United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 14, 2000 Decided April 28, 2000

No. 96-1459

[MCI WorldCom, Inc., et al.,]{.smallcaps}

[Petitioners]{.smallcaps}

v\.

[Federal Communications Commission and]{.smallcaps}

[United States of America,]{.smallcaps}

[Respondents]{.smallcaps}

[Competitive Telecommunications Association,]{.smallcaps}

[et al., Intervenors]{.smallcaps}

Consolidated with

96-1477, 97-1009, 97-1676, 98-1003,

98-1007, 99-1240, 99-1242

On Petitions for Review of Orders of the Federal

Communications Commission.

*Donald B. Verrilli, Jr.* argued the cause for petitioners and
supporting intervenors. With him on the briefs were *Thomas F. O\'Neil
III*, *Matthew B. Pachman*, *Jodie L. Kelley, Mark C. Rosenblum, Roy E.
Hoffinger, David W. Carpenter, Peter D. Keisler, Paul J. Zidlicky,
Robert M. McDowell, Leon M. Kestenbaum, Michael B. Fingerhut, James M.
Smith, Michael J. Shortley, III, Gail L. Polivy, Charles C. Hunter,* and
*Catherine M. Hannan. Jay C. Keithley, David J. Gudino, Dana Frix,
Genevieve Morelli*, and *Richard S. Whitt* entered appearances.

*John E. Ingle*, Deputy Associate General Counsel, Federal
Communications Commission, argued the cause for respondents. With him on
the brief were *Joel I. Klein*, Assistant Attorney General, U.S.
Department of Justice, *Catherine G. O\'Sullivan* and *Robert J.
Wiggers*, Attorneys, *Christopher J. Wright*, General Counsel, Federal
Communications Commission, *Susan L. Launer*, Deputy Associate General
Counsel, and *Laurence N. Bourne*, Counsel. *Richard K. Welch*, Counsel,
entered an appearance.

*Henry D. Levine, Ellen G. Block*, and *James S. Blaszak* appeared on
the brief for intervenors in support of respondents.

Before: [Silberman]{.smallcaps}, [Randolph]{.smallcaps}, and
[Rogers]{.smallcaps}, *Circuit Judges*.

Opinion for the Court filed by *Circuit Judge* [Silberman]{.smallcaps}.

[Silberman, *C*]{.smallcaps}*ircuit Judge*: Petitioners, the large
long-distance telecommunications carriers, seek review of an FCC order
prohibiting them from filing tariffs with the Commission. We reject
their petition.

**I.**

Commission efforts to move to a nontariff environment for interexchange
carriers---insofar as those carriers do not exercise market power---have
not had an easy time with this court and the Supreme Court. For over six
decades a tariff regime was mandated by the Communications Act of 1934,
which requires the FCC to review telecommunications carriers\' tariffs
to ensure their reasonableness. *See* 47 U.S.C. §§ 201-202. The Act
requires carriers to file their tariffs with the FCC, *see* 47 U.S.C. §
203(a), and they are prohibited from charging consumers except as
provided in the tariffs. *See* 47 U.S.C. § 203(c) (establishing what is
popularly known as the \"filed‑rate doctrine\"). Starting in the early
1980s, the Commission tried to prohibit tariff‑filing by nondominant
carriers---in essence, those other than AT&T---but that effort was
successfully challenged in this court in *MCI Telecommunications Corp.
v. FCC*, 765 F.2d 1186 (D.C. Cir. 1985), where we struck down
\"mandatory detariffing\" as inconsistent with the 1934 Act.

There remained some confusion as to whether the FCC\'s surviving
\"permissive detariffing\" policy for nondominant carriers---allowing
those carriers to choose whether to file tariffs---was premised on an
agency nonenforcement position, subject to only very limited judicial
review, or whether it constituted a substantive regulatory framework.
AT&T, by filing a complaint against MCI with the Commission over MCI\'s
non‑filing (as it had a right to do under section 208 of the
Communications Act, 47 U.S.C. § 208(a)), put the cat among the canaries
and forced the Commission, by defending MCI, to embrace the substantive
position which we had rejected. The result was more Commission
reversals, *see American Tel. & Tel. Co. v. FCC*, 978 F.2d 727 (D.C.
Cir. 1992); *American Tel. & Tel. Co. v. FCC*, 1993 WL 260778 (D.C. Cir.
1993), this time affirmed by the Supreme Court. *See MCI
Telecommunications Corp. v. American Tel. & Tel. Co.*, 512 U.S. 218
(1994). The upshot of all of this was that the Commission simply could
not suspend (permissively or mandatorily) the tariff‑filing obligations
for interexchange carriers, whether they had market power or not.

