GTE Sprint Communications Corp. of Virginia v. AT & T Communications of Virginia, Inc.

• Citation: 230 Va. 295,337 S.E.2d 702
• Decision Date: 27 November 1985
• Docket Number: Nos. 841881,841882,s. 841881
• Court: Supreme Court of Virginia
• Parties: GTE SPRINT COMMUNICATIONS CORPORATION OF VIRGINIA v. AT & T COMMUNICATIONS OF VIRGINIA, INC., et al. MCI TELECOMMUNICATIONS CORPORATION OF VIRGINIA v. AT & T COMMUNICATIONS OF VIRGINIA, INC., et al. Record

Page 702

337 S.E.2d 702

230 Va. 295

GTE SPRINT COMMUNICATIONS CORPORATION OF VIRGINIA v. AT & T COMMUNICATIONS OF VIRGINIA, INC., et al.

MCI TELECOMMUNICATIONS CORPORATION OF VIRGINIA v. AT & T COMMUNICATIONS OF VIRGINIA, INC., et al.

Record Nos. 841881, 841882.

Supreme Court of Virginia.

Nov. 27, 1985.

Steven H. Reisberg, New York City (James E. Magee, Arlington; Deborah A. Dupont; Rita A. Barmann; Ernest C. Vaughan, Richmond; Reboul, MacMurray, Hewitt, Maynard & Kristol, New York City; Randolph, Boyd, Cherry & Vaughan, Richmond, on briefs), for appellant, GTE Sprint Communications Corp. of Virginia.

William F. Marmon, Jr., Arlington (Hullihen Williams Moore, Robert Alfred Gouldin, Louis R. Monacell, Christian, Barton, Epps, Brent & Chappell, Richmond, on briefs), for MCI Telecommunications Corp. of Virginia.

Michael J. Morrissey; Warner F. Brundage, Jr., Washington, D.C.; Robert M. Gillespie, Richmond (Glenn A. Stover; Wilma R. McCarey, Annondale; Thomas R. Phillips; Mark J. Mathis; Lewis S. Minter; Gerald L. Baliles, Atty. Gen.; Anthony Gambardella, Asst. Atty. Gen.; John W. Riely; Richard D. Gary; Hunton & Williams, Richmond, on briefs), for appellees, AT & T Communications of Virginia, Inc.

Present: All the Justices.

COCHRAN, Justice.

GTE Sprint Communications Corporation of Virginia (GTE Sprint) and MCI Telecommunications Corporation of Virginia (MCI) filed separate appeals of right, each challenging the same provisions of the final order of the State Corporation Commission (the Commission) entered on August 22, 1984. MCI and GTE Sprint contend that the Commission erred in requiring them to compensate local telephone exchange companies in accordance with a plan approved by the Commission and in authorizing AT & T Communications of Virginia, Inc. (AT & T of Va.), to set its rates competitively throughout Virginia.

The Commission defends the final order in its entirety. Each of the other appellees, The Chesapeake and Potomac Telephone Company of Virginia (C & P), AT & T of Va., The Virginia Exchange Carrier Association, and the Division of Consumer Counsel, Office of the Attorney General, defends the challenged provision that affects its interest.

In 1974, the United States filed an antitrust action seeking to break up the Bell System, a nationwide telecommunications system comprised of American Telephone and Telegraph Company (AT & T) and its subsidiaries, Western Electric Company, Inc., Bell Telephone Laboratories, Inc., and 22 Bell operating companies. In August 1982, the United States District Court for the District of Columbia entered a modification of final judgment based on a settlement agreement reached by AT & T and the Justice Department. United States v. American Tel. and Tel. Co., 552 F.Supp. 131, 226-32 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983). ¹

Under the district court order, the Bell operating companies, including C & P, were divested from AT & T and reorganized into seven regional holding companies. Id. at 142 n. 42, 160-70, 226-27. By subsequent order, each operating company was divided into local access and transport areas (LATAs). See United States v. Western Elec. Co., Inc., 569 F.Supp. 990 (D.D.C.1983). ² The operating companies were forced to relinquish to AT & T their right to carry long distance traffic between LATAs but were granted the right, denied to AT & T, to transport communications which originate and terminate within a single LATA (intraLATA traffic). Only AT & T and its competitors, the other common carriers such as MCI and GTE Sprint, were permitted to provide service between LATAs (interLATA traffic). Western Elec., 569 F.Supp. at 994; American Tel., 552 F.Supp. at 141. Thus, following the court-ordered reorganization, long distance service is now divided into three categories: interstate service, regulated by the federal government; intrastate interLATA service, regulated by the states; and intrastate intraLATA service, regulated by the states.

