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Docket No. 18920




24 F.C.C.2d 318




July 17, 1970 Released


Adopted July 15, 1970








 [*318]  1.  Notice is hereby given of this inquiry looking towards the formulation of appropriate policies in the above entitled matter and of proposed rule making designed to implement such policies.

2.  The Commission has pending before it a large number of applications, including those from companies associated with Microwave Communications of America, Inc. (MCI Associated Companies), and Data Transmission Corporation (Datran), for authorization to construct and operate microwave and other facilities to provide specialized common carrier services, particularly for the transmission of data, in various parts of the country.  The applications pending as of June 25, 1970, are listed in the Appendix hereto.  These applications have already occasioned, or are expected to give rise to, petitions to deny and/or requests for comparative hearings.  It is also anticipated that numerous additional applications for facilities of a similar nature will be forthcoming,  [**2]  and that these will likewise be subject to petitions to deny and/or requests for comparative hearings.

3.  A review of the pending applications and the pleadings filed in response to them indicates that the Commission is confronted with a series of broad policy issues which are common to all of them, as well as specific issues which may be pertinent to particular applications or groups of applications.  For the reasons set forth below the Commission is of the view that the basic policy issues should be resolved in an overall proceeding directed toward these policies, appropriate procedures and necessary modifications in existing rules.  Such action would be conducive to prompt, orderly and efficient disposition of these matters and, in the opinion of the Commission, is by far preferable to  [*319]  decisions on them arrived at in the context of individual proceedings, and/or evidentiary hearings on each set of applications, or even a single consolidated hearing.  As noted above, even after the adoption of appropriate procedures, general policies and/or additional rules, there may remain specific, factual questions to be resolved.  Once the procedures, basic policies and/or rule changes have [**3]  been adopted, the Commission will further review this matter and determine both the nature and extent of these remaining questions, as well as the appropriate proceedings necessary and proper to resolve them.

4.  The Commission has also, on the basis of the applications pending before it, the pleadings filed with respect to them, and our staff's analyses of certain of the basic legal and economic considerations involved, reached certain tentative conclusions which are set forth below with respect to the appropriate procedures which we should follow -- assuming that we adopt the analyses and recommendation of our staff (see para. 22).  Respondents herein should address themselves to each of these tentative conclusions and staff analyses on their respective merits and should give in detail and with specificity the reasons, supported where appropriate by factual data, why in their opinion such tentative conclusions and analyses should be adopted, modified or reversed.  In each case the procedure and policy advocated by the Respondent should be clearly identified and properly supported.  Finally, there are set forth herein below specific proposals for amendments to Parts 21, 43 and 61 [**4]  of the Commission's Rules, all designed to facilitate the processing and disposition of the applications before us, as well as applications of a similar type, and to minimize the need for time consuming evidentiary hearings.  Respondents should address themselves to each of the proposed amendments and set forth in detail and with specificity the reasons, supported where applicable by factual data, why the proposed amendment should be adopted, modified or rejected, as well as the exact text of any proposed modifications, additions or substitutions.


5.  Before discussing our proposed procedure and rules, we will indicate the nature of a few representative applications and opposition pleadings.  We do not undertake to describe each of the many systems that have been proposed, or to summarize in detail each of the opposing arguments and counterarguments.  The following major or typical proposals and arguments will sufficiently exemplify the kinds of applications and oppositions to serve as a basis for discussion.

A.  Datran

6.  Datran has proposed a switched, all digital, nationwide communications network specifically designed and engineered [**5]  for data transmission.  The initial system would have 244 microwave stations in a high channel density microwave backbone trunk which would follow a route between San Francisco, Los Angeles, Dallas, Minneapolis-St. Paul, Atlanta and Boston.  Spur routes from the backbone trunk would provide service to additional cities to accommodate growth in demand  [*320]  for service.  The system would utilize time division multiplexing (TDM), and be modular in design to facilitate easy and economical extension of terminal capacity.  Datran intends to file applications to construct the necessary local distribution facilities, which it regards as essential to its concept of end-to-end service, in time for completion with construction of the trunking and switching elements of the system.  It is proposing to use a combination of 11 GHz frequencies and multipair cable for local loop service.  Datran also stands ready at all stages of system development to "interconnect with other carriers or authorized communications entities on a realistic basis in order to provide service to all locations, as well as to offer flexibility to meet individual customer requirements," and is pursuing possibilities for interconnection [**6]  arrangements.  The system is designed to provide inter-connection capability with either TDM or analog modes of transmission.  Space diversity and hot standby transmitters are proposed for increased system reliability.

7.  According to Datran, major economic sectors, individual consumers, and providers of information systems and services in the aggregate have a rapidly expanding need for rapid, accurate, low-cost data transmission services which is largely unmet by present common carrier offerings.  Specifically, Datran claims that the costs of existing communications services have not declined in proportion to data processing costs; that existing analog transmission systems require costly modulator-demodulator equipment to convert digital signals to analog and back again; that current switched services often take significant time to establish connections, which detracts from the productivity of the data terminal and operator; that transmission systems originally engineered for voice and record transmission do not meet the more demanding reliability standards of digital data transmission; that existing switched services generally cannot handle full-duplex transmission, which leads [**7]  to reduced throughput and wasteful line reversal time; that the basic switched services, originally intended only for voice and record, provide only two major speed selections whereas many new data applications require faster and more varied choices; that attempts to establish a switched connection for data transmission can be impeded by the high incidence of busy signals currently being experienced in points and times of heavy user concentration; that communication between terminal devices utilizing different line speeds is not possible in most existing major networks; that many data transmissions can be completed in far less than the minimum charge periods now in force; and that while common carriers have recently begun to drop barriers against sharing and interconnection, much confusion and difficulty continues to exist in user attempts to apply this flexibility.

8.  Datran attributes many of the asserted unmet needs of data transmission users to the circumstance that the existing switched facilities of common carriers were originally engineered only for voice and record analog transmission services, a constraint which does not exist in its proposed digital system.  The three [**8]  basic integrated components of Datran's proposed end-to-end system (trunking system,  [*321]  switching system, and local distribution system) are engineered specifically for, and dedicated to, digital data transmission.  Thus, a subscriber need not convert his digital signals to a different (analog) transmission mode, since the system transmits the subscriber's signal in its original form.  Moreover, as the signal is transmitted through the system, it is continuously regenerated into a new, clean and conditioned signal without the amplified system noise present in analog systems.  Datran states that the following features of its proposed systems will meet current and projected data transmission needs which are largely unmet by the existing carrier offerings (see paragraph 7 above):


Low cost -- as indicated by samples of proposed charges in Exhibit No. 8 to Datran's application.

End-to-end compatibility -- no analog/digital conversion required.


Rapid connection -- connection to be made within 30 seconds after receipt of last destination address indicator.


High reliability -- no more than one bit error in 10 million transmitted bits


Simultaneous two-way transmission (full duplex) --  [**9]  the proposed system would operate entirely in full duplex mode.


Wide selection of switched speed offerings -- the initial system would provide 150, 4800, 9600 and 14,400 bits per second switched service.


Low incidence of network busy conditions -- a service goal of P.01 providing on an average no more than one busy signal in one hundred attempts


Flexibility to interconnect with and share facilities -- Datran proposes to permit ample flexibility for potential users to interconnect user-provided facilities and to share the proposed system among more than one user


Asymmetry -- the system will provide capability for communication between all terminals on the network, regardless of their varying transmission needs.

9.  Datran further asserts that there is "a need for competition in communications to motivate technological innovations, cost reductions, and efficient allocation of facilities as well as to encourage efforts by common carriers beyond the simple expansion of current networks to meet growing demand." It supports its position with the following contentions: Full realization of the public interest in computer technology requires achievement of appropriate specialized communications [**10]  services.  The users of computer technology are not obtaining adequate service from communications facilities constructed for, and dedicated to, meeting voice and record transmission needs.  Effective utilization of existing data processing technology is constrained by present common carrier communications services and facilities, and the design and development of new computer applications requiring data transmission is constrained by high cost as well as unreliable and inflexible service.  The public will not realize the full benefits of existing and potential data processing technology until this situation is remedied.  The best remedy would be to authorize a versatile, low-cost communications network uniquely structured for digital data communications.  Moreover, authorization of its proposed system is likely to stimulate innovations and to encourage economies by all carriers.  A major price paid for monopoly is reduced incentive for innovation.  The introduction of competition into the provision of data transmission services to all users will spark further technical developments and spur all common carriers to measure and control costs more effectively in the public interest.  [**11]  If innovation can lower the cost of a service, or provide a better service at the same cost, that service will attract a larger market or create new  [*322]  markets.  In addition, the benefits of the regulatory process are most readily obtained when the regulated system's structure, customers, services and costs are easily identified and quantified.  Authorization of its proposed system would allegedly encourage economies by all carriers through simplified application of new standards and measures for costs of services.

B.  MCI Associated Companies

10.  There are also pending a number of applications by MCI associated companies for portions of a proposed nationwide network to provide specialized private line communications services, e.g. the following:

MCI-New York West, Inc.

Chicago and New York City and intermediate points (65 microwave stations)

MCI Pacific Coast, Inc

San Diego, California and Everett, Washington and intermediate points (56 microwave stations)

MCI North Central States, Inc

Minneapolis and Chicago and intermediate points (16 microwave stations)

MCI New England, Inc

Boston to New York City and Boston to New Bedford, Mass. (17 microwave stations)

MCI Michigan, Inc

Grand Rapids, Pontiac, Saginaw, and Detroit, Michigan; South Bend, Indiana; Toledo, Ohio; and intermediate points (26 microwave stations)

MCI St. Louis-Texas, Inc

St. Louis-Dallas and intermediate points (42 microwave stations)

MCI Texas East Microwave, Inc

Texas-Louisiana (34 stations)

MCI Mid-Atlantic Communications, Inc

Washington, D.C.-Atlanta, Georgia (37 stations)

MCI Kentucky Central, Inc

Kentucky, Ohio, Indiana, Illinois, Tennessee, Georgia and Alabama (34 stations)

MCI Texas-Pacific, Inc

Dallas-Los Angeles (64 stations)


The various MCI applications propose to provide "customized" communications channels, tailored to the exact requirements of subscribers needing interoffice and intracompany communications, to meet newly developing data and specialized communications needs of the public at significantly low cost.  The channels would accommodate transmission of data, facsimile, control, remote metering, voice and other forms of communication.  MCI does not now propose to provide end-to-end service.  Local loop interconnection may be accomplished by the subscriber's private facilities or, for subscribers requiring only voice grade channels, by use of local land-lines of existing telephone companies.  n1

n1 MCI states that it is working with manufacturers to develop new low-cost short haul microwave systems in the 50 GHz band, and infrared transmission not requiring radio frequencies.  When such equipment becomes available and is operational, MCI proposes to offer this type of interconnection under tariff filings with the FCC.

11.  MCI-New York West's applications will serve as a typical example, since it is stated that this "is one of a series of independent MCI-type carriers made up of local  [**13]  ownership interests which will  [*323]  interconnect and cooperate with one another in order to provide a unified, nationwide, customized communications network through arrangements with Microwave Communications of America, Inc." MCI- New York West claims that its proposal offers the following features which are not now available to communications users on existing common carrier facilities:


Communications channels designed especially for data transmission;

Specified data error rate (1 error in 10 7);

Analog or digital input;

Data channels starting as low as.05 cents per mile per month;

Data channels priced on data speed rather than bandwidth;

One way transmission;

Two-way transmission of different bandwidths;

138 communications channels ranging in bandwidth from 200 hertz to 960,000 hertz;

Termination of channels in 93 different types, with bandwidth ranging from 200 hertz to 960,000 hertz;

Channels can be terminated into the full single bandwidth of the channel or into a number of subchannels;

Thousands of channel and termination combinations are possible and feasible;

Communication channels start as low as.05 cents per mile per month;

Half-time use;

Sharing of channels;

Use [**14]  of carrier's facilities for installation of subscriber's private equipment.

