MCI Worldcom, Inc. v. Federal Communications Commission

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

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, Mi-
chael 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 respon-
dents. 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 Commis-
sion, Susan L. Launer, Deputy Associate General Counsel,
and Laurence N. Bourne, Counsel. Richard K. Welch, Coun-
sel, entered an appearance.

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

Before: Silberman, Randolph, and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: Petitioners, the large long-
distance telecommunications carriers, seek review of an FCC
order prohibiting them from filing tariffs with the Commis-
sion. We reject their petition.

I.

Commission efforts to move to a nontariff environment for
interexchange carriers--insofar as those carriers do not exer-
cise 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-

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 Com-
mission tried to prohibit tariff-filing by nondominant carri-
ers--in essence, those other than AT&T--but that effort was
successfully challenged in this court in MCI Telecommunica-
tions 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 car-
riers--allowing those carriers to choose whether to file tar-
iffs--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 telecom-
munications service, or class of telecommunications carri-
ers 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, classifi-
cations, 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 regula-
tion 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 interex-
change 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 per-
mitting carriers to file tariffs at all would not be in the public
interest. It thus announced its intention to implement man-
datory detariffing by "forbearing from applying" s 203(a) of
the 1934 Act. Following a comment period the FCC con-
firmed 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 Or-
der, 11 F.C.C.R. 20730, 20742-47, 20750-53 (1996).

In their comments, petitioners did not dispute the Commis-
sion's tentative conclusion that tariffing was no longer neces-

__________
1 The 1996 Act was passed in the expectation that telecommunica-
tions carriers would actively seek detariffing. See 47 U.S.C.
s 160(c) ("Any telecommunications carrier, or class of telecommuni-
cations 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....").

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 in-
crease 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 con-
tracts 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 prac-
tical 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 detar-
iffing. It found petitioners' proposed distinction between
large and small customers immaterial, because the competi-
tive benefits of detariffing would be felt by both. The
Commission was also concerned that courts might not inter-
pret the interplay of permissive detariffing and the filed-rate
doctrine quite as petitioners suggested, and that carriers

__________
2 Casual calling refers to collect calls, credit-card calls, or dial-
around calling.

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 Concern-
ing the Interstate, Interexchange Marketplace, 12 F.C.C.R.
15014 (1997); Second Order on Reconsideration and Erra-
tum, In re Policy and Rules Concerning the Interstate,
Interexchange Marketplace, 14 F.C.C.R. 6004 (1999).

Petitioners challenge both the order and the reconsidera-
tion orders, and raise before us the same concerns presented
to the Commission. They argue that the mandatory detariff-
ing 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 be-
cause 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 ad-
vanced 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 detariff-
ing--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) (em-
phasis added). Petitioners urge that under the plain lan-
guage 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 Commis-
sion "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 provi-
sion 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 there-
fore 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 re-
gime, and therefore the extra transaction costs imposed on
the carriers--and passed through to consumers--are unnec-

__________
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.

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 disen-
tangle 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 pre-
sented to the FCC, the filed-rate doctrine has been used by
the carriers as a shield to avoid individual contract negotia-
tions with large and small users, thereby reducing competi-
tion among carriers. Petitioners argue that streamlined tar-
iff 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 elimi-
nate 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

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 Com-
mission.

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 com-
ments 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 Commis-
sion 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

__________
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

 Moreover, as we read the Commission's decision the es-
sence 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, interex-
change service is the most pro-competitive, deregulatory sys-
tem." Second Report and Order, 11 F.C.C.R. at 20760. It
thought the public interest would best be served by "estab-
lishing market conditions that more closely resemble an
unregulated environment." See id. It noted that the "par-
ties that oppose complete detariffing have not shown that the
business of providing interstate, domestic, interexchange ser-
vices 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 with-
out more justification than simply a desire to embrace the
free market. We think, however, the Commission was enti-
tled 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

__________
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.

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.

__________
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.