[Federal Register Volume 60, Number 117 (Monday, June 19, 1995)]
[Rules and Regulations]
[Pages 31924-31927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14833]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 63
[CC Docket No. 87-266; FCC 95-203]
Cross-Ownership Rules
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission has voted to adopt the tentative conclusion
regarding the Commission's legal authority to grant waivers to
telephone companies allowing them to provide video programming directly
to subscribers in their telephone service areas. For ``good cause'' the
Commission may waive Section 613(b) of the Communications Act, the
cable-telco cross-ownership restriction, where a waiver is ``justified
by the particular circumstances.'' In response to the decisions of the
Fourth and Ninth Circuits which found Section 613(b) unconstitutional
on First Amendment grounds, the Commission concluded that under Section
613(b)(4), the waiver provision, it has the legal authority to grant
waivers to allow telephone companies to provide video programming in
their telephone service areas on video dialtone networks. The
Commission further concluded that waiving the restriction in that
manner is fully consistent with the language of the statute and Section
613(b)'s underlying policy, and obviates the constitutional infirmities
identified by the court of appeals. This order is intended to provide
guidance to the public regarding the Commission's legal authority to
grant waivers of the cable-telco cross-ownership rule to telephone
companies seeking to provide video programming directly to subscribers
in their telephone service areas.
EFFECTIVE DATE: June 19, 1995.
FOR FURTHER INFORMATION CONTACT:
Aliza Katz, Office of General Counsel, (202) 418-1720.
SUPPLEMENTARY INFORMATION: A summary of the Commission's Third Report
and Order (TR&O), adopted May 16, 1995 and released May 16, 1995, is
set forth below. The full text of this document is available for
inspection and copying during normal business hours in the
Administrative Law Division, Office of General Counsel (Room 616), 1919
M Street NW., Washington, DC. The full text may also be purchased from
the Commission's copy contractor, International Transcription Services,
Inc. (ITS), 2100 M Street NW., Suite 140, Washington, DC 20037.
Summary of Third Report and Order
Introduction. In this Third Report and Order, we adopt the
tentative conclusion set forth in the Fourth Further Notice of Proposed
Rulemaking (``Fourth FNPRM''), 60 FR 8996, February 16, 1995, in the
above captioned docket regarding the Commission's legal authority to
waive Section 613(b) of the Communications Act, 47 U.S.C. Sec. 533(b).
Section 613(b) generally prohibits telephone companies from providing
``video programming directly to subscribers in the[ir] telephone
service area.'' However, the statute expressly authorizes us to waive
the restriction for ``good cause.'' We conclude that Section 613(b)(4)
authorizes us to grant waivers to allow telephone companies to provide
video programming directly to subscribers in their telephone service
areas under certain conditions. In particular, in response to decisions
of the Fourth and Ninth Circuits, we conclude that under Section
613(b)(4) we have the legal authority to grant waivers allowing
telephone companies to provide video programming in their telephone
service areas on video dialtone networks. We adopt that construction of
the waiver provision because it is fully consistent with the language
of the statute and Section 613(b)'s underlying policy, and because
waiving the restriction in that manner obviates the constitutional
infirmities identified by the courts of appeals.
2. Background and Summary. Section 613(b), the ``cable-telco cross-
ownership rule,'' prohibits a telephone company from operating a cable
system where it has a monopoly on local telephone service. Although
Section 613(b) does not bar a telephone company from acting as a
conduit to carry video programming selected and provided by an
unaffiliated party, it does generally bar a telephone company from
selecting (or ``exerting editorial control over'') and providing the
video programming carried over its wires in its local service area. Two
counts of appeals, the Fourth and Ninth Circuits, have recently held
Section 613(b) unconstitutional because it prohibits telephone
companies from choosing the video programming to be provided in their
local exchange telephone service areas altogether. See US West, Inc. v.
United States, 48 F.3d 1092 (9th Cir. 1995) (US West); Chesapeake and
Potomac Tel. Co. v. United States, 42 F.3d 181 (4th Cir. 1994) (C&P).
In so holding, both courts referred to the Commission's 1992
recommendation to Congress is our video dialtone docket, a proposal
that the Ninth Circuit described in US West as a ``more speech-friendly
plan'' than the absolute ban contained in the statute. Under the
Commission's legislative recommendations, as described by the Fourth
Circuit in C&P, ``telephone companies' editorial control
[[Page 31925]] over video programming [would be limited] to a fixed
percentage of the channels available; the telephone companies would be
required to lease the balance of the channels on a common carrier basis
to various video programmers.'' In short, the courts of appeals have
held that a complete ban on editorial control over video programming in
a telephone company's service area ``burden[s] substantially more
speech than is necessary,'' especially since there appeared to be an
``obvious less-burdensome alternative[]''--allowing the telephone
company to provide some video programming in their telephone service
areas on a video dialtone system.
