Nos. 94-1893 and 94-1900
In The Supreme Court of The United States
OCTOBER TERM, 1995
UNITED STATES OF AMERICA, ET AL.,
PETITIONERS
v.
THE CHESAPEAKE AND POTOMAC TELEPHONE
COMPANY OF VIRGINIA, ET AL.
NATIONAL CABLE TELEVISION ASSOCIATION, INC.,
PETITIONER
v.
BELL ATLANTIC CORPORATION, ET AL.
ON WRITS OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
SUGGESTION OF MOOTNESS
DREW S. DAYS, III
Solicitor General
Department of Justice
Washington, D.C. 20530
(202)514-2217
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QUESTION PRESENTED
Whether 47 U.S.C. 533(b), which bars local telephone
companies from directly providing video programming to
subscribers in their telephone service areas, violates the
First Amendment.
(1)
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            II
   PARTIES TO THE PROCEEDINGS
Petitioners in No. 94-1893, defendants-appellants
below, are the United States, the Federal Communica-
tions Commission, and Janet Reno, in her official capacity
as the Attorney General of the United States. Petitioner
in No. 94-1900, an intervenor-defendant and also an ap-
pellant below, is the National Cable Television Associa-
tion, Inc. Respondents, plaintiffs-appellees below, are
The Chesapeake and Potomac Telephone Company of
Virginia, Bell Atlantic Video Services Company, Bell
Atlantic Corporation, Chesapeake and Potomac Tele-
phone Company, C & P Telephone Company of Mary-
land, The Chesapeake and Potomac Telephone Company
of West Virginia The Diamond State Telephone Com-
pany, The Bell Telephone Company of Pennsylvania, and
New Jersey Bell Telephone Company.
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TABLE OF CONTENTS     Page
Opinions below   . . . . 1
Jurisdiction  . . . . 2
Constitutional and statutory provisions involved   . . . . 2
Statement  . . . . 2
Introduction  and summary of argument . . . . 16
Argument:
I.   Section 533 (b) does not require strict scrutiny
II.  Section 533(b) meets the requirements of inter-
  mediate scrutiny ....19
  A. Section 533(b) furthers significant govern-
   mental interests  . . . . 24
  B. Section 533(b) is narrowly tailored  . . . . 24
  C. LECs have ample alternative channels of
   communication   . . . . 27
III. The FCC's Third Report and Order eliminates
  any doubts about the constitutionality of Section
  533 (b)   . . . . 37
Conclusion  . . . . 39
     TABLE OF AUTHORITIES
Cases:
Amendment  of Section 64.702 of the Commission's
  Rules and Regulations (Second Computer In-
  quiry), Final Decision, In re, 77 F.C.C.2.d 384
  (1980), modified in part on reconsideration, 84
  F.C.C.2d 50 (1980), 88 F.C.C.2d 512 (1981),
  aff'd sub nom. Computer & Communications
  Indus. Ass'n. V. FCC, 693 F.2d 198 (D.C. Cir.
  1982), cert. denied, 461 U.S. 938 (1983) . . . . . . .
American Scholastic TV Programming Founda-
  tion V. FCC, 46 F.3d 1173 (D.C. Cir. 1995)  . . . .
         (III)
---------------------------------------- Page Break ----------------------------------------
 Iv
Cases-Continued:		              Page
Ameritech Corp. v. United States, 867 F. Supp.
  721 (N.D. III. 1994), appeal pending, No. 95-
  1223 (7th Cir.)     . . . .     14
Applications of Telephone Companies for Section
  214 Certificates for Channel Facilities Furnished
  to Affiliated Community Antenna Television
  Systems, 21 F.C.C.2d  307 (1970), aff'd sub  nom.
  General Telephone Co. V. United States, 449
  F.2d 846 (5th Cir. 1971)    . . . . 5, 6, 7, 20, 35
BellSouth Corp. V. United States, 868 F. Supp.
  1335 (N.D. Ala. 1994), appeal pending, No. 94-
  7036 (llth.Cir.)....  14
Board of Trustees V. Fox, 492 U.S. 469 (1989) . . . . 28
Bolger  v. Youngs Drug Products Corp., 463 U.S.
  60 (1983)   . . . . 29
California V. FCC:
   905 F.2d 1217 (9th Cir. 1990) .... 4, 31
   4 F.3d 1505 (9th Cir. 1993)   . . . . 5
   39 F.3d 919 (9th Cir. 1994)        ....5, 37
Chevron U.S.A. Inc. V. Natural Resources Defense
  Council, Inc., 467 U.S. 837 (1984)     . . . .   21
City of Renton v. Playtime Theater, Inc., 475 U.S.
  41 (1986)  . . . . 22, 29
Clark V. Community for Creative Non-Violence,
  468 U.S. 288 (1984)....23, 28, 38
Delaware, L. & W.R.R. V. United States, 231 U.S.
  363 (1913)....6
FCC v. National Citizens Committee for Broad-
  casting, 436 U.S. 775 (1978)....3, 20, 25
Frisby v. Schultz , 487 U.S. 474 (1988)    . . . . 23, 24
Heffron V. International Society for Krishna Con-
  seriousness, Inc., 452 U.S. 640 (1981). . . . 38
Illinois Bell Telephone Co. V. FCC, 740 F.2d 465
  (7th Cir. 1984)  .  . . . 4
Implementation of Section 19 of the Cable Tele-
  vision Consumer Protection and Competition
  Act of 1992, First Report, In re, 9 F.C.C. Rcd
  7442 (1994)   . . . . 30
Jean V. Nelson, 472 U.S. 846 (1985) . . . . 22
 ---------------------------------------- Page Break ----------------------------------------
 v
Cases-Continued:			                   Page
Members of City Council V. Taxpayers for Vincent,
  466 U.S. 789 (1984)  . . . . 22, 23, 31, 41
NYNEX Corp. V. United States, No. 93-323-P-C
  (D. Me. Dec. 8, 1994), appeal pending, No. 95-
  1183 (lst Cir.)    . . . . 14
National Broadcasting Co. V. United States,
  319 Us. 190 (1943)  . . . . 3
National Cable Television Ass'n v. FCC, 33 F.3d
  66 (D.C. Cir. 1994)....9
National Rural Telecom Ass'n V. FCC, 988 F.2d
  174 (D.C. Cir. 1993)   . . . . 4, 32
New York Tel. Co., In re:
   5 F.C.C. Red 866 (1990) . . . . 34
   5 F.C.C. Red 5892 (1990) . . . . 34
Ohralik V. Ohio State Bar Ass'n, 436 U.S. 447"
  (1978) . . . . 29
Pacific Telesis Group V. United States, 48 F.3d
  1106 (9th Cir. 1994)  . . . . 14
Policy and Rules Concerning the Furnishing of
  Customer Premises Equipment, Enhanced Ser-
  vices and Cellular Communications Services by
  the Bell Operating Companies, Report and Or-
  der, In re, 9.5 F.C.C.2d 1117 (1983)  . . . . 4, 6
Regan V. Time, Inc., 468 U.S. 641 (1984) . . . . 21
San Francisco Arts & Athletics, Inc. V. United
  States Olympic Comm., 483 U.S. 522 (1987) . . . . 28
Southern New Engkmd Telephone CO. v. United
  States, No. 3: 94-CV-80 (DJS) (D. Corm. Apr.
  27, 1995), appeal pending, No. 95-6137 (2d
  Cir.)   . . . . 14
Southwestern Bell Corp. V. FCC, 896 F.2d 1378
  (D.C. Cir. 1990)   . . . . 4
Southwestern Bell Corp. V. United States, No. 3:94-
  CV-0193-D (N.D. Tex. Mar. 27, 1995), appeal
  pending, No. 95-10478 (5th Cir.) . . . . 14
Telephone Company-Cable Television Cross-
  Ownership Rules, Sections 63.54-63.58, First
  Notice of Proposed Rulemaking, First Report
  and Order, and Second Further Notice of In-
  quiry, In re, 7 F.C.C. Red 300 (1991) . . . . 9
  ---------------------------------------- Page Break ----------------------------------------
Cases-Continued:            			 Page
Telephone Company-Cable" Television Cross-
  Ownership Rules, Sections 63.54-63.58, Further
  Notice of Inquiry and Notice of Proposed Rule-
  making, In re, 3 F.C.C. Red 5849 (1988) . . . . 8. 26,27
Telephone Company-Cable Television Cross
  Ownership Rules, Sections 63.54-63.58, Notice
  of Inquiry, In re, 2 F.C.C. Rcd 5092 (1987) . . . . 8
Telephone Company-Cable Television Cross-
  Ownership Rules, Sections 63.54-63.58, Second
  Report and Order, Recommendation to Con-
  gress, and Second Further Notice of Proposed
  Rulemaking, In re, 7 F.C.C. Rcd 5781 (1992),
  modified in part on reconsideration, 10 F.C.C.
  Rcd 244 (1994)     . . . . 9,10,21,22,30,32,42
Turner Broadcasting System V. FCC, 114 S. Ct.
  2445 (1994)     . . . . passim
United States v. American Tel. & Tel. Co.:
   524 F. Supp. 1336 (D.D.C. 1981)   . . . . 4. 6, 25
   552 F. SUPP. 131 (D.D.C. 1982), aff'd mem. sub
    nom. Maryland v. United States, 460 U.S.
    1001 (1983)     . . . .  5-6, 25
United States v. O'Brien, 391 U.S. 367 (1968) . . . . 19, 23
United States v. Paramount Pictures, Inc., 85 F.
  SUPP. 881 (S.D.N.Y. 1949), aff'd mem. sub nom.
  Loew's, Inc. V. United States, 339 U.S. 974
  (1950)....  3
United States V. Salerno, 481 U.S. 739 (1987)  . . . . 42
United States v. Storer Broadcasting Co., 351 U.S.
  192 (1956)....25
United States-v. Western Elec. Co.:
   900 F.2d 283 (D.C. Cir.), cert. denied, 498 U.S.
    911 (1990) .....4, 31
   993 F.2d 1572 (D.C. Cir.), cert. denied, 114
    S. Ct. 487 (1993) . . . . 32
United States v. X-Citement Video, Inc., 115 S. Ct.
  464 (1994)     . . . .  14-15, 40, 41
United States Telephone Ass'n V. United States,
  No. 1: 94CV01961 (D.D.C. Feb. 14, 1995), ap-
  peal pending, No. 95-1175 (D.C. Cir.) . . . . 14
  ---------------------------------------- Page Break ----------------------------------------
  VII
Cases-Continued: 		             Page
US West, Inc. V. United States, 48 F.3d 1092 (9th
  Cir. 1994)  . . . . 14
Ward V. Rock Against Racism, 491 U.S. 781
  (1989)  . . . . 11, 19, 20, 22, 23, 24, 28, 30, 37
Constitution, statutes and regulation:
U.S. Const. Amend. I   . . . . 2, 14, 19, 28, 38, 39, 41
Bank Holding Company Act of 1956, "12 U.S.C.
1841  et seq . . . . 25
Cable Communications Policy Act of 1984, Pub. L.
N0. 98-549, 98 Stat. 2779 . . . . 2
  2, 98 Stat. 2785 . . . . 2
Cable Television Consumer Protection and Com-
petition Act of 1992, Pub. L. No. 102-385, 106
Stat. 1460  . . . . 10
 2(a) (6), 106 Stat. 1461   . . . . 10
Interstate Commerce Act,  49 U.S.C. 10746   . . . . 6
Newspaper Preservation Act, 15 U.S.C. 1801-
1804   . . . . 3
Public Utility Holding Company Act of 1935, 15
U.S.C. 79 et seq.:
15 U.S.C. 79a(a)   . . . . 25
15 U.S.C, 79a(b)  . . . . 25
47 U.S.C. 522(19) (Supp. V 1993)  . . . 20.
47 U.S.C. 531   . . . . 3
47 U.S.C. 532 (1988 & Supp. V 1993) . . . . 3, 30
47 U.S.C. 533 (1988 & Supp. V 1993)  . . . . 8
47 U.S.C. 533 (a) (1) (1988& Supp. V 1993)  . . . . 3
47 U.S.C. 533 (a) (2) (Supp. V 1993)  . . . . 10
47 U.S.C. 533 (b)  . . . . passim
47 U.S.C. 533 (b) (1) . . . . 7
47 U.S.C. 533 (b) (3) . . . . 8
47 U.S.C. 533 (b) (4) .... 8, 14, 15, 31, 39, 40, 41
47 U.S.C. 534(a) (Supp. V 1693) . . . . 30
47 U.S.C. 534 (b) (Supp. V 1963) . . . . 3
47 U.S.C. 535(b) (SUPP. V 1993)   . . . . 3
47 U.S.C. 541 (a) (1) (Supp. V 1993) . . . . 10
47 U.S.C.  543 (Supp. v 1993)  . . . . 10
47 C.F.R. 64.601 (1971)   . . . . 6
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 VIII
Miscellaneous: 			              Page
Harvey Averch & Leland L. Johnson, Behavior of
  the Firm Under Regulatory Constraint, 52 Am.
  Econ. Rev. 1052 (1962)   . . . . 4
C. Edwin Baker, Merging Phone and Cable, 17
  Hastings Comm. & Ent. L.J. 97 (1994)   . . . . 26, 27
Cable-Instructional TV and S. 1200, Communica-
  tions Competitiveness and Infrastructure Mod-
  ernization Act of 1991: Hearing Before the
  Subcomm. on Communications of the Senate
  Comm. on Commerce, Science, and Transporta-
  tion, 102d Cong., 2d Sess. (1992)  . . . . 10, 33
Cable TV Consumer Protection  Act of 1989: Hear-
  ings Before the Subcomm. on Communications
  of the Senate Comm. on Commerce, Science,
  and Transportation, 101st Cong., 2d Sess.
  (1990)....  38
Cable Television Regulation: Hearings Before the
  Subcomm, on Telecommunications and Finance
  of the House Comm. on Energy and Com-
  merce, 102d Cong., 1st Sess. (1991)   . . . . 10, 33, 34
Cable Television Regulation (Part 1): Hearings
  Before the Subcomm. on Telecommunications
  and Finance of the House Comm. on- .Energy
  and Commerce, 10lst Cong., 2d Sess. (1990 ).... 8, 33
Cable Television Regulation (Part 2): Hearing Be-
  fore the Subcomm. on Telecommunications  and
  Finance of the House Comm. on Energy and
  Commerce, 10lst Gong., 2d Sess. (1990)  . . . . 33
Communications Competitiveness and Infrastruc-
  ture Modernization Act of 1990: Hearing Be-
  fore the Subcomm. on Communications of the'
  Senate Comm. on Commerce, Science, and Trans-
  portation, 101st  Cong., 2d Sees. (1990)  . . . . 8, 33, 34
138 Cong. Rec. (1992):
   p. H6489 (daily ed. July 23)   . . . . l0
   p. H6492.(daily ed. July 23)   . . . . 10
   p. H8671 (daily e.d. Sept. 17)   . . . . 10
   p. H8673 (daily ed. Sept. 17)  . . . . 10
   p. S14,225 (daily ed. Sept. 21)  . . . 10
   p. S14,237 (daily ed. Sept. 21)  . . . 10
  ---------------------------------------- Page Break ----------------------------------------
 IX
Miscellaneous-Continued:			Page
   pp. S14,246-S14,247 (daily ed. Sept. 21)   . . . . 10
   p. S14,250 (daily ed. Sept. 21)  . . . . 10
   pp. S14,255-S14,256 (daily ed. Sept. 21)   . . . . 10
   p. S16,663 (daily ed. Oct. 5)  . . . . 10
  pp. S16,665-S16,666 (daily ed. Oct. 5)   . . . . 10
141 Cong. Rec. (1995):
  pp. H8436-H8438 (daiIy ed. Aug. 4)   . . . . 16
  p. H8437 (daily ed. Aug. 4)  . . . . 16
  p. H8438 (daily ed. Aug. 4)  . . . . 16
  p. S8570 (daily ed. June 16)  . . . . 16
  P. S8577 (daily ed. June 16)  . . . . 16
General Accounting Office, Telecommunications:
  FCC'S Oversight Efforts to Control Cross-
  Subsidization (Feb. 1993) . . . . 4, 31
General Accounting Office: Telephone Communica-
  tions: Controlling Cross-Subsidy Between Reg-
  ulated and Competitive Services (Oct. 1987). .4, 5,
					    31, 33
H.R. 1555, 104th Cong., 1st Sess. (1995)  . . . . 16
H.R. Rep. No. 934, 98th Cong., 2d Sess. (1984) . . . . 3, 8, 20,
               				    21,25,30,33
2 Alfred E. Kahn, The Economics of Regulation
(1988) . . . . 4
Office of Plans and Policy, FCC Policy on Cable
Ownership: A Staff Report (Nov. 1981)  . . . . 7, 35, 36
S. 652, 104th Cong., 1st Sess. (1995)   . . . . 16
S. Rep. No. 456, 10lst Cong., 2d Sess. (1990)   . . . . 11, 34
S. Rep. No. 92, 102d Cong., 1st Sess. (1991)  . . . . 11, 34
Statement of Assistant Attorney General Anne K.
Bingaman Before the Senate Commerce Com-
mittee (Mar. 2, 1995)  . . . . 32
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IN THE SUPREME COURT OF THE UNITED STATES
      OCTOBER TERM, 1995
      No. 94-1893
UNITED STATES OF AMERICA, ET AL., PETITIONERS
        v.
THE CHESAPEAKE AND POTOMAC TELEPHONE
   COMPANY OF VIRGINIA, ET AL,
      No. 94-1900
NATIONAL CABLE TELEVISION ASSOCIATION, INC.,
      PETITIONER
        v.
BELL  ATLANTIC CORPORATION, ET AL.
    ON WRITS OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
BRIEF FOR THE FEDERAL PETITIONERS
      OPINIONS BELOW
The opinion of the court of appeals (Pet. App. la-
52a) is reported at 42 F.3d 181! The opinion of the
___________________(footnotes)
1.  "Pet. App." refers to the appendix to the petition in No. 94-
1893. "Pet. Supp. Br." refers to the supplemental brief in support
of the petition in No. 94-1893. "Pet. Supp. Apply refers to the
appendix to that supplemental brief. "Resp." refers to the response
to the petitions for a writ of certiorari, "J.A." refers to the joint
appendix.
