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

g?

9 IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

wo. #87436 {

FEDERAL COMMUNICATIONS COMMISSION,

Petitioner,

v.

MCI TELECOMMUNICATIONS CORPORATION,

MICROWAVE COMMUNICATIONS, INC. and

N-TRIPLE-C, INC.,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

MOTION FOR LEAVE TO FILE

BRIEF AMICUS CURIAE AND

BRIEF OF THE NATIONAL ASSOCIATION OF

REGULATORY UTILITY COMMISSIONERS

PAUL RODGERS

General Counsel

CHARLES A. SCHNEIDER

Assistant General Counsel

1102 ICC Building WILLIAM R. NUSBAUM

Post Office Box 684 Deputy Assistant

Washington, D.C. 20044 General Counsel

National Association of

(202) 628-7324 Regulatory Utility

Commissioners

September 27, 1977

THE CASILLAS PRESS, INC.—1717 K Street, N. W.—Washington, D. C.-2273-1220

artes

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

FEDERAL COMMUNICATIONS COMMISSION,

Petitioner,

v.

MCI TELECOMMUNICATIONS CORPORATION,

MICROWAVE COMMUNICATIONS, INC. and

N-TRIPLE-C, INC.,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

MOTION FOR LEAVE TO FILE

BRIEF AMICUS CURIAE

The National Association of Regulatory Utility Com-

missioners (NARUC) respectfully moves the Court for leave

to file the attached brief amicus curiae in support of the

Petition for Writ of Certiorari in the above-entitled cause.

In support of its Motion, the NARUC shows:

Consent to the filing of a brief in this cause by the

NARUC was sought from the parties to the proceedings in

the court below. Consents were obtained from several of

those parties. However, the consent of the Respon-

dents, MCI Telecommunications Corporation, Microwave

2

Communications, Inc. and N-Triple-C, Inc., has been

refused.

The National Association of Regulatory Utility Com-

missioners is a quasi-governmental nonprofit organization

founded in 1889. Within its membership are the govern-

menial bodies of the 50 States, and the governmental agen-

cies of the District of Columbia, Puerto Rico, and the

Virgin Islands, engaged, pursuant to duly adopted

legislation, in the regulation of telecommunications com-

mon carriers and other public utilities within their respec-

tive borders. The mission of the NARUC is to improve the

quality and effectiveness of regulation of public utilities

throughout the United States and, through the govern-

mental agencies which make up its membership, to main-

tain for the use of the public such telecommunications ser-

vices and facilities as may be required by the public con-

venience and necessity and to insure the continued

availability of those services and facilities at rates which are

just and reasonable. “Congress and the FCC have long

recognized that the State utilities commissions are the ap-

propriate parties to represent their respective States in this

effort,”’ and therefore, “Congress has accorded NARUC of-

ficial status as the representative of State regulatory agen-

cies in dealing with the basic problem™ of maintaining

widely available, low cost, local telephone service.

This case is before this Court on a Petition for a Writ of

Certiorari to the United States Court of Appeals for the

District of Columbia Circuit. The Court of Appeals had

before it a petition for review, initiated by MCI Telecom-

munications Corporation, Microwave Communications,

Inc. and N-Triple-C, Inc. (MCD), of a decision of the Federal

Communications Commission (FCC) holding that MCI had

exceeded its authorization, limited to the offering of private

line services, by providing a service called “‘Execunet”’,

' Washington Utilities & Transp. Comm'n vy. FCC, S13 F.2d 1142,

1148, 1154 n. 17 (9th Cir.), cert. denied. 423 U.S. 836 (1975).

3

which the FCC found was not a private line service at all

but instead was the equivalent of message telephone service

(ordinary long distance service). MCI Telecommunications

Corp. Investigation Into the Lawfulness of Tariff FCC No. 1

Insofar as it Purports to Offer Execunet S vice, 60

F.C.C.2d 25 (1976). The FCC’s decision wits respect to

Execunet was predicated upon its earlier decision,

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

(1971), in which it had articulated the findings and evidence

in support of its conclusion that the entry of MCI and other

specialized common carriers, limited to the offering of

private line services, was in the public interest. That

decision was affirmed by the Court of Appeals for the Ninth

Circuit in a decision which this Court elected not to review

further. Washington Utilities & Transp. Comm'n. v. FCC.

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

In disregard of those decisions and the FCC’s continued

rearticulation and reapplication of its now settled policy

determination limiting MCI and other specialized common

carriers to the provision of private line services, the Court of

Appeals below held that MCI, and presumably all other

specialized common carriers, are not limited to the offering

of private line services and can offer ordinary long distance

service and any other services they choose between and

among the states throughout the country.

The NARUC and the State utilities commissions that

comprise its membership have an historic and vital interest

in the disposition of the Petition for Writ of Certiorari now

pending before this Court. The decision of the Court of Ap-

peals, by improperly setting aside the FCC's determination

that MCI was not and is not authorized to provide

Execunet service and, thereby, for the first time permitting

competition for message telephone service in addition to

private line service, will have a direct and potentially

staggering effect both upon regulatory policies developed

over decades to promote the availability of local telephone

4

service at reasonable rates and upon the rates for those ser-

vices themselves.’ Tae nature of NARUC’s concern about

the effects of such competition, even as limited by the FCC,

was most eloquently stated by a long-time, former member

of one of the State commissions comprising the NARUC in

testimony before Congress:

At present, the state regulator is able to design

rates in a way that the charge for the basic ser-

vices — i.e. for the use of his telephone by the

average householder — is held low, while other

charges, such as for terminal facilities, extensions,

PBX’s, etc., are kept higher. Also, residential

rates are invariably kept lower than business

rates. These rate policies are not new, but

historical, and have served the nation well.

But now these new — and I can only call them

selfish — interests have appeared with the clear

intention of under-pricing in those special areas

in which regulators have heretofore kept the

prices higher; kept them higher in order to

provide lower, though reasonable, charges for the

? In its own investigation of the impact of such competition con-

cluded in early 1974, the NARUC’s Committee on Communications, af-

ter formal hearings and based upon extensive submissions by a number

of parties, estimated that ‘the total annual costs shifted from interstate

to intrastate jurisdictions as a result of SCC [Specialized Common

Carrier] competition will reach a minimum of approximately $390

million annually by 1980, increasing to approximately $890 million an-

nually by 1984. On a cumulative basis, the costs are estimated to exceed

$1.1 billiom by 1980, increasing to approximately $3.9 billion by 1984.

Committee on Communications, National Association of Regulatory

Utility Commissioners, Report After Investigation, p. 71 (May 15,

1974).

This estimate of the impact of the entry of competition for private

line service did not contemplate the far more serious effect upon the in-

terests of the States of the decision below permitting for the first time

competition in the provision of message telephone service.

