Files Nos. 2942-C2-TC(4)-67,
2943-CI-TC(13)-67, 2944-C1-TC(41)-67, 2945-C1-TC-67, 18748-11-T/C-IP-127,
18794-IB-4-T/C-127, 3474-M-T/C-126, 6352-PS-2-T/C-127, S-C-L-14-4-M,
S-C-L-24-3-M, S-C-L-29-M
FEDERAL COMMUNICATIONS
COMMISSION
8 F.C.C.2d 183 (1967)
RELEASE-NUMBER: FCC 67-592
May 17, 1967 Adopted
BY THE COMMISSION: COMMISSIONERS BARTLEY AND LOEVINGER ABSENT;
COMMISSIONERS COX AND JOHNSON DISSENTING AND
ISSUING STATEMENTS.
[*183] 1. By applications filed on December 29, 1966,
pursuant to section 310(b) of the Communications Act of 1934, General Telephone
& Electronics Corp. (G.T. & E.) and Hawaiian Telephone Co. (HTC) asked
our consent to the transfer of control of HTC, as the holder of 59 radio
licenses or permits in the Domestic Public Radio Services and 18 radio licenses
in the Safety and Special Radio Services, to G.T. & E. in the manner
discussed below.
2. Thereafter, by an application filed on February 9, 1967, HTC
and G.T. & E. asked our consent to the transfer of control of HTC, as the
coholder with American Telephone & Telegraph Co. (A.T. & T.) of cable
landing licenses, to G.T. & E. HTC holds licenses concerning two submarine
cables between the mainland and Hawaii (mainland-Hawaii No. 1 and
mainland-Hawaii No. 2), a cable between Hawaii and Japan, and a cable
connecting the cables landing on Hawaii. Each license contains a
condition patterned after section 310(b) of the Communications Act of
1934. These provisions are all similar to that in the Hawaiian-mainland
No. 1 cable landing license, as follows:
That neither this license, the rights herein granted, nor the cables
herein authorized shall be transferred, assigned, or in any manner either
voluntarily or involuntarily disposed of or disposed of indirectly by transfer
of control of the licensee to any person, unless the Federal Communications
Commission shall give prior consent in writing.
[*184] 3. G.T. & E. is a holding company
controlling more than 30 telephone operating companies and various
manufacturing companies; it owns no plant or real estate. As of December
31, 1966, the telephone subsidiaries of G.T. & E. in the United States
served approximately 6,885,000 telephones in 32 States, and provided various
communication services. As of the same date G.T. & E., through its
control of Anglo-Canadian Telephone Co. (Anglo), a Canadian holding company,
had voting control of British Columbia Telephone Co., which operated 801,000
telephones in the Province of British Columbia, Canada, on December 31,
1966. Anglo in 1966 acquired approximately 50.8 percent of the
outstanding stock of Quebec-Telephone, which serves approximately 119,000
telephones in the Province of Quebec, Canada. G.T. & E., through
Anglo, controls the company furnishing local and long-distance telephone
service in the Dominican Republic, which served approximately 30,000 telephones
on December 31, 1966. G.T. & E. also has a minority stock interest in
Philippine Long Distance Telephone Co. (PLDT) which served approximately
142,000 telephones in the Philippines on December 31, 1966, and engages in both
overseas and local services. G.T. & E. owns 381,250 shares of the 10
million outstanding shares of common stock of the Communications Satellite
Corp. (Comsat). G.T. & E. has manufacturing subsidiaries, which include
Sylvania Electric Products, Inc., Automatic Electric Co., Lenkurt Electric Co.,
Inc. (a subsidiary of Automatic Electric Co.), and General Telephone &
Electronics International, Inc. The latter company conducts the
manufacturing and marketing activities of the General System outside the United
States, and has 21 direct and six indirect subsidiaries which produce and
market a diversified range of products similar to those manufactured and
marketed within the United States by General System companies.
4. HTC is the only telephone company serving the State of Hawaii
(except that some mobile service is provided by others). It provides
local and interisland communication services in Hawaii. It is authorized
to engage in overseas communication service via cable directly with the
mainland. Australia, Midway, Wake, Guam, Japan, and the Philippines, and
through these connections provides service between Hawaii and the rest of the
world. HTC had 302,506 telephones in service on December 31, 1966.
HTC owns 50,000 shares of common stock of Comsat and, pursuant to an order of
the Commission, is entitled to purchase a 30-percent ownership interest in the
satellite earth station at Paumalu, Hawaii. It is authorized to lease
satellite circuits from Comsat.