        (1)
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  2
district court (Pet. App. 53a-108a) is reported at 830
F. Supp. 909. The Federal Communications Commis-
sion's Third Report and Order (Pet. Supp. App. 1a-21a),
concerning the statutory provision for waivers of the
cross-ownership bar, is not yet reported.
       JURISDICTION
The judgment of the court of appeals was entered on
November 21, 1994. Petitions for rehearing were denied
on January 18, 1995. Pet. App. 109a-112a. On March
24, 1995, the Chief Justice extended the time within
which to tile a petition for a writ of certiorari to and
including May 18, 1995. The petitions for a writ of
certiorari were filed on May 18, 1995, and were granted
on June 26, 1995. J.A. 387, 388. The jurisdiction of
this Court rests on 28 U.S.C. 1254(1).
     CONSTITUTIONAL AND
   STATUTORY PROVISIONS INVOLVED
The First Amendment to the United States Constitu-
tion provides that "Congress shall make no law * * *
abridging the freedom of speech, or of the press." The
text of 47 U.S.C. 533(b) is set forth at Pet. App. 167a-
168a.
 STATEMENT
1. This case involves a First Amendment challenge to
47 U.S.C. 533(b), a regulation of the market for cable
television services that bars local telephone companies
(local exchange carriers or LECs) from directly provid-
ing video programming, by means of a cable system, to
subscribers in their telephone service areas. Section
533 (b) was enacted as part of Congress's comprehensive
regulation of the cable industry in the Cable Communica-
tions Policy Act of 1984, Pub. L. No, 98-54.9, 98 Stat.
2779 (Cable Act or 1984 Cable Act); see 2, 98 Stat.
2785. It is similar to another cross-ownership rule, en-
acted at the same time, that prohibits local television
broadcast stations from owning cable systems in their
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 3
service areas. See 47 U.S.C. 533(a) (1) ( 1988 & Supp.
V 1993). It also stands in a long line of congressional
and administrative initiatives to promote diversity in
media outlets. 2.
Section 533 (b) addresses the special potential for anti-
competitive conduct by LECs, which are generally regu-
lated monopolists within their common carrier telephone
service areas, in less regulated markets such as the mar-
ket for cable services. LECs' telephone operations are,
in general, subject at the state level to rate regulation
based on a return on capital and recovery of costs.
If LECs entered the cable market, they would have an
incentive to allocate the costs of their cable services to
their monopoly telephone operations, and to have regula-
tors set higher telephone rates based on those shifted
costs. Such cost-shifting would allow LECs to impose
their cable costs on captive telephone ratepayers without
sacrificing telephone service market share, and to sub-
sidize their affiliated cable entities with monopoly tele-
phone profits. Telephone consumers would suffer higher
rates based on distorted costs, and businesses competing
with LECs' affiliated cable entities might wither under
___________________(footnotes)
2 See, e.g., FCC v. National Citizens Comm. for Broadcasting,
436 U.S. 775 (1978) (upholding restrictions on cross-ownership
of daily newspapers and broadcast stations) ; National Broadcast-
ing Co. V. United States, 319 U.S. 190 (1943) (upholding regula-
tion prohibiting network ownership of more than one broadcast
station in a service area) ; United States v. Paramount Pictures,
Inc., 85 F. Supp. 881 (S.D.N.Y. 1949) (antitrust decree requiring
separation of production and exhibition of motion pictures), aff'd
mem. sub nom. Loew's, Inc. V. United States, 339 U.S. 974 (1950) ;
15 U.S.C. 1801-1804 (Newspaper Preservation Act) ; 47 U.S.C. 531
(municipalities may require public access to cable system) ; 47
U.S.C. 532 (1988 & Supp. V 1993) (cable systems must set aside
channels for leased access) ; 47 U.S.C. 534 (b), 535 (b) (Supp. V
1993) (cable systems must carry local broadcast stations). See
H.R. Rep. No. 934, 98th Cong., 2d Sess. 33 & n.3 (1984) (placing
telephone-cable cross-ownership rule in line of authority holding
that "the government can restrict concentrated ownership of com-
munications media in a locality, in the interest of diversity").
---------------------------------------- Page Break ----------------------------------------
4
unfair competition because of the subsidy from the tele-
phone operations.3
The potential for such "cross-subsidization" by LEG
is particularly serious in the cable market, which is ad-
jacent to, and potentially overlapping with, the telephone
market. Affiliated LECs and cable systems could share
capital equipment, such as fiber-optic cable, as well as the
costs of research and development, administration of the
telephone network, and personnel. Also, because the
technology has developed for the transmission of video
signals over the telephone network, LECs could de-
liver video programming over their own wires. Thus,
LECs would have substantial opportunities to cross-
subsidize their cable operations if they were permitted to
operate cable systems in their own service areas. A regu-
latory approach to the problem of cross-subsidization
___________________(footnotes)
3 See generally National Rural Telecom Ass'n v. FCC 988 F.2d
174, 178 (D.C. Cir. 1993) ; California V. FCC, 905 F.2d 1217, 1224,
1226-1228, 1233-1238 (9th Cir. 1990) ; United States V. Western
.Elec. CO., 900 F.2d 283, 289-290 (D.C. Cir.), cert. denied, 498 U.S.
911 (1990) ; Southwestern Bel1 Corp. v. FCC, 896 F.2d 1378, 1379-
1380 (D.C. Cir. 1990) ; Illinois Bell Tel. Co. v. FCC, 740 F.2d 465,
472 (7th Cir. 1984) ; United States v. American Tel. & Tel. Co.,
524 F. Supp. 1336, 1368-1369 (D.D.C. 1981); In re Policy and
Rules Concerning the Furnishing of Customer Premises Equip-
ment, Enhanced Services and Cellular Communications Services
by the Bell Operating Companies, Report and Order, 95 F.C.C.2d
1117, 1129-1131 (1983) (BOC Separation Order) ; In re Amend-
ment of Section 6.4.702 of the Commission's Rules and Regulations
(Second Computer Inquiry), Final Decision, 77 F. C.C.2d 384, 463-
464 (1980) (Computer H), modified in part on reconsideration,
84 F.C.C.2d 50 (1980), 88 F.C.C.2d 512 (1981), aff'd sub nom.
Computer & Communications Indus. Ass'n v. FCC, 693 F.2d 198
(D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983) ; General
Accounting Office, Telephone Communications: controlling Cross-
Subsidy Between Regulated and Competitive Services 50 (Oct.
1987) (First GAO Report) (J.A. 92-93) ; General Accounting
Office, Telecommunications: FCC's Oversight Efforts to Control
Cross-Subsidization 3-4 (Feb.. 1993) (J.A. 122-123) ; Harvey Averch
& Leland L. Johnson, Behavior of the Firm Under Regulatory Con-
straint, 52 Am Econ. Rev. 1052 (1962) ; 2 Alfred E. Kahn, The
Economics of Regulation 54 (1988).
---------------------------------------- Page Break ----------------------------------------
 5
would require extensive supervision and auditing of LEC's
use of their capital equipment, deployment of their
human resources, and accounting practices?
A second problem posed by entry of LECs into the
cable market is the threat of discrimination against their
competitors in the use of facilities for the transmission of
video signals. That discrimination could take at least
two forms. First, traditional cable systems transmit pro-
gramming to subscribers over wires attached to utility
poles or buried underground and brought into sub-
scribers' homes through utility service conduits. LECs
have had, historically, effective control over poles and
conduits necessary to the operation of a cable system,
and they could abuse that control to prevent competing
cabIe operators from using those poles and conduits, or
to make it difficult for competitors to maintain their
wires as is necessary to ensure adequate quality 15. Second,
LECs wield exclusive control over the wires, switching
devices, and other transmission facilities essential to the
delivery of video signals over the technically complex
modern telephone network. Absent effective regulation,
LECs could discriminate against competing video pro-
grammers in affording access to that network, by design-
ing the system to f aver transmission of their own video
signals and providing inferior service and maintenance
to competitors using the network. Discrimination un-
checked by regulation could cripple competition if LECs
were to exceed their traditional role of common carriers
of others' signals. 6.
___________________(footnotes)
4. See J.A. 52, 54-55, 57 (1981 FCC staff study), 251-255 (Owen
affidavit) ; cf. J.A. 84-85, 88-92 (First GAO Report, discussing
similar problems in LEC entry into other lines of business).
5. See In re Applications of Tel. Cos. for Section 214 Certificates
for Channel Facilities Furnished to Affiliated Community Antenna
Television Systems, 21 F.C.C.2d 307, 324 (1970), aff'd sub nom,.
General Tel. CO. V. United States, 449 F.2d 846 (5th Cir. 1971).
6. See California v. FCC, 39 F.3d 919, 929-930 (9th Cir. 1994) ;
California V. FCC, 4 F.3d 1505, 1509-1513 (9th Cir. 1993) ; United
  ---------------------------------------- Page Break ----------------------------------------
6
2. Section 533(b) has its origins in regulations issued
by the Federal Communications Commission (FCC) in
1970 to address the problem of anti-competitive practices
by LECs in the cable services market. See 47 C.F.R.
64.601 (197 I); In re Applications Of Tel. Cos. for Sec-
tion 214 Certificates for Channel Facilities Furnished to
Affiliated Community Antenna Television Systems, 21
F.C.C.2d 307 ( 1970), aff'd sub nom. General Tel. Co.
V. United States, 449 F.2d 846 (5th Cir. 1971). The
FCC identified "[t]he central problem" as "the anomalous
competitive situation between [cable] systems affiliated
with the telephone companies, and those which have no
such affiliation" (21 F.C.C.2d at 323), and concluded
that "[t]he entry by a telephone company * * * into the
retailing aspects of [cable] services in the community
within which it furnishes communications services can
lead to undesirable consequences," including discrimina-
tion against unaffiliated cable companies and extension of
LECs' telephone monopoly to the cable services market
(id. at 324). Intending "to insure against any arbitrary
blockage of th[e] gateway" and to preserve "a competi-
tive environment for the development and use of broad-
band cable facilities and services and thereby avoid undue
and unnecessary concentration of control over communi-
cations media either by existing carriers or other entities,"
the FCC determined that "the preservation of such com-
petition wiII best be assured by the exclusion of tele-
phone companies in their service areas from engaging in
___________________(footnotes)
States v. American Tel. & Tel. Co., 552 F. SUPP. 131, 189-190
(D.D.C. 1982), aff'd mem. sub nom. Maryland V. United States, 460
U.S. 1001 (1983) ; United States v. American Tel. & Tel. Co., 524
F. Supp. at 1352-1355; BOC Separation Order, 95 F.C.C.2d at
1134-1135; Computer 11, 77 F.C.C.2d at 463-464. See also Delaware,
L. & W.R.R. v. United States, 231 U.S. 363, 370 (1913) (upholding
"commodities clause" of Interstate Commerce Act, 49 U.S.C. 10746,
which prohibits common carriers from transporting products in
which they have a financial interest, and noting potential for dis-
crimination if common carriers were permitted to haul for their
own benefit as well as others').
 ---------------------------------------- Page Break ----------------------------------------
 7
the sale of [cable] service to the viewing public except
where no practical alternative exists to make such service
available within a particular community." Id. at 325.
In 1980, the FCC directed its staff to study several
regulatory restrictions on ownership of cable systems, and
in November 1981, the Commission's Office of Plans and
Policy issued a report recommending that the telephone-
cable cross-ownership bar be retained. See FCC Policy
on Cable Ownership: A Staff Report 141-178 (J.A. 40-
78). The staff report acknowledged that changes in the
cable industry made it "no longer appropriate to think
of [cable] as an infant," J.A. 41 n.3, but it nonetheless
concluded that there were serious disadvantages in cross-
ownership, principally in that "telephone companies are
regulated exclusive franchise monopolists in their local
area," J.A. 52. The staff was especially concerned about
cross-subsidization of cable operations by LECs, and it
noted that, because cable and telephone systems may
share capital equipment, "allocating shared costs between
these capital accounts on the basis of actual cost causa-
tion will be difficult or impossible." J.A. 57. The staff
did not believe that a structural separation of corporate
entities providing cable and telephone services would
eliminate the danger of cost-shifting. J.A. 67-71. The
staff also could not find a regulatory solution to the
problem of discrimination in access to the local exchange
network. J.A. 73-76.
3. Congress enacted Section 533 (b) in the 1984 Cable
Act, using language borrowed from the FCC's 1970 regu
lations. Congress prohibited "any common carrier, sub-
ject in whole or in part to subchapter II" of the Communi-
cations Act of 1934 (i.e., any LEC ), from "providing]
video programming directly to subscribers in its telephone
service area." 47 U.S.C. 533(b)(1). Congress also pro-
hibited LECs from providing pole or conduit space to
any affiliated cable entity for the purpose of provid-
ing video programming directly to subscribers. Congress
intended "to codify [the] FCC rules concerning the
---------------------------------------- Page Break ----------------------------------------
8
provision of video programming over cable systems by
common carriers." H.R. Rep. No. 934, 98th Cong., 2d
Sess. 56 (1984) (1984 House Report). Section 533 as
a whole was intended "to prevent the development of
local media monopolies, and to encourage a diversity of
ownership of communications outlets." Id. at 55.
The statute contains several exceptions to the general
prohibitions, also derived from the FCC's regulatory
regime. Under Section 533 (b) (3), LECs may freely pro-
vide video programming to customers who reside in a
"rural area," as defined by the FCC. LECs may also seek
a waiver of the cross-ownership bar for those areas where
cable service "demonstrably could not exist" except if
provided through a LEC-affiliated entity. 47 U.S.C.
533 (b) (4). Finally, Congress authorized the FCC to
waive the cross-ownership bar "upon other showing of
good cause * * * [and] upon a finding that the issuance
of such waiver is justified by the particular circumstances
demonstrated by the petitioner, taking into account the
policy of this subsection." Ibid.
4. Within a few years of the enactment of Section
533 (b), LECs and others began to urge its repeal.'
Beginning in 1987, the FCC conducted extensive public
inquiry and rulemaking proceedings regarding the costs,
benefits, and continued need for the cross-ownership bar.'
___________________(footnotes)
7  See, e.g., Communications Competitiveness and Infrastructure
Modernization Act. of 1990: Hearing Before the Subcomm. on
Communications of the Senate Comm. on Commerce, Science, and
Transportation, 10lst Cong., 2d Sess. 47-60, 143-158, 168-176
(1990); Cable Television Regulation (Part 2): Hearings Before
the Subcomm. on Telecommunication and Finance of the House
Comm. on Energy and Commerce, 10lst Cong., 2d Sess, 273-276,
311, 339-342, 398-401, 431-436, 452-463 (1990) .
8  See In re Tel. Co Cable Television Cross-Ownership Rules,
Sections 63.54-63.58, Notice of Inquiry, 2 F.C.C. Rcd 5092 (1987) ;
In re Tel. Co Cable Television Cross-Ownership Rules, Sections
63.54-68.58, Further Notice of Inquiry and Notice of Proposed
Rulemaking, 3 F.C.C. Rcd 5849 (1988) (Further Notice of In-
---------------------------------------- Page Break ----------------------------------------
 9
In 1992, the FCC again examined the bar in the con-
text of its rulemaking proceedings on "video dialtone,"
a service made possible by technological advances that
permit the transmission of video signals over telephone
wires, by which LECs may use their wires to transmit
video signals from multiple programmers to subscribers
on a common carrier basis. See In re Tel. Co Cable
Television Cross-Ownership Rules, Sections 63.54-63.58,
Second Report and Order, Recommendation to Congress,
and Second Further Notice of Proposed Rulemaking, 7
F.C.C. Rcd 5781, 5783 (1992) (Video Dialtone Order),
modified in part on reconsideration, 10 F.C.C. Rcd 244
(1994); see also National Cable Television Ass'n v.
FCC, 33 F.3d 66 (D.C. Cir. 1994).
The FCC recommended that Congress replace the cross-
ownership bar with an array of regulatory safeguards
to prevent abuses by LECs if they entered the cable
market. See Video Dialtone Order, 7 F.C.C. Rcd at
5847-5851. The FCC did not conclude that the potential
for anti-competitive conduct by LECs "had disappeared
entirely, but it did conclude that the continued risk was
outweighed by the potential public interest that would
be served by their entry into the cable market. Id. at
5849. The FCC stated that, if LECs were allowed to
enter. the market for providing video programming, it
would subject them to extensive regulation:
[T]he FCC should require that if the benefits exceed
the costs, the telephone companies provide video
programming through a structurally separated video
programming subsidiary; that their video program-
ming be through the video dialtone platform that
provides service to multiple programmers; and that
the extent of local telephone company-provided
___________________(footnotes)
quiry) ; In re Tel. Co Cable Television Cross-Ownership Rules,
Sections 68,54-63.58, First Notice of Proposed Rulemaking, First
Report and Order, and Second Further Notice of Inquiry, 7 F.C.C.
Rcd 300 (1991).
---------------------------------------- Page Break ----------------------------------------
10
programming be limited to a specified percentage of
overall capacity.
Id. at 5847-5848; see id. at 5850-5851.
Congress, however, declined to repeal the cross-
ownership bar. In the Cable Television Consumer Pro-
tection and Competition Act of 1992, Pub. L. No. 102-
385, 106 Stat. 1460 ( 1992 Cable Act), Congress revised
regulation of the cable industry to stimulate competition.
See 47 U.S.C. 541(a)(1) (Supp. V 1993) (prohibiting
exclusive cable franchises); 47 U.S.C. 543 (Supp. V.
1993 ) (requiring cable rate regulation in areas where
there is no effective competition); 47 U.S.C. 533(a) (2)
(Supp. V 1993) (adopting cross-ownership rules for new
wireless broadcast technologies). By those measures,
Congress sought to promote "a substantial governmental
and First Amendment interest in promoting a diversity of
views." 1992 Cable Act, 2(a) (6), 106 Stat, 1461.
But after extensive consideration of the arguments in
favor of and against the telephone-cable cross-ownership
bar, and several proposals (including those of the FCC
and the Departments of Justice and Commerce) to replace
the bar with a regulatory approach to the problems of
cross-subsidization and discrimination, Congress Ieft the
bar in place? The Senate report accompanying the 1992
Cable Act expressed the view that cross-ownership re-
strictions like Section 533 (b) "enhance competition."
___________________(footnotes)
9.  See note 7, supra; see also Cable Television Regulation: Hear-
ings Before the Subcomm. on Telecommunications and Finance of
the House Comm. on Energy and Commerce, 102d Cong., 1st Sess.
