Back to Index

 

 

 

 

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

 

Docket No. 16258; Docket No. 15011

 

FEDERAL COMMUNICATIONS COMMISSION

 

11 F.C.C.2d 493

 

RELEASE-NUMBER: FCC 68-73

 

January 24, 1968 Adopted

 


 

ACTION:

 

MEMORANDUM OPINION AND ORDER

 

JUDGES:

 

   BY THE COMMISSION: COMMISSIONER COX CONCURRING IN PART AND DISSENTING IN PART AND ISSUING A STATEMENT: COMMISSIONER LOEVINGER ISSUING A SEPARATE OPINION IN WHICH COMMISSIONER LEE JOINS; COMMISSIONER JOHNSON DISSENTING AND ISSUING A STATEMENT.

 

OPINION:

 

    [*493] 1. The Commission has under Consideration its interim decision and order, issued July 5, 1967, its memorandum opinion and order on reconsideration, issued September 14, 1967, the report of the Technical Experts Group on jurisdictional separations, a petition for extension of stay and reopening of record, filed by the Bell System respondents on November 15, 1967, and various oppositions thereto.

 

   2. The memorandum opinion on reconsideration stayed the effect of our interim decision as regards the prescription of jurisdictional separations procedures until December 1, 1967, which date was subsequently extended to February 1, 1968. At the time of the initial stay, we had before us petitions for reconsideration from respondents and others urging modification of our determinations with respect to separations.

 

Regarding these petitions, we concluded that they advanced nothing of substance to discredit those determinations; and that they provided no justification to reopen the record of these proceedings or for holding further evidentiary hearings on separations at this time. We recognized, however, the complexities inherent in jurisdictional separations and the intricacies involved in the application of any set of principles. We therefore stayed the effectiveness of our prescription of separations for a brief period required to enable the technical experts group n1 to examine the proposed procedures "with the view to [*494] ascertaining any improvements or refinements therein which they may deem to be warranted."

 

   n1 The technical experts group was formed by direction of the Telephone committee at a pre-hearing conference on July 11, 1966, for the purpose of endeavoring to narrow the issues and devising other means of expediting consideration of separations, pursuant to the Commission's memorandum opinion and order issued Apr. 11, 1966. It consisted of representatives of all parties who submitted separations proposals pursuant to the Telephone committee's order issued Apr. 22, 1966, and members of the Commission's staff.

 

   3. On November 15, 1967, the technical experts group submitted its report on the results of its examination. Nothing contained in the report causes us to set aside the conclusions reached in our interim decision as to the soundness and reasonableness of the jurisdictional separations procedures adopted therein. Although the report makes certain recommendations for revisions in the procedures, these recommendations, in essence, involve major modifications or changes, and, to some degree, introduce concepts different from those underlying the Commission's proposed plan of separations. Certainly the recommendations cannot be regarded simply as "improvements or refinements" as contemplated by our memorandum opinion and order on reconsideration. Moreover, it is clear from the group's report itself, as well as from other representations made to the Commission in the course of these proceedings, that there is no one plan of separations which has unanimous support either within industry or among the State regulatory agencies.

 

   4. It must be kept in mind that the primary purpose of this phase of the proceeding in docket No. 16258 has been to determine the overall revenue requirements of respondents for their interstate operations, and to adjust interstate rates accordingly. This purpose has been accomplished. In view of all of the foregoing circumstances, we are obliged, in the interest of administrative finality, and in the entire context of the record of these proceedings to reaffirm and adopt the findings and conclusions of our interim decision or jurisdictional separations as providing a sound and reasonable basis for determining respondents' interstate revenue requirements. We, therefore, adopt the amount of $85 million n2 as the amount of additional revenue requirements applicable to interstate operations on the basis of the application of the changes in separations procedures adopted by our interim decision to the 1966 test year data.

 

   n2 As indicated in the report of the technical experts group, more refined data produces an amount of $82,550,000 as the precise effect of the Commission's plan.

