Petitioners Reply Brief — United States Independent Telephone Ass'n v. MCI Telecommunications Corp.

NOV 7 1977

MICHAEL RODAK, JR., CLERK

No. 77-436

Gn the Supreme Court of the United States

Ocroper Term, 1977

FepERAL COMMUNICATIONS COMMISSION, PETITIONER

Vv.

MCI TEeLecoMMUNICATIONS CorRP., ET AL., RESPONDENTS

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

PETITIONER’S REPLY

DANIEL M. ARMSTRONG,

Associate General Counsel,

JOHN E. INGLE,

Counsel,

Federal Communications Commission,

Washington, D.C. 20554

(202) 632-7112.

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CITATIONS

Court decisions:

Atlantic Rfg. Co. v. Public Serv. Comm., 360 U.S. 378

Ee 6

Beil Tel. Co. of Penn. v. FCC, 503 F. 2d 1250 (3d Cir.

1974), cert. denied, 422 U.S. 1026, reh. denied, 423

ER Se ne Oe 2,3

City of New Orleans v. Dukes, 427 U.S. 297 (1976) -_-- 8

Federal Communications Comm. v. RCA Communica-

cations, Inc., 346 U.S. 86 (1953) ..-..-------.--..- 3, 4

Hawaiian Tel. Co. v. FCC, 498 F. 2d 77 (D.C. Cir.

RR 4,7

Katzenbach v. Morgan, 384 U.S. 641 (1969) _____-__-_ 8

United States v. Maher, 307 U.S. 148 (1939) _.------- 8

United States v. Ruzicka, 329 U.S. 287 (1946) __..__-- 6

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

1142 (9th Cir.), cert. denied, 423 U.S. 836 (1975)... 2,3

Agency decisions:

American Tel. & Tel. Co., 38 FCC 1222, aff'd., 1 FCC

nN 7

American Tel. & Tel. Co., 8 Pike & Fischer Rad. Reg.

OE 7

American Tel. & Tel. Co—RCA Comm., Inc., 27 FCC

281 (Initial Decision), aff’d., 27 FOC 271 (1959) ____ 7

Authorization of New or Revised Classifications of

Communications (Docket No. 19117), Notice of Pro-

posed Rule Making, 27 FCC 2d 36 (1971), Report

and Order, 39 FCC 2d 131 (1973)___.----_--_____ 8,9

ITT World Comm., Inc.,2 FCC 2d 573 (1966) __._____ 7

(D

249-896—77——-1

Il

Agency decisions—Continued

RCA Global Comm., Inc., 37 FCC 2d 1043 (1972), rev.

sub nom ™ »atian Tel, Co, v. FOC, 498 F. 2d 771

(* - 7

&) ---------------- ~~ + - + + ~~~ ee ee

siules Governing Ex Parte Communications, 1 FCC

08 © (IRE) cccccencennesessnencsresssssasenese 10

Specialized Common Carrier Services, 29 FCC 2d 870,

31 FCC 2d 1106 (1971), affd., sub nom. Washington

Util. & Transp. Comm. v. FCC, 513 F. 2d 1142 (9th

~ Cir.), cert. denied, 423 U.S. 836 (1975) ------------ passim

Statutes and regulations:

Coimmunications Act of 1934, 48 Stat. 1064, as amended,

47 USC. § 151-609:

a 9

LASS 10

A Nee te ROR RIE pasein

PD eee 10

Other citations:

Letter to Hon. Lionel van Deerlin from FCC

Chairman Richard E. Wiley, September 23, 1976

(comments on H.R. 12323 and related bills) ....__- 7

Motion [of MCI] to Strike Consolidated Answer to

Motion and Cross-Motion for Leave to File Copies

of Commission Decision, filed May 15, 1974, in

Washington Util. & Transp. Comm. v. FCC, No.

ee Se SE ckncotencnntouunimacmenan 2, 3, 6,9

Southern Pacific Transmittal No. 113, Tariff FCC

No. 6, filed October 20, 1977.........-... .......-. 6

Gu the Supreme Court of the Wnited States

Octoser TERM, 1977

No. 77-436

FEDERAL COMMUNICATIONS COMMISSION, PETITIONER

v.

