1
An International Comparative Analysis of
Consumer Sovereignty in Telecommunications and Broadband:
The Evolving Interrelationship Among
Industry-Specific, Consumer Protection, and Competition Laws
Barbara A. Cherry
Professor, Department of Telecommunications
Indiana University
1229 East Seventh Street
Bloomington, IN 47405-5501
Phone: 812-856-5690
Email: [email protected]
Abstract: According to Averitt and Lande (1997), antitrust and consumer protection laws share
a common purpose to facilitate the exercise of consumer sovereignty, or effective consumer
choice. This paper uses this concept of consumer sovereignty to frame analysis of the shifting
boundaries between the industry-specific and general business legal regimes for
telecommunications and broadband access services. Much of the analysis in this paper focuses
on developments in the U.S., but it also provides preliminary evaluation and comparisons with
developments in international fora. A critical distinction in the temporal sequencing of the
evolution of the original industry-specific and general business regimes in the U.S. relative to
other nations appears to confer institutional differences for developing and implementing
deregulatory policies. In the U.S., issues of consumer sovereignty are being addressed through an
uncoordinated stream of piecemeal litigation primarily through interpretation of numerous
savings clauses. By contrast, other nations are demonstrating a greater ability or willingness to
conduct a holistic review and coordination of consumer protection remedies.
Introduction
Deregulatory telecommunications policies are shifting the boundaries between traditional
industry-specific and general business legal regimes. In the United States, this shift is
occurring in ill-defined ways and with considerable conflict in interpretation among the
courts.
As a result, it is unclear whether consumers will in fact be offered a range of
viable service options and effectively protected from unreasonably discriminatory
practices, unconscionable contract terms, misleading billing or industry practices, and
various other forms of consumer abuse.
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According to Averitt and Lande (1997), antitrust and consumer protection laws
share a common purpose to facilitate the exercise of consumer sovereignty or, in other
words, effective consumer choice. Antitrust law is intended to ensure that a range of
options is available to consumers through market competition. Consumer protection
laws seek to protect the ability of consumers to freely choose among such options.
Consumer sovereignty is used here to frame the analysis of the shifting boundaries
between industry-specific and general business legal regimes for telecommunications and
broadband access services.
The legal regime described by Averitt and Lande refers to the general business
regime of antitrust and consumer protection laws in the U.S. As will be discussed in this
paper, the general business regime coevolved with – and largely post-dates – the
development of industry-specific legal regimes for common carriers and public utilities.
These industry-specific regimes were designed to address issues of consumer sovereignty
by significantly different means, for which the relevant administrative agencies have
primary jurisdiction, often preempting the applicability of the general business regime.
Although Averitt and Lande’s theory of consumer sovereignty was developed in the
context of U.S. law, its underlying unified theory of antitrust and consumer protection
laws can also be utilized to examine analogous, evolving interrelationships between the
industry-specific telecommunications and general business regimes in other nations.
Much of the analysis in this paper focuses on developments in the U.S., in order
to establish a reference point from which to make comparisons with other nations.
Although research applying consumer sovereignty outside the U.S. is ongoing, some
preliminary observations and conclusions are offered in this paper and summarized here.
Institutionally, there appear to be important differences in how the
interrelationships between the industry-specific and general business legal regimes are
evolving under deregulatory policies for telecommunications services in the U.S. relative
to many other nations.
Given its early reliance on private sector investment in
telecommunications networks coupled with economic regulation under the common law,
the U.S. has a complex lineage in the legal coevolution of industry-specific and general
business regimes prior to the deregulatory era. The industry-specific regime largely
predates that of the general business regime, with the interface between them evolving
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gradually over time through case-by-case adjudication, development of judicial doctrines,
and intermittent statutory enactments.
Deregulatory policies have disrupted this
interface, generating great uncertainty for issues of consumer sovereignty. Issues are
being addressed primarily in a piecemeal and ad hoc fashion through case-by-case
litigation.
Such litigation requires reinterpretation of preexisting savings clauses,
interpretation of new savings clauses, and reassessment of judicial doctrines.
Furthermore, conflicts in interpretation among the courts have created variance in
application of the law among the states, magnifying the uncertainty to consumers of the
resultant effects of deregulatory policies.
By contrast, in nations where regulatory oversight of private sector provision of
telecommunications services and infrastructure is of much more recent vintage, the
development of an industry-specific telecommunications regime largely postdates that of
the general business legal regime. Unlike the pioneering role of the U.S. in constructing
an industry-specific regime of expert agency oversight without the benefit of preexisting
experience under antitrust and consumer protection laws, such nations have not only had
the opportunity to study and evaluate the U.S. experience but many have also chosen to
directly incorporate competition law functions and consciously construct an interface
with consumer protection law into their industry-specific regimes.
Notable, in this
regard, is the electronic communications regulatory framework adopted in the EU. This
critical distinction in the temporal sequencing of the evolution of the industry-specific
and general business legal regime confers institutional differences for such nations
relative to the U.S. for developing and implementing deregulatory policies. First, with a
less lengthy and complex legal evolution in the initial interface between the industryspecific and general business regimes, other nations appear to be better able to both
directly and holistically confront policy issues of consumer sovereignty contrary to the
consumption of resources in episodic and disjointed litigation prevailing in the U.S. For
example, both OECD reports and the EU regulatory framework unabashedly assert the
need to generally address demand-side market failures that exist notwithstanding
structural competition, and with even greater scrutiny for telecommunications and
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financial services.1 Second, as addressed in more detail in other writings of the author,2
the unique legal evolution of industry-specific and general business regimes has been
widely misunderstood in the U.S. Unfortunately, mischaracterizations in the lineage of
legal principles contained in many analyses have produced a misleading discourse of
deregulatory policies, particularly of network neutrality, that masks the significance of
effects in retail markets and blocks inquiry into the legal rules that may be necessary to
address issues of consumer sovereignty. The resultant artifact may be the generation of
unintended – albeit, to a certain extent, avoidable – legal gaps with adverse consequences
for consumers, particularly for access to broadband services. Hopefully, with a less
complex history, the occasions for such effects will be less frequent in other nations.
Organization of the Paper
Given the complexity of U.S. legal history necessary to the analysis in this paper, this
section not only outlines the organization of this paper but also provides a summary of
material covered in each section. It is hoped that these additional summaries will provide
a roadmap that will facilitate the reader’s ability to understand the components of the
analysis and their relationships to each other.
This paper is organized as follows. Section I defines consumer sovereignty based
on Averitt and Lande’s unified theory of antitrust and consumer protection laws. In
essence, consumer sovereignty refers to effective consumer choice, enabled through both
a meaningful range of options available to consumers and the consumers’ ability to freely
choose among such options.
To understand how deregulatory telecommunications policies are shifting the
boundaries between the traditional industry-specific and general business regimes in the
U.S., it is essential to first understand their differential evolution and the historical
relationship among them. Therefore, sections II and III of this paper are devoted to these
tasks.
1
In the U.S., reluctance to squarely address issues of demand-side failures in the face of
structural competition is exacerbated by the views held by many policy makers and experts that
competitive markets will yield desired benefits to consumers and discount arguments that
challenge this assumption.
2
Cherry (2006, 2007a, 2008a, & 2008b).
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Section II describes how government regulation in the U.S. has generally evolved
through institutional progression – from the common law to statutes, and, in some cases,
to administrative agencies – and the creation of new bodies of law in response to
limitations of the existing regime to adequately respond to technological, economic and
societal changes. This has resulted in the coevolution of coexisting industry-specific and
general business regulatory regimes, in which the general business regime of antitrust and
consumer protection laws largely post-dates that of the industry-specific legal regimes
for common carriers and public utilities. Understanding the importance of this temporal
sequence is critical. Because the statutory general business regime evolved as an adjunct
to the industry-specific regimes, the resultant shift in the interrelationship of the general
business and industry-specific regimes under deregulatory industry-specific regimes may
generate legal gaps for which some issues may no longer be adequately addressed by
either regime.
Section III provides an overview of the interrelationship between the traditional
industry-specific and general business regimes related to issues of consumer sovereignty.
It briefly reviews the various statutory and judicially created exemptions and immunities
to the antitrust laws for regulated industries. This section also summarizes the various
mechanisms by which customers may seek legal remedies against telecommunications
carriers in the context of the Communications Act of 1934. These mechanisms include
complaints before the FCC and private rights of action in federal courts for violations of
the Communications Act of 1934. With regard to common law or other statutory claims,
state or federal, the discussion focuses on those remedies that have been preserved by the
savings clause in section 414 of the Communications Act of 1934. In this regard, a
primary reason that other remedies may be foreclosed notwithstanding the savings clause
is through application of the filed rate doctrine.
Having established the historical context, section IV proceeds to discuss how the
interrelationship between the industry-specific and general business regimes are evolving
under telecommunications deregulatory policies.
Turning first to antitrust law, it
examines the antitrust-specific savings clause enacted by Congress in section 601(b) of
the Telecommunications Act of 1996. There has already been disagreement among the
courts related to the effect of this new savings clause on the applicability of the antitrust
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laws to telecommunications. The U.S. Supreme Court has contributed to the confusion
due to the uncertainties created by its opinions in Verizon v. Trinko – including concerns
voiced in Congress – and Bell Atlantic Corp. v. Twombly.
With regard to consumer protection law, section IV discusses how redrawing the
boundaries between the deregulatory industry-specific and general business regimes has
become considerably more complex. First, there is unresolved conflict between the
Seventh and Ninth Circuit Courts of Appeals regarding the scope of permissible legal
remedies preserved by the savings clause in section 414 in a detariffed environment. The
conflict reflects diametrically opposed positions as to the applicability of the filed rate
doctrine after detariffing. Second, the FCC has promulgated Truth-in-Billing rules, also
containing a savings clause for consistent truth-in-billing requirements by the states. The
FCC has issued several declaratory rulings to clarify how the rules apply to specific
billing practices. Third, Congress has created a new regulatory class of service, CMRS,
for which the role of state regulation differs from that of wireline telecommunications
services.
