U.S. West, Inc. v. U.S.

• Citation: 48 F.3d 1092
• Decision Date: 17 February 1995
• Docket Number: No. 94-35775,94-35775
• Parties: 1995-1 Trade Cases P 71,053 US WEST, INC.; US West Communications; US West Multimedia Communications, Inc., Plaintiffs-Appellees, and Washington Independent Telephone Association; Pacific Telecom, Inc. (PTI), and its Subsidiaries, Plaintiffs-Intervenors-Appellees, v. UNITED STATES of America; Federal Communications Commission; Janet Reno, Attorney General, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1092

48 F.3d 1092

1995-1 Trade Cases P 71,053

US WEST, INC.; US West Communications; US West Multimedia Communications, Inc., Plaintiffs-Appellees and Washington Independent Telephone Association; Pacific Telecom, Inc. (PTI), and its Subsidiaries Plaintiffs-Intervenors-Appellees, v. UNITED STATES of America; Federal Communications Commission; Janet Reno, Attorney General Defendants-Appellants.

No. 94-35775.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 15, 1994.

Decided Dec. 30, 1994.

Amended Feb. 17, 1995.

Douglas Letter, U.S. Dept. of Justice, Washington, DC, for defendants-appellants.

Louis R. Cohen and Lloyd N. Cutler, Wilmer, Cutler & Pickering, Washington, DC, for plaintiffs-appellees.

Deborah Johnson Harwood, Pacific Telecom, Inc., Vancouver, WA, for intervenor-appellee.

Richard A. Finnigan, Vandeberg, Johnson & Gandara, Tacoma, WA, for plaintiff-intervenor-appellee.

Bruce D. Sokler, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, Washington, DC, for amicus.

R. Bruce Easter, Jr., Davis Wright Temaine, Seattle, WA, for amicus.

Kenneth S. Geller, Mayer, Brown & Platt, Washington, DC, for amicus.

Appeal from the United States District Court for the Western District of Washington.

Before: ALARCON and HALL, Circuit Judges, and KING, District Judge ^*.

ORDER

The motion of appellee Washington Independent Telephone Association to correct the opinion in this case is hereby GRANTED.

The opinion filed December 30, 1994, is amended in accordance with the opinion attached hereto.

OPINION

CYNTHIA HOLCOMB HALL, Circuit Judge:

US West, Inc. and several affiliated companies (hereinafter referred to collectively as "US West"), Pacific Telecom, Inc. and its subsidiaries ("PTI"), and the Washington Independent Telephone Association ("WITA") challenge the constitutionality of Sec. 613(b) of the Cable Franchise Policy and Communications Act of 1984, Pub.L. No. 98-549, 98 Stat. 2785 (1984) (the "1984 Cable Act"). This provision, codified at 47 U.S.C. Sec. 533(b), provides in pertinent part that:

(1) It shall be unlawful for any common carrier, subject in whole or in part to subchapter II of this chapter, to provide video programming directly to subscribers in its telephone service area, either directly or indirectly through an affiliate owned by, operated by, controlled by, or under common control with the common carrier.

(2) It shall be unlawful for any common carrier, subject in whole or in part to subchapter II of this chapter, to provide channels of communication or pole line conduit space, or other rental arrangements, to any entity which is directly or indirectly owned by, operated by, controlled by, or under common control with such common carrier, if such facilities or arrangements are to be used for, or in connection with, the provision of video programming directly to subscribers in the telephone service area of the common carrier.

47 U.S.C. Sec. 533(b)(3) provides an exception to the ban for telephone companies providing service in rural areas. Furthermore, the Federal Communications Commission ("FCC") has the authority to waive the prohibition under certain conditions. 47 U.S.C. Sec. 533(b)(4).

"Video programming" is defined in 47 U.S.C. Sec. 522(16) as "programming provided by, or generally considered comparable to programming provided by, a television broadcast station." The FCC has interpreted Sec. 522(16) to require a comparison of material to be provided by the telephone company with television broadcast programming in 1984: video services of the type broadcast in 1984 are "video programming" and therefore covered by Sec. 533(b), whereas services or material not broadcast in 1984 are not covered by the cross-ownership prohibition. ¹

US West is a common carrier which provides local telephone service in 14 western and midwestern states. The company has applied for and been granted permission from the FCC to conduct a limited trial in Omaha, Nebraska, of "video dialtone service," which consists of constructing and making available transmission facilities for third parties' provision of video programming on a common carrier basis. ² The FCC has concluded that such video dialtone services do not violate Sec. 533(b) so long as the telephone company does not provide the programming material. See First Video Dialtone Order, 7 FCCRcd. at 5790. US West, PTI, and WITA, on behalf of numerous other Washington state local telephone companies, allege that they have or could quickly develop video dialtone facilities in numerous markets and would directly enter the video programming market in competition with local cable companies in their telephone service areas if the cross-ownership ban were removed. US West, PTI and WITA brought this constitutional challenge to Sec. 533(b), claiming that the law violates the First Amendment both on its face and as applied, and asking that its enforcement be enjoined.

