Amicus Curiae Brief — United States v. American Telephone & Telegraph Co.

FILED

NOY 1 1993

eevee VVUTL, U.S

No. 93-521 j UFFiGE OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

UNITED STATES OF AMERICA AND

FEDERAL COMMUNICATIONS CoM MISSION,

Petitioners.

Vv.

AMERICAN TELEPHONE & TELEGRAPH COMPANY, et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia Circuit

BRIEF OF AMICI CURIAE

WILTEL, INC., ET AL.

IN SUPPORT OF PETITIONERS

PETER A. ROHRBACH

DAVID G. LEITCH

HOGAN & HARTSON

555 Thirteenth Street, N.W.

Washington, D.C. 20004

(202) 637-5822

* Counsel of Record Counsel for Amici Curiae

WILSON - EPES PRINTING Co.__ INc 789-0096 - WASHINGTON. D.C. 20001

BEST AVAILABLE COPY

TABLE OF CONTENTS

TABLE OF AUTHORITIES 000.0 .occe ccc cceecececeeeeeeeee

STATEMENT OF INTEREST OF AMICI CURIAE..

STATEMENT OF THE CASE oo

SUMMARY OF ARGUMENT oes

IEE tasirtcinsineiisatiibbnicebiveapiiminaissditsteitsicicepnascticacennneanee

I.

II.

ITI.

THE FCC’S PERMISSIVE DETARIFFING

POLICY HAS BEEN A PRIMARY FACTOR

IN THE DEVELOPMENT OF COMPETITION

IN THE MARKET FOR LONG DISTANCE

BE ciiliesietaiapiclncsbisisiaststisces Sosliddiiensisinsamibpeemitadois

THE ERRONEOUS DECISION OF THE

COURT BELOW WILL INHIBIT THE FCC’S

ABILITY TO FOSTER COMPETITION IN

OTHER TELECOMMUNICATIONS _ SER-

cn CERT TA EELS ES CD

THE COURT SHOULD CLARIFY THIS

ISSUE TO PROVIDE CERTAINTY TO THE

FCC AND ALL AFFECTED PARTIES .........

CONCLUSION ........................ sidiahintevinneisinemtiannisnstisnsssonecoes

13

16

20

ii

TABLE OF AUTHORITIES

Cases Page

Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984) 3

MCI Telecommunieations Corp. Vv. American Tele-

phone & Telegraph Co. (No. 93-856) 2,3

MCI Telecommunications Corp. Vv. American Tele-

phone & Telegraph Co., 113 S.Ct. 2030 (1993) ... 19

United States v. United States Gypsum Co., 438

eS ON ee 8-9

Administrative Rulings

Competitive Carrier Rulemaking

First Report and Order, 85 F.C.C.2d 1

| EN 7

Fourth Report and Order, 95 F.C.C.2d 554

(1983) ... : 7

Further Notice of Proposed Rulemaking, 84

pores Fo: = | eee 9,12

Notice of Inquiry and Proposed Rulemaking,

77 F.C.C.2d 808 (1979) 0... 7,8

Second Report and Order, 91 F.C.C.2d 59

CEI) oecnccnsccasennscnuaniissiasiain tana 6,9

Expanded Interconnection with Local Telephone

Company Facilities

Notice of Proposed Rulemaking and Notice of

Inquiry, 6 FCC Red 3259 (1991) 14

Report and Order and Notice of Proposed

Rulemaking, 7 FCC Red 7369 (1992) 14

Second Notice of Proposed Rulemaking, 7

PCC Red T74O (10GB) qoncecccccccecceseeee 15

Second Report and Order, FCC 93-379 (Sept.

SS | Ns 15

Tariff Filing Requirements for Nondominant Com-

mon Carriers

Memorandum Opinion and Order, FCC 98-

401 (Aug. 18, 1993) 9, 12, 15, 17, 18

Notice of Proposed Rulemaking, 7 FCC Red

SO6 (IGGBD. .nccincenaeeeeeeee 10

Notice. of Proposed Rulemaking, 8 FCC Red

SSCS (ORGGDD ccitiiscccmnade ee 15

iii

TABLE OF AUTHORITIES—Continued

Statutes Page

9

i 7

NT 7

I passim

_ | __ a e 3

Miscellaneous

FCC Industry Analysis Division, Long Distance

Market Share, Second Quarter 1993 (Oct. 5,

as 6

Telecommunications Reports (Sept. 13,1993) 13, 18

Telecommunications Reports (Mar. 15,1993) 19

Telecommunications Reports (Feb. 15,1993) 18

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-521

UNITED STATES OF AMERICA AND

FEDERAL COMMUNICATIONS COMMISSION,

. Petitioners,

AMERICAN TELEPHONE & TELEGRAPH COMPANY, et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia Circuit

BRIEF OF AMICI CURIAE

WILTEL, INC., ET AL.