5. The merger plan, pursuant to the laws of the State of Hawaii,
provides for the merger of New G.T. & E. Corp., a wholly owned subsidiary
of G.T. & E., into HTC. Under the plan the stockholders of HTC, upon
the consummation thereof, will by operation of law become stockholders of G.T.
& E. HTC, as the surviving corporation of the merger, will continue
in existence as a wholly owned subsidiary of G.T. & E., and will continue
to hold the radio authorizations and cable landing licenses which are involved
herein. G.T. & E. has informed the Commission that holders of more
than the requisite number [*185] of shares of G.T. & E. and HTC
voted in favor of the merger. On April 25, 1967, the Public Utilities
Commission on the State of Hawaii issued its decision approving the merger.
NOTICE OF FILING OF APPLICATIONS AND COMMENTS THEREON
6. Notices of the filings of the applications were given in the
Commission's public notices of applications accepted for filing of January 9,
1967, February 13, 1967, and February 20, 1967. Notices extending the
opportunity to file comments with respect to the cable landing licenses were
mailed on February 13, 1967, to the Governors of the States of California and
Hawaii; Secretary of Defense; Director, Telecommunications Policy of the
Department of Defense; Director, Defense Communications Agency; Communications
Satellite Corp.; A.T. & T.; RCA Communications, Inc.; ITT World
Communications Inc.; and Western Union International, Inc. On February
14, 1967, a copy of the application filed February 9, 1967, for consent to the
transfer of control of HTC as the holder of cable landing licenses to G.T.
& E., was transmitted to the Secretary of State for comment. By
letter dated February 28, 1967, the Department of State advised that it
perceived no objection to the proposed transfer of control. By letter
dated March 20, 1967, copies of the principal applications described in
paragraphs 1 and 2 hereof were transmitted to the Antitrust Division of the
Department of Justice for comment. By letter dated April 12, 1967, the
Commission was advised that the Antitrust Division had no comments to make on
the matter.
7. No other comments have been filed in connection with the
applications pursuant to which G.T. & E. and HTC seek consent to the
transfer of control of HTC as a radio licensee to G.T. & E. With
respect to the application pursuant to which G.T. & E. and HTC seek consent
to the transfer of control of HTC as the holder of cable landing licenses to
G.T. & E., RCA Communications, Inc. (RCA), and Western Union
International, Inc. (WUI), filed initial comments on March 27,
1967. An answer to such initial comments was filed by G.T. & E. on
March 27, 1967. Reply comments were filed by WUI and RCA, respectively,
on April 17, 1967, and April 19, 1967. G.T. & E. filed a further
response on April 20. In addition it filed certain supplemental
information on April 20, April 24, and April 28, 1967.
8. In its initial comments RCA states that its filing "* * *
is not intended as an opposition to the proposed merger, * * *" but it is
for the purpose of clarifying basic questions for consideration by the
Commission from the viewpoint of whether safeguards are required in the event
of merger. RCA asserts that HTC now has significant competitive advantages
over the international record carriers in that it is a domestic as well as an
international carrier in Hawaii; can furnish all voice and record services with
the mainland; has a "controlling" interest in Pacific cables; and can
furnish voice as well as voice/record leased channel service west of
Hawaii. RCA says that the transfer of control being sought will
strengthen HTC to the disadvantage of the record carriers, and bring G.T. &
E., having a "major" interest in PLDT, into the international filed.
This asserted disadvantage, RCA believes, would be more severe severe were HTC
to continue [*186] providing voice/record service westward, and RCA
not permitted (as it has requested by an application opposed by HTC) to provide
voice service eastward, from Hawaii. It says that HTC revenues west of
Hawaii are small compared to total G.T. & E. revenues and that HTC revenues
east of Hawaii are greater than those of the three record carriers
combined. RCA also believes that operating arrangements between HTC and
the record carriers could be adversely affected by the transfer of control, and
that the transfer of control could create a relation between HTC and PLDT which
could jeopardize relations between PLDT and the record carriers. RCA
urges, therefore, that the Commission consider, in connection with the proposed
merger: (a) The inclusion of conditions that will maintain the status quo with
respect to operating and interconnection arrangements between HTC and the
international record carriers in the absence of Commission approval; (b) the
grant of authority requested by RCA, and opposed by HTC, to furnish the same
voice and record services provided by HTC between the mainland and Hawaii; (c)
a reexamination of the Commission's ruling that the HTC could provide voice/record
leased channel service n1 west
of Hawaii; and (d) whether the merged entity will grant indefeasible right of
user in cable circuits which are needed by international record carriers for
competitive reasons.
n1 Re American
Telephone & Telegraph Company, et al., 37 F.C.C. 1151.