In this context, Congress enacted a unique savings clause in section
332(c)(3)(A) to preserve state regulation of “other terms and conditions”, but not rates, of
CMRS services. The FCC has issued several declaratory rulings interpreting section
332(c)(3)(A).
In one of these rulings, NASUCA Order, the FCC held that state
regulations requiring or prohibiting use of line items was preempted by section
332(c)(3)(A). This order has been vacated by the Eleventh Circuit, with which a lower
federal court in another Circuit has disagreed.
Section V discusses how a legal regime to facilitate the exercise of consumer
sovereignty for broadband access services is still evolving. By classifying broadband
access services as information services, the FCC is attempting to construct the boundaries
of a new regime for broadband access services using some combination of industryspecific requirements pursuant to ill-defined Title I regulatory authority and supplemental
reliance on the general business regime. The network neutrality debate is illustrative of
the difficulties and complexities policy makers face in taking on the task of building a
new interface between a Title I-based industry-specific regime and the general business
regime. Compared to Title II-based regulation, a Title I-based industry-specific regime
will likely yield a greater role for the general business regime. For a Title I-based
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regime, FTC jurisdiction is not preempted by the common carriage exemption; the filed
rate doctrine does not apply to bar remedies that would otherwise be preserved under the
general section 414 savings clause; and neither the FCC Truth-in-Billing rules nor the
unique limitations on state regulation for CMRS services are applicable.
Section VI provides a preliminary evaluation of developments in the evolution of
other nations’ legal regimes to provide consumer sovereignty under deregulatory
telecommunications policies together with comparisons to developments in the U.S. In
particular, it examines the growing recognition in international fora of demand-side
failures even in competitive markets, as expressed by the findings in a Summary Report
of the OECD Committee on Consumer Policy. It also discusses how development of the
EU’s 2002 framework of directives for regulation of electronic communications networks
and services directly integrates competition policy and complements EU consumer
protection law. This section then explains how institutional differences between the U.S.
and EU contribute to different challenges and approaches to addressing issues of
consumer sovereignty triggered by deregulatory telecommunications and broadband
policies. Unlike the direct and holistic confrontation of issues of consumer sovereignty
exemplified by the OECD report and the EU regulatory framework, the boundaries
between the industry-specific and general business regimes in the U.S. are evolving
through an uncoordinated stream of case-by-case litigation. The paper ends with a
summary of preliminary conclusions.
I. Defining Consumer Sovereignty
Averitt and Lande (1997) assert that antitrust and consumer protection laws support one
another as component parts of an overarching unity. This overarching unity is consumer
sovereignty, described “as the state of affairs in which consumers have an unimpaired
ability to make decisions in their individual interests and markets operate efficiently in
responding to the collective effect of those decisions” (Averitt & Lande, 1997, pp. 722723). Antitrust and consumer protection laws share a common purpose to facilitate the
exercise of consumer sovereignty or effective consumer choice. Antitrust law is intended
to ensure that a meaningful range of options is available to consumers through market
competition. Consumer protection laws seek to protect the ability of consumers to freely
choose among such options.
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More specifically, by “prevent[ing] business conduct that artificially limits the
range of options in the marketplace … the antitrust laws aim to preserve a sufficient,
although not a perfect, array of choices for consumers” (Averitt & Lande, 1997, p. 716).
Consumer protection laws then “seek to protect the ability of consumers to make
informed choices among competing options … [by] ensur[ing] that buyers are protected
from coercion, deception, and other influences that are difficult to evade or to guard
against” (Averitt & Lande, 1997, pp. 716-717).
In this way, Averitt and Lande
characterize antitrust law as addressing market failures “external” to (or “outside the
head” of) consumers, and consumer protection laws as addressing market failures
“internal” to (“or inside the head” of) consumers. This proposed dichotomy deals with
the relatively direct effects of the practices in question, acknowledging that the long run
effects may interact in more complex ways that enforcer’s decisions need to take into
account.3
Averitt and Lande further assert that “the development of a unified theory of
consumer sovereignty not only is of conceptual interest, but also has significant practical
consequences” (Averitt & Lande, 1997, p. 714). For example, it helps explain why the
Federal Trade Commission (FTC) was created with responsibility for both antitrust and
consumer protection issues and why such dual jurisdiction should be retained.
In
addition, it can assist the FTC in determining when particular conduct should be pursued
on antitrust or consumer protection grounds, or whether borderlines cases warrant
prosecution.
In fact, Timothy Muris (2002), former chairman of the Federal Trade
Commission, has utilized Averitt and Lande’s concept of consumer sovereignty to frame
discussion of the complementarities of antitrust and consumer protection law to improve
consumer welfare.
Averitt and Lande’s discussion of consumer sovereignty is in the context of the
legal regime applicable to general businesses. Industry-specific regimes for common
carriers and public utilities have also evolved to address issues of consumer sovereignty,
as “[t]he ‘public interest’ of industry-specific regulation has traditionally included both
3
Averitt and Lande (1997) discuss indirect effects whereby antitrust remedies may also enhance
customer choice among options (pp. 735-741) and consumer protection remedies may also create
new options for consumers (pp. 741-744).
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economic regulation of the industry’s businesses, and the protection of consumer
interests” (Cooper, 1997, p. 966).
However, these industry-specific regimes were
designed to address issues of consumer sovereignty by significantly different means, for
which expert administrative agencies were created with primary jurisdiction, often
preempting the applicability of the general business regime. To understand how recent
deregulatory telecommunications policies are shifting the boundaries between the
traditional industry-specific and general business regimes, it is essential to first
understand their differential evolution and the historical interrelationship among them.
II. Differential Evolution of U.S. Legal Regimes to Provide Consumer Sovereignty
This section provides an overview of the similarities and differences in the evolution of
the industry-specific and general business regimes that are relevant to understanding the
interrelationships of these regimes and how they are changing under deregulatory
policies. This overview is based on integrating analyses from other sources. For a more
in-depth discussion of the relevant histories, the reader may find it helpful to consult
Cherry (1999, 2003, 2005, 2007b) regarding the origins and evolution of the industryspecific regimes, Franke and Ballam (1992) as to the historical development of unfair
trade practices legislation under both federal and state law, and Rabin (1986) with regard
to historical trends in federal economic regulation.
As a starting point, it is important to recognize some basic trends in the general
evolution of regulation in the U.S., which is discussed in greater depth in Cherry (2007b).
First, government regulation in general has evolved institutionally in response to
limitations of the existing regime to adequately respond to technological, economic and
societal changes. More specifically, primary reliance started with the common law,
shifting during the Industrial Revolution to increasing reliance on statutory law, and
resulting for some industries in the delegation of regulatory authority to administrative
agencies. Second, within the progression of institutional change, new bodies of law have
evolved and changed over time.
The main bodies of law under the common law
consisted of torts (including common carriage), contracts, and property; whereas, the
establishment of corporations and administrative agencies, for example, are of statutory
origin, and statutory requirements were enacted more frequently over time to address
inadequacies of common law requirements and remedies. Third, the co-evolution of
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institutional change and bodies of law has created coexisting industry-specific and
general business regulatory regimes, among which the interrelationships change over
time.
In the context of these basic trends, the evolution of regulation to facilitate
consumer sovereignty has specific characteristics.
Perhaps most fundamentally, the
general business regime of antitrust and consumer protection laws coevolved with – and
largely post-dates – the development of the industry-specific legal regimes for common
carriers and public utilities that originated with railroads and was subsequently applied to
telecommunications.4 Recognition of this temporal sequence is critical, as the statutory
general business regime evolved as an adjunct to the industry-specific statutory regimes.
As a result, in numerous cases and circumstances the general business regime has been
preempted or superseded by the industry-specific regimes, and, for such situations,
further evolution of the general business regime thereby addressed issues not covered by
the traditional industry-specific regimes. Therefore, as the traditional industry-specific
regimes change under deregulatory policies, the resulting interrelationships between the
industry-specific and general business regimes necessarily shift. In some ways, the
general business regime may now have greater applicability to the “deregulated”
industries, but it is unclear whether the general business regime will adequately address
the situations or circumstances that had previously been addressed by the traditional
industry-specific regimes. For this reason, deregulatory policies may generate a “legal
gap” for which some issues may no longer be adequately addressed by either the general
business or the deregulatorily adjusted industry-specific regimes.
The institutional progression of both the industry-specific and general business
regimes has many similarities. These include placing initial reliance on the common law,
increasing reliance on statutory law, delegating some enforcement to administrative
agencies (e.g. ICC and subsequently FCC for telecommunications, and FTC for general
business), and creating the coexistence of federal and state regulation.
Yet, there are important differences in the institutional progression of these
respective regimes. For the industry-specific regimes relative to the general business
4
For a comparison of the evolution of the legal regulatory regimes for the telecommunications
and transportation sectors, see (Cherry, 2005).
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regime, both the relevant common law and statutory law developed earlier. Furthermore,
for the industry-specific regimes, state regulation preceded federal regulation with the
expansion of intrastate to interstate commerce during the nineteenth century, and state
administrative agencies were established prior to the relevant federal agencies with a
primary focus on protecting consumers. In this regard, the U.S. Senate Report of the
Senate Select Committee on Interstate Commerce (“Cullom Report”) (1886) concluded
that federal legislation for the regulation of interstate transportation of railroads was
necessary and expedient because, among other things: state regulation was ineffective as
interstate commerce was beyond the jurisdiction of the states under the U.S. Constitution;
common law remedies were inadequate to address the myriad forms of discrimination
imposed on customers; and statutory regulation was likely to be ineffective without
providing adequate machinery, here a commission, for its execution. As a result, the
Interstate Commerce Act was enacted in 1887, creating the Interstate Commerce
Commission (ICC) with jurisdiction over railroads. ICC jurisdiction was extended to
telegraphy and telephony in 1910, and subsequently replaced by the FCC in 1934.5
However, for the general business regime, the federal statutory regimes preceded
the state statutory regimes, and initially to protect business competitors before consumers
(Franke & Ballam, 1992).
