Comcast Corp. v. F.C.C.

• Decision Date: 16 May 2008
• Docket Number: No. 07-1445.,07-1445.
• Citation: 526 F.3d 763
• Parties: COMCAST CORPORATION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. National Cable & Telecommunications Association and Consumer Electronics Association, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

526 F.3d 763

COMCAST CORPORATION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents National Cable & Telecommunications Association and Consumer Electronics Association, Intervenors.

No. 07-1445.

United States Court of Appeals, District of Columbia Circuit.

Argued April 8, 2008.

Decided May 16, 2008.

On Petition for Review of an Order of the Federal Communications Commission.

David P. Murray argued the cause and filed the briefs for petitioner.

Raymond L. Gifford and Adam M. Peters were on the brief for amici curiae Americans for Prosperity, et al. in support of petitioner.

Matthew B. Berry, General Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Thomas O. Barnett, Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and Robert J. Wiggers, Attorneys, Joseph R. Palmore, Deputy General Counsel, Federal Communications Commission, Richard K. Welch, Acting Deputy Associate General Counsel, and Laurence N. Bourne, Counsel. James J. Fredricks, Attorney, U.S. Department of Justice, Daniel M. Armstrong, Associate General Counsel, Federal Communications Commission, and Joel Marcus, Counsel, entered appearances.

Robert S. Schwartz argued the cause for intervenor Consumer Electronics Association in support of respondents. With him on the brief were Julie M. Kearney and Mitchell L. Stoltz.

Daniel L. Brenner and Neal M. Goldberg were on the brief for intervenor National Cable & Telecommunications Association in support of respondents.

Before: GINSBURG and GRIFFITH, Circuit Judges, and SILBERMAN, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge SILBERMAN.

SILBERMAN, Senior Circuit Judge:

Petitioners, for the third time, challenge the FCC's policy regarding set-top converter boxes. We again deny their petition for review.

I.

We have explained the origins of this dispute between Comcast and the Commission in General Instrument Corp. v. FCC, 213 F.3d 724, 727-30 (D.C.Cir.2000) and Charter Communications, Inc. v. FCC, 460 F.3d 31, 34-37 (D.C.Cir.2006). Briefly put, in order to access subscription video programming — such as cable service or direct broadcast satellite service — over their television sets, consumers generally require a set-top converter box. The converter box performs security functions — ensuring that only subscribers may access the programming — and may include other features such as channel tuners, program menus, pay-per-view, video-on-demand, video recording, and high-definition. Until recently, most consumers leased their converter boxes directly from the video provider; there was no competitive retail market for such devices.

Congress sought to force "unbundling" of the security and programming functions to create a competitive market for navigation (programming) devices in the Telecommunications Act of 1996. Section 629(a) of the Act instructed the FCC to "adopt regulations to assure the commercial availability ... of converter boxes, interactive communications equipment, and other equipment used by consumers to access multichannel video programming ... from manufacturers, retailers, and other vendors not affiliated with any [video provider]." 47 U.S.C. § 549(a). Pursuant to this statutory directive, in 1998 the Commission adopted rules requiring that the "security element" be made available separately from the basic navigation device. Commercial Availability of Navigation Devices, 13 F.C.C.R. 14,775, 14,793-94 (1998) ("1998 Order"). Video providers have complied with the Commission's rules by introducing the "CableCARD," which is a credit card-sized device that contains the video provider's security information. When this card is plugged into a set-top box, it enables the customer to access the video programming and services to which he has subscribed. See Charter, 460 F.3d at 35.

The FCC further required that video providers stop selling or leasing integrated converter boxes (containing both security and navigation features) by January 1, 2005. 1998 Order, 13 F.C.C.R. at 14,803. In other words, converter boxes supplied by video providers must rely upon the same security technology as the independently-produced boxes. We rejected various statutory challenges to this "integration ban" in General Instrument, 213 F.3d at 730-32.