122-123, 226-227, 524-537, 605-616 (1991) ; Cable-Instructional TV
and S. 1200, Communications Competitiveness and Infrastructure
Modernization Act of 1991: Hearing Before the Subcomm. on
Communications of the Senate Comm. on Commerce, Science, and
Transportation, 102d Cong., 2d Sess. 48, 51, 54-55, 95, 96-109,
139-146 (1992) ; 138 Cong. Rec. S16,663, S16,665-S16,666 (daily
ed. Oct. 5, 1992) ; id. at S14,225, S14,237, S1.4,246-S14,247, S14,250,
S14,255-S14,256 (daily ed. Sept. 21, 1992) ; id. at H8671, H8673
(daily ed. Sept. 17, 1992); id. at H6489, H6492 (daily ed. July 23,
1992).
---------------------------------------- Page Break ----------------------------------------
11
S. Rep. No. 92, 102d Cong., 1st Sess. 46-47 (1991)
(1991 Senate Report); see also S. Rep. No. 456, 10lst
Cong., 2d Sess. 9 (1990) (1990 Senate Report) ("[B]e-
ause of concerns about the potential for anticompetitive
practices by telephone companies and the need to ensure
media diversity, the Committee is not now prepared to
permit telephone companies to own or control video
programming." ).
5. Respondents then brought this action in district
court, challenging the constitutionality of Section 533(b).
Respondents (or their corporate affiliates) provide local
exchange telephone services in six States and the District
of Columbia, and they desire to provide video program-
ming directly to subscribers in Alexandria, Virginia, where
they have a monopoly on local exchange service. Pet.
App. 54a, 77a n.17.
The district court granted summary judgment for re-
spondents. It applied an "intermediate level of scrutiny:
as set forth in Ward V. Rock Against Racism, 491 U.S.
781, 791 (1989 ), which requires that a content-neutral
regulation of the time, place, and manner of speech be
"narrowly tailored to serve a significant governmental
interest" and "leav[e] open ample alternative channels
for communication" to pass constitutional muster. See
Pet. App. 94a. The district court found "little doubt that
the statute leaves open ample alternative channels for
communication ," since LECs may, inter alia, communi-
cate with subscribers by producing video programming
and marketing it to broadcasters and cable operators.
The district court concluded, however, that Section
533 (b) is not narrowly tailored because, in its view, there
is a lack of "fit" between the statute and the objective
of preventing anti-competitive conduct by LECs. Pet.
App. 102a. The court accepted, arguendo, that regula-
tory controls would be insufficient to prevent LECs from
cross-subsidizing affiliated cable entities. Id. at 106a.
But the court stressed that, notwithstanding Section
---------------------------------------- Page Break ----------------------------------------
12
533 (b), LECs are permitted to operate systems for the
transport of unaffiliated entities' video programming if
they do not exercise control over the selection of that
programming, and the court believed that the dangers of
discrimination and cross-subsidization are also present in
that permitted situation. Pet. App, 10la-102a. Although
the government argued that incentives to anti-competitive
conduct are enhanced if LECs select, as well as transmit,
the video programming offered on a cable system, the
court rejected that argument because, it believed, LECs
have no "inherent advantage" in video programming that
would permit them to evade regulation. Id. at 103a-104a.
6. The court of appeals affirmed. Pet. App. 1a-52a.
The court of appeals held that Section 533(b) should
be subject to intermediate scrutiny because it is not
content-based (Pet. App. 28a), it is not intended to
regulate or prohibit any speech because of the message
that is conveyed (id. at 3la-32a), and it is "justified
entirely by the peculiar economic and physical character-
istics inherent in the provision of cable service" (id. at
34a) .10. Although the court agreed with the government
that the interests served by Section 533(b) are signifi-
cant (Pet. App. 38a-39a), it concluded that the statute
is unconstitutional because it is not narrowly tailored. In
reaching that conclusion, the court remarked that, be-
cause the statute contains no specific factual findings
about the need for the particular measure enacted, it
owed no deference to Congress's judgment on the question
of narrow tailoring. Id. at 40a-41a.
The court of appeals first concluded that the threat
of discrimination by LECs against their competitors in
___________________(footnotes)
10. The court of appeals thus rejected respondents' arguments for
application of strict srutiny (Pet, APP. 37a) and the government's
arguments for "minimal scrutiny" (id. at 20a-23a). Judge Michael
declined to join the panel's rejection of strict scrutiny; he believed
that, since the statute failed intermediate scrutiny, the question
whether strict scrutiny should be applied was "academic." Id,
--------------------------------------- Page Break ----------------------------------------
13
affording access to utility poles and conduits was insuffi-
cient to support the cross-ownership bar. It reasoned
that Congress could prohibit such discrimination rather
than banning LECs from offering cable services. Pet.
App. 42a. The court did not address the separate but
related problem of LEC discrimination against competi-
tors in access to the telephone network for transmission
of video signals.
On the issue of cross-subsidization, the court of appeals
assumed that regulatory oversight (in place of a cross-
ownership bar) would be insufficient to prevent that abuse
in the video transport market. It also assumed that the
prospect of domination of the video programming market
would give LECs an " `irresistible' incentive" to cross-
subsidize their video transport operations. Pet. App. 44a-
45a. Nevertheless, the court found dispositive its percep-
tion that an "obvious less-burdensome alternative" to Sec-
tion 533 (b) exists: "Congress could simply limit [LECs']
editorial control over video programming [on any cable
system] to a fixed percentage of the channels available;
[LECs] would be required to lease the balance of the
channels [to unaffiliated programmers] on a common, car-
rier basis." Pet. App. 47a-48a.
Finally, the court concluded that Section 533(b) does
not leave open ample alternative channels for communi-
cation by LECs. Pet. App. 49a-5la. Although the court
recognized that LECs may freely arrange for their video
programming to be distributed by broadcast stations and
unaffiliated cable operators, it held the statute invalid
because LECs "cannot guarantee that video programming
they wish to transmit to their local audience via cable
television * * * will reach their desired audience." Id.
at 50a (emphasis added). It believed that Section 533 (b)
"ban[s] completely a particular manner of expression" to
LECs. Pet. App. 5 la.
7. On May 16, 1995, the FCC issued a Third Report
and Order in its video dialtone rulemaking, in which it
concluded that, under the "good cause" waiver provision
---------------------------------------- Page Break ----------------------------------------
14
of Section 533(b) (4) (see p. 8, sup-a), it has "legal
authority to grant waivers allowing [LECs] to provide
video programming in their telephone service areas on
video dialtone networks." Pet. Supp. App. 2a. Under
its construction of Section 533(b) (4), the FCC "will
routinely grant a waiver of [the cross-ownership bar]
where the [LEC] agrees to abide by the regulations [that
the FCC] will establish governing its provision of video pro-
gramming." Pet. Supp. App. 19a. The FCC also explained
that, because "the purpose of the rule is to promote com-
petition," it will not grant waivers "to allow a [LEC] to
purchase an incumbent monopolist cable operator in the
[LEC's] service area" (id. at 16a); its reading of the
waiver authority extends only "to permit a [LEC] to
provide video programming over video dialtone systems
in its telephone service area in competition with existing
cable operators" (id. at 17a) (emphasis added).
The FCC noted that two courts of appeals and several
district courts have concluded that Section 533 (b) vio-
lates the First Amendment." It also observed that this
Court has instructed that "a statute is to be construed
where fairly possible so as to avoid substantial constitu-
tional questions." Pet. Supp. App. 6a (quoting United
___________________(footnotes)
11. The Ninth Circuit also declared section 533 (b) unconstitu-
tional in two consolidated cases. US West, Inc. V. United States,
48 F.3d 1092 (1994) ; Pacific Telesis Group v. United States, 48
F.3d 1106 (1994). The statute has been held invalid by district
courts in NYNEX Corp. V. United States, No. 93-323-P-C (D. Me.
Dec. 8, 1994), appeal pending, No. 95-1183 (1st Cir.) ; Ameritech
Corp. V. United States, 867 F. Supp. 721 (N.D. 111, 1994), appeal
pending, No. 95-1223- (7th Cir. ); BellSouth Corp. V. United States,
868 F. Supp. 1335 (N.D. Ala. 1994), appeal pending, No. 94-7036
(11th Cir.) ; United States Telephone Ass'n V. United States, No.
1 :94CVO1961 (D.D.C. Feb. 14, 1995), appeal pending, No. 95-1175
(D.C. Cir.) ; Southwestern Belt Corp. v. United States, No. 3:94-
CV-0193-D (N.D. Tex. Mar. 27, 1995), appeal pending, No. 95-
10478 (5th Cm. ) ; and Southern New England Telephone Co. v.
United States, No. 3:94-CV-80 (DJS) (D. Corm. Apr. 27, 1995),
appeaI pending, No. 95-6137 (2d Cir.).
 ---------------------------------------- Page Break ----------------------------------------
15
States V. X-Citement Video, Inc., 115 S. Ct. 464, 467
(1994) ). The FCC concluded that its interpretation of
its waiver authority would "cure [the] constitutional in-
firmities" perceived in the cross-ownership bar (Pet. Supp.
App. 6a n. 11 ) and make it "unnecessary for [the] courts
to decide whether a complete prohibition on video pro-
gramming by [LECs] in their exchange areas is consti-
tutional" (id. at 7a), for the LECs would henceforth
be able to provide video programming directly to sub-
scribers in their service areas.
The FCC addressed two statutory issues in construing
Section 533 (b) (4): whether there is "good cause" to
waive the cross-ownership bar, and whether a waiver is
"justified by the particular circumstances demonstrated
by the petitioner, taking into account the policy of [the
bar]," Pet, Supp. App. 9a. The FCC found two reasons
to conclude that "good cause" exists to tallow LECs to
provide video programming g over video dialtone systems.
First, " `[g]ood cause' is a phrase that is commonly asso-
ciated with changed circumstances" (id. at 1 la), and the
growth in the cable industry from "a fledgling service to
a more mature industry" constitutes changed circum-
stances since Congress enacted the bar in 1984 (id. at
10a-1la). Second, "significant advances in technology"
that now permit the dissemination of video signals over
the telephone network "have made it possible for a multi-
tude of programmers to reach end user customers and
have mitigated to a fair degree the competitive concerns
that led the Commission and Congress to adopt the cross-
ownership ban." Id, at 11a-12a.
The FCC also concluded that waiving the bar to allow
LECs to provide video programming on video dialtone
networks would advance the policies of Section 533(b),
competition and diversity in the market for video pro-
gramming. The FCC emphasized that its video dialtone
regulatory framework includes a common carnage ele-
ment, such that a LEC offering video dialtone must make
capacity available to other, unaffiliated video program-
--------------------------------------- Page Break ----------------------------------------
16
mers. Thus, "[t]he common carrier aspect of video dial-
tone service promotes both competitive and free speech
interests by making room for more than one speaker."
Pet. Supp. App. 13a. The FCC also made clear that
LECs would be allowed to offer video programming in
their service areas only if they agree to abide by reg-
ulations that will be adopted to prevent anti-competitive
abuses such as cross-subsidization and discrimination
against competitors. Id. at 18a-19a. 12.
INTRODUCTION AND SUMMARY OF ARGUMENT
For more than two decades, there has been spirited
debate over the costs and benefits of local telephone com-
panies' entry into the market for cable services, as there
has been debate over their participation in other lines of
business, such as information services and long-distance
services. The problems presented by the entry of LECs
into other markets are substantial and complex, and the
best mix of competition, regulation, and structural separa-
tion to address those problems has been the subject of
sustained attention by Congress, the agencies that admin-
ister telecommunications laws, and the interests affect-
ed by regulation. Several participants in the debate,
___________________(footnotes)
12. Congress is also reexamining the cross-ownership bar at this
time, On June 16, 1995, the Senate passed a bill that would repeal
the cross-ownership bar and would expressly permit LECs to
offer video programming through video dialtone systems. See
S. 652, 104th Cong., 1st Sess. 202 (1995); 141 Cong. Rec. S8570,
S8577 (daily ed. June 16, 1995). On August 4, 1995, the House
of Representatives passed a bill that would permit LECs to offer
video programming to subscribers in their service areas, through
video dialtone platforms operated by separate affiliates. See H.R.
1555, 104th Cong., 1st Sees.  201 (1995) ; 141 Cong. Rec. H8436-
H8438 (daily ed. Aug. 4, 1995). The House bill would require the
FCC to issue regulations to prevent discrimination in access to the
video dialtone system, and would permit state regulator to prevent
cross-subsidization. See id. at H8437. The House bill would provide
limited authority for LECs to invest in and control incumbent cable
operators. Id. at H8438.
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17
including federal agencies, have suggested that consumer
welfare would ultimately be increased by freer LEC par-
ticipation in the cable market-subject to appropriate
regulatory safeguards and in conjunction with removal
of barriers to competition in local telephone service.
Congress, which is responsible for setting the nation's tele-
communications policy, has nonetheless thus far declined
to repeal the cross-ownership bar challenged in this case.
There are considerable advantages to the simple cross-
ownership restriction enacted by Congress over the
much more complex system of administrative supervision
that would take its place, were the bar repealed or invali-
dated. Whether those advantages are outweighed by dis-
advantages of inefficiency is, of course, subject to much
dispute. But that judgment is for Congress to make, and
Congress's choice of a cross-ownership bar, which has un-
deniably been effective in preventing discrimination and
cross-subsidization by LECs in the cable market was a
reasonable one. Whatever the arguments against the wis-
dom of the bar or its effectiveness in promoting competi-
tion, those arguments are not of institutional dimension.
L Section 533(b) does not require strict scrutiny.
The cross-ownership bar is content-neutral; it reflects nei-
ther disagreement with any idea that would be expressed
by LECs, nor any desire to suppress free expression. To
the contrary, the bar is intended to keep channels of
communication open by preventing private anti-competitive
behavior that could choke off speech by LECs' competi-
tors, and is justified entirely by reference to the economic
consequences of LEC participation in the cable market.
Section 533 (b) is therefore subject at most to the inter-
mediate scrutiny employed for regulations of the time,
place, and manner of speech.
IL Section 533(b) survives intermediate scrutiny. The
cross-ownership bar advances significant governmental
interests in preventing anti-competitive conduct and pro-
moting diversity of communications outlets. It accom-
plishes those objectives by forestalling LECs' extension of
---------------------------------------- Page Break ----------------------------------------
18
their telephone monopoly to the cable market through
cross-subsidization of their cable affiliates and discrimina-
tion against competitors in providing access to essential
facilities (utility poles and conduits, and the modem tele
phone network) for the transmission of video program-
ming. The bar is necessary and narrowly tailored to ac-
complish Congress objectives, because it is easily
administered and entirely effective. A less restrictive ap-
proach would require complex structural and accounting
regulations and continual administrative supervision to
monitor LECs' compliance with those rules. A regulatory
approach also could not assure the same degree of effec-
tiveness in preventing discrimination by LECs against
competitors. The bar leaves open ample alternative chan-
nels of communication to LECs, which may disseminate
video programming within their service areas by numer-
ous other means (including broadcast television ), operate
cable systems outside their service areas, and use all non-
video means of communication everywhere. The statute
also gives the FCC! authority to waive the bar for good
cause to advance the goals of the statute, and in situations
where cable service could not be provided except by
LECs. The bar therefore applies only in those circum-
stances in which Congress reasonably concluded it is
needed to prevent anti-competitive conduct by LECs.
III. The FCC's recent construction of its waiver au-
thority to permit LECs to offer video programming on
video dialtone systems removes any constitutional doubts
about the statute. That construction permits LECs to
provide video programming in their own service areas, in
competition with incumbent cable operators. The con-
struction therefore advances the statute's goals of diver-
sity and competition while making more channels for
dissemination of video programming available to LECs.
---------------------------------------- Page Break ----------------------------------------
 19
        ARGUMENT
I. SECTION 533(b) DOES NOT REQUIRE STRICT
  SCRUTINY
We do not dispute that the dissemination of video pro-
gramming by means of a cable system is "speech" pro-
tected by the First Amendment. Nevertheless, "not every
interference with speech triggers the same degree of scru-
tiny under the First Amendment," and so the Court "must
decide at the outset the level of scrutiny applicable" to
the cross-ownership bar. See Turner Broadcasting Sys. v.
FCC, 114 S. Ct. 2445, 2456 (1994). Respondents con-
tend (Resp. 10-12) that Section 533(b) is a content-
based restriction requiring strict scrutiny. In fact, the
cross-ownership rule is a content-neutral regulation of the
market for cable services aimed at the economic behavior
of LECs, and it regulates only the manner and place
in which LECs may disseminate video programming.
It is therefore subject to review under the less rigorous,
"intermediate" standard applicable to content-neutral
time, place, and manner regulations. See Turner, 114
S. Ct. at 2469; Ward v. Rock Against Racism, 491 U.S.
781, 791 (1989); cf. United States v. O'Brien, 391 U.S.
367 (1968).
1. The "principal inquiry" in determining whether a
regulation is content-based or content-neutral "is whether
the government has adopted a regulation of speech be-
cause of disagreement with the message it conveys."
Ward, 491 U.S. at 791. Under that inquiry, Section
533 (b) is content-neutral. The restriction on LEC own-
ership of cable systems is unrelated to the content of any
programming that LECs might offer, were they allowed
to operate cable systems in their service areas. It is
irrelevant to the statute whether the video programming
that would be transmitted is "commercial or noncommer-
cial, independent or network-affiliated, English or Spanish
language, religious or secular." Turner, 114 S. Ct. at
2460.
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20
Even if a regulation is facially content-neutral, it may
also be treated as content-based if the government's
"manifest purpose is to regulate speech because of the
message it conveys." Turner, 114 S. Ct. at 2461. Sec-
tion 533 (b) is not motivated by hostility to any message,
however, and the government's interests are entirely un-
related to the suppression of free expression. See ibid.;
Ward, 491 U.S. at 791. Indeed, the objective of the
cross-ownership restriction is to promote free expression
through diversity of media outlets. See 1984 House Re-
port 33, 55; cf. FCC v. National Citizens Comm. for
Broadcasting, 436 U.S. 775, 801 ( 1978) (NCCB). The
statute recognizes that LECs, if unrestrained by regula-
tion, have the ability and incentive to compete unfairly
against other cable operators in the same geographical
market, because of their physical control over essential
facilities for the transmission of cable signals and their
monoply power over local telephone service. That control
could enable LECs to impede the dissemination of cable
programming by their competitors. Cf. Turner, 114 S. Ct.
at 2466 ("[S]imply by virtue of its ownership of the
essential pathway for cable speech, a cable operator can
* * * silence the voice of competing speakers."). Section
533 (b), like the predecessor FCC rules, was designed "to
insure against any arbitrary blockage of the gateway"
(21F.C.C.2d at 325), and Congress "[took] steps to
ensure that private interests not restrict * * * the free
flow of information and ideas" (Turner, 114 S. Ct. at
2466).
