In the Matter of AMERICAN TELEPHONE & TELEGRAPH CO. AND THE ASSOCIATED BELL SYSTEM COMPANIES Charges for Interstate Telephone Service Transmittals Nos. 10989 and 11027
Docket No. 19129
FEDERAL COMMUNICATIONS COMMISSION
37 F.C.C.2d 754
RELEASE-NUMBER: FCC 72-942
October 26, 1972 Released
Adopted October 18, 1972
BY THE COMMISSION: COMMISSIONER JOHNSON DISSENTING AND ISSUING A STATEMENT; COMMISSIONER H. REX LEE CONCURRING IN PART AND DISSENTING IN PART AND ISSUING A STATEMENT; COMMISSIONER HOOKS CONCURRING IN THE RESULT.
[*754] 1. We are considering Tariff Application No. 898 of the American Telephone & Telegraph Company (AT&T), filed September 1, 1972, in which AT&T requests special permission to make certain amendments in tariff schedules that are in issue in this proceeding. In view of the unique circumstances pertaining to this application and its technical nature, some background will be helpful.
2. On November 20, 1970, AT&T filed revised tariff pages to its interstate message toll service tariff (Transmittal No. 10989) which provided for substantial rate increases effective January 19, 1971. These rate increases, according to AT&T, would have increased earnings n1 by about $545 million a year and would have increased the Bell System's overall rate of return to 9.5%. If no action had been taken by us, the tariffs would have gone into effect automatically on the date shown thereon, i.e. January 19, 1971, 47 U.S.C. 203-204. However, we did take action. In a letter to AT&T dated January 12, 1971, we identified some of the questions of lawfulness raised by the tariff submission (e.g. the projected return was substantially in excess of the 7-7 1/2% return previously allowed) and we specifically requested "that the effective date of the tariffs as filed be postponed by your company pending the outcome of an expedited hearing." (See Att. A)
n1 Net earnings before income taxes.
3. AT&T responded by letter of January 13, 1971 (Att. B), and stated that it would postpone the effective date of the tariff pages pending hearing. Accordingly, on January 14, 1971, AT&T filed further revised tariff pages which, in pertinent part, expressly stated that the January 19, 1971 effective date of the pages in question was "postponed in accordance with AT&T's letter to FCC dated January 13, 1971 with respect to Transmittal No. 10989." (See our two Memorandum Opinion and Orders of January 20, 1971 and January 21, 1971 [*755] for a more detailed exposition of the background and scope of the entire proceedings herein; 27 F.C.C. 2d 149 et seq.)
4. Although not directly relevant to the question before us, it should be noted that, in addition to the 1970 rate increases that are in issue herein, a schedule of lower rates which was filed pursuant to special permission by us which is now in effect subject to an accounting and refund order, is also in issue in this case. Accordingly, as we stated in our Memorandum Opinion and Order of January 21, 1971, the proceedings herein are: to inquire into the justness and reasonableness of the rates both as originally filed and as modified by the carrier. (Italic ours.) (27 F.C.C. 2d 154.)
5. Thus, we have before us in this proceeding two sets of rate schedules, one of which has been deferred indefinitely at our request pending the outcome of the hearing and the other of which is in effect on an interim basis. AT&T's application requests that we waive certain of our requirements (Sec. 61.38, 61.58 of our Rules and Paragraph 11 of our February 3, 1972 order in Docket 18128), and allow AT&T to file further revised tariff pages that would do two things: one, cancel the tariff language that states that the effective date of the 1970 tariff pages has been postponed pending hearing thereon; and two, substitute an effective date of September 15, 1972 for the January 19, 1971 date originally shown on such pages. The application further makes clear that, upon granting this request, AT&T assumes that we would then take the following additional step: upon the filing of such further tariff pages bearing the substitute effective date of September 15, 1972, we would act immediately to suspend the substitute effective date for three months. At the end of such 3-month suspension period, i.e. December 15, 1972, the substitute effective date presumably would become operative, if, by that time, we had not rendered our decision herein. However, it is AT&T's stated assumption that we will render our decision and state what revised rates, if any, will be permitted to go into effect, before the end of such 3-month suspension period.
