HomeMy WebLinkAboutUnited States Court of Appeals for the District of Columbia Circuit No#84-1666 and Consolidated Casesittte i ftitto Q curt of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 84=1666
(and consolidated cases)
AMERICAN CIVIL LIBERTIES UNION,
—v.—
Petitioner,
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES OF AMERICA,
Respondents,
EAGLE TELECOMMUNICATIONS, INC./COLORADO, et al.,
Intervenors.
ON PETITIONS FOR REVIEW OF AN ORDER
OF THE FEDERAL COMMUNICATIONS COMMISSION
BRIEF FOR THE NATIONAL LEAGUE OF CITIES, CITY OF NEW
YORK, COUNTY OF CONTRA COSTA, CALIFORNIA, AMERICAN
CIVIL LIBERTIES UNION, NEW YORK CITIZENS' COMMITTEE
FOR A RESPONSIBLE MEDIA AND NATIONAL FEDERATION OF
LOCAL CABLE PROGRAMMERS, PETITIONERS, AND FOR THE
CITY OF LOS ANGELES, CALIFORNIA, CITY OF ATHENS, OHIO,
DEPARTMENT OF PUBLIC UTILITY CONTROL OF THE STATE OF
CONNECTICUT, OFFICE OF COMMUNICATION OF THE UNITED
CHURCH OF CHRIST AND NATIONAL ASSOCIATION OF STATE
CABLE AGENCIES, INTERVENORS
NATIONAL LEAGUE OF CITIES
Cynthia Pols
General Counsel
Office of Federal Relations
National League of Cities
1301 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
AMERICAN CIVIL LIBERTIES UNION
AND OFFICE OF COMMUNICATION
OF THE UNITED CHURCH OF CHRIST
Michael Botein
Robert T. Perry
MEDIA LAW CLINIC
New York Law School
57 Worth Street
New York, New York 10013
D
CITY OF NEW YORK
Norman M. Sinel
Paul S. Ryerson
Robert Alan Garrett
Patrick J. Grant
Barbara J. Delaney
ARNOLD & PORTER
1200 New Hampshire Avenue, N.W.
Washington," -D.C. 20036
Stephen Kramer
Assistant Corporation Counsel
City of New York
100 Church Street
New York, New York 10007
Morris Tarshis
Director of Franchises
City of New York
1 Centre Street
New York, New York 10007
CITY OF Los ANGELES,
CALIFORNIA
Edward J. Perez
Deputy City Attorney
The City of Los Angeles
1800 City Hall East
200 North Main Street
Los Angeles, California 90012
CITY OF ATHENS, OHIO
Garry E. Hunter
Director of Law
The City of Athens
Athens, Ohio 45701
NEW YORK CITIZENS' COMMITTEE
FOR A RESPONSIBLE MEDIA
Michael I. Meyerson
Assistant Professor
UNIVERSITY OF BALTIMORE
SCHOOL OF LAW
3117 Gilford Avenue
Baltimore, Maryland 21218
NATIONAL FEDERATION OF LOCAL
CABLE PROGRAMMERS
Joseph Van Eaton
SPIEGEL & MCDIARMID
1350 New York Avenue, N.W.
Washington, D.C. 20005
October 16, 1986
COUNTY OF CONTRA COSTA,
CALIFORNIA
Victor J. Westman
County Counsel
County of Contra Costa
P.O. Box 69
Martinez, California 94553
DEPARTMENT OF PUBLIC UTILITY
CONTROL OF THE STATE OF
CONNECTICUT
Joseph I. Lieberman
Attorney General
Clarine Nardi Riddle
Deputy Attorney General
William B. Gundling
Assistant Attorney General
State of Connecticut
1 Central Park Plaza
New Britain, Connecticut 06051
NATIONAL ASSOCIATION OF STATE
CABLE AGENCIES
Edward P. Kearse
Counsel
National Association of
State Cable Agencies
Empire State Plaza
Albany, New York 12223
Unita tater Taut of . petals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 84-1666
(and consolidated cases)
AMERICAN CIVIL LIBERTIES UNION,
Petitioner,
-v.-
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES OF AMERICA,
Respondents,
EAGLE TELECOMMUNICATIONS, INC./COLORADO, et al.,
Intervenors.
CERTIFICATE REQUIRED BY RULE 8(c) OF THE
GENERAL RULES OF THE UNITED STATES COURT OF
APPEALS FOR THE DISTRICT OF
COLUMBIA CIRCUIT
The undersigned, counsel of record for the City of New
York, certify that the following listed parties have filed appear-
ances in this appeal:
Petitioners: American Civil Liberties Union; Cable Tele-
vision Access Coalition, Inc.; City of New York; County
of Contra Costa, California; Guam Cable T.V.; National
Federation of Local Cable Programmers and the New
York Citizens' Committee for a Responsible Media; the
ui-
National League of Cities; Satellite Television Industry
R;✓ Association, Inc./(SPACE)
Respondents: The Federal Communications Commis-
sion and United States of America
ii
Intervenors: Adams -Russell Cable Services Division of
Adams Russell; Arizona Cable Television Association;
Association of Independent Television Stations, Inc.;
BellSouth Corporation; Board of Supervisors of Fairfax
County, Virginia; Cellular Telecommunications Division
of Telocator Network of America; Centel Corporation;
Gary L. Christensen; City of Athens, Ohio; City of
Dubuque, Iowa; City of Los Angeles, California; City of
Miami, Florida; Cities of Sunnyside and Grandview,
Washington and the City of Southfield, Michigan; Cox
Cable Communications, Inc.; Department of Public Util-
ity Control of the State of Connecticut; Direct Satellite
Communications, Inc.; Gill Industries and Western Com-
munications, Inc.; Eagle Telecommunications, Inc./Col-
orado; Harron Communications Corporation; Maximum
Service Telecasters, Inc.; Media General Cable of Fairfax
County, Inc.; National Association of Broadcasters; Na-
tional Association of State Cable Agencies; National
Cable Television Association, Inc. and Community An-
tenna Television Association; North Carolina CATVAsso-
ciation; Office of Communication of the United Church
of Christ; Post -Newsweek Cable, Inc.; Tele-Communica-
tions, Inc.; Texas Cable TV Association; Time Incorpo-
rated; and United Cable Television Corporation'
A listing of those parties filing comments or reply comments
in the rulemaking proceeding below is contained in Appendix
A to the FCC's Final Report and Order in MM Docket No.
84-1296, under review here. See 50 Fed. Reg. 18,637, 18,658-59
(1985) (released April 19, 1985) (J A ) Parties not listed
in Appendix A to the FCC Report who participated in the
proceedings below include American Television and Communi-
cations Corp.; National Telecommunications and Information
Administration; and Ruarch Associates Partnership.
1 There are multiple issues in these consolidated appeals. Depending
on the issue, these intervenors may support the petitioners, may support the
respondents or may take a distinct position.
These representations are made in order that judges of this
Court, inter alia, may evaluate possible disqualification or
recusal.
October 16, 1986
of
Norman M. Sinel
Paul S. Ryerson
Robert Alan Garrett
Patrick J. Grant
Barbara J. Delaney
ARNOLD & PORTER
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attorneys for the City of
New York
v
TABLE OF CONTENTS
PAGE
TABLE OF AUTHORITIES vii
STATEMENT OF ISSUES PRESENTED FOR
REVIEW 2
REFERENCES TO PARTIES AND RULINGS 3
STATEMENT OF THE CASE 4
1. The Cable Industry 4
2. Cable Regulation Prior to the Cable Act 6
3. The Cable Act 7
4. The Proceedings Below 10
SUMMARY OF ARGUMENT 13
ARGUMENT 16
I. THE FCC'S DEFINITION OF "EFFECTIVE
COMPETITION" IS ARBITRARY AND CA-
PRICIOUS
APRICIOUS AND CONTRARY TO THE CABLE
ACT 16
A. The Commission Misconstrued the Purposes
of the Cable Act and, Contrary to Congres-
sional Intent, "Presumed" the Existence of
Competition 17
B. In Clear Disregard of Congressional Intent,
the Commission Restricted Its Inquiry to Iden-
tifying the Circumstances Where Only One
Component of Basic Cable Service Is Theoret-
ically Subject to Effective Competition 19
vi
PAGE
C. The Commission Arbitrarily Rejected Pro-
posals for a Multi -Criteria Standard Which
Was Based upon Well -Established Legal and
Economic Principles and Economic Reality 23
D. The Commission's Definition of Effective
Competition Is Based upon Irrelevant and In-
adequately Disclosed Data 26
E. The Commission Improperly Imposed the
Burden upon Franchising Authorities To Dem-
onstrate the Actual Availability of Local
Broadcast Signals 30
II. THE FCC UNLAWFULLY EXEMPTED CABLE
SYSTEMS IN NONCOMPETITIVE MARKETS
FROM RATE REGULATION FOR THE ONE-
YEAR PERIOD FOLLOWING THE TRANSI-
TION OF THE LOCAL MARKET FROM
TATUSCOMPETITIVE TO NONCOMPETITIVE STA-
TUS
III. THE FCC UNLAWFULLY AUTHORIZED
AUTOMATIC RATE INCREASES IN ADDI-
TION TO THOSE PROVIDED BY THE CABLE
ACT
31
32
IV. THE FCC UNLAWFULLY ESTABLISHED A
DEFINITION OF "BASIC CABLE SERVICE"
WHICH IS NARROWER THAN THAT PRO-
VIDED BY THE CABLE ACT 34
CONCLUSION 38
APPENDIX A: CABLE COMMUNICATIONS
POLICY ACT OF 1984 Al
APPENDIX B: THE FCC RATE REGULATION
RULES B1
vi'
TABLE OF AUTHORITIES
Cases: PAGE
AFGE v. FLRA, No. 85-1500 (D.C. Cir. Aug. 26, 1986) 17
AFL-CIO v. Donovan, 244 App. D.C. 255, 757 F.2d 330
(D.C. Cir. 1985) 19
Almay v. Califano, 187 App. D.C. 19, 569 F.2d 674
(D.C. Cir. 1978) 28-29
American Textile Manufacturers Institute v. Donovan,
452 U.S. 490, 101 S. Ct. 2478 (1981) 19-20
American Shipbuilding Co. v. NLRB, 380 U.S. 300, 85
S. Ct. 955 (1965) 17
Board of Governors of the Federal Reserve System v
Dimension Financial Corp., U S , 106 S.
Ct. 681 (1986) 17
Brookhaven Cable TV, Inc. v. Kelly, 573 E2d 765 (2d
Cir. 1978), cert. denied, 441 U.S. 904, 99 S. Ct. 1991
(1979) 6
Brown Shoe Co. v. United States, 370 U.S. 294, 82 S
Ct. 1502 (1962) 23
Bureau of Alcohol, Tobacco and Firearms v. FLRA, 464
U.S. 89, 104 S. Ct. 439 (1983) 17
California v. FCC, No. 85-1112 (D.C. Cir. Aug. 22,
1986) 14
Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 104 S
Ct. 2694 (1984) 7
Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 104 S. Ct. 2778 (1984) 17, 22
Christian Broadcasting Network, Inc. v. Copyright Roy-
alty Tribunal, 232 App. D.C. 68, 720 F.2d 1295 (1983),
cert. denied, U.S. , 106 S. Ct. 1245 (1986)... 26
vlll
PAGE
City of Los Angeles v. Preferred Communications, Inc.,
U.S. , 106 S. Ct. 2034 (1986) 6
*Coal Exporters Association of the United States, Inc. v
United States, 240 App. D.C. 256, 745 F.2d 76 (1984),
cert. denied, U S , 105 S. Ct. 2151
(1985) 13, 15, 17
Connecticut Light & Power Co. v. Nuclear Regulatory
Commission, 218 App. D.C. 134, 673 F.2d 525 (D.C.
Cir.), cert. denied, 459 U.S. 835, 103 S. Ct. 79 (1982) ..27, 30
Cox Cable New Orleans, Inc. v. City of New Orleans,
594 F. Supp. 1452 (E.D. La. 1984), vacated without
opinion (E.D. La. Dec. 16, 1985) 6
*FAIC Securities v. United States, 247 App. D.C. 235,
768 F.2d 352 (1985) 37
Farmers Union Central Exchange, Inc. v. FERC, 236
App. D.C. 203, 734 F.2d 1486, cert. denied, U.S.
, 105 S. Ct. 507 (1984) 26
FCC v. Midwest Video Corp., 440 U.S. 689, 99 S. Ct
1435 (1979) 7
Friedman v. Adams Russell Cable Services—New York,
Inc., 624 F. Supp. 1195 (S.D.N.Y. 1986) 5
Gonzales v. United States, 348 U.S. 407, 75 S. Ct. 409
(1955) 28
Home Box Office, Inc. v. FCC, 185 App. D.C. 142, 567
F.2d 9 (D.C. Cir.), cert. denied, 434 U.S. 829, 98 S.
Ct. 111 (1977) 7
Housatonic Cable Vision v. Department of Public Util-
ity, 622 E Supp. 793 (D. Conn. 1985) 18
Humana of Aurora, Inc. v. Heckler, 753 F.2d 1579 (10th
Cir.), cert. denied, U.S. , 106 S. Ct. 180
(1985) 29
Asterisks denote authorities chiefly relied upon.
r
ix
PAGE
International Boxing Club v. United States, 358 U.S.
242, 79 S. Ct. 245 (1959) 24
International Ladies' Garment Workers' Union v
Donovan, 232 App. D.C. 309, 722 F.2d 795 (D.C. Cir
1983), cert. denied, U.S. , 105 S. Ct. 93
(1984) 26
Louisiana Public Service Commission v. FCC, U.S.
, 106 S. Ct. 1890 (1986) 14
MCI Telecommunications Corp. v. FCC, 247 App. D.C
32, 765 F.2d 1186 (D.C. Cir. 1985) 14
Motor Vehicle Manufacturers Association v. State Farm
Mutual Automobile Insurance Co., 463 U.S. 29, 103
S. Ct. 2856 (1983) 17, 26
NCAA v. Board of Regents, 468 U.S. 85, 104 S. Ct
2948 (1984) 24
National Association of Regulatory Utility Commis-
sioners v. FCC, 174 App. D.C. 374, 533 F.2d 601
(D.C. Cir. 1976) 7
*National Black Media Coalition v. FCC, 791 F.2d 1016
(2d Cir. 1986) 27
Natural Resources Defense Council, Inc. v. Herrington,
247 App. D.C. 340, 768 F.2d 1355 (1985) 30
Pacific West Cable Co. v. City of Sacramento, 798 F.2d
353 (9th Cir. 1986) 6
Portland Cement Association v. Ruckelhaus, 158. App
D.C. 308, 486 F.2d 375 (D.C. Cir. 1973), cert. denied,
417 U.S. 921, 94 S. Ct. 262 (1974) 27
Quincy Cable TV, Inc. v. FCC, 248 App. D.C. 1, 768
F.2d 1434 (1985), cert. denied, U.S. , 106 S.
Ct. 2889 (1986) 12, 24, 36
* Asterisks denote authorities chiefly relied upon.
PAGE
Saint James Hospital v. Heckler, 760 F.2d 1460 (7th •
Cir.), cert. denied, U S , 106 S. Ct. 229
(1985) 27, 29
Sharon Steel Corp. v. EPA, 597 F.2d 377 (3d Cir. 1979) 28
Sierra Club v. Costle, 211 App. D.C. 336, 657 F.2d 298
(D.C. Cir. 1981) 30
State of New Jersey, Department of Environmental Pro-
tection v. EPA, 200 App. D.C. 174, 626 F.2d 1038
(1980) 28
United States v. Connecticut, Bank, 418 U.S. 656, 94 S.
Ct. 2788 (1974) 24
United States v. E.I. Du Pont de Nemours & Co., 351
U.S. 377, 76 S. Ct. 994 (1956) 23
United States v. FCC, 209 App. D.C. 79, 652 F.2d 72
(1980) 23
United States v. Grinnell, 384 U.S. 563, 86 S. Ct. 1698
(1966) 23, 24
United States v. Midwest Video Corp., 406 U.S. 649, 99
S. Ct. 1435 (1972) 7
United States v. Nova Scotia Food Products Corp., 568
F.2d 240 (2d Cir. 1977) 27
United States v. Southwestern Cable Co., 392 U.S. 157,
88 S. Ct. 1994 (1968) 7
Walter 0. Boswell Memorial Hospital v. Heckler, 242
App. D.C. 110, 749 F.2d 788 (1984) 29
Statutes:
Cable Communications Policy Act of 1984, 47 U.S.C.
§ 521 et seq. (Supp. II 1984) passim
Section 601, 47 U.S.C. § 521 17, 18
Section 602, 47 U.S.C. § 522 5, 20, 34, 36
xi
PAGE
Section 621(a)(3), 47 U.S.C. § 541(a)(3) 16
*Section 623, 47 U.S.C. § 543 9-10, 17
*Section 623(b)(1), 47 U.S.C. § 543(b)(1) 2, 32, 33
*Section 623(b)(2), 47 U.S.C. § 543(b)(2) 2, 20, 33
*Section 623(b)(2)(B), 47 U.S.C. § 543(b)(2)(B) 33
*Section 623(c), 47 U.S.C. § 543(c) 10
*Section 623(e), 47 U.S.C. § 543(e) 3
*Section 623(e)(1), 47 U.S.C. § 543(e)(1) 33
Section 625(a), 47 U.S.C. § 545(a) 34
Section 625(c)(2), 47 U.S.C. § 545(c)(2) 34
Section 625(c)(2)(B), 47 U.S.C. § 545(c)(2)(B) 34
Communications Act of 1934, 47 U.S.C. §§ 151 et seq
(1982) 6, 9
Staggers Act, 49 U.S.C. §§ 10501 et seq. (1982) 15
5 U.S.C. § 706(2)(A) (1982) 17
Administrative Regulations and Materials:
Community Cable TV, Inc., 98 F.C.C.2d 1180 (1984) 6, 35
Report and Order in MM Docket No. 20681, 60
F.C.C.2d 672 (1976) 26
Final Report and Order in MM Docket No. 84-1296, 50
Fed. Reg. 18,637 (1985) 2, 3, 11, 12
Memorandum Opinion and Order in MM Docket No.
84-1296, 51 Fed. Reg. 21,770 (1986) 3
Notice of Proposed Rulemaking in MM Docket No
84-1296, 49 Fed. Reg. 48,765 (1984) 10
Notice of Proposed Rulemaking in CC Docket No
85-107, 100 F.C.C.2d 1270 (1985) 23
Order Reopening the Period for Filing Comments, 50
Fed. Reg. 38,003 (1985) 12
47 C.F.R. § 73.683 to 73.686 (1985) 11, 30
* Asterisks denote authorities chiefly relied upon.
X11
PAGE
47 C.F.R. § 76.5(k)(2) 30
47 C.F.R. § 76.33(a)(3) 31
47 C.F.R. § 76.33(d) 33
Legislative Materials:
*H.R. Rep. No. 934, 98th Cong., 2d Sess. (1984) passim
S. Rep. No. 67, 98th Cong., 1st Sess. (1983) 16
129 Cong. Rec. § 8326 (daily ed. June 14, 1983) 16
130 Cong. Rec. H10435, H10440, H10442 (daily ed. Oct
1, 1984) 8
130 Cong. Rec. H10444 (daily ed. Oct. 1, 1984) 8
130 Cong. Rec. H12235 (daily ed. Oct. 11, 1984) 9
130 Cong. Rec. H12241 (daily ed. Oct. 11, 1984) 8
130 Cong. Rec. S14283 (daily ed. Oct. 11, 1984) 8
130 Cong. Rec. S14284 (daily ed. Oct. 11, 1984) 8
130 Cong. Rec. S14285 (daily ed. Oct. 11, 1984) 9
130 Cong. Rec. S14286 (daily ed. Oct. 11, 1984) 36
S. 66, 98th Cong., 1st Sess., 129 Cong. Rec. S8327 (daily
ed. June 14, 1983) 16
Majority Staff of House Subcomm. on Telecommunica-
tions, Consumer Protection and Finance of the Com-
mittee on Energy and Commerce, Telecommunica-
tions in Transition: The Status of Competition in the
Telecommunications Industry, 97th Cong., 2d Sess.
(Comm. Print 1981) 23
Hearings on H.R. 4103 before the House Subcomm. on
Telecommunications, Consumer Protection and Fi-
nance, 98th Cong., 1st Sess. (Comm. Print 1983)16
Asterisks denote authorities chiefly relied upon.
X111
PAGE
Miscellaneous:
Cablevision, June 23, 1986, at 88 5
Hovenkamp, Economics and Federal Antitrust Law
(1985) 28
Kwoka, "The Effect of Market Share Distribution in
Industry Performance," Review of Economics &
Statistics, Vol. XLI, No. 1, February 1979,
pp. 101-09 26, 29
Posner & Easterbrook, Antitrust: Cases, Economic
Notes and Other Material (Supp. 1984) 29
Sullivan, Antitrust (1977) 28
1
r
ztttE� ateToad of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 84-1666
(and consolidated cases)
AMERICAN CIVIL LIBERTIES UNION,
Petitioner,
-v.-
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES OF AMERICA,
Respondents,
EAGLE TELECOMMUNICATIONS, INC./COLORADO, et al.,
Intervenors.
