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Docket No. 19546




35 F.C.C.2d 975




July 25, 1972 Released


 Adopted July 12, 1972





1.  We have before us a "Petition for Rejection of Tariff or, In The Alternative, For Suspension and Designation For Hearing," filed on May 22, 1972, by Microwave Communications, Inc. (MCI) and a reply thereto which was filed on June 8, 1972, by The Western Union Telegraph Company (Western Union).  Both MCI and Western Union also filed the following additional pleadings for which authorization pursuant to Section 1.45(c) of the Commission's Rules was neither requested nor received.  A Response of MCI to Western Union's Reply to Petition For Rejection or Suspension filed by MCI on June 19, 1972.  A Motion to Strike "Response of MCI to Western Union's Reply to Petition For Rejection or Suspension filed by Western Union on June 23, 1972 and a Rely to Motion to Strike filed by MCI on June 27, 1972.  Since these pleadings are unauthorized we have not considered them in our disposition of this matter.  The MCI Petition is directed to revisions in Western Union's private line Tariff F.C.C. No. 254, which were filed on April 6, 1972, to become effective June 5, 1972.  n1 MCI contends that the proposed tariff revisions should be rejected or suspended and designated for hearing, since said revisions are barred by paragraph 11 of our Memorandum Opinion and Order of February 3, 1972, in Docket No. 18128 33 F.C.C. 2d 522, fail to comply with Section 61.38 of the Commission's Rules, are predatory in purpose and impact, and are designed to exclude or limit competition in a market where the F.C.C. has found that such competition is feasible and will serve the public interest. 

n1 Western Union voluntarily deferred the effective date thereof until July 15, 1972.

2.  On April 6, 1972, Western Union filed its Transmittal No. 6721 covering revisions to its Tariff F.C.C. No. 254 designed to reduce rates for voice and medium speed data channels between St. Louis and Chicago to match those for similar services currently being provided by MCI.  Western Union premises its changes in rate levels and rate structures upon competitive necessity.  As a result of the proposed revisions, Western Union submits that its total charges between St. Louis and Chicago for voice and medium speed data channels will be reduced 14% to 32% overall, as compared to its current charges.  However, the proposed service terminal charge represents an increase over the service terminal charge presently applicable to private line voice and data channels provided elsewhere in the United States.  Western Union also proposes to match MCI's offering of daytime only service from 7:00 a.m. to 7:00 p.m. or from 8:00 a.m. to 8:00 p.m. at a 25% reduction in channel rates under full-time, 24-hour, service.

3.  MCI urges that Western Union's revised tariff schedules either be rejected, or in the alternative, suspended and designated for hearing.  MCI believes the revised tariff schedules raise serious questions of lawfulness, since they are predicated upon new rate making principles and that these matters should be resolved in Docket No. 18128.  Therefore, MCI contends that the current Western Union filing is barred by paragraph 11 of our Memorandum Opinion and Order of February 3, 1972, 33 F.C.C. 2d 522, unless special permission is obtained from the Commission for such a filing and that, since Western Union has neither requested nor received such permission, the filing should be rejected.

4.  MCI also maintains that the proposed tariff changes in effect institute a new subclassification of service since Western Union has no voice frequency channel customers between Chicago and St. Louis, except for Telpak or Datacom users.  MCI concludes that since Western Union's Section 214 authority and radio licenses contain conditions that no new classification or subclassification of service be instituted without prior authorization of this Commission, the instant filing is barred, and should be rejected in the absence of such permission.

5.  More specifically, MCI alleges that the instant filing does not explain the changed matter, the reasons for the filing, and the basis of rate making employed; that it does not include a cost of service study for the most recent 12 month period nor does it include projected costs for a 3 year period beginning at the date of filing; that it does not include adequate estimates of the effects of changes upon Western Union's other services and overall operations; and that the working papers do not contain the required underlying data nor clearly indicate how they relate to the data called for by the Rules.  Such failures, MCI contends, constitute violations of Section 61.38 of the Commission's Rules, and on this basis Western Union's filing should be rejected.

