City of Chicago v. Fed. Commun. Comm'n

• Decision Date: 22 March 2000
• Docket Number: 98-2940,98-3079,Nos. 98-2729,98-3064,98-2901,98-3078,98-3267,s. 98-2729
• Citation: 199 F.3d 424
• Parties: (7th Cir. 1999) CITY OF CHICAGO; TEXAS COALITION OF CITIES ON FRANCHISED UTILITIES ISSUES; CITY OF ST. LOUIS; CHARTER TOWNSHIP OF MERIDIAN and CITY OF EAST LANSING, MICHIGAN; ALLIANCE FOR COMMUNICATIONS DEMOCRACY, ALLIANCE FOR COMMUNITY MEDIA, and CHICAGO ACCESS CORPORATION; NATIONAL CABLE TELEVISION ASSOCIATION, INC.; NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS (NATOA); and MICHIGAN CABLE TELECOMMUNICATIONS ASSOCIATION,Petitioners, and 21ST CENTURY TELECOM GROUP, INC.; MICHIGAN COALITION TO PROTECT PUBLIC RIGHTS OF WAY FROM TELECOMMUNICATIONS ENCROACHMENTS; and GREATER METRO TELECOMMUNICATIONS CONSORTIUM,Intervening Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, Respondents. and ENTERTAINMENT CONNECTIONS, INC.; RCN TELECOM SERVICES, INC.; and WEDGEWOOD COMMUNICATIONS COMPANY,Intervening Respondents. & 98-3474
• Court: U.S. Court of Appeals — Seventh Circuit

Page 424

199 F.3d 424 (7th Cir. 1999)

CITY OF CHICAGO; TEXAS COALITION OF CITIES ON FRANCHISED UTILITIES ISSUES; CITY OF ST. LOUIS; CHARTER TOWNSHIP OF MERIDIAN and CITY OF EAST LANSING, MICHIGAN; ALLIANCE FOR COMMUNICATIONS

DEMOCRACY, ALLIANCE FOR COMMUNITY MEDIA, and CHICAGO ACCESS CORPORATION; NATIONAL CABLE TELEVISION ASSOCIATION, INC.; NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS (NATOA); and MICHIGAN CABLE TELECOMMUNICATIONS ASSOCIATION,Petitioners, and 21ST CENTURY TELECOM GROUP, INC.; MICHIGAN COALITION TO PROTECT PUBLIC RIGHTS OF WAY FROM TELECOMMUNICATIONS ENCROACHMENTS; and GREATER METRO TELECOMMUNICATIONS CONSORTIUM,Intervening Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA,

Respondents.

and

ENTERTAINMENT CONNECTIONS, INC.; RCN TELECOM SERVICES, INC.; and WEDGEWOOD COMMUNICATIONS COMPANY,Intervening Respondents.

Nos. 98-2729, 98-2901, 98-2940, 98-3064, 98-3078, 98-3079, 98-3267 & 98-3474

In the United States Court of Appeals For the Seventh Circuit

Argued September 14, 1999

Decided December 7, 1999

As Amended on Denial of Rehearing and Rehearing En Banc March 22, 2000 ^*

Petitions for Review of an Order of the Federal Communications Commission. No. 98-111

Before BAUER, ROVNER, and EVANS, Circuit Judges.

EVANS, Circuit Judge.

Today we review a declaratory ruling of the Federal Communications Commission that Entertainment Connections, Inc. (ECI), the operator of a satellite master antenna television system (SMATV), is not a "cable operator" of a "cable system" as defined in 47 U.S.C. sec. 522(5) and (7) and thus is not subject to a requirement that it obtain a franchise from a local government in order to operate. In the Matter of Entertainment Connections, Inc. Motion for Declaratory Ruling, FCC 98-111, 13 FCC Rcd. 14277 (1998) (JA 418-61). After the FCC ruled in the ECI case, several petitions for review were filed in various circuits. The first one filed was in this circuit, and after the FCC lodged the record here the remaining petitions were transferred to us under 28 U.S.C. 2112(a)(5). We consolidated all of the petitions for decision.

ECI has about 1,600 subscribers in 12 large apartment buildings of at least 100 residents each in East Lansing and Meridian Township, Michigan. ECI began operations by using a satellite master antenna system, known as a "headend," on top of each building it served. Under this method of operation it is uncontested that no local franchise was necessary, in part because the signal was not sent over the public right-of-way. Then in 1996 ECI altered its method of operation but continued to provide its service without a franchise. East Lansing and Meridian made it clear that they thought ECI now needed a franchise.

The change of operation in 1996, giving rise to the claim that a local franchise is now required, was as follows. As before, ECI receives signals through its own satellite master antenna television facility, or "headend." The headend is placed on top an apartment building. But now ECI transmits the video signals from the headend to both its customers in the building on which the antenna is located and to those in other buildings. The signal is transmitted to the other buildings by fiber optic and coaxial cables, which are located in the public right-of-way but which are owned by Ameritech. For this purpose Ameritech used 12-strand cable, one strand of which is used for ECI's video signal. Ameritech's facilities connect to junction boxes located in the buildings; those in turn connect to ECI's interior building drop lines, which in turn connect to the subscriber's television sets. To obtain Ameritech services ECI subscribes to Ameritech's Supertrunking Video Service, for which it pays a monthly tariff.