3. We now conclude, as we previously proposed in the Fourth NPRM,
that we have the authority to grant waivers to telephone companies
pursuant to Section 613(b)(4) allowing them to provide video
programming directly to subscribers in their telephone service areas
over video dialtone networks. Section 613(b)(4) provides that upon a
showing of ``good cause'' the Commission may waive the cable-telco
cross-ownership restriction where a waiver is ``justified by the
particular circumstances * * *, taking into account the policy''
underlying the cross-ownership restriction.
4. Construing the waiver provision to authorize telephone companies
to provide video programming over video dialtone networks avoids the
constitutional infirmity identified by the Fourth and Ninth Circuits by
making available the `` `obvious less-burdensome alternative' ''
referenced by those courts. Moreover, it is our duty to so construe the
statute. The Supreme Court has recently reiterated in United States v.
X-Citement Video, Inc., 115 S. Ct. 464, 467 (1964), that ``a statute is
to be construed where fairly possible so as to avoid substantial
constitutional questions.'' \1\
\1\ While the courts have identified video dialtone as a
possible means by which telephone companies could provide
programming in their service areas to remedy the constitutional
infirmities of Section 613(b), and while we agree with the
suggestion of these courts that waiving Section 613(b) as discussed
above will cure these constitutional infirmities, we will address
the terms and conditions under which telephone companies should be
permitted to provide video programming directly to subscribers in
their local service areas in a subsequent order addressing the other
issues raised in the Fourth FNPRM.
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5. In light of the ongoing litigation concerning the
constitutionality of Section 613(b), we have decided to adopt the
construction of Section 613(b)(4) that we proposed in the Fourth FNPRM
before answering the other questions presented in this rulemaking.
6. Discussion. In the Fourth FNPRM, we asked for comment on the
terms and conditions under which local telephone companies should be
permitted to provide video programming directly to subscribers in their
local service areas. For instance, we asked whether we should permit
them to do so over video dialtone systems. While we construe Section
613(b)(4), the waiver provision, as authorizing us to permit telephone
companies to act as programmers on video dialtone systems pursuant to
certain conditions, the remaining issues raised in the Fourth FNPRM
will be resolved in a further order in this proceeding.
7. Two statutory issues are presented in construing Section
613(b)(4): (1) whether ``good cause'' exists to waive the statutory
restriction to permit a telephone company that wants to provide
programming in its service area to do so over a video dialtone system,
and (2) whether ``the issuance of such waiver is justified by the
particular circumstances demonstrated by the petitioner, taking into
account the policy of this subsection,'' when a telephone company
requests waiver of Section 613(b) to provide video programming over a
video dialtone system.
8. As the D.C. Circuit recognized in its 1990 NCTA v. FCC decision,
``the policy [of Section 613(b)] is to promote competition.'' When the
Commission adopted its cable-telco cross-ownership rules in 1970, it
sought to prevent the telephone companies from using their monopoly
position to preempt the market for cable service by excluding others
from entry. Since 1970, however, the cable industry has grown from a
fledgling service to a more mature industry that now serves a majority
of households and Congress's interest in ensuring that the cable
industry not be extinguished before it is established is no longer
relevant. ``Good cause'' is a phrase that is commonly associated with
changed circumstances. The relevant circumstances have changed greatly
since the Commission adopted its cross-ownership rules in 1970 and
Congress ``modeled [Section 613(b)] after the FCC['s] rules'' in 1984.
9. We also conclude that significant advances in technology have
changed the circumstances relevant to determining whether telephone
companies should be permitted to provide video programming directly to
subscribers in their service areas. These developments have made it
possible for a multitude of programmers to reach end user customers and
have mitigated to a fair degree the competitive concerns that led the
Commission and Congress to adopt the cross-ownership ban. These
technological developments also support the conclusion that ``good
cause'' exists to authorize telephone companies to provide video
programming within their service areas where that will promote
competition in the multichannel video programming market.