12.  According to MCI, the "real distinction which delineates MCI service from anything provided today by existing common carriers is not the facility itself but the manner in which a customer may utilize it in order to provide a customized intra-company point-to-point communications system of his own design and capability." For example, the customer may purchase the exact bandwidth required on a point- to-point basis (including one-way channels), utilize it in whatever transmission mode he chooses (voice or data, alternately or singly), mix different bandwidths on the same channel, use his own terminal equipment and install his own equipment on MCI to wers and shelters, provide either analog or digital input signals, and avail himself of MCI's offering of channels designed especially for data use with rates based on transmission speed rather than bandwidth.

13.  MCI asserts that a grant of its applications would serve the public interest primarily by affording a flexibility in service needed by, but not now available to, an important communications submarket, and also by causing existing carriers to revise [**15]  their service offerings and tariff provisions to the benefit of other communications users.  Specifically, it claims that a strong need exists now for the type of services proposed by MCI-New York West.  It reasons along the following lines: The computer industry "desperately" needs a communications network designed especially for data transmission.  MCI would provide this network (accepting both analog and digital data signals) and meet many of the communications needs of the computer industry forecast over the next five years in a study by Arthur D. Little, Inc. Moreover, the economic feasibility of, and market for, the proposed operation are demonstrated in a study conducted by Spindletop Research.  Industry, business, government and educational entities also require additional communications channels other than those adapted  [*324]  to a communication network designed primarily for voice telephone service.  It is essential that these entities have available flexible, low cost communications channels which they can customize to their own particular needs and requirements.  The existing carriers serving the proposed routes allegedly do not and cannot readily provide the same type of offering.  [**16]  MCI claims its proposal would provide the benefits of competition in the specialized communications field, stimulate the development of new lines of equipment, introduce new ownership interests in the communications industry, and pioneer new types of communications.  It would do so without having an adverse economic impact on the existing carriers or affecting their telephone or private line rate-making principles.  There is, MCI says, "a distinct difference between a public telephone service which is a natural monopoly and a customized communications service offered on a private point-to- point basis."

C. Other Applications

14.  There are also a number of applicants proposing to provide specialized common carrier services along or near some of the same routes proposed by Datran and/or MCI associated companies, and other routes.  For example, New York-Penn Microwave Corporation proposes a 67 station system between Chicago, New York City and intermediate points, to interconnect with its proposed 22 station system between Washington, D.C. and Boston, Massachusetts.  In its New York-Chicago applications, New York-Penn Microwave states that it "proposes to provide similar service to [**17]  that specified by MCI-New York West, and in large part along the same paths." Asserting that the two sets of applications are mutually exclusive, New York-Penn Microwave plans to use sites for which MCI-New York West now holds or is negotiating options.  Interdata Communications Inc. has applied for 11 microwave stations to provide specialized, private line services between New York City and Washington, D.C.  n2 Five applicants have applied for Pacific Coast systems, generally between San Diego, California and the Seattle-Everett, Washington, and intermediate points.  Applications have been filed for such routes as: Dallas- Houston-Los Angeles; Minneapolis-St.  Paul-Omaha-Oklahoma City-Dallas; Atlanta-Washington, D.C.; Atlanta-New Orleans; and Minneapolis-Chicago-Dallas.  Three applicants have applied for systems serving cities solely within the State of Texas.  Other applications are pending and more are anticipated. 

n2 By letter dated April 8, 1970, the Chief of the Common Carrier Bureau ruled that the New York-Penn Microwave applications for the Washington-Boston route, filed on February 13, 1970, were not entitled to comparative consideration with Interdata's applications filed on December 4, 1968, since they were filed after the cut-off date.  An application for review of that action has been filed by New York-Penn Microwave. [**18]

15.  While varying in detail, in general these applicants all propose to provide specialized private line services tailored to the requirements of the subscriber.  Some are already engaged in common carrier or private microwave operations, and propose to make use of such facilities, personnel and experience to the extent practicable.  Some propose to provide "end-to-end" service, either by constructing their own loop  [*325]  facilities or by negotiating on behalf of subscribers for interconnection with existing local carriers or by some combination of both.  n3 Interconnection with facilities of the subscribers and other microwave systems would be permitted.  All claim that they will provide low-cost, flexible services which are needed and not now provided in the same manner by existing carriers. 

n3 For example, New York-Penn Microwave proposes to install an entrance link (using frequencies at 18 GHz) from the terminating microwave relay point near Chicago to a general distribution center immediately adjacent to the premises of a number of customers in Chicago.  Local loops would then be negotiated by the applicant on behalf of the customer with local carriers.  At intermediate relay points the 18 GHz entrance link would be omitted, and the applicant would arrange with local carriers for interconnection between the microwave relay station and the customer's premises. [**19]

D. Opposition Pleadings

16.  While the time for filing pleadings with respect to these applications has not yet expired in some instances, oppositions have been filed against the earlier applications and it appears likely that all of the applications will be opposed on similar grounds.

17.  AT&T states that applications of the type filed by MCI associated companies and others cannot be regarded as an isolated experiment, but rather necessitate a Commission determination of "basic and important policy questions regarding future development of common carrier communications services throughout the United States." In connection with MCI-New York West's applications, AT&T summarizes its position as follows:

MCI-NY West's proposal and others like it confront the Commission with basic policy questions regarding the future development of common carrier communications services.  They would offer to serve only limited segments of business users in certain selected cities, without concern for the deleterious impact this might have on the other business and residential users who are subscribers of the existing common carriers.  Such proposals, if granted, would seriously undermine the policy [**20]  of uniform interstate rates and dilute or delay the benefits that economies of scale would otherwise make available to the general telephone using public.  Moreover, the authorization of such proposals would result in harmful electrical interference to existing common carrier routes, inefficient and under-utilization of scarce common carrier facilities, to the detriment of the general public.  As shown above, there is no demonstrated unfilled public need for MCI-NY West's incomplete and inadequate proposal or for the network of which it would be a part.  Existing common carrier facilities are more than adequate to meet the public need and the existing carriers stand ready to serve any additional need which may be found to exist in the future.

18.  With respect to Datran's proposed nationwide switched digital network for data transmission, AT&T raises a number of questions which it asserts require hearing.  These concern alleged uneconomic duplication of common carrier facilities, impact on nationwide uniform rates, social costs (such as a less efficient total communications network, a requirement for additional Bell System stand by capacity, intensified congestion of the radio spectrum),  [**21]  the basis for regulating or controlling competition between Datran and established carriers, the extent of public demand for services which is not, or will not be, met by existing carriers, comparative costs and frequency usages, and the technical and economic feasibility of Datran's proposal.  AT&T also asserts that Datran's proposal would cause harmful interference  [*326]  to some stations of the Bell System companies, as well as additional cases of potential interference to full development of already established Bell System routes.  AT&T takes the position that construction of Datran's proposed system would be more costly than expansion of existing Bell System routes by an equivalent number of circuits, that a grant might lead to the adoption of route pricing by the established carriers and cause an increase in rates to the general public, and that the need alleged by Datran would be better met within its time frame by the Bell System's "evolutionary approach." It is further asserted that Datran's proposal will depend on intrastate, as well as interstate, service and require appropriate local or state authorization.  In addition, AT&T claims that a proliferation of 11 GHz local distribution [**22]  systems in and around major cities would cause serious frequency congestion problems.  Finally, it states that Datran's applications appear to be mutually exclusive with those filed by other specialized common carriers for technical or economic reasons, or both.

19.  Western Union urges that consideration of MCI's new applications is premature before its Chicago-St.  Louis system has been demonstrated.  n4 It requests the Commission to postpone any kind of action of the applications of Datran and other applicants pending a determination of the underlying policy questions, since the proposals "threaten the common carrier communications industry with significant change, if not upheaval." Western Union claims that a grant of these proposals will divert revenues from its prime industrial areas, jeopardize the cost averaging approach, and threaten its efforts to gain a broader economic base and more financial stability.  It also claims that the applicants have failed to demonstrate a public need for their proposed services, or to establish their technical and financial qualifications, and that their proposed systems will cause harmful interference to some of its existing stations and [**23]  prejudice its ability to expand to full band usage on present routes. 

n4 See Microwave Communications, Inc., 18 FCC 2d 953 (1969); reconsideration denied, 21 FCC 2d 190; pending on review in the United States Court of Appeals for the District of Columbia Circuit in American Telephone & Telegraph Co. et al. v. Federal Communications Commission (Case Nos. 23959 and 23962).

20.  The applications are also opposed by the General System Telephone companies (General), other independent telephone companies, and various existing miscellaneous common carriers.  In general, they claim that grants would result in wasteful duplication of facilities within their operating territories and/or electrical interference to existing systems.  In addition, some of the applicants have filed petitions to deny the applications of others on grounds of mutual exclusivity.  The National Association of Regulatory Utility Commissioners (NARUC) has petitioned for a public hearing on the Datran applications.  Moreover, the Washington Utilities and Transportation Commission opposes the MCI Pacific Coast applications on the ground that any diversion of interstate usage from established carriers to other communications [**24]  media would have the effect of placing a heavier relative burden on intrastate users of jointly provided facilities.

21.  As indicated, the foregoing is not a complete listing of the applications and opposition pleadings on file, or a comprehensive summary  [*327]  of the individual contentions.  However, it sufficiently indicates the kind of proposals and objections that have been made to serve as a basis for discussion.


22.  Based upon the applications and related leadings before us, it appears that the questions requiring resolution in this proceeding may be stated as follows:

A.  Whether as a general policy the public interest would be served by permitting the entry of new carriers in the specialized communications field; and, if so,

B.  Whether comparative hearings on the various claims of economic mutual exclusivity among the applicants are necessary or desirable in the circumstances;

C.  What standards, procedures and/or rules should be adopted with respect to such technical matters as the avoidance of interference to domestic communications satellites in the 6 GHz band, the avoidance or resolution of terrestrial frequency conflicts and route blockages both vis-a-vis [**25]  the facilities of established carriers and among the applicants, and the use of frequency diversity;

D.  Whether some measure of protection to the applicants' subscribers is called for in the area of quality and reliability of service; and

E.  What is the appropriate means for local distribution of the proposed services?

The resolution of Question A is obviously of threshold policy significance and, in large measure, will constitute the predicate for decisional treatment of the remaining questions.  Hence, we are of the view that effective and informed participation by the public in this proceeding will be facilitated by a presentation herein of our staff's analysis and recommended disposition of Question A.  A/t the same time, the Commission is deferring any determination of its own on Question A until we have the benefit of the comments by interested parties on the staff's position.  In this context, our indicated resolutions herein of Questions B-E are to be regarded as tentative and subject to appropriate modification as may be required by our ultimate determination of Question A.

23.  We are hopeful that this proceeding will facilitate resolution of the difficult policy [**26]  and procedural questions presented by this multiplicity of applications and oppositions in the shortest possible time.  The situation calls for expedition in the public interest, since it is claimed that the proposed services are needed by the public now.  In addition, the applications are tying up frequencies which may in some instances block action on applications by established carriers for expansion on existing microwave routes and affect the location of earth station sites for domestic communications satellite systems.

24.  Accordingly, we propose to use this proceeding as a vehicle for the prompt resolution of the broad policy questions listed above and amplified below.  Once these issues have been determined, we will consider each proposal on its individual merits and follow such procedures as may be necessary to resolve any remaining questions pertinent to the particular set of applications.  Each applicant will, of  [*328]  course, be required to make a satisfactory showing that it is qualified and that the service it seeks to offer is technically and economically sound and would otherwise serve the public interest.  We have reached no final conclusions on any of the matters discussed [**27]  below.  However, we will set forth tentative proposals and the position of the staff to stimulate comments, counterproposals and suggestions as to what course would best serve the public interest.  Material already submitted in the applications and pleadings on file may be incorporated by reference and should not be resubmitted.


