MCI WorldCom v. Fed. Commun. Comm'n, 96-1459

• Decision Date: 28 April 2000
• Docket Number: No. 96-1459,96-1459
• Citation: 209 F.3d 760,341 U.S. App. D.C. 132
• Parties: (D.C. Cir. 2000) MCI WorldCom, Inc., et al., Petitioners v. Federal Communications Commission and United States of America, Respondents Competitive Telecommunications Association, et al., Intervenors Consolidated with96-1477, 97-1009, 97-1676, 98-1003,98-1007, 99-1240, 99-1242
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 760

209 F.3d 760 (D.C. Cir. 2000)

MCI WorldCom, Inc., et al., Petitioners v. Federal Communications Commission and United States of America, Respondents

Competitive Telecommunications Association, et al., Intervenors

No. 96-1459 Consolidated with96-1477, 97-1009, 97-1676, 98-1003,98-1007, 99-1240, 99-1242

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 14, 2000

Decided April 28, 2000

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, 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. §§ 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 deter-mines 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 ser-vice 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 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 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 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...