APPENDIX B

BEFORE THE FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, D.C. DOCKET NO. 16258

In the matter of American Telephone and Telegraph Company and the Associated Bell System Companies; charges for Interstate and Foreign Communication Service.

MEMORANDUM OPINION AND ORDER

By the Commission: Commissioner Hyde absent.

1. The Commission has under consideration financial data filed with it by American Telephone and Telegraph Company (AT&T) and the Associated Bell System companies (referred to collectively herein as the Bell System) relating to operating results achieved in the rendition of the various classes of interstate and foreign communication service. Among such data are the results of a cost study undertaken by AT&T at the Commission's request in connection with the proceedings in its Telegraph Inquiry (Docket No. 14650).1 This study undertook to determine for the 12 months ending August 12, 1964, the investment, expenses and revenues associated with each of 7 different classes of communication service, making up the Bell System's total interstate operations, i.e. message toll telephone service, wide area telephone service (WATS), teletypewriter exchange service (TWX), private line telephone, private line telegraph, TELPAK, and all other. The results of the study were presented by AT&T for the record in Docket No. 14650 on September 10, 1965. They disclosed wide variations in earnings among the various services. At one extreme, message toll telephone and WATS were earning at the rates of 10% and 10.2%, respectively, while TELPAK, at the other extreme, was earning at the rate of .3%, all on the basis of the data as reported by the Company and without any adjustment by the Commission. It is significant that message toll telephone and WATS services, with the highest level of earnings, account for 85% of total interstate revenues. Although certain message toll telephone rates were reduced, effective February 1 and April 1, 1965, subsequent to the study period, the current level of earnings on total interstate operations is above the total level of interstate earnings which obtained during the study period. These levels of earnings, as well as the wide variations in such levels for the different classes of service, indicate the desirability of a thorough examination by the Commission of the interstate rate structure of the Bell System to determine the lawfulness of the rate levels and rate relationships within that structure. The importance of such a determination is underscored by the fact that certain of the services involved are furnished by the Bell System in direct competition with services offered by other carriers. To the extent that these services may be underpriced by the Bell System, this may have a competitive impact on such other carriers.

2. Any determination of the lawfulness of existing rate levels and adjustments that should be made therein requires an ascertainment of the revenue requirements of the Bell System applicable to its total interstate operations. Since most of its telephone plant is used in common for both intrastate and interstate services, for jurisdictional and rate-making purposes, the investment in such plant and the costs associated with its operation must be apportioned on a fair and equitable basis between interstate and intrastate services. Heretofore, such apportionments have been made in accordance with principles and procedures set forth in a Separations Manual published by the National Association of Railroad and Utilities Commissioners (NARUC). Although the content of the Separations Manual is the product of cooperative studies and consultations involving the NARUC, this Commission and the telephone industry, it has never been formally evaluated, approved or adopted by this Commission in the context of either a rate-making or rule-making proceeding. This is true with respect to the original Separations Manual as issued in 1947 and the several revisions that have been subsequently incorporated therein. There is now pending consideration by the Commission of another major revision in the Separations Manual which has been approved by the NARUC for use “on an interim basis." The Commission today has advised the NARUC that we will not interpose any objection to the

1 The issues in this Inquiry are directed to various matters affecting telegraph service in the United States but do not involve a determination of the lawfulness of any specific rates under the Communications Act of 1934.

use of the proposed revision on such "interim basis," pending conclusion of the proceedings provided for herein and subject to such changes as may be required as a result of such proceedings. Thus, in connection with our determination of revenue requirements of the Bell System applicable to its interstate services, the rate for which are at issue herein, we will consider the propriety of the principles and procedures of the Separations Manual including the most recent revision. This will afford all interested parties an opportunity to present evidence, views and recommendations concerning these principles and procedures, including the independent segment of the telephone industry which has, in written representations to this Commission, raised certain questions concerning the merits of the recent revision.

3. In determining the revenue requirements for the private line services, in its decision in the Private Line Case, 34 F.C.C. 217, the Commission excluded the costs associated with telephone plant under construction together with the claimed amount representing cash working capital and materials and supplies. However, in its reports of earnings to the Commission since that time, the Bell System has almost universally included these items in its costs. The results of the 7 way cost study cited above similarly include such items. In the investigation which we are hereby instituting, the company will be expected to justify the inclusion of these items, as well as the reasonableness of all other items of rate base, expense, taxes and reserves upon which it relies in determining its operating results.

