909 F.2d 1510 (D.C. Cir. 1990), 89-1424, Public Service Com'n of Maryland v. F.C.C.

Docket Nº:89-1424.
Citation:909 F.2d 1510
Party Name:PUBLIC SERVICE COMMISSION OF MARYLAND and the Maryland Office of People's Counsel, Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, Pennsylvania Public Utility Commission, Bell Atlantic Telephone Companies, American Telephone and Telegraph Company, MCI Telecommunications Corporation, National Associat
Case Date:August 03, 1990
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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909 F.2d 1510 (D.C. Cir. 1990)


Office of People's Counsel, Petitioners,



America, Respondents,

Pennsylvania Public Utility Commission, Bell Atlantic

Telephone Companies, American Telephone and Telegraph

Company, MCI Telecommunications Corporation, National

Association of Regulatory Utility Commissioners, New York

Telephone Company, et al., Mountain States Telephone and

Telegraph Company, Northwestern Bell Telephone Company,

Pacific Northwest Bell Telephone Company, State of Michigan,

Michigan Public Service Commission, Florida Public Service

Commission, Public Service Commission of the District of

Columbia, United States Telephone Association, Intervenors.

No. 89-1424.

United States Court of Appeals, District of Columbia Circuit.

August 3, 1990

Argued April 27, 1990.

Sandra Hall-Eckroade, with whom Bryan G. Moorhouse and John M. Glynn, were on the brief, for petitioner.

John E. Ingle, Deputy Associate Gen. Counsel, F.C.C., with whom Robert L. Pettit, Gen. Counsel, and Linda L. Oliver, Atty., F.C.C., James F. Rill, Asst. Atty. Gen., Catherine G. O'Sullivan and Andrea Limmer, Attys., U.S. Dept. of Justice, were on the brief, for respondents. Diane S. Killory and Daniel M. Armstrong, Attys., F.C.C., also entered appearances, for petitioners.

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David E. Smith and Debra W. Schiro for Florida Public Service Com'n, Paul Rodgers and Charles D. Gray for Nat. Ass'n of Regulatory Utility Com'rs, were on the joint brief, for intervenors.

Francine J. Berry, Michael J. Morrissey, David W. Carpenter, and Peter D. Keisler for American Tel. & Tel. Co., Mark J. Mathis and J. William Sarver for Bell Atlantic Telephone Companies, and Martin T. McCue for U.S. Telephone Ass'n were on the joint brief, for intervenors. Thomas L. Welch also entered an appearance, for intervenor Bell Atlantic Telephone Companies.

Veronica A. Smith, John F. Povilaitis and Sonia M. Walwyn entered appearances, for intervenor Pennsylvania Public Utility Com'n.

Frank W. Krogh and John M. Scorce, entered appearances, for intervenor MCI Telecommunications Corp.

Martin J. Silverman and Saul Fisher, entered appearances, for intervenor NYNEX Telephone Companies.

Dana A. Rasmussen and Robert B. McKenna, entered appearances for intervenors Mountain States Tel. & Tel. Co., Northwestern Bell Telephone Co., and Pacific Northwest Bell Telephone Co.

Frank J. Kelley, Louis J. Caruso, Don L. Keskey, and Henry J. Boynton, entered appearances for intervenors State of Michigan and Michigan Public Service Com'n.

Howard C. Davenport and Mary J. Sisak entered appearances for intervenor Public Service Com'n for the District of Columbia.

Before EDWARDS, SILBERMAN and WILLIAMS, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

The Maryland Public Service Commission petitions for review of an FCC order refusing to modify an FCC regulation that, inter alia, preempts the states' authority to regulate the rates of a particular service local exchange carriers provide to interexchange carriers. We deny the petition.


This case presents a jurisdictional dispute between the FCC and the Maryland PSC primarily over the authority to regulate the price charged by a local exchange carrier ("LEC") to interexchange carriers for a service called DNP. DNP involves the disconnection by an LEC of a local subscriber's telephone for non-payment of his bill. The bill can be for either interstate (interexchange) or local service. 1 In either event, DNP involves total disconnection; it prevents the customer from using his phone at all for both interstate and local calls. DNP thus is an extremely attractive service to interexchange carriers: a delinquent customer is more likely to be convinced to pay his interexchange bill by the threat of a cutoff of all phone service than by the prospect of referral to a collection agency. DNP is offered by the LECs as part of an overall billing and collection service they provide to AT & T, and it may presumably also be provided separately to other interexchange carriers--such as MCI and Sprint--which have developed their own billing and collection operations.

