article

Soap Box – Operating in the Detariffed Environment:

Posted: 09/2001

Soap Box

Operating in the Detariffed
Environment:
Are You Ready?
By Charles H. Heleinn

Charles H. Heleinn
Charles Heleinn

July 31, after nearly two decades and countless trips to the U.S. Court of
Appeals District of Columbia Circuit, the Federal Communications Commission’s
wish to rid itself of the burden of processing, reviewing and warehousing reams
of long- distance tariffs became a reality.

On this date, long-distance carriers were required to withdraw their paper tariffs for domestic long-distance, mass-market services from the commission. In place of filed tariffs, long-distance carriers were required to post their rates, terms and conditions on their websites. Similar requirements apply to carriers offering specialized customer arrangements or “contract tariffs:” The deadline for posting contract tariffs on the Internet was Jan. 31. Moreover, from that date forward, carriers may no longer rely on the protections of the Filed Tariff Doctrine (a.k.a. Filed Rate Doctrine), leaving carrier-customer relationships open to scrutiny from state

attorneys general and their enforcement of

consumer-protection laws.

If it costs less than $100 (residential) or $300 (small business) for a new customer or retaining an existing customer, these costs could increase to more than $1,000 to $1,500 in the post-detariffing environment. If your cost of complying with anti-slamming, anti-cramming and other consumer-protection rules has been high because of “carriers are always guilty” enforcement policies of state utility commissions and the FCC, consider that states’ attorneys general can attack your sales and marketing practices under their broader mandates of the “you’re guilty until proven innocent” state consumer-protection laws. And, if you haven’t noticed, there’s a growth industry in the states’ attorneys general offices and utility commissions for using a handful of customer complaints to extract six-figure settlements from carriers. Bottom line: The incentive to make headlines and political hay and to gain revenues for state and federal coffers by the telecommunications version of the “speed trap” has never been greater.

There’s more bad news. Single plaintiff and class-action civil suits for misrepresentation and fraud, breach of contract and even unfair competition are certain to become a larger part of telecommunications regulatory fabric, all because of detariffing.

Many probably wonder what detariffing means for their companies; how it affects the legal relationship with existing and future customers; what must be done to comply with the detariffing and Internet posting mandates; and how to be competitive while complying with the FCC’s new regulatory requirements.

For many in the industry, little thought has been given to these issues. Some are taking a wait-and-see approach to find out what the larger carriers do before taking action and spending money on compliance measures. Others are investigating alternative ways to comply and compete in the new environment. Yet most appear to be doing nothing, perhaps out of ignorance, fear or both. Sooner or later, however, all carriers must comply with the FCC’s detariffing and Internet-posting requirements. Perhaps the greater challenge is making a decision that turns complying with the detariffing mandate into a business benefit.

Impact on the Filed Tariff Doctrine

The Filed Tariff Doctrine (FTD) requires carriers to charge the tariff rate, even if a carrier has quoted a lower rate to its customer. This is true even if the carrier’s representation is fraudulent. The U.S. Supreme Court created the doctrine during the 1900s. Initially, it applied to the railroad industry under the Interstate Commerce Act. Eventually, the FTD grew to cover the telecommunications industry under the Communications Act of 1934.

The FCC’s detariffing mandate was clothed in subliminal suggestions that the FTD is no longer a protection available to carriers. Its rationale is supported by the following proposition: Since carriers may no longer “file” tariffs with the FCC, the tariffs are not “filed,” and therefore carriers cannot take advantage of the FTD. This logic, however, ignores the FCC’s requirement that carriers post their rates, terms and conditions on their websites. This requirement, which essentially requires carriers to post the same contents as their former tariff, elevates form over substance. The reality is that carriers still must “file” their tariffs, albeit on the Internet, thus creating the presumed knowledge that forms the basis of the FTD. Moreover, as the FCC has acknowledged, it has no legal authority to overturn the FTD.

As a judicially created doctrine, stare decisis prevents the FCC from interpreting the language of the Communication Act in any manner that conflicts with the Supreme Court’s interpretation. Aside from itself, the only authority that can alter Supreme Court precedent is Congress. In suggesting the FTD’s demise, the FCC has stated that in today’s competitive environment, the doctrine does not protect consumers and goes against the public interest. This bootstrap rationalization does not and cannot support the FCC’s intent and desire to abolish the FTD.

Despite the FCC’s indications to the contrary, a strong case can be made that, based on current law, the legal principles surrounding statutory interpretation and judicially created doctrines, and the simple substitution of one method of “filing” (at the FCC) with another (over the Internet), the FTD is very much alive and kicking.

Regardless of this analysis, carriers would run a substantial risk if they take a business-as-usual approach to detariffing and do not make some adjustments to the contract environment.

Operating in a

Detariffed Environment

The dilemma for the telecommunications carrier is whether to proceed on the assumption that the FTD is still applicable or whether to alter its behavior to conform to an environment where the FTD’s absolute protections are not available. The key distinctions between an FTD and a contract environment may be narrowed to four fundamental concerns: the cost of doing business, the exposure to legal liability, the ability to comply with regulatory requirements and the exposure of regulatory interference and control of business methodology and management discretion.

