Competitive Enter. Inst. v. Fed. Commc'ns Comm'n
Decision Date | 14 August 2020 |
Docket Number | No. 18-1281,18-1281 |
Citation | 970 F.3d 372 |
Parties | COMPETITIVE ENTERPRISE INSTITUTE, et al., Appellants v. FEDERAL COMMUNICATIONS COMMISSION, Appellee |
Court | U.S. Court of Appeals — District of Columbia Circuit |
Melissa Holyoak argued the cause for appellants. With her on the briefs were Theodore H. Frank and Sam Kazman.
Thaila Sundaresan, Counsel, Federal Communications Commission, argued the cause for appellee. With her on the brief were Thomas M. Johnson Jr., General Counsel, David M. Gossett, Deputy General Counsel, and Richard K. Welch, Deputy Associate General Counsel. Jacob M. Lewis, Associate General Counsel, entered an appearance.
Before: Henderson and Katsas, Circuit Judges, and Sentelle, Senior Circuit Judge.
This appeal involves conditions imposed by the Federal Communications Commission on a merger of three cable companies. The conditions regulate in detail how the merged entity, which we call New Charter, may provide cable broadband Internet service. Among other things, the conditions (1) prohibit New Charter from charging programming suppliers for access to its broadband subscribers, (2) prohibit New Charter from charging broadband subscribers based on how much data they use, (3) require New Charter to provide steeply discounted broadband service to needy subscribers, and (4) require New Charter to substantially expand its cable infrastructure for broadband service.
The appellants include three of New Charter's customers, whose bills for cable broadband Internet service increased shortly after the merger. They contend that the conditions caused this injury, which would likely be redressed by an order setting the conditions aside. We hold that these appellants have standing to challenge the first and third conditions, which we vacate given the FCC's refusal to defend on the merits.
The Communications Act of 1934, Pub. L. No. 73-416, 48 Stat. 1064, empowers the FCC to regulate communications by wire or radio. Title I of the Act, 47 U.S.C. §§ 151 – 163, gives the FCC ancillary regulatory authority over any "information service." See id. § 153(24). Title II of the Act, id. §§ 201–276, subjects most providers of a "telecommunications service" to regulation as common carriers. See id. § 153(11), (50)–(53). Title III of the Act, id. §§ 301–399b, provides for regulation of wireless radio communications.
Within Title II, section 214(a) prohibits common carriers from constructing, operating, or acquiring any new or extended communications line without first obtaining from the FCC "a certificate that the present or future public convenience and necessity require or will require the construction, or operation, or construction and operation, of such additional or extended line." 47 U.S.C. § 214(a). Section 214(c) provides that the FCC "may attach to the issuance of the certificate such terms and conditions as in its judgment the public convenience and necessity may require." Id. § 214(c).
Title III creates a licensing scheme for wireless radio communications. Section 301 requires a station license to make radio transmissions. See 47 U.S.C. § 301. Section 307(a) requires the FCC to grant any applicant such a license if the "public convenience, interest, or necessity will be served thereby." Id. § 307(a). Section 308 sets forth citizenship, character, fitness, and technical requirements for holding a station license. Id. § 308. Section 310(d) prohibits transferring any license without an FCC finding that "the public interest, convenience, and necessity will be served" by the transfer, and it requires transfer applications to be adjudicated as if the transferee "were making application under section 308." Id. § 310(d).
The disputed merger conditions involve cable broadband Internet service, which gives subscribers the ability to send and receive data over the Internet. The FCC has shifted positions on whether this is an "information service" subject to regulation under Title I or a "telecommunications service" subject to common-carrier regulation under Title II. In a 2002 rulemaking, the agency concluded that cable broadband Internet service is not subject to regulation under Title II, In re Inquiry Concerning High-Speed Access to the Internet over Cable & Other Facilities, 17 FCC Rcd. 4798, 4802, ¶ 7 (Mar. 15, 2002) (2002 Title II Order), and the Supreme Court upheld that position, Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs. , 545 U.S. 967, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005). In 2015, the FCC reinterpreted Title II to encompass cable broadband Internet service, but it decided to forbear from requiring a section 214(a) certificate to provide that service. In re Protecting and Promoting the Open Internet, 30 FCC Rcd. 5601, 5610, 5848–49, ¶¶ 29, 511 (Apr. 3, 2015) ( 2015 Title II Order ). In 2018, the FCC again reversed course and concluded that cable broadband Internet service is not subject to regulation under Title II. In re Restoring Internet Freedom, 33 FCC Rcd. 311, 312, ¶ 2 (Jan. 4, 2018) ( 2018 Title II Order ). Following Brand X , this Court upheld that interpretation. Mozilla Corp. v. FCC , 940 F.3d 1, 18–35 (D.C. Cir. 2019) (per curiam).
