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18 F.C.C.2d 871 (1969)




August 13, 1969 Adopted









[*871]  1.  The Commission has before it petitions for reconsideration of its memorandum opinion and order herein adopted December 24, 1968 (15 F.C.C. 2d 605), filed by the U.S. Department of Justice (Justice), Bethlehem Steel Corp. et al.  n1 (Bethlehem), International Telephone & Telegraph Co. (ITT), Marcom, Inc., and National Committee for Utilities Radio (NCUR).  It also has before it the statements of the Central Committee on Communication Facilities of the American Petroleum Institute (API) and Computer Security System (CSS) supporting the petition for reconsideration filed by the Department of Justice; telegraphic comments filed by Robert C. Richards, Walter G. Haake Electronic Engineers; a response of Business Equipment Manufacturers Association (BEMA); and oppositions to the petitions for reconsideration filed by the United States Independent Telephone Association (USITA) and American Telephone & Telegraph Co. (A.T. & T.). 


n1 E. I. du Pont de Nemours & Co., Inc., Ford Motor Co., Monsanto Co., Northrop Corp., Olin Mathieson Chemical Corp., Republic Steel Corp., Union Carbide Corp., United States Steel Corp., and Westinghouse Electric Co.


2.  In its decision of December 24, 1968, the Commission permitted certain new and revised tariffs of A.T. & T. to go into effect on January 1, 1969, without formal investigation or hearing.  These tariffs purported to permit any kind of customer-provided terminal device or communications system to be attached to or connected to the telephone company's message toll and exchange network subject to certain specifications and conditions.  One of the conditions was that any "network control signaling" device (such as the ordinary dial telephone instrument) had to be furnished, maintained, and installed by the telephone company (except for certain military installations and remote or hazardous locations).


 [*872]  3.  Prior to its decision the Commission had received a number of formal and informal pleadings and comments addressed to the aforementioned revised tariff provisions which requested us to reject, suspend, or investigate the new tariffs in whole or in part.  The contention was made, among others, that the revised tariffs did not comply with our decision in the Carterfone case, In the Matter of the Use of the Carterfone Device in Message Toll Telephone Service, 13 F.C.C. 2d 420; 14 F.C.C. 2d 571, because the new filings prohibited the use of any customer-provided network control signaling unit irrespective of whether such use would be harmful to the telephone system.  It was argued that such a prohibition was an a priori assumption of harm that the Commission had found in Carterfone to be unreasonable.


4.  The Commission dismissed without prejudice the various pleadings to the extent that they requested suspension, rejection, or formal investigation of the January 1, 1969, tariffs.  The Commission held that the decision in Carterfone did not have the effect of permitting a customer to substitute his own network control equipment for that furnished by the telephone company in providing message toll telephone service.  Accordingly, the tariff bar against any customer providing his own network control signaling unit in connection with telephone company facilities was held not to be in conflict with our Carterfone ruling.  However, the Commission pointed out that the question remained as to whether the telephone companies should make provision in their tariffs by which subscribers might have access to the nationwide switched telephone network through the use of their own network control signaling equipment.  The Commission instructed the Chief of the Common Carrier Bureau to initiate a series of informal engineering and technical conferences which were to be broad in scope and which would provide the Commission with valuable technical and operational information needed by the Commission to evaluate the public interest factors involved in the new tariffs.  The Commission stated that these conferences would "provide a principal forum for the identification, examination, and, subject to Commission review, resolution of any questions presented by the tariff revisions," and would enable the Commission "to ascertain what further changes are necessary, desirable, and technically feasible in the various tariff offerings of the telephone companies." The Bureau was instructed to submit "periodic reports to the Commission with appropriate recommendations" and the Commission further stated that it would "be prepared to take such further action as it deems necessary or desirable to resolve outstanding issues."


