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FTC Communications Inc. v. United States

December 17, 1984

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



Petition for review of a final decision of the Federal Communications Commission which found that the public rates charged by The Western Union Telegraph Company for Telex and TWX service were reasonable and that the international record carriers were not entitled to a discount from the public rates. Petition denied.

Author: Meskill

BEFORE: MANSFIELD, MESKILL and KEARSE, Circuit Judges.

Petitioners FTC Communications, Inc., RCA Global Communications, Inc., Western Union International, Inc. and intervenors ITT World Communications, Inc. and TRT Telecommunications Corporation (collectively the IRCs) petition for review of a final decision of the Federal Communications Commission (Commission), In re The Western Union Telegraph Co., 95 F.C.C. 2d 881 (1983) (Final Decision). The Final Decision set aside the initial decision of the administrative law judge (ALJ) which found that The Western Union Telegraph Company's (WU) public Telex and TWX rates were unreasonable, determined that the IRCs were entitled to a twenty-five percent discount from the public rates and ordered WU to refund over $75 million to the IRCs. In re The Western Union Telegraph Co., FCC 82D-14 (Mar. 10, 1982) (Initial Decision in Phase 1 of CC Docket No. 78-97) (Initial Decision), reprinted in J. App. at 113. In overturning the Initial Decision, the Commission found that WU's public Telex and TWX rates were reasonable and that the IRCs were not entitled to a discount from those rates. In their petition for review, the IRCs claim that in reaching this result the Commission exceeded its statutory authority, failed to make prerequisite findings and acted arbitrarily and capriciously. For the reasons that follow, we deny the petition.

BACKGROUND

Telex and TWX are two integrated teleprinter exchange services. Users of Telex and TWX transmit typewritten and data communications between subscriber stations. During the period relevant to our inquiry, WU provided domestic Telex and TWX service and the IRCs provided international service. The international messages were sent and received from five "gateway" cities on IRC equipment. To get the messages to and from the gateway cities and their domestic origin or destination, the IRCs used WU's domestic Telex and TWX service. The IRCs billed their customers for end-to-end service and then paid WU for any part of the message transmitted on WU's network. The controversy before us involves only the rates charged by WU for Telex and TWX service from August 1978 to April 1981.*fn1 Nevertheless, a review of recent ratemaking history is helpful to an understanding of this dispute.

WU began offering Telex service in 1961, and from 1961 to 1973 the IRCs received Telex service at the same rate charged to the general public. Br. for the FCC at 4. WU began offering TWX service in 1971 after it purchased the TWX system from AT & T. In purchasing the TWX system, WU inherited the existing AT & T/IRC contracts, which gave the IRCs a discount from the public TWX rates.

When the TWX contracts expired in 1973, WU informed the IRCs that it would continue to provide them with TWX service but without the discount form the public tariff. The IRCs refused to pay the full public tariff rates and attempts by WU to compel payment failed. The dispute was settled in 1975 and 1976 when WU reached an individual settlement agreement with each of the IRCs. The settlement agreements encompassed both TWX and Telex rates. Under the agreements, WU agreed to provide Telex and TWX service to the IRCs at rates approximately five and one-half percent below the public tariff rates. These agreements were to expire on December 31, 1977.

On December 1, 1977, WU filed proposed revisions to its public Telex and TWX tariffs. The proposed revisions included a reduction in the number of rate bands and mileage bands, changes in the levels of usage rates, increases in remote extension charges and increases in directory listing charges. On December 2, 1977, WU filed a proposed tariff covering the rates previously established by the WU/IRC contracts. The main feature of this tariff was the elimination of the discount from the public tariff rates that the WU/IRC contracts had sometimes provided. The Commission reviewed WU's proposed revisions and tariffs in two separate designation orders.

In In re The Western Union Telegraph Co., 67 F.C.C. 2d 1420 (1978) (Public Telex/TWX Order), the Commission expressed concern that under the proposed public rates WU would earn excessive profits on Telex and TWX service which might be used to subsidize other WU services. Id. at 1424. The Commission therefore suspended the proposed public tariff for the full statutory period and set for investigation the issue of whether the public rates were just, reasonable and lawful within the meaning of sections 201 and 202 of the Communications Act of 1934, 47 U.S.C. §§ 201, 202. 67 F.C.C. 2d at 1424.

