In the Matter of AMERICAN TELEPHONE & TELEGRAPH CO

In the Matter of AMERICAN TELEPHONE & TELEGRAPH CO. Revisions to American Telephone & Telegraph Tariff F.C.C. No. 263,

LONG-DISTANCE MESSAGE TELECOMMUNICATIONS SERVICE

Transmittal No. 10664

FEDERAL COMMUNICATIONS COMMISSION

20 F.C.C.2d 886 (1969)

RELEASE-NUMBER: FCC 69-1407

December 23, 1969 Adopted

BY THE COMMISSION: COMMISSIONERS BURCH, CHAIRMAN; AND COX CONCURRING AND ISSUING STATEMENTS; COMMISSIONER JOHNSON DISSENTING AND ISSUING A STATEMENT.

[*886] 1. The Commission has before it for consideration (a) a petition, filed December 10, 1969, by the National Association of Regulatory Utility Commissioners (NARUC), requesting suspension or rejection of the above-captioned tariff revisions now scheduled to become effective January 1, 1970; (b) a petition, filed December 5, 1969, by the city of New York (New York) seeking rehearing with regard to such tariff revisions; (c) a petition, filed December 12, 1969, by the Independent Group (consisting of U.S. Independent Telephone Association, G.T. & E. Service Corp., United Utilities, Inc., National Telephone Cooperative Association, and Continental Telephone Service Corp.) concurring in NARUC's petition; and (d) numerous letters from individual State regulatory agencies and others also supporting the aforesaid petition of NARUC.

2. The tariff revisions referred to by the aforementioned parties were filed by American Telephone & Telegraph Co. (A.T. & T.) under transmittal No. 10664 on December 2, 1969, to become effective January 1, 1970. They were submitted by A.T. & T. in connection with the Commission's recently completed comprehensive review of the Bell System's interstate operations and earnings requirements and are designed to accomplish reductions amounting to $150 million in the rates for long-distance message telecommunications service (longdistance telephone). These are the rate reductions referred to in the Commission's public notice of November 5, 1969 (F.C.C. 69-1210, 38859).

3. As one of the bases for suspension (and impliedly for formal investigation), NARUC alleges that the revised tariff schedules will create an unlawful discrimination in that they provide for reduced rates applicable to customer dialed calls only. It is alleged that such a reduced rate discriminates against subscribers who have not been provided with dial service or whose dial service is not equipped for [*887] outward customer dialing of toll calls, and against those subscribers with outward customer toll dialing capabilities who seek to place calls to other telephone stations not equipped for inward toll dialing. These allegations of NARUC are not borne out by the specific language of the tariff. The tariff specifically provides that dial station-to-station rates apply where an operator is required to complete a call because of the unavailability of facilities for customer dial completion.

Furthermore, this same tariff language has been construed by the telephone company to provide for the application of the currently effective lower customer dial rates between midnight and 7 a.m. to the cases presented by NARUC. Accordingly, NARUC's contention with respect to this point is not well taken.

4. As a second basis for suspension and investigation, NARUC states that the revised rates will aggravate already intolerable disparities between intrastate toll rates and interstate toll rates thereby unreasonably and unjustly discriminating against the intrastate toll users and unreasonably granting a preference and advantage to the interstate toll users. However, the mere allegation that different rates apply for allegedly the same service in different jurisdictions does not constitute a showing of unlawful discrimination, preference, or advantage. Such a difference in rates for what appears to be the same service can properly arise if the unit costs of furnishing the service differ in the interstate and intrastate jurisdictions because of length of haul, traffic density, technological differences or like considerations. Also, differences may arise from differences in the statutory or other bases for ratemaking in the various State and local jurisdictions as applied to local telephone exchange or intrastate toll service or both.

5. NARUC further alleges that the interstate rate reductions will cause reduced rates and revenues for the 1,850 independent telephone companies without their having had an opportunity to be heard or to participate in the alleged closed rate negotiations between A.T. & T. and the Commission. It is true that at the present time virtually all of the independent telephone companies furnish interstate toll telephone service under joint tariffs filed by A.T. & T., and that under such a tariff structure, the reductions in rates will apply to the total charges for interstate toll service furnished jointly by the independent companies and the Bell System. However, it does not follow that each independent company will suffer diminished revenues by virtue of such overall reductions in the joint through rates. The traffic composition of a particular company may be such that the reductions in specific rates may not materially affect the revenue from the interstate toll calls in which that company participates. Moreover, a company participating in joint rates which is adversely affected by a reduction in such rates has alternatives readily available to it to remedy such adverse effect. Thus, it may elect to establish its own rate at a compensatory level and cease to participate in the reduced joint rate or it may seek a revision in its share of the joint rate either by negotiation or by petition to the appropriate regulatory authority. In any case, the instant petition fails to adduce any evidence, or even to allege, that, by virtue of the revised rates, any independent company will receive inadequate compensation for its interstate toll service.

[*888] 6. NARUC alleges that stimulation in calling which will be caused by the proposed reduced rates will further aggravate what it terms the existing grave telephone service situation. It also alleges that the changed hours of discount rates will move portions of present traffic into peak hours at distant locations. However, the petition makes no specific showing, other than such conclusory statements, as to the amount of stimulation which may be expected to result or the respects in which the existing or future telephone facilities are or will be inadequate to accommodate any such increased traffic. It is sufficient to note that the Bell System companies, which are aware of their service obligations and existing problems, proposed these rate schedules in the confidence that they can meet service requirements.

7. NARUC states that the interstate rate reduction will cause a further burden on the capital requirements of the associated Bell companies and independent companies which NARUC states "are faced with some of the most difficult financing problems in their history." Again, no specific reasons are advanced as to why either the Bell System or any other company will be unable to obtain necessary capital by virtue of the reduced rates. The Commission has carefully considered both the capital requirements of the Bell System and the rate of return it will need to meet such requirements in the light of the proposed rate reductions. Nothing before us indicates, nor did the Bell System companies contend, that the rate reductions will impair the ability of any telephone company to raise the capital it requires.

