Mass. Dep't of Telecomms. & Cable v. Fed. Commc'ns Comm'n

• Decision Date: 18 December 2020
• Docket Number: No. 19-2282,19-2282
• Citation: 983 F.3d 28
• Parties: MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS AND CABLE, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION, Respondent, and Charter Communications, Inc., Intervenor.
• Court: U.S. Court of Appeals — First Circuit

983 F.3d 28

MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS AND CABLE, Petitioner,

v.FEDERAL COMMUNICATIONS COMMISSION, Respondent,andCharter Communications, Inc., Intervenor.

No. 19-2282

United States Court of Appeals, First Circuit.

December 18, 2020

David C. Kravitz, Deputy State Solicitor, with whom Maura Healy, Attorney General of Massachusetts, was on brief, for Petitioner.

James M. Carr, Counsel, with whom Makan Delrahim, Assistant Attorney General, Michael F. Murray, Deputy Assistant Attorney General, Robert B. Nicholson, Attorney, Steven J. Mintz, Attorney, the United States Department of Justice, Ashley S. Boizelle, Acting General Counsel, Richard K. Welch, Deputy Associate General Counsel, Adam G. Crews, Counsel, and the Federal Communications Commission were on brief, for Respondent.

Howard J. Symons, with whom Jessica Ring Amunson and Jonathan A. Langlinais, Washington, DC, were on brief, for Intervenor.

Rick C. Chessen, Neal M. Goldberg, Mary Beth Murphy, Washington, DC, and Radhika Bhat on brief for NCTA – The Internet & Television Association, amicus curiae.

Before^* LYNCH, Circuit Judge, and SARIS,^** District Judge.

SARIS, District Judge.

The Massachusetts Department of Telecommunications and Cable ("MDTC") petitions for review of an adverse FCC order dated October 25, 2019. The MDTC challenges the FCC's determination that the cable system operated by Charter Communications, Inc. ("Charter") in Massachusetts is subject to "effective competition" in its franchise areas under the statutory "Local Exchange Carrier" ("LEC") Test, Telecommunications Act of 1996, § 301(b)(3)(C), 47 U.S.C. § 543(l)(1)(D) (2018). Congress prohibits cable rate regulation when the FCC makes this finding. 47 U.S.C. § 543(a). Charter has intervened in opposition to the MDTC's petition. The Internet & Television Association has submitted a brief as amicus curiae supporting the respondent-intervenor and affirmance. We conclude that the petition for review should be denied.

I. BACKGROUND

A. Statutes and Regulations

Congress created a framework for regulating cable television in the Cable Communications Policy Act of 1984 ("1984 Cable Act") by adding Title VI to the Communications Act of 1934. Pub. L. No. 98-549, 98 Stat. 2779 (codified as amended at 47 U.S.C. § 543 (2018) ). As originally enacted, 47 U.S.C. § 543 directed the FCC to "prescribe and make effective regulations which authorize a franchising authority to regulate rates for the provision of basic cable service in circumstances in which a cable system is not subject to effective competition." Id. § 2 (codified as amended at 47 U.S.C. § 543(b)(1) ). Congress left the definition of "effective competition" to the FCC's regulations. Id. (codified as amended at 47 U.S.C. § 543(b)(2)(A) ). Under the FCC's 1985 regulations, "cable systems in approximately 96 percent of all communities were not rate regulated." H.R. Rep. No. 102-628, at 31 (1992). From 1986 to 1992, "average monthly cable rate[s] ... increased almost 3 times as much as the Consumer Price Index." Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460, § 2(a)(1) ("1992 Cable Act").

In response, Congress enacted the 1992 Cable Act. While Congress "strongly prefer[red] competition and the development of a competitive marketplace to [rate] regulation," H.R. Rep. No. 102-628, at 30 (1992), it acknowledged that there was "no certainty" that "competition to cable operators with market power [would] appear any time soon." S. Rep. No. 102-92, at 18 (1991). The amended 47 U.S.C. § 543 included a paragraph entitled "PREFERENCE FOR COMPETITION" stating: "If the Commission finds that a cable system is subject to effective competition, the rates for the provision of cable service by such system shall not be subject to regulation by the Commission or by a State or franchising authority under this section." Pub. L. No. 102-385, 106 Stat. 1460, § 3(a) (codified as amended at 47 U.S.C. § 543(a)(2) ). Under the statute, effective competition exists where one of three tests is met: (1) the Low Penetration Test, (2) the Competing Provider Test, and (3) the Municipal Provider Test. Id. (codified as amended at 47 U.S.C. § 543(l)(1) ). The FCC's 1993 regulations adopted a rebuttable presumption that cable operators were "not subject to effective competition." Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, 8 FCC Rcd 5631, 5670 ¶ 43 (1993). A cable operator had the burden to rebut the presumption "with evidence of effective competition" in its franchise area. Id. at ¶ 42.

