*Pages 1--43 from  Microsoft Word - Charter.doc*
 ORAL  ARGUMENT  NOT  YET  SCHEDULED 
 BRIEF  FOR  RESPONDENTS 


 IN  THE  UNITED  STATES  COURT  OF  APPEALS  FOR  THE  DISTRICT  OF  COLUMBIA  CIRCUIT 


 NO.  05-  1237 
 CHARTER  COMMUNICATIONS,  INC.  AND  ADVANCE/  NEWHOUSE  COMMUNICATIONS, 
 Petitioners, 
 v. 
 FEDERAL  COMMUNICATIONS  COMMISSION  AND  UNITED  STATES  OF  AMERICA, 


 Respondents. 
 PETITION  FOR  REVIEW  OF  AN  ORDER  OF  THE  FEDERAL  COMMUNICATIONS  COMMISSION 


 THOMAS  O.  BARNETT  ASSISTANT  ATTORNEY  GENERAL 
 CATHERINE  G.  O'SULLIVAN  ANDREA  LIMMER 
 ATTORNEYS 
 UNITED  STATES  DEPARTMENT  OF  JUSTICE 


 WASHINGTON,  D.  C.  20530 


 SAMUEL  L.  FEDER  GENERAL  COUNSEL 
 RICHARD  K.  WELCH  ASSOCIATE  GENERAL  COUNSEL 


 JOHN  E.  INGLE  DEPUTY  ASSOCIATE  GENERAL  COUNSEL 
 LAURENCE  N.  BOURNE  COUNSEL 
 FEDERAL  COMMUNICATIONS  COMMISSION  WASHINGTON,  D.  C.  20554 
 (202)  418-  1740 
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 TABLE  OF  CONTENTS 
 Page 


 i 
 STATEMENT  OF  ISSUES  .............................................................................................................  1 
 JURISDICTION  ..............................................................................................................................  2 
 STATUTES  AND  REGULATIONS...............................................................................................  2 
 COUNTERSTATEMENT...............................................................................................................  3 
 I.  Regulatory  Background  ...........................................................................................  3 
 II.  The  Proceeding  On  Review  .....................................................................................  8 
 INTRODUCTION  AND  SUMMARY  OF  ARGUMENT  ............................................................  15 
 STANDARD  OF  REVIEW...........................................................................................................  18 
 ARGUMENT.................................................................................................................................  19 
 I.  Petitioners  Challenge  To  The  FCCs  Authority  Under  Section  629  To  Prohibit  Integrated  Navigation  Devices  Is 


 Not  Properly  Before  The  Court  And,  In  Any  Event,  Is  Without  Merit.........................................................................................................  19 


 II.  The  Commission  Reasonably  Declined  To  Eliminate  The  Phased  Prohibition  On  Integrated  Navigation  Devices.  ........................................  23 
 III.  Conditions  In  The  DBS  Market  Were  Beyond  The  Scope  Of  The  Proceedings  Established  By  The  Further  Notice 
 And  Extension  Order  And  Provide  No  Basis  On  Which  To  Eliminate  The  Integration  Ban  With  Respect  To  Cable 
 Operators................................................................................................................  31 
 CONCLUSION..............................................................................................................................  36 
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 TABLE  OF  AUTHORITIES 
 Page 


 ii 
 Cases 
 *  Aluminum  Company  of  America  v.  ICC,  761  F.  2d  746  (D.  C.  Cir.  1985)  ..............................................................................................................  20 


 American  Family  Assn  v.  FCC,  365  F.  3d  1156  (D.  C.  Cir.),  cert.  denied,  543  U.  S.  1004  (2004)  ...............................................................................  21 
 AT&  T  Corp.  v.  FCC,  220  F.  3d  607  (D.  C.  Cir.  2000)  .......................................................  18 
 AT&  T  Corp.  v.  FCC,  317  F.  3d  227  (D.  C.  Cir.  2003)  .......................................................  21 
 Bell  Atlantic  Telephone  Cos.  v.  FCC,  79  F.  3d  1195  (D.  C.  Cir.  1996)  .....................................................................................................................  19 


 Cellco  Partnership  v.  FCC,  357  F.  3d  88  (D.  C.  Cir.  2004)...............................................  18 
 Chevron  U.  S.  A.  Inc.  v.  Natural  Res.  Def.  Council,  Inc.,  467  U.  S.  837  (1984).............................................................................................................  18 