5

great body of household telephone users across

the country. Such competition may be good for

these special interest entities which are not at all

adverse to competing with a regulated system But

it is not good, in my opinion, for the American

public, especially the part of it which is

economically disadvantaged — the unfortunate.

It ties the regulator’s hands as he attempts to set

rates which will meet overall public interest stan-

dards — and especially the needs of the poor, the

elderly, and the ill.

To allow selective entry into this market by, for

example, the specialized common carrier can only

result in a further dislocation of present tenuous

regulatory rate options. Regulators would then

have no choice but to give greater weight than for-

merly to the cost of serving each class of customer

with the result that a steeper rate of increase to

the lower-income telephone user would be

inescapable. Some may ask, ‘What’s wrong with

that? This customer is only being asked to pay his

fair share — what it costs to serve him.’ What, in

my opinion, — is wrong with it is that it lacks the

input of responsible government with a social con-

science — without which a government will not

long be governing.’

This Court’s disposition of this case will thus have a direct

impact upon the ability of State regulatory commissions to

discharge their responsibilities on behalf of the citizens

within their respective borders. Accordingly, the NARUC

submits that its participation in these proceedings is essen-

tial to insure the full and adequate representation of the in-

> Testimony of Cyrus J. Colter. Hearings on S. 1167 Before the Sub-

comm. on Antitrust and Monopoly of the Senate Comm. on the

Judiciary. 93d Cong., 2d Sess.. pt. 5, at 3812-13 (1974).

6

terests of the State commissions of which it is comprised, as

well as the interests of the public to whom those com-

missions are obligated to insure the continued availability

of affordable telephone service.

Wherefore, it is respectfully requested that this Court

grant leave for the filing of a brief by the Nationai

Association of Regulatory Utility Commissioners, as

amicus curiae, in this case.

Dated this 27 day of September, 1977.

PAUL RODGERS

General Counsel

1102 ICC Building CHARLES A. SCHNEIDER

Post Office Box 684 Assistant General Counsel

Washington, D.C. 20044

WILLIAM R. NUSBAUM

Deputy Assistant

. General Counsel

(202) 628-7324 National Association of

Regulatory Utility

Commissioners

(i)

INDEX

Page

GG I ccc cccc cc ccccccccccccccccccescscccces 2

QUESTION PRESENTED ..... 2... cccccccccccccceccecnes 2

INTEREST OF AMICUS CURIAE .... 0.6... cece cece eee eees 3

SRP © cv cece vccecescccccosensesrccecseccescoeces 4

REASONS FOR GRANTING THE WRIT: ..........0+2+0055 18

THE DECISION OF THE COURT OF APPEALS

IS INCONFLICT WITH THE DECISIONS OF

THIS COURT AND THE COURT OF APPEALS

PERMITTING ADMINISTRATIVE AGENCIES

TO UTILIZE RULEMAKING PROCEEDINGS TO

ESTABLISH POLICIES FOR APPLICATION IN

SUBSEQUENT PROCEEDINGS ....... 2... - cece ee eeeees 18

CIC oc ccccccccccccccccenescccccccesccescceces 26

(ii)

TABLE OF AUTHORITIES

Cases:

American Airlines, Inc. v. CAB,

359 F.2d 624 (D.C. Cir.), cert. denied, 385 U.S.

ee es Ce OF Me CUE oc occcccccccceccece 22, 23

American Telephone & Telegraph Co. v. FCC,

539 F.2d 767 (D.C. Cir. 1976),

OF op Fa occ cc cccccccccces 13, 14, 15, 23, 24

Bell Telephone Co. of Pennsylvania v. FCC.

$03 F.2d 1250 (3d. Cir. 1974), cert. denied.

422 U.S. 1026, 95 S.Ct. 2620, 45 L.Ed.2d

684 (1975), affg 46 F.C.C.2d 143(1974) .... 20.0... 0.02 eee 13

FPC v. Texaco, Inc.,

377 U.S. 33, 84 S.Ct. 11085,

Ne i eden ceues 21, 22

Panhandle Eastern Pipe Line Co. v. Michigan

Public Service Comm'n., 341 U.S. 329,

Fe FEF e EE SEEN Sn cc ceed cescnccecscecess 8

Phillips Petroleum Co. v. Wisconsin,

347 U.S. 672, 74 S.Ct. 794,

Ee ee re 22

Press Wireless, Inc. v. FCC.

264 F.2d 372 (D.C. Cir. 1959),

Se IEE 6 6666 oo bce cecdcccceccccesseecs 25

Scripps-Howard Radio v. FCC,

316 U.S. 4, 62 S.Ct. 875,

ok Rein Deaseedeeenneeesesedes 20

Smith v. Illinois Bell Telephone Co.,

282 U.S. 133, 51 S.Ct. 65,

A Chee ck che see ecdebssnccescetecevenss 6

Southwestern Operating Co. v. FCC,

122 U.S. App. D.C. 137,

PEE du vackec'o ae dened setedndsesabeusses 24

(iii)

United States v. Pierce Auto Freight Lines, Inc.,

327 U.S. 515, 66 S.Ct. 687,

_ eR RT | errerrrrrrrrrererrrrr rrr 19, 20

United States v. Storer Broadcasting Co..

351 U.S. 192, 76 S.Ct. 763,

Ss Un oc ccc csecscccccecscs 20, 21, 22, 23, 24

Washington Utilities and Transportation

Comm'n v. FCC, 513 F.2d 1142 (9th Cir.),

cert. denied, 423 U.S. 836, 96 S.Ct. 62,

Be PTT TTITTTTTTTTTT TTT TTT 2,11, 12

Wisconsin v. FPC,

373 U.S. 294, 83 St. Ct. 1266,

i od on 666006666060 5000060060080% 22

Administrative Decisions:

AT&T, Revisions of Tariff FCC No. 260

Private Line Services, Series 5000

(TELPAK), 61 F.C.C.2d 587 (1976) 2.0.2... cece eee cece eens 15

In the Matter of Establishment of Policies

and Procedures for Consideration of

Applications to Provide Specialized

Common Carrier Services in the Domestic

Public Point-to-Point Microwave Radio

Service and Proposed Amendment to Parts

21, 43 and 61 of the Commission's Rules,

F.C.C. Docket No. 18920, 24 F.C.C.2d 318 (1970). ..........-- 5

In the Matter of Prescription of Procedures

for Separating and Allocating Plant Invest-

ment, Operating Expenses, Taxes and Reserves

Between the Intrastate and the Interstate

Operations of Telephone Companies,

PES, BERS oo cc hecccvcvescccesesiescesesees 7

(iv)

