In Re Petition of THE AMERICAN
TELEPHONE & TELEGRAPH CO.
For disqualification of Commissioner
Nicholas Johnson
FEDERAL
COMMUNICATIONS COMMISSION
26 F.C.C.2d 523
RELEASE-NUMBER: FCC 70CM-1
NOVEMBER
13, 1970
JUDGES:
OPINION OF COMMISSIONER NICHOLAS JOHNSON
[*523]
BELL DISQUALIFICATION
On October 19,
1970, I delivered a public address in Chicago, Illinois, for the Digitronics
Users Association Conference, entitled "Why I Am a Conservative or For
Whom Does Bell Toil?" (FCC Public Notice No. 56558). The speech addressed fundamental issues
surrounding the social-political-economic role of the telephone company in an
industrialized society. It discussed a
number of instances in which Bell management had publicly acknowledge (or I
suggested) that past or current telephone company policies were producing less
revenue for shareholders than they might have received. It suggested that such policies are often a
disservice to the interests of consumers as well.
Although no
response to the substantive issues raised was immediately forthcoming, on
October 28, 1970, the management of the American Telephone and Telegraph
Company served on me personally a petition requesting that, in view of my
"manifest bias against the Bell System," I excuse myself from further
participation in any and all matters before the Federal Communications
Commission "involving any companies in the Bell System."
In response to
press inquiries about the filing of the petition of disqualification, I
indicated on October 28 that I would consider the views of Bell's management
most seriously and issue a legal opinion as promptly as possible. For reasons I will explain subsequently, I
have requested a ruling from the FCC General Counsel on the questions
involved. It was furnished on November 9,
and is attached. What follows is my
analysis -- after considerable reflection -- of the legal issues raised in the
disqualification petition.
I. Procedural Issues
The
disqualification petition before me is so novel that procedures for dealing
with it are not at all clear. (I do not
know of any prior recorded instance during this century in which Bell has urged
the disqualification of a regulatory Commissioner, state or federal.)
[*524]
Bell's management has chosen to file the petition before me as an
individual Commissioner rather than before the full Commission. Traditionally, in most legal forums, the
judicial officer in the first instance passes on a motion for disqualification
pressed against him. Disqualification
of Judges, 45 American Law Reports (A.L.R.) 2d 937, 940 (1956). This appears to be the rule also in
quasi-judicial settings. Alabama v.
Aldridge, 212 Ala. 660, 103 So. 835 (1925) (administrator of a State Board of
Accountancy); Officer Disqualification, 39 A.L.R. 1470 (1925) (annotation
collecting cases). The U.S. Court of
Appeals for the District of Columbia Circuit appears to agree. In Dilling v. U.S., 142 F.2d 473 (D.C. Cir.
1944), the Court held that a trial judge may hear and reject affidavits of bias
and prejudice, and an appellate court will not review "except in rare and
extraordinary cases." Id., citing Ex Parte American Steel Barrel Co. and
Seaman, 230 U.S. 35 (1913) (rejection of a proceeding to retire a trial judge
for bias). (It is also true, however,
that the full Commission occasionally has been called upon in the past to pass
on bias charges raised against a single FCC Commissioner. See, Segal and Smith, 5 F.C.C. 3, 9-11
(1937); In re Chronicle Broadcasting Co., 20 F.C.C. 2d 33 (1969); Chronicle
Fails to Eject Johnson, Broadcasting, Oct. 20, 1969, at 70.)
In addition to
this custom of the judicial officer himself handling a disqualification
petition filed against him in the first instance, it is necessary to consider another
well settled principle: the traditional independence of presidential
appointees. See Humphrey's Executor v.
U.S., 295 U.S. 602, 625 (1935); Cf., Marbury v. Madison, 1 Cranch 137, 161, 5
U.S. 87 (1503), and Cushman. The
Independent Regulatory Commissions 188-201 (1941).
Notwithstanding
these traditions and customs, in view of the unprecedented nature of this
particular petition I propose some novel procedures, designed to insure
fairness to all concerned, for dealing with this unusual petition.
1. First, I am issuing my own legal opinion and
ruling on the petition, as requested.
This is required at least in the sense that I am the only one who knows
what my motivations were and are in dealing with AT&T matters. It is also consistent with the cases I have
just discussed.
2. Second, as an additional precaution, I have
asked the Federal Communications Commission's General Counsel for an
independent legal analysis of the merits of the bias issues raised by Bell's
management. That independent opinion of
the General Counsel is attached immediately following my own analysis. "Under the circumstances," the
General Counsel concluded, "it seems to me that the appropriate course is
to reject the AT&T petition, as written, on the ground that it does not particularize
specific bases for the relief requested."
3. Finally, I am forwarding my opinion,
together with the General Counsel's independent analysis, to my fellow
Commissioners on my own motion as an information item -- giving them the
opportunity, should they wish to exercise it, of reviewing the matter.
[*525]
I want to emphasize at the outset my sincere feeling that I would deeply
welcome the independent judgment of my fellow Commissioners on the FCC (and
even other Commissions). For Bell's charges are ones that potentially plague
all who harbor any views, whatever they may be, of regulatory philosophy. My concern is that a general increase in the
filing of like petitions might stifle the interchange of ideas and comment on
innovative approaches to complicated regulatory problems.
Hence, before
turning to a point-by-point legal analysis of the petition from Bell's
management, I want briefly to sketch a historical backdrop against which the
legal issues can be positioned for more illuminating discussion.
The Federal
Communications Commission over the years has had, as it has today, individual
Commissioners possessed of attitudes regarding one phase or another of our
regulatory work. A review of Professor
Walter B. Emery's notable book, Broadcasting and Government: Responsibilities
and Regulations (1961), furnishes these useful reminders out of Commission
history:
Commissioner T.
A. M. Craven was an engineer who was first appointed a Commissioner in 1937 and
served, with one interruption, through two terms until 1963. Despite a slow Commission evolution toward
greater concern with respect to programming (both before and after Red Lion
Broadcasting Co. v. F.C.C., 395 U.S. 367 (1969), Commissioner Craven stoutly
spoke out against program controls of any kind as "patently both illegal
and impractical." E.g., F.C.C. Docket No. 12673, Nov. 19, 1958, 1 P &
F Radio Reg. 98:26 (1958, reprinted in Emery, Supra, p. 379. Commissioner Craven never did change his
mind about program controls, often speaking out against them publicly and
privately. His firm policy convictions
no doubt caused much hand wringing among certain lawyers, who must have felt
they had no chance of prevailing against the Commissioner's view, even though,
in the end, it may have stirred more imaginative legal argument with salutary
effects on the other Commissioners.
See, Emery, supra, at p. 36-37.
Chairman Paul A.
Walker was an Oklahoma populist lawyer who served 19 years as an FCC
Commissioner until his retirement in 1953.
Commissioner Walker throughout his career held a deep distaste for many
of the policies and tactics of the nation's largest telephone
corporations. With the encouragement of
President Franklin D. Roosevelt, Commissioner Walker in the late 1930s carried
on a successful three-year investigation of the American Telephone and
Telegraph Company which resulted in substantial reductions in long distance
telephone rates. Investigation of the
Telephone Industry in the U.S., F.C.C. Report, June 14, 1939, p. 602.
Because of his
fierce devotion to his definition of the public interest, Commissioner Walker
was never popular with some powerful economic and political interests. Many in the industry regarded him as a
"big corporation foe," Emery, supra, at p. 384. He was never afraid to speak out. For instance, he strongly rebuked a large
utility in 1943 [*526] for what he considered a gross mistreatment
of a smaller, independent telephone company.
The wrongs committed, he said,
... will, unless corrected, remain forever a reminder
to the public of the arbitrary and hurtful actions which can be perpetrated by
a powerful monopoly. The ultimate
effect of such actions will be to destroy completely public trust and
confidence in utility management... Id.
History does not record how many formal petitions of
disqualification were ever filed -- if any -- against Commissioners Craven of
Walker for these supposed policy "biases" and
"prejudgments." My searches of the F.C.C. Reports have not yet
uncovered a reported case where any Commissioner of the Federal Communications
Commission was disqualified for strong attitudes and dispositions toward
various regulatory policy themes.
Cf. Segal and Smith, supra
(disbarment proceeding).
In general, my
concern is that this Commission continue to protect its historic attitude of
allowing differing points of view and sharp policy debates, both inside and
outside the Commission, to flower in hopes of encouraging a wholesome,
free-flowing intellectual interchange.
III. Positions Regarding Bell
My own views on
telephone regulation are well known within this Commission and the industry,
and often these views have provoked acrimonious exchanges with my
colleagues. See, In the Matter of
American Telephone and Telegraph Co., 20 F.C.C. 2d 886, 893 (1970). Nevertheless,
I always have endeavored to approach common carrier matters in a fair, frank,
balanced manner -- without sacrificing my strongly held policy convictions --
consistent with the best traditions of intellectual independence and with due
regard for the public interest, convenience, and necessity.
On its face at
least, Bell management's charge of "manifest bias" is so
all-encompassing that it becomes somewhat difficult to analyze in detail. Nevertheless, I will try.
1. A survey of votes I cast on Commission items
involving the Bell System over the last six months shows I voted for Bell
almost as often as I voted against it -- specifically, 13 votes consistent with
the position urged by Bell's management and 14 votes opposed to the position
advanced by the Bell System. Only five
times during these 14 votes was my position different from the Commission
majority.
For the record,
here are my votes consistent with the position urged by Bell's management:
Communications Satellites, 23 F.C.C. 2d (1970); Land Mobile Use of Channels
14-20, 19 P & F Radio Reg. 2d 325 (1970); Uniform System of Accounts, 24
F.C.C. 2d 357 (1970); Telpak, 24 F.C.C. 2d 823 (1970); Microwave
Communications, Inc., F.C.C. 70-888 (1970); C & P Telephone Co. of W. Va.,
25 F.C.C. 2d 190 (1970); New Audio Transmission Rates, F.C.C. 70-903 (1970);
AT&T Blanket Application, F.C.C. 70-955 (1970); Domestic Communication
Satellite Facilities, 25 F.C.C. 2d 545 (1970); In re Department of Defense,
F.C.C. 70-961 (1970); Pacific Telephone and Telegraph, F.C.C. 70-1012 (1970);
AT&T, F.C.C. 70-1059 (1970); and Common Carrier Records, F.C.C. 70-1153
(1970).
[*527]
For the record here are my votes opposing the position urged by Bell's
management: AT&T, 23 F.C.C. 2d 503 (1970); Telpak, 23 F.C.C. 2d 606 (1970);
Domestic Public Radio Service Applications, 23 F.C.C. 2d 670 (1970); Fees
Schedule, 23 F.C.C. 2d 880 (1970); Special Emergency Radio Service, 24 F.C.C.
2d 310 (1970); Pacific Telephone and Telegraph, 25 F.C.C. 2d 445 (1970) *; C
& P Telephone and Telegraph Co., 24 F.C.C. 2d 610 (1970); Western Union
Telegraph Co., 24 F.C.C. 2d 664 (1970) *; Common Carrier Employment Practices,
24 F.C.C. 2d 725 (1970); AT&T, 25 F.C.C. 2d 31 (1970) *; Land Mobile Use of
Channels 14-20, F.C.C. 2d 764 (1970); Tariff Filing Requirements, F.C.C.
70-1096 (1970); Better T.V. of Dutchess County, F.C.C. 70-1094 (1970) *; and
Separations by Joint Board, F.C.C. 70-1153 (1970) *. (Asterisks indicate my votes that were not supportive of the Commission
majority.)
Needless to say,
I do not offer this record because I feel it is necessary to prove a lack of
bias, or because it is persuasive. I
would think a regulatory Commissioner might very well vote against AT&T in
virtually very case and still be able to sustain the position that he was
voting out of an honest conviction and evaluation of the record unrelated to
bias or prejudice. But I do think it is
a useful backdrop, and perhaps may be considered as some evidence of lack of
bias.
2. In a case pending before the U.S. Court of
Appeals for the D.C. Circuit, as we shall see in more detail subsequently,
petitioners interested in Telpak common carrier matters have changed me with a
pro-Bell prejudgment which, they argue, works against the interests of certain
Bell System bulk users. Associated
Press v. F.C.C., Nos. 23,833, 23,836, 23,839, 23,841, 23,842, and 23,843 (D.C.
Cir., consolidated Jan. 26, 1970). Once
again, I do not believe a Commissioner need be charged with bias by both sides
to rebut the charges of either; but it is at least, again, some evidence that
the issue may not be as clear cut as it appears to Bell.
Certainly no one
likes to be criticized or have a decision in one aspect of a complicated,
hard-fought rate-making proceeding go against him. Yet one of my fundamental duties, which goes to the core of the
statutory command to work for the public interest, convenience, and necessity,
is the duty to promote the betterment of the communications industry for its
"larger and more effective use" in the public's interest. See Section 1, 303(g), 47 U.S.C. 151,
303(g), (1964). This is one reason I
chose to prepare and publish a handbook for the betterment of American
television, How to Talk Back to Your Television Set (1970) -- an activity which
was also viewed as improper by many in the broadcasting industry.
Federal
Communications Commissioners long have worn this "promotional hat,"
as some in the industry call it; and this duty is woven throughout the
statutory scheme of the 1934 Communications Act even beyond Sections 1 and 303(g).