IN SUPPORT OF PETITIONERS

~

STATEMENT OF INTEREST OF AMICI CURIAE

Amici WilTel, Inc., LDDS Communications, Inc. d’b/a

LDDS Metromedia Communications, Cable & Wireless

Communications, Inc., Chadwick Telecommunications

Corp., American Network Exchange, Inc., KLP, Inc.

dba Call-America, U.S. Long Distance, Inc., Consoli-

dated Network, Inc., Capital Network System, Inc., Im-

pact Telecommunications Corp., LCI International, Inc.,

One-2-One Communications, Inc., and Telephone Elec-

tronics Corp. are long distance telephone companies of

varying size. All of these companies are considered non-

dominant interexchange carriers by the Federal Com-

munications Commission, and accordingly were not re-

2

quired to file and maintain tariffs with the Commission

prior to the decision below. America’s Carriers Tele-

communications Association is a trade association rep-

resenting nondominant long distance carriers. MFS Com-

munications Company is a competitive local exchange

carrier in the emerging market for alternatives to the local

telephone company monopolies, and also was not required

to file tariffs prior to the decision below.

Under the court of appeals’ decision, amici will be re-

quired to file tariffs with the Federal Communications

Commission. This requirement will not only result in

added financial burdens on amici but will also be detri-

mental to the viability and further development of tele-

communications competition. Amici therefore have a

direct stake in the outcome of this case, and submit this

brief to explain that the issue presented here is not simply

an isolated dispute between AT&T and MCI, but rather

is of far-reaching significance to the entire telecommunica-

tions industry. This brief is filed with the consent of the

parties. Copies of the consent letters have been filed with

the Clerk.

STATEMENT OF THE CASE

This case arises from a decision of the Court of Appeals

for the District of Columbia Circuit invalidating the long-

standing permissive detariffing policy of the Federal Com-

munications Commission (“FCC” or “Commission”). The

court of appeals found that this policy, which the FCC

has characterized as “one of the cornerstones” of its regu-

lation of developing telecommunications competition,’ vio-

' 93-356 Pet. App. 65a. Appendix references are to the appendix

to the petition for writ of certiorari filed by MCI Telecommunica-

tions Corp., which seeks review of the same decision at issue in

this case. MCI Telecommunications Corp. V. American Telephone

& Telegraph Co. (No. 93-356). Unless otherwise indicated, citations

to FCC orders and notices are citations to such items in the Com-

petitive Carrier Rulemaking docket.

3

lated Section 203 of the Communications Act of 1934, as

amended (“the Communications Act” or “the Act”), 47

U.S.C. § 203.

The facts and procedural history of the case are fully

set forth in the Petition and will not be repeated.

SUMMARY OF ARGUMENT

The amici here fully endorse the legal analysis set forth

in the Petition. We agree that the court of appeals read

the plain meaning of Section 203 too narrowly when it

found that this provision did not give the FCC the flexi-

bility to adopt permissive detariffing. We agree that the

court failed to consider and give deference to the FCC’s

reasonable interpretation of its governing statute as re-

quired by Chevron U.S.A. Inc. v. Natural Resources De-

fense Council, Inc., 467 U.S. 837, 844 (1984). And we

agree that Congress has clearly ratified this interpretation

in legislation that the court below ignored, the Telephone

Operator Consumer Services Improvement Act of 1990,

47 U.S.C. § 226.

We are writing here not to repeat those legal arguments,

but rather to emphasize the overwhelming importance of

this matter to the Nation’s ongoing transition from monop-

oly to competitive telecommunications markets.? This

transition is at a relatively advanced (but incomplete)

Stage in the long distance market. Competition with local

telephone companies, however, is only beginning. The

FCC had just taken its first major steps to encourage

such competition when the D.C. Circuit invalidated the

* Review of the decision below has been supported not only by

the government, but also by virtually all major competitors to

AT&T and the local telephone companies, and the respective trade

associations of those competitors. In addition to this brief of

amici, MCI Telecommunications Corp. has filed a separate petition

for certiorari (No. 93-356) and respondents Sprint Communications

Company, the Competitive Telecommunications Association, and the

Association for Local Telecommunications Services have supported

the petition filed by the government in this case.

4

permissive detariffing policy. The court’s decision is a

major step backward toward a regulatory regime that

stifles competition and innovation by granting substantial

power to dominant carriers to control the telecommuni-

cations market.

The court of appeals struck down one of the most im-

portant tools used by the FCC to manage competitive

market development. The FCC has used the flexibility

provided by Section 203 of the Act to avoid harmful and

unnecessary tariff regulation of developing competitors—

regulation that the Commission has found could prevent

competition from taking root in the face of the market

power of preexisting monopolies. As market competition

grows, the Commission then uses this flexibility gradually

to reduce regulation of the dominant monopoly. Review

by this Court is necessary to restore this tool to the FCC,

remove the confusion created by the court below, and

clarify the rules governing the competitive telecommunica-

tions market at both the long distance and local levels.