In the Matter of Regulatory Policies Concerning

Resale and Shared Use of Common Carrier

Services and Facilities, 60 F.C.C.2d 261 (1976),

recon. granted, 62 F.C.C.2d 588 (1977)... 1... cc eee eee eee 1S

MCI Telecommunications Corporation, Investiga-

tion into the Lawfulness of Tariff FCC No. 1

Insofar as it Purports to Offer Execunet Service,

SPE ENOTED o6eetesccesecaccceces 2. 3, 16, 17, 19, 24

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

953 (1969), recon. denied, 21 F.C.C.2d 190(1970) .............2.. 4

Specialized Common Carrier Services,

29 F.C.C.2d 870(1971) ....... 2, 3,4, 8, 9, 10, 11, 13, 14, 15, 16,

17, 18, 19, 22, 23, 24, 25

Washington Department of Public Service

v. Pacific Telephone and Telegraph Co..,

ee i a ee i eeenebbeeedes 6

Statutes:

Pe ccicvesneneecanveekdd ducucteueuueud 6

sad écuaudedeuteuses Jcdeuendcecedseteeedss 6

Miscellaneous:

F.C.C. Brief, American Telephone & Telegraph

Co. v. FCC, D.C. Cir. No. 74-1953 (April 23,

SOU Vic cncbiesececccuvesececoccceveceseeens 14

MCI Comments, F.C.C. Docket No. 18920

SY ey PU EE coco ccnrescceseccccecesessss 5

MCI Opposition to Petitions for Recon-

sideration, F.C.C. Docket Nos. 16509-

POPPED FE UUIRE ED cccerccccsecenecvceseceness 4

MCI Reply Brief, F.C.C. Docket No. 19896

PE 6 cee escbeseccercceeueveseuscesevees 12

(v)

NARUC Comments, F.C.C. Docket No. 18920,

as quoted in NARUC Brief, Washington

Utilities & Transp. Comm'n v. FCC,

9th Cir. No: 72-1198 (May 5, 1972), p. 11.1... e eee eee eee eee

Report by the Federal Communications

Commission on Domestic Telecommunica-

tions Policies, Attachment B, p. 101,

Say BU were seseecedcrcecveseseceerccoesess

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No.

FEDERAL COMMUNICATIONS COMMISSION,

Petitioner,

Vv .

MCI TELECOMMUNICATIONS CORPORATION,

MICROWAVE COMMUNICATIONS, INC. and

N-TRIPLE-C, INC.,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR

THE NATIONAL ASSOCIATION OF

REGULATORY UTILITY COMMISSIONERS

AMICUS CURIAE

The National Association of Regulatory Utility Com-

missioners submits, as provided by Rule 42 of the Rules of

this Court, the following brief amicus curiae in support of

the Petition For Writ of Certiorari filed by the Federal

Communications Commission.

2

OPINION BELOW

The opinion of the United States Court of Appeals for

the District of Columbia Circuit, dated July 28, 1977, is not

reported. The opinion of the Federal Communications

Commission is reported at 60 F.C.C.2d 25 (1976).

QUESTION PRESENTED

This case presents questions vital to the NARUC and to

consumers throughout the United States whose telephone

rates and service are regulated by State regulatory com-

missions comprising the NARUC. In the Specialized Com-

mon Carrier decision [29 F.C.C.2d 870 (1971)], after

carefully balancing the public interest considerations ad-

vanced by the NARUC and the numerous other parties par-

ticipating, the FCC concluded an exhaustive rulemaking

proceeding by drawing a line permitting the entry of new

carriers to provide private line services in competition with

established carriers.' The Commission’s findings and con-

clusions that the line it had drawn was in the public interest

were subsequently affirmed on judicial review, Washington

Utilities & Transportation Comm'n vy. FCC, 513 F.2d 1142

(9th Cir.), cert. denied, 423 U.S. 836, 96 S. Ct. 62, 46

L.Ed.2d 54 (1975), and have been rearticulated and refined

by the Commission in numerous proceedings since. In one

' There are three primary long distance telephone services: Message

Telecommunications Service (MTS); Wide Area Telecommunications

Service (WATS); and Private Line Services. MTS is ordinary long

distance service in which the subscriber has access to all other

telephones connected to the switched network and is charged for each

message completed. WATS likewise offers access to all telephones con-

nected to the switched network in a given geographical area for a month-

ly charge related to the area covered and the extent of usage. In

marked contrast to MTS and WATS, Private Line Service does not af-

ford the subscriber access to all other telephones connected to the switch-

ed network. Instead it enables specific telephones to be connected by

“leased” or “dedicated” circuits on a continuous basis for a flat charge

per month.

3

such proceeding, MCI Telecommunications Corp., In-

vestigation Into the Lawfulness of Tariff FCC No. I Insofar

as it Purports to Offer Execunet Service, 60 F.C.C.2d 25

(1976), the Commission applied its policy determination

limiting specialized common carriers to the provision of

private line services by ordering MCI to discontinue the of-

fering of a service known as “‘Execunet” because it was not

a private line service and therefore exceeded MCI’s

authorization under the Specialized Common Carrier

decision. The decision of the United States Court of Ap-

peals for the District of Columbia Circuit setting aside the

Commission’s decision with respect to Execunet, on the

ground that it was unsupported by adequate public interest

findings that limited MCI’s authorization to private line

services, thus presents the following question:

Whether the Court of Appeals decision, setting aside a

decision of the Federal Communications Commission

for not having made the requisite public interest find-

ings required to limit MCI’s authorization and to or-

der MCI to cease and desist from offering a service

which exceeded its authorization, is in conflict with

decisions of this Court and the Court of Appeals which

have regularly approved the action of administrative

agencies rejecting a course of conduct, whether

proposed or in effect, on the ground that it is in-

consistent with a prior agency policy, without

requiring the agency to repeat the evidence and find-

ings upon which that policy was based?

INTEREST OF AMICUS CURIAE

The interests of the NARUC as amicus curiae are set forth

in the attached motion for leave to file this brief.

4

STATEMENT

With the sanction of State legislators, and following the

passage by Congress of the Communications Act of 1934,

telecommunications services have historically been

provided on a monopoly basis by the Bell System com-

panies and independent companies with general service

responsibilities subject to pervasive State and Federal

regulation in the public interest. Beginning with its decision

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

(1969), recon. denied, 21 F.C.C.2d 190 (1970),? the FCC

initiated an abrupt but limited departure from this policy

by permitting the entry of a small carrier proposing to offer

point-to-point private line services between Chicago and St.

Louis, upon finding that its entry would serve the public in-

terest in providing “‘its subscribers limited common carrier

microwave radio service, designed to meet the interoffice

and interplant communications needs of small businesses’.

18 F.C.C. 2d at 953. The limited nature of the authorization

which MCI sought and the FCC granted was apparent from

MCI’s pleadings, where it acknowledged that it “‘is not of-

fering a public switched telephone service. It cannot and

will not have any effect on the public switched telephone

network ...”.’

