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