1. Domestic common carrier (a) Mackay Radio and Telegraph Co., Inc., 6 FCC 562 (1938).-The facts of the Mackay case are as follows: In March 1936, RCA Communications, Inc., received a certificate of public convenience and necessity from the FCC to acquire and operate a two-way telegraph circuit between New York, Washington, and Baltimore. The circuit was to be leased from Western Union Telegraph Co. as specified in the application submitted by RCA. In June 1936, Mackay leased from Postal Telegraph Cable Co. (both associates of the International Telephone & Telegraph System) a similar facility between Washington and Baltimore. In so doing, Mackay was competing with RCA, and it had never applied for or received a section 214 certificate. The circuit leased by Mackay was not permanently confined to any particular Postal circuit or wire; the arrangement required no new physical construction or capital outlay. Mackay's practice of transferring its circuit from one part of Postal's facility to another was similar to that followed by other carriers: The Mackay Radio System is constantly utilizing circuits derived from Postal's existing plant, and numerous interchanges are made from time to time of the use of circuits between Western Union and Postal on the one hand and the Bell System companies on the other. These interchanges are of various types and are often required to be made upon an hour's or even a few minutes' notice in order to meet the exigencies of the service, but always involve the utilization of circuits derived from existing plant. In the Bell System additional circuits are procured from existing plant in two ways, (1) from existing facilities owned by the company in question, and (2) from existing facilities owned by other companies, such other companies being either Bell or independently owned.12 In September 1936, the Commission instituted a notice of inquiry to determine whether a telegraph carrier needed a section 214 certificate to extend service to a new territory through lease of wire telegraph circuits. The proceeding was also to consider whether additional rules were needed to implement section 214. In the context of this question of entry regulation, the actual issue on which testimony was received was whether, as argued by Mackay and supported by Postal and A.T. & T., the term "line" was limited to the acquisition of physical wire to supplement interstate pole lines. The decision cited Transit Comm. v. U.S.18 and extensively reviewed the legislative history of section 214. The Commission found that section 214 applied to the acquisition of circuits through lease for the extension of telegraph service, regardless of whether interchange facilities were needed to extend the service to a new point of communication or whether the lease provided for the exclusive use of the lessor's physical facilities.14 12 Mackay Radio, at 565. 13 289 U.S. 121 (1932). The Supreme Court interpreted the intent of sec. I(18) of the ICA by holding that a railroad operation over tracks leased from another carrier was an "extension" for which a certificate was required. The FCC regarded this case as analogous to Mackay's lease arrangement with Postal 14 Mackay Radio, at 569. In discussing the deletion of the word "circuit" from the original draft of section 214, the Commission continued: It is our opinion that the deletion referred to was merely to meet a technical objection *** so as to make it perfectly clear that there was no intention on the part of Congress to limit the right of carriers to make full use of their own physical facilities by the derivation of as many circuits thereon or therefrom as might be possible. Therefore, it is not our opinion that section 214 requires a certificate of public convenience and necessity when a company of the Bell System rearranges its circuits or derives new circuits so as to make maximum use of its facilities, when the result is not an extension of a particular company's service into fields not theretofore served by it. Nor are the provisions of this section necessarily invoked every time one of these companies enters into a different contractual arrangement in order to more effectively serve an area already served by it by some other arrangement. It is thought that the discussions that took place in the course of the passage of the Communications Act indicate a congressional purpose to give the Commission considerable latitude to interpret and administer this section in such a manner as not to obstruct the fullest development of efficiency of operation of the various companies in the territory or area served by them.1 15 Mackay contended that it acquired a wire circuit, which functioned merely as an electrical path for the transmission of impulses; and that since this did not entail construction, section 214 did not apply to the lease arrangement. It is clear, however, that the FCC was concerned with its ability to control competition brought about through any "acquisition," "operation," or transmission "over or by means of" additional or extended lines. Section 214 contained these terms, in addition to its application to "construction"; and they enhanced the Commission's ability to determine whether competitive entry would be in the public interest.16 With regard to the intent of section 214 for conditions of duplication and competition, the Commission explicitly held itself to interpretations construed under the ICA: [We conclude] that the twofold purpose of the corresponding provision of the Interstate Commerce Act is definitely involved in section 214 of the Communications Act; to wit: (1) To prevent a carrier from weakening itself by constructing or acquiring or operating superfluous lines, and (2) to protect a carrier from being weakened by another carrier operating a competing line not required in the public interest.17 Thus, the Mackay case clearly rejected limiting section 214 to the construction of physical wire lines, and that carrier was directed to submit an application to lease the circuit. In order to prevent destruc 15 Td., at 573. 10 Id., at 573-74. 17 Id., at 576-77. tive carrier competition, the Commission construed the term "line" to encompass the communication service to be rendered over a "line," the circuits necessary for such service, and, by implication, the physical facilities required for, or incidental to, such operation. Exempted were only the rearrangements of circuits so as to make maximum use of authorized existing facilities to render authorized service to points of communication. Impliedly also, the installation of new switches is accomplished in part through the exempted action of "when a company of the Bell System rearranges its circuits or derives new circuits so as to make maximum use of its facilities***". Switches are also arguably involved when circuits are attained through partial lease or by the use of "numerous interchanges" to derive the various actual circuits which made up the "circuit" leased to Mackay. Likely because toll-board switches constituted a relatively minor segment of the interstate transmission function at that time, the Commission did not discuss the effect of switching, and evidently did not perceive the question of jurisdiction over these discrete facilities. This relegation of the switching issue occurs also in the Southwestern case, concluded the same day, though the function of toll switching created an additional jurisdiction controversy. It is notable, too, that the Commission did not promulgate rules which might have clarified the application of section 214 then and now. (b) Southwestern Bell Telephone Co., 6 FCC 529 (1938).—The factual situation in Southwestern is as follows: A.T. & T. applied for certification to supplement its existing facilities between Dallas and San Antonio. It requested authority to string an additional pair of wires (with mention of associated switching equipment) upon existing pole equipment owned by Southwestern Bell. The construction was to be performed by Southwestern in conjunction with its expansion of intrastate toll facilities along the same routes. Southwestern's facilities were to terminate at switchboards located within the State of Texas, but 10 percent of the traffic was estimated to be interstate, directed through switching connections effected from time to time at those switchboards. The Commission granted the A.T. & T. application, but directed the companies to file a statement to support their contention that the Southwestern Bell facilities did not require a section 214 application and certificate. The National Association of Railroad and Utilities Commissioners (NARUC) was also granted leave to intervene and file a statement. A.T. & T. conceded that its new facilities constituted part of its interstate system. However, the carriers argued in favor of the "physical line plant" theory, that the terminal apparatus must be located in separate States, and that physical construction must extend across State lines before jurisdiction may be invoked. Any interstate transmission conducted through the switching function could not be responsible to Federal authority, it was argued, as that would invade State jurisdiction. The decision noted that it was not denied that proposed facilities were to be part of Southwestern Bell's interstate system, and were not to be discrete from its interstate facilities. It reviewed railroad cases in which the Supreme Court had rejected the exception provided in 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- Southwestern Bell appears to have been a major and logical extension 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. |