For example, the Sherman Act was enacted (after the
Interstate Commerce Act of 1887) in 1890, creating the first federal antitrust statute.6
Both the Clayton Act and the Federal Trade Commission Act were enacted in 1914, with
the latter creating the FTC (whereas the ICC was created in 1887) but its authority
directed for the purpose of protecting business competitors.7 It was not until the Federal
Trade Commission Act was amended in 1938 that the FTC was given the responsibility
5
The Communications Act of 1934, creating the FCC, was based on the statutory framework
created in the Interstate Commerce Act and copied much of the language nearly ver batim.
6
The Sherman Act prohibited certain forms of monopolization and agreements or conspiracies in
restraint of trade.
7
The Clayton Act was the first federal statute that expressly prohibited certain forms of price
discrimination, and was further amended by the Robinson-Patman Act in 1936 to assure that, to
the extent reasonably practicable, businessman at the same functional level would stand on equal
competitive footing with regard to price. See, e.g., Clark, (1995) (speech by the former Secretary
of the Federal Trade Commission). The Robinson-Patman Act applies to the sale of
commodities, and not to the sale of services – such as rail and telecommunications services
(Saferstein, 2005, pp. 169-179).
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to regulate unfair and deceptive acts or practices affecting commerce for the purpose of
protecting consumers. In the 1960’s and 1970’s, Congress passed numerous statutes to
protect consumers against unfair practices, and increased enforcement and regulatory
authority of the FTC. Yet, it was not until the 1960’s and 1970’s, at the FTC’s urging,
that most states adopted statutes to curb unfair or deceptive acts and practices. Some
state statutes directly provided private causes of action and associated remedies, whereas
some other state legislatures gave state courts a mandate to create a common law of
unfair trade practices (Franke & Ballam, 1992). The enactment of such state statutes for
general consumer protection purposes long post-dates the creation of the state
commissions governing common carriers and public utilities that were established with
jurisdiction over telecommunications beginning in the late nineteenth century and in the
majority of states by the 1920’s.
III. Interrelationship Between Traditional Industry-Specific and General Business
Regimes in the U.S.
As briefly discussed in this section, the interrelationship between the traditional industryspecific and general business regimes is characterized by various statutory and judicially
created exemptions and immunities, some express and others implied, to antitrust laws
for regulated industries. The filed rate doctrine also bars private parties from recovering
treble damages for antitrust violations related to filed rates. With regard to consumer
protection law, the Communications Act of 1934 contains a savings clause under section
414 that preserves remedies existing at common law or by statute. Notwithstanding this
savings clause, perhaps the primary reason that other legal remedies may be foreclosed is
through application of the filed rate doctrine.
A. Applicability of antitrust law
Firms subject to industry-specific regulation have also been targets of litigation under the
federal antitrust law. Over time, various statutory and judicially created exemptions and
immunities to the antitrust laws for regulated industries have developed and are briefly
outlined here.
One is the “state action” doctrine, under which the operation of a state regulatory
scheme precludes antitrust challenges to conduct that otherwise might violate federal
antitrust statutes.
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This doctrine provides immunity from antitrust liability if the
13
defendant shows “that (a) the state has clearly articulated its intent to immunize the
challenged conduct and (b) a state instrumentality (for example, a public service
commission) actively supervises the policy that shields the firm from antitrust scrutiny”
(Kovacic, 1995, p. 486, footnote omitted).
Other mechanisms that constrict application of the antitrust laws include express
immunity, implied immunity and primary jurisdiction (Bush, 2006, pp. 634-641).
Express immunity may exist “where a regulatory agency has been expressly empowered
by Congress to displace competition in an industry” (Bush, 2006, p. 634). Implied
immunity may apply to “regulatory conduct that Congress ‘intended’ to exempt from
antitrust even though it did not do so by express statutory language” (Bush, 2006, p. 635).
Both express and implied immunities have been analytically complex in application to
regulated industries.
As will be later discussed, this complexity has been further
complicated for telecommunications given the enactment of the antitrust-specific savings
clause in section 601 of the Telecommunications Act of 1996. The doctrine of primary
jurisdiction requires that judicial litigation must be suspended, but not preempted,
pending resolution of a factual or legal issue by the relevant regulatory authority.
With regard to potential antitrust legal remedies for consumers, it is important to
recognize that – for any industry – plaintiffs who are indirect purchasers may lack legal
standing to sue if their injuries are considered too remote. This legal bar to lawsuits by
indirect purchasers was established by the U.S. Supreme Court in Illinois Brick Co. v.
Illinois (1977).
B. Availability of consumer protection remedies
Traditional industry-specific regulation does provide various mechanisms by which
customers may seek legal remedies. One mechanism is the ability to bring complaints
before the relevant federal or state agency for enforcement of the statutory regime.
Another is the ability to bring private rights of action in the courts for enforcement of the
regulatory regime – in federal courts under the federal regime, and in state courts under
the state regime. In some circumstances judicial remedies are permitted for the recovery
of damages, and in others for injunctive relief. Under the Communications Act of 1934,
section 208 governs the FCC’s complaint jurisdiction, sections 206 and 207 provide
private rights of action in federal district court for damages sustained by a
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telecommunications carrier’s violation of the Act, and section 401(b) permits a private
party to seek injunctive relief in federal district court for enforcement of an FCC order.
Yet another mechanism is the general ability to seek remedies under the common
law or other statutes. In this regard, section 414 of the Communications Act of 1934
provides a savings clause, which states: “Nothing in this Act contained shall in any way
abridge or alter the remedies now existing at common law or by statute, but the
provisions of this Act are in addition to such remedies.” There have been many federal
and state court cases interpreting the scope of legal remedies that are saved, or not
preempted, under this clause. Generally, the Communications Act of 1934 does not, by
statute, preempt the applicability and enforcement of state consumer protection laws. 8
Furthermore, the savings clause has been interpreted to preserve many state court claims
under tort and contract law.9
However, prior to detariffing under deregulatory policies, perhaps the primary
reason that other remedies may be foreclosed notwithstanding the savings clause is
through application of the filed rate (or filed tariff) doctrine.10 The filed rate doctrine
originated with interpretation of the Interstate Commerce Act of 1887 by the U.S.
Supreme Court in New York, New Haven & Hartford Railroad Co. v. Interstate
Commerce Commission (1906), and has been subsequently applied to other industryspecific statutes based on a similar framework, such as the Communications Act of 1934.
Under such industry-specific statutes, filing of tariffs containing rates, terms and
conditions of service with the relevant agency was required to ensure public disclosure
and uniformity of application of rates, terms and conditions among customers.11 Under
the filed rate doctrine, all such rates, terms and conditions in tariffs are considered lawful,
with no deviation permitted – such as by damage remedies – through pursuit of legal
8
See, e.g., Micronet, Inc. v. Indiana Utility Regulatory Commission (2007, Section I.B. of the
opinion).
9
For discussion of a sampling of relevant case law, see Micronet, Inc. v. Indiana Utility
Regulatory Commission (2007).
10
As previously mentioned, treble damages in federal antitrust cases have been barred by the
filed rate doctrine under the Keogh doctrine.
11
The tariffing regime was established in the Interstate Commerce Act of 1887 pursuant to the
recommendation of the Cullom Report (1886) that such public disclosure and uniform application
of rates, terms and conditions was necessary to address the myriad forms of unreasonable
discrimination imposed by railroad common carriers.
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claims that are based on the filed tariffs. “Even where the carrier’s representation is
fraudulent, the aggrieved customer cannot assert that he should be charged the quoted
rate [that differs from the tariffed rate] because customers are presumed to know the
terms of the applicable tariff” (Helein, Marashlian & Haddad, 2002, p. 290, footnote
omitted). Yet, the filed rate doctrine does not bar state law actions “against regulated
companies where the activity in question is a failure to inform customers of a practice,
not an attack on the practice itself” (In re Long Distance Telecommunications Litigation,
1987, p. 634). The U.S. Supreme Court has recognized that the filed rate doctrine may
create hardship in certain cases, but has nonetheless repeatedly upheld it (Helein,
Marashlian & Haddad, 2002, p. 290).
IV. Evolving Interrelationship Between Deregulatory Industry-Specific and General
Business Regimes for Telecommunications Services in the U.S.
The interrelationship between the traditional industry-specific and general business
regimes described
in
the previous
section
is changing
under
deregulatory
telecommunications policies, but in ill-defined ways and with considerable conflict in
interpretation among the courts.
For telecommunications services, the courts are
struggling to determine how causes of action or legal remedies under the general business
regime, that have previously been barred or constricted against regulated firms under the
traditional industry-specific regime, may be now be permitted or broadened under the
deregulatory industry-specific regime. This section provides an overview of legal
developments related to redrawing the boundaries between the industry-specific and
general business regimes.
Mirroring the prior section, developments related to the applicability of general
antitrust law are discussed first.
As explained below, with passage of the
Telecommunications Act of 1996 (“TA96”), Congress enacted an antitrust-specific
savings clause in section 601(b)(1). There has already been disagreement among the
Federal Circuit Courts of Appeals related to the effect of this new savings clause on the
applicability of the antitrust laws to telecommunications.
The U.S. Supreme Court
decision in Verizon v. Trinko has also introduced uncertainties, calling into question the
validity of the essential facilities doctrine as a general matter and evoking responses from
some members of Congress that it does not reflect Congress’ intent under the savings
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clause. The U.S. Supreme Court appears to have moved further down this trajectory in
Bell Atlantic Corp. v. Twombly.