8. NARUC finally requests that the proposed rates be rejected or suspended until due consideration can be had by the Commission on a petition for rulemaking relative to certain new and complex proposed changes in jurisdictional separation procedures filed concurrently with the instant petition. NARUC's petition for rulemaking was placed on public notice on December 12, 1969 (RM-1543). In this connection, we have suggested to NARUC that, to facilitate expedition, the NARUC-FCC staff committee of technical experts be convened as soon as possible in order to consider the proposed changes. We have also urged that such meetings commence as early in January as possible. We have again stated, as we indicated in our report and order of January 29, 1969, in docket No. 17975, that we intend to continue our cooperation with the NARUC and look to these joint studies as the prime forum for providing the expertiese and guidance required in this complex area of separations procedures. In the meantime, we see no need to deprive the public of the benefits of the substantial rate reductions now scheduled to go into effect on January 1, 1970. So far as any change in separations procedures is concerned, if rate adjustments should prove to be necessary as a result of any separations changes which may eventuate, such adjustments may be made at the appropriate time.

9. New York, in its petition, does not seek rejection or suspension of the above-captioned reductions in interstate rates. Instead, it requests a rehearing on our November 5, 1969 public notice (F.C.C. 69-1210). New York states that its petition is filed under section 405 of the act, 47 U.S.C. 405. Specifically, it seeks to determine the basis for an alleged change in the Commission's findings and conclusions in its decision [*889] in docket No. 16258 and to determine the lawfulness of the interstate rates of the Bell System. Further, it asks us to vacate that portion of our November 5, 1969, public notice that allegedly allows a rate of return over 7 1/2 percent and it asks for an order directing A.T. & T. and New York Telephone Co. to keep an account of all charges henceforth paid by interstate users in New York City above charges necessary to earn 7 1/2 percent.

10. The gravamen of the city of New York's complaint is that the Commission has abrogated a prior decision which was rendered after a full hearing, and has done so without participation by all persons showing an interest in the matter. We have previously held that the mere announcement of a decision by a regulated communications common carrier that it will voluntarily file tariff schedules reducing its charges to the public does not constitute agency action within the meaning of section 405 of the Communications Act. See Public Utilities Commission of the State of California, released February 12, 1965 (F.C.C. 65-93). Our holding in this regard was sustained upon judicial review, The Public Utilities Commission of the State of California v. United States, 356 F.2d 236 (9th Cir 1966), 385 U.S. 816 (1966) cert. denied. In that case, we noted that an announcement does not and could not bind anyone to any action. In this respect the petition filed by the city of New York is procedurally defective in that there is no agency action within the meaning of section 405 of the Communications Act with respect to which a request for rehearing will lie. Moreover, New York misconstrues our public notice of November 5, 1969. New York argues that, by agreeing to the $150 million reduction, the Commission "arbitrarily, capriciously and unlawfully took action affecting a previously set rate of return, and thereby affecting rates, withot any opportunity for affected ratepayers to be heard, in a proceeding in which only representatives of A.T. & T. and its own staff were allowed to present evidence." However our public notice did not purport to set forth a specific allowable rate of return. Our public notice expressed our view that in light of current conditions of the capital market, interstaste rates which would produce a rate of return which exceeds 7.5 percent -- the upper limit of the range of return found to be reasonable in 1967 by our decision in docket No. 16258 -- are not unreasonable. We also recognized in the public notice that there was reason to expect that, absent any further action by the Commission, the reduced rates announced by the public notice will not, in themselves, prevent the company from achieving earnings in a range of 8 to 8.5 percent. In making the latter observation, the Commission was not indicating an acceptance or approval of earnings in this range. We were expressing our anticipation that the growth patterns inherent in interstate business, combined with the stimulating effects of the contemplated rate reductions on interstate traffic, would continue to increase the going level of interstate earnings. We will again be reviewing the level of earnings in the first half of 1970 after, among other things, the effects of any revision in the Federal income tax surcharge are known. Accordingly, any claim that the Commission specified, as acceptable, a level of earnings in the aforementioned range is a misconstruction of our November 5 public notice and misrepresents our current policies.

[*890] 11. Disregarding its misconstruction of the effect of the Commission's public notice and treating the pleading as a petition for investigation, it is still defective. Its sole basis for alleging the unlawfulness of the proposed tariff schedules appears to be that the Commission has indicated such schedules may produce a return somewhat in excess of that found to be reasonable in 1967. This fact, if proven, is not sufficient to establish the unlawfulness of the proposed rates. It is will settled that the question of what is a fair rate of return is dependent on the facts and circumstances prevailing at the time of its determination. New York has failed to allege any facts relating to present economic conditions which would tend to indicate that the going level of earnings to be produced by the proposed rates is presently unreasonable.

12. With respect to New York's request for an accounting order, it should be noted that, even were its allegations sufficient to raise a question as to the unlawfulness of the proposed rates, New York cites no provision of the Communications Act which confers authority for the Commission to enter an accounting order with respect to reduced rates. Section 204 authorizes us to issue accounting orders when increases, but not reductions, in rates are filed, 47 U.S.C. 204.

13. In view of all of the foregoing, we conclude that the aforementioned requests should be denied.

14. Accordingly, It is ordered, That the petitions of the National Association of Regulatory Utility Commissioners (NARUC), the city of New York, and the Independent Group, Are denied.

FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.

CONCURRING OPINION OF CHAIRMAN DEAN BURCH

There is an old saw among lawyers that "if you're weak on facts, argue the law; if you're weak on the law, argue the facts; if you're weak on both the law and the facts, pound the table." This statement is in response to Commissioner Johnson's table pounding dissent.

To place it in proper perspective the dissent violently castigates the Commission for negotiating promptly the largest interstate rate reduction in history. A rate reduction 25 percent greater than the Commission was able to prescribe, with Commissioner Johnson's concurrence, in a decision and order issued almost 2 years after the institution of formal hearing procedures in 1965.

The Commission need not apologize for its negotiations or for the results achieved. Perhaps the reductions are less than we would have ordered after another hearing, and perhaps not. The fact is, interstate users will enjoy immediate and substantial benefits, and without having to await the uncertain outcome of another hearing.

So much for what the Commission did. Even more important is what we did not do.

First, we did not, and in fact could not, as a matter of law, in these continuing surveillance proceedings change the rate of return findings and conclusions made after our hearing in docket No. 16258. Any allegation that the Commission has approved or authorized a [*891] return of 8 to 8.5 percent is erroneous and should be rejected. We did express the view that, under current conditions, earnings in excess of 7.5 percent, after the substantial reduction of rates to be effective January 1, 1970, would not necessarily be unreasonable. (See concurring statement of Commissioner Cox.)

