Opinion ID: 414451
Heading Depth: 3
Heading Rank: 1

Heading: The AT & T Version

Text: 24 The Carterfone decision was to become effective on November 1, 1968, whereupon--intolerably to AT & T--there would be no tariff provisions at all to limit equipment interconnection or specify interconnection standards. AT & T thus faced the prospect of proposing interconnection standards on very short notice with no FCC guidance and novel problems of real risks. See note 2 supra. In 1967, AT & T had formed a Tariff Review Group--perhaps in anticipation of the Carterfone ruling--to review possible tariff modifications. Although the Review Group thought performance or certification standards were feasible, this approach was viewed as posing weighty problems of a non-technical nature. Specifically, we are told, the Review Group feared that promulgation and enforcement of such standards by AT & T itself would raise serious antitrust questions. At the same time, the Review Group thought that improperly installed or maintained good equipment threatened the system's integrity as much as bad equipment, and therefore concluded that a substantial degree of protection could be effected by requiring interface hardware--the protective connecting arrangement or PCA. 7 AT & T ultimately followed the Review Group's recommendation and adopted the PCA rather than the certification standards approach. Thus, in late October of 1968, AT & T filed a tariff requiring the use of a PCA to interconnect terminal equipment. AT & T was to provide, install, and maintain the PCA at the customer's expense as fixed by the filed tariff. 25 The filing of the tariff sparked a spirited response, with twenty-nine parties filing responsive pleadings and comments. Opponents of the tariff argued that the PCA approach was a flawed response to Carterfone because it failed to specify interconnection standards, barred the use of customer-provided telephones for network control signalling, and discriminated generally in AT & T's favor. In late December of 1968, the Commission permitted the proposed tariffs to take effect, stating in American Telephone & Telegraph Co. Foreign Attachment Tariff Revisions, 15 F.C.C.2d 605, 609-10 (1968), that the decision in Carterfone does not hold that a customer may substitute his own equipment or facilities (whether it be telephone instruments, loops, poles, or central office equipments) for that furnished by the telephone company. Although the Commission allowed what we will call the interface tariffs to take effect, it explicitly stated that its action was not to be construed as giving any specific approval to the revised tariffs, id. at 610, leaving entirely open the possibility of further action. In the interim, the Commission directed all segments of the telecommunications industry to engage in informal engineering and technical conferences, to ascertain what further changes are necessary, desirable, and technically feasible in AT & T's tariff offerings. Id. at 610. 26 AT & T tells us that terminal equipment interconnection was the subject of much thought and engineering and economic consideration after the Commission decided to allow the interface tariffs to take effect. Throughout this period, however, AT & T concedes that it had no statistically meaningful data regarding actual harm to the network due to interconnection. AT & T Brief at 17-18 & n. 21. But, AT & T points out, a National Academy of Sciences (NAS) report commissioned by the FCC ultimately found--the report took some ten months to prepare--that network harm could be caused by a variety of factors. The report concluded that, on balance, the PCA requirement was appropriate because, although a properly enforced certification system could also protect the network from harm, the responsibility for creating and administering such a system should be shouldered by a regulatory agency rather than a private concern. In apparent response to the NAS report, the FCC formed a PBX Advisory Committee in May of 1971. The committee, composed of representatives of various interested parties including, of course, AT & T, studied the feasibility of interconnection without the PCA requirement. AT & T continued to maintain that unlimited interconnection could harm the network. 8 27 In June of 1972, while the PBX Advisory Committee was preparing its final report, the FCC instituted rulemaking proceedings addressing the interconnection issues. The FCC took the extraordinary step of convening a Federal-State Joint Board (Joint Board) pursuant to 47 U.S.C. Sec. 410(c) (1976), to determine whether, and to what extent, there is public need ... to go beyond what we ordered in Carterfone and permit customers to provide, in whole or in part network control signalling units and connecting arrangements. Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Service (MTS) and Wide Area Telephone Service (WATS), 35 F.C.C.2d 539, 542 (1972). AT & T points to these developments to buttress its claim that the need for and propriety of the PCA requirement was very much an open question, emphasizing the fact that it took the FCC almost four years after Carterfone to address the interconnection issue. 