Regulatory News – Court Agrees with FCC: Free IXCs from Tariff

Posted:  06/2000

Court Agrees with FCC: Free IXCs from Tariff
By Kim Sunderland

Several IXCs have lost a three-year battle with the FCC
(www.fcc.gov) in a federal appeals court over the requirement that they file federal tariffs outlining their rates or service changes. The court rejected April 28 their petition seeking review of an FCC order prohibiting them from filing tariffs with the commission.

The U.S. Court of Appeals for the D.C. Circuit
(www.cadc.uscourts.gov) upheld the FCC’s 1996 decision, which MCI WorldCom Inc.
(www.wcom.com) challenged and other IXCs who called the decision unreasonable and said it exceeded the federal agency’s authority.

“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,” the appeals court ruled. “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 every 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.

Presumably, under the court’s order, long-distance providers now must enter into separate customer contracts upon changes in pricing or service, explains Dena
Alo-Colbeck, director of public policy for regulatory consultants Miller Isar (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.”

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,” an MCI WorldCom spokeswoman said the company will work with the FCC to make the transition smooth for consumers.

On the other hand, FCC Chairman William E. Kennard calls consumers winners because the IXCs will 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 that the tariff system was hindering full competition because companies can find out what their competitors are charging through the publicly available tariffs. The appeals court agreed that the FCC had 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 in its unanimous decision.

“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.”