 *  Consumer  Electronics  Assn  v.  FCC,  347  F.  3d  291  (D.  C.  Cir.  2003)  ..................................................................................................  18,  19,  29 
 *  General  Instrument  Corp.  v.  FCC,  213  F.  3d  724  (D.  C.  Cir.  2000)  .....................................................................  5,  6,  7,  16,  18,  20,  21,  22,  24,  27 
 Harris  v.  Federal  Aviation  Administration,  353  F.  3d  1006  (D.  C.  Cir.),  cert.  denied,  543  U.  S.  809  (2004)  ...............................................................  16 
 *  Kennecott  Utah  Copper  v.  U.  S.  Dept.  of  Interior,  88  F.  3d  1191  (D.  C.  Cir.  1996)  ..............................................................................................  20,  33 
 MCI  Telecommunications  Corp.  v.  FCC,  57  F.  3d  1136  (D.  C.  Cir.  1995)  .....................................................................................................................  33 
 Melcher  v.  FCC,  134  F.  3d  1143  (D.  C.  Cir.  1998)  ............................................................  29 
 Motor  Vehicle  Manufacturers  Assn  v.  State  Farm  Mutual  Automobile  Ins.  Co.,  463  U.  S.  29  (1983)..............................................................  19 


 National  Assn  of  Broadcasters  v.  FCC,  740  F.  2d  1190  (D.  C.  Cir.  1984)  .....................................................................................................................  34 
 National  Cable  &  Telecommunications  Assn  v.  Brand  X  Internet  Services,  125  S.  Ct.  2688  (2005)............................................................................  18 
 NRDC  v.  Thomas,  838  F.  2d  1224  (D.  C.  Cir.),  cert.  denied,  488  U.  S.  888  (1988).....................................................................................................  20 
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 Page 
 iii 
 Qwest  Corp.  v.  FCC,  252  F.  3d  462  (D.  C.  Cir.  2001)  .......................................................  20 
 *  SBC  Communications  Inc.  v.  FCC,  407  F.  3d  1223  (D.  C.  Cir.  2005)  ...............................  20 
 United  States  Telecom  Assn  v.  FCC,  290  F.  3d  415  (D.  C.  Cir.  2002),  cert.  denied,  538  U.  S.  940  (2003)..............................................................  31 


 United  States  v.  Edge  Broadcasting  Co.,  509  U.  S.  418  (1993)  ........................................  34 
 *  Western  Coal  Traffic  League  v.  ICC,  735  F.  2d  1408  (D.  C.  Cir.  1984)  ............................  20 
 Administrative  Decisions 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices  (CS 


 Docket  No.  97-  80),  13  FCC  Rcd  14775,  petition  for  review  denied,  General  Instrument  Corp.  v.  FCC,  213  F.  3d  724 
 (D.  C.  Cir.  2000)  ................................................................................  5,  6,  19,  23,  34 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices  (CS 


 Docket  No.  97-  80),  14  FCC  Rcd  7596  (1999),  petition  for  review  denied,  General  Instrument  Corp.  v.  FCC,  213  F.  3d 
 724  (D.  C.  Cir.  2000)  ...............................................................................  6,  7,  19,  23 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices  (CS 


 Docket  No.  97-  80),  Further  Notice  of  Proposed  Rulemaking  and  Declaratory  Ruling,  15  FCC  Rcd  18199 
 (2000)................................................................................................................  8,  31 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices  (CS 


 Docket  No.  97-  80),  Order  and  Further  Notice  of  Proposed  Rulemaking,  18  FCC  Rcd  7924  (2003)  ......................................................  9,  10,  31 


 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices; 
 Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment  (CS  Docket  No.  97-  80  &  PP  Docket 
 No.  00-  67),  Further  Notice  of  Proposed  Rulemaking,  18  FCC  Rcd  518  (2003)...............................................................................................  9 
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 Page 
 iv 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices; 
 Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment  (CS  Docket  No.  97-  80  &  PP  Docket 
 No.  00-  67),  Second  Report  and  Order,  18  FCC  Rcd  20885  (2003),  petition  for  review  pending,  Echostar  Satellite  LLC 
 v.  FCC,  D.  C.  Circuit  No.  04-  1033  (filed  January  27,  2004).................................  10 
 Statutes  and  Regulations 
 Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104,  110  Stat.  56.............................................................................................................................  3 