ON PETITIONS FOR REVIEW OF AN ORDER
OF THE FEDERAL COMMUNICATIONS COMMISSION
BRIEF FOR THE NATIONAL LEAGUE OF CITIES, CITY
OF NEW YORK, COUNTY OF CONTRA COSTA, CALI-
FORNIA, AMERICAN CIVIL LIBERTIES UNION, NEW
YORK CITIZENS' COMMITTEE FOR A RESPONSIBLE
MEDIA AND NATIONAL FEDERATION OF LOCAL
CABLE PROGRAMMERS, PETITIONERS, AND FOR
THE CITY OF LOS ANGELES, CALIFORNIA, CITY OF
ATHENS, OHIO, DEPARTMENT OF PUBLIC UTILITY
CONTROL OF THE STATE OF CONNECTICUT, OFFICE
OF COMMUNICATION OF THE UNITED CHURCH OF
CHRIST AND NATIONAL ASSOCIATION OF STATE
CABLE AGENCIES, INTERVENORS
2
STATEMENT OF ISSUES PRESENTED FOR REVIEW
This case concerns the right of local and state governments,
under the Cable Communications Policy Act of 1984,1 to
regulate the rates which cable operators charge their sub-
scribers.
Section 623(b)(1) of the Cable Act, 47 U.S.C. § 543(b)(1),
requires the Federal Communications Commission ("Commis-
sion" or "FCC") to promulgate regulations which authorize
franchising authorities to regulate rates for "basic cable ser-
vice" where a cable system is not subject to "effective competi-
tion." Section 623(b)(2), 47 U.S.C. § 543(b)(2), directs the
FCC to "define the circumstances in which a cable system is
not subject to effective competition" and to "establish stan-
dards for such rate regulation." In the proceedings below, the
Commission adopted rules which prohibit rate regulation in
the vast majority of cable communities, and which impose
substantial restrictions on rate regulation in the few remaining
communities.2
The issues presented for review are whether the Commission
acted arbitrarily, capriciously and contrary to the Cable Act
when it:
1. Ruled that a cable system faces "effective competition,"
and therefore is not subject to rate regulation, in any commu-
nity where three television broadcast stations are theoretically
available;
2. Prohibited rate regulation for the one-year period follow-
ing the date on which a market becomes noncompetitive;
1 Pub. L. No. 98-549, 98 Stat. 2779 (1984), codified at 47 U.S.C.
§§ 521 et seq. ("Cable Act" or "Act"). The complete text of the Cable Act is
set forth in Appendix A hereto.
2 The complete text of the Commission's rate regulation rules is set
forth in Appendix B hereto.
3. Authorized cable systems in noncompetitive markets to
take certain automatic increases in their basic service rates,
without franchising authority approval and in addition to the
automatic increase authorized by Section 623(e) of the Cable
Act, 47 U.S.C. § 543(e); and
4. Established a new definition of the term "basic cable
service" which is inconsistent with and narrower than the
definition in the Cable Act, thereby limiting the cable services
which are subject to rate regulation in noncompetitive markets.
REFERENCES TO PARTIES AND RULINGS
This case involves consolidated petitions for review of the
FCC's Final Report and Order in MM Docket No. 84-1296
(released April 19, 1985) ("Order"), as modified by the Com-
mission's Memorandum Opinion and Order (released June 5,.
1986) ("Memorandum Opinion"). The Order, published at 50
Fed. Reg. 18,637 (1985), and the Memorandum Opinion,
published at 51 Fed. Reg. 21,770 (1986), are reprinted in the
Joint Appendix (J.A ).
Petitions for review challenging the Commission's rate regu-
lation rules were filed by the National League of Cities
("NLC"), which represents over 15,000 cities and municipali-
ties through direct membership and membership in 49 affili-
ated state municipal leagues; the City of New York ("NYC"),
the nation's largest municipal franchising authority; the
County of Contra Costa, California; the American Civil Liber-
ties Union ("ACLU"); the National Federation of Local Cable
Programmers; and the New York Citizens' Committee for a
Responsible Media. The following Intervenors are also chal-
lenging the Commissions rate regulation rules: the Cities of
Los Angeles, California; Dubuque, Iowa; and Athens, Ohio;
the Department of Public Utility Control of the State of
Connecticut; the Office of Communication of the United
Church of Christ ("UCC"); and the National Association of
State Cable Agencies ("NASCA"). The remaining Petitioners
4
and Intervenors are identified in the Rule 8(c) certificate
attached hereto.3
STATEMENT OF THE CASE
1. The Cable Industry
Cable television began in the late 1940s as a service for those
who, because of geographic factors, were unable to receive
local television signals over the air. Cable systems offered, and
continue to offer, better reception of local television signals
than is available from over -the -air transmissions. Cable opera-
tors later expanded their range of service offerings by provid-
ing television stations from distant markets and some locally
originated programming. The development of cable television
was greatly accelerated by the advent, in the mid-1970s, of
communications satellites, which provided an efficient and
cost-effective means for the nationwide distribution of a wide
array of nonbroadcast programming produced specifically for
the cable industry. At the time of the proceedings below, 45
satellite -delivered programming services were available on a
nationwide basis, with several more in the offing. NLC Com-
ments at Ex. A (filed Jan. 28, 1985) ("NLC Comments I")
(J.A. ).
Improvements in distribution technology have made possible
high capacity cable systems which provide a large number of
programming and other communications services—most of
which consumers cannot obtain from other video delivery
3 Docket No. 85-1666 was transferred to this Court from the United
States Court of Appeals for the First Circuit. Otherwise, this case has not
been before any court. Nor is there currently pending any "related case"
within the meaning of Rule 8(b) of the Rules of the United States Court of
Appeals for the District of Columbia Circuit. Certain of the parties herein
have challenged other FCC orders as violating the Cable Act in City of New
York v. FCC, D.C. Cir. No. 85-1841. In Yakima Valley v. FCC, No. 85-1464
(D.C. Cir. July 8, 1986), this Court held that certain challenges to the
Commission's Order and Memorandum Opinion, relating to the franchise
fee provision of the Cable Act, should be raised in the present case.
systems. As of April 1, 1985, nearly 65% of the nation's cable
subscribers were served by systems having a capacity of 30 or
more channels. NLC Comments in Response to the Reopening
of the Comment Period at 24, ¶ 39 (filed Oct. 17, 1985) ("NLC
Comments III") (J.A. ). With this significant increase in
channel capacity and program offerings, the cable industry has
been able to more than triple its subscriber base during the past
decade, from approximately 11 million subscribers in 1975 to
nearly 40 million subscribers today. Cablevision, June 23,
1986, at 88.
Cable subscribers are typically offered two types of video
programming services: "pay" and "basic." Pay services are
premium movie and sports programming services, such as
Home Box Office, Showtime and Home Team Sports, which
are generally provided to subscribers for a separate fee on a
per -view or per -channel basis. Basic service, on the other hand,
consists of a number of programming services which are
provided to subscribers as a package for a monthly fee. Basic
service includes all of the various non -pay programming ser-
vices provided by a cable system, such as local television
signals; distant signals (e.g., "superstations"); locally origina-
ted programming; public, educational and government
("PEG") access channels; and various satellite -delivered pro-
gramming services (e.g., Cable News Network, ESPN, C -
SPAN, and Black Entertainment Television).4 Some cable
operators may offer only one "tier" of basic service, consisting
of all their non -pay channels; others may offer multiple tiers of
basic service. In almost all cases, a pay service may be obtained
only if the cable subscriber also takes basic service. See
Friedman v. Adams Russell Cable Services—New York, Inc.,
624 F. Supp. 1195 (S.D.N.Y. 1986); NYC Comments at 15,
¶ 25 (J.A. ).
4 The Cable Act defines "basic cable service" as "any service tier
which includes the retransmission of local television broadcast signals."
Section 602(2), 47 U.S.C. § 522(2). The Act further defines the term "service
tier" as any category of programming services or other services "provided by
a cable operator and for which a separate rate is charged bythe cable
operator." See Act Sections 602(14) and 602(5), 47 U.S.C. §§ 522(14) and
522(5).
6
2. Cable Regulation Prior to the Cable Act
Cable television has been regulated by local and state gov-
ernments, through the process of issuing a franchise for the
cable system's use of public rights-of-way. See City of Los
Angeles v. Preferred Communications, Inc., 106 S. Ct. 2034
(1986); Pacific West Cable Co. v. City of Sacramento, 798 F.2d
353 (9th Cir. 1986). Cable franchises typically cover a wide
range of matters, including system capacity and characteristics,
construction schedules, access requirements and customer ser-
vice requirements. Because virtually no cable system faces
head-to-head competition for subscribers from another cable
system, franchising authorities have generally regulated the
rates charged cable subscribers.
Beginning in the mid-1970s, the Commission significantly
restricted local and state regulatory authority over cable.
Wedded to a hands-off "marketplace" approach to cable
regulation, the Commission eliminated virtually all of its own
cable regulations and preempted local and state authority in
several areas. Among other things, the Commission precluded
franchising authorities from regulating the rates for "pay
cable" services and limited rate regulation to "basic" services.
See Brookhaven Cable TV, Inc. v. Kelly, 573 F.2d 765 (2d Cir.
1978), cert. denied, 441 U.S. 904 (1979). This limitation on
state and local regulatory authority was substantially extended
in 1983 when the Commission narrowed its definition of basic
service and permitted cable operators to remove all program-
ming services, other than local broadcast signals and access
channels, from the basic tier. Community Cable Ti; Inc., 98
F.C.C.2d 1180 (1984); see Cox Cable New Orleans, Inc. v. City
of New Orleans, 594 F. Supp. 1452 (E.D. La. 1984), vacated
without opinion (E.D. La. Dec. 16, 1985).
The limits of FCC, state and local authority were far from
clear prior to the enactment of the Cable Act in 1984. The
Commission's actions were taken pursuant to certain general
powers which the Commission asserted under the Communica-
tions Act of 1934, 47 U.S.C. §§ 151 et seq. (1982), which was
7
enacted before the advent of cable television. See United States
v. Southwestern Cable Co., 392 U.S. 157, 178 (1968). In the
absence of specific Congressional directives concerning the
scope of federal, state and local authority over cable, the
courts frequently deferred to the Commission's policies.5
3. The Cable Act
Concern about continued federal preemption of their
authority to regulate cable television and to enforce franchise
provisions ultimately led local governments to support enact-
ment of the Cable Act. These concerns were aptly expressed
during the floor debates on the Act by Congressman Markey,
one of the cosponsors of the bill that became the Cable Act
and a member of the House Committee on Energy and Com-
merce, which had jurisdiction over the bill:
"Everyone . . . should understand that if the House fails
to pass a Federal cable policy, then our cities will be
robbed of their control over cable TV. The era of deregu-
lation, affirmed by the FCC and the Supreme Court, has
hit cable regulation with a crippling force.
. . . We must not abdicate our responsibility and turn
cable regulation over to the FCC and the Supreme Court.
5 See Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984); but see
FCC v. Midwest Video Corp., 440 U.S. 689 (1979); Home Box Office, Inc.
v. FCC, 567 F.2d 9 (D.C. Cir.), cert. denied, 434 U.S. 829 (1977); National
Association of Regulatory Utility Commissioners v. FCC, 533 F.2d 601 (D.C.
Cir. 1976).
As then Chief Justice Burger noted in United States v. Midwest Video
Corp., 406 U.S. 649, 676 (1972) (concurring opinion):
"Candor requires acknowledgment, for me at least, that the Com-
mission's position strains the outer limits of even the open-ended and
pervasive jurisdiction that has evolved by decisions of the Commission
and the courts. The almost explosive development of [cable television]
suggests the need of a comprehensive re-examination of the statutory
scheme as it relates to this new development, so that the basic policies
are considered by Congress and not left entirely to the Commission
and the courts."
Instead, we should be bold in our stance in support of the
cities and the consumers. We should pass this compromise
since it is good for consumers and fair.to the cities and the
cable industry." 130 Cong. Rec. H10,444 (daily ed. Oct. 1,
1984) (emphasis added).
The "compromise" Cable Act ended three years of negotia-
tions among "the cities, the cable industry, and many others."
130 Cong. Rec. H10,435 (daily ed. Oct. 1, 1984) (statement of
Rep. Wirth).6 The Cable Act, reflecting these arduous negotia-
tions and Congressional dissatisfaction with the 1934 Com-
munications Act as a basis for FCC jurisdiction over cable
services,' was intended to balance the interests of the regula-
tors, the regulated and the public. In the words of one
legislator, the Act is "a reasonable compromise which protects
the interests of not only the cities and the cable industry, but
those of the consumers of cable services as well." 130 Cong.
Rec. S14284 (daily ed. Oct. 11, 1984) (statement of Sen.
Gorton).
6 The principal parties to the compromise which led to the Cable Act
were representatives from the National League of Cities and the United
States Conference of Mayors, on behalf of franchising authorities, and the
National Cable Television Association, on behalf of the cable industry. See
130 Cong. Rec. H10,435, H10,440, H10,442 (daily ed. Oct. 1, 1984); 130
Cong. Rec. S14,283 (daily ed. Oct.11, 1984).
7 As Senator Goldwater, chairman of the Senate subcommittee with
responsibility for the Cable Act, explained when he presented the cable bill
for a vote in the Senate:
"Comprehensive legislation is needed to replace the patchwork of
Federal, State, and local regulations and court decisions that have been
governing cable. The Communications Act, written over 50 years ago
before cable even existed, provides little or no guidance. The result has
been an unstable regulatory environment that has been bad for the
cable industry, bad for the local and state franchising authorities, and
bad for consumers." 130 Cong. Rec. S14283 (daily ed. Oct. 11, 1984)
(emphasis added). See also 130 Cong. Rec. H12241 (daily ed. Oct. 11,
1984) (remarks of Rep. Dingell) (noting that support for the Cable Act
was premised on the need for a "clear set of ground rules" rather than
the "uncertain environment" that existed under the prior law).
1
L
r
The heart of this compromise was a division of regulatory
authority over cable television between the federal government,
on the one hand, and state and local governments on the other.
In "firmly establish[ing] the authority at each level of govern-
ment," H.R. Rep. No. 934, 98th Cong., 2d Sess. 24 (1984)
("Committee Report"),8 Congress was called upon to balance a
number of different and often conflicting considerations with
regard to a wide range of issues. Congress did so by adopting a
policy which "continues reliance on the local franchising
process as the primary means of cable television regulation,
while defining and limiting the authority that a franchising
authority may exercise through the franchise process." Com-
mittee Report at 19 (emphasis added). As Congress recognized,
"city officials have the best understanding of local communica-
tions needs and can require cable operators to tailor the cable
system to meet those needs." Id. at 24. Congress thus intended.
to "preserve the critical role of municipal governments in the
franchise process." Id. at 19. At the same time, Congress made
clear that the Commission could no longer regulate or preempt
regulation of cable services pursuant to its broad powers under
the Communications Act of 1934, but could do so only in
accordance with the Cable Act.9
At issue in this case is Section 623 of the Act, 47 U.S.C.
§ 543, which establishes and delimits the authority of franchis-
ing authorities to regulate cable rates. Congress determined in
Section 623 that franchising authorities should be permitted to
8 The Committee Report was drafted by the House Committee on
Energy and Commerce. The Committee Report and certain floor debates
were specifically adopted by both the Senate and the House as their
explanations of the Act. See 130 Cong. Rec. S14,285 (daily ed. Oct. 11,
1984); 130 Cong. Rec. H12,235 (daily ed. Oct. 11, 1984).
9 Section 3 of the Cable Act amends Section 152(a) of the Communi-
cations Act of 1934, 47 U.S.C. § 152(a), by adding: "The provisions of this
Act shall apply with respect to cable service, to all persons engaged within the
United States in providing such services, and to the facilities of cable
operators which relate to such service, as provided in Title VI (i.e., the Cable
Act)." (Emphasis added.)
10
regulate the rates for "basic cable service" in those markets
where the "cable system" does not face "effective competi-
tion." It directed the Commission to fashion a practical
definition of such noncompetitive markets and to establish
appropriate "standards" for regulation. See Committee Re-
port at 24-25, 65-68.10
4. The Proceedings Below
On December 4, 1984, the FCC adopted a Notice of Pro-
posed Rulemaking ("Notice") to implement several provisions
of the Cable Act, including Section 623. 49 Fed. Reg. 48,765
(1984) (released Dec. 11, 1984) (J.A. ) The Commission
construed its obligation under Section 623 as limited to deter-
mining the circumstances where there exists "effective com-
petition" to "basic cable service" alone—and not effective
competition to the entire cable system. Notice at ¶¶ 43 and 45
(J.A. ) Furthermore, the Commission determined that it
need not look at the existence of competitive alternatives to
"basic cable service" as such service is defined in the Cable
Act and as it is actually provided in most communities (i.e., as
a package including, in addition to local television signals,
various satellite services, distant signals and access channels);
the Commission concluded that it could view basic service as
consisting of local broadcast signals alone. Id. at ¶ 43 (J.A.
). The Commission proposed to find "effective
competition"—and thus to prohibit rate regulation of basic
cable service—whenever four or more unduplicated "Grade_
B" television broadcast signals (including affiliates of each'of
the three major national programming networks) cover any
part of the community served by the cable system. Id. at
¶¶ 43-46 (J.A. ) 11
10 Section 623(c) of the Act, 47 U.S.C. § 543(3), provides a transition
period during which franchising authorities may regulate basic service rates
to the extent permitted in franchises granted before December 30, 1984. This
"grandfathering" period expires December 29, 1986.
11 A Grade B classification encompasses the area where 50% of
households will theoretically receive a signal acceptable to the median
11
Some 140 sets of comments and 63 sets of reply comments
were filed in response to the Notice. Several local and state
governments, citizen groups and other parties—including the
Antitrust Division of the United States Department of Justice
("DOJ")—strongly opposed the Commission's proposal. They
explained that the presence of a small number of broadcast
signals in a community is not, by itself, sufficient to preclude
cable operators from charging unreasonable rates for basic
service. The Commission was urged to take into account
additional factors that determine whether a cable system pos-
sesses market power—such as the availability of various non -
broadcast services in the cable community, the variety of
services offered by the cable system and the market penetration
of the cable system.
In its Order, adopted April 11, 1985, the Commission
persisted that "effective competition" could be defined solely
in terms of local broadcast signals. The Commission decided
that the theoretical availability of any three television signals,
rather than the four signals originally proposed, would be
sufficient. The Commission based this conclusion primarily
upon an internal staff study of viewing data, which was
mentioned for the first time in the Order at ¶ 99 (J A ), as
well as upon a belief that it should "favor a presumption that
competition does in fact exist." Id. at ¶ 107 (J.A. )
The Commission dropped the requirement that the program-
ming of the three major networks must be available from the
local signals, on the ground that any such "program content
requirement" might run afoul of the First Amendment. Order
at ¶ 102 (J A ). The Commission also decided that for-
eign -licensed and translator stations should be counted for
purposes of determining whether the three -signal standard has
been met. In addition, the Commission greatly expanded the
observer 90% of the time, assuming average terrain and conditions and with
a typical receiving installation (i.e., an outside antenna which is placed 30
feet above the ground and which is oriented towards the station). See
generally 47 C.F.R. §§ 73.683-73.686 (1985).
12
definition of a locally available signal to include any signal that
is "significantly viewed" in the county where the cable com-
munity is located, as well as a Grade B signal. Id. at ¶¶ 91-108
(J.A. ).
At the request of various cable interests, the Commission
adopted other rules substantially restricting rate regulation in
the handful of cable communities meeting the Commission's
definition of noncompetitive markets. First, the Commission
created a special exemption from rate regulation for the one-
year period following the date on which a competitive market
becomes noncompetitive. Order at ¶ 109 (J.A. ). Second,
the Commission authorized cable systems in noncompetitive
markets to pass through to subscribers, without franchising
authority approval, increased costs which the cable operator
considers to be "readily identifiable . . . [and] entirely attrib-
utable to the provision of basic service"—and to take such
unilateral rate increases in addition to the flat 5% annual
adjustment authorized by Section 623(e)(1) of the Cable Act,
47 U.S.C. § 543(e)(1). Id. at ¶ 126 (J.A. ). Third, the
Commission refused to establish a definition of "basic cable
service" that would have conformed to the Cable Act's defini-
tion of that term. It adopted instead a narrower definition,
limited to a single tier of service, and thereby precluded
franchising authorities in noncompetitive markets from regu-
lating the rates for some of the services defined as basic service,
by the Cable Act. Id. at ¶¶ 111-21 (J.A. )
Certain parties sought FCC reconsideration of aspects of the
Commission's Order which were not related to rate regulation. -
By order adopted September 10, 1985, the FCC requested
comments concerning the impact of this Court's intervening
decision in Quincy Cable TV, Inc. v. FCC, 768 F.2d 1434
(D.C. Cir. 1985), cert. denied, 106 S. Ct. 2889 (1986), on the
FCC's definition of "basic cable service." Order Reopening
the Period for Filing Comments, 50 Fed. Reg. 38,003 (1985)
(released September 10, 1985) (J.A. ) On May 30, 1986,
in its Memorandum Opinion, the Commission denied the
1
1
1
13
petitions for reconsideration and decided not to make any
substantive change in the Order's definition of "basic cable
service."
