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ITT World Communications Inc. v. United States

decided: March 22, 1979.


Petitions by two international record carriers to review an order of the Federal Communications Commission, 63 F.C.C.2d 402 (1977), which granted two applications of other carriers for certificates to offer certain specialized international communications services. Remanded with instructions to place a time limit on the certificates that will permit them to be terminated or altered in the light of further consideration.

Before Moore, Friendly and Gurfein, Circuit Judges.

Author: Friendly

ITT World Communications, Inc. (ITT) and RCA Global Communications, Inc. (RCA), both international record carriers*fn1 (IRC's), joined by intervenor TRT Telecommunications Corp., also an IRC, ask us to review an order of the Federal Communications Commission (FCC or the Commission), released January 11, 1977, 63 F.C.C.2d 402 (1977), insofar as it granted applications of intervenors Graphnet Systems, Inc. (Graphnet) and Telenet Communications Corp. (Telenet) under § 214 of the Federal Communications Act (the Act), 47 U.S.C. § 214, for certificates to engage in specialized international record communications service. More specifically, Graphnet's application was to lease facilities from Communications Satellite Corporation (Comsat) and connecting facilities in the United States to permit its subscribers to use its facsimile services to communicate with terminal devices in Belgium, Denmark, France, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and West Germany,*fn2 and Telenet's application was to obtain Comsat circuits and lease appropriate connecting facilities in the United States to extend its public packet-switched data communications service from the continental United States to the United Kingdom and points beyond.*fn3 In the same proceeding, the FCC granted an application of RCA "for authority to provide an enhanced class of Overseas Datel Service (Datel II) to be offered initially on an experimental basis for a one-year period between the United States and The Netherlands using its previously authorized overseas communications facilities" and an application of Western Union International, Inc. (WUI), also an IRC, "for authority to use its previously authorized overseas communications facilities to provide Database service on an experimental basis for a one-year period between the United States and the United Kingdom." 63 F.C.C.2d at 403. Pursuant to the Commission's regulations, 47 C.F.R. § 63.52(c), ITT and RCA had filed timely petitions to deny Graphnet's and Telenet's applications.

On February 11, 1977, RCA petitioned for reconsideration of the FCC's decision insofar as it granted the applications of Graphnet and Telenet. Having meanwhile denied RCA's request for a stay, the Commission denied the petition in an extensive opinion released April 3, 1978, Graphnet Systems, Inc., 67 F.C.C.2d 1020 (1978).*fn4 ITT and RCA have petitioned for review by this court, and TRT has intervened in support of their petition. WUI, which had opposed the application before the FCC and intervened in this action, filed no brief and made no argument. Graphnet and Telenet likewise intervened but only Telenet filed a brief and argued.


Before discussing the legal issues, it will be well to recount in summary form the structure of the United States system of "record carriers" as it was before the decision here under review. The Western Union Telegraph Co. (WU) was, until very recently, the sole domestic carrier of telegrams.*fn5 However, following upon the decision in Specialized Common Carrier Services, 24 F.C.C.2d 318 (1970), 29 F.C.C.2d 870 (1971), Reconsideration denied, 31 F.C.C.2d 1106 (1971), Aff'd sub nom. Washington Utilities & Transp. Comm'n v. FCC, 513 F.2d 1142 (9 Cir.), Cert. denied, 423 U.S. 836, 96 S. Ct. 62, 46 L. Ed. 2d 54 (1975), numerous companies, including Graphnet and Telenet, have been authorized to furnish specialized domestic data services. International record service (including record service with Hawaii) has been furnished by only a few carriers. The market is dominated by RCA, ITT, and WUI, with several smaller companies, including TRT, French Cable Co., and U. S. Liberia Radio Corp., also participating. See generally Grad & Goldfarb, Government Regulation of International Telecommunications, 15 Colum. J. Transnat'l L. 384, 431 (1976). The IRC's have been thought to be prohibited by the proviso to § 222(a)(5) of the Act,*fn6 or by emanations from it, from engaging in domestic telegraph operations except by accepting and delivering messages at gateway cities approved by the FCC. At present there are only five such gateways, to wit, New York, Washington, D.C., San Francisco, Miami, and New Orleans. Since 1972 the Commission has been conducting petitioners say rather has not been conducting Docket No. 19660 in which the IRC's request approval of numerous additional gateways. Pursuant to what appears to have been deemed a statutory prohibition, see International Record Carriers, 38 F.C.C.2d 543, 548 (1972) (establishing Docket 19660), the Commission, while allowing IRC's to have domestic affiliates, has forbidden interconnection between them and the affiliated international operations pending the conclusion of Docket 19660. See, e. g., RCA Globcom Systems, Inc., 67 F.C.C.2d 1328, 1331-32 (1978); RCA Global Communications, Inc., 56 F.C.C.2d 660, 672 (1975); United States Transmission Systems, Inc., 48 F.C.C.2d 859, 862 (1974), Reconsideration denied, 51 F.C.C.2d 207, 209 (1975), Aff'd, American Tel. & Tel. Co. v. F. C. C., 176 U.S.App.D.C. 288, 539 F.2d 767 (1976). On the other side of the coin, this court has held that the Commission is prohibited from authorizing WU to engage in international mailgram service. Western Union International, Inc. v. FCC, 544 F.2d 87 (2 Cir. 1976), Cert. denied, 434 U.S. 903, 98 S. Ct. 299, 54 L. Ed. 2d 189 (1977). In addition to its other objections, petitioner RCA sees in the decision under review a departure from the previously prevailing separation of domestic from international operations, made without adequate consideration or record support;*fn7 intervenor TRT claims the departure to have been illegal. We shall discuss these contentions in part V below.


