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ITT World Communications v. United States

decided: August 25, 1980.

ITT WORLD COMMUNICATIONS INC. AND RCA GLOBAL COMMUNICATIONS, INC., PETITIONERS,
v.
THE FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS, AND WESTERN UNION INTERNATIONAL, INC., TRT TELECOMMUNICATIONS CORPORATION AND THE WESTERN UNION TELEGRAPH COMPANY, INTERVENORS .



Petition for review of an order of the Federal Communications Commission adopted on December 12, 1979, and released on January 3, 1980, authorizing Western Union Telegraph Company, "a domestic telegraph carrier" under the Communications Act of 1934, 47 U.S.C. §§ 151-609, to provide overseas world-wide Telex service, known as WUITS, via a Canadian carrier, CNCP Telecommunications (CNCP) and a Mexican carrier, Direccion General de Telecommunicaciones (Telecomex). Order vacated and set aside. Case remanded to Commission with directions that the service be terminated immediately as a violation of the Act.

Before Lumbard and Mansfield, Circuit Judges.*fn*

Author: Mansfield

Once again we are faced with a major question with respect to the provision of international telecommunications service in the United States, which we thought we had firmly settled in Western Union International, Inc. v. FCC, 544 F.2d 87 (2d Cir. 1976), cert. denied, 434 U.S. 903, 98 S. Ct. 299, 54 L. Ed. 2d 189 (1977) ("Mailgram" herein). Three "international telegraph carriers"*fn1 (as defined in § 222(a)(3) of the Communications Act of 1934 (the Act), 47 U.S.C. §§ 151-609)-ITT World Communications, Inc. (ITT), RCA Global Communications, Inc. (RCA)-Western Union International, Inc. (WUI) seek review of an order adopted by the Federal Communications Commission (FCC) on December 12, 1979, and released on January 3, 1980,*fn2 allowing Western Union Telegraph Company (WU),*fn3 a "domestic telegraph carrier" (as defined in § 222(a)(2)*fn4 ) to offer a new overseas service under the style of "Western Union International Teletype Service" (WUITS). For this operation WU uses the services of a Canadian carrier, CNCP Telecommunications (CNCP) and a Mexican carrier, Direccion General de Telecommunicaciones (Telecomex), to transmit and receive communications between the continental United States and most foreign countries of the world.

The FCC rejected the international carriers' contention that the new WU service violated provisions of § 222 of the Act which preclude WU, a merged carrier, from engaging in "international telegraph operations" and obligate it to distribute among international telegraph carriers communications destined to overseas points outside the continental United States.*fn5 Petitioners' contentions that WU was providing a new service without authorization required by § 214 of the Act, 47 U.S.C. § 214,*fn6 and had violated § 203 of the Act, 47 U.S.C. § 203, by providing a service for which no tariff had been filed with the FCC, were also rejected except that the Commission order requires WU to file a tariff under the Act but permits it to continue to provide the new service pending a determination of the tariff's lawfulness.

The principal issue raised by this petition is whether WU may offer the new overseas service under the Act. The FCC held that WU's role in the WUITS service consists of "domestic telegraph operations" as defined in § 222(a)(5) of the Act, which WU is authorized to provide. It further decided in the alternative that if the service amounts to "international telegraph operations" within the meaning of the Act WU may, notwithstanding our contrary decision in Western Union International, Inc. v. FCC, 544 F.2d 87 (2d Cir. 1976), cert. denied, 434 U.S. 903, 98 S. Ct. 299, 54 L. Ed. 2d 189 (1977), be authorized by the FCC to engage in such activities. We hold that WU's new overseas service violates the Act since it constitutes both "international telegraph operations," which § 222(c)(2) of the Act prohibits WU from pursuing, and the handling of overseas traffic which § 222(e)(1) of the Act obligates WU to distribute among "international telegraph carriers" as defined in the Act rather than among "foreign telegraph carriers" such as CNCP and Telecomex. Accordingly, we set aside the Commission's order and direct the Commission immediately to order WU to cease offering or continuing to provide WUITS service or to conduct any international telegraphic operations.