A.  Whether As a General Policy the Public Interest Would be Served by the Entry of New Carriers in the Specialized Communications Field Staff analysis

25.  In considering whether the public interest would be served by permitting new carriers to provide specialized communications services, the basic touchstone for decision is, of course, the Commission's mandate to regulate "interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all people of the United States a rapid, efficient, Nation-wide, and world-wide wire and radio communications service with adequate facilities at reasonable charges * * *" (Section 1 of the Communications Act).  Although this is the first time that the Commission has been presented with a large number of applications for authority to provide competitive common carrier  [**28]  services via microwave in the field of domestic communications, the issue of competition is not new.  The Commission has had numerous occasions to consider and establish policy with respect to the provision of communications services in the common carrier field on a competitive basis.

26.  As long ago as 1948 applications were filed in Docket No. 8777 by Mackay Radio and Telegraph Company, a predecessor company to ITT World Communications, Inc. (ITT) for authority to operate circuits to Finland, the Netherlands, Portugal and Surinam in competition with pre-existing circuits to those points operated by RCA Communications, the predecessor to RCA Global Communications, Inc. (RCAC).  Upon review of the Commission's decision n5 to grant the applications for Portugal and the Netherlands and deny the Surinam application (Finland was withdrawn), the Supreme Court held: n6

n5 FCC 51-197; see also FCC 55-698.

n6 FCC v. RCA Communications, Inc., 346 U.S. 86 (1953).

(a) The Commission may not grant applications to provide a competitive service merely because it assumes "that competition is bound to be of advantage in an industry so regulated and so largely closed as this one * * *"

(b)  [**29]  The Commission may grant applications for competitive circuits after an analysis of the trends and needs of the industry n7 and in the exercise of "the discretion given it by the Congress." n8

n7 Id. page 97.

n8 Id. page 95.

 [*329]  (c) "In reaching a conclusion that duplicating authorizations are in the public interest wherever competition is reasonably feasible the Commission is not required to make specific findings of tangible benefit."n9

n9 Id. page 96.

(d) In order to grant a competing application, "the Commission must at least warrant, as it were, that competition will serve some beneficial purpose such as maintaining good service or improving it." An applicant is not required to demonstrate tangible benefits.  There must, however, "be grounds or reasonable expectations that competition may have some beneficial effect." n10

n10 Id. page 97.

26a.  Since the Supreme Court's decision in the RCA case, the Commission has granted authority for numerous competing direct radio telegraph circuits, n11 in certain instances without holding hearings.  The Commission has also followed a similar policy with respect to the grant of competing applications to miscellaneous common [**30]  carriers in the domestic communications field.  In each instance the test was whether the competition was reasonably feasible and could be expected to have some beneficial effect.  n12 In addition, the Commission has authorized the use of private microwave systems, n13 by entities to satisfy their own needs.  This also introduces an element of competition in the sense that a potential user now has the alternative of leasing facilities from a common carrier or providing his own facilities. 

n11 See, e.g., 26th Annual Report of the FCC, page 107.  The Commission has also authorized competing international carriers to lease, or obtain indefeasible rights of use of, channels in international cables of AT&T.  See, e.g., 28th Annual Report of the FCC, pages 124-125.

n12 The Commission in Mackay Radio and Telegraph, Inc., 15 FCC 690, at page 737, defined "reasonably feasible" as encompassing the concept that the applicant seeking to compete must demonstrate: that a grant of its application would enhance or induce competition; and that a grant of its application would not endanger the ability of the existing carrier to continue to provide competitive service to the points at issue or to other points of its services.  Specifically, the Commission was concerned as to whether there was a sufficient volume of traffic available to support both services.  The presence of such a volume of traffic was taken as an indication that competition was reasonably feasible.

n13 In the Matter of Allocation of Frequencies in the Bands Above 890 Mc., 27 FCC 359 (1959), 29 FCC 825 (1960). [**31]

27.  We note that there are not numerous precedents in the general domestic common carrier service field for the authorization of competing circuits.  This is due primarily to the fact that until the filing of the applications considered in Microwave Communications, Inc., 18 FCC 2d 953 (1969), n14 reconsideration denied 21 FCC 2d 190 (1970), the Commission had no occasion to consider applications for competitive service in this area.  In its MCI decision, the Commission granted applications of MCI to provide specialized interstate common carrier services between Chicago and St. Louis upon a finding that competition was reasonably feasible and could be expected to provide some public benefits.  While not determinative of issues posed by the instant applications, the MCI decision indicated a disposition to foster in the specialized communications field a competitive environment within which users may have a wider range of choices as to the means of satisfying their special communications needs. 

n14 See footnote 4.

28.  The public interest would be best served by allowing the entry of new communications common carriers to serve the markets for special communications services,  [**32]  to the extent that such entry can be accommodated  [*330]  within the limitations of radio frequency availability.  For the reasons set forth below, competition in this area meets the long-established test, i.e., that it is reasonably feasible and can be expected to have some beneficial effect.  Indeed, the advantages of such a policy appear to be manifold and to outweigh any risk that the public interest would be adversely affected.

29.  The demand for all types of communications service is growing very rapidly.  The use of standard voice communications services is expanding at very high rates and it is expected that this rapid growth will continue, if not increase.  n15 In addition, data communication, which has been in an embryonic stage of development, will probably exhibit very substantial growth over the next decade.  n16 In proposing a policy favoring the entry of new specialized common carriers, we look toward a degree of competition oriented toward the development of new communications services and markets and the application of improvements in technology to changing and diverse demands.  Thus, we are not faced with the question of whether we should increase the number of carriers [**33]  which are to serve a fixed market with the same services, as is implied by many of the arguments raised by the established carriers.  Rather we anticipate that the new carriers would be developing new services and would thereby expand the size of the total communications market.  There may well be realignments of customers for specific services in accord with the types and degrees of specialization provided by different carriers.  But any loss to the established carriers can be expected to occur only in terms of their relative share of the total communications market which would be served and not in terms of the volume of communications provided.  Since the total communications market being served is likely to be increased, the existing carriers' volumes of traffic may increase at the same time that there is entry by the new carriers.  n17 Moreover, the filings before us indicate that the special service markets are quite different from the standard toll telephone service.  The existing communications network was established to meet the requirements of voice transmission in a market where consumer demands were generally similar.  However, data users require not only a different application [**34]  of communications technology, but also have requirements for services that are heterogeneous in character.  For example, Datran proposes to construct digital technology transmission systems especially to meet data requirements.  Other applicants, while proposing to use analog transmission  [*331]  techniques, propose to offer services with systems more closely designed to the requirements of transmitting digital and other non-voice traffic.  The applicants would be able to use systems that have not been engineered around the specialized requirements of voice traffic (such as sensitivity to steady line noise but relative insensitivity to impulse noise and phase distortion).  Some may even offer systems totally optimized to the requirements of data transmission or other specialized traffic.  In summary, the diversity that characterizes both the demand and the technology supports our conclusion that new entry in this field is reasonably feasible. 

n15 About 87 percent of the Bell System's interstate revenue is from message toll telephone and wide area telephone service, and these services have an annual growth rate of 15 percent.  It has been estimated that the existing plant of the Bell System will quadruple by 1980.  See State of R.R. Hough, Vice-President, AT&T, before the FCC during continuing surveillance meetings, week of September 8, 1969.

n16 In its report to the Commission in the computer inquiry (Docket No. 16979) Stanford Research Institute estimated that by 1980 10-15 percent of the Bell System plant may well be serving data users (as measured in terminal hours).  However, AT&T estimated that by 1980 data use will amount to only 5-10 percent of the peak network load.

n17 We note that despite the claims of potential adverse effects upon the established carriers that were made in the Carterfone case (13 FCC 2d 420), AT&T Chairman Romnes stated in the 1968 Annual Report (page 4):

Since customers now have more options in using the network, this should further increase usage and enhance the growth of our business.  Competition in providing communications equipment that may be connected to the network will no doubt accelerate, but we are confident of our ability to meet the tests of the market.  In the expanding structure of communications there is opportunity for all. [**35]

30.  There appears to be an increasing public need and demand for the availability of diverse and flexible means for meeting heterogeneous communications requirements.  Furthermore, the means for satisfying such needs are becoming available through rapid developments in communication, computer and related technologies.  The information before us affords grounds for a reasonable belief that there is a substantial public need for the proposed services which is not now being adequately met by the established carriers. The computer inequity showed that there was dissatisfaction on the part of the computer industry and by many data users who had been attempting to adapt their requirements to existing services.  n18 Datran has persuasively stated the public need for rapid, accurate and low-cost data transmission, the drawbacks in using existing facilities engineered for voice and record transmission, and the advantages of a switched, all digital network with end-to-end compatibility (see paragraphs 7-9 above).  Moreover, the showings in the MCI applications (e.g., the Arthur D. Little and Spindletop studies) support the view that there is widespread interest in the types of specialized,  [**36]  private line services proposed by it and other applicants.  The circumstance that so many applicants apparently believe that there are markets to be developed is also of some significance.  By permitting the entry of specialized carriers, we would provide users with flexibility and a wider range of choices as to how they may best satisfy their expanding and changing requirements for specialized communication service. 

n18 For a summary of the responses of the computer industry and data users, see Report No. 2 of the Stanford Research Institute study in the computer inquiry (Docket No. 16979).

31.  We note in this connection that the applicants are in a disadvantageous competitive position vis-a-vis AT&T insofar as prompt inauguration of the proposed services is concerned.  Action on their applications may be delayed for some time by the necessity of resolving claims in petitions to deny, inter alia, that the showing of need is inadequate.  Since AT&T has numerous long line facilities, both cable and radio, and many diverse routes, it generally has enough flexibility and spare capacity to institute new services (at least on a limited scale) without having the immediate necessity [**37]  of obtaining authorization for new or modified facilities.  Therefore, AT&T need only file a tariff in order to commence providing service on its authorized facilities.  AT&T is thus in a position to offer at any time services with many of the features proposed by the applicants, while challenging the  [*332]  showings of need made by would-be new entrants and claiming that hearings are required on their proposals.

32.  There is also a question as to whether the existing carriers can meet the requirements in the specialized markets promptly, efficiently and effectively without prejudice to full and timely satisfaction of the increasing requirements of the public monopoly services.  The responsibility for meeting the nation's growing and changing communications requirements is now largely concentrated in the Bell System.  This responsibility is becoming more and more difficult to discharge in a manner which enables the Bell System to satisfy timely and effectively all existing and anticipated communications requirements.  This is partly because of the diversity of such requirements, the obvious problems of designing and engineering facilities capable of meeting all such requirements with  [**38]  equal efficiency, economy and expedition, and the huge and increasing amounts of new capital that the Bell System must raise for construction purposes.  The entry of new carriers would have the effect of dispersing somewhat the burdens, risks and initiatives involved in supplying the rapidly growing markets for new and specialized services among a multiplicity of entrepreneurs who appear ready, willing and able to assume these undertakings.  It would also expand the capability of the communications industry to respond to the challenge of meeting the rapidly growing and varied demands of communications users.