9. WUI in its initial comments suggests that a continuation of
voice/record services by HTC after a transfer of control may be inconsistent
with Commission policy, which it describes as designed to prevent domination of
record services by a large domestic company. It also inquires if, after
the transfer of control, the record carriers will continue to pay higher
charges for facilities in the HTC tie cables than paid by HTC customers for
comparable facilities; if HTC will agree to cooperate with other carriers in
providing overseas television services at Hawaii; and if HTC will agree that
the Commission may reallocate transpacific circuits among the several carriers
on a fair and equitable basis instead of charging the record carriers for
certain of such circuits at the same charges made by the several carriers to
their customers. WUI also suggests that the proposed transfer of control
may be contrary to recommendations, regarding possible restructuring of the
international communications industry, made to Congress by the Commission and
other agencies.
10. In general, WUI feels that further information and
clarification of the public interest aspects of the proposed transaction is
desirable, including the effect on the record carriers. Moreover, it
notes that applicants do not mention sections 214,221, or 222 of the
Communications Act and believes it would be helpful to have their views on the
applicability of these sections. Finally, WUI urged that we call a
conference to consider the questions it raises.
11. G.T. & E. in its answer states that the transaction does
not involve a merger of HTC into G.T. & E., but that HTC will continue to
be a separate corporate entity and operate its property and provide services as
in the past. Further, G.T. & E. asserts that its acquisition of HTC's
stock will not: (a) Have any effect upon the operating and interconnection
arrangements between HTC and the international [*187] record
carriers; (b) result in any changes in the facilities of, or services provided
by, HTC; (c) make G.T. & E. a carrier subject to the jurisdiction of the
Commission or result in the acquisition by G.T. & E. of any communications
facilities; or (d) in any way change the relationship of HTC to the Commission
or prejudice the international record carriers as regards any position they may
hereafter wish to take with respect to the authorization of HTC or any
international record carrier to provide overseas service in the Pacific.
Further, G.T. & E. asserts that the only questions raised by RCA and WUI
relate to the nature of the authorizations of HTC and the international record
carriers to provide overseas service in the Pacific after the proposed transfer
of control is consummated and, if there is any basis for considering such
questions, a pleading to change any such authorization may be filed at any
time. G.T. & E. also alleges that any attempt to consider the
questions prior to merger would appear premature.
12. RCA responded to G.T. & E.'s answer by stating that,
since the questions it raises stem from the proposed transaction, the
Commission must now consider them, rather than defer them to some indefinite
date in the future. RCA also states that, if as G.T. & E. contends,
the proposed merger will not have any effect upon operating or interconnection
arrangements between HTC and the international record carriers, G.T. & E.
should have no objection to the inclusion of conditions that will maintain the
status quo with respect to these arrangements in the absence of Commission
approval. RCA reiterates that if does not oppose the proposed merger, and
states it is prepared to cooperate to the fullest extent in expeditiously
resolving the questions raised by the merger.
13. WUI, in its response to G.T. & E., notes that G.T. &
E. does not discuss the questions raised by it and RCA. WUI further
suggests that a conference would permit all concerned to focus upon the
principal questions involved, including: (a) The rendition of data/voice
services between Hawaii and points west thereof; (b) the allocation of
transpacific cable circuits among the authorized carriers; and (c) the
continuation of intercarrier operating and interconnection arrangements.
14. G.T. & E., in a further answer, interprets the WUI and
RCA comments as not opposing the merger, but seeking assurance that the status
quo with respect to the operating and interconnection arrangements between HTC
and the international record carriers will be maintained. G.T. & E.
repeats its assurance that the merger will not have any effect on such
arrangements or in any way change the relationship of HTC to the Commission or
prejudice the international record carriers as regards any positions they wish
to take with respect to Pacific service authorizations of HTC or any
international record carrier. G.T. & E. further states that it
appears WUI and RCA feel that G.T. & E.'s assurances should be reflected in
conditions attached to any order granting the subject applications, and it
advises that it would have no objection to conditioning such an order so that
the "* * * status quo with respect to operating or interconnection
arrangements subject to this Commission's jurisdiction will be maintained
except so far as it may be changed pursuant to the provisions [*188]
of the Communications Act of 1934, as amended, the Commission's rules, and
further orders of this Commission."
