in the country, with no minimum volume

required, Mr. Roberts describes Execunet service

as limited to fifteen cities, accessible only by its cus-

tomers, subject to a $75 per month minimum

charge, and accessible only from push-button tele-

phones. He also notes that, while MTS is marketed

to the general public, Execunet is intended for only

that class of users with at least $75 in monthly toll

charges to the cities which Execunet serves.

(e) . . . both charge on a per call basis.. While

MTS is charged only on a per-call basis, Mr. Rob-

erts notes that Execunet is subject to a $75 per

16b

month minimum, can be subscribed to only for a

minimum period of a month, can be cancelled only

on a thirty days’ notice, is not subject to peak/off-

peak pricing, and is charged on the basis of total

minutes of connect time to a given distant city per

month. Finally, the subscriber to Execunet must pay

a prorated share of the local termination charge.

(d)“. . . both are available from any telephone in the

ealling city (Execunet is subject to the push-button

telephone limitation, but this is caused only by tech-

nical limitations) . Mr. Roberts points to the

fact that Execunet is accessible only within certain

(currently 15) cities, while MTS is available every-

where, and he asserts that the push-button tele-

phone restriction is a more significant difference

than the Commission’s Order implies. :

(e) , and both may be used to call any telephone in

one of a number of distant points. While MTS is

available to call any telephone in the country, Mr.

Roberts asserts that the limitation of Execunet to

15 cities is a difference in kind rather than degree

between the two services.

27. Finally, Mr. McGowan reiterates that Execunet,

which he characterizes as shared private line service, is a

separate class of service from those services offered by

other carriers, and that MCI has proposed the sharing of

private line channels as early as 1969. He further claims

that our Execunet decision is a step back from full and

fair competition, and that the real issue is whether AT&T

may impose its definition, ‘‘through the FCC,“ of what

the competitors may offer in order that these competi-

tors may eventually be squeezed out of business.

28. AT&T disputes MCI’s contentions and asserts that

we should reaffirm its July 2 Order. Bell’s principal argu-

ments can be divided into three points:

17b

(a) Commission policy precluded competitive entry

into the MTS business. Both the conditions placed

on MCI’s Section 214 authorizations and the poli-

cies established in the Specialieed Common Carrier

decision, supra, make this policy evident. The Com-

mission has made very clear its view of MTS as a

monopoly service, and departure from this policy

would undermine AT&T’s services and destroy the

nationwide MTS price averaging structure. MCI

has proposed in Docket No. 18920 that it would offer

only customized point-to-point services and never

stated that it would seek to compete with Bell in

providing local exchange or long distance toll tele-

phone service.

(b) MCI has never sought or obtained Commission au-

thorization to offer services other than those which

are consistent with the policies established in the

Specialized Common Carrier decision, i.e., private

lime services. Without a formal application it can-

not offer other services, since the Commission has

never permitted competition in the MTS business.

(o) Execunet is not a private line service. Rather it has

the fundamental characteristics of message toll

Service; it is a service among many points on an

exchange basis, facilities are used in common with

other Execunet subscribers, a new switching con-

nection is required for each call and it is charged

on per-call usage-sensitive basis. By contrast, pri-

vate line is a service between designated points fa-

cilities are designated for the use of a single sub-

seriber, a new connection does not have to be made

for each call and charges are made on a fixed, peri-

odie basis.

29. Both ASC and SPCC recognize the possible broad

applicability of this decision and therefore ask us to con-

18b

fine our decision as narrowly as possible—if we should

find Execunet unlawful—in order not to rule out any

proper innovative services currently being planned. RCA

expresses the same concern but further asserts that our

policy does not limit the SCCs to private line services but

merely requires that they offer „specialized communica-

tions services.

30. GTE, USITA and Continental agree with AT&T

that Execunet has most of the characteristics of MTS sta-

tion-to-station direct dial service. They assert that Execu-

net is not a private line service (specifying alleged differ-

ences), and that it cannot be compared to foreign ex-

change (FX) service. Since MCI’s facility authorizations

and our policies allegedly limit MCI to private line serv-

ices, including FX, they claim that MCI is not authorized

to offer Execunet service, and that we should reaffirm its

rejection.

31. In reply, MCI alleges that we did not intend to limit

the SCCs to private line services but rather spoke in

terms of customized services and specialized com-

munications’? in Dockets 18920 and 19117. MCI also dis-

putes AT&T characterization of Execunet and claims that

it is a private line service which falls within MC!.’s broad

authorizations, not functionally similar to MTS. AT&T

and USITA, in reply, dispute MCI’s position and express

views similar to those in their initial comments.

D. Substantive Analysis

32. Determination of the lawfulness of MCI’s Execunet

offering is dependent upon three basic issues:

(a) Are MCI’s authorizations, based upon policies es-

tablished in Docket No. 18920, limited to the offer-

ing of private line services, or if not, is MCI oth-

erwise limited in the services it may offer?

19b

(b) If the above limitations existed, were they modified

as a result of our Report and Order in Docket No.

19117 and Section 21.705 of our Rules?

(e) If MCT is limited to private line services, is Execu-

net a private line service?

a. Facility Authorizations and Docket 18920

33. Our July 2 Order (pages 2-3) quoted language from

a number of MCI facility authorizations as limiting the

use of the facilities to services which are ‘‘essentially

private line for the transmission of data, facsimile,

control, remote metering, voice and other communica-

tions.“ This language was taken from MCI’s applications

and, as will be seen, is similar to MC's description of its

own services in proceedings both before us and before the

courts. As MCI points out, however, not all of its au-

thorizations contain similar language, some contain no

such restrictions, and thus it is necessary to look further,

to our expressed policies, and to judicial statements, to

ascertain the limits on SCC services.

34. The foremost pronouncement of our policy regard-

ing the role of Specialized Common carriers in domestic

communications is the First Report and Order in Docket

18920, supra, (the Specialized Common Carrier decision).

We have never modified this policy, but rather have re-

affirmed our findings therein on several occasions,“ and

therefore they are controlling on the issues in the case.

35. At the time of the Specialized Common Carrier de-

cision, we had before us 1713 microwave applications from

33 applicants, 17 of which were affiliated with MCI. Ac-

cordingly, the statements of MCT as to the types of

services it proposed to offer were of importance in the

* See, ¢.g., Docket No. 19117, 39 FCC 2d 131, 133; ATT (Hi-

Lo), 58 FCC 2d 362, 366 (1976) ; Bell System Tariff Offerings, 46

FCO 2d 413, 424-25 (1974).

20b

policy determination made therein and are helpful in as-

certaining the limits, if any, imposed upon Specialized

Common Carrier (SCC) service offerings. The MCI ap-

plications considered were for ‘‘portions of a proposed

nationwide network to provide specialized private line

communications services“ (emphasis added) 29 FCC 2d

at 874. We further quoted MCI’s pleadings that ‘‘the real

distinction which delineates MCI service from anything

provided today by existing common carriers is not the

facility itself but the manner in which a customer may

utilize it in order to provide a customized intra-company

point-to-point communications system of his own design and

capability’? 29 FCC 2d at 875. Finally MCI asserted that

there was a distinct difference between a public telephone

service which is a natural monopoly and a customized

communications service offered on a private line basis,

Id. Thus, MCT sought therein to offer only private line,

point-to-point services. Later, in discussing the impact of

the specialized services being proposed upon existing car-

riers, we indicated (29 FCC 2d at 907):

MCI’s proposed ‘‘customized’’ or individually tail-

ored’’ private line services purport to offer custom-

ers the flexibility and benefits of private microwave

at lower cost to the user, e.g., the exact bandwidth

required for any particular service, any bandwidth

that is required, and flexibility in the use of channels

and customer terminal equipment.

36. Our discussion in the Specialieed Common Carrier

decision makes it quite clear that we intended and did

open competition only in the limited portion of AT&T’s

and Western Union’s business represented by private line

services. For example, our analysis of possible revenue

diversion (29 FCC 2d at 911-914) dealt only with the pri-

vate line revenues of these two carriers. Further, we

recognized that SCCs would not compete directly with the

established carriers’ message services.

