Chesapeake and Potomac Telephone Co. v. US

• Decision Date: 24 August 1993
• Docket Number: Civ. No. 92-1751-A.
• Citation: 830 F. Supp. 909
• Court: U.S. District Court — Eastern District of Virginia
• Parties: The CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA, et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants. National Cable Television Association, Inc., Intervenor-Defendant.

830 F. Supp. 909

The CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA, et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants National Cable Television Association, Inc., Intervenor-Defendant.

Civ. No. 92-1751-A.

United States District Court, E.D. Virginia, Alexandria Division.

August 24, 1993.

Wiley R. Wright, Jr., Hazel & Thomas, P.C., Alexandria, VA, John Thorne, Michael E. Glover, Washington, DC, Laurence H. Tribe, Jonathan Massey, Cambridge, MA, Robert A. Levetown, Arlington, VA, Mark C. Hensen, Johnson & Gibbs, Washington, DC, Kenneth W. Starr, Paul T. Cappuccio, Christopher Landau, Kirkland & Ellis, Washington, DC, for plaintiffs.

Theodore C. Hirt, James J. Gilligan, Sarah L. Wilson, U.S. Dept. of Justice, Civ. Div., Washington, DC, for defendants.

Bruce D. Sokler, Peter Kimm, Jr., Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Washington, DC, for intervenor-defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

I.

A.

Plaintiffs in this case, Chesapeake and Potomac Telephone Company of Virginia ("C & P") and Bell Atlantic Video Services Company ("BVS"), both wholly-owned subsidiaries of Bell Atlantic Corporation, challenge the constitutionality under the First Amendment of certain provisions of the Cable Communications Policy Act of 1984 (the "1984 Cable Act"), 47 U.S.C. ? 521, et seq. Specifically, plaintiffs challenge subsections (1) and (2) of 47 U.S.C. ? 533(b) ("? 533(b)"), which prohibit telephone companies, and their affiliates, from providing video programming to subscribers within their service areas.¹

C & P provides local wireline telephone exchange and exchange access service in portions of Virginia, including the City of Alexandria. It is, without dispute, a common carrier subject to subchapter II of the Communications Act, and therefore subject to ? 533(b). BVS is an affiliate of C & P, incorporated in Virginia on September 24, 1992, for the purpose of providing video programming to the public. C & P represents that, in the absence of ? 533(b), it would enhance its telephone network in Alexandria to have the capability to carry video programming. See Affidavit of Richard A. Alston, C & P's Vice President of Operations & Engineering, at 1. The resulting network would have the capacity to provide several hundred channels of video programming to C & P's telephone subscribers. Id. at 2. C & P would make these facilities available to its affiliate, BVS, and to other video programmers under tariff on a common carrier basis. Id. The parties agree that existing fiber optic technology is capable of providing telephone service and transmitting video programming on an integrated basis directly to subscribers. Joint Stipulation of Facts ? 3.

In 1992, C & P contacted the City of Alexandria government about the possibility of obtaining a cable television franchise to compete with the existing cable television operator, Jones Intercable. Alexandria's city attorney responded that, in light of ? 533(b), the city would not "be in a position to grant any such franchise." Letter of Philip G. Sunderland, City Attorney, City of Alexandria, to J. Howard Middleton, Jr., Hazel & Thomas (Feb. 17, 1993). The city attorney also stated that "the city would be in a position to process a franchise application from C & P were the video programming prohibition in 47 U.S.C. 533(b) removed." Id. Alexandria's mayor has submitted an affidavit indicating her support of C & P's proposal, and indicating that, absent ? 533(b), C & P's application for a cable television franchise would receive the same consideration as would be accorded any other applicant. See Affidavit of Patricia S. Ticer at 2.

Plaintiffs filed the complaint in the instant action on December 17, 1992, challenging ? 533(b) as violative of the First Amendment of the United States Constitution, both facially and as applied to their proposed provision of video programming in the City of Alexandria. Because this is a constitutional challenge to a federal statute, plaintiffs have named as defendants the United States of America, the Federal Communications Commission (the "Commission") and William P. Barr, in his official capacity as Attorney General of the United States² (collectively, the "government"). On motion, the National Cable Television Association, Inc. ("NCTA") was permitted to intervene in support of the statute's constitutionality. NCTA accordingly participated in virtually every phase of the litigation, including submission of briefs, preparation of the stipulation of facts, and presentation of oral argument. Less extensive was the participation of thirty-three amici curiae,³ who were limited to submission of briefs.

