U.S. v. F.C.C.

• Decision Date: 07 March 1980
• Docket Number: Nos. 77-1249 and 77-1252,s. 77-1249 and 77-1252
• Citation: 209 U.S.App.D.C. 79,652 F.2d 72
• Parties: , 1978-2 Trade Cases 62,205, 1980-1 Trade Cases 63,264 UNITED STATES of America, Appellant, v. FEDERAL COMMUNICATIONS COMMISSION, Satellite Business Systems, Intervenor. AMERICAN SATELLITE CORPORATION and Fairchild Industries, Inc., Appellants, v. FEDERAL COMMUNICATIONS COMMISSION, Satellite Business Systems, Intervenor. The WESTERN UNION TELEGRAPH COMPANY, Appellant, v. FEDERAL COMMUNICATIONS COMMISSION, Satellite Business Systems, Intervenor. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Appellant, v. FEDERAL COMMUNICATIONS COMMISSION, Satellite Business Systems, Intervenor. to 77-1254.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 72

652 F.2d 72

209 U.S.App.D.C. 79, 1978-2 Trade Cases 62,205,

1980-1 Trade Cases 63,264

UNITED STATES of America, Appellant, v.FEDERAL COMMUNICATIONS COMMISSION,Satellite Business Systems, Intervenor.

AMERICAN SATELLITE CORPORATION and Fairchild Industries,Inc., Appellants, v.FEDERAL COMMUNICATIONS COMMISSION,Satellite Business Systems, Intervenor.

The WESTERN UNION TELEGRAPH COMPANY, Appellant, v.FEDERAL COMMUNICATIONS COMMISSION,Satellite Business Systems, Intervenor.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Appellant, v.FEDERAL COMMUNICATIONS COMMISSION,Satellite Business Systems, Intervenor.

Nos. 77-1249 and 77-1252 to 77-1254.

United States Court of Appeals District of Columbia Circuit.

Argued En Banc Sept. 24, 1979.

Decided March 7, 1980.

Appeals from an Order of the Federal Communications Commission.

Barry Grossman, Atty., Dept. of Justice, Washington D. C., with whom Richard O. Levine, Atty., Dept. of Justice, Washington, D. C., was on brief, for appellant United States of America.Carl D. Lawson, Atty., Dept. of Justice, Washington, D. C., entered an appearance for appellant United States of America.

Thomas H. Wall, Washington, D. C., with whom Daniel M. Redmond, and Richard R. Molleur, Washington, D. C., Michael D. Campbell, and Stuart G. Meister, Germantown, Md., were on brief, for appellantsAmerican Satellite Corp. and Fairchild Industries, Inc.

William Warfield Ross, William R. Weissman, David B. Weinberg, and Joel Yohalem, Washington, D. C., were on brief, for appellantThe Western Union Telegraph Company.

Edgar Mayfield, Edmund B. Raftis, James D. Ellis, Bedminester, N. J., F. Mark Garlinghouse, and Alfred C. Partoll, New York City, were on brief, for appellantAmerican Telephone and Telegraph Co.

David J. Saylor, Deputy Gen. Counsel, F. C. C., Washington, D. C., with whom Daniel M. Armstrong, Associate Gen. Counsel, and Jack David Smith and Roberta L. Cook, Counsel, F. C. C., Washington, D. C., were on brief, for appellee.Werner K. Hartenberger, Counsel, F. C. C., Washington, D. C., entered an appearance for appellee.

William E. Willis, New York City, with whom W. Theodore Pierson, Harold David Cohen, and William D. English, Washington, D. C., were on brief, for intervenor Satellite Business Systems.

Daniel C. Schwartz, Deputy Director, F. T. C., and Albert A. Foer, Associate Director, F. T. C., Washington, D. C., were on brief, for amicus curiaeFederal Trade Commission.

Before WRIGHT, Chief Judge, and TAMM, LEVENTHAL, ^*SPOTTSWOOD W. ROBINSON, III, MacKINNON, and WILKEY, Circuit Judges.

Opinion for the court filed by Chief Judge J. SKELLY WRIGHT.

Dissenting opinion, in which Circuit Judge WILKEY joins, filed by Circuit Judge SPOTTSWOOD W. ROBINSON, III.

J. SKELLY WRIGHT, Chief Judge:

These appeals are the most recent stage in a process beginning in 1966, during the course of which the Federal Communications Commission(FCC) has nurtured a dynamic new medium: domestic satellite communication.The order under review, ¹In Re Satellite Business Systems, 62 FCC2d 997(1977), reconsideration denied, 64 FCC2d 872(1977), granted Satellite Business Systems (SBS) authority to construct three domestic satellites and four fixed domestic satellite earth stations; it also gave SBS authority to operate channels of communications over the new system as a common carrier.SBS is a partnership among Comsat General Business Communications, Inc., a wholly-owned subsidiary of an affiliate of Communications Satellite Corporation, Information Satellite Corporation, a wholly-owned subsidiary of IBM Corporation, and Aetna Satellite Communications, Inc., a wholly-owned subsidiary of Aetna Casualty & Surety Company.²

