North Carolina Utilities Commission v. Federal Communications Commission

HASTIE, Senior Circuit Judge. This controversy began with a petition in which several manufacturers and distributors of communications equipment asked the Federal Communications Commission (hereinafter, FCC or the Commission) to rule that state regulatory agencies are precluded from restricting or regulating the interconnection of customer-provided equipment to the customer’s individual subscriber station and line in any way that conflicts with the Commission’s regulation of the same subject matter. The petition recited that the North Carolina Utilities Commission had given public notice of a proposed rule to prohibit such connection of customer-provided equipment in that state, except for use exclusively with facilities separate from those used in intrastate communication.1 It also was alleged that the Attorney General of Nebraska had advised the Nebraska Public Service Commission that rulings of FCC did not control the attachment of customer-provided equipment to telephone facilities used for intrastate communication. The same opinion stated that approval of the state regulatory authority was necessary before a motel could lawfully connect its own internal communications equipment to its telephone subscriber station. In these circumstances the Commission utilized the proceedings on the equipment manufacturers’ petitions to provide the industry, concerned state agencies and the public with a definitive declaratory ruling2 on the extent to which it asserts [791] and is exercising primary authority, upon which state agencies may not encroach, over the terms and conditions that govern the interconnection of customer-provided equipment to the subscriber's telephone terminal. After adequate notice and consideration of written or oral submissions by some 46 interested parties, the Commission issued the order that is now here for review.3 In the Matter of Telerant Leasing Corp., et al., 1974, 45 F.C.C.2d 204. As the agency established by the Communications Act of 1934, 47 U.S.C. § 151, to administer the,- provisions of that statute, the Federal Oommunications Commission is empowered,, in the language of section 1 of the Act,4 to iregulate interstate and foreign commerce in communication by wire and radio “so as to make available ... a rapid, efficient, Nation-wide, and worldwide wire a.nd radio communication service with adequate facilities at reasonable charges . . ..” By comprehensive definition of “communication by wire”, section 3 makes it explicit that the subject matter of the Commission’s jurisdiction includes “all instrumentalities, facilities, apparatus, and services . . . incidental to [interstate] transmission” by wire. On the other hand, section 2 both restates the applicability of the Act to “all interstate and foreign communications by wire or radio” and specifies that it shall not “be construed to apply to or give the Commission jurisdiction with respect to ‘(b)(1)’ . facilities, or regulations for or in connection with intrastate communication service ... of any carrier . . ..” Terminal equipment that is connected to a telephone subscriber’s station and line does in fact connect with the national telephone network. Usually it is not feasible, as a matter of economics and practicality of operation, to limit the use of such equipment to either interstate or intrastate transmissions. In paragraph 26 of the decision from which these appeals have been taken, the Commission has described the underlying realities as follows: “. . . exchange plant, particularly subscriber stations and lines, is used in common and indivisibly for all local and long distance telephone calls. There is no interstate message toll telephone service [792] either offered or practically possible except over exchange plant used for both intrastate and interstate and foreign service”. 45 F.C.C.2d 204, 215. Although some appellants have expressed disagreement with this finding, we find no basis for challenging it. It follows that the Commission’s present assertion of jurisdiction over the interconnection of customer provided equipment to the nation-wide network unavoidably affects intrastate as well as interstate communication. And, by the same token, both would be restricted by any state action that prevented such interconnection. Thus, the language of sections 1 and 2 that both grants the Commission authority to regulate facilities of interstate communication and withholds authority to regulate facilities of intrastate communication creates the present dispute but, considered alone, does not resolve it. In these circumstances it is relevant and helpful to consider other provisions of the Communications Act. By force of a heretofore unmentioned concluding clause of section 2(b), not only telephone companies with lines