21b

There is no reason to believe that [nationwide aver-

age] pricing of the interstate message service offer-

ings of the Bell System and Western Union (such as

MTT, WATS, and public telegraph) need be altered

by new entry into the developing specialized com-

munications market. Clearly, none of the uniform rate

structures of the existing carriers for such services

would appear in jeopardy since those services are

not being challenged competitively to any substantial

degree by the services proposed to be offered by the

aspiring new entrants.’’ 29 FCC 2d at 915 (emphasis

added)

37. The Report and Order in Docket No. 18920 speaks

both in terms of specialized and private line services. Al-

though MCT and RCA Globeom contend herein that the

term ‘“‘spetialized services“ includes far more than just

private line,“ a reasonable and proper reading of our

language equates the two. For example, in describing the

applicants’ proposed services, we characterize MCI’s

proposals as ‘‘ ‘customized’ or ‘individually tailored’ pri-

vate line service,“ while the subsequent discussion refers

collectively to such proposals as specialized services.“

29 FCC 2d at 907. Finally, the market studies referred to

therein all surveyed the potential demand for specialized

private line services, and thus our estimates of the impact

of the SCCs were predicated on direct competition for

private line services only.

38. In a similar vein, we dealt with the contention that

the new entrants would merely be duplicating the services

then being offered by established carriers (29 FCC 2d at

906) :

While there may be some overlap between the serv-

ices proposed by the applicants and the present offer-

ings of the established carriers, we find sufficient war-

rant for the staff's conclusion that the applicants are

22b

seeking primarily to develop new services and mar-

kets, as well as to tap latent, but undeveloped sub-

markets for existing services, so that the effect of

new entry may well be to expand the size of the total

communications markets. To be sure, the established

carriers now provide data transmission and private

line services. However, the services proposed by the

applicants have technical and service features signifi-

cantly different from those of the established car-

riers.

39. This intention to limit SCC services to private line

offerings was also recognized by the United States Court

of Appeals for the Ninth Circuit. In upholding the Com-

mission’s Specialized Common Carrier decision, sub nom

Washington Utilities and Transportation Commission v.

FCC, 518 F.2d 1142, 1159 (1975), cert. denied, 423 U.S.

836 (1975), the Court stated:

The business involved is that of providing specialized

private or leased line communications services

through microwave transmission facilities, as distin-

guished from public exchange and long distance toll

telephone service. [emphasis added}

40. Similarly, the United States Court of Appeals for

the Third Circuit, in upholding the Commission’s Deci-

sion in Bell System Tariff Offerings, Docket No. 19896,

46 FCC 2d 413 (1974), interpreted the Specialized Com-

mon Carrier decision as referring only to competition in

private line services. Bell Telephone Company of Penn-

sylvania v. FCC, 503 F.2d 1250, 1260-1261 (1974):

[Wie note that in assessing the extent to which the

established carriers’ revenues might be diverted by

competition from the specialized carriers, the FCC

focused upon the total revenues earned by the estab-

lished carriers in private line services. We find this

23b

focus to be significant. Implicit in the FCC’s evalua-

tion is the assumption that the new entrants will

provide services similar to those provided by estab-

lished carriers within the rubric of „private line

services.’’ [emphasis in the original, footnote deleted).

41. Finally, MCI itself, in pleadings before the United

States Supreme Court,“ and the District of Columbia

Cirenit* and the Third Circuit U.S. Courts of Appeals,

interpreted the Docket 18920 Report and Order as limit-

ing SCCs to the offering of private line services. (Rele-

vant portions of these briefs appear in Appendix C.) For

example, in its Supreme Court brief, supra note 4, MCI

asserted :

(3) The Commission's directive that it contemplated

„full. and fair competition in the specialized field

among all carriers, both established and new .. .’’

indicates that the Commission intended to authorize

the new carriers to provide all elements of the pri-

vate line services then being furnished by the estab-

lished carriers, rather than an incomplete package“

of private line services. The Commission’s finding

that the provision of interstate private line service

should be on a full, fair and non-discriminatory basis

would be meaningless without the provision of the

full range of private line services. (503 F.2d at 1261-

62, Pet. App. 22a).

(4) The narrow interpretation sought by petitioners

here would frustrate the basic objectives enunciated

* Brief for Respondent, American Telephone and Telegraph Com-

pany v. FCC, No. 74-1229, May, 1975, pp. 24-25.

Brief for Intervenor, ATT v. FCC, No. 74-1953, April, 1975,

pp. 2 (n. 1), 17-19, 87.

*Brief for Intervenors, Bell Telephone Com { Pennsyl-

vania v. 700, No. 74-1886, May 28, 1974, pp. 87-40, 52-54.

24b

in the Docket No. 18920 proceeding, in which the

Commission repeatedly used the generic term ‘‘pri-

vate line service,’’ which put AT&T on notice that it

would be expected to provide interconnections for the

full range of such services. The denial of intercon-

nection facilities for the spocialized common carriers

similar to those provided to AT&T’s ‘‘affiliated car-

rier,“ the Long Lines Department, would place them

at a definite disadvantage in obtaining customers and

frustrate the Commission’s objectives in authorizing

entry by the specialized carriers. (Footnote omitted).

42. MCI also interpreted Docket 18920 as limiting the

specialized carriers to private line services in filings be-

fore this Commission. For example, in its brief filed in

Docket 19896, supra, in discussing whether we intended

competition to extend to foreign exchange (FX) and com-

mon control switching arrangement (CCSA) services,

MCI asserted that these were private line services within

the meaning of the Specialized Common Carrier decision

(pp. 46-47) :

Any other conclusion would completely frustrate the

entire purpose of Docket No, 18920... The Com-

mission knew that if the new carriers were ever to

become viable and offer innovation services they

would need to share the private line market already

being serviced by AT&T and Western Union. Since

the Order discussed Bell’s total private line market

and revenues throughout, it is obvious that everyone

was to be allowed to compete for every service—in-

cluding FX and CCSA. The Commission now has the

opportunity to stop once and for all the effort of

AT&T to kill competition by setting up protected en-

claves within the private line market from which it

claims the right to exclude the specialized carriers on

the ground that these services were not specifically

25b

mentioned in the order in Docket No. 18920. [Empha-

sis in the original].

43. From this language, it is clear that this Commis.

sion, the reviewing courts and MCI itself believed SCC

competition to be limited to private line services, Further,

they felt that the message services of AT&T and Western

Union, such as MTS, would not be subject to direct compe-

tition. Finally, the Courts, affirming our stated policy of

open entry in this field, acted upon the expressed intention

of the SCCs that they intended to offer only private line

services.

b. Docket No. 19117 and Section 21.705 of our Rules

44. MCI makes the argument that our Report and Or-

der in Docket No. 19117, supra; removed the restrictive

conditions placed on its facility authorizations and per-

mitted the SCCs to offer any communications services

within the technical limitations of their facilities. It also

asserts that Section 21.705 gives carriers the right to

offer any communications service not specifically excluded

by their authorization. Since Docket No. 19117 removed all

such restrictive conditions, MCI alleges, it is not limited

to private line or any other specific category of service.

v. FCC, 448 F.2d 1095 (D.C. Cir., 1971); see also Press

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

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

discussed above, the Specialized Common Carrier decision

20b

specified that the SCUs s).all offer only private line serv-

ices, any tariff which offers another service is unlawful on

its face. Accordingly, such a tariff is not a ‘‘legally ap-

plicable tariff within the meaning of Section 21.705.

MCI’s rather circular argument, that a tariff which may

be otherwise unlawful is made lawful because of 21.705,

cannot stand. If a tariff is unlawful because of our poli-

cies or orders, it cannot be made lawful by Section 21.705.

46. Similarly, our Report and Order in Docket No.

19117 removed specific conditions which had been imposed

in authorizations on the services domestic carriers may

offer. MCI asserts that this action removed all restric-

tions on all such carriers’ authorized services, so tha‘ vo

tariff can be rejected as offering unauthorized services. 4

reading of the Docket 19117 Report and Order shows that

this clearly was not our intention. The rulemaking in that

Docket was instituted to determine if certain restrictive

conditions placed upon facility authorizations of AT&T

and the Pioneer-United Telephone Company should be

removed. These conditions required the carriers to utilize

the authorized facilities only for existing or specified serv-

ices unless further authorizations were obtained. They

were imposed initially ‘‘to provide reasonable opportunity

for the competitive development of the market for spe-

cialized communications services.“ It was our concern

that this objective could be thwarted by existing car-

riers whe were in a position to institute new offerings for

such services simply by filing tariffs, without any prior

Commission approval, while at the same time impeding

or delaying the entry of new carriers seeking to serve that

market by raising various policy objections to the appli-

cations of the new entrants for authorization of facilities

to provide service.’’ 39 FCC 2d at 133.

