Petition — California v. Federal Communications Commission

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wreasa | PED

977

MICHAEL RUvAd, JR, CLERK

OCTOBER TERM, 1977

Ne-77-4906_<@__

NATIONAL ASSOCIATION OF REGULATORY

UTILITY COMMISSIONERS,

Petitioner,

FEDERAL COMMUNICATIONS COMMISSION, et ai.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

PAUL RODGERS

General Counsel

CHARLES A. SCHNEIDER

Assistant General Counsel

WILLIAM R. NUSBAUM

Deputy Assistant General Counsel

National Association of Regulatory

Utility Commissioners

1102 ICC Building

Post Office Box 684

Washington, D.C. 20044

Counsel for Petitioner

September 19, 1977

Ce eee

THE CASILLAS PRESS, INC.~1717 K Street, N. W.—Weshington, 0. C.-273-1220

(i)

TABLE OF CONTENTS

Page

OPINIONS BELOW .............. benebdedenssucsbbeeete 1

(TTT TT ETTTTTTTT Tri rT TT TT ere 2

ee PUNE So cc bee wcceewesescusceconaces 2

STATUTORY PROVISIONS INVOLVED ............500000: 3

Se a CUE 6 ho cer cccccevisescesecvocsese 3

REASONS FOR GRANTING CERTIORARI ...........000065 9

I. The FCC has not met the high standards necessary

to preempt State regulation of intrastate facil-

BD Swe cncpecs ts vi.ccecadecndedtbccdescecessecios 11

II. The Interpretation of the Communications Act by

the FCC and the Court of Appeals is erroneous

and ignores specific limitations on the FCC’s

GE Shwe che vesscseeweeas ec esetesccaneceess 13

III. The FCC’s refusal to grant an evidentiary hear-

ing on the basis that ‘no facts are in dispute”

was arbitrary, capricious and an abuse of dis-

ss OTOP UETO TORT TETITTT re Te eTEeLELEEEETL TL 1S

IV. The impact of the FCC's order is to fix intrastate

rates at interstate levels which requires an evi-

GOTRIG IRIE oo vce cccnccccccsecedescncvccoceese 17

V. The effect of the FCC order herein is to force

ordinary telephone subscribers to subsidize users

of SPPC’s specialized services in contravention of

| PPPPPTTTTTELTTIT TTT ee 19

CREED cose ccc cencccrecceeessesseescceceteovess 22

(ii)

TABLE OF AUTHORITIES

Cases:

AT&T and Associated Bell System Companies

Interconnection With Specialized Carriers in

Furnishing Interstate Foreign Exchange (FX)

Service and Common Control Switching Arrange-

ments (CCSA), Memorandum Opinion and Order.

oe | rr rrr rrr reTriTiTriie 1,7,15

AT&T v. FCC,

FRO P.2E GPUIGTA) on cccccccccscccccccccncccccccssees 18

AT&T v. FCC,

4B7 P.26 GE4ACIDTS) 2 wcrc ccccccccccccccccccces 10, 14, 18, 19

California Railroad Commission Decision 14420,

St EE, BES Ws Sncceccnusctcasecsceceoenes 5

Chicago, M., St. P & P R.R. v. Illinois,

355 U.S. 300, 2 L. Ed. 2d 292,

Pe EE Sh be desincdccvcoccnenseccencevescéees 12

Columbia Broadcasting System v. FCC,

Se Ts ube he ceccecccccevevestecocescedos 16

Cooley v. Board of Wardens,

53 U.S. (12 How.) 299, 13 L. Ed. 996 (1851) 2... 6. cc eee eee eee 11

Florida Lime and Avocado Growers v. Paul,

373 U.S. 132, 10 L. Ed. 2d 248,

rs a OE ce cubed anetenen eee eeu ee i)

Florida v. U. S..,

282 U.S. 194, 75 L. Ed 291,

i is as ache ek en sé wheeeekeke sus eushes 12

Ginsberg & Sons, Inc. v. Popkin,

285 U.S. 204, 76 L. Ed. 704,

Se Es ocbevede seve cuvedddenevesescesedes 14

(iil)

Head v. New Mexico Board of Examiners,

374 U.S. 424, 10 L. Ed. 2d 983,

ee I Sk Winn 66 sb aee snd ba 06 oa dees 9,11

Interstate Commerce Commission v. Louisville & N. R. Co..

227 U.S. 88, 57 L. Ed. 431, 33 S. Ct. 185(1912) .............. 16

Morgan v. U. S..,

304 U.S. 1, 82 L. Ed. 1129, 58 S. Ct. 775 (1938) ...........4.. 16

North Carolina Utils. Comm'n v. FCC.

537 F.2d 787 (1976), affg Telerent

Cems Car, GE FCR BOBO cc cctcccccccccccccccecs 8

North Carolina v. U.S..

325 U.S. 507, 89 L. Ed. 1760, 65 S. Ct. 1260(1945).......... 9,12

PT&T v. SPCC,

Case No. 9728, Before CPUC, Decision No. 84167,

EE ddd cee eren ehh ee GEGis Gx Gok ob o%e6evecn 3,4

Specialized Common Carrier Services.