that extend interstate but also those local companies that provide interstate service solely through connection with the lines of telephone companies that are unrelated to them, are expressly made amenable to the regulatory provisions of sections 201 through 205 of the Act. All of the telephone companies parties to this suit are thus integrated into the national network and subject to the provisions of sections 201 through 205. More particularly, under section 201, charges and practices for and in connection with interstate service must “be just and reasonable”. Section 202 makes unlawful any “unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services ..” Section 203 requires carriers to file with the Commission their tariff schedules for interstate communication service “showing the classifications, practices, and regulations affecting; such charg'es”. Sections 204 and 205 prescribe the manner in which the Commission- shall administer and implement the requirements of the preceding sections, approving or invalidating tariffs as may be appropriate. It is in connection with the Commission's efforts to discharge its responsibilities under sections 201 through 205 and the alleg ed frustrating effect of countervailing state action that this controversy about jurisdict ion over the attachment of customer provided equipment has arisen. Historically, a telephone company’s restrictions, requirements and other regulations concerning customer provided equipment have been published and effectuated through inclusion in interstate tariffs. Some years ago, tariffs published by American Telephone and Telegraph Co. (hereinafter AT&T), acting for htselif and other concurring carriers throughout the nation, forbade the subscriber to connect to his line any device or equipment not furnished by the telephone company. As defendant in a consequent anti-trust suit by a manufacturer of a terminal device, AT&T successfully urged that the suit was piremat ure because of the primary jurisdiction of FCC over the question of the lawfulness of the inclusion of this restriction in the controlling tariff.5 This led to a formal FCC proceeding for determination whether the tariff contained any unreasonable or unlawfully discriminatory restriction. In its ensuing decision the Commission held that the tariff’s blanket and unqualified prohibition of the interconnection of customer provided equipment was unreasonable and unjustifiably discriminatory, hence invalid under sections 201 and ,202 of the Act. Carterfone v. AT&T, 1968, 13 F.C.C.2d 420, reconsideration denied, 14 F.C.C.2d 571. At the same time the tide-phone companies were authorized, witho ut [793] any particularizing directive, to file new tariffs regulating the use of customer-provided equipment. They did so, and the Commission reviewed the tariffs and permitted them to become effective. See In the Matter of AT&T “Foreign Attachment” Tariff Revisions, 1968, 15 F.C.C.2d 605, reconsideration denied, 18 F.C.C.2d 871. The coverage of one of the approved new tariffs, F.C.C. No. 263, which, as subsequently amended, remains in effect, is relevant to the present dispute. It authorizes and regulates the connection and use of customer-provided terminal equipment with telephone company facilities for long distance message communication. It covers both data and voice transmitting and receiving terminal equipment, as well as mechanically attached accessories. Provision also is made for the connection of customer-provided communications systems with the interstate telephone network. At the same time, various safeguards are required. Thus, with few exceptions, the tariff provides that access to the telephone network must be through a telephone company supplied network control signalling unit, which serves as a protective interface. Far from surrendering jurisdiction over alternative means of access, the Commission postponed, pending further engineering and technical study, decision whether and what customer-provided signalling devices should be approved. If, as North Carolina is formally proposing and the Attorney General of Nebraska has held to be permissible, state jurisdiction over intrastate communication facilities is exercised in a way that, in practical effect, either prohibits customer-supplied attachments authorized by tariff F.C.C. No. 263 or restricts their use contrary to the provisions of that or any other interstate tariff, the Commission will be frustrated in the exercise of that plenary jurisdiction over the rendition of interstate and foreign communication services that the Act has conferred upon it. The Commission must remain free to determine what terminal equipment can safely and advantageously be interconnected with the interstate communications network and how this shall be done. We have no doubt that the provisions of section 