47. By the time of the Report and Order, however, we

had adopted the Specialized Common Carrier decision and

the Second Report and Order in Docket No. 16495, Do-

27b

mestic Satellites, 35 FCC 2d 844 (1972), which, inter alia,

opened the domestic satellite field to competition. Be-

cause the policy determinations made in these orders ne-

gated the need for imposing specific conditions of this

type on the authorizations, we terminated the rulemaking

and declared snch conditions on the authorizations for do-

mestie facilities of all carriers null and void.

48. While the Docket 19117 Order specifically removed

these conditions, it did not in any way modify or reverse

our policies regarding the types of services the special-

ized carriers may offer. Rather it was because of the

Docket 1892) decision, and because of the presence of

competition for certain services, that 19117 was decided

the way it was. Accordingly, MCI’s position that the

Docket No. 19117 Order removed all restrictions on the

services it can offer is entirely without foundation, and

MCT remains limited to the offering of private line services.

49. If we had intended to reverse the Specialized Car-

rier decision, i. e., to allow a specialized carrier to initiate

non-private line service simply through the filing of a

tariff revision, the Docket No. 19117 proceeding would

clearly not have been the proper forum. The Notice of

Proposed Rulemaking therein was narrow in scope, not

all the active parties to Docket No. 18920 were parties,

and the Report and Order focused only on the necessity

of retaining conditions placed on certain domestic facility

authorizations. Such a proceeding was certainly not a rea-

sonable place to reverse a policy which had been devel-

oped less than two years earlier after an extensive inves-

tigation. Further, we certainly would have made it ex.

plicit that we intended to reverse such a major policy. —

50. In addition, there is no indication prior to the pres-

ent proceeding that MCI interpreted the Report and Or-

der in Docket No. 19117 in such a way as to reverse the

NS SE 0 —— ——ü

— . tt

28b

Specialized Carrier decision. All the statements in MCI

pleadings cited above were filed after the Docket 19117

Report and Order was released and in no way indicated

that MCI believed the Specialized Carrier decision to

have been modified—no reference was made in those

pleadings to Docket No. 19117. As late as May, 1975, MCI

told the Supreme Court that it was limited to offering

private line services,’ and no Commission Order since

that date has modified that limitation. Even in the present

proceeding, in its Motion for Inquiry into Publie Interest

Considerations regarding establishment of a communica-

tions monopoly, filed on May 20, 1976, MCI refers (at p.

41) to the limited areas of communications which the

Commission has opened to competition. Thus, despite

its allegations in pleadings that Docket 19117 and Section

91.705 removed all restrictions on the types of service

MCI may offer, its most recent pleading appears to take

the opposite position. Finally, in its oral argument before

us, in response to a question about whether MCT has al-

ways, both before the Commission and the Courts, described

its services as private line, counsel responded, ‘‘I think

the phrase has been used. It’s loosely descriptive of what

MCI initially proposed to do“ (Tr. 97). In fact, MCI,

prior to the present proceeding, has always told the Com-

mission that it intended to offer exclusively private line

services.

51. Both the Washington Utilities and Bell Telephone

of Pennsylvania decisions, supra, were rendered well af-

ter the Docket 19117 Report and Order, and both upheld

the view that the SCCs are limited to private line serv-

ices. Finally, several Commission decisions rendered

since 1973 have reaffirmed the Docket 18920 philosophy

(supra, note 3). Accordingly, until the present proceeding

there was no indication that the Courts, the Commission

AT&T, supra note 4.

29b

or even MCI itself felt that the Docket No. 19117 Report

and Order, which was decided more than three years ago,

modified or re ersed the policies established in Docket

18920. MCI is therefore advocating a position completely

different from that which it had advocated at every pre-

vious opportunity, including in its own applications for

grants of operating authority.

e. Is Execunet a Private Line or Message Telecommuni-

cations Service?

52. The July 2 Order contained an analysis of the char-

acteristics of Execunet. The conclusion reached at that

time was that Execunet was essentially MTS, not a pri-

vate line service. MCI has contested this conclusion by

listing a number of specific alleged differences between

Execunet and AT&T’s MTS offering, and similarities be-

tween Execunet and private line service.

53. Since MCI had asserted, prior to the J uly 2 Order,

that Execunet had most of the characteristics of foreign

exchange (FX) private line service, we addressed what

we found to be the differences between the two services

(Page 4):

First, FX is specifically excluded from the joint use

provision (3.1.5.) of Tariff 260, while the inter-city

facilities used for Execunet are shared by all users

of the service. Second, FX is available to access one

distant exchange area toll free, from the customer’s

premises in the calling city, while Execunet can be

assessed directly from any push-button telephone (or

from any telephone, using a separate tone generator)

in the calling city to call any telephone in any one of

a number of distant cities but always at a toll charge.

Third, an FX customer uses dedicated facilities from

his location to the distant telephone company ex-

change office, and these facilities are available at all

. nuimay “ity verti *

— (rey =e >

—-— - -—— —_—@ coh Sewn Gee

ee ee rr

30b

times, while the Execunet eustomer uses common lo-

cal exchange plant at both ends, connected by inter-

city facilities which are not dedicated to any specific

customer but are shared by a number of customers.

Fourth, the FX customer is bitled a periodic charge

for the FX line, calculated on a mileage basis, plus a

monthly local service charge at the distant location,

while the Execunet customer is billed for each call,

based upon time and distance, subject to a monthly

minimum, with no charge added at the distant city.

54. MCI challenges each part of this analysis, then

states that Execunet is not identical to FX or any other

private line service but is rather an entirely new com-

munications service which is not MTS. It contends that

Exeeunet is a variation of a hypothetical service which

MCI terms shared FX.“ Since our Resale and Shared

Use inquiry, Docket No. 20097, had not determined whether

or not FX should or may be resold or shared, MCT asserts

that Execunet cannot be found unlawful merely because

it is shared FX service.

55. MCI lists a number of alleged similarities between

FX (both shared“ and fulltime) and Execunet, as well

as alleged differences between MTS and Execunet. These

are listed and discussed in detail in Appendix A. In gen-

eral, most of the items listed as similarities with FX are

also characteristics of MTS, WATS, or both,“ and thus

they are by no means unique characteristics of FX or any

other private line service. Certain of the listed items

represent very minor differences in billing procedures,

minimum contract period and time-of-day pricing which

are not essential characteristics of basic MTS or WATS

offerings and which are clearly insufficient to cause Exe-

* WATS, like MTS, is not subject to competition, pursuant to

the Specialized Common Carrier decision, 29 FCC 2d at 911.

31b

eunet to be ruled a completely different service from MTS

or WATS.

56. By the same token, the specific characteristics of

MTS which MCI cites as not present in Execunet are, for

the most part, not essential to MTS but are rather con-

venience features, many added to the tariffs in recent

years, which are not elements of the basic station-to-sta-

tion dial MTS offering. If features such as person-to-per-

son, collect, credit card and conference call services were

eliminated from Bell’s tariff, the service would still re -

main MTS, and the large majority of calls placed would

be unaffected. Similarly, see-while-you-talk (Picture-

phone) and 50 kilobit switched services are specialized,

add-on services to the MTS network. As the item-by-item

analysis in the Appendix demonstrates, the remaining dif-

ferences cited by MCI either are not factually correct or

are so insignificant that they in no way could reasonably

be deemed functional distinctions between the services.

57. Rather than ‘‘proving’’ that Execunet is a private

line service and functionally different from MTS, as MCI

asserts, analysis of MCI’s list demonstrates that Execu-

net has many characteristics similar to those of MTS or

WATS and that many of the ‘alleged similarities with

private line service are similarities only with a hypotheti-

cal service, presently being offered by no carrier, with

characteristics shared in common with non-competitive

services.

58. Execunet and MTS are both accessible from any

telephone in the calling city and can access any telephone

in a number of called cities. Both employ the same local

exchange telephone network used in common by the gen-

eral public in order to enter the inter-city segment of

the service offering,“ and both involve the indiscriminate

While the subscriber may secure a separated dedicated local loop

for this service he need not do 80 if he subscribes to local exchange

—

32b

sharing of inter-city facilities by all subscribers. Inter-

city facilities for MTS and Execunet are available on de-

mand, and both MTS and Execunet are charged on a us-

age-sensitive basis. Finally, neither service terminates in

specifically designated customer premises or local ex-

change switching centers.

59. Prior to the present proceeding, there had been no

confusion or debate over the meaning of private line serv-

ice. The Ninth Circuit U.S. Court of Appeals, in uphold-

ing the Specialized Common Carrier decision (Was..ing-

ton Utilities, supra, para. 39) defined private line service

by distinguishing it from ‘‘public exchange and long dis-

tance toll telephone service.“ 513 F.2d at 1155. This is

the crucial distinction. Private line service, in its most

obvious meaning has the distinction of being private or

dedicated, i.e., not provided to the general public.“

60. In order that this logical distinction can have any

validity in practice, however, the private line service must

be provided via facilities which are in some significant

respect dedicated to the private use of the customer and

not used or useable for public communications services.

