Appendix — United States Independent Telephone Ass'n v. MCI Telecommunications Corp.
Supreme Court brief1978
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SEP 19 1977
MICHAEL RODAK, JR., CLERK
77
In the Supreme Court of the United States
OCTOBER TERM, 1977
FEDERAL COMMUNICATIONS COMMISSION, PETITIONER
V.
MCI TELECOMMUNICATIONS CORP., ET AL., RESPONDENTS
*
PETITIONER’S APPENDIX
DANIEL M. ARMSTRONG,
Associate General Counsel,
JOHN E. INGLE,
Counsel,
Federal Communications Commission
Washington, D.C. 20554
la
TABLE OF CONTENTS
Appendix A, Opinion of the United States Court of —
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Appendix C, Order of the United States Court of Appeals
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Appendix D, Federal Communications Act of 1934, as
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APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 75-1635
MCI TELECOMMUNICATIONS CORPORATION, MICKOWAVE
COMMUNICATIONS, INC., AND N-TRIPLE-C INC.,
PETITIONERS
V.
FEDERAL COMMUNICATIONS COM MISSION AND
UNITED STATES OF AMERICA, RESPONDENTS
AMERICAN TELEPHONE AND TELEGRAPH COMPANY, UNITED
STATES INDEPENDENT TELEPHONE ASSOCIATION, DATA
TRANSMISSION COMPANY (DATRAN), AND SOUTHERN
PACIFIC COMMUNICATIONS COMPANY, INTERVENORS
Petition for Review of Orders of the
Federal Communications Commission
Argued April 28, 1977
Decided July 28, 1977
Kenneth A. Cox, 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
3a
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.
John M. Scorce and Kevin H. Cassidy were on the
brief for intervenor Data Transmission Company.
Herbert E. Forrest entered an appearance for inter-
venor Southern Pacific Communications Company.
Before WRIGHT, TAMM, and WILKEY, Circuit Judges.
Opinion for the court filed by Circuit Judge WRIGHT.
WRIGHT, 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. 8 151 et seg.
(1970), to restrict the services MCI may offer over its
existing facilities, we reverse.
I. BACKGROUND
MCI Telecommunications Corporation, Microwave Com-
munications, Inc., and N-Triple-C Inc. (hereinafter, col-
lectively, MCI) are affiliated communications common
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.
4a
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 filing 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 any 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.
8’ Execunet’s characteristics are summarized as follows.
A customer in the calling city calls the locel MCI office via
local exchange telephone service from any pushbutton telephone
in the local exchange area. A rotary-dial telephone can also be
used if the caller has a touch-tone pad (tone generator). This
device can be purchased in the open market from numerous
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
toll, based upon the mileage to the city called, subject to a con-
nection 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 custoiners
may utilize the intercity 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 particular
customer during any specified time; rather it is available upon
MCI Telecommunications Corp., supra note 1, 60 FCC2d at 26 n.1.
5a
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 comp'aint
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-
mission.“ In a third letter MCI pointed out that its
licenses were not limited by anything in Section 21.705 of
the Commission’s rules pursuant to which point-to-point
microwave radio licenses are issued to communications
Letter from FCC to MCI, May 1, 1975, MCI Telecommunications
Corp., supra note 1, Appendix B, 60 FCC2d at 64, JA 8.
5 Letter from MCI to FCC, June 5, 1975, MCI Telecommunications
Corp., supra note 1, Appendix B, 60 FCC2d at 65-68, JA 9-15.
Letter from MCI to FCC, June 9, 1975, MC] Telecommunications
Corp., supra note 1, Appendix B, 60 FCC2d at 69-70, JA 16-18.
7 § 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 applicable
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).
6a
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 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.”
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: “[Y]Jour 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.
Letter from MCI to FCC, July 1, 1975, MCI Telecommunications
Corp., supra note 1, Appendix B, 60 FCC2d at 80-84, JA 39-48.
In the Matter of Establishment of Rules Pertaining to the
Authorization 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 Proposed Rule
Making, 27 FCC2d 36 (1971); Report and Order, 39 FCC2d 131
(1973).
10 See Letter, supra note 8, 60 FCC2d at 82-83, JA 44-46.
“(T]he termination of the rule making proposed herein will
make it possible for domestic carriers, as a general rule, to offer
new classes or subclasses of communications service over duly
authorized facilities merely by the filing of appropriate tariff re-
visions * * *.” Report and Order, supra note 9, 39 FCC2d at 135.
%2 MCI Telecommunications Corp., supra note 1, Appendix B,
60 FCC2d at 64.
Ta
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 foilowing:
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
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 domestic
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. 1%
The Commission then rejected MCI’s arguments that
Execunet was a private line service like AT&T’s “foreign
18 Jd. at 63.
8a
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 eg 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
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
4 Id.
15 5 U.S.C. § 553 (1970).
16 47 C. F. R. §§ 1.711-1.735 (1976).
747 C. F. R. 58 1.1201-1.1251 (1976). See also Rules Governing
Ex Parte Communications, 1 FCC2d 49 (1965).
18 This court initially stayed the Commission’s order in its
entirety. After the proceedings on remand our order was modified
to allow MCI to continue to serve its present customers, but
solicitation of new customers was not permitted.
1° “SA” refers to a two-volume Supplemental Appendix covering
the proceedings on remand.
9a
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)?
c. 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., —— FCC2d —— (FCC 76-
441, May 17, 1976), SA 892. In this order the Com-
mission rephrased the primary issue before it as
“whether MCI’s facility authorizations and Commission
policies restrict in any way the broad categories of serv-
*. MCI Telecommunications Corp., 57 FCC2d 271, 271-272 (1975),
«ai 49-50.
10a
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
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:
21 MCI Telecommunications Corp., — FCC2d ———- (FCC 76-442,
May 17, 1976), SA 894.
22 Id., SA 895.
20 Id.
24 (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 Commission
a certificate that the present or future public convenience and
necessity require or will require the construction, or operation,
or construction and operation, of such additional or extended
line“ * *, * * * No carrier shall discontinue, reduce, 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 con-
venience and necessity will be adversely affected thereby * * *.
As used in this section the term line“ means of channel of
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 nec-
essary 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
“(whether 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
ew unication established by the use of appropriate equipment,
mer 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 authorizatio m the Commission
for any installation, replacement, or changes in plant,
operation, or equipment, other than new truction, which will
not impair the adequacy or quality of service provided.
25 MCI Telecommunications Corp., supra note 1, 60 FCC2d at 35.
26 Specialized Common Carrier Services, 29 FCC2d 870 (1971),
aff'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).
—_, Common Carrier Services, supra note 26, 29 FCC2d
a '
28 See note 68 infra.
12a
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
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
% 35. At the time of the Specialized Common Carrier decision,
we had before us 1712 microwave applications from 33 appli-
cants, 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 policy 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 “port‘ons 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 distinc-
tion 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 sys-
tem of his own design and capability” 29 FCC2d 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. [sic] Thus, MCI sought therein to offer only private
line, point-to-point services. * * *
MCI Telecommunications Corp., supra note 1, 60 FCC2d at 36.
See also FCC Letter Order, id., 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 telecommunications serv-
ice.
% See Specialized Common Carrier Services, supra note 26, 29
FCC2d at 910 ( 78).
18a
“to any substantial degree” with AT&T’s monopoly serv-
ice offerings, MTS and WATS.”
Having concluded that the Specialized 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. § 21.705 (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
MCI Telecommunications Corp., supra note 1, 60 FCC2d at 36,
quoting Specialized Common Carrier Services, supra note 26, 29
FCC2d at 915.
* Id. at 38.
14a
or set out in a Section 214 application.“ The purpose
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 al-
lowed to offer private line services free of any prior
approval requirement as a result of Docket 19117, but
88 See Notice of Proposed Rule Making, supra note 9, 27 FCC2d
at 38-39.