The district court granted summary judgment in favor of the plaintiffs. US WEST, Inc. v. United States, 855 F.Supp. 1184 (W.D.Wash.1994). The court rejected the government's contention that Sec. 533(b) is a structural regulation of the telecommunications market that should be subjected only to rational basis review. It also declined to decide whether Sec. 533(b) should be subject to strict scrutiny as a speaker- or content-based restriction. Instead, the district court found that the provision is unconstitutional even under the lower, intermediate scrutiny applied to content-neutral time, place, and manner restrictions and laws of general application which impose an incidental burden on speech. See, e.g., Ward v. Rock Against Racism, 491 U.S. 781, 109 S.Ct. 2746, 105 L.Ed.2d 661 (1989). The district court held specifically that Sec. 533(b) is not sufficiently narrowly tailored to serve a substantial government interest.

Several other courts have recently had occasion to pass on the constitutionality of Sec. 533(b), including one other court of appeals. All have found it invalid under intermediate First Amendment scrutiny. See Chesapeake & Potomac Tel. Co. v. United States, 42 F.3d 181 (4th Cir.1994) ("C & P"); NYNEX Corporation v. United States, No. 92-323-P-C (D. Maine Dec. 8, 1994); Ameritech Corp. v. United States, 867 F.Supp. 721 (N.D.Ill.1994); BellSouth Corp. v. United States, 868 F.Supp. 1335 (N.D.Ala.1994). We join those other courts in finding that Sec. 533(b) unconstitutionally infringes on the plaintiffs' First Amendment right to free speech.

REGULATORY AND STATUTORY BACKGROUND

The telephone-cable cross-ownership prohibition began as a rule adopted by the FCC in 1970, prompted by concerns that telephone companies, if permitted to provide cable services in their telephone service areas, would monopolize the field because they would discriminate against independent providers and in favor of their affiliates, in granting access to telephone poles and conduits. ³ A 1981 FCC report suggested that the pole access concerns underlying the ban no longer independently supported it, but recommended retaining the cross-ownership restriction due to other concerns, such as potential "cross-subsidization" of the telephone companies' cable operations from their monopolistic telephone operations. ⁴

Congress adopted Sec. 533(b) in 1984, as part of the comprehensive 1984 Cable Act. The Act contains no legislative findings concerning the cross-ownership ban. The only direct reference to the purpose of Sec. 533(b) in the legislative history is a single sentence in a House report, indicating that the provision was intended "to codify current FCC rules concerning the provision of video programming over cable systems by common carriers." H.R.Rep. No. 934, 98th Cong., 2d Sess. 56 (1984) ("1984 House Report"). The report also stated that a number of cross-ownership provisions, all codified in Sec. 533, were intended "to prevent the development of local media monopolies, and to encourage a diversity of ownership of communications outlets." Id. at 55.

When the FCC's 1970 Order was adopted, the cable industry was in its infancy. At that time, fewer than ten percent of American households had access to cable television. See First Video Dialtone Order, 7 FCCRcd. at 5848. The FCC feared that the telephone companies could easily stifle competition and monopolize the industry. In 1984, when Congress enacted Sec. 533(b), the industry had developed considerably, but concerns of monopolization by the telephone companies remained.

Since then, however, the nature of the cable television industry has changed enormously. By 1992, access to cable had surpassed ninety-one percent of households. Id. at 5855-56. Today, almost all cable providers have monopolies in their local markets. See, e.g., Affidavit of Thomas W. Hazlett at p 3 (only 2% of households have a choice between two competing cable systems).

In the Cable Television Consumer Protection and Competition Act of 1992, Congress specifically found that "most cable television subscribers have no opportunity to select between competing cable systems," resulting in "undue market power for the cable operator as compared to that of consumers and video programmers." Pub.L. No. 102-385, Sec. 2(a)(2), 106 Stat. 1460, 1460 (hereinafter the "1992 Cable Act"). Congress also found that the "cable industry has become highly concentrated" and that the "potential effects of such concentration are barriers to entry for new programmers and a reduction in the number of media voices available to consumers." Id. Sec. 2(a)(4). The five largest cable system operators in 1992 served over forty percent of all cable subscribers in the entire country. See C & P Telephone Co. v. United States, 830 F.Supp. 909, 915 (E.D.Va.1993), aff'd, 42 F.3d 181 (4th Cir.1994) ("C & P District Court"). In 1991, the largest, Tele-Communications Inc., served 9.6 million subscribers and had revenues of $3.8 billion; the second largest, Time Warner, had 6.8 million subscribers...