In 2003, the FCC postponed the implementation date for the integration ban until July 1, 2006 and sought additional comments about the state of the market for navigation devices. The cable industry filed comments arguing that the integration ban was unnecessary and should be repealed. In 2005, the Commission denied the requests to repeal the ban, concluding that "common reliance by cable operators on the same security technology ... that consumer electronics manufacturers must employ in developing competitive navigation devices will help attain the goals of Section 629 of the [Telecommunications] Act." Commercial Availability of Navigation Devices, 20 F.C.C.R. 6794 (2005) ("2005 Order"). Although it chose to retain the integration ban, the FCC again postponed the compliance date to July 1, 2007. The Commission also stated that it would be willing to entertain waiver requests for "low-cost, limited capability boxes" that do not include "personal video recording, high-definition, broadband Internet access, multiple tuner, or other similar advanced capabilities." Id. at 6813-14. The FCC determined that "provision of [limited-capability] devices by cable operators will not endanger the development of the competitive marketplace envisioned in Section 629, particularly because the more advanced devices offered by cable operators ... will be required to rely on the same [security] technology as devices offered at retail by consumer electronics manufacturers." Id.

In Charter, we rejected various challenges to the FCC's decision to retain the integration ban. 460 F.3d at 39-45. We held that the Commission reasonably concluded that "[i]f cable operators must take steps to support their own compliant equipment, it seems far more likely that they will continue to support and take into account the need to support services that will work with independently supplied and purchased equipment." Id. at 41 (citation and internal quotation marks omitted). We observed that even though the integration ban may impose short-term costs (i.e., higher prices for non-integrated set-top boxes), the Commission reasonably explained why those costs were likely to be outweighed by the long-run benefits of a competitive equipment market, such as increased consumer choice and the spurring of technological innovation. Id. at 42.

* * *

Pursuing what it thought was a regulatory opening under both section 629 and the Commission's "low-cost waiver" invitation in the 2005 Order, Comcast sought a waiver of the integration ban for three models of set-top boxes. These are the lowest-cost boxes supplied by Comcast, but they still contain electronic programming guides, video-on-demand, pay-per-view, and interactive television capabilities. The FCC's Media Bureau denied the waiver request, holding that Comcast failed to meet the requirements for a waiver under the Telecommunications Act, the Commission's "low-cost, limited-capability" policy, or the Commission's general waiver authority. The full Commission affirmed the Media Bureau's denial of the waiver. Comcast Corp., 22 F.C.C.R. 17,113 (2007) ("2007 Order"). Comcast has petitioned for review, arguing that the FCC's order was contrary to the Telecommunications Act, and arbitrary and capricious as inconsistent with the Commission's prior actions and policies.

II.

Comcast's primary argument is that it is entitled to a waiver under section 629(c) of the Telecommunications Act, which states in relevant part:

The Commission shall waive a regulation adopted under subsection (a) of this section for a limited time upon an appropriate showing by a provider of multichannel video programming ... that such waiver is necessary to assist the development or introduction of a new or improved multichannel video programming or other service offered over multichannel video programming systems, technology, or products.

47 U.S.C. § 549(c). Comcast argues that a waiver is "necessary to assist" the development of new digital services. Digital video services are more spectrum-efficient than analog services. Thus, when customers migrate from analog to digital, Comcast can reclaim the excess spectrum and use it for new or improved services. The converter boxes at issue here are the cheapest boxes that contain digital-to-analog converters, which enable viewers with analog TVs to view digital programming. It is contended that without a waiver for low-cost integrated boxes, the price of converter boxes will rise, fewer customers will make the transition to digital cable, and Comcast will not be able to roll out new digital services as quickly as it would be with a waiver.

The Commission concluded, however, that a waiver was not "necessary to assist the development or introduction" of new services because Comcast already offered digital service in all of its markets and was likely to continue deploying new services even in the absence of a waiver. 2007 Order, 22 F.C.C.R. at 17,119. The FCC also determined that granting the waiver would undermine common reliance, by reducing video providers' incentive to ensure that security elements are properly designed and supported for competitive equipment manufacturers. Id. at 17,118-19. Essentially, the Commission has concluded, or rather predicted, that to allow Comcast to introduce an integrated box that contains security, navigation, and programming features would inhibit the development of competitive navigation and programming devices. The Commission wishes to force Comcast to rely on the same security element as its competitors.

We think the FCC's explanation of why a waiver was not ...