3 d. at 39.
35 See Report and Order, supra note 9, 39 FCC2d at 137.
MCI Telecommunications Corp., supra note 1, 60 FCC2d at 39.
15a
are required to proceed by Section 214 application with
respect to all other services.
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 monoply 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.
* See id. at 40-44.
38 Jd. at 44-48.
3° [W]e disagree with MCI that we have never defined the areas
of telecommunications service which should be open to compe-
tition and those which are a monopoly. Rather, that was the
principal purpose of our investigation in [Specialized Carrier
Services, supra note 26]. * * *
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 Transcommunications Corp., supra note 1, 60 FCC2d at 56-57.
0 Id. at 48-54.
II. ANALYSIS
The implicit restrictions argument advanced by the
Commission in its opinion on remand represents a sub-
stantial 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 instrument 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-
See text at note 13 supra; note 24 supra.
42 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, eg., 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. S 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.
B.
To frame our analysis, we sketch at the outset some
principles which are either uncontested or uncontestable.
First, it is settled that “a tariff [may] be rejected if it
is unlawful without prior agency approval and approval
18a
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-
See also North Central Truck Lines, Inc. v. ICC, —— 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 1341, 1345-1346 (D.C. Cir. 1971), cert. denied, 405
U.S. 989 (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
material to the issues thus far decided by the Commission are in
dispute and, accordingly, the Commission could, as it apparently did,
issue a cease and desist order pursuant to 47 U.S.C. § 205 (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
tariff mechanism established in §§ 203-205 of the Act, 47 U.S.C.
§§ 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(c), as are discriminations and prefer-
ences, id. § 202. Prior to the effective date of a tariff—a date
certain that must be set out in the tariff, id. § 203(d)—the Com-
mission may suspend the tariff and hold a hearing concerning the
lawfulness thereof. Jd. § 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,
that tariff by law goes into effect. Jd. After the effective date, and
without regard to whether a tariff has previously been suspended,
the Commission may hold a hearing on the lawfulness of the tariff,
although the tariff must be allowed to remain in effect pending
the outcome of such a hearing. /d. § 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,
19a
merce Act (49 U.S.C. 88 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 US. 658, 662-669 (1963)
(same). As the Second Circuit explained in the AT&T
case in overturning a Commission requirement that
AT&T obtain approval prior to filing tariff revisions:
classifications, regulations, or practices as shal? 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.
45 “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 % 8. Rep. No. 781, 73d Cong., 2d Sess. 4 (1934). See aslo
H.R. Rep. No. 1850, 73d Cong., 2d Sess. 5-6 (1934).
46 Since the most likely objection to MCI’s provision of Execunet
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,
making no express reference to the interests of competing car-
riers and their customers such as are involved in this case.
We see no warrant in that omission, however, for a difference
in result. * *
In noting that neither claims of a carrier’s customers nor those of
its competitors or 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 competi-
tors’ customers would be insufficient to sustain a service restriction
promulgated in accord with 47 U.S.C. § 214(e) (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.
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’s
argument that the general grants of procedural authority
in Sections 4(i), 4(j), and 403 of the Act, 47 U.S.C.
88154 (), 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.“
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 exercised 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
** AT&T v. FCC, supra note 44, 487 F.2d at 880 (footnote
omitted).
Of course, if the statute merely authorizes the Commission to
impose a prior approval requirement, as is the case with § 303 (b),
47 U.S.C. 5 303 (b) (1970), that authority would have to be exer-
cised before rejection is proper.
Aer v. FCC, supra note 44, 487 F.2d at 876-881 & 880 n. 13,
citing Associated Press v. FCC, 448 F. 2d 1095, 1103 (D.C. Cir. 1971).
21a
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 offerings 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
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, other than new construction,
which will not impair the adequacy or quality of
service provided.'**!
Moreover, we do not agree with the suggestion of Com-
mission counsel in brief that Judge Wilkey’s opinion
50 See note 24 supra.
51 See 78 CONG. 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 constrution or acquisition of
new lines. See id.; H.R. Rep. No. 1850, supra note 45, at 6; S. 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
Workers 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.
d 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 samé manner as any other tariff filing. This court sided
with the Commission on the ground that (with exceptions not rele-
vant here) § 214 did not apply to even this novel use of existing
facilities. See 436 F.2d at 924-925.
5347 U.S.C. §214(a) (1970) (emphasis added); see note 24
supra.
* FCC brief at 24 & n.14, 32 n.23.
22a
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 Com-
munications, Inc., 346 U.S. 86 (1953). In stating the
proper standard 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 re-
quires more or better service.” 498 F.2d at 776 (em-
phasis 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 petition the Commission
under Section 214(a), but rather it is merely a matter
of fact observation that it is analytically impossible to
determine the need for a new facility without considering
the services to be provided over it. In addition, the read-
ing suggested by the Commission would nullify the final
proviso of Section 214(a) by requiring a “certificate
5° 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 Com-
mission approval before offering or discontinuing any new or revised
classification of communications, irrespective of whether offered
over 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 Commission 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 (“a carrier need not generally file an application [under
§ 214] for each new service it wishes to implement”).
23a
[and] other authorization from the Commission” prior
to changes in carriers’ operations even if such changes
did not affect the “adequacy or quality” of the carriers’
preexisting services. There is no indication that the
Hawaiian Telephone court contemplated such a remark-
able result. Nor, indeed, can such a result be justified by
reference to the primary purpose of Section 214 because,
so long as the “adequacy or quality” of the service pro-
posed in a Section 214(a) application is not impaired
by provision of other services, the public need that jus-
tified construction of facilities will still be met and
there is no sense in which those facilities would have be-
come needlessly duplicative.
Notwithstanding the proviso to Section 214(a), Sec-
tion 214(c) gives the Commission authority to“
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-
56 Section 214(c) 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
portion 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
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 conditions
contained in or attached to the issuance of such certificate and
proceed with the construction, extension, acquisition, operation,
or discontinuance, reduction, or impairment of service covered
thereby. Any construction, extension, acquisition, operation,
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 affected, or any
party in interest.
47 U.S.C. §214(c) (1970).
24a
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
identical to its power over classes of carriers under Sec-
tion 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(c) does, in our judgment, authorize the Commission
to restrict the services that may be offered over a com-
munication 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 com-
promise embodied in Sections 203-205, the Commission
must strictly follow the terms of Section 214 (e) and it
cannot impose any such restriction unless it has affirma-
tively determined that “the public convenience and neces-
sity [so] require.”
C.
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 (e) 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
Section 214 applications and, second, that the Commis-
sion’s analysis of cream-skimming assumed that special-
5? See note 29 supra.
25a
ized carriers would be restricted to private line services.“
We consider these in turn.”
„ [Olur 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 SCC’s would not
compete 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. Clearly,
none of the uniform rate structures of the existing car-
riers for such services would appear in jeopardy since those
services are not being challenged competitively to any sub-
stantial degree by the services proposed to be offered by
the aspiring new entrants.” 29 FCC2d at 915 (emphasis
added) [.]
MCI Telecommunications Corp., supra note 1, 60 FCC2d at 36.
5° 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
relevance of this assertion in light of AT&T v. FCC, supra note 26.
The Commission also pointed to statements made by the Ninth
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 proposed
in the applications before the Commission. The Bell Telephone case
involved a very different issue, namely, whether the Commission
had affirmatively determined that it would be in the public interest
to require AT&T to interconnect with MCI for the purpose of allow-
ing MCI to offer FX and CCSA service. See 47 U.S.C. § 201(a)
(1970). The Commission’s view was that Specialized 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 Circuit held that the Commis-
sion in Specialized Carriers had made an affirmative determination
that interconnection for provision of private line services was a gen-
eral matter in the public interest and that MCI was covered by this
general determination. Bell Telephone therefore stands for the
proposition that the Commission in Specialized Carriers decided at
least that specialized carriers could provide all private line services.