Respondents maintain that Section 533 (b) is content-
based because it  regulates only the dissemination of
"video programming," and because "video programming"
is defined as "programming provided by, or generally
considered comparable to programming provided by, a
television broadcast station." 47 U.S.C. 522(19) (Supp.
V 1993). As the court of appeals correctly observed
(Pet. App. 26a-28a), however, the statute's reference to
"video programming" distinguishes speech solely "on the
---------------------------------------- Page Break ----------------------------------------
21
basis of the mode of delivery of the speech" (id. at
28a), and not its content. See Regan v. Time, Inc., 468
U.S. 641, 656 (1984) (plurality opinion) (limitations
on reproduction of currency "restrict only the manner in
which the illustrations can be presented"). While LECs
may not operate their own cable systems in their service
areas, they may deliver the same video messages to those
communities using broadcast television stations, direct
broadcast satellite systems, unaffiliated cable systems, and
videocassettes. They may also deliver messages to the
public through newspapers, leaflets, and radio stations.
The FCC has interpreted the statutory definition of
"video programming" to mean that "Congress intended
to prohibit only [LEC] provision of programming com-
parable to that provided by broadcast television stations
in 1984." Video Dialtone Order, 7 F.C.C. Rcd at 5820.
As so construed, the statute distinguishes the one-way,
non-interactive television technology familiar to Congress
in 1984 from other forms of speech that were under
development at the time and were preserved for LECs,
such as interactive video and videotext. See id. at 5820-
5823; 1984 House Report 57 ("[Nothing in this section
shall be construed to limit [LEC] provision of informa-
tion services or other non-video programming."). The
statutory definition of "video programming" does not,
however, contain any reference to the subject matter of
television programs, and the FCC has not construed it
to include any element of content.13
___________________(footnotes)
13 Given the "abundant discretion" that television licensees retain
over programming choices, as well as the breadth of programming
that was disseminated on television in 1984, it would be difficult
to interpret the Act's reference to "video programming" to include
any element of content. Cf. Turner, 114 S. Ct. at 2464. But even
if the statutory reference to "video programming" is ambiguous,
the FCC's construction of it to include a technological distinction,
but not an element of content, is entitled to deference. See Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837, 844-845 (1984). Deference to the FCC's construction is par-
---------------------------------------- Page Break ----------------------------------------
22
As multimedia speech develops, instances may arise
in which it will be difficult to determine whether a cer-
tain series of video images is "comparable to" television
broadcasting. See Video Dialtone Order, 7 F.C.C. Rcd
at 5820-5821. But even if one must examine the images
to determine whether they come within the scope of Sec-
tion 533 (b), that would not make the bar content-based.
The focus of the inquiry is on the manner in which the
message is presented, and not on the ideas expressed in
the message. Cf. Ward, 491 U.S. at 792-793 (noting
that city had disclaimed "any interest in imposing its own
view of appropriate sound mix on performers," and that
its interest extended only to "the clearly content-neutral"
goal of reducing noise).
Finally, as the district court noted. (Pet. App. 88a-
93a), even a regulation of speech that contains an ele-
ment of content distinction does not require strict scrutiny
if the regulation is "justified without reference to the con-
tent of the regulated speech." City of Renton v. Playtime
Theaters, Inc., 475 U.S. 41, 48 (1986); Ward, 491 U.S.
at 791. In determining whether strict scrutiny is neces-
sary, "[t]he government's purpose is the controlling con-
sideration. " Ibid. Under that inquiry as well, Section
533 (b) does not require strict scrutiny, for its justifica-
tion is unrelated to the content of any message that would
be disseminated. The purpose of Section 533(b) is the
prevention of certain well-known economic practices that
present a danger to free expression and competition-not
"[the] suppression] * * * of unpopular views." Renton,
475 U.S. at 48. The statute "is neutral-indeed it is
silent-concerning any speaker's point of view." Mem-
bers of City Council v. Taxpayers for Vincent, 466 U.S.
789,803-804 ( 1984).
___________________(footnotes)
ticularly appropriate in this case because it avoids the constitu-
tional questions that would be created if the statute were construed
to include a content-based distinction. Cf. Jean V. Nelson, 472 U.S.
846, 855-856 (1985) .
---------------------------------------- Page Break ----------------------------------------
23
2. Nor is Section 533(b) subject to strict scrutiny on
the theory that it is a "direct ban on speech as such."
Resp. 10. Content-neutral regulations of speech are sub-
ject only to intermediate scrutiny, "even though they di-
rectly limit oral or written expression." See Clark V.
Community for Creative Non-Violence, 468 U.S. 288,
298 n.8 (1984). For example, in Frisby v. Schultz, 487
U.S. 474 ( 1988), in which the Court upheld an ordi-
nance banning picketing in front of residences, the Court
observed that the prohibition was content-neutral (id. at
481-482), and it applied the "intermediate" standard of
review applicable to content-neutral regulations ( see id.
at 482 (inquiring whether the ordinance was "narrowly
tailored to serve a significant government interest" and
whether it "[left] open ample alternative channels of
communication" ); id. at 492-493 (Brennan, J., dissent-
ing) (agreeing that the residential picketing ban was "sub-
ject to the well-settled time, place, and manner test")).
Cf. Ward, 491 U.S. at 791 (applying same test); Clark,
468 U.S. at 293 (same). In Vincent, the Court applied
a similar test, drawn from United States v. O'Brien,
supra, to the content-neutral prohibition on the posting
of signs at issue in that case. See 466 U.S. at 804-805,
808.14
As a content-neutral regulation of the market for cable
services, Section 533 (b) must therefore be analyzed under
the intermediate standard of scrutiny applicable to time,
place, and manner regulations. The statute is not a blan-
ket ban on speech by LECs; it prohibits them from oper-
ating cable systems only in the areas where they offer
local telephone service. In all other areas, where the
___________________(footnotes)
14 Thus, notwithstanding  respondents' argument that the O'Brien
test "has been reserved exclusively for regulations having only an
`incidental' effect" on speech (Resp. 10), it is clear that the O'Brien
test "in the last analysis is little, if any, different from the stan-
dard applied to time, place, or manner restrictions." Clark, 468
U.S. at 298; see id. at 298 n.8; Turner, 114 S. Ct. at 2469.
---------------------------------------- Page Break ----------------------------------------
24
dangers of anti-competitive conduct by LECs are not pres-
ent, they are free to offer cable service. The statute also
regulates only speech in video form, and not the various
other modes of speech that could deliver the same mes-
sage. Cf. Frisby, 487 U.S. at 484 (observing that, al-
though protesters could not engage in residential picket-
ing, they could distribute literature and contact residents
by telephone). Finally, the statute regulates only video
programming delivered by means of cable systems-not
video programming disseminated by all other possible
means, including broadcast television, satellite television,
and videocassettes. The court of appeals correctly con-
cluded, therefore, that Section 533 (b) is subject to "in-
termediate scrutiny." Pet. App. 38a.
II.   SECTION 533(b) MEETS THE REQUIREMENTS OF
  INTERMEDIATE SCRUTINY
  A. Section 533(b) Furthers Significant Governmental
   Interests
A content-neutral regulation of speech is valid if it is
"narrowly tailored to serve a significant governmental
interest, and * * * Ieav[es] open ample alternative chan-
nels for communication of the information." Ward, 491
U.S. at 791. The court of appeals correctIy concluded
that the interests served by Section 533(b) are significant.
See Pet. App. 38a-39a. In Turner, this Court made clear
that "the Government's interest in eliminating restraints
on fair competition is always substantial; as is "assuring
that the public has access to a multiplicity of information
sources, [which] promotes values central to the First
Amendment ." 114 S. Ct. at 2470. With respect to the
cable market in particular, Turner also established that
the government has a substantial interest in "ensur[ing]
that private interests not restrict, through physical con-
trol of [the] critical [bottleneck] of [cable] communica-
tion, the free flow of information and ideas," id. at 2466,
---------------------------------------- Page Break ----------------------------------------
25
an interest directly relevant to LECs' control over
physical facilities for the transmission of cable signals.
Nor can there be doubt that Section 533(b) actually
furthers those significant interests. Cross-ownership re-
strictions have long been used by regulators to curtail the
potential for abuse of market power and to encourage
diversity in holdings." The utility of such rules to prevent
cross-subsidization by monopolists seeking to enter com-
petitive markets has also been borne out by the courts'
experience with the antitrust suit that resulted in the
breakup of the Bell System. Cross-subsidization by LECs
formerly affiliated with the Bell System has been a prin-
cipal issue throughout that litigation, in which the district
court found that exclusion of those LECs from certain
lines of business was necessary to prevent anti-competitive
conduct by them.16 Section 533 (b) is also effective at
preventing LECs from abusing their control over facili-
ties to discriminate against competitors. By completely
excluding LECs from cable programming in their service
areas, the bar removes the incentive for them to discrim-
inate against their competitors in that business.
The district court suggested (Pet. App. 102a-104a),
however, that Section 533 (b) cannot prevent anti-
competitive behavior by LECs because the bar does not
prohibit them from transporting video signals over cable
systems to subscribers, as long as they do not also par-
ticipate in the selection of the video programming
___________________(footnotes)
15 See, e.g., Public Utility Holding Company Act of 1935, 15
U.S.C. 79a(a) and (b) ; Bank Holding Company Act of 1956, 12
U.S.C. 1841 et seq.; see also NCCB, supra (upholding FCC restric-
tions on cross-ownership of newspapers and broadcast stations in
came community) ; United States v. Storer Broadcasting Co., 351
U.S. 192, 193 (1956) (upholding FCC regulation limiting number
of broadcast licenses that any one person could acquire).
16 See 1984 House Report 32-33; United States v. American Tel.
& Tel. Co., 524 F. Supp. at 1368-1369; United States V. American
Tel. & Tel. Co., 552 F. Supp. at 188-191.
---------------------------------------- Page Break ----------------------------------------
26
transmitted over the cable systems.17 The district court
questioned why Congress would have allowed LECs to
participate in the video transport market, if it was con-
cerned about the misallocation of costs of facilities
common to telephone and video transport operations. See
Pet. App. 103a-104a & n.31.
The district court failed to appreciate several points
about the justification for Section 533 (b). First, as the
1981 FCC staff report noted (J.A. 56 n.34), LECs' in-
centive and ability to cross-subsidize are significantly
diminished when they transport video programming in the
manner of common carriers for unaffiliated entities. State
regulators can limit LECs' revenues from such operations
under traditional rate-of-return principles applicable to
common carriers.
Second, the lucrative video programming market makes
entry into the cable business particularly attractive to
LECs. Once in that market, LECs could compete un-
fairly through their ability to cross-subsidize their video
transport facilities. The evidence presented to the dis-
trict court established that LECs' incentives to cross-
subsidize and to discriminate would be "greatly enhanced
if [they] are also allowed to exploit monopoly control
of video transmission by earning excess profits in video
programming." J.A. 332 (Owen reply affidavit). See also
C. Edwin Baker, Merging Phone and Cable, 17 Hastings
Comm. & Ent. L.J. 97, 133 ( 1994) ("If allowed to pro-
vide programming, [LECs'] power in the video transport
market would allow them to exercise undue power in the
___________________(footnotes)
17 The FCC has consistently taken the position that the cross-
ownership bar does not prohibit LECs from offering "channel
service," under which LECs may build and operate cable facilities
for the physical transport of video signals but play no role in
the selection of the video programming offered on those facilities.
Further Notice of Inquiry, 3 F.C.C. Red at 5857. In essence, a
LEC offering channel service owns the cable system but leases it to
unaffiliated cable operators.
---------------------------------------- Page Break ----------------------------------------
27
video programming market and would increase the value
to the phone company of monopolizing transport ." ). The
FCC has also recognized that Section 533 (b) protects
"competition in the provision of [cable] services and
facilities" (i.e., programming and transmission) by "surely
reduc[ing] [LECs'] incentive and ability to engage in anti-
competitive conduct in `[their] service areas." Further
Notice of Inquiry, n.8, supra, 3 F.C.C. Rcd at 5864.
Therefore, the fact that Section 533 (b) permits LECs to
enter the video transport market without control over pro-
gramming is not a flaw in the economic theory underlying
the cross-ownership bar, but a recognition that there is
less opportunity or incentive for anti-competitive behavior
when LECs are confined to carrying others' programming
in a role similar to their traditional one as common car-
riers. See Baker, supra, at 132 ("As long as the phone
company cannot itself offer cable programming, it has no
incentive to drive cable companies out of business.").
  B. Section 533(b) Is Narrowly Tailored
1. The court of appeals invalidated Section 533(b)
because it concluded that a less restrictive alternative
would be equally effective to prevent anti-competitive
behavior by LECs; it suggested that the cross-ownership
bar could be replaced by an arrangement under which
LECs would be permitted to operate a cable system but
would be restricted to editorial control of a fixed per-
centage of the channels on that system. Pet. App, 47a-
48a. The court of appeals also criticized Congress and
the FCC for not making any "underlying factual find-
ings" to support their implicit conclusion that less sweep-
ing regulatory alternatives would not effectively achieve
the government's interests. Id. at 45a-47a. In the ab-
sence of such findings, the court declined to "accede to
Congress' judgment" that the bar is necessary to achieve
those interests. Id. at 40a-41a.
---------------------------------------- Page Break ----------------------------------------
28
The court of appeals' disagreement with Congress's
choice of a cross-ownership bar cannot be reconciled with
this Court's "intermediate scrutiny" decisions, which re-
quire considerably more deference to Congress's judgment
that the particular approach chosen for the regulation of
the cable market is necessary to prevent anti-competitive
abuse effectively. See Clark, 468 U.S. at 299. This Court
has made clear that a content-neutral regulation "need not
be the least restrictive or least intrusive means of [achiev-
ing the government's interest]. Rather, the requirement
of narrow tailoring is satisfied `so long as the . . . regu-
lation promotes a substantial government interest that
would be achieved less effectively absent the regulation.'"
Ward, 491 U.S. at 798-799 (footnote omitted); Turner,
114 S. Ct. at 2469-2470.
The Court has also stressed that it is "loath to second-
guess the Government's judgment" of narrow tailoring.
See Board of Trustees v. Fox, 492 U.S. 469, 478 (1989).
Thus, what narrow tailoring requires in this context is a
"` "fit" between the legislature's ends and the means
chosen to accomplish those ends,' a fit that is not neces-
sarily perfect, but reasonable; that represents not neces-
sarily the single best disposition but one whose scope is
`in proportion to the interest served[.]' * * * Within those
bounds [the courts must] leave it to governmental deci-
sionmakers to judge what manner of regulation may best
be employed." Id. at 480 (citations omitted).18 Given
the difficulty of finding a solution to the economic prob-
lems that Congress perceived in LEC participation in the
cable market, the First Amendment affords Congress "a
___________________(footnotes)
18 Although Fox was a commercial speech case, that decision
states that the requirement of narrow tailoring for regulation of
commercial speech is "substantially similar" to the same require-
ment for content-neutral time, place, and manner regulations of
non-commercial speech. 492 U.S. at 477-478; see San Francisco
Arts & Athletics, Inc. v. United States Olympic Comm., 483 U.S.
522, 537 n.16 (1987).
--------------------------------------- Page Break ----------------------------------------
29
reasonable opportunity to experiment with solutions to
admittedly serious problems." Renton, 475 U.S. at 52.
The courts' obligation not to "second-guess" Congress
does not depend on the presence of factual findings in
the statute or the legislative history that the bar is neces-
sary, as the court of appeals seemed to think (see Pet.
App. 40a-41a, 45a). In cases like this one, the question
for the courts is whether the regulation of speech is rea-
sonably necessary to advance any significant interest of
the government, not whether the enacting Congress ex-
pressly found it to be necessary. "Congress is not obli-
gated, when enacting its statutes, to make a record of the
type that an administrative agency or court does to
accommodate judicial review." Turner, 114 S. Ct. at
2471 (plurality opinion).19 Therefore, the question of
narrow tailoring is not whether Congress expressly found
that Section 533 (b) is necessary to achieve the govern-
ment's interests effectively, but whether the economic and
predictive judgments underlying Section 533 (b) are rea-
sonable to support such a conclusion. See id. at 2473
(Stevens, J., concurring in part and concurring in the
judgment) ("But the question for us is merely whether
Congress could fairly conclude that cable operators'
monopoly position threatens the continued viability of
broadcast television and that must-carry is an appropriate
means of minimizing that risk.") (emphasis added and
omitted).
2. Under the proper standards, Section 533 (b) is nar-
rowly tailored, and the court of appeals' reliance on what
it believed to be a less restrictive alternative was an
___________________(footnotes)
19 Indeed, in arguing that a regulation is narrowly tailored, the
government may rely on evidence and arguments that were not
presented to the enacting Congress, just as it may advance inter-
ests to support a regulation of speech that were not considered
when the regulation was enacted. See Bolger v. Youngs Drug
Products Corp., 463 U.S. 60, 70-71 (1983) ; Ohralik V. Ohio State
Bar Ass'n, 436 U.S. 447, 460 (1978).
---------------------------------------- Page Break ----------------------------------------
30
inappropriate substitution of its judgment for Congress's
policy decision. The restriction is not "substantially
broader than necessary" to achieve the government's in-
terests. Ward, 491 U.S. at 800. Section 533 (b) restricts
LECs' provision of video programming only in the
specific situation in which Congress identified a potential
for anti-competitive behavior. LECs remain free to speak
to subscribers in their service areas by a variety of means
that do not present that danger. They may, for example,
operate local television broadcast stations, which would
be carried over local cable systems, by virtue of the 1992
Cable Act's must-carry rules. See 47 U.S.C. 534(a)
(Supp. V 1993); Turner, 114 S. Ct. at 2453. They may
produce their own video programming and offer it to
local cable operators for transmission, and may also gain
access to cable systems for their speech through the
"leased access" provisions of the Cable Act (47 U.S.C.