With regard to consumer protection law, redrawing the boundaries between the
deregulatory industry-specific and general business regimes has become considerably
more complex. First, there is an unresolved conflict between the Seventh and Ninth
Circuit Courts of Appeals regarding the scope of permissible legal remedies preserved by
the savings clause in section 414 under detariffing. The Seventh Circuit has held that
sections 201 and 202 still require uniformity of rates, terms and conditions of service and
preempt state law claims that challenge the validity of the rates, terms and conditions –
historically under the filed rate doctrine – even in contracts for interstate
telecommunications services under detariffing. The Ninth Circuit disagrees, so that
available legal remedies now vary among states in which customers reside.
Second, in 1999 the FCC promulgated Truth-in-Billing rules applicable to
telecommunications carriers that also contain a savings clause for adoption and
enforcement of consistent truth-in-billing requirements by the states.
The Truth-in-
Billing rules better enable customers to pursue legal remedies for misleading or deceptive
billing practices. However, there already is confusion as to how this new savings clause
is to be interpreted relative to the preexisting statutory savings clause in section 414.
Third, in 1993 Congress created a new regulatory class of service, CMRS, and in
section 332(c)(3) constrained the scope of state regulation in a manner that differs from
other (wireline) telecommunications services.
Section 332(c)(3)(A) also contains a
savings clause that permits states to regulate “other terms of conditions”, but not rates, of
CMRS services. The FCC has issued several declaratory rulings interpreting this savings
clause. In its Wireless Consumers Alliance Order, the FCC concluded that the filed rate
doctrine is no longer applicable after detariffing – which conflicts with the Seventh
Circuit’s reasoning referred to above. The FCC also adopted a declaratory ruling in the
NASUCA Order, interpreting section 332(c)(3)(A) to preempt state regulations requiring
or prohibiting use of line items. This order has been vacated by the Eleventh Circuit,
with which a federal district court in another Circuit has disagreed.
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A. Redrawing the boundaries with antitrust law
In TA96, Congress mandated numerous changes directly affecting market structure.
These include elimination of local exchange monopolies and the telecommunicationscable cross-ownership ban as well as generally prohibiting (under section 253(a)) any
state statutes or regulation that may prohibit or have the effect of prohibiting the ability of
any entity to provide any interstate or intrastate telecommunications service.
In section 601(b)(1) of TA96 Congress also enacted a antitrust-specific savings
clause.
Section 601(b)(1) provides in relevant part: “[N]othing in this Act or the
amendments made by this Act shall be construed to modify, impair, or supersede the
applicability of any of the antitrust law.”12 There has already been significant litigation
related to the effect of this new savings clause on the applicability of the antitrust laws to
telecommunications.
For example, in Goldwasser v. Ameritech (2000), the Seventh Circuit Court of
Appeals held that sections 251 and 252 enacted in TA96 imposed very specific,
affirmative duties13 on incumbent local exchange companies to help competitors that do
not exist under the antitrust laws, and an allegation of failure to comply with such duties
does not constitute a failure to comply with the antitrust laws. The court clarified,
however, that “[o]ur principal holding is thus not that the 1996 Act confers implied
immunity on behavior that would otherwise violate the antitrust law.… It is that the 1996
Act imposes duties on the ILECs that are not found in the antitrust law” (222 F.3d at
401).
The Court further stated that “[t]here are many markets within the
telecommunications industry that are already open to competition and that are not subject
to the detailed regulatory regime we have been discussing; as to those, the antitrust
savings clause makes it clear that antitrust suits may be brought today” (22 F.3d at 401).
However, the Second, Ninth and Eleventh Circuit Courts of Appeals have
subsequently disagreed with Goldwasser v. Ameritech. This is because, notwithstanding
the above quoted language from the Seventh Circuit, these Circuit Courts of Appeal
found that the Seventh Circuit “in effect held that defendants are impliedly immune from
12
The antitrust-specific savings clause is recorded in historical notes to 47 U.S.C. sec. 152.
There are exceptions to this savings clause related to government approval of mergers and
acquisitions and for acquisition by a corporation of another corporation’s stock.
13
These duties include interconnection, unbundling, collocation and resale.
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suit under the antitrust laws when the challenged conduct is also covered” (MetroNet
Services Corp. v. US West Communications, 2003, 329 F.3d at 1001 fn. 18). With regard
to immunity, the U.S. Supreme Court at least settled the issue as a matter of law in
Verizon Communications Inc. v. Trinko (2004) by holding that the antitrust-specific
savings clause of section 601(b)(1) bars a finding of implied immunity.
Yet, Verizon v. Trinko has also created new uncertainties. In its opinion, the U.S.
Supreme Court further clarified its reading of the antitrust-specific savings clause: “[b]ut
just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not
create new claims that go beyond existing antitrust standards” (540 U.S. at 407). The
Court then proceeded to hold that the activity of which the plaintiff complains, that an
incumbent local exchange company breached its TA96 duty to share its network with
competitors, does not violate preexisting antitrust standards. In this regard, the Court
observed that “[i]n the present case … the services allegedly withheld are not otherwise
marketed or available to the public. The sharing obligation imposed by the 1996 Act
created ‘something brand new’ – ‘the wholesale market for leasing network elements’”
(540 U.S. at 410). As a result, the Court concluded that “Verizon’s alleged insufficient
assistance in the provision of service to rivals is not a recognized antitrust claim under
this Court’s existing refusal-to-deal precedents “ (540 U.S. at 410). Thus, the Court’s
interpretation of the antitrust-specific savings clause requires future application of
antitrust law in the context of the recently revised industry-specific telecommunications
regime to be confined to what has been previously recognized antitrust claims. Such
interpretation appears to preclude or at least constrict what would otherwise be natural
case-by-case evolution in antitrust law jurisprudence in two important respects:
in
reinterpreting the boundaries between the industry-specific telecommunications and
antitrust regimes in light of the admittedly significant changes in the preexisting industryspecific regime; and in applying future developments in antitrust law in nontelecommunications cases – e.g. as to refusals to deal – to future telecommunicationsrelated cases.
In Verizon v. Trinko the Court also created uncertainty regarding the viability of
the essential facilities doctrine under antitrust law. In holding that the allegation against
Verizon is not a recognized antitrust claim under the Court’s existing refusal-to-deal
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precedents, the Court further stated that “[t]his conclusion would be unchanged even if
we considered to be established law the ‘essential facilities’ doctrine crafted by some
lower courts…and we find no need either to recognize it or repudiate it here” (540 U.S. at
410-411). The Court then found that it sufficed for the present case that “[t]he 1996
Act’s extensive provision for access makes it unnecessary to impose a judicial doctrine of
forced access” (540 U.S. at 411). Such statements not only affect the applicability of
judicially enforced access to competitors in the telecommunications industry, but also
signal the Court’s reticence to endorse the essential facilities doctrine as a general matter
under antitrust law. As a result, in future (including non-telecommunications) cases the
Court may in fact repudiate the doctrine, in which case there will then be a conflict
between the state of antitrust law existing at the time the savings clause was adopted and
the antitrust law’s subsequent evolution. Which temporal state of antitrust law will then
apply to ensuing telecommunications-related cases?
In response to cases interpreting the antitrust-specific savings clause, such as
Goldwasser v. Ameritech and Verizon v. Trinko, some members of Congress assert that
the intended interrelationship of the antitrust law to the revised telecommunications
regulatory regime under TA96 has been undermined. For example, in testimony before
the U.S. Senate Committee on the Judiciary, Representative James Sensenbrenner,
Chairman of the U.S. House of Representatives Committee on the Judiciary, stated:
Despite the inclusion of this antitrust savings clause, a record of
considerable judicial confusion has developed in our Nation’s courts. In
2000, the Seventh Circuit issued the Goldwasser decision, ignoring the
plain language of the antitrust savings clause and holding that the Telecom
Act “must take precedence over the general antitrust laws.” In 2004, the
Supreme Court embraced the reasoning of the Goldwasser court in
Verizon v. Trinko. The decision stated: “One factor of particular
importance is the existence of a regulatory structure designed to deter and
remedy anticompetitive harm. Where such a structure exists … it will be
less plausible that the antitrust laws contemplate such additional scrutiny
…” The Court concluded: “against the slight benefits of antitrust
intervention here, we must weigh a realistic assessment of its costs.”
This is precisely the judicial analysis that Congress precluded in the 1996
Act, and this holding has done violence to remedial antitrust enforcement
and competitive gains in the telecommunications marketplace. This
assault on the antitrust laws should be of concern to Members of both
bodies of Congress, but particularly to those who serve on the Committees
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charged with overseeing their implementation. [Statement of F. James
Sensenbrenner, Jr., 2006]
A recent case decided by the U.S. Supreme Court in Bell Atlantic Corp. Twombly
(2007) gives reason to deepen Representative Sensenbrenner’s concerns. In Bell Atlantic
v. Twombly, the Court held that plaintiffs’ pleading of an alleged agreement by
incumbent local exchange companies to disobey the 1996 Act and thwart the competitive
local exchange companies’ (“ILEC’s”) attempts to compete was insufficient to state a
claim under the Sherman Act. The Court held that plaintiffs failed to plead enough
factual matter to suggest that an agreement had been made rather than merely parallel
conduct among the ILEC’s. Interestingly, in rendering its opinion the Court made no
reference to the antitrust-specific savings clause contained in section 601(b)(1) of TA96.
In dissent, Justice Stevens (joined by Justice Ginsburg) stated concerns with the Court’s
dramatic departure from settled procedural law regarding pleadings sufficient to
withstand dismissal upon a motion of summary judgment, asserting that “[t]he Court’s
dichotomy between factual allegations and ‘legal conclusions’ is the stuff of a bygone
era” (127 S.Ct. at 1985, citation omitted).
