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Champaign Co. Tel. v. Commerce Com.





APPEAL from the Circuit Court of Hardin County; the Hon. WILLIAM G. EOVALDI, Judge, presiding.


The appeal to this court is from a judgment of the circuit court of Hardin County confirming orders entered by the Illinois Commerce Commission with respect to the division of revenues from toll telephone messages and dismissing the appeal of the plaintiff telephone companies.

Plaintiffs are fourteen small telephone systems, ten of which are privately owned utilities and four are co-operatives, operating 41 exchanges in central and southern Illinois. Local service is provided by each to its subscribers for a fixed monthly rate depending on class of service. Each system is available to subscribers and others for toll calls on a per-message charge based on distance, time of day and length of message. In some instances they furnish part of a toll line, but do not operate toll centers (where messages are routed, timed, and recorded). Defendant, General Telephone Company of Illinois, owns and operates toll centers with toll lines connected to plaintiffs' exchanges and some toll lines between toll centers and areas served by General. (General's toll centers perform the function for practically all of plaintiffs' exchanges.) However, the principal toll lines in Illinois are operated by Illinois Bell Telephone Company or its parent, American Telephone and Telegraph Company (AT&T). The Bell System operates toll centers and a toll-line network throughout the country.

General's exchanges are connected by toll lines with exchanges of Illinois Bell and other companies. All telephone companies other than those of the Bell system are referred to as independent companies, including all parties hereto. Toll calls between independents where only the local exchange and General's facilities are used are referred to as Independent-Independent (I-I) calls. Toll calls utilizing, in addition, any facilities of the Bell System are referred to as Bell-Independent (B-I) calls. The originating exchange collects the toll charges on both I-I and B-I calls (as computed by its toll center) and remits the whole amount to General. On B-I calls General, in turn, accounts to Illinois Bell for all intrastate and interstate toll revenues collected by both plaintiffs and General. The joint revenues are then divided among the several companies participating in the handling of each call. The dispute here is the division of joint revenues between plaintiffs and General.

Tariff charges (rates) are prepared by AT&T and filed with the Illinois Commerce Commission for intrastate traffic and with the Federal Communications Commission for interstate traffic. It is conceded by plaintiffs that because of the nature of the toll business, rates must be uniform. Illinois utilities (including co-operatives) do not file their own toll rates, but concur in and use the effective rates of Bell through toll settlement agreements. The tariffs so voluntarily accepted by the independents are then approved by the Commission.

The division of joint revenues (toll settlements) produced under the tariffs are negotiated with the Bell System by the United States Independent Telephone Association (USITA), an organization of independent companies. USITA from time to time negotiates, on the basis of nationwide averages, toll settlements with the Bell System for both intrastate and interstate combined B-I calls, and then recommends execution of traffic agreements to its members in accordance with the proposed schedules. Standard traffic agreements are then offered by Illinois Bell to its direct interconnected companies (such as General). After petitioning and receiving authority to do so, these companies usually offer similar traffic agreements to their direct interconnected companies (such as plaintiffs) for I-I tolls even though the settlements were designed for application to B-I calls only.

The traffic agreements between plaintiffs and General with respect to tolls originating with plaintiffs in effect just prior to the institution of these proceedings were based on a formula devolved in 1961 by the Bell System and USITA. All revenues derived from both I-I and B-I tolls, intrastate and interstate alike, were divided by the parties hereto on the B-I formula, even though the schedules contained no division for I-I calls. In the fall of 1963, General notified its connecting independents that it proposed to offer the new proposed 1962 USITA-AT&T schedule as a basis of settlement for both intrastate and interstate B-I business originated by the independents. It refused, however, to apply the B-I rates to I-I intrastate tolls (there is some dispute as to whether General had earlier stated it would do so) but proposed use of a schedule known as the 1953 TCCI-A schedule (developed by USITA) for all I-I calls originated by the connecting independents. We note parenthetically that USITA last recommended a settlement plan for I-I toll traffic in 1953, and that its Settlements and New Services Committee, including General's member of that committee, was of the opinion that all toll business, both B-I and I-I, should be included in settlement arrangements with the Bell System, but that Bell's representatives are not willing to accept settlement responsibility for traffic in which Bell does not participate. Plaintiffs and other independents refused to accept the new traffic agreements proposed by General, and plaintiffs filed their complaint with the Illinois Commerce Commission. General terminated the then existing traffic agreements as of June 1, 1964, and none have been in effect since that date.

