MCI Telecommunications Corp. v. F.C.C., s. 82-1237

Decision Date18 December 1984
Docket Number82-1456,Nos. 82-1237,s. 82-1237
Citation750 F.2d 135,242 U.S.App.D.C. 287
PartiesMCI TELECOMMUNICATIONS CORPORATION, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, Aeronautical Radio, Inc., United States Independent Telephone Association, American Telephone & Telegraph Corporation, et al., Southern Pacific Communications Company, Municipality of Anchorage, d/b/a Anchorage Telephone Utility, United States Transmission Systems, Inc., Ad Hoc Telecommunications Users Committee, GTE Service Corporation, Satellite Business Systems, Rural Telephone Coalition, et al., United Telephone Systems, Inc., National Association of Regulatory Utility Commissioners, State Corporation Commission of the State of Kansas, People of the State of California, et al., International Business Machines Corporation, Intervenors. LOUISIANA PUBLIC SERVICE COMMISSION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, American Telephone & Telegraph Corporation, et al., United States Transmission Systems, Inc., GTE Service Corp., et al., People of the State of California, et al., Ad Hoc Telecommunications Users Committee, Southern Pacific Communications Co., United Telephone System, Inc., MCI Telecommunications Corporation, Municipality of Anchorage, d/b/a Anchorage Telephone Utility, Satellite Business Systems, International Business Machines Corporation, Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

William J. Byrnes, Washington, D.C., with whom Michael H. Bader, Kenneth A Cox, Raymond C. Fay, Chicago, Ill., Robert E. Conn, and Ruth S. Baker-Battist, Washington, D.C., were on the brief, for MCI Telecommunications Corp., petitioner in No. 82-1237 and intervenor in No. 82-1456. Phillip Nyborg and John M. Pelkey, Washington, D.C., also entered appearances for MCI Telecommunications Corp.

Paul L. Zimmering, New Orleans, La., of the Bar of the Supreme Court of the State of La., pro hac vice, by special leave of the court, with whom Michael R. Fontham, New Orleans, La., was on the brief, for Louisiana Public Service Com'n, petitioner in No. 82-1456.

Michael Deuel Sullivan, Counsel, F.C.C., Washington, D.C., with whom Bruce E. Fein, Gen. Counsel, Daniel M. Armstrong, Associate Gen. Counsel, and John E. Ingle, Deputy Associate Gen. Counsel, F.C.C. and Robert B. Nicholson and Neil R. Ellis, Attys., Dept. of Justice, Washington, D.C., were on the brief for respondents in Nos. 82-1237 & 82-1456. Lisa Margolis, Counsel, F.C.C., John J. Powers, III and William J. Roberts, Attys., Dept. of Justice, Washington, D.C., also entered appearances for respondents.

Jules M. Perlberg, Chicago, Ill., with whom David J. Lewis, Washington, D.C., Howard J. Trienens, Judith A. Maynes, New York City, and O. Carey Epps, Oklahoma City, Okl., were on the brief for intervenor American Telephone & Telegraph Corp. in Nos. 82-1237 & 82-1456. Alfred Winchell Whittaker, Keith E. McClintock, New York City, and Raymond F. Scully, Washington, D.C., also entered appearances for American Telegraph & Telephone Corp.

Richard McKenna and James R. Hobson, Washington, D.C., were on the brief for intervenors GTE Service Corp., et al. in Nos. 82-1237 and 82-1456.

J. Roger Wollenberg, William T. Lake, Roger M. Witten and Thomas F. Connell, Washington, D.C., were on the brief for International Business Machines Corp. in Nos. 82-1237 and 82-1456.

Thomas J. O'Reilly, Washington, D.C., was on the brief for intervenor United States Independent Telephone Ass'n in No. 82-1237.

John L. Bartlett and Howard D. Polsky, Washington, D.C., entered appearances for intervenor Aeronautical Radio, Inc. in No. 82-1237.

James M. Tobin, Daniel A. Huber, Mitchell F. Brecher and Mark P. Bresnahan, Washington, D.C., entered appearances for intervenor Southern Pacific Communications Co. in Nos. 82-1237 and 82-1456.

Michael L. Glaser, Washington, D.C., entered an appearance for intervenor Anchorage Telephone Utility in Nos. 82-1237 and 82-1456.

John A. Ligon, New York City, entered an appearance for intervenor United States Transmission Systems in Nos. 82-1237 and 82-1456.

Joseph M. Kittner and Edward P. Taptich, Washington, D.C., entered appearances for intervenor, Ad Hoc Telecommunications Committee in Nos. 82-1237 and 82-1456.

F. Thomas Tuttle, McLean, Va., Harold David Cohen, Jack N. Goodman, J. Laurent Scharff, W. Theodore Pierson and Richard M. Singer, Washington, D.C., entered appearances for intervenor Satellite Business Systems in Nos. 82-1237 and 82-1456.