5.  Justice, in its petition (supported by ITT, Marcom, NCUR, API, and CSS), contends that the Commission erred in not ordering a formal investigation into the lawfulness of paragraph 2.6.3 of A.T. & T.'s tariff 263, which prohibits customer-provided network control signaling devices.  n2 No claim is made by Justice that the Commission erred as a matter of law in its choice of procedures or that the informal  [*873]  procedures adopted by the Commission violate any provision of the Communications Act or any other statutory provision.  Indeed, Justice expressly recognizes that, under the law, the Commission has broad discretion in its choice of procedures.  The thrust of Justice's argument seems to be that, since our December 24, 1968, decision did not resolve the basic issues relating to the tariff prohibition on network control signaling, the only available procedure that can bring about a prompt resolution of those issues is for us to order a formal proceeding and relegate the aforementioned informal technical and engineering conferences to the minor role of prehearing conferences to frame the issues to be considered in such formal proceeding. 


n2 Par. 2.6.3 states that "satisfactory performance of the telecommunication network requires continuing functional compatibility of the Network control signals and the switching equipment involved.  To assure such continuing compatibility, network control signaling in the furnishing of long distance message telecommunications service shall be performed by equipment furnished, installed and maintained by the Telephone Company."


6.  We disagree with Justice's contentions.  In making our December 24, 1968, decision we gave careful consideration to the alternative procedures available to us.  We considered whether a formal investigation in lieu of informal technical and engineering conferences should be ordered on the "network control" question, among others, and we decided against the former in favor of the latter.  (See e.g., dissenting opinion of Commissioner Johnson, 15 F.C.C. 2d 614.) We said that, on the basis of the pleadings and comments before us, we were in no position to determine the extent to which any provision for customer-provided network control devices would be consistent with efficient and economic telephone service or otherwise in the public interest.  We further stated that we would be in a better position to determine whether and what further action if any (including formal proceedings), may be required by the Commission after it had had a reasonable opportunity to observe the effects of changes in the interconnection tariffs as they relate particularly to the needs of customers for flexible access to the telephone system and after the Commission had obtained the benefits of the aforementioned informal technical and engineering conferences.  Justice points to no changes in circumstances that would warrant any change in these views.  No persuasive showing has been made that we should be deprived of the benefits of the informal procedures before we take further action nor has Justice adequately supported its contention that the institution of a formal hearing proceeding now prior to the conclusion of the informal technical and engineering conferences would bring about a more expeditious resolution of the issues before us.  The converse might be a more reasonable conclusion.


7.  Four reasons are advanced by Justice to support its position and these may be summarized as follows: (1) Since the burden is on the carriers under the Communications Act to establish the need for a general tariff prohibition of the type involved, a public investigation offers the most appropriate immediate vehicle by which carriers can offer evidence meeting this burden; (2) the Commission must act on the record in a formal proceeding to determine the legality of a tariff; (3) the relevant questions are already presented by the record of filings in this proceeding and "the Commission takes no steps which would enable it to resolve promptly" those questions; and (4) any significant delay in resolving these questions will have an adverse effect on the public interest in securing the advantages of efficient and flexible communications.


 [*874]  8.  It seems to us that the aforementioned reasons are subject to the defect of either begging the question of what is the most expeditious procedure or of being non sequiturs, or both.  Thus, as to the first reason, even assuming arguendo that the burden of justifying the network control provision is on the carriers, that same burden would exist irrespective of whether we utilize formal or informal procedures and it does not necessarily follow from that that a formal hearing in lieu of informal procedures is the most appropriate procedure.  Also assuming arguendo that Justice is correct in its second reason in stating that the Commission must act on a record in a formal proceeding to determine the legality of tariff, it does not necessarily follow that we should abandon informal procedures that could serve the salutary function of either resolving such questions without the necessity of formal hearing or of making it possible for the Commission to conduct any necessary formal proceedings on a more informed, efficient, and expeditious basis than would otherwise obtain without such informal procedures.  As to Justice's third reason, it assumes that, since the earlier pleadings and counter pleadings discuss the network control issue, the only procedure that can resolve this issue promptly is a formal proceeding.  We do not agree that this follows for the reasons heretofore stated.  In its fourth reason Justice emphasizes the need for avoiding any significant delay in resolving the questions before us.  We agree that this is desirable.  However, Justice does not make any showing that its proposed procedure would result in less of a significant delay than will ours.