The landscape changed, however, when Congress passed the
Telecommunications Act of 1996, which requires the FCC to

> forbear from applying any regulation or any provision of this chapter
> to a telecommunications carrier or telecommunications service, or
> class of telecommunications carriers or telecommunications services,
> in any or some of its or their geographic markets, if the Commission
> determines that---
>
> \(1\) enforcement of such regulation or provision is not necessary to
> ensure that the charges, practices, classifications, or regulations
> by, for, or in connection with that telecommunications carrier or
> telecommunications service are just and reasonable and are not
> unjustly or unreasonably discriminatory;
>
> \(2\) enforcement of such regulation or provision is not necessary for
> the protection of consumers; and
>
> \(3\) forbearance from applying such provision or regulation is
> consistent with the public interest.

47 U.S.C. § 160(a).[^1]

Armed with this new statutory authority, the FCC moved once more to
detariff the interstate, domestic, interexchange services of nondominant
carriers---now all of the interexchange companies. In a *Notice of
Proposed Rulemaking*, 11 F.C.C. R. 7141 (1996), the Commission
tentatively concluded that the 1996 Act required it to \"forbear from
applying\" the tariffing requirement to nondominant carriers, and that
permitting carriers to file tariffs at all would not be in the public
interest. It thus announced its intention to implement mandatory
detariffing by \"forbearing from applying\" § 203(a) of the 1934 Act.
Following a comment period the FCC confirmed that enforcement of the
tariffing provision is neither necessary to ensure just and reasonable,
nondiscriminatory rates, nor necessary for the protection of consumers,
and ordered mandatory detariffing. *See Second Report and Order*, 11
F.C.C.R. 20730, 20742-47, 20750-53 (1996).

In their comments, petitioners did not dispute the Commission\'s
tentative conclusion that tariffing was no longer necessary, but argued
that the Commission\'s intention to order *mandatory*
detariffing---rather than permissive detariffing---both exceeded the
Commission\'s statutory authority and was unreasonable. They claimed
that under the 1996 Act the FCC may forbear from enforcing § 203, but
cannot actually forbid the filing of tariffs. Petitioners also
complained that detariffing would lead to their customer relationships
being governed by state contract laws, which, in some cases, might
require the execution of a new contract whenever the carrier would want
to change its rates. According to petitioners, the necessity of mailing
new contracts to customers would increase their transaction costs
resulting in higher prices for consumers, make casual‑calling options
more difficult, and hinder their ability to respond quickly to
competitors\' price changes. *See id.* at 20755-56.[^2] If tariffs were
permitted, petitioners claimed, they could still negotiate individual
contracts with large customers, but also file tariffs for millions of
mass‑market consumers, the optimal result for both groups. In response
to objections by consumer groups that carriers might negotiate contracts
with individual customers and then rely on the filed‑rate doctrine to
collect higher tariff rates, petitioners argued that courts would not
apply the doctrine because permissive detariffing would gut its
rationale: the filed rate would no longer be the only lawful rate. *See
id.* at 20757.

The Commission rejected petitioners\' statutory and practical arguments.
The FCC concluded that outside the filing requirement of § 203(a) there
was no provision granting carriers a right to file tariffs, so its
forbearance authority under the 1999 Act inherently contemplated
mandatory detariffing. It found petitioners\' proposed distinction
between large and small customers immaterial, because the competitive
benefits of detariffing would be felt by both. The Commission was also
concerned that courts might not interpret the interplay of permissive
detariffing and the filed‑rate doctrine quite as petitioners suggested,
and that carriers would use the continued existence of the filed‑rate
doctrine to refuse to negotiate individualized contracts with customers.
The risk that tariffs might serve to facilitate price fixing was also a
factor cited by the Commission in its order, but in response to two
petitions for reconsideration the Commission abandoned this rationale.
*See id.* at 20760, 20765-67, 20772; *Order on Reconsideration, In re
Policy and Rules Concerning the Interstate, Interexchange Marketplace*,
12 F.C.C.R. 15014 (1997); *Second Order on Reconsideration and Erratum*,
*In re Policy and Rules Concerning the Interstate, Interexchange
Marketplace*, 14 F.C.C.R. 6004 (1999).

Petitioners challenge both the order and the reconsideration orders, and
raise before us the same concerns presented to the Commission. They
argue that the mandatory detariffing order is *ultra vires* because the
FCC lacks statutory authority to forbid the filing of tariffs.
Petitioners claim alternatively that the order is arbitrary and
capricious because the Commission\'s preference for mandatory
detariffing over permissive detariffing is not supported by facts or
logic, the Commission failed to respond to a third alternative advanced
by AT&T, and the Commission based its decision in part on a
misunderstanding of the filed‑rate doctrine.