While more than one private line service or customer

might properly share the use of any facilities used in pro-

viding the service(s), for purposes of efficiency, the use

in common of facilities employed for service offerings to

the general public does not fit within the concept of a

private line service. Similarly, while private line service

may properly include service to more than a single distant

telephone service. Counsel for MCI admitted at oral argument that

no customer of Execunet has taken a dedicated local loop and an-

ticipated thet the great majority of customers would not take such

a dedicated channel (Tr. 9).

10 Webster s New World Dictionary, College Edition, defines

private (at pp. 1159-1160) as of, belonging to, or concerning a

particular person or group of persons, not common or general;

not open to, intended for, or controlled by the public.’’

33b

location, on both a switched and nonswitched basis, these

locations should be specific and discrete and must be

designated by the customer.

61. Taking these factors into consideration, we believe

the sine qua non of a private line service is that it (a)

either originate or terminate at a specific location desig-

nated by the customer via a communications channel dedi-

cated to his private use and not used or useable for pub-

lic communications services; and (b) access only those

distant locations (including if appropriate, distant tele-

phone central offices) specifically designated by the cus-

tomer “ to meet his private communications needs.

62. While it appears unquestioned that the significant

characteristics of a private line service are the dedicated

channel and the designated distant termination, it is in-

structive to test this definition by describing several ser-

vices which are generally understood to be classed as

private line.“ By listing only a few such services as we

do not in any way wish to stifle the development and of-

fering of innovative private line services by implying that

such services are limited to those presently offered.

63. Point. to- point private line service is a term which

denotes a dedicated or private local channel at each end,

connecting the customer’s premises to the carrier’s local

central office, and an interexchange channel (NC) which

connects the central offices. At the customer’s premises,

the local channel is connected with a telephone, private

branch exchange (PBX), teletypewriter or other terminal

equipment. The local channel at each end is dedicated

solely to the private line service.

—— Z——

34b

64. Foreign exchange (FX) service inchades a dedicated

local channel, as with point-to-point private line, at one

end of the service (commonly referred to as the closed

end), connected at the carrier’s central office with an

IX which terminates in a central office in a distant local

exchange (the open end). The customer at the closed end

has non-toll access into the local exchange served by that

distant central office. A telephone number of the distant

local exchange is assigned to the FX service so that the

FX customer may be accessed in the same manner as if

he were situated within that local exchange.

65. Common Control Switching Arrangement (CCSA)

service consists of a network of private lines, subscribed

to by the customer, which are accessed through switches,

located at the carrier’s central office, via dedicated local

lines. These lines terminate on the customer’s premises in

connections similar to those provided in connection with

point-to-point private line service.

66. These typical existing private line services all have

certain unifying characteristics which are necessary ele-

ments of all private line offerings. These are termination

of the service (1) at one end by a local circuit dedicated

to the specific private line service and not used or usable

for exchange service within the customer’s local exchange

area, and (2) at the other end at premises designated by

the customer or specifically designated local exchanges.

Prior to the filing of Execunet, no tariff filing which pur-

ported to offer a private line service has contained char-

acteristics which do not fit this definition, and until the

present proceeding, all carriers and the Commission have

recognized these as essential characteristics of private

line services.

67. While a service having some characteristics in com-

mon with WATS or MTS could be found to be private

2 See AT&T, 56 FCC 2d 14, 20 (Note 5) (1975).

line, Execunet has all the essential characteristics of MTS

or WATS. Similarly, Execunet does not have the essen-

tial characteristics of private line service and thus cannot

be so classified. The most significant characteristic of

Execunet which causes it to differ from all private line

services is the fact that the local channel terminating at

the customer’s premise is not dedicated to that service

but rather is utilized as well for local exchange service.

As a result, the customer can directly access the service

from any telephone, on or off his premises, (he can call

any telephone in any of a number of distant cities), and

more than one authorized user of his identification num-

ber can use the system simultaneously.

68. MCT further argues, however, that even if Execunet

contains many of the characteristics of MTS, the public

interest requires that we approve the service, since no

other carrier is offering it and a need for this service

allegedly exists. Since we conclude that Execunet has all

the essential characteristics of MTS, and is thus indistin-

guishable from MTS, this argument is incorrect. But even

if it were correct, the effect of accepting it would be to

reverse the Specialized Common Carrier policy in this

proceeding, without conducting the type of extensive in-

vestigation carried out in Docket No. 18920. The need for

a service such as Execunet, if it existed, is not the only fac-

tor which would have to be considered. Rather, the impact

on users of other services and other economic, legal and

technical issues would have to be explored in a broad

forum. The policies established in Docket 18920 cannot be

eroded on an ad hoc basis but rather should be re-exam-

ined only upon a showing that a need exists for such

review.

69. As noted above, MCI asserts that the revenue shift

from other carriers to Execunet is minor and will have

an insignificant impact on Bell or other established car-

riers. At the oral argument, however, counsel from

36b

USITA and Continental averred that the potential im-

pact of Execunet on their portions of interstate revenues

was substantial and could cause increases in local tele-

phone service. Since we have found that Execunet is out-

side of Mol's authorizations, and since the evidence before

us on economic impact is little more than unsupported al-

legations, we need not reach this question in this pro-

ceeding.

E. Procedural Arguments

a. Notice and Hearing Issues

70. A principal issue MCT raises is whether our July 2nd

action accorded MCI the procedural due process to which

it was entitled. MCI argues it was denied notice of the

investigation and of the impending adverse action, and a

fair opportunity to respond to the arguments against

Execunet.

71. MCT claims that the Chief, Common Carrier Bu-

reau’s referral of AT&T’s complaint cannot constitute

notice that we had instituted a proceeding with regard to

Execunet. MCI points out that the Bureau’s cover letter

contained only a ten line request that MCI comment on

AT&T’s complaint. It contained no reference to possible

consequences stemming from the referral and no notice

that we were now investigating the lawfulness of Execu-

net service. MCT contends that the referral appeared only

to be part of our routine procedure of referring informal

complaints for a carrier’s comment pursuant to Section

1.716 et seq. of the Rules. Under the Rules, MCT asserts

informal complaints standing alone are not ripe for dispo-

sition. Moreover, according to MCI, we never provided it

with the notice required by Section 4 of the Administra-

tive Procedure Act. This section provides that a notice of

rulemaking set forth a statement of the time, place and

nature of a proceeding, reference to the rule proposed, and

37b

the terms of substance of the proposed action or a des-

cription of the subject and issues involved. In this con-

text MCI also asserts that our action failed to comply

with the minimum standards for notice and hearing re-

quired by Sections 204 and 205 of the Communications

Act. MCT states this requirement is not open to our dis-

cretion. On this basis, according to MCI, our rejection of

Execunet deprived MCT of its right to a hearing.

72. Finally the July 2 Order is alleged to be defective

since it contained no disclosure of the commencement or

extent of the investigation. MCI acknowledges that the

Commission staff met with MCI representatives more

than ten times between the filing of its metered use tariff

and the adoption of the July 2 Order. However, according

to MCT, staff questions concerning the clarity of a tariff

revision ranging over many months cannot be equated

with notice that a service offered pursuant to that tariff

is the subject of an investigation.”

73. MCI further argues that we failed to accord it spe-

cific notice that the investigation could lead to the rejec-

tion of the service. MCI argues that in cases where we

are considering summary adverse action, we have a duty

to first give notice that such action is contemplated. MCI

contends that we provided no warning to MCI that its

authority to offer Execunet was in jeopardy and deprived

MCI of proper notice of its proposed disposition. Accord-

ing to MCI, we then denied any opportunity for redress

by rejecting the service out of hand rather than designat-

ing formal proceedings pursuant to Section 204 or 205 of

—

b. Notice and Hearing Discussion

74. Our review of the events leading to the July 2 Order

convinces us that we fully complied with applicable statu-

tory and due process requirements. Once we established

that MCT lacked authority to provide Execunet service,

we properly rejected Execunet. The characteristics of

Execunet found in MCI’s letter of June 5, 1975, clearly

show that Execunet is not a private line service. The dis-

cussion of the substantive issues surrounding the Commis-

sion’s treatment of Execunet, set forth elsewhere in our

Order, show the absence, prior to the July 2 Order, of

substantial and material issues of fact requiring a full

scale evidentiary hearing.