9.  Bethlehem requests the Commission to amend paragraph 28 of its December 24, 1968, memorandum opinion and order to state specifically that there will be a further order of the Commission acting on the recommendations of the Chief of the Common Carrier Bureau after completion of the informal engineering and technical conferences and to revise the memorandum opinion and order to eliminate any inference of final conclusions, in advance of the Commission's further action, as to what portions of an interconnected communications system may be provided by customers.  We do not believe that any such amendments or revisions to the memorandum opinion and order are necessary.  We have clearly indicated that we will take such further action as may be necessary or desirable to resolve any outstanding issues.  Paragraph 27 of our decision is clear in its statement that "our action is not to be construed as approval thereof and these tariffs are subject to such further action as the Commission may wish to take with respect thereto." We find nothing in the memorandum opinion and order from which it can reasonably be inferred that a final conclusion has been reached with respect to what portions of an interconnected communications system may be provided by customers.


10.  BEMA suggests that the Chief of the Common Carrier Bureau be directed to submit a written report in 90 days to the Commission containing full information with respect to the progress of the conferences and that action on the petitions for reconsideration be held in abeyance.  This suggested report would contain the conclusion of the Bureau Chief as to whether the conferences hold sufficient promise to warrant continuation thereof or whether they should be discontinued.   [*875]  Also this suggested recommendation would be subject to written comments by the other parties after which the Commission could either grant or deny the petitions for reconsideration on the evaluation before it.  We do not believe that there is a need for such a procedure.  The Chief of the Bureau has already been instructed to submit periodic reports to the Commission.  He is free, at any time, as is any other interested person, to recommend to the Commission that the informal conferences are not being productive.  Similarly, the Commission is free to take further action on its own motion if deemed necessary in this regard.  Any formal hearings that may be required are not affected by a denial of the petitions for reconsiderations herein.


11.  We wish to emphasize that it is the hope and expectation of the Commission that all interested parties will cooperate fully in the forthcoming technical and engineering conferences and join us in our effort to make them as helpful and productive as possible.  We have obtained the assistance of the National Academy of Science in the conduct of these conferences.  The Academy has agreed to render this assistance in large part because it recognizes that the procedures we have adopted are an innovative effort to utilize new and different procedural techniques for identifying, evaluating, and resolving complex scientific and technical issues that are involved in the rendition of common carrier communications service to the public.


12.  In view of the foregoing we believe that the procedure adopted in our memorandum opinion and order of December 24, 1968, is within proper Commission discretion and that the allegations made in the several petitions for reconsideration do not warrant a contrary conclusion.


13.  Accordingly, It is ordered, That the petitions for reconsideration Are denied.







In view of Commissioner Johnson's dissent and to keep matters in proper perspective, I believe the following observations should be made with respect to the procedures the Commission is following in this matter.


By its decision of December 24, 1968, the Commission determined that informal conferences, rather than formal evidentiary hearings, would provide a more effective procedure for identifying, crystallizing, and resolving most of the questions presented by A.T. & T.'s revised interconnection and foreign attachment tariff regulations.  This decision was premised, essentially, on the highly technical nature of the matters involved which we concluded could be more effectively treated in a conference of technically qualified experts than in the rigidly formalized environment of an adversary-type proceeding.  The Commission's views in this respect remain unchanged.


The fact that the conferences have not yet commenced is no reason to discredit the procedure or to embark at this time upon formalized hearings which undoubtedly would be protracted and costly to all concerned.   [*876]  Convening of the conferences has been postponed to enable the Chief of our Common Carrier Bureau, with the full knowledge, approval, and encouragement of the Commission, to engage the aid and support of a technically qualified group of experts who could bring their expertise to bear on the questions involved.  Such a measure would be no less necessary and desirable even if we were to proceed by formal hearings in view of the limited in-house capabilities of the Commission to deal, with full effectiveness, with technical matters of this importance and complexity.  Our efforts to augment our in-house capability have resulted in an arrangement under which the National Academy of Sciences is constituting a panel of experts who will provide the kind of expert and objective evaluation and advice required to deal with the matters involved in the conferences.


