Appendix — FEDERAL COMMUNICATIONS COMMUNICATIONS COMMISSION v. MCI COMMUNICATIONS CORP. (Nos. 78-216, 78-217)

No. 78-270

Gu the Supreme Court of the United States

OcToBER TERM, 1978

FEDERAL COMMUNICATIONS COMMISSION, PETITIONER

v.

MCI TELECOMMUNICATIONS CorP., ET AL.

PETITIONER’S APPENDIX

ROBERT R. BRUCE,

General Counsel,

DAVID J. SAYLOR,

Deputy General Counsel,

DANIEL M. ARMSTRONG,

Associate General Counsel,

JOHN E. INGLE,

Counsel,

Federal Communications Commission,

Washington, D.C, 20554,

(202) 632-7112.

TABLE OF CONTENTS

Appendix A, Order and Opinion of the United

States Court of Appeals for the District of

Columbia Circuit, granting the motion of

MCI Telecommunications Corp. for an order

directing compliance with mandate, April 14,

1978

Appendix B, Opinion of the court of appeals

in MCI Telecommunications Corp. v. FCC,

July 28, 1977

Appendix C, Memorandum Opinion and Order

of the Federal Communications Commission,

Petition of American Telephone and Tele-

graph Company for a Declaratory Ruling

and Expedited Relief, February 28, 1978

Appendix D, Orders of the court of appeals

denying petitions for rehearing and sugges-

tions of rehearing en banc, May 8, 1978

Appendix HE, Order of the court of appeals

and per curiam memorandum granting and

denying motions for stay of April 14, 1978,

Order, May 11, 1978

A ———

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APPENDIX A

United States Court of Appeals for the District of

Columbia Circuit

SEPTEMBER TERM, 1977

No. 75-1635

MCI TELECOMMUNICATIONS CORPORATION, MICROWAVE

ComMuNIcaTIONS, INc., aND N-TrripPLE-C INc.,

PETITIONERS

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED

STATES OF AMERICA, RESPONDENTS.

AMERICAN TELEPHONE AND TELEGRAPH CO., ET AL.,

INTERVENORS.

Filed April 14, 1978

Before: WricHT, Chief Judge; TAMM and WILKEY,

Circuit Judges.

ORDER

Upon consideration of petitioners’ motion request-

ing this Court to enter an order directing compliance

with this Court’s mandate previously issued in this

proceeding, of petitioners’ motion for expedited con-

sideration, of the oppositions of intervenors United

States Independent Telephone Association and Ameri-

can Telephone and Telegraph Company, of the re-

sponse of intervenor Southern Pacific Communica-

tions Company, of petitioners’ supplements to their

motion, of the response of respondent Commission, of

the reply of intervenor United States Independent

; (1a)

a

2a

Telephone Association to the response of Southern

Pacific Communications Company, of petitioners’ re-

ply to the opposition of American Telephone and Tel-

egraph Company, of the supplemental opposition of

American Telephone and Telegraph Company to the

response of intervenor Southern Pacific Communica-

tions Company to the petitioners’ motion, of the reply

of intervenor Southern Pacific Communications Com-

pany to the various oppositions, and of the letter of

counsel for respondent Commission advising of addi-

tional authorities, it is

ORDERED by the Court that petitioners’ mo-

tion for an order directing compliance with the man-

date of this Court, previously issued, is granted for

the reasons set forth in the opinion for the Court filed

herein this date.

Per Curiam.

For the Court:

GrEORGE A, FISHER,

Clerk.

ee

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Ruited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-1635

MCI TELECOMMUNICATIONS CORPORATION, MICROWAVE

COMMUNICATIONS, INC., AND N-TRIPLE-C INC.,

PETITIONERS

Vv.

FEDERAL COMMUNICATIONS COMMISSION 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

Motion for an Order Directing

Compliance With Mandate

Filed April 14, 1978

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

ee

4A

Michael H. Bader, William J. Byrnes, Kenneth A. Coz,

and Raymond C. Fay were on the pleadings for peti-

tioners.

Robert R. Bruce, General Counsel, Daniel M. Arm-

strong, Associate General Counsel, and John E. Ingle,

Counsel, Federal Communications Commission, were on

the pleadings for respondents.

Paul J. Berman, Michael Boudin, and F. Mark Garling-

house were on the pleadings for intervenor American

Telephone and Telegraph Company.

Before WRIGHT, Chief Judge, and TAMM and WILKEY,

Circuit Judges.

Opinion for the court filed by Chief Judge WRIGHT.

WRIGHT, Chief Judge: Petitioners here, MCI Tele-

communications Corporation, Microwave Communications,

Inc., and N-Triple-C Inc. (hereinafter, collectively, MCI),

request this court to issue an order directing the Federal

Communications Commission (FCC) and the American

Telephone & Telegraph Company (AT&T) to comply with

our mandate in MCI Telecommunications Corp. v. FCC,

561 F.2d 365 (D.C. Cir. 1977), cert. denied, US.

——, 46 U.S. L. WEEK 3446 (January 16, 1978) (here-

inafter Execunet). This motion by MCI was prompted by

a declaratory ruling issued by the Commission, at the

request of AT&T, on February 23, 1978, holding that

AT&T is under “no obligation” to provide the local physi-

cal interconnections necessary for MCI’s Execunet serv-

ice." MCI argues that this ruling is inconsistent with

and violative of our Execunet decision, and that under

‘In the Matter of Petition of American Telephone and

Telegraph Company for a Declaratory Ruling and Expedited

Relief, FCC 78-142, Memorandum, Opinion and Order,

Adopted February 23, 1978, Released February 28, 1978

(hereinafter FCC Declaratory Ruling).

a

ba

our mandate AT&T is required to provide interconnec-

tions for Execunet. For the reasons set forth below, we

agree, and we order the parties to comply with our man-

date.

I. BACKGROUND

The motion to direct compliance before us now is the

most recent stage in the long series of proceedings and

litigation in which MCI has attempted to secure and

preserve its authority to offer Execunet service.? Since

the seminal FCC Specialized Common Carrier decision,

Specialized Common Carrier Services, 29 FCC2d 870

(1971), aff'd sub nom. Washington Utilities & Trans-

portation Com’n v. FCC, 518 F.2d 1142 (9th Cir.), cert.

denied, 423 U.S. 836 (1975) (hereinafter Specialized

Carrier), MCI has met with almost continuous resistance

from AT&T in its efforts to provide communications

services. We had thought that this process finally culmi-

nated in our Execunet decision upholding MCI’s authori-

ty to offer Execunet pending further rulemaking by the

Commission. Now, however, we are faced with a new

effort by AT&T, with the approval of the Commission, to

arrest the development of Execunet service, and the ques-

tion for immediate disposition is whether protection of

the integrity of our Execunet mandate requires that this

new effort be terminated through an order directing com-

pliance with our mandate. We believe it does.

2 With Execunet a subscriber with a push-button telephone

is able to reach any telephone in a distant city served by

MCI by dialing a local MCI number followed by an access

code and the number in the distant city. Execunet subscribers

are billed on a time and distance basis for each call, subject

; to a monthly minimum. See MCI Telecommunications Corp.

: v. FCC, 561 F.2d 365, 367 & n.3 (D.C. Cir. 1977), cert. denied,

— U.S. ——, 46 U.S. L. WEEK 3446 (Jan. 16, 1978) (here-

inafter Execunet); MCI Telecommunications Corp., 60 FCC2d

25, 26 n.1 (July 18, 1976).

elk 8 eke. heme hale Wht tt Us ete 6 — see

6A

Since the course of all of these earlier proceedings is

set out in some detail in our Execunet decision,® our pur-

pose here is only to outline briefly the background neces-

sary to consideration of this motion. In Specialized Car-

rier, supra, the Commission sought to determine by rule-

making “[{wjhether as a general policy the public inter-

est would be served by permitting the entry of new car-

riers in the specialized communications field * * *.” 29

FCC2d at 878. The Commission answered that question

affirmatively,‘ but did not seek to define precisely the

3 See Execunet, supra note 2, 561 F.2d at 367-373. See also

Bell Telephone Co. of Pennsylvania v. FCC, 503 F.2d 1250,

1254-1263 (3d Cir. 1974), cert. denied, 422 U.S. 1026 (1975).

* As to this question the Commission concluded:

[T]jhere is a public need and demand for the proposed

facilities and services and for new and diverse sources

of supply, competition in the specialized communications

field is reasonably feasible, there are grounds for a rea-

sonable expectation that new entry will have some bene-

ficial 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. We further

find and conclude that a general policy in favor of the

entry of new carriers in the specialized communications

field would serve the public interest, convenience, and

necessity.

Specialized Common Carrier Services, 29 FCC2d 870, 920

(1971), aff’d sub nom. Washington Utilities & Transportation

Com’n v. FCC, 513 F.2d 1142 (9th Cir.), cert. denied, 423

U.S. 836 (1975) (hereinafter Specialized Carrier). The Com-

mission went on to address the question of “the appropriate

means for local distribution of the proposed services,” Notice

of Proposed Rulemaking, 24 FCC2d 318 (1970), concluding:

157. We reaffirm the view expressed in the Notice

(paragraph 67) that established carriers with exchange

facilities should, upon request, permit interconnection or

leased channel arrangements on reasonable terms and

conditions to be negotiated with the new carriers, and

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boundaries of “the specialized communications field.” °

Specialized Carrier served as the basis for the Com-

mission’s later grants, under 47 U.S.C. § 214 (1970), of

facilities authorizations to carriers, including MCI, to

provide microwave communications services. AT&T, how-

ever, refused to provide interconnections necessary for

the specialized carriers to furnish these services. This re-

fusal led MCI to seek and secure from the Commission

both a cease and desist order against AT&T and an affir-

mative order that AT&T was required to provide any

physical connections “essential” to the rendition of “all”

the services which any of the specialized common carriers

“presently or hereafter” are authorized to offer. Bell

System Tariff Offerings, 46 FCC2d 418 (1974), aff'd

also afford their customers the option of obtaining local

distribution service under reasonable terms set forth

in the tariff schedules of the local carrier. Moreover, as

there stated, “where a carrier has monopoly control over

essential facilities we will not condone any policy or prac-

tice whereby such carrier would discriminate in favor of

an affiliated carrier or show favoritism among competi-

tors.” In view of the representations of AT&T and GT&E

in this proceeding, upon which we rely, and the self-

interest of other independent telephone companies in not

losing potential new business, there appears to be no need

to say more on this question at this time. Should any

future problem arise, we will. act expeditiously to take

such measures as are necessary and appropriate in the

public interest to implement and enforce the policies

and objectives of this Decision.

Specialized Carrier, supra, 29 FCC2d at 940 (emphasis added;

footnote omitted).

* See Execunet, supra note 2, 561 F.2d at 371, 379 n.68 (“to

the extent that any definition of a specialized common carrier

emerges from the ‘Commission’ s discussion, that definition ap-

pears to be simply that a specialized carrier is any carrier

that does not attempt to optimize its service offerings to the

voice communications needs of the general public’).

Sa

sub nom. Bell Telephone Co. of Pennsylvania v. FCC,

503 F.2d 1250 (3d Cir. 1974), cert. denied, 422 U.S. 1026

(1975).

MCI filed a tariff revision including rates for Execunet

service in September 1974. That tariff was rejected by

the Commission at the request of AT&T. MCI immedi-

ately sought a stay of the Commission’s order pending

judicial review. A stay was initially granted, then later

modified in light of the opposition of the FCC and AT&T.

As modified the stay permitted MCI to continue to serve

its present customers but prohibited any solicitation of

new customers or any expansion of service.* In seeking

and securing this modification of the stay—as well as in

its opposition to the grant of the original stay—AT&T

forcefully argued that a broad stay would permit MCI

to compete with AT&T’s long distance service in high

density, high profit areas, and that this would have a

substantial adverse impact on AT&T and on the public

interest. According to the pleadings filed in this court

by AT&T, such competition would undermine AT&T’s

practice of determining long distance rates through cost

averaging and would result in substantial increase in

costs in low density areas.’

After an initial remand at the Commission’s request

for further proceedings on the merits, we reversed the

FCC’s rejection of the Execunet tariff. We held that un-

der the Communications Act the tariff system provides

the usual mechanism for initiation of new services to be

provided on previously authorized facilities.* Under this

* See Execunet, supra note 2, 561 F.2d at 369 & n.18.

* See Memorandum of AT&T in Opposition to Petitioners’

Motion for Stay Pending Review, July 14, 1975, at 44-47; Mo-

tion of AT&T to Dissolve or Modify the Stay and for Ex-

pedited Review, August 18, 1976, at 24-29.