Prior to the breakup of the Bell System pursuant to the Modification of Final Judgment, United States v. American Tel. & Tel. Co., Inc., 552 F.Supp. 131 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983) ("MFJ "), the FCC unquestionably had jurisdiction over all billing and collection services provided by one part of the Bell system to another. During that period, the LECs (then referred to as Bell Operating Companies or "BOCs") offered customers joint rate interstate service in conjunction with AT & T. Consequently, when the LECs billed customers for AT & T interexchange service, they

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were billing and collecting for their own communications offering. Billing and collecting for a carrier's own offering is part and parcel of providing that service in the first place, and since the service itself fell within the FCC's jurisdiction, the billing and collecting process did as well. The LECs' costs for billing and collecting services were allocated between intrastate and interstate accounts according to the jurisdictional separation procedure. See generally 47 C.F.R. Part 36.

The MFJ, however, required AT & T both to divest itself of the LECs and to terminate the joint rate interstate service it had offered to customers in conjunction with the LECs. See MFJ, 552 F.Supp. at 141-143. Thus, billing and collection for interexchange service by the LECs became a service sold to another carrier. As AT & T remained dependent upon the LECs for billing and collection, the FCC nonetheless continued to regulate billing and collection services provided by the LECs. The FCC's initial concern was to ensure that the LECs provided such services--and particularly the important collection tool DNP--on a non-discriminatory basis to all interexchange carriers. Accordingly, it established a federal access tariff (which it regulated under Title II of the Communications Act, see 47 U.S.C. Sec. 201) for billing and collection performed for an interexchange carrier and required an LEC offering such services to one interexchange carrier to offer them to all. See MTS and WATS Mkt. Structure, Third Report and Order, 93 F.C.C.2d 241, 313 (1983). The Commission limited the LECs' return on these services to 12.75%. See Investigation of Access and Divestiture Related Tariffs and MTS and WATS Mkt. Structures, 49 Fed.Reg. 2394 (1984).

In addition, recognizing that the ability to disconnect both local and interexchange service for non-payment of the interexchange bill gives the LECs' billing and collecting services a powerful market advantage over erstwhile competitors, the FCC initially prohibited linking the two, i.e., it forbade the LECs from cutting off local service as well as interexchange service for non-payment of the interexchange bill. In response to this order, the LECs submitted technical data demonstrating that it was not possible to disconnect one without disconnecting the other. The FCC therefore retreated and permitted the LECs to continue to provide full disconnection for nonpayment of interexchange bills (subject to the approval of such service by state authorities) while it studied the matter further. See Investigation of Access and Divestiture Related Tariffs, Phase I, Mimeo No. 4246 (CC Docket No. 83-1145) (May 16, 1984).

In 1986, the FCC reexamined both its post-breakup jurisdiction to regulate the LECs' provision of billing and collection services and the desirability of continued regulation. The FCC acknowledged that it could no longer exercise jurisdiction over billing and collection services on the basis of Title II of the Act because it was now apparent--after the breakup--that these services were not "common carrier services" (see supra pp. 1511-1512). Detariffing of Billing and Collection Servs., Report and Order, 102 F.C.C.2d 1150, 1168 (1986) ("Detariffing Order"). Instead, it rested its jurisdiction in this area on its authority under Title I to regulate (or deregulate) services " 'incidental' " to the transmission of communication by wire. Id. at 1169 (quoting 47 U.S.C. Secs. 152-153). Moreover, seeing that the LECs were facing competition in the billing and collection area, and therefore that a market for these services was developing, it decided to eliminate all rate regulation of the billing and collection services provided by the LECs to interexchange carriers. See id. at 1170-71. And to prevent the states from attempting to fill this new regulatory gap, the Commission preempted the states from regulating billing and collection rates charged by the LECs to interexchange carriers, including rates for DNP (which Wyoming and Maine had previously sought to regulate). See id. at 1177. But the FCC left the states free to determine whether to permit the LECs to offer DNP at all and to regulate "questions such as the amount of notice that a customer must be given before discontinuance

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occurs." Id. at 1176-1177. 2

In the meantime, before the FCC issued its final order in the detariffing proceeding, the Maryland PSC ordered Chesapeake and Potomac Telephone Company ("C & P"), over its protests, to impose a $4.2 million surcharge on AT & T for DNP. AT & T sued to prevent the surcharge in federal district court in Maryland, see AT & T Communications of Maryland, Inc. v. Public Service Comm'n of Maryland, No. N-85-4709 (filed Nov. 19, 1985), and after the Detariffing Order was issued it amended its complaint to seek enforcement of the FCC's decision to preempt state regulation of rates charged for DNP. The Maryland PSC did not seek review...

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