Second, as Commissioner Johnson should well know, our forecast that under the proposed rate schedule with current traffic trends and the stimulation resulting from the rate reductions, the company might well reach the 8- to 8.5-percent range of return before the end of 1970, does not mean that the Commission will not take further action if such earnings are achieved. The Commission made clear in its public announcement of November 5, 1969, that in the first half of 1970 or well within the next 6 months we will again review A.T. & t/.'s level of earnings with a view to procuring any future adjustments that may be justified.

Third, I confess I do not understand the comments of Commissioner Johnson with respect to separations. So far as I can determine, separations has been the subject of continuing and detailed study. There has been no refusal to consider all alternatives in the pricing of telephone service. To the contrary, anyone aware of what we have been doing would know there have been frequent and significant changes in separations procedures. In fact, since the early 1950's some $800 million of revenue requirements have been transferred from the intra to the interstate jurisdictions. These transfers have for the most part been reflected in lower charges to American consumers of local exchange and intrastate toll service. This is emphatically not a record to be ashamed of, nor a sign of obliviousness to the interests of the local exchange user.

Fourth, the dissent makes the statement that "So little information has been filed by Bell that it is impossible to tell whether the rate changes will result in any reductions at all," and that "No information has been furnished to indicate how Bell arrived at these reductions, or what alternatives were presented and rejected by the company." It is obvious from an examination of the tariff schedules that reductions in charges to the public will result. When the station day rate for customer dialed calls across the country during the business day are reduced from $1.70 to $1.40, or from $1.25 to $0.90 in the evening, anyone can determine whether there has in fact been a reduction in rates. The Commission has volumes of data from Bell and in my short time here I have been impressed by the ability of our staff to evaluate it. Numerous conferences were held between representatives of Bell and the Commission's staff at which alternative rate schedules were discussed. Moreover, the Commission's New York common carrier field office has investigated basic company data in this respect. Although calculations such as those involved here of necessity are not precise, and obviously cannot be verified to the last decimal point, this does not mean that the Commission has not checked the data sufficiently to be satisfied that the estimates are reasonably accurate.

Fifth, we did not ignore the effect of the possible reduction in the Federal corporate surtax if the pending income tax legislation becomes [*892] law. We specifically referred to it as one of the matters which we would take into account, when the uncertainty was removed, in the course of out 1970 review.

Sixth, Commissioner Johnson takes us to task for permitting rate increases to go into effect in November 1969 for television program transmission and teletypewriter exchange (TWX) services with offsetting decreases not to be effective until February 1970. The TWX increases did not go into effect in November as Commissioner Johnson states but were in fact suspended along with radio transmission and Telpak rate increases until February. At that time even though the rate increases are subject to hearing and could be disallowed with refunds ordered, the Bell System agreed to put offsetting toll rate decreases in effect. In view of this and the minuscule effect upon the rate of return of the television program rate increases for the 3-month period, it did not seem inappropriate to allow all offsets to be made effective at the same time, February 1, 1970.

Seventh, we are fully aware of the methods by which the Bell System companies computed the reductions and the traffic volumes used. This matter was discussed with the company and was resolved to the Commission's satisfaction on the basis of current traffic levels.

Finally, before closing I must express a personal distaste for broadside attacks upon the intelligence and integrity of my fellow Commissioners and our undermanned staff. We do not "sit by, smugly, ratifying rate reductions Bell does not oppose" and Commissioner Johnson knows it. In this connection see his concurring statement in docket No. 16258 where he said "Bell has been virtually forced by this Commission into every recent interstate rate reduction it has made * * *" (9 F.C.C. 2d 30, 125, 1967). Rate reductions of almost $300 million during a 2-year period of rampant inflation rebut conclusively Commissioner Johnson's allegation that telephone regulation by this Commission "is more designed to serve corporate interest than consumer interest." Let me make this clear. The Commission and its staff are not above criticism. Any criticism or even attack with supporting evidence would be welcome even if embarrassing. But broad generalities devoid of any reference to fact are a different matter and should result in another type of embarrassment -- but not to the Commission.

CONCURRING STATEMENT OF COMMISSIONER KENNETH A. COX

I concur in this decision, but wish to add the following comments. The Commission has not fixed a rate of return as a result of its recent negotiations with A.T. & T. It has recognized that, in the face of undisputed changes in conditions since 1967, a level of earnings somewhat above the maximum then formally prescribed is not now unreasonable, but has indicated that it will be prepared to give further consideration to the matter if and when the company's rate of return reaches still higher levels.

Meanwhile, we have obtained present reductions in rates to the maximum degree possible through our continuing surveillance procedures. If New York City or any other representative of users of interstate toll telephone service had made an adequate showing, I would [*893] have been prepared to order an investigation of the level of earnings to be expected as a result of these rate adjustments. But the city alleges only that an investigation is required because we have indicated that earnings of more than 7.5 percent are not unreasonable, without itself showing that such earnings would, on the contrary, be unreasonably high. Something more than a mere conclusory allegation is required.

FURTHER CONCURRING STATEMENT OF COMMISSIONER KENNETH A. COX

I had thought that the brief concurring statement which I filed earlier would suffice, but in view of Commissioner Johnson's response to the Chairman's concurring opinion I wish to add a few further comments.

I found Commissioner Johnson's original dissent objectionable on much the same grounds stated in the Chairman's concurring opinion. Although I think he knows better, Commissioner Johnson persists in refusing to recognize the true character of the Commission's continuing surveillance procedures. On the one hand he shows no sign publicly of understanding that continuing surveillance is a process of negotiation in which the assent of A.T. & T. must be won, n1 so that in the nature of things the Commission cannot exact the very last dollar in rate reductions which it might wish to obtain for the public if it were in a position to prescrible rates -- which can only be done after a formal hearing. And conversely, he will not concede publicly that our processes have secured for the public the largest reduction in telephone rates in history now and not 18 to 24 months hence, after a long and complex hearing. I have been through two rounds of continuing surveillance, as well as our formal rate proceeding in docket No. 16258. Each procedure has its advantages and disadvantages, but I have been satisfied thus far that in most cases we should proceed informally in order to get substantial benefits for telephone users as quickly as possible. I believe we have done just that in this instance.

n1 The Commission, of course, does not have to accept the company's first statement as to what it will agree to in the way of rate reductions -- and in my experience it has certainly never done so. If Bell will not agree to what we regard as a reasonable adjustment, we can always institute formal proceedings -- and the threat that we are prepared to do so has been quite effective in forcing further concessions from the company.