* Execunet, supra note 2, 561 F.2d at 374, citing AT&T v.

FCC, 487 F.2d 965, 870-881 (2d Cir. 1973).

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mechanism a carrier files a tariff for the new service and,

subject to a possible stated suspension period, is per-

mitted to implement that service until and unless the

Commission determines that the service is not in the

public interest.* The only limitation on the carrier’s abili-

ty to make use of tariff filings to initiate new services

relevant to this case is found in Section 214(c) of the

Act, 47 U.S.C. §214(c) (1970), which permits the Com-

mission, in granting facilities authorizations, to limit

the services which may be provided on facilities which it

authorizes.”

The Commission argued in Execunet that its Spe-

cialized Carrier decision implicitly restricted the facilities

authorizations of specialized carriers to “private line”

services, that Execunet is mot such a “private line”

service, and that MCI therefore could not implement

this service through a tariff filing. In support of its

position the Commission emphasized that its analysis of

competitive effects in Specialized Carrier assumed that

the specialized carriers would be limited to offering “pri-

vate line” services."

We rejected the Commission’s arguments, holding that

Section 214 requires an affirmative determination to re

strict a carrier’s facilities authorization, and that no such

determination was made in Specialized Carrier. In reach-

ing our conclusion we placed emphasis on the Commis-

* The relevant tariff provisions are found in $§ 203-205 of

the Communication Act, 47 U.S.C. $§ 203-205 (1970). See

Ezecunet, supra note 2, 561 F.2d at 374 n.44.

*° Section 214(c) permits the Commission to “attach to the

issuance of the certificate such terms and conditions as in

its judgment the public convenience and necessity may re-

quire.” 47 U.S.C. $214(c) (1970). See Ezecunet, supra note

2, 561 F.2d at 376-377 & n.56.

* Ezecunet, supra note 2, 561 F.2d at 37 & n.58.

10a

sion’s staff report which formed the basis for the Spe-

cialized Carrier decision. As to the competition argu-

ment, we found that the staff report “ryminated more

broadly [than the Commission suggested] on the issues

posed by revenue diversion and it appeared highly skep-

tical of the validity of AT&T’s overall argument.” 561

F.2d at 378. Further, we noted that the staff report

“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 Com-

mission in the Specialized Common Carrier decision.”

Id. at 378-379. We found that “(t]he 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 proceed-

ings—in tariff proceedings, upon license renewal, or by

future rulemaking.” Id. at 379.

AT&T, as well as the Commission, petitioned for cer-

tiorari, arguing, inter alia, as they had before this court,

that our decision would result in vigorous competition

over high density routes, with potentially adverse ef-

fects on the public interest as weli as on AT&T. Cer-

tiorari was denied on January 16, 1978."

122 AT&T Petition for Certiorari, MCI Telecommunications

Corp. v. FCC (Sept. 1977), at 29-30 (“If the lower court’s

decision stands, the telephone companies will be threatened

with a massive. diversion of MTS traffic from the switched

network. This diversion can occur at an extraordinary rate—

literally in a matter of months—because the specialized car-

riers have thousands of intercity circuits in operation and

they utilize existing local distribution facilities already in

place. Past experience confirms the severity and speed of this

threat.”), quoted in MCI Petition for Compliance before the

FCC, at 7.

13__§__ U.S, _—, 46 U.S. L. WEEK 3446 (Jan. 16, 1978).

——eEoOe

11a

Hours after the Supreme Court’s denial of certiorari

AT&T announced its intention to cease providing any

additional interconnections for Execunet or similar serv-

ices, and filed with the Commission a petition for declara-

tory ruling that it was under “no obligation” to furnish

MCI or any other specialized carriers with any “addi-

tional” physical connections for Execunet-type services.

The Commission considered AT&T’s petition on an expe-

dited basis, and on February 23, 1978 it adopted a de-

claratory ruling in substantial accord with AT&T’s re-

quest.**

II. THE COMMISSION’s DECLARATORY RULING

IS INCONSISTENT WITH THE Execunet MANDATE

The local physical interconnections which AT&T now

refuses to provide for Execunet service are admittedly

essential to MCI’s ability to offer that service. As a

result, AT&T’s refusal to provide “additional” connec-

tions, upheld in the Commission’s declaratory ruling,

means that MCI is in effect no better off than it was

during the entire course of the litigation in this court:

notwithstanding our favorable decision, it is unable to

expand Execunet. Moreover, nothing in the Commission’s

ruling, or in AT&T’s request, establishes any legal basis

for a greater interconnection obligation on AT&T with

respect to maintenance of physical connections already

in place than with respect to “additional” connections,

* The petition for a declaratory ruling was granted, and

AT&T declared without obligation to interconnect, with re-

spect to prior Commission orders, the provisions of the Com-

munications Act, and the mandate of this court in Execunet.

The petition was denied only “insofar as it requests a deter-

mination with respect to the scope of petitioner’s intercon-

nection obligations to specialized common carriers, if any,

under the Sherman Act, the common law, or any federal or

state statute other than the Communications Act.” FCC De-

claratory Ruling, supra note 1, 7 83.

12a

with the result that MCI might well find itself in the

near future unable even to provide Execunet to its exist-

ing customers.**

Having successfully litigated the question of its right

to provide Execunet service, MCI certainly has good

cause to feel that this subsequent turn of events en-

gineered by the Commission and AT&T is strikingly un-

fair. Of course, as AT&T and the Commission so vig-

orously argue, litigation in the courts does not always

provide the victor with all that he might wish, or with

all that he expected or thought he had won. But the

fact of the matter is that our Execunet decision did

clearly contemplate—by virtue of AT&7’s representations

and actions—that AT&T was required to provide inter-

connections for Execunet service.

Until the Supreme Court denied certiorari in Execu-

net, AT&T provided MCI with the interconnections nec-

essary for Execunet service without any form of protest

or objection. Never in the proceedings before this court

did AT&T even suggest that it was not required to pro-

vide these connections, or that the question of MCI’s au-

thority to provide or expand its Execunet service was,

as a practical matter, of no consequence since AT&T could

and would refuse to provide the essential interconnections

should we decide in MCI’s favor. Quite to the contrary,

in securing the modification of our original stay, in its

briefs and arguments to this court, and in its petition

for certiorari, AT&T consistently emphasized that a

18 Indeed, the Commission’s order does not even restrict its

holding to “additional” connections: it concludes “that our

prior Section 201(a) orders do not direct the petitioners to

provide interconnection of facilities or services to any spe-

cialized common carrier to enable such a specialized common

carrier to provide any service which is substantially equivalent

to MTS or WATS.” Id. §j 79.

13a

decision in favor of MCI would lead to vigorous and ad-

verse competition.—a result which would occur only if

AT&T was required to provide the necessary intercon-

nections for Execunet. AT&T expected and encouraged

this court to take account of these representations in

reaching our decisions in the Execunet matter; certainly,

it did not assume that in so doing we would at the same

time ignore the underlying assumptions supporting the

claims of competition. Indeed, even ncw AT&T does not

deny that it is required to provide interconnections for

existing Execunet service; it contends only that it is not

required to provide any “additional” connections,’ not-

withstanding its earlier representations necessarily as-

suming the contrary, upon which our Execunet decisions

were premised, as well as the absence of any apparent

legal basis for distinguishing existing connections from

additional ones.

In view of this background, AT&T’s current refusal,

with the approval of the Commission, to provide inter-

connections to MCI does not simply raise questions of

fairness vis-a-vis MCI; it also raises questions as to the

propriety of allowing respondents here to renounce a

position and obligation which they assumed throughout

the course of the Execunet proceedings. But we need not

rest our grant of MCI’s compliance motion on the prac-

tical consequences involved here or on considerations of

fairness and estoppel. For while it is true, as AT&T

strongly emphasizes, that our Execunet decision is not

addressed explicitly to the interconnection issue or to

AT&T’s obligation to provide interconnection *—a fact

6 See notes 7 & 12 supra.

** See Opposition of AT&T to MCI Motion for an Order

Directing Compliance With Mandate, MC/ Telecommunica-

tions Corp. v. FCC (March 2, 1978), at 10.

18 See id. at 12-14. See also Response of Federal Communi-

cations Commission to MCI Motion for an Order Directing

14a

which is hardly surprising, given the background of this

case and the apparent assumption by all the parties, as

well as this court, that such an obligation was in force—

it is also true that our analysis and decision of the

Execunet case is plainly inconsistent with the analysis

and ruling of the Commission on February 23, 1978

holding AT&T under “no obligation” to provide inter-

connections for Execunet.

In reaching this conclusion the Commission addressed

its analysis to two questions: whether the Commission

had previously directed AT&T to provide these services

pursuant to an order under Section 201(a) of the Com-

munications Act; and, if not, whether AT&T is under an

obligation to provide interconnection apart from a Section

201(a) order. While serious questions have been raised

by the Department of Justice as to the correctness of the

Commission’s disposition of the second question,’® we need

not address these doubts here, since it is the Commission’s

analysis and resolution of the first question which gives

rise to the inconsistency with our Execunet mandate. For

in concluding that its prior orders do not require AT&T

Compliance With Mandate, MCI Telecommunications Corp. v.

FCC (March 6, 1978), at 7 (“There was no mention of inter-

connection rights or obligations, because none of the parties

had raised these questions either before the Commission or

in the Court.’’).

1° See Comments of the United States Department of Justice,

In the Matter of Petition of American Telephone and Tele-

graph Company for Declaratory Ruling and Expedited Relief,

submitted as Appendix A to MCI Reply to Oppositions, MCI

Telecommunications Corp. v. FCC (March 9, 1978), at 7, 9

(arguing, inter alia, that “AT&T totally failed to make any

factual showing of harm in its petition seeking to invoke

Commission protection against competition in the intercity

services market,” as well as that “[r]Jecent court decisions

make it clear that local telephone companies, including AT&T

subsidiaries, are affirmatively obliged to offer local intercon-

nection or loop services to other carriers, including MCI, to

facilitate lawful services”).

te ete Gand ca

POERebeE Ao: Coe

15a

to provide interconnections for Execunet, the Commission

construes narrowly and restrictively the very same issues

and decisions which were broadly construed by this court

in Execunet.

For purpsoses of the Commission’s first question, the

critical interconnection order is the Bell System Tariff

Offerings order, supra, requiring AT&T to provide inter-

connection for “all” of the services which any of the spe-

cialized carriers “presently or hereafter” are authorized

to offer. In its declaratory ruling the Commission sought

to construe this order as limited to “presently or here-

after authorized private line service,” In the Matter of

Petition of AT&T for Declaratory Ruling and Expedited

Relief, FCC 78-142, Memorandum, Opinion and Order,

Adopted February 23, 1978, Released February 28, 1978,

58 (hereinafter FCC Declaratory Ruling), allegedly re-

lying on a decision of the Third Circuit to that effect. See

infra. In the very next paragraph of its decision, how-

ever, the Commission recognized “that the Specialized

Carrier decision encompassed specialized communication

services other than those which theretofore had been de-

scribed as ‘private line services’” and acknowledged that

“private line” had emerged as shorthand for the broader

term “specialized communication service” because of the

particular context in which the interconnections issues

were most frequently raised. Id. (259. Thus the Commis-

sion continued:

We believe it is clear that the Specialized Common

Carrier decision as well as our order in Bell System

Tariff Offerings and the Court’s decision in Bell Tel.

Co. of Pennsylvania require interconnection for all

specialized interstate communication services, includ-

ing switched digital services such as those developed

by Datran. What is germane to the present proceed-

ing, however, is a determination as to what serv-

ices were explicitly excluded from consideration in

Specialized Common Carrier, Bell System Tariff

16a

Offerings, and Bell Tel. Co. of Pennsylvama. We

believe it is clear that MTS and WATS services,

and therefore services by other names which are

the functional equivalent of MTS and WATS,

were excluded from both the considerations and

holdings of these proceedings. * * *

Id. (emphasis in original). Phrased in these terms the

Commission’s reasoning is wholly at odds with that of

this court in Execunet. For in Execunet we held that

MCI’s facilities authorizations encompassed Execunet

service precisely because Specialized Carrier did not ex-

plicitly and affirmatively exclude this type of service from

consideration. In relying on exactly the opposite conclu-

sion to support its declaratory ruling, the Commission

acts in direct and explicit contradiction to our Execunet

decision.