SUMMARY OF ARGUMENT
The practical impact of the Commission's "effective com-
petition" standard is clear—it exempts virtually all cable sys-
tems nationwide from rate regulation of any sort. Indeed, once
the Commission's rules become fully effective, 1,225 (or about
99.5%) of the 1,231 cities which were direct NLC members at
the time of the proceedings below will be prohibited from
regulating cable service rates. NLC Comments III at 19,
¶¶ 30-31 and Ex. B (J.A. ). While the Commission's
effective competition standard is couched in technical terms,
the plain fact is that it achieves virtually total deregulation of
cable rates.
The Commission was responsible for identifying the "situa-
tions where a cable system may have sufficient market power
to take undue advantage of its subscribers." Notice at ¶ 41
(J.A. ). In authorizing the Commission to make that
determination, Congress concluded, as it has in other legisla-
tion," that "an administrative agency is better suited than
Congress to evaluate the specific needs for [rate regulation] in
particular contexts." Coal Exporters Association of the United
States, Inc. v. United States, 745 F.2d 76, 82 (D.C. Cir. 1984),
cert. denied, 105 S. Ct. 2151 (1985). Congress expected the
Commission to provide, consistent with the goals and objec-
tives of the Cable Act, a reasoned economic analysis of the
circumstances in which effective competition to a cable system
exists, taking full advantage of the Commission's fact finding
capability.
Instead, the Commission turned the proceeding below into a
quest for criteria which would exempt the largest number of
cable systems possible from rate regulation. Rather than
engage in the type of searching economic inquiry contemplated
14
by Congress, the Commission improperly "presumed" the
existence of competition and sought to perpetuate its own
pre -Act deregulatory philosophy. It adopted a result -oriented
standard which represents "an abdication of the responsibility
Congress delegated to the Commission. . . ." DOJ Reply
Comments at 3 (J.A. ). The Commission reached the
inherently anomalous conclusion that cable systems—which
typically provide upwards of 30 channels of programming,
most of which are unavailable to the consumer from any other
source—face "effective competition" whenever only three
broadcast signals are theoretically available in the cable com-
munity, without regard to the nature of the programming on
those signals.
This standard, which was rejected by Congress during con-
sideration of the cable bills, is based upon a fundamental
disregard of Congressional intent. Congress instructed the
Commission to determine the circumstances in which the entire
cable system, with its wide variety of programming services, is
subject to effective competition. Contrary to this clear and
unmistakable Congressional directive, the Commission im-
properly limited its "analysis" to defining the existence of
competition to only "basic cable service." The Commission
compounded its error by even further restricting its analysis to
only one component of basic service offerings—local broadcast
signals—without regard to the many other programming ser-
vices offered by cable as part of basic service.12
The Commission's definition of effective competition is also
the product of arbitrary and capricious decisionmaking. The
Commission failed to provide any reasoned explanation for its
rejection of a multi -criteria standard—a standard which was
proposed by the Antitrust Division of the Justice Department
12 This is not the first case in which the Commission has distorted or 11
disregarded Congressional intent in order to implement its own deregulatory
agenda. See, e.g., Louisiana Public Service Commission v. FCC, 106 S. Ct.
1890 (1986); California v. FCC, No. 85-1112 (D.C. Cir. Aug. 22, 1986); MCI
Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985).
a
15
and several other parties; which was rooted in traditional
concepts of antitrust and economic principles concerning
market power and substitutability; and which was consistent
with Congressional intent. The Commission instead adopted a
single criterion standard, tied to broadcast signals alone, which
was based upon wholly irrelevant and speculative data never
adequately disclosed to the parties.
The Commission was not content with exempting vast num-
bers of cable systems from rate regulation. It also restricted, to
the point of virtual meaninglessness, rate regulation in the
handful of markets which it defined as noncompetitive. The
Commission afforded cable operators a blanket one-year ex-
emption from rate regulation, measured from the time that
their markets first become noncompetitive; created an auto-
matic rate increase which may be taken by cable operators
without franchising authority approval and in addition to the
automatic rate increase authorized in the Cable Act; and
defined the term "basic cable service" more narrowly than
Congress did in the Cable Act. The Commission's restrictions
on rate regulation in noncompetitive markets are not autho-
rized by the Cable Act; conflict with express statutory provi-
sions; have no supportable basis in the record below; and lack
any, rational justification.
The Cable Act reflects a carefully crafted balance of compet-
ing policy considerations, a hard fought compromise reached
by representatives of franchising authorities, cable interests
and others.13 Congress sought to ensure that the cable industry
13 In several respects, the Cable Act, is similar to the Staggers Act, 49
U.S.C. §§ 10501 et seq. (1982), which, while partially deregulating the
railroad industry, also reflected Congressional concern that "sometimes
competition would be insufficient to protect the legitimate interests of
shippers, small carriers and the public." Coal Exporters, supra, 745 F.2d at
81. Congress' delegation of authority to the Interstate Commerce Commis-
sion to exempt rail transportation from regulation has been construed by this
Court as conditional on guidelines which are intended to "preserve the policy
balance embodied in the [Staggers] Act." Id. at 82. The same type of
construction should be applied to the Cable Act, which reflects a similar
balancing of competing interests by Congress and a similar delegation of
conditional authority to the FCC.
1
16
would not be subject to,unreasonable .regulation. However,. it
also sought to protect consumers; to preserve the rights of
franchising authorities; and to ensure the widespread availabil-
ity of cable services to the public, including residents of
low-income areas. See, • e.g., Act § 621(a)(3), 47 U.S.C.
§ 541(a)(3). Both the approach followed by the Commission
and the conclusions it reached fall far short of reflecting the
balance sought by Congress.
ARGUMENT
I. THE FCC'S DEFINITION OF "EFFECTIVE COM-
PETITION" IS ARBITRARY AND CAPRICIOUS AND
CONTRARY TO THE CABLE ACT
Congress explicitly rejected the very standard adopted by the
Commission as its definition of "effective competition." The
cable bill, as initially passed by the Senate in 1983, would have
limited the regulation of basic cable rates to communities
served by four or fewer Grade B television signals.14 However,
after various franchising authorities raised objections, Con-
gress eliminated this simplistic approach and authorized rate
regulation wherever a cable system does not face "effective
competition." Congress authorized the FCC to conduct a
searching inquiry to define the circumstances where cable
systems are not subject to such competition.
While Congress gave the Commission some "flexibility" in
fashioning a definition of effective competition, Committee
Report at 66, it also made clear the factors that the Commis-
sion should take into account. In several respects, the Commis-
sion disregarded or misunderstood these factors. It adopted an
14 S. 66, 98th Cong., 1st Sess. § 607 (1983). See 129 Cong. Rec. § 8326
(daily ed. June 14, 1983), S. Rep. No. 67, 98th Cong., 1st Sess. 22-23 (1983).
The four -signal standard was also adopted by the House Subcommittee on
Telecommunications, Consumer Protection -and Finance. H.R. 4103, 98th
Cong., 1st Sess. § 633 (Comm. Print 1983).
1
i
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17
effective competition standard which lacks a proper basis in
the Cable Act, and which is arbitrary and capricious.15
A. The Commission Misconstrued the Purposes of the Cable
Act and, Contrary to Congressional Intent, "Presumed"
the Existence of Competition
The FCC correctly noted that, "in adopting appropriate
regulatory standards [under Section 623] we must keep in mind
the underlying purposes of the Cable Act which are articulated
in Section 601." Order at ¶ 116 (J.A. ). However, the FCC
then proceeded to distort the statutory language and to misrep-
resent the legislative purposes in an apparent effort to'make it
appear that the goal of the Cable Act was cable rate deregula-
tion:
"Foremost among these [purposes] is the intent of the
statute to establish `standards which encourage the
growth and development of cable systems * * * assure
that cable communications provide * * * the widest possi-
15 Agency interpretations of their statutes are entitled to deference by
the courts. However, the FCC's regulations may not lawfully effect a result
which "is not one that Congress would have sanctioned." Coal Exporters,
supra, 745 F.2d at 96, quoting Chevron, U.S.A., Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837, 845, 104 S. Ct. 2778, 2783 (1984). The
Commission's "rulemaking power is limited to adopting regulations to carry
into effect the will of Congress as expressed in the statute." Board of
Governors of the Federal Reserve System v. Dimension Financial Corp., 106
S. Ct. 681, 689 (1986). The " `deference due an agency interpretation cannot
be allowed to slip into a judicial inertia which results in the unauthorized
assumption by an agency of major policy decisions properly made by
Congress.' " Bureau of Alcohol, Tobacco and Firearms v. FLRA, 464 U.S.
89, 97 (1983), citing American Shipbuilding Co. v. NLRB, 380 U.S. 300, 318
(1965). A court "must not `rubber-stamp' an agency's statutory construction
if that construction is inconsistent with a statutory mandate or frustrates
congressional policy underlying the statute." AFGE v. FLRA, No. 85-1500,
slip op. at 7 (D.C. Cir. Aug. 26, 1986).
Moreover, the FCC may not act arbitrarily or capriciously. 5 U.S.C.
§ 706(2)(A) (1982). It must "examine the relevant data and articulate a
satisfactory explanation for its action including a `rational connection
between the facts found and the choices made.' " Motor Vehicle Manufac-
turers Ass'n v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29,
43 (1983).
18
ble diversity of information sources and services to the
public' and `promote competition in cable communica-
tions and minimize unnecesssary regulation that would
impose an undue economic burden on cable systems.' We
believe that we must implement Section 623(b) consistent
with these statutory goals." Id. (deletions in original).
What is most remarkable about this description of legislative
intent is that it selectively quotes from one of the Act's
purposes clauses and omits that part of the clause which does
not reflect the deregulatory mindset of the FCC. The complete
language of Section 601(2) states that one of the purposes of
the Act is to "establish franchise procedures and standards
which encourage the growth and development of cable systems
and which assure that cable systems are responsive to the needs
and interests of the local community." (Emphasis added.) The
underscored language, which the FCC omitted, makes clear
that the Cable Act is not a deregulatory manifesto, but a
balanced law intended to preserve the ability of local govern-
ments to protect the interests of their citizens. See pages 7-10,
supra.16
On the basis of its erroneous belief that Congress' overriding
intent was to "significantly deregulate the provision of cable
service," Order at ¶ 100 n. 69, the FCC failed to consider the
balance of interests required by the Cable Act. See note 13,
supra. Instead, it decided to "favor a presumption that com-
petition does in fact exist rather than to assume that consumers
will make no effort to seek out alternatives to basic cable
16 Significantly, the FCC also ignored in its analysis Congress's "con-
cern with maximizing the availability of cable services. . . ." Housatonic
Cable Vision v. Dept. of Public Utility, 622 F. Supp. 798, 811 (D.C. Conn.
1985). As the court in Housatonic stated:
"Congress' intent to maximize the availability and diversity of cable
service is evident throughout the Cable Act, both in its stated purposes
and in the strong provisions that it contains promoting broad access to
cable television." Id.
Rates which are inappropriately high may restrict the availability of cable
services to the public.
1
19
service." Id. at ¶ 107 (J.A. ) 17 This presumption has
absolutely no support in either the Act or the legislative history.
To the contrary, as the Department of Justice noted, such a
presumption actually conflicts with economic reality and with
certain of the Cable Act's purposes. See DOJ Comments at
28-30 (J.A. ); DOJ Reply Comments at 7-8 (J A ).
Congress intended to preclude rate regulation only when there
was. actual "availability of competing sourcesof programming
in a given market. . . ." Committee Report at 25 (emphasis
added). The Commission's decision to indulge in an unauthor-
ized presumption of competition tainted the entire deliberative
process.18
B. In Clear Disregard of Congressional Intent, the Commis-
sion Restricted Its Inquiry to Identifying the Circum-
stances Where Only One Component of Basic Cable
Service Is Theoretically Subject to Effective Competition
In ascertaining whether an agency properly interpreted its
Congressional mandate, "the starting point of the analysis is
the language of the statute itself." AFL-CIO v. Donovan, 757
F.2d 330, 344 (D.C. Cir. 1985), citing American Textile Manu -
17 This presumption reflects a serious misunderstanding of the Com-
mission's responsibility. Even considerable efforts by consumers are futile if
there are no adequate substitutes for the services offered by the cable
operator. Moreover, even if substitutes are available, the fact that consumers
must go to great efforts to obtain them may confer market power on the
cable operator.
f- 18 The Commission was willing to go to great lengths to implement this
presumption. For example, it assumed that those who are unable to receive
broadcast signals because of technical interference or some other geographic
factor have more programming choices than those who are unable to receive
signals because of excessive distance between their homes and the station's
IP` transmitter. According to the Commission, "unavailability of off -the -air
signals for reasons of interference, rather than lack of local signals, is not the
11/1
competitive threat" to which the rate regulation sections are directed. Notice
at ¶ 43, n.43 (J.A. _ However, Hoever, under the Cable Act, the question is
whether a particular cable system faces effective competition. Congress did
not empower the FCC to prohibit rate regulation based on the reason for the
ihikabsence of competition. In areas where over -the -air signals are subject to
interference, those signals do not provide good substitutes for video pro-
gramming services available over cable. See ACLU Comments at 23 (J.A.
)•
20
facturers Institute v. Donovan, 452 U.S. 490, 508 (1981).
Section 623(b)(2) of the Cable Act, 47 U.S.C. § 543(b)(2),
specifically directs the Commission to define the "circum-
stances in which a cable system is not subject to effective
competition." (Emphasis added.) The legislative history of the
Cable Act likewise makes clear that the Commission must
establish standards which define the circumstances where com-
petitive alternatives are available to the cable system itself.19
Not once did Congress suggest that the Commission could
satisfy its responsibility by defining effective competition in
terms of just a portion of the services offered by a cable
system. Yet, this is precisely what the Commission did.
The Commission explicitly refused to identify the circum-
stances where ,an entire cable system is subject to effective
competition. It limited its inquiry to an identification of those
circumstances where "basic cable service" alone is subject to
such competition.20 Moreover, the Commission restricted even
this limited inquiry to only one component of basic cable
service—local television broadcast signals—and declined to
take account of the variety of other programming typically
included in basic cable service. See Notice at ¶¶ 43 and 45
(J.A. ); Order at ¶¶ 96, 98 and 100 (J.A. ). The result
of the Commission's action was a purported "analysis" of
effective competition to cable facilities as they originally ex-
isted in the 1950s and 1960s—that is, to facilities which, in
fact, are no longer even defined as "cable systems" under the
Cable Act.21
19 See, e.g., Committee Report at 25 ("municipal authority to regulate
basic cable rates turns on whether a cable system faces effective competi-
tion"); Id. (rate regulation is appropriate only where "[a] cable system is not
subject to effective competition"); Id. at 66 ("franchising authority may
regulate rates for basic cable service . . . if the FCC determines that the
cable system is not subject to effective competition"). (Emphasis added.)
20 It should be noted that Congress distinguished between the terms
"cable system" and "basic cable service." See Act §§ 602(2) and (6), 47
U.S.C. §§ 522(2) and (6).
21 Section 602(6) of the Act, 47 U.S.C. § 522(6), excludes from the
definition of "cable system" any "facility that serves only to retransmit the
television signals of one or more television broadcast stations."
21
The Commission sought to excuse its rewrite of statutory
language on the ground that it saw "little point in determining
whether a cable system may have market power in the provi-
sion of a service that a franchising authority is prohibited
statutorily from regulating." Order at ¶ 98 n.63 (J.A. )
However, cable operators tie together the purchase of basic
and other cable services; subscribers must, typically, purchase
basic service in order to purchase pay services. See page 5,
supra. Furthermore, basic service—which franchising authori-
ties can regulate in noncompetitive markets under the Cable
Act—typically consists of much more than local television
signals.22 In light of these facts, Congress directed the Commis-
sion to determine the circumstances where the full range of
services provided by the cable system, and not simply a portion
of those services, is subject to competition. Indeed, Congress
specifically stated:
"In determining whether a cable system is subject to
effective competition for the purpose of regulation of
basic cable service, the FCC should consider the number
22 The Commission grudgingly, and cryptically, noted that: "For the
most part, programming provided by basic cable service includes local,
over -the -air signals and other services." Order at ¶ 98 (emphasis added)
(J.A. ) The record establishes that basic cable service typically contains
many programming services in addition to local broadcast signals. As the
National Cable Television Association ("NCTA") itself noted, the basic
service tier "might include twenty or more additional nonbroadcast ser-
vices", and "a very small number of local over -the -air broadcast stations
may provide less effective competition for the many channels of nonbroad-
cast services and distant signals offered as basic service by the cable system."
NCTA-CATA Comments at 17-18 (emphasis added) (J.A. ) See also
NLC Comments I at 31-32, ¶¶ 46-47 and Exhibit A (J A ); UCC
Comments, App. A (J.A. ); Notice at ¶ 43 (J.A. )
In Denver, Colorado, for example, the basic service tier in 1985 included
eight local broadcast signals, 25 satellite -delivered programming services,
eight access services and seven local origination services. NLC Comments III,
Exhibit E at 8 (J A ). The franchise agreements in place in four of the
five Boroughs in the City of New York establish a 40 -channel definition of
basic service which includes fourteen local broadcast signals, four public
access channels, five municipal channels, two channels for commercial leased
access, fourteen company -programmed channels and a programming guide.
NYC Comments at 14 (J.A. )
22
and nature of services provided, compared with the num-
ber and nature of services available from alternative
sources and, if so, at what price." Committee Report at
66 (emphasis added). 23
The Commission did not comply with this Congressional
directive. It made no effort to fashion a standard which takes
into account the "number and nature of services provided,
compared with the number and nature of services available
from alternative services" and the "prices" of such services.
The deregulatory -minded Commission had no authority to
disregard this Congressional mandate by confining its analysis
to those situations where there are competitive alternatives' to
only a portion of the cable system's offerings. The FCC "must
give effect to the unambiguously expressed intent of Con-
gress." Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., supra, 467 U.S. at 842-43.24
23 Congress also stated that the Commission's effective competition
standards "should apply on a community -by -community basis since the
presence nationwide of various telecommunications services does not speak
to the availablity of such services in a particular community." Committee
Report at 66 (emphasis added). By employing the broad term "various
telecommunication services," Congress again reflected its expectation that
the Commission would not confine its analysis to broadcast signals alone.
24 Congress also indicated that the Commission might find it relevant
to consider data such as the penetration rate of the cable system. Committee
Report at 66. The Commission refused to do so, concluding it is "uncon-
vinced" that penetration rate statistics "are reliable indicators of broadcast
reception problems." Order at ¶ 108 (J A ) (emphasis added). Further-
more, the FCC said, a penetration rate standard "would not be in the public
interest" because "subscriber penetration is determined by a number of
factors other than the availability of off -the -air signal reception." Id. Once
again, the FCC misconstrued its statutory responsibilities. Its obligation is to
authorize rate regulation in communities where the cable system is not
subject to effective competition, not to prohibit rate regulation in communi-
ties where "broadcast reception" is available. High penetration rates are
good indicators of market power in part because penetration rates are good
indicators of demand for cable services.
ol
k
23
C. The Commission Arbitrarily Rejected Proposals for a
Multi -Criteria Standard Which Was Based uponWell-
Established Legal and Economic Principles and Economic
Reality
The Department of Justice and several other parties urged
the Commission to adopt a definition of effective competition
which is based upon recognized principles of antitrust and
economic analysis. These comments focused upon the applica-
bility of traditional antitrust and economic concepts concern-
ing market power and substitutability to the cable market-
place.25 They made clear that the Commission's single criterion
standard, limited to the availability of local broadcast signals,
bore no relationship to economic reality and had no basis in
25 See, e.g., DOJ Comments at 8-41 (J.A. _); DOJ Reply Com-
ments at 11-22 (J.A. _); NYC Comments at 18-24, ¶¶ 29-37 (J A );
NLC Comments at 33-48, It 49-74 (J.A. ); ACLU Comments at 14-25
(J.A. ).
The comments discussed the "reasonable interchangeability" test (price,
quality and usage) of United States v. E.I. du Pont de Nemours & Co., 351
U.S. 377 (1956); the "cluster market" analysis of United States v. Grinnell,
384 U.S. 563 (1966); the submarket analysis of Brown Shoe Co. v. United
States, 370 U.S. 294 (1962); and the Department of Justice Merger Guide-
lines. Such an antitrust analysis is consistent with, and indeed mandated by,
Congress' directive that the FCC "should consider the number and nature of
services provided, compared with the number and nature of services available
from alternative sources and, if so, at what price." Committee Report at 66;
see DOJ Reply Comments at 12 (J.A. ); ACLU Comments at 15-19
(J.A. ). This Court has also directed the FCC to consider such antitrust
analyses in other contexts. See, e.g., United States v. FCC, 652 F.2d 72,
81-82 (D.C. Cir. 1980) (en banc). And the FCC has frequently done so. See,
e.g., Notice of Proposed Rulemaking in CC Docket No. 85-107, 100 F.C.C.
