In the Matter of THE WESTERN UNION
TELEGRAPH CO. For Authorization and Approval of the Acquisition of
Teletypewriter Exchange Service Properties, Facilities, and Operation
Docket No. 18519 File No. T-C-2228
FEDERAL
COMMUNICATIONS COMMISSION
24 F.C.C.2d 664
RELEASE-NUMBER: FCC 70-795
July
29, 1970 Released
Adopted
July 27, 1970
COUNSEL:
APPEARANCES
William E.
Seward, Esq., John M. Evans, Esq., Jack Werner, Esq., Vincent Gallogly, Esq., and
Bartley Brennan, Esq., on behalf of the applicant, Western Union Telegraph
Company; Frank A. Hudson, Jr., Esq., Joseph F. Johnston Jr., Esq. and Michael
Grove, Esq. on behalf of Bell System Respondents; R. P. Rmanelli, Esq. and
Roger P. Newell, Esq. on behalf of the Western Union International, Inc.;
William A. Roske, Esq., E. F. Murphy, Esq., J. F. Matedero, Esq. and Frank
Valentino, Esq. on behalf of RCA Global Communications Inc.; Derrick W.
Samuelson, Esq., Howard A. White, Esq., John F. Gibbons, Esq. and Terrance L.
Slater, Esq. on behalf of ITT World Communications, Inc., Bill Brice, Esq., and
Ray G. Besing, Esq. on behalf of Data Automation Company and Carterfone
Communications Corporation; Leonard S. Zartman, Esq., Eugene J. Davidson, Esq.
and John E. Kolofolias, Esq. on behalf of the Small Business Administration;
Thomas J. O'Reilly, Esq. on behalf of the United States Independent Telephone
Association; Thomas P. Carolan, Esq. (Kane & Koons) on behalf [**2] of Communications Workers of America; Joseph
M. Kittner, Esq. and Carl R. Ramey, Esq. on behalf of Rite-Made Paper Converter
Company; I. C. Glendenning, Esq., William B. Christy, Esq. and Abert S. Ameci,
Esq. on behalf of the Federation of Telephone Workers of Pennsylvania; Paul
Rogers, Esq. and David A. Irwin, Esq. on behalf of National Association of
Regulatory Utilities Commissioners; William M. Lesher, Esq. John F. Healy, Esq.
and Cecil O. Simpson, Jr., Esq. on behalf of Chief, Common Carrier Bureau,
Federal Communications Commission.
JUDGES:
BY THE
COMMISSION: COMMISSIONER COX NOT PARTICIPATING; COMMISSIONER JOHNSON DISSENTING
AND ISSUING STATEMENT.
OPINION:
[*664]
PRELIMINARY STATEMENT
1. This is a proceeding on an application filed
by The Western Union Telegraph Company (Western Union or applicant)
pursuant [*665] to Section 222(b)(1) of the Communications
Act of 1934, as amended (See Attachment A hereto for language from Section 222
of particular pertinence), for approval and authorization by this Commission of
the proposed acquisition of the teletypewriter exchange service (TWX)
properties, facilities and operations of the Amercan Telephone and Telegraph
Company and the associated Bell System companies. The orginal application filed February 12, 1969, was later
amended on January 8, 1970, to include the independent [**3] telephone companies herein involved. n1
On February 17, 1969, AT&T and the Bell System operating companies filed a
request for approval of Western Union's application.
n1 A second supplement to the application
to include other agreements with independent companies was filed on April 27,
1970.
2. By order, adopted April 2, 1969, and
released April 9, 1969 (FCC 69-333), the Western Union application was
designated for hearing before the Telegraph Committee to determine whether the
proposed acquisition: (1) is authorized by subsection (a) of Section 222, (2)
conforms to all other applicable provisions of that section and (3) is in the
public interest. The same order
designated the Telegraph Committee as a panel of Commissioners to preside at
the hearing with the assistance of an examiner, and also provided that the
Telegraph Committee issue a Recommended Decision. By order issued and released April 9, 1969 (FCC 69M-430), the
Chief Hearing Examiner, Arthur A. Gladstone, was designated the Examiner who
would assist the Telegraph Committee.
3. The Telegraph Committee, by order issued and
released June 12, 1969 (FCC 69M-715), set forth certain procedural guidelines,
and three [**4] cooperating State Commissioners
designated by the National Association of Regulatory Utility Commissioners
(NARUC) were authorized to sit with the Commission's presiding officers in this
proceeding. The three cooperating state
commissioners are: The Honorable John G. Feehan, Chairman, Maine Public
Utilities Commission; The Honorable Thomas Moran, Commissioner, California
Public Utilities Commission and The Honorable Paul A. Rasmussen, Commissioner,
Minnesota Public Service Commission.
4. By order adopted June 11, 1969 (FCC 69-647),
the Commission, in order to clarify the scope of the hearing issues designated
in its April 9th order and to provide for a more orderly and expeditious
proceeding, identified the specific issues raised by the application and to be
considered and resolved as part of the evidentiary proceeding. The issues specified were categorized into
the following areas of concern (see Attachment B for complete list of specified
issues): (I) Financial effects of the acquisition; (II) Effects on services and
facilities; (III) Effects on competition; (IV) Effects on the employees
involved; (V) Technical engineering and operating problems; (VI) Effects of the
acquisition [**5] on the independent
telephone companies; and (VII) The conditions, if any, that should be placed on
the TWX transfer if Western Union's application for authorization were to be
granted.
5. The National Association of Regulatory
Utility Commissioners; United States Independent Telephone Association; Western
Union International, Inc.; Isaiah G. Glendenning, President of The
Federation [*666] of Telephone Workers of Pennsylvania; ITT
World Communications, Inc.; RCA Global Communications, Inc.; Communications
Workers of America; Public Service Commission of Wisconsin; Data Automation
Company, Inc.; Data Automation Communications, Inc.; Carterfone Communications;
the Small Business Administration and Rite-Made of California, Inc. were
granted permission to intervene in the instant proceeding (FCC 69M-695 and FCC
69M-935).
6. The evidentiary hearing commenced on July
28, 1969, and was completed, after intervening recesses, on February 18, 1970.
7. On March 6, 1970, Western Union filed a
motion to omit the Recommended Decision by the Telegraph Committee. This motion was granted by Commission order
adopted April 1, 1970 (FCC 70-320), in order to expedite the final decision.
8. Proposed [**6] findings and conclusions were filed with the Commission by the
following parties: by the Small Business Administration, on April 6, 1970, in
which SBA stated that it had no objection to the proposed acquisition; by
Rite-Made Paper Converters, Inc. and Rite-Made of California, Inc., on April 7,
1970, in which Rite-Made recommended granting of the application subject to the
condition that Western Union continue present Bell policy of not supplying
paper to TWX users; by Western Union, on April 7, 1970, in which the grant of
the application was recommended; by the Bell System Respondents, on April 7,
1970, in which approval for the acquisition was recommended; by Data Automation
Company, Inc., Data Automation Communications, Inc. and Carterfone
Communications Corporation, on April 9, 1970, in which it was recommended that
the proposed acquisition be approved on the condition that customers of TWX
service be able to connect customer-owned terminal equipment to the TWX service
(in compliance with a Western Union commitment to this effect made during the
course of the hearings); by RCA Global Communications, Inc., on April 9, 1970,
in which approval of the acquisition was recommended to [**7] be conditioned upon nondiscriminatory
treatment of the international record carriers; by Western Union International,
Inc., on April 15, 1970, in which it was recommended that approval of the acquisition
be conditioned upon a directive that TWX subscribers will continue to have
direct access to the international record carriers, at reasonable charges. A statement of position was filed by the
Federation of Telephone Workers of Pennsylvania on April 2, 1970, in which it
was recommended that the application be denied because it was contended that,
in terms of promotional potential and usable training achieved, there would be
detrimental effects on Bell System employees trained to operate, service and
maintain TWX facilities, and because service would deteriorate.
9. Replies to the proposed findings and
conclusions and statement of position listed above were filed on April 28,
1970, by Western Union, by Western Union International, Inc., by the Bell
System Respondents and by Rite-Made Paper Converters, Inc. and Rite-Made of
California, Inc. Official notice is taken also of the statement in support of
the acquisition filed on May 5, 1970, on behalf of General Telephone &
Electronics [**8] Corporation and its
affiliated operating companies.
[*667]
10. An opinion of the State
cooperators was filed on May 7, 1970, recommending a grant of the Western Union
application. A copy of this opinion is
attached to this decision (Attachment C).
By order issued April 13, 1970 (FCC 70M-558), the Telegraph Committee
certified the record in Docket 18519 to the Commission without preparation of a
recommended decision.