6.  In summary, MCI submits that Western Union's revised tariff schedules constitute more than just minor tariff changes on a short segment of Western Union's transcontinental system and that the instant filing is the first departure by an established carrier from nationwide averaging of costs and rates.  Thus, it could assertedly become a precedent for similar action by the American Telephone and Telegraph Company and other existing carriers.  MCI alleges that the revised tariff schedules are predatory in purpose and impact, are discriminatory, and are designed to exclude or limit competition in a market where the F.C.C. has found such competition is feasible and will serve the public interest.  Moreover, MCI alleges that because of Western Union's monopoly position, a great danger exists of cross-subsidization of its competitive services -- a danger the Commission must recognize and guard against.

7.  Western Union, in its reply to MCI's petition, contends that MCI's allegations as to predatory pricing and unlawful discrimination are unfounded and unsubstantiated.  It alleges that it is only meeting, and not underpricing competitive rates established by MCI, and that competition implies that a supplier be free to meet the price set by a competitor.  Specifically, Western Union denies that its present filing is barred because of our Memorandum Opinion and Order of February 3, 1972, supra, or because of the conditions we have imposed on its 214 certificates and radio licenses.  In the first instance, Western Union urges that the purview of paragraph 11 of our February 3rd Order is beyond our statutory authority, that, alternatively, the instant tariff revisions would not impede in the slightest the conclusion of Docket No. 18128, and that, in any event, the filing is authorized by Special Permission 6466 issued by the Chcief, Common Carrier Bureau on March 9, 1972.  In particular, Western Union contends that neither the issues nor the evidence in Docket No. 18128 relate directly to the principles applicable to the pricing of Western Union's competitive services, but solely to those of the Bell System.  Western Union denies MCI's contention that a subclassification of service has been created and alleges it has been offering voice transmission since at least 1938.

8.  Western Union maintains that its supporting statement of 24 pages and 6 attachments demonstrate clear and complete compliance with Section 61.38 of the Commission's Rules, and that while MCI's allegations may be indicative of its disagreement with the accuracy of the content and methodologies used, MCI has failed to show any specific deficiencies in the Western Union filing as to Section 61.38 of the Rules.  Western Union contends that since it presently has no customers for the service covered by the revised tariffs, the most recent 12 month period rule is inapplicable.  Moreover, Western Union does not believe that Section 61.38 of the Commission's Rules requires the use of data reflecting the most recent 12-month period but rather means the use of the most recently available data for the purpose used.  Western Union also notes that the use of a 12-month non-calendar year is not practical for its purposes.  In both instances, Western Union insists that a strict interpretation of Section 61.38 would require it to institute substantial and time consuming special studies.  Generally, Western Union contends that the requirements of Section 61.38 of the Commission's Rules have been met, and no ground exists for rejection.

9.  In summarizing its position, Western Union contends that it is meeting MCI's charges as a matter of competitive necessity, that its reductions are cost justified on the basis of fully allocated costs, that the Commission provided for such competition in its decision in Docket No. 18920, and that in effect, MCI is seeking a "protective umbrella" from such competition, a shelter it was not guaranteed in Docket No. 18920.

10.  In our decision in Specialized Common Carrier Services 29 FCC 2d 870, we stated that our policy objective is "to promote and maintain an environment within which existing and any new carriers shall have an opportunity to compete fairly and fully in the sale of specialized services" and that "our rate-making and regulatory policies and practices will be appropriately adopted to accomplish this objective." (29 FCC 2d, at page 915) Further, we stated that, although we would address any problems that may arise with due regard for the pricing and costing principles and factors established by our proceedings in Docket 18128, "we will not delay the institution of new specialized services by existing or new carriers pending the outcome of that Docket." (29 FCC 2d, at page 917). Finally, we stated that "where services may be in direct competition, departure from uniform nationwide pricing practices may be in order, and in such circumstances will not be opposed by the Commission," and that "there is no reason to delay the public benefits that may derive from active and vigorous participation by the Bell System and Western Union in this market, so long as their participation is not a burden upon or significantly detrimental to their other services." (29 FCC 2d, at page 915)