2(b) deprive the Commission of regulatory power over local services, facilities and disputes that in their nature and effect are separable from and do not substantially affect the conduct or development of interstate communications. But beyond that, we are not persuaded that section 2(b) sanctions any state regulation, formally restrictive only of intrastate communication, that in effect encroaches substantially upon the Commission’s authority under sections 201 through 205.6 In this [794] view of the interrelation of the provisions of the Act, the Commission’s declaratory statement of its primary authority over the interconnection of terminal equipment with the national telephone network is a proper and reasonable assertion of jurisdiction conferred by the Act. Cf. G.T.E. Service Corp. v. F.C.C., 2d Cir. 1973, 474 F.2d 724, approving an FCC ruling that prohibited telephone companies, including those that engaged primarily in local exchange service and participated in interstate service only through connection with other unrelated carriers, from engaging in the data processing business. We are all the more confident of this because, elsewhere in the Act itself, Congress has recognized the existence of areas of common national and state concern and has provided a procedure under which national primacy is recognized, yet the Commission is authorized to receive and consider information, views and proposals from concerned state agencies that may aid it in reaching informed and wise decisions. More particularly, section 410(c) of the Act confers upon the Commission discretionary power to refer any matter “relating to common carrier communications of joint Federal-State concern, to a Federal-State Joint Board” of four state and three federal Commissioners for examination and for preparation of a recommended FCC decision. It even is required that the state members of a Joint Board shall participate, without vote, in the Commission’s consideration of the Board’s recommendation. We find it very difficult to square this Congressional design with the present contention that section 2(b) is intended to deprive the Commission of jurisdiction over the use of facilities that necessarily serve both interstate and intrastate communications. We think the Commission has acted properly in this case by resolving the challenge to its jurisdiction and at the same time proceeding separately, as it has,7 to utilize the Joint Board procedure as an aid to sound resolution of interconnection problems that emerge in this period of developing technology and increasing demand. It also is significant that for many years FCC, rejecting the argument that section 2(b)(1) deprives it of control over terminal facilities and equipment used in connection with both interstate and intrastate communications, has repeatedly exercised such jurisdiction. As early as 1947, FCC directed telephone companies to file tariff regulations that would permit the connection of recording devices to telephone receivers under specified conditions. Use of Recording Devices, 11 F.C.C. 1033. For present purposes the significant circumstance is that in its opinion the Commission discussed and rejected a contention of the Bell Systems that “facilities which are used for interstate and intrastate services are excluded from the Commission’s jurisdiction as ‘facilities . for or in connection with intrastate communication’, as that term is used in Section 2(b)(1) of the Communications Act”. 11 F.C.C. at 1046. A subsequent opinion pointed out that “[w]ere the Commission to exercise its jurisdiction only where the telephone facilities in question were exclusively interstate in character, it would result in virtually complete abdication from the field of telephone regulation . . . .” Katz v. A.T.&.T., 1953, 43 [795] F.C.C. 1328, 1332, 8 Pike & Fischer Radio Reg. 919, 923. More recent decisions also regulate terminal facilities or attachments used in both intrastate and interstate commerce. E.g., United States Department of Defense v. General Telephone Co., 1973, 38 F.C.C.2d 803, aff’d F.C.C. No. 73-854; AT&T—TWX, 1965, 38 F.C.C. 1127, 1133; AT&T—Railroad Interconnections, 1962, 32 F.C.C. 337; Hush-A-Phone Corp. v. AT&T, 1957, 22 F.C.C. 112. Congress cannot have been unaware that for some 30 years FCC has viewed and treated section 2(b)(1) of the Act as imposing no.bar to its exercise of jurisdiction over facilities used in connection with both intrastate and interstate telephone communications. Significantly, it was as recently as 1971 that Congress amended the Act by adding the present section 410(c)8 with its discretionary Joint Federal-State Board procedure that already has been discussed. We think it likely that Congress would have taken quite different action to restrict the Commission’s jurisdiction and assure state primacy if, in