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American Telephone and Telegraph Co. v. United States

January 26, 1978

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, PETITIONER,
v.
FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS. INTERNATIONAL BUSINESS MACHINES CORPORATION, PETITIONER, V. FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS. SECURITIES INDUSTRY AUTOMATION CORPORATION, PETITIONER, V. FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS. UNITED SYSTEM SERVICE, INC., PETITIONER, V. FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS. TELENET COMMUNICATIONS CORP., PETITIONERS, V. FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS. AERONAUTICAL RADIO INC. AND AIR TRANSPORT ASSOCIATION OF AMERICA, PETITIONERS, V. FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS. MCI TELECOMMUNICATIONS CORP., ET AL., UTILITIES TELECOMMUNICATIONS COUNCIL, COMPUTER & BUSINESS EQUIPMENT MANUFACTURERS ASSN., AERONAUTICAL RADIO, INC. AND AIR TRANSPORT ASSN. OF AMERICA, AMERICAN TELEPHONE & TELEGRAPH CO., SECURITIES INDUSTRIES AUTOMATION CORP., AMERICAN TRUCKING ASSN., INC., TELENET COMMUNICATIONS CORP., WESTERN UNION INTERNATIONAL INC., RCA GLOBAL COMMUNICATIONS INC., UNITED SYSTEM SERVICE, INC., REMOTE PROCESSING SERVICES SECTION (RPSS) OF THE ASS'N OF DATA PROCESSING, SERVICE ORGANIZATIONS, INC., SOUTHERN PACIFIC COMMUNICATIONS CO., ITT WORLD COMMUNICATIONS, INC., AMERICAN PETROLEUM INSTITUTE, AMERICAN NEWSPAPER PUBLISHERS ASSOC., ET AL., INTERNATIONAL BUSINESS MACHINES CORP., MCI TELECOMMUNICATIONS CORPORATION AND MICROWAVE COMMUNICATION, INC., GRAPHIC SYSTEMS, INC., GRAPHIC SCANNING CORP., INTERVENORS.



On petitions for review of an order of the Federal Communications Commission requiring interstate telephone and telegraph companies to eliminate tariff restrictions on the resale and shared use of private line services. Affirmed.

Author: Meskill

Before:

MESKILL, Circuit Judge, STEWART*fn* and WARD,*fn** District Judges.

MESKILL, Circuit Judge:

The type of interstate telephone service most people are familiar with - the type used in most homes and offices - is public telecommunications service. This includes normal long distance service.*fn1 Charges for this type of service are generally based on use, i.e., a "toll" is charged for each call.

In contrast, the type of telephone service involved in this case is private line service.*fn2 Telephone companies make this special type of service available in bulk, at rates below those for normal long distance service, to customers such as businesses and government with substantial communications needs. A subscriber to private line service typically buys the right to use telephone facilities between two or more pre-selected locations on a full-time basis. The facilities involved are generally capable of instant connection between locations. Charges for the service are made on a flat, periodic rate basis and depend, generally, on the number of connected locations and the distance between them. Private line services are used for normal voice communications, radio and television signal transmission, teletypewriter and remote meter monitoring, and specialized service for high-speed data and facsimile communications.

As is true of bulk offerings in other areas of commerce, private line services, as sold by the major carriers, are often underutilized. For example, a telephone company customer may need to communicate between two locations quickly and at any time during the day or night. It may be economical for such a customer to buy private line services at bulk rates, rather than normal long distance rates, but it would probably not be necessary to communicate between the two locations constantly. When the customer is not using the facilities, they go to waste. This underutilizing makes the bulk offerings attractive to small customers, who would be willing to aggregate their needs and "share"*fn3 both the services and the discount, and to middlemen, who would buy the services at the discount rate and "resell"*fn4 them to customers at rates below the normal long distance rates.