33.  AT&T claims that the entry of specialized carriers will result in the sacrifice of economies of scale and the incurrence of social costs.  However, the achievement of any economies of large scale supply in particular facilities may be at the expense of potential economies in other directions.  In order to realize large scale economies, a single supplier must conglomerate diverse functions and provide general standardized services, thereby foregoing potential economies of specialization that could be derived from serving a specialized portion of the market.  During an era [**39]  of relative stability in technology, characterized by markets with homogeneous demands, the efficiency of large scale, single supply is necessarily considerably greater than it is during an era of rapidly changing applications of improved technology and growing potential markets made up of diverse consumer demands.  Any attempt to adapt facilities designed primarily to meet voice requirements to the quite different requirements of data communications may entail such compromises in service as to leave both types of users dissatisfied, n19 and may vitiate the economies of scale the carriers postulate. 

n19 AT&T, in effect, recognizes some shortcomings in the use of voice oriented facilities for data transmission in that it is gradually working toward digital transmission with the "evolutionary approach" necessitated by its existing plant.  As Datranpoints out, it apparently recognized this need some time ago.  An article entitled "Transmission Aspects of Data Transmission Service by Using Private Line Voice Telephone Channels" in the Bell System Technical Journal, November 1957, states that:

The telephone network was developed for speech transmission, and its characteristics were designed to fit that objective.  Hence, it is recognized that the use of it for a distinctly different purpose, such as data transmission, may impose compromises both in the medium and in the special service contemplated.

See also, "Transmission Across Town or Across the Country," Bell Laboratories Record (May/June 1969), pages 162, 167, to the effect that the use of digital transmission for voice may be more costly than analog transmission. [**40]

 [*333]  34.  Further, while economies of scale may result when large general purpose transmission facilities can be used to meet relatively homogeneous communications requirements, there may be other drawbacks.  The sheer size of the AT&T organizational structure, its enormous financing requirements, its vertical integration, and near monopoly position in the provision of communications services may make it slower to perceive and respond to individual, specialized requirements and to initiate market and technical innovations.  n20 Competition in the specialized communications field would enlarge the equipment market for manufacturers other than Western Electric, and may stimulate technical innovation and the introduction of new techniques.  Moreover, new carriers with smaller scale operations could devote their undivided attention to the particular needs to be served and, lacking a captive market, would be under pressure to innovate to produce those types of services which would attract and retain customers. 

n20 In its Report and Order relating to the establishment of domestic communication satellite facilities by non-governmental entities, Docket No. 16495, March 24, 1970 (22 FCC 2d 86), the Commission took note that "AT&T has stated that it views satellite transmission as another form of transmission similar in function to terrestrial microwave systems and coaxial cables, and that there are no communications services which could be offered by satellites which cannot now be offered by terrestrial facilities." (Paragraph 26, footnote 7) However, the Commission observed that:

The most important value of domestic satellites at the present time appears to lie in their potential for opening new communications markets, for expanding the beneficial role of competition in the existing markets for specialized communication services, and for developing new and differentiated services that reflect the special characteristics of the satellite technology.  (Paragraph 25) [**41]

35.  In an industry of the size and growing complexity of the communications common carrier industry, the entry of new carriers could provide a useful regulatory tool which would assist in achieving the statutory objective of adequate and efficient services at reasonable charges.  Competition could afford some standard for comparing the performance of one carrier with another.  Moreover, competitive pressure may encourage beneficial changes in AT&T's services and charges in the specialized field, and stimulate counter innovation or the more rapid introduction of new technology.  The Commission noted in its MCI decision the apparent response of AT&T to MCI's proposal in modifying certain of its sharing provisions of its private line tariff offerings (18 FCC 2d 953, 961-2).

36.  We are not persuaded that the allegation of "creamskimming" is well-founded or would justify a bar against new entry of the type proposed here.  The concept of creamskimming assumes that the total potential market that could be served is actually being served by the established carriers and that they are responding to all changes in demand and technology at an optimum rate.  It postulates that there is no [**42]  room for a potential entrant without giving him part of the existing market and the only attraction to the potential entrant is the existence of the cream on the low cost routes.  But it appears that the principal attraction for the new applicants here is not the cream of the existing markets, but rather special service markets that have not been developed.  As earlier mentioned, the entrants seek to expand the size of the total communications market in a manner that may benefit all communications users.

37.  Further, the development of new markets must always take place gradually and begin in those particular sub-market areas where  [*334]  maximum demand can be stimulated at minimum cost.  This is the manner in which all new products and services are introduced, and it is practiced by the established carriers.  When AT&T developed its audio and video services during the 1948-58 period, it chose to serve only the larger population centers and not outlying areas.  As a result the Commission authorized intercity relay facilities to broadcasters and to miscellaneous common carriers.  More recently, AT&T claims that the costs of high capacity microwave and cable facilities used between major [**43]  cities justify its experimental Series 11,000 tariff which is applicable only between large cities.  Further, AT&T originally proposed plans to introduce interstate Picturephone service initially only between Pittsburgh's Golden Triangle area and lower Manhattan.  n21

n21 AT&T has since requested dismissal of its applications for authority to provide such service.  However, it is offering Picturephone service in Pittsburgh.

38.  Though claiming that the geographical scope of the applicants' proposals is too small, n22 the established carriers have not elected to specify any additional locations needing the proposed services at this time.  The proposals now before us cover large sectors of the country, much larger than one might expect in initial proposals.  Datran's proposed initial network is limited to 35 markets where the level of maturity of digital technology has created the greatest initial requirement for data transmission.  However, it states that it plans ultimately to expand the system to serve all significant interstate as well as intrastate data transmission markets, "including residential subscribers as digital technology is extended to the home." As Datran points [**44]  out, business and other institutions, rather than individuals, presently constitute the overwhelming majority of potential data transmission users and they are heavily concentrated in major metropolitan areas.  We would not expect a system such as that proposed by Datran to be constructed on a total nation-wide basis at one time, though we would anticipate orderly expansion and development of communications plant to meet evolving market demands.  n23 Moreover, the combined routes of the applicants proposing specialized, private line services appear to cover the bulk of the major cities where customers for such services are apt to be concentrated, and they are proposing interconnection.  We can reasonably expect applicants to propose extensions of their systems as their markets develop, and there is no indication of a cessation in the filing of new applications for special services in additional areas.  Competition in the response to these new demands may result in much faster geographical extension of the services than would be the case if all markets were preserved for the established carriers.  Finally, other customers could be reached by spur routes from these networks as demand [**45]  develops, pursuant to Commission action under Sections 201(a) and 214(d) if necessary in the public interest. 

n22 We note that the carriers cannot consistently claim both that there is no need for these specialized services and that the geographical scope of applicants' proposals is too small.

n23 Indeed, the Bell System and Western Union began on a modest basis and gradually evolved to their existing positions.  Moreover, while the Bell System serves the bulk of the nation's population, it does not serve most small towns and rural areas.

 [*335]  39.  Assuming that the questions of interference and frequency blockage are satisfactorily resolved (see paragraphs 54-58 below), we see no real basis for the asserted fears that the authorization of specialized systems would affect rates for existing common carrier services or delay the planned construction of high-capacity systems in this decade.  Preliminarily, we note that there appears to be a basic inconsistency between the claim of adverse impact and the contention that there is no public need for the proposed services.  Clearly, if the applicants are unable to attract subscribers because their needs are being fully and satisfactorily [**46]  met by established carriers, there can be no adverse impact.  On the more reasonable premise that unmet public need exists, some diversion of existing and potential traffic may occur.  On the other hand, the stimulative effect of the specialized services may actually increase the amount of traffic being carried by the established carriers (see para. 29).  Moreover, to the extent that they provide local distribution service as proposed by some of the applicants, established carriers would also realize an increase in business.  Established carriers would, of course, be free to compete on equal terms with the new entrants and might obtain a very substantial portion of the specialized communications market.  n24 Indeed, their established position and the fact that they already provide various communications services to potential customers for the specialized services could very well afford them a competitive advantage over newcomers to the field (see also paragraph 31 above). 

n24 A representative of Datran has stated that it expects to obtain only about 10 percent of the data market by 1980 (see Telecommunications Reports, Vol. 36, No. 20 (May 18, 1970), page 5).

40.  It is important [**47]  to recognize that we are concerned with only a relatively small percentage of established common carrier service to the public.  n25 For example, AT&T's present interstate business constitutes only about 30 percent of the Bell System's total business; about 87 percent of the interstate revenue is from message toll telephone and wide area telephone service (WATS), and these latter services have an annual growth rate of about 15 percent.  n26 None of the applicants proposes to provide this type of service and we see no reason to expect any undesirable effects upon these services.  An examination of AT&T's private line, program transmission and other more specialized services indicates that an estimate of the proportion of AT&T services that is vulnerable to competitive in-roads would be on the order of 2-4 percent of its existing total business.  Moreover, it has been estimated that the existing plant of the Bell System will quadruple by 1980.  n27 Thus, it is difficult to see how a diversion (if, indeed, there is any diversion) of some portion of that comparatively small percentage of total business represented by interstate specialized  [*336]  services would have any substantial effect on [**48]  telephone rates and service or delay or preclude whatever expansion of facilities is needed to accommodate the rapid growth in telephone traffic.  In light of this and the estimate of AT&T that by 1980 data will amount to only 5-10 percent of its peak network load, we cannot find merit in the argument that the high-capacity facilities which AT&T plans for the next decade are in any substantial or relative measure dependent upon a very substantial growth in data and specialized private line services of AT&T, far exceeding existing percentages, and would be made possible only by a denial of the applications before us.  n28 Similarly, nothing before us warrants a conclusion that the uniform tariff policies of the established carriers would be endangered.  It has not been shown that the rates of the new entrants would in fact be lower than Bell could justify with its uniform charging approach or that there is any real threat to the rates of the established carriers.  In the event that adverse consequences to the public should develop, the Commission can take such action on the relevant tariff filings, as may be necessary to protect the public.  We think that in the context of the matters [**49]  now before the Commission involving proposed new and different services, a question of this nature is more appropriately considered in connection with the tariffs rather than upon authorization of the facilities. 

n25 All of the applicants propose interstate facilities and services except three applicants in Texas, which, we understand, does not require state certification for intrastate service.  Applicants proposing to operate where state or local authorization is required for intrastate service must, of course, obtain the necessary authorization prior to engaging in such service, and where proposed facilities are justified on the basis of intrastate service, local or state authorization must be obtained prior to the filing of microwave applications (see Section 21.15(c)(4) of the rules).

n26 However, the telephone facilities may be used for the transmission of data (e.g., Dataphone).  It has been estimated that about 200,000 of the present approximately 96 million telephones are Dataphones.  The use of Dataphones is expected to increase.

n27 See Statement of R. R. Hough, Vice-president, AT&T, before the FCC during continuing surveillance meetings, week of September 8, 1969.

n28 As earlier indicated (footnote 16 above), AT&T has estimated that by 1980 data will amount to only 5-10 percent of its peak network load. [**50]

41.  In addressing the question of pricing practices we must not overlook the possibility that the converse situation may arise.  We refer to the possibility that the established carriers may file unduly low or discriminatory tariff schedules and thereby subject the new entrants who increase the competitive character of the market to unfair competition.  In this connection we note that AT&T could file tariffs which price its potentially competitive services below cost to prevent or limit entry and seek to recover the losses through cross-subsidy from its monopoly message toll telephone and WATS market.  The Commission has already addressed itself to this problem by undertaking an examination of ratemaking principles in Dockets Nos. 16258 and 18128.  See also the Commission's Report and Order in the domestic satellite proceeding (Docket No. 16495), 22 FCC 2d 86, 96. The Notice of Proposed Rule Making in Docket No. 18703 (FCC 69-1140) looks toward an expansion of the scope of information available to the Commission at the time of proposed rate changes or new services by any major carrier.  In addition, the Commission is expected to address itself further in the near future to this [**51] problem and to explore the feasibility of establishing ratemaking standards which would identify cross-subsidization as well as policies directed to their prevention or elimination.