The inconsistency between Execunet and the Commis-

sion’s declaratory ruling persists at the more general

level as well. The thrust of our entire opinion and deci-

sion in Execunet, derived in part from our reading of

the Commission staff report, was that Specialized Car-

rier represented a broad decision by the Commission to

allow carriers such as MCI to enter the market and com-

pete with AT&T, subject only to later limitations based

on public interest determinations in tariff or rulemaking

proceedings.” In its February 23rd ruling, however, the

Commission narrowly construed Bell System Tariff Of-

ferings, which was based on Specialized Carrier, to ex-

clude Execunet interconnections from those which AT&T

was required to provide; and it relied on interconnection

obligations—as opposed to tariffs or rulemaking—effec-

tively to limit the services which MCI and other carriers

were authorized to provide by the Specialized Carrier

decision.

20 Fxecunet, supra note 2, 561 F.2d at 378-379. See pp. 7-8

supra.

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Both of these positions are clearly inconsistent with

the basic themes of our Execunet decision. For the ex-

pansive interpretation of Specialized Carrier we advanced

in Execunet clearly mandates an equally expansive view

of the scope of the interconnection obligations of AT&T

which were defined by that decision. And in fact the

interconnection order which the Commission issued on the

basis of Specialized Carrier, as well as its discussion of

interconnection in Specialized Carrier itself," reflected

the broad reading of that decision to which we have ad-

hered: as noted earlier, it required AT&T to furnish

interconnection for all “presently or hereafter authorized”

services provided by the specialized carriers.” Similarly,

our emphasis on tariffs and ratemaking as the exclusive

means for future limitations on the specialized carriers’

development * clearly contemplated that the carriers

would be free to expand their service offerings—and

would be afforded the necessary interconnections—until

and unless it was found that the public interest demanded

otherwise. The Commission’s narrow construction of

AT&T’s existing interconnection obligation is not only

theoretically inconsistent with this position, but also

means in practice that a specialized carrier cannot im-

plement new offerings until and unless it is able to es

1 See note 4 supra, quoting Specialized Carrier, 29 FCC2d

at 940 (“established carriers with exchange facilities should,

upon request, permit interconnection or leased channel ar-

rangements on reasonable terms and conditions to be nego-

tiated with the new carriers, and also afford their customers

the option of obtaining local distribution service under rea-

sonable terms set forth in the tariff schedules of the local

carrier”).

2 Bell System Tariff Offerings, 46 FCC2d 413 (1974), aff’d

sub nom. Bell Telephone Co. of Pennsylvania v. FCC, supra

note 3.

23 Execunet, supra note 2, 561 F.2d at 378-379. See pp. 6-8

supra.

18a

tablish that the public interest mandates the services *

and that a new order should therefore be issued directing

AT&T to provide interconnections. This twists the is-

sues we contemplated in this case beyond recognition ; it

deliberately frustrates the purpose of the litigation, the

basis on which it was presented by the parties, and the

intended effect of our decree.

In our view, then, the only conclusion to the issues pre-

sented here which is consistent with our reasoning and

holding in Execunet is that the Commission decisions in

Specialized Carrier and Bell System Tariff Offerings im-

pose upon AT&T an obligation to provide interconnections

for Execunet. In holding otherwise in its February 23rd

declaratory ruling, therefore, the Commission acted in-

consistently with our Execunet mandate. And in refusing

to provide these interconnections to MCI, AT&T is acting

inconsistently with the view of its legal obligations re-

flected in our Execunet decision.

III. THE Bell Telephone DECISION

One final argument remains to be addressed. The Com-

mission has asserted that the position it has taken in this

action is mandated by the decision of the Third Circuit

in Bell Telephone Co. of Pennsylvania v. FCC, supra, and

that this position represents the only means by which the

Commission can simultaneously comply with the decisions

** Compare Execunet, supra note 2, 561 F.2d at 374 (“it is

well recognized that the tariff provisions of the Communica-

tions Act (Sections 203-205, 47 U.S.C. §§ 203-205), like the

cognate sections of the Interstate Commerce Act * * *, embody

a considered legislative judgment that carriers should in gen-

eral be free to initiate and implement new rates or services

over existing communications lines unless and until the Com-

mission, after hearing, determines that such rates or prac-

tices are unlawful, subject only to a limited period of suspen-

sion set out in the statute”) (footnotes omitted; emphasis

in original).

mal

+ ale

ee ke eee :

19a

of the two circuits.** As we have already made clear, how-

ever, the Commission’s February 23rd decision does not

effectuate compliance with our Execunet decision. Nor can

the Commission claim that it was required to decide as it

did in order to comply with Bell Telephone. For in our

view there is absolutely no conflict between the Execunet

and Bell Telephone decisions; the latter in no way compels

or even provides support for the Commission ruling that

AT&T is under no obligation to provide interconnections

for Execunet.

The interconnection orders under review in Bell Tele-

phone were issued by the Commission after AT&T refused

to provide to MCI the interconnections necessary for FX

and CCSA service.” FX, a service similar to though

somewhat more limited than Execunet, allows an indi-

vidual in one state in effect to maintain a local phone in

another state and thereby avoid making or receiving tra-

ditional long distance calls from that state. For example,

an individual in Washington with FX can be reached by

telephone subscribers in New York City and can himself

reach New York City subscribers through a local loop in

Washington, a Washington-New York interexchange line,

and a business line in the New York City exchange area.

CCSA, a Common Control Switching Arrangement, serves

to link the various offices of a large company through

switches on a local telephone company’s premises.” In

the orders being challenged in Bell Telephone the Commis-

sion had first concluded that its prior actions—notably, its

Specialized Carrier decision—had imposed upon AT&T

*° See FCC Declaratory Ruling, supra note 1, 19 56, 61;

Response of Federal Communications Commission, supra note

18, at 20.

** See Bell Telephone Co. of Pennsylvania v. FCC, supra

note 3, 503 F.2d at 1254-1259.

** Id. at 1254 n.4, quoting Bell System Tariff Offerings,

supra note 22, 46 FCC2d at 418 & n.5.

20a

the obligation to provide FX and CCSA interconnections

to MCI and other specialized carriers.** Lest its prior

orders were not clear, however, the Commission again

reviewed the interconnection question, concluding that

“achievement of our objective that competition in the pro-

vision of interstate private line communications services

be on a full, fair and nondiscriminatory basis requires

the issuance of broad interconnection orders. Our orders

herein therefore make clear that Bell is to provide inter-

connection for all of the authorized services of the special-

ized carriers, including FX and CCSA.” 503 F.2d at 1259,

quoting 46 FCC2d at 426-427 (emphasis added).

An essential question posed by AT&T’s petition for

review in Bell Telephone was whether the Commission’s

order was the first time that AT&T had been directed to

provide FX and CCSA interconnections, or whether, as

the Commission argued, AT&T’s obligations to provide

these connections were fixed by Specialized Carrier and

the Bell Telephone orders merely represented the Com-

mission’s method of enforcing a previously announced

mandate.” The Third Circuit adopted the Commission’s

view. The court noted that Specialized Carrier contained

no specific reference to FX or CCSA, but it construed that

decision broadly to include the services in question.” In

28 Bell System Tariff Offerings, supra note 22, 46 FCC2d

at 426-427. See also Letter from Bernard Straussburg, Chief

of the Common Carrier Bureau, FCC, to AT&T, August 31,

1973 (“it is our view that, as requested by MCI, the associ-

ated Bell companies are required to permit interconnection or

provide local channel arrangements to MCI”), quoted in Bell

Telephone Co. of Pennsylvania v. FCC, supra note 3, 503

F.2d at 1256.

2 Bell Telephone Co. of Pennsylvania v. FCC, supra note

3, 508 F.2d at 1259.

3° Id. at 1258-1260. In so doing the court emphasized the

broad language the Commission itself employed in the Spe-

cialized Carrier proceeding. I¢. at 1262-1263. See note 4 supra,

Se on

ee a eee ee

21a

so doing the Third Circuit decision provides strong sup-

port—not conflicting authority—for the similarly broad

construction we accordeu in Execunet to Specialized Car-

rier and to the Commission’s Bell Telephone order. For

just as the Third Circuit found Specialized Carrier suffi-

ciently broad to include FX and CCSA service, notwith-

standing the absence of specific references to these serv-

ices, so too we have found that decision broad enough to

encompass Execunet, notwithstanding the similar absence

of specific references.”

Nonetheless, AT&T and the Commission, pointing to

the Third Circuit’s discussion of an overbreadth challenge,

argue that that discussion fgyecloses the FCC from find-

ing that AT&T is required to interconnect for Execunet

under the Specialized Carrier and Bell Telephone orders.”

quoting Specialized Carrier, 29 FCC2d at 940; Ezecunet,

supra note 2, 561 F.2d at 378-379.

** Indeed, one of AT&T’s stronger arguments against the

Bell Telephone result is directly supportive of the result

we reach here. In arguing that FX and CCSA should not be

considered within the scope of Specialized Carrier, AT&T

emphasized that FX and CCSA services were already being

provided at the time by AT&T and independent carriers, and

that the FCC in Specialized Carrier was “contemplating other,

more unique services.” 561 F.2d at 1262. The Third Circuit

did not find this dispositive, concluding that “C[wlhile there

is language in [Specialized Carrier] indicating a concern with

new, customized services, we interpret this language as re-

ferring not only to types of services provided, but also to the

delivery of private line services to ultimate customers who

theretofore had been unable to obtain private line services

fashioned to their particular needs.” Jd. We need only point

out that to the extent both AT&T and the Third Circuit recog-

nized in Specialized Carrier a concern with and an interest

in encouraging “new, customized service,” that is a recognition

which we share in finding that decision dispositive of MCI’s

right—in theory and in practice—to provide Execunet.

*? See FCC Declaratory Ruling, supra note 1, { 58; Response

of Federal Communications Commission, supra note 18, at

10-11, 20; AT&T Opposition, supra note 17, at 19.

22a

We disagree. In Bell Telephone AT&T argued, inter alia,

that the order under review, by requiring it to provide

“the interconnection facilities essential to the rendition of

all of [the specialized carriers’] presently or hereafter

authorized interstate and foreign communications serv-

ices,” 503 F.2d at 1283, imposed an “‘wnbownded intercon-

nection order.” Id. at 1273 (emphasis in original). The

court rejected this challenge and upheld the order, noting:

Were we to read the Commission’s order in a

vacuum, we would be inclined to agree with peti-

tioner that the order is somewhat vague anc, to a

certain extent, overbroad. On its face, the order

gives little guidance as to the types of services that

A T & T will be required to provide “hereafter.”

Nevertheless, we find it unnecessary to remand on

this ground. Orders are not to be read in a vacuum,

but rather must be read and interpreted in the context

in which they appear. * * * Viewed in its entirety,

the FCC’s opinion in Docket 19896 operates to pre-

clude AT&T from treating its Long Lines Depart-

ment and its affiliates differently than it treats the

specialized common carriers. * * * As we read the

order, the FCC has required A T & T to provide to

the specialized carriers those (interconnection) ele-

ments of private line services which A T & T supplies

to its affiliates and furnishes to customers through its

Long Lines Department. * * *

Id. at 1273-1274.

The question presented by the arguments of the FCC

and AT&T here is whether the above paragraphs clearly

limit the Bell Telephone interconnection order so as to

exclude Execunet, which the Commission has determined

is not a “private line” service.** In concluding that it does

not, we think two factors are of importance. First, the

overbreadth and vagueness with which the Third Circuit

*° FCC Declaratory Ruling, supra note 1, 1 53, quoting MCI

Telecommunications Corp., 60 FCC2d 25, 63 (1976).

Ro ime he ohne ES sd Srgnctail

—

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Sees |

-

234

was concerned were directed not to any uncertainty as

to what services the specialized common carriers them-

selves would provide, but rather to the fact that “[o]n

its face, the order gives little guidance as to the types of

services that AT&T will be required to provide ‘here.

after.’” Jd. ‘emphasis added). Such concerns are not

limits AT&T’s interconnection obligations to “private

line” services, as that term is currently defined by the

Commission. Rather, the Commission, notwithstanding

its emphasis on the Third Circuit’s use of the term “pri-

vate line” as a limiting factor in its decision, itself recog-

rier decision as well as our order in Bell System Tariff

Offerings and the Court’s decision in Bell Tel. Co. of Penn-

sylvania require interconnection for all specialized inter-

state communication services * * *” FCC Declaratory

Ruling, supra, at 59 ( emphasis in original), Having

made this determination, and having explained the Third

Circuit’s use of “private line” as a shorthand or abbreyvi-

ices were explicitly excluded from consideration in Spe-

ctalized Common Carrier. Bell System Tarif Offerings,

and Bell Tel. Co. of Pennsylvania.” Id. ( emphasis in

original). And that is precisely the question we addressed

** See MCI Reply to Oppositions, supra note 19, at 14.

24a

and answered in Execunet, finding that Execunet services

were not explicitly excluded.