Furthermore, Justice Stevens found the
majority opinion to be inconsistent with Congressional intent regarding the
interrelationship among the Sherman Act, the Telecommunications Act of 1996, and the
Federal Rules of Civil Procedures (rules governing pleading and procedures in federal
civil litigation):
Just a few weeks ago some of my colleagues explained that a strict
interpretation of the literal text of statutory language is essential to avoid
judicial decisions that are not faithful to the intent of Congress. I happen
to believe that there are cases in which other tools of construction are
more reliable than text, but I agree of course that congressional intent
should guide us in matters of statutory interpretation. This is a case in
which the intentions of the drafters of three important sources of law – the
Sherman Act, the Telecommunications Act of 1996, and the Federal Rules
of Civil Procedure – all point unmistakably in the same direction, yet the
Court marches resolutely the other way. Whether the Court’s actions will
benefit only defendants in antitrust treble-damage cases, or whether its test
for the sufficiency of a complaint will inure to the benefit of all civil
defendants, is a question that the future will answer. But that the Court
has announced a significant new rule that does not even purport to respond
to any congressional command is glaringly obvious. (127 S.Ct. at 19881989, citations omitted)
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The Court’s announcement of essentially a new pleading rule in this case is
troublesome for several reasons. One is its apparent inconsistency with the Court’s
earlier opinion in Verizon v. Trinko that the antitrust-specific savings clause in TA96
“preserves claims that satisfy existing antitrust standards”, yet the Court effectively just
raised those standards. Second, the Court’s majority opinion does not even acknowledge
the existence of the antitrust-specific savings clause. Third, and particularly relevant to
the focus of this paper, the Court’s decision directly impacts consumer sovereignty as the
case was brought as a class action on behalf of consumers. Effectively, the Court has
now made it more difficult for consumers to pursue some antitrust claims against ILEC’s,
even though the Court acknowledges that plaintiffs often find further factual basis for
their pleadings during the discovery process that may now be more easily foreclosed.
B. Redrawing the boundaries with consumer protection remedies
1. Scope of the section 414 savings clause and the filed rate doctrine
As previously discussed, section 414 of the Communications Act of 1934 provides a
general savings clause for remedies under common law or by other statutes. However,
the scope of legal remedies permitted under this clause has been limited through
application of the filed rate doctrine. Since passage of TA96, a conflict has arisen among
Federal Circuit Courts of Appeals as to the applicability of the filed rate doctrine after
detariffing.
In Boomer v. AT&T (2002), a class action suit on behalf of consumers had been
filed against long-distance telecommunications carriers seeking a ruling that provisions in
AT&T’s Consumer Service Agreement (“CSA”) which prohibited class actions and
mandated arbitration be declared unconscionable under Illinois contract law and violative
of the Illinois Consumer Fraud Act. The Seventh Circuit Court of Appeals stated that,
even after detariffing, “Sections 201 and 202 [of the Communications Act of 1934]
demonstrate a congressional intent that individual long-distance customers throughout the
United States receive uniform rates, terms and conditions of service” (309 F.3d at 418,
citations omitted), and that “[f]ollowing detariffing [through FCC forbearance of the
requirement to file tariffs under section 203], those goals remain, as do the substantive
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requirements of Sections 201 and 202” (309 F.3d at 421).
14
Therefore, the Seventh
Circuit concluded that sections 201 and 202 still impliedly preempted state law claims
that challenged the validity of the rates, terms and conditions in contracts for interstate
telecommunications services.
In Ting v. AT&T (2002), the Ninth Circuit Court of Appeals expressly disagreed
with the Seventh Circuit Court’s decision in Boomer v. AT&T. First, the Ninth Circuit
observed that “[d]etariffing has created a much larger role for state law and this fact is
sufficient to preclude a finding that Congress intended completely to occupy the field,
following the 1996 Act” (319 F.3d at 1137). Second, the Ninth Circuit Court found that
“[b]ecause §§ 201(b) and 202(a) survived detariffing, the substantive principles of
reasonableness and nondiscrimination remain intact. But the same cannot be said of the
principle of preemption, which was a product of the filed rate doctrine which, by
definition, did not survive detariffing” (319 F.3d at 1138). In fact, the Ninth Circuit
stated that “[s]ave for Boomer, no court has ever interpreted §§ 201(b) or 202(a)
independently to preempt state law” (319 F.3d at 1140 n. 8).15 Third, the Ninth Circuit
stated that its decision, unlike that in Boomer, is consistent with the FCC’s view in its
Detariffing Order that “in the absence of … tariffs … consumers will not only have our
complaint process, but will also be able to pursue remedies under state consumer
protection and contract laws” (319 F.3d at 1143, citing 11 F.C.C.R. 20, 730 at par. 42),
and that “[w]hen interstate … services are completely detariffed, consumers will be able
to take advantage of remedies provided by state consumer protection laws and contract
law against abusive practices” (319 F.3d at 1144, citing 11 F.C.C.R. 20, 730 at par. 5,
emphasis added by the court).
14
Therefore, “[i]n the absence of significant conflict
The Seventh Circuit also asserted that yet another savings clause enacted by Congress in TA96
supports its interpretation of sections 201 and 202. Section 601(c)(1) of TA96, recorded in
historical notes to 47 U.S.C. section 152, provides: “This Act and the amendments made by this
Act shall not be construed to modify, impair, or supersede Federal, State, or local law unless
expressly so provided in such Act or amendments.” The Seventh Circuit interpreted “This Act”
in section 152 to mean the Telecommunications Act of 1996, and not the Communications Act of
1934 of which sections 201 and 202 are part. “Therefore, … the historical notes to Section 152
confirm that the Telecommunications Act did not ‘modify, impair or supersede’ Sections 201 and
202, and their goals of uniformity and non-discrimination” (309 F.3d at 423).
15
In disagreeing with the Seventh Circuit’s interpretation of sections 201 and 202, the Ninth
Circuit did not address the Seventh Circuit’s interpretation of the savings clause in section
601(c)(1) of TA96. See note 14, supra.
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between federal policy and the use of state law, we [Ninth Circuit Court of Appeals] hold
that state contract and consumer protection laws form part of the framework for
determining the rights, obligations, and remedies of the parties to the CSA” (319 F.3d at
1146).
In Dreamscape Design, Inc. v. Affinity Network (2005), the Seventh Circuit Court
of Appeals had the opportunity to reconsider its analysis in Boomer v. AT&T in light of
the Ninth Circuit Court’s decision in Ting v. AT&T. In Dreamscape Design v. Affinity
Network, Dreamscape filed a consumer class action for alleged fraud and breach of
contract under the Illinois Consumer Fraud Act related to the cost of long-distance
telephone services provided by Affinity. Dreamscape alleged that Affinity advertised
long-distance rates on a per minute basis, but billed for services based on tenths of a
minute instead of by the minute. In considering Dreamscape’s breach of contract claim,
the Seventh Circuit expressly disagreed with the Ninth Circuit’s interpretation of sections
201 and 202 of the Communications Act of 1934 in Ting v. AT&T, “conclud[ing] that
even after detariffing, state law cannot operate to invalidate the rates, terms, or conditions
of a long-distance service contract … because such a result would be contrary to
Congress’s intent as expressed in Sections 201 and 202” (414 F.3d at 674).
Therefore, an unresolved conflict exists among the Federal Circuit Courts of
Appeals regarding the scope of permissible legal remedies preserved by the savings
clause of section 414 under detariffing. As a result, under federal law, legal remedies
available to protect consumer sovereignty now vary by the state in which customers
reside. At this juncture, only the U.S. Supreme Court or an act of Congress can resolve
this conflict.
2. Applying the FCC’s Truth-in-Billing rules and its savings clause
Several years after enactment of TA96, the FCC adopted its Truth-in-Billing Order.16 In
this order, the FCC promulgated rules (47 C.F.R. Secs. 64.2400 and 64.2401) imposing
truth-in-billing requirements on providers of telecommunications services. The FCC
expressly stated that a carrier’s provision of misleading or deceptive billing information
is an unjust and unreasonable practice in violation of section 201(b) of the
16
In the Matter of Truth-in-Billing and Billing Format, First Report and Order and Further
Notice of Proposed Rulemaking (1999).
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Communications Act of 1934 (14 F.C.C.R. 7492 at par. 24). Therefore, under sections
206 and 207, consumers may seek legal remedies for misleading or deceptive billing
information either through a complaint filed with the FCC or through a private right of
action filed in federal district court for damages. The FCC also adopted a savings clause
in section 64.2400(c) of these rules, which provides: “The requirements contained in this
subpart are not intended to preempt the adoption or enforcement of consistent truth-inbilling requirements by the states.” Therefore, consumers may also seek legal remedies
to enforce, not inconsistent, state truth-in-billing requirements.
In pursuing a private right of action for violation of the FCC’s Truth-in-Billing
rules, the issue of primary jurisdiction still arises as to whether the particular billing
practice at issue is considered by the FCC to be a violation of its rules. If it is not clear
that the FCC considers the practice to be a violation of its rules, then stay of the litigation
is required pending referral of the question to the FCC; conversely, if it is clear that the
FCC considers the practice to be a violation of its rules, then no stay of the litigation is
required. As an example of the latter, in Beattie v. CenturyTel, Inc. (2006), the federal
district court for the Eastern District of Michigan held that the telephone service
provider’s billing of a wire maintenance program as an “unregulated service” violated the
FCC’s Truth-in-Billing rules as a matter of law.
This is because the FCC’s
pronouncement in its Truth-in-Billing Order (par. 40) that a charged described by
“service not regulated by the Public Service Commission” is inherently ambiguous is
uncannily similar to the facts of the case before it and “allows the language of the [Order]
to serve as a suitable proxy for a prior adjudication for the purpose of obviating the need
of a referral under the primary jurisdiction doctrine” (234 F.R.D. at 166).