After pursuing some formal discovery, the parties, at the Court's invitation, explored the possibility of submitting the matter to the Court on cross-motions for summary judgment by completing discovery informally and cooperatively and undertaking to prepare a joint stipulation of facts. The effort bore fruit. The matter is now before the Court on cross-motions for summary judgment based on a comprehensive stipulation of facts and a supporting record consisting of several thousand pages of affidavits, exhibits, and briefs. Indeed, it is difficult to imagine a more complete record, and it is hard to see how the Court's disposition of the dispute on this record can reasonably be labeled as "summary."

B.

Although ? 533(b) was enacted as part of the 1984 Cable Act, telephone companies have been prohibited from providing cable television service since the early years of the cable television industry. Section 533(b) had its genesis in a similar restriction imposed by the Commission in 1970. At that time, the cable television industry was in its infancy and was referred to as community antenna television service ("CATV"). The then-existing technology entailed building large antennas in rural areas and other places unable to receive clear television signals over the air, and stringing cables, often on electric utility or telephone poles, from the central antenna to the CATV customers. In 1968, the Commission ruled that telephone companies must obtain certification pursuant to ? 214 of the Communications Act, 47 U.S.C. ? 214, prior to constructing, acquiring or operating facilities to provide "channel service" to cable television companies.⁴ Because the resulting ? 214 applications revealed varying degrees of ownership affiliation between telephone companies and cable television operators, the Commission initiated a rule-making proceeding to ascertain whether telephone companies, either directly or through affiliates, should be permitted to provide cable television service to the public.⁵ As a result of this proceeding, the Commission concluded that telephone companies and their affiliates should be precluded, absent specific exemption, from providing cable television service within their local telephone service areas.⁶ The Commission based its ruling on a finding that the telephone companies had the potential to discriminate against independent CATV providers, in favor of telephone company affiliates, in granting access to telephone poles for attachment of the CATV cables.⁷

In 1978, Congress passed the Pole Attachment Act, which authorized the Commission to "regulate the rates, terms, and conditions for pole attachments." 47 U.S.C. ? 224(b)(1). Although this legislation addressed cable operators' fears of discriminatory pricing for pole attachments, the legislation is, by its terms, applicable only if access to poles is actually granted by the owner; it does not mandate such access. See FCC v. Florida Power Corp., 480 U.S. 245, 251, 107 S.Ct. 1107, 1111, 94 L.Ed.2d 282 (1987). Thus, the Pole Attachment Act only partially allayed the Commission's concerns regarding cable operators' access to telephone poles and conduit space.

In 1980, the Commission directed its staff to conduct a study of the Commission's cable television cross-ownership policies. This directive culminated in the issuance of a report by the FCC Office of Plans and Policy in November 1981, entitled FCC Policy on Cable Ownership, A Staff Report (the "OPP Report"). The OPP Report considered alternatives to the then-existing Commission policy against telephone company provision of cable television, but concluded by advising that the restriction "must be retained for the time being." OPP Report at 143. The report, while acknowledging that "the problem of pole access" would no longer "by itself" justify the restriction, id. at 162, found that additional concerns, noted but not relied upon by the Commission when it had originally implemented the ban, continued to militate against removing the restriction. Chief among these concerns was "cross-subsidization," namely the possibility that telephone companies operating cable television facilities would hide cable costs in their telephone rate bases. Such cross-subsidization "allows a telephone company partially to avoid rate-of-return regulation on its telephone service ... by attributing costs to the regulated telephone division and revenues to an unregulated cable division." Id. at 153. Unchecked, this practice would lead to higher telephone rates and supra-competitive profits for the telephone companies. Id. at 158. Such profits, in turn, could be used to underprice competing cable television operators, forcing them out of business, thereby enabling the telephone companies to leverage their regulated local exchange monopoly into an additional monopoly of video transmission services. The Commission took no formal action following release of the OPP Report either to approve or reject the report. The Commission's restriction on telephone companies' provision of cable television within their service areas was retained without modification.

In 1984, Congress passed the 1984 Cable Act, which includes the provisions at issue in this case. Section 533(b) was adapted directly from the regulations...