In order to understand the full nature of the problems of statutory construction raised by the petition and to determine the meaning and applicability of the pertinent sections of the Act, an outline of the origin and history of § 222 is essential. Common carriers of telegraphic and radio communications are as public utilities limited in their operations by the terms of the Act and by regulations which the FCC is obligated to promulgate thereunder. American Tel. & Tel. Co. v. FCC, 572 F.2d 17, 25 (2d Cir.), cert. denied, 439 U.S. 875, 99 S. Ct. 213, 58 L. Ed. 2d 190 (1978). Regulation by the FCC takes the form principally of exercising the power to grant or withhold certification of new lines in the interest of controlling a carrier's investment, 47 U.S.C. § 214(a), and of reviewing a carrier's rates, services and practices, which may be disapproved, 47 U.S.C. §§ 201-205.

Prior to Congress' enactment of § 222 of the Act in 1943, WU, which was formed in 1844, was the dominant entity in common carriage of telecommunications, i. e., non-voice record messages, within the United States and between the United States and other parts of the world. It controlled a vast network of cables, offices, lines and agencies through which it transmitted messages domestically and to many parts of the world. Its principal domestic competitor was Postal Telegraph. In addition, ITT's predecessors laid and operated cable lines to other parts of the world, establishing "gateways" in principal coastal cities through which they transmitted and received overseas non-voice messages that originated or terminated on the extensive domestic lines that had been created by Postal Telegraph and WU. See Western Union Divestment, 30 F.C.C. 323, 325, 346 (1961); Press Wireless, Inc., 21 F.C.C. 511, 513, 517 (1956).

The principal offering of the domestic and international carriers has been "Telex," a teleprinter exchange circuit service under which a message may be sent from a teletypewriter at an originating point to a teletypewriter at the destination. In addition, beginning in 1930 the American Telephone & Telegraph Company (AT&T) initiated "TWX," a teletypewriter exchange service functionally similar to Telex, which permits a subscriber to dial another subscriber on the public message telephone system within the United States in much the same fashion as telephone subscribers dial stations or numbers they wish to call, and exchange teleprinter traffic. See Western Union Telegraph Co., 49 F.C.C.2d 532, 534-36 (1974), for a more complete description of Telex and TWX. Telex and TWX subscribers can reach stations on Canadian and Mexican networks through WU's connection of its facilities with theirs. See Western Union Telegraph Co., 27 F.C.C.2d 515, 516 (1971).

During the Depression in the 1930's both WU and Postal Telegraph suffered a serious decline in business, threatening termination of the latter's operations, which led to a proposal for the merger of the two. Based on a study made by the Senate Committee on Interstate Commerce in late 1941, S.Rep.No.769, 77th Cong., 1st Sess. (1941), legislation was introduced into Congress, S. 2445, for the addition of a § 222 to the Act, which would have required each of the participating domestic carriers to divest itself of its overseas operations and then allow for separate mergers of their domestic and overseas operations. After extensive hearings the Committee drafted a new bill, S. 2598, which was to become S. 158 in the 1943 session of Congress, authorizing a domestic merger provided the merged carrier divested itself of overseas operations and facilities and instead distributed its outbound overseas traffic essentially among the "international telegraph carriers," such as ITT, RCA, and WUI, now popularly known as the "international records carriers" or "IRCs." S.Rep.No. 13, 78th Cong., 1st Sess. (1943). While recognizing that a merger was advisable to prevent a collapse of domestic service, Congress also realized that WU, as the surviving merged enterprise, would dominate domestic traffic and could, if permitted to retain its overseas operations and network, favor its own system to the detriment of the IRCs, who transmitted overseas messages only to and from five "gateway" cities (New York, San Francisco, Miami, Washington and New Orleans), see International Record Carriers' Scope of Operations, 54 F.C.C.2d 909 (1975), and 58 F.C.C.2d 250, 251 n.1 (1976), and who depended on WU and Postal Telegraph for completion of the domestic landline service within the United States. See Mailgram, supra, 544 F.2d at 89; Telegraph Service with Hawaii, 28 F.C.C. 599, 602, affd. on reconsideration, 29 F.C.C. 714 (1960); Western Union Telegraph Co., 25 F.C.C. 35, 74 (1958); S.Rep.No. 769, 77th Cong., 1st Sess. 20 (1941); Hearings on S. 2445 Before a Subcommittee of the Senate Committee on Interstate Commerce (Consolidations and Mergers of Telegraph Operations), 77th Cong., 2d Sess. at 253, 258 (1942); Hearings Pursuant to S. 2598 Before a Subcommittee of the House Committee on Interstate & Foreign Commerce (Consolidations and Mergers of Telegraph Operations), 77th Cong., 2d Sess. at 16, 180 (1942); S.Rep.No. 1490, 77th Cong., 2d Sess. 9 (1942); S.Rep.No. 13, 78th Cong., 1st Sess. 8 (1943); Statement of Sen. McFarland of Arizona before Senate on February 18, 1943, 89 Cong.Rec. 1092 (1943).*fn7