At one time, in
fact, the Act specifically called for "the presentation or delivery of
publications or papers for which a reasonable honorarium or compensation may be
accepted." Although this was later amended in a Congressional crack down
against honorariums, outside compensation, and financial interests of various
kinds, P.L. 86-752, [*528] approved Sept. 13, 1960, 74 Stat. 889,
amending 47 U.S.C. 4(b), there is no indication Congress intended to discourage
publication per se. With specific regard
to common carriers, the 1934 Communications Act in Section 218, 47 U.S.C. 218
(1964), makes it clear that telephone management is not above scrutiny:
Sec. 218. The Commission may inquire into the
management of the business of all carriers subject to this Act, and shall keep
itself informed as to the manner and method in which the same is conducted...
From this statutory base, I proceeded in my Chicago
address with the sole intention of promoting the larger and more effective use
of American telephone technology to better the public interest -- as well as,
in that instance, the interests of Bell's shareholders, employees, and
management. What better way to promote
the commonweal than to point up past problems and old cases, lifting them out
of the stagnant miasma of our regulatory commission, and into community
consciousness in the earnest hope we may be able to head off history before it
repeats itself?
IV. Bell's Position
With this preliminary
discussion as a backdrop, I turn to a summary of Bell management's
petition. I assume this four-page
general statement is offered as a serious legal challenge, and I treat it as
such. It is attached, in its entirety,
as an appendix.
After charging
me with "manifest bias against the Bell System," and then asking me
to excuse myself from further participation in any and all matters before the
Commission involving any companies of the Bell System, the petition in Five
numbered paragraphs raises these points:
1. My October 19, 1970, speech for the
Digitronics Users Association Conference demonstrates a "deep-seated bias
and prejudice" against the Bell System.
2. My speech ignores facts and disregards any
damage it might do to the Bell System, demonstrating that my bias "is so
pervasive" and my mind "so closed" that argument before me on
the merits would be useless. That my
speech was made of my "own volition" is charged as "incompatible
with the dispassionate objectivity" required of a Commissioner.
Specifically,
the petition charges me with prejudgment of four categories of what are
described as pending proceedings:
(a) Docket No.
16258 (Phase 2), involving among other things the Western Electric relationship
and depreciation;
(b) Docket Nos.
18128 and 18684, which involve private line rates, including rates for program
transmission services;
(c) the pending
applications by new specialized common carriers; and
(d) A.T. &
T.'s pending domestic satellite system applications.
3. bell management goes on to charge that the
speech cannot meet "minimum requirements of substantive and procedural due
process" as articulated in Segal and Smith, supra, and
"amplified" by the Federal courts in American Cyanamid Co. v. F.T.C.,
363 F.2d 757 (1966), quoting from Amos Treat & Co. v. S.E.C., 306 F.2d 260,
267 (1962), and its test for "the very appearance of complete
fairness."
[*529]
4. The petition rests, finally,
on the recent Court of Appeals decision in Cinderella Career and Finishing
Schools, Inc. v. F.T.C., 425 F. 2d 583 (1970), which disqualified Chairman
Dixon for a speech he made on alleged unfair trade practices while an appeal of
a Hearing Examiner's decision on the matter was pending imminently before him.
5. In summing up the charge, Bell management
says, "... your participation in such proceedings would undermine public
confidence in the entire administrative process."
V. Applicable Law
The petition
deserves a point-by-point analysis to which I will shortly turn in detail.
A. First, however, in my view the most
important -- and controlling -- points of applicable law here have been omitted
from Bell management's petition, and should be set forth. The law I speak of has been developed by the
U.S. Supreme Court in two notable cases, F.T.C. v. Cement Institute, 333 U.S.
683 (1948), and United States v. Morgan, 313 U.S. 409 (1941).
I always try to
comport myself in accordance with the appropriate judicial restraints on
prejudgments of pending matters by Commissioners -- in my private thoughts as
well as my public utterances. To be
sure, my Chicago address was frankly critical -- but intelligent, sincere
criticism is usually more helpful than unstinting praise and meaningless
platitudes. This basic value of
criticism has been widely recognized in many aspects of human endeavor from
child rearing to monopoly regulation.
1. Cement Institute: It has long been my view
(as well as that of leading administrative law professors and judges, e.g.,
Jaffe, James Landis and the Administrative Process, 78 Harv. L. Rev. 313, 327,
(1964)) that certain "biases" -- or philosophical points of view --
properly constituted and properly executed, come close to being the
quintessence of the administrative process.
That is why a President not only can, but in many respects should,
appoint commissioners who share his regulatory philosophy, for only in that way
can a Chief Executive or the Congress read the direction it chooses into our
regulatory pattern.
However one may
feel about the wisdom of the personal predilections and motives of a given
President in the selection of his regulatory commission appointees, no one, to
my knowledge, has ever challenged a President's legal power to favor whatever
biases he pleases in making those appointments. This legal philosophy has been clear at least since before the
New Deal, and more recently from the time of the great Cement Cases in the late
1940s, including F.T.C. v. Cement Institute, supra.
In the Cement
Cases, the Federal Trade Commission had been charged with being
"prejudiced and biased" and with having made a "prejudgment of
the issues." Id. at 700. The full Commission, before bringing proceedings
against the companies involved, had expressed the opinion in reports to
Congress and to the President that the cement
[*530] industry's pricing system
violated the antitrust laws. The
Supreme Court, in an opinion by Mr. Justice Black held that the FTC's
previously publicized opinions on the matter before the Commissioners for
judgment "did not disqualify the commission" as long as the minds of
the Commissioners were not "irrevocably closed." Id. at 701-703.
Unlike the Trade
Commissioners in the Cement Cases, I undertook in my Chicago address to
underscore specifically that my mind is irrevocably open, not closed, on
telephone regulatory matters. Indeed, I
prefaced my remarks on Docket No. 16258 (accelerated depreciation and Western
Electric) with this sentence: "I will express no final position before
examining the full record." Address, supra, at p. 8. In another passage of my speech, address,
supra, at p. 10-11, I discussed the possibility of raising AT&T's rates of
return. This could not prejudice Bell,
or any other utility, since it indicates that I have a somewhat more open mind
on raising rates and related issues than traditional regulators -- and even
Bell's own management. Bell management
has been unable to demonstrate (presumably because it can't) just how this
"bias" could irreparably damage their position before this Commission. In yet another passage of my speech, address,
supra, at 22-23, I said, "Because of the pendency of Commission
proceedings, I do not want to say much about service in the data field." I
then quoted a Bell official and a staff report without indicating my own
sentiments in any way.
The situation
before us is quite similar to charges of prejudgment and personal bias brought
three years ago by the Independent Petroleum Association of America against
Commissioner Black of the Federal Power Commission. The charges stemmed for a public address the Commissioner made in
1964 strongly advocating the need for regulation of rates. The Federal Power Commission dismissed the
bias charges. Area Rate Proceedings, 33
F.P.C. 43, 46-47 (1965). On appeal, the Circuit Court affirmed. "In our opinion," the Circuit Court
said, Skelly Oil Co. v. F.P.C., 375 F. 2d 6, 18 (10th Cir. 1967) aff'd. in part
and rev'd. in part on other grounds, 390 U.S.
747, "no basis for disqualification arises from the fact or
assumption that a member of an administrative agency enters a proceeding with
advance views on important economic matters in issue." (Cited, In Re
Chronicle, 20 F.C.C. 2d at 38 (1969).
I do admit that
I have a bias in favor of talking things over, provoking discussion, and
thinking about these difficult issues as much as possible. This helps to shape and reshape my own
thinking, and that of others, who must work toward the proper ultimate
disposition of these complicated matters.
This does not mean, however, in the words of the Supreme Court in the
Cement Institute case, that my mind is "irrevocably closed." Indeed,
quite the contrary is the case. If
anything, my mind is still restless, seeking new arguments and facts to
challenge thoughts that may well be erroneous.
2. Morgan IV: The second crucial case omitted
from Bell's petition is part of the celebrated Morgan litigation. After the U.S. Supreme Court held in the
second Morgan case, Morgan v. U.S., 304 U.S. 1 (1938), that the U.S. Secretary
of Agriculture had denied due process to the market agencies of the stockyards
in a rate-setting proceeding, [*531]
the Secretary vigorously criticized the Supreme Court decision and the parties
in a letter to the New York Times. In
the fourth Morgan case, 313 U.S. 409 (1941), the market agencies charged that
this letter disqualified the Secretary from reconsideration of the case on
remand to him. Mr. Justice Frankfurter
wrote, for the Court, id. at 420-21:
In denying their
motion the Secretary wrote a patently sincere denial of bias. He stated that he had complained against a
return of the impounded funds to the market agencies prior to a determination
of the rates on the merits, that the denial of the petition for rehearing, 304
U.S. 23, 26, had shown him the error of his assumption, that in his letter of
criticism he made no prejudgment about the rates to be fixed, and that his only
concern was to "see that the substantive rights of the parties are fairly
determined."
But,
intrinsically, the letter did not require the Secretary's dignified denial of
bias. That he not merely held but
expressed strong views on matters believed by him to have been in issue, did
not unfit him for exercising his duty in subsequent proceedings ordered by this
Court. As well might it be argued that
the judges below, who had three times heard this case, had disqualifying
convictions. In publicly criticizing
this Court's opinion the Secretary merely indulged in a practice familiar in
the long history of Anglo-American litigation, whereby unsuccessful litigants
and lawyers give vent to their disappointment in tavern or press. Cabinet officers charged by Congress with
adjudicatory functions are not assumed to be flabby creatures any more than
judges are. Both may have an underlying
philosophy in approaching a specific case.
But both are assumed to be men of conscience and intellectual
discipline, capable of judging a particular controversy fairly on the basis of
its own circumstances. (Emphasis
supplied.)
I perceive no meaningful difference between a
critical letter, as set out in Morgan IV, which was read by perhaps half a
million subscribers to the New York Times, and my address in Chicago to perhaps
100 digitronics users. In Mr. Justice
Frankfurter's language, I was simply indulging in "a practice familiar in
the long history of Anglo-American litigation" whereby Commissioners who
see their philosophy ignored or abused are wont to "give vent to their
disappointment in tavern or press."
Moreover, it is
noteworthy, I believe, that Morgan IV involves perhaps the strongest possible
case against a decision-making official -- and it was decided in his
favor. The Secretary had commented on a
case in litigation, in which he had been overturned, vigorously criticizing the
result, prior to his considering it on remand.
Whatever one may say of my conduct, it does not come remotely close to
being as strong a case.
3. The Chronicle Case: The third key case
neglected by Bell's management is a far more recent Federal Communications
Commission decision than the 1937 opinion in Segal and Smith. Moreover, the case happens to involve my own
views on the issue of concentration of control of the mass media. In re Chronicle, 20 F.C.C. 2d 33 (1969).
In this case,
the petitioner alleged that my writings generally, including an official
opinion, magazine articles, and a television appearance, demonstrated that I
was somehow improperly involved in the case and had thus displayed bias and
prejudgment. In rejecting this charge
with a 6-0 decision (in which I did not participate), this Commission relied
heavily on the Cement Institute and Morgan IV cases in writing:
The pertinent
question here is whether Commissioner Johnson has formed an opinion prior to
decision as to the facts or outcome of this case, closing his mind [*532]
to persuasion, or has reasonably given the appearance of doing so. American Cyanamid Co. v. F.T.C., 363 F. 2d
757 (C.A. 6, 1966); Texaco, Inc. v. F.T.C., 118 U.S. a/pp. D.C. 366, 336 F. 2d 754 (C.A.D.C., 1964),
vacated on other grounds, 381 U.S. 739. Id. at 38. (Footnotes omitted.)
After quoting from Mr. Justice Frankfurter in Morgan
IV, supra, that Commissioners "are not assumed to be flabby creatures any
more than judges are," id. at 38, this Commission went on to draw from
Professor Davis:
A
"crystallized point of view" on policy questions is not
disqualifying, 2 Davis, Administrative Law, Sec. 12.01, nor is the expression
of an opinion as to whether certain types of conduct are prohibited by law,
F.T.C. v. Cement Institute, 333 U.S. 683, at 702-703 (1948), nor the expression
of views on economic questions in issue.
Skelly Oil Co. v. F.P.C., 375 F. 2d 6, 18 (C.A. 10, 1967), aff'd, in
part and rev'd. in part on other grounds, 390 U.S. 747. Commissioner Johnson's
writings quite clearly indicate that he has strong views on the general
question of concentration of control...
But that is not the issue. The
issue is whether he has given the appearance of prejudging the narrower
question of whether the present ownership of KRON-TV and KRON-FM constitute a
concentration of control inconsistent with the public interest, beyond the
necessary and proper determination that the issue is sufficiently substantial
to require a hearing. We cannot find
such a prejudgment... A general
invitation to members of the public to make their views known, if the articles
may be so characterized, indicates a willingness to hear what is fully
appropriate to, if not required by, the office -- it does not indicate the
predisposition of any particular case.
Id. (Footnotes omitted.)
My own philosophy in approaching these matters has
been best summed up in Mr. Justice Cardozo's incisive reminder that Judicial
officers "do not stand aloof on... chill and distant heights."
