Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01242/USCOURTS-caDC-99-01242-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
MCI WorldCom, Inc.
Petitioner
United States of America
Respondent

Document Text:

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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.,

Petitioners

v.

Federal Communications Commission and

United States of America,

Respondents

Competitive Telecommunications Association,

et al., Intervenors

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

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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, Randolph, and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: Petitioners, the large longdistance 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. ss 201-

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202. The Act requires carriers to file their tariffs with the

FCC, see 47 U.S.C. s 203(a), and they are prohibited from

charging consumers except as provided in the tariffs. See 47

U.S.C. s 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. s 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

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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. s 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" s 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 neces-

__________

1 The 1996 Act was passed in the expectation that telecommunications carriers would actively seek detariffing. See 47 U.S.C.

s 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....").

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sary, 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 s 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 s 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

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2 Casual calling refers to collect calls, credit-card calls, or dialaround calling.

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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. s 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

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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 s 203(a) requires

tariffing, and no provision gives a carrier a positive right to

file a tariff, so if it forbears from applying s 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 unnec-

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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.

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essary. 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. s 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

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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. s 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 s 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

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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

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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

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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.

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competition ... that determination may be the basis for a ...

finding that forbearance is in the public interest." 47 U.S.C.

s 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.

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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.

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