The Commission’s analysis of Bell Telephone, then, far

from providing authority which conflicts with our con-

struction of the Execunet decision, culminates finally in

the very question which was not addressed in Bell Tele-

phone but which was answered in Execunet. Neither the

Commission nor AT&T is now free to choose to ignore

the answer given by this court, in lieu of one more favor-

able to their position we rejected in Execunet.

Motion granted.

APPENDIX B

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-1635

MCI TELECOMMUNICATIONS CORPORATION, MICROWAVE

COMMUNICATIONS, INC., AND N-TRIPLE-C INC.,

PETITIONERS

Vv.

FEDERAL COMMUNICATIONS COMMISSION 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

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

i

t

;

/

(1B)

2B

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

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.

WricHT, 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

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

and the Decision in MCI Telecommunications Corp., 60 FCC2d

. ~ all

3

.

2

4

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-

¥

2

§

ey

3B

the Commission has not taken the steps required by the

Communications Act of 1934, 47 U.S.C. § 151 et seq.

(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

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.’

25 (July 18, 1976). The letter order is set out at Appendix B

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

* 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 par-

ticular 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.

* Execunet’s characteristics are summarized as follows.

A customer in the calling city calls the local MCI office

via local exchange telephone service from any push..

4B

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.

button 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 ac-

complished 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 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 inter-

city facilities simultaneously. In other words, none of

the MCI plant, or indeed any of the plant used in com-

pleting the call, is dedicated to the use of a particular

customer during any specified time; rather it is available

upon demand.

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

26 n.1.

« Letter from FCC to MCI, May 1, 1975, MCI Telecommuni-

cations Corp., supra note 1, Appendix B, 60 FCC2d at 64,

JA 8.

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!

&

4

3

5B

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

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

Execunet was a “private line” service which MCI was

authorized to offer.’ By a further letter MCI complained

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

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

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

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

* Letter from MCI to FCC, June 5, 1975, MCI Telecommuni-

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

JA 9-15.

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

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

JA 16-18.

* § 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 § 21.708 [the latter rules relating to frequency

use]. * * *

47 C.F.R. § 21.705 (1976).

* Letter from MCI to FCC, J uly 1, 1975, MCI Telecommuni-

cations 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 Communi-

cations on Interstate or Foreign Common Carrier Facilities,

and Amendment of Part 63.60—63.90 of the Rules, Notice of

Proposed Rule Making, 27 FCC2d 36 (1971); Report and

Order, 39 FCC2d 131 (1978).

6B

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: “[YJour tariff F.C.C. No.

1 is hereby rejected insofar as it purports to offer

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

ing any other service which you are authorized to pro-

vide.” * The rationale for this order was explained in

the body of the letter.

First, the Commission concluded that MCI could offer

only “private line” communications services over its ex-

isting facilities:

In the various Commission orders granting the Sec-

tion 214 applications of the MCI carriers to construct

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

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

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

appears language similar to the following:

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

“TT }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 appro-

priate tariff revisions * * *.’”” Report and Order, supra note 9,

39 FCC2d at 135.

12 MCI Telecommunications Corp., supra note 1, Appendix

B, 60 FCC2d at 64.

Die ae

a ea a Na Rh ac I wg tay

7B

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.)

The Commission then rejected MCI’s arguments that

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

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

bination of * * * similarities” between Execunet and

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

public message telephone service * * *.”

MCI immediately filed a petition for review in this

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

arguing that the Commission had failed to comply with

18 Td. at 63.

14 Td.

8B

Section 4 of the Administrative Procedure Act,” its own

rules governing informal complaints,” its own rules gov-

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

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

the Due Process clause. The request for a stay was

granted.** Subsequently the Commission, which had pre-

viously refused to allow MCI any kind of hearing, moved

to have the proceedings remanded so that it could con-

sider matters more fully than it had previously. This

motion was granted, although jurisdiction was retained.

In December 1975 the Commission issued an order

commencing the proceedings on remand. MCI Telecom-

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

announced that comments and reply comments would be

accepted and that oral argument or an evidentiary hear-

ing might be held if warranted by the written submis-

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

or not Execunet is a service which MCI is authorized

to offer pursuant to its facility authorizations and policies

set forth by this Commission.” * On March 26, 1976 the

Commission announced that it would hold oral argument

and designated the issues to be addressed at that time.

The issues the Commission identified as having been

65 U.S.C. § 553 (1970).

1° 47 C.F.R. §§ 1.711-1.735 (1976).

17 47 C.F.R. §§ 1.1201-1.1251 (1976). See also Rules Govern-

ing 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 cus-

tomers, but solicitation of new customers was not permitted.

19“SA” refers to a two-volume Supplemental Appendix

covering the proceedings on remand.

20 MCI Telecommunications Corp., 57 FCC2d 271, 271-272

(1975), SA 49-50.

ee) Puamees- adie

i. Ai PALI AS RNG bit SD ee

9B

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, 89 FCC2d 131 (1978)?

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-

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

ceedings would not be expanded to include consideration

*t MCI Telecommunications Corp., -—~ FCC2q —— (FCC

76-442, May 17, 1976), SA 894.

108

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:

22 Id., SA 895.

*3 Td.

2 (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 con-

struction 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 convenience and necessity will be adversely

affected thereby * * *. As used in this section the term

lls

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

“(w]hether 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

“line” means of channel of communication established

by the use of appropriate equipment, other than a channel

of communication established by the interconnection of

two or more existing channels: Provided, however, That

nothing in this section shall be construed to require a

certificate or other authorization from the Commission

for any installation, replacement, or other changes in

plant, operation, or equipment, other than new construc-

tion, which will not impair the adequacy or quality of

service provided.

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

at 35.

** Specialized Common Carrier Services, 29 FCC2d 870

(1971), aff'd, sub nom. Washington Utilities & Transporta-

tion Comm’n v. FCC, 518 F.2d 1142 (9th Cir.), cert. denied,

423 U.S. 836 (1975). See also Bell Telephone Co. v. FCC, 503

F.2d 1250 (3d Cir. 1974), cert. denied, 422 U.S. 1026 (1975) ;

AT&T v. FCC [United States Transmissions Systems, Inc.]},

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

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

FCC2d at 878.

12B

the boundaries of the “specialized communications field,” *

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

cilities covered in some 1,700 Section 214 applications

before it provided a touchstone for its analysis and that

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

the Commission’s position that it did not consider services

other than private line services in determining the public

interest ramifications of competition.** As an example

*8 See note 68 infra.

29

35. At the time of the Specialized Common Carrier

decision, we had before us 1712 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

applications considered were for “portions of a proposed

nationwide network to provide specialized private line

communications services” (emphasis added) 29 FCC2d at

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

distinction which delineates MCI service from anything

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 FCC2d at 875. Finally MCI asserted

that there was a distinct difference between a public tele-

phone service which is a natural monopoly and a cus-

tomized communications service offered on a private line

basis, Jd. [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 re

garding entry of the specialized common carriers in com-

petition with AT&T, contemplated such entry only in the

private line field, not in the area of switched public

message telecommunications service. * * *

138

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

skimming,” the argument that specialized carriers will

upset the established rates of general carriers (such as

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

mission’s interpretation here of its discussion of cream-

skimming in Specialized Carriers is that it found allega-

tions of cream-skimming to be unfounded only because

the specialized carriers were not proposing to compete

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

ice offerings, MTS and WATS.”

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 tariff: 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 tha‘ tariffs exceeding the bounds of the Special-

ized Carrier decision can never become “legally appli-»

*° See Specialized Common Carrier Services, supra noce 26,

29 FCC2d at 910 (% 78).

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

at 36, quoting Specialized Common Carrier Services, supra

note 26, 29 FCC2d at 915.

148

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

merely “expresses the truism that a carrier need not

generally file an application [under Section 214] for each

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

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

The Commission takes a similarly narrow view of the

effect of its Report and Order in Docket 19117. That

docket was started to consider whether domestic carriers

should be required to get Commission approval before

filing tariffs proposing services not previously provided

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

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.*

32 Jd. at 38.

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

FCC2d at 38-39.

% Id. at 39.

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

15B

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

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-

8° MCI Telecommunications Corp., supra note 1, 60 FCC2d

at 39.

3? See id. at 40-44.

88 Td. at 44-48.

8° [W]e disagree with MCI that we have never defined the

areas of telecommunications service which should be open

to competition and those which are a monopoly. Rather,

16B

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.

II. ANALYSIS

A.

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

that was the principal purpose of our investigation in

[Specialized Carrier Services, supra note 26]. * * *

+. * > 7

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

Specialized 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 inter-

est considerations upon which the Specialized Common

Carrier [was] based have changed at all * * *.

MCI Transcommunications Corp., supra note 1, 60 FCC2d at

56-57.

Id. at 48-54.

*! See text at note 13 supra; note 24 supra.

17B

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 cai 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. § 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-

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 872 (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

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

FCC2d at 38; Report and Order, supra note 9, 839 FCC2d at

133.

18B

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

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

instructive to note that the Commission has not enacted

any comparable service restrictions for point-to-point

microwave licensees and in particular it has not made

the definition of “private line service’ set out in 47

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

this would certainly seem to be the natural thing to have

done had the Commission sought to restrict specialized

carriers to private line service offerings. .

The fact that an administrative practice is novel does

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

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

in the instant case in which the Commission has itself

failed to discuss the statutory warrant for the new course

it has adopted. When the Communications Act is con-

sidered in detail, it becomes apparent that novelty has

led to error in this case.

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

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

«8 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 & Wake-

field, Mass. v. FPC, 450 F.2d 1341, 1845-1346 (D.C. Cir. 1971),

cert. denied, 405 U.S. 989 (1972).

MCI has vigorously argued that rejection of a tariff is not

possible once a tariff has become effective. We need not de-

cide 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 Commis-

19B

prior agency approval is itself circumscribed, for it is

well recognized that the tar: provisions of the Com-

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

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

merce Act (49 U.S.C. §§ 15(1), 15(7) (1970) ),*° embody

sion 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 Com-

mission 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

carriers 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 208 obliges carriers

to file tariff schedules 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 preferences, 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 Commission may

suspend the tariff and hold a hearing concerning the lawful-

ness 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 hear-

ing on the lawfulness of the tariff, although the tariff must be

allowed to remain in effect pending the outcome of such a

hearing. Id. § 205; see AT&T v. FCC, 487 F.2d 865, 874-875

(2d Cir. 1973). Subsequent to a hearing under either § 204 or

§ 205 the Commission may prescribe such rates, classifications,

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

and reasonable, and it may enjoin the carrier from continuing

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

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

Interstate Commerce Act so as to apply to communications.

* * * Section 205 follows sections 15(1) and 16(8) of the

208

a considered legislative judgment that carriers should

in general be free to initiate and implement new rates

or services over existing communications lines unless and

until the Commission, after hearing, determines that such

rates or practices are unlawful, subject only to a limited

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

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

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

ing Interstate Commerce Act) ; Arrow Transportation Co.

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

(same). 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:

Interstate Commerce Act * * *.” S. Rep. No. 781, 73d Cong.,

2d Sess. 4 (1934). See also H.R. Rep. No. 1850, 73d Cong.,

2d Sess. 5-6 (1934).

‘© Since the most likely objection to MCI’s provision of Exec-

unet 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 statu-

tory suspension period to protect competitors of a carrier and

their customers:

It must be admitted that Congress dealt with the prob-

lem as it affected the relations between shippers and

carriers, making no express reference to the interests of

competing carriers and their customers such as are in-

volved 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 competitors’ customers would be insufficient

to sustain a service restriction promulgated in accord with 47

U.S.C. §214(c) (1970) or 47 U.S.C. §303(b) (1970). Our

only point is that allegations of harm to competitors or com-

petitors’ customers do not in any way expand the Commis-

sion’s suspension or rejection powers.

2lB

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.

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

mission to erect prior approval requirements like that

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

mission would have the power to reject a tariff whenever

a section of the Act expressly establishes or authorizes **

a prior approval requirement.‘

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.

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

omitted).

“Of course, if the statute merely authorizes the Commis-

sion to impose a prior approval requirement, as is the case

with §303(b), 47 U.S.C. § 303(b) (1970), that authority

would have to be exercised before rejection is proper.

“ AT&T 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).

22B

Section 214 establishes the Commission’s regulatory

charter over entry into the common carrier communica-

tions field and states that no carrier shall construct,

extend, or acquire a line unless the Commission has first

affirmatively determined that such entry would be in the

public interest.° The primary purpose of Section 214

(a) is prevention of unnecessary duplication of facilities,

not regulation of services.*’ Because of this, Section 214

would appear to have a limited office with respect to

regulation of service 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

°° See note 24 supra.