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
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
proposed in the Section 214 applications before it raised
serious revenue diversion problems threatening the public
interest. This is all it apparently did decide:
[Wie 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.!“
However, one cannot 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.
* 47 U.S.C. §214(c) (1970).
— Common Carrier Services, supra note 26, 29 FCC2d
at 910.
27a
Moreover, the Commission’s staff report, which formed
the basis for the Specialized Carrier decision, ruminated
more broadly on the issue 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.“
Finally, it should also be noted that the Commission
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 public
should develop, the Commission can take such action
on the relevant tariff filings as may be necessary to
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:
o See id. at 883-884.
63 It should also be noted that subsequent to Specialized Carriers
the Commission has indicated a willingness to consider competition
in the message telephone field on its merits. See Domestic Com-
munications-Satellite Facilities, 35 FCC2d 844, 853-854 (1972). To
a large extent this undercuts the Commission’s argument here, see
nag | 39 _ that it conferred a statutory monopoly on AT&T
in this field.
** 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.
Specialized Common Carrier Services, supra note 26, 29 FCC2d
at 886 (emphasis added).
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 lieense 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-
able. * * * ‘*!
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 proceedings,
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-
lie 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 au-
thorizations 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
provide new, innovative, and hitherto unheard-of com-
66 Jd. at 887 (emphasis added).
r For this reason the deference normally owed to our agency’s
interpretation of its own decisions, see, e.g., Udall v. Tallman, 380
U.S. 1, 16 (1965), is not appropriate here. See id. at 18.
29a
munications services clearly indicates that it had no very
clear idea of precisely how far or to what services the
field should be opened.“ As indicated in the staff re-
port, a decision was apparently made to consider the
consequences of future developments in appropriate future
proceedings. There being no affirmative determination
of public interest need for restrictions, MCI’s facility
authorizations are not restricted and therefore its tariff
applications could not properly be rejected.
D.
As a final and somewhat collateral point, we are con-
cerned with a thread running through the Comission’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
os See Specialized Common Carrier Services, supra note 26, 29
FCC2d at 905-914 ( 65-86). Indeed, to the extent that any defi-
nition of a specialized common carrier emerges from the Commis-
sion’s discussion, that definition appears to be simply that a spe-
cialized carrier is any carrier that does not attempt to optimize
its service offerings to the voice communications needs of the gen-
eral public. See id. at 882 ( 29); id. at 906-907 ( 69-70).
6° Jd. at 881.
30a
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: [Wie should not reject any proposal that might
prove feasible and beneficial to the public simply because
it represents some departure from the established scheme.“
Domestic Communications-Satellite Facilities, 35 FCC2d
844, 854 (1972).
Because the Commission has not so far determined
that the public interest would be served by creating an
AT&T monopoly in the interstate MTS field, it may not
properly draw any inferences about the public interest
from the bare fact that another carrier’s proposed serv-
ices would compete in that field.
III. CONCLUSION
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-
riers receive its approval before filing tariffs proposing
new services or rates. Only if the Commission has de-
termined that the public convenience and necessity may
require that new services receive advance approval can
it then reject a tariff as unauthorized. In so holding we
have not had to consider, and have not considered, whether
competition like that posed by Execunet is in the public
interest. That will be the question for the Commission to
decide should it elect to continue these proceedings. In
that eventuality the Commission must be ever mindful
that, just as it is not free to create competition for com-
8la
petition’s sake,” it is not free to propagate monopoly
for monopoly’s sake. The ultimate test of industry struc-
ture in the communications common carrier field must
be the public interest, not the private financial interests
of those who have until now enjoyed the fruits of de
facto monopoly.”
Reversed and remanded.
77 See FCC v. RCA Communications, Inc., 346 U.S. 86, 96-97
(1953); Hawaiian Telephone Co. v. FCC, 498 F.2d 771, 776-777
(D.C. Cir. 1974).
1 Cf., e.g., Carroll Broadcasting Co. v. FCC, 258 F.2d 440, 443
(D.C. Cir. 1958).
—"
Tap a “Ad
a
8
Sore —
APPENDIX B
F. C. C. 76-622
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
Docket No. 20640
IN THE MATTER OF
MCI TELECOMMUNICATIONS CORPORATION
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 : *CHAIRMAN WILEY NOT PARTICIPAT-
ING; COMMISSIONER Hooks CONCURRING IN THE RESULT.
i. 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
Commission Order, FCC 75-799, adopted July 2, 1975,
which found Execunet to be essentially message telecom-
munications service (MTS) rather than private line serv-
ice. Since we found therein that MCI Telecommunica-
tions Corporation (MCI) was authorized to offer only
private line service, 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.
33a
2. In 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 briefly
before the Commission. Accordingly, we instituted the
present proceeding by Memorandum Opinion and Order
released 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. Com-
ments and reply comments were filed by MCI, American
Telephone and Telegraph Company (AT&T), American
Satellite Corporation (ASC), Southern Pacific Communi-
cation 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.
Background
A. July 2nd Order and Appeal
3. In our July 2, 1975 Order we rejected MCI Tele-
communication Corporation’s Tariff FCC No. 1 insofar
as it purported to offer Execunet service, upon our finding
that contrary to MCI’s assertion, Execunet was not in
fact a private line service, and that MCI had not received
a prior authorization to offer any service other than a
private line service.
1 Execunet’s characteristics are summarized as follows. A cus-
tomer in the calling city calls the local MCI office via local exchange
telephone service from any push-button telephone in the local ex-
change area. A rotary-dial telephone can also be used if the caller
has a touch-tone pad (tone generator). This device can be purchased
in the open market from numerous 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 he accomplished via the local exchange telephone service
in that area. Upon connection, the customer is charged a per-
34a
4. We found on the basis of MCI’s own description of
Execunet in its letter to the Chief, Common Carrier
Bureau, dated June 5, 1975 (see Appendix B) especially
paragraph 4, that Execunet, like MTS, had the follow-
ing characteristics:
(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 tele-
phone, using a separate tone generator) in the
calling city to call any telephone in any one of
a number of distant cities . . .”
(3) . .. the Execunet customer uses common local
exchange plant at both ends.. ., and
(4) “. . . 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...”
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 to
conclude that.. Execunet service is essentially a
switched publie message telephone service, rather than
private line.”
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 au-
minute 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 customers may
utilize the intercity 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 particular customer during any
specified time; rather it is available upon demand.
35a
thorizations, we concluded that MCI was authorized to
offer only private line service, not MTS, and therefore
that this offering 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 repre-
sentatives of AT&T about the nature of Execunet obli-
gated us to hold an evidentiary hearing to allow MCI 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 MCI
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, consti-
tuted a systematic lobbying effort which effectively pre-
determined 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.
36a
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 allow us
to review these arguments thoroughly. The Court granted
the motion and directed that further proceedings “be con-
ducted and concluded expeditiously.” See MCI Telecom-
munication Corporation v. FCC, supra. Consistent with
the Court’s order, we called upon MCI and other inter-
ested parties to file comments and reply comments regard-
ing 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 hearing
to look at AT&T’s allegedly improper contacts with the
Commission, a motion to take the deposition of a certain
AT&T employee, a motion to preserve evidence, and a
request for admission of fact by the Commission. In a
Memorandum Opinion and Order, FCC 76-31, released
January 23, 1976, we dismissed as moot MCI’s motion
to preserve evidence since AT&T had stated it would
preserve all relevant information in its possession. I.
addition, we stated we would act on MCI’s other motions
in a timely fashion and in accordance with due process.