6. AT&T makes clear that its purpose is to accomplish technical compliance with certain provisions in the regulations of the Price Commission. The carrier wants to make sure that, by the time we make our decision on rate of return, we will not only have "suspended" the effective date of the 1970 rates for the 3-month period specified in Sec. 204 of the Act but that such period will have actually run. The reason that this is important to AT&T is that AT&T construes the present Price Commission regulations as requiring such a suspension and the running of the 3-month period before any interim rate increases that we may allow in our rate of return decision could be placed into effect without a delay of at least three months after our decision. Obviously, AT&T wants to avoid any such delay.
7. The pertinent Price Commission regulations are as follows:
Any interim rate which is authorized by a regulatory agency * * * may not be placed into effect * * * until the regulatory agency has suspended the interim rate for the maximum period allowed by law, and such suspension period has run unless * * * [the interim rate] represents a price increase of the same or a lesser amount than a previously filed rate for the same or equivalent service which has been suspended for the maximum period, and that suspension has run; 6 C.F.R. Sec. 300.307(c)(1). (Italic ours.) [*756] AT&T assumes that to the extent any interim rate increases that we may allow will represent price increases "of the same or lesser amount than" the 1970 tariff increases and that if the latter have been suspended for at least a 3-month period, any such interim rate increases may be put into effect without a 3-month suspension.
8. Objections to AT&T's application have been submitted by the Trial Staff, Commonwealth of Pennsylvania, Secretary of Defense, State of New Jersey, and American Telephone Consumer's Council. Comments by Microwave Communications, Inc. appear to support a grant of the application provided that any rate increase we might allow is distributed "equitably over all services." The United States Independent Telephone Association supports AT&T's application.
9. It is our opinion that the pleadings herein raise three questions that we should resolve: (1) Were the 1970 rate increases "suspended" for the maximum period authorized by law within the meaning of the Price Commission regulations? (2) If not, should these increases be suspended now so that the maximum period could run in whole or in part before our rate of return decision herein?; and (3) If these rates have already been suspended for such maximum period, should they be re-suspended in order to remove any doubt with respect thereto?
10. With respect to the first question, AT&T contends that we have already suspended the 1970 increases within the intendment of the Price Commission regulations. Nevertheless, AT&T suggests that we should allow it to re-file them and then issue an order under Section 204 of the Act, "formalizing the suspension begun in January, 1971" in order to "remove any technical question that might otherwise arise as to whether the action taken with respect to MTS rates in January 1971 constituted a suspension within the meaning of the Price Commission regulations." The Trial Staff contends that we have not suspended the 1970 rate increases; that the Price Commission regulations require that any interim rate increases we may allow must be suspended for three months; and that a grant of the application would be to "impede", "circumvent" or "steal a march on" the Price Commission. USITA states that our action in January, 1971 "more than meets the Price Commission suspension requirements;" and the State of New Jersey suggests that we proceed to issue an order under Section 204 suspending the 1970 tariffs for three months without deciding at this time whether our earlier action in January, 1971 was a suspension within the meaning of the Price Commission regulations. None of the other parties appear to address this particular question.
