GTE Service Corp. v. Federal Communications Commission

474 F.2d 724
CourtCourt of Appeals for the Second Circuit
DecidedFebruary 1, 1973
DocketNos. 97, 185, 186, 187, 188, Dockets 71-1300, 71-1484, 72-1486, 72-1566, 72-1578
StatusPublished
Cited by2 cases

This text of 474 F.2d 724 (GTE Service Corp. v. Federal Communications Commission) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
GTE Service Corp. v. Federal Communications Commission, 474 F.2d 724 (2d Cir. 1973).

Opinion

MULLIGAN, Circuit Judge:

In these consolidated cases,1 petitioners seek a review of a Final Decision and Order (28 F.C.C.2d 267 (1971)) of the Federal Communications Commission which promulgated certain rules (47 C.F.R. § 64.702 (Supp.1972)) relating to the rendition of computer data processing services by communications common carriers.2 The petitioners include several telephone companies participating in the data processing field. They challenge the regulations broadly urging that the Commission lacked authority, abused its discretion and failed to follow a proper procedure in establishing the rules. Jurisdiction of this court to review the order is provided by 47 U.S.C. § 402(a) (1970) and 28 U.S.C. §§ 2342(1), 2343, 2344 (1970).

The rules essentially prescribe the conditions under which common carriers, subject to the Communications Act, may engage in the offering of data processing services to others.3 Since this is the Commission’s initial venture into a broad field of new technology and services, some background discussion is appropriate.

I. FACTUAL BACKGROUND

The present day computer is created by the integration of mechanical devices and electronic circuits, and may be programmed to perform a wide variety of complex functions. Modern advancement in the industry built around this controversial machine has been so rapid, both in terms of technology and utiliza[727]*727tion, that the first commercially available general purpose computer, the UNIVAC, initially employed by the Census Bureau in 1951, has been reposing in the Smithsonian Institute since 1964 along with the Spirit of St. Louis. This advancement has been characterized not only by the continual development of computers having greater capability and efficiency of operation, but also by ever “larger” (higher capacity) computers. Economics of scale has been a major factor in spawning the trend towards the high capacity machine. Capacity of large computers varies with the square of their prices; thus, for double the price one obtains four times the power.

The availability and economics of these large computers have in turn contributed significantly to the development of the data processing service industry, as is illustrated by the emergence of several important types of computer service enterprises. A number of major computer manufacturers maintain computer service bureaus, which sell computer time. There are also hundreds of non-manufacturing firms which offer a wide range of data processing services. Moreover, many large institutions, who either own or lease “in-house” computers for their own use, have found it economically desirable to procure surplus computer capacity and to sell the excess to others.

Computer services available to the consumer, while taking many and varied forms, may be generally categorized as (1) message-switching; (2) data processing; or (3) a combination of both, i.e., a hybrid service.4 Message-switching essentially involves the sending of a message by a device, e. g., a teletypewriter, through common carrier lines to a computer where it is stored until an appropriate line is available for forwarding the message to the receiving station; the content of the message remains unaltered.

Data processing, the use of the computer for operations which include the storing, retrieving, sorting, merging, and calculating of data, may be offered either as a “local” or a “remote access” service. A local data processing service is one wherein communications facilities are not employed in serving the customer. Input and output of the computer must of course be transmitted between the computer installation and the customer but the customer is in no way “linked” to the computer by communications facilities. Remote access service, on the other hand, provides for direct [728]*728access to a central computer by customers at distant locations. It is effected by a system including a customer terminal joined to the central computer by common carrier operated communications lines. Where' remote access data processing is combined with message-switching in such a way that a single integrated service is offered, it is known as a hybrid service.

Telephone companies, like many other organizations, have found important uses for the computer. It is employed directly in the provision of communications services, as well as for billing, accounting and other data processing. Because the nature of the telephone business necessitates the use of large communications computers to handle peak periods of traffic, the considerable excess capacity existing in off-peak hours can be utilized to perform data processing functions. Likewise, surplus computer time may be available on those “in-house” machines generally used to satisfy a telephone company’s data processing needs.

The marketability of this excess computer capacity, and the growing interaction of the computer and communications industries have attracted common carriers to the computer service field. This in turn has aroused the concern of the FCC. The Commission’s response, on November 10, 1966, was to issue a Notice of Inquiry (7 F.C.C.2d 11) and a Supplemental Notice of Inquiry (7 F.C.C.2d 19) on March 2, 1967 which initiated a general, investigation into the interdependence of computer and communication services. These inquiries prompted about 3000 pages of comments from sixty interested parties including trade associations, government agencies, professional organizations, communications common carriers, computer manufacturers, computer service organizations, and computer users.

The FCC, feeling constrained by its limited internal resources, contracted with the Stanford Research Institute to examine the responses and to make recommendations. After Stanford completed its analysis in a series of seven reports, the Commission released a Report and Further Notice of Inquiry (17 F.C.C.2d 587) on May 9, 1969, seeking comments on the Stanford study. Subsequently, on April 3, 1970, the Commission issued a Tentative Decision (28 F.C.C.2d 291). In addition to setting forth proposed rules, the decision indicated that two basic policy questions remained to be resolved:

(a) The nature and extent of the regulatory jurisdiction to be applied to data processing services; and
(b) Whether, under what circumstances, and subject to what conditions or safeguards, common carriers should be permitted to engage in data processing.

28 F.C.C.2d at 295.

Furthermore, the decision indicated that any regulatory safeguard should seek to assure:

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474 F.2d 724, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gte-service-corp-v-federal-communications-commission-ca2-1973.