I am satisfied that the conferences, which are now expected to convene in the latter part of September, with the valuable assistance that the NAS will render, hold real promise for the resolution of many of the issues.  I should stress again, however, that further action, including formal proceedings, might well be required in light of the results produced by the conferences and any substantial questions that remain unresolved.  In that event, the conferences will have served the important purpose of refining with specificity the questions that remain to be resolved, thus facilitating the efficient and expeditious conduct of any formal proceedings that may become necessary.





I concur.  However, I am concerned that more than 7 months have elapsed since our last action in this matter.  I think it is imperative that our staff and the parties make every effort, including continuous sessions, to resolve the questions involved in these informal proceedings.





The U.S. Department of Justice here seeks reconsideration of a Commission decision not to hold formal hearings on the lawfulness of the telephone carriers' interconnection and foreign attachment tariff policies.  In December 1968, I favored the institution of formal proceedings to consider complaints about the new changes in the Bell tariffs regarding interconnection and foreign attachment.  A.T. & T., 15 F.C.C. 2d 605, 614 (1968). At that time the majority decided not to begin such proceedings and said:


We are also instructing the Chief of the Common Carrier Bureau to initiate promptly a series of informal engineering and technical conferences with the telephone industry and interested manufacturers, user groups, and Government agencies to ascertain what further changes are necessary, desirable and technically feasible in the various tariff offerings of the telephone companies.  * * * The staff will submit periodic reports to the Commission, with appropriate recommendations, and the Commission will be prepared to take such further action as it deems necessary or desirable to resolve outstanding issues.  Id., at 610-11 (emphasis supplied).


 [*877]  Since December 1968 little has happened.  The Commission had received a series of comments from interested parties directed not only to the "network control signaling device" question, but also to the language of other parts of the tariff and to the reasonableness of the charges Bell makes for the interface arrangements.  The Commission has also received complaints that interface arrangements are difficult to obtain, that tariffs for other carrier services do not comply with the Carterfone decision, and that State tariff requirements are in many cases inconsistent with interstate provisions.  None of the conferences contemplated in the December order have been held and none are now scheduled.  No periodic reports have been made on the progress of resolving the tariff issues.  The only real action has been the negotiation of an arrangement with the National Academy of Sciences to provide consultation on the tariff issues, especially the question of the telephone company's continued monopoly of the "network control signaling device" function.  This may prove to be a very useful development with real promise, but one must await developments before assessing its full worth.  In no event, however, can it take the place of the unfulfilled representations in the Commission's December 1969 opinion.


I would grant the Department of Justice petition.


My position in December was that formal proceedings were then warranted.  Circumstances have changed since then in ways that now make formal proceedings even more attractive.  We have tried expedition through informal means for 8 months.  It has not worked.  Formal proceedings now, combined with the solicitation of advice from the National Academy of Sciences, would seem to offer the best alternative for speedy resolution of the questions only partly decided by the Carterfone decision.  Carterfone, 13 F.C.C. 2d 420 (1968); 14 F.C.C. 2d 571 (1968).


It is axiomatic that an initial reform which goes against what are thought to be the vested economic interests of strong advocates will require continuing vigilance if its effect is not to be dissipated by backsliding.  The Commission has not maintained that vigilance on the Carterfone questions.


There is also a second problem.  The process of competition is a dynamic one.  An innovator is rewarded because he can take advantage of his innovation while his competitors hurry to adopt their offerings to the new market situation.  If a regulatory agency lags in authorizing competitive innovation it is not mrerly "doing nothing." It is allowing itself to be used by its regulated companies to hold off competition until they have had sufficient opportunity to adapt.


This is inequitable.  The innovator is denied the fruits of his enterprise.  It is bad public policy.  It discourages potential innovators whose opportunity for advantage is much less certain, even if the innovation is successful.  Finally, since actual and potential innovations are frustrated, the consumer has less choice, and often must pay higher prices for the choices he does have.

A formal proceeding would at least serve to move us off dead center.  Participation as advocates by the Department of Justice, the Commission's  [*878]  staff, and user parties would improve the potentialities for successful negotiation and resolution.  Nothing in a formal proceeding would bar the possibility that negotiations and conferences would take place.  But all parties would be on notice that the Commission expected to achieve a timely resolution of the issues.  If the parties were unable to resolve differences, the Commission then would be prepared to act.


I dissent.


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