Others have concluded, upon examination of applications for new authority, that "in the absence of ICC regulation, more carriers would have entered the industry or expanded operations.'

1932

At the same time that entry was being restricted, the ICC was encouraging mergers among principal carriers. The primary means of growth for both Greyhound and Trailways has been ICC-approved mergers. 33 This suggests that dominance of Greyhound and Trailways in this industry is in great part due to regulation, not market forces.

The combination of restrictive entry policies and a merger policy which encouraged concentration, according to an ICC staff study, has meant that:

"The most attractive regular routes are almost certain to be occupied by the dominant carriers. Therefore it is likely that a new application for such routes would draw active opposition and require relatively lengthy and expensive oral hearings.'

1934

C. Entry reform in the House bill-applicant's evidentiary burden

The only procompetitive aspect of the entry section of the bill is the removal of the witness presentation burden from the applicant. Traditionally, an applicant in a passenger case would get prospective customers to state that they wished to use the applicant's services or that present services were inadequate.

This proposed change is insignificant, however, and is more than outweighed by the proposed increase in an applicant's burden to prove its fitness.

The change is not significant since the ICC has always had a liberal rule regarding the presentation of witness evidence in passenger cases. The ICC has recognized that evidence from a passenger witness is inherently more general than that which would be offered in an application to transport freight, since passenger transportation is required on an infrequent and unpredictable basis. Therefore, the ICC gives even generalized evidence submitted by public witnesses testifying in a passenger proceeding full consideration.35

The bill would increase applicants' affirmative evidentiary burden by expanding the required showing of fitness to include operational, financial and safety fitness. Under present ICC law, the Commission considers only safety fitness and examines the general proposition whether the applicant will comply with its regulations. 36 While the Report accompanying H.R. 3663 maintains that the additional fitness tests are not significant barriers, 37 we conclude that the fitness requirements proposed in the bill could well be burdensome, especially for a small company. First, it appears that elements of a public need test have become part of the proposed fitness test. In addressing the issue of operational fitness, the House report specifically speaks in terms of geography and volume, and this apparently contemplates some sort of witness or substantial marketing evidence to show service demand. Operational fitness is also said to encompass "planning ability." Apart from self-serving comments on the part of an applicant, it is hard to envision evidence which would meet this test.

The House report directs the ICC to consider who will service and repair the equipment as part of the fitness inquiry. Since there is no technical expertise at the ICC to assess this information, such an assessment would be a fruitless endeavor. Moreover, an applicant could meet this requirement merely by asserting that it had plans to hire the best certified mechanics available. In fact, the glib, sophisticated applicant could present a rosy picture of expert management to be hired, or conjure up superior maintenance programs, and then simply not follow through.38

34 ICC, "Report of the Bus Industry Study Group" (October 1979), at 32. While the ICC has eliminated the use of oral hearings to a great extent, the prospective applicant for a regularroute service between major cities may also face extensive litigation after the agency has granted authority. See, e.g., Latin Express Service, Inc., Com. Car. Applic., 132 M.C.C. 289 (1980), in which it took more than six years for an applicant to obtain authority, largely due to opposition by Greyhound and Trailways that included judicial appeals.

35 See, e.g., Coach Travel Unlimited, Ext.-Special Operations, 128 M.C.C. 68, 74 (1977); Brush Hill Transp. Co. Com. Car. Applic., 112 M.C.C. 348, 356 (1970), and Cook Broker Application, 119 M.C.C. 709, 715-716 (1974). The past ICC law simply reflected the fact that there was nothing meaningful to be gained by such testimony. It would be highly unusual for a bus passenger to be able to state honestly that he or she planned "x" number of bus trips during the coming year. 36 See, e.g., No. MC-52709 (Sub-No. 303), Ringsby Truck Lines, Inc., decided July 30, 1981 (not printed).