its view, the Commission had long and repeatedly been exceeding its jurisdiction and impinging upon an area which Congress had intended for exclusive state control.9 One additional contention merits brief discussion.10 Some of the petitioners argue that the Commission’s action in this case violates a jurisdictional limitation imposed by section 221 of the Act which provides in part: “(b) . . . [NJothing in this Act shall be construed ... to give the Commission . jurisdiction, with respect to charges, classifications, practices, services, facilities, or regulations for or in connection with wire . . . exchange service, . . . even though a portion of such exchange service constitutes interstate or foreign communication, in any case where such matters are subject to regulation by a State commission or by local governmental authority.” For present purposes it suffices to point out that the legislative history indicates that this restriction is intended to do no more than to prevent the circumstance that a single telephone exchange serves an area that includes parts of more than one state from enlarging the jurisdiction of FCC over the business and facilities of that exchange.11 To put the matter affirmatively, by force of section 221(b) a local carrier that serves a single multi-state exchange area is assured whatever degree of freedom from federal regulation section 2(b) provides for uni-state carriers and intrastate telephone business generally. In sum, all of the foregoing considerations make appropriate for this case Judge (now Chief Justice) Burger’s admonition that the communications “Act must be construed in light of the needs for comprehen [796] sive regulation and the practical difficulties inhering in state by state regulation of parts of an organic whole”. General Telephone Co. of California v. F.C.C., 1969, 134 U.S.App.D.C. 116, 413 F.2d 390, 398, cert. denied, 396 U.S. 888, 90 S.Ct. 173, 24 L.Ed.2d 163. The Commission’s Memorandum Opinion and Declaratory Order are sustained as reasonable administrative action within its statutory jurisdiction. Footnotes [1] In adjudicating this controversy, FCC took notice of a somewhat similar regulation recently adopted by the Oklahoma Corporation Commission. [2] We have considered and have found no merit in an argument that the Commission’s resort to a declaratory order was premature and unwar [791] ranted because state agencies are merely threatening to prohibit or restrict the use of customer-iprovided terminal equipment and have not yet imposed any such restriction as the proceeding now pending before the North Carolina Utilities Commission is designed to accomplish. Unlike United States district courts, federal administrative agencies are not restricted to adjudication of matters that are “cases and contr oversies” within the meaning of Article III of the Constitution. Sections 4(i) and (j) and 403 of t;he Communications Act confer upon FCC broad power to issue orders appropriate for the. performance of its functions under the Act. And section 5(e) of the Administrative Procedure Act, 5 U.S.C. § 554(e), provides that am a.dministrative agency such as FCC, “in its s<ou nd discretion, may issue a declaratory order to terminate a controversy or remove uncertainty”. In paragraph 22 of its memorandum opinion in this case the Commission has asserted that “[t]he course being pursued by . . . [North Carolina Utilities Commission] and the Attorney General of Nebraska, and possibly other States, is a source of great controversy and confusion for manufacturers and users of customer-provided communications equipment and also casts doubt on the application and effect of . tariffs on file with this Commission .... We would be remiss in the discharge of our broad statutory responsibilities to remain passive in the face of the policy and regulatory confusion which permeates the entire field of interconnection . . .”. 45 F.C.C.2d 204, 214. The record amply supports this statement. In this connection, it appears without contradiction that the market for customer-provided communications equipment has expanded rapidly in recent years and now is being affected adversely by the state threat of new restrictions upon interconnections. We have no doubt that the matters presented in this proceeding were ripe for consideration and appropriate for disposition by declaratory ruling. [3] Six petitions for review have been filed in or transferred to this court where they have been consolidated for hearing and decision. [4] Section 1 of the Act is numbered § 151 in the United States Code. Throughout this opinion sections of the Act will be designated by their original numbers. [5] Carter v. AT&T Co., N.D.Tex.1966, 250 F.Supp. 188, 190, aff’d, 5th Cir. 1966, 365 F.2d 486, cert. denied, 385 U.S. 1008, 87 S.Ct. 714, 17 L.Ed.2d 546. Although litigants, like