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ultimately determined the question of jurisdiction over entities that offer specialized communications service through facilities that they do not own.

There was some question expressed in comment on the PCI application whether such carriers should be subject to the section 214 certification requirement, and whether the economic impact issue involved in the new offering had been adequately treated. The FCC referred to its Specialized Common Carrier decision to rule that Packet Communications, Inc. would serve a growing market that was not being satisfied at the time by existing carriers:

[W]e recognize that the entry of "value added" carriers such as PCI into the market for communication services will of course impact upon the structure of industry. It will, however, introduce new and improved means by which users having data transmission requirements may satisfy those requirements in a manner not now available from any generalized or specialized carrier. ***

Further, it is our opinion that the services PCI initially will offer the public over its proposed facilities would constitute PCI a common carrier within the meaning of section 3(h) of the Communications Act and thus subjects PCI to the certification and other requirements of title II of the Communications Act. * * *

It is apparent that there is a growing market to be serviced by such operations and that existing common carrier services are not now available to satisfy the demands of that market. In this respect, we feel that the findings and philosophy reflected in our Specialized Common Carrier decision in docket 18920 dealing generally with the market for data transmission and other specialized services are relevant and opposite here and support a competitive environment for the development and sales of the type of services proposed by PCI.27

(3) Resale and Shared Use of Common Carrier Services and Facilities (docket 20097) 69 FCC 2d 261 (1976).-The Commission noted in Resale and Shared Use that its Mackay Radio decision of 1938 28 had mandated title II jurisdiction generally, and certification under section 214, for the lease of a telegraph circuit into an area not previously served, even though the carrier's use of the leased line was not exclusive.29 The threshold question in this broad rulemaking, however, was whether entities which do not own their own transmission

27 Packet Communications, at 924-25. See also. Graphnet Systems, Inc., 44 FCC 2d 800 (1974); Telenet Communications Corp., 46 FCC 2d 680 (1974). Also, in the Overseas Dataphone Decision, docket 19558, 57 FCC 2d 705 (1976), the Commission documented a substantial potential for growth in the international data communications market. It also found that the services provided by the international record carriers needed to be supplemented with more cost effective specialized capability. Consequently, it granted applications filed pursuant to sec. 214 (a) by Graphnet, Telenet, RCA Globecom, and Western Union International. Inc., to provide overseas data communications through their domestic networks. See Graphnet Systems, Inc., et al., 63 FCC 2d 402 (1977). The decision made it clear that the Commission was not at that time formulating a general entry policy, but rather wished to supervise and evaluate the new service offerings in order to "more fully ascertain the exact contours of the public benefit in the provision of these services, and where appropriate, delineate future policy concerning these overseas data communications services." at 407.

28 See above, p. 63.

29 Resale and Shared Use, at 307.

facilities must resell (with or without "adding value") or share communications services as regulated activities under title II.

The Commission felt that, as far as the public was concerned, the status of resale offerings was the same as those acquired from traditional common carriers-they are supplied indifferently to all users on a first-come, first-serve basis. Accordingly, resale carriers were to be subject to section 214 for both entry and exit purposes. There was to be no showing required that the proposal "adds value" to the underlying facilities, nor was there to be a demonstration of need for the service, or of the economic impact of entry. In general, and consistent with the Specialized Common Carrier Services decision, "open entry" was made the rule for resale :

We here warrant, as we did in the Specialized Common Carrier decision, that entry of resellers and the expansion of shared use will have beneficial effects and will outweigh any possible detriments. Insofar as the entry of new resellers will duplicate services of existing resellers, we find this fact not to be a barrier where the public interest will be served.30 Because they do not offer services for a profit, sharing arrangements were not to be subject to common carrier regulation, and the Commission adopted no other regulations or reporting requirements over shared services.