11. A petition to reopen the record in Docket
18519 was filed June 15, 1970, by Peripheral Data Machines, Inc. An opposition to the petition was filed June
29, 1970, by Western Union. A
supplement to its opposition was filed by Western Union on July 10, 1970. Other than the Federation of Telephone
Workers of Pennsylvania and Peripheral Data Machines, Inc., there was no
opposition of record to the proposed acquisition.
FINDINGS OF FACT
BACKGROUND
12. In order to provide the proper perspective
for considering the application of Western Union, it appears to us to be
appropriate to review briefly the events leading up to the actual application. In this context we take official notice of
the following documents: (1) Study of the Telegraph Industry, Report of
the [**9] Committee on Interstate Commerce, United States Senate (Senate
Report No. 769, 77th Congress, 1st Session, 1941), (2) Communications Study,
Report of the Subcommittee on a Communications Study, United States Senate
(Senate Document No. 53, 83rd Congress, 1st Session, 1953), and (3) Report of
the Telephone and Telegraph Committees of the Federal Communications Commission
in the Domestic Telegraph Investigation, Docket No. 14650.
13. The study of the telegraph industry in 1944
was a thorough and complete report covering the economic conditions of the
telegraph carries, their relations to corporations engaged in other forms of
communications and the tendencies toward consolidation and monopoly in the
industry. The study concluded that the
telegraph industry faced pressing problems and made several recommendations,
including a specific recommendation that Congress approve an amendment to the
Communications Act of 1934 permitting domestic carriers to merge. It is interesting to note that even at this
time the report stated "... Unless
the telegraph enterprise is granted the full commercial exploitation of the
teletypewriter and leased wire facilities, competition from this source
eventually [**10] will harm seriously
the competitive position of any telegraph carrier." (Senate Report No.
769, supra, page 21.) As a result of this study, Section 222 of the
Communications Act of 1934, as amended, was enacted. Pursuant to this legislation, the Commission in 1943 approved the
merger of Western Union and Postal Telegraph.
It should be noted that Section 222(b)(1) of the Act specifically
provides that a part of the aforesaid merger or thereafter any domestic
telegraph carrier may acquire all or any part of the domestic properties,
domestic telegraph facilities or domestic telegraph operations of any carrier
which is not primarily a [*668] telegraph carrier. In 1953, a communications study by the Subcommittee on the
Senate's Interstate Commerce Committee (Senate Document No. 53, 83rd Congress,
1st Session) concluded that the only acceptable way to alleviate that then
existing problems of the domestic telegraph company and to place the company in
a sound position to render an effective telegraph service was the acquisition
of the Bell System TWX service.
14. The Commission, in 1962, concerned with the
continued decline of the message telegraph service and the significant
consequences [**11] this could have in terms of the public
interest, instituted the Domestic Telegraph Investigation, Docket No.
14650. The Telephone and Telegraph
Committees' Report presented an analysis of the decline in message volume and
revenues, depicted Western Union's performance in the face of this decline,
related the impact of the Bell System's practices and regulatory policy upon
the problem and presented an evaluation of proposed alternative measures for
improving the record communication services for the public. The Report concluded, inter alia, that the
sale of TWX to Western Union could result in a more balanced market structure
and provide such public benefits as expanded consumer choice and improved
quality of Western Union services by a strengthening of competitive forces in
the record communications market.
PURCHASE AND
OPERATING AGREEMENTS
15. Western Union, in the instant transaction,
has entered into substantially identical purchase and operating agreements with
the American Telephone and Telegraph Company and the associated companies of
the Bell System. Under the agreements,
Western Union has agreed to purchase from the Bell System companies the TWX
service, including all [**12]
teletypewriters and other station equipment of specific types, and
certain central office equipment, including switching equipment, utilized at
the time of closing. Bell-owned
equipment located in any territory served by independent telephone companies is
also included in the sale. Not included
in the sale, however, are Bell System interexchange facilities used for TWX
service; rather, subsequent to the acquisition, Western Union will lease such
lines as are needed from Bell for an indefinite period in the future. The purchase and operating agreements with
the independent companies have basically the same concept as the Bell System
agreements. Teletypewriters furnished
in connection with Data-Phone service are not included in the sale. However, for a period of five years after
the closing, the Bell System has agreed not to provide teletypewriters operated
at less than 300 bits to any customers other than those already using such
teletypewriters at the time of closing.
Also, the Bell System has agreed not to offer for the five years a switched
network exchange service utilizing telephone company supplied teletypewriters
operated at less than 300 bits per second.
16. The
[**13] contract of sale provides
for the purchase price to be determined by the net book cost of the property to
be acquired, estimated to be about $80 million, plus $5 million. The $80 million estimate [*669]
represents a gross book cost of $128 million less the depreciation
reserve of $48 million. The amount of
$48 million for depreciation reserve is based on a theoretical reserve
requirement study made by the Bell System.
The additional $5 million is a negotiated, rather than a calculated
figure, and is in recognition of such items as the going value of the TWX
equipment service, the TWX directory, any prepaid directory expenses and
reimbursement of the telephone company for its out of pocket and other costs in
connection with this purchase agreement.
FINANCIAL
EFFECTS
17. The $80 million estimated book cost and the
$5 million additional sum referred to above represent a purchase price of
approximately $85 million. In addition
to the purchase price, Western Union has incurred and will continue to incur
extra expenses directly attributable to the acquisition. Western Union alleges that these start-up
expenses may reach the figure of $25 million.
western Union proposes to defer and amortize [**14] these expenses over a 10 year period. The purchase price of $85 million plus the
$25 million start-up costs, represent a $110 million expenditure. This $110 million, with another $5 million
of capital expenditures to cover anticipated TWX expansion in the 2 year period
following acquisition means that the total outlay for Western Union to acquire
the TWX service can be as high as approximately $115 million within 2 years
after acquisition. At this point we feel
that it is appropriate to indicate that we do not consider the $25 million in
start-up costs estimated to be incurred by Western Union in acquiring the TWX
service to be a proper item to be included in the company's rate base for rate
making purposes and, therefore, we find, rather, that it should be treated as
extraordinary expense, to be amortized over an appropriate period to be
determined by the Chief, Common Carrier Bureau.
18. The foregoing figures indicate the magnitude
of the financial obligation Western Union would be required to undertake in
acquiring the TWX service. The evidence
with respect to Western Union's ability to sustain this burden falls into two
main categories: (1) the company's ability to raise [**15] the initial capital required for the
purchase and (2) the effect of the acquisition on Western Union's future
earnings position.
19. Insofar as the first category is concerned,
the record indicates that the fund requirements for Western Union, including
funds necessary for the TWX acquisition, in the two years following approval of
the TWX acquisition, would be approximately $340 million; namely, $115 million
for the TWX acquisition and $225 million for its modernization program and
other requirements. It appears that
Western Union should be able to furnish approximately $165 million in funds
from internal sources, excluding retained earnings, leaving a capital
requirement of about $175 million to be raised by outside financing and from
retained earnings. Under the purchase
agreement, Western Union can borrow approximately $42 million from AT&T for
the acquisition by the issuance of a note not exceeding 50% of the [*670]
closing price of TWX. Western
Union's financial witness testified that the company could issue about $77 million
in funded debt. Of this sum, $17
million is allowable under existing indenture restrictions if it is issued
before any additional money is borrowed.
The [**16] remaining $60 million
would be raised from issuance of excluded debt (including $42 million to be
borrowed from AT&T). This would
leave a requirement for about $98 million to be raised from equity financing
and retained earnings.
20. The financial witness for applicant, a
partner in a leading investment banking firm, testified he had been assigned to
the Western Union account for more than 15 years and had worked closely with
management in the development of financing plans. His firm had raised over $300 million for Western Union from the
money markets during 1964-1969. In
addition to the $77 million in borrowing capacity available to the Western
Union Telegraph Company with the TWX acquisition, he stated that the additional
earnings from the TWX acquisition would permit the sale of over 3 million
shares of common stock without dilution of the current consolidated earnings
level for Western Union of around $2.50 per share. The sale of three million common shares at $47 per share, the
price current at the time the witness prepared his testimony, would have
provided applicant with $140 million.
Money markets have been in an unusual state of fluctuation during
1970. Generally [**17] common stock prices have declined substantially
since the witness prepared his testimony.
On July 21, 1970, Western Union common stock closed at $35 per share. Three million common shares, if sold at $35
per share, would produce $105 million.