2d 1270, 1275-82 (1985). As the staff of the House Congressional subcom-
mittee which approved the Cable Act noted in 1981:
"Antitrust policy and economic regulatory policy bear many similari-
ties. . . . Antitrust principles in particular are able to contribute to
the evolution of telecommunications policy in two of the most difficult
areas of contemporary inquiry: the identification of market power and
the definition of markets." Majority Staff of House Subcomm. on
Telecommunications, Consumer Protection and Finance of the Comm.
on Energy and Commerce, Telecommunications in Transition: The
Status of Competition in the Telecommunications Industry, 97th
Cong., 2d Sess. 41 (Comm. Print 1981).
24
traditional antitrust and economic analysis. Accordingly, they
urged the Commission to adopt a multi -criteria standard which
takes into account factors in addition to the simple availability
of local broadcast signals.
A cable television system makes available to a community,
through a single source, an array of services which otherwise
are not available or can only be obtained from several different
sources which may not be available in that community. As this
Court recently noted, cable operators can provide a " 'rich
variety' of additional options, including locally originated
cablecasts, and the programming of over 40 independent cable
networks, which offer such diverse fare as movies, sports, and
specialized presentations aimed at individual segments of the
national audience." Quincy Cable TV, Inc., supra, 768 F.2d at
1452. See also note 22, supra. In addition, cable operators can
provide clearer reception of broadcast signals—a service which
also may be unavailable from any other source. Under tradi-
tional antitrust and economic analysis and under the Act, the
Commission's responsibility was to identify the circumstances
in which there existed adequate substitutes for these services.26
The Justice Department, among others, explained to the
Commission that:
26 For example, where a product or service consists of more than one
component, the unique nature of the package must be taken into account as
well as the availability of substitutes for each component in determining the
relevant market in which to analyze competition. Only those goods or
services that encompass the entire range of offerings of the product in
question provide effective competition. See, e.g., United States v. Connecti-
cut Bank, 418 U.S. 656, 664 (1974) (particular financial services offered by a
savings bank were not a substitute for the total package of services offered
by a commercial bank); United States v. Grinnell Corp., 384 U.S. 563, 572
(1966).
The relevant market is a narrow one because of the multiplicity of and
variety of services provided from a single source and the efficiency of the
delivery system. Cf. International Boxing Club v. United States, 358 U.S.
242, 249-52 (1959) (relevant market was the promotion of championship
boxing contests, and not all professional boxing events); NCAA v. Board of
Regents, 468 U.S. 85, 111-13 (1984) (relevant market was the broadcast of
college football games, and not all televised sports programming).
25
"For a variety of reasons, broadcast television is generally
not a good substitute for the full range of programming
and other services distributed by cable television systems.
These reasons include the larger variety of video program-
ming usually carried on cable systems (e.g., non -local
programming), the superior signal quality available from
cable and the inability to market 'pay' services success-
fully over broadcast television." DOJ Comments at 18
(J.A. ).
The Justice Department further noted that the provision of
"satellite -delivered and other non -local programming may con-
fer substantial market power on a cable system" and that, as a
result, "a single criterion linked solely to broadcast station
availability" would not reflect the size and nature of the
programming mix provided over cable systems as basic service.
DOJ Comments at 3-32 (J.A. ). As the Department of
Justice concluded, the Commission's single -criterion standard
is "too limited and inflexible to support a general presumption
of effective competition for basic cable service." DOJ Com-
ments at 5 (J.A. ).
The Commission refused to adopt a multi -criteria standard,
giving the comments of the Justice Department and others who
proposed such a standard only a back -of -the -hand treatment.
Other than to restate the position of certain cable interests that
the Justice -Department's views were based upon "supposition
and intuition," Order at ¶ 97 (J.A. ), the Commission
simply noted its "belief" that a cable system "does not gain
significant market advantage" by providing programming in
addition to local broadcast signals. Order at ¶ 100 (J.A. ).
The Commission's "belief" is squarely contradicted by the
record, which demonstrates that the cable industry experienced
explosive growth only after offering these various non -broad-
cast services. NYC Comments at 12, ¶ 20 (J.A. ); NLC
Comments I at 21-23, ¶¶ 28-29 (J.A. ). The Commission's
treatment of the proposals for a multi -criteria standard was
arbitrary and capricious because the Commission failed "to
26
consider responsible alternatives to its chosen policy and to
give a reasoned explanation for its rejection of such alterna-
tives." Farmers Union Central Exchange, Inc. v. FERC, 734
F.2d 1486, 1511 (D.C. Cir.), cert. denied, 105 S. Ct. 507 (1984).
See also Motor Vehicle Manufacturers Ass'n v. State Farm
Mutual Automobile Insurance Co., supra, 463 U.S. at 43;
International Ladies' Garment Workers' Union v. Donovan,
722 F.2d 795, 815 (D.C. Cir. 1983), cert. denied, 105 S. Ct. 93
(1984).27
D. The Commission's Definition of Effective Competition Is
Based upon Irrelevant and Inadequately Disclosed Data
In selecting a three -signal standard, the Commission cited
only two specific sources for factual support: (1) an internal
staff study based upon a "limited statistical sampling" of
Arbitron viewing data in selected cable markets; and (2) an
economist's empirical study of certain manufacturing indus-
tries (the "Kwoka study").28. Order at ¶ 99 (J.A. ) 29
27 The Commission's conclusion that broadcast signals alone provide a
reasonable measure of effective competition also represents clear and unex-
plained departure from prior Commission precedent. In 1976, various cable
interests urged the Commission to preempt local rate regulation in markets
where "over -the -air television reception is good." The Florida CATVAssocia-
tion argued that rate regulation should be permitted only in communities
served by two or fewer television signals. The FCC rejected such simple
standards, concluding that differences "in the size of community, age and
technical sophistication of the system, services offered and so forth, when
added to the variations in degree and type of off -the -air television service and
available entertainment alternatives, make it most difficult to predict . . .
which systems should and which should not be rate regulated." Report and
Order in MM Docket No. 20681, 60 F.C.C.2d 672, 681, 684-85 (1976).
28 Kwoka, "The Effect of Market Share Distribution in Industry
Performance," Review of Economics & Statistics, Vol. LXI, No. 1, February
1979, pp. 101-09.
29 The Commission also gave its assurance that its three -signal stan-
dard was "[b]ased on the record in this proceeding . . . ." Order at Q 99
(J.A. ). As this Court concluded in Christian Broadcasting Network,
Inc. v. Copyright Royalty Tribunal, 720 F.2d 1295, 1319, (D.C. Cir. 1983),
cert. denied, 106 S. Ct. 1245 (1986), such "simple, undifferentiated allu-
sions" to the record are inadequate to justify agency decisionmaking. See
also Farmers Union Central Exchange, Inc. v. FERC, supra, 734 F.2d at
1508 n.50 (agency must "set out the- basis in the record for its critical
findings").
27
Although published in 1979, the Kwoka study was neither
mentioned in the Notice nor otherwise brought to the attention
of interested parties prior to the close of the comment period.
Likewise, the first mention of the internal staff study came in
the final Order. Portions of the study itself were released only
after Freedom of Information Act requests had been filed with
the Commission (J.A. ). Even then, the Commission
continued to withhold critical details of the study's methodol-
ogy, such as how various cable markets had been "randomly"
chosen as samples.3°
" `It is not consonant with the purpose of a rulemaking
proceeding to promulgate rules on the basis of inadequate
data, or on data that [in] critical degree, is known only to the
agency'." United States v. Nova Scotia Food Products Corp.,
568 F.2d 240, 251 (2d Cir. 1977) (emphasis in original), quoting
Portland Cement Ass'n v. Ruckelhaus, 486 F.2d 375, 393
(D.C. Cir. 1973), cert. denied, 417 U.S. 921 (1974). Thus, the
United States Court of Appeals for the Second Circuit recently
held that it was arbitrary and capricious for the Commission to
adopt a policy based upon undisclosed internal studies, thereby
denying interested parties a reasonable opportunity to com-
ment on their methodology or conclusions. National Black
Media Coalition v. FCC, 791 F.2d 1016, 1023 (2d Cir. 1986).
The Commission below engaged in precisely the same conduct
which the Court in National Black Media Coalition found
unlawful.31
30 There is nothing in the record which establishes that the Commis-
sion's self -described "limited statistical sampling" has any statistical validity
whatsoever. See St. James Hospital v. Heckler, 760 F.2d 1460, 1467 n.5 (7th
Cir.). cert. denied, 106 S. Ct. 229 (1985). ("[I]t is an agency's duty to
establish the statistical validity of the evidence before it prior to reaching
conclusions based on that evidence, not the public's duty to inform the
agency of statistical invalidities in its evidence.")
31 As this Court has concluded, "An agency commits serious proce-
dural error when it fails to reveal portions of the technical basis for a
proposed rule in time to allow for meaningful commentary." Connecticut
Light and Power Co. v. Nuclear Regulatory Commission, 673 F.2d 525,
530-31 (D.C. Cir.), cert. denied, 459 U.S. 835 (1982) (footnotes omitted). The
28
Furthermore, the internal staff study was limited to an
examination of viewing in certain cable markets with between
two and five off -the -air signals. The staff purported to find
that: "In three signal markets, the cable viewership of such
basic programming was in general less than off -air viewership
of a single local signal." Order at ¶ 99 (J.A. ) 32 Wholly
absent from the Order is any reasoned explanation, or record
support, for the Commission's conclusion that such a finding
has anything whatsoever to do with cable system market
power—the issue before the Commission.33 See Almay v. Cali -
possibility that interested parties might have offered commentary on these
studies following the Commission's adoption of the three -signal standard
does not eliminate the substantial prejudice to interested parties opposed to
that standard. Such an opportunity for post -hoc comment comes "too late"
to cure the agency's failure to make available the materials on which its
decision was made. Gonzales v. United States, 348 U.S. 407, 417 (1955). It is
"too late" because "a certain reluctance [to change] is to be expected after
the agency has made its final determination. Id. "After the final rule is
issued, the petitioner must come hat -in -hand and run the risk that the
decisionmaker is likely to resist change." Sharon Steel Corp. v. EPA, 597
F.2d 377, 381 (3d Cir. 1979). "[T]he psychological and bureaucratic realities
of post hoc comments in rulemaking make such comments a vastly inferior
substitute for meaningful commentary before the agency makes its policy
decision." State of New Jersey, Department of Environmental Protection v.
EPA, 626 F.2d 1038, 1050 (D.C. Cir. 1980). Moreover, because critical details
of the study were withheld, there was no opportunity for even meaningful
post hoc comments on the study's methodology.
32 The Commission did not explain what services were included in
"such basic programming" other than to state that it consisted of the
programming "which is most likely to be included in the basic tier." Order at
¶ 99 (J.A. ).
33 The fact that basic service programming other than local broadcast
signals commands a particular viewing share in cable households within a
given community is irrelevant to the pertinent question, which is whether the
cable operator has market power. "[M]arket power is the power of a firm to
affect the price which will prevail on the market in which the firm trades."
Sullivan, Antitrust 30 (1977). "Market power can be viewed as the ability of
a firm to deviate profitably from marginal cost pricing." Hovenkamp,
Economics and Federal Antitrust Law 57 (1985). Even if cable households
allot only 20 percent of viewing time to basic service programming other than
local broadcast signals, those households may have such a strong preference
for that nonbroadcast programming that they will continue to subscribe to
basic cable service despite drastic price increases.
•
•
29
fano, 569 F.2d 674, 682 (D.C. Cir. 1978) (agency may not rely
upon study to justify policy where results of study are not
correlated to issue before agency).
According to the Commission, the Kwoka study "demon-
strated that the presence of a third competitor of sizable
market share may be sufficient to guarantee competition ina
given industry." Order at ¶ 99 (J.A. ). However, Kwoka
himself cautioned against generalizing his study results beyond
the five manufacturing industries examined because these in-
dustries possessed special characteristics. Kwoka, note 28, at
107 n.15, supra. Likewise, as other commentators have noted,
Kwoka's study is "more suggestive than definitive, because of
the effects of price controls during part of the period under
scrutiny." Posner & Easterbrook, Antitrust: Cases, Economic
Notes and Other Material at 42 (Supp. 1984). There is abso-
lutely no indication from the Order that the Commission was
aware of these limitations or that it in any way took account of
them. Reliance upon the Kwoka study in such circumstances
was plainly improper.34
In sum, the Commission acted arbitrarily and capriciously
by relying on studies that were unavailable for public comment
before it made its decision; that were not demonstrated to be
statistically valid; and that, in any event, produced results
which were not relevant to the issues properly before the
Commission. Rather than applying the "safety valves" of
" `public exposure of the assumptions and data incorporated
into' " these studies " 'and the acceptance and consideration of
34 See Walter 0. Boswell Memorial Hospital v. Heckler, 749 F.2d 788,
796-97, 803 (D.C. Cir. 1984) ("reliance on a single study criticized extensively
by its authors in its particular application can obviously be an arbitrary and
capricious action"); St. James Hospital v. Heckler, supra, 760 F.2d at
1465-68 (adoption of a regulation based on a study not designed for that
purpose, and in fact limited and criticized by its authors in that regard, was
arbitrary and capricious); Humana of Aurora, Inc. v. Heckler, 753 F.2d
1579, 1583 (10th Cir.), cert. denied, 106 S. Ct. 180 (1985) (reliance on a
report never designed or intended by its authors to answer the questions, or
support the propositions, raised by the agency was arbitrary and capricious).
.1
30
public comment'," Natural Resources Defense Council, Inc. v.
Herrington, 768 F.2d 1355, 1391 (D.C. Cir. 1985), quoting
Sierra Club v. Costle, 657 F.2d 298, 334-35 (D.C. Cir. 1981),
the Commission simply "play[ed] hunt the peanut with techni-
cal information, hiding or disguising the information that it
employ[ed]," thus transforming the proceeding below from
one in which there should have been a "genuine interchange"
into one which was "mere bureaucratic sport." Connecticut
Light and Power Co. v. Nuclear Regulatory Commission, 673
F.2d 525, 530 (D.C. Cir.), cert. denied, 459 U.S. 835 (1982).
E. The Commission Improperly Imposed the Burden upon
Franchising Authorities To Demonstrate the Actual Avail-
ability of Local Broadcast Signals
The Commission established two alternative standards for
determining, under its effective competition rules, the avail-
ability of signals in a particular market. These standards,
which are tied to the existence of "Grade B" or "significantly
viewed" signals, measure only theoretical availability.35 As the
35 A broadcast station's Grade B contours represent only a prediction of
signal coverage based on estimated signal field strength and "give no
assurance of service to any specific percentage of receiver locations within
the distances involved." 47 C.F.R. § 73.683(b). Thus, in many areas, such as
in the City of New York and other urban areas—where tall buildings create
"ghosting" problems—the availability of a Grade B broadcast television
signal does not necessarily mean that the station is viewable. Similarly, in
communities located in hilly or mountainous terrain—where there are geo-
graphical obstacles to over -the -air reception—the residents of a community
located within the contours of a Grade B signal may not be able to receive
that signal. See, e.g., Comments of the City of New York at 16, ¶ 26 (J.A.
); Comments of the City of Winona, Minnesota at 1-2 (J.A. _);
Comments of the City of Keene, New Hampshire at 1-2 (J.A. );
Comments of the City of Athens, Ohio at 1-2 (J.A. ).
The "significantly viewed" standard is an even poorer indicator of whether
a signal is available in a community. The FCC's definition of a significantly
viewed station includes an independent station with a "share of viewing of at
least 2 percent . . . and a net weekly circulation of at least 5 percent" of
noncable households in the county. 47 C.F.R. § 76.5(k)(2) (emphasis added).
Thus, a signal which is available only to a small percentage of television
viewers in noncable households or which is available only in certain areas of
the county—and may not be available to a single household in the franchise
area—could be defined as available under the FCC's standard. See NLC
Reply Comments at 46-47, ¶ 58 ("NLC Comments II") (J.A. _); NLC
Comments III at 20, ¶ 33 (J.A. ).
3F
Commission conceded, its standards "will result in some cable
systems being judged to have effective competition when in
fact reception of three or more signals may not always be
possible in the franchise areas." Order at ¶ 106 (J.A. ).
The Commission therefore provided a mechanism for waiver
of its rate regulation prohibitions if a franchising authority
submitted costly "field strength measurements made.in accord-
ance with § 73.686 of the Commission's rules." Order at ¶ 107
(J.A. )
Having fashioned an admittedly imperfect standard for
measuring the availability of broadcast signals, the Commis-
sion imposed on franchising authorities the burden of demon-
strating the inadequacy of the FCC's standard in particular
situations. The proposed "cure" for the inadequacies of the
Commission's standard makes a mockery of Congress' direc-
tive that the Commission use its experience and expertise to
establish "objective nationwide criteria which are readily appli-
cable for determining on a community -by -community basis
whether a cable system is subject to effective competition."
Committee Report at 66 (emphasis added). Surely Congress
did not contemplate that the Commission's standards would be
"readily applicable" only for cable operators, while franchising
authorities must conduct "engineering studies in accordance
with Section 73.686 of the Commission's rules."
II. THE FCC UNLAWFULLY EXEMPTED CABLE SYS-
TEMS IN NONCOMPETITIVE MARKETS FROM
RATE REGULATION FOR THE ONE-YEAR PERIOD
FOLLOWING THE TRANSITION OF THE LOCAL
MARKET FROM COMPETITIVE TO NONCOMPETI-
TIVE STATUS
The FCC ruled that once a community has been found to be
a competitive market for cable, its cable system may not be
subject to rate regulation for a period of one year after "any
change in market conditions which would cause it to be
determined not to be subject to effective competition." 47
C.F.R. § 76.33(a)(3); Order at ¶ 109 (J.A. ) Neither the
32
statute nor the legislative history provides any support forthis
restriction on rate regulation in noncompetitive markets. Sec-
tion 623(b)(1) of the Cable Act unambiguously requires, that
the Commission "prescribe and make effective regulations
which authorize a franchising authority to regulate rates for
the provision of basic cable service in circumstances in which a
cable system is not subject to effective competition." It does
not authorize the Commission to exempt any cable system
operating in a noncompetitive market from rate regulation. If
conditions change, and a cable system no longer faces effective
competition, the Commission must permit franchising authori-
ties to regulate basic cable service rates.
The Commission failed even to offer an rational explanation 1
for this one-year exemption. Indeed, the Commission specifi-
cally rejected a proposal that a market, once classified as
competitive, should never be reclassified as noncompetitive,
concluding that this "would be contrary to the intent of the
statute." Order at ¶ 109 (J.A. ). The Commission made no
effort to explain its apparent conclusion that a permanent
exemption would violate the Act, but a one-year exemption
would not. Nor did the Commission provide any explanation
as to what would be involved in a "transition" from nonregula-
ted to regulated status. 14
III. THE FCC UNLAWFULLY AUTHORIZED AUTOMA-
TIC
UTOMATIC RATE INCREASES IN ADDITION TO THOSE
PROVIDED BY THE CABLE ACT
The Commission authorized cable operators in noncompeti-
tive markets to "automatically pass through any readily identi-
fiable increase in cost which is entirely attributable to the
provision of basic service." Order at ¶ 126 (J.A. ) The
only rationale presented by the Commission for this provision
was the "avoidance of pro forma administrative proceedings."
Id.
Section 623(b) of the Cable Act—upon which the Commis-
sion purported to rely—directs the Commission to promulgate
33
"regulations which authorize a franchising authority to regu-
late rates for the provision of basic cable service" in noncom-
petitive markets and to "establish standards for such rate
regulation." Congress did not authorize the Commission to
establish standards which permit cable operators unilaterally,
without franchising authority approval, to implement rate
increases. 36
Indeed, in Section 623(e)(1) of the Cable Act, 47 U.S.C.
§ 543(e)(1),37 Congress created an automatic 5% annual in-
crease to allow cable operators "to adjust for inflation without
being subject to city approval." Committee Report at 25. No
other automatic increase was contemplated by Congress. The
Commission's authorization of automatic rate increases for
"readily identifiable" costs can result in automatic rate in-
creases which exceed those authorized by Congress in Section
623(e)(1) of the Cable Act. Congress did not intend that cable
operators in noncompetitive markets would be allowed to
augment the statutory automatic 5% increase by taking an
additional increase in the amount the cable operator considers
to be "readily identifiable" increases in costs.38
36 An example of the type of "standard" which Congress expected the
Commission to establish under Section 623(b)(2)(B) may be found in another
provision of the FCC's regulations:
"In establishing any rate for the provision of basic cable service by
cable systems subject to paragraph (a) of this section, the franchising
authority shall: (1) give formal notice to the public; (2) provide an
opportunity for interested parties to make their views known, at least
through written submissions; and (3) make a formal statement (includ-
ing summary explanation) when a decision on a rate matter is made."