15. The foregoing contentions of RCA and WUI to the extent they
are relevant to the applications here under consideration
must be weighed with the public interest showing of G.T. & E. and
HTC as discussed below.
THE PUBLIC INTEREST ASPECTS OF PROPOSED G.T. & E. ACQUISITION OF
CONTROL OF HTC
16. The purpose of the merger from G.T. & E.'s and HTC's
standpoints has been set forth in the application as supplemented. From
G.T. & E.'s standpoint, it will add more than 300,000 telephones to the
telephone operations of the General System in a key geographical area which is
experiencing rapid growth and development. It will also spread G.T. &
E.'s investment over a larger area which, in turn, will spread the risk of
property damage from disaster and adverse effects of local economic conditions
over a broader base. Moreover, G.T. & E. believes that further
economies of operation and administration can be realized with the HTC
facilities in the General System. From the viewpoint of HTC, the merger
will make available to it the technical know-how and operating expertise of the
General System at a time when advanced technological development is playing an
increasingly important role in the communications industry. Consummation
of the plan will also give HTC the strong financial support of G.T. & E.,
and it is believed that these benefits will enhance HTC's ability to continue
to provide up-to-date service and finance its continued growth in the years to
come.
17. In the area of financing, G.T. & E. asserts that upon its
acquisition of control of HTC (a) HTC's costs for the sale of common stock will
be eliminated, and (b) HTC's costs for debt and preferred stock financing will
be lower, because the very large volume of security sales by the operating
subsidiaries of the General System provide a basis for negotiating lower costs
than are ordinarily available to a single operating company. G.T. &
E. also asserts it has ability to provide equity capital and temporary
financing assistance to HTC at times when the securing of funds by HTC, as a
single telephone company, might only be accomplished on a less advantageous
basis. G.T. & E. also states that prospective purchasers of HTC
senior securities are well aware of, and will look favorably upon the
demonstrated financial resources of G.T. & E. as an assured source of
common equity capital.
18. G.T. & E. also represents that HTC, which has been
purchasing equipment and supplies from G.T. & E. manufacturing subsidiaries
for more than 50 years on the most favorable basis available to nonaffiliated
companies, will continue to have its own purchasing department responsible for
HTC's purchases of equipment and supplies on whatever basis is most beneficial
to HTC. However, as a subsidiary, HTC will receive (a) the benefits of
more favorable prices available only to members of the General System, (b)
substantial savings, estimated to be approximately $900,000 in 1966 on the
basis of HTC's 1966 purchases, based on eliminations on the consolidated
[*189] income tax return of the General System of income based on sales
to affiliates, and (c) advantages of discount volume on purchases of supplies
for the General System.
19. G.T. & E. also represents that, through the General
System license contract arrangements, HTC will have available various services,
relative to accounting, financial and statistical analysis, issue and sale of
securities, insurance and pension benefits, marketing and sales, organization
and personnel, commercial and operations, plant and engineering, public
relations and advertising, and taxes, on a non-profit basis from small groups
of experts doing work for all companies rather than individual companies such
as HTC hiring its own full-time experts.
20. In addition to the foregoing benefits, the applications
contain the requisite showing of eligibility and other qualifications.
The Commission has heretofore determined that HTC possesses the necessary eligibility
as well as the necessary legal, technical, financial, and other qualifications
to construct and operate the several radio stations for which it is
authorized. The Commission has also previously determined that such
construction and operation will serve the public interest, convenience, and
necessity. As the applications also disclose, the Commission has also
determined that present subsidiaries of G.T. & E. are eligible and possess
the necessary qualifications to hold radio authorizations in the radio services
in which HTC holds licenses. The applications also disclose that the
proposed transfer of control will not result in (a) changes in services
currently offered by the radio stations involved, (b) changes in technical
personnel, maintenance or repair facilities, and (c) changes in the management
or personnel responsible for the operation of the stations.
21. HTC has previously established that its ownership and
operation of the portions of the cables for which it holds cable landing licenses,
and related authorizations under section 214 of the Communications Act, will
serve the public convenience and necessity. The Commission has previously
determined that a subsidiary of G.T. & E. may hold cable landing licenses
(see cable landing license issued Oct. 4, 1961, to British Columbia Telephone
Co., file No. S-C-L-11-M, FCC 61-1168). As already set forth above, G.T.
& E., in its responses to WUI and RCA, represents that its acquisition of
control of HTC will not result in any change in the HTC facilities or services,
or in any way change the relationship of HTC to the Commission.