The desire of some businesses to share or resell private line services has been frustrated by a communications industry tradition under which carriers that own and operate transmission facilities supply service to ultimate users directly, without middlemen. This tradition is embodied in carrier-initiated tariffs that forbid, in both public telecommunications service and private line service, a customer to share or resell a purchased service. There are, of course, exceptions. For example, local exchange and long distance service may not be resold (this is why a hotel may not impose a surcharge on interstate calls, see Ambassador, Inc. v. United States, 325 U.S. 317, 89 L. Ed. 1637, 65 S. Ct. 1151 (1945)), but they may be shared, so long as the subscriber does not profit from the sharing. There are also exceptions with regard to private line service. Western Union resells service obtained from American Telephone & Telegraph ("AT&T"); so do certain specialized common carriers. Some special groups, including airlines, news services, electric utilities and the securities industry, enjoy the right to share service provided through an authorized intermediary under the socalled "single customer" tariff exception. A small number of organizations known as "value added" carriers are authorized to resell private line services which they augment by adding data or facsimile communications services.

Some of the businesses that would like to engage in resale or sharing of private line services, but which were barred from doing so under existing tariff restrictions, challenged those restrictions as unjust and unreasonable - a refusal to provide services "upon reasonable request therefor" in violation of § 201(a) of the Communications Act of 1934 ("the Communications Act"), 47 U.S.C. § 201(a). The tariff exceptions were challenged as discriminatory, a violation of § 202(a) of the Communications Act.

The order now under review resulted from a proceeding initiated by the Federal Communications Commission ("FCC") by a Notice of Inquiry and Proposed Rulemaking. 47 F.C.C.2d 644 (1974) ("Notice"). The Notice called for three rounds of comments on the subject of sharing and resale restrictions. Over forty organizations participated by filing comments. In July of 1976, the FCC released its Report. In re Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities, 60 F.C.C.2d 261 (1976), amended on reconsideration, 62 F.C.C.2d 588 (1977) ("Report"). The FCC concluded that existing tariffs were unjust, unreasonable and discriminatory, and it prescribed unlimited resale and sharing. The FCC found that resale is common carrier activity within the meaning of 47 U.S.C. § 153(h) and decided to regulate it as such. The FCC also found that sharing was not common carriage and decided that it would not be regulated but, instead, would be monitored in order to ensure that activity which purported to be sharing was not or would not become a device for masking a resale.

The consolidated petitions for review now before this Court challenge the FCC Report on several grounds. First, it is argued that the FCC's "notice and comment" procedures denied AT&T an adequate hearing. Second, it is argued that the FCC's decisions regarding the fairness and reasonableness of unlimited resale and sharing were not supported by the record. Third, it is argued that resellers are not common carriers and should not be regulated. Fourth, it is argued that the FCC did not go far enough and should have regulated sharers in addition to resellers. We reject these contentions and affirm the FCC's decision in all respects.

THE FCC'S HEARING PROCEDURES.

The prescription of unlimited resale and sharing of private line services was an exercise of the FCC's authority under § 205(a) of the Communications Act to prescribe practices.*fn5 AT&Targues that it was entitled to a trial-type evidentiary hearing prior to such a prescription and that, therefore, the FCC's "notice and comment" procedures were inadequate. In order to show that the procedures were inadequate, AT&T must demonstrate that they failed to meet the requirements of either the Administrative Procedure Act ("APA") or the Communications Act.

The APA requires trial-type hearings only "(when] rules [or adjudications] are required by statute to be made [or determined] on the record after opportunity for an agency hearing." 5 U.S.C. §§ 553(c), 554(a) (emphasis added). Since United States v. Florida East Coast Ry., 410 U.S. 224, 236-38, 35 L. Ed. 2d 223, 93 S. Ct. 810 (1973), the words "on the record" have become, as the District of Columbia Circuit has observed, a "touchstone test" for the applicability of the APA's trialtype procedures. Mobil Oil Corp. v. F.P.C., 157 U.S. App. D.C. 235, 483 F.2d 1238, 1250 (D.C. Cir. 1973). The Communications Act does not require that rules be made "on the record" but merely that they be made "after full opportunity for hearing." 47 U.S.C. § 205(a). Therefore, the APA does not require trialtype procedures here. AT&T argues, however, that the phrase "after full opportunity for hearing" requires trialtype hearings independent of the APA. Because the APA is not the exclusive source of ...


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