28 The PBX Committee submitted its final report shortly after the Joint Board convened in 1972. The report included a model certification program based on a barrier PBX system that would incorporate protective circuitry obviating the need for a PCA. 9 But by this time, after lengthy internal debate, AT & T Brief at 21, AT & T decided to oppose certification standards as an unnecessary substitute for the PCA requirement. Mr. John deButts, then AT & T Chairman, announced this position in a speech before the National Association of Regulatory Utility Commissioners (NARUC) in late September of 1973. DeButts stated in his speech that the nationwide switching network was too valuable a resource to risk a perhaps irreversible threat to its performance that would ensue from fragmentation of responsibility for that performance. Shortly thereafter, AT & T formally opposed the certification standard approach by filing comments in the FCC rulemaking proceedings. 10 That this opposition to certification standards was undertaken in bad faith was a principal special finding of the jury on which the verdict against AT & T turned. 11 29 AT & T's decision to stand behind the PCA requirement greatly upped the odds against adoption of a certification standards system. AT & T seems to agree with Litton that the deButts speech was a coda marking Litton's demise as a competitor, but denies that it opposed certification standards in bad faith and argues that Litton's failure in the terminal equipment market was inevitable by late 1973, if not earlier. According to AT & T, Litton's efforts to establish itself in this market were short-lived, poorly executed, and plagued with internal difficulties ranging from inadequate staffing to high-level corporate bribery. Litton entered the market in 1971, selling equipment made by other companies, with the hope that it could quickly develop its own products to feed the distribution and service network it created immediately after Carterfone. But by 1973, AT & T claims, Litton had failed to develop the caliber of product needed to compete with AT & T's evolving line of terminal equipment. This fact, coupled with the revelation that certain Litton officials had bribed their way into contracts with terminal equipment users, prompted Litton to exit the market in early 1974. AT & T's rendering of Litton's short, unhappy run in the terminal equipment race suggests that Litton lost because it sprinted early and winded quickly, and not because AT & T squeezed Litton into the rail with the PCA requirement. 30 In any event, Litton decided to withdraw from the terminal equipment market in early 1974. It was not until November of 1975, AT & T points out, that the FCC adopted regulations establishing certification standards. Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Service (MTS) and Wide Area Telephone Service (WATS), 56 F.C.C.2d 593, 599-613 (1975) (First Report & Order). 12 Although the FCC declined to include PBX and Key Systems in the certification program at that time, it expressed doubt regarding the Joint Board's recommendation that this equipment presented technical problems warranting general exclusion. AT&T perforce concedes that this ruling included statutory findings that the interface tariffs were unnecessarily restrictive and amounted to unjust and unreasonable discrimination. Id. at 598. A few months later, the FCC amended its regulations to cover PBX and Key Systems that employed protective circuitry, Interstate and Foreign Message Toll Telephone Service, 58 F.C.C.2d 736 (1976) (Second Report & Order). The FCC's order was affirmed on appeal. North Carolina Utilities Commission v. FCC, 552 F.2d 1036 (4th Cir.), cert. denied, 434 U.S. 874, 98 S.Ct. 222, 54 L.Ed.2d 154 (1977). 13 Thus, as of October 1977, after certiorari was denied by the Supreme Court, interconnection of non-AT & T equipment employing protective circuitry became a possibility. Finally, in April of 1978, the FCC issued a third order eliminating the protective circuitry requirement for properly registered and installed PBX and Key Systems. Interstate and Foreign Message Toll Telephone Service, 67 F.C.C.2d 1255 (1978) (Third Report & Order). 31 To summarize, the AT & T scenario sketches a hard-fought battle before the FCC with good faith efforts being made to protect the network. AT & T points out that it was not alone in opposing certification standards; several other interested parties--e.g., NARUC, the Joint Board, and several state utility commissions--supported the PCA approach. AT & T relies on this support, and on the fact that it took over four years from the time Litton exited the terminal equipment market for the FCC to establish certification standards, to back up its claim that it was not AT & T's bad faith opposition to certification standards that drove Litton from business. As might be expected, Litton's scenario plays out quite differently.