37 H.R. Rept. No. 97-334, 97th Congress, 1st Session, at 33 (1981).

38 However, it would be difficult for many small carriers or new entrants to present any meaningful evidence along these lines. For example, a new entrant could not hope to have its garage

Continued

The Commission sensibly dropped operational and financial fitness as elements of an applicant's case for both bus and freight carriers after passage of the Motor Carrier Act of 1980,3 39 and there is no evidence that the ICC's relaxed fitness examination has caused any problems. As for financial fitness, the ICC has recognized that many successful companies, which grew as a result of the hard work of an entrepreneur, started with meager financial resources and that this was no reason to deny entry to a carrier.40 Moreover, in some cases, additional authority may be the very means by which a struggling company can reverse its fortunes. The ICC has also stated it has great doubts about the effectiveness of its past examination of financial fitness, since companies that have gone bankrupt have often received authority immediately prior to their declaration of bankruptcy.41 The ICC has also pointed out that financial failure rarely translates into service vacuums in an industry with free entry, easy mobility of assets and low investment requirements.42 As for operational fitness, the ICC has stated that the market should properly judge the efficiency of a carrier's operations. 43 The transportation business is dynamic, and consumers' wishes may change overnight.

We conclude that the evidentiary difficulties inherent in proving operational and financial feasibility could very well mean that established carriers will have no problems proving their cases while smaller carriers with minimal authority or new entrants will find it extremely difficult to prove their cases. 44 In our judgment the entry standards in the bill would only enhance the ability of established, sophisticated protestants to question the experience and financial capability of smaller carriers, and thereby keep potential competitors out of the market. We further conclude that the Federal role in licensing passenger carrier entry should be confined to safety fitness and meeting of insurance requirements.

D. Past experience with entry reform

Legislative reform does not mean that new entrants automatically will have an easy time obtaining authority, as the following examples demonstrate.

1. How The Trucking Industry Reacted to Legislative Reform: Upon passage of the Motor Carrier Act of 1980, the reaction of a portion of the industry was to oppose reform before the ICC and in the courts. For example, the American Trucking Associations, Inc. (ATA), joined by bulk and household goods carriers, filed suit to challenge a Commission policy statement that had interpreted the Act to require that broad authority should be granted.45 The effect of that suit was to require the ICC to issue narrower grants of authority according to service type (e.g., requiring the insertion of exclusions against bulk or household goods service) even in cases where opposing carriers had not shown that their operations or the public would be harmed.

As part of an apparent campaign of dilatory tactics, four household goods carriers filed appeals to grants of authority in hundreds of cases, even though the Commission had previously ruled that they had no standing to protest because they had no direct interest at issue.46 As the entire Commission observed in No. MC-141620 (Sub-No. 4F), Van Bus Delivery Company, d/b/a United Van Bus Delivery ExtensionTSI Contract Service, decided December 16, 1981 (not printed):

staffed if it did not know what award of authority it would eventually receive. For the new entrant, it may take some time to build an operation. The new carrier may have to shop around for personnel. Some personnel may not wish to cease employment with another concern until they are assured of the stability of a new concern.

39 See Ex Parte No. 55 (Sub-No. 43), 45 F.R. 86771, 86780, 86782 (1980).

44 In the case of a large and small carrier who file simultaneous applications for authority to serve an attractive city pair, the larger carrier will have an easier time showing that the city pair fits into its routing system and that it has generous financial backing. The smaller carrier may be applying for its first interstate route and may not be skilled in demonstrating that its operation will be efficient.

45 American Trucking Associations, Inc., et al. v. I.C.C. and U.S., 659 F.2d 452 (5th Cir. 1981). The ATA has continued the suit, alleging the ICC has not followed the Court's mandate.

46 The consolidated proceedings embracing these several hundred proceedings were No. MC682 (Sub-No. 28), Burnham Van Service, Inc.; No. MC-2202 (Sub-No. 673), Roadway Express, Inc., [which alone embraced 223 additional applications], and No. MC-2605 (Sub-No. 22), Commercial Transportation, Inc. The finding of "no standing" occurred in Bekins Van Lines Co., Contract Carrier Application, 132 M.C.C. 726 (1981). In addition, these same carriers filed protests in sev eral hundred other cases, but chose not to file appeals. Similar mass filings of protests have been filed by several bulk carriers.