Section 214(a) prohibits new common carrier communication "lines" in the absence of a certificate from the Commission that "the present or future public convenience and necessity require" it. Section 214(a) itself imposes no procedural requirements. However, the Commission has laid down quite elaborate specifications for the contents of an application under § 214, 47 C.F.R. § 63.01 et seq., and has provided that any interested party may file an application to deny it, Id. § 63.52(c). The applicant may then file an opposition and the opposer a reply. Allegations of fact not subject to official notice must be supported by affidavit. The lack of a hearing requirement in § 214(a)*fn8 contrasts sharply with § 309(e), which provides that, upon an application being made for a construction permit or station license, the Commission shall hold a hearing if "a substantial and material question of fact is presented or the Commission for any reason is unable to make the finding" of "public interest, convenience and necessity" specified in § 309(a).*fn9

Neither is an evidentiary hearing on a § 214(a) application required by the Administrative Procedure Act. Although licensing constitutes "adjudication", 5 U.S.C. § 551(6) and (7), this does not make an application under § 214 subject to an evidentiary hearing since 5 U.S.C. § 554 applies only to "every case of adjudication required by statute to be determined on the record after opportunity for an agency hearing", and § 556, so far as it deals with adjudications, applies only when a hearing is required by § 554.

This analysis has two consequences. The first is that the post-decision requests of TRT and WUI for an evidentiary hearing were addressed to the Commission's discretion. The second is that the standard for our review under 5 U.S.C. § 706 is not the substantial evidence test of § 706(2)(E) but that of § 706(2)(A) "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."*fn10 See Automobile Club of New York, Inc. v. Cox, 592 F.2d 658, 664 (2 Cir. 1979).

Vague as the standard of § 214 is, the Commission is not without guidance in its interpretation. The leading case is FCC v. RCA Communications, Inc., 346 U.S. 86, 73 S. Ct. 998, 97 L. Ed. 1470 (1953). The Court there held that the Commission could not authorize a competing international radiotelegraph service solely because of a national policy in favor of competition but "must at least warrant, as it were, that competition would serve some beneficial purpose such as maintaining good service and improving it." Id. at 97, 73 S. Ct. at 1005. It is not enough that "the Commission recites that competition may have beneficial effects" if it "does so in an abstract, sterile way." Id. at 94 & n. 6, 73 S. Ct. at 1004. On the other hand it is "not inadmissible for the Commission, when it makes manifest that in so doing it is conscientiously exercising the discretion given it by Congress, to reach a conclusion whereby authorizations would be granted wherever competition is reasonably feasible." It need not "make specific findings of tangible benefit" but must show "ground for reasonable expectation that competition may have some beneficial effect." Id. at 96-97, 73 S. Ct. at 1005. Applying the RCA case, the Court of Appeals for the District of Columbia Circuit reversed and remanded an authorization to provide competing private-line voice only telephone service between the United States Mainland and Hawaii on the ground that it was impermissible to authorize such service merely to equalize competition among competitors and that the FCC's statements on the benefits of competition were as "sterile" as in the RCA case. See Hawaiian Telephone Co. v. FCC, 162 U.S.App.D.C. 229, 234, 498 F.2d 771, 776 (1974).

Petitioners and intervenor TRT do not dispute that there is a growing market for the specialized services which Graphnet and Telenet proposed or that the service was not being provided when Graphnet and Telenet applied. They argue, however, that Graphnet and Telenet in fact were in no position to supply the service and that the Commission did not adequately consider the possibility of its being provided by the existing IRC's either by interconnection with domestic circuits or by the extension of their own facilities to interior points if the Commission has been wrong in construing 47 U.S.C. § 222 as prohibiting this.


The reason why Graphnet and Telenet were not able to furnish the direct service they proposed and have subsequently entered into interconnect agreements with IRC's*fn11 to do so is that the applicants had not and indeed have not yet made the necessary arrangements with the foreign communications agencies with which they must interconnect to provide international service. The claim is not simply that Graphnet and Telenet were not "fit, willing and able" to perform the services which they proposed, since § 214(a), unlike its counterparts in the Motor Carrier Act, 49 U.S.C. § 307, in Part III of the Interstate Commerce Act dealing with water carriers, 49 U.S.C. § 909(c), and in the Federal Aviation Act, 49 U.S.C. § 1371(d)(1), does not in terms require a finding to that effect, but that the Commission was unjustified in basing its award on the "new and innovative" character of Graphnet's and Telenet's proposals, 63 F.C.C.2d at 406-07, when in fact the IRC's would have been equally interested in providing these specialized services ...

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