MCI TEeLEcOMMUNICATIONS CoRP., ET AL., RESPONDENTS

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

PETITIONER’S REPLY

The Federal Communications Commission has asked this

Court to grant its petition for writ of certiorari because (1) the

decision below conflicts directly with decisions of two other

circuits construing the scope of authorized competition by

specialized communications common carriers, and conflicts in

principle with decisions of this and other courts construing

Section 214 of the Communications Act of 1934, 47 U.S.C. § 214,

and other public utility certification statutes; (2) the deci-

sion would cause fundamental changes and disruption in the

communications industry and would have a significant impact

on the FCC’s common carrier certification process; and (3) the

decision is wrong as a matter of statutory construction, in that

it ignores the plain language of Section 214 and the FCC’s

consistent interpretation and application of that statute over

(1)

2

the years. (FCC Pet., pp. 12-26). MCI Telecommunications

Corp. and Southern Pacific Communications Co. filed briefs in

opposition, and the FCC hereby replies.’

1. Conflicts. Neither MCI nor Southern Pacific has refuted

the FCC’s demonstration of direct conflict and conflict in prin-

ciple betwee. the decision below and decisions of other circuits

and of this Court. (FCC Pet., pp. 13-17.) The undeniable fact

remains that the Ninth and Third Circuits construed the FCC’s

specialized common carrier policy * as authorizing competition

only in the field of private line services. That construction was

an essential premise to their affirmance of aspects of the com-

petition policy.* MCI’s characterization of the findings of those

courts as “merely prefatory” (MCI Br., p. 15) is inconsistent

with positions which MCI and other parties including the FCC

urged on those courts at the time and upon which those courts

quite properly relied.

Perhaps the strongest assertion that the specialized carriers

were limited to private line services came in a pleading MCI

itself filed in the Ninth Circuit to rebut claims that the FCC

had authorized specialized carriers to provide the functional

equivalent of ordinary long distance telephone service. MCI

responded:

Specialized carriers are not authorized to furnish the

equivalent [of] ordinary iong distance telephone serv-

ice, and to the best of our knowledge this is the first time

anyone has ever alleged that they are. Contrary to what

is implied in NARUC’s instant pleading specialized

1 Companion petitions were filed by the United States Independent Tele-

phone Association (No. 77-420) and the American Telephone & Telegraph

Co. (77-421). The National Association of Regulatory Utility Commissioners

and the public utility commissions of several states have moved for leave

to file briefs as amici curiae in support of the petitions for writ of certiorari.

2 Specialized Common Carrier Services, 29 FCC 2d 870, 31 FCC 2d 1106

(1971).

* Washington Util. & Transp. Comm. v. FCC, 513 F. 2d. 1142 (9th Cir.),

cert. denied, 423 US. 836 (1975); Bell Tel. Co. of Penn. v. FCC, 503 F. 2d

1250 (3rd Cir. 1974), cert. denied, 422 US. 1026, reh. denied, 423 US. 886

(1975).

3

carriers were never supposed to be limited to “data com-

munications.” Most specialized carriers never even pro-

jected that data communications would account for the

bulk of their business. They proposed, and have been

authorized, to provide the full range of private line serv-

ices. They have never proposed—and have not applied

for the facilities required for—the provision of long

distance service, which involves the ability to reach

every other telephone in the system.‘

This filing shows plainly that MCI had a different view of

its authority when the seminal policy decision was on direct

review. More importantly for purposes of the present petitions,

it demonstrates that MCI considered it crucial for the Ninth

Circuit to understand the boundaries of the competition the

FCC had authorized. We believe the Ninth Circuit correctly

understood those boundaries and that its decision to affirm was

founded upon that understanding as an essential premise. The

decision below in this case conflicts directly with that construc-

tion of the scope of authorization for specialized carriers.°

* Motion [of MCT] to Strike Consolidated Answer to Motion and Cross-

Motion for Leave to File Copies of Commission Decision, pp. 9-10, filed

May 15, 1974, in Washington Util. & Transp. Comm. v. FCC, No. 71-2919,

9th Circuit. [Emphasis in original. ]

5 See FCC Pet., pp. 13-15. The conflict with the Third Circuit decision

may be even stronger. In addition to analyzing the FCC’s policy under the

standard of the RCA Communications case, 346 US. 86 (1953), the Third

Circuit had to consider whether an order requiring AT&T to interconnect

with the specialized carriers was overly broad because it required interconnec-

tion for all of the specialized carriers’ “authorized services.” The court found

that the order was not overly broad because its scope was limited to the

services authorized in the specialized carrier proceeding. Since that pro-

ceeding authorized only private line services, the court held, the FCC had

not imposed an “unbounded interconnection order.” 503 F. 2d at 1273-74.