 5  U.  S.  C.    553(  b)  ..............................................................................................................  33 
 5  U.  S.  C.    706(  2)(  A).........................................................................................................  18 
 28  U.  S.  C.    2342(  1)  ............................................................................................................  2 
 28  U.  S.  C.    2344.........................................................................................................  16,  19 
 47  U.  S.  C.    402(  a)  ..................................................................................................  2,  16,  19 
 47  U.  S.  C.    405(  a)  ......................................................................................................  16,  21 
 47  U.  S.  C.    549...................................................................................................................  3 
 *  47  U.  S.  C.    549(  a)  ............................................................................................  2,  3,  4,  7,  21 
 47  U.  S.  C.    549(  b)  ..............................................................................................................  4 
 47  U.  S.  C.    549(  e)  ........................................................................................................  4,  30 
 47  C.  F.  R.    76.1204(  a)(  2).............................................................................................  7,  34 
 47  C.  F.  R.    76.640(  b)  .......................................................................................................  22 


 Others 
 H.  R.  Rep.  No.  104-  204  (1995)............................................................................................  4 
 Restatement  (Second)  of  Judgments  (1982)  .....................................................................  20 
 *  Cases  and  other  authorities  principally  relied  upon  are  marked  with  asterisks. 
5
 GLOSSARY 
 v 
 1998  Order  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996;  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  13  FCC  Rcd  14775  (1998) 


 Br.  petitioners  opening  brief 
 DBS  direct  broadcast  satellite 
 Extension  Order  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996;  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  Order  and  Further  Notice  of 
 Proposed  Rulemaking,  18  FCC  Rcd  7924  (2003) 
 Further  Notice  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996;  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  Further  Notice  of  Proposed  Rulemaking 
 And  Declaratory  Ruling,  15  FCC  Rcd  18199  (2000) 
 J.  A.  Joint  Appendix 
 MVPD  multichannel  video  programming  distributor 
 NCTA  National  Cable  &  Telecommunications  Association 
 Order  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996;  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  Second  Report  and  Order,  20  FCC 
 Rcd  6794  (2005) 
 Reconsideration  Order  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996;  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  14  FCC  Rcd  7596  (1999) 
6
 IN  THE  UNITED  STATES  COURT  OF  APPEALS  FOR  THE  DISTRICT  OF  COLUMBIA  CIRCUIT 
 NO.  05-  1237 
 CHARTER  COMMUNICATIONS,  INC.  AND  ADVANCE/  NEWHOUSE  COMMUNICATIONS, 
 Petitioners, 
 v. 
 FEDERAL  COMMUNICATIONS  COMMISSION  AND  UNITED  STATES  OF  AMERICA, 


 Respondents. 
 PETITION  FOR  REVIEW  OF  AN  ORDER  OF  THE  FEDERAL  COMMUNICATIONS  COMMISSION 


 BRIEF  FOR  RESPONDENTS 
 STATEMENT  OF  ISSUES 
 Cable  television  operators  Charter  Communications,  Inc.  and  Advance/  Newhouse 


 Communication  (collectively,  petitioners),  both  members  of  the  National  Cable  & 
 Telecommunications  Association  (  NCTA),  seek  review  of  an  order  of  the  Federal 
 Communications  Commission  in  Implementation  of  Section  304  of  the  Telecommunications  Act 
 of  1996;  Commercial  Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  Second  Report 
 and  Order,  20  FCC  Rcd  6794  (2005)  (  Order)  (J.  A.  ).  That  Order  extended  (from  July  1, 
 2006,  to  July  1,  2007)  the  date  by  which  cable  operators  must  comply  with  an  existing  rule 
 requiring  them  to  cease  offering  their  subscribers  navigation  devices  (such  as  cable  set-  top 
7
 2 
 boxes)  that  bundle  both  security  (descrambling)  and  non-  security  (e.  g.,  channel  selection) 
 functions,  but  declined  for  now  to  remove  altogether  the  ban  on  such  integrated  navigation 
 devices.  The  case  presents  the  following  questions  for  the  Courts  review. 
 1.  Whether  petitioners  claim  that  the  Commission  lacks  authority  under  47  U.  S.  C.   
 549(  a)  to  prohibit  cable  operators  from  providing  integrated  navigation  devices  is:  (a)  barred  as 
 untimely;  (b)  precluded  because  the  Court  already  has  rejected  that  claim  on  review  of  NCTAs 
 challenge  to  the  prior  order  that  initially  adopted  the  integration  ban;  (c)  barred  because  it  was 
 not  raised  before  the  agency;  and,  in  any  event,  (d)  without  merit. 
 2.  Whether  the  Commission  reasonably  exercised  its  predictive  judgment  in  determining 
 that  the  integration  ban,  which  had  never  gone  into  effect  seven  years  after  its  initial  adoption, 
 remained  necessary,  pending  further  developments  and  industry  reports  on  the  market,  to  ensure 
 the  commercial  availability  of  competitive  navigation  devices  under  47  U.  S.  C.    549(  a). 
 3.  Whether  petitioners  claim  that  the  Commissions  integration  ban  arbitrarily  accords 
 disparate  treatment  to  cable  operators  and  direct  broadcast  satellite  providers  is  barred  because  it 
 is  untimely,  and,  if  it  is  not  barred,  whether  it  otherwise  is  without  merit,  given  the  record  and  the 
 limited  scope  of  this  proceeding. 
 JURISDICTION 
 The  Court  has  jurisdiction  to  review  final  orders  of  the  FCC  under  47  U.  S.  C.    402(  a) 


