Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-02-01189/USCOURTS-caDC-02-01189-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
New Par
Intervenor for Respondent
Jacqueline Orloff
Petitioner
United States of America
Respondent
Verizon Wireless
Intervenor for Respondent

Document Text:

Notice: This opinion is subject to formal revision before publication in the

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 7, 2003 Decided December 23, 2003

No. 02-1189

JACQUELINE ORLOFF,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

NEW PAR AND

VERIZON WIRELESS,

INTERVENORS

On Petition for Review of an Order of the

Federal Communications Commission

Randy J. Hart argued the cause for petitioner. With him

on the briefs was Mark D. Griffin.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

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Richard K. Welch, Counsel, Federal Communications Commission, argued the cause for respondent. With him on the

brief were Robert B. Nicholson and Steven J. Mintz, Attorneys, U.S. Department of Justice, Jane E. Mago, General

Counsel, Federal Communications Commission, and John E.

Ingle, Deputy Associate General Counsel. Daniel M. Armstrong, Associate General Counsel, entered an appearance.

Kathleen M. Trafford argued the cause for intervenors.

With her on the brief were Daniel W. Costello and Kenneth

D. Patrich.

Before: SENTELLE, RANDOLPH, and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge: In order to gain new business in

the Cleveland, Ohio, area, Verizon Wireless negotiated with

prospective customers and offered them special deals. Jacqueline Orloff, a former Verizon customer, filed a complaint

with the Federal Communications Commission, claiming that

Verizon’s practice of granting ‘‘sales concessions’’ violated the

non-discrimination clause of 47 U.S.C. § 202(a) and Verizon’s

duty as a common carrier. Her petition for judicial review

challenges the Commission’s determination that Verizon’s

granting of sales concessions was a reasonable response to

competitive conditions in the Cleveland market, not ‘‘unjust or

unreasonable’’ discrimination in violation of § 202(a).

I.

Verizon Wireless provided service to Orloff from February

1999 until February 2001. The Commission found that during this period, the Cleveland-area mobile phone market was

highly competitive. Five facilities-based providers and numerous resellers vied for business. The providers — none of

whom had market power — offered an assortment of plans,

which they promoted with advertising and special offers.

Like its competitors, Verizon had several standard rate

plans and regularly engaged in special advertising promotions, offering airtime minutes or additional services at no

extra charge. Verizon also authorized its salespeople to give

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concessions to potential customers if needed to ‘‘close the

deal.’’ These concessions might include free minutes, a free

feature like voice mail or call forwarding, a discounted cell

phone, or a one-time monetary credit. Verizon did not advertise the availability of sales concessions (or of ‘‘retention

concessions’’ for existing customers, which Orloff no longer

challenges). The concessions were offered at the salesperson’s discretion to prospective customers who negotiated —

haggled — for a better deal.

In February 1999, Orloff — who lives in the Cleveland

area — agreed to a two-year mobile phone contract with

Verizon. She purchased an advertised plan and received

several concessions: a discounted phone, free activation,

three months of free weekend use, and a credit worth half her

monthly fee for six months. Five months into the two-year

contract, Verizon agreed to allow Orloff to switch to another

plan, at which time Verizon gave her a billing credit as a

retention concession.

In February 2000, Orloff and three others sued Verizon in

the United States District Court for the Northern District of

Ohio. The suit was a putative class action on behalf of at

least 50,000 Ohio residents who bought Verizon mobile phone

service in the previous two years. The complaint alleged that

Verizon, in giving sales concessions, treated similarly situated

customers differently, in violation of § 202(a) of the Communications Act. The district court referred ‘‘the matter’’ to the

Commission and stayed further proceedings, although the

court did not specify which issues it thought were within the

Commission’s primary jurisdiction. Orloff v. Vodafone Airtouch Licenses LLC, Case No. 1:00 CV 421 (N.D. Ohio May

30, 2000).

To implement the court’s order, Orloff filed a complaint

with the Commission under § 208 of the Act. (The complaint

was on behalf of Orloff alone, not the class identified in the

district court.) The Commission ruled that in a market as

competitive as Cleveland’s, market forces protected consumers from unreasonable discrimination. See Orloff v. Vodafone

AirTouch Licenses LLC d/b/a Verizon Wireless, 17 F.C.C.R.