"We take official notice of the hundreds of boilerplate protests filed by these appellants in the last several months. With rare exception, none of these was directed to the specific needs of the involved shipper or the specific operational capability of an individual applicant."

Although these cases should have been unopposed and processed expeditiously under the statutory deadlines imposed in 49 U.S.C. 10322, hundreds of applicants were delayed in obtaining their authority. The great majority of the applicants involved were new entrants or smaller carriers, who suffer most from regulatory lag. The ICC is powerless to stop this activity, since it must act on every pleading filed. If a pleading is rejected, that rejection may be appealed.

In sum, even under a liberalized application process, regulation-minded carriers may engage in effective dilatory tactics. 47

2. The Bus Industry and attempts at Entry and Rate Reform:

Historically, segments of the bus industry have reacted against even minimal entry and rate reforms. For example, Greyhound took the Commission to court over the modest proposal to allow carriers to make minor adjustments in their routes for increased efficiency.48 Another example of this type of activity was the position of the National Bus Traffic Association, Inc. (NBTA), in Ex Parte No. 297 (Sub-No. 4), a proceeding in which the ICC sought to determine whether antitrust immunity should be continued for rate bureau agreements. The NBTA opposed any suggestion that the immunity should be lifted.

One of the most recent examples of industry opposition to innovation and competition occurred in the 1981 case docketed at No. MC-C-10797, Petition for Declaratory Order-Passenger Transportation without Compensation. In that case, Kids-toCamp Project (KCP), a non-profit organization formed with the intention of providing low cost bus transportation for children participating in a camping and educational program, asked the ICC for a ruling concerning the need for operating authority for low cost operations it wished to perform. KCP asserted that although it would accept donations from its passengers, there was no profit motive involved and it would seek only to cover expenses. The Commission initially ruled that since there was no intent to profit, KCP would not be providing for-hire transportation and would be exempt from regulation by the ICC. The American Bus Association (ABA) appealed this decision before the ICC, and is now challenging the ruling in court.49 Actions of this kind indicate continued opposition to attempts at partial reform and can be expected in the future.

E. Temporary authority reforms

Section 15 would provide for expedited handling of requests by carriers for emergency temporary authority. The House Report recognizes that, given the exit provisions of the bill, there should be an avenue for quick entry.50 The bill extends the effective time period for the emergency temporary authority granted, in order to give replacement carriers sufficient time to evaluate the long term prospects of the new route.

This is not a significant reform and does not resolve major problems with the permanent authority entry provisions. A potential new entrant may still be reluctant to initiate service on a temporary basis because of the chance that the ICC may not grant it permanent authority to continue the service. It should be noted that permanent authority will not necessarily be granted since, under existing law, a grant of emergency temporary authority does not establish a presumption that permanent authority to provide transportation will be granted, 49 U.S.C. ̄10928(c)(1). Moreover, requests for emergency temporary authority are often protested, and, in recent years, the ICC's grant rate has been lower than that for the permanent authority

area.

F. Fitness-only applications

The BRRA, in its revisions to 49 U.S.C. 10922(c)(5), was intended to provide some regulatory relief for carriers wishing to provide service to small communities. It would eliminate the required finding of public interest where specific conditions

47 It is significant that almost all protesting of trucking applications at the ICC is done by a small cadre of carriers. The ICC's Section of Operating Rights analyzed protest patterns in trucking cases for two months in 1981 and found that 27 carriers (out of 26,000 licensed carriers) filed 75% of the protests. All of the carriers were of a substantial size, and about half were among the top 100 carriers in terms of annual operating revenues.

48 Greyhound Corp. v. United States, 221 F. Supp. 440 (N.D. Ill. 1963).

49 American Bus Association v. Interstate Commerce Commission and United States of America, U.S.C.A., D.C. Cir., No. 81-2078.