532 ( 1988 & Supp. V 1993)). The Cable Act also does
not prevent them from operating traditional cable systems
anywhere outside their own service areas.
In addition, the Cable Act does not prohibit LECs
from operating direct broadcast satellite systems (which
can provide hundreds of channels of video programming)
or microwave-based multichannel "wireless cable" systems
anywhere in the country, including their own service
areas. See In re Implementation of Section 19 of the
Cable Television Consumer Protection and Competition
Act of 1992, First Report, 9 F.C.C. Rcd 7442, 7473-
7478 ( 1994); American Scholastic TV Programming
Found. v. FCC, .46 F.3d 1173 (D.C. Cir. 1995). The
Cable Act also preserved, for LECs, the potential for
dramatically increased speech opportunities in their ser-
vice areas and elsewhere through the development of inter-
active and multimedia services. Video Dialtone Order,
7 F.C.C. Rcd at 5788, 5822-5823; see also 1984 House
Report 57. Finally, the statute permits the FCC to waive
the bar in situations in which cable service could not
---------------------------------------- Page Break ----------------------------------------
31
exist except through LECs, and also for "good cause"
to advance the policies of the statute as a whole. 47
U.S.C. 533(b) (4). Congress has therefore done no more
than to address "the exact source of the evil it sought to
remedy." Vincent, 466 U.S. at 808.
3. Congress reasonably concluded that the cross-
ownership bar is necessary to prevent cross-subsidization
by LECs in the cable market effectively. The only
alternative to a restriction like Section 533(b) would be
a complex set of structural and accounting rules imposed
and enforced by the FCC to ensure that LECs do not
subtly transfer costs from their cable affiliates to their
telephone operations.20 Whether or not it would be pos-
sible to prevent cross-subsidization through such rules, if
the FCC were given adequate resources to monitor LECs
effectively, that approach does have significant disadvan-
tages, such that Congress could reasonably choose a cross-
ownership bar instead. The regulatory task of containing
cross-subsidization through accounting rules is decidely
complex. The inherent subjectivity of cost accounting
issues that would have to be addressed under a regulatory
approach, the ongoing possibility of evasion of, and liti-
gation over, accounting rules set by the FCC, and the
need for substantial auditing resources sufficient to pre-
vent evasion all support Congress's choice of a simpler
approach to the problem of unfair cost-shifting. See J.A.
54-58 ( 1981 FCC staff study, doubting feasibility of
regulatory solution to cost-shifting), 83-85, 88-90 ( Gen-
eral Accounting Office (GAO ) Report detailing practical
and conceptual difficulties in containing cost-shifting),
124-131 (second GAO Report, stressing need for ade-
quate auditing resources), 234-236 (Robinson affidavit,
___________________(footnotes)
20 Cf. California v. FCC, 905 F.2d 1217 (9th Cir. 1990) (review-
ing FCC rules to contain such abuse by LECs in information
services market) ; United States V. Western Elec. Co., 900 F.2d at
289-290 (considering adequacy of such rules to justify modification
of Bell System consent decree).
---------------------------------------- Page Break ----------------------------------------
32
stressing complexity of accounting rules), 266-268 (Owen
affidavit, stressing same).21
Congress drew the "reasonable inference]" that the
bar is necessary from "substantial evidence." Turner,
114 S. Ct. at 2471 (plurality opinion). Congress en-
acted Section 533(b) in 1984 against a background that
included the 1981 FCC staff study and the recent
___________________(footnotes)
21 Respondents have pointed out that the FCC and other agen-
cies have recommended that Congress replace the cross-ownership
bar with regulatory safeguards such accounting rules and struc-
tural separation of telephone and cable affiliates, and have sug-
gested that those safeguards would be adequate to prevent cross-
subsidization. The FCC and the Department of Justice, relying
in part on regulatory safeguards, also supported modification
of the Bell System antitrust consent decree to remove the pro-
hibition on provision of information services by the former Bell-
System LECs. See J.A. 337-360; United States v. Western Elec.
Co., 993 F.2d 1572 (D. C. Cir.), cert. denied, 114 S. Ct. 487 (1993).
Those agencies have not stated, however, that there would be no
risk of discrimination or cross-subsidization if LECs were per-
mitted to provide video programming, or that reasonable minds
could not differ about the need for exclusion from a market, rather
than regulatory safeguards, to prevent anti-competitive abuse effec-
tively. Cf. National Rural Telecom Ass'n, 988 F.2d at 180 (noting
FCC's acknowledgment that various regulatory alternatives are
not "ironclad guarantees against cost shifting"). The FCC has
concluded, rather, that the risk of abuse by LECs in the cable
market is outweighed by the potential benefits served by their
entry into that market (Video Dialtone Order,7 F.C.C. Rcd at
5849), and it continues to believe that some regulatory safeguards
would be necessary to contain abuses by LECs (id. at 5847-5851).
See also Statement of Assistant Attorney General Anne K. Binga-
man Before the Senate Commerce Committee 14-17 (Mar. 2, 1995)
(lodged with the Clerk) (stressing that restrictions on LECs'
competition with cable systems should be removed in conjunction
with restrictions on competition by cable systems and others in
provision of local telephone service). Nor is it unusual for federal
agencies and Congress to disagree about the costs and benefits of a
particular policy. Since the issue in this case is the permissibility
of Congress's predictive judgment that exclusion from the cable
market is necessary to prevent abuse by LECs, that is the judgment
to which the courts owe substantial deference. See pp.27-29, supra.
---------------------------------------- Page Break ----------------------------------------
33
breakup of the Bell System. Its decision to exclude LECs
from the cable market relied on the district court's con-
clusion in the Bell antitrust suit that exclusion of the
Bell-System LECs from other lines of business was nec-
essary to prevent cross-subsidization. See 1984 House
Report 33. When Congress returned to the issue in the late
1980s and early 1990s, it had a warning from the GAO
about serious practical difficulties in containing cross-
subsidization of new lines of business by LECs. See
J.A. 79-101. Congressional committees also heard testi-
mony from parties opposing repeal of the bar that regula-
tion could not effectively prevent LECs from engaging in
anti-competitive behavior, and that entry of LECs into
the cable services market would exacerbate structural
problems with that market.22 Those interests also brought
to Congress's attention the first GAO Report and court
decisions calling into question the efficacy of alternative
___________________(footnotes)
22 Cable-Instructional TV and S. 1200, Communications Com-
petitiveness and Infrastructure Modernization Act of 1991: Hear-
ing Before the Subcomm. on Communications of the Senate Comm.
on Commerce, Science, and Transportation, 102d Cong., 2d Sess. 115-
139 (1992) ; Cable Television Regulation: Hearings Before the
Subcomm. on Telecommunications and Finance of the House Comm.
on Energy and Commerce, 102d Cong., let Sess. 206-211, 538-602,
617-635, 699-704, 727-745 (1991) ; Communications Competitiveness
and Infrastructure Modernization Act of 1990: Hearing Before
the Subcomm. on Communications of the Senate Comm. on Com-
merce, Science, and Transportation, 10lst Cong., 2d Sess. 61-84,
89-125, 126-134, 177-194 (1990) ; Cable TV Consumer Protection
Act of 1989: Hearings Before the Subcomm. on Communications
of the Senate Comm. on Commerce, Science, and Transportation,
10lst Cong., 2d Sess. 238-239, 341-355, 559-560 (1990) ; Cable
Television Regulation (Part 1): Hearings Before the Subcomm.
on Telecommunications and Finance of the House Comm. on Energy
and Commerce, 101st Cong., 2d Sess. 436-451, 464-474 (1990) ;
Cable Television Regulation (Part 2): Hearing Before the Sub-
comm. on Telecommunications and Finance of the House Comm. on
Energy and Commerce, 101st Cong., 2d Sess. 98-99, 114-121 (1990).
---------------------------------------- Page Break ----------------------------------------
34
safeguards such as accounting rules.28  The Senate Com-
merce Committee, which in 1990 examined in detail the
arguments for and against repeal of  Section  533 (b), con-
cluded it "could not at the  present time support repeal[,]
* * * because of concerns about the  potential for anti-
competitive practices by telephone companies and the
need to ensure media diversity."   1990 Senate Report
8-9; see also 1991 Senate Report 46-47.24
   Given the difficulties in monitoring cost-shifting by
LECs, the court of appeals understandably accepted,
arguendo, that accounting safeguards would not be suffi-
cient to prevent that abuse.  Pet.  App. 45a; see id. at
 106a (same assumption by district court).  Nevertheless,
the court of appeals suggested that "Congress could sim-
ply limit [LEC's] editorial control over video program-
ming to a fixed percentage of the channels available;
[LECs] would be required to lease the balance of the
channels on a common carrier basis to various video pro-
grammers, without regard to content."  Id. at 47a-48a.
That suggestion does not solve the problem identified by
Congress, however, because LECs could  still transfer the
___________________(footnotes)
  23  Cable Television Regulation:   Hearings Before the Subcomm.
on Telecommunications and Finance of the  House Comm. on Energy
and Commerce, 102d Cong.,  1st Sess. 743 (1991) ; Communi-
cations Competitiveness and Infrastructure Modernization Act of
1990:  Hearing Before the Subcomm.  on Communications of the
Senate Comm. on Commerce, Science, and Transportation, 101st
Cong., 2d Sess. 62, 69,  96-97, 119-120 (1990).
  24 Regulators continue to find evidence of cost-shifting by LECs.
A 1988 FCC audit tentatively  concluded that NYNEX Corporation
had engaged in a pattern of cross-subsidization of unregulated
affiliates involving more than $100 million.  In re New York Tel.
Co., 5 F.C.C. Rcd 866, 866-869 (1990).  NYNEX later entered into
a consent decree with the FCC, in which it admitted no liability but
agreed to make adjustments to its books and to make a voluntary
contribution of $1,419,000 to the United States Treasury.  In re
New York Tel. Co., 5 F.C.C. Rcd 5892 (1990).  See also J.A. 260-
262 (Owen affidavit, describing similar findings of LEC's cross-
subsidization by state utility regulators).
---------------------------------------- Page Break ----------------------------------------
35
costs of their cable operations to their monoply telephone
operations. See J.A. 68-69 (FCC staff report). Their
incentive to do so would grow in proportion to their edi-
torial control over programming carried over their cable
system. See ibid. ("[T]he higher the level [of LEC con-
trol over cable channels], the greater is the danger from
telephone monopoly power." ). The court's suggestion
would actually magnify the complexity of the accounting
problems, because LECs would have to separate their
costs attributable to their telephone and cable operations,
and also their costs attributable to the portions of the
cable system over which they did, and did not, maintain
editorial control. Finally, choosing the precise percentage
of editorial control over a cable system that would simul-
taneously contain LECs' incentive to cross-subsidize but
also ensure them adequate channels of communication
would be difficult, and the court's suggestion would rele-
gate Congress and the FCC to a process of continual trial
and error to accommodate those concerns.
4. It is also reasonable to conclude that the cross-
ownership bar is necessary to prevent LECs from abusing
their control over the poles and conduits essential to the
operation of a cable system (as the FCC concluded in
1970) ,25 and from discriminating against competitors using
the modern telephone network to transmit video pro-
gramming. The court of appeals rejected the govern-
ment's interest in preventing discrimination as a justifi-
cation for the bar, reasoning that Congress could pass
legislation to prohibit discrimination by LECs. Pet. App.
42a. Prohibiting discrimination is hardly the same thing
as effectively preventing it, however. Even if Congress
did replace Section 533 (b) with the legislation suggested
___________________(footnotes)
25 When it implemented the cross-ownership bar, the FCC noted
that "numerous parties" had complained about discriminatory con-
duct by LECs in providing access to utility poles for the construc-
tion of cable television systems. 1970 FCC Rules, 21 F.C.C.2d at 324.
---------------------------------------- Page Break ----------------------------------------
36
by the court of appeals, LECs' control over the facilities
used in transmitting video programming would still give
them great economic power over competitors needing
those facilities that could be abused. It could be diffi-
cult for regulators to prove discrimination, and even to
develop less restrictive prophylactic rules to prevent it.
See J.A. 73-74 (FCC staff study); 231-233 (Robinson
affidavit, discussing difficulties in preventing discrimina-
tion by LECs in access to their facilities).
For example, a typical licensing agreement between
respondents' Virginia LEC and a cable carrier granting
access to the LEC's poles and conduits gives the telephone
company discretion to determine whether space is avail-
able on a pole and conduit system for cable attachments,
to refuse access if it would interfere with the quality of
telephone communications or other utility facilities al-
ready in place, and to decide exactly where cable attach-
ments should be placed. The cable operator is also re-
quired to obtain the LEC's permission to carry out main-
tenance of the cable attachments. J.A. 104, 108, 109-
110. LECs could abuse such provisions to frustrate their
competitors' ability to reach their customers and to keep
their equipment -adequately maintained, even though the
provisions might appear proper to allow LECs to main-
tain the quality of their own equipment.
In the case of access to the telephone network for trans-
mission of video programming the threat of LEC dis-
crimination against competitors could be even more severe
and elusive, for LECs have much greater expertise in the
operation of that technically complex network than do
their competitors. LECs could use their control over the
network to ensure that the quality of their own video
signals is better than that of their competitors. Also,
because programmers intending to use the telephone net-
work to transmit video signals must coordinate their use
of the network with the LEC that controls it, the LEC
could use its position to learn its competitors' marketing
-
--------------------------------------- Page Break ----------------------------------------
37
plans and other proprietary information. See J.A. 268-
269 (Owen affidavit); cf. California v. FCC, 39 F.3d
919, 927-931 (9th Cir. 1994) (stressing danger of such
discrimination in LECs' participation in information serv-
ices market).
While a law prohibiting discrimination might declare
such practices illegal, it could be difficult for competitors
or the government to prove that LECs had abused their
control over telecommunications facilities in any partic-
ular case, and an extensive supervisory administration
could be necessary to police LECs' control over the net-
work, poles, and conduit space. See J.A. 230-231 (Rob-
inson affidavit, noting "formidable complexity" of the
task). Even if it is possible to prevent such discrimina-
tion through promulgation and enforcement of complex
technical specifications, those methods have such disad-
vantages in implementation and effectiveness that it was
reasonable for Congress to have chosen a cross-ownership
bar instead. See Ward, 491 U.S. at 800. A bar on LEC
ownership of cable systems in their service areas requires
little administrative supervision, and it is completely effec-
tive in preventing discrimination. By excluding LECs
from the local cable market, it removes entirely their in-
centive to discriminate against competitors in the cable
business.
  C. LECs Have Ample Alternative Channels Of
   Communication
As the district court observed, LECs "are by no means
`silenced' by the operation of [Section] 533(b)." Pet.
App. 94a. While LECs are precluded from operating
cable systems within their service areas, they may pur-
chase or operate local broadcast television stations (and
even national television networks that do not own cable
systems in their service areas), establish multichannel
direct broadcast satellite systems, and create program-
---------------------------------------- Page Break ----------------------------------------
  38
ming for cablecast on cable channels carried by unaffil-
iated cable systems. They may also operate cable systems
outside their common-carrier service areas. See pp. 30-
31, supra. The assertion that Section 533(b) excludes
LECs from "an entire medium of expression" (Resp. 8
n.9 ) is incorrect.
The court of appeals believed, however, that Section
533 (b) is invalid because LECs "cannot guarantee that
video programming they wish to transmit * * * will reach
their desired audience." Pet. App. 50a (emphasis added).
In fact, LECs can effectively reach a broad audience in
any community by operating a local broadcast television
station, which would be carried over cable systems under
the 1992 Cable Act's must-carry rule, or by operating a
direct broadcast satellite system. See p. 30, supra. But
in any event, the Court has rejected the contention that
the First Amendment includes a "guarantee" of reach-
ing an audience in a particular way. In Heffron v. Inter-
national Society for Krishna Consciousness, Inc., 452 U.S.
640 (198 1), the Court upheld a restriction limiting the dis-
tribution of religious literature and solicitation of funds
at a fairground to designated locations, even though the
religious organization maintained that its proselytizing
could be done successfully "only by intercepting fair
patrons as they move about." Id. at 653. In light of
the "alternative forums for the expression of * * * pro-
tected speech" that existed both within and outside the
fairgrounds (id. at 654-655), the Court concluded that
the restriction was valid. LECs may similarly communi-
cate their messages to the general public in video format,
both within and outside their service areas; only one mode
of delivery in specific places is denied to them, because
of the potential anti-competitive economic consequences
of their using that mechanism in those places, There is
no "barrier to delivering to the media, or to the public
by other means" (Clark, 468 U.S. at 295), any message
that LECs wish to disseminate.
---------------------------------------- Page Break ----------------------------------------
39
III. THE FCC'S THIRD REPORT AND ORDER ELIMI-
  NATES ANY DOUBTS ABOUT THE CONSTITU-
  TIONALITY OF SECTION 533(b)
As we have argued, a restriction on LECs' participation
in the cable market in their service areas satisfies the
First Amendment, and the court of appeals' decision to
the contrary was erroneous. Even if we assume, however,
that a flat ban on LECs' provision of video programming
on cable systems in their service areas would contravene
the First Amendment, the FCC's Third Report and Order
(Pet. Supp. App. la-21a), authoritatively construing the
waiver authority delegated to it by Congress in Section
533 (b) (4), eliminates the constitutional objections to
the statutory regime raised by the court of appeals. The
FCC'S construction of Section 533(b) (4), which was not
available to the court of appeals,26 makes clear that Sec-
tion 533 (b), as a whole, is narrowly tailored and leaves
open ample channels of communication to LECs. It
therefore provides additional grounds for reversal of the
judgment below.
1. In the Third Report and Order, the FCC construed
the waiver authority to permit a substantial entry by
LECs into the video programming market. See pp. 13-16,
supra, Under that construction, LECs may provide their
own video programming directly to subscribers in their
telephone service areas, if that programming is delivered
by means of a video dialtone system in competition with
an incumbent cable operator. Pet. Supp. App. 9a, 16a-
17a. The FCC has initiated the process of designing
regulatory safeguards to prevent cross-subsidization and
discrimination by LECs in video dialtone services, id. at
14a n.35, and it will "routinely" grant waivers of the cross-
ownership bar, under Section 533 (b) (4), to LECs that
___________________(footnotes)
26 For that reason, we suggested at the petition stage that the
Court vacate the judgment of the court of appeals and remand
the case to that court for further consideration (Pet. Supp. Br. 7).