11. We agree with AT&T's contention that our action of January 12, 1971 requesting AT&T to postpone the effective date of the 1970 tariffs pending the outcome of an expedited hearing, and AT&T's compliance therewith, constituted a "suspension" within the meaning of Section 300.307(c)(1) of the Price Commission regulations. Thus, any interim rate increases that we may allow herein that are the same or less than those in the suspended 1970 tariffs could be put into effect by AT&T after our decision upon such date as we should determine to be appropriate. The letter we sent to AT&T on January 12, 1971 was "by direction of the Commission" and constituted an action by us which, under the circumstances of this case, was clearly authorized by the specific powers given to us under Secs. 4(i), 4(j) and 203(b) of [*757] the Communications Act. We note that no party herein raises any question about our authority to act as we did. The Trial Staff's contention that we did not "suspend" appears to be based primarily upon the fact that we did not expressly proceed under Section 204 of the Act. However, Section 204 of the Act does not constitute our sole and exclusive statutory authority to take action deferring or postponing the effectiveness of tariffs pending hearing. (See, e.g. In the Matter of AT&T, et al, Dockets 18128 and 10684, FCC 72-619, released July 19, 1972). In our opinion, the word "suspension" as it appears in the Price Commission's regulations is used in its ordinary meaning (i.e. "deferment" or "postponement") without reference to any particular statutory provisions by which such suspension is effectuated and without regard to the particular kind of agency action, formal or informal, that brings about such suspension. The only specific procedural requirement is that the suspension be for the "maximum period authorized by law." Moreover, it would appear to be of little, if any consequence from the standpoint of the spirit if not the letter, of the Price Commission regulations whether the "suspension" resulted from an edict of the Commission or from a voluntary response by the carrier to a formal request by the Commission. In either event, the effect is the same, particularly in view of the fact that the rate schedule has remained on file and its lawfulness has been the subject of these proceedings.
12. Further, the Trial Staff's contention that we did not suspend also appears to be based upon the claim that, since the 1970 tariffs never became effective, they "have no legal status whatsoever." We believe that this contention is in error. The facts are that the 1970 tariffs are now officially and lawfully on file with us; they were filed pursuant to Section 203 of the Act; they were filed in compliance with Part 61 of our rules applicable thereto, including the submission of supporting cost and other data, the filing of AT&T's case-in-chief, and the giving of actual notice to the public; they have been accepted by us for filing; they bear a published effective date of January 19, 1971, which date has been postponed pendente lite by further tariff revisions which were also officially and lawfully filed pursuant to special permission given by us to AT&T on January 12, 1971; and they have been specifically designated for hearing in the proceedings herein.
13. We turn now to the request of AT&T that, even if we have already suspended the 1970 rates, we should re-suspend them under Section 204 of the Act. We appreciate that there may be some substance to AT&T's claim, which we do not now decide, that they would be an "undue hardship" or "gross inequity" if there was to be a delay for a period of three months in the effective date of any interim rate increases we might allow after a lengthy formal proceeding concerning the merits thereof. However, we do not believe that we should grant this application. We agree with the Trial Staff that it would be confusing and perhaps misleading to the public for us to grant AT&T an application to re-file substantial rate increases that are already on file but suspended pending a hearing only to have such re-filed rates immediately suspended and set for hearing in which the hearing record is already closed. Moreover, the present suspension is for a period [*758] that runs until we render our decision herein on the merits whereas AT&T's application would attempt to substitute a suspension period under Section 204 that would definitely expire December 15, 1972 after which users would pay higher charges if we had not rendered a decision by then. In addition, if we were to grant the application with the intent of suspending the resubmitted rates for three months under Section 204, substantial question would be raised as to whether we would not be required to re-open the record and initiate further hearings. Insofar as Section 204 is concerned, it appears that any suspension there under must be an action that is ancillary to the principal action by the Commission to "enter upon a hearing concerning the lawfulness thereof." 47 U.S.C. 204 AT&T's application does not contemplate that this be done.
14. We believe that AT&T's major objective in filing its application will have been accomplished by our action herein ruling definitely that, as we interpret the Price Commission regulations, the 1970 rates have been suspended for the maximum period and any interim rate increases we allow that are within the parameters of such suspended rates need not be suspended further. This will remove any doubts on this score insofar as this agency is concerned. We believe that, in the meantime, the public interest will be served by maintaining the status quo until we render our decision on the allowable rate of return.