Cardozo, The Nature of the Judicial Process 168 (1921).
Jerome Frank has
given a fuller statement of the same attitude.
If impartiality and lack of bias are defined to mean the total absence
of preconception in a judge (as Bell's management seems to assume in its
petition), Judge Frank wrote, "Then no one has ever had a fair trial and
no one ever will." In re Linahan, 138 F. 2d 650-653 (2nd Cir. 1943). Judge
Frank was surely right in pointing out that preferences, interests, and
viewpoints are "the essence of living," and "only death yields
complete dispassionateness, for such dispassionateness signifies utter
indifference... "He spoke of the
great harm done "by the myth that, merely by putting on a black robe and
taking the oath of office as a judge, a man ceases to be human and strips
himself of all predilections, and becomes a passionless thinking machine."
Id.
Needless to say,
the Bell management petition does not draw on the great Morgan litigation, the
Cement Institute, or the Commission's Chronicle case. These leading precedents, which control the situation before us and
demark the bounds of my proper activity, manifestly cannot be ignored. They are fundamentals that given spirit and
animation to a lively administrative process designed to foster differing views
in the hope of promoting intelligent policy analysis.
B. We are left with the several points,
summarized in Part IV, raised specifically by the Bell management's petition.
1. Bell management charges my October 19
address with demonstrating a "deep-seated bias and prejudice" against
the Bell System. It does not, however,
go on to explain just how I might be prejudiced against the best interests of
the Bell System. Management comes
forward [*533] with no convincing specifics, only an
open-ended accusation. The speech
expressed only a passionate concern for better financial and other management
policies leading to more shareholder profits, expanded opportunities for Bell's
employees, and a more sophisticated telephone industry for the nation's
public. See, address, supra, at p. 7,
8, 10.
Moreover, my
remarks were based in substantial part on past policies as displayed in past
activies during past proceedings, much of it in the 1967 FCC hearings
concerning Bell management's activities over at least a score of years. Address at p. 7. To my knowledge there has never been a case before this one in
which a deciding officer's past decisions, or his subsequent public references
to them, have been alleged to constitute a bias or prejudice in dealing with
future cases.
2. Bell's management charges that my address
disregarded any damage it might do to the Bell System. Yet Bell does not allege a specific instance
of damage, nor can it; this is a charge that defies elementary common sense,
since it was my sole intention to suggest profit-increasing innovations and
even the possibility of a higher rate of return (address at p. 11) -- all of
which would generally be considered to be helpful to, not a hindering of, a
utility's interests.
The charge that
my mind is "so closed" as to make argument before me useless has been
dealt with at Part III, supra, where a list of my prior votes displays that
Bell has been accorded evenhanded treatment, on a case-by-case basis, in
matters coming before me. While I must,
and will, remain free to vote against AT&T's positions when I believe the
merits require me to do so, the matter of my "closed mind" is
something which only I am really qualified to speak to. I believe my past opinions and other
statements in this area (as well as others within the Commission's
jurisdiction) show me to be about as openminded as any member of the Commission
to the widest possible range of legal, economic, political and social
arguments. Indeed, a part of Bell's
criticism seems to be directed to precisely this quality of openmindedness:
that I am willing to listen to diverse and novel arguments and discuss them on
their merits, rather than dismiss them out of hand as unconventional. I intend to continue to follow that bias
toward discourse as the path to truth and wise public policy. I believe that is the ultimate in open-mindedness.
Bell seems to
attach special significance to the fact that I delivered the October 19 speech
of my "own volition." No case is cited to document this supposed
impropriety, no doubt because no case could be found. Although it may not a always be the case in corporate life that
petitions and statements are issued of one's "own volition," it is a
characteristic that free men cherish and I am among them. I do not recall any opinion or statement I
have issued during my four-and-one-half years as an FCC Commissioner that was
not issued of my "own volition." In any event, the New York Times
letter in Morgan IV was instituted on the Secretary's "own volition,"
and Mr. Justice Frankfurter and the Court found nothing inappropriate in that.
Specifically, Bell's
management charges me with prejudgment of four categories of what are described
as pending proceedings:
(a) Docket No.
16258 (Phase 2) involves, among other matters, the Western Electric
relationship and accelerated depreciation.
Termination [*534] of the Western Electric consent decree is not
now even in issue before the Commission.
These two matters have been considered in part in the Commission's
five-year-old investigation of Bell's rates and services. My remarks centered on the 1956 consent decree
allowing Bell to retain Western Electric, and Bell management's attitude over
the past 16 years toward the accelerated depreciation provisions of the 1954
Internal Revenue Code.
As I have
already noted above, my remarks in any event were prefaced with this
declaration: "I will express no final position before examining the full
record." Address at 8.
It is important
to stress that these matters have been of continuing interest to this
Commission over the span of decades.
Many in the Commission, in fact, believe that it will be two or three
years before the Commission makes an ultimate determination in Docket No. 16258
(Phase 2). This long proceeding
necessarily suggests that comments now can only be of the most tentative kind
-- even if I desired otherwise, which I expressly did not.
I have
deliberately striven to keep an open mind on these issues, even requesting
Bell's views on occasion. This was well
illustrated in recent oral argument before the Commission on Docket No. 16969,
Computer Service Problems, when I indicated may need for more information on
this phase of the proceedings and suggested a willingness to consider that the
constraints on Bell/Western Electric be removed. (See, Official Report of Computer Service Proceedings, Docket No.
16979, Sept. 3, 1970, oral argument transcript at 23-27):
Commissioner JOHNSON. Mr. Chairman,
if I may put some questions to Bell; and you can address them now or later in
written comments as you wish.
Do you believe the Bell System would
be better off from the company's point of view if the 1956 consent decree were
abrogated and Bell were permitted to compete on the same basis with any other
carriers in this field?
Mr. ASHLEY. I have not reflected upon that
question. We really have not given it
any consideration. In recent years it
has not exactly been an open question.
Commissioner JOHNSON. Do you believe under what is before us here
this morning that the consent decree would keep Bell out of data processing?
My own conclusions on this phase of
the docket are far from fixed. As this
lengthy proceeding draws on I will continue to seek at every turn comment from
the Bell System that will aid me in arriving at the appropriate ultimate
determination.
On accelerated
depreciation matters, I stress that my Chicago address spoke only of the
1954-1969 period -- that is, past cases and not future action.
As further
evidence of my lack of bias, and willingness to consider fully all evidence presented
on matters involving the Bell System, I would note that in July 1970 I joined
my colleagues in approving a change in the Commission's rules concerning the
treatment of depreciation under the Tax Reform Act of 1969 In that decision,
which I supported, the Commission decided to permit the use of accelerated
depreciation with normalization for income tax purposes and also for the
determination of cost of service in ratemaking. 24 F.C.C. 2d 357 (1970). In that proceeding, the Commission had
been urged by consumer parties representing the State of California and the
City of San Francisco to require normalization for accounting purposes but [*535]
to require flow-through for retemaking purposes. That view, which would have adversely
affected Bell, was rejected by the Commission with my concurrence.
Finally, it has
been my consistent position since joining the Commission, that separation of
function principles should be applied in common carrier rate cases -- a
position that Bell and I, for somewhat different but consistent reasons, have
repeatedly urged without success.
("Separation of functions" means that the same staff that
prosecutes a case should not also decide it).
Bell's objection to the present non-separation of function at the staff
level has been that the procedures are unfair to the parties. I have agreed with Bell's contention, but my
concern has been that the failure to separate also deters effective consumer
advocacy in ratemaking proceedings. See
The General Telephone System, 6 F.C.C. 2d 434, 436 (1967); AT&T, 9 F.C.C.
2d 30, 122 (1967); F.C.C. 70-1059; and Book Review of Davis, Discretionary
Justice in Stan. L Rev. (forthcoming Fall 1970).
(b) Dockets Nos.
18128 and 18684 involve private line rates, including rates for program transmission
services. I made no direct comment on
these dockets in my October 19 address.
I could only be said to have remotely touched on the issues in those
passages, address at p. 10-11, where I speculated generally about the
advisability of raising rates for Bell.
My own conclusion, at 11, was hardly a conclusion at all: "Well,
the answer is that we don't know the answer." This falls far short of
prejudicing anybody on anything remotely involved in a rate case. The irony comes when, as I noted earlier, users
who have a deep interest in another phase of this docket have charged me with a
pro-Bell prejudgment which, they insist, works against the interests of certain
Bell System bulk users in favor of Bell itself. Associated Press v. F.C.C., Nos. 23,833, 23,836, 23,839, 23,841,
23,842, and 23,843 (D.C. Cir., consolidated Jan. 26, 1970).
(c) There are
pending applications by new specialized common carriers. My comments in Chicago on these applications
were even more vague and noncommittal.
At p. 27, in the conclusion of my address, I did say vaguely that
"some form of competition may be the answer." This is hardly vigorous
advocacy, even of the kind involved in the Cement Institute, Morgan IV, or
Chronicle cases. In an earlier passage,
as noted above (address at p. 22-23), I touched briefly on data communications:
"Because of the pendency of Commission proceedings, I do not want to say
much about service in the data field." I then merely quoted a Bell
management official.
(d) AT&T has
pending domestic satellite system applications. I did not discuss in my Chicago address any merits of pending
domestic satellite applications. My
sole reference to domestic satellites (at p. 25) was this: "Isn't it
ironic that while we can use our space technology to put a man on the moon, we
will have to suffer the humiliation of seeing Canadian and Indian domestic
satellites in the skies before ours?" Needless to say, this is the fault
of the past two administrations and this Commission -- not Bell -- and my
speech did not suggest the contrary.
I did question
Bell's past record in satellite technology, especially its failure to exploit
its early successes with Telstar. But
this could [*536] hardly prejudge their showing on the merits
as the operator of a new domestic satellite system. I have yet to study the proposals. And since I have not, and will not, discuss the merits of the
pending applications, my mind is as open on that new question as it is on any
new set of facts that comes before me.
3. Bell management goes on to charge that the
speech cannot meet "minimum requirements of substantive and procedural due
process" as set out in Segal and Smith, supra, and "amplified"
by the Federal courts in American Cyanamid Co. v. F.T.C., supra, which quotes
from Amos Treat & Co. v. S.E.C., supra, a test for "the very
appearance of complete fairness."
The reliance on
Segal and Smith is misplaced. This old
1937 case is now substantially impaired by later Federal court precedents,
though never explicitly overruled.
In Segal and Smith,
the Commission grappled with disbarment proceedings against several Washington,
D.C. communications attorneys, eventually suspending Mr. Segal for two
months. The Commission voted 5-1
(Commissioner Walker dissenting) to disqualify Commissioner Payne because of
the Commissioner's "personal prejudice, bias, and malice toward the
respondents." Id. at 13 (Commission's emphasis).
The facts in
Segal and Smith are so totally inapposite to those presented in the Bell
petition that little more analysis is required than that involved in stating
them. In that case, Commissioner Payne
was intertwined in a libel suit against the respondents at the same time he was
investigating, prosecuting, and proposing to judge the very same respondents in
a disbarment proceeding! In fact, the
Commission in Segal and Smith carefully distinguished this personal bias or
personal animus from permissible policy biases. Id. at 13.
In dictum, the
Segal and Smith opinion made little of the fact that Commissioner Payne had
been a member of the special investigating committee that formulated the
charges against the respondents. Today,
however, in the light of new precedents, this has become and additional factor
in distinguishing Segal and, Smith from the facts presented in my own situation.
In American
Cyanamid Co. v. F.T.C., supra, the Sixth Circuit reversed a Trade Commission
decision because Chairman Dixon had not disqualified himself from participating
in an FTC wonder-drug case. Chairman
Dixon, however, had served as chief counsel for the Senate subcommittee that
had conducted the initial investigation which later led to FTC intervention.
Segal and Smith
and American Cyanamid obviously present facts quite distinct from those
involved in my October 19 address. Even
if I had presented firm policy convictions (and most of the statements were
either about old matters or were very tentative and qualified) it could not
possibly raise the specter of personal malice, or an inappropriate mixing of
the prosecuting, legislating, and adjudicatory functions spelled out in Segal
and Smith and American Cyanamid.
[*537]
Bell management further states that its presence before the Commission
will be prejudiced because an administrative adjudication "must be
attended, not only with every element of fairness but with the very appearance
of complete fairness," citing Amos Treat & Co. v. S.E.C., 306 F.2d
260, 267 (1962). I believe my present state of mind, my past voting record, the
text of my speech, and this analysis of the law, adequately disposes of such a
concern. But I will address it further.
Arguably, I have
met Bell's broad test simply by refraining from comment on Bell adjudications
that are immediately before me or will be coming before me in the reasonably
foreseeable future. Moreover, I have
been careful not to comment at all on certain matters, e.g., domestic
satellites, that may well be decided within the coming months. Their test, I think, cannot fairly be
extended further -- to cover continuing matters in past decisions that the
Commission has passed on once, and is supposedly done with for the time being,
but will surely come before the Commission again in years ahead. Too stringent a reading of the test would
unduly dampen the Commission's policy planning function as well as the free
interchange of discussion and comment over differing regulatory philosophies.