---------------------------------------- Page Break ----------------------------------------
40
agree to abide by those safeguards in their video dialtone
systems, Pet. Supp. App. 19a.
The FCC observed that Section 533 (b) (4) gives it
authority to grant waivers for "good cause," a phrase that
is "commonly associated with changed circumstances."
Pet. Supp. App. 1 la. It concluded that the growth of the
cable industry and the dramatic technological advances in
the delivery of video programming since 1984 are
"changed circumstances" sufficient to constitute "good
cause," within the meaning of the statute. It also found
that those changed circumstances have mitigated the
threat to competition that animated the cross-ownership
bar to such a degree that greater entry by LECs into
the video programming market will not undermine the
objectives of the statute as a whole. Id. at 11a-12a.
Indeed, the FCC concluded that a construction of Sec-
tion 533 (b) (4) to permit LECs to provide video pro-
gramming on video dialtone networks will advance the
policies of Section 533 (b)-competition and diversity in
communications. Pet. Supp. App. 13a. The FCC noted
that its video dialtone regulatory framework requires
a common carriage element, such that LECs offering
video dialtone service must make capacity available to
other, unaffiliated programmers. Thus, it concluded, LEC
provision of video dialtone "promotes both competitive
and free speech interests by making room for more than
one speaker." Ibid.
The FCC also rested its construction of Section 533
(b) (4) on the fact that the construction obviates the pur-
ported constitutional problems that the courts have iden-
tified in Section 533 (b). Pet. Supp. App. 14a-16a. Heed-
ing this Court's admonition that "a statute is to be con-
strued where fairly possible so as to avoid [substantial]
constitutional questions," id. at 16a (quoting United
States v. X-Citement Video, Inc., 115 S. Ct. 464, 467
( 1995)), the FCC concluded that its reading of the stat-
ute, by permitting greater LEC participation in video
---------------------------------------- Page Break ----------------------------------------
 41
programming, would "eliminate [the constitutional]
doubts" that have been suggested but would not be
"plainly contrary to the intent of Congress." Ibid. (quot-
ing X-Citement Video, 115 S. Ct. at 472).
Finally, the FCC noted that its construction does not
raise any of the constitutional concerns that have been
associated with waiver provisions in other First Amend-
ment contexts. See Pet. Supp. App. 17a-18a. It stressed
that its construction does not lodge any discretion
in any official to grant or deny a waiver based cm the
content of the speech, but rather provides blanket author-
ization to offer programming by video dialtone, upon
compliance with regulations to be published that will be
designed to prevent anti-competitive conduct. Accord-
ingly, the FCC observed, there is no "threat of censor-
ship that by its very existence chills free speech." Id. at
18a-19a.
2. The FCC's authoritative construction of Section
533 (b) (4) removes the constitutional doubts about Sec-
tion 533 (b) that were raised by the court of appeals.
Under the operation of the statute as a whole, including
Section 533 (b) (4) as now interpreted, LECs will "have
abundant opportunities to speak." Pet. Supp. App. 15a.
The FCC has established that the door is open for LECs
to use their video dialtone systems in the manner of a
cable system, to distribute multiple channels of their own
programming, as well as the programming of others,
selected with editorial control. While its construction
does not permit LECs to take over incumbent monopolist
cable operators (id. at 16a-17a), that limitation does not
prevent LECs from offering, on a video dialtone system,
the same programming that could be offered on a tradi-
tional cable system. LECs therefore have "ample al-
ternative modes of communication" at their disposal.
Vincent, 466 U.S. at 812. 27
___________________(footnotes)
27 The limitation is also consistent with the statute's goal of
(and Congress's significant interest in) preventing the extension
---------------------------------------- Page Break ----------------------------------------
42
The FCC's construction also removes any objections
to the tailoring of the congressional regime. LECs may
enter the market for distribution of multichannel video
programming, on the condition that they also set aside a
significant portion of the video dialtone network for dis-
tribution of other programmers' video speech on a com-
mon carriage basis. Pet, Supp. App. 14a-15a. That is
precisely the "obvious less-burdensome alternative" iden-
tified by the court of appeals as preferable to Congress's
exclusion of LECs from the cable market. See Pet. App.
47a-48a.
Given their opportunity to disseminate video program-
ming on video dialtone networks, respondents cannot, as
defenders of the court of appeals' facial invalidation of
the statute, "establish that no set of circumstances exists
under which [Section 533 (b) ] would be valid." United
States v. Salerno, 481 U.S. 739, 745 (1987), Under the
FCC's waiver authority, moreover, respondents will obtain
their principal objective, the ability to develop a video
dialtone system on their own telephone network for the
transmission of their own programming. See J.A. 13, 15
(complaint). What LECs have not obtained through the
FCC's construction of its waiver authority is the right to
purchase incumbent cable operators. But Congress and
the FCC have reasonably concluded, after their "lengthy
investigation of the relationship between the cable and
[telephone] industries" (see Turner, 114 S. Ct. at 2475
(Stevens, J., concurring in part and concurring in the
judgment) ), that to permit LECs to do so would involve
too great a risk of extending their telephone monopoly
to the cable market. Their decision furthers the "basic
tenet of national communications policy''-that "the
___________________(footnotes)
of LECs' telephone monopolies into the cable market, and with
the FCC's policy of promoting diversity in communications media
by encouraging the development of video dialtone as mother outlet
for video speech. See Video Dialtone Order, 7 F.C.C. Red at 5783.
---------------------------------------- Page Break ----------------------------------------
43
widest possible dissemination of information from diverse
and antagonistic sources is essential to the welfare of the
public." Id. at 2470 (opinion of the Court).
       CONCLUSION
The judgment of the court of appeals should be
reversed.
Respectfully submitted.
WILLIAM E. KENNARD
General Counsel
CHRISTOPHER J. WRIGHT
Deputy General Counsel
Federal Communications
Commission
August 1995
DREW S. DAYS, III
Solicitor General
GEORGE J. PHILLIPS
Acting Assistant
Attorney General
LAWRENCE G. WALLACE
Deputy Solicitor General
PAUL R.Q. WOLFSON
Assistant  to the
Solicitor General
DOUGLAS N. LETTER
MARK B. STERN
BRUCE  G. FORREST
Attorneys
* U. S. GOVERNMENT PRINTING OFFICE; 1995 387147 20108
---------------------------------------- Page Break ----------------------------------------
     TABLE OF AUTHORITIES
Cases:				                  Page
Anderson V. Cryovac, Inc., 805 F.2d 1 (lst Cir.
  1986) . . . . 17
Application of New Jersey Bell Tel. Co., In re, 9
  F.C.C. Rcd 3677 (1994)      . . . . 15
Application-s of Ameritech Operating Cos., In re,
  No. W-P-C 6926 (Oct. 6, 1995) . . . . 15
Boeing Airplane Co. v. Coggeshall, 280 F.2d 654
  (D.C. Cir. 1960)....17
City of Ladue V. Gilleo, 114 S. Ct. 2038 (1994)  . . . . 1-2
City of Lakewood  V. Plain Dealer Publishing Co.,
  486 U.S. 750 (1988)  .  . . . 2, 3-4, 12, 15
Delaware, L. & W.R.R. v. United States, 231 U.S.
  363 (1913)  . . . . 6, 19
Dinko V. Wall, 531 F.2d 68 (2d Cir. 1976). . . . 17
Ehlert V. United States, 402 U.S. 99 (1971)   . . . . 13
FCC V. Florida Power Corp., 480 U.S. 245 (1987) . .  . .6
Florida Bar v. Went For It, Inc., 115 S. Ct. 2371
  (1995).... 12
Forsyth County, Georgia V. Nationalist Movement,
  505 U.S. 123 (1992) ...... 12
Frisby V. Shultz , 487 U.S. 474 (1988)      . . . . 3
Gitlow V. New York, 268 U.S. 652 (1925) . . . . 8
Heffron V, International Society for Krishna Con-
  sciousness, Inc., 452 U.S. 640 (1981)   . . . .  3
Hurley V. Irish-American Gay, Lesbian and, Bisex-
  ual Group Of Boston, 115 S. Ct. 2338 (1995) . . . . 3
Law Students Civil Rights Research Council V.
  Wadmond, 401 U.S. 154 (1971)   . . .  . 12-13
Leathers V. Medlock, 499 U.S. 439 (1991). . . .3
National Cable Television Association V. FCC, 914
  F.2d 285 (D.C. Cir. 1990)   . . . . 17
Ohralik. v. Ohio State Bar Ass'n, 436 U.S. 447
  (1978) . . . .  8
Pacific Gas & Elec. Co. v. Public Utils. Comm'n, 475
  U.S. 1 (1986)  . . . . 18
(I)
---------------------------------------- Page Break ----------------------------------------
            II
Cases-Continued:              Page
Policy and Rules Concerning Rates for Dominant
  Carriers, Further Notice of Proposed Rulemak-
  ing, In re, 3 F.C.C. Rcd 3195 (1988) .....5-6
Policy and Rules Concerning Rates for Dominant
  Carriers, Second Report and Order, In re, 5
  F.C.C. Rcd 6786 (1990), aff'd on reconsideration,
  6 F.C.C. Red 2637 (1991), aff'd sub nom. Na-
  tional Rural Telecom Ass'n V. FCC, 988 F.2d 174
  (D.C. Cir. 1993) .....  5, 6
Poulos V. New Hampshire, 345 U.S. 395 (1953) . ...13, 15
PruneYard Shopping Center V. Robins, 447 U.S.
  74 (1980).... 18
Regan v. Time, Inc., 468 U.S. 641 (1984)    .  . . .4
Rostker V. Goldberg, 453 U.S. 57 (1981) . . . . 9, 10
SEC v. Chenery Corp., 332 U.S. 194 (1947).....16
Schlagenhauf v. Holder, 379 U.S. 104 `(1964 ).....17
Southern Ry. V. Lanham, 403 F.2d 119 (5th Cir.
1968).....17
Tel. Co Cable Television Cross-Ownership Rules,
Sections 63.54-63.58, Fourth Further Notice of
Proposed Rulemaking, In re, 10 F.C.C. Rcd 4617
(1995)  . . . .14
Tel. Co Cable Television Cross-Ownership Rules,
Sections 63.54-63.58, Further Notice of Inquiry
and Notice of Proposed Rulemaking, In re, 3
F.C.C. Red 5849 (1988)....4
Tel. Co Cable Television Cross-Ownership Rules,
Sections 68.5-4-63.58, Second Report and Order,
Recommendation to Congress, and Second Fur-
ther Notice of Proposed Rulemaking, In re, 7
F.C.C. Rcd 5781 (1990), modified in part on re-
consideration, Tel. Co Cable Television Cross-
Ownership Rules, Sections 63,54-63.58, Memo-
randum Opinion and Order on Reconsideration
and Third Further Notice of Proposed Rulemak-
ing, In re, 10 F.C.C. Rcd 244 (1994) .....10,19
Turner Broadcasting System V. FCC, 114 S. Ct.
2445 (1994) . . . .3, 18
United States v. Albertini, 472 U.S. 675 (1985) . . . . 8
 ---------------------------------------- Page Break ----------------------------------------
            III
Cases-Continued:		              Page
United States V. Elgin, J. & E. Ry., 298 U.S. 492
  (1936) . . . .   6
United States V. Reading CO., 253 U.S. 26 (1920) . . . . 6
United States V. Western Elec. Co., 993 F.2d 1572
  (D.C. Cir.), cert. denied, 114 S. Ct. 487 (1993 ) . . . .9
Ward v. Rock Against Racism, 491 U.S. 781
  (1989)....4, 8, 10
Wray V. Folsom, 166 F. Supp. 390 (W.D. Ark.
  1958)   . . . .  17
Constitution, statutes and regulation:
Us. const.:
   Amend. I .....5, 8
   Amend. V . . . .  19
Administrative Procedure Act, 5 U.S.C. 553 . . . . 13
Pole Attachments Act of 1978, 47 U.S.C. 224 . . . . 6
47 U.S.C. 533 (b)   . . . .  passim
47 U.S.C. 533 (b)(4) ....  l2,13,15
47 C.F.R. 63.56(b) (2)  . . . .16
Miscellaneous:
Cable-Instructional TV and S. 1200, Communica-
  tions Competitiveness and Infrastructure Mod-
  ernization Act of 1991: Hearing Before the
  Subcomm. on Communications of the Senate
  Comm. on Commerce, Science, and Transporta-
  tion, 102d Cong., 2d Sess. (1992) . . . . 11
6 Fed. Reg. 31,418 (1981) . . . . 16
Letter from Edward D. Young, III, Vice President
  and Associate General Counsel of Bell Atlantic
  Network Services, Inc., to Reed E. Hundt, Chair-
  man of the FCC (July 21, 1995)  . . . .14
S. Rep. No. 381, 10lst Cong., 2d Sess. (1990 )
S. Rep. No, 456, 10lst Cong., 2d Sess. (1990)  . . . . 11
S. Rep. No. 92, 102d Cong., 1st Sess. (1991) . . . .11
---------------------------------------- Page Break ----------------------------------------
IN THE SUPREME COURT OF THE UNITED STATES
      OCTOBER TERM, 1995
        No. 94-1893
   UNITED STATES OF AMERICA, ET AL.,
        PETITIONERS
          v.
  THE CHESAPEAKE AND POTOMAC TELEPHONE
    COMPANY OF VIRGINIA, ET AL.
        No. 94-1900
NATIONAL CABLE TELEVISION ASSOCIATION, INC.,
        PETITIONER
          v.
   BELL ATLANTIC CORPORATION, ET AL.
    ON WRITS OF CERTIORARI TO THE
    UNITED STATES COURT OF APPEALS
      FOR THE FOURTH CIRCUIT
REPLY BRIEF FOR THE FEDERAL PETITIONERS
1. a. Respondents argue (Br. 13) that strict scrutiny
extends to "bans * * * that tell speakers * * * , even in
a content-neutral way, that they may not provide, at any
time or place, speech to the audience and in the manner
of their choosing." Even if that somewhat ambiguous
formulation accurately states the law, it does not apply
here, for 47 U.S.C. 533(b) does not foreclose respondents
from an "entire medium of expression." Cf. City of
---------------------------------------- Page Break ----------------------------------------
2
Ladue v. Gilleo, 114 S. Ct. 2038, 2045 (1994)3 Re-
spondents may offer video programming over their own
local broadcast television stations (or even a national
television network), and they may set up "cable channels"
of their own programming, which could be disseminated
over independently controlled cable systems. Under those
arrangements and several others, respondents could show
their own video programming.' See Gov't Opening Br.
30-31, 37-38. Respondents may not (absent a waiver)
offer programming over their own cable systems in their
service areas because of the regulatory problems with such
an arrangement, but that specific and limited restriction
is a "manner" regulation properly analyzed under inter-
___________________(footnotes)
1 Respondents rely heavily on Ladue for the application of strict
scrutiny. While we do not question that Ladue expressed "partic-
ular concern with laws that foreclose an entire medium of ex-
pression," 114 S. Ct. at 2045, it is questionable whether Ladue ap-
plied strict scrutiny. The bulk of the discussion in Ladue assumed
the applicability of intermediate scrutiny and concluded that the
ban on residential signs failed that scrutiny. Id. at 2046-2047;
see also id. at 2047 (O'Connor, J., concurring). In City of Lake-
wood V. Plain Dealer Publishing Co., 486 U.S. 750, 763 (1988), the
Court stated, when discussing a hypothetical municipal ban on all
newsracks: "Presumably in the case of an ordinance that com-
pletely prohibits a particular manner of expression, the law on its
face is both content and viewpoint neutral. In analyzing such a
hypothetical ordinance, the Court would apply the well-settled time,
place, and manner test." That statement is directly contrary to
respondents' formulation of the law. In any event, the Court need
not decide whether restrictions on an "entire medium of expression"
always require strict scrutiny, for, as we explain in the text, no
such restriction is at issue in this case.
2 For the same reasons, respondents' argument (Br. 34-36) that
Section 533 (b) fails to leave open ample alternative channels of
communication is unfounded. Section 533 (b) does not ban local
exchange carriers (LEGs) from the video medium, but permits
them to gain direct access to audiences through the dominant mode
of broadcast television, as well as through direct-broadcast satellite
television and "wireless cable." See Gov't Opening Br. 37-38.
Through those modes of delivery, LECs can have guaranteed access
to their desired audience, without the need to rely on unaffiliated
cable-system operators.
---------------------------------------- Page Break ----------------------------------------
 3
mediate scrutiny-just as the ban on ambulatory fairground
proselytizing at issue in Heffron v. International Society for
Krishna Consciousness, Inc., 452 U.S. 640 ( 1981), and
the ban on residence-specific picketing at issue in Frisby
V. Shultz, 487 U.S. 474 (1988), were so analyzed.
Respondents' reliance on Hurley v. Irish-American Gay,
Lesbian and Bisexual Group of Boston, 115 S. Ct. 2338
(1995), is misplaced. There, the Court identified the
problem with compelled inclusion in the parade as one of
forced association with the content of a particular mes-
sage. See id. at 2348, 2350. The Court distinguished
Turner Broadcasting System V. FCC, 114 S. Ct. 2445
(1994), in which it applied intermediate scrutiny, on the
basis that the must-carry rule at issue. in Turner carried
"little risk that cable viewers would assume that the
broadcast stations carried on a cable system convey[ed]
ideas or messages endorsed by the cable operator."
Hurley, 115 S. Ct. at 2348-2349 (quoting Turner, 114
S. Ct. at 2465). Hurley is therefore closer to a case
involving regulation of content, albeit in the context of
the right not to speak messages of a particular content,
than to a case like this one.
b. Respondents also argue that Section 533(b) is
content-based. The only distinction made by Section
533 (b), however, involves the method by which a mes-
sage is disseminated. The distinction is no more content-
based than would be (for example) a regulation of live
entertainment, but not television, in taverns. We agree
that each method of presentation of an idea has its own
important qualities, but that point does not convert a
regulation of the mode of delivering a message into one
governing the content of the message. See Leathers v.
Medlock, 499 U.S. 439, 449 (1991) (tax applied only
to cable services is not content-based).