11. We determined that prior to ruling on these mo-
tions the best procedure was to schedule oral argument.
in MCI Telecommunications Corporc ion, 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 per-
mitted classes of service by our Report and Order
in Docket No. 19117, 39 FCC 2d 131 (1973)?
e. Is Execunet service, as presently offered, a pri-
vate line service?
37a
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
of law.
MCI then filed motions requesting an evidentiary hearing
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 law-
fulness of MCI’s metered use tariff prior to the AT&T
contacts and pleadings. MCI also renewed its motion
for an evidentiary hearing concerning AT&T’s presenta-
tion and asked that the oral argument be held in abey-
ance pending the outcome of the proceedings it had re-
quested. 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, MCI filed a “Memorandum for Oral
Argument” restating its contention that an evidentiary
hearing concerning AT&T’s presentations was necessary
prior to the May 24, 1976 oral argument. Also on
May 20, 1976, MCI filed a “Motion for Inquiry Into the
Public Interest Consideration Regarding Establishment
of a Communications Monopoly” asking that we begin an
inquiry concerning whether a need for an MTS monopoly
exists and, if so, the outer boundaries of that service
offering.
B. Events Prior to Execunet Order
12. A full understanding of this proceeding requires a
review of the events and filings leading to our July 2
rejection of the Execunet offering. The following narra-
tive is drawn from the pleadings and affidavits filed by
MCI and AT&T with the Court and with us.
38a
13. In early September, 1974, MCI initiated a meeting
with the Bureau staff to explain a proposed metered use
service to be instituted by a tariff revision. The metered
use service would make possible payment of charges by
private line subscribers on a time and distance sensitive
basis. The conversations with the staff served mainly to
alert the staff that MCI would file within a short time
tariff modifications effecting the metered use service and
other private line communications features MCI consid-
ered innovative. Following the filing of the tariff revi-
sion, there were a series of meetings between the staff and
MCI’s representatives concerning the meaning of metered
use service and other tariff matters. At this point the
term Execunet was not used and the tariff did not de-
scribe the scope of services that MCI intended to provide.
MCI, however, filed an amendment to clarify the meaning
of its tariff. This amendment explained how metered
service would use local business telephone lines and pri-
vate lines to access exchanges in distant cities. Accord-
ing to the amendment, when a number of customers
shared a local business telephone line, MCI would prorate
the monthly charge. The tariff did not indicate that the
sharing would involve an unlimited number of unspecified
customers, i.e., all subscribers to a particular service.
To help clarify the meaning of its tariff, the staff re
quested 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 Decem-
ber 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
39a
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 meeting,
or shortly thereafter, that it would begin marketing the
Execunet service in January 1975, and agreed that “Ex-
ecunet” would be included in the glossary when it was
prepared.
15. According to an affidavit filed with us, AT&T
became aware in late October, 1974, that MCI was order-
ing a substantial number of local exchange lines, MCI
had informed AT&T’s local operating companies that it
intended to use those local exchange lines in conjunction
with its newly instituted metered use service. After ap-
parently attempting without success to clarify MCI’s
meaning of metered use service, AT&T by letter dated
November 6, 1974, requested MCI to respond to several
questions regarding the scope of tariff revision. AT&T
alleged that the tariff material was inadequate for a de
termination of whether use of the local exchange service
by MCI violated resale restrictions in AT&T’s private
line tariff, FCC No. 260. In reply MCI requested tariff
information from AT&T, to which AT&T responded by
letter on December 3, 1974. AT&T states that it provided
MCI with the information it sought and again asked
MCI to provide the Metered Use Service clarifications it
had earlier requested. According to AT&T, MCI never
responded. (The exchange of correspondence is contained
in an attachment to an affidavit filed with us on De
cember 29, 1975).
16. By January, 1975, MCI was offering Execunet
service to the public. MCI states that at that time it
informaily provided Execunet marketing brochures to
Commission personnel. AT&T states in its December 29,
40a
1975 affidavit that it did not become aware of the Execu-
net offering until March, 1975, when Execunet marketing
brochures were brought to its attention. Subsequently,
by subscribing to the service through an intermediary it
determined the nature and characteristics of Execunet.
17. Asa result AT&T concluded that MCI was illegally
providing Execunet. AT&T then orally informed various
Commission personnel of its beliefs and the reasons for
them. AT&T, in its affidavit, dated December 29, 1975,
filed with us, states that in describing the service to Com-
mission personnel, it relied on Execunet marketing bro-
chures, a transmittal letter from MCI to prospective
Execunet customers and copies of the AT&T and MCI
correspondence concerning AT&T’s request for clarifica-
tions of the meaning of metered use service. AT&T also
acknowledges that it demonstrated the service from tele-
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 com-
plaint on May 19, 1975 requesting the Commission to
take action against Execunet. AT&T states in its affi-
davit that it ceased discussing Execunet service with the
Commission on May 15, four days before it filed its in-
formal complaint.
18. On May 21, 1975, the Common Carrier Bureau
referred a copy of the AT&T letter to MCI. The cover
letter stated that AT&T had alleged that “Execunet serv-
ice 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.
4la
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 de-
scribed in detail the fundamental characteristics of
Execunet.
20. On June 9, 1975, MCI filed a letter stating that
while its letter of June 5 had “competently and com-
pletely” answered AT&T’s objections about Execunet serv-
ice, it was concerned about the staff’s handling of AT&T’s
written allegations as well as about the matter of “lobby-
ing” 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
matter before MCI had had even the chance to present its
side of the story.” It stated that it “was not requesting
a hearing on this matter.” Instead it asked for “equal
time“ with those persons to whom AT&T had presented
its argument.? MCI proposed that we initiate an investi-
gation including an immediate request for the names of
the AT&T personnel who participated in the lobbying, the
identification of the personnel to whom AT&T’s views
were presented, the date and length of those conversations,
what brochures or other material were used, the substance
of the oral presentations made, and other information.
At the conclusion of the proposed investigations, MCI
asked that this information be made available to it along
with an opportunity to rebut AT&T’s arguments.
21. On June 13, 1975, AT&T replied to MCI’s asser-
tion that “Execunet is a private line service.” In addi-
tion to submitting an analysis of the differences between
It should be noted that it is common for members of the public
and carriers to orally bring their complaints to the attention of the
Commission. MCI, itself, has made such presentations. This practice
was implicitly recognized by MCI and formed the basis for its re-
quest for “equal time.”
42a
private line services and Execunet, AT&T attacked MCI’s
“lack of candor” in submitting “confusing and inade-
quate” tariff materials and its failure to supply any of
the facts requested by AT&T relating to Execunet. De-
spite MCI’s assertion that its service components were set
forth in its tariff in a modular framework, AT&T claimed
it had been unable to put together the individual tariff
components so as to describe Execunet service.
22. On June 16, 1975, the Chief, Common Carrier
Bureau responded to MCI’s protest of June 9 about the
manner and depth of AT&T’s off-the-record presentations.
The letter reminded MCI of the staff’s initial view that
its tariff revisions filed in September were in need of
clarification and MCI’s “standing commitment” to file an
administrative tariff containing a clear explanation of
the tariff terms and descriptions. After MCI’s lengthy
delay in. filing that information, first requested nine
months earlier in September 1974, the Chief, Common
Carrier Bureau stated he did not consider a requirement
for the prompt exchange of correspondence unusual. He
added that AT&T’s letter “merely highlighted” an im-
portant problem already recognized by members of the
staff. In conclusion, he stated that the Bureau was of the
opinion that conversations between a member of the
Commission or staff with a carrier does not automatically
entitle another carrier with an opposing viewpoint to
“equal time.”