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8987, 8996 (2002). Dissatisfied customers could switch providers, and it was ‘‘unlikely that a carrier would have an

incentive to engage in unreasonable discrimination where

such conduct would result in a loss of customers.’’ Id. at

8996–97. The Commission therefore decided that although,

in terms of charges and services, Verizon treated Orloff

differently than some other similarly situated customers,

Verizon did not engage in unjust or unreasonable discrimination in violation of § 202(a). Id. at 8995. Orloff also claimed

that Verizon’s practice violated the command of § 201 that all

‘‘charges, practices, classifications, and regulations’’ of communications common carriers be ‘‘just and reasonable.’’ The

Commission held that if a practice is just and reasonable

under § 202, it must also be just and reasonable under § 201.

Id. at 8999.

II.

Congress modeled the Communications Act of 1934 on the

Interstate Commerce Act, the ‘‘great purpose’’ of which ‘‘was

to secure equality of rates as to all and to destroy favoritism,

these last being accomplished by requiring the publication of

tariffs and by prohibiting secret departures from such tariffs,

and forbidding rebates, preferences and all other forms of

undue discrimination.’’ New York, New Haven & Hartford

R.R. v. ICC, 200 U.S. 361, 391 (1906). The ‘‘centerpiece’’ of

Title II of the Communications Act was the requirement, set

forth in § 203, that communications common carriers file

their rates with the Commission and charge customers only

those rates. MCI Telecomm. Corp. v. AT&T, 512 U.S. 218,

220 (1994). As in the Interstate Commerce Act, ‘‘rate filing

was Congress’s chosen means of preventing unreasonableness

and discrimination in charges’’ by common carriers. Id. at

230.

A provider of CMRS (commercial mobile radio service)

such as Verizon is ‘‘a common carrier’’ subject to Title II of

the Communications Act. 47 U.S.C. § 332(c)(1)(A). But

Congress gave the Commission authority to render § 203

inapplicable to CMRS and, in 1994, the Commission exercised

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that authority. See 47 C.F.R. § 20.15. For CMRS, the

Commission thereby dissolved what the Supreme Court described as the ‘‘indissoluble unity’’ between § 203’s tarifffiling requirement and the prohibition against rate discrimination in § 202. Texas & Pac. Ry. v. Abilene Cotton Oil Co.,

204 U.S. 426, 440 (1907). In exempting CMRS providers

from § 203, the Commission explained that ‘‘market forces

are generally sufficient to ensure the lawfulness of rate levels,

rate structures, and terms and conditions of service set by

carriers who lack market power.’’ In re Implementation of

Sections 3(n) and 332 of the Communications Act, Regulatory Treatment of Mobile Services, Second Report and Order, 9

F.C.C.R. 1411, 1478 (1994) (‘‘CMRS Second Report and Order’’). A carrier’s success ‘‘should be driven by technological

innovation, service quality, competition-based pricing decisions, and responsiveness to consumer needs — and not by

strategies in the regulatory arena.’’ Id. at 1420. Although

the Commission was later given the authority, in the 1996

Telecommunications Act, 47 U.S.C. § 160(a), to ‘‘forbear from

applying any regulation or provision’’ of the Communications

Act to a telecommunications carrier, it has not exempted

CMRS from § 201 or § 202.

In the past, the question whether a common carrier engaged in ‘‘unjust or unreasonable discrimination’’ in violation

of § 202 was largely determined by reference to the carrier’s

tariff. If the carrier and the customer negotiated a special

rate, different than that set forth in the rate under § 203, a

finding of discrimination usually followed. See Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 130

(1990). In the new regime, however, this obviously cannot be

the measure of what constitutes ‘‘unjust or unreasonable

discrimination.’’ CMRS providers do not file tariffs; in fact,

the Commission has forbidden them from doing so. 47 C.F.R.

§ 20.15(c). How then does one determine whether such a

carrier has engaged in unjust or unreasonable discrimination

in violation of § 202?