 

   5. In our interim decision and order, we proposed to prescribe, pursuant to sections 221 (c) and (d) of the Communications Act of 1934, as amended, the method found to be reasonable therein as the method to be applied for the future with respect to the separation and allocation of all property, together with related reserves, expenses, and taxes, used in whole or in part to provide the services subject to our jurisdiction. The interim decision and order also contemplated that, in order to provide an appropriate framework within which any proposed revision may be considered on an orderly and public basis, the procedures would be incorporated in rules and regulations, and that thereafter any changes in such rules and regulations would be considered on a public record in accordance with the rulemaking provisions of the Administrative Procedure Act.

 

   6. As we have previously stated, we consider that the plan we have adopted herein is sound and reasonable. However, we must take note from the report of the Technical Experts Group of the advocacy by [*495] respondents of another plan and the endorsement of such other plan by the executive committee of the NARUC -- although such endorsement does not represent the unanimous view of all State commissions. Having in mind the vital interest of State regulators in any plan of jurisdictional separations that is prescribed for the future we feel constrained to give full consideration to all of the views held by those affected by such prescription. We feel that this should be done in a manner which will enable us to evaluate the alternative plans now being advocated in juxtaposition with the plan of separations we have adopted for the immediate ratemaking purposes of this phase of docket No. 16258. We are further of the opinion that such comparative evaluation can best be accomplished by proceeding immediately by way of issuing a notice of proposed rulemaking in a separate docket. However, in view of the fact that the matter has been so recently considered both by us and the interested parties, we do not believe that an extended time period will be necessary, and that rather the matter can be brought to a conclusion much quicker than would otherwise be the case. The time period which we have prescribed for filing comments and reply comments has been specified with this consideration in mind.

 

   7. Pending completion of the rulemaking proceedings we are commencing herewith, respondents will be free to administer their division of interstate revenue procedures on the basis of the interim plan of divisions they are now using, and to which we offered no objection in our letter of December 13, 1967. However, we will expect respondents to report to us monthly the results of the division of revenue procedures applied on the basis of the procedures adopted by our interim decision. We will also expect respondents to report to each State regulatory commission the results of its division of revenues in the particular State based on the interim plan and the plan adopted by our interim decision. This will leave each State agency free to take such action with respect to intrastate revenue requirements in its State on the basis of whichever of these plans of jurisdictional separations it deems appropriate pending conclusion of the forthcoming rulemaking proceedings.

 

   8. Accordingly, It is ordered, That the petitions for reconsideration and for modification listed in the appendix to our memorandum opinion and order on reconsideration herein issued September 14, 1967, insofar as such petitions relate to jurisdictional separations, Are granted to the extent indicated herein and in all other respects Are denied, and It is further ordered, That Bell System respondents' petition for extension of stay and reopening of record filed November 15, 1967, Is granted to the extent indicated herein and in all other respects is denied.

 

FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.

 


 

CONCURBY: LOEVINGER; COX (IN PART)

 

CONCUR:

 

   SEPARATE OPINION OF COMMISSIONER LEE LOEVINGER REGARDING A SEPARATION'S PLAN FOR TELEPHONE RATEMAKING IN WHICH COMMISSIONER ROBERT E. LEE JOINS

 

   The Commission has before it now an extremely complex and important aspect of telephone ratemaking. The technical, turgid, and prolix jargon in which discussion of the subject is presented defies comprehension by the ordinary person, regardless of literacy or intelligence. However the significance of the matter warrants an effort to present the issues and decisions in plain, comprehensible language, even at the risk of oversimplification and minor inaccuracies.

 

   In regulatory jargon the subject involved is called "separations." This refers to separation of the costs of local (or intrastate) telephone operation from long-distance (or interstate) telephone operation for purposes of setting rates. The same telephones are used for making both local and long-distance calls, so that some of the expense of maintaining the telephone must be assigned to each class of service. The same thing is true of other parts of the telephone plant.

 

   The most obvious method of dividing the cost of telephone plant between different services is on the basis of use. Some plant is used exclusively in either local or long-distance service, and the cost of this plant can be assigned to the service in which it is used. Such things as telephone instruments are used for both local and long-distance calls, [*501] and their cost can be divided between local and long-distance service on the basis of the amount of time during which they are used for such purposes. This was once the basis of the accounting procedures officially adopted.