Failure to restore permissive detariffing will have a

significant adverse impact on the FCC’s ability to com-

plete the development of a fully competitive long distance

market—a market in which AT&T still holds over a 60

percent market share, three times greater than its nearest

rival. Equally important, without permissive detariffing

the Commission will be severely hampered in its ability to

foster nascent competition with the local telephone com-

panies. Thus, this matter has broad importance to all sec-

tors of the telecommunications industry—as well as to

users of telecommunications service, who strongly sup-

ported permissive detariffing below.

At a minimum, the Court should accept this case to

clarify the central question of the meaning of Section 203.

The FCC’s tariff policies go to the heart of the relation-

ship between telecommunications carriers and their cus-

tomers. Therefore, uncertainty as to the lawfulness of

these policies casts a chilling cloud over the entire indus-

5

try. AT&T and certain telephone companies already have

challenged the FCC’s related action to adopt new tariff

policies in compliance with the decision below. These

challenges rest on the same interpretation of Section 203

that is under dispute here. Even worse, AT&T and other

dominant carriers are relying on the court of appeals’

interpretation of Section 203 in seeking money damages

from their smaller competitive rivals. Although such

claims are meritless, they further chill market compe-

tition. A definitive ruling on Section 203 thus is neces-

Sary to restore order to the telecommunications market

and flexibility to the FCC’s pro-competitive policies.

ARGUMENT

If permitted to stand, the decision of the court of ap-

peals will have profound effects on both past actions and

future development of the domestic telecommunications

industry. The decision has thrown the further develop-

ment of competitive telecommunications into doubt, as it

removed from the FCC a primary means by which it has

encouraged that development in the past. The decision is

also being aggressively used by dominant carriers to at-

tack nondominant carriers’ past actions undertaken in re-

liance on the Commission’s permissive detariffing rules

through the pursuit of damage claims against their smaller

rivals. This Court's consideration of the decision below.

therefore, is of vital importance to the continued growth

and maturation of the Nation’s telecommunications in-

dustry.

I. THE FCC’S PERMISSIVE DETARIFFING POLICY

HAS BEEN A PRIMARY FACTOR IN THE DEVEL-

OPMENT OF COMPETITION IN THE MARKET

FOR LONG DISTANCE SERVICES

In announcing the results of the rulemaking at issue

here. the FCC determined that “permissive detariffing has

proven to be a success over the years, as evidenced by

6

the robust competition in the interexchange [long distance]

market and the increased choices for customers with re-

spect to carriers and prices.” 93-356 Pet. App. 29a. Con-

sumer choice increased dramatically under the policy: “In

1982, approximately a dozen long distance carriers oper-

ated within the United States. By March 1992, there

were an estimated 482 such carriers purchasing switched

access from local exchange carriers.” /d. at 30a (footnote

omitted). From 1984 until the end of 1992, “overall

interstate calling has grown at an annual rate of about

12%, with carriers other than AT&T posting an average

annual growth rate in excess of 25%.” Id. at 3la.

AT&T’s share of the market, while still large enough to

secure its place as the dominant carrier, “declined from

over 80% to just more than 60%, while its rates for

directly dialed interstate have also fallen substantially.”

Id. (footnote omitted) .*

Although several factors undoubtedly contributed to

the dynamic rate of change in the telecommunications

market, the role of the permissive detariffing policy has

been particularly significant. The FCC recognized at an

early stage that conventional tariff regulation would be

counterproductive to its goal of encouraging new com-

petition to AT&T. Consequently, in 1979 the Commis-

sion began its Competitive Carrier Rulemaking, which

ultimately led to adoption in 1982 * of the permissive de-

tariffing rules found unlawful nearly a decade later by the

D.C. Circuit.

% The FCC has reported that “at the end of 1992, about 73% of

the nation’s [telephone] lines were presubscribed to AT&T, 15°%

to MCI and 6% to US Sprint,” with “[o]ver four hundred smaller

carriers” accounting for the remainder of the interstate long dis-

tance industry. FCC Industry Analysis Division, Long Distance

Market Share, Second Quarter 1993 at 3 (Oct. 5, 1993).

* See Second Report and Order, 91 F.C.C.2d 59, 71 (1982). No

party requested review of this decision at the time. Petitioners

correctly note that AT&T itself defended permissive detariffing for

some years thereafter. Pet. 6.

7

The Competitive Carrier Rulemaking was prompted by

the FCC’s concern that “some of the potential public

benefits which we had hoped would flow from freer entry

have been frustrated, in part, by continued adherence to

rules and procedures governing tariff filings * * * de-

signed primarily for carriers with dominant market posi-

tions and monopoly services.” Notice of Inquiry and

Proposed Rulemaking, 77 F.C.C.2d 308, 330 (1979). See

also id. at 309.° The FCC found that tariffing require-

ments imposed significant impediments to market entry,

for the direct costs of preparing, filing, and maintaining

a current tariff are substantial. In addition, the Commis-

sion recognized that access by both AT&T and other

would-be competitors to one’s competitive business pro-

posals also results in substantial indirect costs on new

entrants.