One might say that whenever Verizon charges one customer less than its publicly advertised rates it engages in unreasonable discrimination against all other similarly-situated cusUSCA Case #02-1189 Document #793053 Filed: 12/23/2003 Page 5 of 9
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tomers, in violation of § 202. This is Orloff’s main argument.

Setting rates by negotiation, Orloff contends, is inconsistent

with Verizon’s designation — in § 332 — as a ‘‘common

carrier’’ because a ‘‘common carrier does not ‘make individualized decisions, in particular cases, whether and on what

terms to deal.’ ’’ FCC v. Midwest Video Corp., 440 U.S. 689,

701 (1979) (quoting Nat’l Ass’n of Regulatory Util. Comm’rs

v. FCC, 525 F.2d 630, 641 (D.C. Cir. 1976) (‘‘NARUC I’’));

see, e.g., U.S. Telecomm. Ass’n v. FCC, 295 F.3d 1326, 1329,

1332–33 (D.C. Cir. 2002); Virgin Islands Tel. Corp. v. FCC,

198 F.3d 921, 925 (D.C. Cir. 1999).

Orloff’s point is a fair one, but we do not believe it exposes

an error in the Commission’s decision. The traditional, common law definition of a communications common carrier,

reflected in the cases just cited, was employed, ‘‘to draw a

coherent line between common and private carriers,’’ NARUC

I, 525 F.2d at 642, which is how the Supreme Court used the

definition in Midwest Video. When the common carrier

designation fit, the regulatory consequences depended upon

the requirements set forth in Title II. Much of ‘‘the Communications Act’s subchapter applicable to Common Carriers,

see 47 U.S.C. §§ 201–228, TTT [had been] premised upon the

tariff-filing requirement of § 203.’’ MCI Telecomm., 512 U.S.

at 230. The Commission reviewed and approved rates and

determined what level of profits the regulated carrier would

earn. The carrier had to file its rates and make them

publicly available; and it could not charge different rates

without making a new filing and then waiting for a specified

period of time (120 days under § 203(b)(1)). See generally

Joseph D. Kearney & Thomas W. Merrill, The Great Transformation of Regulated Industries Law, 98 COLUM. L. REV.

1323, 1359–61 (1998). All of that has changed for CMRS, at

least in the Cleveland area. Rates are determined by the

market, not the Commission, as are the level of profits. With

§ 203 no longer applicable, there is no statutory provision

even requiring that the carrier publicly disclose any of its

rates, although competition will force it to do so. And if

Verizon wishes to change its advertised rates, or terms of

service, it is free to do so without Commission approval and

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without waiting even for a moment. It may, for instance, run

a commercial in the morning offering prospective customers a

free cell phone, revoke the offer that afternoon, and then

offer a cell phone for half price on the following day.

As common carriers under § 332, CMRS providers still

have duties. They cannot — as the Commission put it —

refuse ‘‘to deal with any segment of the public whose business

is the ‘type normally accepted.’ ’’ Orloff, 17 F.C.C.R. at 8997.

They cannot decline ‘‘to serve any particular demographic

group (e.g. customers who are of a certain race or income

bracket).’’ Id. Nothing in the record indicated that Verizon

fell short on either count.

Because the current system bears so little resemblance to

the paradigm that existed prior to the time the Commission,

with the blessing of Congress, began deregulating CMRS, we

agree with the Commission that the legality of Verizon’s sales

concessions practice depends not on the company’s designation as a common carrier, but on § 202 (and § 201). If ‘‘a

carrier unreasonably discriminated against rural customers,

who lacked adequate choice of providers, in favor of urban

customers,’’ or if ‘‘a CMRS market were inadequately competitive’’ or if there were other market failures limiting

‘‘consumers’ abilities to protect themselves, Section 202 could

be implicated.’’ Id. at 8997–98. But the Commission emphasizes that § 202 prohibits only unjust and unreasonable

discrimination in charges and service. Orloff is therefore not

entitled to prevail merely by showing that she did not receive

all the sales concessions Verizon gave to some other customers — that, in other words, Verizon engaged in discrimination. Verizon may still show that the difference in treatment

was reasonable. See id. at 8993–94.