Following that decision, the FCC instituted its

Specialized Common Carrier rulemaking proceeding in

July, 1970, to determine the need for and ground rules of

entry by a large number of applicants seeking authorization

to construct microwave facilities to provide specialized

point-to-point private line services over high density routes

in various parts of the country in competition with the

* F.C.C. Docket Nos. 16509-16519.

> MCI Opposition to Petitions for Reconsideration, F.C.C. Docket

Nos. 16509-16519 (October 7, 1969) p. 14. (Supp. App. p.338). The

foregoing reference to “Supp. App.”’, as well as those which follow, are

to the Supplemental Appendix in the court below.

5

private line services offered by existing communications

common carriers.‘ At that time there were 1,731 pending

applications for microwave stations, and as of March 15,

1971, there were 33 applicants with 46 separate proposals

for a total of 1,877 microwave stations. There was never any

question that the applicants were seeking authority limited

to the provision of private line service and were expressly

disclaiming any intention of attempting to offer message

telephone or exchange services. MC] itself stressed this very

point:

The exchange services offered by the telephone

company are not similar in any way to the services

which the Specialized Common Carriers propose

to provide . . . . Specialized Common Carriers will

provide only specialized point-to-point private

line services.*

Despite the limited nature of the authorizations being

sought, the NARUC urged the FCC not to permit new entry

and the competition which would flow from it. The

NARUC’s principal concern was centered around the effect

of new entry upon two basic regulatory policies, which had

been developed through the cooperative efforts of State

regulatory commissions and the FCC.° These policies

* In the Matter of Establishment of Policies and Procedures for Con-

sideration of Applications to Provide Specialized Common Carrier Ser-

vices in the Domestic Public Point-to-Point Microwave Radio Service

and Proposed Amendment to Parts 21, 43, and 61 of the Commission's

Rules, F.C.C. Docket No. 18920, 24 F.C.C.2d 318 (1970).

* MCI Comments, F.C.C. Docket No. 18920 (October 1, 1970), pp.

102-03 (Supp. App. p. 339).

* The Communications Act of 1934 was predicated upon a

Congressional determination that the public interest required detailed

regulation of the telephone in<ustry to insure that common carriers

(continued)

6

governed the pricing of telephone services by the Bell

System operating companies, and the independent, general

service telephone companies, which together served as the

exclusive providers of telephone services to the people of the

United States.

The first policy involved rate and cost averaging. As first

applied by the States and then by the FCC, rates for in-

tercity communications services have traditionally been

averaged on a statewide and on a nationwide basis, so that

the rates charged for service between any two equidistant

points are essentially the same, regardless of the specific

costs of providing service along any given route.’ The

second of these policies, which was developed following this

Court’s decision in Smith v. Illinois Bell Telephone Co., 282

U.S. 133, $1 S.Ct. 65, 75 L.Ed. 255 (1930), involved jurisdic-

tional separations of telephone plant used jointly and in

common to provide intrastate services and interstate

message services and the assignment of the investment in

that plant and certain other expenses to the respective

jurisdictions involved.

* (continued)

“make available, so far as possible, to all the people of the United

States a rapid, efficient, Nationwide, and world-wide wire and radio

communication service with adequate facilities at reasonable charges”

(47 U.S.C. §151). Congress recognized and preserved the pre-existing

role of the States in regulating this vital industry and established a dual

and cooperative regulatory scheme between the States and the FCC to

insure its continued regulation in the public interest. Thus the Act

provides that it is not to “be construed to apply or to give the Com-

mission jurisdiction with respect to . . . charges . . . in connection with

intrastate communication service . . .” (47 U.S.C. §152(bX1)) and

establishes a mechanism for coordination between the State regulatory

agencies and the FCC through the creation of Joint Boards (47 U.S.C.

§410).

’ See Washington Dept. of Pub. Serv. y. Pacific Tel. & Tel. Co., 8

F.C.C. 342, 363-364 (1941).

7

As these jurisdictional separations formulas evolved to

the current procedures embodied in the Ozark Plan,° an-

nual local plant costs are allocated between State and in-

terstate jurisdictions as a function of the relative interstate

and intrastate usage of message services by telephone sub-

scribers. Because interstate message toll usage increased

rapidly over the years, due to the price stability made

possible by cost-saving technological improvements and the

economies realized by aggregating demand on a single

nationwide network, interstate message usage outpaced the

growth of intrastate and local exchange usage. With the

relatively greater increase in interstate message usage, a

relatively greater proportion of local plant costs was

ailocated to the interstate rate bases of the Bell System and

independent companies. Hence the result of these policies

was that the State commissions comprising the NARUC

were able to maintain the rates for local telephone service at

lower levels than would otherwise be possible and thereby

insure the widest availability of service to their citizens.

Given the nature of those policies, the NARUC believed

that permitting the entry of MCI and other specialized

common carriers, even if limited to the offering of private

line services in competition with the Bell System and other

established carriers, would threaten the continuing viability

of the policies and the social objectives they were designed

to serve. Because the specialized common carriers only

proposed to offer private line services between major

metropolitan areas that generated a high density of traffic,

the effect of pre-existing rate and cost averaging and

jurisdictional separation would permit the new entrants to

underprice the non-cost related private line and message

toll rates of the Bell System and other established carriers

* In the Matter of Prescription of Procedures for Separating and

Allocating Plant Investment, Operating Expenses. Taxes and Reserves

Between the Intrastate and the Interstate Operations of Telephone

Companies, 26 F.C.C.2d 247, 248 (1970).

8

and thus to cream-skim their rate structures.’ Accordingly,

the NARUC concluded that such competition would not

only produce a diversion of the established carriers’ private

line traffic and a loss of the historical contribution that the

revenue from that traffic had made to the joint and com-

mon costs of other services, but also would produce a diver-

sion of message toll traffic, thereby yielding an increased

allocation of costs, through separations procedures, to the

intrastate jurisdictions. Moreover, the specialized common

carriers were not subject to separations and could,

therefore, engage in cream-skimming with impunity. Thus,

the NARUC feared that the ultimate burden of the FCC’s

new policy would be borne by the average consumer, in the

form of higher rates for local service — the singlemost im-

portant factor determining whether individuals can afford

to have a telephone.

In its comments to the FCC in the Specialized Common

Carrier proceeding the NARUC stressed that, if permitted,

new entry would produce: )

. wasteful and destructive duplication of

facilities, would divert revenues from existing

common carriers, and, accordingly, the loss of

such revenues would have to be recouped from the

other communication users served by such

° In Panhandle Eastern Pipe Line Co. y. Michigan Public Service

Comm'n, 341 U.S. 329, 71 S.Ct. 777, 95 L.Ed. 993 (1951), this Court

recognized the nature of the creamskimming problem where there is

selective entry into regulated industries of the kind involved here:

Appellant asserts a right to compete for the cream of the

volume business without regard to the local public con-

venience or necessity. Were appellant successful in this ven-

ture, it would no doubt be reflected adversely in Con-

solidated’s over-all costs of service and its rates to customers

whose only source of supply is Consolidated.