If the Third Circuit had construed Section 214 and the specialized carrier

policy as the D.C. Circuit did in this case, the interconnection order might

well have been found to be “unbounded” and impermissibly broad. MCI

and Southern Pacific ignore the Commission’s further point that this Court

denied certiorari in both the Ninth and Third Circuit cases on the basis of

oppositions emphasizing the limited scope of competition by specialized

carriers.

4

Nor have MCI and Southern Pacific reconciled the decision

below with the principle this Court established in Federal

Communications Comm. v. RCA Communications, Inc., 346

USS. 86 ( ), a case which also arose under Section 214 of

the Communications Act. In the RCA Communications case,

this Court construed Section 214 to require the FCC to make

specific public interest findings before authorizing new com-

petitive entry into a communications market. The Execunet

court, in contrast, read that statute to require specific public

interest findings just to meintain the status quo as to markets

that no one had even sought to enter. Put another way, the

RCA Communications case would bar entry by an applicant

unless the FCC can warrant that the public interest requires

it; the Execunet decision would presume a right to entry by

one who has not even sought certification unless the FCC has

made an “affirmative determination” that the public interest

requires exclusion.® Indeed, a direct result of the Execunet de-

cision is the entry of MCI into a communications market with-

out any consideration by the FCC of the questions the RCA

Communications Court thought essential. The obvious con-

flict in principle requires resolution by this Court.

2. Importance. MCI and Southern Pacific have avoided ad-

dressing directly the Commission’s argument that this case

raises questions of fundamental importance to performance of

the agency’s common carrier certification function. Intead, they

*See also Hawaiian Tel. Co. v. FCC, 498 F. 2d 771 (D.C. Cir. 1974).

The Hawaiian Telephone court contemplated the authorization of facili-

ties that were restricted to those services the applicant had shown a need

for, just as the FCC contemplated in the specialized common carrier policy

decision. This is apparent from the court’s recognition that RCA in that

case might well have established a need for “satellite service in general”

even though it had not justified competitive entry into the international

voice communications market via those same satellite facilities. 498 F. 2d

at 774 n. 10, 776-77. Neither MCI nor the court below has reconciled

Hawaiian Telephone, as an application of the RCA Communications prin-

ciple, with the decision on Execunet.

5

have contended that the remand will permit the FCC to rem-

edy any problems raised by the decision. This response ignores

the obvious fact that the decision below has significance far

beyond the cuestion whether MCI can offer a particular com-

munications service called Execunet.’ Nothing the Commission

can do in further proceedings on remand will alter the novel

statutory interpretation the court of appeals has imposed and

the radical changes that interpretation will require in all future

certification proceedings.

As we have pointed out, the FCC always has construed

Section 214 to permit it to consider certification in terms of

the services the applicant proposes to offer. Its analysis has

not had to go beyond the proposed services; and its limited

service authorizations have not included affirmative determina-

tions that the public interest requires the applicants to remain

within the service categories they have proposed and applied

for. Limitations in appropriate cases have been imposed by

issuance of the certificate “as applied for.” 47 U.S.C. § 214(c).