42.  We turn now to a consideration of the other established carriers.  First, there are the independent telephone companies.  These are not engaged to any substantial degree in providing either interstate data or specialized private line services.  Instead, for the most part, they are engaged in the provision of local exchange and other local services.  They participate in interstate service primarily for the provision  [*337]  of the local distribution facilities.  Under these circumstances it is difficult to visualize how they would be affected adversely by a grant of the pending applications.  In fact, to the extent that these applicants rely upon or use existing local distribution facilities, their entry would increase the business of the independents.

43.  The situation in the case of Western Union is different.  Its revenues from leased systems and Telex account for about 30 and 15 percent, respectively of its total revenues, with the remaining 55 percent coming from message telegraph service and other [**52]  services.  The potential impact upon Western Union is therefore greater than upon either the Bell System or the independents.  Such potential impact must, however, be evaluated in the context of the overall public interest.  First of all, as already set forth in detail, we are here concerned with the sharing of a new, relatively untouched market in a field where even the present demand is growing at a very rapid rate.  Secondly, the proposed services are designed to meet demands not being satisfied by the current services of the established carriers.  Moreover, we believe that this market will best be served by a competitive service of supply.  Thirdly, we are primarily concerned with the provision of interstate facilities.  In this connection, we note that Western Union for the most part does not use its own facilities, but instead acquires them largely by lease or rental from AT&T.  In fact, there is no established pattern for the installation of new facilities by Western Union other than its recently filed applications for facilities over a route from Cincinnati to Atlanta.  Finally, the Commission has just announced that it has instructed its staff to prepare a decision approving [**53]  Western Union's application to purchase the Bell System TWX system with estimated annual revenues of $86,000,000 for 1971.  This in itself should, if the transaction is given final Commission approval, increase Western Union's annual revenues materially.  In view of all of these factors, it is our conclusion that additional competition is reasonably feasible and that the foreseeable public benefits from the new services set forth above (see paragraphs 30-35) far outweigh the potential dangers to Western Union.  In any event, there is no substantial showing that a grant of the applications would deprive the public of any services provided by Western Union which it is now enjoying and there are very substantial grounds for finding that numerous benefits in the way of new, different and less expensive services would result from a grant of the pending applications.

44.  The most important safeguard, however, is the fact that the Commission has ample power under the Communications Act to take such regulatory action as may be necessary in the public interest to avoid adverse impact on the achievement of statutory goals and, particularly, the basic purpose stated in Section 1 of the Act.  [**54]  The Commission would, of course, not permit any degradation in overall services to the public or any impediment to the realization of their development.  The results of any authorizations would be the object of close and continuous scrutiny by the Commission.  Should adverse consequences develop or appear imminent, the Commission can take such remedial action or precautionary measures as may be necessary to protect  [*338]  the public.  As indicated, appropriate action can be taken in connection with the tariffs.  In addition, any renewal of license for the proposed facilities would require a public interest finding, and could be subject to any needed conditions.  Moreover, the Commission's broad rule making powers are always available.  Finally, we do not contemplate any protective umbrella to shield the competitors, except from predatory pricing and other unfair anti-competitive practices, or any artificial bolstering of operations that cannot succeed on their own merits.

45.  In short, we have an opportunity now to see if the benefits that may reasonably be anticipated from entry of new carriers in this narrow field will in fact materialize.  We can do so at what appears to be minimal  [**55]  risk.  If we fail to explore this opportunity, the present situation in which one carrier dominates the entire domestic communications scene will continue indefinitely, and we are unlikely to know what the public may be missing.  On balance, we think that the better course in the public interest is to apply long standing precedent to the area of domestic microwave services and to open the door to realization of the possible advantages while keeping a watchful eye to avoid any adverse effect.

45a.  Accordingly, inasmuch as it appears that additional competition is reasonably feasible in this burgeoning market and that the entry of new carriers may be expected to benefit the public by providing new and differentiated services, there is no need to designate the pending and anticipated applications for hearing on the broad issue of whether the public interest would be served by competition to the established carriers in the provision of specialized services or on the related contentions with respect to alleged duplication of facilities, the general question of the need for the new services and impact on uniform tariff policies and existing services.  Interested persons may make as full [**56]  a showing as they desire on this aspect in their comments in this proceeding, and the Commission will, of course, carefully consider all material submitted in arriving at policy determinations.  However, we do recommend that the policy decisions made in the proceeding should be dispositive of such questions for purposes of these applications, in the absence of unusual and distinguishing circumstances.

45b.  The foregoing paragraphs (25-45a) constitute the staff analysis of Question A, on which we request comment.  The following proposals of the Commission on the remaining issues are premised on that analysis of Question A, and are accordingly subject to modification depending upon the resolution of that Question by the Commission.

B.  Claims of Mutual Exclusivity on Economic Grounds

46.  In the event that the staff position on Question A is adopted by the Commission, another major question concerns the best procedures for dealing with the claims of mutual exclusivity among the applicants on economic grounds.  The problem may be exemplified by the  [*339]  Pacific Coast applications.  Both Datran and MCI have proposed Pacific Coast routes as part of their respective nationwide networks.  [**57]  In addition, at least five other applicants have proposed Pacific Coast routes to provide specialized private line services similar to those proposed by MCI.  Leaving aside for the moment the alleged conflicts in frequency usage and assuming that most, if not all, of these problems can be resolved by other means, we question whether comparative hearings on issues of economic exclusivity are necessary or desirable in the public interest.

47.  We think that Datran's proposed system should be considered separately.  It alone has proposed a switched, occasional use, all digital, end-to-end network dedicated exclusively to data transmission.  The other applicants have proposed to provide a variety of private line, point-to-point, specialized services, which may include data transmission but are primarily aimed at offering subscribers flexible, low cost communications channels adaptable to their own particular needs and requirements.  While there may be mutual impact insofar as data transmission is concerned, we see enough difference between the two types of proposals to warrant a conclusion that the public would benefit by having both kinds of services available.  Moreover, it does not [**58]  presently appear that a grant of Datran's applications would preclude an opportunity for entry by MCI and others proposing private line services.

48.  We are not confronted here with applications which seek to duplicate all or even a major portion of the services provided by the existing carriers or to enter a static market.  Instead, the applicants seek to develop a relatively new and potentially very large market.  The forecasts of the potential data transmission market indicate that competition among several competing carriers would be reasonably feasible.  For example, Datran, which is proposing to invest some $349,000,000 in its initial system, estimates that it will serve only about 10 percent of the data market by 1980.  If this percentage of the potential data transmission market will support successful operations by Datran, there should be ample opportunity for other new entrants even assuming that the established carriers succeed in obtaining a substantial share of the remaining 90 percent of the data transmission market.

49.  Moreover, as indicated, MCI and other applicants are proposing to provide other private line services besides data transmission.  Their proposals [**59]  are basically similar in that each is proposing to provide "customized" services tailored to the requirements of individual subscribers, i.e., to provide whatever the particular subscriber desires.  The proposed services represent a significant departure from any service offered by the established carriers in that virtually all of the restrictions placed on use of the facilities are eliminated.  n29 Various systems may develop along different lines, each offering something of value to the public which would attract sufficient customers for viable operations.  The number of successful operations may well depend on the ingenuity, enterprise and initiative of applicants and equipment  [*340]  manufacturers over a period of years in taking advantage of changing circumstances and in coming up with the types of services and equipment that will attract sufficient business to support the particular system. 

n29 Computers and Telecommunications: Issues in Public Policy, Mathison and Walker (Prentice-Hall, Inc., 1970), pp. 184, 186-187.

50.  Under these circumstances where competition is reasonably feasible and affords great promise of substantial public benefits, we cannot conclude that the public [**60]  interest would be served by selecting only one of the several applicants as a "chosen instrument" for new entry in a particular geographic area.  We think that users should be provided with flexibility and a wide range of choices as to how they may best satisfy their expanding and changing specialized requirements.  Since some of the applications may have been filed in anticipation that the applicant would obtain a monopoly position in any given geographic area (except from the established carriers), some of the applicants may combine or decide not to proceed as a matter of business judgment in view of our proposal to authorize multiple entry.  As there is a potential demand sufficient to support several entrants, the failure of any one authorized applicant would not result from lack of potential customers but rather from its inability to anticipate and meet public requirements.  Accordingly, it does not appear that there would be a substantial loss or deterioration of service from the failure of such entrants.  Instead, the demand for this type of communications service will undoubtedly be met by another entrant or an established carrier.  In fact, if none of the new entrants is  [**61]  sufficiently effective and efficient to out-do his competitors and achieve successful operations, it will probably be because uses can obtain either better service or lower charges from the established carriers.

50a.  In the circumstances, it does not appear to us that comparative hearings would be either appropriate or effective at this stage.  This is not to say, however, that it may not become necessary to take some future action (e.g., rule making or comparative hearings at license renewal time), if it should develop that the market is spread so thin among the new entrants as to jeopardize the availability and continuity of specialized service to the public, or otherwise adversely affect service to the public.  By that point, we will have some basis in experience to assist in appraising the market potential, the number of systems that might be expected to be viable, the comparative abilities and performances of the new entrants, and the extent to which user requirements are being satisfied by the particular "customized" services that develop.  Predictions now as to these dynamic factors would not, in our opinion, be substantially assisted by the evidentiary hearing process.   [**62]  In addition, the avoidance of lengthy comparative hearings at this stage will make available to the public at a much earlier date services which all the applicants claim, and we believe, are needed now.

50b.  While we have used the Pacific Coast applications as an example, the same considerations are pertinent to other instances where more than one applicant has applied for routes in the same or nearby areas.  n30 We are therefore proposing generally to consider each set of  [*341]  applications on its individual merits in determining whether a grant would serve the public interest.  We do not propose to hold comparative hearings on claims of economic exclusively unless there is a much stronger showing of exclusivity than those presently before us and we are persuaded that the public interest requires such action in the particular situation. 

n30 We note, however, that there may be even less basis for a claim of economic exclusivity where the applicants have proposed different intermediate service points.

C.  Frequency and Route Coordination; Spectrum Conservation

1.  Terrestrial versus satellite systems

51.  The Commission is considering on its own motion one question which has not [**63]  been raised in the applications or pleadings.  Except for some stations, the applicants are generally proposing to use frequencies in the 6 GHz common carrier band (5,25-6,422 MHz), which is shared with the communications satellite service.  In its Report and Order (22 FCC 2d 86) issued on March 24, 1970 in the domestic satellite proceeding (Docket No. 16495), the Commission stated that "there may be considerable difficulty in coordinating satellite earth stations with terrestrial systems in the 4 and 6 GHz bands without some readjustments by certain stations in the terrestrial networks." The technical criteria in Appendix D to that Report require satellite system applicants to make interference calculations for each terrestrial station within the coordination distance contours including those proposed stations for which an application has been accepted for filing by the Commission.  Moreover, for purposes of such coordination it is to be assumed that both the satellite and the terrestrial system will occupy continuously all frequencies allocated to the particular service band to which they are assigned.  There is also the possibility of interference to terrestrial systems in the  [**64]  6 GHz band resulting from scatter propagation.

52.  We have considerable concern as to whether the 6 GHz band can fully accommodate all the existing, proposed and anticipated to be proposed uses by terrestrial and domestic satellite systems.  However, we do not presently intend to decline to consider the instant applications for terrestrial use of the 6 GHz band on this ground.  While these applications will complicate the earth station situation, the magnitude of the existing terrestrial use in some areas may pose a problem for satellite applicants in any event.  We will not know how serious this problem may be until the applications for satellite systems have been filed and the earth station coordination studies have been considered.  It is anticipated that some additional spectrum allocations for communications satellite service will result from the 1971 international space conference.  As indicated in the Report in Docket No. 16495 (footnote 3), if it appears from the domestic satellite applications that the use of the 4 and 6 GHz bands would be uneconomic because of the length of the terrestrial interconnection links for earth stations, consideration may have to be given to  [**65]  the use of such other bands as may be allocated for this service.  Unless impossible or precluded by other compelling considerations, we think that established and new carriers competing in the provision of the proposed terrestrial  [*342]  services should not be placed in unequal positions insofar as access to frequency bands is concerned.

