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In the Matter of AMERICAN TELEPHONE & TELEGRAPH CO. AND THE ASSOCIATED BELL SYSTEM COMPANIES Charges for Interstate and Foreign Communication Service; In the matter of AMERICAN TELEPHONE & TELEGRAPH CO. Charges, Practices, Classifications, and Regulations for and in Connection With Teletypewriter Exchange Service

Docket No. 16258; Docket No. 15011

FEDERAL COMMUNICATIONS COMMISSION

12 F.C.C.2d 167; 1968 FCC LEXIS 1011

RELEASE-NUMBER: FCC 68-341

March 27, 1968 Adopted

JUDGES:

BY THE COMMISSION: COMMISSIONER BARTLEY ABSENT; COMMISSIONER WADSWORTH CONCURRING BUT WOULD HAVE GRANTED THE EXTENSION ONLY FOR A PERIOD OF 60 DAYS; COMMISSIONER JOHNSON DISSENTING AND ISSUING A STATEMENT.

OPINION:

[*167] 1. The Commission has under consideration its Memorandum Opinion and Order on reconsideration herein of September 13, 1967 (9 FCC 2d 963), and a petition, filed by Bell System respondents on March 15, 1968, which seeks reconsideration of that Order to the extent that it requires respondents to file, by April 1, 1968, tariffs reflecting an additional $20 million reduction in annual gross interstate revenues. The petition requests deletion or indefinite postponement of the requirement.

2. One of the principal reasons for the deferral of $20 million of the reduction required by our Order was the uncertainty at that time with respect to the matter of increases in settlement arrangements between respondents and the independent telephone industry, and the effect of such settlement arrangements on respondents' earnings. Although the precise final amount of such settlements has not been determined, we are aware of the general order of magnitude of the amounts involved. It appears to us that the current trends in growth of earnings and revenues would be sufficient to absorb increases of such magnitude. Accordingly, if these were the only uncertainties present, we would not further defer the required rate reductions. However, a unique additional factor has been introduced by the combination of the pending request for a surcharge on Federal income taxes and the overall negotiations for labor contracts which respondents are now conducting. We cannot determine now whether the current earnings trends will, in fact, be sufficient to absorb all three of these factors and the required reduction.

[*168] 3. We believe that these uncertainties should be resolved by July 1, 1968. Accordingly, we are postponing until July 2, 1968, the time within which respondents are to file tariffs reflecting the required further reduction in charges. However, we reserve the right to issue a further order prior to July 1, 1968, if the uncertainties are resolved earlier, to require such action as we find justified by then existing circumstances, i.e., lift the stay, or modify or delete the requirement for further rate reductions. We are acting prior to the expiration of time for filing responsive pleadings in view of the imminence of the tariff filing date. We will, however, consider such pleadings in connection with our future course of action.

Accordingly, It is ordered, That our Order of September 13, 1967, herein Is modified to the extent that unless directed to do so sooner by the Commission, revised tariff schedules reflecting an additional reduction of $20 million shall be filed no later than July 2, 1968, to be effective on 30 days' notice to the public.

It is further ordered, that the petition for reconsideration, filed by respondents on March 15, 1968, Is granted to the extent indicated and in all other respects Is denied;

It is further ordered, that the request for stay, filed by respondents on March 15, 1968, Is dismissed as moot.

FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.

DISSENTBY: JOHNSON

DISSENT:

DISSENTING STATEMENT OF COMMISSIONER NICHOLAS JOHNSON

(Deferral of Rate Reduction)

I dissent to the Commission's further postponement of its July 5, 1967, decision requiring Bell to further lower its interstate rates. In July of 1967 this Commission ordered Bell to effect a $120-million rate reduction, to eliminate certain items from inclusion in its rate base, and to put a new FCC-approved separations plan into effect. Today's action completes the Commission's backing away from each of those requirements.

The Commission, on reconsideration of that Order, has previously allowed Bell to add back in a part of what we eliminated from its rate base; to adopt "interim," industry-devised separations principles rather than the FCC-prescribed methods; and to defer $20 million of the $120-million rate reduction ordered in July.

Today the Commission tells Bell that it can postpone for another 3 months the required $20-million reduction. In July of 1967 the Commission said that the reasonable rate of return for Bell should be 7 to 7.5 percent. In the year 1967 Bell earned about 8 percent. Commission figures for the first month of 1968 show Bell earning 8 percent. Nevertheless, the Commission is deferring this reduction once again because we are unsure as to the effects of possible happenings which might be adverse to Bell's earnings position in the coming year -- the effects of a possible surtax, uncertainties as to wage negotiations, and transfers from changes in separations-settlements. When Bell's rate of return falls below (or even comes within!) the rates of return [*169] we specified last July, I will be fully prepared to hear arguments by the company for relief. Until that day arrives I think we could better use our imagination to uncover present abuses of consumer interest than to search for possible additional revenue needs by Bell. Especially does it seem to me that the Commission is being unnecessarily conservative in their estimate of Bell's capacity to manage effectively, to grow, to absorb higher costs, and still return good earnings. Indeed, the evidence has been that each rate reduction has been followed by an increase in telephone usage and company revenues -- benefiting shareowners and subscribers alike. The effect of a $20-million reduction on the rate of return for Bell's interstate operation is on the order of one-tenth of 1 percent. I think that the Commission, Bell, and the consumers would have benefited by that cut.