 

   This principle has been modified or abandoned because of the fact that local telephone service is relatively more expensive than long-distance telephone service, using such a method of allocating costs, and modern technology is reducing the cost of long-distance transmission much more rapidly than the cost of local transmission. Consequently if costs were allocated strictly on the basis of time in use, long-distance rates would be much cheaper than they are now and local rates would be more expensive. For a number of reasons chiefly political -- various plans have been developed to shift a greater part of the cost of telephone plant to the long-distance rates than actual time in use would warrant. This is rationalized by a variety of complicated plans and theories which I will not attempt to describe.

 

   The ratemaking plan which has been in use for a number of years averages the high-cost local transmission plant and equipment with the low-cost, long-distance transmission plant and equipment in order to set the cost of telephone plant for ratemaking purposes. This has the effect of shifting costs from local to long-distance service and of providing lower rates for local service and higher rates for long-distance service than would otherwise be the case. This also has the effect of establishing long-distance transmission plant and equipment costs at unrealistically high levels.

 

   When conventional telephone transmission lines of copper wire strung on poles were the only significant method of long-distance transmission, the arbitrary increase in their apparent cost was of no importance except for ratemaking purposes. However, modern technology is now providing alternative modes of long-distance transmission. Communications satellites are available now and numerous sophisticated and exotic techniques are under development and likely to be available in the near future. Present methods of separating or allocating telephone costs between local and long-distance service prevent effective competition or rational economic comparison between different technical modes of long-distance transmission. The conventional long-distance telephone landlines bear the burden of about half a billion dollars of cost for services for which they are not used at all. This makes it virtually impossible to judge whether landline or satellite transmission may be more economical or efficient for a particular use. This appears to me -- and I would hope to others -- as an improper impediment to technological and economic progress and to intelligent administration and regulation.

 

   The separations plan for allocating local and long-distance costs which was adopted by the Commission in its July 5, 1967, interim decision and order was based on the plan described above. Before the order went into effect the Commission became sufficiently uncertain about its own separations plan to suspend its operation and call for a committee of technical experts to review the plan and suggest improvements.

 

    [*502] The committee of technical experts did not agree upon a plan, but A.T. & T. and the national association of State utility commissioners did agree upon a substitute plan which would shift costs from local to long-distance service on an apparently more rational basis. The A.T. & T. plan was proposed to the Commission, and in order to have time to study it the Commission extended the suspension of the FCC plan until February 1, 1968, with the understanding that A.T. & T. would make reductions in rates and increase allocations of costs from local to long-distance service which approximated in amount the effects of the Commission plan.

 

   The accompanying Commission memorandum opinion and order finds that the FCC plan is sound and reasonable, but further suspends its effectiveness indefinitely and the Commission institutes a new rule-making proceeding to consider the A.T. & T. proposal. The action taken by the Commission seems to me to be proper and required by a rational approach to the problem. However, I do not believe it is proper to try to maintain the pretense that the method of separating local and long-distance costs proposed by the Commission in its July 5, 1967, order is sound and reasonable. The demonstration that has been made of the effects of the separations plan previously approved by the Commission compels the conclusion that the Commission plan is neither sound nor reasonable and that we must adopt some other plan that allocates costs more nearly in accordance with actual usage and that does not preclude competition and economic comparison between different technological modes of transmission. Candor and clarity in stating these obvious conclusions will contribute to our consideration of these problems and to the confidence that the public may justly have in our operation.

 


 

DISSENTBY: COX (IN PART); JOHNSON

 

DISSENT:

 

   STATEMENT OF COMMISSIONER KENNETH A. COX, CONCURRING IN PART AND DISSENTING IN PART

 

   I concur in this action insofar as it: (1) Denies, in large part, the petitions for reconsideration and for modification addressed to our interim decision and order of July 5, 1967; (2) reaffirms and adopts [*496] our findings and conclusions therein on jurisdictional separations as providing a sound and reasonable basis for determining respondents' interstate revenue requirements; and (3) refuses to reopen the record in this proceeding for further consideration of the separations issue. However, I believe that, on the basis of the record in this proceeding, we should prescribe for future use the jurisdictional separations procedures which we set forth in our Interim Decision and Order, and I dissent because of the majority's failure to do so.