Denial of certiorari would require the FCC, in future cer-

tification cases, to consider not only the proposed services but

also the public interest in introducing competition in areas the

applicant never contemplated. Thus, an applicant for certi-

fication to provide only television relay service, for example,

proposing to convey program. material between cities, might

have its application held up until the FCC had determined what

the public interest requires as to any and all other services that

might be carried over the same facilities—even though the

* The FCC might well resolve the narrow question whether MCI should

be permitted to offer Execunet in further proceedings on remand. But the

FCC firmly believes that it should not hold such further proceedings in

the context of this case. The FCC authorized MCI and others to offer

private line services. When MCI tried to go beyond its authorization to

offer Execunet, the FCC required MCI to cease and desist from the offer-

ing. If MCI wants to change its authorization to include such nonprivate

line services as Execunet, it is free to apply for a modification of its Section

214 certificates or to ask the FCC to conduct a further policy making pro-

ceeding along the lines of the specialized carrier proceeding.

6

applicant has no interest in those services. Further agency

proceedings on remand would not alter that new certification

procedure.®

The decision below is sufficiently important to the adminis-

tration of the Communications Act to require the grant of

certiorari, wholly apart from other considerations. Atlantic Rfg.

Co. v. Public Serv. Comm., 360 U.S. 378, 382 (1959); United

States v. Ruzicka, 329 U.S. 287, 288 (1946).*°

8 The example is not far fetched. MCI applied specifically for a narrow

part of the total package of common carrier services—those under the rubric

of private lines. It expressly disclaimed any interest in providing other

services, such as ordinary long distance service. (E.g., Pet. App. B, p. 136a.

See also excerpt from MCI pleading in Ninth Circuit review of specialized

carrier policy decision, quoted at pp. 2-3, supra.) Yet, under the procedures

required by the court of appeals, the FOC should have considered not only

whether competition was desirable in the area proposed by MCI, but also

whether the public interest required limitations to that area. Plainly, con-

sideration of this second question would have been time consuming, super-

fluous in light of the applications, and perhaps fatal to any meaningful chance

of competitive entry. Indeed, MCI and the other applicants, joined by the

Department of Justice, urged the FCC to confine its analysis of competitive

entry to the narrow areas proposed in the applications.

* As to changes and disruptions of the industry, we rest primarily upon

our petition. (FCC Pet., pp. 18-19.) We add only that some of the changes

we anticipated already have begun. MCI recently issued new marketing

brochures offering additional nonprivate line services and describing MCI

as “part of the telephone system” and as a company offering “long distance

telephone service for business.” Southern Pacific has filed new tariffs seck-

ing to offer service virtually identical to Execunet. Southern Pacific Trans-

mittal No. 113, Tariff FCC No. 6, filed October 20, 1977. While the D.C.

Circuit’s stay of its own mandate permits the FCC to delay the institution

of these changes until after this Court has acted finally on the matter, we

point out that both of these developments would bring significant competi-

tion into a sector of the communications industry as to which the FCC

never has made the public interest findings this Court required in RCA

Communications.

%© MCI refers to bills introduced in Congress during the past several

sessions, and appears to suggest that those bills might obviate the need

for further judicial review of the Execunet case. But that legislation, if

adopted, would alter substantive standards for new entry into communica-

7

3. Error. The court erred in construing Section 214 to forbid

the FCC from granting limited service certificates in the ab-

sence of an affirmative determination that the public interest

requires the limitation. (FCC Pet., pp. 20-23.) Section 214(c)

expressly authorizes the Commission to issue a certificate “as

applied for”—plainly contemplating that the agency in ap-

propriate cases will confine its scrutiny to the terms of the

proposal and grant authorizations no broader than “applied

for.” Contrary to the assertions of MCI and Southern Pacific

and the apparent understanding of the court of appeals, the

Commission has interpreted the statute this way for many

years and has created limited service carrier classifications by

regulation as well as by ad hoc certification.”

tions common carriage to increase the barriers to competition. It would not

change the certification procedure under Section 214, which is what this

case is about. (See FCC Pet., pp. 19-23.) The Commission has opposed the

legislative changes vigorously because they would undo or restrict its com-

petition policies. E.g., Letter to Hon. Lionel van Deerlin from FCC Chair-

man Richard E. Wiley (by direction of the Commission), September 23,

1976 (comments on H.R. 12323 and related bills). Possible adoption of

statutory problem at issue cannot be a substitute for Supreme Court review

of this important regulatory decision.