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,

Fe Os TED ccc ccc ccccccccccecees 3

Southern Steamship Co. v. National Labor Relations Board,

316 U.S. 31, 86 L. Ed. 1246. 62 S. Ct. 886(1942) .............. 14

TV Pix. Inc. v. Taylor,

304 F. Supp. 459(D. Nevada, 1968) aff'd. 396 U.S.

Bs 8 ie le FU, Pe Ge POPNEOFED occ ccccccccccesesces 11

Utah Public Service Commission v. U.S..

356 U.S. 421, 2 L. Ed. 2d 886. 78 S. Ct. 796 (1958) ............. 12

Statutes:

Administrative Procedure Act, 5 U.S.C.

mw Lf PTTreer retry peCecevevecereseoes 3,17

|) PePeeereeeereee eee ere eer errr rere reer eee ee 17

(iv)

Page

Communications Act of 1934, 47 U.S.C.

BIG nccodccccccccovcesecescescesseuneeeneueeeaeee 14

DORR . cc ccccccvccccccceeecceecesesseueeneneee 2,9, 13

BID .cccccccccccesecsnnsestecccséueeusneeneeeaeae 17

BEIDED . oo cccccccdccesvisccdvesaevcdscaueeneeneeenel 7

Judiciary and Judicial Procedure Act, 28 U.S.C.

BAAS)... cccvcccccccsccscusccscesstecscscssesueues 2

Miscellaneous.

Hearings on S.6 before the Senate Committee on Interstate

Commerce, 71st Cong., Ist Sess. 2167-68(1930) ............. 14

Hearings on H.R. 8301 before the House Committee on Interstate

and Foreign Commerce, 73 Cong., 2d Sess. 136(1934)......... 14

Senate Report No. 781, 73d Cong., 2d Sess. 3(1934) ............ 14

Remarks of Senator Dill, 78 Cong. Rec. 8823 (May 15, 1934)...... 14

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No. 77-406

NATIONAL ASSOCIATION OF REGULATORY

UTILITY COMMISSIONERS,

Petitioner,

FEDERAL COMMUNICATIONS COMMISSION, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Petitioner, the National Association of Regulatory Utility

Commissioners, respectfully prays that a writ of certiorari

be issued to review the judgement and opinion of the

United States Court of Appeals for the District of Columbia

Circuit entered on June 20, 1977.

OPINIONS BELOW

The opinion of the Court of Appeals, which has not yet

been generally reported appears at Appendix A to this

petition. The Court of Appeals affirmed, by a 2 to 1 vote,

the Memorandum Opinion and Order of the Federal Com-

munications Commission (FCC), which is reported at 56

FCC 2d 14 (1975) and appears at Appendix B'.

‘Petitioner NARUC has joined with petitioner California Public

Utilities Commission in preparing a Joint Appendix which has been

separately bound in a companion volume, hereinafter cited as “App.”

JURISDICTION

The judgement of the Court of Appeals was entered on

June 20, 1977. This petition is filed less than 90 days from

that date pursuant to Supreme Court Rule 22. The jurisdic-

tion of this Court is invoked under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

1. Whether the FCC, in preempting valid State

regulatory authority over intrastate FX services, has met

the Supreme Court’s high standards necessary for Federal

intervention into intrastate affairs.

2. Whether the FCC’s preemption of intrastate services

violates the specific Congressional mandate delineated in

Section 2(b) of the Communications Act [47 U.S.C. §

152(b)] that the FCC shall have no authority over intrastate

charges or facilities.

3. Whether the FCC was arbitrary and capricious and

abused its discretion by not allowing an evidentiary hearing

on the basis that no facts were in dispute in this proceeding

when the record clearly shows that a factual dispute was at

issue.

4. Whether the impact of the FCC’s order was to fix in-

trastate rates at interstate levels thus necessitating an

evidentiary hearing and denial of such hearing was ar-

bitrary, capricious and an abuse of discretion.

5. Whether the FCC’s order is contrary to the public in-

terest in that it forces ordinary telephone subscribers to

subsidize users of SPCC’s specialized services.

STATUTORY PROVISIONS INVOLVED

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

§ 151 et seq. (1970).

2. Administrative Procedure Act, 5 U.S.C. § 551 et seq.

(1970).

Relevant sections of the statutes are set out in Appendix

STATEMENT OF THE CASE

In this case the NARUC challenges a major policy

decision of the Federal Communications Commission

(FCC) which has the effect of undermining effective

economic regulation of intrastate communications ex-

pressly reserved to the States by the Communications Act of

1934, as amended, 47 U.S.C. § 151, et seg.

Southern Pacific Communications Company (SPCC) is a

specialized common carrier authorized by the FCC to offer

certain interstate common carrier services.? SPCC has also

been authorized to offer certain intrastate services by the

California Public Utilities Commission (CPUC).

On March 4, 1975, the CPUC entered an Interim

Opinion (Decision No. 84167, See Appendix C) which gran-

ted SPCC a certificate of convenience and necessity

*The specialized communications common carrier (SCCC) is a

relatively new class of communications carriers established by the FCC

in order to provide specialized interstate services not provided by the

established carriers and to promote competition in the provision of ser-

vices already being offered. In addition to permitting entry of these new

carriers, the FCC ordered the interconnection of SCC’s facilities with

the established carriers. Specialized Common Carrier Services, 29 FCC

2d 870, aff'd. on reconsideration. 31 FCC 2d 1106 (1971), affd.