22. The foregoing representations as to the benefits of the
proposed merger have not been challenged and we see no reason to question
them. We must, however, consider the comments of RCA and WUI.
23. As we read the comments of RCA and WUI, their principal
concern seems to be over possible increased competition from HTC by reason of
the transfer of the control to G.T. & E. We have carefully reviewed
the matter, therefore, to determine if the transfer would carry with it any
potential adverse effects on the international record carriers, particularly
any that would impinge on the public interest in the services they offer.
Except as noted below, we do not think that any of the points they raise
require the inclusion of any condition in any authorization we may give for the
proposed transfer. Moreover, we note that neither asks us to deny the
HTC-G.T. & E. application, [*190] and that RCA specifically
disavows any intent to request such a denial.
24. Both RCA and WUI ask that we consider, in connection with our
action on the proposed transfer of control, the fact that they have presently
outstanding applications under section 214 of the Communications Act to provide
services competitive with those offered or proposed by HTC. RCA has
presently pending an application to provide leased voice service via satellites
between Hawaii and the mainland, and WUI has pending an outstanding application
to provide TV service on a rotating basis with other overseas carriers at
Hawaii with overseas points. n2 Both
applications are opposed by HTC. Neither RCA nor WUI has suggested the
terms of any conditions to be adopted in an approval of the transfer of control
to protect them in these respects. It appears to us that the concern of
each is with the grant of its respective application, and that this is a matter
more properly treated within the context of the action we take at the time we
consider each such application rather than at the present time in connection
with the transfer of control application. Additionally, neither RCA's nor
WUI's application arose in connection with the proposed transfer of control,
and our action herein will not in any way prejudice our action on either
application.
n2 RCA has also filed
a request in connection with the WUI application to the effect that if WUI is
authorized to provide TV service in Hawaii, RCA should also be so authorized.
25. WUI asserts that another problem to be considered in connection
with G.T. & E.'s acquisition of control of HTC is the practice of HTC in
leasing circuits in the hardened landline tie cable and the submarine tie cable
in Hawaii instead of granting indefeasible rights of user in such cables as in
the case of the transoceanic cables. HTC's practice in this regard is in
accord with our authorizations to construct and operate these tie
facilities. Similar practices prevail on the mainland, at Guam, and at
Puerto Rico. The practice did not arise in connection with the proposed
acquisition of control of HTC by G.T. & E., nor do we see how the proposed
transfer of control of HTC affects the practice.
26. WUI also asserts that the lease charges HTC makes for
circuits in the tie-cable system exceed those made to its own customers for
comparable facilities. There is nothing to show that the proposed
transfer of control will prejudice to existing situation with respect to such
charges. Moreover, under prior disputes between HTC and the record
carriers, such charges were reviewed at conferences called for and participated
in by our staff. The outcome was that adjustments were agreed to by the
record carriers, and WUI has signed an agreement with HTC to pay the adjusted
charges. Should WUI believe that they are still unreasonable, it may
request at any time, pursuant to outstanding authorizations for those tie
cables, that we review their reasonableness.
27. RCA urges the Commission to consider whether HTC will grant
indefeasible right of user in cable circuits which it says are needed by
international record carriers for competitive equality. WUI essentially
says the same thing, and suggests that HTC, as a subsidiary of G.T. & E.,
should also agree to submit to a reallocation by the Commission of [*191]
transpacific cable circuits among the authorized carriers on a fair and
equitable basis. We recognize that, because of circuit shortages in the
Pacific, cable owners are reluctant to part with circuits on any basis other
than lease for essential services. While this theoretically may result in
circuits being used in a manner other than that which we might consider most
conducive to the public interest, we think that any complaint in this respect
should be independently presented to us for consideration. The proposed
acquisition of control did not bring about this situation, nor will it have any
effect on it.
28. WUI and RCA suggest that our policy, with respect to the
furnishing of voice/data leased channel service by A.T. & T., set forth in
our TAT 4 decision, n3
should be applied to HTC after a transfer of control to G.T. & E. insofar
as HTC provides such service west of Hawaii. WUI's and RCA's theory seems
to be that our criterion in applying such policy was one of size, and that the
combined HTC-G.T. & E. resources will justify HTC being placed under a
restriction as to such service similar to that placed on A.T. & T. In
our TAT 4 decision we referred to the "vast nationwide domestic network
and * * * large sales force" of A.T. & T. as giving rise to an
"understandable" concern of the record carriers that A.T. & T.
was in a position to obtain the lion's share of voice/record service. We
continued by saying that a "* * * realistic appraisal of the relative
capabilities of A.T. & T. and the record carriers to secure and maintain
such business leads us to conclude that A.T. & T.'s entry into this service
would seriously jeopardize the ability of the record carriers to obtain a
meaningful share of the business * * *."
n3 Supra, footnote 1.