Section 533 (b) also does not present the threat of
administrative discretion over speech. This is not a situa-
tion in which there is "unfettered discretion, coupled with
the power of prior restraint." City of Lakewood V. Plain
---------------------------------------- Page Break ----------------------------------------
4
Dealer Publishing Co., 486 U.S. 750, 757 (1988). The
Federal Communications Commission (FCC) abjures
authority to apply Section 533(b) based on the content
of any message presented. See Gov't Opening Br. 21-22.
Even if, in rare cases, it will be difficult to determine
whether programming is covered by Section 533(b),
those cases can be resolved without "need to evaluate the
nature of the message being imparted." Regan V. Time,
Inc., 468 U.S. 641, 656 (1984). As long as the distinc-
tions made are content-neutral, "perfect clarity and pre-
cise guidance [are not] required even of regulations that
restrict expressive activity."  Ward V. Rock Against
Racism, 491 U.S. 781, 794 (1989).
2. a. Respondents assert that there is a "mismatch"
between the problem of cross-subsidization and the restric-
tion enacted by Section 533(b). They question why cross-
subsidization does not occur under the current regime,
under which local exchange carriers (LECs)  may operate
video transport services without exercising editorial con-
trol. Resp. Br. 23. This is the same error as that made
by the district court. See Gov't Opening Br. 25-27. The
danger of cross-subsidization in the existing video trans-
port market is small because the potential profit from that
market is much smaller than the profits that can be derived
from offering full cable services. See In re Tel. Co
Cable Television Cross-Ownership Rules, Sections 63.54-
63.58, Further Notice of Inquiry and Notice of Proposed
Rulemaking, 3 F.C.C. Rcd 5849, 5857 ( 1988). The
1980 FCC staff study that reexamined the FCC's cross-
ownership rules reached a similar conclusion, that LECs
might not have the incentive to build a cable system un-
less they exercised substantial editorial control. J.A. 69.
But if LECs were permitted to provide their own video
programming over their transport facilities, the prospect
of dominating the lucrative video programming market
would provide a greater incentive for them to cross-
subsidize transport costs. "Simply put, the removal of
---------------------------------------- Page Break ----------------------------------------
 5
 533(b) would make a video transmission monopoly
more valuable to a telephone company." J.A. 332 (Owen
reply affidavit). Congress has, accordingly, tailored the
cross-ownership bar to the situation in which the danger
of cross-subsidization is much more substantial. Respond-
ents' underinclusiveness argument is thus ill-founded, as
well as contrary to the principles favoring narrow tailor-
ing in First Amendment jurisprudence.3
Respondents also argue (Br. 25-27) that the danger of
cross-subsidization is attenuated because the FCC and
several States have adopted price-cap regulation for com-
mon carrier telephone service. The FCC's price-cap rules,
however, cover only interstate services of LECs (provid-
ing customers with access to long-distance companies),
and do not address the cost to customers of LECs' mo-
nopoly local telephone service, which is regulated by the
States. See In re Policy and Rules Concerning Rates for
Dominant Carriers, Second Report and Order, 5 F.C.C.
Red. 6786, 6787 (1990 ) (Price-Cap Order), aff'd on re-
consideration, 6 F.C.C. Rcd 2637 (1991), aff'd sub nom.
National Rural Telecom Ass'n v. FCC, 988 F.2d 174
(D.C. Cir. 1993). Most States have not adopted "pure"
price-cap regulation for LECs; price-cap regulation remains
controversial, and many consumer interests and state
utility regulators maintain that rate-of-return regulation
has advantages for local telephone customers. See In re
Policy and Rules Concerning Rates for Dominant Carriers,
___________________(footnotes)
3 Respondents also suggest (Br. 23-24) that LECs would have
a strong financial stake in the success of an unaffiliated cable oper-
ator since they could obtain rental income from such an operator.
But that rental income could be subject to traditional rate regula-
tion by the States and would not be calculated as a share of the un-
affiliated programmer's profits in the programming market. See
Gov't Opening Br. 26. Even on the opposite assumption, the indirect
benefits from cross-subsidization that could be obtained from that
rental income, or from a five percent ownership share in a cable
operator (Resp. Br. 23), are surely minimal compared to the bene-
fits that could be gained from cross-subsidization if the LEC fully
owned a cable system in its service area.
---------------------------------------- Page Break ----------------------------------------
6
Further Notice of Proposed Rulemaking, 3 F.C.C. Rcd
3195, 3212, 3217, 3260 (1988). State rate-of-return
regulation "in its present form has been with us for some
time" (Price-Cap Order, 5 F.C.C. Rcd at 6789), and is
not on the verge of. disappearance.
b. Respondents argue (Br. 27-29) that Section 533(b)
is not necessary to prevent LECs from discriminating
against their competitors in affording access to essential
facilities for the distribution of video programming. Ex-
perience teaches that common carriers have the incentive
and opportunity to discriminate against their competitors
when they are permitted to carry for their own benefit as
well as others'. See Delaware, L. & W.R.R. v. United
States, 231 U.S. 363, 370 (191 3); United Stares v. Read-
ing Co., 253 U.S. 26, 60-61 ( 1920); United States V.
Elgin, J. & E. Ry., 298 U.S. 492, 504 ( 1936) (Stone, J.,
dissenting); Gov't Opening Br. 5-6 n.6. That probIem
has not been obviated in this context by the Pole Attach-
ments Act of 1978, 47 U.S.C. 224, as respondents main-
tain. While that Act does set up a regulatory regime to
mediate disputes between utility companies and cable op-
erators over access charges, "nothing in the [Act] * * *
gives cable companies any right to occupy space on utility
poles, or prohibits utility companies from refusing to enter
into attachment agreements with cable operators." FCC
V. Florida Power Corp., 480 U.S. 245, 251 (1987). The
Act confirms that LECs retain ownership rights in their
utility poles, including the right to exclude access to poten-
tially competing cable operators, and merely authorizes
the regulation of rents charged by utilities that voluntarily}
lease pole or conduit space to cable operators. Id. at 251-
252. Although cable operators have not until now faced
obstacles in gaining access to LECs' poles and conduits
(Resp. Br. 27-28), that point is evidence of the effective-
ness of Section 533 (b), not its obsolescence. Because
LECs may not compete with cable operators in their serv-
---------------------------------------- Page Break ----------------------------------------
7
ice areas, they have no incentive to exclude them from
poles and conduits. The same would not be true if re-
spondents were permitted to operate their own cable
systems in their service areas. Respondents' pole attach-
ment and conduit agreements typically provide for termi-
nation, by either party, on six months' notice (see J.A.
113, 211 ); thus, within six months of entering the cable
market (or even anticipating entry), respondents could
demand that competing cable operators remove cable
wires from their utility poles. Even if LECs did not
engage in such an obvious form of discrimination, they
could use their control over their poles and conduits to
frustrate competitors' ability to maintain the condition of
their equipment. See Gov't Opening Br. 36.
Respondents suggest (Br. 28-29) that independent video
programmers would benefit if LECs could offer another
conduit for their programming, in competition with the
incumbent cable systems. But it is doubtful that such
programmers would benefit substantially if they faced
two duopolists rather than one monopolist, or if LECs
simply replaced the incumbent cable operators as mo-
nopolists. Independent programmers would benefit from
a second conduit if they had some right of access, as under
the common-carriage video dialtone regime planned by
the FCC, but respondents deny that Congress can even
require them to carry the voices of others over their video
dialtone systems. Resp. Br. 44-45. In their view, the
right to editorial controI over video dialtone is an all-or-
nothing matter, and they cannot be forced to share their
networks with any other programmers. That argument
confirms the FCC's insight in 1970 that LECs' control
over the system of disseminating video programming could
lead to an "arbitrary blockage of th[e] gateway." See
Gov't Opening Br. 6.
c. Respondents also contend (Br. 29-32) that Section
533 (b) cannot stand because "administrative conveni-
ence" is not sufficient to justify a regulation of speech
---------------------------------------- Page Break ----------------------------------------
 8
under intermediate scrutiny. The problem however, is
not one of convenience, but of efficacy. Cross-subsidization
and discrimination are inherently difficult to detect and to
prove. Because of that difficulty, the question for Congress
was how to design a system for "the prevention of harm
before it occurs." Ohralik v. Ohio State Bar Ass'n, 4.36
U.S. 447, 464 (1978). Congress decided to enact a
prophylactic rule that protects video programmers from the
threat of LECs' anti-competitive behavior by removing the
incentive for that behavior. Absent the prophylactic rule,
there will surely be greater incentive and opportunity for
anti-competitive conduct by the LECs and greater diffi-
culty in detecting that conduct. Congress's decision should
therefore be upheld as a reasonable legislative determinat-
ion that a prophylactic rule serves the government's im-
portant interests more effectively than some other "imagi-
nable alternative that might be less burdensome on speech,"
United States V. Albertini, 472 U.S. 675, 689 (1985), for
"[a]bsent this requirement, the [government's] interest
would have been served less well." Ward, 491 U.S. at
800.4 The suggestion that courts and agencies have swept
aside the accumulated evidence of the danger of anti-
competitive behavior by LEGs (Resp, Br. 30-31) is
seriously overstated. When the D.C. Circuit approved
the removal of the barrier to LECs' entry into the in-
___________________(footnotes)
4 Section 533 (b) is also not subject to attack cm the theory that it
penalizes speech with a "bad tendency," as amicus American Civil
Liberties Union suggests (Br. 17). In Gitlow v. New York, 268
U.S. 652 (1925), the Court reasoned that the speaker's conviction
was valid under the First Amendment because "the legislative body
itself has previously determined the danger of substantive evil
arising from utterances of a specified character." Id. at 671 (em-
phasis added). But in Section 533 (b), Congress was not concerned
with utterances of a "specified character," or indeed of any char-
acter; the cross-ownership rule is content-neutral. Section 533 (b) is
not addressed to speech with a "bad tendency," but to economically
motivated ant i-competitive behavior in the market for cable services.
---------------------------------------- Page Break ----------------------------------------
9
formation services market established in the Bell System
modified final judgment, it observed that many "distin-
guished economists" had concluded that LEC participa-
tion in that market would be anti-competitive, and it
acknowledged that those "distinguished experts may * * *
be `right'." United States V. Western Elec. Co., 993 F.2d
1572, 1581-1582, cert. denied, 114 S. Ct. 487 (1993).
The D.C. Circuit's decision was predicated on principles
of deference to the regulatory decision-maker-there, the
Department of Justice, which had concluded that, on bal-
ance, competition and consumer welfare would be in-
creased by provision of information services by the Bell-
affiliated LECs. Ibid.5 Here, it is Congress (which is
ultimately responsible for setting the nation's telecommuni-
cations policy) that has decided that competition in the
cable services market requires exclusion of the LECs (in
their service areas), and it is that decision that must be
upheld as reasonable.
Moreover, it cannot be accepted that public statements
by an agency expressing doubt about the wisdom or policy
of a regulation are conclusive evidence of its unconstitu-
tionality. Cf. Rostker v. Goldberg, 453 U.S. 57, 80-81
(198 1). Adoption of that view would chill agencies from
urging Congress to reexamine a law that is subject to non-
frivolous constitutional doubt. In any event, neither the
FCC nor other agencies have concluded that regulatory
alternatives to Section 533(b) would eliminate all risk of
anti-competitive conduct. The FCC has concluded that
regulatory controls short of a cross-ownership bar would
be "adequate," in the sense that the costs of effective
___________________(footnotes)
5 The D.C. Circuit did not conclude, as respondents suggest (Br.
31), that any contrary conclusion about the costs and benefits of
LEC entry into information services would have been clearly
erroneous. It held only that, in light of the deferential standard of
review to be applied to the Department of Justice's conclusions, it
would have been clearly erroneous for the district court to find
that the Department of Justice's conclusion was unreasonable.
993 F.2d at 1582.
---------------------------------------- Page Break ----------------------------------------
10
regulatory oversight and any residual anti-competitive con-
duct that might escape such oversight would be outweighed
by the benefits to competition of LEC entry into the cable
services market.6 It has not concluded that regulatory
controls are equally effective as a cross-ownership bar in
preventing all cross-subsidization and discrimination by
LECs. Nor has it suggested that a contrary view is
unreasonable-which is the standard under intermediate
scrutiny. Cf. Ward, 491 U.S. at 799. The Department of
Justice has also recommended repeal of Section 533(b),
but it has closely tied the policy benefits from that repeal
to elimination of LECs' monopoly on local telephone serv-
ice, which would be a sea change in this country's tele-
communications regulation. See Gov't Opening Br. 32
n,21. d. Respondents stress (Br. 32-33) that Congress made
no explicit findings in the statute or legislative history
detailing the economic theories underlying Section 533 (b).
Since the bar was not controversial in 1984, when Con-
gress codified it, there was no reason then for Congress to
explain in detail the problems to which the bar was
addressed. But before Congress reregulated the cable in-
dustry in 1992, the bar was "extensively considered by
Congress in hearings, floor debate, and in committee."
Rostker V. Goldberg, 453 U.S. at 72. That legislative
history is "highly relevant in assessing the constitutional
validity" of the statute (id. at 75), for it shows that the
case had not been made to Congress's satisfaction that
Section 533 (b) was no longer necessary to protect the
cable services market.
---------------------------------------- Page Break ----------------------------------------
6 See Gov't. Opening Br. 32 n.21; In re Tel. Co Cable Television
Cross-Ownership Rules, Sections 63.54-63.58, Second Report and
Order, Recommendation to Congress, and Second Further Notice of
Proposed Rulemaking, 7 F.C.C. Rcd 5781, 5848-5849 (1990) (Video
Dialtone Order), modified in part on reconsideration, In re Tel.
Co. -Cable Television Cross-Ownership Rules, Sections 63.54-63.58,
Memorandum Opinion and Order on Reconsideration and Third
Further Notice of Proposed Rulemaking, 10 F.C.C. Rcd 244 (1994)
(Video Dialtone Reconsideration Order).
---------------------------------------- Page Break --------------------------------------
11
In a 1990 report concerning legislation addressed in
large part to the cross-ownership bar, the Senate Com-
merce Committee noted the substantial disagreement over
whether anti-competitive acts would follow from entry of
LECs into the cable market. S. Rep. No. 456, 10lst
Cong., 2d Sess. 4-8 (1990). It concluded that, because
of concerns about "the potential for anticompetitive prac-
tices by telephone companies," the time was not ripe for
repeal. Id. at 9. The Committee charged the FCC with
further consideration of the issue (ibid.), but that charge
is fully consistent with its own conclusion that repeal was
not yet appropriate.7
A year later, the same Committee decided against tak-
ing action on the cross-ownership bar in the bill that
eventually became the 1992 Cable Act, but it held hear-
ings on another bill that would have repealed Section
533 (b), at which it was provided with detailed reasons
why the bar should be retained.' That bill never emerged
from the Committee. The issue was also thoroughly aired
in hearings in the House of Representatives, and sup-
porters of the repeal took the issue to the floor of both
Houses, where they expressed opposition to the 1992
Cable Act in part because it made no provision for entry
___________________(footnotes)
7 Respondents note that, in its 1991 report on cable legislation,
the Senate Commerce Committee stated that it had previously
decided that the cross-ownership bar should be considered "sep-
arately." Resp. Br. 33 (quoting S. Rep. No. 92, 102d Cong., 1st Sess.
18 (1991)). Indeed, in a 1990 report on a cable deregulation bill,
the Senate Commerce Committee did state that it would consider
the matter of LEC entry into the cable market separately. See S.
Rep. No. 381, 10lst Cong., 2d Sess. 17 (1990). But the Committee
considered that issue separately only two months later, and then
decided against repeal of Section 533 (b). See S. Rep. No. 456,
101st Cong., 2d Sess. 8-9 (1990).
8 See Cable-Instructional  TV and S. 1200, Communications Com-
petitiveness and Infrastructure Modernization Act of 1991: Hear-
ing Before the Subcomm. on Communications of the Senate Comm.
on Commerce, Science, and Transportation, 102d Cong., 2d Sess.
115 -139 (1992).
---------------------------------------- Page Break ----------------------------------------
12
of LECs into the cable market. See Gov't Opening Br.
10 n.9, 33-34, nn.22, 23. But the push to repeal Section
533 (b) failed, and in the 1992 Cable Act Congress took
a quite different approach to structural problems in the
cable market. Instead of opening up cable services to the
full play of market forces-by, for example, allowing
LECs to compete with incumbent cable operators-Con-
gress decided to reestablish rate regulation to protect
consumer welfare.
Given the wealth of information presented to Congress
about the bar before the reregulation of cable in 1992,
there can be no doubt that substantial evidence exists to
sustain Congress's decision to exclude LECs from the cable
market in their service areas. Hence, the statute's prophy-
lactic approach to a complex problem is not based on
"speculation and conjecture," but "targets a concrete, non-
speculative harm." Florida Bar V. Went For It, Inc., 115
S. Ct. 2371, 2377-2378 (1995). It should, accordingly,
be upheld.
3. a. In a series of related arguments, respondents con-
tend (Br. 36-45) that the Court should disregard the
FCC's Third Report and Order, in which the FCC con-
cluded that the "good cause" waiver provision of Section
533 (b) (4) provides it with authority to permit LECs to
provide video programming directly to subscribers in
their service areas over a video dialtone system.9 The
Third Report and Order is a definitive administrative con-
struction of Section 533 (b)(4), which, under settled
principles, must be taken into account when this Court
addresses respondents' facial constitutional challenge to
Section 533 (b) as a whole. See Forsyth County, Georgia
V. Nationalist Movement, 505 U.S. 123, 131 ( 1992);
City of Lakewood, 486 U.S. at 770 n. 11; Law Students
Civil Rights Research Council V. Wadmond, 401 U.S.
                      .
___________________(footnotes)
9 Although respondents rely on mootness cases (Br. 37 n.32), we
have not suggested the Third Report and Order renders their con-
stitutional challenge moot.
--------------------------------------- Page Break ----------------------------------------
13
154, 159, 162-163 (1971 ); Poulos v. New Hampshire,
345 U.S. 395, 402 (1953 ). Under those principles, the
Court considers the agency's construction of any related
provision that bears on the validity of the principal section
under legal attack. See Ehlert v. United States, 402 U.S.
99, 106-107 (1971).10
The FCC's construction is not subject to change at the
FCC's whim, as respondents imply. The FCC adopted
that construction using the notice-and-comment provisions
of the Administrative Procedure Act (APA), 5 U.S.C.