Washington Utilities and Transportation Commission v. FCC, 513 F 2d

1142 (9th Cir. 1975). cert. denied. National Association of Regulatory

Utility Commissioners v. FCC, 423 U.S. 836 (1975).

allowing it to provide intrastate private line service’ be-

tween six California cities: Bakersfield, Fresno, Los Angeles,

Merced, San Francisco and Stockton. The CPUC did not

authorize intrastate service between San Diego and other

points in California. The CPUC held that interim rates

should be set which would minimize rate differentials be-

tween the Pacific Telephone and Telegraph Corporation

(PT&T), California’s Bell System affiliate, and SPCC and

encourage SPCC to concentrate upon expanding its

business by offering innovative services to its potential

customers, rather than by stressing large differences in

rates. The rates were set in this manner so that the average

telephone user would not be forced to pay higher rates to

make up the revenues the established common carriers

would lose if wide rate disparities were permitted to exist.

In order to further reduce the risk that the average

telephone customer would be forced to subsidize the

specialized services, the CPUC prohibited any direct con-

nection of private line circuits to the exchange network, in-

cluding any connection similar to foreign exchange (FX)

service. In addition, the CPUC also ordered that any tie line

connections to private branch exhcanges (PBXs; i.e. switch-

boards located at the customer’s premises) by SPCC

should be arranged to prevent through calls from being

made to or from the exchange network at either or both

ends of the tie line circuit [Decision No. 84167, App. C].

*In 47 C.F.R., Sec. 21.2, a “private line service” is defined as. “A ser-

vice whereby facilities for communication between two or more

designated points are set aside for the exclusive use or availability for

use of a particular customer and authorized users during stated periods

of time.”

“Foreign exchange (FX) service is a special. distinct private line ser-

vice. It is a service whereby a telephone subscriber located in one ex-

change area may obtain exchange telephone service in another ex-

change area as if his telephone were actually located in that other ex-

change. It thus enables a businessman located in one part of California,

(continued)

In direct contravention of the CPUC’s order, SPCC sub-

sequently requested PT&T to provide it with the con-

nections and facilities necessary for SPCC to establish the

prohibited FX service to San Diego. PT&T was requested

to connect an SPCC San Diego-Los Angeles private line to

PT&T’s San Diego exchange network and to connect SP-

CC’s Los Angeles line to PT&T’s Common Control Switch-

ing Arrangement (CCSA) to allow interconnection to

American Airlines’ nation-wide private line communication

system. This American Airlines system, provided by PT&T

and AT&T, stretches across the United States and connects

a number of American Airlines offices, including offices in

Los Angeles. Prior to SPCC’s request for interconnection,

SPCC maintained private line telephone facilities from San

‘(continued)

or another State, to maintain a local telephone in another part of

California or another State. Under FX, for example, a businessman

located in Los Angeles can have, in effect, a loca! telephone in San

Diego by paying a foreign exchange mileage charge between Los

Angeles and San Diego. Thus a local exchange caller in San Diego can

dial a local San Diego exchange number, the particular FX number

granted to the customer, and reach the businessman in Los Angeles.

Conversely, the same Los Angeles businessman can call San Diego

telephone subscribers as if he were located in San Diego. (This service is

effectuated through a local loop in Los Angeles, a Los Angeles-San

Diego interexchange private line and business exchange service.)

However, San Diego telephone subscribers could not reach Los Angeles

other than the Los Angeles businessman over FX private line service.

FX service. in California. has been considered to be a substitute for toll

telephone service, i.e. a substitute for intrastate long distance station

service. Connection of a circuit in a telephone exchange other than the

subscriber's local exchange historically has been regulated in California

as FX service. (See California Railroad Commission Decision 14420,

Case 2026 (1924), 25 CRC 721. App. E)

‘A CCSA is a private line system for linking the various offices of a

large company through large switches on a local telephone company’s

premises instead of through PBX switch on the customer’s premises.

The private line circuits furnished in a CCSA are provided for the ex-

clusive use of the CCSA customers. However, the switching machines

are shared with other private line service customers.

6 Fy roa

Diego to Los Angeles which were not connected to the

American Airlines network, nor did they connect to

PT&T’s local telephone exchange in San Diego. Through

interconnection with the PT&T facilities, however, SPCC

could provide American Airlines San Diego FX service,

which could be accessed from any telephone on the

American Airlines network, including Los Angeles and

other points in California. In effect, this interconnection

enables SPCC not only to carry interstate communications

from points on the CCSA network outside of California to

the San Diego exchange, but also to provide intrastate FX

service from points on the CCSA network within California

to the San Diego exchange. (See “‘Schematic of Connections

Requested by SPCC”’-App. F.)

PT&T supplied the facilities and connections requested

by SPCC under protest and promptly filed a complaint with

the CPUC requesting instructions on how to proceed con-

sidering that the requested facilities and connections were

prohibited.