 and  28  U.  S.  C.    2342(  1). 


 STATUTES  AND  REGULATIONS 
 Pertinent  statutes  and  regulations,  in  addition  to  those  included  in  the  petitioners  opening 


 brief,  are  appended  in  the  addendum  to  this  brief. 
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 3 
 COUNTERSTATEMENT 
 I.  Regulatory  Background 
 Section  629.  Petitioners  challenge  regulations  promulgated  by  the  Commission  in 


 fulfillment  of  its  statutory  mandate  under  section  629  of  the  Communications  Act,  entitled 
 Competitive  Availability  of  Navigation  Devices.  47  U.  S.  C.    549.  Section  629  was  added  to 
 the  Communications  Act  as  part  of  the  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104, 
 110  Stat.  56.  Generally  speaking,  navigation  devices  are  the  equipment  used  to  gain  access  to 
 video  programming  and  other  services  from  multichannel  video  programming  distributors 
 (  MVPDs)  such  as  cable  television  operators.  Section  629  applies,  by  its  terms,  to  converter 
 boxes,  interactive  communications  equipment,  and  other  equipment  used  by  consumers  to  access 
 multichannel  video  programming  and  other  services  offered  over  multichannel  video 
 programming  systems.  47  U.  S.  C.    549(  a). 
 As  its  title  indicates,  section  629  was  adopted  to  assure  the  commercial  availability  of 
 navigation  devices  from  manufacturers,  retailers,  and  other  vendors  not  affiliated  with  any 
 [MVPD].  47  U.  S.  C.    549(  a).  In  the  cable  television  industry,  for  example,  subscribers 
 historically  have  leased  navigation  devices  from  their  cable  operators  as  part  of  the  subscribers 
 overall  service  package.  These  leased  devices  typically  integrate  conditional  access  (security) 
 functions,  which  control  access  to  all  encrypted  or  scrambled  channels  (such  as  HBO  and  other 
 channels  above  the  basic  tier),  along  with  other  functions,  such  as  tuning  basic  tier  services. 
 Because  only  the  cable  system  operator  could  provide  the  conditional  access  technology, 
 suppliers  not  affiliated  with  the  cable  operator  were  not  able  to  offer  consumers  comparable 
 navigation  devices,  and  consumers  were  denied  competitive  choices  at  retail.  This  limitation  on 
 consumer  choice  meant  that  subscribers  were  locked  in  to  the  navigation  device  selected  by  the 
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 4 
 cable  operator,  with  no  options  on  price,  quality,  or  features.  In  enacting  section  629,  Congress 
 sought  to  remedy  this  monopoly  situation  and  thus  provide  options  to  consumers  by  effecting  a 
 transition  to  competition  in  network  navigation  devices  and  other  customer  premises 
 equipment.  H.  R.  Rep.  No.  104-  204,  at  112  (1995).  Competition,  Congress  said,  is  an 
 important  national  goal  that  will  lead  to  innovation,  lower  prices  and  higher  quality.  Id. 
 At  the  same  time,  recognizing  the  problem  of  unauthorized  reception  of  service,  section 
 629(  b)  directs  the  Commission  not  to  prescribe  regulations  under  subsection  (a)  that  would 
 jeopardize  the  security  of  services  offered  by  an  MVPD  or  impede  an  MVPDs  legal  rights  to 
 prevent  theft  of  service,  47  U.  S.  C.    549(  b);  and  the  statute  forbids  the  Commission  from 
 prohibiting  any  MVPD  from  also  offering  navigation  devices  to  consumers  so  long  as  the  system 
 operators  charges  to  consumers  for  such  devices  are  separately  stated  and  not  subsidized  by 
 charges  for  the  service,  47  U.  S.  C.    549(  a). 
 Finally,  section  629  contains  a  sunset  provision,  which  states  that  FCC  regulations 
 promulgated  under  the  statute  will  cease  to  apply  when  the  Commission  determines  that  the 
 market  for  MVPD  service  and  associated  navigation  devices  is  fully  competitive  and  that 
 elimination  of  the  regulations  would  promote  competition  and  the  public  interest.  47  U.  S.  C.   
 549(  e). 
 FCC  Implementation  of  Section  629.  The  FCC  in  1998  adopted  rules  to  implement  the 
 statute,  requiring  MVPDs  to  make  available  by  July  1,  2000,  a  security  element  (described  by  the 
 Commission  at  the  time  as  a  point-  of-  deployment  module  and  now  commonly  referred  to  as  a 
10
 5 
 CableCARD)  separate  from  the  basic  navigation  device  (or  host  device).  1  The  CableCARD 
 is  a  credit  card-  sized  module  that  plugs  into  a  slot  in  the  host  device,  making  the  host  device 
 functionally  equivalent  to  an  integrated  device  (i.  e.,  capable  of  performing  both  navigation  and 
 security  functions)  for  purposes  of  receiving  all  programming  except  interactive  programming. 
 The  Commission  concluded  that  the  separation  of  the  security  element  from  the  host  device 
 would  permit  unaffiliated  suppliers  to  market  host  devices  commercially  while  allowing  MVPDs 
 to  retain  control  over  their  system  security.  This  unbundling,  the  Commission  determined, 
 would  facilitate  the  development  and  commercial  availability  of  navigation  devices  by 
 permitting  a  larger  measure  of  portability  among  them,  increasing  the  market  base  and 
 facilitating  volume  production  and  hence  lower  costs.  1998  Order,  para.  49. 
 The  1998  Order  also  required  cable  operators,  by  January  2005,  to  cease  leasing  new 
 navigation  devices  that  performed  both  conditional  access  and  non-  security  functions.  1998 
 Order,  para.  49.  The  Commission  determined  that,  even  with  unbundled  security    i.  e., 
 CableCARDs    available  from  cable  operators,  the  continued  availability  of  integrated 
 navigation  devices  only  from  cable  operators  would  impede  competition  by  discouraging 
 customers  from  switching  to  commercially  available  host  devices.  Id.,  para.  69.  The 
 Commission  acknowledged,  in  response  to  petitions  for  reconsideration,  that  integration  might 
 yield  some  cost  savings  for  subscribers,  but  concluded  that  such  savings  would  likely  be  offset 