53.  However, it appears desirable to incorporate in the rules at this time standards for protecting the satellites against interference from new terrestrial microwave facilities in the 6 GHz band.  We are proposing to impose restrictions on the antenna orientation of microwave point-to-point stations operating in the 6 GHz band under Part 21 of the rules, which would be similar to recommendations of the CCIR to prevent interference to synchronous satellites.  Such limitations would not permit transmitting antennas to be pointed within two degrees of the synchronous satellite orbit except under unusual circumstances and then with restrictions on the amount of power that could be radiated.


2.  Terrestrial frequency conflicts and route blockages

54.  Aside from the question of terrestrial versus satellite system coordination, the applications and opposition [**66]  pleadings raise issues as to conflicts in terrestrial frequency usage and spectrum conservation.  The established carriers assert that the proposals of the applicants will cause interference to their existing systems and block or impede future expansion on existing microwave routes.  There are also instances of frequency conflicts and potential interference among the applicants themselves.

55.  We are not persuaded that the claimed frequency conflicts are irreconcilable.  It has been our experience in processing microwave applications in the 6 GHz band, that frequency conflicts and route blockages can be avoided in most, if not all, instances through co-ordination.  It does not appear that most of the applicants have followed such a coordination procedure prior to filing their applications.  While conflicts in the 6 GHz band may be unavoidable in some heavily congested areas even with careful frequency coordination and route planning, the 10.7-11.7 GHz band is also available now and frequencies above 17.7 GHz will probably be available for short hops once the allocations for the communications satellite service have been determined.  If no frequencies can be found for some segments,  [**67]  there is always the alternative of wire or cable.  In other words, while the present conflicts must be eliminated, we see no absolute technical bar to the effectuation of the applicants' proposed systems, though the economics may vary with the technique utilized.

56.  While Section 21.100 of the rules presently states that licensees and applicants shall cooperate in the selection and use of frequencies to minimize interference, there is no requirement for coordination to avoid interference or blockage of expansion on existing routes.  We are proposing to amend our rules to require that prior to the filing of an application, the applicant shall coordinate with all existing (operating or authorized) common carrier microwave stations, and with the proposed microwave stations in all previously filed applications, in the proposed service area.  Of course, applications which involve harmful interference to existing or authorized stations will not be considered until the frequency conflicts are removed.  Applications which involve interference to proposed stations in previously filed applications  [*343]  would not be designated for comparative hearings unless: (1) the application is filed within [**68]  the cut-off period for consideration with the earlier filed application, and (2) the Commission is satisfied that the frequency conflict cannot be resolved by reasonable measures by the later filing applicant.  Comparative hearings on applications filed on the same date would be subject to requirement (2) above, except that the burden of resolving conflicts would lie equally on all the applicants.  In the even that this rule making proposal is adopted, we would accord applicants with pending applications an opportunity to modify their applications to achieve compliance.  n31 The original filing and cut-off dates would still be determinative of priority under the rules. 

n31 Applicants are encouraged to make efforts to remove conflicts and route blockages without awaiting the outcome of the rule making.

57.  In this connection, we note with disapproval the practice of applying for the same sites and frequencies specified by a prior applicant without the consent of such applicant.  Voluntary arrangements for sharing sites and equipment may offer advantages and are to be encouraged.  However, it is manifestly unfair to the applicant who has undertaken the burden of engineering  [**69]  a system and obtaining options for sites, for another applicant simply to copy his proposal, in whole or in large part, and then claim mutual exclusivity.  Applications of this nature will not be processed unless and until they are modified to reflect the applicant's own independent proposal which, insofar as possible, does not conflict with that of a prior applicant.

58.  We are also of the view that an applicant should coordinate with established carriers so as to avoid blocking planned future expansion of existing microwave routes, to the extent practicable.  Comments are requested as to whether standards for such protection should be prescribed and, if so, parties are invited to suggest appropriate standards.  It would appear that the measure of protection might vary from carrier to carrier and depending on whether a particular route has high or low growth potential.  There is also a question as to whether it is necessary or desirable to protect the potential for full development in the pertinent frequency band on all existing Bell System routes.  We note that AT&T makes the following statements in its petition to deny Datran's applications:

* * * as the capacity of the existing [**70]  Bell System routes is exhausted planned construction of high-capacity systems will furnish Bell companies with large numbers of additional circuits at a cost per channel well below those proposed to be incurred by Datran.  * * * With normal growth, by the mid-1970's it will be economically justifiable to install L5 coaxial cable carrier systems (providing 150 master groups, equivalent to 90,000 voice channels) which will augment microwave and cable routes currently used at far less cost per voice channel mile.  Systems of still greater capacity are expected to be available by 1980, which systems could again dramatically reduce the cost per voice channel mile.

If non-spectrum using systems will shortly be required on high density routes in any event, does this reduce the importance of preserving the opportunity for full development of such microwave routes in the interim?

 [*344]  3.  Frequency diversity and miscellaneous technical requirements

59.  The contention that the proposed use of frequency diversity by most of the applicants is an inefficient and wasteful use of scarce spectrum, raises a further question as to whether or to what extent, if any, frequency diversity n32 should be [**71]  permitted.  Section 21.100 presently provides that "[frequency] diversity transmission will not be authorized in these services in the absence of a factual showing, in each case, that the required communications cannot practicably be achieved by other means." It has been our practice to authorize frequency diversity upon a showing that it is necessary to achieve the required reliability standards.  We have accepted such showings on a system basis rather than requiring case-by-case justification.  Such authorizations typically have been conditioned to permit withdrawal of frequency diversity without a hearing if the frequencies are later needed.  However, it is obvious that once a route is designed and built utilizing frequency diversity, conversion to other methods of achieving reliability would be quite expensive.  In view of the growing demand on the frequency spectrum along routes between major cities, it does not appear that we should continue the present policy with respect to frequency diversity, especially when there are other recognized methods, e.g. space diversity, for achieving high reliability where it is needed. 

n32 Frequency diversity may be defined as two separate transmitters working on different radio frequencies by carrying the same modulation and using a single antenna system.  For purposes here, we also include the use of a spare channel which may be switched into the path in lieu of the faded channel. [**72]

60.  Datran and Interdata propose space diversity, n33 but most of the other applicants propose a one for one frequency diversity operation.  The Bell System generally utilizes frequency diversity on a spare channel protection basis; in the 4 GHz band it uses a channel ratio of one (protection) for five (working), and in the 6 GHz band one for three.  Bell contends that a one for one frequency diversity as proposed by MCI and others would make wasteful and inefficient use of spectrum.  We are inclined to agree.  But further than that, we question the need for the continued wholesale use by all carriers of frequency diversity in the heavily used 4 and 6 GHz common carrier bands.  As a method for reducing the impact of frequency diversity on these bands we are considering several approaches.  The most effective remedy would be to eliminate frequency diversity altogether on new microwave routes.  n34 Other approaches, admittedly less effective, involve the reduced use of diversity channels.  On an across the board basis the ratio of protection channels to operating channels could be limited (e.g. one for eleven in the 4 GHz band, one for six in the 6 GHz band, and one for three in the [**73]  11 GHz band).  Or we could restrict the use of frequency diversity only to those new routes where it has been demonstrated to our satisfaction that there are no reasonable  [*345]  alternate methods of obtaining the necessary reliability (primarily in terms of cost) and that the spectrum in the areas considered is not particularly crowded.  n35 A further possibility would be to restrict frequency diversity to those new facilities that are shown likely to become part of a high density route (e.g. become a four channel route within five years).  Carriers are requested to comment on these various approaches (or combination thereof) in a positive manner, recognizing that frequency congestion is likely to become severe in many areas and that we do not have the luxury of continuing to use frequency diversity without substantial limitations. 

n33 Space diversity involves the use of separate receiving antennas which are spaced sufficiently far apart so that the signals from both have a low or negative correlation.  In effect separate transmission paths are established, but no extra frequencies are used.  Standby transmitters are often used to protect against equipment failures.

n34 As noted previously, the conversion of existing facilities employing frequency diversity to other diversity techniques (particularly space diversity) is not likely to be easily accomplished.  Therefore, we are not at this time proposing the elimination of frequency diversity on existing systems.

n35 This case-by-case approach is somewhat similar to our earlier proposal in the micro-wave reliability proceeding in Docket No. 15130 (FCC 67-1072, September 27, 1967). [**74]

61.  There are other, less important technical aspects of microwave transmission that may require regulatory action in order to promote more efficient use of spectrum and to improve the quality of service.  We are proposing two changes which we believe will tighten transmission paths and reduce the chances for interference in areas where frequency assignments are congested.  First, we propose to ban new passive reflectors where used in connection with "periscope" antennas.  Systems utilizing periscope antennas are more susceptible to interference because of poor rejection of unwanted sidelobe radiation from other facilities located nearby.  This makes it more difficult for additional facilities to be engineered on an interference free basis in an area where periscope antennas are being used.  For similar reasons we are also proposing that the nominal diameter of parabolic antennas should not be less than six feet because it is more difficult to secure suppression of side lobes with smaller antennas.

D.  Quality and Reliability of Service

62.  In the event that we adopt the staff position on new common carrier entry in the specialized communications field, we believe that some  [**75]  measure of protection to the subscribers would be called for.  Primarily, we are concerned that the prospective subscriber be accurately informed about the nature of the proposed service.  The major components of the service the carrier is attempting to sell are: (1) rates, (2) regulations and terms of service, and (3) quality and reliability.  The first two items are usually clearly specified in the tariffs and are generally well understood by the prospective customer.  However, quality and reliability of service may be poorly defined in the tariff and subject to misinterpretation, especially by the prospective subscriber.

63.  We have considered, and tentatively decided against, proposing specific minimum standards of technical performance.  We recognize that there may be a ide diversity of public needs, ranging from low cost-low reliability service to a higher cost-higher reliability service, and that a minimum performance floor might fail to satisfy the needs of many communications users.  Therefore, we have tentatively concluded that the carriers should be free to design facilities and offer services to meet the varying market needs, but that the services should be fairly advertised [**76]  as to quality and reliability.  In an attempt to  [*346]  insure that the customer receives such service as is promised, we propose to require:

(a) that the applicant specify in standard terminology in his microwave application the proposed reliability of service to the customer, to the extent that the nature of the proposed service is known;

(b) that the carrier be required to specify in his tariff, and notify the customer of, the precise reliability factors applicable to the particular service;

(c) that the carrier make refunds on a reasonable proportionate basis where the service rendered fails to meet the specified reliability standards; and

(d) that the carrier make periodic reports to the Commission concerning the reliability actually achieved, service complaints and refunds.


It is contemplated that these requirements would apply at this time to the provision of private line or other specialized services by all carriers.

64.  We recognize that reliability may have different characteristics for various services, such as dedicated versus switched service or voice as compared to data.  However, to the user reliability is generally stated in terms of the channel's availability for [**77]  use when required and its ability to meet the requirements applicable to his specific use of the communications system.  Service interruption or failure of reliability may reflect any of the following conditions:

(a) The complete loss of a channel occasioned by a failure in the microwave facilities.

(b) A degradation of signal level to a point below the level established for satisfactory operation of the customer's equipment.

(c) Circuit noise which would interfere with voice communication.

(d) Any condition that would adversely affect the error rate in data transmission.