Only Commissioner Johnson disagreed with the result reached, the other five participants agreeing that a reasonable adjustment of earnings had been negotiated. He now maintains his position by voting against denial of petitions for reconsideration filed by the National Association of Utility Commissioners (NARUC) and by the city of New York. In so doing, he continues to express himself in ways which, in my judgment, misstate the facts and ignore the applicable law -- and I therefore concur in the Chairman's characterization of his original dissenting opinion. I have often joined Commissioner Johnson in dissenting opinions, primarily in the broadcast field, and agree with him on many issues. However, it has long seemed to me that his thinking as to common carrier regulation is fundamentally flawed. On the one hand, he seems to assume that every position taken by A.T. & T. is wrong and contrary to the public interest and publicly and privately accuses those of his colleagues and those on our staff n2 who disagree with him of being "solicitous of A.T. & T.," of regularly favoring "regulation that is more designed to serve corporate interest," of regarding Bell as "one of the Commission's corporate clients," and generally of always siding with Bell and complying with its wishes. Conversely, he seems consistently to present himself as the only defender of the public interest and as knowing more about telephone regulation than all of his colleagues and the staff put together. I do not think that my record over the past 6 1/2 years demonstrates either that I am unknowledgeable about telephone matters or that I am inclined to favor the Bell System's interests unduly, and I therefore resent Commissioner Johnson's characterization of my actions in the common carrier field, in this case and in a number of other recent matters.

n2 This is the staff he now terms "able and hard working," but that is not the way he often characterizes them in Commission meeting, with the result, I think, of serious impact on morale.

In my years at the Commission I have concluded that dissenters have a very real advantage in the fact that their opinions are not operative acts. Since no direct consequences will flow from what they write, they can exercise a freedom of position and expression which might become embarrassing if their views were to become the rulings of the Commission and actually shape the industries we are charged to regulate. I am often in dissent myself, so try not to abuse this freedom -- though whether I am successful or not I cannot say. In this case I think the Commission has acted responsibly, with respect both to the interests of the users of interstate telephone service and the interests of the shareholders of A.T. & T., and that Commissioner Johnson's colorful table pounding is without substantial factual or legal foundation, though no doubt well designed to attract popular support for his position.

In the addendum to his opinion, Commissioner Johnson addresses himself to seven points which he says the Chairman had made in his concurring opinion. I would like to comment on each of these.

First, the Chairman said that the Commission had not changed our conclusions as to rate of return reached in 1967 in docket No. 16258 (our formal rate case); that we had indicated that, under current conditions and after the substantial reduction in rates agreed to, earnings in excess of 7.5 percent would not necessarily be unreasonable; but that any allegation that the Commission has authorized a return of 8 to 8.5 percent is erroneous. Commissioner Johnson had made such a charge in his initial dissent, and persists in this view in his addendum, claiming, apparently, that acceptance of earnings in excess of 7.5 percent, coupled "with specific references by company and Commission to 8 and 8.5 percent," really establishes the truth of his original charge that "8 to 8.5 percent is the rate of return now permitted by this Commission." In the first place, earnings of 7.6 or 7.7 percent would be in excess of 7.5 percent -- but would not be in the range 8 to 8.5 percent. Thus our recognition that earnings outside the range 7 to 7.5 percent are permissible -- a result clearly contemplated as possible in our 1967 decisions in docket No. 16258 -- does not prove Commissioner Johnson's claim that we have acquiesced in earnings in the range of 8 to 8.5 percent. Nor do our specific references to that range prove his point. What we said in our November 5, 1969, public notice announcing the results of our continuing surveillance negotiations was: (a) That 1969 interstate earnings are expected to exceed 8 percent -- but obviously the $150 million rate reduction will now reduce that earnings level; (b) that existing growth trends in traffic, revenues, and earnings are expected to continue; (c) that this expectation is substantiated by A.T. & T's forecast of interstate operating results for 1970 which, under present rates (i.e., those in effect before the $150 million rate reduction), ranges to levels above 8.5 percent, depending on economic conditions; (d) that based on experience with past rate reductions, we anticipated that interstate revenues and earnings will be stimulated by the very reductions in rates the company would file; (e) that we anticipated that the $150 million rate adjustments would not, in themselves, prevent the company -- at some unspecified future time -- from achieving earnings in the range of 8 to 8.5 percent, in view of the growth trends and stimulative effects already referred to; (f) but that we would maintain continuing surveillance and take such action as may be appropriate in the light of future conditions. I think it is clear that the last statement contemplates action, above and beyond the $150 million reduction already negotiated, to counteract any rise in earnings we might believe to exceed reasonable levels.

Indeed, the Chairman's second point was precisely -- as outlined above -- that our forecast that the company might reach the 8-8.5 percent range of return before the end of 1970 did not mean that the Commission would not take further action if such earnings were achieved. Beyond that, he reiterated that we had made clear that we would again review A.T. & T.'s level of earnings in the first half of 1970 in order to effect any adjustments that may then be justified. To which Commissioner Johnson, in his addendum, replies: "What a shame the public must pay unnecessarily high rates in the interim" (emphasis his). In my judgment it would have been an even greater shame if we had done what he now seems to say we should have -- that is, rejected the company's offer to reduce rates and proceeded with a formal rate case designed to achieve even further reductions. During that interim the public would have to pay $150 million more per year than the rates he already terms unnecessarily high. I cannot understand his refusal to recognize this simple fact. I raised this point with him in the meeting at which we considered the petitions for reconsideration. He did not answer then and he does not do so now.