Without waiting for the lawfully instituted State

procedures to take their course, and even though PT&T

provided the requested facilities and connections, SPCC

nevertheless petitioned the FCC on June 16, 1975, for

“Declaratory Rulings.”” SPCC asked the FCC to declare

that the Commission has primacy in authority over the in-

terconnection by specialized carriers into the local ex-

change facilities for the purpose of furnishing FX service

and CCSA. In effect, SPCC was asking the FCC to preempt

valid, Congressionally mandated State authority over in-

trastate services whenever such services had both intrastate

and interstate capabilities.

Several parties, including the NARUC, the CPUC,

PT&T, and others, filed comments with the Commission in

opposition to any declaratory ruling. In its comments the

NARUC requested a full evidentiary hearing before the

Federal-State Board pursuant to the Communications Act,

47 U.S.C. § 410(c). The parties in opposition stated that

many factual issues were in dispute in the instant case.

However, on October 9, 1975, the FCC issued a Memoran-

dum Opinion and Order granting, in effect, the relief

sought by SPCC (App. B). This order was based solely on

the SPCC petition and the submitted comments opposing a

declaratory ruling. No evidentiary hearing or other formal

or informal fact finding procedure was at any time em-

ployed by the FCC.

In its decision, the FCC found that although the facilities

in question would be used for both interstate and intrastate

services, “it was technically and practically difficult to

‘split’ ” the facilities between interstate and intrastate trans-

mission functions. 56 FCC 2d at 19, App. B. Perceiving the

problem in this case as an all or nothing situation, the FCC

ignored the dual regulatory structure established by the

Communications Act, and ruled that the services in

question had to be interstate or intrastate; if interstate,

even if also used for intrastate traffic, the services would

thus be subject to FCC regulations.

The Commission recognized that the facilities involved

were located entirely within California, but dismissed this

fact as being irrelevant. Instead, the FCC found that the

“key issue in determining this question . . . [whether the

‘“‘lines’’ are interstate or intrastate] is the nature of the com-

munications which pass through the facilities, not the

physical location of the lines.”” 56 FCC 2d at 21, App. B.

The Commission concluded that the SPCC facilities ‘‘are

an integral part of a dedicated interstate communications

network”’, and, therefore, interstate and within FCC juris-

diction. 56 FCC 2d at 21, App. B.

On this basis, with no evidentiary record before it, the

Commission held that PT&T must continue to provide SP-

CC with interconnection facilities into the local exchange

networks. Thus the rates to be charged for these services

were to be at the lower interstate level as approved by the

FCC, rather than the higher CPUC approved rates.

The Court of Appeals for the District of Columbia Cir-

cuit affirmed the FCC Order by a two-to-one vote. The

majority agreed with the Commission’s conclusion that it

would be impractical to segregate interstate from intrastate

FX service and that such impracticality allowed the FCC to

regulate any facilities used in both interstate and intrastate

communications. The Court found that Commission

jurisdiction was present because the “‘facilities are an in-

tegral part of a dedicated interstate communications net-

work.”’ (Decision of Court of Appeals, App. A.) Basically,

the majority, in a very short opinion, quoted the decision of

the FCC as its rationale for affirmance.

In a well-reasoned dissent Judge Robinson stated that

the Communications Act specifically established a dual

regulatory system for the regulation of telecommunications.

He continued stating that the delicate balance envisaged by

the Congress could swing in favor of FCC preemption only

when the conflict between the exercise of Federal and State

power is ‘“‘unavoidable” (Decision of Court of Appeals,

App. A) citing North Carolina Utils. Comm.n' v. FCC, 537

F.2d 787, 792 (1976), affg Telerent Leasing Corp., 45 FCC

2d 304 (1974). Judge Robinson concluded that the Com-

mission’s finding of inseparability of the facilities involved

“comes up substantively short and . . . is unsupported by

the evidence.”’ (Decision of the Court of Appeals, App. A.)

Thus Judge Robinson found that there was no evidence in

this case allowing FCC preemption of valid State regulatory

functions.

REASONS FOR GRANTING CERTIORARI

By itself, the FCC’s decision to fundamentally alter the

structure by which communications services are delivered

to the American people raises important issues of public

policy which warrant plenary review by this Court. The

preemption policy adopted by the FCC, and the aftermath

of its implementation, unquestionably will affect every

American who utilizes telephone service.

Specifically, however, the Commission’s decision to

preempt State jurisdiction over all physically intrastate FX

services and facilities which, by reason of switching

arrangements, also have a capacity for interstate com-

munications, is in direct conflict with this Court’s many

decisions on the respective jurisdiction of Federal agencies

and State regulatory bodies. It is well established that

Federal preemption of State authority is a power that must

be exercised only where clearly warranted by the facts and

the relevant statutes. Head v. New Mexico Board of

Examiners, 374 U.S.424, 10 L. Ed. 2d 983, 83 S. Ct. 1759

(1963); Florida Lime and Avocado Growers v. Paul, 373

U.S. 132, 10 L. Ed. 2d 248, 83 S. Ct. 1210 (1963). It is also

settled that for valid Federal intervention into intrastate af-

fairs to occur, justification for such intervention must be

definite and apparent. North Carolina v. U.S., 325 U.S.

507, 89 L. Ed. 1760, 65 S. Ct. 1260 (1945).

