Page images


the normal route for all International System traffic between
Norway and the United States, this will result from a mere
shift of traffic from existing carriers to the applicant to the
enrichment of the Norway administration and the appli-
cant, to the detriment of other established carriers with no

resulting benefit to the public. A refusal of Mackay's application was supported, the Commission reasoned, by its responsibility to insure that competition would justify a public need, in terms of section 214 and the radio licensing directives of the enabling statute:

* * * In carrying out [the Communications Act], the incidental advantages or disadvantages to particular companies are not controlling. The provisions of Sections 214, 307, 309, and 319 24 of the Communications Act of 1934 indicate clearly that it was not the intention of Congress to permit an indiscriminate extension of telegraph service merely because it might serve the purpose of a particular company to make the extension. The Commission's duty as found in these sections and as interpreted by the courts when construing similar sections of the Radio Act of 1927 and the Interstate Commerce Act is to determine the public interest, convenience, or necessity from the viewpoint of the country as a whole, uncontrolled by the fact that its decision may hinder an applicant in the execution of plans which the Commission has found will bring about a condition contrary to the public

interest.25 The Mackay Co. appealed for reversal of the decision so as to end what was described as the monopoly of RCAC. It cited sections 311, 313, and 314 of the act to argue mainly that the Congress considered competition in radio be, inevitably, in the public interest. The Radio Commission had, by this reasoning, never refused a license as long as entry would not result in the oversaturation of demand.

The Court held that the Commission did not misconstrue its public interest requirements in this instance by its refusal to grant the license. It reached this conclusion by analyzing the antitrust policy implicit in the Communications Act's radio licensing title, and by referring to court construction of the nonduplication provision in the Transportation Act (evidently in the absence of court analysis of section 214, although this was never referred to here):

Sections 311 and 313 deny licenses to radio concerns which
violate antitrust laws. Section 314 forbids acquisition of each
other's stock, etc., by radio concerns on the one hand and wire-
telegraph or cable concerns on the other, with the purpose

23 Mackay Radio, at 595–96.

24 While having since been amended and made more definitive, sections 307, 309 and 319 were detailed procedural rules to guide action for radio license authorizations :

Section 307 provided general guidelines for procedure for the distribution of grants, renewals, and revocations of radio licenses, and stipulated length of license terms.

Section 309 contained procedures for notice, hearing, and other action on applications for licenses and filings of protest, as well as conditions to be attached to the operation of facilities under license.

Section 319 contained qualifications and conditions for grants of construction permits as issued prior to licensing.

25 Mackay Radio, at 599–600.

[merged small][ocr errors][merged small][ocr errors]

* * *

[ocr errors][merged small]

or effect of substantially lessening competition or restraining
commerce or unlawfully to create monopoly: To prohibit
concerns 'unlawfully to create monopoly' is to recognize that
monopoly may be lawful, as most public utility monopolies
are. These sections do not show, as appellant's argument im-
plies, that two radiotelegraph circuits are necessarily better
than one. Such a belief would be as strange as a belief that
two telephone systems, or two railroads, are necessarily better
than one. It is obvious that two concerns are sometimes worse
than one

The Transportation Act of 1920 requires a railroad to
obtain a certificate of 'public convenience and necessity' be-
fore constructing a new line, and a finding of 'public interest?
before acquiring another line by lease or stock purchase. 49
U.S.C.A. Sections (18–22), 5(2), 20a (2). · [T]he meaning
of that language throws light on the meaning of 'public
interest, convenience or necessity' in the Communications Act
of 1934 ... 'The purpose of the requirement is to prevent
interstate carriers from weakening themselves by construct-
ing or operating superfluous lines, and to protect them from
being weakened by another carrier's operating in interstate
commerce a line not required in the public interest.' Texas
R.R. Co. v. Northside Railway Co., 276 U.S. 475, 479, 48
S. Ct. 361,362,72 L.Ed. 661. .