11.  Western Union's tariff filing is the first rate action by an established carrier which raises questions of compliance with the aforementioned policy objectives of the Commission.  Thus, one of the questions raised by this filing is whether the offering is or will be a burden on or significantly detrimental to Western Union's other services.  The general rate-making principles and guidelines to be determined in Docket 18128 may have relevance to this particular issue.  However, the filing herein also raises other questions relating, for example, to internal rate structure and rate relationships that will not be resolved in Docket 18128 (e.g., the imposition of substantially higher charges on nighttime than daytime service and higher charges for local service terminals used in the St. Louis-Chicago service than apply to service to or from other points).  In is our opinion that we should designate this particular tariff offering for investigation and hearing on all questions of lawfulness in a proceeding separate from Docket 18128, particularly in view of our objective to complete the record in Docket 18128 and to resolve the issues therein as soon as possible.  To the extent applicable herein, we will of course give due consideration to the principles and guidelines determined in Docket 18128 in resolving the question of lawfulness raised by this particular tariff filing.

12.  We need not resolve the question of whether Western Union has complied with paragraph 11. of our February 3, 1972 order in Docket 18128.  The purpose of that requirement was to prevent the filing of tariff revisions that might "unduly disrupt or delay the conclusion of the case." We do not consider that the Western Union tariff filing herein is in that category.  Accordingly, this particular requirements is waived under the circumstances of this case.

13.  We agree with MCI that Western Union's offering is for a new class or subclassification of service and that Western Union was required under the conditions of its outstanding authorizations and licenses to obtain prior approval by the Commission before offering the service.  However, that particular requirement was imposed upon Western Union (and the Bell System) before the Commission established its aforementioned policies with respect to full and fair competition between established and new carriers in the sale of specialized services.  We shall therefore waive this particular requirement particularly under the circumstances of this case where MCI and other interested parties have had more than 90 days' notice of the proposed tariff offering and have had ample opportunity to submit their objections thereto.

14.  We disagree with MCI's contention that Western Union failed to comply with Sec. 61.38 of our rules by not submitting a cost of service study for the "most recent 12-month period." This requirement does not apply where, as in this case, the tariff offering is for a service not previously offered (see Sec. 61.38(a)).  However, MCI is correct in alleging that Western Union failed to comply with Sec. 61.38 insofar as the carrier submitted a projection of costs for a three-year period that did not begin with "the date of the filing of the tariff matter" as our rules require.  The tariff was filed on April 6, 1972, and Western Union's 3-year cost projection begins with the first of the calendar year rather than the April filing date.  We deem this deviation from our rules to be inconsequential under the circumstances of this case.  In the hearing that we are ordering. MCI and other parties will have full opportunity to inquire into the reasonableness of the claims of Western Union as to the costs of this service offering.  Accordingly, we waive the requirements of our rules in this particular respect.

15.  MCI makes other allegations concerning the methods used by Western Union in making its cost studies and projections that raise questions as to the weight to be given to such studies.  For example, the utilization by the carrier of different time frames for the development of cost data and estimates raise a question of consistency in Western Union's approach.  However, such questions as these can best be resolved on the basis of evidence adduced on the record in the hearing we are ordering.  To sum up, therefore, we are instituting an investigation and hearing to determine the cost, competitive and other considerations underlying Western Union's new rate offering; its relationship to the other nationwide offerings of Western Union; and whether, in any respect, the tariff offering is or will be unjust, unreasonable or unduly discriminatory or preferential within the meaning of Sections 201(b) and 202(a) of the Act.