Third, the Chairman indicated that he could not understand Commissioner Johnson's comments as to separations, and denied his implication that we had refused "to consider all the alternatives in the pricing of telephone service." Indeed, we are now considering the only alternative NARUC has proposed, but are doing so through the long-existing joint staff committee looking toward possible revision of our rules. That is the appropriate machinery for such adjustments in separations, not the suspension or rejection of the new tariffs urged by NARUC in its petition herein. To this, and other comments on the separations problem, Commissioner Johnson now makes a completely diversionary rejoinder. He asks where -- if separations has, as the Chairman said, been the subject of continuing and detailed study -- are the FCC standards in this area? The answer is that they are set forth in our rules specifying the current separations procedures, and are explained in the memorandum opinion and order adopting the rules and in our 1967 decision in docket No. 16258 (see 9 F.C.C. 2d 88 ff, especially pp. 108-111). It is not incumbent on the Chairman to suggest "some common sense rationale for 'separations' standards and formulae." The Commission has fixed procedures after a lengthy hearing proceeding followed by a rulemaking proceeding -- in both of which Commissioner Johnson participated. If he -- or NARUC -- believes that that is sound basis for now revising those procedures, the burden is upon them to make the case for such change.

Fourth, the Chairman addressed himself to Commissioner Johnson's statement in his original dissent that: "So little information has been filed by Bell that it is impossible to tell whether the rate changes will result in any reductions at all. No information has been furnished to indicate how Bell arrived at these reductions, or what alternatives were presented and rejected by the company." In response to this, the Chairman pointed to two obvious and significant reductions in rates specified in the new tariff. Commissioner Johnson's rejoinder is that he can't believe the Chairman really meant to urge that Bell's gross revenues would be reduced because a single calling rate is cut, adding that "of course, Bell is also proposing numerous examples of rate increases of this kind." This latter is either an egregious typographical error, or is simply untrue. There are no rate increases specified in the subject tariff. And if Commissioner Johnson finds the response incredible, it is because his own original statement was unclear as to whether he meant that there would be no reductions in rates -- which a quick reading would suggest -- or that there would be no reductions in revenues. In either case, it is clear that the tariff spells out significant reductions in rates, that will produce reductions in revenues approximating $150 million per year.

No one claims that the final outcome can be computed with precision, but our staff has verified the price cuts of the tariff changes and is satisfied that they are designed to produce the desired result. Based on past experience, I believe that even though we must start with Bell's data and projections, we can expect the agreed reduction in earnings to take place. How long this reduction in earnings will continue is, as indicated above, dependent upon the stimulative effects of the rate cuts and the growth in interstate traffic. If, as Commissioner Johnson may be trying to say, the reduction in earnings is fairly quickly offset by these factors, so that they again exceed reasonable levels, that can be corrected through the review of A.T. & T.'s level of earnings which the Chairman indicates will be made within the next 6 months.

Fifth, the Chairman denied Commissioner Johnson's charge that we had ignored the possibility that Bell might realize increased earnings as a result of a reduction in the surtax, pointing out that this was one of the uncertainties listed in our November 5 notice to be considered in our next review of Bell's earnings. In his addendum, Commissioner Johnson uses some exceedingly loose language about gouging the consumer, excessive rates, and illegality. No rate is illegal until we have made a finding to that effect after a formal hearing, nor can it be said with certainty that the immediate effect of surtax relief will be to make the present rates excessive, since there may be offsetting factors to counteract the change in tax levels. In any event, the Commission cannot tinker with rates on a weekly or monthly basis. I agree that the change in the surtax -- which took place after the Chairman's opinion was prepared -- provides added grounds for early review of Bell's earnings, after which we can probably effect adjustments which will reduce A.T. & T.'s earnings for 1970 to a reasonable level. Commissioner Johnson concludes this point by saying: "We could, if so inclined, direct Bell to include in its January rate filing reductions that would pass these savings on to the consumer." That is simply not true. Without a formal hearing we cannot direct the company to make any changes in its rates.

Sixth, the Chairman pointed out that Commissioner Johnson was in error in saying that we had permitted rate increases for TWX service to go into effect before the offsetting message toll reductions (which have just now been filed). At to the increased television program rates, which did go into effect last October, he pointed out that they would have minimal effect, over the 4 month period involved, on the company's rate of return. He also noted that Bell had agreed to file reductions in message toll rates, effective February 1, 1970, even though the increases in Telpak, TWX, and radio and television transmission rates have all been challenged and accounting orders issued by the Commission. This means that the increases may have to be refunded, though the company will have no corresponding right to recoup the sums lost through the message toll reductions. Under these circumstances the Commission concluded that it would be reasonable to have all the offsetting reductions effective at the same time; namely, February 1, 1970, the date to which the effectiveness of three of the four tariffs in question had been suspended. n3 To all of this Commissioner Johnson now responds that the $15 million in television transmission increases was more significant than the $6 million in TWX increases -- as to which he concedes he was in error. But by the same token, the $75 million aggregate for the other three services was more significant than the sum involved in the television increases. Theoretically, it would perhaps have been neater to have had each increase associated with a contemporaneous offsetting reduction in message toll rates, since it was agreed that Bell was simply to rationalize its rate structure without increasing its overall rate of return. In any event, the staff tells me that the short term effect of the earlier date for the television rates would be approximately $5 million, rather than the entire annual amount of $15 million used in Commissioner Johnson's dissent. But perhaps the best answer to his presently expressed concern about the matter is that he concurred in the action permitting the television transmission rate increases to become effective October 2, 1969, although he must have known that no offsetting reductions were to be effective at that time.

n3 In other words, Bell ad conclude, after studies and lengthy hearings in docket No. 16258, that its rates for these four services were unreasonably low. It therefore filed tariffs specifying increases in all four services, in the aggregate amount of approximately $90 million per year. We suspended three of the tariffs (I dissented as to Telpak and TWX) involving $75 million until February 1, 1970. Bell has now filed rate revisions in the net amount of $90 million, to be effective on that same date, to accomplish the aforementioned rate increase.

Seventh, the Chairman said that we were aware of the methods by which Bell computed the rate reductions and with the traffic volumes it had used, the matter having been discussed with the company and resolved to the Commission's satisfaction on the basis of current traffic levels. To this Commissioner Johnson replies that the Chairman is wrong; that he attended the surveillance hearings and the Chairman did not. The only difficulty with this is that it completely misconstrues what the Chairman was talking about, which took place in a meeting attended by the Commission's telephone committee, our staff, and representatives of A.T. & T. The Chairman attended that meeting -- as I did -- and Commissioner Johnson did not, so it is he who is in error. He then goes on to say that Bell supplied us with less information to justify the current tariff than it did for its 1967 reduction -- the staff tells me this is not true. He says that in the current surveillance proceeding the staff requested certain data, but the Commission sustained Bell's objection to supplying it. This refers to the question of whether Bell should supply us its 5-year projections of traffic volumes, revenues, earnings, etc. The company expressed concern that publication of such internal management projections might mislead the public. After discussing the matter, the majority of the Commission decided not to press the matter beyond projections for 1970 -- with the concurrence of the Chief of the Common Carrier Bureau, who had initiated the request. Finally, Commissioner Johnson says that Bell drowns the Commission with data which it, the company, chooses to present. To my knowledge, the carriers supply us with the data we require of them. It is true that the material is voluminous, and our staff works with the company on a continuing basis to improve the informations flow. However, I think the inference Commissioner Johnson creates is not an accurate reflection of the situation.