75. Section 4(i) of the Communications Act provides

that we are empowered to ‘‘make such rules and regula-

tions, and issue such orders, not inconsistent with this Act,

as may be necessary in the execution of (our) functions.“

The tariff rejection power is beyond dispute where the

facts show that a tariff offering is patently in violation

of a carrier’s underlying authorization. In Press Wireless,

Inc. v. F.C. C., 264 F.2d 372 (1959), the United States

Court of Appeals for the District of Columbia affirmed

our rejection of a tariff purporting to extend the carrier’s

authority to provide a service not previously authorized.

In our discussion of the Press Wireless offering, we

stated :

[Acceptance of the tariff] would mean that the Com-

mission was transferring to the carrier we were

charged with regulating the statutory duty imposed

on us by Section 303(b) of the act to prescribe the

service rendered by each class of stations. . Under

the Press Wireless theory the carrier would never

have to file an application for modification of license

but would file a modification of its tariff to provide

any service it desired . . . Further, the criteria by

39b

which its application would be judged would be those

in Sections 201-205 of the act, namely, just and

reasonable“ rather than those of the public interest,

convenience and necessity in Section 309 of the act.

Press Wireless, Inc., 25 F.C.C. 1466, 1468, 9 (1958).

Moreover, the Court in another case involving our power

to reject a tariff declared:

An agency has the power and in some areas the duty

to reject a tariff that is demonstrably unlawful on its

face. Thus, an agency will reject a tariff that conflicts

with a statute, agency regulations or order, or with a

rate fixed in a contract sanctioned by statute; similarly

a tariff will be rejected if it is unlawful without prior

agency approval and approval has not been obtained.

In such cases the refusal of an agency to reject a

tariff may be reviewed by the courts. Associated Press

v. F. C. C., 448 F. 2d 1095, 1103 (D.C. Cir. 1971).

As was the case in Press Wireless, MCI was offering a

service for which prior agency approval had not been

obtained, and thus rejection of the tariff was an appro-

priate and necessary remedy.

76. At oral argument, however, MCI disputed that Press

Wireless supported rejection of its tariff. Instead, MCI

asserted that its authorizations are issued under Part 21

of our Rules, while those in Press Wireless were issued

under Part 23. This distinction is without merit. The

holding in Press Wireless that a carrier may not lawfully

tariff a service for which it does not possess the under-

lying facility authorizations is statutory. As is evidenced

by the Press Wireless decision, the statute requires the

Commission to authorize the use of facilities for a service

prior to its initiation. Thus in this instance MCT must

obtain a new certificate pursuant to Section 214 of the Act,

47 USC 214, prior to offering a non-private line service.

r SE eae a OC

— 8 — ew OS QL = *

40b

Our authority to reject a tariff that violates a statute or

any rule, policy or prescription of ours is well recognized.

Press Wireless, Inc. v. F.C.C., swpra; Associated Press v.

F. C. C., supra; Nader v. F. C. C., 520 F. 2d 182 (D.C. Cir.

1975); Mebane Home Telephone Company 53 FCC 2d 473

(1975), aff’d sub nom. Mebane Home Telephone Company

v. F.C.C., Case No. 75-1616, D.C. Cir., decided April 30,

1976, petition for rehearing denied.

77. Further, we provided MCI with notice and oppor-

tunity consistent with Sections 204 and 205 of the Com-

munications Act and Section 4 of the Administrative

Procedure Act. MCI was informed by letter of May 21,

1975, that we were considering allegations filed by AT&T

concerning MCI’s authority to offer Execunet. The statu-

tory provisions were met when we informed MCI that it

should file with us its comments responding to AT&T’s

allegations. A copy of AT&T's letter setting out specific

arguments addressing the various elements of Execunet

and stating that AT&T could not find that Execunet fell

within MCI’s limited authorization to provide private line

service was enclosed. The cover letter stated that AT&T

alleged that your Execunet service is not properly

tariffed with this Commission, and that the service con-

stitutes the provision of long distance message telephone

service which MCI is not authorized to provide.’’ It then

requested MCI to ‘‘reply’’ to us concerning this matter

within 15, days. The cover letter certainly provided MCI

with notice, as required by Section 4 of the APA, of the

time, place and nature of the proceedings. Moreover, its

reference to AT&T’s allegations that Execunet was im-

properly tariffed and constituted unauthorized provision

of MTS provided MCI with notice of the subject of the

proceeding and the issues involved. If that was insufficient

for MCT to understand the scope of the i

AT&T’s attached complaint spelled out the issues. AT&T

stated :

41b

Execunet service is simply long distance message

telephone service. MCI never has sought authority to

enter the long distance message telephone business

(in fact, it has said it did not intend to provide long

distance toll service). The Commission has granted

MCI authority only to provide private line services

and the Court of Appeals, in affirming the Commis-

sion decision, has recognized these facts.

In requesting our intervention, AT&T asked that we:

take appropriate enforcement action to stop the un-

authorized Execunet service. . [P] rompt Commis-

sion action would minimize the disruption, incon-

venience and economic waste affecting our customers,

MCI and MCI’s customers. {Emphasis added]

No reasonable person at that point could not have under-

stood the issue being raised nor the relief being requested.

This referral commenced the record upon which we based

our July 2 Order. :

78. MCI’s own statements show that it took full ad-

vantage of its opportunity to justify the lawfulness of

Execunet, and that it considered that opportunity ade-

quate. Indeed, MCI’s letter of June 5, 1975 responds to

the merits of AT&T’s allegations by arguing that Execu-

net was a private line service comparable to other private

line services then offered. The MCI reply of June 5 even

sets forth a summary of the issues AT&T has sought out

in its complaint. MCI considered the issues to be that it

was through its Execunet service offering interstate long

distance message telephone service and that it had not

been authorized to provide this service and has not prop-

erly tariffed it with the Commission.“ It then provided

a six page rebuttal of AT&T’s allegations. In its conclu-

sion, MCT stated that AT&T’s complaint was insufficient

„to justify or require any Commission action with respect

PAS A Ls 8

enn BEES METS BAF IS

sl: APR My Ree Thi) ES

42b

to MCI’s Execunet service.“ In its second letter filed

June 9, MCI declared that its letter of June 5 responded

‘competently and completely to AT&T’s objections re-

garding Execunet. Thus MCI’s own statements show that

it had adequate notice of the issues involved and adequate

opportunity to address the merits.

79. Even assuming arguendo that MCI was denied ade-

quate notice and opportunity for hearing im the first

instance, the instant proceeding fully complies with sta-

tutory and due process requirements. First, the July 2nd

Order provides notice of the issues respecting the Execu-

net offering. The Order thoroughly presents the Commis-

sion’s analysis of the substantive issues surrounding the

lawfulness of the Execunet offering. Second, the July 2

Order unequivocally notifies MCI that we have determined

that rejection of the Execunet offering is an appropriate

remedy if we find that the service is unlawful. Third, the

December 3 Order provided an opportunity for hearing

by calling for a two stage submission of pleadings and

stating that further proceedings will be held if appro-

priate. When we found that oral argument would be ap-

propriate, we set forth six questions to guide the parties

in preparing their arguments. Fourth, in response to a

motion by MCI and out of an abundance of caution, in an

Order released May 17, 1976, FCC 76-442, we reiterated

the legal basis for this proceeding. Fifth, we have con-

eluded, after a thorough analysis of the record, that no

substantial and material fact which might necessitate a

trial-type hearing remains unresolved. See paragraphs

9-69 and Appendix A. Sixth, since there have been no

improper presentations following the filing of AT&T's

letter, MCI cannot allege that this remand proceeding

was in any way tainted by the undue influence of any

party.

43b

F. Ex Parte Arguments

80. In its motions filed December 15, 1975, MCT requests

a special evidentiary hearing to contest AT& T's off-the-

record arguments, to cross-examine representatives of

AT&T who presented these arguments, and to submit

evidence to correct our understanding of Execunet. MCI

contends that AT&T’s informal complaint filed May 19,

1975, was the culmination of AT&T’s ‘‘ preconceived, fully

implemented persuasive plan’’ to persuade us that MCI

lacked authority to offer Execunet, and not the initial

step in a proceeding concerning MCI’s authority to offer

its Execunet service. According to MCI, the fact that the

July 2nd Order acknowledges the lobbying efforts by

AT&T represents clear evidence that AT&T improperly

advanced its arguments. That acknowledgment, according

to MCI, was insufficient to overcome the prejudicial effect

of AT&T’s overtures. MCI stresses that its letters of

June 9 and July 1 informed us of the apparent breadth

of AT&T’s activities and sought additional information

regarding AT&T’s off-the-record allegations to enable

MCI to rebut AT&T’s statements. Instead, MCI charges,

we chose to ignore these demands for a fair proceeding

and to order MCI to discontinue Execunet service without

ever responding directly to MCI’s assertions. While not

alleging a specific rule violation, MCI argues that AT&T’s

attempt to frustrate our decision-making process so

tainted our handling of the Execunet matter that a special

evidentiary proceeding is required to cleanse the record.