The FCC takes an expansive view of its authority to review license transfers incident to the merger of telecommunications companies. In particular, the agency thinks itself empowered to consider not only whether the "construction" or "operation" of specific cable lines would be in the public interest at the time of a merger, 47 U.S.C. § 214(a), and not only whether the merged entity satisfies the requirements for holding radio licenses "under section 308," id. § 310(d), but also whether the merger itself would be in the public interest. See , e.g. , In re Applications of Charter Commc'ns, Inc., Time Warner Cable, Inc., and Advance/Newhouse P'ship, 31 FCC Rcd. 6327, 6336–39 (May 10, 2016) ( New Charter Order ). The FCC thus duplicates the analysis of the Department of Justice in its review of possible anticompetitive effects. See id. at 6337–38. But the Commission further considers "diversity, localism, [and] other public interest considerations" besides antitrust ones. Id. at 6338.
It thus seeks to impose conditions that "confirm specific benefits or remedy harms likely to arise from transactions" under consideration. Id. at 6339. These conditions often regulate the terms of providing cable broadband Internet service, even though cable companies have never had to secure certificates under section 214(a) or licenses under section 301 in order to provide that service. Unlike the Justice Department, the Commission can effectively block mergers without going to court, simply by withholding approval of the transfer of these licenses.
New Charter, officially Charter Communications, Inc., was formed by the merger of Charter Communications, Inc., Time Warner Cable Inc., and Bright House Networks, LLC. Each of the merging companies had been engaged in various communications businesses, including the provision of cable broadband Internet service. Before the merger, Charter provided this service to some five million subscribers; Time Warner, to twelve million; and Bright House, to two million. New Charter—with about nineteen million subscribers—would become one of the largest cable broadband Internet providers in the United States.
To consummate the merger, the three companies applied to the FCC under sections 214(a) and 310(d) for permission to transfer their various cable and radio licenses to New Charter. These included certificates under section 214(a), cable television relay service licenses, and various wireless licenses. The FCC invited public comments on the application, and responses poured in. The index of filings in the agency docket spans 47 pages, not counting almost 170,000 comments made directly on the agency's website through an online form.
The FCC ultimately approved the transfer of the licenses. The agency concluded that the "public interest benefits" of the merger would outweigh its "public interest harms," but only with six elaborate conditions. New Charter Order, 31 FCC Rcd. at 6530. The conditions are set forth in an appendix comprising 24 pages of fine print, including provisions for compliance, reporting, enforcement, and penalties for violations. See id. at 6539–62.
Four of the conditions, which address the provision of cable broadband Internet service, are at issue here. First , for seven years, New Charter cannot charge programming suppliers for access to its network of Internet subscribers. New Charter Order, 31 FCC Rcd. at 6540–42. Second , for seven years, New Charter may neither charge Internet subscribers based on actual data usage nor impose data usage caps. Id. at 6543–44. Third , New Charter must provide Internet service at steeply discounted prices to at least 525,000 low-income households within four years. Id. at 6547–49. Fourth , New Charter must build out its cable infrastructure to offer Internet service "to at least 2 million additional mass market customer locations" within five years. Id. at 6544–47. The FCC reasoned that the first two conditions were necessary to mitigate potential anti-competitive effects on suppliers of programs that consumers may watch on the Internet. Id. at 6362–91. The last two conditions, according to the Commission, would increase the merger's public-interest benefits. Id. at 6504–07, 6528–40.
Two commissioners dissented. Commissioner Pai voted to block the merger. He argued that the FCC had "turned the transaction into a vehicle for advancing its ambitious agenda to micromanage the Internet economy." New Charter Order, 31 FCC Rcd. at 6666. He criticized each of the conditions as either "radical," addressed to issues unrelated to the merger, or otherwise arbitrary. See id. at 6666–68. He also objected to the FCC's process for crafting the conditions, which he said had involved a politicized,...
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