Finally, the Chairman expressed distaste for broadside attacks upon his colleagues and the staff, objecting to broad generalities devoid of factual basis. He said that we do not "sit by, smugly, ratifying rate reductions Bell does not oppose," and contended that rate reductions of almost $300 million during a 2-year inflationary period rebut Commissioner Johnson's allegation that our regulatory activity "is more designed to serve corporate interest than consumer interest." The latter replies that he thinks it clear from his three opinions in this matter that his views do not rest on "broad generalities devoid of any reference to fact." It is true that he refers to facts, but I hope that what I have written here will demonstrate that his facts do not add up to the broad generalizations he seeks to draw from them -- indeed, that they are often garbled and incomplete. The total impact of what he has written is, in my judgment, misleading and unfair. As a member of the Commission's telephone committee, I participated in all the negotiations with A.T. & T. and can testify that the latter opposed these rate reductions with the utmost vigor. Negotiations broke down at one point and were only resumed after former Chairman Hyde called A.T. & T.'s chief executive officer directly. I think that, all factors considered, we achieved a very beneficial result for the users of interstate telephone service. I think Commissioner Johnson unfairly demeans the intent and the accomplishment of those who negotiated the agreement and those who ratified it. He contends that we "accomplished far too little -- all the while announcing to the world the magnificence of [our] supposed feat." We achieved less than I would have liked, but as much as was possible through the surveillance procedures. But the shortfall is great only if one accepts Commissioner Johnson's goals, which I can only term unsound and unrealistic. And I do not recall any claim of magnificence for the result we obtained, nor was it a supposed feat. We simply negotiated a $150 million reduction in revenues and announced that fact. The opening paragraph of our November 5 notice read as follows:

Reductions in rates for interstate long distance telephone calls will be submitted shortly by the Bell System telephone companies to the Federal Communications Commission. It is expected that the reduced rates will save users of telephone service about $150 million per year.

In addition, A.T. & T. has previously agreed to file reductions of about $87 million representing an offset to increases in revenues resulting from higher rates recently filed for program transmission, Telpak and teletypewriter exchange (TWX) services when the latter increases become effective. The Commission anticipates that the new rates will permit the companies to achieve earnings in a range needed to attract capital under today's conditions.

Commissioner Johnson points out that A.T. & T. grossed over $14 billion last year, which he points out is roughly 100 times our current rate reduction. I don't know what relevance this is supposed to have. It would seem that the more significant figure would be some $4,300 million revenues from interstate operations, from which A.T. & T. derived $785 million in earnings. Our $150 million represents approximately 3.5 percent of the former and, and after allowing for the effect of federal income taxes, some 9 percent of the latter -- certainly more relevant ratios than the one Commissioner Johnson uses.

He then says that our task is to find the appropriate level for Bell's earnings, not to brag of every minor reduction. The former is a much more difficult job than he suggests, and one I think the Commission has performed commendably in the years I've been there -- and without any noticeable bragging.

Commissioner Johnson then makes what seems to me an incredibly inappropriate reference to current concern for law and order. He says this concern should not be limited to those crimes it is easiest for the poor and disadvantaged to commit -- a proposition with which I agree, though its relevance to the matter in hand escapes me. He then says that a rigorous enforcement of the public interest should also apply to "the white collar corporate criminal" who is capable of "robbing" the American people of more money through a "single price fixing conspiracy" than they will lose in all the robberies, burglaries, and larcenies committed during a year. What is this supposed to mean? Does he claim to have identified some corporate criminal or some price fixing conspiracy in the context of our negotiation for the current reduction in interstate rates? If not, I find these references in extremely bad taste.

He concludes by saying that it is our responsibility not just to reduce A.T. & T.'s rates, but to reduce them to the proper level -- which, in his "judgment" we have not done. He then says: "It is neither 'table pounding' nor attacks on anyone's 'intelligence' or 'integrity' to state this blunt fact." Somehow his "judgment" has ripened into a "fact," though I have tried to suggest some grounds for questioning his judgment, and even the asserted facts upon which it is claimed to rest. He then turns to a popular song writer for the lines: "I'll tell you the truth, I know it ain't wrong," and adds "The truth may hurt a little; but it ain't wrong."

Earlier in his second opinion he says he deliberately used the word "smugly" in its dictionary sense of "narrowly contented with one's own accomplishments." I think perhaps there is an element of smugness in his conclusion that he alone has the "truth" of this complex matter. Certainly he has raised some valid questions, but I think he has tried to convert them into a critique of our action which simply will not hold water. When he sticks to the facts and the law and their reasonable interpretation I applaud his

efforts. In this case, however, I think he has, indeed, simply been pounding the table.

DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON

I dissent to the Commission's rejection of petitions to suspend the rate reductions filed by A.T. & T. as a result of the Commission's continuous surveillance decision. I would suspend these rate reductions for 1 day, institute formal proceedings on rate of return and separations, and make the city of New York, the National Association of Regulatory Commissioners (NARUC), and the Common Carrier Bureau parties to the proceeding.

I have already outlined my disagreement with the majority in the conduct of this matter. A.T. & T., -- F.C.C. 2d -- (1969). F.C.C. 69-1210, November 5, 1969; see also letter from Commissioner Nicholas Johnson to Senator Warren G. Magnuson, December 10, 1969. Briefly, I believe the Commission accepted too little in the way of reductions by Bell, and unlawfully modified its 1967 decision on rate of return.