 

   I would point out the following: (1) After the first full consideration of jurisdictional separations which we have ever made on a formal hearing record, we concluded, in our July 5, 1967, order, that we should do the following:

 

   (a) As to inter-exchange plant, we decided to continue to use the so-called "Modified Phoenix Plan," adopted in 1956 on the urging of the Bell System, under which the costs of all inter-exchange plant within a State are combined (regardless of whether a particular element is owned by the local Bell Associated Company or by Bell's Long Lines Department and used only for interstate service), these combined costs are then apportioned on the basis of relative use for intrastate and interstate purposes, and the book costs so assigned to intrastate service are then deducted from total book costs of the Associated Company inter-exchange circuit plant, with the remainder being assigned to interstate operations. This kind of averaging of costs is widely used in the field of utility regulation, and admittedly results in attributing to interstate service substantial plant in excess of that actually used in such service -- for the reasons set forth in our Interim Decision and Order. Despite its original espousal of this procedure, the Bell System now seeks to eliminate it.

 

   (b) As to exchange plant, we decided that actual use is the proper standard for allocation, except as to subscriber plant (station equipment and subscriber lines). To take care of the latter, we adopted a procedure which starts with actual interstate subscriber line usage (SLU) for each study area and then adds to this a factor of 200 percent of the nationwide average interstate subscriber line usage.

 

   (2) In our Memorandum Opinion and Order on Reconsideration, released September 14, 1967, we said with respect to this matter:

 

   55. We are firmly convinced that the separations plan prescribed in our Interim Decision and Order is reasonable on the basis of the record before us. Indeed, the petitions for reconsideration advance nothing of substance by way of criticism thereof. * * *

 

   * * *

 

   57. On the basis of the pleadings before us, we see no justification for a reopening of the record or for holding further evidentiary hearings on this matter at this time. Nor do we see any justification for reopening the entire subject of jurisdictional separations in the context of this proceeding. We do, however, see some merit in reconstituting the Technical Experts Group for the purpose of affording that group, in concert with our staff, an opportunity to examine the prescribed separations plan with the view of ascertaining any improvements or refinements therein which they may deem to be warranted. To that end, we will stay, until December 1, 1967, the effectiveness of that portion of our Order which prescribes the separations procedures. * * * [Emphasis supplied.]

 

   (3) In an Order adopted November 30, 1967 -- with Commissioners Bartley, Johnson, and myself dissenting -- the stay with respect to jurisdictional separations was extended to February 1, 1968.

 

    [*497] (4) The majority opinion here adopted says:

 

   3. On November 15, 1967, the Technical Experts Group submitted its report on the results of its examination. Nothing contained in the report causes us to set aside the conclusions reached in our interim decision as to the soundness and reasonableness of the jurisdictional separations procedures adopted therein. Although the report makes certain recommendations for revisions in the procedures, these recommendations, in essence, involve major modifications or changes, and, to some degree, introduce concepts different from those underlying the Commission's proposed plan of separations. Certainly the recommendations cannot be regarded simply as "improvements or refinements" as contemplated by our Memorandum Opinion and Order on Reconsideration. * * *

 

   It goes on to reaffirm and adopt the findings and conclusions of our Interim Decision on jurisdictional separations as providing a sound and reasonable basis for determining respondents' interstate revenue requirements.

 

   This brings us to the point at which I began my dissent. I agree with everything in the majority's opinion up to and including the first sentence of paragraph 6, but then it takes a change in direction which seems to me completely unsound. We have ruled on the separations matter. We have refused to reconsider that decision, finding no merit in the petitions to that end. We afforded an opportunity for the Technical Experts Group to suggest improvements or refinements to the procedure we had unanimously adopted and reaffirmed, and the majority even now concedes that they did not produce any. All parties agree that the separations procedures in effect prior to our interim decision -- as last modified in the Denver Plan -- produced undesirable results. Why not, then, complete the job we set out to do by prescribing for the future -- that is, putting into our rules -- the revised procedures which we adopted last July -- and which the majority, except apparently Commissioner Loevinger, still regard as sound and reasonable?