29. Although it is undeniable that the combined resources of HTC
and G.T. & E. will be formidable in size, it does not follow that the
ability of the record carriers to compete with HTC for voice/record business
will be affected by this alone. Our records disclose that the Department
of Defense (DOD) and the National Aeronautics and Space Administration (NASA)
are the only subscribers to voice/data lease channel service west of Hawaii,
and they have placed all orders for such service with U.S. overseas
carriers. DOD has followed a policy of rotating its orders among these
carriers, and as of February 1967, our records show that orders placed with HTC
by NASA do not show that NASA favors HTC, RCA and WUI raise questions as to
whether HTC's affiliation with G.T. & E. will change this situation, and
point to the size of the combined HTC-G.T. & E. resources. We do not
think that we have a sufficient basis on which to take action at this time, as
requested by RCA and inferentially by WUI. Although G.T. & E. has in
its replies to these carriers provided statements which could by interpreted as
denying an intent to use its combined resources in this way, we do not think
this is conclusive in the matter. We think that the best course for us to
follow is to see the actual course of events following the transfer of control
before finally relinquishing authority on the application in this
respect. For this reason, we shall retain jurisdiction on this aspect of
the transfer.
30. WUI and RCA generally feel that the transfer of control raises
questions as to whether new competitive conditions will be created
[*192] between HTC and G.T. & E. or its subsidiaries, on the one
hand, and the international record carriers, on the other hand. WUI
points out specifically that G.T. & E.'s affiliate in the Philippines, the
Philippine Long Distance Telephone Co., is the correspondent of both HTC and
WUI for leased voice-grade channels. Both WUI and HTC are authorized to
provide voice/data leased channel service between Hawaii and the Philippines.
Our records discloses that as of February 1, 1967, all orders for this service
between Hawaii and the Philippines have been placed with the U.S. carriers by
the Department of Defense, which places its orders on a rotation basis among
the authorized carriers, including WUI and HTC. The Philippine Long
Distance Telephone Co., therefore, should not, if this policy is followed, as a
result of the proposed merger, be in a position to accord HTC any competitive
advantage in providing voice/record service between Hawaii and the
Philippines. However, to insure that by reason of the transfer of control
HTC, as the correspondent of the Philippine Long Distance Telephone Co., is not
accorded some new competitive advantage over WUI or any other carrier, as the
correspondent of the same company, we shall appropriately condition our order
herein. Any changes HTC may propose to make in the future with respect to
its overseas services and facilities, as well as its overseas correspondents,
including G.T. & E. or one of its subsidiaries, would be subject to our
jurisdiction. One of the factors to be considered in connection with any
such proposed changes would be the effect on HTC's competitors where
relevant. The international record carriers' competitive position, therefore,
will be considered in an appropriate proceeding.
31. RCA requests us to consider the inclusion of conditions that
will maintain the status quo generally with respect to operating and
interconnection arrangements in the absence of Commission approval. WUI
states in its reply comments that one of the principal questions raised by the
merger is the continuation of intercarrier operating and interconnection
arrangements. G.T. & E., in response to the RCA request, has
represented to the Commission, on its own behalf and on behalf of HTC, that the
acquisition of control of HTC will not have any effect upon the operating and
interconnection arrangements between HTC and the international record
carriers. Further, it advises us that it does not object to the inclusion
in our authorization of a condition that the status quo with respect to
operating or interconnection arrangements be maintained, except where it may be
changed pursuant to the Communications Act, our rules, or our further
orders. We shall, in view of this, retain jurisdiction in this regard.
32. WUI also suggests that sections 214, 221, and 222 of the
Communications Act may be applicable to G.T. & E.'s acquisition of control
of HTC. However, authorizations pursuant to these sections are not
required for the type of transaction here involved.
33. WUI also asks whether the proposed merger will be consistent
with the recommendation made to Congress by the Intragovernmental Committee on
International Communications with respect to restructuring of the international
telecommunication industry to the effect that no domestic voice communications
carrier shall control directly or indirectly the resulting merged
carrier. The WUI question assumes the passage of merger legislation for
overseas carriers, and approval [*193] by the Commission, under
such legislation, of a merger agreement which would result in G.T. & E.,
because of its acquisition of HTC, controlling the merged carrier. We
think the basis for WUI's question is too speculative to require further
comment.