Alan Y. Naftalin, Margot Smiley Humphrey, David Cosson, Amy S. Gross, David A. Irwin and Ellen S. Deutsch, Washington, D.C., entered appearances for intervenors Rural Telephone Coalition et al. in Nos. 82-1237 and 82-1456.

Carolyn C. Hill, Washington, D.C., entered an appearance for United Telephone System, Inc. in Nos. 82-1237 and 82-1456.

Paul Rodgers, Charles D. Gray and Deborah A. Dupont, Washington, D.C., entered appearances for intervenor Nat. Ass'n of Regulatory Utility Com'rs in No. 82-1237.

Donald A. Low, Topeka, Kan., entered an appearance for intervenor State Corp. Com'n of the State of Kan. in No. 82-1237.

Before WILKEY * and MIKVA, Circuit Judges, and BAZELON, Senior Circuit Judge.

Opinion for the Court filed by BAZELON, Senior Circuit Judge.

BAZELON, Senior Circuit Judge:

Petitioners challenge a Federal Communications Commission's (FCC) decision modifying the formula that separates costs for telephone equipment used in both interstate and intrastate services. In these consolidated cases, two issues are raised. First, the MCI Telecommunications Corporation (MCI) and the Louisiana Public Service Commission (PSC) contest the FCC's adoption of an interim freeze of the separations formula allocating the costs of non-traffic sensitive plant between intrastate and interstate jurisdictions. Second, the PSC also challenges the phase-out of the costs of embedded customer premises equipment from the separations process. Because the FCC is working to achieve a reasonable cost apportionment, the FCC's decision is affirmed.

I. BACKGROUND

Much telephone equipment is jointly used to provide both interstate and intrastate services. Subscriber plant equipment includes the telephone, the wiring inside a customer's home, the line connecting homes to the local switching office, and the termination of that access line in the local switching office. Subscriber plant equipment is termed non-traffic sensitive, because its costs do not vary with the level of use. Customer plant equipment (CPE) is part of the jointly used plant. CPE includes telephones, answering machines, key systems, and private branch exchange switchboards.

"Jurisdictional separation" is a procedure that determines what proportion of jointly used plant should be allocated to the interstate and intrastate jurisdictions for ratemaking purposes. Jointly used plant whose costs are traffic sensitive is generally allocated on the basis of actual or relative use. On the other hand, non-traffic sensitive plant has been more difficult to allocate appropriately. The FCC has been struggling for many years to derive a reasonable apportionment formula for nontraffic sensitive plant costs.

A. The 1970 Ozark Plan

Jurisdictional separations since 1947 have been performed almost entirely on the basis of a separations manual. This manual is developed jointly by the FCC and the National Association of Regulatory Utility Commissioners. The 1947 manual provided for the allocation of subscriber plant equipment between the interstate and intrastate jurisdictions on the basis of relative use. This basis of relative use is commonly referred to as subscriber line use (SLU). Since 1947, there have been five major revisions of the manual, the most recent being the 1970 Ozark Plan. 1

Under the Ozark Plan, subscriber plant costs were allocated pursuant to a formula that has the effect of assigning approximately 3.3 percent of the non-traffic sensitive costs of subscriber plant equipment to the interstate jurisdiction for every 1 percent of interstate calling. 2 This percentage allocation is called a subscriber plant factor (SPF), which is determined by the formula. The purpose of SPF was to compensate for the deterrent effect of toll rate schedules on interstate calling. 3 No one sought judicial review of the Ozark Plan, and it has since its inception determined jurisdictional separations.

Following the adoption of the Ozark Plan, the telecommunications industry underwent fundamental changes. Overall, the provision of long-distance services has become subject to intense and increasing competition. 4 The recent political climate in which agencies must operate has been characterized as a "rush to deregulate." 5 In addition, rapid technological advances may create the need for interim solutions. Here the merging of computer and communications technologies redefined the equipment that was part of CPE. 6 Amidst these sweeping changes, two specific factors generated the FCC's concerns about whether the existing separations manual should be revised. First, there has been a great increase in the level of interstate calling relative to intrastate calling. While interstate usage was estimated to increase from 5.5% to 8.3% from 1972-83, the non-traffic sensitive costs allocated to the interstate jurisdiction increased from approximately $1.9 billion to $11.2 billion. 7 This resulted from the use of the SPF factor that caused the allocation to the interstate jurisdiction to grow about three times as fast as usage. Second, the FCC concluded in Computer II, 8 that the provision of CPE should no longer be considered a common carrier activity subject to tariff regulation.

In response to these developments, the FCC, in June 1980, initiated Docket No. 80-286 by establishing a Federal-State Joint Board 9 to reexamine the FCC's separations procedures. 10 The Joint Board...

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    • United States
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