341 U.S. at 334.

9

carriers. This recoupment could impair the

national uniformity of interstate rates for com-

munications service and would increase the

economic burden imposed upon the users of in-

terstate and intrastate communications furnished

by such carriers."°

The NARUC concluded its comments by stating:

. .. Commission stimulation of competition — for

competitions sake — will primarily benefit a

relatively small number of businesses and other

affluent users. The economies achieved by this

favored few will result in the economic over

burdening of the millions of local users across the

Nation. These users will have no need for the

“specialized” services but, nevertheless, they will

be forced to shoulder a greater burden in sup-

porting the existing common carriers whose

revenues would be diverted in part by new com-

petitors.""

In deciding its Specialized Common Carrier proceeding,

the FCC was thus called upon to carefully weigh the con-

cerns voiced by the NARUC, as well as the positions of

numerous other participating parties, and to draw a line

with respect to the scope of services of the new entrants

which, in its judgment, would not undermine the policies of

nationwide rate averaging and jurisdictional separations

and the goals they were designed to serve. The FCC drew

this line by holding that the entry of the specialized com-

‘© NARUC Comments, F.C.C. Docket No. 18920, as quoted in

NARUC Brief, Washington Utilities & Transp. Comm'n vy. FCC, 9h

Cir. No. 72-1198 (May 5, 1972), p. 11.

'* NARUC Comments, F.C.C. Docket No. 18920, as quoted in

NARUC Brief, Washington Utilities & Transp. Com'n vy. FCC, 9th Cir.

No. 72-1198 (May 5S, 1972), p. 11.

10

mon carriers was in the public interest, so long as they were

limited to the offering of private line services.

After emphasizing that “‘the MCI carriers and others all

propose point-to-point facilities for private line services’,

29 F.C.C.2d at 871, the FCC held:

In light of all of the foregoing and the record as a

whole, . . . we find that: there is a public need and

demand for the proposed facilities and services

and for new and diverse sources of supply, com-

petition in the specialized communications field is

reasonably feasible, there are grounds for a

reasonable expectation that new entry will have

some beneficial effects, and there is no reason to

anticipate that new entry would have any adverse

impact on service to the public by existing carriers

such as to outweigh the considerations supporting

new entry.

29 F.C.C.2d at 920

Moreover, the FCC expressly found that, given the limited

nature of the private line services being authorized, the

“claims that competing carriers would simply be engaged

in ‘creamskimming’ ” appeared insubstantial. 29 F.C.C.2d

at 910. Since the FCC had drawn its line to preclude the of-

fering of message telephone service by the specialized com-

mon carriers and therefore stressed that “‘those services are

not being challenged competitively to any substantial

degree by the services proposed to be offered by the

aspiring-new entrants,” it concluded that changes, if any, in

pre-existing policies applicable to the pricing of telephone

services would be limited to private line:

There is no reason to believe that this approach to

pricing of the interstate message service offerings

of the Bell System and Western Union (such as

MTS, WATS, and public telegraph) need be

11

altered by new entry into the developing

specialized communications market. Clearly,

none of the uniform rate structures of the existing

carriers for such services would appear to be in

jeopardy since those services are not being

challenged competititvely to any substantial

degree by the services proposed to be offered by

the aspiring new entrants. Where services may be

in direct competition, departure from uniform

nationwide pricing practices may be in order, and

in such circumstances will not be opposed by the

Commission.

29 F.C.C.2d at 915.

The Commission thus drew the line of allowed entry at

private line service, and no further, after full consideration

of the effect of such limited entry upon the public interest

with respect to message telephone and WATS services.

Although the FCC had restricted the new entrants to the

offering of private line services, the NARUC and the

Washington Utilities and Transportation Commission con-

tinued to believe that new entry should not have been per-

mitted at all and hence sought review of the FCC’s decision

in the Court of Appeals for the Ninth Circuit.'? Because of

the FCC’s clear limitation of specialized common carriers

to the offering of private line services, the Court of Appeals

found that the issue before it involved the “‘business . . . of

providing specialized private or leased line communication

services through microwave transmission facilities, as

distinguished from public exchange and long distance toll

telephone service.”” 513 F.2d at 1155. Based upon that un-

derstanding, the Court of Appeals concluded that the FCC

had proceeded properly by means of rulemaking to limit

the class of telecommunications services within which com-

'? Washington Utilities & Transp. Comm'n v. FCC, 513 F.2d 1142

(9th Cir.), cert. denied, 423 U.S. 836, 96 S.Ct. 62, 46 L.Ed.2d 54 (1975).

12

petition was deemed to be in the public interest to private

line services and that its findings were supported by the

evidence of record:

[T]he Commissior may determine general

questions relating to the public interest, con-

‘venience and necessity in rulemaking

proceedings; and specifically, may determine that

competition in the furnishing of a class of

regulated service will lead not to poorer but to

better service to the public, and will otherwise be

in the public interest. (Emphasis supplied.)

513 F.2d at 1166.

MCI commenced commercial operations in January,

1972, offering point-to-point private line services pursuant

to the authorizations granted by the FCC. Up to that time,

MCI had plainly understood the limited nature of its

authority and had expressly disclaimed any intention of

seeking to exceed it by offering message telephone service.

Precisely the same understanding existed for some period

of time thereafter. Moreover, when a question arose late in

1973 concerning the extent to which MCI could use the

local facilities of the Bell System companies to reach from

its microwave towers to the premises of its customers, MCI

reiterated to the Commission its understanding that ‘‘while

the Commission concluded that it was feasible and

desirable to have competing intercity systems for the

provision of private line service . . . no one proposed — or

authorized — the new carriers” to offer services other than

private line.’* In its resolution of this question, the FCC

'? MCI Reply Brief, F.C.C. Docket No. 19896 (Feb. 4, 1974) p. 10.

(Supp.App. p.341).

13

similarly underscored that its Specialized Common Carrier

decision had only authorized the entry of the specialized

carriers into the private line common carrier field.* The

Court of Appeals for the Third Circuit affirmed the FCC’s

disposition of the local distribution question, predicating

its decision upon the FCC’s authorization of “‘the entry of

specialized carriers into the full field of private line ser-

vices.”” 503 F.2d at 1270.

The dispute over local distribution facilities was only one

of many proceedings following its Specialized Common

Carrier decision in which the FCC applied the line it had

drawn there limiting the services the new carriers were

authorized to provide to private line. Thus many sub-

sequent applications seeking entry were routinely granted,

including the application of United States Transmission

Systems (a subsidiary of ITT), to offer specialized private

line services.'* In proceedings before the United States

Court of Appeals for the District of Columbia Circuit to

review the FCC’s approval of that application, which had

been granted without a hearing, the FCC reiterated the

question it had resolved in the Specialized Common Carrier

proceeding and where it had drawn the line:

The Commisison in 1970 had pending a num-

ber of applications for microwave radio facilities,

which were to be used for specialized common

carrier services in various parts of the country.