65.  We request comments on the development of standard statements of reliability quality factors for the various types of service.  The statements should contain all pertinent data applicable to the particular use of the communication channel provided by the carrier and provide a base for measurement of the quality of service provided.  We propose that the prospective customer should be supplied, at the time his business is solicited, a written statement or a copy of the applicable tariff terms which specifies the proposed quality and reliability of service, including the requirement for credits for below [**78]  par service.  To the extent possible, these factors should be expressed in terms which are easily understood by a non-expert.  We further propose that the carrier file quarterly reports with the Commission, based on records that log individual customer trouble conditions reported to the carrier, the time and date of such reports and remedical action taken, including the time when service was fully restored and the amount of credit to the customer, if any.  The report should show the number of service complaints received during the three-month period, the average clearing time and the total amount of customer refunds.  It should also indicate the number  [*347]  of customers served by the carrier as of the last day of the quarterly reporting period.

E.  Local Distribution Facilities

66.  The final area of concern is the means for local distribution of the proposed services.  Datran plans to construct its own facilities, using low-powered microwave equipment in the 11 GHz band and multi-pair cable to reach other subscriber locations in the vicinity of the microwave terminals.  Other applicants proposing "end-to-end" service plan to negotiate with local carriers for complete loop service on [**79]  behalf of their subscribers.  Some applicants propose to offer subscribers the option of obtaining service from local carriers, furnishing their own loop facilities, or using loop facilities provided by the applicant.  New York-Penn Microwave proposes to use 18 GHz frequencies for an entrance link to the center of Chicago and to negotiate with local carriers for the remaining loop to the subscriber's premises.  While MCI plans initially to have its subscribers take care of loop service, it states that it may ultimately offer local loop facilities using 50 GHz frequencies or infrared transmission.

67.  In the MCI case, the Commission retain jurisdiction over the interconnection issue, stating that an order requiring the established carriers to provide loop service would be issued unless it is shown that interconnection is not technically feasible (18 FCC 2d at 965; 21 FCC 2d at 193). The local exchange facilities of the Bell System and independent telephone companies presently constitute almost the sole means for local distribution of interstate common carrier services (apart from CATV and broadcast facilities).  Western Union is almost entirely dependent on the Bell System for  [**80]  its local distribution.  If access to local facilities is requested and needed by the applicants, we would expect the local carrier -- Bell or other carrier -- to permit interconnection or leased channel arrangements on reasonable terms and conditions to be negotiated with the new carriers.  In other words, where a carrier has monopoly control over essential facilities we will not condone any policy or practice whereby such carrier would discriminate in favor or an affiliated carrier or show favoritism among competitors.  n36 Customers of any new carrier should also be afforded the option by the local carrier to obtain local distribution facilities under reasonable terms set forth in the tariff schedules of the latter. 

n36 See, e.g., Report and Order in Docket No. 16778, 12 FCC 2d 841; Final Report and Order in Docket No. 18509, 21 FCC 2d 307, 324-325; The Western Union Telegraph Co. v. United States, 217 F.2d 579 (C.A. 2, 1954).

68.  However, there appears to be some question as to the desirability of using the existing local exchange facilities for local distribution of some of the proposed services.  The local exchange facilities of the telephone company are presently overburdened [**81]  in a number of the largest cities.  In challenging MCI's assertion that its proposal would alleviate present telephone service problems, AT&T points out:

Such problems as do exist are in switching and some local facilities.  There is no scarcity of interest transmission facilities.  Significantly, MCI-NY West proposes to duplicate trunk facilities, where no problem exists, and to depend upon the existing common carriers to provide the local facilities which its customers would require for end-to-end service.


 [*348]  Moreover, Datran claims that the use of local voice switching and circuit facilities for data transmission service places a burden on such facilities and that voice subscribers have, in effect, been paying a penalty for the sharing of these facilities with data transmission.  In support of its contention that "the unusual hold times, peaking, and usage patterns accompanying data transmission impose a crippling burden on voice switching and circuit facilities," Datran cites a statement by a Bell System representative that:

There lies are in use about eight times as much as the average business line.  This increases the cost of central office switching equipment (Page 32, Exhibit [**82]  32, Direct Testimony of Mr. L. R. Stang, in Docket No. 55426, Application of Illinois Bell Telephone Rates Applicable to all Exchanges of the Company, before the Illinois Commerce Commission).


We note that a number of Bell System companies are before various State commissions seeking substantial increases in charges for information system access lines (to provide direct access to the customer information system through local exchange facilities) on the ground that these are high usage lines.  Datran claims further that the construction of new local distribution facilities is essential to its proposal, both to maintain the continuity of digital transmission and also since "existing data transmission service often provides substantially reduced capability and reliability in total (or end-to-end) communications services because of the reduced transmission quality in local distribution circuits." n37

n37 The Commission has received a complaint from a Boston company to the effect that the operation of its computer is being adversely affected by line noise in the local exchange lines.  We note that AT&T states that in all major metropolitan areas most of the local central offices and toll switching offices have digital T-1 carrier facilities which are used for the provision of both voice and data services. [**83]

69.  In light of the foregoing and since some of the applicants are proposing new construction of local facilities by themselves and/or their customers, comments are requested on what would be the appropriate means for achieving local distribution of the proposed services.  If new construction is necessary, the use of wire or cable is certainly one desirable avenue to be explored.  We recognize that the use of radio may offer economies over wire or cable and save time, particularly in cites where underground construction would be required.  AT&T contends that Datran's proposed use of the 11 GHz band would be inappropriate for this purpose.  While we are tentatively of the view that the 11 GHz band should be reserved for intercity use, comments are requested on the compatibility of using 11 GHz frequencies for intercity and intracity transmission and what, if any, technical standards would be required to facilitate the accommodation of both.  Comments are also requested on the feasibility of using 18 or 50 GHz frequencies for intracity distribution, or some other portion of the spectrum above 11 GHz.  n38 There is a further question as to whether there should be more than one local [**84]  system to distribute  [*349]  interstate signal within a particular metropolitan area.  In the event that new construction is necessary, would it be preferable for this to be undertaken by the local telephone company or by another entity?  To the extent that the telephone company may not perform this function, is it technically and economically feasible for each of the applicants and/or his customers to construct his own local loop facilities or would the public interest be better served by encouraging a sharing of facilities to the extent practicable?  n39

n38 In 1968, the Commission denied (12 FCC 2d 936) a petition by TelePrompTer Corporation for rule making to allocate 18 GHz frequencies for a high capacity, local distribution service for use in conjunction with CATV systems on the ground that piece-meal allocation of the higher spectrum would run counter to the public interest prior to a determination of communications satellite requirements and other potential uses, and would be inadvisable prior to the outcome of the 1971 international space conference on spectrum allocations.  As preparation for the space conference progresses, it may prove possible to lift this freeze prior to that time.

n39 To some extent, similar questions were raise by Part V of the Commission's Notice of Proposed Rule Making and Notice of Inquiry in Docket No. 18397 (15 FCC 2d 417, 441-443). Pertinent material in comments filed in that proceeding will be considered here and need not be resubmitted. [**85]

70.  In short, while it may be comparatively easy to accommodate new intercity facilities, the matter of intracity distribution may prove to be more troublesome.  None of the applications has actually applied for local distribution facilities or submitted concrete proposals as to interconnection or the leasing of facilities.  Applicants and other interested persons are requested to address this aspect fully in their comments, with particular attention to the technical feasibility and comparative costs of the various alternatives and the effect on charges to subscribers for end-to-end service.


71.  The foregoing constitute the areas in which we are proposing to prescribe procedures and regulations.  The parties may suggest other areas where the establishment of guidelines might assist in the case-by-case consideration of these applications, and are requested to address in their reply comments any suggestions submitted by others.

72.  There is one further matter which warrants action at this time.  As previously noted, the specialized common carrier applications have occasioned a tremendous number of opposition and reply pleadings and many more pleadings are [**86]  expected to be filed in the future.  In view of this proceeding it is obvious that the continuation of further pleadings in substantial numbers will not be helpful at this time.  Moreover, a resolution of the issues in this proceeding would remove the necessity for addressing some of these questions in pleadings filed with respect to a particular set of applications.  Therefore, we will order a moratorium on the filing of further pleadings.  When we have resolved the policy and rule making issues in this proceeding or when we are prepared to consider any set of applications which is subject to further pleadings, an order specifying a schedule for filing such pleadings will be issued.  We will continue to place new specialized common carrier applications and major amendments thereto on public notice for purposes of frequency coordination.  N40 All applicants and existing carriers should continue to resolve frequency conflicts so that future pleadings can be eliminated or simplified. 

n40 Carriers should notify applicants of claimed frequency conflicts and route blockages as soon as possible.

73.  Authority for the proposed procedures and rule making instituted herein and for [**87]  the policies recommended by the staff is contained in Sections 4 (i) and (j), 201, 202, 203(a), 214, 218, 219, 220, 301, 303, 307-309, and 403 of the Communications Act.

 [*350]  74.  In Interested persons may file comments on the foregoing matters on or before October 1, 1970, and reply comments on or before November 2, 1970.  In reaching its decision in this matter, the Commission may also take into account any other relevant information before it, in addition to the comments invited by this Notice.  In accordance with the provisions of Section 1.419 of the Commission's Rules and Regulations, an original and 14 copies of all comments, shall be furnished to the Commission.  Parties should address themselves to the question of whether oral argument before the Commission en banc would assist in a resolution of this matter.


75.  IT IS ORDERED, That the time for filing petitions to deny and other pleadings involving applications listed in the Appendix hereto or new applications by specialized carriers to provide services of this nature, which pleadings are not due as of the release date of this Order, IS HEREBY EXTENDED to a date to be specified by further order.









I regard this as presenting one of the most important issues we have ever considered in the common carrier field.  I recognize that each of the issues (A-E inclusive) listed on page 13 are critical to the entire future of common carriers in the country and to the users of existing and new forms of service.  I have previously expressed some doubts on duplicating common carrier facilities serving the same points (See my dissent in Microwave Communications, Inc., 18 FCC 2d 953, 973).

I believe that decision has resulted in the almost 2000 conflicting applications now on file which give rise and urgency to the problems now before us.  This document expresses certain tentative conclusions  [*353]  reached by the staff.  My concurrence here should not be interpreted as any endorsement or leading toward the views expressed.  Rather, I intend to review the comments of all parties.



I concur in the majority's action here.  On balance I believe the action will speed the Commission's resolution of the important policy questions which it confronts [**89]  in the area of proposed specialized common carrier services.  I do not believe the Commission's action is as effective as it might have been -- and I am fearful that this new proceeding is simply a prelude to interminable delay which can only benefit the present entrenched monopolists who oppose the new customized carrier entrants.

The Commission here puts forward in the most tentative way possible a "staff position" of the threshold question of appropriate general policy on entry.  This is a rather timid way to approach the question.  The Commission arguably has before it sufficient facts, analysis, and positions of the parties pleaded in response to the MCI case and later applications to reach a final policy conclusion on the threshold question.  We have at least enough before the Commission for it to issue this document as its own tentative policy proposal.  As a matter of fact, a motion to adopt a document substantially as this one is written, but as the Commission's tentative policy, failed by a three to three vote.  I regret the Commission's unwillingness more boldly to confront issues of such national importance, and to support its staff when the staff must withstand such [**90]  strong opposition by the established carriers.

The Commission's action here is designed to minimize the undue procedural delay which established common carriers have been able to cause in their intense efforts to frustrate new entry in the common carrier industry.  This delay has a serious impact on the general community which is denied the benefits of this competition.  For example, the MCI proceeding began in February 1966.  Now more than four years later the carriers who oppose MCI continue to wage a delaying battle both before the Commission and in the courts.  Delaying tactics of this sort can only have the most serious impact on communications users, and additionally, I believe, in the long run best interests of the established carriers.  The present situation is roughly analogous to the circumstances of the Carterfone case where Bell's intransigent opposition to flexible attachment and interconnection for over 13 years is now recognized even within the Bell System as an unwise policy from the company's point of view.  Carterfone will mean better service, more flexible and responsive service, and will mean that the Bell System will find more customers who, with more useful [**91]  equipment and communications systems, will use the Bell network.  Bell's policy in Carterfone in short was terribly shortsighted.  Its present policy on competition is equally defective.