50 H.R. Rept., supra, at 41.

have resulted in a loss of service. However, the House Report so heavily qualifies the circumstances under which these provisions could be used that they would have limited appeal to potential applicants. 51 51

Experience with similar provisions under the Motor Carrier Act indicates that these provisions may not facilitate entry. Under procedures adopted to implement parallel provisions in the Motor Carrier Act, 52 a carrier must prove its qualifications to provide the service. Thus, a protest may be filed on the basis that the carrier does not qualify under the particular "fitness-only" category. Because of difficulties in interpreting the statute, the ICC has been unable to handle expeditiously similar fitness applications for motor carriers of property.53 As a result of such difficulties, motor carriers of property have filed only a small number of these applications with the ICC. There is no reason to believe that these provisions would be any more effective in the bus industry in facilitating small community replacement service than they have in the trucking industry.

G. Protestant's burden of proof

Portestant's evidentiary burden would be changed under the BRRA, but this would not facilitate entry. Arguably, it has been made easier to protest cases. Under the proposed entry provisions that would be codified as 49 U.S.C. 10922(c)(3) and (4), a grant of authority would be blocked if an existing carrier demonstrated that issuance of a certificate would impair the existing carrier's ability to provide a substantial portion of its regular-route passenger service. The theory behind this provision is that without it, new applicants would apply for excessively narrow grants of authority designed to skim the most lucrative traffic.54 The House Report states that existing small community service and commuter bus service also are not intended to be adversely affected by the liberalized entry provisions.

Under current law,55 however, the burden of proof is placed squarely on protestants to prove that a grant will be adverse to the public. Economic harm to an existing carrier becomes relevant only if it leads to a corresponding adverse impact on the public interest. Diminuition of the carrier's own revenue is not relevant unless it can show injury to the public. Added competition is presumed to be in the public interest. Under existing law the protesting carrier must show that the new competitor will not be able to supply additional service if the existing carrier exists and that no other carrier will come into the region to provide the service. It is not clear, therefore, that the proposed bill is as procompetitive as the current law.56 According to personnel within the ICC's Section of Operating rights there has not been one case since at least July 1980 decided on a protestant's burden. In short, a protestant has not been able to prove adverse public effect in a single passenger or freight case during at least the last 20 months.57

51 H.R. Rept., supra, at 32. For example, the House Report directs the ICC not to make use of "fitness-only" procedures where carriers wish to provide service between small communities and large cities. It cites as an inappropriate use of these provisions an example where there is lack of service to a small town in Virginia, and a carrier seeks to provide service to, among other points, Washington, D.C. and Baltimore, MD. One would think that this would be a perfect use for this type of provision.

Another example of the narrow scope of these provisions occurs in the rail/air-discontinuance provision of subparagraph (B). There, the new service must be along the same route as the lost air service. More appropriately, the route should be to the city with the nearest large air facility, since it is unlikely that the passenger will view a lengthy all-bus route as a substitute. 52 49 C.F.R. 1100.251(h)(6) and (7).

53 See, e.g., American Cent. Transp., Inc.-Ext.-Sub. Rail Serv., 132 M.C.C. 664 (1981), and, Great Western Trucking Co., Inc., Extension, 132 M.C.C. 672 (1981).

54 H.R. Rept., supra, at 31.

55

Passenger entry is governed by the policy statement issued by the ICC in Ex Parte No. MC121, Policy Statement on Motor Carrier Regulation, decided September 26, 1979, and pre-Motor Carrier Act entry law [the Motor Carrier Act applied only to freight carriers], including Liberty Trucking Co., Ext.-General Commodities, 131 M.C.C. 573 (1979), affirmed sub. nom. Assure Comp. Transp., Inc., v. United States, 629 F. 2d 46 (7th Cir. 1980), cert. denied 449 U.S. 1124 (1981). 56 As a practical matter, existing carriers will have an easier time protesting under this bill, since they will be able to cast doubt upon the adequacy of an applicant's fitness presentation. Under current administration of the Interstate Commerce Act, it is the failure of an applicant to show adequate demand that is used by the ICC to cut down the size of grants or deny applications in their entirety.