'* Bell System Tariff Offerings of Local Distribution Facilities

(F.C.C. Docket No. 19896), 46 F.C.C.2d 143 (1974), affd, The Bell

Telephone Co. of Pennsylvania v. FCC, 503 F.2d 1250 (3d Cir. 1974),

cert. denied, 422 U.S. 1026, 95 S.Ct. 2620, 45 L.Ed.2d 684 (1975).

'S United States Transmission Systems, Inc., 48 F.C.C.2d 859

(1974), aff'd, American Tel. & Tel. Co. v. FCC, 539 F.2d 767 (D.C. Cir.

1976).

14

The applicants proposed to offer a wide range of

private line services . . . . They did not propose to

offer ordinary long distance service or wide area

telephone service (WATS).

.

The open entry policy covered the full range of

private line services .... *®

In affirming the USTS decision,'’ the Court of Appeals

recognized that it had been predicated upon what the FCC

had decided in the Specialized Common Carrier proceeding:

At issue in this case is the Commission’s policy

relating to private line communications services

provided by specialized common carriers.

[The FCC] concluded that there is a public need

and demand for the proposed services, that it is

likely that new entry will have some beneficial ef-

fects and little if any adverse impact on existing

carriers, and ‘that a general policy in favor of the

entry of new carriers ... would serve the public

interest, convenience and necessity.

539 F.2d at 769-70.

Moreover, the court pointed to the FCC’s recognition that

“a certain amount of ‘creamskimming’ would naturally oc-

cur” even from competition limited to private line services

and the FCC’s “view [that] start-up difficulties ...can

adequately be controlled by carefully monitoring im-

plementation of its policy.”” 539 F.2d at 774.

**FCC Brief, American Tel. & Tel. Co. v. FCC, D.C. Cir. No. 74-1953

(April 23, 1975), pp. 3-4, 7.

"American Tel & Tel. Co. v. FCC, 539 F.2d 767 (D.C. Cir 1976).

WH -

1)

Beyond its disposition of applications like that involved

in USTS, a major part of the FCC’s regulatory program ap-

plicable to the provision of intercity services had been based

upon the line it drew in the Specialized Common Carrier

proceeding limiting specialized common carriers to the

provision of private line services. Thus, in its decision in

Docket No. 18128, a major and recently concluded in-

vestigation into rate levels, rate relationships and ap-

propriate pricing and costing methodologies to be em-

ployed by the Bell System, the FCC made clear that its

“* ‘ratemaking and regulatory policies and practices’ ”’, as

well as its determination of “‘what constituted a proper

costing methodology,” had been molded in light of the

scope of competition, limited to private line services, which it

had previously authorized.'* And in its decision authorizing

the resale and shared use of common carrier services and

facilities, the FCC stressed that it would not permit sub-

version of its previously articulated “‘distinctions between

private line services and MTS or WATS” and thereby

provide specialized common carriers “the opportunity for

creation of networks similar to MTS and WATS’’® Indeed,

as the FCC recently pointed out in a comprehensive report

to Congress, “the Commission carefully and consistently

has restricted competition to the private line field . . . so

that nationwide rate averaging will continue for long

distance telephone service.”””*

"AT&T, Revisions of Tariff FCC No. 260 Private Line Services,

Series 5000 (TELPAK), 61 F.C.C.2d 587 (1976).

'°In the Matter of Regulatory Policies Concerning Resale and Shared

Use of Common Carrier Services and Facilities, 60 F.C.C.2d 261 (1976),

recon. granted, 62 F.C.C.2d 588, 602-03 (1977).

Report by the Federal Communications Commission on Domestic

Telecommunications Policies, Attachment B, p. 101, September 27,

1976.

16

Notwithstanding the reiteration by the FCC and the

recognition by the courts that specialized common carriers

were limited to the offering of private line services, MCI

modified its tariffs late in 1974 in a way that enabled it sub-

sequently to offer message telephone service under the

guise of Execunet. Because of the manner in which its tariff

was amended and its failure adequately to describe or even

name the service there, the nature of Execunet was not

known until MCI began actively promoting the service

some months later. When AT&T learned of the service and

determined that it was indistinguishable from message

telephone service, it filed a complaint with the FCC seeking

to halt the offering of the service on the ground that it ex-

ceeded MCI’s authorization limited to private line services.

In a lengthy decision rendered after extensive proceed-

ings, the FCC held that Execunet is “indistinguishable from

MTS” and hence “is outside of MCI’s authorizations’’.

MCI Telecommunications Corporation, Investigation Into

the Lawfulness of Tariff FCC No. 1 Insofar as it Purports to

Offer Execunet Service, 60 F.C.C. 2d 25 (1976). The Com-

mission stressed that its conclusion concerning the scope of

MCI’s authorization was premised upon its “foremost

pronouncement of our policy regarding the role of

Specialized Common Carriers in . . . the Specialized Com-

mon Carrier decision ...,” that it had “never modified

this policy, but rather” that it had “reaffirmed... [its] find

ings therein on several occasions”’ and that those findings

“are controlling on the issues in the case”. 60 F.C.C.2d at

35-36. After pointing out that, “prior to the preserit

proceeding, there had been no confusion or debate over the

meaning of private line services’, 60 F.C.C.2d at 42, and

detailing the reasons why Execunet is “‘indistinguishable

from MTS,” the FCC concluded:

In essence, MCI is... asking us to reopen the

Specialized Common Carrier decision to determine

again what services should be open to com-

17

petition. We decline to do so.... There is no

allegation that the public interest considerations

upon which the Specialized Common Carrier

decision were based have changed at all, nor that

the economic character of the communications in-

dustry has changed so drastically that we should

re-examine the industry structure.

60 F.C.C.2d at 57.

The decision of the Court of Appeals for the District of

Columbia reversed the FCC’s Execunet decision and

remanded the case to the FCC for further unspecified

proceedings. The court did not question the FCC’s deter-

mination that Execunet is “‘indistinguishable from MTS”

nor did it question that the FCC had not, at any time, even

considered, much less authorized, specialized common

carriers to provide message telephone serivce. Indeed, the

court conceded that “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”. Slip op. at 19. Nevertheless, the court con-

cluded that MCI was free to offer any service it desired,

without restriction, whether private line or MTS, on the

ground that the Specialized Common Carrier decision can-

not reasonably be read to have made an affirmative deter-

mination that the public convenience and necessity

required ‘private line restrictions on the facilities

authorizations of specialized common carriers’ ’’. Slip op.

at 30.