With respect to the Commission’s interpretation of § 202 as

applied to CMRS, the ‘‘generality of these terms’’ — unjust,

unreasonable — ‘‘opens a rather large area for the free play

of agency discretion, limited of course by the familiar ‘arbitrary’ and ‘capricious’ standard in the Administrative Procedure Act, 5 U.S.C. § 706(2)(A).’’ Bell Atlantic Tel. Co. v.

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FCC, 79 F.3d 1195, 1202 (D.C. Cir. 1996). In Orloff’s view

the Commission acted arbitrarily and capriciously because it

departed from precedent without giving an adequate explanation. She points out that the Commission and this court have

allowed common carriers to charge customer-specific rates

only if they offered the same terms to other, similarly situated customers. See, e.g., MCI Telecomm. Corp. v. FCC, 917

F.2d 30, 37–38 (D.C. Cir. 1990); In re Panamsat Corp. v.

Comsat Corp., 12 F.C.C.R. 6952, 6965–66 (1997); In re Competition in the Interstate Interexchange Marketplace, 10

F.C.C.R. 4562, 4566 (1995). Yet here the Commission allowed Verizon to offer concessions to some customers and not

others, even though there is no discernible difference between

the two groups.

Once again, the cases on which Orloff relies deal with

dominant carriers whose charges were regulated through

§ 203’s tariff-filing requirement. Allowing those carriers to

grant discriminatory concessions would have undermined the

regulatory scheme then in effect. Filed tariffs are pointless if

the carrier can depart from them at will. Permitting a

dominant carrier to discriminate would give it the power to

control its customers’ economic fates, thus defeating one of

the main purposes of common carrier regulation. See ICC v.

Baltimore & Ohio R.R., 145 U.S. 263, 276 (1892). But as the

Commission reasoned, the situation in the Cleveland-area

mobile phone market is distinguishable. Not only are there

no filed rates, but also neither Verizon nor any other CMRS

provider is dominant. Customers dissatisfied with Verizon’s

charges or service may simply switch to another provider.

As the Commission also ruled, Orloff is not in a position to

argue that some potential customers may be unaware that if

they haggle with Verizon, they may get a better deal. ‘‘Orloff

availed herself of the benefits of haggling, receiving numerous

concessions from [Verizon] on two occasions.’’ Orloff, 17

F.C.C.R. at 8998.

In considering whether Verizon justified its sales concession practices as reasonable, the Commission was ‘‘entitled to

value the free market, the benefits of which are wellestablished.’’ MCI Worldcom v. FCC, 209 F.3d 760, 766

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(D.C. Cir. 2000). Haggling is a normal feature of many

competitive markets. It allows consumers to get the full

benefit of competition by playing competitors against each

other. Here Verizon has adopted the practice as a competitive marketing strategy. Consumers, including Orloff, can

only benefit.

Orloff objects that the Commission, rather than focusing on

the nature of the CMRS market in the Cleveland area, should

have compared the deal she struck with Verizon with the

concessions Verizon made for others. Once Verizon negotiates a particular concession with one customer, Orloff says it

must offer the same concession to all customers. This ratcheting effect would, as a practical matter, have one of two

effects. Either Verizon would end its concessions practice

altogether, rendering its advertised rates analogous to tariffs,

or it would have to devise some sort of tracking system to

identify each customer concession resulting from negotiation.

The Commission, which is expert in these matters, found the

latter prospect unduly burdensome. Orloff, 17 F.C.C.R. at

8998–99. As to the former, the Commission properly determined that Verizon’s concessions practice benefitted consumers and was therefore reasonable under § 202. By giving

concessions, Verizon could ‘‘respond immediately to changes

in the marketplace and to individual customer demand when

existing plans and promotions were inadequate.’’ Id. On the

other hand, accepting Orloff’s arguments would harm consumers and would be contrary to Congress’ clearly articulated policy in favor of competition in telecommunications services. See Worldcom, Inc. v. FCC, 238 F.3d 449, 454 (D.C.

Cir. 2001).

The petition for review is denied.

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