Without any formal hearings in which aggrieved parties might be heard, the Commission has decided that Bell is entitled to earn more than the ceiling of 7.5 percent set in 1967 after a formal rate of investigation. In fact, the Commission now acquiesces in a rate structure which both the Commission and Bell acknowledge will allow Bell to earn in the range of 8 to 8.5 percent. Despite protestations to the contrary, 8 to 8.5 percent is the rate of return now permitted by this Commission. It may be, as the majority says that this is not our policy. But it is the range which our actions will produce.

The NARUC petition raises serious questions which the Commission should resolve. Separations policy calls for a quantity and quality of research and systematic economic analysis which this Commission has so far been unwilling to undertake. I do not believe we serve the interests of the American consumers of local exchange and intrastate toll service by our refusal to consider all the alternatives in the pricing of telephone service. It is easy to sit by, smugly ratifying rate reductions Bell does not oppose. But our actions often make it all the more difficult for the states to resist rate increases sought by the same company. These are rate increases brought about by Bell's ability to reduce costs for interstate service under present separations procedures, but apparent inability to make the same reductions for local service. In fact, the company is even unable to maintain the quality of local service.

In dealing with the petition of the city of New York the majority disingenuously relies on the California PUC case ( The Public Utilities Commission of the State of California v. United States, 356 F. 2d 236 (9th Cir. 1966), cert. denied, 385 U.S. 816 (1966), affirming F.C.C. 65-93 (1965)), despite the fact that the case before us raises an entirely [*894] different legal situation. Not only has the F.C.C. here made its decision on continuous surveillance after a formal rate proceeding in which a rate of return was specified, but the Commission in this continuous surveillance proceeding recognized the need for some sort of consumer representation by appointing special staff counsel. Finally, the city of New York petition is in effect a petition to suspend the new tariffs that have been filed by Bell, thus clearly avoiding the procedural defects found by the court in the California PUC case.

It is also instructive to examine the rate reductions that Bell has filed. So little information has been filed by Bell that it is impossible to tell whether the rate changes will result in any reductions at all. No information has been furnished to indicate how Bell arrived at these reductions, or what alternatives were presented and rejected by the company. Bell estimates that the reductions will result in a $151 million reduction in gross revenues. This figure was achieved by repricing the estimated calls for 1970 under the new tariffs (a $166 million revenue reduction), subtracting $45 million for the new revenue stimulated by the lower prices, and adding $30 million to the reduction for the shifts in calling patterns stimulated by the reductions.

By allowing Bell to do its repricing based on anticipated 1970 calling rates, rather than the 1969 test year data upon which the company urged the Commission to rely in all its other calculations about future financial results, the Commission allows the company to overestimate the revenue reduction effect of the rate changes. Apparently some effort is being made to induce Bell to modify its position, but the result is that the Commission here accepts tariffs which clearly do not result in a $150 million reduction. Bell thus uses future projections when they serve its corporate interests, and simply refuses to supply the data when its interests may be harmed by making full disclosure.

The Commission has very little data, and almost no capacity to evaluate what it does have. It has given little consideration to the peaking characteristics of message toll telephone service (MTT), or the effect of the reductions on telephone system utilization.

Finally, the Commission ignores the fact that Bell has already received, and will soon receive more, additional income not considered in the continuous surveillance negotiations.

In November 1969 the Commission allowed $20 million in rate increases to go into effect for the television program transmission service and the teletypewriter (TWX) service. These increases were to be offset by reductions in the MTT service. But the offsetting reductions are now to not be made until February 1970.

The Commission has refused to direct Bell to take account of changes in the surtax. Bell's new rates are due in early January 1970. So is a surtax reduction. If the surtax goes from 10 to 5 percent, as is now proposed, Bell will receive about $70 million in additional revenue from this single change alone. There is no disagreement about this figure. It is typical of the kind of known changes the Commission normally considers in ratemaking for the future as compared with a base year. Since its inception the Commission has calculated Bell's rate of return on the assumption that the consumer should pay the full surtax -- and much of Bell's case for rate increases in the states depends on the effects of the surtax. Even if justification could have been found [*895] for this earlier policy, clearly now these tax charges should be returned to the consumer. Instead, the majority promises a review sometime in 1970 to consider Bell's level of earning -- during which Bell will be allowed to pocket the entire benefits of the surtax change.

Bell has recently chosen this, of all times, to raise its dividend payout. It takes this brazen and untimely action despite its argument during the surveillance proceedings, and the testimony of its experts, that Bell's stock should be treated the same as industrial growth stocks Growth companies typically use retained earnings to finance growth -- not to increase dividends. Bell's action in raising its dividend is not only cynically inconsistent with its formal presentation to the FCC, it also will result in increased external financing requirements to the detriment of the consumer (and possibly shareholders as well).

We are used to telephone regulation that is more designed to serve corporate interest than consumer interest. That's not new. But a new and basic question in this proceeding is whether the Commission can insulate the company and the Commission from review by parties who feel themselves aggrieved. Perhaps it can. But if so it is a sad commentary on the present state of control of monopoly enterprise generally, and of the telephone company in particular.

ADDENDUM TO DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON

Since the preparation of this opinion, Chairman Burch has chosen to issue a rather disturbing document of his own. As the November 5 Commission decision and press release was one of the first important matters in which Chairman Burch participated (some 2 days after joining the Commission), his concern is understandable. Unfortunately, I have just received the Chairman's decision and can therefore give it only a brief reply.

Many years ago I, too, was introduced to the threadbare debater's canard about pounding facts, law, and tables. Most of us stopped using it after the first year in law school. For it is generally dusted off and used only by those who feel themselves unable to deal with either facts or law and must therefore resort to diversionary tactics of anecdote or ridicule.

The Chairman makes a number of points concerning the dissenting opinion. All are either wrong, fail to meet the objections raised, or actually support the dissenting opinion.

For example, the Chairman states:

First, * * * Any allegation that the Commission has approved or authorized a return of 8 to 8.5 percent is erroneous and should be rejected. We did express the view that, under current conditions, earnings in excess of 7.5 percent, * * * would not necessarily be unreasonable. [Emphasis added.]

If we are to take seriously the warning contained in the first sentence, and reject any allegation that the Commission has approved an 8 to 8.5 percent rate of return, we must accordingly reject the Chairman's next sentence. For that is precisely what he suggests. Once we untangle that sentence's "not-un" construction ("would not * * * be unreasonable"), it becomes: "earnings in excess of 7.5 percent * * * [*896] would * * * be reasonable." And that, to course -- taken with specific references by company and Commission to 8 and 8.5 percent figures -- was precisely my point.