15. Accordingly, in view of the foregoing, AT&T's Tariff Application No. 898 IS DENIED.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
CONCURBY: LEE (IN PART)
DISSENTBY: LEE (IN PART); JOHNSON
STATEMENT OF COMMISSIONERS H. REX LEE, CONCURRING IN PART AND DISSENTING IN PART
The American Telephone and Telegraph Company has requested special permission to resubmit the $545 million interstate rate increase, which it originally filed on November 20, 1970, and which precipitated the proceedings in Docket No. 19129, and to substitute a new effective date (September 15, 1972) for the rate schedules. It has also asked the Commission to suspend immediately such resubmitted rate increases for three months. AT&T candidly concedes that its purpose is to accomplish technical compliance with certain Price Commission regulations, which require that a regulatory agency suspend any interim rate increases for the full statutory period. In other words, if this Commission decides in Phase I (rate of return) of Docket No. 19129 that the Bell System is entitled to rate increases above those now being collected pursuant to an accounting and refund order, AT&T wants to be able to effectuate such increases without the additional delay imposed by Price Commission directives.
While I am somewhat sympathetic with AT&T's present request in light of the Commission's failure to proceed to an early resolution of the rate of return phase of Docket No. 19129, n1 I cannot agree that special permission should be granted, and it is for that reason that I have concurred in the majority's denial of AT&T's application to resubmit its original tariff filing. For one thing, the application for special permission does not include any of the supporting data required by Section 61.38 of the Rules. Furthermore, AT&T has not given proper notice to the public and the Commission of its intention to increase interstate rates, pursuant to the provisions of Section 61.58. The Bell System seeks waiver of our requirements apparently on the theory that the proposed tariff revisions contain material originally filed on November 20, 1970, under Transmittal No. 10989. However, as the Trial Staff points out in its petition to deny the AT&T request, the situation has changed dramatically since 1970 in regard to inflationary pressures, interest rates, traffic trends, cost projections and government intervention, and the data supplied in 1970 is hardly relevant to the increases now proposed, which would result in $300 million more in [*764] annual interstate earnings for the Bell System. In addition, the proposed rate increases would all fall on message toll telephone users, but AT&T has made no attempt to show how it intends to implement its earlier proposal to readjust rates for non-MTS services.
n1 While I did concur in the decision to schedule a limited reargument of the Phase I issues, I did so only to accommodate the wishes of two of the present Commissioners who were not members of this agency at the time of the initial oral argument in October, 1971.
It should also be noted that if special permission is granted for the resubmission of rate increases and the Commission's decision in Phase I is delayed beyond the requested three-month suspension period, AT&T's subsequent effectuation of new interstate tariffs could cause great confusion for rate payers and investors who might assume that the increased rates were the result of a Phase I decision. Moreover, if our decision on the rate of return issue is adverse to the Bell System's position and readjustments in interstate rates are required as a result, there could be serious impact on the market value of AT&T common stock, which has witnessed some improvement in recent weeks.
As already indicated, the extraordinary relief requested by AT&T is clearly an attempt to circumvent the impact of recent Price Commission regulations. AT&T undoubtedly feels that a Phase I decision will permit rate levels higher than those now in effect, and it does not want any further delay in the implementation of rate increases after the Commission's decision. But the Bell System's desires run counter to the clear thrust of Price Commission regulations, adopted as part of the President's program to control inflationary pressures in the economy. While AT&T may believe that Price Commission regulations are unfairly applied to the Bell System in light of the voluntary postponement of the effective date of its 1970 tariff filings, the matter is one for Price Commission review. In the meantime, the Commission should make every effort to enforce the spirit and intent of Price Commission directives. n2
n2 Price Commission regulations do permit an immediate implementation of rate increases if "required for emergency reasons or to prevent an undue hardship or gross inequity." However, AT&T's application and the material attached thereto fail to demonstrate that an emergency situation exists or that the elimination of a full suspension is needed to prevent undue hardship or gross inequity. In fact, recent reports of AT&T earnings indicate that the contrary is the case.
In addition, as the majority points out, if we were to suspend the resubmitted rate increases for three months pursuant to Section 204 of the Communications Act, a substantial question would arise as to whether the record in Docket No. 19129 should be reopened for further hearings. For, it appears that any suspension ordered under Section 204 must be an action that is ancillary to the Commission's designation of a hearing concerning the lawfulness of proposed rate schedules. AT&T's application for special permission does not even contemplate further hearings in Phase I.