21. The witness said he was unable to present a
specific detailed financing plan, in part because of the highly fluctuating
state of the money markets. According
to him the amount of funded debt or other securities to be issued would have to
be determined at the time of the TWX acquisition and would depend upon money
market conditions and the level of the stock market. The witness concluded that, based on his experience and general
familiarity with Western Union and the TWX acquisition, applicant would be able
to finance the acquisition, as well as its other capital requirements. In this connection it is to be noted that
Western Union has restructured itself so that the parent corporation is now a
holding company. Applicant's financial
witness testified the holding company "could... issue debt without
reducing the amount of funding debt Western Union Telegraph could issue. Thus, initially the holding company could
issue convertible [**18] debt and leave
the issue of non-convertible debt to the Telegraph Company, since any debt of
the holding company would, in effect, be junior to the issue of the Telegraph
Company including its preferreds."
22. The analyses set forth above indicate that
after the Western Union Telegraph Company issues $77 million in debt in the two
years following approval of the TWX acquisition, there would be still a funds
requirement of around $98 million ($175 million less $77 million) for this period. This additional $98 million funds
requirement would have to be met by additional drafts on the money markets and
out of retained earnings. Retained
earnings over the two year period
[*671] following the TWX
acquisition may be expected to reduce the required additional drafts on the
money markets below $98 million. This
sum could, it appears, be raised by the stock issue referred to above even at
currently depressed prices or by convertible debentures of the holding company
or by a combination of such issues.
Accordingly, there are reasonable grounds for finding that Western Union
is capable of financing the purchase of the TWX system.
23.The second
major financial consideration relates to the effect [**19] of the acquisition on Western Union's future
earnings prospects. The figures
supplied for the record by Western Union, based on the most recent test period,
adjusted for known changes through 1973, but including no future rate increases
or other possible factors not now foreseen which affect revenues or expenses,
indicate that when Western Union acquires the TWX service, the overall rate of
return will improve above current levels by about 1.5% in 1971 and the 1973
will still be 1.2% above the overall rate of return earned by Western Union in
the most recent test period. The
projected rates of return for what is anticipated to be the initial three years
of operation of Western Union TWX service include the benefit of a substantial
acquisition related tax write-off for the first three years which Western Union
proposes to capitalize in the initial three years. In this connection, we think it appropriate for our regulatory
accounting purpose that the tax benefits be amortized over the same period as
the acquisition costs to which such benefits are related, and we will require
such accounting treatment. If this tax
write-off is amortized over a longer period, the increases in return
[**20] set forth above would be reduced. Furthermore, it is to be noted that these
estimates of rates of return from the TWX service, if acquired by Western
Union, are based on the increased rates which became effective February 1,
1970, and do not include the effect of any wage increases which may be incurred
after the expiration of present labor contracts in June, 1971.
24. From the evidence of record, it appears to
us that Western Union has demonstrated the ability to finance its modernization
program and the TWX acquisition and that it should make a contribution to the
overall return of the Company.
SERVICE BENEFITS
25. In the early 1960's, Western Union's
modernization plan concept was developed in which computers would be used in a
multipurpose, common store-and-forward network, integrating Western Union's
record message services and, as a result, allowing the provision of
value-additive features. Western
Union's policy is that all message/data services should be integrated so that
the subscriber to any one service will be readily able to use the entire range
of the services offered. The services
will be planned and balanced to complement each other. Western Union feels [**21] that such planning is best accomplished and
innovation will more frequently occur when a single source provides an array of
message/data services. Western Union's
modernization efforts led to the Information Services Computer System (ISCS),
the central unit which is planned as ultimately integrating [*672]
and serving the totality of Western Union's record message
services. Included are the planned
interconnections of Telex and TWX into the ISCS. The Telex interconnection has already been accomplished with the
introduction, late in 1965, of Telex Computer Communications Services
(TCCS). The introduction of TCCS
Service marked the first practical application of Western Union's ISCS facility. Western Union, however, plans to include all
of the record message services in its modernization program. Even if the proposed acquisition were not to
be consummated, for whatever reason, Western Union intends to otherwise
complete its modernization program. The
ISCS will handle traffic between the TWX community, Western Union's Telex
network, other TWX stations, U.S. Post Offices (for Mailgram Service), and
public message offices, or directly addressable public message terminals.
26. The
[**22] TWX acquisition will be a
significant addition to Western Union's record message services. After acquisition, Western Union will
introduce the TCCS-TWX service which will represent a major step in the planned
total integration of record message services. Completion of this step within an 18 month period will enable a
TWX subscriber to transmit messages, on a store-and-forward basis to another
TWX subscriber, to a Telex subscriber, to a public message addressee or to any
customer in any other additive service Western Union offers at that time. It should be noted that Telex subscribers
already enjoy access to TWX subscribers and, obviously, TWX subscribers could
be provided access to Telex customers whether or not the acquisition
occurs. After acquisition, TWX and
Telex will continue to be operated as separate services for the indefinite
future, although, as per the integration plans, the two services will be
planned to complement each other and the other record services.
27. Western Union is also committed to
establishing an on-line or conversational TWX/Telex interconnection on an
experimental basis to include seven cities with 2,000 Telex and 2,500 TWX
subscribers participating. [**23] Western Union is determining the technical
feasibility of an engineered integration plan which would provide computer
circuit switching in addition to its planned store and forward capability. While, at the time of hearing,
specifications had been sent to vendors concerning such a system and quotes and
proposals had been invited, appropriate responses had not yet been
received. We expect Western Union to
keep the Commission informed on a continuing basis as the various stages of its
engineered integrated service plan are developed and implemented.
28. The proposed acquisition will also afford
Western Union an advantage in its entry into the low speed data transmission
market. By the purchase of TWX, Western
Union will be spared the considerable cost of developing a comparable system
and will gain lead time in the market by virtue of having acquired an existing
service. While we perceive advantages
in the concept of an integrated record message exchange service, we must
emphasize that our approval of this acquisition is not a determination that
Western Union should be the only source of such a service. Such a determination is not within the scope
of this proceeding. Instead, [**24]
we are addressing ourselves to
[*673] the question of
competition in the provision of various switched record data and private line services
in our Notice of Inquiry in Docket No. 18920.
29. Another factor to be considered in
evaluating the benefits of the proposed acquisition is the data potential
inherent in the TWX system. Most data
terminal equipment manufacturers make their terminals compatible to the ASCII
code. Thus, TWX utilizing the ASCII
code, is considered a better vehicle for data transmission than Telex, which
employs the Baudot code. Western Union
studies show that presently 10% of the TWX subscribers use TWX exclusively for
data. Western Union intends to place
those subscribers having either an exclusive data requirement or mixed
data/message requirement on the TWX system and those having only a message
requirement, on the Telex system. Thus
the acquisition would result in making available to the public an array of
record services, which would benefit users of message telegraph and Telex
service as well as those who now subscribe to the TWX service. These potential and expected service
benefits support a feeling that the interest of the users of message
telegraph, [**25] TELEX and TWX service would be served by a
grant of the application.
COMPETITION
30. Although a grant of these applications will
remove competition between TELEX and TWX, it is to be noted that there will
continue to be competitive offerings of switched record services. Thus, Data Phone service will continue to be
available. Although as noted above,
AT&T will not for a 5 year period after the sale is consummated offer to
provide teletypewriters which operate at less than 300 bits per second to Data
Phone customers who did not theretofore lease them, it will continue to permit
customers to attach their own teletypewriters or teletypewriters leased from
others to their Data Phone outlets. In
addition, private in telegraph services and other record services of the Bell
System and the independent telephone companies will continue to be available to
users. Furthermore, we have pending
applications from some 30 entities which wish to enter the record and data
service field. To the extent that any
such applications are granted, these entities will provide additional
competition to Western Union's TWX service.
We note that Western Union in projections and forecasts for the TWX
[**26] service, did not consider the
impact of the various specialized common carriers such as Microwave
Communications, Inc. (MCI) and Data Transmission Company (DATRAN) which have
applications pending before this Commission.
No concern was expressed as to possible competition from a specialized
common carrier such as MCI because in Western Union's opinion, any effect would
be at best, indirect in nature. Western
Union did state that the impact from Datran would be more because of the
proposed size of its operation. Western
Union did not believe this impact had to be fully considered before the
acquisition of TWX, since the prompt implementation of an approval of the
proposed acquisition itself would afford the company sufficient lead time in
the market. In view of the fact that
substantial competition will remain and the pending applications [*674]
described above, if granted, would provide for a further large measure
of competition to the combined TELEX/TWX system, we believe that approval of
the acquisition will not unduly restrict competition or deprive the using
public of alternative means of satisfying its needs.
OTHER ISSUES
31. Western Union has presented studies, plans,
timetables [**27] and similar
supporting material to demonstrate how it would effectuate the transfer of the
Bell TWX facilities. These plans
indicate that the transfer will be accomplished without a disruption of
service. Moreover, Western Union
showings as to personnel, maintenance, service centers and other support
functions substantiate the contention that service will be at least comparable
to that provided by the Bell System. It
also appears that the existing employees, shareholders and services of the Bell
System or Western Union will not be adversely affected by the proposed
acquisition.