16.  Western Union argues that, if the Commission concludes that an investigation of its tariff offering is necessary, then even-handed treatment of competitors also requires an investigation into the lawfulness of MCI's tariff.  We disagree.  Western Union has not challenged the lawfulness of MCI's tariff and we see no need to designate MCI's tariff for hearing at this time.  However, MCI will be named herein as a party and it is expected that MCI will provide, as requested, such relevant data as may be needed to facilitate the resolution of the issues in this proceeding.

17.  Accordingly, in view of the foregoing, IT IS ORDERED, That, pursuant to the provisions of Sections 201, 202, 203, 204, 205 and 403 of the Communications Act of 1934, as amended, an investigation and hearing is instituted into the lawfulness of Western Union's revised private line service schedules in its Tariff F.C.C. No. 254, which were filed on April 6, 1972, under Transmittal No. 6721, as enumerated in Appendix A hereto including cancellations, amendments or reissues thereof;

18.  IT IS FURTHER ORDERED, That, without in any way limiting the scope of the investigation, it shall include consideration of the following:

(1) Whether the charges, classifications, practices and regulations published in the aforesaid tariffs are or will be unjust or unreasonable within the meaning of Section 201(b) of the Act;

(2) Whether such charges, classifications, practices and regulations will, or could be applied to, subject any person or class of persons to unjust or unreasonable discrimination or give any undue or unreasonable preference to any person, class of persons, or locality, within the meaning of Section 202(a) of the Act;

(3) If any of such charges, classifications, practices, and regulations are found to be unlawful; (a) whether the Commission should prescribe charges, classifications practices, and regulations for the service governed by the tariffs, and if so, what should be prescribed; or (b) whether the Commission should take other corrective action and, if so, the nature thereof.

19.  IT IS FURTHER ORDERED, That, a hearing be held in this proceeding at the Commission's Offices in Washington, D.C., at a time to be specified; and that the examiner to be designated to preside at the hearing shall certify the record, without preparation of an initial or recommended decision, and the Chief of the Common Carrier Bureau shall thereafter issue a recommended decision which shall be subject to the submittal of exceptions and requests for oral argument as provided in 47 CFR 1.276 and 1.277, after which the Commission shall issue its decision as provided in 47 CFR 1.282;

20.  IT IS FURTHER ORDERED, That, MCI's Petition for Rejection of Tariff, or In the Alternative, for Suspension and Designation For Hearing IS GRANTED to the extent herein indicated and otherwise DENIED:

21.  IT IS FURTHER ORDERED, That, Western Union Telegraph Company is hereby named Party Respondent and Microwave Communications, Inc. is named Party Intervenor.








Once again the Commission confronts the problem of the regulation of competition in common carrier telecommunications.  Once again it decides to hold another proceeding -- while the behavior that is complained about goes on unchecked.  It is time that competitors who believe that they are injured by allegedly predatory behavior of carriers supposedly subject to this Commission's jurisdiction look to the antitrust laws for relief.  They cannot expect relief here.  They can even argue with great persuasiveness that there is in fact no pervasive regulatory environment which might bar antitrust action.  I believe that endless proceedings without assurance of completion, combined with a refusal to stop allegedly anticompetitive action against competitors, constitutes agency abdication of its regulatory responsibilities.

What is the problem here?

MCI is a company that has been trying, since 1963, to enter the communications common carrier market between Chicago and St. Louis as a competitor with Bell, Western Union and other established carriers.  Before MCI could start, it had to get a separate Section 214 authorization from the FCC.  That process began with an FCC hearing order in February, 1966.  In August, 1969, after a favorable Initial Decision, the full Commission granted MCI's application, 18 F.C.C. 2d 953, over the objections of the established carriers including Western Union and Bell.  Reconsideration was denied in January, 1970.  21 F.C.C. 2d 190. And in January, 1971, certain modifications in MCI's proposal were approved, again over the objections of the established carriers.  27 F.C.C. 2d 380, MCI began operation on the Chicago-St. Louis route in January, 1972, offering substantial rate reductions for its service compared with that offered by established carriers.