23. MCI filed a third letter on July 1, 1975. The letter
stressed MCI’s concern that we might act on Execunet in
the near future without having heard both sides of the
case. While stating that “[i]t agrees informal communi-
cations are highly desirable and indeed necessary to the
functioning of an administrative agency like the Commis-
sion,“ MCI reiterated its objections to AT&T’s presenta-
tions. MCI perceived these contacts to be “a very exten-
sive off-the-record presentation of AT&T’s position to key
Commission personnel at a time when AT&T must have
known that, if the agency could not be moved to act on its
43a
own motion, the Company planned to file a complaint
about the matter.” MCI requested that any action con-
cerning Execunet await a further filing containing a point
by point rebuttal of AT&T’s on-the-record arguments.
MCI then argued for the first time that our action in
Docket No. 19117 broadened MCI’s authorization to pro-
vide common carrier service beyond the specific limitations
of the specialized common carrier policy. Taking into
consideration 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
MCI.
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
lawfully offered:
(a) Execunet is within the class of service which
MCI is authorized to offer. The Specialized Com-
mon Carrier decision, supra, permitted compe-
tition for “specialized” and “innovative” services
and did not limit competitors to the private line
field. Even if that decision did limit the com-
petitors, the Commission’s Report and Order in
Establishment of Rules Pertaining to the Au-
thorization of New or Revised Classifications of
Communications on Interstate or Foreign Com-
mon Carrier Facilities, Docket No. 19117, 39
FCC 2d 131 (1973) removed all restrictions
which appeared in the Specialized Common Car-
rier decision and domestic facility authorizations
as to the types of services which could be offered
(b)
(e)
(d)
(e)
44a
using those facilities. Accordingly, a carrier
need not obtain prior Commission authorization
of new services.
Section 21.705 of the Commission’s Rules per-
mits 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 communi-
cation service provided for in the legally ap-
plicable tariffs of the carrier, unless otherwise
directed in the applicable instrument of authori-
zation .. .” Since Docket 19117 removed all
restrictive conditions on MCI’s authorizations,
this section permits MCI to offer any new serv-
ice which uses existing facilities through the fil-
ing of a tariff revision.
The Commission does not have the authority
summarily to reject a tariff unless it is “so
patently a nullity as a matter of substance law,
that administrative efficiency and justice are fur-
thered by obviating any docket at the threshold
rather than opening a futile docket.” Munici-
pal Light Boards v. FPC, 450 F.2d 1341, 1346
(D.C. Cir., 1971). Since this filing is not unlaw-
ful on its fece, the Commission can examine it
only through a hearing initiated pursuant to
Sections 204 and 205 of the Act.
Execunet is an entirely new service offering, not
MTS, which has characteristics essentially simi-
lar to those of private line service. However,
Execunet cannot be characterized in either classi-
fication since it is an entirely new communica-
tions service.
The Commission has never determined that
AT&T should have a monopoly over interstate
MTS. Therefore, even if Execunet were charac-
terized as MTS, MCI could lawfully offer in it
competition to Bell.
45a
(f) Since Execunet is a new, innovative communi-
cations service, which subscribers find meets an
otherwise unmet need, the public interest would
not be served by discontinuing the service.
25. MCI also supplied a number of affidavits from
company officials, Execunet subscribers and from William
H. Melody, economic consultant. The subscribers essen-
tially assert the importance of Execunet to them and the
otherwise unfulfilled communications requirements which
the service provides. Melody avers that the projected
revenue shift from the Bell System as a result of Execu-
net ($37 million) is minor and will have little or no im-
pact on Bell’s ability to continue to provide high quality
communications service.
26. The other attachments to MCI’s comments consist
of lengthy affidavits from Bert C. Roberts, Jr., Vice
President, and William G. McGowan, President and Chief
Executive Officer of MCI. These affidavits expand upon
certain of the substantive allegations made in MCI’s
comments. Mr. Roberts lists what he contends to be the
differences between Execunet and MTS and the similari-
ties 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
facilities Mr. Roberts characterizes the
intercity lines used for Execunet as dedicated to
users of this service and not used by subscribers
to any other MCI service. In addition, he con-
tends that the local business lines subscribed to
by MCI are likewise dedicated to Execunet cus-
tomers’ use. Finally, 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 per-
(e)
(d)
(e)
46a
son anywhere in the country, with no minimum
volume required, Mr. Roberts describes Execunet
service as limited to fifteen cities, accessible only
by its customers, subject to a $75 per month
minimum charge, and accessible only from push-
button telephones. He also notes that, while
MTS is marketed to the general public, Execu-
net is intended for only that class of users with
at least $75 in monthly toll charges to the cities
which Execunet serves.
4. . . both charge on a per call basis. While
MTS is charged only on a per-call basis, Mr.
Roberts notes that Execunet is subject to a $75
per month minimum, can be subscribed to only
for a minimum period of a month, can be can-
celled 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.
„. . . both are available from any telephone in
the calling city (Execunet is subject to the push-
button telephone limitation, but this is caused
only by technical limitations). Mr. Roberts
points to the fact that Execunet is accessible
only within certain (currently 15) cities, while
MTS is available everywhere, and he asserts
that the push-button telephone restriction is a
more significant difference than the Commission’s
Order implies.
„. . . and both may be used to call any tele-
phone in one of a number of distant points.”
While MTS is available to call any telephone in
the country, Mr. Roberts asserts that the limita-
tion of Execunet to 15 cities is a difference in
kind rather than degree between the two services.
47a
27. Finally, Mr. MeGowan 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:
(a) Commission policy precluded competitive entry
into the MTS business. Both the conditions
placed on MCI’s Section 214 authorizations and
the policies established in the Specialized Com-
mon Carrier decision, supra, make this policy
evident. The Commission has made very clear
its view of MTS as a monopoly service, and de-
parture from this policy would undermine
AT&T’s services and destroy the nationwide
MTS price averaging structure. MCI has pro-
posed 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
telephone service. 7
(b) MCI has never sought or obtained Commission
authorization to offer services other than those
which are consistent with the policies established
in the Specialized Common Carrier decision, i. e.,
private line services, Without a formal applica-
tion it cannot offer other services, since the
Commission has never permitted competition in
the MTS business.
(e) Execunet is not a private line service. Rather,
it has the fundamental characteristics of mes-
48a
sage 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 connection is required for each
call and it is charged on per-call usage-sensitive
basis. By contrast, private line is a service be-
tween designated points facilities are designated
for the use of a single subscriber, a new con-
nection does not have to be made for each call
and charges are made on a fixed, periodic basis.
29. Both ASC and SPCC recognize the possible broad
applicability of this decision and therefore ask us to con-
fine our decision as narrowly as pussible—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
station-to-station direct dial service. They assert that
Execunet is not a private line service (specifying alleged
differences), and that it cannot be compared to foreign
exchange (FX) service. Since MCI’s facility authoriza-
tions and our policies allegedly limit MCI to private line
services, including FX, they claim that MCI is not au-
thorized to offer Execunet service, and that we should
reaffirm its rejection.
31. In reply, MCI alleges that we did not intend to
limit the SCC’s 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 MCI’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 Execu-
net offering is dependent upon three basic issues:
* Are MCl's authorizations, based upon policies
established in Docket No. 18920, limited to the
offering of private line services, or if not, is
MCI otherwise limited in the services it may
offer?
(b) If the above limitations existed, were they modi-
fied as a result of our Report and Order in
Docket No. 19117 and Section 21.705 of our
Rules?
(e) If MCI is limited to private line services, is
Execunet 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, con-
trol, remote metering, voice and other communications.”
This language was taken from MCI’s applications and,
as will be seen, is similar to MCI’s description of its own
services in proceedings both before us and before the
courts. As MCI points out, however, not all of its authori-
zations 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 ascer-
tain 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-
50a
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
decision, we had before us 1713 microwave applications
from 33 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
policy determination made therein and are helpful in
ascertaining 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 any-
thing 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, Jd. Thus, MCI sought therein to offer only
private line, point-to-point services. Later, in discussing
the impact of the specialized services being proposed upon
existing carriers, we indicated (29 FCC 2d at 907):
MCI’s proposed “customized” or “individually tail-
ored” private line services purport to offer customers
the flexibility and benefits of private microwave at
lower cost to the user, ¢.g., the exact bandwidth re-
quired for any particular service, any bandwidth
that is required, and flexibility in the use of chan-
nels and customer terminal equipment.