**II.**

We begin with petitioners\' argument that the 1996 Act does not give the
FCC authority to implement mandatory detariffing---it cannot forbid the
filing of tariffs. The Act states that the FCC \"shall *forbear from
applying* any regulation or any provision of this chapter \... if the
Commission determines that (1) *enforcement* \... is not necessary \[to
ensure rates are just, reasonable, and nondiscriminatory\], (2)
*enforcement* \... is not necessary for the protection of consumers, and
(3) *forbearance* from *applying* such provision or regulation is
consistent with the public interest.\" 47 U.S.C. § 160(a) (emphasis
added). Petitioners urge that under the plain language of the statute
the Commission is empowered merely to exercise its discretion not to
*enforce* a provision under such circumstances. In other words, to
forbear is to \"refrain from action,\" *see* Pet. Br. at 17 (*citing,
e.g.*, Black\'s Law Dictionary 329 (5th ed. 1983)); nonenforcement is
therefore forbearance, but barring the doors of the FCC to lawyers
bearing tariff filings and throwing out extant tariffs, both affirmative
acts, are not.

Petitioners offer in support of their interpretation our opinion in
*American Telephone & Telegraph*, where we stated that the FCC \"went
beyond mere forbearance \... by making detariffing mandatory and by
telling non‑dominant carriers that it would no longer even accept their
rate filings\....\" 978 F.2d at 729-30. But we ourselves have used the
word forbear in two different ways. In *MCI Telecommunications*, we said
\"forbearance was made mandatory\" and the Commission \"changed the
permissive forbearance arrangement into a mandatory one.\" 765 F.2d at
1191 n.4, 1189. So it is hardly open to us to deny the ambiguity which
accompanies the statutory use of that term---particularly when Congress
acted against a backdrop of our decisions. Moreover, the crucial phrase
in the statute is not \"forbear from enforcing\" but rather \"forbear
from applying,\" which suggests a broader authority. As the Commission
correctly points out no provision of the Communications Act except §
203(a) requires tariffing, and no provision gives a carrier a positive
right to file a tariff, so if it forbears from applying § 203(a) the
Commission\'s staff is not obliged to accept filings. We therefore think
that the Commission\'s interpretation of the Act is entitled to
*Chevron* deference. *See Chevron U.S.A. Inc. v. Natural Resources
Defense Council, Inc.,* 467 U.S. 837 (1984).[^3]

Petitioners alternatively claim that the Commission\'s order is
arbitrary and capricious, and, to use the Act\'s terminology, against
the \"public interest\" because its stated objectives easily can be met
by adopting a permissive‑detariffing regime, and therefore the extra
transaction costs imposed on the carriers---and passed through to
consumers---are unnecessary. The major thrust of petitioners\' arguments
is that the Commission inadequately responded to their comments, and
therefore the case should be remanded to the FCC so as to require the
agency to do so. (It is worth noting that we have stayed the
Commission\'s order so the status quo favors the petitioners for so long
as they can maintain it.)

The Commission, as we have mentioned, wishes to disentangle the
interexchange carriers\' prices from the filed‑rate doctrine. The
Commission has long been concerned that the necessity of filing tariffs
hinders competitive responsiveness. And, according to consumer
representatives\' comments presented to the FCC, the filed‑rate doctrine
has been used by the carriers as a shield to avoid individual contract
negotiations with large and small users, thereby reducing competition
among carriers. Petitioners argue that streamlined tariff procedures
already adopted by the FCC, *see Tariff Filings Requirements for
Nondominant Common Carriers*, 8 F.C.C.R. 6752 (1993), and carriers\'
ability to file tariffs for individual consumers have obviated those
concerns. But the Commission reasonably disagreed, in part relying on
the consumers\' reported experience under those procedures, and in part
because it was wary that the filed‑rate doctrine might be interpreted by
state and federal courts to interfere with free‑market behavior. *See
Second Report and Order*, 11 F.C.C.R. at 20760-61; 20766-67.

Perhaps the most interesting argument in the case relates to an AT&T *ex
parte* letter (suitably filed) sent after the comment period ended. In a
rather downplayed alternative argument AT&T suggested in a single
paragraph that if the Commission\'s interpretation of forbearance was
legitimate (which of course AT&T denied) the Commission could eliminate
certain problems with tariffs---and thereby move to only permissive
detariffing---if it would forbear from enforcing---or even forbid the
application of---the filed‑rate doctrine, 47 U.S.C. § 203(c). The
Commission did not respond to this rather subtle suggestion and
petitioners contend that that failure alone requires a remand. The FCC
argues that AT&T\'s comment was only a throwaway, inconsistent with
petitioners\' primary argument that mandatory forbearance is *ultra
vires*, and not even part of its formal comment, so we should not regard
the issue as properly presented to the Commission under 47 U.S.C. §
405(a). If that were so, we would not have jurisdiction to consider the
point. We do not think that is quite correct, although it is a close
question.