 1  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  13  FCC  Rcd  14775,  para.  76  (1998)  (  1998  Order),  petition  for  review  denied,  General  Instrument  Corp.  v.  FCC,  213  F.  3d  724 


 (D.  C.  Cir.  2000)  (  General  Instrument)  . 
11
 6 
 by  increased  innovation  and  manufacturing  savings  in  an  open,  competitive  market.  2  The 
 Commission  concluded  that,  in  light  of  the  competitive  impediments  caused  by  integrated 
 navigation  devices,  a  phased  prohibition  on  such  devices  was  required  by  the  command  of 
 section  629(  a)  that  the  Commission  take  actions  to  assure  that  consumers  have  the  ability  to 
 obtain  navigation  devices  from  sources  other  than  the  MVPD.  Reconsideration  Order,  para.  25. 
 The  Commission  found  that  marketplace  distinctions  dictated  a  different  result  for 
 navigation  devices  used  to  gain  access  to  direct  broadcast  satellite  (  DBS)  services.  1998 
 Order,  para.  64;  Reconsideration  Order,  paras.  36-  37.  Unlike  the  cable  market,  in  which  no 
 navigation  devices  were  available  except  through  cable  operators,  in  the  DBS  market,  integrated 
 navigation  devices  were  already  available  at  retail    offering  consumers  competitive  choices  and 
 declining  prices.  See  1998  Order,  para.  64  (noting  that  at  least  10  equipment  manufacturers  were 
 already  competing  to  provide  devices  to  consumers  at  retail  and  that  the  price  of  equipment  had 
 fallen  significantly  over  the  preceding  three  years).  Moreover,  although  the  DBS  equipment  on 
 sale  was  not  portable  among  DBS  providers    equipment  used  to  gain  access  to  DirectTV 
 programming  could  not  be  used  to  obtain  Echostar  programming    each  DBS  service  provider 
 had  a  nationwide  service  footprint.  Unlike  navigation  devices  used  in  the  cable  market,  the  DBS 
 equipment  thus  was  geographically  portable  across  the  nation  enabling  subscribers  to  continue 
 using  their  equipment  if  they  moved  to  a  new  location  and  continued  to  subscribe  to  the  same 
 DBS  service  provider.  1998  Order,  para.  66.  In  addition,  DBS  service  providers  were  relatively 
 new  entrants  in  the  MVPD  market.  Id.,  para.  65.  Concluding  that  requiring  DBS  providers  to 