47 C.F.R. § 76.33(d).
37 Section 623(e)(1) provides: "In addition to any other rate increase
which is subject td the approval of a franchising authority, any rate subject to
regulation pursuant to this section may be increased after the effective date
of this title at the discretion of the cable operator by an amount not to exceed
5 percent per year . . . ."
38 Under the Commission's regulations, a franchising authority has the
right to "regulate" rates in noncompetitive markets only when a cable
operator seeks an increase which is in excess of the total of all "readily
34
Moreover, the Cable Act includes other mechanisms which
are intended to alleviate the impact of cost increases not
recovered through higher rates. For example, Section 625(c)(2)
of the Cable Act, 47 U.S.C. § 545(c)(2)(B), authorizes a cable
operator to discontinue a particular cable service in the case of
a substantial increase in copyright fees unless the operator is
compensated for its higher costs in the form of a rate increase
or other adjustment. Similarly, Section 625(a), 47 U.S.C.
§ 545(a), permits an operator to discontinue any service as long
as the overall mix, quality and level of services required by the
franchise are maintained. Congress intended that these statu-
tory mechanisms would be used to make adjustments for cost
increases and did not authorize the Commission to establish
additional mechanisms.
IV THE FCC UNLAWFULLY ESTABLISHED A DEFINI-
TION OF "BASIC CABLE SERVICE" WHICH IS
NARROWER THAN THAT PROVIDED BY THE
CABLE ACT
Section 602(2) of the Cable Act, 47 U.S.C. § 522(2), defines
"basic cable service" as "any service tier which includes the
retransmission of local television broadcast signals." (emphasis
added.) Congress left no doubt that this definition includes
multiple tiers of basic service:
"The Committee intends that all service tiers that meet the
definition be considered as basic cable services. In some
franchises this will mean that basic cable service includes
multiple service tiers." Committee Report at 40. (empha-
sis added.)
The Commission, however, determined that it would be
"unreasonable" to permit regulation of, such multiple tiers.
identifiable" increases in the cost of providing basic service and 507o of the
existing rate. The effect of the Commission's creation of a second automatic
rate increase is that a cable operator can increase rates to cover costs which
have already been fully recovered by a 5% automatic increase taken pursuant
to Section 623(e).
35
Order at ¶ 118 (J.A. ). Consequently, the Commission
crafted its own definition of "basic service," limited to "the
tier of service regularly provided to all subscribers;" it explic-
itly restricted the services subject to rate regulation in noncom-
petitive markets to a single tier of service (i.e., the lowest
priced and least inclusive "tier" of service).
In those communities where only a small percentage of
households subscribe to the lowest priced tier,39 significant
numbers of cable subscribers will not receive the protections
afforded by rate regulation, even though these small systems
do not face effective competition. Moreover, if basic service is
provided in cumulative tiers, so that the higher -priced tiers
include the services offered in the lowest -priced tier, no single
tier may be "regularly provided to all subscribers." (Emphasis
added.) In these circumstances, it is possible that no service tier
would be subject to rate regulation.
The Committee Report reflects Congress' awareness of the
so-called "unreasonable outcomes" which concerned the FCC,
and Congress' determination that such concerns did not war-
rant restricting rate regulation to a single tier of service.
Congress' only requirement is that each tier must include local
television broadcast signals. The FCC ignored the changes
made by Congress to its pre -Cable Act policies and, instead,
reaffirmed its "fundamental policy in this area." Order at
¶ 112 (J.A. ). That "fundamental policy" was first enun-
ciated in Community Cable TV, Inc., 98 F.C.C.2d 1180 (1984),
where the FCC purported to limit the definition of basic
service to the lowest priced tier which includes local broadcast
signals and to authorize the retiering of satellite -delivered
39 For example, under the franchise for Pittsburgh, Pennsylvania, the
lowest priced tier which includes local broadcast signals had only about
15,000 subscribers in mid -1983 while "Tier I," which also included local
broadcast signals, had nearly 70,000 subscribers. NLC Comments III,
Exhibit A at 4 (J.A. ). Under the Cable Act's basic service definition,
both tiers would be regarded as basic service; however, under the FCC's
definition, the more popular tier—"Tier I"—would not qualify as basic
service.
36
programming. Id. Congress was fully aware of the Community
Cable decision when the Cable Act was enacted40 and elected to
repudiate the FCC's policies by superseding the Commission's
definition with its own definition of basic service. See DOJ
Reply Comments at 10-11 (J.A. )
In changing the definition of "basic service," the Commis-
sion relied upon a passage in the Committee Report indicating
that the FCC has "flexibility in promulgating these [effective
competition] regulations" and that the Commission may
fashion the definition of basic service "most appropriate to
achieve the purposes of the regulations." Committee Report at
66. However, the same passage of the Committee Report also
sharply limited the FCC's discretion by requiring that any
definition fashioned by the Commission be "consistent with
the provisions of [the Cable Act]." Id. Clearly Congress ex-
pected that Commission action regarding the definition of
basic service would be limited to such matters as defining the
term "local television broadcast signals" for purposes of Sec-
tion 602(2).41
The Commission cannot rely on legislative history as the
source of authority that is lacking in the statute. Under
standard canons of statutory construction, the. "plain mean-
ing" of statutory terms is determinative and the legislative
history, as the "second-best indication" of legislative intent, is
not dispositive.42 The statutue's definition of basic service is
40 See 130 Cong. Rec. S14,286 (daily ed., Oct. 11, 1984) (statement of
Senator Packwood).
41 See DOJ Comments at 9 n.16 (J A ); DOJ Reply Comments at
8-9 (J.A. ) In fact, that is precisely what the FCC did in response to the
ruling by this Court in Quincy Cable T1' supra, in its Memorandum
Opinion. The Commission cannot, however, rely upon this "flexibility" to
rewrite completely a statutory provision and to reject determinations explic-
itly made by Congress.
42 "The best legislative history regarding the intent of one or another of
the legislative participants is at most a clue as to what the legislating `party'
had in mind; the statute itself is the party's only sure expression. Only where
37
clear on its face and cannot be altered through an expansive
reading of the legislative history. As this Court concluded in
FAIC Securities v. United States, supra, the authority to define
terms "does not confer power to redefine those terms that the
statute itself defines" and thereby to alter the coverage pro-
vided by the statute. 768 F.2d at 362 (emphasis in original). The
Commission cannot restrict authority to regulate rates in non-
competitive markets beyond the limitations established by
Congress by altering the definition of the services which may
be subject to rate regulation.
that expression is genuinely ambiguous is the clue likely to shed more light
than the text." FAIC Securities v. United States, 768 F.2d 352, 362 (D.C. Cir.
1985).
38
CONCLUSION
For the reasons discussed above, the FCC's Order should be
vacated to the extent it (a) defines the circumstances in which a
cable system is not subject to effective competition; (b) ex-
empts a cable system from rate regulation for a one-year
period following a determination that a formerly competitive
market has become noncompetitive; (c) permits automatic
increases in rates for basic cable service, without statutory
authorization or franchising authority approval, by cable sys-
tems that are not subject to effective competition; and (d)
establishes a new definition of "basic cable service" which
conflicts with the Cable Act's definition.
Respectfully submitted,
NATIONAL LEAGUE OF CITIES
Cynthia Pols
General Counsel
Office of Federal Relations
National League of Cities
1301 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
AMERICAN CIVIL LIBERTIES UNION
AND OFFICE OF COMMUNICATION
OF THE UNITED CHURCH OF CHRIST
Michael Botein
Robert T. Perry
MEDIA LAW CLINIC
New York Law School
57 Worth Street
New York, New York 10013
CITY OF NEW YORK
Norman M. Sinel
Paul S. Ryerson
Robert Alan Garrett
Patrick J. Grant
Barbara J. Delaney
ARNOLD & PORTER
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Stephen Kramer
Assistant Corporation Counsel
City of New York
100 Church Street
New York, New York 10007
Morris Tarshis
Director of Franchises
City of New York
1 Centre Street
New York, New York 10007
r
CITY OF Los ANGELES,
CALIFORNIA
Edward J. Perez
Deputy City Attorney
The City of Los Angeles
1800 City Hall East
200 North Main Street
Los Angeles, California 90012
CITY OF ATHENS, OHIO
Garry E. Hunter
Director of Law
The City of Athens
Athens, Ohio 45701
NEW YORK CITIZENS' COMMITTEE
FOR A RESPONSIBLE MEDIA
Michael I. Meyerson
Assistant Professor
UNIVERSITY OF BALTIMORE
SCHOOL OF LAW
3117 Gilford Avenue
Baltimore, Maryland 21218
NATIONAL FEDERATION OF LOCAL
CABLE PROGRAMMERS
Joseph Van Eaton
SPIEGEL & MCDIARMID
1350 New York Avenue, N.W.
Washington, D.C. 20005
October 16, 1986
39
COUNTY OF CONTRA COSTA,
CALIFORNIA
Victor J. Westman
County Counsel
County of Contra Costa
P.O. Box 69
Martinez, California 94553
DEPARTMENT OF PUBLIC UTILITY
CONTROL OF THE STATE OF
CONNECTICUT
Joseph I. Lieberman
Attorney General
Clarine Nardi Riddle
Deputy Attorney General
William B. Gundling
Assistant Attorney General
State of Connecticut
1 Central Park Plaza
New Britain, Connecticut 06051
NATIONAL ASSOCIATION OF STATE
CABLE AGENCIES
Edward P. Kearse
Counsel
National Association of
State Cable Agencies
Empire State Plaza
Albany, New York 12223
APPENDIX A
Cable Communications Policy Act of 1984
•
1
Al
PUBLIC LAW 98-549 [S. 661: October 30. 1984
CABLE COMMUNICATIONS POLICY ACT OF 1984
For Legislative History of Act. see p. 4655
An Act to amond the Communications Act of 1934 to provide a national policy regarding cable television.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled
SHORT TITLZ; TABU OP' CONTINTS
SALMON 1. (a) This Act may be cited as the "Cable Communica-
tions Policy Act of 1984".
(b) The table of contents for this Act is as follows:
Sec. 1. Short title: table of contents.
Sec. 2. Amendment of Communications Act of 1934.
"TITLE VI -CABLE COMMUNICATIONS
"PART 1 -GENERAL PaovmONs
"Sec. 601. Purposes.
"Sec. 602. Definitions.
'TART 11 -USE OF CABLE CEANNms AND OWNERSIaP RvTRICTION.
"Sec. 611. Cable channels for public, educational, or governmental use.
"Sec. 612. Cable channels for commercial use.
"Sec. 613. Ownership restrictions.
"Peer III-FRANcwSINc AND Raatn.ATION
"Sec. 621. General franchise requirements.
"Sec. 622. Franchise fees.
"Sec. 623. Regulation of rates.
"Sec. 624. Regulation of services, facilities, and equipment.
"Sec. 625. Modification of franchise obligations.
"Sec. 626. Renewal.
"Sec. 627. Conditions of We.
"PART IV -MIPs LANaOUa PROVISIONS
"Sec. 631. Protection of subscriber privacy.
"Sec. 632. Consumer protection.
"Sec. 633. Unauthorized reception of able service.
"Sec. 634. Equal employment opportunity.
"See. 635. Judicial proceedings.
"Sec. 686. Coordination of Federal. State, and local authority.
"Sec. 637. Existing franchises.
"Sec. 638. Criminal and civil liability.
"Sec. 689. Obscene programming.".
Sec. 8. Jurisdiction.
Ssc. 4. Pale attachments.
Ssc. 5. Unauthorised reception of certain communications.
Soc. 6. Technical and conforming amendments.
See. 7. Support of activities of the United States Telecommunications Training
Institute.
Sec. 1 Telecommunications Policy Study Commission.
Sec. 9. Effective date.
Cable
Communications
Policy Act of
1984.
47 USC 609 note.
P.L. 98-549
Sec. 2
47 USC 521.
47 USC 522.
A-2
• LAWS OF 98th CONG.-2nd SESS. Oct. 30
AMENDMENT OF COMMUNICATIONS ACT OF 1934
SEC. 2. The Communications Act of 1934 is amended by inserting
after title V the following new title:
"TITLE VI—CABLE COMMUNICATIONS
"PART I -GENERAL PROVISIONS
"PURPOSES
"SEC. 601. The purposes of this title are to—
"(1) establish a national policy concerning cable communica-
tions;
"(2) establish franchise procedures and standards which en-
courage the growth and development of cable systems and
which assure that cable systems are responsive to the needs and
interests of the local community;
"(3) establish guidelines for the exercise of Federal, State, and
local authority with respect to the regulation of cable systems;
"(4) assure that cable communications provide and are encour-
aged to provide the widest possible diversity of information
sources and services to the public;
"(5) establish an orderly process for franchise renewal which
protects cable operators against unfair denials of renewal where
the operator's past performance and proposal for future per-
formance meet the standards established by this title; and
"(6) promote competition in cable communications and mini-
mize unnecessary regulation that would impose an undue eco-
nomic burden on cable systems.
"DEFINITIONS
"SEc. 602. For purposes of this title—
"(1) the term 'affiliate', when used in relation to any person,
means another person who owns or controls, is owned or con-
trolled by, or is under common ownership or control with, such
person;
"(2) the term 'basic cable service' means any service tier
which includes the retransmission of local television broadcast
signals;
"(3) the term 'cable channel' or 'channel' means a portion of
the electromagnetic frequency spectrum which is used in a
cable system and which is capable of delivering a television
channel (as television channel is defined by the Commission by
regulation);
'(4) the term 'cable operator' means any person or group of
persons (A) who provides cable service over a cable system and
directly or through oneor more affiliates owns a significant
interest in such cable system, or (B) who otherwise controls or is
responsible for, through any arrangement, the management
and operation of such a cable system;
"(5) the term 'cable service' means—
"(A) the one-way transmission to subscribers of (i) video
programming, or (II) other programming service, and
"(B) sui.riber interaction, if any, which is required for
the selection of such video programming or other program-
ming service;
1
A-3
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
"(6) the term 'cable system' means a facility, consisting of a
set of closed transmission paths and associated signal genera-
tion, reception, and control equipment that is designed to pro-
vide cable service which includes video programming and which
is provided to multiple subscribers within a community, but
such term does not include (A) a facility that serves only to
retransmit the television signals of 1 or more television broad-
cast stations; (B) a facility that serves only subscribers in 1 or
more multiple unit dwellings under common ownership, con-
trol, or management, unless such facility or facilities uses any
public right-of-way; (C) a facility of a common carrier which is
subject, in whole or in part, to the provisions of title II of this
Act, except that such facility shall be considered a cable system
(other than for purposes of section 621(c)) to the extent such
facility is used in the transmission of video programming di-
rectly to subscribers; or (D) any facilities of any electric utility
used solely for operating its electric utility systems;
"(7) the term 'Federal agency' means any agency of the
United States, including the Commission;
"(8) the term 'franchise' means an initial authorization, or
renewal thereof (including a renewal of an authorization which
has been granted subject to section 626), issued by a franchising
authority, whether such authorization is designated as a fran-
chise, permit, license, resolution, contract, certificate, agree-
ment, or otherwise, which authorizes the construction or
operation of a cable system;
"(9) the term 'franchising authority' means any governmental
entity empowered by Federal, State, or local law to grant a
franchise;
"(10) the term 'grade B contour' means the field strength of a
television broadcast station computed in accordance with regu-
lations promulgated by the Commission;
"(11) the term 'other programming service' means informa-
tion that a cable operator makes available to all subscribers
generally;
"(12) the term 'person' means an individual, partnership,
association, joint stock company, trust, corporation, or govern-
mental entity;
"(13) the term 'public, educational, or governmental access
facilities' means—
"(Al channel capacity designated for public, educational,
or governmental use; and
"(B) facilities and equipment for the use of such channel
capacity;
"(14) the term 'service tier' means a category of cable service
or other services provided by a cable operator and for which a
separate rate is charged by the cable operator;
"(15) the term 'State' means any State, or political subdivi-
sion, or agency thereof; and
"(16) the term 'video programming' means programming pro-
vided by, or generally considered comparable to programming
provided by, a television broadcast station.
P.L. 98-549
Sec. 2
P.L. 98-549
Sec. 2
47 USC 531.
47 USC 532.
A-4 -
LAWS OF 98th CONG.-2nd SESS. Oct. 30
"PART II—USE OR CABLE CHANNELS AND CABLE OWNERSHIP
RESTRICTIONS
"CABLE CHANNELS POR PUBLIC, EDUCATIONAL, OR GOVERNMENTAL USE
"SEc. 611. (a) A franchising authority may establish requirements
in a franchise with respect to the designation or use of channel
capacity for public, educational, or governmental use only to the
extent provided in this section.
"(b) A franchising authority may in' its request for proposals
require as part of a franchise, and may require as part of a cable
operator's proposal for a franchise renewal, subject to section 626,
that channel capacity be designated for public, educational, or
governmental use, and channel capacity on institutional networks
be designated for educational or governmental use, and may require
rules and procedures for the use of the channel capacity designated
pursuant to this section.
"(c) A franchising authority may enforce any requirement in any
franchise regarding the providing or use of such channel capacity.
Such enforcement authority includes the authority to enforce any
provisions of the franchise for services, facilities, or equipment
proposed by the cable operator which relate to public, educational,
or governmental use of channel capacity, whether or not required by
the franchising authority pursuant to subsection (b).
"(d) In the case of any franchise under which channel capacity is
designated under subsection (b), the franchising authority shall
prescribe—
"(1) rules and procedures under which the cable operator is
permitted to use such channel capacity for the provision of
other services if such channel capacity is not being used for the
purposes designated, and
"(2) rules and procedures under which such permitted use
shall cease.
"(e) Subject to section 624(d), a cable operator shall not exercise
any editorial control over any public, educational, or governmental
use of channel capacity provided pursuant to this section.
"(f) For purposes of this section, the term 'institutional network'
means a communication network which is constructed or operated
by the cable operator and which is generally available only to
subscribers who are not residential subscribers.
"CABLE CHANNELS POR COMMERCIAL USE
"Sac. 612. (a) The purpose of this section is to assure that the
widest possible diversity of information sources are made available
to the public from cable systems in a manner consistent with growth
and development of cable systems.
"(bXl) A cable operator shall designate channel capacity for com-
mercial use by persons unaffiliated with the operator in accordance
with the following requirements:
"(A) An operator of any cable system with 36 or more (but not
more than 54) activated channels shall designate 10 percent of
such channels which are not otherwise required for use (or the
use of which is not prohibited) by Federal law or regulation.
"(B) An operator of any cable system with 55 or more (but not
more than 100) activated channels shall designate 15 percent of
A-5
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
such channels which are not otherwise required for use (or the
use of which is not prohibited) by Federal law or regulation.
"(C) An operator of any cable system with more than 100
activated channels shall designate 15 percent of all such
channels.
"(D) An operator of any cable system with fewer than 36
activated channels shall not be required to designate channel
capacity for commercial use by persons unaffiliated with the
operator, unless the cable system is required to provide such
channel capacity under the terms of a franchise in effect on the
date of the enactment of this title.
"(E) An operator of any cable system in operation on the date
of the enactment of this title shall not be required to remove
any service actually being provided on July 1, 1984, in order to
comply with this section, but shall make channel capacity
available for commercial use as such capacity becomes available
until such time as the cable operator is in full compliance with
this section.
"(2) Any Federal agency, State, or franchising authority may not
require any cable system to designate channel capacity for commer-
cial use by unaffiliated persons in excess of the capacity specified in
paragraph (1), except as otherwise provided in this section.
"(3) A cable operator may not be required, as part of a request for
proposals or as part of a proposal for renewal, subject to section 626,
to designate channel capacity for any use (other than commercial
use by unaffiliated persons under this section) except as provided in
sections 611 and 637, but a cable operator may offer in a franchise,
or proposal for renewal thereof, to provide, consistent with applica-
ble law, such capacity for other than commercial use by such
persons.
"(4) A cable operator may use any unused channel capacity
designated pursuant to this section until the use of such channel
capacity is obtained, pursuant to a written agreement, by a person
unaffiliated with the operator.
"(5) For the purposes of this section—
"(A) the term 'activated channels' means those channels engi-
neered at the headend of the cable system for the provision of
services generally available to residential subscribers of the
cable system, regardless of whether such services actually are
provided, including any channel designated for public, educa-
tional, or governmental use; and
"(B) the term 'commercial use' means the provision of video
programming, whether or not for profit.
"(6) Any channel capacity which has been designated for public,
educational, or governmental use may not be considered as desig-
nated under this section for commercial use for purpose of this
section.
"(cX1) If a person unaffiliated with the cable operator seeks to use
channel capacity designated pursuant to subsection (b) for commer-
cial use, the cable operator shall establish, consistent with the
purpose of this section, the price, terms, and conditions of such use
which are at least sufficient to assure that such use will not
adversely affect the operation, financial condition, or market devel-
opment of the cable system.
