American Telephone and Telegraph Company v. FCC

• Decision Date: 22 July 1971
• Docket Number: No. 931-933,71-1021.,Dockets 35845,71-1005,931-933
• Citation: 449 F.2d 439
• Parties: AMERICAN TELEPHONE AND TELEGRAPH COMPANY and Associated Bell System Companies, The Western Union Telegraph Company, Air Transport Association of America, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, The Western Union Telegraph Company, Aerospace Industry Assoc. of America, Inc., National Retail Merchants Association, American Trucking Associations, Inc., Association of American Railroads, and National Association of Motor Bus Owners, Intervenors.
• Court: U.S. Court of Appeals — Second Circuit

449 F.2d 439 (1971)

AMERICAN TELEPHONE AND TELEGRAPH COMPANY and Associated Bell System Companies, The Western Union Telegraph Company, Air Transport Association of America, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents The Western Union Telegraph Company, Aerospace Industry Assoc. of America, Inc., National Retail Merchants Association, American Trucking Associations, Inc., Association of American Railroads, and National Association of Motor Bus Owners, Intervenors.

Nos. 931-933, Dockets 35845, 71-1005, 71-1021.

United States Court of Appeals, Second Circuit.

Argued May 6, 1971.

Decided July 22, 1971.

COPYRIGHT MATERIAL OMITTED

Hugh B. Cox, Washington, D. C. (E. Edward Bruce, Washington, D. C., Horace P. Moulton, F. Mark Garlinghouse and C. Duane Aldrich, New York City, on the brief), for American Telephone and Telegraph Co. and Associated Bell System Companies.

Melvin Richter, Washington, D. C. (Jack Werner, Washington, D. C., and Richard C. Hostetler, New York City, on the brief), for The Western Union Telegraph Co.

William E. Miller, Washington, D. C. (James E. Landry, Herbert E. Forrest, Steptoe & Johnson, Charles R. Cutler, John L. Bartlett, Kirkland, Ellis, Hodson, Chaffetz, Masters & Rowe, Calvin Davidson, Stephen L. Babcock and Reavis, Pogue, Neal & Rose, Washington, D. C., Philip J. Hogan, J. Richard Street and Charles F. McErlean, Jr., Chicago, Ill., and R. C. Hatch, Utica, N. Y., on the brief), for Air Transport Assn. of America, Aeronautical Radio, Inc., United Air Lines, Inc., Eastern Air Lines, Inc., Mohawk Airlines, Inc. and Emery Air Freight Corp.

Edward J. Kuhlmann, Washington, D. C. (Richard E. Wiley, Gen. Counsel, John H. Conlin, Associate Gen. Counsel, F.C.C., Washington, D. C., and Richard W. McLaren, Asst. Atty. Gen., and Howard E. Shapiro, Dept. of Justice, Washington, D. C., on the brief), for F.C.C. and the United States.

Harold F. Reis, Washington, D. C. (Arthur Scheiner and Wilner, Scheiner

& Greeley, Washington, D. C., on the brief), for Aerospace Industries Assn. of America, Inc.

Roy R. Russo, and Cohn & Marks, Washington, D. C., on the brief, for Assn. of American Railroads.

William H. Borghesani, Jr., Robert R. Tiernan, Keller & Heckman, Washington, D. C., on the brief, for National Retail Merchants Assn.

Richard P. Taylor, and Steptoe & Johnson, Washington, D. C., on the brief, for National Assn. of Motor Bus Owners.

Before LUMBARD, SMITH and KAUFMAN, Circuit Judges.

LUMBARD, Circuit Judge:

Petitioners seek review of a decision of the Federal Communications Commission, adopted June 10, 1970, released June 18, 1970, and reported at 23 F.C.C. 2d 606, and a memorandum opinion and order of the Commission on reconsideration, adopted December 9, 1970, released December 15, 1970, and reported at 26 F.C.C.2d 862. Those decisions involve certain provisions in tariffs applicable to a bulk private-line communications service offered by American Telephone and Telegraph Company and its Associated Bell System Companies (hereinafter collectively referred to as AT&T) and Western Union Telegraph Company (Western Union) at rates lower than those applicable under the general private-line tariffs. The tariff provisions in question here allow certain categories of customers to combine their communications requirements to qualify for these lower rates. The service itself is known as "Telpak" and the tariff provisions at issue are called the "Telpak sharing provisions." The Federal Communications Commission held that these provisions were unlawfully discriminatory in violation of section 202(a) of the Communications Act of 1934, as amended, 47 U.S.C. § 202(a), and by a prescription order under section 205 of the Act, 47 U.S.C. § 205(a), required the carriers to cure the discrimination by extending Telpak sharing to all private-line customers.