The FCC’s decision is in direct contravention of the

specific mandates of Congress that there should be a dual!

regulatory structure in the regulation of telecom-

munications. Section 2(b) of the Communications Act, 47

U.S.C. § 152(b), explicitly states that the Commission shall

have no authority over intrastate services and facilities.

This Honorable Court should also review the decision

because of the arbitrary and capricious refusal of the FCC

to grant a hearing and its refusal to accept evidence on the

factual issues in dispute. If the Commission’s decision

stands, a dangerous precedent will be set whereby an ad-

ministrative agency may, in disregard of all protests by the

involved parties, declare that ‘‘no fact is in dispute”’ and

therefore no hearing will be held. Such a ruling directly

contravenes the entire Constitutional scheme of due

process.

Further, the FCC’s arbitrary denial of the opportunity to

present evidence in this proceeding is in direct conflict with

historical precedents establishing the basic principal that

FCC prescription of rates cannot be effectuated without a

full evidentiary hearing, AT&T v. FCC, 487 F.2d 864

(1973). Because the direct effect of the FCC’s order herein is

to lower rates for private line users and raise rates of the or-

dinary telephone consumers, the FCC should have had a

full evidentiary hearing on the important issues involved in

this proceeding.

Finally, this Court should grant certiorari because of the

effects the FCC’s order will have on the California rate

system and the ordinary telephone subscribers. The

authorization granted to SPCC to offer intrastate FX ser-

vice in only high density markets at low interstate rates will

cause massive diversion of revenues from the public ex-

change network. The result of these diversions is that the

ordinary home telephone user will have to pay more for his

service to make up for the loss of support for the intrastate

toll operations and to cover increased exchange costs. Such

a result is contrary to the purpose of the Communications

Act, is against the public interest, and was reached without

any consideration of evidence of the impact upon the

quality and cost of telephone service.

I. THE FCC HAS NOT MET THE HIGH STANDARDS

NECESSARY TO PREEMPT STATE REGULATION

OF INTRASTATE FACILITIES.

It is well-established that if State legislation or regu-

latory policy, is not in conflict with or repugnant to the

Congressional scheme, the States are not preempted from

regulating in those areas. Cooley v. Board of Wardens, 53

U.S. (12 How.) 299, 13 L. Ed. 996 (1851); TV Pix, Inc. v.

Taylor, 304 F. Supp. 459 (D. Nevada, 1968), affd. 396 U.S.

556, 24 L. Ed. 746, 90 S. Ct. 749 (1970).

In Head v. New Mexico Board, 374 U.S. 424, 10 L. Ed.

2d 983, 83 S.Ct. 1759 (1963), this Court, in discussing

preemption under the Communications Act of 1934, stated

(at 429-430):

In dealing with the contention that New Mexico’s

jurisdiction to regulate radio advertising has been

preempted by the Federal Communications Act,

we may begin by noting that the validity of this

claim cannot be judged by reference to broad

statements about the “‘comprehensive’’ nature of

federal regulation under the Federal Com-

munications Act. ‘‘[T]he ‘question whether

Congress and its commissions acting under it

have so far exercised the exclusive jurisdiction

that belongs to it as to exclude the State, must be

answered by a judgment upon the particular

case’. Statements concerning the ‘exclusive

jurisdiction of Congress’ beg the only con-

troversial question: whether Congress intended to

make its jurisdiction exclusive.”’ California v.

Zook, 366 U.S. 725, 731, 93 L. Ed. 1005, 1010, 69

S. Ct. 841. Kelly v. Washington, 302 U.S. 1, 10-

13, 82 L. Ed. 3, 10, 12, 58 S. Ct. 87. In areas of the

law not inherently requiring national uniformity,

our decisions are clear in requiring that State

statutes, otherwise valid, must be upheld unless

there is found ‘‘such actual conflict between the

two schemes of regulation that both cannot stand

in the same area, (or) evidence of a Congressional

design to preempt the field.’ Florida Avocado

Growers v. Paul, 373 U.S. 132, 141, 10 L. Ed. 2d

248, 256, 83 S. Ct. 1210 (Emphasis added.)

In the instant case it is clear that the FCC has not met the

guidelines set out by this Court. There has been no showing

by the Commission that continued regulation by State com-

missions of intrastate FX services would be incompatible

with, constitute a burden on, or otherwise impede FCC

regulation of interstate services. Instead, the FCC based its

preemption on the unsupported grounds that the

separation of intrastate and interstate service is “‘difficult’’

and thus State regulation must fall.

Such a standard was certainly not contemplated by the

Congress in its grant of authority to the FCC, and this

Court has never established such ineffectual tests for

Federal preemption.

Even the Interstate Commerce Commission (ICC), which

enjoys greater latitude in the intervention into intrastate af-

fairs than the FCC, must make its justification for such in-

tervention “definitely and clearly apparent.’’ North

Carolina v. U.S., 325 U.S. 507, 511, 89 L. Ed. 1760, 1765,

66, 65 S. Ct. 1260 (1945); See also Chicago, M., St. P & P.

R. R. v. Illinois, 355 U.S. 300, 306, 2 L. Ed. 2d 292, 298, 78

S. Ct. 304 (1958); Utah Pub. Serv. Comm'n. v. U.S., 356

U.S. 421, 425, 2 L. Ed. 2d 886, 891, 78 S. Ct. 796, 799

(1958); Florida v. U.S., 282 U.S. 194, 211-212, 75 L. Ed.