courts, may experience a change of mind, it is noteworthy that AT&T’s present position seems t, o be that FCC has no jurisdiction, the antithesis of primary jurisdiction, over terminal equipment that is used for both interstate and intrastate communication. [6] To support their contentions about the intended effect of section 2(b), the opposing parties have cited particular statements made in Congressional committee reports, or on the floor during debate, or by witnesses during the 1934 Senate and House hearings on the then newly proposed federal communications legislation. These references certainly show concern that, as a result of the so-called Shreveport rate decision, Houston, E. & W. Texas Ry. v. United States, 1914, 234 U.S. 342, 34 S.Ct. 833, 58 L.Ed. 1341, the Interstate Commerce Commission had been able to deprive state authorities of almost all regulatory power over intrastate rail transportation. And there was rather general agreement that this should not be done by the new federal commission in the communications field. However, it is equally clear that such little particularization as appears in the various statements of state concerns focuses upon the desire of state authorities to regulate local telephone rates and charges. See the statements of Mr. Clardy and Mr. McDonald, both senior officers of the National Association of Railroad and Utilities Commissioners, Hearings on S.2910 before the Senate Committee on Interstate Commerce, 73d Cong., 2d Sess. 155, 156. Of course, rate making typifies those activities of the telephone industry which lend themselves to practical separation of the local from the interstate in such a way that local regulation of one does not interfere with national regulation of the other. Focusing upon this type of local regulation, members of Congress and the witnesses they heard did not discuss the impact, if any, of section 2(b) on the type of regulation we now are considering. However, one of the above mentioned industry witnesses, Mr. Clardy, did make this perceptive comment: “ • • • [W]e now have a great deal of difficulty in saying what is interstate and what is intrastate property ... because every exchange and every piece of machinery and all help and everything else, may at any moment be carried over exclusively, [794] temporarily at least, into interstate business. There has got to be some new philosophy developed, perhaps, by this Commission to assist the State commissions in proper determination . . .” Hearings on H.R.8301 before the House Committee on Interstate and Foreign Commerce, 73d Cong., 2d Sess. 73. In our view, the legislative history of the Act furnishes no impressive guidance for our determination of the reach of section 2(b). In any event, we are satisfied that it is not inconsistent with the view that the purpose of section 2(b) is to restrain the Commission from interfering with those essentially local incidents and practices of common carriage by wire that do not substantially encroach upon the administration and development of the interstate telephone network. [7] See Interstate and Foreign MTS and WATS, Docket 1958, initiated 35 F.C.C.2d 539, 543 and broadened by supplementary orders. See also the pending inquiry as to economic implications of customer interconnection policies at Docket 20003, F.C.C. 74-344, April 1974. [8] Pub.L. 92-131, 85 Stat. 363. [9] The Senate Committee Report on this bill, S.Rep. No. 92-362, 92d Cong., 1st Sess., makes it clear that need for the proposed new section 410(c) procedure grew out of the circumstance that, while the “Federal Government regulates interstate carrier services [and] . . . the States exercise jurisdiction over intrastate toll and local exchange services. . . . the plant facilities are to a great extent the same for both. The household telephone instrument, for example, is the same whether the call is made intrastate or interstate”. 2 U.S.Code Cong. & Admin. News, 92d Cong. 1st Sess., 1971, at 1511, 1512. [10] All other points made by any petitioner and not discussed in this opinion have been considered and found to lack merit. [11] Mr. Rayburn, presenting the 1934 bill on the floor of the House, explained that section 221(b) “is designed to cover cases of cities located within two States, as Texarkana”. 78 Cong.Rec. 10314. Similarly, on the Senate floor, Senator Dill, explaining the reach of the amendment, cited the uncertain status of metropolitan Washington and New York areas as essentially local exchanges that crossed state lines. 78 Cong.Rec. 8823. The Committee reports in both the Senate and the House are explicit in saying that section 221(b) is intended to enable state commissions “to regulate exchange services in metropolitan areas overlapping State lines”. S.Rep. No. 781, 73rd Cong. 2d Sess., 5; H.R.Rep. No. 1850, 73rd Cong., 2d Sess., 7.