As the NARUC will show, the Court of Appeals decision

can only be described as an abberation which cannot be

permitted to stand. Indeed the court’s radical departure

from settled precedent of this Court and the Court of Ap-

peals portends profound effects upon the entire structure of

the telecommunications industry and dire consequences for

the NARUC, for the State regulatory commissions of which

18

it is comprised and for the general public, all without

justification in law or logic.

REASONS FOR GRANTING THE WRIT

THE DECISION OF THE COURT OF APPEALS IS IN

CONFLICT WITH THE DECISIONS OF THIS COURT

AND THE COURT OF APPEALS PERMITTING AD-

MINISTRATIVE AGENCIES TO UTILIZE

RULEMAKING PROCEEDINGS TO ESTABLISH

POLICIES FOR APPLICATION IN SUBSEQUENT

PROCEEDINGS.

The basis for the Court of Appeals holding, setting aside

the FCC’s Execunet decision and permitting MCI to offer

message telephone services as well as private line services,

was that the FCC had failed to make findings of public con-

venience and necessity adequate to limit the authorizations

of specialized common carriers to private line services. Slip

op. at 30. Since such findings already had been made by

the FCC in its Specialized Common Carrier decision, there

appear to be only two possible explanations for the court’s

holding. First, the court apparently was of the view that, in

reviewing the FCC’s determination, it was limited to the

four corners of the record made before the FCC in

Execunet itself and therefore that it was not obligated to

look beyond that proceeding itself to determine if the

requisite findings had been made. Secondly, the court was

also apparently of the view that the FCC could not, through

a properly conducted rulemaking proceeding, establish a

general rule concerning the scope of authorized com-

petition and then apply that rule to tariffs offering services

beyond the line previously established. Neither explanation

will withstand analysis and each is flatly at odds with set-

tled decisions of the Supreme Court and the Court of Ap-

peals.

~ a ee

19

It has long been recognized that decisions of ad-

ministrative agencies may not be overturned because a

determination went beyond the record in the proceeding in

question, unless there is actual prejudice to a party par-

ticipating in the proceeding. This Court articulated this

sound rule of administrative practice in United States v.

Pierce Auto Freight Lines, Inc., 327 U.S. 515, 66 S.Ct. 687,

90 L.Ed. 821 (1946):

[This Court] has not undertaken to make a fetish

of sticking squarely within the four corners of

the specific record in administrative proceedings

or of pinning down such agencies, with reference

to fact determinations even more rigidly than the

courts in strictly judicial proceedings. On the con-

trary . . . the mere fact that the determining body

has looked beyond the record proper does not in-

validate its action unless substantial prejudice is

shown to result.

327 U.S. at 530.

MCI can hardly claim and the Court of Appeals did not

find that MCI was prejudiced in any way by what the Court

erroneously perceived to be an absence of adequate public

interest findings that the continued offering of Execunet

exceeded MCI’s limited authority to provide private line

services. As the FCC itself pointed out, prior to Execunet,

there had been “no confusion or debate” concerning

whether the FCC had ever “‘modified”’ the policy it an-

nounced in its Specialized Common Carrier decision or

whether the policy was still ‘‘controlling’’ or whether MCI’s

authority was limited to offering private line service. 60

F.C.C.2d at 35, 36, 42. Nor is the absence of confusion at all

surprising, since MCI participated in each of the

proceedings in which this question had been addressed by

the FCC or the courts and had repeatedly represented its

own understanding in those proceedings that its

20

authorization was so limited. By failing to take into account

the extensive history leading up to the instant controversy

reflected in the findings, conclusions and records of related

proceedings, the court improperly elevated form over sub-

stance and made “‘a fetish of sticking squarely within the

four corners of the specific record”’ of a kind this Court has

squarely condemned. 327 U.S. at 530.

The Court of Appeals’ total misapprehension of the

nature and scope of the record before it on review of the

FCC’s decision led it similarly to misapprehend, contrary to

a settled line of precedent, the function and purpose of

rulemaking where an agency decision reflects the ap-

plication of a rule after its promulgation. The landmark

case establishing the proper scope of review of agency

rulemaking, nowhere acknowledged by the Court of Ap-

peals, is this Court’s decision in United States v. Storer

Broadcasting Co., 351 U.S. 192, 76 S.Ct. 763, 100 L.Ed.

1081 (1956). In upholding the FCC’s exercise of rulemaking

authority to limit the number of stations a licensee could

own, this Court announced a principle that the NARUC

submits is fully applicable to this case:

This Commission, like other agencies, deals

with the public interest. Scripps-Howard Radio v.

Federal Communications Comm'n, 316 US. 4,

14, 86 L.Ed. 1229, 1236, 62 S.Ct. 875. Its

authority covers new and rapidly developing

fields. Congress sought to create regulation for

public protection with careful provision to assure

fair opportunity for open competition in the use of

broadcasting facilities. Accordingly, we cannot in-

terpret § 30%b) as barring rules that declare a

present intent to limit the number of stations con-

sistent with a permissible “concentration of con-

trol.” It is but a rule that announced the com-

mission’s attitude on public protection against

21

such concentration. The Communications Act

must be read as a whole and with appreciation of

the responsibilities of the body charged with its

fair and efficient operation. The growing com-

plexity of our economy induced the Congress to

place regulation of businesses like com-

munication in specialized agencies with broad

powers. Courts are slow to interfere with their

conclusions when reconcilable with statutory

directions.

351 U.S. at 203.

As this Court stressed in Storer, in terms flatly in-

consistent with what the Court of Appeals required here,

“we do not think Congress intended the Commission to

waste time on applications that do not store a valid basis for

a hearing.”” 351 U.S. at 205. The plain meaning of the

Court’s holding in Storer is that once the FCC adopts a

valid rule, it need not relitigate the underlying rationale for

and again make findings supporting the rule adopted. In-

stead, all that is required of the agency is to determine

whether the particular situation before it falls within or out-

side of the previously established rule. The FCC’s con-

clusions concerning Execunet fully satisfy that requirement

— having been reached after exhaustive proceedings in

which all interested parties had the opportunity to and did

In FPC v. Texaco, Inc., 377 U.S. 33, 84 S.Ct. 1105, 12

L.Ed.2d 112 (1964), this Court expanded upon the rule it

announced in Storer. The question before the Court in

Texaco was whether the FPC had properly adopted a rule

requiring gas producers to file contracts as rate schedules,

stipulating that only certain prescribed conditions in the

contracts were permissible. and thereafter summarily rejec-

ting applications that contained impermissible conditions.

In upholdn.z the FPC’s action, this Court stated:

Ween be

22

The present regulations do not pass on the merits

of any rate structure nor on the merits of a cer-

tificate of public convenience and necessity; they

merely prescribe qualifications for applicants.

Those qualifications are in the category of con-

_ ditions that relate to the ability of applicants to

serve the consumer interest in this regulated field.