11 See FCC Pet., pp. 5 & nn. 7-9, 23 & n. 48. See also, e.g., ITT World

Comm., Inc., 2 FCC 2d 573 (1966) (granting application for modification

of limited service certificates to permit voice service by record carriers) ;

American Tel. & Tel. Co., 38 FCC 1222, aff'd, 1 FOC 2d 374 (1965) (allow-

ing AT&T tarifis to become effective offering new service on spe-

cific finding that the certificates for the cable had been granted with express

authority to provide this service); AT&T-RCA Communications, Inc., 27

FCC 281 (Initial Decision), aff'd, 27 FCC 271 (1959) (granting RCA certifi-

had not shown that the public interest required its entry into overseas voice

MTS); AT&T, 8 Pike & Fischer Rad. Reg. 1217 (1955) (granting certifi-

cate to lay cable to Hawaii and explicitly permitting AT&T to provide record

service on national defense grounds). Compare RCA Global Comm., Inc.,

37 FCC 2d 1043 (1972) (granting certificate to lease satellite circuits and

to provide private line voice service to Hawaii), rev. sub nom. Hawaiian Tel.

Co v. FCC, supra, 498 F. 2d 771 (on grounds that the FCC had not made

affirmative public interest findings that would justify RCA’s entry into the

private line voice service market.)

8

As a practical matter, it would make no sense to require the

agency to consider the universe of services when it could act

on a limited certificate far more expeditiously by considering

only the services applied for.** By restricting its analysis to pri-

vate line services in the specialized carrier proceeding, the FCC

avoided the difficult and time consuming questions it would

have had to confront before opening the entire spectrum of com-

munication common carrier services to competition. The court

of appeals has held, however, that the cost of that avoidance

was the inadvertent opening of all services, because the FCC

did not affirmatively determine that the public interest re-

quired limitations. Requiring so broad a proceeding might have

stopped the FCC’s bold venture into competition before it

started. Revising the results of that proceeding, as the court

below has done, opens communications markets to competition

without the requisite statutory findings, and makes effective an

order dfferent from any the FCC has granted.

MCT’s and Southern Pacific’s reliance upon the FCC’s order

in Docket No. 19117 * is misplaced. First, and most important,

* This Court has held repeatedly that agencies and courts need decide

only those questions that are before them for resolution. (See FCC Pet.,

pp. 20-21 n. 42). In a case involving another certification statute, the Court

said, “We do not read the statute as laying a compulsion upon the Com-

mission to canvass all the questions of public and private interest that are

implicit in an application” when the applicant himself seeks only a certain

favor and makes no claim beyond that favor. United States v. Maher, 307

US. 148, 156 (1939). MCI and the other specialized carriers never have

applied for anything beyond certification to provide private line services.

* In other contexts, this Court has made clear that agencies and legisla-

tures may implement programs step by step, adopting policies that address

part of a problem without taking on the entire matter at once. Cf. City of

New Orleans v. Dukes, 427 US. 297, 303-04 (1976) ; Katzenbach v. Morgan,

384 US. 641, 657-58 (1966). So here, the FCC was not required to resolve

the entire matter of competition in communications services in the context of

the specialized carrier proceeding.

** Authorization of New or Revised Classifications of Communications, 39

FCC 2d 131 (1973). In that docket, the FCC decided, after receiving com-

ments, not to issue new rules which would have required prior authorisa-

tion for any new service offering by any carrier, regardless of whether the

new service fitted withi. the carrier’s certification. The FCC had initiated

9

the court of appeals did not rely on anything the FCC said in

that order, but rested its decision entirely upon its perception

that the FCC had failed in its specialized carrier proceeding

to make the requisite statutory finding to limit MCI to private

line services. Second, the FCC did not purport to modify its

specialized carrier policy in its order terminating Docket No.

19117; indeed, the order resulted in a non-decision, the FCC

terminating the docket without adopting rules because it saw

no need for them. Finally, the Commission could not, in any

event, take such a significant regulatory step as opening the

public telephone network to competition in an abbreviated pro-

ceeding which gave no notice of such an intention and

announced no such result.”