4. Also, in the Private Line Case, supra, the Commission rejected the showings made by the Bell System in support of the reasonableness of the prices and profits of the Western Electric Company with respect to its sale of equipment, supplies and services to its affiliated companies within the Bell System. We rejected such showings on the grounds that they lacked probative value. (See 34 F.C.C. at 225 supra.) However, we were unable to reach any determination, on the basis of the record made in that case, as to what adjustments, if any, might be warranted in the claimed revenue requirements of the Bell System companies by reason of any excessive payments by such companies to Western Electric. Thus, in these proceedings, we will expect the Bell System companies to justify the reasonableness of the prices and profits of Western Electric reflected in their claimed rate base and expenses with due regard to the aforementioned conclusions reached by the Commission in the Private Line Case and the specific issues hereinafter enumerated.

5. Concurrently with the issuance of this Memorandum Opinion and Order, we are extending an invitation to the NARUC to designate cooperating Commissioners to sit with the presiding officers of the Commission for the hearing and consideration of the proceedings provided for herein, in accordance with the Plan of Cooperative Procedure set forth in Appendix A of Part 1 of the Commission's Rules. This, however, will not foreclose any individual state commission or the NARUC from intervening as party in these proceedings or from presenting relevant, material and competent testimony as provided for in Section 1.225 of Part 1 of our Rules and Regulations.

In view of all of the foregoing matters, it is ordered, That pursuant to the provisions of Sections 201(b), 202(a), 205 and 403 of the Communications Act of 1934, as amended, an investigation is hereby instituted into the lawfulness of the charges of the American Telephone and Telegraph Company and the associated Bell System companies for interstate and foreign communication service; It is further ordered, That, without in any way limiting the scope of the proceeding, it shall include consideration of the following:

1. What are the revenue requirements of the Bell System companies applicable to their interstate and foreign communication services and the basis upon which such revenue requirements are to be determined, including

A. The reasonableness and propriety of the procedures employed for separating and allocating plant investment, operating expenses, taxes, and reserves between the intrastate and interstate operations of such companies: B. The amounts properly includible as the net investment of the abovementioned companies in property and plant used and useful for providing interstate and foreign communication service;

C. The amounts properly includible as expenses and taxes incurred by the above-mentioned companies in the provision of interstate and foreign communication service;

D. The reasonableness of the prices paid by the Bell System companies for equipment, supplies and services purchased by such companies from the Western Electric Company and the adjustments, if any, that should be

made in the plant investments, expenses and taxes as reflected by the amounts determined pursuant to items B and C above to the extent that any prices are found to be unreasonable. In this connection, consideration shall be given, among other things, to whether Western Electric requires a greater rate of return on investment related to its sales to the Bell System companies than the rate of return determined to be required with respect to the interstate operations of the Bell System companies;

E. The fair rate of return required by the Bell System on the amounts of net investment determined pursuant to the foregoing;

F. The amount of operating revenues that are or may reasonably be expected in the foreseeable future to accrue from interstate and foreign communcation services rendered by use of the plant and facilities, the costs of which are included in the net investment to be determined herein;

2. In the light of our determinations with respect to the aforementioned issues, whether the overall charges of the Bell System companies are just and reasonable within the meaning of Section 201 (b) of the Communications Act of 1934, as amended.

3. Whether the charges for (1) message toll telephone service, (2) WATS, (3) private line telephone grade service, (4) private line telegraph grade service and (5) all other service, except TWX and TELPAK (as to which separate proceedings are now pending in Docket Nos. 15011 and 14251, respectively), are or will be just and reasonable within the meaning of Section 201(b) of the Communications Act of 1934, as amended.

4. Whether the specific charges for the above-mentioned services will subject any person or class of persons to unjust or unreasonable discrimination, or give any undue or unreasonable preference or advantage to any person, class of persons or locality, or subject any person, class of persons or locality to any undue or unreasonable prejudice or disadvantage within the meaning of Section 202(a) of the Communications Act of 1934, as amended.

5. Whether the Commission should prescribe just and reasonable charges or the maximum or minimum or maximum and minimum charges to be hereafter followed with respect to any or all of the above-mentioned services placed at issue by this order, and, if so, what charges should be prescribed;

It is further ordered, That a hearing be held in this proceeding at the Commission's offices in Washington, D.C. at a time to be specified, before an examiner to be designated, and in accordance with procedures to be specified by subsequent order in this proceeding;

It is further ordered, That the American Telephone and Telegraph Company and the associated Bell System companies are hereby made parties respondent in the proceeding;

It is further ordered, That any connecting or concurring carrier, The Western Union Telegraph Company, the United States Independent Telephone Association, the General Telephone and Electronics Service Corporation, the National Association of Railroad and Utilities Commissioners and any state regulatory body is hereby granted leave to intervene upon the filing of a notice of intention to appear and participate in these proceedings within 30 days from the date of publication of this Order in the Federal Register.