377 U.S. at 42.

Having drawn a line by means of a rulemaking proceeding

between the authorized and the unauthorized, as the FCC

did in its Specialized Common Carrier decision and as the

FPC did in Texaco, this Court made it crystal clear that

unless the agency is free to apply that rule in the future,

“the processes of regulation” would “be . . . prolonged and

... crippled”:

To require the Commission to proceed only on

a case-by-case basis would require it, so long as its

policy outlawed indefinite price-changing

provisions, to repeat in hearing after hearing its

conclusions that condemn all of them. There

would be a vast proliferation of hearings, for as a

result of Phillips Petroleum Co., vy. Wisconsin, 347

U.S. 672, 98 L.Ed. 1035, 74 S.Ct. 794, there are

thousands of individual producers seeking ap-

plications. See Wisconsin v. Federal Power

Comm'n, 373 U.S. 294, 300, 10 L.Ed.2d 357, 362,

83 S.Ct. 1266. We see no reason why under this

statutory scheme the process of regulation need

be so prolonged and so crippled.

377 U.S. at 44.

Before its decision in the present case, the Court of Ap-

peals for the District of Columbia Circuit had understood

and applied this Court’s teaching in Storer and Texaco. In

American Airlines, Inc. vy. CAB, 359 F.2d 624 (D.C. Cir.),

23

cert. denied, 385 U.S. 843, 87 S.Ct. 73, 17 L.Ed.2d 75

(1966), the court upheld the application of a policy

statement previously adopted by the CAB to limit the kinds

of carriers that could provide certain types of cargo service.

The principal argument addressed by the court related to

the meaning of the Storer doctrine. Petitioner there urged

that “the doctrine is restricted to regulations affecting

future applications for new licenses or certificates, whereas

here the CAB affected rights under existing certificates’.

359 F.2d at 628. The Court of Appeals flatly rejected “‘such

a restrictive reading”’ of Storer:

The present case is different in particular

aspects of the facts or statutory provisions from

Storer and the other Storer doctrine cases.

However, the Storer doctrine is not to be revised

or reshaped by reference to fortuitous cir-

cumstance. It rests on a fundamental awareness

that rule making is a vital part of the ad-

ministrative process, particularly adapted to and

needful for sound evolution of policy in guiding

the future development of industries subject to in-

tensive administrative regulation in the public in-

terest, and that such rule making is not to be

shackled, in the absence of clear and specific

Congressional requirement, by importation of

formalities developed for the adjudicatory process

and basically unsuited for policy rule making.

359 F.2d at 629.

Subsequently, in American Telephone & Telegraph Co. v.

FCC, 539 F.2d 767 (D.C. Cir. 1976), the Court of Appeals

applied precisely the same principle in approving the FCC’s

grant, without a hearing, of the application of United

States Transmission Systems on the basis of the policy

established in the Specialized Common Carrier decision:

24

The Commission, of course, has “a large

discretion to avoid time consuming hearings in

this field whenever possible.” Southwestern

Operating Co. v. FCC, 122, U.S. App. D.C. 137,

128, 351, F.2d 834, 835 (1965); Stone v. FCC, 151,

. U.S. App. D.C. 145, 466 F.2d 316 (1972).

Moreover, the Commission may obviate the need

for repetitious hearings on previously considered

issues of public policy by establishing through

rulemaking, criteria against which to judge

specific applications. United States v. Storer

Broadcasting Co., 351 U.S. 192, 202-205, 76 S. Ct.

763, 100 L.Ed. 1081 (1956). Emphasis supplied.)

539 F.2d at 774.

In its decision below, the Court of Appeals totally

disregarded the controlling decisions of this Court and its -

own prior decisions by the “importation of formalities”

that have no proper place in the administrative process. By

apparently requiring the FCC to redecide whether the line

it drew in the Specialized Common Carrier decision

remains consistent with the public interest — a needless

task the FCC expressly declined to undertake in the context

of Execunet, 60 F.C.C.2d at 57 — the court has made a

mockery of the administrative process and turned the

salutary purpose of a rulemaking proceeding on its head.

The practical effect of the court’s erroneous decision is

particularly disturbing. For one thing, it will result in fur-

ther delay in an already drawn-out proceeding that can

plainly sérve no useful purpose.** Far more importantly,

**When and if MCI or some other specialized common carrier wishes

to expand its authority, it can always return to the FCC and apply for a

new or expanded certificate upon a showing that such expansion would

serve the public interest. However, as the FCC pointed out in Execunet,

“MCI has cited no changed circumstances which would require a re-

examination of our policies regarding competition . . . as established in

the Specialized Common Carrier decision”. 60 F.C.C.2d at 57.

25

since other carriers previously limited by the FCC to the of-

fering of private line services will in all probability seek to

take advantage of the chaos introduced into the structure of

the industry by the decision below, that decision jeopar-

dizes the public interest in national rate averaging and the

support message telephone revenues provide to local

telephone service, unless it is stayed pending the action of

this Court or further proceedings before the FCC.

The NARUC does not take issue with the abstract sound-

ness of the court’s discussion of the circumstances under

which the FCC can reject a tariff and the requirements of

the various provisions of the Communications Act which it

addressed in that regard. Slip op. at 17-20. However, it is

clear that the court erred in concluding that the FCC had

engaged in an improper “departure from prior ad-

ministrative practice’, Slip. op. at 16, in rejecting MCI’s

tariff offering Execunet. Indeed, what the FCC did here was

precisely the same as what it had done in an earlier case,

Press Wireless, Inc., 25 F.C.C. 446 (1958), aff'd sub. nom.

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

which the court cited in its opinion. Slip op. at 17. In Press

Wireless, the FCC had refused to accept a tariff offering a

service which was beyond those specified in a rule limiting

the services that could be offered over certain radio

facilities. In a per curiam opinion, the Court of Appeals af-

firmed, finding no error in the FCC rejecting a tariff that

“the Commission thought ... covered services petitioner

was not licensed to perform’”’. 264 F.2d at 372. Because the

FCC properly drew a line in its Specialized Common

Carrier decision limiting MCI and other specialized

carriers to offering private line service, the practice it

followed in rejecting MCI’s Execunet tariff offering

message telephone service was both sound, lawful and

essential to protect the public interest.

26

CONCLUSION

For the foregoing reasons, the NARUC respectfully

requests that this Court grant the Petition for Writ of Cer-

tiorari and summarily reverse the Court of Appeals

decision.

PAUL RODGERS

General Counsel

CHARLES A. SCHNEIDER

Assistant General Counsel

1102 ICC Building WILLIAM R. NUSBAUM

Post Office Box 684 Deputy Assistant

Washington, D.C. 20044 General Counsel

National Association of

(202) 628-7324 Regulatory Utility

Commissioners

September 27, 1977