10. We also conclude that the rules we will promulgate in the
immediate future to authorize telephone companies to provide video
programming in their service areas will constitute ``particular
circumstances * * *, taking into account the policy'' of Section
613(b). While we have not yet adopted definitive rules governing the
conditions under which telephone companies may be permitted to act as
video programmers over their video dialtone systems, the outline of two
of those requirements is clear. First, video dialtone necessarily
includes a common carriage element, and we have previously concluded
that a telephone company may not allocate all or substantially all of
its capacity to a single ``anchor programmer.'' Second, our current
video dialtone rules contain provisions intended to ensure that
telephone companies providing video programming directly to subscribers
do not discriminate in favor of their affiliated programmers and do not
subsidize video programming operations with rates collected from their
provision of monopoly telephone services. These restrictions are
intended to promote the underlying purpose of Section 613(b) by
fostering fair competition in the multi-channel video programming
market.\2\
\2\ It is possible that we will decide in the ongoing rulemaking
proceeding that telephone companies ought to be permitted to provide
traditional cable service, rather than participate as programmers on
video dialtone systems, under ``particular circumstances'' that will
promote competition in the multichannel video programming market.
11. Construing the waiver provision to authorize telephone
companies to provide video programming pursuant to our video dialtone
rules obviates the constitutional difficulties associated with Section
613(b). Specifically, the Fourth Circuit and Ninth Circuit have held
that the cable-telco cross-ownership restriction ``burden[s]
substantially more speech than is necessary'' to promote the
government's interest in promoting a competitive multi-channel video
programming market. Waiving Section 613(b), however, constitutes
implementation of the ``obvious less burdensome alternative'' to the
ban identified by the [[Page 31926]] Fourth Circuit.\3\ Or, to quote
the Ninth Circuit, it implements the ``more speech-friendly plan that
allows telephone companies ``to compete in the video programming
market'' while ``requiring that a portion of their transport volume be
set aside for sale to unaffiliated third parties on a common carrier
basis.'' As a result of our construction of the waiver provision,
telephone companies' free speech interests are not unduly burdened.
\3\ We recognize that the Fourth Circuit reserved judgment on
the constitutionality of our recommended model. C&P, 42 F.3d at 202
n.34. However, if that recommended approach does not render the
statute constitutional then, contrary to the court's holding it is
not `` `Kobvious less-burdensome alternative,' '' because it is no
alternative at all. Id. at 202.
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12. The fact that waiver of the cable-telco cross-ownership
restriction obviates the constitutional difficulties identified by the
courts of appeals supports our decision to construe our waiver
authority to permit telephone companies to provide video programming
over video dialtone systems. As the Supreme Court recently reiterated
in X-Citement Video, ``a statute is to be construed where fairly
possible so as to avoid constitutional questions,'' The Court also
articulated this principle in Jean v. Nelson, 472 U.S. 846 (1985), when
it found that ``[p]rior to reaching any constitutional questions
federal courts must consider nonconstitutional grounds for decision.''
13. Several commenters opposed our reading of the wavier provision.
Southwestern Bell argued that our proposal constitutes an evisceration
of the rule. That is not so. It would eviscerate the statute if we were
to waive Section 613(b) to allow telephone companies to provide video
programming directly to subscribers in their service areas over video
dialtone facilities and, as a general matter, to purchase cable systems
in their telephone service areas that do not face competition. But we
are not authorizing such waivers in this order. Instead, we conclude
only that Section 613(b)(4) authorizes us to waive the cable-telco
cross-ownership rule to permit a telephone company to provide video
programming over video dialtone systems in its telephone service area
in competition with existing cable operators, a result that furthers
the purpose of the rule.\4\
\4\ We do not decide today whether we could grant a waiver
authorizing a telephone company to build a traditional cable system
in its telephone service area in competition with an existing cable
system. Nor do we address the conditions under which a waiver might
be warranted to allow a telephone company to purchase an in-region
cable system.
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14. Both the United States Telephone Association and US West invoke
Secretary of State of Maryland v. Munson, 467 U.S. 947 (1984), to argue
that the statute cannot be saved by its waiver provision. But this case
is not at all similar to Munson. The Munson case involved a 25%
limitation on the percentage of funds a charitable organization could
keep, on the theory that a charity that used less than 75% of the funds
that it raised on charitable purposes was engaged in fraud. The Court
invalidated the state statute imposing the limitation upon concluding
that ``[t]he flaw in the statute is not simply that it includes within
its sweep some impermissible applications, but that in all its
applications it operates on the fundamentally mistaken premise that
high solicitation costs are an accurate measure of fraud.'' Moreover,
the Court concluded that the statute stifled speech and discriminated
against certain viewpoints, explaining that ``the statute will restrict
First Amendment activity that results in high costs but is itself a
part of the charity's goal or that is simply attributable to the fact
that the charity's cause proves to be unpopular.'' The Court went on to
hold that the statute was not saved by a provision allowing for waivers
of the limitation. The Court stated that ``[b]y placing discretion in
the hands of an official to grant or deny a license, such a statute
creates a threat of censorship that by its very existence chills free
speech.'' ``Particularly where the percentage limitation is so poorly
suited to accomplishing the State's goal,'' the Court added, ``and
where there are alternative means to serve the same purpose, there is
little justification for straining to salvage the statute by invoking
the possibility of official dispensation to engage in protected
activity.'' In this case, in contrast, permitting telephone companies
to provide video programming over a video dailtone system plainly
advances the goal of making programming for a variety of sources
available to the public--a goal that furthers rather than hinders First
Amendment interests. Unlike Munson, speech is not stifled and unpopular
viewpoints are not disadvantaged. Moreover, no discretion remotely
comparable to that in Munson would be lodged in any official to grant
or deny particular waivers under our approach. Rather, as part of any
decision under 47 U.S.C. Sec. 214 authorizing a telephone company to
construct facilities, we will routinely grant a waiver of Section
613(b) where the telephone company agrees to abide by the regulations
we will establish governing its provision of video programming.