According to MCI, only when the extent of AT&T’s

presentations is known and the tainted record cleansed,

may we again deliberate the merits of the Execunet con-

troversy. On a broader scale, MCI argues that the

presence of prior contacts in so crucial a proceeding may

raise doubts in the public mind concerning the integrity

of our decision making process.

weer ary E 2

Deer

wet. ey —

ura

}

accepting off-the-record ‘ presentations in the Execunet

proceeding, MCI contends we violated the statute by

considering evidence not on the record and not available

for MCI to contest.

82. MCI also argues that we have failed to comply with

judicial precedent setting forth applicable standards of

agency conduct in guarding against improper presentations.

MCI argues that no real difference exists between the

July 2nd Order and those cases where the Courts have

required special evidentiary hearings to cleanse the record

ings. MCI points out that in instances where a court has

discovered that television broadeast awards were obtained

4. The fact is that our ruling in this case has broad applicability

and impacts on many other carriers. The broad applicability of

service which we treat infra. Further, MCT itself points to Section

4 of the APA, 4 section dealing with rulemaking, for its notice

45b

in proceedings in which allegedly prohibited ex parte

contacts occurred, we have held, pursuant to the direction

of the court or on our accord, a special evidentiary

hearing to determine whether improper contacts took

place. In WKAT, INC., 258 F.2d 418 (D.C. Cir. 1958)

the court remanded a proceeding for a special evidentiary

hearing concerning allegations that in a comparative

hearing for a television broadcast station construction

permit, persons with financial and other ties to a Com-

missioner exerted improper influence after a hearing

examiner had rendered his decision and while final dis-

position was being considered by us. Likewise, in Massa-

chusetts Bay Telecaster, Inc., 261 F.2d 55 (D.C. Cir. 1958),

we considered on remand allegations of improper ex parte

contacts made after competing mutually exclusive applica-

tions had been filed.

83. Moreover, MCT argues that the courts have imposed

this standard in rulemaking proceedings involving issues

similar to those in Execunet. In Sangamon Valley Tele-

vision Corporation v. U.S., 269 F.2d 221 (1959), the court

remanded a rulemaking proceeding for a special eviden-

tiary proceeding when faced with clear evidence of im-

proper presentations during our final deliberations and

after the record had been closed. Sangamon Valley con-

cerned the allocation of a television channel to one of a

number of communities. Unlike the award of a television

license, which is adjudicatory, a proceeding concerning

channel allocation is rulemaking since the outcome deter-

mines the community to be served by the channel rather

than the licensee of the station. The court found, however,

that the channel allocation proceeding had significant

bearing on the ultimate choice of licensee. Thus the court

held that ex parte contacts between the parties and Com-

mission decision making personnel after the comment

period had closed violated fundamental fairness. In re-

manding the case for a special evidentiary hearing to

ae ae ee

46b

determine whether ex parte presentation had occurred the

court declared:

The Commission and the intervenor contend that

because the proceeding now on review was rule-

making,“ ex parte attempts to influence the Commis-

sion did not invalidate it. The Department urges that

whatever the proceeding may be called it involved not

only allocation of TV channels among communities

but also resolution of conflicting private claims to a

valuable privilege, and that basic fairness requires

such a proceeding to be carried on in the open. We

agree with the Department of Justice. Accordingly,

the private approaches to the members of the Com-

mission vitiated its action and the proceeding must

be reopened.

MCI argues in the instant case that the proceeding con-

stituted a determination of the award of a valuable

privilege: AT&T’s monopoly over MTS. Since our finding

declared Execunet to be essentially MTS, according to

MCI, the proceeding resolved a conflict concerning the

award of a valuable privilege. As a result, MCI contends

it was entitled to the same treatment in the Execunet

proceeding that the court directea in Sangamon.

84. MCI next points out that we, on our own accord,

have taken remedial action when considering allegations

concerning the provision of common carrier service. In

California Water and Telephone Co., 7 FCC 2d 571

(1967), we had before us a request for a cease and desist

order to be directed against certain AT&T operating

companies. Upon notification of allegedly improper con-

tacts between decision-makers and other members of our

staff, we informally investigated and concluded that ex

parte rules applied to that part of the case considering

the need for 214 authorization. To preciude possible re-

liance upon a defective record, we severed that part of

47b

the case concerning the issue of 214 authorizations. As in

California Water and Telephone Co., MCI contends that

the question of lawful operation of Execunet is essentially

related authorization pursuant to Section 214 and MCI

should have been accorded the treatment the Commission

took therein.

G. Ex Parte Analysis

85. Section 1.1201 et seg. of the Rules sets out the rules

relating to ex parte presentations in adjudicatory and

rulemaking proceedings. Section 1.1207 provides that tariff

proceedings pursuant to Section 204 and 205 of the Act

are restricted rulemaking proceedings ‘‘from the day they

are instituted.’’ * As such Commissioners and their staffs

and the Chief of the Common Carrier Bureau and his

staff are prohibited from receiving any oral or written

communications going to the merits of the proceeding by

any interested person without notice to the parties to the

proceeding once a tariff proceeding is designated for

hearing. The reason for invoking the rules only when a

tariff proceeding is initiated is that tariffs are often

highly complicated and we have found that informal

discussion in advance of a proceeding can quickly clarify

issues which otherwise might burden our staff with un-

necessary yet time-consuming investigation.

86. AT&T’s affidavits state that it terminated its oral

contacts with Commission personnel four days prior to

filing its informal complaint. This is undisputed by MCI.

„Designated for hearing“ was replaced by from the day they

are instituted in Section 1.1207 of the Rules to remove any impli-

cation that only cases involving a full evidentiary hearing were

sthject to the ex parte rules. From the day instituted is intended

to apply the ex parte rules to a case upon Commission action ac-

knowledging that a case is to be decided and prescribing proce-

dures—i.e., hearing, or written comments, or oral argument, or a

conference, ete.

48b

Thus, it cannot be said that AT&T violated the rules for

no proceeding existed when AT&T urged us to act on

Execunet on our own accord. Nevertheless, MCI alleges

that lobbying before the filing of the complaint pursuaded

us to prejudice the case. In support of this contention,

MCI relies heavily on court decisions concerning invalid

awards of television licenses. In WKAT, INC., supra,

and Massachusetts Bay Telecasters, supra, the courts re-

manded television licensing proceedings to us for a de-

termination of whether ex parte contacts had rendered a

license awards invalid. In WKAT, INC., ea parte contacts

had taken place after the case was set for hearing and

during the decision making stage of the proceeding. Con-

tacts such as these are contrary to Section 409(c)(1) of

the Communications Act. This section provides that:

In any case of adjudication (as defined in the Admin-

istrative Procedure Act) which has been designated

by the Commission for hearing, no person who has par-

ticipated in the presentation or preparation for pre-

sentation of such case at the hearing or upon review

shall (except to the extent required for the disposition

or ex parte matters as authorized by law) directly or

indirectly make any additional presentation respecting

such case to the hearing officer or officers or to the Com-

mission, or to any authority within the Commission to

whom, in such case, review functions have been dele-

gated by the Commission under Section 5(d)(1), un-

less upon notice and opportunity for all parties to par-

ticipate.

Unlike the award of television licenses, however, tariff

proceedings are rulemaking and not adjudicatory. Thus the

case law of licensing proceedings and the mandate of See-

tion 409 (e) (1) are not directly applicable to Exeeunet.

87. In Sangamon Valley, supra, the court found strong

evidence of improper ex parte contacts requiring a specisl

49b

evidentiary proceeding intended to purge the impropriety

from the proceedings. In reaching its decision the court de-

termined that the rationale underlying the need for restrict-

ing ex parte contacts in adjudicatory matters applied

equally to rulemaking involving ‘‘conflicting private claims

to a valuable privilege.’’ While the court in Sangamon

Valley broadened the scope of ex parte prohibitions by in-

sisting on their application in certain proceedings which

were labelled as rulemaking, that case concerned prohibited

contacts taking place during the record phase of a proceed-

ing. Subsequent to Sangamon Valley, we have adopted rules

restricting contacts, inter alia, prohibiting contacts between

the public and Commission personnel in rulemaking mat-

ters after the institution of a proceeding. See footnote, p.