5 As the petitioners observe, this concer® led the Commission to

propose and later to adopt policies to reduce the regulatory burden

on carriers with small market shares. Pet. 5. But the Commis-

sion’s action was not simply a bald deregulatory policy favoring

new entrants over the former monopolist AT&T. Rather, the

policies adopted by the Commission were grounded in its reasoned

and expert understanding of what regulations were necessary—and

which were unnecessary or even detrimental—to compliance with

the Communications Act.

In its 1979 Notice of Proposed Rulemaking, the Commission an-

nounced its “tentative belief that competitive carrier rates are

highly unlikely to contravene the Act.” 77 F.C.C.2d at 310. The

Commission reasoned that under then-current market conditions

and widely accepted economic theory “the rates of non-dominant

carriers are unlikely to be either predatory or supra-competitive

and thus are unlikely to contravene” the proscription of 47 U.S.C.

§ 201(b) on unjust and unreasonable rates. Jd. at 334. Likewise,

“these same factors preclude these [non-dominant] carriers from

unjustly discriminating in favor of some customers at the expense

of their other customers,” id. at 337, in violation of the Act’s

prohibition on “unjust or unreasonable discrimination in rates,”

47 U.S.C. § 202(a). The Commission endorsed these tentative con-

clusions in its First Report and Order, 85 F.C.C.2d 1, 5, 20 (1980),

and has repeatedly confirmed them in its various rulemaking ac-

tivities under the Competitive Carrier Rulemaking docket. See,

e.g., 93-356 Pet. App. 27a-28a.

8

These costs take on heightened significance in the con-

text of firms with little or no market power trying to break

in against a longstanding industry giant. As the FCC

explained, carriers attempting to compete with AT&T

“must either offer services unavailable from the established

carriers or, more likely, offer services with rates, condi-

tions and practices more favorable than those offered by

the established carriers.” /d. at 324. Because AT&T

could respond to competitors’ service offerings “by of-

fering comparable service alternatives of its own, * * *

as a practical matter, the [competing carriers] must, more

often than not, underprice the established carriers to com-

pete successfully.” /d. But publication of this pricing

information—like publication of service offerings—could

provide AT&T with an opportunity to squelch any com-

petitive challenge by adjusting its prices and taking other

actions accordingly.

More generally, the FCC has repeatedly found that

mandatory tariff filings by carriers without market power

would likely have anticompetitive effects. Thus, for ex-

ample, the Commission noted that “[rJequiring adherence

to tariffs where competitive pricing would flourish other-

wise may make collusive pricing possible by both facilitat-

ing agreement and preventing the secret discounts that

often lead to the breakdown of agreements that are at-

tempted.” 77 F.C.C.2d at 358. The Commission further

concluded that continued regulation of nondominant firms

would “discourage the introduction of new, competitive

services,” discourage entry into the market by new firms,

and inhibit innovative pricing mechanisms. /d. These

conclusions too have been repeatedly endorsed by the

Commission in its decade of experience with and exami-

nation of deregulation of nondominant interexchange car-

riers." For example, the FCC emphasized in the rule-

* See, e.g., Fourth Report and Order, 95 F.C.C.2d 554, 555 n.1

(1983) (tariff filing requirements “impede entry, impair competi-

tive pricing, and facilitate collusive conduct”) (citing United States

9

making directly at issue here its finding that “mandatory

tariff regulation of nondominant carriers was in fact at

odds with the fundamental statutory purpose set forth in

Section | of the Act '"! because it inhibits price competi-

tion, service innovation, entry into the market, and the

ability of firms to respond quickly to market trends.”

93-356 Pet. App. 27a.°

Given the costs and negative effects resulting from

tariff filings by nondominant carriers, the FCC’s policy

initiative freeing those carriers from the requirement of

publicly filing pricing information removed a significant

impediment to the growth of competition in the market.

Indeed, the Competitive Telecommunications Association

Vv. United States Gypsum Co., 438 U.S. 422, 457 (1978) (“the ex-

change of price information among competitors carries with it the

added potential for the development of concerted price-fixing ar-

rangements”’)) ; Second Report and Order, 91 F.C.C.2d at 71 (tariff

“requirements stifle price competition and service and marketing

innovation”) ; Further Notice of Proposed Rulemaking, 84 F.C.C.2d

445, 454 (1981) (“Tariff posting * * * provides an excellent mecha-

nism for inducing noncompetitive pricing’’).

7 Section 1 of the Communications Act, 47 U.S.C. § 151, imposes

on the FCC the mandate “to make available, so far as possible, to

all the people of the United States a rapid, efficient, Nation-wide,

and world-wide wire and radio communication service with adequate

facilities at reasonable charges.”