 2  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  14  FCC  Rcd  7596,  paras.  28,  30  (1999)  (  Reconsideration  Order),  petition  for  review  denied,  General  Instrument,  213  F.  3d  724. 
12
 7 
 separate  security  would  serve  little  purpose  and  could  be  disruptive  to  that  developing  market, 
 id.,  para.  64,  the  FCC  thus  declined  to  impose  security  separation  requirements  with  respect  to 
 DBS  navigation  devices.  See  47  C.  F.  R.    76.1204(  a)(  2).  The  Commission  determined  that  this 
 result  was  consistent  with  section  629,  because  that  provision  mandates  the  outcome  of 
 competitive  availability,  not  uniform  means  to  achieve  this  result.  Reconsideration  Order,  para. 
 37. 
 General  Instrument  Corp.  v.  FCC.  Several  parties,  including  the  cable  industrys  trade 
 association  (NCTA),  sought  judicial  review  of  the  Commissions  orders.  In  General  Instrument, 
 this  Court  affirmed  the  action  taken  by  the  Commission  to  implement  section  629  in  the  1998 
 Order  and  the  Reconsideration  Order.  The  Court  held  that  the  Commission  had  reasonably 
 interpreted  section  629  to  authorize  its  prohibition  on  integrated  navigation  equipment, 
 notwithstanding  language  in  the  second  sentence  of  section  629(  a)  providing  that  the 
 Commissions  regulations    shall  not  prohibit  any  multichannel  video  programming  distributor 
 from  also  offering  converter  boxes,  interactive  communications  equipment,  and  other  equipment 
 used  by  consumers  to  access  multichannel  video  programming.    General  Instrument,  213  F.  3d 
 at  730  (quoting  47  U.  S.  C.    549(  a)).  The  Court  noted  that  the  same  description  of  covered 
 equipment  also  appeared  in  the  first  sentence  of  section  629(  a),  which  requires  the  Commission 
   to  assure  the  commercial  availability  of  such  equipment.  Id.  The  Court  concluded  that  the 
 agency  reasonably  gave  meaning  to  both  sentences  of  section  629(  a)  by  construing  the  provision 
 to  authorize  a  prohibition  on  equipment  that  integrates  security  and  non-  security  functions  in 
 order  to  achieve  the  goal  of  assuring  availability  without  jeopardizing  security.  Id. 
 The  Court  in  General  Instrument  did  not  rule  on  the  reasonableness  of  the  Commissions 
 integration  ban  under  the  arbitrary  and  capricious  standard,  because  the  petitioners  in  that  case 
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 8 
 had  waived  the  argument  by  failing  to  present  it  in  their  opening  brief.  213  F.  3d  at  731-  32.  The 
 Court  did  not  consider  their  argument  and  did  not  remand  the  issue  to  the  agency  for  further 
 analysis.  The  Court  did  note  that  Commissioner  Powell,  dissenting  in  part  from  the  1998  Order, 
 had  asserted  that  the  integration  ban  was  economically  unsound  because  it  denied  consumers  the 
 efficient,  low-  cost  alternative  of  purchasing  integrated  equipment.  Id.  at  731.  The  Court 
 continued,  however,  that  even  if  it  were  to  conclude  that  Commissioner  Powell  had  the  better 
 argument,  we  would  not  on  that  basis  alone  be  justified  in  reversing  the  Commissions  economic 
 judgment,  so  long  as  the  agency  spelled  out  the  consumer  benefits  that  it  expected  to  flow  from 
 the  rule.  Id.  at  732. 
 II.  The  Proceeding  On  Review 
 The  Scope  of  the  Proceedings.  Shortly  after  this  Court  issued  the  General  Instrument 


