Regulatory News – Appeals Court Frees IXCs from Tariffs

Posted:  07/2000

Appeals Court Frees IXCs from Tariffs
By Kim Sunderland

All is not lost for the IXCs that lost a three-year battle with the FCC
(www.fcc.gov) in federal appeals court over the requirement that they file federal tariffs outlining their rates or service changes.

Earlier this year, the U.S. Court of Appeals for the D.C. Circuit
(www.cadc.uscourts.gov) upheld the FCC’s 1996 decision, which WorldCom Inc.
(www.wcom.com) and other IXCs challenged, calling the ruling unreasonable. They also said the commission exceeded its authority.

The court rejected the claims and ruled the FCC’s order prohibiting them from filing tariffs with the commission stands.

“As we read the commission’s decision, the essence 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,” according to the appeals court decision. “The commission concluded that ‘a regime without nondominant interexchange carrier tariffs for interstate, domestic, interexchange service is the most pro-competitive, deregulatory system.’ We think … the commission was entitled to value the free market, the benefits of which are rather well established.”

The IXCs believe that detariffing forces them to ink other contracts with customers each time they change their rates or services. This, in turn, will make it more difficult for them to offer new discount plans or promotions, because they’ll have to spend more money on informing individual consumers of each subsequent change.

According to the IXCs, 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, according to the court’s ruling.

All of this came true with the appeals court’s ruling. Under the court’s order, long-distance providers now must enter into these separate customer contracts upon changes in pricing or service, explains Dena
Alo-Colbeck, director of public policy for regulatory consultants Miller Isar Inc.
(www.millerisar.com).

“By instituting mandatory detariffing, the order may cause a substantial increase in service provider operations costs, especially those of smaller providers, who may no longer rely upon federal tariff filings to inform customers of pricing policies,” she says.

The IXCs say the tariffs would allow them a sort of one-shot deal: They could work out individual contracts with large users but file tariffs in other cases where a change might affect millions of mass-market consumers. While detariffing is “unfortunate,” a WorldCom spokeswoman says the company would work with the FCC to make the transition smooth for consumers.

FCC Chairman William E. Kennard, on the other hand, calls consumers winners because the IXCs have to better inform them of any changes.

“What long-distance companies ought to be doing is aggressively advertising their prices on the Internet and in the media,” Kennard said in a statement. “Federal
tariff filings can no longer be used as a tool to keep prices higher than what a competitive marketplace would require.”

The FCC says the tariff system was hindering full competition because companies learn what their competitors are charging through the publicly available tariffs. The appeals court agreed the FCC has the authority to abolish the federal tariff requirement.

“It was certainly reasonable to move regulation in that direction even if it ostensibly raises transaction costs for the carriers,” the three-judge panel ruled unanimously.

“The commission … wishes to disentangle the interexchange carriers’ prices from the filed-rate doctrine,” according to the court order. “The commission has long been concerned that the necessity of filing tariffs hinders competitive responsiveness.

“And, according to consumer representatives’ comments presented to the FCC, the filed-rate doctrine has been used by the carriers as a shield to avoid individual contract negotiations with large and small users,
thereby reducing competition among carriers,” the court ruling states.

Getting Over It

IXCs now must determine how the commission’s order will change their business practices. Since the original 1996 order, they have continued to file tariff information with the FCC.

According to telecom attorney Mitchell F.
Brecher, partner in the Washington offices of Greenberg Traurig (www.gtlaw.com), carriers need to consider several points.

First, all carriers subject to mandatory detariffing must turn their attention to establishing contractual relationships with their customers, Brecher says.

Second, “while the FCC decision affirmed by the court was limited to the 1996 decision requiring the detariffing of domestic interstate interexchange services, look for the FCC to use its forbearance authority to detariff other competitive services such as access services of CLECs and international services,” he explains.

Finally, carriers should determine how domestic detariffing affects the in-region interstate long-distance services of BOCs who have not been classified as nondominant for in-region long distance, Brecher says.

There is light at the end of the tunnel, he concludes.