® See, e.g., Docket No. 19117, 39 FCC 2d 131, 133; AT&T (Hi-Lo),
58 FCC 2d 362, 366 (1976) ; Bell System Tariff Offerings, 46 FCC
2d 413, 424-25 (1974).
5la
36. Our discussion in the Specialized 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
private line revenues of these two carriers. Further, we
recognized that SCCs would not compete directly with the
established carriers’ message services.
“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 sub-
stantial 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.
Although MCI and RCA Globcom contend herein that the
term “specialized 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.
52a
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
warrant for the staff’s conclusion that the applicants
are seeking primarily to develop new services and
markets, as well as to tap latent, but undeveloped
submarkets 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 carriers.
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, 513 F.2d 1142, 1159 (1975), cert. denied, 423 U.S.
836 (1975), the Court stated:
The business involved is that of providing special-
ized private or leased line communications services
through microwave transmission facilities, as dis-
tinguished from public erchange 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):
53a
[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
focus to be significant. Implicit in the FCC’s evalua-
tion is the assumption that the new entrants will pro-
vide services similar to those provided by the 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 Cir-
euit 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).
Brief for Respondent, American Telephone and Telegraph Com-
pany v. FCC, No. 74-1229, May, 1975, pp. 24-25.
5 Brief for Intervenor, AT&T v. FCC, No. 74-1953, April, 1975,
pp. 2 (n. 1), 17-19, 37.
Brief for Intervenors, Bell Telephone Company of Pennsylvania
v. FCC, No. 74-1386, May 28, 1974, pp. 37-40, 52-54.
54a
(4) The narrow interpretation sought by petitioners
here would frustrate the basic objectives enunciated
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 specialized 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 switching arrangement (CCSA) services, MCI as-
serted 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 Commis-
sion knew that if the new carriers were ever to be-
come 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—including
FX and CCSA. The Commission now has the oppor-
tunity to stop once and for all the effort of AT&T to
kill competition by setting up protected enclaves
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 men-
55a
tioned in the order in Docket No. 18920. [Emphasis
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. Fur-
ther, they felt that the message services of AT&T and
Western Union, such as MTS, would not be subject to
direct competition. 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
Order in Docket No. 19117, supra; removed the restric-
tive conditions placed on its facility authorizations and
permitted 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.
45. While Section 21.705 expresses the truism that a
carrier need not generally file an application for each
new service it wishes to offer, it cannot be used to re-
verse a clearly defined Commission policy. The Rule
states that a carrier may provide any service “provided
for in the legally applicable tariffs of the carrier” (em-
phasis added). Any tariff which violates a statute or our
Rules, Orders, or Policies is unlawful on its face. As-
sociated Press v. FCC, 448 F.2d 1095 (D.C. Cir., 1971) ;
see also, Press Wireless, Inc. v. FCC, 264 F.2d 372 (D.C.
Cir., 1959); Nader v. FCC, 520 F.2d 182 (D.C. Cir.,
1975). Since, as discussed above, the Specialized Common
Carrier decision specified that the SCCs shall offer only
private line services, any tariff which offers another
service is unlawful on its face. Accordingly, such a tariff
is not a “legally applicable tariff” within the meaning of
Section 21.705. MCI’s rather circular argument, that
56a
a tariff which may be otherwise unlawful is made law-
ful because of 21.705, cannot stand. If a tariff is un-
lawful because of our policies 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 that no
tariff can be rejected as offering unauthorized services. A
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 re
strictive 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 speci-
fied services unless further authorizations were obtained.
They were imposed initially “to provide reasonable op-
portunity for the competitive development of the market
for specialized communications services.” It was our
concern that “this objective could be thwarted by existing
carriers who 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 im-
peding or delaying the entry of new carriers seeking to
serve that market by raising various policy objections to
the applications 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,
Domestic Satellites, 35 FCC 2d 844 (1972), which, inter
alia, opened the domestic satellite field to competition.
Because the policy determinations made in these orders
negated the need for imposing specific conditions of this
type on the authorizations, we terminated the rulemaking
and declared such conditions on the authorizations for
domestic facilities of all carriers null and void.
57a
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 specialized
carriers may offer. Rather it was because of the Docket
18920 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 MCI re-
mains 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
reasonable place to reverse a policy which had been de-
veloped less than two years earlier after an extensive
investigation. Further, we certainly would have made
it explicit that we intended to reverse such a major policy.
50. In addition, there is no indication prior to the
present proceeding that MCI interpreted the Report and
Order in Docket No. 19117 in such a way as to reverse
the 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 indi-
cated 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 offer-
ing private line services,’ and no Commission Order since
that date has modified that limitation. Even in the
AT&T, supra note 4.
58a
present proceeding, in its Motion for Inquiry into Public
Interest Considerations regarding establishment of a com-
munications 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, de-
spite its allegations in pleadings that Docket 19117 and
Section 21.705 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 argu-
ment before us, in response to a question about whether
MCI has always, 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.
$7). In fact, MCI, prior to the present proceeding, has
always told the Commission that it intended to offer ex-
clusively-private line services.
51. Both the Washington Utilities and Bell Telephone
of Pennsylvania decisions, supra, were rendered well after
the Docket 19117 Report and Order, and both upheld the
view that the SCCs are limited to private line services.
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 or even
MCI itself felt that the Docket No. 19117 Report and
Order, which was decided more than three years ago,
modified or reversed the policies established in Docket
18920. MCI is therefore advocating a position completely
different from that which it had advocated at every previ-
ous 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
characteristics of Execunet. The conclusion reached at
59a
that time was that Execunet was essentially MTS, not a
private 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 July 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 services. 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
times, while the Execunet customer uses common
local 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 billed 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
60a
Execunet 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,
MCI 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
general, 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 proce-
dures, 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 Execunet 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-
station dial MTS offering. If features such as person-to-
person, collect, credit card and conference call services
were eliminated from Bell’s tariff, the service would still
remain MTS, and the large majority of calls placed
would be unaffected. Similarly, see-while-you-talk (Pic-
turephone) and 50 kilobit switched services are special-
ized, add-on services to the MTS network. As the item-
by-item analysis in the Appendix demonstrates, the re-
maining differences cited by MCI either are not factually
correct or are so insignificant that they in no way could
s WATS, like MTS, is not subject to competition, pursuant to the
Specialized Common Carrier decision, 29 FCC 2d at 911.
6la
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 hypo-
thetical 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 tele-
phone in a number of called cities. Both employ the
same local exchange telephone network used in common
by the general public in order to enter the inter-city seg-
ment of the service offering,“ and both involve the indis-
criminate sharing of inter-city facilities by all subscrib-
ers. Inter-city facilities for MTS and Execunet are avail-
able on demand, and both MTS and Fxecunet are charged
on a usage-sensitive basis. Finally, neither service termi-
nates in specifically designated customer premises or local
exchange 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 (Washing-
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
® While the subscriber may secure a separated dedicated local loop
for this service he need not do so if he subscribes to local exchange
telephone service. Counsel for MCI admitted at oral argument that
no customer of Execunet has taken a dedicated local loop and antici-
pated that the great majority of customers would not take such a
dedicated channel (Tr. 9).
62a
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, that private line service
must be provided via facilities which are in some signifi-
cant respect dedicated to the private use of the customer
and not used or useable for public communications serv-
ices. While more than one private line service or cus-
tomer might properly share the use of any facilities used
in providing 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 dis-
tant location, on both a switched and non-switched 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 public
communications services; and (b) access only those dis-
tant locations (including if appropriate, distant telephone
central offices) specifically designated by the customer
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 serv-
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.”