291, 302-303, 51 S. Ct. 119 (1931). The ICC must make

“clear findings, supported by evidence of each element

essential to the exercise of that power...” and those find-

ings ‘‘must meet a ‘high standard of certainty.’ "’ North

Carolina v. U.S., supra, 325 U.S. at 511, 89 L. Ed. at 1765S,

65 S. Ct. 1260 (1945); See also J. Robinson’s dissent in the

instant case, Decision of Court of Appeals, App. A.

Certainly, it cannot be presumed that the FCC must meet

a lesser standard when it attempts to abrogate State

regulatory authority. Such standard has not been met in

this case.

Il. THE INTERPRETATION OF THE COM-

MUNICATIONS ACT BY THE FCC AND THE

COURT OF APPEALS IS ERRONEOUS AND

IGNORES SPECIFIC LIMITATIONS ON THE FCC’S

AUTHORITY.

Another reason why this Court should grant certiorari in

this case concerns the basic errors by the Court below in its

interpretation of the Communications Act. In its decision,

the FCC, as affirmed by the Court of Appeals, concluded

that it has exclusive jurisdiction over FX and CCSA services

which are conducted over private line facilities that have

the capacity to provide interstate communications. The

NARUC submits that the FCC’s preemption of State

regulation in this case and its rationale for this action

ignores the Congressional mandate in the Communications

Act of 1934, to preserve State regulation of intrastate com-

munications services. Section 2(b) of the Act [47 U.S.C. §

152(b)] states, in pertinent part:

. , nothing in this Act shall be construed to ap-

ply or to give the Commission jurisdiction with

respect to (1) charges, classifications, practices,

services, facilities, or regulations for or in con-

nection with intrastate communication services by

wire or radio of any carrier . . . (Emphasis added.)

The language of the Act is clear and unambiguous. It ab-

solutely forbids the FCC from regulating intrastate FX ser-

vice or the facilities used to provide such services. Section

2(b) is, in effect, a Congressional order for the establish-

ment of a dual regulatory framework in the regulation of

telecommunications. Thus, the FCC lawfully has authority

over interstate services, but lacks any power over intrastate

facilities. The Communications Act clearly calls for a split

of authority and therefore, the FCC’s assertion of exclusive

authority must fail.

The FCC and the Court of Appeals, as justification for

Commission preemption, cite Section 1 of the Com-

munications Act, 47 U.S.C. § 151, for the proposition that

the major purpose behind the Communications Act is to

develop a “unified national communications service’ and

that such goals override any restrictive language in the Act.

Section 1 must be read in conjunction with other sections

ef the Communications Act specifically limiting FCC

authority. [ie. Section 2(b).] The general language of a

statute usually does not apply to a matter specifically dealt

with in another part of the same statute. Ginsberg & Sons,

Inc. v. Popkin, 285 U.S. 204, 208, 76 L. Ed. 704, 708, 52 S.

Ct. 322 (1932); AT&T v. U.S., 487 F.2d 864, 877 note 26

(1973).

Further, it is important to note that the FCC has not

been ordered to effectuate the policies of one section of the

Communications Act so single-mindedly that it may wholly

ignore other and equally important Congressional ob-

jectives. On many occasions, the full scope of Congressional

purpose dictates the careful accommodation of one

statutory plan to another and it is incumbent upon an ad-

ministrative agency, to meet Congressional intent, to un-

dertake this accommodation. Southern Steamship Co. v.

National Labor Relations Board, 316 U.S. 31, 47, 86 L. Ed.

1246, 1259, 62 S. Ct. 886 (1942). The clear intent of

Congress, in this regard, is to preclude FCC preemption of

State authority over intrastate communications.°

“See Hearings on S.6 before the Senate Committee on Interstate

Commerce, 71st Cong., Ist Sess. 2167-68 (1930); Hearings on H.R. 8301

before the House Committee on Interstate and Foreign Commerce, 73d

Cong.. 2d Sess. 136 (1934); S. Rep. No. 781, 73d Cong., 2d Sess. 3

(1934); Remarks of Senator Dill, 78 Cong. Rec. 8823 (May 15, 1934).

Ill. THE FCC'S REFUSAL TO GRANT AN EVIDEN-

TIARY HEARING ON THE BASIS THAT “NO

FACTS ARE IN DISPUTE” WAS ARBITRARY,

CAPRICIOUS AND AN ABUSE OF DISCRETION.

In its decision, the FCC stated that, ‘‘Since the facts of

this case are not in dispute, and no party has disagreed with

SPCC’s characterization of the capabilities of the facilities,

a hearing is not required.”’ 56 FCC 2d 18, App. B. Another

reason given by the Commission for its refusal to grant a

hearing was that the questions involved in this case are

‘legal determinations”; “legal questions of jurisdiction.”

56 FCC 2d 18, 19, App. B. However, the issues in this case

are not as clearcut as the FCC asserts. The jurisdictional

question is whether total preemption is required or whether

jurisdiction over the FX services may be feasibly allocated

between the State and Federal regulatory commissions in

accordance with prior practice. This question of great

jurisdictional import was decided on the basis of facts that,

in spite of FCC statements to the contrary were definitely

not agreed upon by the parties in this proceeding.