Appellant's quotations from reports of the former Radio Commission do not show, as appellant contends, that the Commission believed language in the Radio Act of 1927 to require the licensing of competitive radio services wherever the traffic would support them. The quotations show merely the Commission's belief that the statute permitted it to adopt such a policy for its own guidance. 26 Moreover, the statutory language on which appellant relies, which was reproduced in the Communications Act and has been discussed above, will not bear the construction for which appellant con

tends The "Oslo" case was the first time that a public utility rationale (i.e., restriction of entry pursuant to section 214) was construed to apply to radio operations. If the public interest standard would advise a "single circuit” in a particular market, then the controlling issue was not to preclude monopoly—the congressional intent of section 314. Rather, the facts of the case argued for control of market entry through section 214, which is exactly what the Court said. This grafting of section 214 issues to radio, as will be discussed, has also occurred recently, in the Commission's rulemaking that allowed open entry the specialized microwave radio transmission industry.28

The deliberations of the “Oslo” case considered not only the qualifications of the proposal and the adequacy of existing service, but also tried to determine the contractual intent of the carriers' overseas cor



26 See above, n. 23.
27 68 App. DC 336. 337-39.
28 See below, pp. 61-69.

respondent.29 For national sovereignty reasons, the Commission had no control over the Norway administration other than through the medium of its statutory jurisdiction over the activities of domestic-based carriers.

Implicit in the Commission's reasoning seems to have been a presumption that the “dead hand” of cable posed hardly the danger to radio development as had previously been thought, at least insofar as the United States-Norway route was concerned. The statistical evidence 30 seemed to indicate that the cable carriers held their portion of the market defensively, cutting rates as a holding action against the insensitive relationship of radio costs to distance. The radio carriers had maintained their independence, and, in fact, had managed to secure an impressive share of that market. The market relationship between radio and cable was evidently still viable. The Commission, however, felt that any diversion of traffic from Commercial Cable to Mackay would have been for no other reason than to accommodate the financial interests of the Norwegians and thus to secure a larger share of that route for the I.T. & T. conglomerate. Mackay's forecast for the proposed direct link did not prove to the Commission that the resulting service would be an appreciable improvement over that which already existed.

The “Oslo” case was one of a series of rules, rulings, and regulations which twisted the international industry around from its heritage of competition to the opposite philosophy. 31 Its conclusion was the rationale of the nonduplication intent of section 214, and an explicit standard of "public benefit” for authorizations of competition in the international sector; it denied entry when accomplished either at the expense of carriers already occupying the field or when no service improvements were to be expected.

Thus, from the establishment of the FCC in 1934 to the start of World War II in 1939, applications filed for circuits to countries already served by other American radiotelegraph carriers were generally denied by the Commission. The agency did renew authorizations of competing direct radiotelegraph circuits, recognizing grandfather rights to these existing circuits.

By 1947, the time that the Commission acted on an application filed by Mackay to serve South America from New Orleans, the Commission was cautiously returning to the attitude of encouraging entry:

It is recognized that the policy of the Communications Act is to maintain competition in the international field. It is clear, however, from the act, that this does not mean a blind, indiscriminate policy of authorizing extensions of service by the carriers. 33 From 1939, the Commission had followed a rather liberal policy of granting applications for new circuits regardless of whether other

20 See, at 340, the court's support of the Commission's effort on this issue : "[T]he record shows that foreign governments sometimes use the entry of a second radio company into the field as a means of forcing both companies to accept more onerous terms, including a smaller division of the tolls, then were previously imposed upon a single company.

30 Mackay Radio, at 596. 31 Ende, op. cit., III, n. 10, p. 158. 32 Mackay Radio and Telegraph Co., Inc., 5 Pike and Fischer R.R., 561, 567 (1951). 83 Mackay Radio and Telegraph Co., Inc., 4 Pike and Fischer R.R., 963, 984 (1947).

carriers were operating to the points concerned. This was due to wartime exigencies; most international traffic at that time was still routed via London. It became necessary in particular to open direct communications facilities to three Commonwealth areas, Australia, New Zealand, and India. Both RCAC and Mackay were authorized to operate direct circuits to these countries.