The divestiture order also required the operating companies to provide access services to the other carriers "equal in type, quality, and price" to the access services provided AT & T. Provision of "equal access" as required by this order is being phased in gradually and is to be substantially complete by September 1, 1986. American Tel., 552 F.Supp. at 196-200, 227, 232-34. In the interim, however, where AT & T receives access services superior to those of the other carriers, ³ the operating companies are required to charge lower access fees for the inferior access provided to other carriers. Id. at 199 & nn. 286-88.

Prior to 1984, Virginia prohibited competition for intrastate telephone service. ⁴ Code § 56-265.4 (Repl.Vol.1981); see Western Elec., 569 F.Supp. at 1005 n. 71, 1027 n. 190. In response to the divestiture, however, the General Assembly amended the Virginia law, effective July 1, 1984, to allow competition between companies providing intrastate long distance service. First, the General Assembly removed the statutory ban on competition, allowing certification of competing telephone companies to provide interLATA service where the Commission finds such certification is in the public interest. Code §§ 56-265.4, -265.4:4.B (Supp.1985). ⁵ The Commission may impose conditions and limitations on a carrier's certification. Code § 56-265.4:4.B (Supp.1985). Second, the General Assembly authorized the Commission to loosen its regulatory control over rates of interLATA long distance providers where the Commission determines that the interLATA service "will be provided on a competitive basis." Code § 56-481.1 (Supp.1985). ⁶

To implement these statutory changes, the Commission adopted rules governing applications for certification and setting of rates of interLATA carriers. See InterLATA Interexchange Telecommunications Carriers, 60 Pub.Util.Rep. 4th (PUR) 327, 330-32 (Va.S.C.C.1984). In the rulemaking proceeding, the Commission invited and received written comments from interested persons and reply comments from the Commission's staff; argument was heard at a public hearing. Id. at 327-28.

On July 2, 1984, MCI applied for a certificate of convenience and necessity to provide interLATA telephone service and sought authority to set its rates competitively under the relaxed provisions of Code § 56-481.1. Because MCI requested expedited treatment, the Commission scheduled a hearing on July 27. On July 5, AT & T of Va. also petitioned for flexible regulation under the provision allowing competitive rate setting; a separate hearing was set in this matter for July 27. ⁷ Three other carriers applied for certificates and competitive rate authorization, and their applications were consolidated for hearing with the MCI case. ⁸ On July 23, GTE Sprint also applied for certification and competitive rate treatment on an expedited basis. Although this filing was late, the Commission accepted GTE Sprint's application and set it for hearing with the other certification applications.

The Commission denied motions of C & P, MCI, and the Division of Consumer Counsel, Office of the Attorney General, to suspend or continue hearings on these various applications. After considering evidence presented at the hearing and testimony filed before and after the hearing, the Commission in its final order approved all five applications for certificates and all six requests to base rates on competitive factors.

I. Interim Compensation Plan.

Code § 56-265.4:4 left intact until January 1, 1986, the exclusive right of local telephone companies to offer intraLATA long distance service. MCI, GTE Sprint, and certain other carriers, however, unlike AT & T of Va., currently use equipment and technology which cannot prevent all intraLATA calls from being placed on their networks. In order to protect the rights of local companies to carry intraLATA traffic while authorizing competing interLATA carriers to provide service in Virginia, the Commission adopted Rule 2, which states Interexchange carriers will not be permitted to offer intraLATA calling at this time. Incidental intraLATA calls that occur shall either be blocked, or the local exchange companies shall be compensated for revenues lost as a result of such incidental intraLATA calls. The certificate application of each interexchange carrier shall include its plan for either blocking or paying for such incidental calling.

60 Pub.Util.Rep. 4th (PUR) at 331. In their applications, MCI and GTE Sprint both agreed to comply with Code § 56-265.4:4.B and the Commission's rules requiring that they not offer intraLATA service before 1986. Both asserted that they were unable to block all intraLATA calls placed through their systems and proposed to compensate the local telephone companies for incidental intraLATA calls by payment of access charges.

C & P protested and sought a continuance, alleging that MCI and GTE Sprint had failed to comply with the requirement of Rule 2 to propose a plan for blocking or paying. The Commission denied the requested continuance and heard evidence on the applications; it instructed the parties to confer with the Commission staff to formulate, as a condition to certification, a method of compensating the local companies for their revenues lost on unauthorized intraLATA calls. Although two conferences were held, no complete resolution of this issue was reached; therefore, the Commission developed and adopted an interim plan of compensation, issued certificates to MCI and GTE Sprint, and ordered them to comply with the plan. ⁹

Appellants contend the compensation plan violated Virginia law because the Commission was without authority to require such payments. MCI says that, if the payments ordered are neither rates nor fines, they must be damages, which the Commission is not authorized to award. We find this argument unpersuasive.

Code § 56-35 grants the Commission the following regulatory...