The opinion of the court was delivered by: GREENE
The Court has before it two requests for exceptions to the provision in the consent decree which prohibits local operating companies from providing inter-LATA services. The first is a motion by the Chesapeake and Potomac Telephone Companies (C&P) for permission to provide additional inter-LATA metropolitan foreign exchange (Metro FX) service. The C&P motion is opposed in varying degrees by AT&T, the Department of Justice, and MCI.
The second is a motion by the Western Reserve Telephone Company for permission to provide foreign central office service (FCO), a service similar to Metro FX. The Department of Justice and Ameritech have filed responses to the Western Reserve motion.
Metro FX service treats customers in one exchange as though they were served by another exchange by switching subscribers from the first onto the local loop of the second. See United States v. Western Electric Co., 569 F. Supp. 990, 1025 n.178 (D.D.C. 1983). In its Opinions of April 20 and July 8, 1983, this Court considered C&P's unopposed requests for permission to provide inter-LATA Metro FX service in Maryland between selected exchanges in the Baltimore and Washington LATAs. Id. at 1025, 1105.
The Department of Justice had not opposed C&P's requests, stating that it believed the exceptions to be necessary "to minimize customer disruption and that no significant potentially competitive traffic would be affected" (Response to Comments at 96) and the Court approved all the requests.
The areas which are the subject of the motion presently before the Court were not included within C&P's prior request because, according to C&P, it assumed at that time that interexchange carriers would offer the necessary service. C&P now states that such service by interexchange carriers has become doubtful, particularly in light of the negative responses received by the Maryland Public Service Commission to an inquiry in that regard. Thus, the instant motion which requests permission to expand upon the exemptions originally granted by the Court.
Here, once again, the Court is faced with a borderline situation: there is a conflict between the theoretical requirement to reserve inter-LATA service to the interexchange carriers and the practical need to make arrangements to serve special needs of the public. The Court took such competing values into account in the drawing of the LATA boundaries and the creation of exemptions and modifications with regard to particular areas. In a number of instances, it weighed the desirability of preserving and fostering competition in interexchange markets, on the one hand, against the possibility of significant customer disruption (especially in areas of common social and commercial interests) and of increased switching costs, on the other.
The Court has considered similar factors in making its determination whether C&P should be permitted to expand its FX service in the Washington and Baltimore metropolitan areas.
Two of the four parties to this dispute take positions which, in the Court's view, do not adequately take account of the various competing needs and interests.
First. MCI's proposal is based upon the incorrect assumption that Metro FX service is equivalent to the interstate "corridor exemptions" the Court permitted between New York and New Jersey, and Pennsylvania and New Jersey. See United States v. Western Electric Co., supra, 569 F. Supp. at 1018-19, 1021-23. In the greater New York City area, there is, of course, considerable commercial intercourse, and the interexchange character of the traffic called for what essentially amounted to an interexchange solution. The present requests, by contrast, concern exemptions for services that are local in nature, and that are designed to resolve only local problems. Moreover, again unlike in the greater New York City area, the imposition of access charges on the order of a usage-based price structure would, in practical terms, eliminate the metropolitan exception.
Second. MCI does not propose to service the area under consideration at this time, nor does it indicate that it will do so in the future even if it should obtain a ruling from the Court favorable to its position. The Court will not deprive the residents of the affected areas of a needed service upon the mere theoretical possibility that some interexchange carrier might, at some time in the future, wish to operate there.
C&P takes an equally unrealistic position. It wishes by means of its Metro FX service to serve the entire area surrounding Baltimore and Washington, including all of the Washington LATA, most of the Baltimore LATA, and significant portions of the Hagerstown and Culpeper LATAs. Its proposal would thus completely disregard the decree's basic purpose to reserve inter-LATA service to the interexchange carriers. If the C&P request were granted, the local Operating Company would have a significant competitive advantage over any interexchange carrier servicing the Baltimore-Washington route, due to the fact that C&P, unlike its competitors, would not have to pay (or impute to itself) access charges. C&P would then provide discounted inter-LATA service between these cities; it would eliminate all competition on the routes in question; and it would improperly extend its local monopoly on a significant basis. The Court cannot approve an outcome so at odds with the purposes of the decree.
As it has in the past, the Court will allow Operating Companies to engage in what would normally be inter-LATA service only in carefully limited areas and for carefully limited purposes, that is, when this serves the public convenience and does not harm competition. Both AT&T and the Department of Justice approach the C&P petition on the basis of these principles, and both of their recommendations therefore have appeal. After due consideration, the Court has opted in favor of the view espoused by the Department of Justice.
One problem with AT&T's approach is that for some practical purposes its proposal would not be that much different from that submitted by MCI. AT&T apparently intends to pass its carrier access charges on to the subscribers, with the result that customers who have had the benefit of low-cost, flat-rate services would hereafter be offered only a higher-cost, usage-based service. The consequence, of course, would be that the cost of the service would be placed out of the range of many customers. Moreover, significant customer disruption and loss of switching efficiencies may be expected.