Whatever
"the very appearance of complete fairness" may mean, I certainly do
not take it as requiring me to go down the line with Bell management on the
policies it pursues. Complete fairness,
to my mind, means lack of ex parte contacts, lack of financial conflict of
interest, and lack of a dual role in mixing prosecuting and judging
functions. This has been the
appropriate interpretation of "complete fairness." I believe the text
of my remarks can easily pass that test.
4. Bell's management rests its case, finally,
on the recent Court of Appeals opinion in Cinderella Career and Finishing
Schools, Inc. v. F.T.C., 425 F.2d 583 (D.C. Cir. 1970), which said, at 590,
that Commissioners have no "license to prejudge cases or to make speeches
which give the appearance that the case has been prejudged."
As the Bell
petition correctly states, Cinderella is of recent vintage; the precise scope
of its strong language is far from clear.
Nevertheless, there are several indications that the opinion is bound to
be held closely to its facts. The case
(and two of the four precedents it rests on) involves principally Paul Rand
Dixon and his public addresses. In
Cinderella, Chairman Dixon made remarks accusing a defendant of statutory
violations while the defendant's appeal from an Examiner's adjudication was
pending before the full Commission.
In the first
place, Judge Tamm's opinion in Cinderella makes it clear that the holding was
not intended to rule out all speeches, such as those addressing fundamental
socio-economic issues going to the root of complex regulatory trends. "We have no concern for or interest in
the public statements of government officials," Judge Tamm wrote,
"but we are charged with the responsibility of making certain that the
image of the administrative process is not transformed from a Rubens to a
Modigliani." Id. at 590.
What Judge Tamm
appears to rule out are not all paintings, rather only those containing
accusatory language regarding impending
[*538] agency adjudications
which are attempting to weigh guilt of a criminal nature. This by no means eliminates all speeches,
even critical ones. Rightly
interpreted, Cinderella eliminates language in public addresses excoriating a
defendant attempting to prove himself free of guilt from violations of law; the
case, on its facts, suggests no extension to the point of eliminating
reasonable criticism -- however strongly stated -- of economic decisionmaking. Thus, Cinderella and the facts presented by
my own situation differ sharply.
Cinderella
defines the test for disqualification on prejudgment grounds as whether "a
disinterested observer may conclude that [the agency] has in some measure
adjudged the facts as well as the law of a particular case in advance of
hearing it." Gilligan, Will & Co v. S.E.C., 267 F.2d 754 (2nd Cir.
1959) (Emphasis supplied).
This test
suggests several points of departure between my October 19 address and that of
Chairman Dixon:
(i) The speech's
timing was of the essence in Chairman Dixon's case. In reaching the result it did, the Cinderella court placed great
weight on the timing of the speech, which occurred six weeks after notice was
given that an Examiner's decision favorable to Cinderella would be appealed to
the Commission by the agency's staff, and three days after a widely reported
Court of Appeals decision involving Cinderella and the Commission in which the
Court upheld the right of the agency to issue press releases dealing with
pending cases involving suspected violations of statutory law. F.T.C. v. Cinderella Career and Finishing
Schools, Inc., 404 F.2d 1308 (D.C. Cir. 1968). In this context, the court
stated, "we think the reasonable inference a disinterested observer would
give [Chairman Dixon's] remarks would connect them inextricably with this
case." Id. at 590.
While Chairman
Dixon's discussion drove headlong into alleged violations of law that would be
pending on appeal and were almost immediately before him, my speech clearly did
not preview particular adjudications scheduled for hearing before the
Commission within the foreseeable future.
(See, supra, the item-by-item account in Part V (B-2) of the matters I
avoided.) Moreover, instead of commenting on specific, unresolved statutory
violations, as Chairman Dixon did, I discussed long-standing economic decisions
whose roots reach back far into past regulatory case law.
(ii) I would
hope that any disinterested readers of my October 19 address would conclude
that I have in no way prejudged any particular Bell case. Rather, I have simply indicated my thoughts
on how certain long-standing policies might be turned to the advantage of
Bell's shareholders, employees, consumers, and even the management itself.
We must keep in
mind that the Bell System and its many customers, in one sense, always have
economic issues looming before this Commission. Bell is a perpetual applicant and litigant before the Commission;
generally it has several proceedings pending at once. It is not an occasional, or one-time license applicant. Its operations make it larger than most of
the governments of the world -- by almost any measure. On the other hand, the case in which Chairman
Dixon found [*539] himself involved was the sole situation in
recent years concerning accusations of illegality by a given "charm
school."
(iii) A close
reading of the briefs on appeal in the Cinderella case gives the clear
impression that one issue was the truth or falsity of Cinderella's
representations as tested by the statutory law. Thus, the statements by Chairman Dixon might tend to persuade an
impartial observer that he had prejudged the issue of guilt raised by
supposedly illegal misrepresentations or unlawful deceptiveness; however, as
noted, such unlawful deception was not the concern of my October 19
remarks. I simply challenged the wisdom
of past policies pursued.
On balance, I do
not believe that Cinderella significantly undermines the principle established
in F.T.C. v. Cement Institute, supra, that the expression of an opinion as to
the wisdom of certain types of conduct does not disqualify an agency member
from passing on a particular factual situation.
5. Bell management concludes that my
participation in agency actions would "undermine public confidence in the entire
administrative process." On the contrary.
I do not think that my analysis of Bell's past managerial conduct in the
light of my general regulatory philosophy -- most of which has appeared in past
dissenting opinions -- will lead reasonable people to conclude that Bell will
not get a fair hearing from me in the future, even in those cases possibly
involving issues related to matters touched on in my speech. See, e.g., "The Regulatory Process: A
Personal View," Address by Commissioner Philip Elman, Federal Trade
Commission, at the American Bar Association meeting, St. Louis, Missouri,
August 11, 1970, reprinted in Wall St. J., Aug. 12, 1970 at 12, col. 3 and 116
Cong. Rec. S15606 (Sept. 16, 1970, daily ed.).
VI. Conclusion
For the reasons
outlined in the foregoing analysis, I respectfully conclude that the petition
of disqualification filed by the American Telephone and Telegraph Company is
without merit.
The traditional
reluctance of higher courts to remove judges on bias charges, the customary
independence of Presidential appointees, my statutory duty to promote the
larger and more effective use of communications, the leading precedent of the
Cement Cases, and this Commission's opinion in the recent Chronicle case, all
lead me to conclude that no grounds exist for my stepping aside in all future
Commission matters involving the Bell system.
The role which
is truly improper is abdication -- by an agency or its Commissioners -- of
their duty to search and question at every hand, inside the agency as well as
outside, the performance of our large national monopolies. Such an abdication of duty forfeits the
tough adversary role the administrative process was originally designed to
encourage. Only then are the
shareholders, employees, and general public truly disserved by a bias and
prejudgment of the issues.
NICHOLAS JOHNSON, Commissioner.
APPENDIX:
APPENDIX
1. "Why I Am a Conservative or For Whom
Does Bell Toil?" FCC 56558, Oct. 19, 1970.
2. Petition for Disqualification, Oct. 28,
1970.
3. Statement of Joseph A. Beirne, President,
Communications Workers of America, Oct. 28, 1970.
4. "AT&T Rebuts Commissioner Johnson's
Criticisms," 195 Management Report, Oct. 29, 1970.
5. Letter from California Rural Legal
Assistance, Nov. 2, 1970.
6. Legal Opinion of FCC General Counsel, Nov.
9, 1970.
APPENDIX 1
REMARKS BY
COMMISSIONER NICHOLAS JOHNSON, FEDERAL COMMUNICATIONS COMMISSION, PREPARED FOR
DELIVERY TO THE DIGITRONICS USERS ASSOCIATION CONFERENCE, HOTEL AMBASSADOR,
CHICAGO, ILL., MONDAY, OCTOBER 19, 1970
WHY I AM A
CONSERVATIVE OR FOR WHOM DOES BELL TOIL?
You may be
wondering why a conservative like I would have so much trouble with the
telephone company. Well, let me tell
you.
Now that Vice
President Agnew has spilled the beans, and all the world knows that I have been
just a "super permissive government official" all along, I might as
well confess.
The Vice
President's right. It is no coincidence
that I should come to Chicago to speak on economic issues. The fact is that I have picked up a great
deal of my economic philosophy right here.
Milton Friedman and his colleagues have made a believer out of me.
It hasn't been
easy. There aren't many genuine
conservatives left -- especially in Washington. And when folks found that I was getting some of my regulatory
philosophy from Barry Goldwater's economic advisor I knew I would have to pay
the price of trade press ridicule and industry suspicion.
In fact, I have
spent most of my career as a government official -- first as Maritime
Administrator and now as an FCC Commissioner -- unsuccessfully preaching the
doctrine of free private enterprise competition and less government regulation
to reluctant American businessmen committed to socialized enterprise and
government protection of monopoly.
I didn't believe
in socializing and subsidizing the American merchant marine and shipyards. I felt that with the genius of American
management, we ought to be able to win in world-wide competition -- as the
American computer and industrial machinery companies have done. I wanted less government involvement in
shipping -- the industry wanted more regulation and socialization. Now it has won out, as you may know. President Nixon's proposals for dramatic
increases in maritime subsidies have been approved -- notwithstanding the fact
that almost every independent economist in the country argues there is
absolutely no commensurate economic benefit whatsoever from this expenditure of
tax dollars.
Why is it that principles
of competition sound so good at Rotary and so frightening when competitors
threaten to move in next door?
If the best
products are to win out in the market place, if the theory is to work in
practice, there must be informed consumers.
Why is it that consumer product industries almost universally resist
efforts to provide relevant information about their products in advertising,
packaging and prices that make comparisons easier?
If there is to
be competition there must be competitors.
Why is it that an industry run by men like America's newspaper
executives -- whose editorial commitment to free enterprise is unmatched -- are
distressed that only 94% of the cities with daily newspapers have
monopolies? Why is it they feel
compelled to press for a newspaper monopoly authorization bill
(Administration-backed -- over the protests of the Assistant Attorney General
for Antitrust) in order to further reduce competition in their business?
You get the
idea. In general, you see, my problem
involves the distinction between the articulation of a theory and its
application in practice. It's the
carrying of a conservative philosophy like private enterprise to its logical
conclusion that gets me in trouble.
My problems are
only rendered more extreme by the integration of my conservative economics into
my conservative politics.
My politics are
equally old-fashioned. They are based
on an American theory developed by a 200-year-old landed aristocrat named
Thomas Jefferson: democracy. He
believed that the best government would come from an educated and informed
people participating in the decisions that affect their daily lives. Hardly anybody believes in this conservative
doctrine anymore.
It's kind of a
lonely crusade I wage. For example, I
felt that local citizens should participate more actively in the license
renewal process of their local radio and television stations. This was preferable, in my judgment, to
regulation by the federal government in Washington. I admit this sounds sort of like a George Wallace position. And I suppose I shouldn't have been
surprised that those Radic-Libs who control the broadcasting industry -- and
therefore the Congress, Administration, and FCC -- wouldn't see it my way. But I was a little saddened.
And so it
goes. The life of a conservative is
hard.
The purpose of
this long introduction has been to make it easier for you to understand the
problems I've had with the telephone company.
You all recall
the telephone company. You have to
recall the telephone company. You lose
your dime on the first try.
Well, a part of
my responsibility as an FCC Commissioner is to see to it that the Bell System
serves the public interest, convenience and necessity.
That it is a
necessity no one doubts.
Just how
convenient it is raises other issues.
As for the
public interest, that seems to have been forgotten.
I used to talk
and write about the public interest in telephone matters a lot: lower rates,
more flexible services, optimal rates of technological growth and plant
expansion, and so forth -- you know the litany. Well, I've stopped. It's
not that I'm not interested, you understand.
It's just that it's not working.
It's kind of like falling in love by yourself. It's a beautiful trip, but it's kind of lonely.
So I've decided
to talk about Bell's interests. That
seems to be what most of the people who come to the FCC these days are talking
about. It's a tougher ball game to
play, but that just makes it more of a challenge. And at least you're not talking to yourself.
You can imagine
my surprise, as I got into the subject, to discover that Bell management has
been urging policies that don't even serve the company's interests. I mean, I could understand how Bell's
pursuit of its own interests would not always serve the public interest. That probability was, after all, the original
reason for regulation. But why would
Bell deliberately adopt policies that simultaneously produce (a) higher prices
and worse service for the public, and also (b) lower profits for its
shareholders? That I just couldn't
understand. But the evidence was clear
that higher prices, lower quality service, and lower profits had been the
result of a number of Bell management's policies. It was then it dawned on me: perhaps if I could present my case
for public service from Bell in terms of Bell's own profit picture I might at
least get the ear of some of the company's policy makers for a moment. And so I continued my research into the
uncharted wilderness on the way to higher profits for Bell. What I have to report today are the results
of preliminary investigation. But I
thought it might be of interest to you.
There are, as
always, a few basic assumptions. I
assume that lower costs, and higher revenue from increased communications use
and improved technology are in the private interests of the company. I also assume some regulatory lag -- that
is, that the company is allowed to keep a certain amount of windfall profits
(from reduced costs or increased revenues) before the FCC and state commissions
catch up with extravagant rates of return.
There are three
basic areas where I believe the Bell System has not served its own interests --
what I will call financial operations, promotion of service and technological
improvements.