* The FCC has endorsed the fundamental conclusions supporting

its regulatory decisions even after the D.C. Circuit issued the deci-

sion at issue in this case. In its memorandum opinion and order in

Tariff Filing Requirements for Nondominant Carriers, FCC 93-

401 (Aug. 18, 1993) (“Rate Range Order’), the Commission

“reaffirm[ed]” its “policy findings, adopted nearly a decade ago in

Competitive Carrier, and conclude[d] that * * * traditional tariff

regulation of nondominant carriers is not only unnecessary to in-

sure just and reasonable rates, but is actually counterproductive

since it can inhibit price competition, service innovation, entry into

the market, and the ability of carriers to respond quickly to market

trends.” Nevertheless, the FCC was constrained to impose some

type of tariff regulation on nondominant carriers becasue the court

below had held that filed tariffs are required by the Act.

10

told the FCC that many of the companies operating in

the market “would not be in existence today were it not

for the Commission's policy of encouraging competition

in the telecommunications marketplace through the lifting

of unnecessary and burdensome regulations.” Reply Com-

ments of the Competitive Telecommunications Association

at 11.°

The significance of the decision below, and the need

for this Court’s review, is made plain by the overwhelm-

ing interest exhibited in the issue. In response to the

Notice of Proposed Rulemaking, the FCC “received and

reviewed comments from more than 40 parties represent-

ing virtually every segment of the interstate telecommuni-

cations industry, including long distance carriers, local

exchange carriers, and telecommunications users.” 93-356

Pet. App. 4a-5a, and also considered the comments of

the National Telecommunications and Information Ad-

ministration of the U.S. Department of Commerce.”

“(O}nly six parties, led by AT&T, claim[ed] that the

Commission was without authority to adopt its permissive

detariffing rules.” /d. at 9a. Even some dominant local

telephone companies agreed that the Commission was

® Citations to comments are to those comments received by the

FCC in response to Tariff Filing Requirements for Interstate

Common Carriers, Notice of Proposed Rulemaking, 7 FCC Red 804

(1992), the proceeding that led to the decision at issue here.

See also Comments of OCOM Corporation at 8 (“Many of the

smaller carriers today would not be here now or be able to continue

offering competitive services under a more burdensome regulatory

structure.” Permissive detariffing is “critical to the survival of

a substantial number of nondominant interexchange carriers’’).

10 NTIA noted that “the Commission’s decision in Competitive

Carrier to relieve nondominant carriers of the burden of filing

tariffs has significantly enhanced their ability to respond rapidly

to changing market conditions and enabled them to be vigorous

competitors in the interexchange service marketplace.” Reply

Comments of the National Telecommunications and Information

Administration at 5.

11

authorized to adopt its permissive detariffing policy. See,

e.g., Comments of Pacific Telesis Group at 3; Comments

of GTE Service Corporation at 2 (Commission’s policy

“conforms fully with the Communications Act”) ."

Perhaps most compelling is the unanimity of the users

of long distance telecommunications services in support

of the policy. For example, the Ad Hoc Telecommunica-

tions Users Committee (the ongoing representative of

mayor corporate telecommunications departments on regu-

latory issues), called the Commission’s policy “a major

regulatory success story” as a result of which “[c]ompe-

tition has burgeoned in the long-distance marketplace.”

Of particular interest to the users of telecommunications

services, “the policy has enabled nondominant carriers to

respond flexibly to requests for proposals * * *, to cost

Out their responses on a project-specific basis, and to

formulate customer-responsive terms and _ conditions.”

This flexibility, in turn, “has intensified price and service

competition among the nondominant carriers and AT&T.”

Comments at 3. Likewise, the International Communica-

tions Association, which describes itself as “the largest

association of telecommunications users in the world.”

observed that the permissive detariffing policy permits

nondominant common carriers “to make rapid, efficient

responses to changes in demand and cost; bargain with

customers over rates and adjust rates quickly to market

conditions; avoid petitions to reject or suspend tariffs that

could be filed by competitors; and price competitively,”

all without any detriment to users. Comments at 5.

In short, the FCC’s detariffing policy has served its

intended functions as contemplated in the Competitive

Carrier Rulemaking over a decade ago. Adopted at a

''GTE added that permissive detariffing has “facilitated these

(nondominant] carriers’ efforts to compete with each other,” and

“made it possible for consumers to negotiate directly with service

providers and for carriers to tailor offerings to specific customers

based upon each customer’s needs and wants.” See Comments of

GTE Service Corporation at 6-7.

