Western Union Telegraph Company petitions for review of an order of the Federal Communications Commission which permits international record carriers to "detariff" their offerings of terminal equipment, claiming that the Commission's action is arbitrary and capricious and an abuse of discretion. Affirmed.
Before Meskill and Winter, Circuit Judges, and Holden, District Judge.*fn*
Western Union Telegraph Company ("WUT") petitions for review of an order of the Federal Communications Commission ("Commission") which permits international record carriers ("IRCs") to "detariff" their offerings of terminal equipment, claiming that the order is arbitrary and capricious and an abuse of discretion. WUT's basic contention is that the order constitutes a "drastic and totally unexplained departure from the rulings that the Commission had made a little over a year earlier." Brief for WUT at 23.
The issues in this case relate to Commission regulation of domestic and international telex services.*fn1 To understand better WUT's and intervenor Trans-Lux Corporation's challenges to the Commission's order, we will discuss briefly the background against which that order was entered.
The Industry Structure Before 1980
Telex is a service for the carriage of two-way typewritten and data communications, sometimes called "records," between stations of subscribers. See Western Union Telegraph Co., 49 F.C.C.2d 532, 534-35 (1974). Subscribers dial the numbers of other subscribers to exchange written messages on their terminal equipment, usually teletypewriters, in the same way that telephone customers dial each other to exchange voice messages. The order under review is the latest in a series of related Commission orders designed to change the structure of the telex industry in the United States.
Prior to this series of orders, the industry was divided into two segments.*fn2 WUT was the dominant provider of telex services between points in the United States, but was prevented by statute from providing international service. See 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); ITT World Communications Inc. v. FCC, 621 F.2d 1201, 1202 (2d Cir. 1980). Telex transmissions between points in this country and points abroad were provided by the IRCs. The IRCs were authorized to operate directly in only five "gateway" cities ("gateways") in the United States. In those cities, IRCs could place terminals connected to their networks which would permit customers to send or receive telex messages directly to or from points abroad. International communications originating or terminating in areas of the United States outside the gateways (the "hinterland") traveled to and from an IRC terminal in a gateway through the network of a domestic carrier, usually WUT.*fn3
WUT's network was connected to those of all of the IRCs, but the IRCs' networks were not connected to each other. While a customer in a gateway could deal directly with an IRC, it could also, if it preferred, pass messages to an IRC's international network through WUT for no extra cost. Because the IRC networks were not interconnected, and because the IRCs competed with WUT for the domestic segment of international telex services in the gateways, the IRCs had significant incentives to place terminals connected to their individual networks in as many business offices as possible.
One device the IRCs used to induce customers to take their terminals was the "bundled" tariff, which combined terminal equipment and access lines with transmission service for a single, packaged price. Bundled tariffs allowed the IRCs to provide equipment virtually without charge, recovering the costs of both service and equipment through their per-minute usage rates. Since the IRCs provided essentially cost-free equipment, a customer had little to lose by accepting a terminal, and thereby acquiring access to the network of an IRC, even if it already had a terminal of another IRC. These terminal "give-a-ways" resulted in an inefficient duplication of IRC terminals in customer locations and in excessive usage rates.
The bundled tariffs also gave the IRCs a competitive advantage over WUT in the market for the domestic segment of international telex services in the gateways. Because the IRCs offered terminals at little or no cost, customers in gateways who required even a small amount of international service would be inclined to take a terminal from an IRC, thus bypassing the WUT network.
The Gateways and Unbundling Orders
In 1980, the Commission released two related orders designed to alter the "rather convoluted", Western Union Telegraph Co. v. FCC, 665 F.2d 1126, at 1134 (D.C.Cir.1981) (hereinafter "Unbundling Review Decision"), structure of the telex industry in the United States. The first, International Record Carriers' Scope of operations in the Continental United States, 76 F.C.C.2d 115 (1980) (hereinafter "Gateways Order "), authorized the IRCs to pick up and deliver international messages in twenty-one new "points of operation" in the United States in addition to the five gateways.*fn4 This expansion of IRC areas of activity was conditioned upon the unbundling of IRC charges for terminals from the per-minute transmission rates and upon interconnection on demand of the networks of the various IRCs. These conditions were set forth in the second Commission order, Interface of the International Telex Service With the Domestic Telex and TWX Services, 76 F.C.C.2d 61 (1980) (hereinafter "Unbundling Order "). Both of these orders were affirmed by the United States Court of Appeals for the District of Columbia Circuit in the Unbundling Review Decision.
The Gateways Order was designed to enhance competition in the domestic handling of international communications in order to provide consumers with better and less costly service. See Gateways Order, 76 F.C.C.2d at 137. The Commission believed, however, that if IRC domestic activity was expanded under the bundled rate structure, "the market for terminal machines would be further skewed by extension of the effects of IRC market power in the international segment to the terminal market." Unbundling Order, 76 F.C.C.2d at 66-67. Therefore, in the Unbundling Order the Commission required the IRCs to file separate cost-based tariffs for transmission services, terminals and access lines. The Commission also believed that unbundling the tariffs would "insure fair competition among carriers operating in the domestic segment(,)" by preventing the IRCs from using their power in the international market "to subsidize the domestic portion of the service." Id.
As a final point in the Unbundling Order, the Commission gave notice that while it would temporarily continue to require the IRCs to file equipment tariffs, it had reached the "tentative conclusion" that regulation of terminal equipment was no longer ...