FINANCIAL
Debt-equity
structure. -- A big company like Bell needs capital. Lots of it. Last year it
went to the market for a total of roughly $2 billion in external
financing. A few percentage points can
make a big difference -- especially if you're a shareholder. But basically, anytime you're a shareholder
in a company with a regulated maximum rate of return your interests are served
by its raising as much capital as possible through debt rather than equity --
up to a point. Every dollar raised through
equity dilutes your share of profits and reduces the rate of return on your
investment; interest on every dollar raised through debt is tax deductible
(unlike dividend payments), thus cutting the capital cost in half at the
outset, and automatically contributing to your profits whatever the company
makes above its costs. The more cheap
money the company can borrow the richer you get. That's how the electric utilities rated A and B, with an average
rate of return of 6.6% in 1968, earned for shareholders an average of 12.3% on
equity. Bell, by contrast, while
earning 7 1/2% on its investment earned for shareholders only 9.3%. It's a dramatic and shocking contrast, but
true.
Only under
intense questioning during the 1967 FCC hearings did Bell management finally
concede the error of its ways over 10 these many years. So long as the interest rates Bell must pay
for debt are lower than the total rate of return it must pay on equity (which
is virtually always the case), it is in Bell's interest to borrow rather than
sell stock. * But it is a bit ironic
and tragically costly for everyone involved that Bell is only now going to more
debt financing -- when it has to pay some of the highest interest rates in our
nation's history (8 1/2 to 9%) -- and that it failed to borrow more during all
those years when it could have borrowed in the 2% to 4% range.
* I am assuming Bell's current
debt-equity ratio. There would, of
course, come a point when additional debt might pose financial risk. Most economists agree, however, that Bell is
still a long way from that point.
Needless to say,
the public has also been grossly disserved by Bell's financial policies. Every dollar raised through equity rather
than debt can cost the consumer five times as much. But so long as our principal focus is on the shareholders'
interests we needn't dwell on the public interest aspect of Bell's folly.
Stock options
and stock financing. -- As a part of the Bell miscalculation on debt-equity
ratio, there was for some time a rather extensive program of stock options for
employees. This program has now ended,
but its effect was significantly to dilute ATT stock -- with a rather meager
return in terms of financing and employee incentives. It was nice for management and employees -- but mighty costly for
shareholders.
There are two
other matters which still may be considered in the FCC's lagging, five-year-old
investigation of Bell's rates and services.
I will express no final position before examining the full record. But I think there is significant evidence
for the following two propositions.
Accelerated
depreciation. -- You don't have to know very much accounting to know about
depreciation -- the annual "cost" of your plant wearing out. But when your plant is worth $41 billion,
like Bell's is, how that depreciation is handled by the accountants can make a
big difference in your costs, your taxes, your regulated rate of return, and
your shareholders' profits. Now there
are a lot of inequities in the tax code favoring the corporations and the
rich. I think many of them ought to be
changed. But I'd agree with Milton
Friedman that, as long as they're there, management's role is to minimize its
company's tax burden -- not to make social policy judgments that the government
might put the money to better use than the shareholders. Since the 1954 Internal Revenue Code took
effect Bell has been permitted to use "accelerated depreciation" --
that is, to charge off as a tax deductible business expense more depreciation
than was formerly permitted. Instead of
figuring its Federal taxes based on accelerated depreciation, however, Bell
continued to use "straight line" (normal) depreciation. As a result the potential tax savings -- at
least millions and perhaps billions of dollars -- have been lost forever for
Bell's shareholders. In a tight money
market when the company has to obtain increasing amounts of additional
financing, and is reportedly considering competing with the U.S. Treasury for
the hearts and minds and money of America's savings bond holders, the use of
accelerated depreciation in computing Federal taxes would have provided gilt
edged returns. Finally, in 1970, Bell
changed its policy. But its failure to
use this technique for 16 years simply increased its own costs and those of its
customers.
Western Electric.
-- The Bell System owns its own supplier, the Western Electric Company. Of course, it can set the prices it pays
Western at whatever it wants. But even
under Bell's pricing it is currently "paying" Western more than $4
billion a year. It's not a small
business. In part because of the
tremendous economic power this gives Bell now, and would give Western if it
could compete with other manufacturers, the Justice Department brought an
antitrust action to make Bell sell Western, Bell fought the action (unwisely,
as we will see shortly), and the case was settled with a "consent
decree." The decree permits Bell to keep Western, but prohibits Western
from entering the market to compete with other electrical and telephonic
manufacturing companies. It is clear
that Bell's position has enhanced the position of its management: they have a
"bigger" company to manage, and hence a good argument for higher
salaries and more prestige. But what
has it done to Bell's shareholders? A
strong case can be made that they would be much better off if Bell would
distribute the stock of Western Electric to them and at the same time move to
abrogate the 1956 consent decree. This
may seem like a drastic move on ATT's part -- but the artificial constraints on
Western Electric mean that the company cannot participate fully in the
communications technology revolution that is only now beginning. An obvious example is that Western Electric
does not sell to non-Bell companies even though Bell claims Western Electric's
prices are lower. And this market may
be one of the smaller that the present consent decree prevents Western Electric
from serving. What markets might
Western Electric exploit if it were not held down by the consent decree:
computers, satellites, CATV, television, photography, duplicating, educational
systems and libraries? The point is
obvious. With stock in both Bell and a
viable, independent Western, most economists agree that Bell's shareholders
would be a whole lot richer. And the
odds are that consumers would also enjoy the fruits of more intense
competition: more technological innovation and lower prices.
Rate of return.
-- Fundamental to Bell's financing is its authorized rate of return on capital
investment. The current theory of
public utility regulation is that public commissions must hold down the
monopolistic utilities' rate of return to reasonable levels. It has occurred to me that this may be
backwards. Perhaps the public interest
would be better served if we just forgot about the rate of return, and simply
concentrated on reducing the costs-per-unit-service to customers and improving
performance criteria. At the very
least, it seems to me we ought to have some idea of how the country would be
different if Bell had a rate of return of 4%, 6%, 8%, 10%, 12% or
whatever. What would be Bell's response
in terms of rates of technological innovation, new plant investment, quality of
service, and so forth? Well, the answer
is that we don't know the answer.
For a company
where every percentage point increase in the rate of return means $250 million
annually, one would think the issue would have been addressed. It has not been.
Indeed, during
the 1967 hearings I put the question to Bell's lawyers, after roughly this kind
of introduction. How would Bell like a
much higher rate of return, I asked.
How would it spend the money?
The answer? Here is an excerpt from the transcript:
Commissioner JOHNSON. I appreciate you may not have prepared
yourself to address yourself to such a question, but what would be unwarranted
in your judgment about our permitting a rate of return to exceed 8 1/2
percent? What would be the day-to-day
consequences in day-to-day operations for the company and the public?
Mr. GARLINGHOUSE (Bell
Counsel)... I would say when we get above
the range of 8 1/2 percent we would not be hampered in furnishing good service
if the earnings were brought down to 8 1/2 percent. The service is the ultimate goal that we are trying to achieve
and earnings are a vehicle to get there.
* * *
... Now how much higher than 8 1/2 percent would
be warranted by the economic facts, I don't know. What may be right today, may be wrong tomorrow, and it could very
well be the rate of return should be higher in the future. [Tr. pp. 10, 310-11].
How would the shareholders react to that? I was offering them the chance to try for
additional hundreds of millions of dollars a year and I couldn't even get the
company's lawyers to address the question.
PROMOTION OF
SERVICE
It is rather
disturbing that Bell management would make fundamental errors in financing that
cost shareholders and consumers alike millions or billions of dollars. I began with the financial examples because
they involves (1) such rather obvious blunders, (2) such large sums of money,
and (3) are so directly and obviously related to shareholder losses. But finance is, after all, common to all
enterprises. It is not unique to the
expertise of Bell management.
Some of the most
disheartening and fascinating of Bell management's errors involve the telephone
business itself. How has management
responded to the opportunities to increase its business and reduce its
costs? It is in this area that we begin
to uncover some rather fundamental lapses in communications and economic
philosophy.
There is no one
who I have ever been able to discover within ATT -- management, sales, or
scientific research -- who has a sense of the social-political-economic role of
the telephone in a modern-day industrialized society. They can design, promote, distribute, and install a
"Princess telephone" that will transmit the human voice -- even if
they don't think to make it heavy enough to keep it from sliding off the
bedside table. But they are seemingly
incapable of thinking about the ways in which people might use that instrument
in their lives.
You can point
out the fact that it costs more to call Washington from Alaska or Hawaii than
from London. What's the political
consequence of that for the United States?
They haven't thought about it.
You can ask
about the role of the telephone in uniting far-flung families and friends. What would be the social impact of universal
availability of a low price WATS service ("long distance" service
without a per call charge)? They don't
know. What factors now affect telephone
usage in local exchanges -- where there is a flat monthly fee and every call is
"free"? In what ways does the
pricing of "long distance" service inhibit usage? How much lost revenue has Bell suffered as a
result?
What would be
the economic consequences for our nation if WATS (inward and outward) were made
generally available? We know what air
freight has done to the warehousing business in some industries. What is the correlation between "no
cost" telephone service and the profits of a firm? What are the economics of a company's
closing local offices and taking calls at a single national number?
So many of
Bell's decisions suggest a philosophy reminiscent of the story of the two
librarians at a convention discussing the condition of their respective
libraries. "Oh, I'm so
pleased," said one. "All my
books are in and on the shelves except for two, and they're coming in next
Tuesday."
It's not the
telephone company's job to encourage us to keep the phone on the hook any more
than a librarian is doing her job if she wants to keep the books out of
circulation.
And yet I cannot
help but get the impression, at almost every turn, that the telephone company
mentality is of exactly that character.
Management seems almost panicked at the prospect of the company's
business expanding. In a moment I will
discuss their attitude toward off-peak pricing principles, the Carterfone, the
New York Telephone breakdown, the Public Broadcasting network, cable television
and data. But the common impression
running throughout is that of a company not only failing to promote increased
usage of its service, not only failing to serve the increased business brought
its way, but a company that would actually rather fight through Commission and
courts -- with considerable vigor, expenditure, and occasional success -- than
switch.
It's a
tragicomic posture of the keepers of a disintegrating, condemned old plaintain
home seeking its shelter in a storm -- because it's all they know. But the humor quickly fades -- for
shareholders and customers alike.
Bell's failure to understand telephone usage enough to develop new
business, its failure to anticipate even the comparatively modest growth that
has come along without cultivation, has cost its shareholders billions of
dollars in potential profits forever lost.
Of course, it has also caused the public an awful lot of grief,
inconvenience, and excess costs.
One of the most
ironic features of Bell's failure to expand to meet demand is that it is one of
the few companies in the world that could have done so at absolutely no risk
whatsoever to itself. Bell is
authorized its "rate of return" on its capital necessarily employed
in the business. In other words, every
time it can plant a dollar bill in the ground with Commission approval (seldom
if ever denied) the dollar immediately starts earning 7 to 7 1/2% for the
shareholders. Even if the business does
not develop to warrant the business the shareholders get their return. It's not only a no-risk investment, it's an
investment with a guaranteed return. In
fact, one of the responsibilities of a regulatory commission is to see to it
that the company does not "gold plate" and overbuild beyond what is
warranted, because of the unfair burden that places on customers. But there is absolutely no incentive whatsoever
for the telephone company to want to hold back in building to meet anticipated
demand.
Off-peak
pricing. -- In any business there are times when plant is idle -- and when any
business at all will contribute to necessarily fixed costs. "Off-peak pricing" is a simple
principle widely used. Anytime demand
for goods or services increase substantially during limited times -- whether
times of day of seasons of the year -- economies can often be effected by
spreading that demand more evenly over time.
One of the easiest ways to do this is by changing prices, making them
higher during the "peak" and lower during "off peak"
periods. For example, the airline
industry and CAB, have come up with an intricate scheme of pricing to keep the
planes in the air.
There is a
significant peak in telephone usage during the four or five hours around noon
every work day. During many of the 20
other hours of the day the telephone system is almost totally idle. But the Bell System, and the FCC, have had
great difficulty in responding to this obvious problem with as much imagination
as the airlines and CAB. This is
especially tragic for Bell's shareholders, because with a $41 billion
investment in plant, any minute when it is not being used to peak capacity is
costing them a great deal in lost profits.
It is also costing the consumer unjustifiably -- for he must sustain the
financial and other costs of a facility which is substantially overbuilt. Most of the limited off-peak pricing changes
(lower rates at night and weekends) -- each of which has produced higher
revenues for Bell -- have come grudgingly.
In most instances Bell has vigorously fought them at the FCC -- delaying
their effective date and reducing their impact. The price cuts are always substantially less than the nature of
the off-peaks would justify -- and the shareholders are entitled to. As a result, Bell has shown a much less
smooth demand curve than it very easily could have achieved by fuller plant
utilization. It has lost revenue. It has charged unnecessarily high
prices. It has suffered the
excruciating embarrassment of breakdowns in the system. For all of these failures its shareholders
have paid a high price indeed.
Carterfone. --
The saga of Tom Carter and his Carterfone is another prime example of a whole
flock of instances in which corporate intransigence has won out over common
sense and common shareholders' dollars.
Bell is afraid of anything that has not received its papal imprimatur
being plugged into its telephone system.