Of course, the majority sidesteps the entire issue of the resubmission of 1970 tariff filings by holding that the Commission's action of January 12, 1971, in requesting AT&T to postpone the effective date of its 1970 rate schedules pending the outcome of an expedited hearing constituted a "suspension" within the meaning of Price Commission regulations. Relying on this theory, the majority concludes that any rate increases to be allowed in a Phase I decision that are the same or less than those contained in the 1970 tariff filings can be effectuated immediately by AT&T. I simply cannot agree with such a construction of our 1971 action. Whatever status AT&T's original [*765] tariff schedules now have, it is clear that our informal request of AT&T to postpone the effective date of the rate increases did not amount to a statutory suspension within the meaning of the Communications Act or Price Commission regulations.
For one thing, AT&T, in exchange for a voluntary postponement of the effective date, was granted special permission to file revised tariffs, which would produce additional annual net earnings of $250 million, subject to accounting and refund. Moreover, in responding to the Commission request, AT&T expressly reserved the right to establish a new effective date for its original tariff filing and thereby to terminate any "deferral" or "postponement." If the Commission's action effectively constituted a statutory suspension, AT&T's reservation represented a meaningless gesture. In any event, above and beyond all of the legal niceties mentioned by the majority is the fact that not even the Bell System seriously considered the Commission's 1971 action as a statutory suspension -- its application for special permission clearly indicates its interpretation of the Commission action. If AT&T really believed in the majority's position, it could have easily asked for a declaratory ruling to that effect. The point is that the original tariff schedules submitted by AT&T were not suspended by the Commission n3 -- their effective date was voluntarily postponed by the Bell System in return for the effectuation of modified rates, which have permitted increased interstate revenues since early 1971.
n3 If our January 12, 1971, action did constitute a "suspension" within the meaning of the Communications Act and the effect thereof was to confirm this agency's power to stop the effectiveness of tariff filings during an investigation into their lawfulness, it could be argued that Price Commission regulations require continuation of such a suspension until all phases of the many inquiries concerning the Bell System have been concluded.
Since the majority's interpretation is clearly erroneous and only serves to undercut the role of the Price Commission in the implementation of the New Economic Policy, I dissent to that portion of the majority's decision that holds our 1971 action effectively amounted to a statutory suspension. In my own opinion, our common carrier regulation should be fashioned in a way that would assist the current program to control inflationary pressures rather than in an attempt to avoid the applicability of NEP guidelines. [*760]
We return to the continuing story of whether Bell, with the help of the FCC, will be successful in getting more profit from the American consumer. I don't like this chapter, or the way the story seems to be coming out, and so I dissent. Whether I can explain what is happening is another question, but I am willing to give it a try in what follows.
In November 1970 Bell filed the largest interstate rate increase they have ever sought from the FCC. The FCC had two basic choices. It could suspend the entire rate increase for three months and hold a hearing on the lawfulness of the increase. During the time of the hearing, which might take years, Bell would be collecting the higher rates after the three months suspension had run, subject to a possible order from the Commission to give the money back if the FCC subsequently found the rates were in fact too high. But Bell would get [*761] nothing for three months from the higher rates. n1 Another choice was for the Commission to strike a bargain with Bell. And that is what happened.
n1 There is a strong view, discussed at the time in January 1971, which I need not consider now, that the FCC has sufficient general powers under the Communications Act to stop a tariff filing from going into effect without regard to the statutory suspension period while the agency reasonably proceeds to litigate the issues raised by the tariff. It is argued this is true when the effects of the tariff are extraordinary -- for example, as in this case, when the rate increase affects every consumer in the nation, and perhaps also because the amount requested is so large as compared with the profit permitted under the agency's last determination of reasonable rate of return. This view underpins the agency's decision in July 1972 to stop tariff filings unless accompanied by special permission -- a view Bell did not appeal after losing on reconsideration. It is also possible to argue that the "maximum period authorized by law" under the Price Commission rules means the full power of the FCC to hold up rate increases. This would mean that no increase could go into effect until the FCC has expended its full power to suspend them. That power under this theory would include the power to stop rate increases until Dkt. No. 18128/Dkt. No. 18684 had been concluded, as well as Phase II in Dkt. No. 19129.