With regard to state law claims related to billing practices, there has been some
confusion. In Hill v. BellSouth Telecommunications, Inc. (2003), the federal district court
for the Northern District of Georgia held that the plaintiff’s claims alleging
misrepresentations by BellSouth in its billing practices and BellSouth’s practice of
collecting an amount in excess of its required contribution to the federal universal service
fund were preempted under the filed rate doctrine. In its decision, the court relied on
interpretation of the general savings clause in section 414 that “preserves only those
rights that are not inconsistent with the statutory filed-tariff requirements” (244
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F.Supp.2d at 1328, citing AT&T Co. v. Central Office Telephone, Inc., 524 U.S. 214, 227
(1998)). Yet, the court failed to recognize the savings clause in section 64.2400(c) of the
FCC’s Truth-in-Billing Rules, which was promulgated after the U.S. Supreme Court’s
decision upon which it relied (as quoted in the preceding sentence). Subsequently, the
FCC has responded to the portion of Hill v. BellSouth that relates to an alleged overrecovery of universal service contributions in customers’ bills.
In 2003, the FCC
promulgated a new rule, 47 C.F.R. sec. 54.712, which prohibits telecommunications
carriers from over-recovering universal service fund contributions in line item charges on
the customer’s bill. As a result, customers at least clearly have a legal remedy for overrecovery of universal service fund contributions through enforcement of sec. 54.712,
whether by a complaint filed with the FCC or by private right of action filed in federal
district court.
3. Scope of the section 332(c)(3)(A) savings clause in CMRS cases
In 1993, Congress amended the Communications Act of 1934 to create a new regulatory
class of “commercial mobile radio service” (CMRS).
In so doing, Congress also
constrained the scope of state regulation in section 332(c)(3) in a manner that differs from
other telecommunications services. The following provision in section 332(c)(3)(A) has
been subject to considerable litigation: “no State or local government shall have any
authority to regulate the entry of or the rates charged by any commercial mobile service
or any private mobile service, except that this paragraph shall not prohibit a State from
regulating the other terms and conditions of commercial mobile services.”
Prior to making its Truth-in-Billing rules applicable to CMRS in 2005, the FCC
issued declaratory rulings in response to petitions prompted by judicial litigation that
sought clarity in interpretation of the savings clause in section 332(c)(3)(A).
For
example, in 1997, Southwestern Bell Mobile Systems filed a petition with the FCC
seeking certain specific rulings. The petition was triggered by numerous class action
lawsuits that had been filed in state and federal courts, challenging two practices of
CMRS providers: charging for calls in whole minute increments (“rounding up”), and
charging subscribers for incoming calls. In its Southwestern Bell Mobile Order (1999),17
17
In the Matter of Southwestern Bell Mobile Systems, Inc., Memorandum Opinion and Order, 14
F.C.C.R. 19,898 (1999) (“Southwestern Bell Mobile Order”).
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the FCC ruled that these industry practices are not per se violative of section 201(b) of
the Communications Act of 1934, as they have historically been common billing
practices for CMRS providers (par. 14). Therefore, the states do not have the authority to
prohibit CMRS providers from charging for incoming calls or charging in whole minute
increments (par. 23). However, the FCC did find that “the legislative history of section
332(c)(3)(A) clarifies that billing information, practices and disputes – all of which might
be regulated by state contract or consumer fraud laws – fall within ‘other terms and
conditions’ which states are allowed to regulate. Thus, state law claims stemming from
state contract or consumer fraud laws governing disclosure of rates and rate practices are
not generally preempted under Section 332” (par. 23, footnote omitted).
In 1999, Wireless Consumers Alliance filed a petition for declaratory ruling with
the FCC, concerning whether section 332(c)(3)(A) preempts state courts from awarding
monetary relief against CMRS providers for violations of state consumer protection laws
prohibiting false advertising and other fraudulent business practices, or in the context of
contractual disputes and tort actions adjudicated under state contract and tort law. In its
Wireless Consumers Alliance Order (2000),18 the FCC first found that the filed rate
doctrine does not apply, because there are no filed rates or tariffs for CMRS services (par.
9). In fact, the FCC noted “that CMRS providers have engendered much confusion over
the issue of the applicability of the filed rate doctrine in cases concerning the preemptive
effect of section 332. For example, CMRS providers regularly cite filed rate cases to
support their position, often without any acknowledgement that Section 332 cases do not
involve tariffed rates” (par. 15, n. 47). But the FCC reiterated that it “has concluded [in
its Detariffing Order for wireline services] that the application of the filed rate doctrine
‘may undermine consumers’ legitimate business expectations’ and that its application
with respect to competitive communications services is contrary to the public interest. In
part for this reason, it has been this Commission’s policy to eliminate the filing of tariffs
for services it judges to be substantially competitive” (par. 17, footnote omitted).
It is important to note that the Seventh Circuit neither acknowledged nor
attempted to distinguish the FCC’s finding here when the court determined that the filed
18
In the Matter of Wireless Consumers Alliance, Inc., Memorandum Opinion and Order, (2000)
(“Wireless Consumers Alliance Order”).
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rate doctrine was still applicable to detariffed wireline services in Boomer v. AT&T and
Dreamscape Design v. Affinity Network. The Seventh Circuit’s interpretation is clearly
inconsistent with that of the FCC, to which the court should have given deference. In
Wireless Consumers Alliance Order, the FCC expressly states that a “mandatory
detariffing regime, when applied to both CMRS and other nondominant [wireline]
carriers, constitutes a totally different framework for fulfilling our statutory
responsibilities” (par. 21), and that “the decision we reach today is in accord with our
views regarding other competitive services. In the Detariffing Proceeding, we … found
that eliminating the filed rate doctrine ‘would serve the public interest’ by preserving
reasonable commercial expectations and protecting consumers.’ Similarly, we find today
that refusing to apply a filed rate doctrine rationale in CMRS cases also serves the public
interest” (par. 22, footnotes omitted).
In Wireless Consumers Alliance Order, the FCC proceeded to find “that Section
332 was designed to promote the CMRS industry’s reliance on competitive markets in
which private agreements and other contract principles can be enforced…. It follows that,
… state contract and tort law claims should generally be enforceable in state courts” (par.
23). Thus, the FCC held “that Section 332 does not generally preempt the award of
monetary damages by state courts based on consumer protection, tort, or contract claims”
(par. 2).
In its NASUCA Order (2005),19 due to a significant rise in consumer complaints
the FCC concluded that CMRS should no longer be exempt from those provisions of the
Truth-in-Billing rules that require billing descriptions to be brief, clear, non-misleading
and in plain language (par. 16). In this regard, the FCC stated “that it is a misleading
practice for carriers to state or imply that a charge is required by the government when it
is the carriers’ business decision as to whether and how much of such costs they choose
to recover directly from consumers through a separate line item charge” (par. 27, footnote
omitted).
Furthermore, “it is unreasonable and misleading for carriers to include
administrative and other costs as part of ‘regulatory fees or universal service charges’ or
19
In the Matter of Truth-in-Billing and Billing Format; National Association of State Utility
Consumer Advocates’ Petition for Declaratory Ruling Regarding Truth-in-Billing; Second Report
and order, Declaratory Ruling, and Second Further Notice of Proposed Rulemaking (2005)
(“NASUCA Order”).
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similar line item labels that imply government mandated charges” (par. 28, footnote
omitted).
The FCC then found “that state regulations requiring or prohibiting the use of line
items … constitute rate regulation and, as such, are preempted under section 332(c)(3)(A)
of the Act” (par. 30). However, the FCC also held that this preemption did not affect
other areas within the states’ regulatory authority – such as requiring CMRS providers to
contribute to state universal service funds, imposing other regulatory fees and taxes, and
regulating disclosure of whatever rates a CMRS provider chooses to set (pars. 32-33).
The NASUCA Order also contained a Second Further Notice of Proposed Rulemaking
that made several tentative conclusions, such as that “states only may enforce their own
generally applicable contractual and consumer protection laws, albeit as they apply to
carriers’ billing practices….[and that] states would be preempted from enacting and
enforcing specific truth-in-billing rules beyond the rules, guidelines, and principles that
the Commission has adopted” (par. 53).
A conflict among the courts is already emerging regarding the validity of the
FCC’s preemption ruling in its NASUCA Order.
In NASUCA v. FCC (2006), the
Eleventh Circuit Court of Appeals vacated and remanded the FCC’s preemption ruling in
the NASUCA Order. The Eleventh Circuit held that the FCC exceeded its authority when
it preempted state regulation of line-item billing under section 332(c)(3)(A).
More
specifically, the court found that “[t]he language of section 332(c)(3)(A) unambiguously
preserved the ability of the States to regulate the use of line items in cellular wireless
bills…. [because] [t]]he prohibition or requirement of a line item affects the presentation
of the charge on the user’s bill, but it does not affect the amount that a user is charged for
service” (457 F.3d at 1254).
Therefore, state regulation of line items constitutes
regulation of terms and conditions, and not of rates, as permitted under section
332(c)(3)(A).
But the federal district court for the Western District of Washington, in three
cases, has disagreed with the Eleventh Circuit’s holding in NASUCA v. FCC. In Peck v.
Cingular (2006), Hesse v. Sprint Spectrum (2007), and Riensche v. Cingular (2007), the
federal district court declined to follow the Eleventh Circuit’s ruling. Instead, in each
case the federal district court found that the statutory provision of the Washington Code
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that prohibits businesses from levying a Business and Occupation tax on consumers
constitutes line-item regulation and is preempted under section 332(c)(3)(A). The Peck v.
Cingular case is currently under appeal.
V. Evolving Regime for Broadband Access Services in the U.S.
A legal regime to facilitate the exercise of consumer sovereignty for broadband access
services is still evolving.20 By the FCC’s classification of broadband access services as
information services in its Cable Modem Declaratory Ruling21 and Wireline Broadband
Access Order22 and thereby not subject to common carriage regulation under Title II of
the Communications Act of 1934, the FCC’s regulatory authority over broadband access
is limited to its ancillary jurisdiction under Title I. The FCC is attempting to construct
the boundaries of a new regime for broadband access services, using some combination
of industry-specific requirements pursuant to ill-defined Title I authority and
supplemental reliance on the general business regime.