Petitioners note that the Commission\'s order refers to several *ex
parte* filings received after the filing in issue here. *See Second
Report and Order*, 11 F.C.C.R. at 20781-82 nn. 253 & 254. AT&T\'s filing
was not long, and the relevant paragraph concluded a discussion on one
of the key issues of the proceeding: whether the filed‑rate doctrine
would be an impediment to permissive detariffing. The paragraph---even
though presented as an alternative argument---does suggest that
forbearance from § 203(c) would eliminate the possibility of carriers\'
invoking the filed‑rate doctrine. Therefore, we think the argument was
presented---if barely---to the Commission.

Still, it is one thing to preserve a point for judicial review and quite
another to raise the issue with sufficient force to require an agency to
formally respond. An agency is not obliged to respond to every comment,
only those that can be thought to challenge a fundamental premise. *See
Grand Canyon Air Tour Coalition v. FAA*, 154 F.3d 455, 468 (D.C. Cir.
1998) (\"An agency must \... demonstrate the rationality of its
decisionmaking process by responding to those comments that are relevant
*and significant*.\") (emphasis added). In this case, AT&T\'s late *ex
parte* alternative comment does not seem to us to be forceful enough to
have obliged the Commission to squarely confront it. Certainly the
Commission made clear its concern that if tariffs were permitted it
could not foresee how the judiciary (in this case, probably state
courts) would treat the filed‑rate doctrine. It seems obvious to us that
the Commission would not have wished to risk the doctrine\'s continued
employment even had AT&T\'s device been tried.[^4]

Moreover, as we read the Commission\'s decision the *essence* of its
reasoning was a desire to put the interexchange carriers under the same
market conditions as apply to any other nonregulated provider of
services in our economy. The Commission concluded that \"a regime
without nondominant interexchange carrier tariffs for interstate,
domestic, interexchange service is the most pro‑competitive,
deregulatory system.\" *Second Report and Order*, 11 F.C.C.R. at 20760.
It thought the public interest would best be served by \"establishing
market conditions that more closely resemble an unregulated
environment.\" *See id*. It noted that the \"parties that oppose
complete detariffing have not shown that the business of providing
interstate, domestic, interexchange services offered by nondominant
interexchange carriers should be subject to a regulatory regime that is
not available to firms that compete in any other market in this
country.\" *Id.* at 20763. And, importantly, the Commission found that
permitting carriers to file tariffs on a voluntary basis would undermine
the competition‑enhancing effect of detariffing. *See id.* at 20760.[^5]
Under such circumstances, remand is not necessary for the agency to
consider the proposed alternative. *See Center for Science in the Public
Interest v. Department of the* Treasury, 797 F.2d 995, 1004 (D.C. Cir.
1986).

Tariff filing, in other words, in the Commission\'s view is an
undesirable deviation from the market---at least where there are no
market imperfections. Petitioners contend that the Commission could not
foreclose a permissive detariffing without more justification than
simply a desire to embrace the free market. We think, however, the
Commission was entitled to value the free market, the benefits of which
are rather well established. Indeed, the 1996 Act provides that \"\[i\]f
the Commission determines that \... forbearance will promote competition
\... that determination may be the basis for a \... finding that
forbearance is in the public interest.\" 47 U.S.C. § 160(b). It was
certainly reasonable to move regulation in that direction even if it
ostensibly raises transaction costs for the carriers.[^6]

**\* \* \* \***

The petition for review is denied.

*So ordered.*

[^1]: The 1996 Act was passed in the expectation that telecommunications
    carriers would actively seek detariffing. *See* 47 U.S.C. § 160(c)
    (\"Any telecommunications carrier, or class of telecommunications
    carrier, may submit a petition to the Commission requesting that the
    Commission exercise the authority granted under this section with
    respect to that carrier or those carriers\....\").

[^2]: Casual calling refers to collect calls, credit‑card calls, or
    dial‑around calling.

[^3]: Petitioners seem to argue that the delegation of the authority to
    \"forbear\" implicitly precludes authority to forbid but that is
    even more of a stretch.

[^4]: Since the filed‑rate doctrine is applied by courts, even if it has
    its genesis in the 1934 Act, the Commission\'s concern about the
    filed‑rate doctrine is not unreasonable and is certainly not, as
    petitioners claim, legally erroneous.

[^5]: The agency rejected an alternative similar to AT&T\'s without even
    referring to the danger of judicial mishandling of the filed‑rate
    doctrine; the focus was squarely on competition. *See id*. at
    20766-67.

[^6]: The Commission did not, as petitioners contend, ignore the
    probability of increased transaction costs. It simply found them
    insignificant compared to the competitive benefits of detariffing.
    *See Second Report and Order*, 11 F.C.C.R. at 20764.