Bell agreed to reduce its rate increase to about half. The FCC agreed to let the rate increase go into effect immediately, to conduct an expedited proceeding that would evaluate the entire rate increase Bell was seeking, and to issue an accounting order in case refunds were indicated. The FCC requested ATT to file lower rates under these conditions. Bell agreed, stating that it specifically reserved the right to make the full rate increase effective if it determined it was necessary. Discussion at the time clearly indicated that Bell would be left in about the same position -- they would get about as much in increased revenues from an immediate lower rate increase as it would get from the full increase that did not take effect for three months, assuming that a final decision was made in a six-to-nine month time frame. At the end of the time period, Bell would have about as much money either way.
And so the FCC proceeding began and continued roughly on schedule up to August 1971. Then came the Nixon Administration New Economic Policy which threw the schedule into a cocked hat. After a series of events too numerous to recount, the question of what profit rate to allow the Bell System again seems near a decision at the FCC. But two events have affected what happens now, and they are considered in this action.
First, the Price Commission now requires that any rate increase permitted Bell must have been suspended for the full statutory period. That means, if the FCC is to permit higher rates for Bell in a forthcoming decision, Bell will have to file those rates. Those rates will then, under Price Commission rules, have to be suspended for three months before they can go into effect. Bell does not want to have to wait three months after an FCC decision, and the FCC is trying to be accommodating.
Second, the FCC has also decided to stop tariff filings in proceedings where the Commission is trying to make decisions -- in effect trying to get the tariffs to hold still long enough to make decisions. Thus, to file a new tariff, Bell needs special permission from the Commission.
And so Bell is here seeking special permission to file the rest of its rate increase now. It tells the FCC to go ahead and suspend it for three months under the statute, thereby complying with the Price Commission rules and permitting any rate increases to be authorized [*762] subsequently to go into effect at the end of the three months. The Bell request was put out for comment as an act of cosmetology to improve the image of a possible Bell price hike to be granted shortly after the election. This request for permission has been opposed by the major consumer parties to this proceeding, on grounds I find cogent, as apparently the majority does as well, since it here decides not to go the special permission route.
The arguments against granting the special permission are numerous. Suppose for some reason the Commission does not make a final decision within the three month period. The rates would then go into effect with catastrophic effects on consumers and the economy which would be difficult to undo, particularly if the Commission were to decide that none of the rate increase should have been permitted. Secondly, FCC rules require Bell to notify the public and provide detailed backup material justifying a new rate increase. Bell argues that the special permission requested is just the old rate increase. But notice to the public was given in late 1970 to early 1971. Bell's justification was submitted then also. And although there has been a hearing held on the full rate increase, that hearing was closed in August 1971, and the material put in the record since then clearly does not comply with the Commission's rules. So in order to grant the special permission, the Commission would have to waive its major tariff filing rules with almost no rationale for doing so. Thirdly, granting special permission would simply accommodate Bell's interest in meeting the Price Commission requirements as quickly as possible -- hardly an appropriate posture for the FCC to take in helping the Price Commission to fight inflation. And finally, the FCC power to suspend rates is an ancillary power connected with the power to set a tariff for hearing. If the Commission suspends the tariff, it must do so when it sets a tariff for hearing. In this case, granting the special permission and suspending the tariff would mean that the record in this case would have to be reopened.