In the evaluation of a resale applicant, only the usual fitness criteria would be applied, i.e., that it is technically, legally, and financially qualified to enter the market. The Commission also said, however, that the section 214 application must specify the number and nature of the "channels of communication" required. If, in instances of network reconfiguration, the carriers' requirements exceed the number of channels authorized, an additional application was to be submitted and acted upon. Nor were resellers to constitute an exception to the requisite authorization of multiplexing equipment, "because this is a creation of new 'lines' or 'channels' under section 214." 31 This was also to include network expansion through the operation of switching centers. Nonetheless, the Commission saw no reason to change its position on switching equipment. Certification of switching "as part of a complete transmission service" was not required.32

b. The Scope of Open Entry

While the Specialized Common Carrier decision concluded that duplication and entry in the private line market was possible and would serve both present and future needs, it did not define what a private line service was.33 Although service definition is essentially a marketing question, in utility regulation it may have an industry

30 Id., at 311 (reference omitted).

31 Id., at 312.

32 Loc. cit.

33 See, eg., Specialized Common Carrier, at 875: “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.' 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.'" The decision cited MCI's rather generalized pleading without further qualification.

structure goal of insuring that any barriers to entry are equitable and do not preclude the introduction of essential service. Consequently, the specialized carriers favored a broad definition of private line service while the established actors in the industry argued that the FCC must confine the competitive segment of the transmission market. A.T. & T. argued that private line services did not constitute a "market" at all. It regarded some classes of specialized service as amounting to an alternative, for many users, to ordinary long-distance telephone service or WATS. The ultimate result of duplication, it was contended, would occur through the mechanism of "cream skimming": new entrants would concentrate their business on high-profit routes. This would cause revenue diversion, would debilitate the rate structure that supports both local exchange service and high-cost long-distance routes, and would generally force the alternate rate method of costbased pricing.

A test of defining the limits of competitive entry was demonstrated recently in litigation over MCI's Execunet service. Introduced in 1974, the FCC regarded Execunet as a prototype alternative to public message telephone service, and endeavored to terminate it. The Commission had, however, recently waived the proposal in docket 19117 for any prior approval requirement for new services instituted over authorized facilities. In 1976, oral argument was heard on the legality of the Execunet tariff, and it was disallowed as not an authorized service under the Specialized Common Carrier decision. This was reversed on appeal, with the D.C. Circuit Court ruling that the FCC had misread its own language in Specialized Carriers and had too broadly interpreted its discretion under section 214 to reach duplication through control of new services. What follows is a review of the FCC's action in docket 19117 and of the court's rejection of that agency's reasoning of the Execunet issue.

(1) Establishment of Rules Pertaining to the Authorization of New or Revised Classifications of Communications on... Common Carrier Facilities (docket 19117) 39 FCC 2d 131 (1973).-In 1971, the Commission issued a Notice of Proposed Rulemaking 34 in docket 19117 which looked toward the adoption of rules governing the adoption or discontinuance of service. The docket was to consider whether domestic carriers should be required to get Commission approval before filing tariffs for services not previously set out in a section 214 application. The purpose of the proposal was threefold: to decide the public interest ramifications of a service before it was commenced, thereby protecting the public from service disruptions that might be caused if the service was allowed to go into effect and later enjoined: to put general domestic carriers (such as AT&T and Western Union), which would previously start a new service simply by filing a tariff, on an equal footing with international and domestic miscellaneous carriers whose facilities authorizations were always restricted so that new services required further section 214 (a) proceedings: and to protect specialized carriers, who also needed prior approval of entry under section 214 (a), from unfair competition from the generalized carriers.35

34 27 FCC 2d 36 (1971).

35 Id., at 38-39.

The proceeding was terminated in 1973 36 with the reasoning that any requirement for prior approval of new or revised service offerings would "delay the establishment of service and, in fact, inhibit realization of our policy objectives in docket 18920." The Commission decided, in essence, that, in the absence of restrictions imposed under section 214 facilities authorizations, new services offered over existing facilities would be regulated, if at all, under the tariff provisions of the Communications Act rather than as section 214 certification requests. The Commission recognized that this made "it possible for domestic carriers, as a general rule, to offer new classes or subclasses of communications service over duly authorized facilities merely by filing appropriate tariff revisions" pursuant to the FCC rules and sections 203, 204, and 205 of the act.37

(2) MCI Telecommunications Corp., 57 FCC 2d 271 (1975), 60 FCC 2d 25 (1976), reversed, MCI Telecommunications Corp. v. FCC, 182 App. D.C. 367 (D.C. Cir., 1977), cert. denied; 434 U.S. 1040 (1978).— In 1974, MCI issued tariffs for a class of "metered use" services, among which was Execunet,38 to be marketed as a private line offering. This action provoked a great deal of uncertainty concerning the applicability of dockets 18920-Specialized Carriers-and 19117 to the marketing of services that are substitutable for those, such as MTS and WATS, which were presumed exclusively limited to the telephone company.