11 This does not preclude the customer from directly accessing
more than one distant exchange or premises from a single dedicated
local channel provided each such access location is specifically desig-
nated by the customer. This does not preclude certain interconnec-
tions to other services.
63a
ices which are generally understood to be classed as pri-
vate line.” By listing only a few such services as we do
not in any way wish to stifle the development and offering
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 (IXC) 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.
64. Foreign Exchange (FX) service includes a dedi-
cated 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 carirer’s central office with an IXC
which terminates 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 situ-
ated 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 useable
12 See AT&T, 56 FCC 2d 14, 20 (Note 5) (1975).
64a
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 charac-
teristics 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 characteristies in
common with WATS or MTS could be found to be private
line, Execunet has all the essential characteristies of
MTS or WATS. Similarly, Execunet does not have the
essential characteristics of private line service and thus
cannot be so classified. The most significant characteris-
tic of Execunet which causes it to differ from all private
line services is the fact that the local channel terminat-
ing 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 identifi-
cation number can use the system simultaneously.
68. MCI further argues, however, that even if Execu-
net contains many of the characteristics of MTS, the pub-
lic 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 indis-
tinguishable 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
factor which would have to be considered. Rather, the im-
pact 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-
examined only upon a showing that a need exists for such
review.
69. As noted above, MCI asserts that the revenue shift
from other cariers to Execunet is minor and will have an
insignificant impact on Bell or other established carriers.
At the oral argument, however, counsel from USITA and
Continental averred that the potential impact of Execunet
on their portions of interstate revenues was substantial
and could cause increases in local telephone service. Since
we have found that Execunet is outside of MCI’s authori-
zations, and since the evidence before us on economic im-
pact is little more than unsupported allegations, we need
not reach this question in this proceeding.
E. Procedural Arguments
a. Notice and Hearing Issues
70. A principal issue MCI 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. MCI 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. MCI 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 sey. of the Rules. Under the Rules, MCI asserts
informal complaints standing alone are not ripe for dis-
66a
position. 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 the terms of substance of the proposed action or a
description of the subject and issues involved. In this
context MCI also asserts that our action failed to com-
ply with the minimum standards for notice and hearing
required by Sections 204 and 205 of the Communications
Act. MCI states this requirement is not open to our dis-
cretion. On this basis, according to MCI, our rejection of
Execunet deprived MCI 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 MCI, 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
specific notice that the investigation could lead to the
rejection 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.
According to MCI, we then denied any opportunity for
18 We do not find here nor did we find in our July 2 letter that the
staff meetings with MCI constituted notice. Those meetings, how-
ever, did reflect the staff’s concerns about the scope of MCI’s tariff.
Thus, when AT&T presented its evidence, we were aware that MCI
had not provided clarification of its tariff as it had promised. As
a result, the meaning of its tariff remained unclear.
67a
redress by rejecting the service out of hand rather than
designating formal proceedings pursuant to Section 204
or 205 of the Act.
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
statutory and due process requirements. Once we estab-
lished that MCI lacked authority to provide Execunet
service, we properly rejected Execunet. The characteris-
ties of Execunet found in MCI’s letter of June 5, 1975,
clearly show that Execunet is not a private line service.
The discussion of the substantive issues surrounding the
Commission’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 requir-
ing 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) fune-
tions.” The tariff rejection power is beyond dispute where
the facts show that a tariff offering is patently in viola-
tion of a carrier’s underlying authorization. In Press
Wireless, Inc. v. F.C. C., 264 F.2d 872 (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 previde a service not previously
authorized. In our discussion of the Press Wireless offer-
ing, 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 308(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
68a
but would file a modification of its tariff to provide
any service it desired . . . Further, the criteria by
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 ap-
proval has not been obtained. In such cases the re-
fusal of an agency to reject a tariff may be reviewed
by the courts. Associated Press v. F. C. C., 448 F.2d
1095, 1108 (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 ap-
propriate 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 28. 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 underlying 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 in-
stance MCI must obtain a new certificate pursuant to
Section 214 of the Act, 47 USC 214, prior to offering a
69a
non-private line service. 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.,
supra; 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 Pro-
cedure 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. Morover, 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 insuffi-
cient for MCI to understand the scope of the proceed-
ing, AT&T’s attached complaint spelled out the issues.
AT&T stated :
70a
Execunet service is simply long distance message
telephone service. MCI never has sought authority
to enter the long distance message telephone busi-
ness (in fact, it has said it did not intend to pro-
vide long distance toll service). The Commission has
granted MCI authority’ only to provide private line
services and the Court of Appeals, in affirming the
Commission 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 . . Prompt 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 pri-
vate 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 properly tariffed it with the Commission.”
It then provided a six page rebuttal of AT&T’s allega-
tions. In its conclusion, MCI stated that AT&T’s com-
plaint was insufficient “to justify or require any Com-
mission action with respect to MCI’s Execunet service.”
In its second letter filed June 9, MCI declared that its
letter of June 5 responded “competently and completely”
71a
to AT&T’s objections regarding 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
adequate notice and opportunity for hearing in the first
instance, the instant proceeding fully complies with statu-
tory and due process requirements. First, the July 2nd
Order provides notice of the issues respecting the Execu-
net offering. The Order thoroughly presents the Com-
mission’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 unlaw-
ful. Third, the December 3 Order provided an oppor-
tunity for hearing by calling for a two stage submission
of pleadings and stating that further proceedings will be
held if appropriate. When we found that oral argument
would be appropriate, we set forth six questions to guide
the parties in preparing their arguments. Fourth, in re-
sponse 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 concluded, after a thorough analysis of
the record, that no substantial and material fact which
might necessitate a trial-type hearing remains unre-
solved. See paragraphs 9-69 and Appendix A. Sixth,
since there have been no improper presentations follow-
ing 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.
F. Ex Parte Arguments
80. In its motions filed December 15, 1975, MCI re-
quests 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
72a
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, accord-
ing 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 pre-
sentations is known and the tainted record cleansed, may
we again deliberate the merits of the Execunet contro-
versy. 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.
81. Pursuant to Section 5 of the Administrative Pro-
cedure Act, in an adjudicatory proceeding only the evi-
dence contained in the official record and facts subject
to official notice may be considered. According to MCI,
unlike routine tariff matters our determination that
Execunet was not a private line service, was essentially
an adjudication of a particular set of facts involving
a valuable privilege, not a rulemaking in the sense that
the Commission resolution was applicable to numerous
73a
parties. In 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 stanc-
ards 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 of improper ex parte contacts con-
cerning awards of television licenses. MCI states that
the privilege of providing MTS to the public is at least
as valuable as a television broadcast license award at
issue in an adjudicatory proceeding and should be ac-
corded the procedural protections extended by statute to
traditional adjudicatory proceedings. MCI points out that
in instances where a court has discovered that television
broadcast awards were obtained 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 Commissioner exerted improper influence
after a hearing examiner had rendered his decision and
while final disposition was being considered by us. Like-
14 The fact is that our ruling in this case has broad applicability
and impacts on many other carriers. The broad applicability of our
ruling is recognized not only by the other parties including other
specialized common carriers who have participated in this proceed-
ing seeking to limit its broad scope but by MCI itself. On May 20,
1976, MCI filed a motion asking that we begin a proceeding deter-
mining the outer boundaries of MTS vis-a-vis private line service
which we treat infra. Further, MCI itself points to Section 4 of the
APA, a section dealing with rulemaking, for its notice rights.
74a
wise, in Massachusetts Bay Telecaster, Inc., 261 F. 2d 55
(D.C. Cir. 1958), we considered on remand allegations
of improper ex parte contacts made after competing mu-
tually exclusive applications had been filed.
