Orloff v. Federal Communications Commission

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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 Com-
mission, argued the cause for respondent. With him on the
brief were Robert B. Nicholson and Steven J. Mintz, Attor-
neys, U.S. Department of Justice, Jane E. Mago, General
Counsel, Federal Communications Commission, and John E.
Ingle, Deputy Associate General Counsel. Daniel M. Arm-
strong, 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. Jac-
queline 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 dur-
ing this period, the Cleveland-area mobile phone market was
highly competitive. Five facilities-based providers and nu-
merous 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 pro-
motions, 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 adver-
tise the availability of sales concessions (or of ‘‘retention
concessions’’ for existing customers, which Orloff no longer
challenges). The concessions were offered at the salesper-
son’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 Commu-
nications 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 Air-
touch 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 consum-
ers from unreasonable discrimination. See Orloff v. Vodafone
AirTouch Licenses LLC d/b/a Verizon Wireless, 17 F.C.C.R.
 4

8987, 8996 (2002). Dissatisfied customers could switch pro-
viders, 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 discrimina-
tion 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 com-
munications 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 de-
scribed as the ‘‘indissoluble unity’’ between § 203’s tariff-
filing requirement and the prohibition against rate discrimi-
nation 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, Regulato-
ry Treatment of Mobile Services, Second Report and Order, 9
F.C.C.R. 1411, 1478 (1994) (‘‘CMRS Second Report and Or-
der’’). A carrier’s success ‘‘should be driven by technological
innovation, service quality, competition-based pricing deci-
sions, 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 en-
gaged 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 In-
dus., 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 custom-
er less than its publicly advertised rates it engages in unrea-
sonable discrimination against all other similarly-situated cus-
 6

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 individu-
alized 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, com-
mon 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 Commu-
nications 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 Trans-
formation 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
 7

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 designa-
tion 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 com-
petitive’’ 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 empha-
sizes 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 custom-
ers — that, in other words, Verizon engaged in discrimina-
tion. 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 ‘arbi-
trary’ and ‘capricious’ standard in the Administrative Proce-
dure Act, 5 U.S.C. § 706(2)(A).’’ Bell Atlantic Tel. Co. v.
 8

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 explana-
tion. 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 situat-
ed 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 Com-
petition in the Interstate Interexchange Marketplace, 10
F.C.C.R. 4562, 4566 (1995). Yet here the Commission al-
lowed 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 conces-
sion practices as reasonable, the Commission was ‘‘entitled to
value the free market, the benefits of which are well-
established.’’ MCI Worldcom v. FCC, 209 F.3d 760, 766
 9

(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 competi-
tive 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 negoti-
ates a particular concession with one customer, Orloff says it
must offer the same concession to all customers. This ratch-
eting 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 deter-
mined that Verizon’s concessions practice benefitted consum-
ers 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 con-
sumers and would be contrary to Congress’ clearly articulat-
ed policy in favor of competition in telecommunications ser-
vices. See Worldcom, Inc. v. FCC, 238 F.3d 449, 454 (D.C.
Cir. 2001).
The petition for review is denied.