32. We note that the international record
carriers have expressed concern regarding the effect of the transfer on the
ability of customers to file international record messages directly with them
by TWX. We recognize that this is a
legitimate concern and agree that the acquisition should not deprive TWX users
of a service or facility they enjoyed when Bell owned the system. Accordingly, we will require that after
acquisition of TWX, Western Union continues, until otherwise authorized, the
current AT&T tariff provisions permitting the filing or delivery at the
customer's expense of international telegraph [**28] messages via TWX.
Further, consistency and the fact the Western Union may rearrange TELEX
and TWX services require that we direct Western Union to make whatever
modifications may be necessary in its Telex tariffs so that Telex subscribers
will enjoy the same privilege in this regard.
33. A question arose during the hearing as to
the propriety of the manner in which the Bell System calculated the depreciation
reserve. The Chief, Common Carrier
Bureau, in letters dated January 12, and 23, 1970, contended that the
theoretical depreciation reserve approach advocated by the Bell System was not
in accord with the Uniform System of Accounts, but stated that if the
Commission in light of all the facts of record determined the acquisition to be
otherwise in the public interest, the Common Carrier Bureau would implement
such a determination by approving, for the purpose of this particular
acquisition, the accounting treatment proposed by the parties. As we have stated, the proposed acquisition
is otherwise in the public interest.
Therefore, for the purposes of this proceeding, we deem the theoretical
depreciation reserve approach acceptable and approve the proposal of the Chief,
Common [**29] Carrier Bureau, to waive
our accounting rules in order to permit its use by the Bell System in
accounting for the sale of the TWX service and facilities.
34. Several questions arise concerning the
accounting treatment Western Union plans to accord the costs associated with
the TWX acquisition. We are primarily
concerned with the amortization period to be afforded the start-up costs of
approximately $25 million, the accounting for regulatory purposes of the tax
benefits which Western [*675] Union will gain, the failure of Western
Union to identify and segregate the TWX directory costs and the accrued
depreciation to be booked with regard to the central office equipment located
on the Bell Company premises which is expected to be prematurely retired. We have already required that the start-up
costs be amortized without inclusion in the rate base and that the tax benefit
accounting extend over the same period as the amortization. Resolution of the remaining items need not
delay approval of the acquisition.
Instead we will require that before making any entries on the regular
accounting schedules, Western Union submit its proposed accounting, together
with a complete and detailed justification [**30] of the amounts to be included for all aspects of the acquisition,
to the Commission for prior approval and direct the Chief, Common Carrier
Bureau, pursuant to Section 0.295 of the Rules, to review the substantive
justification for and the appropriateness of such proposed accounting and to
rule accordingly.
35.Only the
Federation of Telephone Workers of Pennsylvania, among the other parties to
this proceeding, recommends a denial of the captioned application. However, none of its allegations made in
support of a denial are sustained by the record in this case. Many of the parties to this proceeding
request that any grant of the application be conditioned to protect their
interests. We have considered carefully
the views presented by these parties and conclude that the requested conditions
are unnecessary. In this connection,
the conditions the international carriers propose concern potential
interconnection difficulties between TWX and international TELEX which may be
more properly approached, if and when they occur, by an action pursuant to
Section 201 of the Act. Western Union's
commitment on the record which we consider binding on the company not to
furnish paper rolls [**31] to TWX subscribers puts to rest the present
concern of Rite-Made Paper Converters, Inc. and others as to Western Union's
practices in this regard. We can
understand the concern of Data Automation Company, Inc. and others that Western
Union implement its announced policy statement regarding the interconnection of
customer-owned terminals. suffice it to
say that we regard the on-record statements of Western Union as a commitment
which must be fulfilled to file tariff provisions at least as favorable to TWX
customers as the Carterfone Bell provisions.
If they desire further changes, they may seek them either at the time
Western Union files its TWX tariff or in the TWX rate case, Docket No. 18718,
where interconnection is directly at issue.
36. We have given careful consideration to the
petition to reopen the record filed by Peripheral Data Machines, Inc. In making its request, petitioner states
that it is engaged in the construction and operation of data transmission
systems and as such contends that the purchase and sale of TWX station
equipment should be open to competitive bidding between the other companies in
this filed, including itself.
37. Petitioner bases its objection [**32] on the following: that the acquisition of
TWX stations will provide Western Union with a captive market for the sale or
lease of advanced data terminal equipment which is necessary for the operation
of TWX stations and which petitioner alleges that Western Union intends to
manufacture and market. This, it is
argued, will substantially lessen competition between telecommunication [*676]
equipment manufacturers and "tend to create a monopoly in the
relevant [sic] market place for such terminals and other related
telecommunication equipment." Petitioner argues that the statement of
policy permitting interconnection of customer-owned equipment as read into the
record by Thomas F. McMains, Vice President of Western Union, "will, in no
manner whatsoever, alter the monopolistic combination created by Western
Union...."
38. In further support of its objection,
petitioner contends that approval of the acquisition would be contrary to the
public interest and would violate the Sherman Antitrust Act and the Clayton Act
and that the Commission has no power to approve the acquisition when
competition will be lessened.
39. We believe that petitioner misreads the
law. Section 222 is specifically
[**33] designed to grant an exemption
from the Sherman and Clayton Acts if the proper findings can be made. Thus Section 222(c)(1) provides in pertinent
part that:
If, after such
public hearing, the Commission finds that the proposed consolidation or
merger... is in the public interest, the Commission shall enter an order
approving and authorizing such consolidation or merger, and thereupon any law
or laws making consolidations and mergers unlawful shall not apply... (Emphasis added).
We recognize that before making the public interest
finding we must, under the McLean Trucking Company Case n2 consider the effect of the merger on
competition. This, as set forth in
paragraph 30 above, we have done and found that the remaining and potential
competition would meet the criteria of the court. Thus, we must deny the petition insofar as it relies on the
anti-trust laws.
n2 McLean Trucking Co. v. United
States (1944) 321 U.S. 67, 53 PUR NS 473, 88 L Ed 544, 64 S Ct. 370.
40. We also disagree with the assertion that Mr.
McMains' policy statement is without consequence. To the contrary, we accept the statement as management's decision
to comply with the letter and the spirit of the [**34] decision in the Carterfone proceeding, 13
F.C.C. 2d 420; 14 F.C.C. 2d 571, in which the Commission ordered stricken the
tariff prohibition against attachment and use of certain customer-provided
terminal equipment and interconnection of certain communications systems in
accordance with specified conditions.
Since the decision, applicability of the Carterfone principles has been
widened by appropriate tariff revisions to allow attachment of
customer-provided devices other than the Carterfone to interconnect systems
other than private mobile radio systems with the long distance telephone
network. Furthermore, under the
Carterfone decision, Western Union could not, assuming arguendo that it desired
to disown Mr. McMains' statement, file a tariff with an outright prohibition
against attachment or interconnection and any attempt to do so would subject it
to a rejection of the proposed tariff filing.
41. A full, public, evidentiary hearing has
already been held in this proceeding for the purpose of determining whether the
public interest would be served by the acquisition. Among the specific issues designated by the Commission (FCC
69-647) on June 11, 1969, for resolution as a part [**35] of the record herein
were several to determine the effects on
[*677] competition. As already noted, in its determination of
the public interest the Commission has considered the effect the acquisition
would have on competition. Included in
such consideration was Western Union's commitment that the acquisition of TWX
will not effect any change in the competitive status with respect to non-common
carriers and that wherever more than one source for communications terminals
exists Western Union will continue to receive competitive bids (Western Union
Exhibit No. 9, pages 26-27). The
evidence of record is sufficiently complete as to the competition aspect of the
matter and no substantive purpose would be served by reopening the record at
this late date to permit petitioner to offer its views into the proceeding.
42. In this connection, we have taken official
notice of the fact that Western Union Corporation, the holding company parent
of The Western Union Telegraph Company, has organized a manufacturing
corporation, International Data Terminals, Inc. which has announced its
intention to engage in the design, manufacture and sale of advanced data
terminals and related communication equipment.
[**36] However, the equipment is
to be high speed data terminal equipment not usable in the TWX system. So, its activities are not relevant
hereto. Official notice is further
taken that Western Union Corporation is organizing a new company, Data Services
Company, to provide electronic data communications services and equipment in
the form of data terminals and dedicated information systems for business and
industry. Data Services Company does
not intend to engage in any manufacturing activities, but rather its business
will consist of the purchase of equipment from manufacturers for leasing
directly to users of such equipment.