34.

88. In California Water and Telephone Company, supra,

involving the provision of allegedly unauthorized service by

AT&T affiliates, we ordered that issues involving 214 au-

thorizations be severed from the proceeding when we found,

after an informal investigation, that unauthorized ex parte

presentations had been made to decision making personnel.

There, the prohibited contacts had occurred after designa-

tion for hearing, and during the course of an adjudicative

cease and desist proceeding.

89. A factor distinguishing the July 2 proceeding from

each of the above decisions is that in the Execunet contro-

versy the presentation by AT&T occurred before formal

proceedings hegan. In fact, those contacts terminated before

AT&T filed its informal complaint. Another factor distin-

guishing this proceeding from the cases cited by MCT is

that the July 2 Order did not deal with a privilege to be

necessarily granted to only one of several applicants having

comparable rights and claims. Since the privilege of pro-

viding MTS has been reserved to telephone carriers pur-

suant to prior policy decisions including the Specialized

Carrier decision under which MCI’s own authorizations

e . . e

50b

arise, there were no mutually exclusive applications at

issue. Rather we were dealing with the question concerning

the scope of MCI’s authorization. The question was there-

fore whether Execunet was a service lawfully offered pur-

suant to its tariff. The Commission found simply that MCI’s

authority to provide private line service did not authorize

it to provide Execunet. It was our Specialized Carrier de-

cision and not the July 2 Order which considered the award

of a valuable privilege. There we extended to MCI and

other carriers the privilege of providing private line ser-

vices. Accordingly, MCI’s argument that our J uly 2 Order

disposed of competing claims to a valuable privilege is

meritless since MCI lacked the scope of authorization nec-

essary to be considered for the privilege it sought, i.e., the

tariſſing of Execunet service.

90. The events leading to the filing of AT&T’s complaint

and our July 2nd Order show that AT&T acted legally, and

that we acted within our authority in rejecting Execunet.

Immediately after MCI filed its metered use tariff, meet-

ings were held between our tariff staff and MCI for the

purpose of clarifying the tariff. As a consequence, MCI filed

a tariff revision providing clarification of one aspect of the

tariff and also promised to file a glossary of clear tariff

terms. Instead of filing the promised glossary, however,

MCI delayed the filing by explaining that the scope of a

modular service offering could not be readily set forth in

writing. As a result, questions concerning the tariff were

unresolved when MCI offered Execunet to the public.

91, AT&T brought its allegations directly to us upon its

discovery of the kind of service MCI was providing under

the tariff. According to its affidavits, AT&T made its com-

plaints orally in the belief that we had a duty to act of our

own accord after being presented with a description of

the Execunet service. The Bureau Staff, however, told

AT&T that it should set out ite allegations in writing.

51b

92. The evidence developed by the pleadings and affi-

davits show that AT&T 's contacts prior to the July 2 order

were within legal bounds. MCT has not alleged that AT&T’s

representatives had financial or other links to the Commis-

sion personnel it contacted nor does MCI dispute the Com-

mission’s authority to act on its own accord in this matter.

Instead, MCI alleged only that AT T's ‘‘persuasive’’ pre-

sentations blinded the Commission to MCI’s defense of its

service. This argument is based on a misplaced understand-

ing of the purpose of the ex parte rules. It is obvious that

interested parties will conduct their arguments aggres-

sively, The ex parte rules were not designed to prevent

proper contacts, but to draw a line between proper and

improper contact between decision makers and the public.

In recognition of our responsibility to be informed about

day-to-day developments in the communications industry,

Congress and the Commission have generally permitted

unilateral presentations in rulemaking matters before for-

mal designation. MCT itself is also aware of the usefulness

of informal exchanges with us. At page 5 of its July 1, 1975

letter, MCI agreed that informal discussions between

carriers and Commission personnel are desirable and often

necessary.’’ Indeed, MCI acknowldges at least 10 contacts

with the Commission’s tariff staff between the filing of its

metered use tariff and the July 2nd Order.

93. MCI claims that AT&T’s presentations amounted to

a violation of the ex parte restrictions notwithstanding our

forebearance in acting on the information supplied us and

our staff reminder to AT&T that other procedures were

available to press its claims. The regulations concerning

restricted rulemakings reflect an intention to protect deci-

sion making personnel from off-the-record presentations by

interested parties after a case is set for hearing. Here

faced with an unauthorized incursion by a carrier into one

of its authorized services, AT&T responded by demanding

Commission action. As would be expected, it pursued its

52b

interests vigorously. The staff, on the other hand, made

clear that it would recommend no action to us based on

AT&T’s oral presentations.

94. In Rules Governing Ex Parte Communications in

Docket No. 15381, 1 FCC 2d 49 (1965), we concluded that we

would determine the fairness of off-the-record presenta-

tions falling outside the boundaries of our rules on a case-

by-case basis. This proceeding involves allegedly unau-

thorized service by MCT. It does not involve the disposition

of a mutually exclusive license application or the exclusive

award of a valuable privilege. To exercise our various

functions properly we must retain the flexibility of action.

We must be free to initiate proceedings based on the kind

of presentation and information AT&T presented here.

While our staff for some time had awaited the clarification

of MCT’s tariff, the fact is that the allegations AT&T pre-

sented were of sufficient seriousness for us to initiate an

inquiry. Accordingly, based on the facts of this case we

cannot find that any violation of due process occurred, and

thus we find no basis to hold a special evidentiary hearing

concerning those presentations.

95. In the oral argument, MCI argues (Tr. 41) that the

oceurrence of off-the-record presentations prior to the filing

of AT&T’s May 1975 letter requires us to hold an eviden-

tiary hearing to determine the impact of the presentation.

In support MCI quoted the following language from Rules

Governing Eæ Parte Communication in Hearing Proceed-

ings, supra, at paragraph 9:

[I]t should be clear that presentations should not be

made if the person making the presentation has knowl-

ed- of matters which will warrant the classification of

the proceeding as a restricted proceeding . . . Ex parte

presentations should not be made, for example, by a

person who is planning to file a petition to deny or a

mutually exclusive application, if the same presenta-

53b

tion would be prohibited after the petition or applica-

tion has been filed.

The validity of that statement is unquestioned. MCI, how-

ever, misinterpreted the scope of Docket No. 15381.

96.We examined in Docket No. 15381 only presentations

respecting adjudication or record rulemaking proceedings

and we specifically pointed out at paragraph 8 that our

rules should not be construed as prohibiting or authoriz-

ing off-the-record presentations going to the merits or out-

come of a non-restricted proceeding. In this context, we

have never declared that a complaint, as we interpret

AT&T's letter to be, is automatically subject to the provi-

sions of our rules respecting restricted proceedings. At

paragraph 8 we stated that we would determine based on

the facts of each particular case whether the public in-

terest or due process require its designation as a restricted

proceeding. To follow the course MCI now suggests would

foreclose our efforts at informal adjustment of differences

between members of the public and our licensees, and would

bar members of the public from participating in proceed-

ings. In essence the Commission could not entertain any

oral complaints because of a fear that if the party was not

satisfied with the oral discussion, it might invoke formal

proceedings by a written complaint. Such a view of the ex

parte restrictions would hardly serve the public interest.

Clearly it was Congress’ intent to make this Commission

available to the public for complaint purposes on as broad

a basis as reasonable. Any other interpretation would have

the effect of limiting the Commission’s ability to effectuate

its Congressional mandate to police che industry efficiently.

97. In this case we were well aware that AT&T under-

stood there were alternatives to its oral representations

in calling our attention to MCI’s Execunet service. But we

did not believe that AT&T's oral representations of the

facts as it saw them should preclude AT&T’s further par-

ticipation. Upon receipt of AT&T's letter containing its

54b

allegations we immediately referred it to MCI as a vehicle

to institute a proceeding concerning the lawfulness of

Execunet. Indeed, we based our decision on MCI’s reply

to that letter. We have found, however, that it is through

flexible responses to the problems of the public that we

best serve the public. In this case our staff thought it best

not to entertain AT&T’s oral complaint. In other situations

it may be adequate to entertain oral presentations. What-

ever the case, it must be understood that a refusal to re-

ceive an oral presentation cannot be equated with a deter-

mination to treat a complaint as a restricted proceeding.