In an extreme burst of jingoism, it even has the FCC referring to such
equipment as "foreign" attachments.
This is kind of like the electric company trying to discourage the
installation of air conditioners and washer-dryer combinations. However, it is more than just an hilariously
funny posture in which to find a twentieth century telephone company. *If the phone company would only encourage
the use of its system by innovative equipment manufacturers (rather than
discourage them). It would suddenly
find 200 million Americans working for Bell on their own time -- rather than
working against it. The increase in
communications traffic in this country -- which ought to be Bell's principal
concern and measure of effectiveness -- would jump enormously; because 200 million
people can think of a lot more things to do with a communications network for
themselves than one corporation can think up for them -- particularly if it's
not thinking.
Tom Carter's
device was simple, popular, effective, and harmless to the telephone
system. It was scarcely even an
attachment. It simply permitted a
coupling between a telephone set and a land mobile radio transmitter-receiver. It increased the use of the telephone system
-- and the potential profits of Bell's shareholders. It was fought by Bell through the FCC and courts -- for 11 years.
New York
telephone service. -- We are all familiar with the costly breakdown in New York
telephone service and the subsequent Bell implicit and explicit admissions of
management failure. As ATT Chairman
Romnes has candidly conceded, "There's no question but that our people in
New York missed the boat in estimating the growth." But New York is not
atypical of a basic ATT failing. We
used to assume the company could handle a slowly growing homogeneous demand for
Plain Old Telephone Service (appropriately known to company men as
"Pots"). Now not even that
assumption is safe. But it certainly is
not a company geared to rapid growth and accelerating change. In New York it wasn't simply that Bell's plant
expansion wasn't fast enough -- investment was actually cut back at crucial
time periods. New York serves to
illustrate the long lead times in the ATT system. Lower cost planned expansion was replaced by high cost crash
programs. Many customers went unserved. And how does one calculate the costs to the
company of the failure to inaugurate interstate Picturephone, or the problems
with rate increases in New York state, or in the general deterioration of the
service reputation of the company -- all of which were consequences of the New
York fiasco? It all could have been
avoided. It wasn't. The shareholders suffered.
ETV service. --
In 1966 the Ford Foundation proposed that the benefits of satellite technology
be used for educational broadcasting. In
1967 the Public Broadcasting Act was passed -- providing for free or reduced
rate interconnection for public broadcasting.
Here was a golden opportunity for ATT to respond to a national challenge
that had commanded national support.
Quick provision of reliable service at a price public broadcasting could
afford would have provided great benefits to the image of the company. It was a new growth field. Investments here would pay big
dividends. The investment would return
profit immediately, and even more in the future. What happened? ATT had to
be dragged, kicking and screaming, to the FCC where it has fought for three
years the service to public broadcasting that Congress ordered. For a period of time Public Broadcasting was
getting horrendous, interrupted service and the FCC was forced to intervene on
that account. The company blew a public
relations dream -- and to this day it is presenting a most unstatesmanlike
posture which can only continue to have adverse long-term consequences. Bell's position is even more difficult to
understand in light of its treatment of the commercial networks. The tariff for commercial network
interconnection was filed in 1947 as a promotional tariff, but the rates
remained unchanged for more than 20 years, being raised only recently. Now the FCC is holding a hearing to decide,
among other things, whether these rates are high enough. There is strong evidence to suggest that
commercial networks enjoyed "reduced rates" during part of this time
period. The shareholders seemingly
can't win. Bell can't optimize on
selling service to commercial enterprises or on giving it away to public
corporations.
CATV. -- If you
believe the pundits, we may be on the verge of a nationwide revolution in
communications -- as mass communications and personal communications services
merge in a new technology that will change our nation. One thing seems sure. Whatever happens the Bell System will play
at best a minor role. Bell is not a
particularly significant factor in CATV.
There are no test communities where the Bell System is applying its
expertise for CATV communications.
Suppose in the early sixties Bell had successfully argued that CATV
should be common carrier service available to all comers, and then moved to
demonstrate its potential. How
different things might be today, as the Bell System seemed ready to rewire the
nation with the most cost-effective combination of cable and Picturephone. It is apparently not to be -- and no one
will ever know what Bell has missed.
But one can safely estimate the shareholders have once again been robbed
of a multi-billion dollar profit potential.
Privacy. -- The
usefulness of the nationwide telephone system depends in large part on the fact
that it is a private communications network.
You and I would like a telephone conversation to be as close a
substitute for a private face-to-face conversation as possible. We assume that no one else is
listening. But the past few years we
have seen an increasing erosion of the privacy and integrity of the telephone
system.
Especially
disturbing is the fact that Bell has had so little to say on this issue. There have been no strong oppositions to
amended wiretapping legislation, no court actions against private or public
wiretapping, no public opposition to unauthorized public agency
wiretapping. In fact, one increasingly
hears reports of Bell Systems local company cooperation with all types of
communications interception.
The effect of
this Bell policy is cumulative and growing.
As people come to believe that the telephone is untrustworthy, their
usage declines. The company loses the
patronage. By failing to resist
unauthorized and unnecessary "interconnection" to its system, Bell
fails to protect one its most important assets -- people's trust in the privacy
of the telephone, and the company's public commitment to the users' (and
shareholders') interests.
Coin phones. --
It's a little matter, in some ways, but one of great consequence to individual
users on occasion -- and significant to shareholders. I'm talking about the pay phones -- their geographic
distribution, the number that are out of service, and Bell's delay in
converting to a system where you can dial an operator without depositing a
dime. There is no way of computing the
social costs for all those individuals who were prevented from making emergency
calls for the want of a dime -- or an operating phone. But the economic costs to shareholders have
been significant. Any time someone
might have made a long distance credit card or collect call and didn't -- for
want of a dime -- they have been the losers.
Bell insisted that direct operator access without a dime was impossible
-- notwithstanding the fact that those "backward" telephone systems
in foreign countries have offered the service for years. Finally, it relented -- after years of lost
profits had passed.
Data
Communications. -- Because of the pendency of Commission proceedings, I do not
want to say much about service in the data filed. There is much to be said, and many have already spoken. A Bell official recently said: "[We]
recognize that we haven't always been on top of the job in serving our data
customers." The Commission's staff has concluded: "In an industry of
the size and growing complexity of the communications common carrier industry,
the entry of new carriers could provide a useful regulatory tool which would
assist in achieving the statutory objective of adequate and efficient service
at reasonable charges." Bell now proposes to build a 60 city digital
network to be available by 1973-1974.
TECHNOLOGY
Satellites. --
If there is a cow more sacred than all other at Bell, it is its belief that its
performance in technological innovation knows no equal. The definitive
evaluation of technological change in the communications industry has not been
written. It should be. At least in satellites, however, it's clear
that Bell forfeited an early lead in the technology. Bell built Telstar -- a random orbit satellite. Then it relaxed. It failed to develop the much lower cost synchronous satellite
system, which does not require the elaborate tracking and telemetry devices and
uses fewer satellites. Bell has been
virtually absent from the development of an entirely new international industry. Bell banked on an obsolete, capital-intensive
technology (random-orbit satellites) when innovation was taking place toward a
much less capital-intensive development (synchronous satellites).
TD-2 Microwave.
-- TD-2 microwave is simply the engineers' name for an improved system of
microwave transmission. It is, however,
one area of communications technology where we have some industry case
studies. Competitors had jumped ahead
in developing this particular type of microwave. Bell had to make a crash effort to catch up. Whether this crash effort would have been
successful without Bell's basic monopoly advantages of FCC protection of
Bell-maintained barriers to competitive entry cannot be determined. But TD-2 Microwave does suggest that Bell is
not the fountainhead of all innovation.
My next two
examples of technological innovation are ones I feel I need to be a little more
tentative about. Based on conversations
with a number of people in communications, in and out of the Bell System, I
feel my conclusions in these two areas are correct. But I do want to note that the evidence is not as clear as in the
TD-2 microwave and communications satellite cases.
Transistors. --
Bell is very proud of its role in developing transistors. But the evidence is in many ways much more
ambiguous. In any event, many of the
developments since transistors have taken place outside the Bell System -- for
example, in semi-conductors. Certainly
the very competitive Japanese are now simply exporting the applications of this
new technology right back to us.
ESS. -- Bell is
now in the process of installing its version of electronic switching. Depending on the time schedule, it will have
made the conversion by the year 2000.
Whatever the schedule, Bell may be installing obsolete technology. Those who have studied the ESS technology
decision at Bell suggests that it may have chosen a less-advanced technology
than that available -- in a decision which overemphasizes risk minimization,
and an ultraconservative concern over system capability. As a result the Bell System may have to make
costly revisions in its pattern of technological innovation in switching. This question also illustrates the
difficulty in assessing the optimal pattern of technological innovation in a
monopoly with vertical integration.
Bell is now buying Japanese PBXs for use in the New England area where
solid-state equipment is required.
I cannot close
this discussion without some comment about international comparisons in
telecommunications. Whenever one
questions Bell's performance, the non-sequitur reply is usually "have you
ever used the British or French telephone system?" This is a strawman, as
anyone who has made comparative studies in this industry recognizes. I would suggest that we can learn a great
deal about performance from telecommunications systems in other countries such
as Sweden, Switzerland, West Germany, or Japan. Isn't it ironic that while we can use our space technology to put
a man on the moon, we will have to suffer the humiliation of seeing Canadian
and Indian domestic satellites in the skies before ours? In many countries there are numerous other
services, technologies, or lower prices that we do not have in this country --
even if it can be shown that on some absolute scale an evaluation might find
the American system superior.
CONCLUSION
This speech is
already much too long. But I felt a few
examples were really necessary to make the point.
Bell
management's policies disserve the public interest in many ways. We all know that. Few in the company -- or the FCC- seem to care very much.
The point is
that many (though not all) of these socially retrogressive policies also fail
to serve Bell's shareholders -- robbing them of billions of dollars. Sometimes the benefits go to management. Often as not they go to no one.
For whom does
Bell toil? It's hard to tell. It's not the public. It's not the shareholders. Management?
Well, yes, but it's not that simple either.
The fact is that
a national monopoly with a $41 billion plant, and over 50 federal and state
regulatory agencies, enjoys the benefit of neither a competitive spur nor an
effective regulatory check. When the
FCC fails to probe, and question Bell management; when the FCC does not permit
its staff to play a tough adversary role in Bell's rate hearings; the shareholders
of the company are seriously disserved as well as the public.
Some form of
competition may be the answer. Whether
such a conservative approach can still muster any adherents in a Republican
Administration under the influence of Radic-Lib American businessmen remains to
be seen.
APPENDIX 2
BEFORE THE
FEDERAL
COMMUNICATIONS COMMISSION
WASHINGTON, D.C.
20554
PETITION FOR
DISQUALIFICATION
OCTOBER 28,
1970.
TO COMMISSIONER NICHOLAS JOHNSON.
American Telephone
and Telegraph Company respectfully requests that, in view of your manifest bias
against the Bell System, you excuse yourself from further participation in
matters before the Federal Communications Commission involving any companies in
the Bell System, In support thereof, it is respectfully shown as follows:
1. In a public speech of October 19, 1970 for
the Digitronics Users Association Conference, entitled "Why I am a
Conservative or For Whom Does Bell Toll?" (F.C.C. Public Notice No.
56558), you demonstrated a deep-seated bias and prejudice against the Bell
System.
2. This wholly one-sided attack is
unfounded. It ignores fact and
disregards any damage it might do to the Bell System and the consumers of its
services. It is apparent from the speech
that your bias against the Bell System is to pervasive and yor mind is so
closed as to render useless any demonstration to you on our part that your
specific accusations and charges are without merit and factually unsupportable. But wholly apart from the merits of your
charges, the fact that you have made them on your own volition, in the form of
a public speech, is entirely incompatible with the dispassionate objectivity
required of your high office as a public regulatory official with adjudicatory responsibilities. Your remarks reflect a prejudgment of
matters of significance to the Bell System in practically every aspect of the
System's operations subject to regulation by the Commission. Many of these subjects are at issue before
the Commission in pending proceedings in which the Bell System companies are
entitled under the law to an impartial and objective determination. *
* Major examples, to cite only a
few, are dockets Nos. 16258 -- Phase 2 (involving, among other things, the
Western Electric relationship and depreciation) and 18128 and 18684 (involving
private line rates, including those for program transmission services): the
pending applications by new specialized common carriers; and AT&T's pending
domestic satellite system applications.
3. Your further participation in Commission
decisions involving the Bell System in the wake of your publicly demonstrated
bias cannot be reconciled with the minimum requirements of substantive and
procedural due process which the law guarantees to all parties in
administrative proceedings. Segal and
Smith, 5 F.C.C. 3 (1937), makes it very clear that personal bias and prejudice
disqualify a Commissioner from participating in judicial or quasi-judicial
proceedings before the Commission.
Indeed, that basis for disqualification in Scgal and Smith, supra, has
been amplified by a far more stringent standard of conduct applied by the
federal courts in recent years. In
American Cyanamid Co. v. Federal Trade Comm'n, 363 F.2d 757 (1966), the Court
stated that "It is fundamental that both unfairness and the appearance of
unfairness should be avoided," (p. 767) and quoted from Amos Treat &
Co. v. Securities & Exchange Comm'n, 306 F.2d 260, 267 (1962), that:
"'[An]
administrative hearing of such importance and vast potential consequences must
be attended, not only with every element of fairness but with the very
appearance of complete fairness. Only
thus can the tribunal conducting a quasi-adjudicatory proceeding meet the basic
requirement of due process.'"