Thus, the activities of Data Services are not relevant to petitioners
concern. Furthermore, there is no
agreement between Western Union and Data Services to obtain any equipment from
Data Services. Western Union plans to
buy terminal equipment for use in the TWX system from terminal manufacturers at
the best price and terms available.
43. It must be added that, even if the
Commission had decided that there were justification for reopening the record
to permit petitioner to present its opposition to the TWX transfer to Western
Union, the Commission does not [**37]
have the necessary statutory authority to order the sale of TWX by
AT&T to anyone on a competitive bidding basis. The pertinent part of Section 222 of the Act establishes the
power, upon appropriate application, to approve and make lawful a domestic
telegraph carrier's consolidation, merger or acquisition of all or any part of
the domestic telegraph properties, facilities or operations of any carrier
which is not primarily a telegraph carrier.
In short, the Commission's authority under Section 222 is limited to acting
on a proposed transfer on its merits and does not encompass the power to direct
a sale to any entity. In view of all of
the foregoing the petition of Peripheral Data Machines, Inc. should be denied.
CONCLUSIONS
44. We have found that Western Union is capable
of implementing its plan to acquire the TWX system and operate it to meet user
needs, [*678] that the public using various record services can be expected to
benefit from the integration of the services involved, that the interests of
existing employees, shareholders, and services of both the Bell System and
Western Union will not be adversely affected by virtue of the transaction. Accordingly, we conclude that [**38]
a grant of the Western Union application will be fully in accord with
Section 222 of the Communications Act of 1934, as amended, and in the public
interest.
Accordingly, IT
IS ORDERED, That the application filed by Western Union pursuant to Section
222(b)(1) of the Communications Act of 1934, as amended, for approval and
authorization of the acquisition of the TWX properties, facilities and
operations of the American Telephone and Telegraph Company, associated Bell
System companies and various independent companies, IS HEREBY AUTHORIZED AND
APPROVED;
IT IS FURTHER
ORDERED, That the petition to reopen the record and to permit petitioner
Peripheral Data Machines, Inc. to present objections to the proposed
acquisition of TWX by The Western Union Telegraph Company IS HEREBY DENIED.
IT IS FURTHER
ORDERED, That the Chief, Common Carrier Bureau, pursuant to Section 0.295 of
the Commission's Rules, review all facets of the accounting treatment Western
Union Plans to accord the TWX acquisition and rule accordingly;
IT IS FURTHER
ORDERED, That the Commission's authorization and approval of the TWX
acquisition by Western Union is expressly conditioned upon the continuation by
Western Union [**39] after transfer of
TWX and until permitted by the Commission to do otherwise the practice set
forth in current AT&T tariffs for TWX service of allowing TWX customers, at
their own expense, to have direct access to the international record carriers'
United States offices which are also TWX customers for the transmission and
receipt of international telegrams;
IT IS FURTHER
ORDERED, That, as an express condition of our approval herein, Western Union
also make such changes in its tariffs for Telex service as will be necessary to
conform to the partice set forth above with regard to TWX customers.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE,
Secretary.
DISSENT:
DISSENTING
STATEMENT OF COMMISSIONER NICHOLAS JOHNSON
In addition to
the Western Union telegram service available to the general public, there are
two private teletype networks in the United States. ATT offers one called "TWX"; Western Union's is called
"Telex." Subscribers to these private services (almost exclusively
larger businesses) can send written teletype messages to other subscribers on
the network over equipment located on their premises. There are 30 to 40,000 subscribers on each network.
Western Union
has [**40] proposed that it be
permitted to acquire ATT's TWX system.
The FCC must pass upon this proposed acquisition. Before it can approve it the Commission must
find that the acquisition will serve "the public interest." The
burden of proving the public
[*688] benefits rests upon
Western Union. Yet only a brief hearing
has been held.
Briefly here are
my objections to the substance of the majority's action.
(1) The record
upon which the Commission's statutory finding is based is a bare and
unpersuasive one. Much information
requested by the Commission was not supplied.
No direct analytical case was put in by the Commission staff -- which is
supposed to insure a full record.
(2) Any benefits
to the users of telegraph services as a result of this acquisition are at best
highly speculative. The Commission
recommendations in the Telegraph Report of 1966, which were to be a condition
precedent to this acquisition, have not been followed and will not be.
(3) If past
history is any guide, Western Union's new monopoly position will, in the short
run, result in new demands for rate increases in the Telex and TWX
services. The loss of competition, with
Western Union's professed desire to dominate [**41] the data transmission market, is a real detriment in weighing the
public interest in this matter.
(4) In the long
run, the greatest losers from the Commission's failure to fully evaluate this
acquisition may well be Western Union's shareholders. The new and evolving technologies and services in communications
record services, the high price that Western Union is paying for TWX, and the
likely rate of obsolescence of the equipment suggest that Western Union's
investment may indeed be a highly questionable one.
Now that the
Commission has approved this application, only time will determine its
wisdom. The passage of time is a poor
substitute for informed analysis -- a commodity noticeably absent in this
matter.
APPENDIX:
ATTACHMENT A
CONSOLIDATIONS AND
MERGERS OF TELEGRAPH CARRIERS
Section 222.
* * *
(b)(1) It shall
be lawful, upon application to and approval by the Commission as hereinafter
provided, for any two or more domestic telegraph carriers to effect a
consolidation or merger; and for any domestic telegraph carrier, as a part of
any such consolidation or merger or thereafter, to acquire all or any part of
the domestic telegraph properties, domestic telegraph facilities, or domestic
[**42] telegraph operations of any
carrier which is not primarily a telegraph carrier: Provided, That, except as
provided in paragraph (2) of this subsection, no domestic telegraph carrier
shall effect a consolidation or merger with any international telegraph
carrier, and no international telegraph carrier shall effect a consolidation or
merger with any domestic telegraph carrier.
* * *
(c)(1) Whenever
any consolidation or merger is proposed under subsection (b) of this section,
the telegraph carrier or telegraph carriers seeking authority therefore shall
submit an application to the Commission, and thereupon the commission shall
order a public hearing to be held with respect to such application and shall
give reason able notice thereof, in writing, and an opportunity to be heard, to
the Governor of each of the States in which any of the physical property
involved in such proposed consolidation or merger is situated, to the Secretary
of States, the Secretary of Army, n39
the Attorney General of the United States, the Secretary of the Navy,
representatives of employees where represented by bargaining representatives
known to the Commission, and to such other persons as the Commission
[**43] may deem advisable. If, after such public hearing, the
Commission finds that the proposed consolidation or merger, (1) is authorized
by subsection (a) of this section, (2) conforms to all other applicable
provisions of this section, (3) is in the public interest, the Commission shall
enter an order approving and authorizing such consolidation or merger, and
thereupon any law or laws making consolidations and mergers unlawful shall not
apply to the proposed consolidation or merger.
In finding whether any proposed consolidation or merger is in the public
interest, the Commission shall give due consideration, among other things, to
the financial soundness of the carrier resulting from such consolidation or
merger.
n39 See note 32.
ATTACHMENT B
By Order FCC
69-647, adopted June 11, 1969, and released June 13, 1969, the following issues
were specified for consideration in the designated hearing and for resolution
as a part of the evidentiary record in Docket No. 18519, File No. T-C-2228:
I. FINANCIAL EFFECTS OF THE ACQUISITION
A. What will be the particular and total costs
to Western Union if the acquisition is consummated and over what time period
will these costs be incurred? [**44]
B. What is the basis for the purchase (prices)
agreed to by the parties?
C. What effect will the proposed acquisition,
if consummated, have on the revenue requirements of Western Union?
D. What will be the effects upon revenues and
earnings of A.T.&T. if the acquisition is completed?
E. How will Western Union finance the
acquisition?
F. What effect would the acquisition have on
both short-term and long-term pricing policies of Western Union for TWX service
and its other services?
G. What effect would the sale have on pricing
by A.T.&T. for its non-TWX services or on the provision or pricing of any
new services?
H. What effect
would the acquisition have on the financial interests of stockholders of Western
Union and A.T.&T. and the Bell System companies?
II. EFFECTS ON SERVICES AND FACILITIES
A. What will be the methods and manner by which
Western Union will provide TWX service?
B. Will such service be equal or improved in
character, scope, quality, speed, and adequacy as compared to the TWX service
now provided by the Bell System and its connecting carriers:
1.During the
interim operating period referred to in Appendix C, Sections 501 and 502,
attached [**45] to Western Union's
application?
2. After the expiration of such period?
C. To what extent will there be integration of
TWX with Telex service and Public Message Service and over what time period
will it take place?
D. What public benefits will flow from such
integration?
E. Will such integration result in increased
efficiency, economy and flexibility to Western Union?