The network neutrality debate illustrates the difficulties that policy makers face in
determining the extent to which industry-specific rules are still needed to address
consumer sovereignty issues related to broadband access services in the absence of the
common carriage Title II federal statutory regime.
It is not possible to adequately
address the nuances of the network neutrality debate here, as the complexity of the
subject requires considerable space beyond the page limitations of this paper. However,
the observations made here are supported by, and supplement, the analytical analysis
provided in prior writings.23
20
A legal regime for Voice over the Internet Protocol (“VOIP”) services is also evolving.
Classification of VOIP services as a telecommunications or information service is still unresolved
as a general matter, although the FCC has rendered decisions for some specific providers the
outcomes of which are dependent on technical configurations of the provider’s service. To the
extent that the FCC’s regulatory authority over VOIP services will be based on Title I ancillary
jurisdiction, the concerns discussed in this section as to broadband access services will have
similar application to VOIP services. Frieden (2007) provides a useful discussion of the current
state of the unsettled legal regime for broadband access and VOIP services.
21
Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities;
Internet Over Cable Declaratory Ruling; Appropriate Regulatory Treatment for Broadband
Access to the Internet Over Cable Facilities (2002) (“Cable Modem Declaratory Ruling”).
22
In the Matter of Appropriate Framework for Broadband Access to the Internet over Wireline
Facilities, Universal Service Obligations of Broadband Providers, (2005) (“Wireline Broadband
Access Order”).
23
See note 2, supra, and accompanying text.
ITS 2008
30
The primary point made here is that, from the perspective of consumer
sovereignty defined by Averitt and Lande, the network neutrality debate embodies a
complex array of issues that arise from the attempt to construct a new Title I–based
industry-specific regime for broadband access to the Internet and thereby also a new
interface with the general business regime of antitrust and consumer protection law. For
this
reason,
the
interrelationship
between
an
industry-specific
regime
for
telecommunications services (“Title II–based regime”) and the general business regime,
on the one hand, and the interrelationship between an industry-specific regime for
broadband access services (“Title I–based regime”) and the general business regime, on
the other, will differ in considerable yet undetermined ways. Most immediately, an
important distinction between the Title I-based and Title II-based regimes is that the FTC
will have a greater role in the former as the common carrier exemption to its jurisdiction
does not apply. This is illustrated by the FTC’s involvement in evaluating potential
network neutrality regulation (Broadband Connectivity Competition Policy, 2007). The
following discussion provides an overview of additional likely differences in the
interrelationships of the Title I-based and Title II-based regimes with the general business
regime.
The FCC’s ancillary jurisdiction under Title I of the Communications Act of 1934
is “somewhat amorphous … [but] nonetheless constrained” (American Library
Association v. FCC (2005), 406 F.3d at 691).
The FCC “may exercise ancillary
jurisdiction only when two conditions are satisfied; (1) the Commission’s general
jurisdictional grant under Title I covers the regulated subject and (2) the regulations are
reasonably ancillary to the Commission’s effective performance of its statutorily
mandated responsibilities” (American Library Association v. FCC (2005), 406 F.3d at
691-692).
By its very nature of being ancillary, Title I jurisdiction is necessarily
derivative from some other FCC statutory responsibility, as the second condition states,
which thereby significantly constrains its scope. As the FCC’s ancillary jurisdiction is
more constrained than its Title II jurisdiction, it is likely that any Title I-based industryspecific regulation developed by the FCC will yield a greater role for applicability of the
general antitrust law than does the Title II-based regime. For this reason, the role of
general antitrust law for broadband access services will differ from the one presently
ITS 2008
31
governed by Verizon v. Trinko, yet in a manner impossible to define with particularity
until the FCC rules, if any, for broadband markets are more clearly specified (Weiser,
2005).
Similarly, Title I-based industry-specific regime will also likely yield a greater
role for general consumer protection law than the Title II-based regime. This is not only
because ancillary jurisdiction under Title I is more constrained than under Title II, but
also because the tariffing regime of Title II is inapplicable to Title I services and thus the
filed rate doctrine can not be invoked to bar remedies that would otherwise be preserved
under the general section 414 savings clause. In this respect, the current conflict between
the federal Seventh and Ninth Circuit Courts of Appeals regarding the applicability of the
filed rate doctrine to detariffed telecommunications services should be irrelevant to the
provision of broadband access services that are not subject to sections 201 and 202.24 In
addition, the FCC’s Truth-in-Billing rules are inapplicable to information services,
thereby permitting claims related to billing practices of broadband access services to be
brought under common law or other statutory causes of action. Likewise, the unique
constraints on state regulatory jurisdiction of CMRS services under section 332(c)(3)(A)
are inapplicable to broadband access services.
VI. Preliminary Evaluation of the Evolution of Other Nations’ Legal Regimes to
Provide Consumer Sovereignty
The preceding detailed analysis of the evolution of U.S. legal regimes affecting consumer
sovereignty for telecommunications and broadband services as compared to other general
business industries is intended not only to enlighten understanding of complex problems
arising from deregulatory policies in the U.S. but also to serve as a reference point for
making comparisons with the evolution of analogous legal regimes in other nations. In
this regard, research of legal developments in other nations is ongoing. However, this
section provides some preliminary observations of developments seen in OECD reports
and the EU electronic communications regulatory framework, with comparisons to
developments in the U.S.
24
Recall that the Seventh Circuit concluded that sections 201 and 202, even after detariffing,
impliedly preempted state law claims that challenged the validity of rates, terms and conditions in
contracts for interstate telecommunications services.
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32
1. Findings of an OECD Summary Report on Consumer Policy
In international fora, there is a growing recognition of demand-side failures that require
consumer protection regulation in the retail market.
In October 2006, the OECD
Committee on Consumer Policy hosted its second Roundtable on Economics for
Consumer Policy to examine how to further develop policies relating to the demand side
of markets. On July 26, 2007, a Summary Report of this Roundtable was released. The
report states that “[t]he October 2006 Roundtable … was again concerned with market
failures in markets where competition is deemed effective” (p. 4). It reiterated main
points that had emerged from the 2005 Roundtable, including: “Conventional economics,
which focuses mainly on market structures and the availability of information to
consumers, does not explain all reasons for demand-side market failure … [and]
behavioural economics suggest other reasons for demand-side market failures, which
may have implications for public policy” (p. 6). Building on concerns from the 2005
Roundtable that “market failures … can occur in markets which are structurally sound on
the supply side” (p. 4), additional main points emerged from the 2006 Roundtable.
The first main point in the Summary Report is that, “[f]or policy purposes, the
demand and supply side of markets should not be considered separately” (p. 4). In this
context, the Summary Report further states:
Competition policy, consumer policy, and social justice in markets should
all work together to ensure that markets operate to deliver outcomes which
are beneficial to consumers and to the economy as a whole. Competition
policy is a means to an end, not an end in itself. Consumer policy should
ensure that consumers gain the benefits of competition, are active
participants in markets, and have reason to trust that markets can provide
fair outcomes for consumers and producers. (p. 4)
Elaborating on this point, the Summary Report states “Competition policy has a strong
emphasis on structure…. Even vigorous supply-side competition, however, falls short of
delivering economic benefits if markets are not well-developed on the demand-side….
This Roundtable is concerned with situations where there are failures in structurally
sound markets” (p. 8).
These statements under this main point are consistent with Averitt and Lande’s
concept of consumer sovereignty, under which antitrust (competition) and consumer
ITS 2008
33
protection laws work together for a common purpose to facilitate exercise of effective
consumer choice. Additional main points in the Summary Report include the need for
ongoing assessment to ensure that regulatory interventions are working as expected, that
mandatory disclosure of information is an important policy instrument, and that
regulatory interventions in markets should take into account consumer behaviour (pp. 45).
Such regulatory interventions are considered necessary to address demand-side
market failures that arise from imperfect information and consumer behavioural biases.
To address information problems, remedies can include prohibitions on unfair
contract terms25 or information disclosure through government-provided public
information websites (Summary Report, pp. 9-10).
However, the Summary Report
recognizes that “[a]s a remedy for market failure, information disclosure has its
limits….[T]here may be situations where outright prohibition on certain behaviour is
appropriate” (p. 10).
With regard to consumer behavioral biases, policy issues include a concern for
fairness. “[W]e are also concerned that market transactions should be fair to other
consumers.… Supply and demand are not as independent as posited by the assumptions
of conventional economics” (Summary Report, p. 11). For this reason, “[s]ome remedies,
which arise from a social justice or information perspective, are consistent with a
behavioural approach” (Summary Report, p. 12).
Importantly, a further main point in the Summary Report is that demand-side
failure is more likely in some markets than others, particularly in telecommunications and
financial services markets where “consumers are buying complex and rapidly-changing
products, and have to make decisions weighing immediate costs and benefits against
longer-term costs and benefits” (p. 5). In such markets “[a] number of behavioural biases
… may lead consumers away from making sound decisions” (p. 5). Consequently, the
25
Under the U.S. common law, doctrines have evolved from judicial concerns of public policy
and equity that prohibit enforceability of contract terms under certain circumstances. One is the
unconscionability doctrine, under which contract terms deemed both procedurally and
substantively unconscionable are unenforceable. See, e.g., Swanson (2001, pp. 361-367); Hunter,
(1992, pp. 145-149). A classic situation in which such unconscionability is likely to arise is the
use of standardized contracts, often referred to as contracts of adhesion. See, e.g., Slawson (1971,
pp. 549-553); Rakoff (1983, p. 1177). Some contract terms, related to limitations on liability, are
considered unenforceable as a matter of public policy for certain industries, such as common
carriers. See, e.g., Morant, (1995, pp. 750-759).
