DIRECTV, Inc. v. F.C.C.

• Decision Date: 18 April 1997
• Docket Number: 96-1005,Nos. 96-1001,96-1010 and 96-1011,s. 96-1001
• Citation: 110 F.3d 816
• Parties: , 65 USLW 2711, 7 Communications Reg. (P&F) 758 DIRECTV, INC., et al., Petitioners/Appellants, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, MCI Telecommunications Corporation, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 816

110 F.3d 816

324 U.S.App.D.C. 72, 65 USLW 2711,

7 Communications Reg. (P&F) 758

DIRECTV, INC., et al., Petitioners/Appellants, v. FEDERAL COMMUNICATIONS COMMISSION and United States of

America, Respondents,

MCI Telecommunications Corporation, et al., Intervenors.

Nos. 96-1001, 96-1005, 96-1010 and 96-1011.

United States Court of Appeals,District of Columbia Circuit.

Argued Oct. 1, 1996.

Decided April 18, 1997.

On Petitions for Review and Notices of Appeal of Orders of the Federal Communications Commission.

Lawrence S. Robbins, Washington, DC, argued the cause, for petitioners/appellants EchoStar Satellite Corporation, et al. With him on the briefs were H. Thomas Byron, III, Charles G. Cole and Philip L. Malet. William L. Fishman entered an appearance.

Maureen E. Mahoney, Washington, DC, argued the cause, for petitioner DIRECTV, Inc., with whom James H. Barker, III, and Gary M. Epstein were on the briefs.

Daniel M. Armstrong, Associate General Counsel, Federal Communications Commission, argued the cause, for respondents/appellees, with whom William E. Kennard, General Counsel, Roberta L. Cook, Counsel, Stewart A. Block, Counsel, Anne K. Bingaman, Assistant Attorney General, U.S. Department of Justice, Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, were on the brief.

Bruce J. Ennis, Jr., Washington, DC, argued the cause, for intervenor MCI Telecommunications Corporation, with whom Anthony C. Epstein was on the brief.

Before: GINSBURG, SENTELLE, and RANDOLPH, Circuit Judges.

GINSBURG, Circuit Judge:

Before us are four consolidated petitions for review of the Federal Communications Commission's rules and regulations governing the distribution of Direct Broadcasting Satellite channels reclaimed from Advanced Communications Corporation. See Revision of Rules and Policies for the Direct Broadcast Satellite Service, Report and Order, 11 F.C.C.R. 9712 (1995) (DBS Order). Petitioners EchoStar Satellite Corporation, Directsat Corporation, and Direct Broadcasting Satellite Corporation (DBSC) challenge the Commission's decision to put up for competitive bidding certain DBS channels that the Commission reclaimed when it canceled a DBS permit held by Advanced Communications Corporation. The Commission had previously said that any reclaimed channels would be distributed pro rata among certain preexisting permittees, including the petitioners. The petitioners contend that the new auction rule is impermissibly retroactive, arbitrary and capricious, and without statutory authority. EchoStar, Directsat, and DIRECTV also contend that it is arbitrary and capricious for the FCC to require that the winning bidder at the auction divest itself of its existing DBS channels. DIRECTV also challenges as arbitrary and capricious the Commission's decision not to adopt a rule restricting the ability of cable system operators to participate in the auction. The Commission, in addition to opposing the petitioners' contentions on the merits, maintains that the petitioners lack standing to challenge the structural rules of the auction. MCI Telecommunications Corporation, a successful bidder at the auction, has intervened in support of the FCC.

We hold that the Commission's decision to adopt an auction rule was neither retroactive (let alone impermissibly retroactive), nor arbitrary and capricious, nor without statutory authority. In addition we hold that DIRECTV has standing to petition for review of the divestiture rule, but we deny its petition on the merits.

I. BACKGROUND

DBS is a radio communication service that uses satellites in geostationary orbits to transmit multiple channels of video programming directly to 18-inch satellite dishes located at the premises of subscribers. Pursuant to an agreement among the nations of the Western Hemisphere, the United States has been allocated eight orbital locations for domestic DBS transmission. These are located at 61.5? , 101? , 110? , 119? , 148? , 157? , 166? , and 175? Western Longitude. Each orbital position contains 32 channels, each of which, with current technology, is capable of simultaneously transmitting from five to seven video programs. See Revision of Rules and Policies for the Direct Broadcast Satellite Service, Notice of Proposed Rulemaking, 11 F.C.C.R. 1297 p 5 (1995) (NPRM). Only the 101? , 110? , and 119? W.L. orbital locations are capable of transmitting a "full-CONUS" signal, i.e., one that reaches the entire continental United States. The four U.S. orbital positions located at 148? , 157? , 166? , and 175? W.L. can be used to transmit to the western United States, and signals from the orbital position located at 61.5? W.L. reach the eastern United States. Signals from these orbital positions are called "half-CONUS" signals. At present an 18-inch DBS satellite dish is not capable of receiving transmissions from more than one orbital location.