F. To what extent will integration benefit or
burden Western Union subscribers?
G. To what extent will the proposed transaction
or arrangements there under affect Western Union's overall ability to provide
adequate nationwide telegraph service and its ability to proceed with its
proposed modernization program and integration of Public Message Service with
Telex and TWX services?
III. EFFECTS ON COMPETITION
A. What will be the effects of the acquisition,
if consummated, on competition involving communications common carriers as well
as other actual or potential competitors, including but not limited to the
interconnection of customer provided devices?
B. What services, if any, will A.T.&T.
forgo as a result of transferring the TWX service to Western Union?
C. What policies and practices will [**46] Western Union follow in the procurement of
TWX facilities and associated operating materials?
D. How will the effects on competition
resulting from consummation of the acquisition affect the public interest?
IV. EMPLOYEE INVOLVED
A. What, if any, employee problems will be
created by the transfer of TWX service and how will such problems be resolved?
B. To what extent will additional personnel be
required by Western Union to operate its proposed TWX service?
C. What are Western Union's plans and prospects
for recruiting and training the additional manpower needed?
D. To what extent will personnel be transferred
from other jobs within Western Union?
E. What effects, if any, will job reassignments
have on Western Union's ability to sustain the quality of its other services?
F. How will pension, seniority and other
employee rights be affected if the acquisition is completed?
V. TECHNICAL PROBLEMS
A. What, if any, will be the engineering and
operating problems resulting from the acquisition and how will they be
resolved?
VI. EFFECTS ON INDEPENDENT TELEPHONE COMPANIES
A. What will be the financial effects of the acquisition,
if consummated, on TWX and [**47] Telex settlements with the independent
telephone companies?
B. What effects on service provided by
independent telephone companies will result from the acquisition?
C. How will the acquisition affect competition
between Western Union and independent telephone companies providing TWX
service?
D. If the
acquisition is consummated, what will be the interconnection problems, if any,
and how will they be resolved?
VII. WHAT CONDITIONS, IF ANY, SHOULD THE COMMISSION
PLACE ON THE TWX TRANSFER IF WESTERN UNION'S APPLICATION FOR AUTHORIZATION AND
APPROVAL IS GRANTED?
ATTACHMENT C
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554
In the Matter of
the application of THE WESTERN UNION TELEGRAPH CO. For Authorization and Approval of the Acquisition of
Teletypewriter Exchange Service Properties, Facilities, and Operations
Docket No. 18519
File No. T-C-2228
OPINION OF STATE
COOPERATORS
This proceeding,
an Application seeking authority and approval of the Commission, pursuant to
Section 222 of the Communications Act of 1934, to acquire certain Bell System
and Independent companies' properties, facilities and operations comprising the
Teletypewriter Exchange (TWX)
[**48] Service of those
companies, was filed by Western Union February 12, 1969.
The Application
was designated for hearing by Order (FCC 69-333) released April 9, 1969. Hearings therein commenced July 28, 1969,
and were concluded February 18, 1970.
Initial PROPOSED FINDINGS OF FACT AND CONCLUSIONS were due to be filed
April 7, 1970, and replies, if any, were due to be filed by April 28, 1970.
1. Nationwide TWX was introduced by the Bell
System in 1931. Two-way connections
between one TWX machine and any other were made in much the same way as
connections were established by operators between telephones. Improvements as to speed of transmission and
quality of service were made from time to time and in 1962 the entire operation
was converted from manual to dial switching.
In 1931, Bell offered Western Union and Postal Telegraph an arrangement
whereby the three companies would participate in the offering of TWX. The two telegraph companies declined and
inaugurated their TWS (Timed Wire Service) at rates competitive to TWX. Following its merger with Postal in 1943,
Western Union asked that the Bell System consider selling its TWX, and after 2
years of discussion, negotiations were [**49]
dropped by Western Union. The
matter was reopened in 1949 by Western Union and discussions were held through
1951. Another proposal was made in
1953. The position of Bell was that
while it had no desire to sell this portion of its business, it agreed to
consider the matter if it could be shown that the interests of its customers,
shareholders and employees would be protected.
This was not shown, according to Bell, and discussions again were
terminated.
2. In spite of the substantial growth of both
the general economy and the total communications market following World War II,
Western Union experienced a sharp decline during the 1945-1964 period in
telegraph volume, revenues and earnings.
Because this decline could have significant consequences in terms of
public interest, the Commission instituted the Domestic Telegraph Investigation
(FCC Docket No. 14650), and charged the Telephone and Telegraph Committees with
the responsibility of examining the problems involved and possible solutions.
During the
hearings in this docket, Western Union alleged that Bell has employed its
monopoly voice services to subsidize the under-pricing of its TWX and private
line telegraph services, [**50] both competitive to Western Union. Special cost studies requested of Bell by
the Commission, including the 1964 7-Way Cost Study, tend to lend some support
to the allegation. Among the proposals
to maintain a semblance of competition in domestic interstate communications,
Western Union suggested a two-stage program.
The first stage would be that for the "reasonable future"
Western Union's revenue requirements would be controlling in determining rates
for the directly competitive private line and TWX services,
"umbrella" pricing.
Corresponding Bell rates would be raised to these levels. The second stage would be for the "long
run", a voice-separation, with the record services given to Western Union
and the voice services retained by Bell.
Based on the
record in this docket, the Telephone and Telegraph Committees developed and
published in April 1966 its Report, which contained several recommendations
pertinent to Docket No. 18519:
RECOMMENDATION
NO. 1
That the
Commission direct its regulatory activities so as to foster and require an
integrated record message service, with Western Union as the carrier to provide
this service.
RECOMMENDATION
NO. 2
That the
Commission, subject [**51] to the
applicable provisions of the law, encourage the prompt completion of
negotiations looking towards acquisition of Bell's TWX service by Western
Union/.
RECOMMENDATION
NO. 7
That the
Commission should have clear authority to regulate he conditions and charges
under which one carrier provides communications facilities to another for the
rendition of service to the public.
With respect to the interconnection of services, including program
transmission service, the Commission should review the desirability of
eliminating interconnection restrictions that prohibit Western Union from
offering private line customers interconnected services equivalent to those
available from the Bell System.
RECOMMENDATION NO.
9
In adopting a
position in favor of an integrated record message service, the Commission
should adopt an affirmative policy against permitting Bell to re-enter the
exchange telegraph market by making a teletypewriter offering over the toll
telephone network.
As a result of
these recommendations, including those with respect to costing and pricing,
Western Union would find its earnings base enlarged and its general position
strengthened. At the same time, Western
Union [**52] would not be insulated from
the pressures that make for innovation and change, as it would be under the
proposals for "umbrella" pricing or voice-record separations. The possibility of using a privately
supplied teleprinter in conjunction with Data-Phone, at message toll telephone
or WATS rates, would serve as an upper limit on price increases as well as an
inducement for efficiency in record message services. In meeting Bell competition in its private line and alternate
voice-record services, Western Union would have maximum opportunity to provide
comparable competitive services over leased facilities at reasonable rental
charges subject to Commission review.
Pricing and earnings of competitive services would be reviewed to
prevent under-pricing, and each company would be required to maintain rates to
give the bellwether carrier a fair return on its services.
3. As noted previously, the hearings in this
proceeding, Docket No. 18519, commenced July 28, 1969, and were concluded
February 18, 1970.
Various Western
Union officers and responsible employees produced exhibits and introduced
testimony, on which each witness was cross examined, detailing the many
acquisition activities [**53] and the
transfer and personnel programs to insure a smooth and efficient conveyance of
TWX property, operation and traffic from AT&T to Western Union.
4. By its action dated June 12, 1969, the
Commission specified questions which should be considered and resolved as part
of the evidentiary hearing to clarity the scope of the issues. They were
I. Financial effects of the Acquisition.
II. Effects on Services and Facilities.
III. Effects on Competition.
IV. Employees Involved.
V. Technical Problems.
VI. Effects on Independent Telephone Companies.
VII. What conditions, if any, should the
Commission place on the TWX transfer if Western Union's application for
authorization and approval is granted.
5. In connection with Item VII, at the
Prehearng Conference held June 30, 1969, Western Union was of the opinion that
no conditions need to be attached. AT&T expressed doubts as to the Commission's authority to
impose conditions on its approval under Section 222 of the Communications
Act. In addition, if conditions are imposed,
which substantially alter the obligations or the risks of the parties to the various
purchase agreements, either party might legally have [**54] the right to
refuse under the structure of the purchase agreements to proceed with the
transaction.
6. As to Item I, there did arise a difference
of opinion as to the purchase price. During
the cross examination of Mr. McMains, Western Union Exhibit No. 9, Tr.