During the time the Commission was considering the MCI application, the FCC also conducted a general policymaking proceeding on the entry of specialized carriers such as MCI.  It began in July, 1970, 24 F.C.C. 2d 318 (1970), and was completed in May, 1971, 29 F.C.C. 2d 870 (1971). The proceeding focused on the general policy questions raised by the entry of new carriers and the competitive response of established carriers.  It was expected that established carriers would compete with the new entrants.  The Commission attempted to deal with the problem of how to insure competition while guarding against a predatory response from established carriers financed by monopoly revenues and overwhelming market power.

The July, 1970 notice included the following passage:

We must not overlook 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 Rulemaking 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 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.  24 F.C.C. 2d at 336.

In its May 1971 decision the Commission said:

We do contemplate full and fair competition in the specialized field among all carriers, both established and new, and will address any problems as they arise with due regard, when appropriate, for the pricing and costing principles and factors established by our proceedings in the aforementioned Docket No. 18128.  29 F.C.C. 2d at 916-17.

Thus, the Commission continued to recognize the potential problems of predatory behavior by established carriers trying to limit and drive out new competition.  The 1970 notice promised action in the "near future." Two years later, the "near future" is at least a year off.  Meanwhile MCI has begun service.  And so has the reaction by the established carriers.

In its decision today the Commission permits Western Union, which does not offer service such as that offered by MCI on the Chicago-St. Louis route, to institute a service exactly matching the MCI tariff.  Its rates are at the same 14% to 32% reductions below AT&T charges that MCI proposes.  But Western Union says that its costs, figured by a theory which purportedly includes much more cost than Bell's pricing theories, would nevertheless permit Western Union to price below MCI and still recover its costs.  The gullible majority finds nothing in this gimmicky manipulation of the Commission's rules (requiring full information on new tariff filings) to lead it to reject the Western Union tariff.  In addition, the majority, in its hurry to prove how procompetitive it is, how willing it is to allow established carriers to meet competition no matter what the possibilities of predatory harm, affirmatively waives the requirement that Western Union get specific Commission authorization to begin this service under Section 214 of the Act, and also grants it the special tariff filing permission required to file this tariff.

With all this activity, Western Union is widely viewed in the industry as a stalking horse for Bell.  Once this approval is gained, so the argument goes, then the Commission will be compelled to do for Bell what it has done for Western Union.  And maybe three or four years from now -- unless the Commission does not run true to form and actually takes longer -- little MCI will know whether or not it is being subjected to unfair competition and predatory behavior.  By then the market should be back to normal -- a monopoly.

Chairman Burch (joined by Commissioners Wiley and Reid) has recently explained his views as to the proper role of competition in his dissenting statement to the majority decision in the domestic satellite decision.  He objects to the restrictions placed on Comsat and AT&T, and says the Commission would have been better off to rely on "safeguards, as specified in the earlier Specialized Common Carrier decision, against undue dominance of these specialized markets by existing carriers." He did not specify what those safeguards are, perhaps because there are none -- at least if this decision can be taken as an interpretation of what the specialized carrier decision meant.

The Chairman's statement is reminiscent of another economic ear -- of trusts and monopolists and orbber barons before the Sherman Act.  Dealing with economic realities of competition, market power, predatory behavior and efficient operation has never been the strong suit of regulation, as typified by this agency.  The Chairman's views on domestic satellites would have meant a duopoly/monopoly of Comsat and AT&T in domestic satellites.  The majority's views in this decision lead to the same result terrestrially.

I would either reject Western Union's tariff as not complying with the Commission's rules on required information, or set its application for Section 214 authorization for hearing.  And I would not grant the special permission for tariff filing until this Commission makes a determination that there would be no anticompetitive effect in fact from Western Union's sudden, and not too ingenuous, entry into this market.  I dissent.

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