Against this background Congress in 1943 enacted § 222 of the Act, 57 Stat. 5, 47 U.S.C. § 222, authorizing a merger of domestic carriers, provided they would divest themselves of their international operations and properties, § 222(c) (2), and requiring the merged enterprise to distribute overseas traffic among the IRCs according to a "just, reasonable and equitable formula," § 222(e) (1). The FCC was authorized to approve a merger and to prescribe a formula that met the conditions of the Act. Pursuant to this authority, the FCC promptly approved the WU-Postal Telegraph merger, Application for Merger, 10 F.C.C. 148 (1943), and formulas, Separate Report on Formulas, 10 F.C.C. 184 (1943). In Mailgram, supra, 544 F.2d at 93, we interpreted § 222(c)(2) as "a continuing bar to WU's involvement in international record communications," which only Congress, not the FCC, could change.

Section 222 divides the world for telegraph and radio communications business purposes into (1) a "domestic" zone embracing the continental United States, Canada, Alaska, Saint Pierre-Miquelon, Mexico and Newfoundland, and (2) an "international" or overseas zone consisting of all other parts of the world. "Domestic telegraph operations" are defined to include the handling of communications (Telex and TWX) which originate and terminate within the domestic zone, § 222(a)(5). "International telegraph operations," on the other hand, are defined to include the handling of overseas traffic to or from places not in the domestic zone but which may originate or terminate at cities within the continental United States designated as "gateways approved by the Commission as points of entrance into or exit from the continental United States, under regulations prescribed by the Commission," § 222(a)(5), (6). Thus WU as a "domestic telegraph carrier" may handle traffic within the domestic zone and the "landline haul" segment within the continental United States of overseas traffic up to or from a point of exit or approved "gateway" city. The transmission to or from an overseas point is an "international telegraph operation" handled exclusively by an IRC. An "international telegraph carrier" or IRC is "any common carrier by wire or radio, the major portion of whose traffic and revenues is derived from international telegraph operations," § 222(a)(3).

Implementation of the plan for WU's divestiture of its international operations took many years, with the FCC periodically extending the time further at WU's request, resulting in litigation to force WU to divest, Western Union Tel. Co. v. United States, 267 F.2d 715, 723 (2d Cir. 1959).*fn8 Finally in 1963, after FCC approval, Western Union Divestment, 30 F.C.C. 323 (1961), WU's international operations were sold to WUI, an independent IRC. In the meantime WU was permitted in 1951 to abandon its "conventional" telegraph service, due to competition from an affiliate of AT&T and other smaller carriers, FCC Annual Report for FY 1951 at 55; FCC, Annual Report for FY 1950 at 43 (1950). In 1959 the FCC denied WU's application for permission to provide Telex and other services between the United States and Hawaii, which was not embraced within the term "domestic telegraph operations," § 222(a) (5), on the ground that the FCC was powerless under § 222 to grant such authority to engage in an "international telegraphic operation ... no matter how urgent the public interest" and that "(T)he remedy is to ask Congress to amend section 222, not for us to misinterpret it," Telegraph Service with Hawaii, 28 F.C.C. 599, 605,*fn9 affd. on reconsideration, 29 F.C.C. 714 (1960). In 1970 WU was permitted, pursuant to § 222, to acquire from AT&T its domestic TWX service, Western Union Tel. Co. (TWX Acquisition), 24 F.C.C.2d 664, 667-68 (1970), thus solidifying WU's control over domestic Telex traffic.

In September 1979 WU, without filing an application with the FCC for certification pursuant to § 214 of the Act, unilaterally inaugurated a new overseas service. Under contract with CNCP and Telecomex, WU solicits and accepts from its approximately 125,000 subscribers in the continental United States overseas Telex business to be routed via CNCP or Telecomex to ...


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