FEDERAL COMMUNICATIONS COMMISSION,
BEN F. WAPLE, Secretary.

Adopted: October 27, 1965.

Released: October 27, 1965.

APPENDIX C

BEFORE THE FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, D.C.

DOCKET No. 16828

In the Matter of Applications by American Broadcasting Companies, Inc. For assignment of Licenses of Stations: WABC, WABC-FM, WABC-TV, New York, N.Y., WLS-FM, WBKB, Chicago, Ill.; KGO, KGO-FM, KGO-TV, San Francisco, Calif.; KABC, KABC-FM, KABC-TV, Los Angeles, Calif.

For Transfer of Control of Stations; WLS, Chicago, Ill.; KQV and KQV-FM, Pittsburgh, Pa.; WXYZ, WXYZ-FM, WXYZ-TV, Detroit, Mich.

For Assignments and Transfer of Ancillary Radio Facilities.

ORDER ON PETITION FOR RECONSIDERATION

By the Commission: Commissioners Bartley and Wadsworth dissenting and issuing statements; Commissioners Cox, Loevinger and Johnson concurring and issuing statements.

1. The above matter comes before the Commission now on a Petition of the Department of Justice for Reconsideration and for Leave to Intervene, and an accompanying Application of the Department of Justice for Stay, seeking reconsideration of the Memorandum Opinion and Order entered herein by the Commission on December 21, 1966 (herein called the Decision). There is also before us the Opposition of ABC and ITT to the Petition for Reconsideration, and a Reply by the Department to the Opposition.

2. A brief review of the chronology of this proceeding is necessary to understand the present procedural situation. It appears from the Department Petition that the Department learned of this proposed merger in December 1965, and began investigating it "within days." It served a Civil Investigative Demand upon the parties and received information regarding the merger from that and other sources through April 1966. ABC and ITT tendered the subject applications for Commission approval of the proposed transfers on March 31, 1966, and these were accepted for filing on April 14, 1966. Notice of the filing of these applications was publicized by radio, television and in the newspapers in ac cordance with the requirements of the statutes and rules. 47 USC sec. 309(d); 47 CFR sec. 1.580. Our records disclose that during June 1966 the Commission sent two letters to the Department requesting the views of the Department concerning this matter. On August 18, 1966, the Commission issued its Order and Notice of Oral Hearing Before the Commission En Banc, in which the Commission announced a procedure whereby any party desiring to offer evidence in the proceeding might do so, ordered a hearing on all issues of law, policy and fact, and invited any interested party to appear and be heard "with respect to any question affecting the Commission disposition of the pending applications." A copy of this Order and Notice was transmitted to the Department and it was published in the Federal Register on August 24, 1966, 31 FR 11190. On September 19, and 20, 1966, a hearing was held before the full Commission on this matter. The Department did not appear, file a statement, or give any indication to the Commission that it had any evidence or views to present regarding the matter. Moreover, it did not raise any question concerning the procedure adopted, nor did it indicate in any way that it desired a postponement of the scheduled proceedings in order to permit completion of its investigation and the preparation of evidence for presentation to the Commission. In October the Commission again advised the Department by letter that it expected to make a decision in the near future and invited the views of the Department. The Department first indicated to the Commission that it might have any views or statement regarding this matter in a letter of November 3, 1966, which stated that there was a "possibility of significant and anticompetitive effects" and suggested that the Commission defer its own decision until the Department had arrived at a "final decision on the anti-trust aspects of the merger." Thereafter the Commission repeatedly urged the Department to make a more definitive statement and provide further information. On December 20, 1966 the Department wrote the Commission stating that the possibilities of anticompetitive consequences from the merger "seem sufficiently speculative that we are not presently contemplating action under the antitrust laws to enjoin consummation of the merger," but that these possibilities deserve full and serious consideration by the Commission in making its public interest determination. On December 21, 1966, ITT filed a letter responding to some of the comments in the Department letter. Thereafter the Commission adopted and issued its Decision. 3. The Department alleges as "good reason" for not participating at an earlier stage of the proceedings that it was not clear earlier that its participation was "necessary" since the Commission might have decided differently, and that its evidence was being "analyzed by the staff during the summer of 1966." But the Communications Act, and the Commission Rules require that any party in interest objecting to the grant of applications such as these must make his objections known to the Commission within 30 days after notice of the acceptance for filing of the applications. 47 USC sec. 309(d); 47 CFR sec. 1.580 (i). Despite this limitation, the Commission invited a statement from the Department a number of times before issuing its Decision. At no time prior to the Decision did the Department indicate any objection to the Commission procedure or any desire or willingness to submit evidence to the Commission or