In January 1942, at the behest of the Defense Communications Board (later succeeded by the Board of War Communications), the Commission adopted as a wartime measure an affirmative policy for the establishment of parallel circuits from the United States to overseas points. If possible, the parallel routes were terminated at different locations. In January, 1943, the Board of War Communications asked the Commission to follow a reverse policy and to allow the establishment.of a circuit by a single American carrier to each new point. This policy was retained until May 1945, when the Board relaxed its restriction on the establishment of circuits. 34

(6) Radiotelegraph Circuits Between the United States and the British Commonwealth, docket No. 7094; Mackay Radio and Telegraph Company, Inc., docket No. 7412, 12 FCC 530 (1947).- The reasoning involved in the "Bermuda Circuits" case illustrates that the conventional wisdom at the FCC was returning to the promotion of competition in the international sector. In December 1945, a conference was entered into by the United States and the British Commonwealth to determine what should be done with the direct circuits that the FCC had opened to certain of its countries during the war. The British at that time had regarded them as existing only for the duration of the war and for 6 months after. However, the United States was a premier world power; the British colonies were moving toward independence, and preferred alternatives to London as routing and service points.35 An agreement was reached that one direct circuit would be installed or retained to each of several countries, a total of 11 circuits. The Commonwealth governments placed in the agreement a clear expression that they would not permit the operation of more than one circuit between the United States and any of these places.

Both RCAC and Mackay expressed an interest in serving all 11 points. The Commission instituted this proceeding to determine which was better qualified to operate; and it discerned a national policy of maintaining competition in international communications, expressly stating that “the applications at issue should be calculated to maintain as much competition between Mackay and RCAC as is feasible under the particular circumstances of this case." 36 Its dilemma was that, although it granted that RCAC was somewhat more qualified to handle radio circuits than was Mackay, a final decision giving all these points to one carrier would adversely affect, if not destroy, competition. On the other hand, the Bermuda Agreement allowed only one circuit per country, so that the Commission hadn't the usual alternative of granting both circuits to each point. Therefore, it acted on the suggestion put forward by RCAC to make these grants in reference to the existing structure of the entire field of international communi

34 Mackay Radio, op. cit., n. 32.
85 Ende, op. cit., III, n. 10, p. 159.
86 Radiotelegraph Circuits, at 553.

cations, rather than the market share of the two carriers. Ultimately, the decision maintained the status quo. The traffic was divided in such a way so as to give to the two carriers a proportion equal to the respective share they had gotten competitively in the worldwide market:

It is apparent in this case * * * that in view of the limita-
tion in the Bermuda Telecommunications Agreement of one
circuit to each point, it is not possible to reach a result here of
direct competition between RCAC and Mackay as to any of
the points at issue. Generally, competition between two car-
riers regarding any one point of service would be at its sharp-
est where both operated direct circuits to the point. Since in

the Commission has to select one or the other of the
two carriers for each point involved, the grantee for each
point will have such competitive edge as to service to that
point as results from a direct radio circuit. The Commission
is, accordingly, confronted with the necessity of applying the
policy of competition so far as this can be done within the
above limitations * * *

The Commission is of the opinion, however, that such distribution of circuits should be made so as to give the two carriers the opportunity to obtain about as much traffic proportionately as they now enjoy on a worldwide basis. Each carrier will then begin to operate the direct circuits awarded to it in approximately the same competitive relationship as

now exists * * * 37 Shortly thereafter, the Commission had to squarely face the issue of competition in the very difficult “Three Circuits” proceeding. It was the first formal hearing since the end of the war in which any carrier applied to operate competitive radiotelegraph circuits. The case was originally referred to as “Four Circuits” when Mackay applied for direct circuits to Portugal, Holland, Surinam (located in northern South America), and Finland. The Finland application was dropped so that the issue became “Three Circuits”; when the Surinam application was denied in formal hearing, it became the “Two Circuits” case. The agency originally made the grant because, though Mackay offered no new rates or service, it felt that there existed a “national policy” in favor of competition. Obviously, this ruling was the exact opposite of that reached in the "Oslo" case, in which the Commission felt bound to prevent the extension of duplicate facilities in instances where the public would receivě no particular benefit in terms of rates or service. After reversal on appeal, the issue was reviewed by the Supreme Court. The case was remanded back to the Commission with a holding that there was no policy in favor of competition in an industry so controlled and regulated; and that consequently the FCC had acted without sufficient justification.

(c) Mackay Radio and Telegraph Company, Inc., 5 Pike and Fischer Radio Regulations 561 (1951), rev'd., ŘCA Communications Inc. v. FCC, 201 F. 2d. 694 (D.C. Cir., 1952), aff'd. and remanded, FCC v. RCA Communications, Inc., 346 U.S. 87"(1953); Mackay Radio and

37 Id., at 552–53.

« PreviousContinue »