The basis of the FCC’s decision and the prime factor

used by the Court of Appeals for affirmance of that

decision, is the alleged fact that the facilites in question are

“technically and practically difficult to ‘split’.’”” 56 FCC 2d

19, App. B; Decision Ct. App., App. A. Thus, the Com-

mission and the Court of Appeals decided the jurisdic-

tional issue not solely on the basis of an erroneous in-

terpretation of the Communications Act, but also on the

grounds that the interstate calls and the intrastate calls on

the facilites in California were inseparable. This, on its

face, is a factual dispute, contrary to the FCC’s assertions.

The initial comments filed by the NARUC and the CPUC

properly dealt only with the efficacy of the FCC deciding

these very important issues in a summary proceeding. The

parties in opposition raised the factual issue that the

facilites in question are indeed capable of being “‘split’’,

and requested a proper forum in which to present supporting

evidence. The NARUC and other parties specifically noted

that there are several methods by which these facilities can

be separated into intrastate and interstate components.’

One such method is through the use of call restrictors (a set

of facilities used for interstate circuits need not also be used

for interstate circuits). Another method could be to pro-rate

the circuits in question by relative use of each circuit.

However, the FCC, instead of recognizing the existence of a

fundamental factual dispute, issued its summary opinion

and preempted a field expressly reserved to the states.

It is well-established that ‘‘a finding without evidence is

arbitrary and baseless.’’ Interstate Commerce Commission

v. Louisville &N.R. Co., 227 U.S. 88, 91, 57 L. Ed. 431, 433,

33 S. Ct. 185 (1912). Specifically, it has been ruled that

especially in reversing the historical role of Federal and

State governments in their regulation of physically in-

trastate lines, summary procedures are inappropriate, and

it becomes essential that agency conclusions be founded

upon substantial evidence and essential findings. Columbia

Broadcasting System v. FCC, 454 F.2d 1018, 1025, 1028

(D.C. Cir, 1971).

The NARUC recognizes the great latitude granted to

Federal agencies in the exercise of their statutory functions.

However, such latitude is not an open-ended grant of

authority for the FCC to make findings by administrative

fiat. “‘In administrative proceedings of a quasi-judicial

character the liberty and property of the citizen shall be

protected by the rudimentary requirements of fair play.

These demand ‘a fair and open hearing’. . ."" Morgan v.

U.S., 304 U.S. 1, 14-15, 82 L. Ed. 1129, 1130, 58 S. Ct. 775

(1938).

"See NARUC Opposition to SPCC Petition. July 1975, Ct. of App. Jt.

App.. Vol. 2 p. 308; Comments of AT&T. Ct. of App. Jt. App. Vol. 1 p.

135; Comments of CPUC, Ct. of App. Jt. App.. Vol. 2 p. 357.

It is submitted that neither the Communications Act, nor

the regulations promulgated thereunder, have delineated

when a hearing is necessary in a proceeding such as in-

volved herein. However, the concept of fundamental fair-

ness implicit in the Administrative Procedure Act, 5 U.S.C.

§551 et seq., requires a hearing in this case. Under 5 USC

Sec. 554(e), a declaratory order is considered to be an ad-

judicatory proceeding. Generally speaking, adjudications

require agency hearing.

IV. THE IMPACT OF THE FCC’S ORDER IS TO FIX

INTRASTATE RATES AT INTERSTATE LEVELS,

WHICH REQUIRES AN’ EVIDENTIARY

HEARING.

In its “Petition for Declaratory Rulings and For En-

forcement of Cease and Desist Orders’’, SPCC referred to

many sections of the Communications Act as authority for

the FCC to act in this case. One such provision was 47

U.S.C. § 20S. (For SPCC Petition, see Ct. of App. Jt. App.

Vol. 1, p. 1).

Basically, Section 20S authorizes the Commission, if it is

of the opinion that any ‘‘charge, classification, regulation,

or practice” of any carrier is or will be in violation of the

Communications Act, “to determine and prescribe what

will be the just and reasonable charge . . . and what

classification, regulation, or practice is or will be just, fair,

and reasonable. . .’” Such determination may be made only

“after full opportunity for hearing’ upon a complaint or

under an order made by the Commission on its own

initiative. (47 U.S.C. § 20a); See App. D).

At its inception, the current proceeding was not charac-

terized as a rate making case. No specific dollar amount

tariffs were called into question. However, “‘the courts have

held that it is the actual impact of agency action and not its

form that is decisive in determining the nature of the find-

ings and the evidence that are required to support the ac-

tion.”’ A.T.&T. Co. v. FCC, 449 F.2d 439, 451, note 12

(1971); see also A.7.&T. Co. v. FCC, 487 F.2d 864, 874

(1973).

In the instant proceeding, as in the 1971 A.7.&T. case

cited above, although the form of the Commission’s order is

directed at a particular practice, its impact is to fix or

prescribe lower rates for a large group of private line

customers who have not, prior to this order, had the ad-

vantage of such lower rates.

