MCI Telecommunications Corp. v. F. C. C.

Decision Date28 July 1977
Docket NumberNo. 75-1635,N-T,75-1635
Citation182 U.S.App.D.C. 367,561 F.2d 365
PartiesMCI TELECOMMUNICATIONS CORPORATION, Microwave Communications, Inc., andriple-C Inc., Petitioners, v. 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.
CourtU.S. Court of Appeals — District of Columbia Circuit

Kenneth A. Cox, Washington, D.C., with whom Michael H. Bader, William J. Byrnes, and Raymond C. Fay, Washington, D.C., were on the brief, for petitioners.

John E. Ingle, Counsel, F.C.C., Washington, D.C., with whom Werner K. Hartenberger, Gen. Counsel, and Daniel M. Armstrong, Associate Gen. Counsel, F.C.C., and Carl D. Lawson, Atty., Dept. of Justice, Washington, D.C., were on the brief, for respondents.

Ashton R. Hardy, Gen. Counsel for the F.C.C., Washington, D.C., at the time the record was filed, entered an appearance for respondent F.C.C.

James F. Ponsoldt, Atty., Dept. of Justice, Washington, D.C., entered an appearance for respondent United States of America.

Michael Boudin, Washington, D.C., with whom Craig D. Miller, Washington, D.C., and Alfred C. Partoll, and F. Mark Garlinghouse, New York City, were on the brief, for intervenor Am. Tel. and Tel. Co.

Thomas J. O'Reilly, Washington, D.C., was on the brief for intervenor United States Independent Tel. Ass'n.

John M. Scorce and Kevin H. Cassidy, Vienna, Va., were on the brief for intervenor Data Transmission Co.

Herbert E. Forrest, Washington, D.C., entered an appearance for intervenor Southern Pacific Communications Co.

Before J. SKELLY WRIGHT, TAMM and WILKEY, Circuit Judges.

Opinion for the court filed by J. SKELLY WRIGHT, Circuit Judge.

J. SKELLY WRIGHT, Circuit Judge:

This is a petition to review two orders of the Federal Communications Commission, each of which requires petitioner MCI Telecommunications Corporation to cease and desist from offering and operating its "Execunet" telephone service. 1 Finding that 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 Communications, Inc., and N-Triple-C Inc. (hereinafter, collectively, MCI) are affiliated communications common carriers which operate a transcontinental point-to-point microwave system catering to business and data communications 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 services. Those revisions, which became effective October 10, 1974, established rates for a class of "metered use" services, among which was Execunet. 2 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. 3

In the spring of 1975 intervenor AT&T, after subscribing 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. Apparently 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." 4 MCI wrote a series of letters in return. 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. 5 By a further letter MCI complained of AT&T's ex parte "lobbying" and asked for an opportunity to present its side of the dispute to the Commission. 6 In a third letter MCI pointed out that its licenses were not limited by anything in Section 21.705 of the Commission's rules 7 pursuant to which point-to-point microwave radio licenses are issued to communications common carriers. 8 It also called the Commission's attention to AT&T's comments in Rulemaking Docket 19117, 9 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 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 10 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. 11

Without holding a hearing or even disclosing the details of AT&T's arguments concerning the unlawfulness of Execunet, the Commission on July 2, 1975 wrote a letter to MCI which stated: "(Y)our tariff F.C.C. No. 1 is hereby rejected insofar as it purports to offer Execunet service, but without prejudice to MCI's offering any other service which you are authorized to provide." 12 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 existing facilities:

In the various Commission orders granting the Section 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 (September 22, 1972), FCC 72-852 (September 29, 1972)), appears language similar to the following:

The service proposed is essentially private line for the transmission of data, facsimile, control, remote metering, voice and other communications.

Each grant refers to the paragraph which incorporates 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 satellites, which followed the Specialized Common Carrier decision, we pointed out (35 F.C.C.2d 844, 853 (1972)):

In encouraging multiple entry and the development of competition in the supply of domestic communications, we have maintained a distinction 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. 13

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 combination of * * * similarities" between Execunet and AT&T's MTS made Execunet "essentially a switched public message telephone service * * *." 14

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 Section 4 of the Administrative Procedure Act, 15 its own rules governing informal complaints, 16 its own rules governing ex parte contacts, 17 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. 18 Subsequently the Commission, which had previously refused to allow MCI any kind of hearing, moved to have the proceedings remanded so that it could consider 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 Telecommunications Corp., 57 FCC2d 271 (1975), SA 49. 19 It announced that comments and reply comments would be accepted and that oral argument or an evidentiary hearing might be held if warranted by the written submissions. 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." 20 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 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, 39 FCC2d 131 (1973)?

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 statute or regulation?

e. If any prohibited contacts occurred, what effect have they had on the substance of this proceeding?

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...

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