The Chairman's remaining points ("Second" through "Seventh") can be treated briefly.

"Second" -- I am pleased that the Commission will review A.T. & T.'s earnings in the months to come. What a shame the public must pay unnecessarily high rates in the interim (which was, after all, my original point).

"Third" -- if, indeed, separations has been the subject of continuing and detailed study, where are the FCC standards in this area? If the Chairman is privy to some commonsense rationale for separations standards and formulas developed by this Commission's staff, I would appreciate his sharing them with his fellow Commissioners. (I do not see any reference to such rationale in the Chairman's opinion. An oversight, perhaps.)

"Fourth" -- I cannot believe that the Chairman really meant to urge that Bell's gross revenues will be reduced because a single calling rate is to be dropped from $1.70 to $1.40 (daytime) or from $1.25 to $0.90 (nighttime) for 3 minutes. Of course, Bell is also proposing numerous examples of rate increases of this kind. But putting aside that fact, the point is what we do not know what the impact of these changes will be on Bell's gross revenue, and that we have been overly dependent on Bell's interpretations and projections.

"Fifth" -- this is another rather startling "now you see it, now you don't" one-two sentence punch. Sentence one: "we did not ignore" the effect of the surtax reductions. Sentence two: "we will consider it next year." Again, that was precisely my point: the Commission opts to support the company's desire -- in the meantime -- to gouge the consumer with excess rates which all concede he should not have to pay. The fact that this illegality will be reviewed by the FCC sometime in 1970 is little comfort now. Further, there is no uncertainty involving the surtax, as the Chairman suggests. President Nixon has already enacted the surtax reduction into law, and we have known all along precisely what its effects would be on Bell's earnings. We could, if so inclined, direct Bell to include in its January rate filing reductions that would pass these savings on to the consumer. Bell urged that we not do so. We complied.

"Sixth" -- the Chairman is quite correct that TWX rate increases (of some $6 million) do not go into effect until February 1970. He glosses over the more important fact, however, that television program transmission rates (of some $15 million) -- more than twice the TWX rate increases -- have gone into effect as of November 1969. The Commission permitted television program transmission service rate increases to begin in November 1969, yet postponed offsetting reductions to February 1970, because this would have a minuscule effect ($15 million), and it was "not * * * inappropriate" [emphasis added] to postpone the offsetting reduction for 3 months. If the benefit to the public was minuscule, then the detriment to A.T. & T. must also be minuscule. Why not, then, give the benefit to the public? Surely A.T. & T. wouldn't mind a minuscule bone of public interest tossed to its subscribers. Does anybody [*897] really understand why this Commission is so solicitous of T.T. & T. that it resolves even minuscule differences in A.T. & T.'s favor? We could have said it would be "not * * * inappropriate" for the offsetting reductions to begin simultaneously with the rate increases. Bell urged that we not do so. We complied.

"Seventh" -- the Chairman is wrong. I attended the continuous surveillance hearings; he did not. None of us were able to determine, through questioning, how the Bell System companies made their computations -- since all rested on data produced by Bell and not subject to any independent check. Further, Bell has supplied this Commission with less information to justify its current tariff schedule than it did for its 1967 reduction. In the current proceeding, the staff requested certain data, Bell refused to supply it, and the Commission sided with Bell. What is more, it is undisputed that Bell can and does drown the Commission with data the company chooses to submit. The question has always been the relevance and usefulness of the data. The Commission's staff spends long hours in conference with Bell, attempting to improve the usefulness of the data Bell supplies. That the able and hard-working Common Carrier Bureau is undermanned is obvious to all. We may hope that the administration of the Chairman can meet this problem with increased appropriations and perhaps a better allocation of resources within the Commission.

Now a brief word in response to the Chairman's "Finally":

I think it clear from my earlier disagreements with the majority on this matter, my dissenting opinion in this instance, and this addendum, that my views do not rest on "broad generalities devoid of any reference to fact. * * *" I deliberately used the word "smugly," in its dictionary sense -- meaning "narrowly contented with one's own accomplishments." The thrust of my dissent was not to argue the Commission had accomplished nothing, but that it had accomplished for too little -- all the while announcing to the world the magnificence of its supposed feat (in a press release coauthored with A.T. & T.).

The Chairman takes apparent pride in our recently negotiated $150 million rate reduction during a period of rampant inflation. Putting aside the FCC's contribution to this rampant inflation when it accepts increases in Bell's rates of return, we are left with the fact that A.T. & T. grossed over $14 billion last year -- roughly 100 times our rate reduction. Our task is to find the appropriate level for Bell's earnings, not to brag of every minor reduction. The reckless driver, arrested for doing 60 miles an hour in a 30 miles an hour zone, cannot satisfy his arresting officer with the argument that he be excused because he slowed from 90 miles an hour to 60 miles an hour shortly before entering town.

It was Anatole France who observed that "the law, in its majestic quality, forbids all men to sleep under bridges, to beg in the streets, and to steal bread -- the rich as well as the poor." Fortunately, however, there are a few laws even more directly applicable to the rich as well. For example, poor citizens as well as rich corporations are equally forbidden to charge excess rates for providing telephone service.

Similarly, "law 'n order," about which this administration has expressed such concern, should not apply only to those crimes which [*898] it is easiest for the poor and disadvantaged to commit. A rigorous enforcement of the public interest (or just and reasonable rates) should also apply to the white collar corporate criminal, who is capable of robbing the American people of more money with a single price fixing conspiracy, say, than they will lose in all the robberies, burglaries, and larcenies committed throughout the entire United States during a year.

It is this Commission's responsibility not just to reduce A.T. & T.'s rates to 60 miles per hour, but to reduce them to the speed limit, the proper level. This we have failed to do in my judgment. It is neither table pounding nor attacks on anyone's intelligence or integrity to state this blunt fact.

Former President Harry S Truman was once similarly charged with giving the Republicans hell. "I never give them hell," he said.

"I just tell the truth and they think it is hell." Put to music:

Come all you good people and

I'll sing you a song

I'll tell you the truth, I

Know it ain't wrong. n1

n1 "The Song of Hard Times," Hard Times, Mar. 10-17, 1969.

The truth may hurt a little; but it ain't wrong.