The issues raised by WU's proposed tariff covering IRC rates were considered in In re The Western Union Telegraph Co., 68 F.C.C. 2d 98 (IRC Telex/TWX Order), reconsideration denied, 69 F.C.C. 2d 924 (1978), petition for review dismissed sub nom. Western Union International v. FCC, 209 App. D.C. 143, 652 F.2d 136 (D.C. Cir. 1980). In the IRC Telex/TWX Order, the Commission made four determinations relevant to the case before us. First, the Commission determined that the version of section 222(e)(1), 47 U.S.C. § 222(e)(1), then in force*fn2 prevented WU from establishing rates for message traffic originating in the United States and bound for a foreign country (outbound traffic) by unilateral tariff. 68 F.C.C. 2d at 113. Former section 222(e)(1) required a division of outbound charges under a formula agreed on by the parties or, if the parties could not reach an agreement, prescribed by the Commission. Thus, the Commission concluded that WU's unilateral tariff filing, insofar as it set rates for outbound traffic, violated section 222(e)(1). Second, the Commission determined that neither section 222(e)(1) nor section 201(a) prevented WU from setting rates for message traffic originating in a foreign country and bound for the United States (inbound traffic) by unilateral tariff. 68 F.C.C. 2d at 113-14. However, the Commission concluded that the same issues concerning possibly excessive Telex/TWX earnings that caused it to suspend the public rates, likewise required the suspension of the proposed inbound rates. Id. at 119-20. Third, the Commission found "that Telex and TWX services, as utilized in connection with IRC traffic, are the same services provided to other Telex and TWX customers." Id. at 114. Therefore, it concluded that WU did not have a threshold duty to provide separate and independent cost justification for the IRC rates. Finally, the Commission stated that "IRC claims of cost differences between public and IRC Telex/TWX service [did] not automatically trigger a requirement that WU provide disaggregated support data in its filing." Id. at 116.

The Commission concluded that the issues raised in the Public Telex/TWX Order and the IRC Telex/TWX Order were interrelated and therefore consolidated the matters into a single hearing. At the consolidated hearing, the Commission was to investigate the lawfulness of both the public and inbound IRC Telex/TWX rates under sections 201-205 of the Communications Act of 1934, 47 U.S.C. §§ 201-205. In addition, the Commission stated that it would prescribe a just, reasonable and equitable rate formula for outbound Telex/TWX traffic under former section 222(e). 68 F.C.C. 2d at 121. In determining the proper inbound and outbound rates, the Commission stated that the public Telex/TWX rates would serve as the benchmark. Id. at 122. The Commission also indicated that most of the cost differences which the IRCs alleged entitled them to a discount were "in the nature of non-capitalized, administrative and overhead expenses, which a carrier is normally permitted to average among customers of a particular service for purposes of rate design and cost accountability." Id. at 123. However, the Commission added that

because there has in the past been differential rate treatment of IRC and public Telex/TWX traffic, e.g., the contractual discounts, and because of the applicability of Section 222(e)(1), and the fact that separate IRC tariffs have been proposed, we shall consider in connection with our consolidated investigation whether any cost differences found to exist are of such magnitude as to render unreasonable WU's practice of averaging these costs over its public and IRC customers. Although WU will not at the outset be required to provide disaggregated IRC cost data, the Judge may require WU to come forth with IRC data if it is needed to rebut a threshold showing by the IRCs of substantial cost differences between public and IRC Telex/TWX service.

Id. (footnotes omitted).

After the Commission set the matter for hearing, WU and the IRCs arrived at a settlement agreement which was submitted for Commission approval. The settlement agreement covered both inbound and outbound rates and provided an IRC discount. The Commission rejected the agreement because it questioned whether the agreement would settle the parties' longstanding conflict and whether the agreed-upon IRC discount was cost justified. In re The Western Union Telegraph Co., 71 F.C.C. 2d 621, 628-29, petition for review dismissed sub nom. Western Union International v. FCC, No. 79-1632 (D.C. Cir. Sept. 10, 1979). In ...


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