"(2) A cable operator shall not exercise any editorial control over
any video programming provided pursuant to this section, or in any
other way consider the content of such programming, except that an
P.L. 98-549
Sec. 2
P.L. 98-549
Sec. 2
Courts. U.S.
A-6
LAWS OF 98th CONG.-2nd SESS. Oct. 30
operator may consider such content to the minimum extent neces-
sary to establish a reasonable price for the commercial use of
designated channel capacity by an unaffiliated person.
"(3) Any cable system channel designated in accordance with this
section shall not be used to provide a cable service that is being
provided over such system on the date of the enactment of this title,
if the provision of such programming is intended to avoid the
purpose of this section.
"(d) Any person aggrieved by the failure or refusal of a cable
operator to make channel capacity available for use pursuant to this
section may bring an action in the district court of the United States
for the judicial district in which the cable system is located to
compel that such capacity be made available. If the court finds that
the channel capacity sought bysuch person has not been made
available in accordance with this section, or finds that the price,
terms, or conditions established by the cable operator are unreason-
able, the court may order such system to make available to such
person the channel capacity sought, and further determine the
appropriate price, terms, or conditions for such use consistent with
subsection (c), and may award actual damages if it deems such relief
appropriate. In any such action, the court shall not consider any
price, term, or condition established between an operator and an
affiliate for comparable services.
"(eX1) Any person aggrieved by the failure or refusal of a cable
operator to make channel capacity available pursuant to this section
may petition the Commission for relief under this subsection upokst
showing of prior adjudicated violations of this section. Records of
previous adjudications resulting in a court determination that the
operator has violated this section shall be considered as sufficient
for the showing necessary under this subsection. If the Commission
finds that the channel capacity sought by such person has not been
made available in accordance with this section, or that the price,
terms, or conditions established by such system are unreasonable
under subsection (c), the Commission shall, by rule or order, require
such operator to make available such channel capacity under price,
terms, and conditions consistent with subsection (c).
"(2) In any cain which the Commission finds that the prior
adjudicated se violations of this section constitute a pattern or practice
of violations by an operator, the Commission may also establish any
further rule or order necessary to assure that the operator provides
the diversity of information sources required by this section.
"(3) In any case in which the Commission finds that the prior
adjudicated violations of this section constitute a pattern or practice
d violations by any person who is an operator of more than one
cable system, the Commission may also establish any further rule or
order necessary to assure that such person provides the diversity of
information sources required by this section.
"(f) In any action brought under this section in any Federal
district court or before the Commission, there shall be .a resump-
tion that the price, terms, and conditions for use of channel capacity
designated pursuant to subsection (b) are reasonable and in good
faith unless shown by clear and convincing evidence to the contrary.
"(g) Notwithstanding sections 621(c) and 623(a), at such time as
cable systems with 36 or more activated channels are available to 70
percent of households within the United States and are subscribed
to by 70 percent of the households to which such systems are
available, the Commission may promulgate any additional rules
1
A-7
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
necessary to provide diversity of information sources. Any rules
promulgated by the Commission pursuant to this subsection shall
not preempt authority expressly granted to franchising authorities
under this title.
"(h) Any cable service offered pursuant to this section shall not be
provided, or shall be provided subject to conditions, if such cable
service in the judgment of the franchising authority is obscene, or is
in conflict with community standards in that it is lewd, lascivious,
filthy, or indecent or is otherwise unprotected by the Constitution of
the United States.
P.L. 98-549
Sec. 2
"OWNWJ fP ssararCT!ONS
"Sac. 613. (a) It shall be unlawful for any person to be a cable 47 USC 533.
operator if such person, directly or through 1 or more affiliates,
owns or controls, the licensee of a television broadcast station -and
the predicted grade B contour of such station covers any portion of
the community served by such operator's cable system.
"(bX1) It shall be unlawful for any common carrier, subject in
whole or in part to title II of this Act, to provide video programming 47 USC 201.
directly to subscribers in its telephone service area, either directly
or indirectly through an affiliate owned by, operated by, controlled
by, or under common control with the common carrier.
"(2) It shall be unlawful for any common carrier, subject in whole
or in part to title II of this Act, to provide channels of communica-
tions or pole line conduit space, or other rental arrangements, to
any entity which is directly or indirectly owned by, operated by,.
controlled by, or under common control with such common carrier,
if such facilities or arrangements are to be used for, or in connection
with, the provision of video programming directly to subscribers in
the telephone service area of the common carrier.
"(3) This subsection shall not apply to any common carrier to the
extent such carrier provides telephone exchange service in any
rural area (as defined by the Commission).
"(4) In those areas where the provision of video programming
directly to subscribers through a cable system demonstrably could
not exist except through a cable system owned by, operated by,
controlled by, or affiliated with the common carrier involved, or
upon other showing of good cause, the Commission may, on petition
for waiver, waive the applicability of paragraphs (1) and (2) of this
subsection. Any such waiver shall be made in accordance with
section 63.56 of title 47, Code of Federal Regulations (as in effect
September 20, 1984) and shall be granted by the Commission upon a
finding that the issuance of such waiver is justified by the particular
circumstances demonstrated by the petitioner, taking into account
the policy of this subsection.
"(c) The Commission may prescribe rules with respect to the
ownership or control of cable systems by persons who own or control
other media of mass communications which serve the same commu-
nit7aerved by a cable system.
' (d) Any State or franchising authority may not prohibit the
ownership or control of a cable system by any person because of
such person's ownership or control of any media of mass communi-
cations or other media interests.
"(eXl) Subject to paragraph (2), a State or franchising authority
mai hold any ownership interest in any cable system.
"(2) Any State or franchising authority shall not exercise any
editorial control regarding the content of any cable service on •
P.L. 98-549
Sec. 2
47 USC 309.
47 USC 541.
47 USC 201.
A-8
LAWS OF 98th CONG.-2nd SESS. Oct. 30
cable system in which such governmental entity holds ownership
interest (other than programming on any channel designated for
educational or governmental use), unless such control is exercised
through an entityseparate from the franchising authority.
"(f) This section shall not apply to prohibit any combination of any
interests held by any person on July 1, 1984, to the extent of the
interests so held as of such date, if the holding of such interests was
not inconsistent with any applicable Federal or State law or regula-
tions in effect on that date.
"(g) For purposes of this section, the term 'media of mass commu-
nications' shall have the meaning given such term under section
309(i)(3)(CXi) of this Act.
"PART III—FRANCHISING AND REGULATION
"GENERAL FRANCHISE REQUIREMENTS
"Sac. 621. (aX1) A franchising authority may award, in accordance
with the provisions of this title, 1 or more franchises within its
jurisdiction.
"(2) Any franchise shall be construed to authorize the construc-
tion of a cable system over public rights-of-way, and through ease-
ments, which is within the area to be served by the cable system and
which have been dedicated for compatible uses, except that in using
such easements the cable operator shall ensure— .
"(A) that the safety, functioning, and appearance of -the prop-
erty and the convenience and safety of other persons not be
adversely affected by the installation or construction of facili-
ties necessary for a cable system;
"(B) that the cost of the installation, construction, operation,
or removal of such facilities be borne by the cable operator or
subscriber, or a combination of both; and
"(C) that the owner of the property be justly compensated by
the cable operator for any damages caused by the installation,
construction, operation, or removal of such facilities by the
cable operator.
"(3) In awarding a franchise or franchises, a franchising authority
shall assure that access to cable service is not denied to any group of
potential residential cable subscribers because of the income of the
residents of the local area in which such group resides.
"IbKl). Except to the extent provided in paragraph (2), a cable
operator may not provide cable service without a franchise.
"(2) Paragraph (1) shall not require any person lawfully providing
cable service without a franchise on July 1, 1984, to obtain a
franchise unless the franchising authority so requires.
"(c) Any cable system shall not be subject to regulation as a
common carrier or utility by .reason of providing any cable service.
"IdN l) . A State or .the Commission may require the filing of
informational tariffs for any intrastate communications service pro-
vided by a cable system, other than cable service, that would be
subject to regulation by the Commission or any State if offered by a
common carriersubject, in whole or in part, to title II of this Act.
Such informational tariffs shall specify the rates, terms, and condi-
tions for the provision of such service, including whether it is made
available to all subscribers generally, and shall take effect on the
date specified therein.
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Oct. 30 CABLE COMMUNICATIONS POLICY ACT
P.L. 98-549
Sec. 2
"(2) Nothing in this title shall be construed to affect the authority
of any State to regulate any cable operator to the extent that such
operator provides any communication service other than cable serv-
ice, whether offered on a common carrier or private contract basis.
"(3) For purposes of. this subsection, the term 'State' has the
meaning given it in section 3(v). 47 USC 153.
"(e) Nothing in this title shall be construed to affect the authority
of any State to license or otherwise regulate any facility or, combina-
tion of facilities which serves only subscribers in one• or more
multiple unit dwellings under common ownership, control, or man-
agement and which does not use any public right-of-way. .
"FRANCHISE REE9
"Stc. 622. (a) Subject to the limitation of subsection (b), any cable 47 USC 542.
operator may be required under the terms of any franchise to pay a
franchise fee.
"(b) For any twelve-month period, the franchise fees paid by a
cable operator with respect to any cable system shall not exceed 5
percent of such cable operator's gross revenues derived in such
period from the operation of the cable system. For purposes of this
section, the 12 -month period shall be the 12 -month period applicable
under the franchise for accounting purposes. Nothing in this subsec-
tion shall prohibit a franchising authority and a cable operator from
agreeing that franchise fees which lawfully could be collected for
any such 12 -month period shall be paid on a prepaid or deferred
basis; except that the sum of the fees paid during the term of the
franchise may not exceed the amount, including the time value of
money, which would have lawfully been collected if such fees had
been paid per annum.
"(c) A cable operator may pass through to subscribers the amount
of any increase in a franchise fee, unless the franchising authority
demonstrates that the rate structure specified in the franchise
reflects all costa of franchise fees and so notifies the cable operator
in writing.
"(d) In any court action under subsection (c), the franchising
authority shall demonstrate that the rate structure reflects all costs
of the franchise fees.
"(e) Any cable opei ator shall peas through to subscribers the
amount of any decrease in a franchise fee.
"(f) A cable operator may designate that portion of a subscriber's
bill attributable to the franchise fee as a separate item on the bill.
"(g) For the purposes of this section—
"(1) the term 'franchise fee' includesany tax, fee, or assess-
ment of any kind imposed by a franchising authority or other
governmental entity on a cable operator or cable subscriber, or
both, solely because of their status as such;
"(2) the term 'franchise fee' does not include—
"(A) any tax, fee, or assessment of general applicability
(including any such tax, fee, or assessment imposed on both
utilities and cable operators or their services but not includ-
ing a tax, fee, or assessment which is unduly discriminatory
against cable operators or cable subscribers);
"(B) in the case of any franchise in effect on the date of
the enactment of this title, payments which are required by
the franchise to be made by the cable operator during the
P.L. 98-549
Sec. 2
47 USC 543.
A10
LAWS OF 98th CONG.-2nd SESS. Oct. 30
term of such franchise for, or in support of the use of,
public, educational, or governmental access facilities;
"(C) in the case of any franchise granted after such date
of enactment, capital costs which are required by the fran-
chise -to be incurred by the cable operator for public, educa-
tional, or governmental access facilities;
"(D) requirements or charges incidental to the awarding
or enforcing of the franchise, including payments for bonds,
security funds, letters of credit, insurance, indemnification,
penalties, or liquidated damages; or
"(E) any fee imposed under title 17, United States Code.
"(hXl) Nothing in this Act shall be construed to limit any author-
ity of a franchising authority to impose a tax, fee, or other assess-
ment of any kind on any person (other than a cable operator) with
respect to cable service or other communications service provided by
such person over a cable system for which charges are assessed to
subscribers but not received by the cable operator.
"(2) For any 12 -month period, the fees paid by such person with
respect to any such cable service or other communications service
shall not exceed 5 percent of such person's gross revenues derived in
such period from the provision of such service over the cable system
"(i) Any Federal agency may not regulate the amount of the`'
franchise fees paid by a cable operator, or regulate the use of funds -
derived from such fees, except as provided in this section.
"REGULATION of RATES
"Sec. 623. (a) Any Federal agency or State may not regulate the
rates for the provision of cable service except to the extent provided
under this section. Any franchising authority may regulate the
rates for the provision of cable service, or any other communications
service provided over a cable system to cable subscribers, but only to
the extent provided under this section.
"(bX1) Within 180 days after the date of the enactment of this
title, the Commission shall prescribe and make effective regulations
which authorize a franchising authority to regulate rates for the
provision of basic cable service in circumstances in which a cable
system is not subject to effective competition. Such regulations may
apply to any franchise granted after the effective date of such
regulations. Such regulations shall not apply to any rate while such
rate is subject to the provisions of subsection (c).
"(2) For purposes of rate regulation under this subsection, such
regulations shall—
"(A) define the circumstances in which a cable system is not
subject to effective competition; and
"(B) establish standards for such rate regulation.
"(3) The Commission shall periodically review such regulations,
taking' into account developments in technology, and may amend
such regulations, consistent with paragraphs (1) and (2), to the
extent the Commission determines necessary.
"(c) In the case of any cable system for which a franchise has been
granted on or before the effective date of this title, until the end of
the 2 -year period beginning on such effective date, the franchising
authority may, to the extent provided in a franchise—
"(1) regulate the rates for the provision of basic cable service,
including multiple tiers of basic cable service;
1
A 11
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
P.L. 98-549
Sec. 2
"(2) require the provision of any service tier provided without
charge (disregarding any installation or rental charge for equip-
ment necessary for receipt of such tier); or
"(3) regulate rates for the initial installation or the rental of 1
set of the minimum equipment which is necessary for the
subscriber's receipt of basic cable service.
"(d) Any request for an increase in any rate regulated pursuant to
subsection (b) or (c) for which final action is not taken within 180
days after receipt of such request by the franchising authority shall
be deemed to be granted, unless the 180 -day period is extended by
mutual agreement of the cable operator and the franchising
authority.
"(eX 1) In addition to any other rate increase which is subject to
the approval of a franchising authority, any rate subject tb regula-
tion pursuant to this section may be increased after the effective
date of this title at the discretion of the cable operator by an amount
not to exceed 5 percent per year if the franchise (as in effect on the
effective date of this title) does not specify a fixed rate or rates for
basic cable service for a specified period or periods which would be
exceeded if such increase took effect.
"(2) Nothing in this section shall be construed to limit provisions
of a franchise which permits a cable operator to increase any rate at
the operator's discretion; however, the sg egate increases per year
allowed under paragraph (1) shall be reduced by the amount of any
increase taken such year under such franchise provisions.
"(f) Nothing in this title shall be construed as prohibiting any
Federal agency, State, or a franchising authority, from—
"(1) prohibiting discrimination among customers of basic
cable service, or
"(2) requiring and regulating the installation or rental of
equipment which facilitates the reception of basic cable service
by hearing impaired individuals.
"(g) Any State law in existence on the effective date of this title
which provides for any limitation or preemption of regulation by
any franchising authority (or the State or any political subdivision
or agency thereof) of rates for cable service shall remain in effect
during the 2 -year period beginning on such effective date, to the
extent such law provides for such limitation or preemption. As used
in this section, the term 'State' has the meaning given it in section
3(v). 47 USC 153.
"(h) Not later than 6 years after the date of the enactment of this Report
title, the Commission shall prepare and submit to the Congress a
report regarding rate regulation of cable services, including such
legislative recommendations as the Commission considers appropri-
ate. Such report and recommendations shall be based on a study of
such regulation which the Commission shall conduct regarding the
effect of competition in the marketplace.
"RIOGULATION Of BERV1CIII, FACILITIES, AND EQUIPMENT
"SEC. 624. (a) Any franchising authority may not regulate the 47 USC 544.
services, facilities, and equipment provided by a cable operator
except to the extent consistent with this title.
"(b) In the case of any franchise granted after the effective date of
this title, the franchising authority, to the extent related to the
establishment or operation of a cable system—
P.L. 98-549
Sec. 2
Al2
LAWS OF 98th CONG.-2nd SESS. Oct. 30
"(1) in its request for proposals for a franchise (including
requests for renewal proposals, subject to section 626), may
establish requirements for facilities and equipment, but may
not establish requirements for video programming or other
information services; and
"(2) subject to section 625, may enforce any requirements
contained within the franchise—
"(A) for facilities and equipment; and
"(B) for broad categories of video programming or other
services.
"(c) In the case of any franchise in effect on the effective date of
this title, the franchising authority may, subject to section 625,
enforce requirements contained within the franchise for the provi-
sion of services, facilities, and equipment, whether or not related to
the establishment or operation of a cable system.
"(dXl) Nothing in this title shall be construed as prohibiting a
franchising authority and a cable operator from specifying, in a
franchise or renewal thereof, that certain cable services shall not be
provided or shall be provided subject to conditions, if such cable
services are obscene or are otherwise unprotected by the Constitu-
tion of the United States.
"(2XA) In order to restrict the viewing of programming which is
obscene or indecent, upon the request of a subscriber, a cable
operator shall provide (by sale or lease) a device by which the
subscriber can prohibit viewing of a particular cable service during
periods selected by that subscriber.
Effective date. "(B) Subparagraph (A) shall take effect 180 days after the effective
date of this title.
"(e) The Commission may establish technical standards relating to
the facilities and equipment of cable systems which a franchising
authority may require in the franchise.
"(fl(l) Any Federal agency, State, or franchising authority may
not impose requirements regarding the provision or content of cable
services, except as expressly provided in this title.
"(2) Paragraph (1) shall not apply to—
"(A) any rule, regulation, or order issued under any Federal
law, as such rule, regulation, or order (i) was in effect on
September. 21, 1983, or (ii) may be amended after such date if
the rule, regulation, or order as amended is not inconsistent
with the express provisions of this title; and
"(B) _any rule, regulation, or order under title 17, United
States Code.
47 USC 545.
"MODIFICATION OR FRANCHISE OBLIGATIONS
, ''Sac. 625. (aXl) During the period a franchise is in effect, the cable
operator may obtain from the franchising authority modifications of
the requirements in such franchise—
'(A) in the case .of any such requirement for facilities or
equipment, including public, educational, or governmental
access facilities or equipment, if the cable operator demon-
strates that (i) it is commercially impracticable for the operator
to comply with such requirement, and (ii) the proposal by the
cable operator for modification of such requirement is appropri-
ate because of commercial impracticability; or
"(B) in the case of any such requirement for services, if the
cable operator demonstrates that the mix, quality, and level of
A-13
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
services required by the franchise at the time it was granted
will be maintained after such modification.
"(2) Any final -decision by a franchising authority under this
subsection shall be made in a public proceeding. Such decision shall
be made within 120 days after receipt of such request by the
franchising authority, unless such 120 day period is extended by
mutual agreement of the cable operator and thefranchising
authority.
"(bXI) Any cable operator whose request for modification under Courts, U.S.
subsection (a) has been denied by a final decision of a franchising
authority may obtain modification of such franchise requirements
pursuant to the provisions of section 635.
"(2) In the case of any proposed modification of a requirement for
facilities or equipment, the court shall grant such modification only
if the cable operator demonstrates to the court that—
"(A) it is commercially impracticable for the operator to
comply with such requirement; and
"(B) the terms of the modification requested are appropriate
because of commercial impracticability.
"(3) In the case of any proposed modification of a requirement for
services, the court shall grant such modification only if the cable
operator demonstrates to the court that the mix, quality,and level
of services required by the franchise at the time it was granted will
be maintained after such modification.
"(c) Notwithstanding subsections (a) and (b), a cable operator may,
upon 30 days' advance notice to the franchising authority, rear-
range, replace, or remove a particular cable service required by the
franchise if—
"(1) such service is no longer available to the operator; or
"(2) such service is available to the operator only upon the
payment of a royalty required under section 801(bX2) of title 17,
United States Code, which the cable operator can document—
"(A) is substantially in excess of the amount of _such
payment required on the date of the operator's offer. )to
provide such service, and
"(B) has not been specifically compensated for through a
rate increase or other adjustment.
"(d) Notwithstanding subsections (a) and (b), a cable operator may
take such actions to rearrange a particular service from one service
tier to another, or otherwise offer the service, if the rates for all of
the service tiers involved in such actions are not subject to regula-
tion under section 623.
"(e) A cable operator may not obtain modification under this
section of any requirement for services relating to public, educa-
tional, or governmental access.
"(1) For purposes of this section, the term 'commercially impracti-
cable' means, with respect to any requirement applicable to a cable
operator, that it is commercially impracticable for the operator to
comply with such requirement as a result of a change in conditions
which is beyond the control of the operator and the nonoccurrence
of which was a basic assumption on which the requirement was
based.
"RENEWAL
"Sec. 626. (a) During the 6 -month period which begins with .the 47USC 546.
36th month before the franchise expiration, the franchising author-
ity may on its own initiative, and shall at the request of the cable
P.L. 98-549
Sec. 2
P.L. 98-549
Sec. 2
A14
LAWS OF 98th CONG.-2nd SESS. Oct. 30
operator, commence proceedings which afford the public in the
franchise area appropriate notice and participation for the purpose
of—
"(1) identifying the future cable -related community needs
and interests; and
"(2) reviewing the performance of the cable operator under
the franchise during the then current franchise term.
