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1(18) —“spur, industrial, train, switching or side tracks located wholly within one State"-when the otherwise excepted tracks carried interstate traffic. The Commission extended this logic by stating that “preponderance of use” could be no test for the determination of jurisdiction:

We find no authority for the theory advanced by the telephone companies to the effect that this Commission should regard its jurisdiction with respect to the construction of a new line or the extension of any line as being limited to such toll facilities as are intended to be used "primarily" for interstate service. Congress provided no such test. It could have done so if it had so desired. Quite probably, one reason for the absence from the act itself of such a test is that it would be no test. It is doubtful whether the companies themselves, or the Commission, can arbitrarily fix a line to distinguish between that service which is "primary" and that

which is secondary" or "incidental.” 13 This reasoning apparently expedited the Commission's responsibilities in other areas. A crucial example was its discretion to assign all associated facilities to the interstate jurisdiction, including the rerouting operation of switching :

If companies themselves have the discretion to determine, for the purposes of section 214(a) of the act, whether new facilities, admittedly used in some degree for interstate transmission of messages, are or are not interstate facilities, it will be difficult and embarassing, if not impossible, for the Commission to exercise the power expressly given to it by Section 221(c) of the act to classify the property of telephone companies and determine what property of said carrier shall be considered as used in interstate or foreign telephone toll service.' In view of the latter section we cannot attribute to Congress an intent to leave with the carrier the discretion to determine the corresponding question involved in the administration of section 214(a) of the act, and to base that determination on whether or not interstate use is made possible by operation of a switch or similar device. 19 The carriers were advisedly to interpret this decision in conjunction with Mackay Radio:

As to the so-called 'physical line plant' theory advanced in the brief filed by the telephone companies, according to which it is contended that actual physical construction must extend across State line before section 214 of the act

may

be

18 Southwestern Bell, at 532. 19 Id., at 533.

In 1938, sec. 221 (c) was the legislative authority for the FCC's role in the seperations process. As now, with the cooperation of the industry, it devised the interstate rate base as a separate and distinct entity from the intrastate counterpart. In that year, however, the "board-to-board" method of ratemaking was in effect, i.e. none of the joint costs of the local telephone exchange were assigned to the interstate jurisdiction. The "station-tostation" method was introduced in 1943, as a response to the 1930 decision in Smith v. Illinois Bell Tel. Co. 282 U.S. 133. Station-to-station ratemaking recognizes the role of the local exchange in interstate service by allocating a portion of its facilities costs to the interstate rate base, in accordance with its “relative use" for interstate service. The FCC did not gain, however, any jurisdiction over facilities planned strictly for the local exchange.

invoked, reference is made to the case of Transit Commis-
sion v. United States, 289 U.S. 121, and to our decision of this
date in the matter of Mackay Radio & Telegraph Co.'s ac-
quisition and operation of a line or circuit extending from
Washington, D.C., to Baltimore, Maryland (docket No.
4124). Without repeating what we said in that case, we re-
affirm the interpretation placed upon section 214 of the act

in that decision.20 Southwestern Bell appears to have been a major and logical extenşion of Mackay's policy toward leasing of circuits. By this action, and by the rejection of the use of switching to artificially predetermine interstate transmission, the “physical line plant” theory was effectively buried. The Commission exerted itself to undisputedly fix its authority over all interstate toll lines provided by the regulated monopoly, whether or not those lines also provide intrastate capacity.

The issues in Mackay Radio and Southwestern Bell were consciously selected and decided the same day in order to test and settle the FCC's case toward the two sides of section 214's "coin”: the control of competition and the control of additions to the interstate rate base. The regulatory goal in Southwestern was not,

as in Mackay, to restrain competition, for no competition to A.T. & T.'s interstate message telephone service existed. Rather, it was to control the entry of facility investment into the interstate rate base. It also determined that section 214's "line” was clearly an interstate circuit or an interstate channel of communication for purposes of establishing which services (as in Mackay) and which facilities (as in Southwestern) required prior authorization. It was this interpretation that was added to section 214(a) in 1943, in preference to the position of the carriers that the meaning given to the term should be a wire or, at most, a system of wires connecting telephone or telegraph stations with one another.