4. Very recently, the Court of Appeals for the
District of Columbia in Cinderella Career and Finishing Schools, Inc. v.
Federal Trade (Comm'n, 425 F.2d 583 (1970), made it plain that individual
Commissioners have no "license to prejudge cases or to make speeches which
give the appearance that the case has been prejudged" (at 590). Because of a speech made by then Chairman
Dixon while an appeal from an examiner's decision was pending before the
Federal Trade Commission, and despite the fact that Mr. Dixon's vote was not
necessary for a majority, the court in that case set aside the Commission's
order and remanded the case to the Commission for a new decision without the
participation of Commissioner Dixon. As
the Court in Cinderella emphasized (425 F.2d at 590):
"... It requires no superior olfactory powers to
recognize that the danger of unfairness through prejudgment is not diminished
by a cloak of self-righteousness...."
5. It is apparent that, because of your speech,
your participation in pending or future Commission proceedings involving the
Bell System would violate these precedents.
Moreover, in light of your public attack on the Bell System, your
participation in such proceedings would undermine public confidence in the
entire administrative process. Accordingly,
it is hereby requested that you disqualify yourself from participation in
further Commission proceedings involving companies of the Bell System.
Respectfully
submitted.
AMERICAN TELEPHONE AND TELEGRAPH COMPANY, HORANCE P.
MOULTON, Vice President and General Counsel, New York, N.Y.
APPENDIX 3
COMMUNICATIONS
WORKERS OF AMERICA, AFL-CIO, Washington, D.C., October 28, 1970.
STATEMENT OF
JOSEPH A. BEIRNE, PRESIDENT, COMMUNICATIONS WORKERS OF AMERICA, ON PETITION OF
AMERICAN TELEPHONE & TELEGRAPH CO., DIRECTED TO COMMISSIONER NICHOLAS
JOHNSON
It appears that
someone in the Bell System management has blown his cool in attempting to
stifle commentary by a knowledgeable public official, whose sole obligation is
to the American public.
Commissioner
Johnson has recounted several serious problems of the Bell System, which in his
opinion the company's management has not decided to face until quite recently
-- when the telephone system was on the verge of collapse in a number of
metropolitan areas. None of these
problems has been any kind of secret.
Company
management is deluding itself if it believes Mr. Johnson has damaged the
company. After all, the Commissioner is
not responsible for the 20% decline in company stock value in the last several
years; he is not the one who delayed the planning for new facilities to take
care of demands that company planners knew was coming.
The company has
admitted its faults and misjudgments publicly over the last year. The public record is replete with
breast-beating apologies of company officials, some of whom have been
downgraded into the Corporate Siberia at 195 Broadway.
The Commissioner
has served for four years on the Commission.
He has had adequate opportunity to become acquainted with the company's
operations. He should not be stifled in
his guardedly speaking out on matters which are the responsibility of the
Commission any more than Chairman Dean Burch, who on Monday of this week
discussed the many economic problems involved in the proposed domestic
satellite communications system, pending in Docket No. 16495.
The attorneys
for the Bell System ought to know that the petition filed today should more
appropriately have been sent to the Federal Communications Commission, not to
an individual Commissioner. The
Commission itself should have the opportunity to judge the fitness of a member
to take part in a case.
Had the company
a case, it would have presented factual information in its petition -- no
matter with whom filed. Instead, it is
a sorry litany of rhetoric sounding like a product of the office of Vice
President Spiro Agnew.
APPENDIX 4
195 MANAGEMENT
REPORT, AT&T, October 29, 1970.
Charges are
"without merit and factually unsupportable"
AT&T REBUTS
COMMISSIONER JOHNSON'S CRITICISMS
In asking FCC Commissioner
Nicholas Johnson to disqualify himself from participating in FCC matters
involving the Bell System, AT&T said yesterday (See 195 MR, No. 43, Oct.
28, 1970) that the specific accusations and charges Mr. Johnson made in his
Chicago speech were without merit and factually unsupportable. The fact that he volunteered the charges in
a public speech, the Company said, is entirely incompatible with the
dispassionate objectivity required of his high office as a public regulatory
official.
Commissioner Johnson's
speech, AT&T said, reflects a prejudgment of matters of significance to the
Bell System in practically every aspect of its operations that are subject to
regulation by the Commission.
In his address,
Commissioner Johnson criticized numerous areas of Bell System performance and
practice. Here are brief statements of
Mr. Johnson's allegations, followed by AT&T's position with regard to each.
DEBT-EQUITY
STRUCTURE
Commissioner
Johnson maintains AT&T financing has been mistimed, that the Company raised
money over equity offerings when interest rates were low, and must now resort
to debt financing when rates are high.
He states: "... it is a bit ironic and tragically costly for
everyone involved that Bell is only now going to more debt financing -- when it
has to pay some of the highest interest rates in our nation's history."
It is not true
that the Bell System is "only now" resorting to more debt
financing. The fact of the matter is
that since 1965 we have met nearly all of our new money requirements through
bond issues. That we are able to do so
we owe to the prudence of AT&T management in holding debt to a moderate
level in the past.
It is the aim of
AT&T management to use the mode of financing most attractive in the light
of current and foreseeable circumstances.
Accordingly, during the early 1960s, when the market performance of
AT&T stock was very strong, equity capital was raised on very favorable
terms, thus maintaining borrowing margins that have proved extremely valuable
in the difficult markets sinc e that time.
If, on the other
hand, we had followed Mr. Johnson's retrospective counsel, we would have
foregone the sale of equity when market conditions for this mode of financing
were at their most favorable. In this
event, borrowing margins would have been dissipated unnecessarily -- and we
would have been forced to the sale of equity in the face of the adverse market
conditions of the late 1960s. Under
these conditions, equity offerings would undoubtedly have been extremely
costly. How shareowners would benefit
from such action is difficult to see.
ACCELERATED
DEPRECIATION
The Commissioner
states that "... at least millions and perhaps billions of dollars have
been lost forever for Bell's shareholders" by the System's failure to take
advantage of accelerated depreciation.
This is simply
not true. No benefits accrue to
shareowners when funds generated through tax deferrals are required to be
"flowed through" to customers in the form of lower rates. Under these circumstances the company would
have no reserve to meet its future tax liability in the event of a change in
Federal tax policy or a reversal of economic conditions. Whatever benefit present customers might
derive from a flow-through of funds generated by accelerated depreciation would
be offset by a liability to be borne by future customers or future shareowners
or both.
The Bell System
is using accelerated depreciation in 1970, following the passage of the Revenue
Act of 1969. We actively supported the
provision of that measure that permits accelerated depreciation provided tax
deferrals are "normalized." Normalization precludes
"flow-through" and makes tax deferrals available as interest-free
working capital, benefiting both customers and shareowners alike.
DIVESTITURE OF
W.E.
Mr. Johnson
maintains that AT&T should voluntarily divest itself of the Western
Electric Company and says that "most economists agree that (in this event)
Bell's shareholders would be a whole lot richer."
We do not know
what Mr. Johnson's authority is for his assertion that "most
economists" agree that AT&T stockholders would benefit from a spin-off
of Western Electric. The fact of the
matter is that whatever increase in Western Electric's own earnings might
follow such a spin-off would be more than offset by the higher costs the Bell
telephone companies would have to pay for materials. Further, this divestiture of Western Electric would deprive the
telephone companies of an assured source of supply in routine and emergency and
would certainly impede the introduction of technology. In short, while a spin-off might stimulate a
short-term speculative flurry at the outset, it is difficult to see how
shareowners would benefit over the long term from the impaired performance that
would be the consequence of splitting up the Bell System team. And the public would surely suffer.
Western Electric
has been a unit of the Bell System since 1882.
Mr. Johnson's statement that AT&T management's motive for
"holding on" to WE is to enlarge its own salaries and perquisites hardly
merits a rejoinder.
SERVICE USAGE
Under the
heading "Promotion of Service," the Commissioner castigates the Bell
System for what he calls some of its "most disheartening and
fascinating... management errors." A principal argument is that the System
has failed "to promote increased usage of its service."
A sufficient
rejoinder might be that the Bell System today serves more than half again as
many telephones as it served 10 years ago, and handles two and a half times as
many interstate long distance calls.
Mr. Johnson,
however, makes the more specific allegation that the Bell System has resisted
"off-peak" pricing and the increased customer usage it would
generate.
The facts are
that the principle of "off-peak" pricing was recognized in Bell
System rate-making as long ago as 1901 -- a generation before the Commissioner
was born, a decade before our interstate business first became subject to
regulation. And reduced rates for
interstate calls during the evening and night-time hours have been continuously
in effect since 1919.
Bell System rate
schedules for "off-peak" hours have been amended many times to the
benefit of customers down through the years.
Today a three-minute call from New York to California can be made for as
little as 80 cents, a one-minute call for 35 cents.
INTERCONNECTION-CARTERFONE
Referring to
AT&T's insistence on effective and appropriate ground rules for
interconnection of such devices as the Carterfone, Mr. Johnson says this is
"another instance in which corporate intransigence has won out over common
sense and common shareholders' dollars."
The Bell System
opposed the indiscriminate attachment of customer-owned equipment to its lines
because of the need to protect the quality and reliability of the telephone
network and the service it provides the public. It would have been irresponsible to open the network to the
attachment of such equipment until reasonable protection of the network could
be assured. This assurance was provided
in the revised interconnection tariffs filed in the fall of 1968 and
subsequently accepted by the Federal Communications Commission. The need for protection of the network has
subsequently been confirmed in a study prepared under the Commission's aegis by
a committee of the National Academy of Sciences. In the meantime a steadily increasing number of customer-owned
devices and systems have been attached to the network under the terms of the
revised tariffs.
What Mr. Johnson
neglects to point out is that as long ago as 1958 the Bell System introduced Data-Phone
service for the specific purpose of accommodating the attachment to its lines
of a wide variety of data input devices.
Today there are more than 100,000 Data-Phone sets in service.
EDUCATIONAL
TELEVISION
"AT&T,"
the Commissioner states, "had to be dragged, kicking and screaming, to the
FCC where it has fought for three years the service to public broadcasting that
Congress ordered" in the Public Broadcasting Act of 1967.
Congress did not
"order" the Bell System or anybody else to provide program
transmission service to public broadcasting.
What it said is that the common carriers might provide such service at
free or reduced rates without violating the terms of the Communications Act. And since December 1968, the Bell System has
in fact been providing network service to the Corporation for Public
Broadcasting at what amounts to "out of pocket" costs; CPB pays
nothing for the cost of putting up and taking down the connections. These rates were initiated voluntarily by
AT&T in the interest of helping CPB get started pending a determination of
its total network requirements. This
arrangement has been extended several times -- it now serves 59 cities -- and,
although service is provided CPB on temporarily idle facilities that can be
"preempted." the reliability of service through September 1970 has
been 99.67 per cent.
Moreover, in
1969 AT&T proposed and has started to construct a 105-city network to
provide regular network service to CPB, 24 hours a day, at approximately
one-third the rate charged commercial broadcasters. These charges cover only the specific added costs that would be
incurred in serving CPB and would not include payment for existing basic route
facilities such as land, buildings and towers.
To lower our charges further would certainly not benefit the telephone
using public or our shareowners. The
FCC has indicated our approach seems reasonable.
EMPLOYEE STOCK
PLAN
Commissioner
Johnson said the Employee Stock Plan -- which ended in 1968 with the purchase
of the last remaining shares authorized for that purpose -- had the effect of
diluting stock value for non-employee incentives was "rather meager."
The facts simply
don't bear out Mr. Johnson's cursory conclusions. During the 1958-1965 period -- which included AT&T's equity
offerings to shareowners in 1961 and 1964 -- about 39 per cent of the new
shares issued were shares sold to employees under the Plan. These shares accounted for about 21.5 per
cent of the total capital raised during that period, and about 36 per cent of
the amount raised through sale of equity securities.
This clearly was
more than a "meager return" from a financing standpoint.
At the same
time, this capital was obtained on reasonable terms which benefit all
shareowners, not just employees. In
fact, average proceeds per share from the sale of stock to employees have
substantially exceeded book value per share for the benefit of all shareowners
rather than "diluting" the stock as alleged by Commissioner
Johnson. The average proceeds per share
from all stock offered to employees since World War II actually were $5 per
share higher than the average for all shares issued during that period.
In short, the
Employee Stock Plan has been good for the business and its shareowners because
it helped to raise the large amounts of capital needed on reasonable
terms. And we believe it has been good
for employees; it provided an excellent investment and encouraged thrift and a
deeper sense of personal involvement in the business.
ELECTRONIC
SWITCHING SYSTEMS
Commissioner
Johnson said that in the process of installing electronic switching machines,
Bell "may be installing obsolete technology."
The introduction
of electronic central offices throughout the nationwide network represents the
largest single project ever undertaken by a private industry. Not only in terms of cost -- which is
expected to reach $20 billion or more -- but also in terms of the skilled
manpower and man hour requirements and the intrinsic complexity of the job. Far from being obsolete, ESS embodies the
most up-to-date electronic technology.