12

time of almost no competition in the market for long

distance services, the policy has enabled hundreds of new

firms to enter and begin to compete effectively by offering

innovative service and rate plans. Consumers have bene-

fited as a result of the ability to choose from a range of

alternative service providers, and prices for long distance

service have decreased dramatically. There is no evidence

of widespread violations of the substantive rate regulation

required by the Act; as the FCC anticipated, vigorous

competition in the marketplace has provided a more-than-

adequate substitute for filed tariffs.

Although the Commission’s permissive detariffing policy

has been an unqualified success, the substantial market-

place benefits derived from the policy could easily be lost,

and further development of competition stunted, if the

decision below stands. A mandatory tariff requirement on

nondominant carriers necessarily curbs those carriers’

ability to offer innovative price and service plans to meet

customer needs as they arise.’” This is true even though

the FCC has attempted to minimize the tariff burden on

nondominant carriers as it responds to the court of appeals’

decision here. The Commission has permitted nondomi-

nant carriers to file so-called rate range tariffs setting forth

minimum and maximum rates and offering prices within

the bands. See Rate Range Order, supra. Even these

tariffs impose unnecessary burdens on carriers,’® and in any

event AT&T and certain local telephone companies have

12 See Further Notice of Proposed Rulemaking, 84 F.C.C.2d at

454 (“the requirement that firms post their prices makes it difficult

for those same firms to bargain with their customers over rates or

to adjust them quickly to market conditions. This in turn means

that the kind of price discounting that often occurs in a workably

competitive market cannot take place’’).

13 For example, carriers still must file additional tariffs when

they want to offer prices to customers outside the ranges. The full

direct and indirect costs of tariff filings under the new rules will

not become clear until more guidance is given on the permissible

scope of the ranges.

13

challenged the Commission’s Rate Range Order based on

the same court of appeals decision at issue here.'* The

posting of tariff information permits dominant firms as

well as other nondominant competitors quickly to match

any innovation, thereby blunting competitive forces. In

a long distance market where one firm still controls more

than 60 percent of the business, any reduction in the

pressure of competition is likely to be damaging to that

market’s further development.

Il. THE ERRONEOUS DECISION OF THE COURT

BELOW WILL INHIBIT THE FCC’S ABILITY TO

FOSTER COMPETITION IN OTHER TELECOM-

MUNICATIONS SERVICES

The importance of the court’s decision below is mag-

nified by its potential consequences for telecommunica-

tions services other than long distance. This matter is

much more than an intramural dispute between AT&T

and its smaller rivals. Although reversal of the permis-

sive detariffing policy will stunt further competitive long

distance growth, it is unlikely to lead all the way back

to full monopoly power for AT&T. But other telecom-

munications markets—where competition is far less ad-

vanced—present an entirely different story.

The market for local exchange services is perhaps the

prime example of an area experiencing emerging competi-

tion that could be thwarted by reimposition of tariffing

requirements. This multi-billion dollar market is now

the domain of the Bell Operating Companies and other

local exchange telephone companies (“LECs”). But like

the long distance market in the early 1980s, the local tele-

phone market is the focus of increasing competition.’

4 See Telecommunications Reports, Sept. 13, 1993, at 22.

'S As the Commission has explained: “For many years, local

exchange carriers (LECs) faced little or no competition in provid-

14

The Association for Local Telecommunications Serv-

ices (““ALTS”) explained in comments before the FCC

that its member nondominant competitive access provid-

ers (“CAPs”) “attempt to compete directly with dom-

inant local exchange carriers” by “deploy[ing] innovative

technologies—including fiber optic and microwave net-

works”—in metropolitan areas across the country. ALTS

Comments at 1-2. This industry, ALTS reported, “is just

beginning to bring competitive alternatives to local tele-

communications service markets historically monopolized

by the LECs.” /d. at 2. Thus, for example, Metropolitan

Fiber Systems “operates state-of-the-art digital fiber optic

telecommunications networks in the business districts” of

major metropolitan areas throughout the United States.

Comments of Metropolitan Fiber Systems at 2. See also

Comments of Local Area Telecommunications, Inc. at 2

(company provides “a broad range of * * * competitive

access services, primarily via microwave facilities, to

interexchange carriers and corporations in various metro-

politan areas nationwide”). Nevertheless, the CAP share

of the total market for local telephone exchange services

remains less than one percent. ALTS Comments at 5-6.

The Commission has recently adopted new local ex-

change policies to begin what it calls “the process of open-

ing the remaining preserves of monopoly telecommunica-

tions service to competition,” and to give CAPs far greater

market opportunities than they have had in the past. See,

e.g., Expanded Interconnection, Report and Order and

Notice of Proposed Rulemaking, 7 FCC Red 7369, 7372

(1992). In that context, the Commission noted the suc-

ing the local access facilities and services used in the provision of

interstate communications. Recent changes, however, have facili-

tated the development of competition in the provision of these

facilities and services.” Expanded Interconnection with Local Tele-

phone Company Facilities (“Expanded Interconnection”), Notice

of Proposed Rulemaking and Notice of Inquiry, 6 FCC Red 3259,

3259 (1991).