This is not to say that the Commission's action today will solve all the problems of delay.  This is clear from the Commission document.  There will be delay while this proceeding is underway.  The views expressed  [*354]  here are tentative and subject to reversal.  The established carriers will no doubt work to that end.

More importantly two policy issues remain apparently unamenable to resolution -- at least as the Commission is now considering action.  First we have to yet develop pricing guidelines to prevent cross-subsidy between competitive and monopoly services by a single carrier.  I do not believe our action today will do much to further determination of those guidelines.  This is a job I believe we cannot ignore much longer.  I think the majority action here recognizes that fact.  I am unsure that any achievements will be forthcoming.

Perhaps the most serious unresolved difficulty which will exist even after a satisfactory conclusion of today's action will be the frequency management problem.  [**92]  The established carriers and those proposing new services, whether they be specialized common carriers, domestic satellite system operators, or others must compete for the right to use a scarce natural resources -- the radio spectrum.  If one's potential competitor can be denied access to spectrum -- which must be allocated by the FCC -- then competitive entry can be hindered or barred entirely.  The Commission's action here provides that frequencies will be allocated usually on a first-come-first-serve basis with newcomers required to adjust their applications to eliminate conflicts in so far as possible.  Established carriers will be allowed to retain frequencies they already have plus those frequencies needed to effectuate planned routes or to expand present route plans.  The opportunity for "bankrolling" spectrum to hinder entry is clearly present.  Since the costs to a "bankroller" of spectrum are almost zero, there will be every incentive to do so.  In addition, technical standards may be imposed on new applications which are not now required of the established carriers.  The elimination of frequency diversity is one example.  It is not clear from the majority's discussion  [**93]  of these problems that any satisfactory resolution can be developed in this proceeding absent a full recognition of the competitive and other economic implications of the Commission's allocative procedures for radio spectrum and a subsequent complete revamping of spectrum allocation procedures.

I do not mean to suggest that I am in basic disagreement with the Commission's action here.  But at the same time it should be clear that the battle to bring competitive influences to bear on common carrier utility regulation is only beginning -- and the effort will require sustained activity on the part of the Commission against vested interests anxious to protect their entrenched positions.




The following point to point microwave proposals from entities proposing to establish themselves as "specialized" common carriers are on file in the Domestic Radio Division of the Common Carrier Bureau as of June 25, 1970.

Interdata Communications, Inc. File Nos. 3386/3396-C1-P-69.  Filed December 4, 1968.  Proposes 11 microwave stations for specialized, private line service between New York City and Washington, D.C. and intermediate points.

MCI-New York West, Inc. File Nos. 1366/1430-C1-P-70.  [**94]  Filed September 7, 1969.  Proposes 65 microwave stations for specialized, private line service between Chicago and New York City and intermediate points.

MCI Pacific Coast, Inc. File Nos. 2445/2500-C1-P-70.  Filed November 3, 1969.  Proposes 56 microwave stations for specialized private line service between San Diego, California and Everett, Washington and intermediate points.

MCI north Central States, Inc. File Nos. 2868/2883-C1-P-70.  Filed November 24, 1969.  Proposes 16 microwave stations for specialized private line service between Minneapolis and Chicago and intermediate points.

Data Transmission Co. (Datran).  File Nos. 2926/3169-C1-P-70.  Filed November 25, 1969.  Proposes 244 microwave stations in a major switched network for data transmission between 35 major cities from Boston to San Francisco.

New York-Penn Microwave Corp. File Nos. 3216/3282-C1-P-70.  Filed November 28, 1969.  Proposes 67 microwave stations for specialized private line service between Chicago, Detroit and New York City and intermediate points (competitive with MCI-New York West) to interconnect with New York-Penn Microwave Corp. filing of February 13, 1970.

MCI New England, Inc. File Nos. 3392/3408-C1-P-70.  [**95]  Filed December 11, 1969.  Proposes 17 microwave stations for specialized private line service Boston to New York and Boston to New Bedford, Massachusetts.

MCI Michigan, Inc. File Nos. 4320/4345-C1-P-70.  Filed February 6, 1970.  Proposes 26 microwave stations to provide customized communications service between Grand Rapids, Pontiac, Saginaw, and Detroit, Michigan; South Bend, Indiana; Toledo, Ohio; and intermediate points.

Western Tele-Communication Inc. File Nos. 4265/4290-C1-P-70.  Filed February 6, 1970.  Proposes 26 microwave stations for specialized communications service between San Diego, California and Seattle, Washington, and intermediate points, to interconnect with Microwave Transmission Corp. for Los Angeles-San Francisco California portion of service.

Microwave Service Company, Inc. File Nos. 4437/4501-C1-P-70.  Filed February 9, 1970.  Proposes 65 microwave stations for specialized communications service between San Diego, California and Seattle-Everett, Washington and intermediate points.

Southern Pacific Communications Co. File Nos. 4502/4558-C1-P-70.  Filed February 9, 1970.  Proposes 57 microwave stations to provide specialized communications service between [**96]  San Diego, California and Seattle, Washington and intermediate points.

Astron Corporation.  File Nos. 4347/4402-C1-P-70.  Filed February 9, 1970.  Proposes 56 microwave stations for specialized communications service between San Diego, California and Everett/Seattle, Washington.

Microwave Transmission Corp. File Nos. 4422/4436-C1-P-70.  Filed February 9, 1970.  Proposes 15 microwave stations for specialized communications service on an interstate basis to interconnect at Los Angeles, California and San Francisco, California and proposed facilities of Western Tele-Communications, Inc.

New York-Penn Microwave Corp. File Nos. 4616/4637-C1-P-70.  Filed February 13, 1970.  Proposes 22 microwave stations for specialized service between Washington, D.C. and Boston, Massachusetts and interconnection with previously filed (11-28-69) New York-Penn Microwave Corporation applications for service between Chicago, Detroit, and New York City.

Mitran, Inc.  File Nos. 5703-5724-C1-P-70.  Filed March 31, 1970.  Proposes 22 microwave stations for specialized service between Minneapolis-St. Paul and Chicago, together with intermediate points.

United Video, Inc. File Nos. 5726/5819-C1-P-70.  [**97]  Filed March 31, 1970.  Proposes 94 microwave stations for data transmission service between Chicago/Minneapolis and Dallas and intermediate points.

CPI Microwave, Inc. File Nos. 5881/5906-C1-P-70.  Filed April 2, 1970.  Proposes 26 microwave stations for data communications between Ft. Worth-Dallas and Houston and intermediate points, all in the State of Texas.

MCI St. Louis-Texas, Inc. File Nos. 5922/5963-C1-P-70.  Filed April 3, 1970.  Proposes 42 microwave stations for customized communications between St. Louis and Dallas and intermediate points.

MCI Texas East Microwave, Inc. File Nos. 6066/6099-C1-P-70.  Filed April 10, 1970.  Proposes 34 microwave stations for specialized communications between the states of Texas and Louisiana.

West Texas Microwave Co. File Nos. 6133/6163-C1-P-70.  Filed April 13, 1970.  Proposes 31 microwave stations for specialized communications between Fort Worth, Amarillo and El Paso, Texas.

KHC Microwave Corporation d/b/a United Video/Louisiana.  File Nos. 6496/6519-C1-P-70.  Filed April 14, 1970.  Proposes 24 microwave stations for data transmission systems for data transmission system between Looneyville/Houston and New Orleans.

East Texas [**98]  Transmission Co. d/b/a United Video/Texas. Files Nos. 6869/6873-C1-P-70.  Filed April 14, 1970.  Proposes 5 microwave stations for data transmission system between Dallas and Jacksonville, Texas.

United Video, Inc. File Nos. 6583/6651-C1-P-70.  Filed April 14, 1970.  Proposes 69 microwave stations for data transmission system between Chicago and New Orleans.

MCI Mid-Atlantic Communications, Inc. File Nos. 6652/6688-C1-P-70.  Filed April 14, 1970.  Proposes 37 microwave stations for customized communications between Washington, D.C. and Atlanta, Georgia.

Nebraska Consolidated Communications Corporation. File Nos. 6185/6314-C1-P-70.  Filed April 14, 1970.  Proposes 130 microwave stations for specialized communications between Minneapolis-St. Paul to Houston and Atlanta, includes major interim points. (14 States)

Southern Pacific Communications Co. File Nos. 6401/6495-C1-P-70.  Filed April 14, 1970.  Proposes 95 microwave stations for specialized communications between St. Louis and Los Angeles and intermediate cities.

MCI Kentucky Central, Inc. File Nos. 6704/6737-C1-P-70.  Filed April 14, 1970.  Proposes 34 microwave stations for specialized communications between the states [**99]  of Kentucky, Ohio, Indiana, Illinois, Tennessee, Georgia and Alabama.

MCI Texas-Pacific, Inc. File Nos. 6336/6399-C1-P-70.  Filed April 14, 1970.  Proposes 64 microwave stations for customized communications between Dallas, Texas and Los Angeles, California.

Western Tele-Communications, Inc. File Nos. 6776-6793-C1-P-70.  Filed April 14, 1970.  Proposes 18 microwave stations for customized communications between Los Angeles, California and El Paso, Texas and Hobbs, New Mexico.

MCI Mid-continent Communications, Inc. File Nos. 8235/8291-C1-P-70.  Filed June 12, 1970.  Proposes 57 microwave stations for customized communications in the states of Minnesota, South Dakota, Iowa, Nebraska, Colorado, Kansas, Misouri and intermediate points.

Western Tele-communications, Inc. File Nos. 8300/8326-C1-P-70.  Filed June 12, 1970.  Proposes 27 microwave stations for "Los cost customized" interstate communications between Denver, Colorado; Hastings, Lincoln and Omaha, Nebraska; Sioux City, Iowa; and Sioux Falls, South Dakota.

Western Tele-communications, Inc. File Nos. 8327/8358-C1-P-70.  Filed June 12, 1970.  Proposes 32 microwave stations for "Los cost customized" interstate communications [**100]  between the cities of Denver, Dodge City, Whicita, Topeka, Tulsa, Oklahoma City, and Kansas City.

Western Tele-communications, Inc. File Nos. 8292/8299-C1-P-70.  Filed June 12, 1970.  Proposes 8 microwave stations for "Low cost customized" interstate communications between Sioux Falls, South Dakota and Minneapolis, St. Paul, Minnesota.

Associated Independent Telephone Microwave, Inc. File Nos. 8379/8395-C1-P-70.  Filed June 12, 1970.  Proposes 17 microwave stations for data and private line communications between New Orleans and Houston and Intermediate points, all within Louisiana and Texas.

Telephone Utilities Service Corp. File Nos. 8296/8431-C1-P-70.  Filed June 12, 1970.  Proposes 36 microwave stations for private line data communications in the central Texas region.

Microwave Communications, Inc. File Nos. 8359/8378-C1-P-70.  Filed June 12, 1970.  Proposes 20 microwave stations to expand their present route in customized communications to include Dubuque and Davenport, Iowa.

MCI Mid-South, Inc. File Nos. 8691/8738-C1-P-70.  Filed June 19, 1970.  Proposes 48 microwave stations to provide specialized service between Atlanta, Birmingham, Memphis, Little Rock, Jackson,  [**101]  New Orleans, Mobile and intermediate points.

Total 1713 stations as of 6-25-70.


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