34. In view of our discussion and disposition of the matters
raised by RCA and WUI, we do not think it necessary to call an informal
conference, as suggested by WUI, to discuss them.
CONCLUSIONS
35. In view of all the foregoing, we find an conclude on the
basis of the pleadings before us:
(a) That the public interest, covenience, and necessity will be served
by a grant, with the conditions above described, of the applications here under
consideration for consent to transfer of control of HTC as the holder of the
radio authorizations and cable landing licenses described in such applications
to G.T. & E. in the manner described in such applications;
(b) That we should consent to, and approve, with the conditions above
described, the transfer of control of HTC as the holder of radio authorizations
and cable landing licenses described in the applications here under
consideration to G.T. & E. in the manner described in such applications.
ORDER
Accordingly, it is ordered, That the Commission hereby consents to, and
approves, the transfer of control of Hawaiian Telephone Co. to General
Telephone & Electronics Corp. in manner described in the applications here
under consideration;
It is further ordered, That unless prior approval is obtained from this
Commission, Hawaiian Telephone Co. shall not effectuate any new agreement with
Philippine Long Distance Telephone Co. under which it receives from that
company any more favorable terms, with respect to services also authorized by
this Commission to another U.S. carrier, than are offered by Philippine Long
Distance Telephone Co. to such other carrier;
It is further ordered, That jurisdiction is retained herein to make
such modifications in this order with respect to the provision of voice/record
leased channel service by Hawaiian Telephone Co. west of Hawaii, and to
operating and interconnection arrangements between Hawaiian Telephone Co. and
the record carriers, as may appear in the public interest in view of subsequent
developments arising from the transfer of control authorized herein;
It is further ordered, That the actual transfer of the stock of
Hawaiian Telephone Co. to General Telephone & Electronics Corp., in
accordance with the terms of the applications, shall be completed within 45
days from the date hereof, and notice in letter form shall forthwith be
furnished to the Commission by General Telephone & Electronics Corp.
showing when the acts necessary to effect the transfer of control have been
completed; and upon furnishing the Commission with such notice the transfer of
control will be considered completed.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
[*194] DISSENTING STATEMENT OF COMMISSIONER KENNETH A. COX
I dissent because it does not appear that the acquisition of control of
the Hawaiian Telephone Co. by General Telephone & Electronics Corp. has
been shown to be in the public interest.
I assume that the proposed merger serves the private interests of the two
parties, or they would not have agreed to the transaction. But I think
something more is required before we approve the acquisition of a substantial
and successful regional telephone company by the largest of the several growing
independent telephone groups. This reduces by one the significant voices
in telephone matters, and converts Hawaii's telephone service from a locally
controlled enterprise to just another part of a large complex of local
telephone operations controlled by a distant corporate headquarters. It
seems to me that something is lost in this process; my question is as to what
the public, rather than the parties, has gained in return.
The asserted public interest aspects of the proposed acquisition are
set forth in paragraphs 16 through 19. It seems to me they consist simply
of the recital of claims made by the parties, without any real investigation or
verification on our part. I realize that this is, in substantial part,
due to our restricted budgetary and staffing situation, but I think something
more should have been done.
Consider the grounds advanced in support of the proposal:
1. It is said that it will add more than 300,000 telephones to
the General System in a key geographical area which is experiencing rapid
growth, and that this will spread General's risk of property damages from
disaster and of adverse effects of local economic conditions. I know of
no evidence that either of these hazards has posed any problem for
General. Furthermore, the same thing could be said of any future
acquisition -- so that on this basis, General could justify the acquisition of
every non-Bell company in the country.
2. G.T. & E. believes that the merger will produce further
economies of operation and administration. It may have offered specifics,
but we are not advised of any. I don't know whether G.T. & E.'s
operation is more efficient and economical than Hawaiian's, or vice
versa. I think we too often assume that the bigger a company grows, the
more efficient it becomes, while the contrary may really be the case.
Certainly there appears to be no commitment to produce specified and
discernible economies which might result in lower rates for the public.
3. We are told the merger will make available to Hawaiian the
technical know-how and operating expertise of the General System, but again
there is no showing that Hawaiian has suffered any disadvantage in this area --
and no promise that it will produce better service or lower rates.