 decision  in  2000,  the  Commission  released  a  Further  Notice  seeking  comment  on  the 
 effectiveness  of  the  rules  it  had  adopted  and  on  whether  certain  changes  were  necessary.  3  The 
 Commission  requested  comment  on  the  mechanics  of  the  phase-  out  of  integrated  boxes  and,  in 
 particular,  whether  the  2005  date  for  the  phase-  out  of  integrated  boxes  remains  appropriate. 
 Further  Notice,  para.  11.  The  Commission  did  not  ask  for  comment  on  the  continuing  validity  of 
 its  decision  to  exempt  DBS  service  from  the  security  separation  requirements  with  respect  to 
 navigation  devices,  or  on  its  prior  determination    affirmed  by  this  Court    that  section  629 
 authorizes  the  agency  to  prohibit  cable  operators  from  providing  subscribers  with  integrated 
 navigation  devices. 


 3  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  Further  Notice  of  Proposed  Rulemaking  and  Declaratory  Ruling,  15  FCC  Rcd  18199,  para.  1  (2000)  (  Further  Notice). 
14
 9 
 Before  the  Commission  could  act  on  the  Further  Notice,  the  cable  and  consumer 
 electronics  industries  adopted  a  memorandum  of  understanding  (the  plug  and  play  MOU)  that 
 reflected  a  compromise  agreement  to  integrate  the  non-  security  navigation  functionality  of  set-top 
 converter  boxes  into  television  receivers  in  a  manner  that  would  allow  consumers  to  attach 
 unidirectional  digital  cable  ready  television  receivers  directly  to  the  cable  system  with  the  use 
 of  CableCARDs.  4  In  light  of  this  development,  which  could  have  an  effect  on  the  development 
 of  technical  specifications  relating  to  host  devices,  the  Commission  in  2003  extended  the 
 deadline  for  phasing  out  integrated  navigation  devices  until  July  1,  2006,  to  accommodate 
 business  ordering  and  manufacturing  cycles.  5  At  the  same  time,  the  Commission  asked  the 
 cable  and  consumer  electronics  industries  to  supplement  their  comments  from  the  2000  Further 
 Notice.  The  Commission  asked  for  status  reports  regarding  ongoing  negotiations  with  respect  to 
 standards  for  bidirectional  digital  receivers  and  products  which  would  enable  cable  ready 
 televisions  to  gain  access  to  on  demand  movies  and  other  interactive  cable  services  without  a 
 cable  converter  box.  Extension  Order,  para.  5.  The  Commission  announced  its  intention  by 
 2005  to  complete  the  reassessment  of  the  state  of  the  navigation  devices  market  that  it  had 
 begun  with  the  Further  Notice  and  determine  whether  the  designated  time  frame  remains 


 4  See  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial 
 Availability  of  Navigation  Devices;  Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment  (CS  Docket  No.  97-  80  &  PP  Docket  No.  00-  67),  Further  Notice  of 


 Proposed  Rulemaking,  18  FCC  Rcd  518  (2003)  (seeking  comment  on  the  plug  and  play  MOU).  Unidirectional  receivers  allow  subscribers  to  receive  cable  programming,  but  do  not  permit 
 them  to  gain  access  to  two-  way  functionalities,  such  as  interactive  menu  guides  and  on  demand  movies,  without  a  cable-  supplied  navigation  device. 


 5  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial 
 Availability  of  Navigation  Devices  (CS  Docket  No.  97-  80),  Order  and  Further  Notice  of  Proposed  Rulemaking,  18  FCC  Rcd  7924,  para.  4  (2003)  (  Extension  Order). 
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 appropriate  or  whether  the  ban  on  integrated  devices  will  no  longer  be  necessary.  Extension 
 Order,  para.  5. 
 The  Administrative  Record.  The  cable  industry  and  manufacturers  of  integrated 
 navigation  devices  argued  in  their  comments  that  the  Commissions  prohibition  on  integrated 
 devices  should  be  eliminated,  or,  at  least,  that  the  deadline  for  phasing  out  the  deployment  of 
 such  devices  should  be  extended.  See  Order,  para.  13  (J.  A.  ).  Manufacturers  and  retailers  of 
 consumer  electronics,  by  contrast,  supported  retention  of  the  July  1,  2006,  phase-  out  deadline. 
 Id. 
 Cable  Industry  Comments.  Cable  commenters  argued  that  changes  in  market  conditions 
 occurring  since  the  Commission  adopted  the  phased  elimination  of  integrated  navigation  devices 
 warranted  repeal  of  the  rule.  They  asserted,  for  one  thing,  that  they  now  were  willing  to  support 
 the  sale  of  integrated  navigation  devices  at  retail,  rather  than  insisting  on  the  lease  of  such 
 devices  directly  to  subscribers.  See  Order,  para.  14  (J.  A.  ).  The  cable  industry  also  pointed  to 
 the  adoption  in  late  2003  of  one-  way  plug  and  play  rules,  6  which  they  claimed  had  led  to  the 
 development  of  CableCARD-  ready  digital  television  models  from  several  different  independent 
 manufacturers.  See  Order,  para.  16  (J.  A.  ).  They  argued  that,  because  the  new  plug  and  play 
 rules  require  cable  operators  to  support  technically  and  maintain  an  adequate  supply  of 
 CableCARDs  that  are  compatible  with  commercially  available  receivers,  the  integration  ban  was 
 no  longer  needed  to  provide  cable  operators  with  economic  incentives  to  supply  and  support 