Prior to the FCC’s unlawful preemption of State

regulation of the intrastate communications, the rates for

intrastate FX services were controlled by the CPUC. These

rates were the product of a pervasive scheme of economic

regulation designed to prevent the siphoning off of revenue

support for the basic intrastate toll system. Under the

FCC’s order, lower rates are provided to large private line

users of FX service since interstate private line rates are

lower than intrastate. The rate disparity is aggravated as

the large users are diverted to the interstate system, even for

intrastate calls, removing all but the shorter hauls and less

dense circuit sections from the intrastate rate base.

In the current proceeding, the connection of private line

circuits to the exchange network bypasses the toll network

resulting in the aforementioned loss of support for the

toll operation. More seriously, however, this generates

stimulated minutes of exchange use without paying the cost

of such use. The net effect is to increase separated exchange

costs and thereby increase the cost of exchange service to

the ordinary citizen. Meanwhile, the users of SPCC’s

system pay the lower interstate rates, thus forcing direct

subsidy by the ordinary users.

It is the NARUC’s contention that when the FCC pre-

empted State regulation of intrastate FX services, it was in ef-

fect prescribing rates. Further, it is submitted that such

prescription of rates cannot be effectuated without a full

evidentiary hearing. A.7.&T. v. FCC, supra, 487 F.2d 864,

874 (1973). Not only is a major jurisdictional question at

issue here, but, in addition, the public interest in affordabie

rates for all users of the telecommunications system

requires that all the pertinent facts and issues involved in

this case are adequately and fairly presented. No con-

sideration of these public interest issues appears in the

FCC’s decision or in the record below.

Vv. THE EFFECT OF THE FCC ORDER HEREIN IS

TO FORCE ORDINARY TELEPHONE SUB-

SCRIBERS TO SUBSIDIZE USERS OF SPCC’S

SPECIALIZED SERVICES IN CONTRAVENTICN

OF THE PUBLIC INTEREST.

The NARUC is not opposed to competition in the

telecommunications area, per se. It is conceivable that, in

certain specific instances, competition within the com-

munications industry is a necessary ingredient of a healthy

and viable worldwide communications network. In its in-

terim order in this case, the CPUC found that the general

services to be offered by SPCC were in the public interest, a

decision, which, in effect, is an endorsement of com-

petition. The issue here is not that competition will result in

lower-cost service. Rather, the issue is one of lower-cost ser-

vice to a few users at the expense of all other users of the

system.

One of the major problems involved in this case is the

diversion of revenues from the established carriers which

will result from institution of FX service by SPCC at low in-

terstate rates and the subsequent harm to the public from

such diversion.

In the usual private line system, the circuits terminate in

switching equipment dedicated to the private line system.

SPCC’s San Diego end terminates in the local public ex-

change providing San Diego exchange dial tone at the Los

Angeles end of the SPCC circuit. Thus, the SPCC

customers can in effect have long distance calls, within

California, at a drastically lower rate than if such customers

used the public, switched toll system paying the intrastate

message unit and mileage charges that all other users of the

public exchange network pay. In addition, SPCC only in-

tends to offer these services in high density markets. Yet the

FCC and the Court of Appeals failed to even look at the

practical effects of the FCC’s decision.

PT&T must serve all persons desiring telephone service.

Thus, PT&T serves many high-cost-to-serve customers in

areas out of the main business corridors. Because PT&T

must serve high-density and low-density markets, rates are

determined by a statewide averaging system. Elimination of

statewide averaging of private line rates would shift the rate

burden to different customers, primarily to the ordinary

home subscribers. By permitting SPCC to offer intrastate

FX service only on high-density routes and at low inter-

state rates, a substitution of private line service for message

toll service occurs resulting in reduced toll revenues. One

effect of this is a decrease in exchange earnings due to the

reduction of exchange costs assigned to message toll service

under existing separations procedures.

A further diversion of revenues occurs as private line

messages are permitted to enter the public exchange system

as local calls thus tying up public lines which would have

been available had these private line customers used their

own private line switching equipment.

In addition, exchange loss is increased even further due

to message stimulation resulting from removal of time and

distance charges on each message. This stimulated ex-

change use increases the costs of telephone plant equip-

ment attributed to the exchange.

In effect, SPCC, with the blessings of the FCC and Court

of Appeals, is engaging in a ‘‘cream-skimming”’ operation,

skimming off revenue support for the intrastate toll and ex-

change systems. SPCC is lapping up the profits on

favorable routes and eschewing high-cost-low-return ser-

vice, as well as diverting millions of dollars from the

existing carriers.’ The result of these revenue diversions is

that the ordinary home telephone user will have to pay

more for his service to make up for the loss of support for

the intrastate toll operations and to cover the increased ex-

change costs. The ordinary intrastate ratepayers are thus

subsidizing specialized intrastate services they do not use

and the users of SPCC’s services are getting a free-ride. It is

inimical to the public interest and to the purposes propoun-

ded in the Communications Act that such a result should

be permitted without a thorough evidentiary analysis by the

FCC.

*The record below reflects that telephone companies in California

will suffer a fiftep-million-dollar annual revenue loss by reason of the

FCC’s order in this case. (See Ct. of App. Jt. App., Vol. 2, p. 247).

CONCLUSION

For these reasons, a writ of certiorari should issue to

review the judgement of the United States Court of Appeals

for the District of Columbia Circuit.

Respectfully submitted,