Until a proceeding is restricted by us, we retain our flexi-

bility to listen to off-the-record complaints concerning mat-

ters without our jurisdiction. Thus the contacts between

AT&T and the Commissioners as well as Commission staff

members, are legal because the ex parte rules had not at-

tached. Even now we can find no basis supporting the argu-

ment that we should have foreclosed those conversations

and imposed the restrictions in the ex parte rules from the

time of AT&T’s initial contact.

98. At oral argument (tr 41) MCI was asked what the

Commission shot d do if the contacts were indeed im-

proper. MCI responded that we should terminate the first

proceeding,” have AT&T file a complaint and begin a sec-

ond one and, in that second proceeding, place the burden of

proof on AT&T to prove Execunet is not an authorized

service. This proceeding in fact does basically that. Assum-

ing arguendo that the July 2 proceeding was tainted, that

proceeding was ended as MCT desires. No party has even

alleged that this new proceeding is tainted. And certainly

it grants MCT all its due process rights. The burden of

proof, however, must remain with MCI. The burden of

proof in a tariff proceeding, contrary to MCI’s argument,

— —

1° MCI’s view is that there is no reason to discern the impuect of

the improper contacts because it is irrelevant—any improper con-

tacts taint the entire proceeding.

55b

is properly upon the proponent of the tariff. See Admin-

istrative Procedure Act, 5 U.S.C. 556 (d). In an Amendment

of Part 61 of the Commission’s Rules, in Docket No. 18703,

40 FCC 2d 149 (1973), we stated that the purpose of plac-

ing the burden of proof pursuant to Section 556 on the car-

rier was to provide us with sufficient information to facili-

tate our judgment concerning the questions of a tariff’s

lawfulness. See American Trucking Associations, Inc. v.

F. C. C., 377 F.2d 121, 133 (D.C. Cir., 1966) cert. denied 386

U.S. 943 (1967); AT&T (Hi-Lo), 58 FCC 2d 362 (1976).

Accordingly, the burden of proof must be on MCI since

MCT has unique access to factual information necessary in

resolving questions concerning the lawfulness of MCI’s

Execunet tariff. Thus, the instant proceeding, initiated

pursuant to the Court’s remand, offered MCI exactly the

kind of review it has requested within a proper procedural

framework.

H. Outstanding Motions

99. Several motions filed by MCI remain outstanding. Of

those filed on December 15, 1975, we deferred ruling on all

but one in our Memorandum Opinion and Order, 57 FCC

2d 666 (1976). We also deferred action on one of a series

of motions filed on April 16, 1976 (see Memorandum Opin-

ion and Order released May 17, 1976, FCC 76-442). Finally,

as noted, MCI on May 20, 1976 filed a Motion fur Inquiry

into Public Interest Considerations Regarding Establish-

ment of a Communications Monopoly (May 20 Motion).

These motions are before us for ruling.

100. In regard to the December 15 motions, we dismissed

as moot the Motion to Preserve Evidence, since AT&T had

said it would not destroy any relevant material. In a sec-

ond motion, MCI requested us to admit that we never in-

formed MCI, prior to the filing of AT&T’s May 19, 1975

letter, that we had any questions concerning MCI’s au-

thority to provide its Execunet service. While we will not

56b

admit that the staff of our Common Carrier Bureau never

informed MCI that it had questions regarding the lawful-

ness of the Execunet offering in the time period in ques-

tion, we further believe that the issue is not relevant to our

decision herein. Our findings that MCI was not denied due

process and that AT&T’s oral representations were not

unlawful do not in any way turn on whether or not our

staff had informed MCI that it was examining the lawful-

ness prior to the AT&T letter.

101. MCI also filed a motion to take deposition of

Thomas W. Scandlyn, Assistant Vice President of AT&T.

We believe such an examination is unnecessary. Mr. Scand-

lyn said in an affidavit that he had made certain repre-

sentations to the Commission prior to May 15, 1975, and

it is undisputed that such contacts ceased at that time. We

have found that the contacts were not unlawful and did not,

as MCI contends, prevent us from objectively examining

the views of all the parties to these proceedings. We there-

fore believe it would be inappropriate for us to permit MCI

to take a deposition of Mr. Scandlyn in this matter.

102. In ite filings both of December 15 and of April 16,

MCI requests us to initiate and conduct a special eviden-

tiary hearing as to AT&T’s “er parte contacts with Com-

mission personnel. We deferred ruling on those motions

until we had heard oral argument and had fully examined

the record. Upon examination of the entire record, as indi-

cated herein, we have found that AT&T’s representations,

made prior to the filing of any opposition to MCI’s tariff

or to its Execunet offering, were not unlawful and did not

prevent us from deciding the issues in this case objectively.

We have-further concluded that, assuming arguendo that

Bell’s contacts were unlawful, the present proceeding, initi-

ated ab initio upon remand from the Court of Appeals,

cured the improprieties. Accordingly, we deny MCI’s mo-

tions and decline to hold the requested further proceedings.

57b

103. We also have before us the May 20 motion. MCI

asserts therein that we have never determined to what ex-

tent, if any, AT&T is granted a monopoly over certain in-

terstate telecommunications services. It requests that we

institute a general inquiry to determine those areas which

the public interest requires to be a monopoly and those

which should be open to competition. Finally, MCT asks us

to hold the present proceeding in abeyance until such a

further investigation is completed.

104. MCI proposes seven specific issues to be explored

in this proposed investigation:

1, Is there any communications service that should be

preserved as a monopoly for AT&T and its telephone

company partners and that other carriers should be

precluded from providing?

2. Specifically, should other carriers be precluded from

providing MTS service?

3. If so, what is a precise definition of MTS?

4. Should the Commission’s decision in Docket No.

19117 be reopened and revised so that all carriers

would be required to obtain prior authorization from

the Commission before offering new services?

5. If Bell is to receive legal sanction of a monpoly over

certain services, what steps can and should the Com-

mission take to prevent Bell from so structuring and

pricing its monopoly services so as to undercut the

competitive services of other carriers? Should the

Commission require Bell to spin-off its competitive

services to a separate, unaffiliated company?

6. Would the dangers of cross-subsidization of compe-

titive services be reduced if Bell wise not given a

monopoly over any service, in the expectation that it

would be inhibited from significantly inflating the

rates of such a service for fear that such a course

would invite competition for that market also?

7. Is there an overriding public interest in permitting

all carriers to innovate and to offer new services

freely and without artificial restraint?

105. In support of its petition, MCI cites certain recent

tariff amendments and other proposed services which, it

asserts, are highly cross-elastic with each other and with

Message Telecommunications Service (MTS) and alleg-

edly contain elements which are similar to Execunet.

These, MCI contends, should be taken into consideration

when drawing any line between monopoly and competi-

tive services.

106. AT&T has responded in part to this petition by

disagreeing with MCI’s characterization of recent amend-

ments to AT&T’s Private Line Tariff, FCC No. 260, and

Western Union Telegraph Company’s (Western Union)

Hot Line service offering in its Tariff FCC No. 254. AT&T

attaches a letter from Western Union dated May 18, 1976,

explaining the Hot Line tariff amendments.

107. At the outset, we disagree with MCI that we have

never defined the areas of telecommunications service

which should be open to competition and those which are

a monopoly. Rather, that was the principal purpose of

our investigation in Docket No. 18920, Specialized Com-

mon Carriers. In the First Report and Order in that pro-

ceeding, 29 FCC 2d 870 (1971), aff’d sub nom Washington

Utilities and Transportation Commission v. FCC, 513 F.2d

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

(Specialized Common Carrier decision) we authorized

MCI and other specialized carriers to offer services in

competition to AT&T and other established carriers only

in the private line telecommunications field.

108. We have discussed at length (paras. 33-43), the

limitations placed upon specialized carriers’ authorized

service. We also recognized in the Specialized Common

Carrier decision that the existing services of AT&T and

Western Union, primarily MTS and Public Message Tele-

graph Service, were not being made subject to competi-

tion by the newly emerging carriers ( supra, para. 36).

Further, as indicated above, we considered potential im-

pact of competition on AT&T and Western Union in light

of our policy that the specialized carriers would be offer-

ing only private line services and would not divert reve-

nues from other services of the established carriers (29

FCC 2d at 910-14).

109. In essence, MCI is therein asking us to reopen the

Specialized Common Carrier decision to determine again

what services should be open to competition. We decline

to do so. The changed circumstances MCI cites for such

an inquiry are new filed or proposed service offerings of

established and other competing carriers. There is no alle-

gation that the public interest considerations upon which

the Specialized Common Carrier decision were based have

changed at all, nor that the economic character of the

communications industry has

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