Accordingly, there is no ``threat of censorship that by its very
existence chills free speech.''
15. In light of our duty to interpret Section 613(b) in a fashion
that renders the statute constitutional, there is no merit at all to
the suggestion by some commenters that the Commission's interpretation
of Section 613(b)(4) is barred by res judicata, collateral estoppel, or
some unnamed principle that allegedly prevents the Commission from
construing a statute that a court has held unconstitutional. In X-
Citement Video, the Supreme Court read the federal child pornography
statute in a manner that the Court acknowledged was not its ``most
natural grammatical reading'' in order to avoid a serious
constitutional issue after a court of appeals had held the statute
unconstitutional. In particular, the Court held that the statute
required the government to prove that the defendant in a child
pornography case knew that the material on which the prosecution was
based contained child pornography even though the statute did not
appear to contain such a scienter requirement. In this case, in
contrast, the language of the waiver provision is flexible, speaking of
``good cause'' and ``particular circumstances * * *, taking into
account the policy of this subsection.'' Unlike the Court in X-Citement
Video, we do not have to strain to construe the waiver provision so
that it renders the statute constitutional. Rather, as we have
explained, we believe that such an interpretation is fully consistent
with both the language of the waiver provision and the policy
underlying Section 613(b), and therefore is the best interpretation of
Section 613(b)(4). For those reasons, and in light of the fact that
such an interpretation also avoids a serious constitutional issue, we
now adopt our tentative conclusion that the waiver provision should be
interpreted to authorize us to consider and approve requests by
telephone companies to provide video programming over video dialtone
systems, subject to the rules we have enacted and any further rules we
will enact to govern video dialtone systems.
16. Finally, we also conclude that our reading of Section 613(b)(4)
is not foreclosed by the D.C. Circuit's 1990 decision in NCTA v. FCC,
914 F.2d 285 (D.C. Cir. 1990). That case did not involve video dialtone
service and presented no constitutional issue. It instead involved a
waiver of FCC cross-ownership rules authorizing a cable operator to
provide cable service over a [[Page 31927]] telephone companies' wires
even though the cable operator was affiliated with the telephone
company in violation of the rules by virtue of their joint interest in
the contractor that was to build the cable system. The court
acknowledged that the project ``presents a number of advantages that
might justify a good cause waiver.'' However, it held that the
Commission had ``failed * * * to explain why any of these advantages
require [the contractor's] participation as [the telephone companies']
contractor.'' In this case, in contrast, in light of the decisions
holding Section 613(b) unconstitutional, it is necessary to waive
Section 613(b) to allow affiliates of telephone companies to provide
video programming in order to render the statute constitutional. The
Ninth Circuit recognized that a waiver might be warranted in these
circumstances in GTE California, Inc. v. FCC, 39 F.3d 940 (1994), a
case that (unlike NCTA v. FCC) involved a constitutional challenge to
Section 613(b). The Ninth Circuit stated in that case, in response to
the argument that Section 613(b) is unconstitutional, that ``GTECA did
not present the constitutional issue to the Commission at a point in
this proceeding where it could have tried to obviate the constitutional
question by granting discretionary relief, such as a permanent
waiver.'' As that statement recognizes, a waiver is warranted to
implement what the Ninth Circuit in US West termed our ``more speech-
friendly plan'' and hence avoid a serious constitutional issue.
17. Conclusion. Accordingly, it is ordered that Section 613(b)(4)
of the Communications Act is interpreted to authorize waivers
permitting telephone companies to provide video programming directly to
subscribers in their telephone service area pursuant to the rules we
will adopt in this docket or related rulemaking proceedings.
List of Subjects in 47 CFR Part 63
Ownership rules, Telephone.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-14833 Filed 6-16-95; 8:45 am]
BILLING CODE 6712-01-M