= See 78 CONG. REc. 10314 (1934) (“The section [§ 214] is

designed to prevent useless duplication of facilities, with con-

sequent higher charges upon the users of services.”). It is

also clear that § 214 was intended to apply only to construc-

tion 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; ac-

cord, 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.

52 In the first Western Union Mailgram case, United Tele-

graph 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 Com-

mission, on the other hand, maintained that the Mailgram

tariff should be processed in the same manner as any other

tariff filing. This court sided with the Commission on the

ground that (with exceptions not relevant here) § 214 did

not apply to even this novel use of existing facilities. See 436

F.2d at 924-925.

238

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

in Hawatian 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

°° 47 U.S.C. §214(a) (1970) (emphasis added); see note

24 supra.

** FCC brief at 24 & n.14, 32 n.23.

55 If this were the case, then there would obviously have

been no need for the rulemaking in Docket 19117 which pro-

posed rules that would have required “common carriers [to]

request prior Commission approval before offering or discon-

tinuing 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”).

24B

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

(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”

56 Section 214(c) provides:

The Commission shall have power to issue such certifi-

cate 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 discontinuance, 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

25B

issue such certificate [facility authorization] as ap-

plied for * * * or for the partial exercise only of

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

ance of the certificate such terms and conditions as

in its judgment the public convenience and necessity

may require. * * *

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

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

vide a power over individual carriers in all respects

identical to its power over classes of carriers under Sec-

tion 803(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(c) and it

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 con-

tained 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, ac-

quisition, operation, discontinuance, reduction, or impair-

ment 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).

268

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(c) 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-

ized carriers would be restricted to private line services.”

We consider these in turn.”

5* See note 29 supra.

*s [O]ur analysis of possible revenue diversion (29 FCC2d

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

these two carriers. Further, we recognized that SCCs

would not 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 serv-

ices 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.

°° The Commission offered two other considerations in sup-

port of its interpretation of Specialized Common Carrier Serv-

27B

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-

ices, supra note 26. First, it concluded that specialized carriers

would not duplicate services already being offered, whereas

in the Commission’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

& Transportation Conrm’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 affirma-

tively determined that it would be in the public interest to

require AT&T to interconnect with MCI for the purpose of

allowing 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 Commission in Spe-

cialized Carriers had made an affirmative determination that

interconnection for provision of private line services was a

general matter in the public interest and that MCI was cov-

ered by this general determination. Bell Telephone therefore

stands for the proposition that the Commission in Specialized

Carriers decided at least that specialized carriers could pro-

vide all private line 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.

288

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:

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

revenues of a magnitude to have the impact claimed

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

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

competition of the kind proposed here, the growth

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

AT&T would obtain a very substantial share of the

potential market for specialized services.'*) |

Moreover, the Commission’s staff report, which formed

the basis for the Specialized Carrier decision, ruminated

more broadly on the issues posed by revenue diversion and

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

overall argument.” Thus there is simply nothing in

«0 47 U.S.C. § 214(c) (1970).

6 Specialized Common Carrier Services, supra note 26, 29

FCC2d at 910.

62 See id. at 883-884.

298

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:

The results of any authorizations would be the object

of close and continuous scrutiny by the Commission.

Should adverse consequences develop or appear immi-

** It should also be noted that subsequent to Specialized Car-

riers the Commission has indicated a willingness to consider

competition in the message telephone field on its merits. See

Domestic Communications-Satellite Facilities, 35 FCC2d 844,

853-854 (1972). To a large extent this undercuts the Com-

mission’s argument here, see note 39 supra, that it conferred

a statutory monopoly on AT&T in this field.

* See Specialized Common Carrier Services, supra note 26,

29 FCC2d at 920 (7 103) (“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).

30B

nent, the Commission can take such remedial action

or precautionary measures as may be necessary to

protect the public. As indicated, appropriate action

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

tion, any renewal of license for the proposed facilities

would require a public interest finding and could be

subject to any needed conditions. Moreover, the Com-

mission’s broad rule making powers are always avail-

ecole

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-

munications services clearly indicates that it had no very

86 Jd. at 887 (emphasis added).

®t 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.

3lB

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 Commission’s

analysis—that the Specialized Carrier decision granted

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

which would be undermined were MCI allowed to provide

Execunet—because any such assertion is plainly incorrect

and may have influenced the Commission’s disposition

of the instant case.

As the Commission staff explained in Specialized Car-

riers, absence of competition in the “general domestic

common carrier service field * * * is due primarily to

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

applications] the Commission had no occasion to con-

sider applications for competitive service in this area.” ”

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

monopoly was not among those proposed to be decided

in Specialized Carriers, and nowhere in that decision can

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

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

any definition of a specialized common carrier emerges from

the Commission’s discussion, that definition appears to be

simply that a specialized carrier is any carrier that does not

attempt to optimize its service offerings to the voice communi-

cations needs of the general public. See id. at 882 ({ 29) ;

id. at 906-907 ({{ 69-70).

° Id. at 881.

32B

justification be found for continuing or propagating a

monopoly that, according to the staff, had theretofore

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

good reasons for according AT&T de jure freedom from

competition in certain fields; however, one such reason

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

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

with public interest significance represents a retrench-

ment from the position it took in passing on a proposal to

enter the MTS field via domestic communications satellites :

“(We 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

33B

that, just as it is not free to create competition for com-

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.

7 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,

448 (D.C. Cir. 1958).

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APPENDIX C

Before the Federal Communications Commission,

Washington, D.C. 20554

(FCC 78-142—97470)

In THe MaTrrerR OF PETITION OF AMERICAN TELEPHONE

AND TELEGRAPH COMPANY FOR A DECLARATORY RUL-

ING AND ExpEpITED RELIEF

MEMORANDUM, OPINION AND ORDER

Adopted: February 23, 1978.

Released: February 28, 1978,

By the Commission: Chairman Ferris issuing a

separate statement; Commissioner Fogarty dissent-

ing and issuing a statement.

1. We have before us a ‘‘ Petition for a Declara-

tory Ruling and Expedited Relief” filed on January

16, 1978 by the American Telephone and Telegraph

Company (AT&T).’ That petition stated that AT&T

will not provide any additional connections to local

exchange services to ‘‘Other Common Carriers” for

1 That petition has been styled as “In the Matters of BELL

SYSTEM TARIFF OFFERINGS of Local Distribution Fa-

cilities for Use by Other Common Carriers; and Letter of Chief,

Common Carrier Bureau, dated October 19, 1973, to Laurence E.

Harris, Vice President MCI Telecommunications Corporation,

FCC Docket No, 19896.” Inasmuch as Docket 19896 has been ter-

minated for more than two years, the petition should have been

styled as a new proceeding. The petition and all comments or

other pleadings relating to this petition will be filed in the instant

proceedings, which shall be considered as separate and distinct

from the terminated Docket 19896 proceeding.

(1c)

2c

their use in the provision of service offerings which

are not private line services and that AT&T believes

such a course of conduct does not violate the cease

and desist order in Bell System Tariff Offerings, 46

FCC 2d 413 (1974), affirmed sub nom. Bell Tel. Co.

of Pennsylvania vy. FCC, 503 F. 2d 1250 (3rd Cir.

1974), cert. denied, 422 U.S. 1026 (1975). The peti-

tion requested that we issue a declaratory ruling

affirming that AT&T has “no present obligation to

provide additional connections to local exchange

service to Other Common Carriers (“OCCs”) for

their use in the provision of service offerings which

are not private line services.” *

2. Oppositions to AT&T’s request for such a declara-

tory ruling have been filed by MCI Telecommunica-

tions Corporation (MCI), Southern Pacifie Communi-

2 The petition does not define “Other Common Carriers.” How-

ever, inasmuch as the Bell System Tariff Offerings cease and de-

sist order was issued for the purpose of clarifying and enforcing

AT&T’s obligation to interconnect with specialized common car-

riers pursuant to our decision in Specialized Common Carrier

Services, 29 FCC 2d 870 (1971), affirmed sub nem. Washington

Utilities & Transportation Commission v. FCC, 513 F. 2d 1142

(9th Cir.), cert. denied, 423 U.S. 836 (1975), the term “Other

Common Carriers” in the AT&T petition appears to be synony-

nous with the term “specialized common carriers” in the Bel/

System Tariff Offerings order wnich directed AT&T to furnish

ceriain interconnection facilities to “specialized common carriers.”

AT&T's Reply Comments confirm that the petition does not relate

to international record carriers or value-added carriers who are

authorized to provide only non-voice services. Neither the peti-

tion nor the reply comments indicate that AT&T contemplates

any change in interconnection arrangements with Western Union

or the independent telephone companies. Accordingly, the dis-

cussion and decision herein relates only to interconnection ar-

rangements between telephone companies and specialized common

carriers and not to such arrangements between and among tele-

phone companies, or between telephone companies and Western

Union, international record carriers, or value-added carriers.

3c

cations Company (SPC), Satellite Business Systems

(SBS), American Satellite Corporation (ASC), Tele-

net Communications Corporation (Telenet), Aeronau-

tical Radio, Inc. (ARINC) and the United States De-

partment of Justice. Comments in support of AT&T's

position have been filed by Continental Telephone

Corporation (Continental), GTE Service Corpora-

tion (GTE), and the United States Independent Tele-

phone Association (USITA). In addition, the follow-

ing parties have filed comments regarding AT&T’s

petition as it relates to their individual circumstances,

but have taken no formal position before the Commis-

sion; Association of Data Processing Service Orga-

nizations, Inc. (ADAPSG), Graphnet Systems Ine.

(Graphnet), Computer and Business Equipment Man-

ufacturers Association (CBEMA), Western Union

International, Inc. (WUI), ITT World Communica-

tions, Inc. (ITT Worldcom), and RCA Global Com-

munications, Inc. (RCA Globecom). Additional reply

comments have been filed by AT&T, MCI, USITA.

GTE and Continental.

I. CONTENTIONS OF THE PARTIES

A. CONTENTIONS OF AT&T

3. AT&T begins by stating that its interpretation of

the recent Court of Appeals decision in MCI Tele-

communications Corp. v. FCC (“Execunet’’), 561 F. 2d

365 (D.C. Cir. 1977), cert. denied, No. 77-420, 46

U.S.L.W. 5448 (January 16, 1978), is that the Court

ruled that our Specialized Common Carrier decision,

supra, did not limit Other Common Carriers to provid-

ing only private line services over their existing facili-

ties. AT&T states that it does not dispute that holding

for purposes of this proceeding. However, AT&T con-

4c

tends that the Execunet decision did not alter the Com-

mission’s finding that MCI’s Execunet service and

other similar services are not private line services, nor

did the Court address AT&T’s interconnection obliga-

tions, if any, to the OCCs for the provision of non pri-

vate line services. Under cxisting law, argues AT&T, it

is required to interconnect its facilities with the OCCs

for the provision of only private line services. Because

the Cominission has determined that Execunet type

services are not private line services, AT&T maintains

that it is not now legally required to interconnect with

the OCCs to enable them to provide other than private

services. Before the Commission can order AT&T to

interconnect, argues AT&T, a hearing pursuant to

Section 201(a) of the Communications Act is required

so as to enable the Commission to ascertain whether

the interconnection of AT&T’s local exchange services

for the provision of non private line services by the

OCCs would be in the public interest. Because a hear-

ing on that issue has not been held, AT&T concludes

that it is under no present obligation to offer its local

exchange facilities to the OCCs for the provision of

Execunet/MTS type services.

4, AT&T advances four legal arguments in support

of this position. First, AT&T contends that the Com-

mission specifically determined in its Docket No. 19896

proceeding, Bell System Tariff Offerings, supra, that

the extent of AT&T’s Section 201(a) interconnection

obligation with respect to the specialized carriers was

limited to private line services, and did not encompass

public message services. AT&T directs our attention

to a portion of the Commission’s decision which fo-

cuses on whether FX and CCSA are private line

services and asserts that such an analysis would have

been pointless if AT&T’s interconnection obligation

5c

went beyond connections for private line services.

See also Bell Tel. Co. of Pennsylvania, supra, 503

F. 2d at 1273.

5. Second, AT&T avers that in the Specialized

Common Carrier proceeding, the Commission had be-

fore it only applications by OCCs to provide private

line services. Consequently, when the Commission

ruled in Docket No. 19896 that AT&T already had a

Section 201(a) hearing with respect to interconnec-

tion of the OCCs in the Specialized Common Carrier

proceeding, it is obvious, reasons AT&T, that the

Commission was considering only whether the public

interest would be served by requiring AT&T to inter-

connect its local exchange facilities for private line

services, and not for public message services. Thus,

AT&T concludes that the Specialized Common Carrier

proceeding does not constitute a hearing or contain

the public interest findings necessary to impose a

present obligation upon AT&T for it to provide pub-

lic exchange service connections for use by the OCCs

for other than private line services.