"(bXl) Upon completion of a proceeding under subsection (a), a
cable operator seeking renewal of a franchise may; on its own
initiative or at the request of a franchising authority, submit a
proposal for renewal.
"(2) Subject to section 624, any such proposal shall contain such
material as the franchising authority may require, including propos-
als for an upgrade of the cable system.
"(3) The franchising authority may establish a date by which such
proposal shall be submitted.
"(cXl) Upon submittal by a cable operator of a proposal to the
franchising authority for the renewal of a franchise, the franchising
authority shall provide prompt public notice of such proposal and,
during the 4 -month period which begins on the completion, of any
proceedings under subsection (a),_ renew the -franchise or, issue a
preliminary assessment that the franchise should not be renewed
and, at the request of the operator or on its own initiative, com-
mence an administrative proceeding, after providing prompt public
notice of such proceeding, in accordance with paragraph (2) to
consider whether—
"(A) the cable operator has substantially complied with the
material terms of the existing franchise and with applicable
law;
"(B) the quality of the operator's service, including signal
quality, response to consumer complaints, and billing practices,
but without regard to the mix, quality, or level of cable services
or other services provided over the system, has been reasonable
in light of community needs;
"(C) the operator has the financial, legal, and technical ability
to provide the services, facilities, and equipment as set forth in
theoperator's proposal; and
"(D) the operator's proposal is reasonable to meet the future
cable -related community needs and interests, taking into ac-
count the coat of meeting such needs and interests.
"(2) In any proceeding under paragraph (1), the cable operator
shall be afforded adequate notice and the cable operator and the
franchise authority, or its designee, shall be afforded fair opportu-
nity for full participation, including the right to introduce evidence
(including evidence related to issues raised in the proceeding under
subsection (a)), to require the production of evidence, and to question
witnesses. A transcript shall be made of any such proceeding.
"(3) At the completion of a proceeding under this subsection, the
franchising authority shall issue a written decision granting or ,
denying the proposal for renewal based upon the record of such .
proceeding, and transmit a copy of such decision to the cable
operator. Such decision shall state the reasons therefor.
"(d) Any denial of a proposal for renewal shall be based on one or
more adverse findings made with respect to the factors described in
subparagraphs (A) through (D) of subsection (cK1), pursuant to the
record of the proceeding under subsection (c). A franchising author-
ity may not base a denial of renewal on a failure to substantially
F
)
I
r,
A-15
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
P.L. 98-549
Sec. 2
comply with the material terms of the franchise under subsection
(cX1XA) or on events considered under subsection (cX1XB) in any
case in which a violation of the franchise or the events considered
under subsection (cn1XB) occur after the effective date of this title
unless the franchising authority has provided the operator with
notice and the opportunity to cure, or in any case in which it is
documented that the franchising authority has waived its right to
object, or has effectively acquiesced.
"(eX1) Any cable operator whose proposal for renewal has been Courts, U.S.
denied by a final decision of a franchising authority made pursuant
to this section, or has been adversely affected by a failure of the
franchising authority to act in accordance with the procedural
requirements of this section, may appeal such final decision or
failure pursuant to the provisions of section 635.
"(2) The court shall grant appropriate relief if the court finds
that—
"(A) any action of the franchising authority is not in compli-
ance with the procedural requirements of this section; or
"(B) in the event of a final decision of the franchising author-
ity denying the renewal proposal, the operator has demon-
strated that the adverse finding of the franchising authority
with respect to each of the factors described in subparagraphs
(A) through (D) of subsection (cX1) on which the denial is based
is not supported by a preponderance of the evidence, based on
the record of the proceeding conducted under subsection (c).
"(f) Any decision of a franchising authority on a proposal for
renewal shall not be considered final unless all administrative
review by the State has occurred or the opportunity therefor has
lapsed
"(g) For purposes of this section, the term 'franchise expiration'
-means the date of the expiration of the term of the franchise, as
provided under the franchise, as it was in effect on the date of the
enactment of this title.
"(h) Notwithstanding the provisions of subsections (a) through (g)
of this section, a cable operator may submit a proposal for the
renewal of a franchise pursuant to this subsection at any time, and a
franchising authority may, after affording the public adequate
notice and opportunity for comment, grant or deny such proposal at
any time (including after proceedings pursuant to this section have
commenced). The provisions of subsections (a) through (g) of this
section shall not apply to a decision to grant or deny a proposal
under this subsection. The denial of a renewal pursuant to this
subsection shall not affect action on a renewal proposal that is
submitted in accordance with subsections (a) through (g).
"CONDITIONS OR SALE
"Sac. 627. (a) If a renewal of a franchise held by a cable operator is 47 USC 547
.
denied and the franchising authority acquires ownership of the
cable system or effects a transfer of ownership of the system to
another person, any such acquisition or transfer shall be—
"(1) at fair market value, determined on the basis of the cable
system valued as a going concern but with no value allocated to
the franchise itself, or
"(2) in the case of any franchise existing on the effective date
of this title, at a price determined in accordance with the
P.L. 98-549
Sec. 2
47 USC 551.
A16
LAWS OF 98th CONG.-2nd SESS. Oct. 30
franchise if such franchise contains provisions applicable to
such an acquisition or transfer.
"(b) If a franchise held by a cable operator is revoked for cause
and the . franchising authority acquires ownership of the cable
system or effects a transfer of ownership of the system to another
person, any such acquisition or transfer shall be—
"(1) at an equitable price, or
"(2) in the case of any franchise existing on the effective date
of this title, at a price determined in accordance with the
franchise if such franchise contains provisions applicable to
such an acquisition or transfer.
"PART IV—MIaczu.ANROUs PROVISIONS
"PROTECTION OF SUBSCRIBER PRIVACY
"Sac. 631. (aX1) At the time of entering into an agreement to
provide any cable service or other service to a subscriber and at
least once a year thereafter, a cable operator shall provide notice in
the form of a separate, written statement to such subscriber which
clearly and conspicuously informs the subscriber of—
"(A) the nature of personally identifiable information collect -
,ed or to be Collected with respect to the subscriber and the
nature of the use of such information;
"(B) the nature, frequency, and purpose of any disclosure
which may be made of such information, including an identifi-
cation of the types of persons to whom the disclosure may be
made;
"(C) the period during which such information will be main-
tained by the cable operator,
"(D) the times and place at which the subscriber may have
access to such information in accordance with subsection (d);
and
"(E) the limitations provided by this section with respect to
the collection and disclosure of information by a cable operator
and the right of the subscriber under subsections (f) and (h) to
enforce such limitations.
In the case of subscribers who have entered into such an agreement
before the effective date of this section, such notice shall be provided
within 180 days of such date and at least once a year thereafter.
"(2) For purposes of this section, the term 'personally identifiable
information' does not include any record of aggregate data which
does not identify particular persons.
"(bXl) Except as provided in paragraph (2), a cable operator shall
not use the cable system to collect personally identifiable informa-
tion concerning any subscriber without the prior written or elec-
tronic consent of the subscriber concerned.
"(2) A cable operator may use the cable system to collect such
information in -order to—
"(A) obtain information necessary to render a cable service or
other service provided by the cable operator -to the subscriber;
or
"(8) detect unauthorized reception of cable communications.
"(cX1) Except as provided in paragraph (2), a cable operator shall
not disclose personally identifiable information concerning any sub-
scriber without the prior written or electronic consent of the sub-
scriber concerned.
A17
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
"(2) A cable operator may disclose such information if the disclo-
sure is—
"(A) necessary to render, or conduct a legitimate business
activity related to, a cable service or other service provided by
the cable operator to the subscriber;
"(B) subject to subsection (h), made pursuant to a court order
authorizing such disclosure, if the subscriber is notified of such
order by the person to whom the order is directed; or
"(C) a disclosure of the names and addresses of subscribers to
any cable service or other service, if—
"(i) the cable operator has provided the subscriber the
opportunity to prohibit or limit such disclosure, and
"(ii) the disclosure does not reveal, directly or indirectly,
the—
"(I) extent of any viewing or other use by the sub-
scriber of a cable service or other service provided by
the cable operator, or
"(II) the nature of any transaction made by the
subscriber over the cable system of the cable operator.
"(d) A cable subscriber shall be provided access to all personally
identifiable information regarding that subscriber which is collected
and maintained by a cable operator. Such information shall be made
available to the subscriber at reasonable tions and at a convenient
place designated by such cable operator. A cable subscriber shall be
provided reasonable opportunity to correct any error in such
information.
"(e) A cable operator shall destroy personally identifiable informa-
tion if the information is no longer necessary for the purpose for
which it was collected and there are no pending requests or orders
for access to such information under subsection (d) or pursuant to a
court order.
"(f)(1) Any person aggrieved by any act of a cable operator in Courts. U.S.
violation of this section may bring a civil action in a United States
district court.
"(2) The court may award—
"(A) actual damages but not less than liquidated damages
computed at the rate of $100 a day for each day of violation or
$1,000, whichever is higher;
"(B) punitive damages; and
"(C) reasonable attorneys' fees and other litigation costs rea-
sonably incurred.
"(3) The remedy provided by this section shall be in addition to
any other lawful remedy available to a cable subscriber.
"(g) Nothing in this title shall be construed to prohibit any State
or any franchising authority from enacting or enforcing laws con-
sistent with this section for the protection, of subscriber privacy.
"(h) A governmental entity may obtain personally identifiable
information concerning a cable subscriber pursuant to a court order
only if, in the court proceeding relevant to such court order—
"(1) such entity offers clear and convincing evidence that the
subject of the information is reasonably suspected of engaging
in criminal activity and that the information sought would be
material evidence in the case; and
"(2) the subject of the information is afforded the opportunity
to appear and contest such entity's claim.
P.L.` 98-549
Sec. 2
P.L. 98-549
Sec. 2
47 USC 552.
47 USC 553.
Crimes and
misdemeanors.
Courts. U.S.
A18
LAWS OF 98th CONG.-2nd SESS.
"CONSUMER PROTECTION
Oct. 30
"Sec. 632. (a) A franchising authority may require, as part of a
franchise (including a franchise renewal, subject to section 6261,
provisions for enforcement of—
"(1) customer service requirements of the cable operator; and
"(2) construction schedules and other construction -related re-
quirements of the cable operator.
"(b) A franchising authority may enforce any provision, contained
in any franchise, relating to requirements described in paragraph (1)
or (21 of subsection (a), to the extent not inconsistent with this title.
"(c) Nothing in this title shall be construed to prohibit any State
or any franchising authority from enacting or enforcing any con-
sumer protection law, to the extent not inconsistent with this title.
"UNAUTHORIZED RECEPTION OF CABLE SERVICE
"Sec. 633. (axl) No person shall intercept or receive or assist in
intercepting or receiving any communications service offered over a
cable system, unless specifically authorized to do so by a cable
operator or as may otherwise be specifically authorized by law.
"(2) For the purpose of this section, the term 'assist in intercepting
or receiving' shall include the manufacture or distribution of equip-
ment intended by the manufacturer or distributor (as the case may
be) for unauthorized reception of any communications service of-
fered over a cable system in violation of subparagraph (1).
"(bXl) Any person who willfully violates subsection (a)(1) shall be
fined not more than $1,000 or imprisoned for not more than 6
months, or both.
"(2) Any person who violates subsection (aX1) willfully and for
purposes of commercial advantage or private financial gain shall be
fined not more than $25,000 or imprisoned for not more than 1 year,
or both, for the first such offense and shall be fined not more than
$50,000 or imprisoned for not more than 2 years, or both, for any
subsequent offense.
"(cxl) Any person aggrieved by any violation of subsection (awl)
may bring a civil action in a United States district court or in any
other court of competent jurisdiction.
"(2) The court may—
"(A) grant temporary and final injunctions on such terms as it
may deem reasonable to prevent or restrain violations of subsec-
tion (a)(1);
"(B) award damages as described in paragraph (3); and
"(C) direct the recovery of full costs, including awarding
reasonable attorneys' fees to an aggrieved party who prevails.
"(3)(A) Damages awarded by any court under this section shall be
computed in accordance with either of the following clauses:
"(i) the party aggrieved may recover the actual damages
suffered by him as a result of the violation and any profits of
the violator that are attributable to the violation which are not
taken into account in computing the actual damages; in deter-
mining the violator's profits, the party aggrieved .shall be re- '
quired to prove only the violator's gross revenue, and the
violator shall be required to prove his deductible expenses and
the elements of profit attributable to factors other than the
violation; or
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Oct. 30 CABLE COMMUNICATIONS POLICY ACT
P.L. 98-549
Sec. 2
"(ii) the party aggrieved may recover an award of statutory
damages for all violations involved in the action, in a sum of not
less than $250 or more than $10,000 as the court considers just.
"(B) In any case in which the court finds that the violation was
committed willfully and for purposes of commercial advantage or
private financial gain, the court in its discretion may increase the
award of damages, whether actual or statutory under subparagraph
(A), by an amount of not more than $50,000.
"(C) In any case where the court finds that the violator was not
aware and had no reason to believe that his acts constituted a
violation of this section, the court in its discretion may reduce the
award of damages to a sum of not less than $100.
"(D) Nothing in this title shall prevent any State or franchising
authority from enacting or enforcing laws, consistent with this
section, regarding the unauthorized interception or reception of any
cable service or other communications service.
"EQUAL EMPLOYMENT OPPORTUNITY
"Sec. 634. (a) This section shall apply to any corporation, partner- 47 use 554.
ship, association, joint-stock company, or trust engaged primarily in
the management or operation of any cable system.
"(b) Equal opportunity in employment shall be afforded by each
entity specified in subsection (a), and no person shall be discrimi-
nated against in employment by such entity because of race, color,
religion, national origin, age, or sex. .
"(c) Any entity specified in subsection (a) shall establish, main-
tain, and execute a positive continuing program of specific practices
designed to ensure equal opportunity in every aspect of its employ-
ment policies and practices. Under the terms of its program, each
such entity shall—
"(1) define the responsibility of each level of management to
ensure a positive application and vigorous enforcement of its
policy of equal opportunity, and establish a procedure to review
and control managerial and supervisory performance;
"(2) inform its employees and recognized employee organiza-
tions of the equal employment opportunity policy and program
and enlist their cooperation;
"(3) communicate its equal employment opportunity policy
and program and its employment needs to sources of qualified
applicants without regard to race, color, religion, national
origin, age, or sex, and solicit their recruitment assistance on a
continuing basis;
"(4) conduct a continuing program to exclude every form of
prejudice or discrimination based on race, color, religion,
national origin, age, or sex, from its personnel policies and
practices and working conditions; and
"(5) conduct a continuing review of job structure and employ-
ment practices and adopt positive recruitment, training, job
design, and other measures needed to ensure genuine equality
of opportunity to participate fully in all its organizational units,
occupations, and levels of responsibility.
"(d)(l) Not later than 270 days after the effective date of this Regulations
section, and after notice and opportunity for hearing, the Commis-
sion shall prescribe rules to carry out this section.
"(2) Such rules shall specify the terms under which an entity Minorities
specified in subsection (a) shall, to the extent possible— Women
P.L. 98-549
Sec. 2
Report.
Public
availability.
investigations.
A-20
LAWS OF 98th CONG.-2nd SESS. Oct. 30
"(A) disseminate its equal opportunity program to job appli-
cants, employees, and those with whom it regularly does
business;
"(B) use minority organizations, organizations for women,
media, educational institutions, and other potential sources of
minority and female applicants, to supply referrals whenever
jobs are available in its operation;
"(C) evaluate its employment profile and job turnover against
the availability of minorities and women in its franchise area;
"(D) undertake to offer promotions of minorities and women
to positions of greater responsibility;
"(E) encourage minority and female entrepreneurs to conduct
business with all parts of its operation; and
"(F) analyze the results of its efforts to recruit. hire, promote,
and use the services of minorities and women and explain any
difficulties encountered in implementing its equal employment
opportunity program.
"(3) Such rules also shall require an entity specified in subsection
(a) with more than 5 full-time employees to file with the Commission
an annual statistical report identifying by race and sex the number
of employees in each of the following full-time and part-time job
categories:
"(A) officials and managers;
"(B) professionals;
"(C) technicians;
"(D) sales persons;
"(E) office and clerical personnel;
"(F) skilled craft persons;
"(G) semiskilled operatives;
"(H) unskilled laborers; and
"(I) service workers.
The report shall include the number of minorities and women in the
relevant labor market for each of the above categories. The statisti-
cal report shall be available to the public at the central office and at
every location where more than 5 full-time employees are regularly
assigned to work.
"(4) The Commission may amend such rules from time to time to
the extent necessary to carry out the provisions of this section. Any
such amendment shall be made after notice and opportunity for
comment.
"(e)(1) On an annual basis, the Commission shall certify each
entity described in subsection (a) as in compliance with this section
if, on the basis of information in the possession of the Commission.
including the report filed pursuant to subsection (dX3), such entity
was in compliance, during the annual period involved, with the
requirements of subsections (b), (c), and (d).
"(2) The Commission shall, periodically but not less frequently
than every five years, investigate the employment practices of each
entity described in subsection (a), in the aggregate, as well as in
individual job categories, and determine whether such entity is in
compliance with the requirements of subsections (b), (c), and (d).
including whether such entity's employment practices deny or
abridge women and minorities equal employment opportunities. As
part of such investigation, the Commission shall review whether the
entity's reports filed pursuant to subsection (d)(3) accurately reflect
employee responsibilities in the reported job classifications.
A21
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
"(f(l) If the Commission finds after notice and hearing that the
entity involved has willfully or repeatedly without good cause failed
to comply with the requirements of this section, such failure shall
constitute a substantial failure to comply with this title. The failure
to obtain certification under subsection (e) shall not itself constitute
the basis for a determination of substantial failure to comply with
this title. For purposes of this paragraph, the term 'repeatedly',
when used with respect to failures to comply, refers to 3 or more
failures during any .7 -year period.
"(2). Any person who is determined by the Commission, through an
investigation pursuant to subsection (e) or otherwise, to have failed
to meet or failed to make best efforts to meet the requirements of
this section, or rules under this section, shall be liable to the United
States for a forfeiture penalty of $200 for each violation. Each day of
a continuing violation shall constitute a separate offense. Any entity
defined in subsection (a) shall not be liable for more than 180 days of
forfeitures which accrued prior to notification by the Commission of
a potential violation. Nothing in this paragraph shall limit the
forfeiture imposed on any person as a result of any violation that
continues subsequent to such notification. In addition, any person
liable for such penalty may also have any license under this Act for
cable auxiliary relay service suspended until the Commission deter-
mines that the failure involved has been corrected. Whoever know-
ingly makes any false statement or submits documentation which he
knows to be false, pursuant to an application for certification under
this section shall be in violation of this section.
"(3) The provisions of paragraphs (3) and (4), and the last 2
sentences of paragraph (2), of section 503(b) shall apply to forfeitures
under this subsection.
"(4) The Commission shall provide for notice to the public and
appropriate franchising authorities of any penalty imposed under
this section.
"(g) Employees or applicants for employment who believe they
have been discriminated against in violation of the requirements of
this section, or rules under this section, or any other interested
person, may file a complaint with the Commission. A complaint by
any such person shall be in writing, and shall be signed and sworn
to by that person. The regulations under subsection (dXl) shall
specify a program, under authorities otherwise available to the
Commission, for the investigation of complaints and violations, and
for the enforcement of this section.
"(hXl) For purposes of this section, the term 'cable operator'
includes any operator of any satellite master antenna television
system, including a system described in section 602(6XA).
"(2) Such term does not include any operator of a system which, in
the aggregate, serves fewer than 50 subscribers.
"(3) Inany case in which a cable operator is the owner of a
multiple unitdwelling, the requirements of this section shall only
apply to such cable operator with respect to its employees who are
primarily engaged in cable telecommunications.
"(iX1) Nothing in this section shall affect the authority of any •
State or any franchising authority—
"(A) to establish or enforce any requirement which is consist-
ent with the requirements of this section, including any require-
ment which affords equal employment opportunity protection
for employees;
P.L. 98-549
Sec. 2
P.L. 98-549
Sec. 2
A-22
LAWS OF 98th CONG.-2nd SESS. Oct. 30
"(B) to establish or enforce any provision requiring or encour-
aging any cable operator to conduct business with enterprises
which are owned or controlled by members of minority groups
(as defined in section 309(iX3KCKii)) or which have their princi-
pal operations located within the community served by the
cable operator; or
"(C) to enforce any requirement of a franchise in effect on the
effective date of this title.
"(2) The remedies and enforcement provisions of this section are
in addition to, and not in lieu of, those available under this or any
other law.
"(3) The provisions of this section shall apply to any cable opera-
tor, whether operating pursuant to a franchise granted before, on, or
after the date of the enactment of this section.
