In a major victory for American Telephone & Telegraph Co., a federal appeals court yesterday upheld a Federal Communications Commission decision that opened the way for the Bell System to enter the data-processing business.
By a 2-0 vote, the U.S. Court of Appeals for the District of Columbia ruled that the FCC acted reasonably in its landmark decision that permits AT&T to sell computer services and all sorts of telephone equipment -- from the plain black dial telephone to sophisticated business equipment -- without the government scrutiny that it has been subjected to as a regulated monopoly for the past 48 years.
"In our view, the commission's action in adopting these rules was neither arbitrary nor capricious, nor did it constitute an abuse of discretion," wrote Judge Edward A. Tamm.
The FCC's 1980 decision had been challenged by scores of companies and industry groups who represent AT&T's competitors, as well as by numerous state regulatory commissions. In one form or another, all argued that the FCC overstepped its authority when it voted 5 to 2 to end its pricing controls over data-processing and telephone equipment.
The number of challengers and arguments against the FCC decision -- called Computer II in communications circles -- prompted Tamm to note that "seemingly every argument ever made in an administrative law case is pressed here in some form."
Even so, the court turned back all of these arguments and fully endorsed the commission's decision, including its ruling that AT&T must set up a separate subsidiary to market all of its telephone equipment and data-processing services.
The separate subsidiary still will be required once AT&T carries out its agreement with the Justice Department to spin off its 22 local operating companies. The remaining AT&T, which will be able to enter any type of business it now chooses, will have to offer any nonregulated business activity through the separate subsidiary.
AT&T already has set up the subsidiary, American Bell, and has received permission from the FCC to transfer more than $5 billion to the subsidiary to finance its competitive activities.
The court also said that the FCC didn't overstep its authority and pre-empt the rights of state regulatory commissions when it deregulated the sale of telephone equipment.
FCC and AT&T officials were very pleased with the court's decision. "We couldn't have asked for more," said Gary M. Epstein, chief of the FCC's common carrier bureau, which regulates AT&T.
"This is a very welcome decision, removing another one of the judicial uncertainties" that have hung over AT&T's head for the past few years, said AT&T spokesman Picard Wagner.
Those organizations that had challenged the Computer II decision were not so pleased, however. "We're disappointed that the court didn't remand it to the FCC," said A.G.W. Biddle, president of the Computer and Communciations Industry Association, which filed the first suit against the decision. The decision will give AT&T an unfair advantage over its competitors by not establishing an adequate barrier between AT&T and its subsidiary, Biddle said. The association's counsel was reviewing the opinion to determine what its next legal steps should be.