6. Third, AT&T states that recent Commission de-

cisions have explicitly restated that the Specialized

Common Carrier proceeding did not require car-

rier-to-carrier interconnection for other than private

line services, and that before the Commission can

order such interconnection on the part of local tele-

phone companies, a Section 201(a) hearing must be

conducted. See Southern Pacific Communications

Company (“SPRINT II”), 63 FCC 2d 309, 320

(1977), MCI Telecommuncations Corporation

(“SPLS IT’), 63 FCC 2d 237, 247 (1977).’ Further-

* The SPRINT II and SPLS II decisions were vacated and re-

manded for reconsideration after AT&T filed its petition. MCJ

Telecommunications Corp. v. FCC, No. 76-2071 (D.C. Cir., Feb-

ruary 3, 1978).

6c

more, AT&T states that these decisions also have

made it clear that it has no interconnection obliga-

tion for non private line services because without an

interconnection hearing and decision, such interstate

services could currently be terminated by the spe-

cialized carriers only through resale of local ex-

change service obtained under an intrastate tariff.

This, in turn, would violate the general requirement

that all portions of an interstate service be offered

pursuant to an interstate tariff on file with this Com-

mrssion. Until we conduct a hearing pursuant to Sec-

tion 201(a) of the Act to determine whether it is in

the public interest to terminate specialized interstate

services via facilities used in common with public

message services, then AT&T contends that such serv-

ices could not be lawfully terminated because no in-

terstate tariffs are on file which offer such termination

service or facilities.

7. Fourth, AT&T contends that the reason the

Execunet court concluded that the specialized carriers

were not restricted to the provision of private line

services over their existing authorized facilities was

because the Commission had made no inquiry into

whether competition for public message services was

in the public interest, and therefore, the Commission

had no basis upon which to restrict the specialized

carriers from providing non private line, Execunet-

type services. The Court did not address the scope

of AT&T’s interconnection obligation for such serv-

ices. But implicit in the Court’s holdings, states

AT&T, is that the Commission also made no public

interest finding which could require AT&T to pro-

vide connections and services to be used by the OCCs

for the equivalent of public message services. Until

ic

a Section 20i(a) hearing is conducted into these

issues, argues AT&T, the Commission cannot con-

clude that the public interest requires interconnec-

tion for non private line services.

8. AT&T’s next major argument is that before the

interconnection question is ever reached, the Commis-

sion must first determine whether it is in the public

interest for OCCs to provide MTS/Execunet-type

services, 1.e., services that would directly compete with

the switched public message telephone network. In

Ezxecunet, the Court stated:

we have not had to consider, and have not con-

sidered, 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.

561 F. 2d at 380.

Accordingly, AT&T claims that in the absence of a

threshold determination by the Commission that Exe-

eunet-type services are in the public interest, it can-

not be said that AT&T is under an existing obliga-

tion under Section 201(a) of the Act, or otherwise,

interest would be served by authorizing the OCCs to

enable them to provide non private line services.

AT&T contends that the Commission must first be in

a position to determine whether and how the public

interest would be served by authorizing the OCCs to

provide MTS services before it can require AT&T to

interconnect with the OCCs for the provision of those

services.

9, Next, AT&T asserts that the public interest would

be disserved if AT&T were now to provide addi-

tional facilities and connections for use by OCCs in

furnishing non private line services. To provide these

8c

additional facilities and connections to the OCCs prior

to a determination that it would be in the public in-

terest to do so, states AT&T, could embark the in-

dustry on an irreversible course of intercity MTS

competition without the Commission ever having con-

sidered the implications of such competition to the

public, the carriers, and the industry.

10. Finally, AT&T requests the Commission to act

expeditiously on its petition because it anticipates,

in the wake of the Haxecunet decision, receiving re-

quests from OCCs for facilities and connections to

local exchange services for their use in the provision

of MTS/Execunet-type services. Moreover, because

AT&T believes no interconnection obligation for such

services currently exists, and because AT&T believes

the Commission has addressed this precise question in

its Docket 19896 proceeding and determined that such

connections would not be in the public interest, it

states that it will await the Commission’s ruling on

the instant Petition before it processes any intercon-

nection requests by the OCCs for non private line

exchange services.

B. CONTENTIONS OF PARTIES IN OPPOSITION

11. MCI and SPC present the principal arguments

against AT&T’s petition for declaratory relief. Ac-

cordingly, our presentation of the arguments in op-

position will concentrate primarily upon the MCI and

SPC pleadings. To the extent that other parties have -

submitted arguments different than those advanced

by MCI and SPC, however, they also will be given

specific attention.

12. SPC begins by contesting AT&T’s argument

that the Specialized Common Carrier proceeding

9c

limited AT&T’s obligation to provide facilities and

connections to OCCs for only private line services.

SPC argues that Specialized Common Carrier did not

restrict the new specialized carrier applicants to pri-

vate line services, but authorized competition in the

broader specialized communications field to include a

full range of new and innovative service offerings.

SPC points to Datran’s authorization to provide a

switched all digital end-to-end network, as opposed to

other applicants then before the Commission which

proposed only point-to-point, rather than switched,

services. SPC states that Datran’s service would not

have met the essential criteria of a private line serv-

ice set forth in the Commission decision in Execunet.

Therefore, SPC concludes that AT&T cannot now

contend that its interconnection obligation is limited

to private line services when AT&T had an obligation

to provide interconnection to Datran for its fully

switched, non private line service.

13. Next, both MCI and SPC disagree with AT&T

that Specialized Common Carrier, Docket 19896, and

Bell Tel. Co. of Pennsylvania require AT&T to pro-

vide interconnection to OCC’s for only their private

line services. It is the position of MCI and SPC that

AT&T must provide interconnection facilities to OCC’s

for all their authorized services, and that AT&T can

treat the OCCs no differently than it does its own

Long Lines Department. First, SPC and MCI argue

that the Specialized Common Carrier decision made

no mention of limiting AT&T’s interconnection obli-

gation to private line services, but included all spe-

cialized carrier communications services. Second, these

same parties vigorously argue that the Commission

decision in Docket 19896 prohibited AT&T from en-

10c

gaging in conduct which would result in denial or un-

reasonable delay “in establishing physical connections

with MCI and other specialized common carriers for

their presently or hereafter authorized interstate and

foreign communications services.” 46 FCC 2d at 439.

Consequently, SPC maintains that when these deci-

sions are read together, the test of AT&T’s intercon-

nection obligation is not whether an OCC service is a

private line service, but whether the service has been

authorized. If the service is authorized, then, states

SPC, AT&T is bound to provide interconnection fa-

cilities. MCI points out that the question of whether

Execunet and similar services are authorized was spe-

cifically addressed in the Execunet case, where the

Court held that MCI was authorized to provide Exec-

unet service over its existing facilities. Therefore,

argues MCI, AT&T is legally obligated to furnish in-

terconnection so that its service can be provided. MCI

contends that AT&T’s present refusal to interconnect

its monopoly local distribution facilities to allow MCI

to provide a service that the Court determined MCI

was authorized to provide would constitute a total

abnegation of the Court’s mandate.

14. With respect to AT&T’s argument that the

Commission and Court discussions concerning AT&T’s

interconnection obligations for FX and CCSA imply

that such obligation extends only to private line serv-

ices, MCI states that the reason these two private

line services were the focus of the Docket 19896 pro-

ceeding was because AT&T had refused to provide

interconnection for them. But in addressing these two

services, MCI contends that the Commission did not

abandon or limit the broad basis of its holding re-

garding the interconnection of ‘‘all authorized serv-

llc

ices.” MCI supports this argument by quoting a pas-

sage from Docket 19896 which states, ‘‘that Bell is

to provide interconnection facilities for all authorized

carriers, including FX and CCSA.” 46 FCC 2d at

427.*

15. SPC counters AT&T’s contention that a hear-

ing pursuant to Section 201(a) of the Act must be

held before the Commission can order AT&T to in-

terconnect with the OCCs for the provision of other

than private line services by submitting two reasons

why such a hearing is not required. First, SPC argues

that the initial clause of Section 201(a) establishes

the duty of every common carrier to furnish service

upon ‘‘reasonable request.” It is unnecessary to pro-

ceed to the second clause to establish the obligation

of AT&T to provide the requested service or facility,

states SPC, if the request is reasonable. Second, SPC

believes that if a hearing is required by Section 201

(a), such opportunity has already been afforded to

AT&T on previous occasions, and AT&T did not pre-

sent arguments against such interconnection when

given the opportunity to do so.

16. SPC argues that the only possible reason that

AT&T could consider its interconnection request to

be unreasonable is because Execunet-type services

would involve the resale or sharing of local exchange

facilities and some intrastate tariffs may prohibit

this. However, SPC claims that when facilities are

used solely for interstate purposes, restrictions in an

intrastate tariff are preempted by federal policies

where the two conflict. Therefore, if the federal au-

thority authorizes an interstate service, and conflict

* SBS strongly supports this argument.

12c

with a local tariff is preempted, then the request

is not unreasonable. ARINC carries this argument a

step further by contending that once an interstate

service has been authorized by the Commission, then

only technical incompatibility would make such a re-

quest unreasonable, and absent that factor, Section

201(a) would require AT&T to furnish local exchange

facilities so that the authorized interstate service

could be provided.

17. If the Commission believes the first clause of

Section 201(a) does not apply here, then SPC con-

tends that the “opportunity for hearing” required by

the second clause has already been afforded to AT&T,

and therefore, the Commission must rule that AT&T’s

interconnection obligations include providing facili-

ties for Execunet-type services. SPC states that AT&T

was given numerous concrete opportunities to establish

how such interconnection could disserve the public

interest when it was presented with actual tariff filings

proposing such interconnection. See Execunet, 60 FCC

2d 25 (1976) ; Southern Pacific Communications Com-

pany (SPRINT 1), 61 FCC 2d 144 (1976); MCI

(SPLS 1), 61 FCC 2d 131 (1976); Southern Pacific

Communication Company, (SPRINT II), supra and

MCI (SPLS II), supra (1977). SPC argues that

AT&T failed to demonstrate in these proceedings that

some public interest reason exists why the Commission

should not require intereonnection for non private

line services. Moreover, SPC states that Bell Tel. Co.

of Pennsylvania makes it clear that a distinct full

evidentiary hearing is not required by Section 201(a).

Consequently, AT&T has been afforded the ‘‘opportu-

nity for hearing” mandated by Section 201(a), and

having failed to make its case, the Commission may

13c

now lawfully order the interconnection necessary for

authorized carriers. to provide Execunet-type serv-

ices without further hearing and as a part of this

proceeding.

18. AT&T’s argument that a public interest finding

is a condition precedent to any ruling by the Comis-

sion on AT&T’s obligation to provide local intercon-

nection to OCCs for MTS/Execunet-type services,

states SPC, is misplaced. In fact, SPS contends that

with respect to MCI’s Execunet service, and similar

authorized service offerings of SPC, AT&T’s argument

is the reverse of the process contemplated by the

Execunet Court. In the Execunet case, SPC maintains

that the Court ruled that MCI has always been au-

thorized to provide its Execunet service, and that until

the Commission initiates and completes a proceeding

which would restrict these authorizations, Execunet

and comparable services of other carriers possess the

same legal validity as any other authorized service,

and therefore, must be interconnected. The threshold

issue described by AT&T may be relevant in a pro-

ceeding initiated by the Commission to restrict the

scope of future authorizations, argues SPC, but not

to restrict the authorizations for existing service cate-

gories that the Execunet Court determined to be with-

out limitation for existing facilities.