1308-1311, the witness said, "The purchase price specified in the contract
is the net book cost plus this $5 million". FCC Accounting Rules provide that net book cost shall be determined
by subtracting the accrued depreciation from the original book cost. AT&T claimed it should be determined not
by FCC Accounting Rules, but rather by using the theoretical reserve ratio
(reserve requirement). The difference
between the two amounts to approximately $6 million.
At the final
hearing, February 18, 1970, Bell System Exhibit No. 1A was offered for
identification and received in evidence.
This is a supplemental statement of Mr. William J. Schindele, AT&T
Business Relations Director, and was in response to the Common Carrier Bureau's
request for additional information as to the basis for determining "net
book cost". Bell System Exhibit
No. 3 was also offered for identification and received in evidence. This is a series of [**55]
letters between AT&T and the Common Carrier Bureau relative to the
procedure AT&T proposes to use in accounting for the difference between
book depreciation and theoretical reserve ratio (reserve requirement). In its letter January 23, 1970, part of Bell
System Exhibit No. 3, the Bureau said that is the Commission, in the light of
all relevant and material facts pertaining to the proposed acquisition,
determines that the acquisition is in the public interest, the Common Carrier
Bureau, for the purposes of this particular acquisition, would waive any of the
requirements of the Uniform System of Accounts which might otherwise be
inconsistent with such accounting. The
difference is now estimated to be approximately $1.3 million.
7. Further in connection with Item I, the
testimony of Mr. John J. Durkin, Manager General Accounts, Western Union
Exhibit No. 4, stated that the acquisition of TWX will increase Western Union's
assets by approximately 15%, annual revenues between 15% and 20% and employees
by 8%, and TWX service presently has 50% more customers and revenues than
TELEX, which contributed 11% of Western Union's 1968 revenues.
In connection
with what will be the effects upon [**56]
revenues and earnings of AT&T if the acquisition is completed, as
indicated in Bell Exhibit No. 1, the estimated net revenue reduction will
amount to slightly more than $40 million, approximately 0.3% of total Bell
System revenues. But the effect on Bell
System earnings will be much less, due to the elimination of taxes and expenses
related to the plant sold, plus the effect of the various income taxes. The revenue reduction will be accompanied by
an approximately equal reduction in revenue requirements. Therefore, the sale will have no significant
effect on Bell's overall rate of return.
As to the effect
on the shareholders of AT&T and Associated companies, it will be
negligible, for there will be practically no change in the rate of earnings,
the property sold represents a small portion of the System net plant investment
and the proceeds from the sale will be available to help finance the System's
construction program.
As pointed out
in Bell Exhibit No. 2, the sale will have no direct effect on the pricing of
AT&T's non-TWX services or the pricing of any new services. No services will be discontinued or
withdrawn other than those agreed to in the Purchase Agreements (WU [**57] Exhibit No. 1A and IB, Section 10).
8. In connection with Item V above, Technical
Problems, Witness Cox, Western Union Exhibit No. 3, stated that there is a
basic compatibility between TELEX and TWX and the problem of making the systems
compatible lies in the incompatibility of the code speeds and keyboards. Once this problem is solved, the two systems
can be integrated into a network which is neither TELEX nor TWX, but an
improvement over both (Tr. 254). Many
of the problems of making the two systems compatible have been worked out on
paper, but practical application of the theories has not been attempted (Tr.
270).
9. In connection with Item I, Paragraph F (What
effect would the acquisition have on both short-term and long-term pricing
polices of Western Union for TWX service and its other services?), the
testimony of Mr. A. J. Chisholm, Western Union Exhibit No. 6, spells this out. No changes in the rates or regulations for
the basic TWX service will be made for a minimum period of 12 months after
take-over. During this period, however,
analyses will be made of customer needs and demands, usage patterns, including
peak/off peak usage, costs and cost functions, competition [**58] and rate relationships. There will be made available additional
service features to TWX customers similar to TELEX Computer Communication
Services (TCCS). It is anticipated that
certain revisions in the rate structure will be made after the 12-month period
to reflect the results of the rate studies and analyses previously
mentioned. Such changes will be
designed to eliminate apparent inconsistencies in the existing TWX rate
structures and to reflect more appropriate rate making principles in such a
manner as to promote greater utilization of the service. In other words, 12 months following the
take-over, TWX customers can expect increases in rates, even though the
increases are described by Western Union as "revisions in the rate
structure."
10. The testimony of Thomas F. McMains, Vice
President, Business Relations, Western Union Exhibit No. 9, was directed to
certain public interest considerations involved in the proposed acquisition;
The continuation of public message service and benefits arising from the
incorporation of TWX into the integrated family of record services; The
strengthening of competition resulting from the acquisition; And special
problems related to Data-Phone [**59]
service.
The integrated
message service concept is a combination in a single record carrier of the
component services that make up the publicly offered services. At the time of the Domestic Telegraph
Investigation, there were Western Union public message, TELEX, TEL(T) and
Bell's TWX. Since that time, TCCS to
provide interconnection between most of the integrated systems and several new
services have been added. Consolidation
of these services under Western Union management will automatically consolidate
the market, and for the first time since the introduction of TWX, it will be
possible and the incentive will exist to develop a family of related services
at price levels that will realistically meet the integrated requirements of the
record market and which will realistically reflect the economies of record
services.Competition between voice exchange service and record exchange and
public message services will improve service to both. The scope of each is broadened.
New services have been generated and there is every reason to believe
this will continue. A single management
dedicated to and dependent upon the results to be derived from maximum
development of record services [**60]
will produce maximum results for all users. Competition will be strengthened. The withdrawal of TWX by telephone companies may be looked upon
as a withdrawal or limiting competition, but this is too narrow a viewpoint to
be valid. Even if there were a
lessening of competition, the benefits outweigh any effects thereof. The fact is that Western Union's ability to
compete will be enhanced.
The TWX
"non-competition" clause is to protect the investment of the
purchaser while he is establishing the purchased business under new
management. TELEX has been expanding
rapidly and has become an important factor in the record message market and
interconnection with the public message service marked the beginning of the
"interconnection record message service" concept, which includes
public message, TELEX, TWX, computer interconnection and other new services, and
forms the nucleus of an area of record message service that will be the
counterpart of the public telephone exchange service, an exclusive operation of
the telephone companies and the concept of competition would continue to exist.
Data-Phone
service, as offered by telephone companies, involves the use of Message Toll or
WATS [**61] for the transmission of
data between business machines or teletypewriters through Data-Phone sets and
can be and is used for all forms of record communications, effecting directly
the existing and expanding market for the integrated TELEX-TWX services which
Western Union intends to market. The
Data-Phone interface, together with a teletypewriter, can perform the same
tasks as TWX.
In order to
overcome the special problems relating to Data-Phone, an agreement has been
reached that for a period of five years (A) Bell will not offer additional
teletypewriters that operate at speeds below 300 bits per second, and (B)
Western Union, in its leased line tariffs, will offer the kinds of terminals
which Bell now provides in speeds up to 300 bits per second to customers of
Data-Phone service, and will be prepared to meet requests for new service
commencing at the closing of the TWX purchasing agreements.
Since the
purpose of the Data-Phone agreement is to support the viability of the TWX
acquisition, to enhance the scope of the integrated message service and to
increase competition in supplying Data-Phone terminals between telephone and
telegraph carriers, the public interest considerations [**62] supporting this portion of the purchasing
agreements are the same as those supporting the acquisition of TWX and the
implementation of the integrated record message service.
11. Western Union has unveiled an ambitious
program for hiring and training a corps of new employees to aid present
employees in the vastly expanded work lead due to this proposed
acquisition. The Federation of
Telephone Workers of Pennsylvania raised the question as to whether the
recruitment and training programs will be successful, or whether as the result
of being unable to hire and train new employees, the quality or quantity of
service rendered customers will deteriorate.
There is nothing in the record on which to assume that Western Union
will not be able to secure, train and provide adequate, reliable and efficient
employees to maintain and continue the services of Western Union if and when
the purchase of TWX is consummated. On
the contrary, Western Union plans for recruitment and training of new employees
needed for the operation of TWX are reasonable and well-defined (WU Exhibit No.
2).
12. This proposed acquisition is the outgrowth
of the Domestic Telegraph Investigation, FCC Docket No. 14650. [**63]
It was recommended and implied to be in the public interest in the Report
of the Telephone and Telegraph committees, dated April 29, 1966. Western Union discharged its obligation in
meeting the burden of proof that it is in the public interest. The record shows nothing to the contrary.
Therefore, in
consideration of the foregoing, the Application of The Western Union Telegraph
Company for authorization and approval of the acquisition of the Teletypewriter
Exchange Service properties, facilities and operations should be granted.