As in Mackay Radio, the Commission did not explicitly assert jurisdiction over switching facilities necessary for interstate transmission. The effect of switching was established, and was more obvious than in Mackay; but the status of interstate switches was not discussed. Both cases, however, were brought to hearing and resolved during a time when, unlike now, the switching function was a relatively minor and inexpensive portion of A.T. & T.'s overall effort to build and refine a toll network that could provide expedient, sound connections between telephones. As will be discussed,21 that system is the basis of the sophisticated and completely integrated function that the present-day fivelevel switching system provides in rendering service. In contrast, and as background of the 1943 amendments, the so-called "Phantom Circuits” case established explicit section 214 rate base control over other elements of cost, such as carrier and multiplex equipment.

(c) American Telephone & Telegraph Co., 10 FCC 315 (1944):The Commission initiated this proceeding in 1942 in order to examine the facts involved in the establishment by A.T. & T. and the New York Telephone Co., of carrier systems on existing conductors between New York City and Boston. The questions at issue were whether carrier systems constituted "lines” as defined in section 214(a), and whether

20 Id., at 534.
21 See below, pp. 52–79.

the steps taken in building carrier systems constituted "new construction” within the meaning of the proviso clause in section 214(a).

Carrier systems were regarded as an alternative and cheaper method to the installation of additional voice frequency cables to add needed capacity. In essence, the parallel channels dedicated to each distinct two-way communications path were modulated and interconnected so as to derive more circuits per pair of wires than was feasible with voice frequency operation. Capacity was obtained for many more simultaneous conversations from a pair of wires which was otherwise capable of transmitting only one conversation. The extent of carrier use in the Bell System represented approximately 19 percent of long distance circuit mileage by 1942. A.T. & T.'s action was selected by the Commission as representative of the factors pertinent to the settling of section 214 policy toward the construction and operation of such equipment.

The decision found that the new capacity provided by the project constituted additional “lines” under the 1943 amendments, and that its installation did entail "new construction.” The carriers were held to the requirements of section 214 through a review of this logic and of the Commission's own statutory responsibilities:

There can be no doubt that the carrier system provided over the New York-Boston route resulted in new channels of communication established by the use of appropriate equipment. Respondents themselves explicitly recognized that each carrier system between New York and Boston produced 12 new "circuits" or "channels," taking this position in the proceeding herein prior to the time that. Congress defined "line” as meaning "any channel of communication." It is also clear that the channels of communication produced by carrier systems are not established by the “interconnection of two or more existing channels.” When channels are produced by the interconnection of existing channels, a longer channel may result, but the number of channels at any cross section of the route is not increased. In the situation developed in this proceeding, however, the number of channels at any cross section of the route was substantially increased. Ninety-six channels were derived from sixteen pairs of wires, producing channels which had not previously existed. This result was achieved not by interconnecting existing channels, but by the removal of equipment used in voice frequency operation and the incorporation into the cable system between New York City and Boston of a substantial amount of appropriate carrier equipment. We find and conclude that the channels of communication produced by the use of carrier equipment constitute "lines" within the meaning of section 214(a) of the Communications Act of 1934, as amended.

Under our previous findings, authorization should be obtained from the Commission before additional channels of interstate communication are established by means of carrier systems, provided that the establishment of these additional channels constitutes "new construction" within the meaning of the last proviso clause of section 214(a) of the Act. *** The establishment of carrier systems over the New YorkBoston route, which we consider as typical of other carrier

systems, required a substantial amount of construction in
providing new wire lengths, buildings and other structures,
and involved extensive construction work in removing voice
frequency equipment and providing carrier equipment. We
find and conclude that the changes in plant and equipment
involved in providing carrier systems constitute “new con-
struction" within the meaning of the last proviso clause of
section 214(a).