I-I calls are short haul, usually between adjoining exchanges involving 15 to 20 cent toll charges, and the cost of furnishing the service often exceeds the revenue derived under the rates charged. In contrast B-I tolls are based on a sliding scale and obviously increase with the distance to the place of termination of a call. B-I interstate calls are usually long haul, as are B-I intrastate calls to a lesser degree, and are sufficiently compensatory to more than average out the loss on short-haul calls.

A pilot study was made by plaintiffs through a time study of the actual use of equipment of the Cooksville exchange of plaintiff Inland Telephone Company to determine the relative rate of return on the total toll business of Cooksville, I-I and B-I, intrastate and interstate, based on use of the several schedules. It is conceded by the parties that the results of the Cooksville study were reasonably typical of the rate return of the other exchanges. The study disclosed that if the 1962 USITA-AT&T and TCCI-A combination of schedules proposed by General be applied, the toll business of plaintiffs would result in a minus 2.3% return, that application of 1961 USITA-AT&T B-I schedule would produce a plus return of .98% and if the 1962 USITA-AT&T B-I schedule were applied to I-I tolls a plus return of 4.62% would be produced. While there was some variance General's witness Eaker conceded that plaintiffs' figures reasonably represented plaintiffs' cost of providing all intrastate and interstate toll services at Cooksville.

General presented a study of results of its toll calls to and from Cooksville for six of its exchanges which represented more than three-fourths of General's toll calls with Cooksville. It showed a minus 3.1%, a minus 8.5% and a minus 11.8% rate of return, respectively, under the foregoing schedules for which percentages were computed under plaintiffs' study. General cites Champaign County Telephone Company's Cooksville exchange I-I intrastate calls as an example of the effect if plaintiffs' demands are met. The average toll for such calls is 21.1 cents and the amount plaintiffs would be entitled to under the 1962 USITA-AT&T schedule amounts to 27.4 cents per message so that plaintiffs would receive all of the I-I toll revenues plus an additional 6.3 cents per message which General would have to contribute from other earnings.

In one of the late hearings before the Commission General presented evidence that USITA's committee had designed a new traffic schedule for I-I traffic (1965 USITA) and had recommended it to its members. It was designated Letter No. 953, signed by its Director of Settlements, and had attached a resolution by the USITA Board of Directors in which the board directed the committee to recommend to independents a settlement of I-I toll traffic. (Division of revenues under this schedule would produce about the same amount to plaintiffs as the TCCI-A schedule offered.) General then stipulated that it would offer plaintiffs their choice of the 1953 TCCI-A or 1965 USITA schedule for settlement of I-I traffic.

Plaintiffs' complaint to the Commission originally asked for a division of joint revenue from all tolls which would have included interstate as well as intrastate messages, but following a motion to dismiss or amend, they amended their complaint and prayer to limit their request to joint revenues from intrastate tolls originating or terminating in one of their exchanges.

The Commission found that the burden of proof was upon plaintiffs and that they did not sustain the burden of demonstrating their costs of participating in the I-I intrastate toll traffic sufficiently to establish a basis for the commission to make a division of the I-I toll messages, that the only funds available for settlements between General and plaintiffs for the interchange of I-I intrastate tolls must be derived exclusively from the application of joint intrastate toll rates to the messages, that a fair and equitable division must be predicated upon the relative contributions by the participating parties of investment expense and functions, and that both the settlement and alternative settlement stipulated by General fairly represents the relative contributions of facilities and service of the parties. The commission then ordered settlement for all tolls from June 1, 1964, to the date of its order on the 1961 USITA-AT&T traffic schedules, and that General prepare and plaintiffs accept monthly toll settlements for all B-I messages under the terms of the 1962 USITA-AT&T traffic schedules, and all I-I messages under the terms of either the USITA-1953 TCCI-A schedule or the proposed 1965 USITA schedule from the date of the order until further order of the Commission. The Commission specifically recognized that it had no authority to enter the order with respect to B-I interstate calls although the order does not distinguish between B-I intrastate and B-I interstate tolls.

Plaintiffs' theory on rehearing and on this appeal is that the order compelling them to operate the toll department of their business at a loss or negative rate-of-return is confiscatory and violative of their right of due process under the Illinois constitution ...

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