Granting the special permission Bell seeks is not a viable alternative. But this agency is nothing if it is not ingenious. The majority concludes that no special permission was ever needed. The Commission's January 1971 letter requesting Bell to postpone its rates now is deemed to be a binding suspension, even though Bell specifically reserved the right to terminate the postponement and put the full rate increase into effect -- something it would have found it difficult to do after price controls were placed on the economy, and something for which it would require special permission after the Commission's July 1972 order requiring special permission. The majority concludes the Price Commission uses "suspension" to mean "postponement." But why does that agency say "for the maximum period"? The maximum period for a "postponement" is forever. I do not see how a request for a postponement, which Bell agreed to, specifically reserving its right later to refuse the request, can now be termed a legal suspension. Presumably Bell could have filed a new effective date for the full increase within a month after the Commission's January 1971 letter, and if the Commission had not acted, the rates would have become effective. If so, how can the January 1971 letter be a suspension which bars rate effectiveness for the term of the suspension? But now any "request" has to [*763] be a "suspension", or else any new rate increase Bell files here has to be suspended for the full statutory period under Price Commission rules. And the majority can't have that. n2
n2 There is one other possibility. Price Commission rules permit a rate increase to go into effect without statutory suspension "for emergency reasons, or to prevent an undue hardship or gross inequity." But it is inconceivable that such a finding validly could be made here.
I would deny the special permission, and hold that if the FCC decides Bell is entitled to higher rates than are now in effect, those rates when filed must be suspended for the statutory period. n3
n3 Under these circumstances, the majority might then hold that the hearing requirement had been complied with. My own view, however, is that the FCC must remand this case for rehearing insofar as the hearing was completed prior to the New Economic Policy.
See American Telephone and Telegraph Co., FCC 72-662, F.C.C. 2d , (1972).
Attachment A FEDERAL COMMUNICATIONS COMMISSION, Washington, D.C. 20554, January 12, 1971.
Attention: MR. DANIEL E. EMERSON, Vice President.
(In reply refer to: 9100).
AMERICAN TELEPHONE & TELEGRAPH CO., 195 Broadway, New York, N.Y. 10007.
GENTLEMEN: This is with reference to the revised tariffs filed by your company providing for increases in rates for your interstate long distance message telecommunications services (MTT) to be effective January 19, 1971. According to the information submitted with such filing, the proposed rate increases are designed by you to produce additional annual revenues of $385 million. This amount, together with your estimate of associated cost savings, will produce $545 million of additional annual net earnings before taxes and a rate of return on your interstate operations of 9 1/2%.
Upon consideration of this matter, the Commission hereby requests that the effective date of the tariffs as filed be postponed by your company pending the outcome of an expedited hearing and, at the same time, grants AT&T special permission to file revised tariffs, to be effective on not less than seven days' notice, providing for increases in MTT rates that will produce additional annual net earnings before income taxes not to exceed $250 million, rather than the $545 million provided by your tariff filing. As more fully discussed below, the Commission intends to conduct an expedited hearing with respect to the lawfulness of such rates, and to require that all collections under such rates be subject to accounting and refund by the carriers. In taking these actions, we have taken into account, among other things, the relationship of your proposed increase to two proceedings:
(1) Our decision of July 5 and September 13, 1967, in Docket No. 16258 which determined on the basis of a comprehensive evidentiary record that an allowable rate of return for your interstate operations was within a range of 7.0 to 7.5%. The rate of return objective (9 1/2%) of the subject revised rates substantially exceeds the upper limits of such range.
(2) The proceedings now in progress in Docket No. 18128, the issues of which call for a determination of appropriate relationships among the level of earnings for each of your several classes of interstate service.
In determining upon the amount of $250 million specified above as acceptable for the revised filing, we have taken into account two principal factors:
(1) That interstate annual revenue requirements will, as of January 1, 1971, be increased by about $130 million as a consequence of the revisions in jurisdictional separations procedures prescribed by this Commission in Docket No. 18866 to be effective on that date.
(2) Known changes which have occurred since the aforementioned 1967 decision in your capital structure and the costs thereof, including specifically the net increase in embedded cost of debt.
This action is not to be construed as Commission approval of the specific rate schedules to be filed pursuant to the above permission nor as an indication of the findings that may be made after investigation and hearings to be instituted pursuant to Section 204 of the Act, to determine the reasonable revenue requirements of the company and the nature of any further rate adjustments, upwards or downwards, that may be justified in the light of such determinations. Nor is it our intention by this action to prejudge the merits of any showing by your company in support of its claim that it requires a rate of return of 9 1/2%. The Commission, as indicated above, will institute an investigation and hearing with respect to the tariff on file and the refiled rates, and invoke the accounting and refund provisions of Section 204 of the Act, so that in all events the public interest will be protected during and through the hearing process. In determining the length of the period of suspension to be ordered under Section 204, we will give due regard, among other factors, to the January 1, 1971, effective date of the revised separations procedures prescribed in Docket 18866, and immediate adverse effects thereof on the company's level of interstate earnings.