It follows from the foregoing that the requirements of sec-
tion 214 with respect to the obtaining of prior authorization
apply to the construction and operation of carrier systems.
This is in keeping with the purposes of that section as related
to the increasing importance of carrier systems as a method of
providing channels of interstate communication. One of the
purposes of section 214 is to prevent improvident increases in
facilities, with consequent higher charges to the users of the
service ** *. It would be anomalous to exclude from the scope
of section 214 a method of providing communication channels
as significant as the carrier method and to interpret such sec-
tion as limited to the provision of new channels by means of

additional wires.22 The reach of section 214 was significantly broadened in this instance to a broad range of "appropriate equipment" necessary for service involving new construction. While absolute certainty would necessitate a thorough legislative history of the 1943 amendments, it seems that the policy established in “Phantom Circuits” did not contravene the intent of Congress in 1943. Evidently, that Congress did not intend to release the carriers from section 214 responsibility to any significant extent; its amendment was ancillary to the primary legislative purpose of permitting the merger of domestic telegraph companies.

The overall accomplishment of these three landmark rulemakingsMackay Radio, Southwestern Bell, and “Phantom Circuits”-was to establish the section 214 requirement over any form of communications technology which derives channels in interstate service. It is obvious that the Commission was loathe to limit its jurisdiction. This might have been due less to "creeping federalism” than to the fact that communications technology was starting to become, very soon after the passage of the 1934 act, much more convoluted than the railroad track, lines, and switching mechanisms to which its predecessor legislation applied.

Furthermore, section 214 is almost completely devoid of any standards as to apparatus classification, market and service definition, and relevant conditions on certification grants. In fact, a case could be made that section 214 is actually an undefined, administrative title in itself, separate and ditsinct from the reporting and ratemaking specifications in the rest of title II. When it is recalled that one of its two main intends is to control competition and insure satisfactory service an entry and exit control function—this point could be illustrated by reference to the radio services title.

Each clause of title III is in some way related to the conditional and procedural stipulations involved in grants, revocations, and modifica

22 American Telephone & Telegraph Co., at 319–20.

tions of radio construction permits and operating licenses. No station can exist without having been called to account for the issuance of a "certificate.” Yet neither the Congress nor the Commission itself took the opportunity to designate, in any appreciable fashion, the indexes to the FCC's "licensing" power over the provision of new carrier facilities and services.

2. International common carrier (a) Mackay Radio & Telegraph Co., Inc., 2 FCC 592 (1936); aff'd., 68 App. D.C. 336 (D.C. Cir., 1938).-The Mackay Co., filed with the Commission for a license to add Oslo, Norway as a primary point of communication. By this time, there were as affiliates to Mackay Radio in the International Telephone & Telegraph System, the Postal Telegraph Land Line System, and the Commercial Cable Co. Mackay contended that possession of a direct circuit would allow it and its affiliate companies to more effectively compete with the direct circuit already provided by RCA Communications, as it would become the normal route for all International System traffic between the U.S. and Norway.

The main facts of record are as follows: RCAC controlled the sole direct circuit between the U.S. mainland and Oslo, three cable companies handled traffic between the two countries through transfer to foreign connecting carriers at London and Paris, and Mackay had its Norway traffic retransmitted from a circuit it owned in Denmark. The bulk of traffic between the U.S. and Norway was handled by RCAC's radio facilities, because Norway's Government telegraph administration, which controlled most of the outgoing traffic, received a greater financial advantage from using the radio medium rather than cable. The International System had received about 50 percent of the total revenue accruing to all competing international communication carriers during the previous 2 years.

The transmission arrangements planned for unrouted traffic by Mackay and its affiliate companies would have diverted business from Commercial Cable to the Mackay Radio circuit. The rationale hero was that radio wielded a stronger competitive position with respect to U.S.-Norwegian service by way of the Norwegian administration's preference; and this arrangement apparently provided inducement for that government to contract with Mackay. The Commission refuted this reasoning by review of statistics showing that for the previous several years the Norwegian business handled by the cable carriers had held its own or increased as rates comparable with RCAC became effective.

The Commission cited testimony and other evidence in this record as failure to show that the establishment of the proposed route would result in “any improved service to the public”:

[T]he same rates will be charged for the same classes of service over the same types of facilities, with no increase in accuracy or speed of service * * *

The evidence does not show any reason to believe that additional traffic will be developed by the proposed circuit. While it is true that the applicant's traffic will increase generally and in particular by reason of making the proposed circuit

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