 

   The majority says we must "take note" of another plan advanced by respondents and set forth in the report of the Technical Experts Group -- though it is clearly beyond the scope of the task which we assigned to them. They say that they "feel constrained to give full consideration to all the views held by those affected by such prescription." It seems to me we have given such consideration for over 2 years, and through thousands of pages of the record. And I am morally certain that no matter what procedures are adopted, some of those affected by such prescription will demur and tender further views. The majority opinion, in paragraph 3, notes from the Technical Expert Group's report that "there is no one plan of separations which has unanimous support either within industry or among the State regulatory agencies." I think that much of the difficulty with separations in the past has arisen from the effort to get unanimous -- or near unanimous -- support for a plan by offering benefits to all concerned -- except the user of interstate communications who always ends up carrying more of the burden. I thought the purpose of considering the matter in this proceeding was to get away from the "political considerations" which Commissioner Loevinger refers to in his separate [*498] opinion. I thought we intended to treat the matter on a formal record, where proponents of plans could be cross-examined and rebutted, and then adopt some rational result which would continue in effect until it could be demonstrated on another record though perhaps one in a rulemaking proceeding -- that conditions had changed to such a degree that reason would dictate a modification. I am tired of negotiated settlements based on expedience rather than substantial facts. I want to find a logical separations formula and stick with it until changed conditions make it inappropriate, at which time we should adopt procedures which logically fit the conditions then existing -- regardless of the fact that some elements of the industry and some State regulatory commissions may not like the results.

 

   I think our staff and the members of the majority -- and certainly Commissioner Loevinger -- have become concerned about the possible impact of continued use of the Modified Phoenix Plan on Bell's costs for its long-haul terrestrial facilities when they will have to be compared to the costs of a putative domestic satellite. As long as there was no means of providing long-haul communications other than through the wire, cable, and microwave facilities of the Bell System, the independent telephone companies, Western Union, and private communications systems, no one seemed particularly concerned that Modified Phoenix's averaging technique loaded added costs onto the interstate telephone system. Bell and NARUC both urged adoption of Modified Phoenix in 1956. So far as I know, Bell never urged its abandonment until this proceeding, and even in this case NARUC opposed any change in the plan until the Technical Experts Group was reconvened after our order on reconsideration. Now they are agreed that Modified Phoenix should be eliminated, and that we should return to allocation according to relative use.

 

   Certainly use is, in most cases, both legally and practically the best basis for separations. I expressed some concern during oral argument with respect to phase I-A of this case as to the Modified Phoenix Plan's departure from the concept of direct allocation according to use, but I was not persuaded by respondents' showing and felt last July -- as I do today -- that they have not demonstrated that this plan has no rational part in a reasonable separations formula. Apparently Commissioner Loevinger agreed, both last July and last September, because he did not demur to our use of Modified Phoenix either at the time of our interim decision or our order on reconsideration. I do not know on what he now bases his concern, because while it is briefly touched on in appendix B, attachment 4, to the report of the Technical Experts Group which contains respondents' proposed change in treatment of inter-exchange plant, his statement certainly does not involve much of the argument there set forth. Instead, he confines himself to the problem of comparing landline and satellite costs. Here it seems to me that he confuses the issue by talking of averaging high cost "local transmission plant" with low cost "long-distance transmission plant." I think local transmission plant suggests the local circuits used to furnish exchange service, while long-distance [*499] transmission plant would seem to include both intrastate and interstate toll service. Actually, the Modified Phoenix computations do not involve local exchange plant at all, but simply average two kinds of long distance plant. Nor is it accurate to say that this has the effect of providing lower rates for local service, since our assent to the shifting of costs from intrastate to interstate toll service simply permits lower intrastate rates if the respective State Commissions act to require lower rates.