15

cess of its deregulatory approach toward long distance

services: “Competition in the interexchange * * * mar-

ket] has brought consumers increased service options,

reduced rates, and faster implementation of new technolo-

gies.” Id. at 7378. Likewise, the FCC believes that

greater competition in the local telephone market should

increase “incentives for efficiency and encourage deploy-

ment of advanced technologies facilitating new and in-

novative services.” Expanded Interconnection, Second

Report and Order, FCC 93-379, at 10 (Sept. 2, 1993).

The Commission has taken several actions to foster com-

petition in the local telephone market, and further pro-

posals are pending.”

The FCC’s steps to promote new local service competi-

tion have taken place against a background of permissive

detariffing for nondominant CAPs," supported by the

same FCC policy conclusions arrived at in the Competi-

tive Carrier Rulemaking described earlier."* Under the

decision below, however, the Commission has been re-

quired to reimpose tariff regulation on the CAPs along

with all other nondominant carriers.” Such regulation

substantially and unnecessarily interferes with the still-

16 See, e.g., Expanded Interconnection, Second Notice of Proposed

Rulemaking, 7 FCC Red 7740, 7747-49 (1992).

17 See, e.g., Tariff Filing Requirements for Nondominant Com-

mon Carriers, Notice of Proposed Rulemaking, 8 F.C.C. Red 1395,

1397 (1993) (“Since their inception, CAPs have not been burdened

by interstate tariff filing requirements”); Comments of Metro-

politan Fiber Systems, Inc. at 3 (“As a non-dominant carrier * * *

MFS is subject to the Commission’s forebearance policy and there-

fore, under those regulatory requirements, is not required to file

interstate tariffs’).

18 See, e.g., Comments of ALTS at 6 (“The competitive pressures

faced by the members of ALTS as new entrants into largely monop-

oly markets are extraordinary, and exclude the possibility that

CAPs may engage in ratemaking practices that contravene the

Communications Act’).

1 See Rate Range Order, FCC 93-401, at 8 (Aug. 18, 1993).

16

emerging competition in the local market, no less than

it would have interfered with new long distance compe-

tition a decade ago. CAPs face substantial hurdles to

market entry, including the need for massive capital in-

vestment and vigorous price competition from the reigning

monopolists. As ALTS explained below, “[i]mposition

of a mandatory tarifling obligation would impose a sub-

stantial economic burden on such carriers. The costs

associated with the preparation and maintenance of fed-

eral tariffs—legal and consulting fees, the diversion of

personnel, the filing fees—constitute an expense that CAPs

can ill afford.” ALTS Comments at 6-7. More important,

mandatory tariffing can provide an opportunity for the

dominant LECs to bring price and service rigidity to the

marketplace, thereby discouraging innovations CAPs

might offer in service or price and stifling the newborn

competitors.

Local telephone competition holds the promise to rev-

olutionize the nation’s telecommunications infrastructure.

The FCC envisions a future in which multiple carriers—

local and long distance, mobile and wireline—intercon-

nect with one another and compete to offer business and

residential users advanced quality services at lower prices.

But to reach that goal, the FCC will need all the tools

provided by the Communications Act to manage develop-

ing competition and to meet the regulatory challenges

presented by the dynamic changes currently occurring in

the telecommunications market. Permissive detariffing—

and the legal authority on which it rests—are of para-

mount importance to this process.

Ill. THE COURT SHOULD CLARIFY THIS ISSUE TO

PROVIDE CERTAINTY TO THE FCC AND ALL

AFFECTED PARTIES

At a minimum, the Court should grant the Petition so

that it can clarify the meaning of Section 203 and pro-

vide certainty to all affected parties. The decision below

clearly has not provided that certainty, for the FCC and

17

parties in the telecommunications market continue to de-

bate the meaning and implications of the D.C. Circuit's

decision, while the D.C. Circuit—through summary action

here—has signaled that it has given its last word on the

subject. So long as the obligation of a carrier to file

tariffs remains in doubt, competition in the telecommuni-

cations market in generakis chilled.

Indeed, the FCC’s response to the D.C. Circuit’s deci-

sion is itself under attack, creating further uncertainty.

As discussed above, the FCC recently ruled that nondomi-

nant carriers could satisfy the requirements of Section 203

by filing tariffs containing rate ranges; carriers would

then offer customers prices within the minimum and max-

imum rates spelled out in the tariff. See Rate Range

Order, supra. However, AT&T and certain local tele-

phone companies have asked the D.C. Circuit to stay

this decision on the ground that the FCC’s “second

best” rate range tariff policy also exceeds the Commission’s

authority under Section 203 as interpreted by the court of

appeals below.

The amici have already stated their strong support for

the petitioners’ legal analysis of the Section 203 issue.

The same analysis would support “rate range” tariffs.