4. It is said that Hawaiian will gain the strong financial
support of G.T. & E., that it will be able to eliminate its costs for the
sale of common stock, and that its costs for debt and preferred stock financing
will be reduced. Again, I know of no showing that Hawaiian's financing
costs have posed any problem, or indeed, that they are any higher than those of
General. This represents another claim that bigness has advantages --
which, if true, is one reason why we have safeguards against unrestricted
corporate growth, though as is often the case it may not be true at all.
5. G.T. & E. states that Hawaiian, which has been purchasing
equipment and supplies from General's manufacturing subsidiaries for more than
50 years, will receive more favorable prices as a member of the General System,
will realize savings through inclusion in General's consolidated income tax
return, and will enjoy the advantages of discount volume on purchases of
supplies. The first of these sounds a little questionable to me, but is
apparently a well-established practice. These three items come the
closest, it seems to me, to suggesting real benefits to Hawaiian which could be
passed along to [*195] the public -- though there is no commitment
that this will follow. Hawaiian has done very well without them, and has
provided adequate service. Taken alone, I do not think they justify
approval of this further concentration of control of our communications system.
6. G.T. & E. represents, finally, that through its license
contract arrangements, Hawaiian will have certain accounting, financial,
securities, insurance, pension, marketing, personnel, engineering, public
relations, tax, and other services on a nonprofit basis from experts working
for all the companies. Again, there is no showing that Hawaiian has
suffered from inadequate expert assistance in any of these areas, or that it
costs in getting such services are unduly high -- or, in fact, any higher than
the license fees it will presumably have to pay General. As with many of
these claimed benefits, I'm not sure the results predicted will be obtained --
and if they are, there is no showing that they will produce improved service or
lower rates for the public.
One general note: I think these same arguments could be made to justify
almost any merger in the telephone field; in fact, I suppose they could be
marshaled in support of the Bell System's acquisition of G.T. & E.
itself. I know that such a large transaction might give rise to concerns
which are apparently not felt here, but I think the arguments would apply just
as forcefully to such a situation as they do here. After this listing,
the majority simply concludes, in paragraph 22, that "The foregoing
representations as to the benefits of the proposed merger have not been
challenged and we see no season to question them." This seems to me to set
a very low standard, and I've tried, very hurriedly, to suggest some lines of
inquiry. I know that notice of these applications was sent to a number of
Genernment agencies, including the Department of Justice, and to the international
carriers doing business in the Pacific. Some of the latter have raised
questions, which I think are dealt with adequately. The Government bodies
have raised no objection, but this perhaps is a reflection of their concern
with other matters and of a feeling that it is really our responsibility.
Perhaps that is what troubles me. Like my colleagues, perhaps --
and, indeed, like our predecessors -- I find myself called on to approve
substantial and complex transactions which further concentrate communications
in the hands of fewer and larger holdings with little time to study them.
No one is complaining; the parties want to do it; and the pattern of the past
has apparently been to take the line of least resistance. Perhaps that is
what I should do, but I cannot find that the proposed merger is in the public
interest without further examination in an evidentiary hearing.
DISSENTING STATEMENT OF COMMISSIONER NICHOLAS
JOHNSON
I dissent.
The Communications Act requires that we find a merger of telephone
companies will serve "the public interest."
There is no evidence recited by the Commission of any benefit to the
public -- the telephone subscribers -- that will result from this merger, such
as specific examples of cheaper or faster or better service.
We may assume that parties to mergers think merger will serve their
interest. General Telephone and Hawaiian think so here. They have
made representations of those benefits. The Commission majority has
stated:
[*196] The foregoing representations as to the benefits of
the proposed merger have not been challenged and we see no reason to question
them. (Par. 22.)
If this be the standard and procedure of the Commission it is fully
equivalent to saying "any merger, proposed by the parties to that merger,
is in the public interest."
Not only is there no evidence that this merger will serve the public
interest, there has not been an effort by the parties or Commission even to
explore the possibilities of detriment to the public interest.
What are the relative efficiencies and rates of the two companies?
What are the service and customer complaint records of the two?
What has been the consequence of prior G.T. & E. acquisitions on the
service provided by formerly independent companies?
Shouldn't these, and other, questions at least be asked and casually
addressed?
Let me emphasize that I am not writing from personal knowledge of
substantial potential harm that will befall the State of Hawaii as a result of
the Commission's action today. I have been presented no evidence that
would give me present reason to question the past public interest record of
either company.
I have substantial concern, however, for the Commission's standards and
procedures for evaluating the public interest, as so distressingly illustrated
by this case.