Looking at the changes that will affect the cost of doing business, FTD elimination will affect the degree of certainty attainable in establishing and ordering business relationships with thousands of customers nationwide and the efficiency and cost of doing so. The changes would affect carriers’ external costs of customer acquisition, retention and care; the costs of internal management of personnel and record retention and upkeep; and potential increases in late and unpaid charges, uncollectibles and bad debts.

Absent the absolute protections of the FTD’s presumed knowledge, carriers’ exposure to liability for monetary damages, fines and penalties increases on all fronts–customer claims for overcharges, refunds, credits and damages, regulatory claims for unreasonable practices, fraud and misrepresentation, state attorney general claims for consumer fraud and deceptive practices, class actions on behalf of consumers and competitor claims for unfair competition.

In addition, carriers’ ability to comply with regulatory policies and consumer-

oriented regulations will be circumscribed as the claims for legal liability outlined above begin and grow. The number and nature of claims will create a hostile environment for the companies, which will breed zealous–and overzealous–enforcement actions and a more exacting analysis of the companies’ continued qualifications to operate as carriers in the multiple jurisdictions in which they are and must operate. In today’s environment, in which state and federal agencies share and coordinate enforcement and investigative efforts, allegations from around the country can produce joint enforcement efforts by multiple jurisdictions. These kinds of efforts will attract class actions, although the threat of class actions exists independently as well.

Finally, the powers of regulators–especially attorneys general under consumer-protections laws and consumer-oriented regulations–are broad and, hence, potentially destructive. Should these authorities resort to injunctive remedies, they will have the right and power to coerce the companies to change their business methods, particularly in marketing and sales. Without question, such remedies can be fashioned to require management’s abdication of its discretion and acceptance of the standards and requirements created by the outside authorities. In short, carriers will lose their rights to conduct their

own businesses.

Given all these uncertainties, what can a carrier do to protect itself, while it operates as efficiently and competitively as it did in the tariffed world?

Protecting Yourself

To understand how best to operate in this new, detariffed environment, one must understand why the most recent attempt to detariff succeeded.

One aspect of the tariff regime that bothered consumerists was that paper tariffs were arcane, complex and largely unavailable to the average telecom customer. This, along with the immense legal protections provided to carriers through the FTD, made the Clinton Administration’s consumerist FCC see red (the latest detariffing impetus began in October 1996, before President Clinton’s re-election bid). The FCC’s solution was to have carriers post their tariffs online. The availability of the Internet as an option to filing tariffs with the FCC probably turned the tide in favor of detariffing.

Posting the tariffs in the manner the FCC envisioned never has been done. No one has any idea what the future will bring once these arcane documents are fully available to anyone accessing a carrier’s posted tariff. Uncertainty is never good for business, and the risks created by this uncertainty, plus the legal exposures and operational costs described above, could make the post-posting environment a most unsettling one.

Under the new contract environment, signed postcard-size letters of agency (LOAs) and oral authorizations obtained through telemarketing are not sufficient to bind customers to the terms and conditions governing service, while giving companies the pricing flexibility and other benefits enjoyed under the FTD. We have seen suggestions from one telecom law firm that a 12-page “LOA contract” be used along with the web-posted “tariff” as the vehicles by which carriers are to deal with their customers. Unfortunately, the downside of this approach is that the voluminous nature of the proposed “contract” will do more to repel customers than win them.

To accomplish the desirable business goals of winning customers at a low cost, retaining the marketing and pricing flexibility of the FTD (while not relying on the FTD’s survivability), possessing the ability to react quickly in a competitive environment, complying with regulatory requirements and protecting yourself from overzealous consumer protectionists, you must do more.

After years of failure, detariffing is upon us. How you deal with operating in the new environment will go a long way toward saving money, avoiding regulatory and legal hassles, and growing your business.

Charles
H. Helein is founder and managing partner at The Helein Law Group P.C. (www.helein.com),
a Washington, D.C.-based law firm specializing in telecommunications. He is also
the chief architect of Tarifflink Inc. (www.tarifflink.com),
a program assisting telecommunications companies in communicating rate and
service changes to their customers while complying with the FCC’s mandated
deadline for posting tariffs on the Internet. The Helein Law Group’s Jonathan S.
Marashlian and Loubna W. Haddad also contributed to this article.

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Call us at +1 480 990 1101 or e-mail bchristian@vpico.com


ROUND TABLE

On structural separation of the BOCs as a means of achieving local phone competition

"The arm that provides local-service elements for both the Bell company and its competitors needs to be a structurally separate organization. It is the only way to make competitive local service more than simply a vision. By improving a Bell company’s incentive to act as a neutral wholesaler of services and facilities, and highlighting transactions between the parent and the affiliate, structural separation will require less regulation in the long run.”

–C. Michael Armstrong, chairman and CEO, AT&T Corp. (www.att.com)

“Regulatory policy to date … has focused solely on creating competition by any means possible.”

–Margaret H. Greene, executive vice president,

regulatory and external affairs, BellSouth Corp. (www.bellsouth.com)

“Although CLECs are big customers of the RBOCs as purchasers of interconnection trunks, collocation and UNEs, CLECs use those tools to compete for the same end users as the RBOCs. This inherent conflict between their roles as suppliers and competitors significantly diminishes the incentive the RBOCs have to open their markets. Congress must give the FCC the resources to implement a regulatory scheme that has certainty and an enforcement program that has teeth.”

–Royce J. Holland, chairman and CEO,

Allegiance Telecom Inc. (www.allegiancetelecom.com)


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