In short, the company will be afforded a full opportunity in the hearing to press for the rate adjustments which it believes called for. Other interested persons will be allowed to present their showings, and the Commission will, of course, develop whatever record it believes desirable in the public interest. In addition to the matters of the allowable rate of return, the Commission intends to explore particularly the following issues:
(1) The questions presented as to the justification for recovering the total of any deficiency in interstate revenue requirements from MTT service, to the exclusion of adjustment in rates for other interstate services, as contemplated by the subject tariff filing.
(2) Questions presented as to the representativeness, for rate making purposes, of your current level of operating expenses, with particular reference to the extraordinary increases in the rate of growth in certain classes of such expenses in 1969 and 1970.
(3) The computations which show that the proposed rates would produce $760 million in additional revenues if there were no shrinkage in traffic volumes and no shifts and reclassifications of messages due to changes in users' calling patterns that would result from the increased charges, and your calculation that such anticipated shrinkage, shifts, and reclassifications will reduce the amount of the increased revenues to $385 million, or about 50%. This is also a matter to be explored fully in the hearing process.
It is our intention to proceed with and conclude the aforementioned hearings as expeditiously as feasible (e.g. barring extraordinary developments, within a time frame of six to nine months) and to order the expedition of the current proceedings in Docket No. 18128 so that the determinations made therein with respect to the appropriate relationship among the level of earnings for the several classes of interstate services, including MTT, may be effectively and timely applied to implement the determinations made in the forthcoming rate of return proceeding.
We request the company to inform the Commission within one week whether it will take the actions provided for herein and submit revised tariffs providing for the above-noted increases. Upon receipt of the company's response, the Commission will proceed promptly to take such action as appropriate, in line with the considerations outlined in this letter.
This letter was adopted by the Commission on January 11, 1971.
BY DIRECTION OF THE COMMISSION, DEAN BURCH, Chairman.
AMERICAN TELEPHONE & TELEGRAPH CO., 195 Broadway, New York, N.Y. 10007, January 13, 1971, Area Code 212-393-1000.
D. E. EMERSON, Vice President.
The Honorable DEAN BURCH, Chairman, Federal Communications Commission, 1919 M Street NW., Washington, D.C. 20554
DEAR CHAIRMAN BURCH: In your letter of January 12, 1971, you have requested that AT&T advise the Commission whether AT&T will postpone the effective date of Tariff Filing No. 10989 pending the outcome of expedited proceedings to be completed within six to nine months (barring extraordinary developments), and you have granted special permission to file revised tariffs to produce not more than $250 million in net earnings before income taxes.
The $250 million interim increase proposed by the F.C.C. is far short of what is required under today's economic conditions. However, under all the circumstances set forth by the Commission and with the explicit understanding that the hearing will be expedited, AT&T agrees to postpone the effective date of Tariff Filing No. 10989. In responding to the Commission's proposal, AT&T expressly reserves the right to take such action as may be necessary to protect its position, including the right to establish a new effective date for Tariff Filing No. 10989, if it should develop that the expedition on which the Commission's letter is based cannot be fulfilled. AT&T commits itself to cooperate in every way in expediting the hearings so they may be completed in the shortest time frame possible, namely the six month period mentioned in the Commission's letter, or indeed less. The Company's case in chief was filed November 20, 1970, and the Company is prepared to proceed at once.
In complying with your request, we are doing so on the premise that the expedited hearings will put rate of return at issue first, and that upon determination of this issue by the Commission, appropriate rates will be made effective.
Revised tariffs to provide the additional $250 million will be filed on special permission as permitted by your letter.
Very truly yours,