19. If the Commission were to grant AT&T’s peti-

tion, MCI, SPC, and the Department of Justice con-

tend that such action would raise serious antitrust

implications. All three of these parties rely heavily on

an established principle of antitrust law known as

the “bottleneck” or “essential facilities” doctrine. This

principle establishes a general obligation upon those

who control aecess to essential facilities to make such

14c

available to actual or potential competitors without

unreasonable restriction. All three parties cite Otter

Tal Power Co. v. United States, 410 U.S. 366, 377

(1973) in support of this principle. To be an essential

facility, it is sufficient if duplication of the facility

would be economically infeasible and if denial of its

use inflicts a severe handicap on potential market

entrants. See Hecht v. Pro-Football, Inc., ¥. 2d

D.C. Cir., No. 75-1819, December 20, 1977, pp. 17-19)

which MCI and SPC both cite. The parties then state

that AT&T has a de facto monopoly control of local

distribution facilities, that these facilities are essen-

tial to the provision of their authorized Execunet-

type services, and that it is impractical, if not impos-

sible, for the specialized carriers to duplicate these

facilities. Accordingly, AT&T’s denial of an obligation

to interconnect with the OCCs for provision of its au-

thorized services is a classic example of the ‘‘essen-

tial facilities” doctrine and, the parties argue, can-

not be countenanced by the Commission because it

would be a violation of the antitrust laws and con-

trary to the public interest. Telenet argues that

AT&T’s obligation to provide non-discriminatory

aecess to its monopoly local exchange facilities for

authorized services is broader than, and exists inde-

pendently of the Commission’s holdings in Docket

19896, or even Section 201(a) of the Act. Where a

carrier has essential control over monopoly facilities,

Telenet argues the interconnection obligation arises

out of the Sherman Act, and interpretations thereof,

proscribing a monopolists “refusal to deal.’’ Both

Telenet and SBS contend that if AT&T is relieved

of its obligation to provide connections for MCI’s

Execunet Service, then the authorization found by

15c

the Court to have been made for that service would

be virtually nullified. MCI states further that a

denial of AT&T’s petition would be in keeping with

our policy of full and fair competition established in

Specialized Common Carrier. The Department of

Justice also argues that the Hzecunet decision held

that AT&T possesses no de jure monopoly, and, there-

fore, AT&T cannot be granted its request for ex-

pedited relief so as to deny competing carriers access to

essential local loop facilities in order to preserve its

monopoly position of intercity service.

20. With regard to another antitrust matter, the De-

partment of Justice states that those who advocate re-

strictions on competition have the burden of proving,

with facts, that such restrictions are in the public

interest. The Department believes that AT&T’s peti-

tion fails to meet this threshold burden, and therefore

must be denied. AT&T’s mere assertion that its rev-

enues and pricing policies would be adversely affected

if interconnection for Execunet-type services was pro-

vided to the OCCs, contends the Department, is ob-

viously insufficient to act as a basis for the protection

AT&T seeks. Under Carroll Broadcasting Co. v FCC,

208 F. 2d 440 (D.C. Cir. 1958), a case relied on by

the Ezxecunet Court, the Department urges that we

cannot equate injury to regulated firms with injury

to the public interest. The Carroll case, contends the

Department, stands for the proposition that competi-

tors may severely injure each other to the great bene-

fit of the public. Absent a factual showing of harm

to the public by AT&T, the Department states that

the Commission cannot assume that preserving

AT&T’s de facto monopoly over MTS/Execunet-type

services is desirable in the public interest. Finally,

16c

the Department concludes that for the past twenty

years AT&T has predicted cataclysmic effects from

the procompetitive rulings of the Commission and

courts, and, as yet, no evidence has surfaced to indi-

cate that competition has caused a deterioration in

service or an increase in rates to any class of custom-

ers. Therefore, the Department urges that we deny

AT&T's petition and refrain from instituting a hear-

ing into whether AT&T should be required to inter-

connect for non private line services, unless AT&T

can make some initial showing as to why such a re-

striction would serve the public as distinguished from

its own corporate interests.

21. Telenet and ASC believe that AT&T’s attempt to

limit its present interconnection obligation to OCCs

for the provision of services which are private line

services is too ambiguous and creates the potential

for abuse. ASC strenuously objects to allowing AT&T

to become the final arbiter of what constitutes a per-

missible private line service for purposes of intercon-

nection. ASC believes that this would put the OCCs

in the untenable position of proving to AT&T that

every new service offering was not an Execunet-type

or other non private line service. ASC argues that

the authority to evaluate the public interest justifica-

tions for any new service should not be delegated to

AT&T. Therefore, ASC requests that the Commission

limit its review to whether Execunet service must be

presently interconnected, and not to the more general

issue of interconnection of OCC services.

22. Telenet states that the OCC concept is one of

AT&T’s design, and therefore, AT&T could change

its view of what constitutes an OCC at any time.

While this could lead to abuse, Telenet contends that

regardless of how AT&T chooses to classify a com-

17¢ -

mon carrier, AT&T nevertheless has an obligation to

provide access to monopoly facilities which are essen-

tial to the provision of any service authorized and

certificated by the Commission.

C. COMMENTS OF OTHER PARTIES

23. The international record carriers (IRCs), ITT

Worldcom, RCA Globeom and WUI have all ex-

pressed concern that the language used in AT&T’s

petition to describe the extent of its interconnection

obligations is overly broad, and if sustained by the

Commission, could be construed to allow AT&T to

refuse interconnection with the IRCs for their non

private line services. The specific language at issue

is AT&T’s statement that:

this pleading concerns only whether Petitioners

have a duty to provide to MCI and other OCCs

additional facilities and connections to Peti-

tioner’s exchange services for use by OCCs in

their provision of Execunet-type services or

any other offering which is not a private line

service. (Emphasis added)

Because AT&T categorizes the IRCs as OCCs, and

because the international telex and dataphone-type

services offered by the IRCs are not private line

services, these parties contend that a literal applica-

tion of the language in the AT&T petition could

permit AT&T to refuse the IRCs interconnection

facilities for these services. The IRCs state that in-

terconnection for those international services raises

entirely different issues than those involved in the

AT&T dispute with the domestic specialized carriers.

Accordingly, the IRCs request that we distinguish the

AT&T/IRC interconnection matters and expressly

limit the AT&T petition to those matters involving the

18¢

interconnection of domestic specialized carriers to the

public switched telephone network.

24. CBEMA, ADAPSO and Graphnet have also

noted their concern that the above-cited sweeping lan-

guage used by AT&T in its petition, if granted by the

Commission, could be used by AT&T to deny inter-

connection to local exchange services which are es-

sential to the provision of services authorized for

value-added carriers and for OCCs offering specialized

data and alternate voice/data services. Moreover,

these parties contend that AT&T’s ‘“‘unspoken defini-

tion of private line services’’ could create substantial

confusion if AT&T’s declaration is granted. ADAPSO

contends that the decisions relied on by AT&T to

define its interconnection obligations to OCCs apply

only to voice use private line services. Accordingly,

CBEMA, ADAPSO,’ and Graphnet request that

whatever action is taken, the Commission should not

alter AT&T’s present interconnection obligations to

these carriers, and in addition, should expressly in-

corporate the Commission’s prior definitions and dis-

cussions of what constitutes a private line service.

D. COMMENTS IN SUPPORT

25. GTE agrees with AT&T that its present legal

obligation to interconnect with the specialized car-

riers is limited to private line services. In support of

this argument, GTE stresses the representations made

* ADAPSO has also filed a “Motion to Respond to American

Telephone and Telegraph Company.” ADAPSO made this re-

quest based on its concern that the scope of AT&T’s requested

relief might not be adequately clarified by AT&T in its Reply.

In order to expedite our ruling in this matter, we hereby deny

ADAPSO’s request. However, we believe ADAPSO’s concerns

have been directly addressed in n. 2, supra.

19c

by counsel for MCI in the Specialized Common Car-

rier proceeding. At that time, GTE observes that it

was MCI’s intention to provide only private line serv-

ices which were the equivalent of private microwave.

When the Commission subsequently ordered AT&T

to interconnect with the specialized carriers for their

authorized services pursuant to Specialized Common

Carrier, GTE argues that the interconnection order

obviously extended to only private line services be-

cause those services were the only kind the specialized

carriers were authorized to provide. Since the decision

in Ezecunet did not upset the Commission’s deter-

mination that Execunet service is not private line

service, GTE contends that before AT&T can be re-

quired to interconnect, a hearing pursuant to Section

201(a) must be held to ascertain whether intercon-

nection to local exchange services should be provided

to the specialized carriers for the provision of

Execunet/MTS type services.

26. USITA reminds the Commission that the in-

dependent telephone companies are also subject to

the policies announced in Specialized Common Car-

rier, and that these companies agree with AT&T that,

a hearing is required before the Commission can or-

der the independent carriers to offer interconnection

to the OCCs for the provision of non private line

services. Moreover, the Commission must make a

fundamental public interest determination ‘‘whether

competition like that posed by Execunet is in the pub-

lic interest,” Ezecunet, 561 F. 2d at 380, states

USITA, before it can require the telephone com-

panies to interconnect for these services.

27. Continental asserts that a Section 201(a) deter-

mination has never been made with respect to the

interconnection of non private line services. Conti-

20¢

nental argues that the Hzecunet decision actually

supports AT&T’s position because it left to the Com-

mission the question of whether the provision of

Execunet-type services by specialized carriers is in

the public interest. By recognizing that the Com-

mission has never made such a public interest finding,

Continental contends that the Court implicitly ac-

knowledged that there could not have been a previous

Section 201(a) finding that the public interest man-

dates interconnection of these services with local ex-

change facilities. Accordingly, Continental believes

that the Execunet decision confirms AT&T’s obliga-

tion to interconnect with the specialized carriers for

only private line services.

28. In a separate petition, Continental states that in

the wake of the Ezecunet decision, MCI, SPC, and

ITT’s United States Transmission Systems, as well as

other specialized carriers, will be seeking to offer

Execunet/MTS type services because no affirmative

public interest determination pursuant to Section 214

(ec) of the Act, 47 U.S.C. § 214(¢), has yet been made

to restrict the facilities authorizations of the special-

ized carriers to private line services, as required by

Ezxecunet. Therefore, Continental argues that these

carriers are now free to offer services that are es-

sentially the same as, and compete directly with,

message toll service. Continental claims that if the

growth of Execunet-type service by means of the

existing facilities authorizations is not temporarily

halted pending a hearing as to whether it is in the

public interest for specialized carriers to provide such

services, the competitive responses of the established

carriers will lead to an abandonment of nationwide

vate averaging and a reduction or elimination of con-

21c

tributions from message toil services to local exchange

carrier revenue requirements. The toll settlement con-

tribution from message toll service amounts to over

60 percent of Continental’s revenue requirement, and

if some of these contributions were diverted by reason

of competition for MTS services, then Continental

maintains that this could irreparably disrupt its cur-

rent pricing policies, with a significant impact upon

its telephone subscribers. Furthermore, Continental

argues that if the growth of Execunet-type services is

left unchecked, additional interconnects would disrupt

the marketplace, confuse the public concerning con-

tinued availability of these services and promote

expansion of specialized carrier facilities that could

prove wastefully duplicative. Should the Commission

subsequently decide that these services are not in the

public interest, a decision to eliminate or condition

the services would then become exceedingly difficult to

implement, states Continental. Accordingly, Con-

tinental requests the Commission to utilize the broad

statutory authority conferred upon it by Section 4(i)

of the Act, 47 U.S.C. § 154(i), to prevent further

growth of Execunet-type services pending resolution

of the vital question of whether competition in the

MTS marketplace is in the public interest. Con-

tinental states that in U.S. v. Southwestern Cable, 392

U.S. 157 (1968), the Supreme Court specifically

affirmed the Commission’s authority under Section

4(i) to issue interim orders preserving the status quo

until the Commission can make a determination as to

whether the expansion of a regulated service is in the

public interest.

29. For the same reasons described above, USITA

joins Continental in its request to preserve the

specialized carrier situation as it exists at the moment.

22c

E. AT&T’S REPLY

30. AT&T begins its reply by framing what it be-

lieves is the critical issue now before the Commis-

sion—“whether the Commission has ever ordered the

Bell System to interconnect its facilities with those of

MCI and other specialized carriers for their use in

providing the functional equivalents of message tele-

phone service.” AT&T states that its petition does not

request the Commission to adopt new interconnection

policies or to retreat from existing ones, but requests

only that the Commission affirm its past interconnec-

tion policies by ruling that AT&T has no present

obligation to provide additional connections to local

exchange facilities to OCCs for their use in providing

Execunet-type services. In this respect, AT&T

responds to the contentions of the IRCs and value-

added carriers that the petition could be construed to

alter their present interconnection arrangements.

AT&T assures these carriers that the services they

now provide “are not functionally equivalent to MTS;

thus, if granted, the Petition would not affect the pro-

vision of connections to IRCs or value-added carriers

for such services.”’

31. Next, AT&T disagrees with the comments of the

Department of Justice that it has not satisfied all pre-

conditions to the grant of declaratory relief. In stat-

ing that AT&T has failed to make a “factual showing

of harm’’ in support of its petition, the Department

of Justice, states AT&T, clearly misunderstands the

issue. AT&T argues that it is seeking only a determi-

nation of its legal obligations under existing Commis-

sion orders, and is not seeking relief from outstanding

obligations. Only in the latter case, argues AT&T,

might a factual showing of harm be relevant. AT&T

23¢

also disagrees that its petition seeks creation of a de

jure monopoly for intercity services, as the Depart-

ment of Justice believes. Rather, states AT&T, the

only determination sought is whether it has an obliga-

tion under prior Section 201(a) orders to interconnect

with the OCCs for their provision of non-private line

services.