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34
Roundtable focused on two major industry sectors, telecommunications and financial
services, highlighting the need to consider industry-specific regulatory measures.
The Roundtable considered two presentations on telecommunications. One was a
UK presentation based on findings of a major study by the UK National Consumer
Council (NCC) on switching behavior in a number of markets, including fixed and
mobile telephony. With regard to consumer issues in telecommunications, the Summary
Report states that important policy issues have been raised “as a number of supply-side
behaviours, sometimes interacting with consumer decision-making short cuts, have
reduced competition” (Summary Report, p. 28). In particular, the bundling of mobile
telephony, television and the Internet has some consumer benefits in terms of
convenience but also has introduced barriers to price competition. Moreover, it also
emphasized that “[t]here are contractual issues, including confusing and unfair terms,
long contractual periods, and exit penalties, all of which act as impediments to effective
competition. And there are technical problems of interoperability of both software and
hardware, which tend to lock consumers into particular products from particular
suppliers” (Summary Report, p. 28). For this reason, the NCC considers it important to:
allow for simpler consumer choice and open standards allowing for interoperability,
given bundling and product complexity; provide better information, consumer advice,
and consumer education; simplify switching; and standardize contract terms, business
conduct rules and avenues of consumer redress (Summary Report, p. 29).
As with the more general discussion of the first main point in the Summary
Report, the noted interaction of supply-side and demand-side behaviors with regard to the
NCC study is consistent with Averitt and Lande’s concept of consumer sovereignty,
whereby both supply and demand side policies must be integrated in order to facilitate
effective consumer choice. Combining this understanding of the need for supply and
demand policies with the recognition that demand-side failure is more likely in some
markets such as telecommunications, it is not surprising that the NCC is considering
policies to address specific problems with regard to bundling of communications
services.
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35
2. Institutional differences between the U.S. and EU
In prior research, the author has identified important institutional differences between the
U.S. and EU that help to explain why the U.S. has been more resistant than the EU in
adopting a national policy in favor of rate rebalancing (Cherry, 2000). The conclusions
were subsequently supported by empirical evaluation of national rate rebalancing policies
of the U.S. as compared to Members State of the EU (Cherry & Bauer, 2002).
Differences include unique institutional constraints on U.S. federal policy processes that
arise from distinctive historical, legal developments. These include diversion of political
resources to address issues arising from the divestiture of AT&T, as well as the
fragmentation of organized political forces to support policy retrenchment from the
incumbent local exchange companies’ historical dependence on domestic interstate
subsidies. Lacking these institutional forces of inertia, EU policy makers had the ability
to choose a feasible policy solution that directly confronted the issue – whereas the issue
of whether and how to rebalance rates was largely obfuscated within the U.S. –based on
delegating the rate rebalancing task to its Member States, which Congress was unable to
do with regard to the States.
Institutional differences between the U.S. and EU already appear to be creating
differing challenges for addressing consumer sovereignty issues triggered by
deregulatory telecommunications and broadband policies. As previously discussed in
section IV, considerable judicial resources in the U.S. are being devoted to determine
how the boundaries are shifting between the industry-specific and general business
regimes under deregulatory policies. One set of transition problems consists of the need
to reassess the interface between the industry-specific regime and antitrust law through
reinterpretation of an preexisting antitrust-specific savings clause in the Communications
Act of 1934, the task of which is further complicated by enactment of yet another
antitrust-specific savings clause in TA96. Another set of transition problems consists of
the need to reevaluate the interface between the industry-specific regime and other
consumer protection remedies.
This requires, among other things, determining the
applicability of the filed rate doctrine under detariffing, reinterpreting the scope of the
savings clause in section 414 of the Communications Act of 1934, and interpreting the
ITS 2008
36
unique savings clause for state regulation of mobile services. Thus far, both sets of
transition problems are being addressed through piecemeal litigation of unrelated claims.
The EU, however, “by entering into force of the 2002 regulatory package of EC
for electronic communications services and networks (hereinafter, the 2002 Framework)
considerably streamlined the interconnection between competition law and SSR [sector
specific regulations]” (Hou, 2007, p. 2, footnote omitted).26 Hou asserts that this has been
accomplished through innovations that address jurisdictional conflicts between European
institutions and national institutions. The first consists of the substantive integration of
competition law principles directly into the sector specific regulation. The second is the
establishment of an institutional cooperation procedure.
Both innovations “alleviate
many of the institutional conflicts between the [European] Commission and NRAs
[national regulatory authorities] at European level and conflicts between NRAs and
NCAs [national competition authorities] at national level” (Hou, 2007, p. 3).
This is not to say that the 2002 Framework has eliminated institutional conflicts
(Hou, 2007, p.3). However, unlike the savings clause approach utilized in the U.S. that
requires ad hoc judicial interpretation through case-by-case analysis, the 2002
Framework is the statutory imposition of a more purposeful and direct coordination of
competition policy with sector specific regulation.
To more fully address issues of consumer sovereignty, The 2002 Framework also
purposefully
integrated
provisions
intended
to
strengthen
consumer
rights.
“Recognizing, however, that competition alone may not be sufficient to satisfy the needs
of all citizens and protect users’ rights, the competition-based approach of the framework
is complemented by specific provisions safeguarding universal service and users’ rights,
as well as the protection of personal data” (Proposal for a Directive of the European
Parliament and of the Council, 2007, p. 2). In a recent proposal for legislative reform,
the European Commission proposes to adapt the regulatory framework by strengthening
certain consumers’ and users’ rights to keep pace with technological developments
(Proposal for a Directive of the European Parliament and of the Council, 2007, pp. 2-3).
26
The 2002 Framework refers to the four directives concerning liberalization of EC electronic
communications sectors in 2002, known as the Framework Directive, Authorization Directive,
Access Directive, and Universal Service Directive.
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37
This includes modifying the Universal Service Directive by including “sector-specific
measures that complement existing EU law in the field of consumer protection”
(Proposal for a Directive of the European Parliament and of the Council, 2007, p. 3).
In this respect, the EU’s approach is similar to that espoused in the OECD
Summary Report by directly acknowledging demand-side failures in the face of
competition and expressly coordinating sector specific regulation with general consumer
protection law. By contrast, as with antitrust law, reassessment of the interface between
industry-specific regulation and consumer protection remedies in the U.S. is proceeding
through an uncoordinated stream of case-by-case litigation. The ability to conduct a
holistic review and coordination of consumer protection remedies in the U.S. is further
hindered by two legal impediments. One is the statutory exemption of common carriers
from FTC jurisdiction. The other is the FCC’s anomalous classification of broadband
access services as information services, as described in section V, which requires the
development of yet another variant of industry-specific regulation under the FCC’s Title I
authority.
Summary of Preliminary Conclusions
Institutionally, there appear to be important differences in how the
interrelationships between the industry-specific and general business legal regimes are
evolving under deregulatory policies for telecommunications services in the U.S. relative
to many other nations.
Given its early reliance on private sector investment in
telecommunications networks coupled with economic regulation under the common law,
the U.S. has a complex lineage in the legal coevolution of industry-specific and general
business regimes prior to the deregulatory era. The industry-specific regime largely
predates that of the general business regime, with the interface between them evolving
gradually over time through case-by-case adjudication, development of judicial doctrines,
and intermittent statutory enactments.
Deregulatory policies have disrupted this
interface, generating great uncertainty for issues of consumer sovereignty. Issues are
being addressed primarily in a piecemeal and ad hoc fashion through case-by-case
litigation.
Such litigation requires reinterpretation of preexisting savings clauses,
interpretation of new savings clauses, and reassessment of judicial doctrines.
Furthermore, conflicts in interpretation among the courts have created variance in
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38
application of the law among the states, magnifying the uncertainty to consumers of the
resultant effects of deregulatory policies.
By contrast, in nations where regulatory oversight of private sector provision of
telecommunications services and infrastructure is of much more recent vintage, the
development of an industry-specific telecommunications regime largely postdates that of
the general business legal regime. Unlike the pioneering role of the U.S. in constructing
an industry-specific regime of expert agency oversight without the benefit of preexisting
experience under antitrust and consumer protection laws, such nations have not only had
the opportunity to study and evaluate the U.S. experience but many have also chosen to
directly incorporate competition law functions and consciously construct an interface
with consumer protection law into their industry-specific regimes.
Notable, in this
regard, is the electronic communications regulatory framework adopted in the EU. This
critical distinction in the temporal sequencing of the evolution of the industry-specific
and general business legal regime confers institutional differences for such nations
relative to the U.S. for developing and implementing deregulatory policies. First, with a
less lengthy and complex legal evolution in the initial interface between the industryspecific and general business regimes, other nations appear to be better able to both
directly and holistically confront policy issues of consumer sovereignty contrary to the
consumption of resources in episodic and disjointed litigation prevailing in the U.S. For
example, both OECD reports and the EU regulatory framework unabashedly assert the
need to generally address demand-side market failures problems that exist
notwithstanding
structural
competition,
telecommunications and financial services.
and
with
even
greater
scrutiny
for
Second, the unique legal evolution of
industry-specific and general business regimes has been widely misunderstood in the
U.S. Unfortunately, mischaracterizations in the lineage of legal principles contained in
many analyses have produced a misleading discourse of deregulatory policies,
particularly of network neutrality, that masks the significance of effects in retail markets
and blocks inquiry into the legal rules that may be necessary to address issues of
consumer sovereignty. The resultant artifact may be the generation of unintended –
albeit, to a certain extent, avoidable – legal gaps with adverse consequences for
ITS 2008
39
consumers, particularly for access to broadband services. Hopefully, with a less complex
history, the occasions for such effects will be less frequent in other nations.
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Verizon Communications Inc. v. Trinko, 540 U.S. 398 (2004).
Philip J. Weiser (2005), “The Relationship of Antitrust and Regulation In a Deregulatory
Era,” 50 Antitrust Bulletin Dec. 2005.
ITS 2008