In 1975, A.T. & T. complained to the Commission that Execunet was a functional equivalent of long-distance message telephone service and that no such offering could be tariffed by MCI. The FCC informed MCI that, as distinct from the monopoly switched telephone services furnished by A.T. & T., its section 214 authorizations limited the use to its section 214 facility authorizations and Commission policies. The Commission decided that "the combination of * * * similarities” between Execunet and MTS made Execunet "essentially a switched public message telephone service ***" and terminated the Execunet tariff by letter order.39 This order was stayed by the District of Columbia Circuit Court, citing ex parte contact violations on the part of the Commission.

The FCC then accepted comments and heard oral argument on the matter, and issued an opinion based on a review of the Specialized Common Carrier decision. The threshold question was whether MCI was permitted to offer Execunet or any other of its services pursuant to its section 214 facility authorizations and Commission policies. The Commission announced that it would not consider any benefit to the public resulting from Execunet in determining its legal status.

The Commission took the position that the Specialized Carriers proceeding had not considered services other than private line services in determining the public interest ramifications of competition, and further indicated that it had intended to confer on A.T. & T. a monop

36 39 FCC 2d 131.

27 Ta.. at 134, 135.

38 With the Execunet service, a subscriber can reach any telephone in a distant city through the local MCI office and intercity network. Connection both locally and at the distant end is attained through the exchange telephone office in each area. None of the plant used in completing the call is dedicated to a particular customer during any specified time: rather, all of the facilities used to establish the connection are available upon demand. See MCI v. FCC, at 369, text and n. 3.

39 MCI v. FCC, at 371, citing MCI, at 63. The letter order may be referred to in appendix B, at 62-64.

oly over MTS and WATS by that ruling, a decision which could not be changed without evidence of changed circumstances.40 It expressed a similar view of the effect of its report and order in docket 19117. The Commission felt that the existing specialized carriers were allowed to offer private line services through tariff free of any prior approval requirement, but were required to proceed by section 214 applications with respect to all other services. Over MCI's objections, it concluded that Execunet was not a private line service.

On appeal, the Court analyzed the Commission's usual administrative practice of writing service restrictions in to the section 214 certificate when an individual carrier proposes to build, operate, or extend its communications lines. This procedure, specified in section 214(c), was apparently still in effect when the Commission said in docket 19117 that carriers could offer any service not restricted by certificate by simply filing a tariff. The Court observed, furthermore, that the Commission had not enacted by rulemaking any service restrictions over point-to-point microwave radio licensees as a class, and had not made its definition of "private line service" applicable to such licensees, "although this would certainly seem to be the natural thing to have done had the Commission sought to restrict specialized carriers to private line service offerings." 41

It seemed to the Court that there existed no express service limitations on MCI's tariff through either of these instruments. The pivotal issues were whether and to what extent section 214 expressly allowed the Commission to impose prior approval requirements, and whether the Commission had properly exercised its section 214 authority when it rejected the Execunet tariff.

The Court stated that the primary purpose of section 214(a) is to prevent the unnecessarily duplication of facilities, not the regulation of services.42

Accordingly, it continued, as long as the "adequacy or quality" of the service set out in a certificate is not impaired by a new service introduced by tariff, in accordance with the final proviso clause in section 214(a), the public need that justified the facilities would still be met, and there is no sense in which those facilities become needlessly duplicative.43

Hence, while section 214 (a) could not be used as an instrument to limit services, the Court pointed out that existing case law suggested that it was hardly possible to determine the need for a new facility under that section without considering the service to be provided over it. The Commission must impose a service restriction on the facility at the time that an application under section 214 is considered, holding itself to a strict determination of public need under section 214 (c).44

In accordance with this analysis, the Court rejected the FCC's opinion that the Specialized Common Carrier decision restricted the services which specialized carriers could lawfully offer. Although it conceded that a service like Execunet was not under consideration

40 Id., at 373, citing MCI, 60 FCC 2d at 56-57.

41 Id., at 376.

42 Id., at 377 (reference omitted).

43 Id., at 378.

44 Id., at 379.

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