"JUDICIAL PROCEEDINGS
courts, U.S. "SEc. 635. (a) Any cable operator adversely affected by any final
47 USC 555. determination made by a franchising authority under section 625 or
626 may commence an action within 120 days after receiving notice
of such determination, which may be brought in—
"(1) the district court of the United States for any judicial
district in which the cable system is located; or
"(2) in any State court of general jurisdiction having jurisdic-
tion over the parties.
"(b) The court may award any appropriate relief consistent with
the provisions of the relevant section described in subsection (a).
"COORDINATION OF FEDERAL, STATE, AND LOCAL AUTHORITY
47 USC 556. "SEC. 636. (a) Nothing in this title shall be construed to affect any
authority of any State, political subdivision, or agency thereof, or
franchising authority, regarding matters of public health, safety,
and welfare, to the extent consistent with the express provisions of
this title.
"(b) Nothing in this title shall be construed to restrict a State from
exercising jurisdiction with regard to cable services consistent with
this title.
"(c) Except as provided in section 637, any provision of law of any
State, political subdivision, or agency thereof, or franchising author-
ity, or any provision of any franchise granted by such authority,
which is inconsistent with this Act shall be deemed to be preempted
and superseded.
"(d) For purposes of this section, the term 'State' has the meaning
47 USC 153. given such term in section 3(v).
"EXISTING FRANCHISES
47 USC 557. "SEc. 637. (a) The provisions of—
"(1) any franchise in effect on the effective date of this title,
including any such provisions which relate to the designation,
use, or support for the use of channel capacity for public,
educational, or governmental use, and
"(2) any law of any State (as defined in section 3(v)) in effect
on the date of the enactment of this section, or any regulation
promulgated pursuant to such law. which relates to such desig-
nation, use or support of'such channel capacity,
r
A-23
Oct. 30 CABLE COMMUNICATIONS POLICY ACT
shall remain in effect, subject to the express provisions of this title,
and for not longer than the then current remaining term of the
franchise as such franchise existed on such effective date.
"(b) For purposes of subsection (a) and other provisions of this
title, a franchise shall be considered in effect on the effective date of
this title if such franchise was granted on or before such effective
date.
P.L. 98-549
Sec. 4
"CRIMINAL AND CIVIL LIABILITY
"Sec. 638. Nothing in this title shall be deemed to affect the 47 USC 558.
criminal or civil liability of cable programmers or cable operators
pursuant to the Federal, State, or local law of libel, slander, obscen-
ity, incitement, invasions of privacy, false or misleading advertising.
or other similar laws, except that cable operators shall not incur any
such liability for any program carried on any channel designated for
public, educational, governmental use or on any other channel
obtained under section 612 or under similar arrangements.
"OBSCENE PROGRAMMING
"Sec. 639. Whoever transmits over any cable system any matter 47 USC 559.
which is obscene or otherwise unprotected by the Constitution of the
United States shall be fined not more than $10,000 or imprisoned
not more than 2 years, or both.".
JURISDICTION
SEc. 3. (aX1) Section 2(a) of the Communications Act of 1934 is 47 USC 152.
amended by adding at the end thereof the following: "The provisions
of this Act shall apply with respect to cable service, to all persons
engaged within the United States in providing such service, and to
the facilities of cable operators which relate to such service, as
provided in title VI.".
(2) Section 2(b) of such Act is amended by inserting after Ante. p. 2780.
"section 301" the following: "and title VI". t7 USC 521 note.
(b) The provisions of this Act and amendments made by this Act
shall not be construed to affect any jurisdiction the Federal Commu-
nications Commission may have under the Communications Act of 47 USC 609.
1934 with respect to any communication by wire or radio (other than
cable service, as defined in section 602(5) of such Act) which is
provided through a cable system, or persons or facilities engaged in
such communications.
POLE ATTACHMENTS
Sac. 4. Section 224(c) of the Communications Act of 1934 is 47 USC 224.
amended by adding at the end thereof the following new paragraph:
"(3) For purposes of this subsection, a State shall not be considered
to regulate the rates, terms, and conditions for pole attachments—
"(A) unless the State has issued and made effective rules and
regulations implementing the State's regulatory authority over
pole attachments; and
''(B) with respect to any individual matter, unless the State
takes final action on a complaint regarding such matter—
"(i) within 180 days after the complaint is filed with the
State, or
"lii) within the applicable period prescribed for such final
action in such rules and regulations of the State, if the
P.L. 98-549
Sec. 4
A-24
LAWS OF 98th CONG.-2nd SESS. - Oct. 30
prescribed period does not extend beyond360 days after the
filing of such complaint.".
UNAUTHORIZED RECEPTION OF CERTAIN COMMUNICATIONS
47 USC 605. SEC. 5. (a) Section 705 of the Communications Act of 1934 (as
redesignated by section 6) is amended by inserting "(a)" after the
section designation and by adding at the end thereof the following
new subsections:
"(b) The provisions of subsection (a) shall not apply to the_ inter-
ception or receipt by any individual, or the assisting (including the
manufacture or sale) of such interception or receipt, of any satellite
cable programming for private viewing if-
- "(1) the programming involved is not encrypted; and
"(2XA) a marketing system is not established under which—
"(i) an agent or agents have been lawfully designated for
the purpose of authorizing private viewing by individuals,
and
"(ii) such authorization is available to the individual
involved from the appropriate agent or agents; or
"(B) a marketing system described in subparagraph (A) is
established and the individuals receiving such programming
has obtained authorization for private viewing under that
system.
"(c) For purposes of this section—
"(1) the term 'satellite cable programming' means video pro-
gramming which is transmitted via satellite and which is pri-
marily intended for the direct receipt by cable operators for
their retransmission to cable subscribers;
"(2) the term 'agent', with respect to any person, includes an
employee of such person;
"(3) the term 'encrypt', when used with respect to satellite
cable programming, means to transmit such programming in a
form whereby the aural and visual characteristics (or both) are
modified or altered for the purpose of preventing the unauthor-
ized receipt of such programming by persons without authorized
equipment which is designed to eliminate the effects of such
modification or alteration;
"(4) the term 'private viewing' means the viewing for private
• use in an individual's dwelling unit by means of equipment,
owned or operated by such individual, capable of receiving
satellite cable programming directly from a satellite; and
"(5) the term 'private financial gain' shallnot include the
gain resulting to any individual for the private use in such
individual's dwelling unit of any programming for which the
individual has not obtained authorization for that use.
Crimes and "(dX1) Any person who Willfully violates subsection (a) shall be
misdemeanors. fined not more than $1,000 or imprisoned for not more than 6
months, or both.
"(2) Any person who violates subsection (a) willfully and for
purposes of direct or indirect commercial advantage or private
financial gain shall be fined not more than $25,000 or imprisoned for
not more than 1 year, or both, for the first such conviction and shall
be fined not more than $50,000 or imprisoned for not more than 2
years, or both, for any subsequent conviction.
1
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Oct. 30 CABLE COMMUNICATIONS POLICY ACT
P.L. 98-549
Sec. 5
"(3XA) Any person aggrieved by any violation of subsection (a) Courts, U.S.
may bring a civil action in a United States district court or in any
other court of competent jurisdiction.
"(B) The court may—
"(i) grant temporary and final injunctions on such terms as it
may deem reasonable to prevent or restrain violations of subsec-
tion (a);
"(u) award damages as described in subparagraph (C); and
"(iii) direct the recovery of full costs, including awarding
reasonable attorneys' fees to an aggrieved party who prevails.
"(CXi) Damages awarded by any court under this section shall be
computed, at the election of the aggrieved party, in accordance with
either of the following subclauses;
"(I) the party aggrieved may recover the actual damages
suffered by him as a result of the violation and any profits of
the. violator that are attributable to the violation which are not
taken into account in computing the actual damages; in deter-
mining the violator's profits, the party aggrieved shall be re-
quired to prove only the violator's gross revenue, and the
violator shall be required to prove his deductible expenses and
the elements of profit attributable to factors other than the
violation; or
"(II) the party aggrieved may recover an award of statutory
damages for each violation involved in the action in a sum of
not less than 8250 or more than $10,000, as the court considers
just.
"(u) In any case in which the court finds that the violation was
committed wilfully and for purposes of direct or indirect commer-
cial advantage or private financial gain, the court in its discretion
may increase the award of damages, whether actual or statutory, by
an amount of not more than $50,000.
"(iii) In any case where the court finds that the violator was not
aware and had no reason to believe that his acts constituted a
violation of this section, the court in its discretion may reduce the
award of damages to a sum of not less than 8100.
"(4) The importation, manufacture, sale, or distribution of equip-
ment by any person with the intent of its use to assist in any activity
prohibited by subsection (a) shall be subject to penalties and reme-
dies under this subsection to the same extent and in the same
manner as a person who has engaged in such prohibited activity.
"(5) The penalties under this subsection shall be in addition to
those prescribed under any other provision of this title.
"(6) Nothing in this subsection shall prevent any State, or political
subdivision thereof, from enacting or enforcing any laws with re-
spect to the importation, sale, manufacture, or distribution of equip-
ment by any person with the intent of its use to assist in the
interception or .receipt of radio communications prohibited by sub-
section (a).
"(e) Nothing in this section shall affect any right, obligation, or
liability under title 17, United States Code, any rule, regulation, or •
order thereunder, or any other applicable Federal, State, or local
law.".
(b) The amendments made by subsection (a) shall take effect on Effective date.
the effective date of this Act. 47 USC 605 note
P.L. 98-549
Sec. '6
47 USC 601-610.
47 USC 309.
A-26
LAWS OF 98th CONG.-2nd SESS. Oct. 30
TECHNICAL AND.CONFORMING AMENDMENTS
SEc. 6. (a) Title VI of the Communications Act of 1934 (as in effect
before the enactment of this Act) is redesignated as title VII, and
sections 601 through 610 are redesignated as sections 701 through
710, respectively.
(bX1) Section 309(h) of the Communications Act of 1934 is
amended by striking out "section 606" and inserting in lieu thereof
"section 706".
(2) Section 2511 of title 18, United States Code, is amended—
(A) in subsection (2Xe), by striking out "section 605 or 606"
and inserting in lieu thereof "section 705 or 706"; and
(B) in subsection (2Xf), by striking out "section 605" and
inserting in lieu thereof "section 705".
(3) Section 105(f)(2XC) of the Foreign Intelligence Surveillance Act
of 1978 (50 U.S.C. 1)305(fX2XC)) is amended by striking out "section
605" and inserting in lieu thereof "section 705".
SUPPORT OF ACTIVITIES OF THE UNITED STATES TELECOMMUNICATIONS
TRAINING INBrrTUTE
SEC. 7. Nothing in this Act, the Communications Act of 1934, or
any other Act, shall be construed to preclude the Federal. Communi-
cations Commission or the National Telecommunications and Infor-
mation Administration within the Department of Commerce from
participation (including use of staff and other appropriate re-
sources) in support of any activities of the United States Telecom-
munications Training Institute.
TELECOMMUNICATIONS POLICY STUDY COMMISSION
Sec. 8. Title VII of the Communications Act of 1934 (as redesig-
nated by section 6 of this Act) is amended by adding at the end
thereof the following new section:
"TSLEC0141MUNICATIONS POLICY STUDY COMMISSION
Establishment. "Sec. 711. (a) There is hereby established the Telecommunications
47 USC 611. Policy Study Commission (hereinafter in this section referred to as
the 'Commission') which shall—
"(1) compare various domestic telecommunications policies of
the United States and other nations, including the impact of all
such policies on the regulation of interstate and foreign com-
merce, and
Report. "(2) prepare and transmit a written report thereon to the
Congress, the President, and the Federal Communications
Commission.
"(bX1) Such Commission shall be composed of the chairmanand
ranking minority members of the Committee on Commerce, Science,
and Transportation and the Communications Subcommittee of the
Senate and the Committee on Energy and Commerce and the Tele-
communications, Consumer Protection and Finance Subcommittee
of the House of Representatives (or delegates of such chairmen or
members appointed by them from among members of such
committees).
"(2) The chairmen of such committees (or their delegates) shall be
co-chairmen of the Commission.
1
1
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Oct. 30 CABLE COMMUNICATIONS POLICY ACT
P.L. 98-549
Sec. 8
"(cXl) The report under subsection (aX2) shall be submitted not
later than December 1, 1987. Such report shall contain the results of
all Commission studies and investigations under this section.
"(2) The Commission shall cease to exist—
"(A) on December 1, 1987, if the report is not submitted in
accordance with paragraph (1) on the date specified therein; or
"(B) on such date (but not later than May 1, 1988) as may be
determined by the Commission, by order; if the report is submit-
ted in accordance with paragraph (1) on the date specified in
such paragraph.
"(dXl) The members of the Commission who are not officers or
employees of the United States, while attending conferences or
meetings of the Commission or while otherwise serving at the
request of the chairmen, shall be entitled to receive compensation at
a rate not in excess of the maximum rate of pay for grade GS -18, as
provided in the General Schedule under section 5332 of title 5 of the
United States Code, including traveltime, and while away from their
homes or regular places of business, they may be allowed travel
expenses, including per diem in lieu of subsistence as authorized by
law (5 U.S.C. 5703) for persons in the Government service employed
intermittently.
"(2) The Commission may appoint and fix the pay of such staff as
it deems necessary.
"(eX1) In conducting its activities, the Commission may enter into Contracts with
contracts to the extent it deems necessary to carry out its responsi- U.S.
bilities, including contracts with nongovernmental entities that are
competent to perform research or investigations in areas within the
Commission's responsibilities.
"(2) The Commission is authorized to hold public hearings, forums,
and other meetings to enable full public participation.
"(f) The heads of the departments, agencies, and instrumentalities
of the executive branch of the Federal Government shall cooperate
with the Commission in carrying out this section and shall furnish
to the Commission such information as the Commission deems
necessary to carry out this section, in accordance with otherwise
applicable law.
"(g) There are authorized to be appropriated such sums as may be Appropriation
appropriated to carry out this section for a period of three fiscal authorization.
years.
"(h) Activities authorized by this section may be carried out only
with funds and to the extent approved in appropriation Acts.
"(i) Nothing in this section shall be construed to affect any
proceedings by, or activities of, the Federal Communications Com-
mission, except that the Federal Communications Commission shall
consider submissions by the Commission submitted pursuant to
subsection (aX2).".
P.L. 98-549
Sec. 9
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LAWS OF 98th CONG.-2nd SESS.
EFFECTIVE DATE
Oct. 30
47 USC 521 note. SEC. 9. (a) Except where otherwise expressly provided, the provi-
sions of this Act and the amendments made thereby shall take effect
60 days after the date of enactment of this Act.
47 USC 543 note. (b) Nothing in section 623 or 624 of the Communications Act of
1934, as added by this Act, shall be construed to allow a franchising
authority, or a State or any political subdivision of a. State, to
require a cable operator to restore, retier, or reprice any cable
service which was lawfully eliminated, retiered, or repriced as of
September 26, 1984.
Approved October 30, 1984.
LEGISLATIVE HISTORY—S. 66 (H.R. 4103):
HOUSE REPORT No. 98-934 accompanying H.R. 4103 (Comm. on Energy and
Commerce).
SENATE REPORT No. 98-67 (Comm. on Commerce. Science. and Transportation).
CONGRESSIONAL RECORD:
Vol. 129 (1983): June 13, 14, considered and passed Senate.
Vol. 130 (1984): Oct. 1. H.R. 4103 considered and paned House; S. 66, amended,
passed in lieu.
Oct. 11, Senate concurred in House amendments with amendments; House
concurred in Senate amendments.
APPENDIX B
The FCC Rate Regulation Rules
B-1
[f85:51 576.5 Definitions. -
(ii) Basic cable service.' "For the purposes of regulating the rates
for the provision of basic cable service in circumstances in"which a cable system
is not subject to effective competition, basic'cable service is the tier of service
regularly provided to all eubscribers that includee'the public. educational and
governmental channels, if required by a franchising authority under Title VI of
the Commun ications Act, and the 'retransmission of any broadcast television sig-
nals in the following categories:
(1) For communities located outside all major and smaller televi-
sion markets (as defined in this section) :
(i) television broadcast stations within whose Grade B con-
tours the community of the community unit is located, in whole or in part;
(ii) television translator stations with 100 watts or higher
power serving the community of the community unit and for community units
that commence operations or expand channel capacity after March 30, 1972, non-
commercial educational translator stations with 5 watts or higher power serving
the community of the community unit;
(iii)' noncommercial educational television broadcast stations
within whose specified zone the community of the community unit is located, in
whole or in part;
(iv) commercial television broadcast stations that are signifi-
cantly viewed in the community of the community unit. See 576.54.
(2) For communities in smaller television markets (as defined in
this section):
(1) television broadcast stations within whose specified zone
the community of the community unit is located, in whole or in part;
(ii) noncommercial educational television broadcast stations
within whose Grade B contours the community of the community unit is located,
in whole or in part;
B-2
(iii) commercial television broadcast stations licensed to corn-
munities in other smaller television markets, within whose Grade B contours the
community of the community unit is located, in whole or in part;
(iv) television broadcast stations licensed to other communities
which are generally considered to be part of the same smaller television market
(example: Burlington, Vt.-Plattsburgh, N.Y., television market);
(v) television translator stations with 100 watts or higher
power serving the community of the community unit and, for community units
that commence operations or expand channel capacity after March 30, 1972, non-
commercial educational translator stations with 5 watts or higher power serving
the community of the community unit;
(vi) commercial television broadcast stations that are signifi-
cantly viewed in, the community of the community unit. See §76.54.
(3) For communities in major television markets (as defined in
this section) and in communities located both wholly or partially within both ma-
jor and smaller television markets:
(i) television broadcast stations within whose specified zone
the community of the community unit is located, in whole or in part;
(ii) noncommercial educational television broadcast stations
within whose Grade B contours the community of the community unit is located,
in whole or in part;
(iii) television translator stations with 100 watts or higher
power serving the community of the community unit and, for those community
units that commence operations or expand channel capacity after March 30, 1972,
noncommercial educational translator stations with 5 watts or higher power
serving the community of the community unit;
(iv) television broadcast stations licensed to other designated
communities of the same major television market (example: Cincinnati, Ohio -
Newport, Ky., television market);
(v) commercial television broadcast stations that are signifi-
cantly viewed in the community of the community unit. See §76.54.
(4) In the absence of at least three signals in one of the above
categories, any unaltered broadcast television signals.
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[185:331 §76.33 Standards for rate regulation. - (a) A franchising authority
may regulate the rates of a cable system granted a franchise after December 29,
1984, and any cable system after December 29, 1986, subject to the following
conditions:
(1) Only basic cable service as defined in §76.5(pp) may be
regulated.
(2) Only cable systems that are not subject to effective
competition may be rate regulated. A cable system will be determined to have
effective competition whenever at least three unduplicated signals serve the
cable community. Signals shall be counted if they place a Grade B contour (as
defined in §73.683 of our Rules) over any portion of the cable community, are
significantly viewed within the cable community (as defined by §76.54 of our
Rules) or are translator stations licensed to serve the cable community, provided
that the translators are not used to retransmit stations already providing Grade
B contour or significantly viewed signals within the cable community. The
Commission may grant exceptions to this standard where the franchising
authority demonstrates with engineering studies in accordance with §73.686 of
the Commission's Rules and other showings that such signals are not in fact
available within the community.
(3) A cable system once determined to be subject to effective
competition shall not be subject to regulation for one year after any change in
market conditions which would cause it to be determined not to be subject to
effective competition.
(4) A cable system may automatically pass through to the basic
service rate without franchising authority approval cost increases that are
readily identifiable and entirely attributable to the provision of basic service.
Rate increases of this type may be taken in addition to the automatic 5% annual
rate increase to which the cable system may be entitled under Title VI of the
Communications Act.
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(b) For franchises granted on or before December 29, 1984. a
franchising authority may, until December 29, 1986, to the extent provided in
the franchise agreement:
(1) Regulate the rates for the provision of basic cable service;
(2) Require the provision of any tier of service without charge
(disregarding any installation or rental charge for equipment necessary for
receipt of such tier); and
(3) Regulate the rates for the initial installation or the rental of
one set of the minimum equipment necessary to receive basic cable service.
(c) Any state or local law in existence on December 29, 1984,
which limits or preempts regulation of rates for cable service by any franchising
authority shall remain in effect until December, 1986, to the extent that it
provides for such limitation or preemption.
(d) In establishing any rate for the provision of basic cable
service by cable systems subject to paragraph (a) of this section, the
franchising authority shall: (1) give formal notice to the public; (2) provide an
opportunity for interested parties to make their views known, at least through
written submissions; and (3) make a formal statement (including summary
explanation) when a decision on a rate matter is made.
(e) Any party may petition the Commission for relief of the
provisions in this section in accordance with the provisions and procedures set
forth in 576.7 for petitions for special relief.
1 NOTE: Section added by order in Docket No. 84-1296,
effective April 28, 1985, 50 FR 18637. For. Report
see 58 RR 2d 1.
Subparagraph (a)(2) amended, subsection (e) added
by order in Docket No. 84-1296, effective July 14.
1986, 51 FR 21770. For Memorandum Opinion see 60
RR 2d 514.