participate in the proceedings. The fact that the Department thought that the Commission might have decided differently or that the Deparment was engaged in "anlayzing" its evidence is clearly not a reason for failure to speak earlier or a ground for reconsideration of a decision under the statute, the rules and the precedents. 47 USC sec. 405; 47 CFR sec. 1.106; Valley Telecasting v. FCC, 336 F 2d 914, 118 App. D.C. 410 (1964); Springfield Television Broadcasting Co. v. FCC, 328 F 2d 186, 117 App. D.C. 214 (1964); Colorado Radio Corp. v. FCC, 118 F 2d 24, 73 App. D.C. 225 (1941); Lee Radio, Inc., 1 RR 2d 300 (1963); Millers River Translators, Inc., 25 RR (1963).

4. As to the practical aspects of the matter, we note that under the bank merger laws many bank mergers, some larger than the merger involved here, are submitted to the Department for analysis and comment and that the Department is required to submit comment within thirty days of its first advice concerning the merger, 12 USC sec. 1828. We are also aware that in most business mergers, where administrative permission is not required, consummation of the merger is commonly completed in considerably less time than has elapsed here, yet the Department normally completes its investigation and analysis, makes a determination as to its position, and, where it thinks it appropriate, prepares pleadings and institutes suit in far less time than it has taken here. In our own proceedings, the Department has acted more promptly during the very period involved here. On November 9, 1966 we issued a Notice of Inquiry relating to computers and communications services, and on December 12, 1966, the Department submitted a letter responsive to the Notice of Inquiry and stating certain views. Although this letter did not involve analysis of evidence it did contain suggestions as to procedure in a matter more complex than the present proceeding.

5. Further, a petition for reconsideration must allege the facts and evidence alleged to be relevant specifically and "with particularity." 47 CFR sec. 1.106; 47 USC sec. 405; Valley Telecasting v. FCC, 336 F 2d 914, 118 App. D.C. 410 (1964); Southland Television v. FCC, 266 F 2d 686, 105 App. D.C. 282 (1959). We cannot find, on the pleadings before us, that the Department has met this requirement. Ineed, the contrary is indicated.

6. From what has been said, it is apparent that if the petition before us had been filed by a private party it would be denied. However, as emphasized in our Decision, we are keenly aware of the importance of the present proceeding and have sought throughout to secure all possible assistance and information that might have any bearing on the issues. We are anxious even at this late date to know and consider what evidence the Department has relating to this matter. Accordingly, we will grant the Department's petition to intervene and_will provide the opportunity for disclosure of its evidence to the Commission. However, we reiterate that our action herein is taken because of the unique status of the Department and the nature of this case, and that this action is not a precedent to be followed in any other case.

7. The Commission is of the opinion that as threshold matter, it should have an opportunity to consider the "important information, not contained in the record" relating to the issues raised in the Department's petition and reply pleading, which has not yet been disclosed to the Commission. However, the Commission is also of the opinion that in the circumstances there should be no further undue delay in obtaining access to this information, and specifically, that no further lengthy time period should be required for preparation or "analysis" of the Department's case. See Par. 2. Accordingly, we shall enter an order which permits all relevent and material information to be filed with us promptly, and affords us an opportunity to consider what is filed and thereafter take such action or follow such procedure as seems appropriate. In view of the history and posture of this proceeding, we will act promptly when filings, have been completed, and we will require that all parties to this proceeding act promptly and observe the deadlines we establish.

Accordingly, it is ordered that:

1. The Department of Justice, Antitrust Division, is permitted to intervene and is hereby made a party herein.

2. On or before February 15, 1967, the Department shall file (in duplicate) with the Commission and serve on other parties hereto a specification of the precise matters raised by its Petition and Reply, upon which it is relying, including copies of all exhibits and documentary evidence, and a statement of the names, addresses and identities of any witnesses it is prepared to call to present testimony on such matters together with a statement of the testimony which each witness is expected to give.

77-336-67-33