Respectfully
submitted,
STATE
COOPERATORS, PAUL A. RASMUSSEN, Commissioner, Minnesota Public Service
Commission.
JOHN G. FEEHAN,
Chairman, Maine Public Utilities Commission.
THOMAS MORAN,
Commissioner, California Public Utilities Commission.
MAY 7, 1970.
CERTIFICATE OF
SERVICE
I, P. M.
Schuchart, hereby certify that I have this day served a copy of the foregoing
OPINION OF STATE COOPERATORS in FCC Docket No. 18519 upon the following named
parties of record in this proceeding, by mailing copies thereof by United
States mail postage prepaid:
|
Jack Werner, Esq. |
Frank A. Hutson, Jr., Esq. |
|
The Western Union Telegraph |
Joseph F. Johnston, Jr., Esq. |
|
Company |
N. Michael Grove, Esq. |
|
1828 L Street, N.W. |
Bell System Companies |
|
Washington, D.C. 20036 |
195 Broadway |
|
|
New York, New York 10007 |
|
Mr. John M. Evans, Esq. |
|
|
Vice President and General Counsel |
Paul Rodgers, Esq. |
|
The Western Union Telegraph |
General Counsel |
|
Company |
National Association of Regulatory |
|
60 Hudson Street |
Utility Commissioners |
|
New York, New York 10013 |
3327 ICC Building |
|
The Honorable Arthur A. Gladstone |
P.O. Box 684 |
|
Chief Hearing Examiner |
Washington, D.C. 20044 |
|
Federal Communications Commission |
|
|
1919 M Street, N.W. |
Thomas J. O'Reilly, Esq. |
|
Washington, D.C. 20554 |
Chadbourne, Parke, Whiteside & |
|
|
Wolff |
|
Bernard Strassburg, Esq. |
One Farragut Square, South |
|
Chief, Common Carrier Bureau |
Washington, D.C. 20006 |
|
Federal Communications Commission |
Attorney for United States |
|
1919 M Street, N.W. |
Independent Telephone Association |
|
Washington, D.C. 20554 |
|
|
|
Mr. Isaiah C. Glendenning,
President |
|
R. P. Romanelli, Esq. |
Federation of Telephone Workers of |
|
Vice President and Counsel |
Pennsylvania |
|
Western Union International, Inc. |
121 North Broad Street |
|
26 Broadway |
Philadelphia, Pennsylvania 19107 |
|
New York, New York 10004 |
|
|
William M. Lesher, Esq. |
Mr. Derrick W. Samuelson |
|
Common Carrier Bureau |
Vice President and General Counsel |
|
Federal Communications Commission |
ITT World Communications, Inc. |
|
1919 M Street, N.W. |
67 Broad Street |
|
Washington, D.C. 20554 |
New York, New York 10004 |
|
Jerome F. Matedero, Esq. |
Ray Besing, Esq. |
|
Eugene Murphy, Esq. |
Geary, Brice, Barron & Stahl |
|
RCA Global Communications, Inc. |
2500 LTV Tower |
|
60 Broad Street |
Dallas, Texas 75201 (Air Mail) |
|
New York, New York 10004 |
|
|
Charles V. Koons, Esq. |
Joseph M. Kittner, Esq. |
|
Kane & Koons |
McKenna & Wilkinson |
|
1331 G Street, N.W. |
1705 DeSales Street, N.W. |
|
Washington, D.C. 20005 |
Washington, D.C. 20036 |
|
Attorney for Communications |
Attorney for Rite-Made Paper |
|
Workers of America |
Converters |
|
Mr. William E. Torkelson |
|
|
Chief Counsel |
John E. Kolofolias, Esq. |
|
public Serive Commission of |
Small Business Administration |
|
Wisconsin |
1441 L Street, N.W. |
|
Hill Farms State Office Building |
Washington, D.C. 20416 |
|
4802 Sheboygan Avenue |
|
|
Madison, Wisconsin 53702 (Air
Mail) |
|
[**64]
P. M. SCHUCHART.
(Dated:
Harrisburg, Pennsylvania, May 7, 1970)
COMMONWEALTH OF PENNSYLVANIA, PENNSYLVANIA PUBLIC
UTILITY COMMISSION, Harrisburg, May 18, 1970.
The Honorable BEN F. WAPLE, Secretary, Federal
Communications Commission, 1919 W Street NW., Washington, D.C.
DEAR MR.
SECRETARY: There are attached copies of Page 6a, which replace Page 6 of the OPINION
OF STATE COOPERATORS filed May 7, 1970, in the matter of the Application of THE
WESTERN UNION TELEGRAPH COMPANY for authorization and approval of the
acquisition of Teletypewriter Exchange Service properties, facilities and
operation, FCC Docket No. 18519, File No. T-C-2228.
Page 6a has been
approved by and this filing authorized by State Cooperating Commissioners
Rasmussen, Feehan and Moran.
I hereby certify
that I have this day served a copy of Page 6a to the parties of record, the
same as were served for the original filing of the OPINION OF STATE
COOPERATORS, dated May 7, 1970.
BY AUTHORITY OF THE STATE COOPERATORS, P. M.
SCHUCHART, Technical Assistant to State Cooperators.
(Dated:
Harrisburg, Pennsylvania, May 18, 1970)
Attachment:
The net book cost plus this $5 million. FCC Accounting Rules provide that
[**65] net book cost shall be
determined by subtracting the accrued depreciation from the original book cost. All parties agreed that it should be
determined by FCC Accounting Rules, but AT&T argued that the appropriate
method was the theoretical reserve ratio (reserve requirement). The difference between the two amounts to
approximately $6 million.
At the final
hearing, February 18, 1970, Bell System Exhibit No. 1A was offered for identification
and received in evidence. This is a
supplemental statement of Mr. William J. Schindele, AT&T Business Relations
Director, and was in response to the Common Carrier Bureau's request for
additional information as to the basis for determining "net book
cost". Bell System Exhibit No. 3
was also offered for identification and received in evidence. This is a series of letters between AT&T
and the Common Carrier Bureau relative to the procedure AT&T proposes to
use in accounting for the difference between book depreciation and theoretical
reserve ratio (reserve requirement). In
its letter January 23, 1970, part of Bell System Exhibit No. 3, the Bureau said
that if the Commission, in the light of all relevant and material facts
pertaining to the [**66] proposed
acquisition, determines that the acquisition is in the public interest, the
Common Carrier Bureau, for the purposes of this particular acquisition, would
waive any of the requirements of the Uniform System of Accounts which might
otherwise be inconsistent with such accounting. Under such circumstances, the Uniform System of Accounts would
not preclude the accounting proposed.
The difference is now estimated to be approximately $1.3 million.
7. Further in connection with Item I, the
testimony of Mr. John J. Durkin, Manager General Accounts, Western Union
Exhibit No. 4, stated that the acquisition of TWX will increase Western Union's
assets by approximately 15%, annual revenues between 15% and 20% and employees
by 8%, and TWX service presently has 50% more customers than TELEX, which
contributed 11% of Western Union's 1968 revenues.
COMMONWEALTH OF PENNSYLVANIA, PENNSYLVANIA PUBLIC
UTILITY COMMISSION, Harrisburg, May 22, 1970.
The Honorable BEN F. WAPLE, Secretary, Federal
Communications Commission, 1919 M Street NW., Washington, D.C.
DEAR MR.
SECRETARY: The State Cooperators in FCC Docket No. 18519, File No. T-C-2228,
request and authorize the withdrawal of the
[**67] amended filing to the
OPINION OF STATE COOPERATORS dated May 18, 1970.
However, the
following changes should be made to the OPINION OF STATE COOPERATORS dated May
7, 1970.
1. On Page 5, Paragraph 6, the following
sentence should be removed: "AT&T claimed it should be determined not
by FCC Accounting Rules, but rather by using the theoretical reserve ratio
(reserve requirement)." In its place should be inserted "All parties
agreed that it should be determined by FCC Accounting Rules, but AT&T
argued that the appropriate method was the theoretical reserve ratio (reserve
requirement)."
2. On Page 6, Paragraph 6, before the last
sentence of the Paragraph there should be inserted "Under such
circumstances, the Uniform System of Accounts would not preclude the accounting
proposed."
The withdrawal
of the amended filing, dated May 18, 1970, and the two changes above have been
approved and authorized by State Cooperating Commissioners Rasmussen Feehan and
Moran.
I hereby certify
that I have this day served a copy of this letter to the parties of record, the
same as were served for the original filing of OPINION OF STATE COOPERATORS,
dated May 7, 1970, and the amended filing dated [**68] May 18, 1970.
BY AUTHORITY OF THE STATE COOPERATORS, P. M.
SCHUCHART, Technical Assistant to State Cooperators.