57 This lack of any public harm showing is especially interesting when one considers the high volume of cases on the ICC's docket. During November 1981, for example, ICC review boards handled 314 opposed operating rights cases. They denied 33 in their entirety, and denied 117 in part. The ICC does not segregate its records according to passenger and freight modes, but it is generally believed by the ICC Operating Rights staff that the percentage of grants and denials for both modes is about the same. The overwhelming majority of the cases are, however, for motor carrier of property authority.

Also, the BRRA's proposed protest criteria appear to be based on illogical and anticompetitive cross-subsidy rationales. Under the proposed legislation, the ICC, when deciding whether to grant new authority, is directed to look at the effect on, among other things, commuter operations and service to small communities. The entry section is written so broadly that if an applicant wishes to provide, for example, charter or regular-route service, an existing carrier may allege its commuter operations need the cross-subsidy support provided by excessive profits generated from the services for which the applicant seeks to provide competition. In this example, hinging the success of an application on commuter operations means that persons far removed from the affected commmuter area could have their own choice of charter or regular-route carriers limited by the local rush hour needs of the distant city.58

Another unnecessary and counterproductive proposed provision_that_protesting carriers might use is the service-to-small-communities provision. For instance, an existing carrier may be providing a high-cost service that is inappropriate for a sparsely populated area. A potential competitor may realize that a profitable service can be run by restructuring the local route and using light capacity vehicles. Under the proposed entry provisions, however, the potential competitor would be denied the opportunity to try this alternative if the existing carrier successfully asserted that it must maintain a monopoly position on the route to maintain its financial integrity. This type of solution preserves inefficient operations.59

The proposed legislation also fails to recognize that what may be generally needed by small communities is simply feeder service to larger communities. Feeder service need not be expensive nor overly frequent since the typical intercity trip is for a relatively short distance and involves personal or vacation-oriented purposes.60 Since it is not long haul service, used equipment or small capacity vehicles may be used to keep down costs.

These cross-subsidy justifications are inconsistent with the philosophies expressed in the House Report pertaining to Section 17 of the bill.61 There the House recognizes that unprofitable intrastate operations should not be subsidized by interstate operations:

"Should State regulatory bodies persist in denying or delaying adequate intrastate rate relief for interstate carriers, then interstate carriers could be forced to either raise rates in other areas to recoup losses or curtail or discontinue service on unprofitable routes to minimize losses. Neither of these outcomes are desirable. If a carrier can raise rates on other routes to compensate for intrastate deficiencies, then one group of bus riders is being forced to pay part of the cost of other riders' trips. "[Emphasis added.]

Nor do we believe that the enactment of protest standards,6 62 as proposed at 49 U.S.C. 10922(c)(8) in the bill, offers any measure of entry liberalization. Under the ICC's current procedures, those protest standards are already in place for passenger cases. 63 The problem with protest standards is that they do not stop dilatory practices, as seen in the Van Bus case, supra. Therefore, other than, perhaps, on safety grounds, we would not permit competitors to protest an application for entry.

H. Miscellaneous entry provisions

We note in passing that the section of the BRRA that would be codified at 49 U.S.C. 10922(c)(4)(D), concerning cumulative effects of applications, is ambiguous on its face. According to the House Report.64 this is meant to apply to a series of applications filed by the same carrier. On its face, however, it applies to any other pending applications for the same traffic.

58 The following example could happen. A small carrier in Pennsylvania wishes to obtain charter authority to serve New York City. An existing commuter carrier to New York City has already obtained authority to run charters from points in Pennsylvania. The existing carrier with the commuter authority will be able to prevent the small Pennsylvania carrier from serving its local area since it could argue that its commuter operations into New York City run at a deficit and it needs the charter business from Pennsylvania to subsidize its commuter operations.

59 Some States have chosen to provide direct subsidies to existing carriers. See, e.g., the relative efforts mentioned in Intercity Bus Study, supra, at 101.

60 Id.,

pp. 34-37.

61 H.R. Rept., supra, at 44 and 45.

62 Protest standards define which carriers are qualified to protest, i.e., having standing to appear in opposition.

63 49 C.F.R. 1100.252.

64 H.R. Rept., supra, at 32.