There are now only a few DBS systems in operation. DIRECTV and USSB both offer full-CONUS service from their respective channels located on the satellite at 101? W.L. Because these two companies offer non-overlapping programming, they are complementary and not competitive services, and many customers subscribe to both of them. EchoStar and Directsat, subsidiaries of the same parent company, have combined their channels on the full-CONUS satellite at 119? W.L. and together transmit approximately 126 channels of video programming. DBSC is constructing a 32-transponder satellite from which it expects to begin full-CONUS service later this year. In addition, there are two companies that offer "DBS-like" programming. PrimeStar Partners, L.P., a joint venture of six cable companies and GE American Communications, broadcasts from satellites in the fixed satellite service, which requires that a subscriber use a 36-inch or 40-inch satellite dish. Although PrimeStar offers programming that is similar to that of the DIRECTV/USSB combine, it has less than half the channel capacity. AlphaStar, a Canadian firm, is reportedly scheduled to transmit, using FSS frequencies, roughly 90 channels of programming to U.S. subscribers with a 24-inch satellite dish.

Applications for DBS channels are considered mutually exclusive when the requests for channels exceeds the available supply. Although an applicant may request a specific channel assignment, "[t]he Commission ... generally consider[s] all frequencies and orbital positions to be of equal value, and conflicting requests for frequencies and orbital positions will not necessarily give rise to comparative hearing rights as long as unassigned frequencies and orbital slots remain." 47 C.F.R. § 100.13(b). Until recently, the only ways in which the FCC could assign DBS channels among mutually exclusive applicants was through a comparative hearing or a lottery. Now the Commission may, under certain circumstances, choose to auction DBS channels. See 47 U.S.C. § 309(j). No matter which method the FCC uses to assign channels, however, a successful applicant is granted its permit subject to due diligence requirements: the permittee must (1) "complete contracting for construction of the satellite station(s) within one year of the grant of the construction permit," and (2) begin operating its system "within six years of the construction permit grant." 47 C.F.R. § 100.19(a). In addition, any party that receives a new or additional DBS permit after January 19, 1996 must (3) complete construction of its satellite within four years of receiving its construction permit. § 100.19(b). Once it is determined that a permittee has satisfied the first due diligence requirement, the FCC assigns specific orbital positions upon a first-come, first-served basis. See In the Matter of Advanced Communications Corp., 11 F.C.C.R. 3399 p 6 (1995), aff'd, 84 F.3d 1452 (D.C.Cir.1996) (per curiam). If a permittee does not timely reach the construction and operation milestones, its permit is subject to cancellation.

The FCC granted the first permits for the construction of DBS satellites in 1982; prior to the auction at issue here, the FCC had conducted five processing rounds for DBS applicants. Id. at p 7. In 1988 the fifth processing round began when EchoStar applied for 16 orbital channels. Four other companies--TEMPO Satellite, Directsat, DBSC, and Dominion--thereafter filed competing applications, and three more companies--USSB, Hughes Communications Galaxy (parent of DIRECTV), and Advanced Communications Corporation--filed mutually exclusive applications to modify their existing permits.

In 1989 the FCC determined that each of the applicants except TEMPO was qualified to hold a DBS permit. Continental Satellite Corp., 4 F.C.C.R. 6292 p 54 (1989). The Commission withheld consideration of TEMPO's application pending further review of its qualifications. Id. at p 53. This processing round was the first time that the number of channels for which there were requests exceeded the number available. See Advanced, 11 F.C.C.R. 3399 p 7. What to do? A comparative hearing "would likely result in considerable delay and the expenditure of substantial Commission and applicant resources." Continental, 4 F.C.C.R. at p 55. Instead, therefore, the Commission decided to grant each application "to the extent that it is possible to award an equal number of general orbital/channel reservations to each applicant." Id. at p 54. The agency held in reserve a sufficient number of channels in order to satisfy TEMPO's request prorata, pending the outcome of further inquiry into its qualifications. Id. at p 53. In addition, the agency declared that the permittees would "receiv[e] a reservation," id. at p 4, for a share of any channels that were surrendered or canceled in the future:

[I]n the event the permit of any of these applicants, or any of the current permittees, is surrendered or canceled, the remaining permittees from this group will have the first right to additional allocations, apportioned equally, up to the number...