Court Upholds FCC Detariffing Order

WASHINGTON (05/01/2000) - After 31/2 years of legal wrangling, a federal appeals court late Friday upheld a 1996 decision by the U.S. Federal Communications Commission ordering long-distance carriers to stop filing tariffs with the government.

Unless appealed, the decision means that business users will be free to negotiate term contracts with major carriers without the threat of having their rates and terms changed in the middle of the contract.

That's because the ruling likely signals the end of the road for the "filed-rate doctrine," an obscure legal concept that nevertheless has bedeviled users over the years. Under this long-standing principle, any tariff filed with a government agency in a regulated industry has legal precedence over a private contract.

For example, under the filed-rate doctrine a business user could negotiate a carrier contract that called for a 40 percent discount below tariff rates for three years. But if the carrier filed a tariff rate increase in the middle of the three years, the effective rate the user paid often would immediately go up, albeit still with a 40 percent discount.

The U.S. Court of Appeals for Washington Friday said the FCC was correct that canceling all long-distance tariffs should knock out the "filed-rate doctrine".

Now the carriers, like most other vendors, will simply post list prices if they wish with no protected legal meaning.

The court decision turned largely on semantics. As far back as the 1980s, the FCC had periodically tried to eliminate one or another type of tariff, but courts had always overturned the rulings. The logic then was that the FCC was within its rights not to "enforce" a requirement to file tariffs but couldn't actually prevent carriers from filing them if they wanted to.

But this time, the FCC had the Telecommunications Act of 1996 on its side. That law gives the FCC to right to stop "applying" certain regulations. The court ruled that using the word "applying" instead of just "enforcing" meant that the FCC could throw out the tariff regime entirely.

Some questions remain for the residential market, where users typically don't sign term contracts except for wireless services. Consumer advocates have warned the FCC and the court that without tariffs, the residential telephony market will look like the credit-card market, where vendors periodically mail out small-print announcements to advise consumers of changes. The FCC said that was no worse than tariff changes, which consumers don't see at all. Some long-distance carriers argued that sending out millions of notices at a time could raise costs and affect consumer prices, but to no avail.

Local carriers are not affected by the decision. The FCC in 1996 said tariffs are still necessary for so-called "dominant carriers" - such as the Bells and GTE - and the bulk of local carriers' rates are filed with state governments.

But the filed-rate doctrine has been considered less of a problem with local carriers anyway. That's because state regulators monitor local carrier tariffs closely and usually look askance at surprise rate increases. By contrast, federal regulators have admitted they've all but stopped reviewing long-distance carriers' tariffs when they come in.

No Internet-access services are affected either way. The Internet market continues generally exempt from common-carrier regulations such as tariffs.

A spokeswoman for MCI WorldCom, which was the lead carrier suing the FCC, said company lawyers are analyzing the decision to decide whether to sue. The company could ask for a rehearing before the full federal appeals court in D.C.

- the case was heard by three of the court's 12 judges - or appeal to the Supreme Court. An FCC spokesman says that in any event some procedural matters need to be cleared up before full detariffing can go into effect.

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