 

   Similarly, the half billion figure used by Commissioner Loevinger in the sixth paragraph of his statement does not represent added cost for service, but rather is claimed to be plant improperly assigned to a service for which it is not used. And I do not think it is accurate to say that the Commission became sufficiently uncertain about its own separations plan to suspend its operation and call for a committee of technical experts to review the plan and suggest improvements. Actually, in our September 14 order on reconsideration we reacted to the claim that the parties had not, during the earlier proceedings, had a chance to address themselves to the exchange plant element of the separations procedures we had adopted in July and authorized a limited study to see if they could suggest minor improvements or refinements in that part of the formula. No one at the Commission expressed any uncertainty even about that facet of our ruling, much less the inter-exchange element, involving the Modified Phoenix Plan, as to which we had just rejected requests for reconsideration.

 

   Finally, the order here does not suspend the effectiveness of our separations plan indefinitely -- instead, it affirms it as the proper basis for determining respondents' interstate revenue requirements in this case, and permits adjustments which approach the $85 million shift in revenue requirements to the interstate service, but defers any prescription for the future pending a new rulemaking proceeding. Commissioner Loevinger seems already to have concluded that there has been some demonstration that the plan we approved in our July 5, 1967, order would have effects such as to "[compels] the conclusion that the Commission plan is neither sound nor reasonable." I don't know what demonstration he is referring to, and he does not explain it. He goes on to say that "we must adopt some other plan that allocates costs more nearly in accordance with actual usage and that does not preclude economic comparison between competitive technological modes of transmission." As indicated above, I think actual usage is generally the best test, but of course the other half of our separations formula -- to which Commissioner Loevinger addresses no criticism -- departs markedly from this principle by charging interstate service with approximately three times as much use of subscriber plant as it actually accounts for. n1

 

   n1 I am disturbed by Commissioner Loevinger's statement that "A.T. & T. and the National Association of State Utility Commissioners did agree upon a substitute plan which would shift costs from local to long distance service on an apparently more rationally basis." [Emphasis supplied.] We have, in this proceeding, already shifted $85 million of revenue requirements from intrastate to interstate operations -- and this is on top of the effects of the ineffable Denver Plan, which all parties now agree was unsound, which I bitterly opposed at the time, and which the Commission has never approved. The main thrust of Commissioner Loevinger's separate statement is addressed to adjustments which would apparently shift half a billion dollars of inter-exchange plant in the other direction -- to the intrastate service. I hope that Commissioner Loevinger has not already concluded that this shift should be made, but should be offset by an even greater shift of other plant to the interstate service.

 

    [*500] I think there are valid reasons for this much of a departure from the test of actual use as to this one class of telephone plant -- just as I think there are as yet un-rebutted reasons for averaging inter-exchange plant costs. Therefore, I would forthwith prescribe the plan we adopted in our interim decision of July 5, 1967, as the basis for future separations. I would, of course, be willing to consider later proposals -- whether by the industry, a State commission, or our own staff -- for rulemaking to consider a modified approach necessitated by demonstrated changes in circumstances. However, I think it is unseemly to rush into an immediate foreshortened proceeding to consider possible revision of a plan which we have just arrived at after the most painstaking efforts in this area ever undertaken in this agency's history. I do not think any need for this has been shown, and certainly I think Commissioner Loevinger's concerns about the competition of domestic satellites are premature. At most, we have been asked to authorize a special television distribution satellite or a pilot general usage satellite. If at some later point domestic satellites come into wide usage, it is quite likely that the Bell System and the independent telephone companies will be the entities using these new facilities, with rates for interstate service set so as to produce a fair return on the average cost of all plant used, including the satellites. Certainly the danger of injury to the telephone industry is not so imminent that we could not apply our new separations plan for a reasonable period of time, gain some experience with it, and then consider revisions if they seem necessary. I therefore dissent to that part of this action which defers prescription of separations procedures in accordance with our interim decision of July 5, 1967.