We affirm the Commission's holding that the Telpak sharing provisions are unlawfully discriminatory; but we reverse its prescription of unlimited sharing for failure to conform to the requirements of § 205(a) that the prescribed practice be found to be "just, fair, and reasonable" and that the prescribed rates be found to be "just and reasonable." We therefore remand this case to the Commission for a hearing and determination as to what remedy for the discriminatory sharing would satisfy those statutory requirements.

FACTS

The normal private-line service offered by the common carriers, AT&T and Western Union, provides a customer with a means of continuous communication between specified locations without the carrier having to establish connections for each call or message, that is to say, without having to go through the usual call-and-hook-up process. Such service is not limited to conventional telephone apparatus; it also includes, at long or short distances, reproduction of documents and photographs, data transmission, remote metering, signaling, and other highly sophisticated communications services. The Telpak service is a rate offering under which private-line customers with sufficient bulk communications needs may obtain private-line communications circuits from AT&T or Western Union at substantial discounts below the rates which they would have to pay for the equivalent number of circuits at the ordinary private-line rates.

AT&T initiated the Telpak service in 1961 in order to be competitive with private point-to-point microwave communications systems which had emerged to meet the growing industrial and governmental demand for bulk communications. These private microwave systems had become generally available to large communications users in 1960 as a result of a liberalized licensing policy adopted by the F.C.C. in Allocation of Frequencies in the Bands Above 890 Mc, 27 F.C.C. 359 (1959), 29 F.C.C. 825 (1960). In the Above 890 Mc case, the Commission allocated frequencies for the use of private microwave systems by private firms and permitted the licensing of those systems. As part of this new policy, the Commission in Above 890 Mc allowed certain specified private microwave customers — regulated entities such as common carriers, pipeline companies, and other public utilities, as well as federal, state, and local governmental agencies — to build and operate shared private microwave systems. Shared use of the same facilities by other users was not permitted.

AT&T offered Telpak in order to match generally the cost and service characteristics of private microwave systems. At that time, Telpak consisted of four categories of service between any given pair of points designated by the customer. Those categories were called Telpak A, B, C, and D and were discount offerings for users of the equivalents of 12, 24, 60, and 240 voice channels respectively.

As part of the Telpak offering, and again in order to compete with private microwave, AT&T included provisions in the tariff, which allowed certain private-line users, whose communications requirements were not large enough to qualify them for Telpak on their own, to combine their needs and thus to become eligible to receive the benefit of the Telpak rates. It limited this Telpak sharing to those groups eligible under the Above 890 Mc decision to share private microwave facilities, in order to offer common carrier service comparable to private system alternatives, and because it seemed likely that private microwave competition would be most severe in the portion of the market represented by those eligible to share private systems. Thus, Telpak sharing was available only to governmental agencies, right-of-way companies such as pipelines and railroads, common carriers, public utilities, and other organizations whose rates and charges were regulated by a governmental entity. It is these sharing provisions that are the subject of the instant case.

Soon after Telpak's inauguration in 1961, the F.C.C. began an investigation of Telpak rates, which resulted in findings which compared common carrier private-line charges with private microwave costs. Eventually, in 1964, the Commission held that the rates for Telpak A and B, the two categories of Telpak designed for relatively low-volume users, were unlawfully low and not justified in terms of cost or the competition of private microwave, but that Telpak C and D were justified on grounds of competitive necessity. 38 F.C.C. 370 (1964), 37 F.C.C. 1111 (1964), 38 F.C.C. 761 (1965), aff'd, American Trucking Ass'ns v. F.C. C., 126 U.S.App.D.C. 236, 377 F.2d 121 (1966), cert. denied, 386 U.S. 943, 87 S.Ct. 973, 17 L.Ed.2d 874. Following judicial affirmance of the Commission's decision, Telpak A and B were eliminated, and Telpak is now limited to the C and D classifications for 60 and 240 voice channels respectively. To obtain Telpak C or D bulk rates, customers must pay for 60 or 240 voice channels, even though their actual channel requirements may be less. For those that can take advantage of the Telpak rates, the discount is substantial — 53.4% for Telpak C and 57.4% for Telpak D.

Although Telpak C and D were found to be competitively justified in the original Telpak proceeding, the Commission did not determine whether these rates were compensatory. The rates for Telpak C and D subsequently have been increased on two different occasions, but the Commission has not yet decided whether Telpak C and D are compensatory. That question is before the Commission in Docket No. 18128 — a proceeding which now involves the rates for most AT&T interstate private-line services, including Telpak. Docket No. 18128 is currently in a hearing status before the Commission and involves questions as to the structure and level of Telpak rates, as well as the competitive justification for the Telpak rate offering.

On July 13, 1966, the Commission amended its private microwave rules to permit wider sharing of private microwave systems, on the grounds that there was no evidence that it would cause an undesirable...