By the mid 1970's, we'll be installing electronic central offices at the
rate of just about one every working day.
As to Mr. Johnson's point that we may be installing obsolete technology,
no one is more aware of the rapid pace of technological development in the
telecommunications field than the Bell System.
As innovation continues, of course, the design of ESS machines will be
modified to incorporate devices and techniques that improve the performance and
reliability of electronic switching.
The point is that the nationwide switched network is an
"organic" entity: in planning transmission and switching facilities,
the Bell System folds the future into the present: what we install today must
work compatibly with what we install tomorrow.
It's that sort of systems approach toward building and managing the
network that has added greatly to its capacity and versatility and has kept
down the cost of providing telecommunications service.
TRANSISTOR
DEVELOPMENT
Commissioner Johnson
said that Bell is very proud of its role in developing the transistor, but
"the evidence is in many ways much more ambiguous. In any event, many of the developments since
transistors have taken place outside the Bell System."
Of course, we
are proud of the Bell System's role in the development of the transistor, since
three Bell Laboratories scientists were awarded the Nobel prize in physics in
1956 for their discovery of the transistor effect. This does not seem ambiguous to us. As to "other developments" that have taken place
outside the Bell System, we have never made the claim that we had a monopoly on
research and development in solid state physics; however, it is acknowledged by
the scientific community that the entire solid state industry stems principally
from the discovery of the transistor effect, and that the Bell System has
remained at the forefront of transistor development ever since. Secondly, in the interventing years since
that discovery, Bell Laboratories has made seminal contributions to the
development of microelectronics, laser and maser technology,
electroluminescence, superconductivity, information theory, magnetic memory
devices, data transmission, and satellite communications. One index to the innovative capacity of Bell
Telephone Laboratories lies in the fact that since its establishment in 1925,
its engineers and scientists have been awarded 14,000 patents, an average of
one a day.
SERVICE IN NEW
YORK CITY
Commissioner
Johnson said that telephone service problems in New York are not "atypical
of a basic AT&T failing."
While we don't
completely understand the thrust of Commissioner Johnson's remark, substantial
amounts of data made available to the FCC in conjunction with its "Quality
of Telephone Service Survey" indicate that New York City's service results
certainly have been atypical of the levels of service being furnished to the
majority of Bell System customers.
And while it's
true that New York City has service problems, service is steadily
improving. Backing up the New York
Telephone Company's service improvement effort are an almost $1 billion
construction program for 1970, $1.1 billion planned for '71, and $1.2 billion
for '72. The 1970 program represents an
increase of some $264 million over 1969 and almost half a billion over
1968. The employee force now stands at
more than 100,000, an increase of more than 25,000 employees since 1968.
Furthermore, New
York is an atypical city in terms of its communications needs and usage. For example, calling patterns in the New
York metropolitan area are basically different from those of smaller U.S.
cities. The patterns are characterized
by intense demand for inter-office trunking (only five per cent of New York
City's traffic is intra-office), high usage of the nationwide switched network,
and a broadly diffused community of interest that reaches out to other
metropolitan regions, even those a considerable distance away; on an average
business day, 31,000 calls are made from New York to Los Angeles, 52,000 from
New York to Chicago, but only 9,500 from New York to the Buffalo region.
One additional
indication of the extraordinary concentration of communications facilities in
New York City that makes it atypical is the fact that 30 per cent of all Bell
System PBXs are located in Manhattan, south of 59th street.
DATA
COMMUNICATIONS
Commissioner
Johnson said that the Bell System has not met the needs of data communications
users.
We are meeting
those needs and our data communication services are being constantly modified
and expanded to meet the changing needs and the growing demands of data
communications users. We introduced
Data-phone service in 1958 to allow direct communications between data
processing machines.
Presently we
provide 75 different types of data sets with some 20 speeds of operation
ranging from 150 bits per second up to half a million bits per second. By year's end, our direct dial network and
private line voice channels will be able to accommodate 4,800 bits per second and
10,800 bits per second, respectively.
To meet data
users needs over the next decade, we will have in operation a digital network
that will be integrated into our present network. This network will serve 60 major cities on a private line basis
by 1974, with a switched service capability in these cities soon after
that. A variety of data speeds will be
provided, some beyond the needs of computer manufacturers over the next decade.
RATE OF RETURN
Commissioner
Johnson posed the question: "How the country would be different" if Bell
had rates of return either much higher or much lower than at present?
Mr. Johnson
assumes that some sort of earnings curve can be drawn through various levels of
service quantity, quality and costs -- although each of these factors has
innumerable inputs affecting any given level.
It seems obvious
that there is no specific level of earnings that is "just right" for
all conditions. Earnings levels vary
with changes in the operating environment and financial climate. The FCC itself recognizes this and has
always insisted on a continuing surveillance of our earnings vis-a-vis the
operating environment and financial climate.
COIN TELEPHONES
Commissioner
Johnson said the coin telephones, "their geographic distribution, the
number that are out of service, and Bell's delay in converting to a system
where you can dial an operator without depositing a dime..." are "of
great consequence to the individual users on occasion -- and significant to
shareowners."
The Bell System
has some 1.3 million public and semi-public telephones.
By and large,
coin service is good, but there are some problems in the New York City
area. However, New York Telephone is
making an all-out effort to improve coin service.
Of New York
City's 100,000 public and semi-public telephones, some 10,000 are inspected
daily. Some 13 per cent, or 355, of the
city's total repair force is dedicated to keeping coin phones in working order.
The Bell System
is committed to the Dial Tone First program and is moving ahead with its Dial
Tone First conversion program on a scheduled basis. Because of the program's cost -- more than $100 million to
convert the System's more than 1.3 million coin phones -- conversion will not
be completed for a number of years.
Among the cities
that now have or are converting to Dial Tone First are: New York; Washington,
D.C.; Hartford, Conn.; Danville, Ill.; Cheyenne, Wyoming; Newark; Sandusky,
Ohio; and Philadelphia.
PRIVACT OF
COMMUNICATIONS
Commissioner
Johnson said that "Bell has failed to protect one of its most important
assets -- people's trust in the privacy of the telephone...."
Contrary to
Commissioner Johnson's charge that the Bell System has had little to say on the
wiretapping issue and fails to resist unauthorized "interconnection"
to its system, we have consistently advocated Federal and state legislation to
strengthen privacy of communications.
Over the years, Bell System representatives have repeatedly spoken out
before the Congress and the state legislatures on this subject.
AT&T Vice
President Hubert Kertz, for example, testified before the U.S. Senate Judiciary
subcommittee on Administrative Practice and Procedure on May 18, 1967:
"Wiretapping is an invasion of privacy and we believe strongly that it
should be stopped."
He pointed to
the pressing need for a "clear-cut Federal law that makes wiretapping as
such illegal and strengthens the privacy of communications."
He expressed,
too, the long-standing policy of the Bell System that "privacy of
communications is a basic concept in our business... Any undermining of this confidence," he said, "would
seriously impair the usefulness and value of telephone communications... We welcome legislation which strengthens
this privacy."
We do, however,
recognize that national security and organized racketeering are matters of
grave concern to the government and to all law-abiding citizens. The extent to which privacy of
communications should yield and where the line between privacy and police
powers should be drawn in the public interest are matters of national public
policy. This is a matter to be resolved
by the Congress.
We constantly
take many protective measures to safeguard the integrity of our nationwide
telephone network. Our employees are
carefully trained and regularly reminded about the vital importance attached to
secrecy of communications. Adherence to
the rules preserving privacy is a basic condition of employment.
In addition, our
plant employees are trained to look for illegal wiretaps.
When one is
discovered, it is removed or disabled, and law enforcement authorities and the
subscriber are promptly notified.
MICROWAVE RADIO
In connection
with the TD-2 microwave radio relay system, Commissioner Johnson said that
"competitors had jumped ahead in developing this particular type of
microwave. Bell had to make a crash
effort to catch up."
TD-2 was not
developed on a crash effort, as Mr. Johnson claims, nor to meet competition
from commercial suppliers. It has, in
fact, been in use since 1950, and has been continuously improved over the years
to increase its capacity and improve the efficient use of the radio frequency
spectrum. The system's original
capacity of 2,400 circuits has been increased to 12,000 circuits, while
transmission performance has been improved.
This increased capacity has helped to keep down the cost of long
distance telephone calls.
CATV SERVICE
In discussing
CATV service, Mr. Johnson speculates as follows: "suppose in the early
sixties Bell had successfully argued that CATV should be a common carrier
service...." He then implies that, because the Bell System did not
establish a monopoly position at that time, our shareowners" have once
again been robbed of a multibillion dollar profit potential."
In discussing
CATV service, Mr. Johnson speculates as follows: "Suppose in the early
Sixties that the Bell System had successfully argued that CATV should be a
common carrier service" -- flies in the face of his own knowledge that as
early as 1958 the FCC had ruled that the CATV business was not a common carrier
service. In short, what Mr. Johnson is
saying is that if things had been different, things would be different.
APPENDIX 5
CALIFORNIA RURAL
LEGAL ASSISTANCE, San Francisco, Calif., November 2, 1970.
Mr. DEAN BIRCH, Chairman Federal Communications
Commission, Washington, D.C.
Re: American Telephone & Telegraph petition for
disqualification dated October 18, 1970, to Commissioner Johnson.
DEAR MR.
CHAIRMAN: We are writing on behalf of the Spanish Speaking/Surnamed Political
Association, the Mexican-American Political Association, the Mexican-American
Legal Defense & Educational Fund and California Rural Legal
Assistance. These four organizations
have been frustrated in their efforts to secure equal government treatment by
the Federal Communications Commission.
We have
carefully read American Telephone & Telegraph's request that Commissioner
Johnson be disqualified. The validity
of this attack is questionable.
AT&T's primary objection is that Commissioner Johnson has not fallen
prey to its propaganda,
Our
organizations feel that if, in fact, AT&T's ground for disqualification of
Commissioner Johnson is correct, then we too have a ground for seeking the
disqualification of the remaining six Commissioners in our Petition to
Intervene presently before the FCC (in re Applications of Pacific Telephone and
Telegraph Company File #3710-3712-C1-P-70, Opinion 49745, FCC July 15,
1970). It is clear from said opinion
that six of the seven Commissioners believe that Pacific Telephone property
interests are to be more highly valued than three million Spanish-surnamed
individuals' employment and communication rights.
Our
organizations, however, have exercised a restraint that AT&T is apparently
unable to exercise. We have exercised
such restraint on the grounds that in the long run our judicial and
quasi-judicial system cannot be effective if judges are required to remain
absolutely neutral and ignore the realities of life. All that we ask is that in each individual case judges and
commissioners be willing to exercise their independent judgment without regard
to the particular preferences or biases that they might have.
Although this
letter is not cash in terms of a petition for disqualification, we do wish to
formally inform the Commission that our organizations will file a Petition for
Disqualification of all the commissioners who have previously ruled adversely
to us if the Commission does set a precedent of disqualifying Commissioner
Johnson. Our ground will be that six
Commissioners have elevated monopoly property rights above individual rights.
Respectfully
submitted.
ROBERT L. GNAIZDA, Deputy Director.
UNITED STATES
GOVERNMENT,
November 9,
1970.
To: Commissioner Johnson.
From: General Counsel.
Subject: Petition of AT&T requesting that you
disqualify yourself in proceedings involving the Bell System.
I have your
request for my views on the petition filed October 28, 1970 by American
Telephone and Telegraph Company requesting that you disqualify yourself
"from participation in further Commission proceedings involving companies
of the Bell System." The petition rests entirely upon reference to a
speech given by you on October 19, 1970 to the Digitronics Users Association
Conference entitled, "Why I am a Conservative or For Whom Does Bell
Toil?" It is urged without further analysis that the speech per se
exhibits pervasive bias against the Bell System and that it reflects a
prejudgment "of matters of significance to the Bell System in practically
every aspect of the System's operations subject to regulation by the
Commission," including subjects at issue in pending proceedings.
It is my opinion
that the petition is so broad in its application that it does not provide a
basis for a determination on the merits.
Thus, the petition requests that you disqualify yourself in any
proceeding involving any Bell System company.
However, the Commission has a continuing regulatory function with
respect to AT&T involving both formal and informal proceedings, and
AT&T also participates in both formal and informal proceedings involving
applications of other parties and proceedings of broader scope in which the
substantiality of its interests may vary considerably. While the petition does make mention of four
pending proceedings as examples of those in which it claims you have closed
your mind to persuasion, the full reach of the requested relief remains
openended, and even with respect to the four proceedings which are mentioned,
no attempt is made to relate any particular language in the speech to any
particular issues in those proceedings.
The petition thus
calls for a disqualification whose scope the petitioner has not defined and
which I am unable to determine. I think
that a party seeking such severe relief should provide an adequate statement of
the parts of the speech relied upon and all of the pending proceedings as to
which it seeks disqualification, as well as the specific issues involved and
affected, rather than leaving it to you or to me to search out and piece
together these elements.
Under the
circumstances, it seems to me that the appropriate course is to reject the
AT&T petition, as written, on the ground that it does not particularize
specific bases for the relief requested.
RICHARD E. WILEY, General Counsel.