At present, domestic satellite communications services are provided by RCA Global Communications (RCA), Western Union Telegraph Company, American Satellite Corporation(a subsidiary of Fairchild Industries, Inc., leasing a part of the Western Union system), and a joint venture between American Telephone & Telegraph Company(AT&T) and General Telephone & Electronics Corporation(GTE)(leasing the COMSTAR Domestic Satellite system from Comsat General).These companies may be joined by a recently-formed joint venture between American Satellite and Continental Telephone Company, ³ and by a system proposed by Xerox Corporation.⁴

The AT&T/GTE venture apparently has the potential to dominate the new field, by virtue of the overwhelming market position of its parents in the terrestrial specialized communications field.The Commission therefore restricted the AT& T/GTE venture from full competition as a common carrier for a three-year period, so that other firms would have time to establish a competitive foothold in the industry.⁵ Now that FCC-imposed restrictions on their satellite operations have lapsed, the telephone companies will be able to lower the per unit cost of their satellite services by routing part or all of their switched telephone network traffic (WATS or MTS) via satellite.This will spread the fixed costs of the system over a larger number of units, thereby enabling the venture to price its satellite channels below the price of its competitors, who do not have the benefit of such a large arbitrarily-adjustable monopoly demand base.⁶ Moreover, since satellite communication services will be in direct competition with terrestrial services a field dominated by AT&T AT&T's potential market dominance in the overall specialized communications industry is considerable.

The SBS entry into this concentrated industry would provide a significant increase in capacity of a highly technologically innovative sort.It would be the first system to integrate voice, data, and image transmission service in a largely digital format, to make available small earth stations at customers' premises, to make more efficient use of the available spectrum through a "time division multiple access" and demand assignment technology, and to operate in the 12 and 14 GHz frequency bands.⁷ For purposes of this appeal, appellants concede that the SBS entry would provide a significant and beneficial new public service.Although SBS lacks the competitive advantages of AT&T and GTE described above, the combined expertise of Comsat in satellites and IBM in data processing a major expected use for the domestic satellite system offers the promise, as the FCC has repeatedly emphasized during the course of this proceeding, of challenging the expected market dominance of AT&T. ⁸ If all goes well, SBS satellites could be in the air by early 1981.

Twelve parties six competitors of SBS, two computer or communications equipment manufacturers' associations, two states, and two federal agencies ⁹ opposed the grant of a license to SBS on various grounds in the proceedings before the Commission.Four of these parties American Satellite, Western Union, AT&T, and the United States Department of Justice appeal the Commission's final order.¹⁰They argue principally that the FCC erroneously denied an evidentiary hearing into the possibilities of anticompetitive consequences resulting from the joint venture of Comsat and IBM. ¹¹They ask this court to reverse and remand to the FCC for such an evidentiary hearing.

The Commission argues that evidentiary hearings are not required by statute for all disputed issues, and that such hearings would not prove useful in evaluating the competitive conditions in a changing and experimental industry such as this one.Moreover, the Commission asserts that SBS's entry into the concentrated domestic satellite industry would interject strong and immediate competition, and that delay of SBS entry for the purpose of holding evidentiary hearings would not be in the public interest.We agree and affirm.

I.BACKGROUND

The Commission's policy over the past ten years has been to develop the domestic satellite communications industry by permitting limited open entry and encouraging technological competition.Entry is limited only by legal, technical, and financial fitness qualifications.¹² In its First Report and Order (Domsat I), 22 FCC2d 86(1970), issued after four years of study and public comment, the FCC concluded that satellites could play an important role in the field of domestic communications, but that the risks and uncertainties involved in the development of the industry were substantial.The Commission invited potential applicants to submit concrete system proposals for consideration.

In its Second Report and Order (Domsat II), 35 FCC2d 844(1972), the Commission rejected the suggestion that it should restrict entry to one or a small number of licensees.It reached this conclusion partly on the basis of comments submitted by the Department of Justice detailing the delay, expense, and disutility of comparative hearings to select licensees.The Commission stated that "(t)he presence of competitive sources of specialized services, both among satellite system licensees and between satellite and terrestrial systems, should encourage service and technical innovation and provide an impetus for efforts to minimize costs and charges to the public."¹³ Accordingly, it adopted the multiple entry policy, permitting firms to enter the industry singly or jointly, subject only to a basic fitness determination.

In adopting this policy, the FCC was aware that every one of the potential applicants for entry presented possible antitrust problems.All were satellite or communications equipment manufacturers, satellite users, broadcast networks, or major firms in related industries.¹⁴ Each potential applicant would be in a position to use its market power in a related field to affect the domestic satellite communications market.Nevertheless, the FCC decided, at the urging of its staff and the Department of Justice, ¹⁵ that none of the potential applicants should be disqualified.It reasoned that only a company with experience in a related industry would be able to compete...