MCI’s other arguments do not undercut the substantial

reasons advanced for granting the writ. (A) The court of ap-

peals specifically rejected the argument that the FCC had

failed to follow the required procedures in adopting the Execu-

net order. Notice and comment and oral argument were ade-

quate procedures for a tariff investigation leading to a cease and

desist order. 47 U.S.C. § 205(a). (Pet. App., p. 18a n. 43.) (B)

The court of appeals did not find that AT&T’s oral complaint,

the docket while the specialized carrier proceeding was pending, out of

concern that the established carners might frustrate new entry by filing

new tariffs offering the services that had been proposed by .he specialized

carriers, while delaying facility authorizations to the new carriers by filing

petitions to deny. Notice of Proposed Rule Making, 27 FCC 2d 36 (1971).

The FCC terminated the docket without adopting rules, because its concern

had been “substantially mitigated” by adoption of the specialized carrier

policy. As a result of that policy, the Commission said, “new entry is no

longer being delayed by the unresolved status of policy questions raised by

existing carriers with respect to the service proposals of each new applicant.”

39 FOC 2d at 133.

18 MCI’s reading of Docket No. 19117 as removing restrictions on its

authorization is hard to reconcile with positions it has taken before the FCC

and in court long after the Commission terminated that docket on Febru-

ary 5, 1973. (Pet. App. B, pp. 137a, 153a-68a; see also excerpt from MCI

pleading in Ninth Circuit, quoted at pp. 2-3, supra, which was filed more than

15 months after the FCC had issued its final decision in Docket No. 19117).

10

prior to initiation of proceedings with regard to Execunet, had

infected the Commission’s decision making process. The com-

plaint was entirely consistent with the Communications Act, 47

U.S.C. § 208; with the Commission’s rules governing ex parte

contracts, 47 C.F.R. §§ 1. 1201-1251; and with the FCC’s prac-

tice of relying upon complaints by the public and by competi-

tors to help it police the common carrier industry, Rules

Governing Ex Parte Comunications, 1 FCC 2d 49, 57, 58,

(1965). Moreover after receipt of the orai complaint the Com-

mission conducted an extensive inquiry on the record, and rested

its decision solely upon the comments and arguments of the

parties and upon its own interpretation of the policies and

tariffs involved. (Pet. App. B, pp. 67a-7la.) (C) The court of

appeals did not accept MCI’s argument that, even if its author-

izations were limited, Execunet is a private line service well

within the limitations. (Pet. App. A, pp. 28a.) As the Commis-

sion found, a service which permits calls from any telephone in

one city to any telephone in other cities on the network, over

facilities that are not private in any meaningful sense, and a a

toll charge for each call simply is not private line service. (Pet.

App. B, pp. 6la-62a.)

4. Conciusion. The FCC’s objective in the specialized com-

mon carrier proceeding was to develop policy to govern appli-

cations and to meet a specific need for more and better private

line services. Its analysis and its decision quite properly went

no farther than necessary to resolve the immediate questions.

Its cautious limitation of the competition policy to services “as

applied for” was appropriate in view of the very different ques-

tions that would surround MTS competition, the time and re-

sources it would take to answer those questions, ond the fact

that a policy of limited competition would not interfere with

realization of its immediate objectives.

The decision below tells the FCC that it did not know what

it was doing under Section 214, and that it inadvertently author-

ized competition in all common carrier services without consid-

ering the public interest in so sweeping a change. In short, the

court of appeals tells the FCC that it has lost control of its com-

ll

petition policies. MCI, in effect, is telling the FCC that it might

have been tricked into opening ordinary long distance service

to competition, even though MCI and the other applicants for

entry had solemnly assured the Commission and the courts that

the only services in question were private line services.

The decision below jeopardizes the FCC’s promotion of com-

petition where it is reasonably feasible and where it may rea-

sonably be expected to benefit the public. If the FCC cannot

open the field to competition step by step—as it makes discrete

findings of public convenience and necessity in the context of

concrete proposals—its policies may be delayed or even un-

done altogether. The court should grant certiorari to review

this important regulatory decision.

Respectfully submitted,

DanreL M. ARMSTRONU

Associate General Counsel,

JoHN E. INGLE,

Counsel,

Federal Communications Commission,

Washington, D.C. 20554

632-7112.

NovEMBER 7, 1977.

U.S. GOVERNMENT PRINTING OFFICE: 1977