However, leaving aside the practical deficiencies of range

tariffs as opposed to permissive detariffing itself, the fact

remains that until and unless this Court speaks to Section

203, all parties will be in doubt as to the permissible

scope of FCC regulation in this area.

This is not an academic question. One would expect

that so long as a carrier followed FCC rules, it would face

no legal jeopardy. AT&T and certain local telephone

companies, however, are taking a different position that is

very hostile to competition. AT&T, for example, has sued

MCI Telecommunications Corporation, Sprint Communi-

cations Company and WilTel, Inc. for “many millions of

dollars” in damages it claims to have suffered as a result

18

of those carriers’ tariff filing practices—practices they

undertook prior to the court of appeals’ decision and in

full reliance on the FCC’s permissive detariffing policy.”

AT&T also has threatened to file damage actions against

other long distance rivals. Equally important, AT&T has

made clear that it views a carrier's compliance with the

Rate Range Order as no more of a safe harbor from

damages than was a carrier’s previous compliance with

permissive detariffing.”’

Certain local telephone companies have taken similar

aggressive action against CAPs. For example, witha

days of the original court of appeals’ decision striking

down permissive detariffing, Bell Atlantic filed complaints

at the FCC against MFS and seven other smaller CAPs

for damages it allegedly suffered as a result of those

CAPs’ past compliance with that policy.

Although these damage actions have no merit, they

demonstrate how uncertainty regarding Section 203 can

be used by dominant carriers to harass their smaller

rivals, impose unnecessary financial burdens in the form

of legal costs, and deter entry by new competitors. The

burdens and complications of tariff filing themselves are

20 See Telecommunications Reports, Feb. 15, 1993, at 2 (quoting

AT&T's President of Business Communications Services claiming

that AT&T had lost “over $1 billion in business” and “many millions

of dollars” in profits).

21 See Telecommunications Reports, Sept. 13, 1993, at 22. In

asking the FCC to stay the Rate Range Order, AT&T stated that

“some of AT&T’s injuries |from competitors’ range tariffs} are

easily ascertainable and can be recovered [from competitors] in a

damages action,” but argued that a stay was necessary because

other damages “are much more difficult to quantify.” Jd. (quoting

AT&T Application for Stay).

22 See Telecommunications Reports, Nov. 23, 1992, at 1-2. Bell

Atlantic alleged that it was entitled to damages “in an amount to

be determined” for “lost customers, lost market position and lost

profits” it claims to have suffered due to the CAPs’ failure to file

tariffs. Jd. (quoting Bell Atlantic complaints).

19

large, especially for a smaller firm. The threat of dam-

ages liability from a dominant firm can be an extreme

impediment to development of further competition.

Telecommunications users also require clarification of

Section 203. Under permissive detariffing, users knew that

they had substantial flexibility to contract with nondomi-

nant firms. Now they face practical concerns regarding

incorporation of their existing contracts into tariffs, and

limitations on their ability to negotiate new contracts.

Furthermore, in letters to hundreds of long distance users,

AT&T has asserted that existing contracts with other

long distance companies “are unlawful and, therefore,

unenforceable,” and that it may be unlawful to deal with

smaller competitors lacking tariffs meeting AT&T's in-

terpretation of section 203. Although obviously wrong,

such strategies nevertheless can be effective coming from

a dominant firm.

In short, the D.C. Circuit’s decision is causing confu-

sion throughout the telecommunications market that is

benefiting only AT&T and the dominant local telephone

companies. This Court earlier declined to consider the

issue in the face of the Solicitor General's view that review

would be premature until the FCC completed its own

reexamination of permissive detariffing and the D.C. Cir-

cuit had the opportunity to consider the results of that

process. MCI Telecommunications Corp. Vv. American

Telephone & Telegraph Co., 113 §. Ct. 3020 (1993).

The FCC’s examination is now complete, and the D.C.

Circuit summarily rejected the FCC’s judgment. Given

the obvious divergence of views between the FCC and

25 See Telecommunications Reports, Mar. 15, 1993, at 35-36 (quot-

ing letter from President of AT&T Business Communications Serv-

ices to AT&T customers and potential customers stating that

“AT&T and customers have been harmed” by nondominant carrier

provision of service “under secret contracts” rather than tariffs

and warning that such “secret deals with long distance companies

are unlawful and, therefore, unenforceable’).

20

the D.C. Circuit, the issue will not disappear until this

Court speaks. The Court should grant the Petition and

clarify the FCC’s authority over the transition to full tele-

communications competition.

CONCLUSION

For the foregoing reasons, and those in the Petition,

this Court should grant the writ and reverse the decision

below.

Respectfully submitted,

PETER A. ROHRBACH

DAVID G. LEITCH *

HOGAN & HARTSON

555 Thirteenth Street, N.W.

Washington, D.C. 20004

(202) 637-5822

* Counsel of Record Counsel for Amici Curiae

Sanat eee) an