32. AT&T next asserts that the orders in Docket

19896 clearly establish the Bell System’s interconnec-

tion obligation with respect to private line services,

but do not, as the Oppositions argue, require intercon-

nection for all authorized OCC services. In Docket

19896, no OCC sought to establish or justify intercon-

nections for Execunet-type services, states AT&T, and

therefore that proceeding cannot be deemed to have

provided the notice, opportunity for hearing, and pub-

lic interest findings required by Section 201(a) to

establish such an interconnection obligation. Further-

more, since a policy of competition for public switched

message services has never been adopted by the Com-

mission, AT&T contends that it cannot now be said

that the existing Commission interconnection orders

require it to provide connections to OCCs so that they

can offer such services. Finally, AT&T states that re-

peated statements throughout the Docket 19896 pro-

ceeding clearly indicate that its scope was limited to

private line services. In fact, argues AT&T, when the

Third Circuit affirmed Docket 19896 in Bell Tel. Com-

pany of Pennsylvania, supra, it rejected AT&T’s ar-

gument that the Commission’s interconnection orders

were unduly vague and overbroad on the express

representations made by MCI, SPC, and the Commis-

sion that the interconnection obligation extended to

only private line services. See 503 F. 2d at 1273-74.

24c

33. With respect to the argument made by SPC and

ARINC that the first clause of Section 201(a) itself

establishes an interconnection obligation, AT&T main-

tains that such an interpretation of the statute is con-

trary to its plain language. That clause, states AT&T,

does not deal with carrier interconnection, but with

the provision of communications services to customers.

The second clause deals with physical connection to

other carriers and requires a hearing to determine if

such a connection is in the public interest.

34. Turning to the Execunet decision, AT&T asserts

that the Court’s mandate directs only what the Court

has said in its opinion and judgment. Because neither

the opinion nor the judgment discusses or decides

whether the Bell System has a legal obligation under

Section 201(a) to provide connections to MCI for

Execunet-type services, then AT&T disputes MCI’s

contention that the mandate compels the provision

of additional connections for Execunet service. AT&T

argues that in resolving the authorization question,

the Court did not have to decide the interconnection

question, nor did it do so. Moreover, AT&T disagrees

with MCI’s assessment that the entire Execunet pro-

ceeding will be rendered futile if interconnection is

denied. Because the Ezecunet decision found that

MCI was authorized to provide Execunet service,

then AT&T argues that this places MCI in a position

to request the Commission to expand the Bell Sys-

tem’s interconnection obligations under Section

201(a) of the Act. Because the Court did not decide

the issue, states AT&T, does not render the decision

a futility. AT&T also maintains that since the Com-

mission in Ezecunet did not decide the scope of

AT&T’s interconnection obligation in relation to pub-

25¢

lic switched message services, such as Execunet, that

the Court would have violated the separation of

function between an administrative agency and a

court by deciding an issue, such as interconnection,

which was never presented to that court.

35. In reference to the antitrust ‘‘essential facili-

ties” doctrine which SPC, MCI and the Department

of Justice use in support of their theory that AT&T’s

monopoly control over loca] distribution facilities

creates an obligation upon AT&T to make these fa-

cilities available to competitors, AT&T answers that

these antitrust arguments rest on false assumptions.

First, AT&T argues that this is not a de novo pro-

ceeding under Section 201(a) where such an argu-

ment might be made to establish a new interconnec-

tion obligation. The absence of such a hearing, argues

AT&T, is exactly why the relief it seeks is warranted.

Second, AT&T contends that even in a new Section

201(a) proceeding to establish interconnection obliga-

tions, under the Communications Act it is the public

interest standard which governs and not antitrust

law. AT&T cites FCC v. RCA Communications, 346

U.S. 86, 93 (1953); Hawaiian Telephone Co. v.

FCC, 498 F. 2d 771 (D.C. Cir. 1974) and Satellite

Business Systems, 62 FCC 2d 997 (1977), among

other cases, to support its a»gument that competitive

considerations are only one part of the public interest

standard, and that the Commission cannot presume,

as does antitrust law, that competition is in the public

interest. AT&T argues that the Otter Tail case relied

upon by the Oppositions clearly distinguished anti-

trust principles from the public interest regulatory

standard involved therein, and concluded that while

antitrust consideration might be relevant, they are

26c

not determinative. Finally, AT&T states that even in

an unregulated industry, the antitrust cases do not

support such a broad reading of the ‘essential facili-

ties” doctrine as advanced by the Oppositions.

36. AT&T next states that it has never acknowledged

any obligation to provide interconnection for Execunet

and is not estopped from raising the issue. The reason

the Bell System originally provided inerconnection fa-

cilities for Execunet, states AT&T, was because it was

not aware of the true nature of the service. The

Execunet proceeding dealt with the lawfulness of this

service offering, and not to interconnection. Hence,

AT&T contends that because this issue was never

raised, estoppel principles do not apply.

37. Finally, AT&T maintains that the relief

requested will preserve the Commission’s ability to

determine the public interest. If the Bell System were

required to provide additional connections for

Execunet-type services, without a Section 201(a)

hearing, then AT&T argues that the OCCs have

enough intercity facilities already in place to alter

substantially the present structure of the nation’s

telecommunications industry. By granting AT&T’s

petition, AT&T believes the Commission can avoid

such deleterious consequences and thereby retain its

ability to determine what should be the appropriate

structure of the industry, and whether competition

in public switched message services would serve the

public interest.

F. OTHER REPLY COMMENTS

38. MCI contends that the language of the Bell

System Tariff Offering order stating that AT&T is

obligated to interconnect for all presently or here-

2c

after authorized services settles the question pre-

sented by AT&T’s petition. MCI also says that

telephone company assertions that the telephone com-

panies will suffer financial injury if MCI continues to

provide Execunet service are unfounded.

39. USITA contends that the basis for this current

dispute involves differing interpretations of the Ez-

ecunet decision. The Hzecunet case simply held,

argues USITA, that the Commission commited re-

versible error in rejecting the Execunet tariff on the

grounds that MCI’s facility authorizations were re-

stricted to private line services. However, USITA

contends MCI and SPC interpret the decision as

authorizing Execunet-type services by the specialized

carriers and that AT&T must therefore furnish local

exchange facilities for all authorized services under

the holding in Bell Tel. Company of Pennsylvania v.

FCC. USITA asserts that Execunet did not authorize

anything, and specifically left to the Commission the

question of “whether competition like that posed by

Execunet is in the public interest.” 561 F. 2d at 380.

USITA argues that if the Commission cannot now

correct the judicially found error by conditioning the

specialized carrier’s authorizations, as MCI would

have it, then the Commission will have lost control of

its licensing processes.

40. GTE observes that neither MCI nor SPC has

shown that Execunet-type services fit within the scope

of private line services, and therefore, argues GTE,

they fail to support their conclusion that terminating

facilities must be provided. In this regard, USITA

states that telephone company’s local exchange facil-

ities are not the only way by which MCI or SPC may

reach their customers. Other available options recog-

nized by the Commission in Specialized Common Car-

28¢

rier, states USITA, are customer provided facilities

or specialized carrier facilities. In arguing the “essen-

tial facilities” doctrine, USITA contends that the De-

partment of Justice overlooked these alternatives.

41. SPC’s reliance on Datran’s authorization for a

switched data service as proof that the specialized car-

riers were given authority to provide other than pri-

vate line service, argues GTE, is incorrect, Datran

proposed to offer data transmission links, and in 1970

and 1971, GTE asserts these were ‘‘generally under-

stood to be private line.” Finally, GTE states that the

Department of Justice position urging immediate ex-

pansion of Execunet-type services ignores the require-

ments of Sections 1 and 214 of the Communications

Act, 47 USC §§ 151, 214. Because Execunet-type serv-

ice has been found by the Commission to be equivalent

to MTS, GTE asserts that Execunet did not prohibit

the Commission from limiting the expansion of this

service until further analysis and hearings can be held.

DISCUSSION

Il, BACKGROUND

42. In 1970 we instituted a rulemaking proceeding to

examine common policy questions presented by a large

number of applications from entities other than

AT&T and Western Union for authority to construct

facilities to provide specialized interstate common car-

rier communications services. Specialized Common

Carrier Services, 24 FCC 2d 318. Some of those ap-

plicants such as Data Transmission Corporation (Da-

tran) proposed to provide specialized services which

were substantially different from any service then

being offered by the established carriers. Other appli-

eants proposed to provide specialized services which

29

appeared to be competitive with existing specialized

services of established carriers which the established

carriers had traditionally described as “private line’’

services. After extensive proceedings, we concluded

that “a general policy in favor of entry of new carriers

in the specialized communications field will serve the

public interest * * *” Td. at 920.

43, Existing carriers filed comments in that proceed-

ing opposing new entry. AT&T alleged that the entry

of new carriers in the interstate communications mar-

ket would adversely affect the public interest, claim-

ing in particular that “cream-skimming” by new

entrants providing service on major intercity routes

would undermine the nationally-averaged uniform

rate structure which then prevailed for all intercity

services and would deprive the public of the benefits

of economies of scale by delaying the installation of

large capacity facilities. Id. at 910. USITA expressed

concern that new entry would result in reduced reve-

nue settlements to local independent telephone com-

panies from existing intercity carriers which would

have an adverse impact upon the independent tele-

phone companies’ ability to provide local exchange

service. Id. at 914, n. 37. The nature of USITA’s con-

cern is more fully described in our First Report in

Docket No. 20003 (Economic Inquiry), 61 FCC 2d

(1976). Under existing separation and settlement pro-

cedures, a portion of the revenues from interstate

message telephone toll service (MTS) and wide area

telephone toll service (WATS) are returned to the

local telephone operating companies in payment for

the use of local exchange facilities in rendering inter-

state services. A reduction in the amount of interstate

revenues returned to the local telephone companies

through this process, which could result from either

30c

diversion of interstate traffic and revenues to a spe-

cialized carrier not subject to the separations and

settlement proceedings or from a repricing of MTS

and WATS to meet specialized carrier competition,

would allegedly force local telephone companies to

raise rates for local exchange service to cover their

relatively fixed operating costs.

44, Our Specialized Common Carrier decision con-

cluded that entry of the new carriers could not pro-

duce the kind of impact claimed by AT&T “in view

of the very small percentage of AT&T’s existing

market that is vulnerable to competition of the kind

proposed here” (id. at 910) and that the independent

telephone companies would not be adversely affected

(id. at 914). We noted that “the portion of AT&T’s

total business which might be jeopardized, i.e., the

interstate private line business, represented only a

very small fraction of Bell’s total revenues” (id. at

911) and declared that “it is difficult to visualize how

independent telephone companies would be adversely

affected.” (id. at 914).

45. The Specialized Common Carrier decision also

addressed the problem of providing local distribution

for interstate services of the new carriers and de-

clared “that established carriers with exchange facil-

ities should, upon request, permit interconnection or

leased channel arrangements on reasonable terms and

conditions to be negotiated with the new carriers, and

also afford their customers the option of obtaining

local distribution service under reasonable terms set

forth in the tariff schedules of the local carrier.” Id.

at 940.

46. In the summer of 1973, MCI advised the Com-

mission that AT&T was refusing to interconnect with

3lc

MCI for the provision of services which the AT&T

Long Lines Department provides to its private line

customers. After letters from the Chairman of the

Commission and the Chief of the Common Carrier

Bureau failed to resolve the dispute, the Commission

instituted a proceeding to clarify AT&T’s intercon-

nection obligations with the specialized common car-

riers. 44 FCC 2d 245 (1973). We rejected AT&T’s

contention that specialized common carrier services

do not encompass private line services suci: as FX

or CCSA which require interconnection with the pub-

lie switched telephone system. Bell System Tariff

Offerings, supra. We concluded that the Specialized

Common Carrier decision contemplated that the new

carriers would be authorized to offer services which

compete with interstate private line services offered

by AT&T, including private line services which must

interconnect with or utilize a part of the switched

public telephone network.

47, Paragraph 53(a) of the Bell System Tariff

Offerings Order (46 FCC 2d at 438) directed AT&T

to:

(a) Furnish to MCI Telecommunications Cor-

poration, MCI New York West, Inc. and other

specialized common carriers the interconnection

facilities essential to the rendition of all of

their presently or hereafter authorized inter-

state and foreign communications services and

to enable the said specialized common carriers

to terminate their authorized interstate and

foreign communications services, including in-

terconnection by the specialized carriers into a

telephone company’s local exchange facilities

for the purpose of furnishing Foreign Ex-

change (FX) service or for insertion into

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