83. Moreover, MCI argues that the courts have im-
posed this standard in rulemaking proceedings involving
issues similar to those in Execunet. In Sangamon Valley
Television Corporation v. U.S., 269 F.2d 221 (1959), the
court remanded a rulemaking proceeding for a special
evidentiary proceeding when faced with clear evidence of
improper 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 tele
vision license, which is adjudicatory, a proceeding con-
cerning channel allocation is rulemaking since the out-
come determines 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 the Commission decision making personnel after the
comment period had closed violated fundamental fair-
ness. In remanding the case for a special evidentiary
hearing to determine whether ex parte presentation had
occurred the court declared:
The Commission and the intervenor contend that be-
cause the proceeding now on review was “rulemak-
ing,” ex parte attempts to influence the Commission
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-
75a
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 find-
ing 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 directed 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 preclude possible re-
liance upon a defective record, we severed that part of
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 es-
sentially related authorization pursuant to Section 214
and MCI should have been accorded the treatment the
Commission took therein.
G. Ez Parte Analysis
85. Section 1.1201 et seg. of the Rules set 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
Designated for hearing” was replaced by “from the day they
are instituted” in Section 1.1207 of the Rules to remove any impli-
76a
staffs and the Chief of the Common Carrier Bureau and
his staff are prohibited from receiving any oral or writ-
ten communications going to the merits of the proceed-
ing 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 dis-
cussion 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.
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 pur-
suaded us to prejudice the case. In support of this con-
tention, MCI relies heavily on court decisions concerning
invalid awards of television licenses. In WKAT, INC.,
supra, and Massachusetts Bay Telecasters, supra, the
courts remanded television licensing proceedings to us for
a determination of whether ex parte contacts had ren-
dered a license awards invalid. In WKAT, INC., ex parte
contacts had taken place after the case was set for hear-
ing and during the decision making stage of the proceed-
ing. Contacts such as these are contrary to Section 409
(e) (1) of the Communications Act. This section pro-
vides that:
In any case of adjudication (as defined in the Ad-
ministrative Procedure Act) which has been desig-
cation that only cases involving a full evidentiary hearing were
subject to the ex parte rules. “From the day instituted” is intended
to apply the ex parte rules to a case upon Commission action
acknowledging that a case is to be decided and prescribing pro-
cedures—i.e., hearing, or written comments, or oral argument, or
a conference, etc.
77a
nated by the Commission for hearing, no person who
has participated in the presentation or preparation
for presentation of such case at the hearing or upon
review shall (except to the extent required for the
disposition of ex parte matters as authorized by law)
directly or indirectly make any additional presenta-
‘tion respecting such case to the hearing officer or
officers or to the Commission, or to any authority
within the Commission to whom, in such case, review
functions have been delegated by the Commission
under Section 50d) (1), unless upon notice and op-
portunity for all parties to participate.
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
Section 409 (e) (1) are not directly applicable to Execunet.
87. In Sangamon Valley, supra, the court found strong
evidence of improper ex parte contacts requiring a special
evidentiary proceeding intended to purge the impropriety
from the proceedings. In reaching its decision the court
determined that the rationale underlying the need for
restricting ex parte contacts in adjudicatory matters ap-
plied equally to rulemaking involving “conflicting private
claims to a valuable privilege.” While the court in Sanga-
mon Valley broadened the scope of ex parte prohibitions
by insisting on their application in certain proceedings
which were labelled as rulemaking, that case concerned
prohibited contacts taking place during the record phase
of a proceeding. Subsequent to Sangamon Valley, we have
adopted rules restricting contacts, inter alia, prohibiting
contacts between the public and Commission personnel in
rulemakihg matters after the institution of a proceeding.
See footnote, p. 34.
88. In California Water and Telephone Company, su-
pra, involving the provision of allegedly unauthorized
service by AT&T affiliates, we ordered that issues involv-
78a
ing 214 authorizations be severed from the proceeding
when we found, after an informal investigation, that un-
authorized ex parte presentations had been made to deci-
sion making personnel. There, the prohibited contacts had
occurred after designation 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 began. In fact, those contacts terminated be-
fore AT&T filed its informal complaint. Another factor
distinguishing this proceeding from the cases cited by
MCI 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 providing MTS has been reserved to telephone carriers
pursuant to prior policy decisions including the Special-
ized Carrier decision under which MCI’s own authoriza-
tions arise, there were no mutually exclusive applications
at issue. Rather we were dealing with the question con-
cerning the scope of MCI’s authorization. The question
was therefore whether Execunet was a service lawfully
offered pursuant to its tariff. The Commission found
simply that MCI’s authority to provide private line serv-
ice did not authorize it to provide Execunet. It was our
Specialized Carrier decision 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 services. Accordingly, MCI’s argu-
ment that our July 2 Order disposed of competing claims
to a valuable privilege is meritless since MCI lacked the
scope of authorization necessary to be considered for the
privilege it sought, i.e., the tariffing of Execunet service.
90. The events leading to the filing of AT&T’s com-
plaint and our July 2nd Order show that AT&T acted
legally, and that we acted within our authority in reject-
ing Execunet. Immediately after MCI filed its metered
use tariff, meetings were held between our tariff staff and
79a
MCI for the purpose of clarifying the tariff. As a conse-
quence, MCI filed a tariff revision providing clarification
of one aspect of the tariff and also promised to file a glos-
sary 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 con-
cerning the tariff were unresolved when MCI offered Exe-
cunet 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 complaints orally in the belief that we had a duty to
act of our own accord after being presented with a de-
scription of the Execunet service. The Bureau Staff, how-
ever, told AT&T that it should set out its allegations in
writing.
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. MCI has not alleged
that AT&T’s representatives had financial or other links
to the Commission personnel it contacted nor does MCI
dispute the Commission’s authority to act on its own ac-
cord in this matter. Instead, MCI alleged only that
AT&T’s “persuasive” presentations blinded the Commis-
sion to MCI’s defense of its service. This argument is
based on a misplaced understanding of the purpose of
the ex parte rules. It is obvious that interested parties
will conduct their arguments aggressively. 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 develop-
ments in the communications industry, Congress and the
Commission have generally permitted unilateral presen-
tations in rulemaking matters before formal designation.
MCI itself is also aware of the usefulness of informal ex-
changes with us. At page 5 of its July 1, 1975 letter,
80a
MCI agreed that “informal discussions between carriers
and Commission personnel are desirable and often neces-
sary.” Indeed, MCI acknowledges 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 con-
cerning restricted rulemakings reflect an intention to pro-
tect decision making personnel from off-the-record presen-
tations by interested parties after a case is set for hear-
ing. Here faced with an unauthorized incursion by a
carrier into one of its authorized services, AT&T respond-
ed by demanding Commission action. As would be ex-
pected, it*pursued its 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
presentations falling outside the boundaries of our rules
on a case-by-case basis. This proceeding involves allegedly
unauthorized service by MCI. It does not involve the dis-
position 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 pre-
sented here. While our staff for some time had awaited
the clarification of MCI’s tariff, the fact is that the alle-
gations AT&T presented 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 proc-
ess occurred, and thus we find no basis to hold a special
evidentiary hearing concerning those presentations.
8la
95. In the oral argument, MCI argues (Tr. 41) that
the occurrence of off-the-record presentations prior to the
filing of AT&T’s May 1975 letter requires us to hold an
evidentiary hearing to determine the impact of the pres-
entation. In support MCI quoted the following language
from Rules Governing Ex Parte Communication in Hear-
ing Proceedings, supra, at paragraph 9:
(I]t should be clear that presentations should not be
made if the person making the presentation has
knowledge of matters which will warrant
This text is long and has been trimmed here. Open the source document for the complete record.
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