In February 1997 ECI asked the FCC for a declaratory ruling that it was not required to have a franchise. The FCC, over a one-member dissent, found that ECI is not a cable operator because it does not provide service through a cable system and, therefore, it does not need a franchise. The FCC based its conclusion on a convergence of factors. One was that ECI's facilities are located on private property. Ameritech transports ECI's signal using 12-strand cable, one strand of which is used for ECI's signal. The other 11 strands are available to other cable providers, and ECI has committed to make its interior building line drops available to other programming providers. The facilities used by Ameritech to provide service to ECI were, for the most part, not constructed at ECI's request. ECI and Ameritech are separately owned; their relationship is as carrier-user. Under the agreement between the companies ECI has no right to control or repair Ameritech cable, and Ameritech lacks editorial control over the content of ECI's programming.

In addition, the FCC said that it was guided by the knowledge that a local jurisdiction's authority to regulate cable has been premised on the fact that cable systems involve extensive physical facilities and substantial construction on the public right-of-way. And, of course, ECI does not itself have facilities on the public right-of-way.

The FCC ruling analogized ECI's operation with what is called "video dialtone" service. Video dialtone was a regulatory framework, designed by the Commission, that permitted local telephone companies to make available, on a nondiscriminatory common carrier basis, a platform for the delivery of video programming and other services from the separately owned headend facilities of programmers to subscribers. Video dialtone, the FCC said, did not trigger a franchise requirement because an entity that maintained reception and transmission equipment wholly on private property and transmitted the video signal through the public right-of-way by means of a local exchange carrier's facilities, made available on a common carrier basis, was not a cable operator. The Court of Appeals for the District of Columbia upheld the FCC. National Cable Television Ass'n v. FCC, 33 F.3d 66 (D.C. Cir. 1994). In the ECI case, the FCC said that although the provision for video dialtone no longer exists, the underpinnings of the video dialtone decisions remain sound--that is, that where there is no single system or unified control, there is no cable system.

The FCC also found that ECI qualifies for the private cable exemption to the definition of a cable system which is provided for operations which do not use the public right-of-way. 47 U.S.C. sec. 522(7)(B). The FCC reasoned that Ameritech, not ECI, is the entity using the public right-of-way; therefore, ECI qualifies for the exemption. Finally, the FCC noted that its ruling was consistent with the "pro-competitive mandate" given the Commission by Congress in the Telecommunications Act of 1996.

Our first inquiry involves the degree of deference, if any, to which the decision of the FCC is entitled: that is, is it entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984)? Although some of the parties dispute it, we think it is pretty much beyond argument that the first prong of the Chevron analysis is met. That prong is a determination whether a statute is silent or ambiguous with respect to the issue we are considering. We believe our discussion which follows will highlight the ambiguities we find in the statute. If the statute is silent or ambiguous, then, under Chevron, we decide whether the agency's determination is based on a permissible construction of the statute. We may not substitute our own construction of a statute when an agency has interpreted it in a reasonable fashion. Holly Farms Corp. v. NLRB, 517 U.S. 392 (1996). In other words, so long as the agency has set out a reasonable interpretation, it does not matter whether, in the first instance, we would have come to the same conclusion. Wisely, we believe, we have noted that specialized agencies are "more qualified than generalist courts to handle technical matters within their purview. They are the experts. Court second-guessing of administrative decisions typically 'do[es] not make [for] better technical decisions than [those of] agencies.'" United Transp. Union--Illinois Legislative Bd. v. Surface Transp. Bd., 169 F.3d 474, 476 (7th Cir. 1999), citing United States v. Baxter Healthcare Corp., 901 F.2d 1401 (7th Cir. 1990).

Although the Chevron requirements are met, we consider a few other obstacles certain parties have attempted to throw in the path of our giving Chevron deference to the FCC decision. Some parties contend that the FCC was not granted regulatory authority over 47 U.S.C. sec. 541, the statute setting out general franchise requirements. We disagree. The FCC's regulatory authority was first set out in United States v. Southwestern Cable Co., 392 U.S. 157 (1968), and its authority continues to be recognized. See AT&T v. Iowa Utils. Bd., 119 S. Ct. 721 (1999). We have said that the FCC is charged by Congress with the administration of the Cable Act. Time Warner Cable v. Doyle, 66 F.3d 867 (7th Cir. 1995); see 47 U.S.C. sec. 543. We are not convinced that for some reason the FCC has well- accepted authority under the Act but lacks authority to interpret sec. 541 and to determine what systems are exempt from franchising requirements. See National Cable Television Ass'n v. FCC, 33 F.3d 66 (D.C. Cir. 1994).

Some parties argue that the declaratory ruling should not have been made because it is not outcome-determinative of the dispute and does nothing to resolve a state court case filed in Michigan regarding whether a franchise is required under state law. This is really an argument that the FCC should not have heard ECI's petition in the first instance. We see no merit to the argument. The FCC has authority to issue declaratory rulings. 5 U.S.C. sec. 554(e); 47 C.F.R. sec. 1.2. This case resolves the controversy over whether the federal franchise requirement applies in this...