553; any modification of the FCC's construction of Sec-
tion 533 (b) (4) would also have to be undertaken in con-
formity with the APA, and would be subject to judicial
review as well. And although respondents suggest that,
"[u]nless this Court affirms the judgment below, a princi-
pal basis of the FCC'S actions would disappear" (Br. 39),
that will not be true if this Court upholds the statute
in light of the FCC's construction of Section 533 (b) (4).
If the Court upholds the statute as construed by the FCC,
any subsequent rescission of that construction would only
serve to revive quickly respondents' challenge to the com-
plete cross-ownership bar.
b. Respondents insist (Br. 41-43) that the Third Re-
port and Order should be disregarded because the FCC
___________________(footnotes)
10 In Ehlert, the court rejected the petitioner's challenge to his
conviction for failure to submit to induction, which challenge was
based on the contention that Selective Service regulations afforded
him no opportunity to present a claim of conscientious objection
that had "crystallized" after he received the induction notice. Al-
though the Court concluded that the regulations under challenge did
generally limit draft boards to considering conscientious objection
claims filed before the mailing of the induction notice (402 U.S.
at 100 n.1, 104-105), it stressed, based on assurances in a letter
"from the General Counsel of the Department of the Army to the
Department of Justice," that "late crystallizers" could present a
 claim of conscientious objection to combatant service after
tion into the military (id. at 106-107). The Court concluded that
the regime as a whole did not bar "late crystallizers" from the
opportunity to present their conscientious objection cases.
---------------------------------------- Page Break ----------------------------------------
          14
has not specified the exact terms and conditions under
which LECs will be allowed to provide video program-
ming on their own video dialtone systems. There is no
basis for any accusation against the FCC of undue delay;
in fact, respondent Bell Atlantic requested that the FCC
postpone issuance of its regulations until Congress com-
pletes action on pending telecommunications legislation.11
Moreover, fashioning effective regulatory safeguards to re-
place the cross-ownership bar is a major undertaking.
When the FCC recognized, in light of the adverse appel-
late rulings on Section 533 (b), that provision might have
to be made to permit LECs to offer their own video pro-
gramming on their video dialtone systems, it quickly
opened rulemaking and asked commenters to address the
complex regulatory issues raised by such an arrangement.12
Those issues include (a) the respective percentages of
programming capacity that should be left under LECs'
editorial control and should be open to common carriage;
(b) "channel-sharing' mechanisms to ensure broad access
to video dialtone systems; (c) protections to prevent
LECs from misusing unaffiliated programmers' proprietary
information; (d) safeguards against cross-subsidization,
including accounting rules, structural separation of LECs'
telephone and video affiliates, and rules governing transac-
tions between those affiliates; and (e) access for independ-
ent programmers to LECs' poles and conduits.13
___________________(footnotes)
11 See Letter of July 21, 1995, from Edward D. Young, III, Vice
President and Associate General Counsel of Bell Atlantic Network
Services, Inc., to Reed E. Hundt, Chairman of the FCC [lodged
with the Clerk of this Court).
12 The Fourth Circuit denied-rehearing in this case on January
18, 1995. Pet. App. 109a-112a. The FCC opened rulemaking two
days later. See In re Tel. Co Cable Television Cross-Ownership
Rules, Sections 68.54-63.58, Fourth Further Notice of Proposed
Rulemaking, 10 F.C.C. Rcd 4617 (Fourth Further Notice). At that
time, the government's petition for rehearing in the Ninth Circuit
in a similar case was still pending.
13 See Fourth Further Notice, 10 F.C.C. Rcd at 4629-4641. There
is also no basis for respondents' suggestion (Br. 38 n.35) that the
---------------------------------------- Page Break ----------------------------------------
 15
The FCC has also made clear that it will grant waivers
to LECs that agree to meet the safeguards that are even-
tually established. See Pet. Supp. App. 19a. The waiver
authority therefore is not accurately characterized as a
"grant of standardless licensing power" (Resp. Br. 42),
for the FCC's discretion is strictly limited by its binding
construction of its waiver authority. The restrictions on
its discretion have been and will be "made explicit by
textual incorporation [and] binding * * * administrative
construction," City of Lakewood, 486 U.S. at 770, and so
the dangers of censorship and self-censorship suggested by
respondents do not exist. See also Poulos, 345 U.S. at
404-408.
c. On the merits of the FCC's construction of its
waiver authority, respondents suggest that the second sen-
     tence of Section 533(b)(4) precludes the FCC from
offering any generally applicable construction of "good
cause" and limits it to case-by-case, fact-specific inquir-
  ies .14   But while Section 533 (b)(4) authorizes the FCC
___________________(footnotes)
FCC has acted in bad faith by prohibiting two LECs from provid-
ing their own programming over their video dialtone systems,
notwithstanding an injunction against enforcement of Section
533 (b). In both the New Jersey Bell and Ameritech cases cited by
respondents, the FCC permitted a LEC to construct a video dialtone
system in its service area. The FCC noted in both cases that the
applicant had not requested permission to offer its own video pro-
gramming over the system, and it therefore limited the approval in
both cases to construction and operation of a purely common-carrier
video dialtone system. See In re Application of New Jersey Bell
Tel. Co., 9 F.C.C. Red 3677, 3679 n.27 (1994) ; In re Applications
of Ameritech Operating Cos., No. W-P-C 6926, et al., at 5 (Oct. 6,
1995). Those restrictions were reasonable, for dissemination of a
LEC's own video programming over its video dialtone system raises
 much more complicated regulatory problems of cross-subsidization
and discriminaiton than those presented by operation of a pure
common-carriage system. Those regulatory problems are, of course,
 the heart of this case, and they are also the subject of the FCC's
 ongoing video dialtone rulemaking.
   14 Section 533(b) (4) provides:
	 In those areas where the provision of video programming
  directly to subscribers through a cable system demonstrably
---------------------------------------- Page Break ----------------------------------------
 16
to  grant  waivers  on  a  showing  that  the "particular cir-
cumstances demonstrated by the [applicant]" warrant a
waiver, it does not prohibit the FCC from concluding
that all cases falling within a certain class, defined in ad-
vance to give adequate notice to the public, will meet
the requirement of good cause. Cf. SEC' v. Chenery Corp.,
332 U.S. 194, 202-203 (1947 ), With respect to the re-
lated authorization for waiver based on a showing that
cable service in an area "demonstrably could not exist"
unless offered by a LEC, the FCC has long had in place a
generally applicable rebuttable presumption that such
cable service could not exist if the proposed service area
has less than a certain household density. See 47 C.F.R.
63.56(b)(2); 46 Fed. Reg. 31,418 (1981). Congress
codified that rebuttable presumption by reference in the
second sentence of Section 533 (b) (4). See n. 14, supra.
Here, the FCC has similarly concluded that, as a rule, the
provision of video programming over video dialtone sys-
tems, operated in conformity with regulations preventing
anti-competitive behavior and in competition with an in-
cumbent cable operator, will constitute "particular cir-
cumstances" demonstrating good cause. Pet, Supp. App.
13a. The LEC seeking a waiver must still show that its
"particular" proposal to offer video programming on a
video dialtone meets those requirements and therefore
warrants a waiver.15
could not exist except through a cable system owned by,
operated by, controlled by, or affiliated with the common car-
rier involved, or upon other showing of good cause, the Com-
mission may, on petition for waiver, waive the applicability
of paragraphs (1) and (2) of this subsection. Any such waiver
shall be made in accordance with section 63.56 of title 47, Code
of Federal Regulations (as in effect September 20, 1984)
and shall be granted by the Commission upon a finding that the
 issuance of such waiver is justified by the particular circum-
stances demonstrated by the petitioner, taking into account
the policy of this subsection.
15 Respondents also suggest that the FCC'S construction of "good
cause" is too broad (Br. 40 n.37), but "good cause" is not limit
---------------------------------------- Page Break ----------------------------------------
  17
The FCC'S construction is not precluded by National
Cable Television Association v. FCC, 914 F.2d 285 (D.C.
Cir. 1990), as respondents contend (Br. 40). That case
did not involve a situation in which the LEC would have
competed with an incumbent cable operator, as will be
the case with video dialtone; rather, the LEC would have
built the first cable system in the community. Also, that
case was decided before the litigation over the constitu-
tionality of Section 533(b). The intervening technological
developments and the courts' doubts about the constitu-
tionality of Section 533(b) justified the FCC's revisiting
its waiver authority, as the FCC explained in the Third
Report and Order. Pet. Supp. App. 1la, 20a-21a.
d. Finally, respondents contend (Br. 43-45) that the
Third Report and Order creates constitutional problems
because it would require LECs to allow room for others
on their video dialtone systems. That assertion is remark-
able, for it is a repudiation of the more narrowly tailored
alternative that the court of appeals suggested, viz., that
___________________(footnotes)
to dire emergencies. In general, "good cause" refers to something
more than speculation. See, e.g., Schlagenhauf v. Holder, 379 U.S.
104, 119 (1964) (good cause for ordering physical examinations
under Federal Rules of Civil Procedure) ; Anderson v. Cryovac,
Inc., 805 F.2d 1, 7-8 (1st Cir. 1986) (good cause for entering pro-
tective order) ; Boeing Airplane Co. v. Coggeshall, 280 F.2d 654,
659 (D.C. Cir. 1960) (good cause for enforcement of subpoena).
Beyond that, " [t]here is no settled understanding of what `good
cause' means" (Southern Ry. V. Lanham, 403 F.2d 119, 126
(5th Cir. 1968)), and the phrase has been aptly described as "a
relative and highly abstract term, [such that] its meaning must
be determined not only by the verbal context of the statute in which
the term is employed, but also by the context of the action and pro-
cedures involved and the type of case presented." Wray V. Folsom,
166 F. Supp. 390,394 (W.D. Ark. 1958). See also Dinko V. Wall, 531
 F.2d 68, 75 (2d Cir. 1976) (" `Good cause' is an elastic concept,
and  is often used as a shorthand summary of the underlying policy
 reasons why a litigant should be able to attain a specified result.").
TheFCC therefore has the discretion to interpret "good cause" in
light of Congress's overarching policy in Section 533(b), the pro-
motion of competition in the cable services market.
---------------------------------------- Page Break ----------------------------------------
18
Congress could limit LECs to a `fixed percentage of the
available channels on a cable system and could require-
them to lease the balance on a common-carrier basis to
unaffiliated programmers. See Pet. App. 47a-48a. It is
also a repudiation of respondents' position in the lower
courts, in which they suggested the shared-system arrange-
ment as an alternative to Section 533(b).86  But without
the alternative proposed by the court of appeals, Section
533 (b) must surely be upheld, for no other "obvious less-
burdensome alternative" (Pet. App. 47a) effective to pre-
vent anti-competitive conduct has been suggested by the
lower courts.
In any event, the Third Report and Order's purported
constitutional problems are without substance. The danger,
in the "compelled speech" cases invoked by respondents
is that a speaker "may be: forced either to appear to agree.
with [unwelcome] views or to respond." Pacific Gas &
Elec. Co. v. Public Utils. Comm'n, 475 U.S. 1, 15 (1986)
(plurality opinion). But, as the Court observed in"
Turner, must-carry rules in the cable context do not pre-
sent the same risk, for the public understands that cable.
operators carry others' messages without endorsing the
views expressed in those messages. 114 S. Ct. at 2465-
2466; see also PruneYard Shopping Center v. "Robins,
447 U.S. 74, 87 ( 1980). There is even less danger from
"compelled speech" in the context of video dialtone sys-
tems, which would be operated by entities well known
to the public to be common carriers of others' messages,
prohibited from discriminating on the basis of the con-
tent of those messages.
___________________(footnotes)
16 See Resp. C.A. Br. 65 ("Telephone companies that provide
their own video programming over their own common carrier net-
works would remain subject to these nondiscrimination obligations.
Video Dialtones Order, 7 FCC Rcd at 5850-51 [.]") ; Tr. C.A. Oral
Arg. 27 ("[MR. TRIBE:] There are a lot of things that Congress
can do. They can require sharing. They can enforce common carrier
obligations to which we are subject.").
 ---------------------------------------- Page Break ----------------------------------------
19
For similar reasons, respondents' intimation that the
FCC's video dialtone regime effects an unconstitutional
taking of their property (Br. 44-45) is without merit.
The FCC'S plan to allow LECs to speak over their own
video dialtone systems does not "take" anything from
respondents. To the contrary, it gives them something
that they did not previously have, for, at its inception
video dialtone was designed to be a pure common-carriage
system based on the current telephone network, over
which the LECs could not disseminate their own mes-
sages.17 Since a prohibition against common carriers' use
of their facilities for their own benefit does not "take"
their property within the meaning of the Fifth Amend-
ment (see Delaware, L. & W.R.R. v. United States,
supra), a more lenient rule, allowing, common carriers
some use of their own facilities but also requiring them to
carry the signals of others, presents no constitutional
difficulty.
		*       *       *       *       *
For the foregoing reasons, and for the reasons set
forth in our opening brief, the judgment of the court of
appeals should be reversed.
Respectfully submitted.
DREW S. DAYS, III
Solicitor General
NOVEMBER 1995
___________________(footnotes)
17 See Video Dialtone Order, 7 F.C.C. Rcd at 5783; Video Dialtone
Reconsideration Order, 10 F.C.C. Rcd at 258-259.
* U.S. GOVERNMENT PRINTING OFFICE; 1995  405017 40007
---------------------------------------- Page Break ----------------------------------------
Nos. 94-1893 and 94-1900
IN THE SUPREME COURT OF THE UNITED STATES
       OCTOBER TERM, 1995
UNITED STATES OF AMERICA, ET AL., PETITIONERS
v.
THE CHESAPEAKE AND POTOMAC TELEPHONE
COMPANY OF VIRGINIA, ET AL.
NATIONAL CABLE TELEVISION ASSOCIATION, INC.,
PETITIONER
v.
BELL ATLANTIC CORPORATION, ET AL.
ON WRITS OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BRIEF FOR THE FEDERAL PETITIONERS
WILLIAM E. KENNARD
 General Counsel
CHRISTOPHER J. WRIGHT
Deputy General Counsel
Federal Communications
Commission
Washington, D.C. 20554
DREW S. DAYS, III
Solicitor General
GEORGE J. PHILLIPS
Acting Assistant
Attorney General
LAWRENCE G. WALLACE
Deputy Solicitor General
PAUL R.Q. WOLFSON
  Assistant to the
     Solicitor General
DOUGLAS N. LETTER
MARK B. STERN
BRUCE G. FORREST
Attorneys
Department of Justice
Washington, D.C. 20530
(202)514-2217
---------------------------------------- Page Break ----------------------------------------
IN THE SUPREME COURT OF THE UNITED STATES
OCTOBER TERM,  1995
No. 94-1893
UNITED STATES OF AMERICA, ET AL.,
    PETITIONERS
v.
THE CHESAPEAKE AND POTOMAC TELEPHONE
   COMPANY OF VIRGINIA, ET AL.
No. 94-1900
NATIONAL CABLE TELEVISION ASSOCIATION, INC.,
       PETITIONER
v.
BELL ATLANTIC CORPORATION, ET AL.
   ON WRITS OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
   FOR THE FOURTH CIRCUIT
SUGGESTION OF MOOTNESS
On December 6, 1995, the Court heard oral argu-
ment in these cases, presenting a First Amend-
ment challenge to 47 U.S.C. 533(b), which prohibits
local exchange carriers (LECs) from operating cable
(1)
---------------------------------------- Page Break ----------------------------------------
2
television systems within their service areas. On
February 8, 1996, the President signed into law
the Telecommunications Act of 1996, which, among
other things, repeals Section 533(b). See Pub. L. No.
104-104, 302(b) (1996). Section 302(b)(l) specifically
states that "[subsection (b) of Section 613 (47 U.S.C.
533(b)) is repealed." The legislation does not contain
any specific effective date applicable to that repealing
provision, and so it took effect on the date of the
President's signature. See Gozlon-Peretz v. United
States, 498 U.S. 395,404 (1991).
Because the provision under challenge in these
cases has been repealed, the cases are now moot.
Burke v. Barnes, 479 U.S. 361,363-364 (1987); Hall v.
Beak, 396 U.S. 45, 48 (1969). The complaint in these
cases requested a declaration that Section 533(b) is
unconstitutional and an injunction against its en-
forcement the plaintiffs did not request damages or
any other relief based on past enforcement of the
repealed provision. J.A. 16. Therefore, former Sec-
tion 533(b) has no further, continuing effect on the
parties before the Court.
Under the Communications Act of 1934, as now
amended by the Telecommunications Act of 1996, no
provision prevents a LEC from establishing a new
cable system, in competition with the incumbent cable
operator, in its own service area. Section 302(a) of the
Telecommunications Act of 1996 does contain some
restrictions on acquisition of incumbent cable oper-
ators by LECs.  Under a new Section 652 of the
Communications Act, no LEC or its affiliate may
acquire more than a 10% financial interest in any
incumbent cable operator offering cable service in its
service area; conversely, no cable operator may ac-
quire a similar financial interest in any LEC offering
---------------------------------------- Page Break ----------------------------------------
3
local telephone service within its franchise area. The
new legislation also provides several exceptions to
these restrictions on acquisitions, for small cable
systems, and for cable systems operating in nonurban
areas; in addition, a LEC may acquire a cable system
in its service area if (among other things) the cable
system is not in the top 25 television markets, the
market is served by more than one cable operator, and
the subject cable operator is not the one with the
most subscribers in the market.  The legislation
further authorizes the FCC to waive the restriction
on acquisitions of incumbent cable operators by
LECs under certain circumstances.  Those pro-
visions (which, of course, have not yet been con-
sidered by any court) are not at issue in the cases
presently before the Court, and so they do not prevent
the cases from becoming moot as a result of the enact-
ment of the 1996 Telecommunications Act.
Because the provision under challenge has been
repealed, these cases are now moot.  The proper
course is for the Court to vacate the judgment of the
court of appeals and to remand the cases, with
instructions to dismiss them as moot. United States
v. Munsingwear, Inc., 340 U.S. 36 (1950); Preiser v.
Newkirk, 422 U.S. 395 (1975); Burke v. Barnes, 479
U.S. at 365.
For the foregoing reasons, the judgment of the
court of appeals should be vacated, and these cases
should be remanded with instructions to dismiss them
as moot.
Respectfully submitted.
          DREW S. DAYS, III
           Solicitor General
FEBRUARY 1996