Congress "expanded[ed] the effective competition test for deregulating" cable rates under 47 U.S.C. § 543 in the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 ("1996 Act"). S. Rep. No. 104-230, at 170 (1996) (Conf. Rep.); see 47 U.S.C. § 521(6) (enumerating as one of the purposes to "promote competition in cable communications and minimize unnecessary regulation that would impose an undue economic burden on cable systems"). As the Supreme Court stated, "its primary purpose was to reduce regulation and encourage the rapid deployment of new telecommunications technologies." See Reno v. ACLU, 521 U.S. 844, 857, 117 S.Ct. 2329, 138 L.Ed.2d 874 (1997) (pointing out that the statute was designed to promote, among other things, competition in the multi-channel video market). The 1996 Act added a fourth effective competition test focusing on competition from providers of local telephone service. Called the Local Exchange Carrier Test, it provides that effective competition exists when

a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area.

47 U.S.C. § 543(l)(1)(D). The LEC Test is the effective competition test at issue in this case.

The FCC's regulations provide that a competing video programming service will be "deemed offered" under the LEC Test if (1) the distributor is "physically able to deliver service to potential subscribers, with the addition of no or only minimal additional investment by the distributor, in order for an individual subscriber to receive service," and (2) "no regulatory, technical or other impediments to households taking service exist, and potential subscribers are reasonably aware that they may purchase" the competing service. 47 C.F.R. § 76.905(e)(1)-(2) (2020). The regulations define "comparable" service as offering "at least 12 channels of video programming, including at least one channel of nonbroadcast service programming." Id. § 76.905(g).¹

A cable operator can "file a petition for a determination of effective competition with the [FCC]." 47 C.F.R. § 76.907(a). With respect to franchise areas where cable rate regulation is contested, the cable operator "bears the burden of demonstrating the presence of such effective competition." Id. § 76.907(b).

B. The FCC Order

On September 14, 2018, Charter, a cable operator, filed a petition with the FCC seeking a determination that it faces effective competition in its franchise areas in Massachusetts and Kauai, Hawaii. See id. § 76.907(a). Charter's petition alleged that the availability of DIRECTV NOW² in those franchise areas constitutes effective competition under the LEC Test. DIRECTV NOW is a video programming service that provides live television and on-demand programs via a broadband internet connection. DIRECTV NOW is offered by DIRECTV, which is an affiliate of AT & T.

Charter argued that DIRECTV NOW satisfies the LEC Test because (1) DIRECTV is a subsidiary of AT & T and therefore affiliated with LECs owned by AT & T; (2) DIRECTV is physically able to deliver DIRECTV NOW "to any current Charter-serviced household that wishes to subscribe" given that broadband internet service is "available to virtually 100 percent of Charter's customers in the Franchise Areas," and customers are reasonably aware of its availability; and (3) DIRECTV NOW is comparable to Charter's cable service because DIRECTV NOW "offers subscribers a minimum of 65 channels."

The Massachusetts Department of Telecommunication and Cable and the State of Hawaii filed oppositions to Charter's petition. Charter filed a reply to those oppositions. During meetings with FCC staff, Charter confirmed that if its petition were granted, it would raise the monthly rate for its basic cable service to $23.89. Then current regulated monthly rates ranged from $12.49 to $23.99. In contrast, the lowest price of a DIRECTV NOW package was $40 per month. The FCC granted Charter's petition on October 25, 2019 and issued a Memorandum Opinion and Order concluding that Charter had proven effective competition under the LEC Test in Kauai, Hawaii and the thirty-two franchise areas in Massachusetts.³ Petition for Determination of Effective Competition in 32 Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd at 10229, 10229 (2019). It made the following key findings:

First, the FCC found that DIRECTV NOW is provided by a "LEC affiliate" due to AT & T's common ownership of DIRECTV NOW and LECs. Id. at 10232. MDTC does not dispute this finding.

Second, the FCC found that DIRECTV NOW is "offered" in the franchise areas because "DIRECTV is ‘physically able’ to deliver DIRECTV NOW to subscribers via existing broadband facilities in the Franchise Areas" and "no regulatory, technical or other impediments to households taking" DIRECTV NOW exist in the franchise areas. Id. at 10233–34; see 47 C.F.R. § 76.905(e)(1)-(2). The FCC found that the cost...