 


 

Separations Determination and Rulemaking

 

   [In the matter of American Telephone and Telegraph -- Charges for Interstate and Foreign Communication Service * * *]

 

DISSENTING STATEMENT OF COMMISSIONER NICHOLAS JOHNSON

 

   The FCC has today made yet another effort to straighten out its position regarding "separations procedures" in setting A.T. & T.'s telephone rates. I dissent.

 

   Jurisdictional separations procedures are a part of the regulation of the telephone industry. The Bell System provides telephone service within communities (exchange service); intrastate long-distance calling; and interstate long-distance calling. The Federal Communications Commission regulates only interstate long-distance calling; State or local agencies regulate exchange and intrastate service. However, much of the plant and equipment of the Bell System is used to provide all types of service. Thus, the plant costs (and revenues) of the Bell System must be divided among these jurisdictions in order to compute a rate of return on A.T. & T.'s investment in each service. Jurisdictional separations procedures are prescribed as guidelines. The issues involved in separations include which service shall bear what proportion of the cost of commonly used plant.

 

    [*503] I have previously discussed separations problems in my opinion concurring in the Commission's interim decision [A.T. & T., 9 F.C.C.2d 30, 126 (1967)]. There I discussed what I thought separations was all about and what the Commission should be considering in the process of deciding separations questions -- much of which is consistent with Commissioner Loevinger's separate opinion regarding today's action -- and I will not repeat it here. Commissioner Cox and I dissented to the subsequent suspension of the effect of the interim order, and the procedures that were being followed after the ratemaking hearing. [A.T. & T. Rate Hearing, FCC 67-1310 (1967).]

 

   The Commission even tried an industry-staffed "Technical Experts Group" to tell it what refinements and improvements would best suit the companies involved. That didn't work either. For on November 15, 1967, the group reported, "no one plan is acceptable to all members."

 

   Today the Commission provides but a limited affirmation of its earlier interim decision on separations. And it simultaneously institutes a new written rulemaking proceeding to again deal with separations.

 

   As a result of today's action there is to be a separations plan for the FCC to use in determining what A.T. & T.'s interstate revenue requirements are; a separations plan for A.T. & T. to use in determining how to divide revenues and costs with the States (this plan is itself an interim compromise proposed as a stop gap by A.T. & T.); and the States are left to choose whichever of the two plans they want in dealing with A.T. & T. On top of this mess, we are again opening the whole question of separations procedures -- but this time in a written rulemaking we hope to conclude quickly. No doubt we secretly hope that the whole thing will suddenly disappear. What we have done is to get ourselves into an administrative morass which, I believe, we are making worse by our action today.

 

   There are better ways to proceed.

 

   We ought to affirm our interim decision as the best result that could be reached on that record, but with the understanding that we will continue to explore separations problems.

 

   A new rulemaking now will provide little more than a written rehash of the parties' positions as they have evolved in the rate hearing and the Technical Experts Group meeting. We will get more "from-the-hip" comments on all competing proposals.

 

   Instead of a new rulemaking we should direct the FCC staff to come forward with a well-thought-out, economically rational separations analysis, not taking into account the political pressures and reactions of those whom changes would affect. Presumably there are several policy alternatives available to us -- depending on the assumptions and objectives to be achieved by such a plan. Then, after the Commission had arrived at its best judgment from adequate examination of the policy matters involved, rulemaking could be proposed.

 

   The policy questions surrounding jurisdictional separations are far more important than just allocating telephone plant into Federal and State jurisdictions. Jurisdictional separations is most fundamentally cost allocation -- precisely one of the matters at issue in phase I-B of this proceeding. And decisions on cost allocations have a profound [*504] effect on what prices are paid by whom for what service. These problems deserve more than the muddled set of proceedings the majority is now proposing.

 

   Richard Gabel, author of "Development of Separations Principles in the Telephone Industry" (1967), concludes his thoughtful study: "Our criticism is that our public policymakers, fragmented and competitive, have been unable to arrive at a clear public direction" (p. 126). I would like to see us attempt to do more to meet that charge than to provide the evidence to support it. Perhaps another day.

 


Back to Top Back to Index