 6  See  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial 
 Availability  of  Navigation  Devices;  Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment  (CS  Docket  No.  97-  80  &  PP  Docket  No.  00-  67),  Second  Report  and 


 Order,  18  FCC  Rcd  20885  (2003),  petition  for  review  pending,  Echostar  Satellite  LLC  v.  FCC,  D.  C.  Circuit  No.  04-  1033  (filed  January  27,  2004). 
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 11 
 those  security  modules.  See  id.  The  cable  commenters  noted,  in  addition,  that  negotiations  were 
 progressing  with  respect  to  standards  for  two-  way  plug  and  play  devices    suggesting  that  further 
 market-  opening  developments  would  be  forthcoming.  See  Order,  paras.  17-  20  (J.  A.  ). 
 Cable  commenters  argued  that  the  costs  of  the  integration  ban  outweighed  its  incremental 
 benefits  in  light  of  the  highlighted  market  developments.  In  particular,  they  asserted  that 
 separate  CableCARDs  and  host  devices  would  cost  cable  operators  and  consumers  significantly 
 more  than  integrated  set-  top  devices,  and  that  the  integration  ban  denied  consumers  the  choice  of 
 a  convenient  and  less  expensive  choice.  See  Order,  para.  23  (J.  A.  ).  Cable  commenters  also 
 stated  that  they  were  working  on  a  lower-  cost  downloadable  security  solution  that  they  claimed 
 would  achieve  essentially  the  same  result  as  separated  security,  but  without  the  cost  of  a 
 CableCARD  and  associated  interface.  See  Order,  para.  23  (J.  A.  ).  Finally,  cable  operators 
 argued  that  the  integration  ban  should  be  eliminated  because  it  places  cable  operators  at  a 
 competitive  disadvantage  with  respect  to  DBS  service  providers,  which  are  not  subject  to  the 
 ban.  See  Order,  para.  26  (J.  A.  ). 
 Consumer  Electronics  Industry  Comments.  The  consumer  electronics  industry 
 challenged  each  of  the  cable  industrys  assertions.  With  respect  to  cables  offer  to  allow  retail 
 distribution  of  integrated  equipment,  the  consumer  electronics  manufacturers  and  retailers  argued 
 that  there  was  no  real  world  record  of  cable  operators  opening  the  market  for  integrated  devices 
 to  competitive  manufacturers  on  the  same  basis  that  it  is  open  to  cable  operators  and  their  direct 
 suppliers;  moreover,  these  commenters  alleged,  the  deployment  of  integrated  devices  would 
 continue  to  allow  the  cable  industry  to  place  obstacles  or  conditions  on  competitive  entry.  See 
 Order,  para.  14  (J.  A.  ). 
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 12 
 With  respect  to  the  development  of  plug  and  play  standards,  the  consumer  electronic 
 commenters  acknowledged  that  progress  had  been  made,  but  argued  that  reliance  by  both  cable 
 operators  and  competitive  suppliers  on  a  common  security  interface  remained  essential  for  future 
 progress.  See  Order,  para.  16  (J.  A.  ).  7  In  particular,  these  commenters  asserted, 
 notwithstanding  regulatory  mandates  with  respect  to  CableCARDs  and  interface  standards,  cable 
 operators  will  lack  the  necessary  economic  incentives  to  make  separate  security  work  if  they  are 
 permitted  to  continue  to  deploy  integrated  navigation  devices.  Order,  paras.  21-  22  (J.  A.  ).  The 
 consumer  electronics  commenters  claimed,  further,  that  to  the  extent  that  the  provision  of 
 separate  CableCARDs  and  host  devices  may  be  more  expensive  than  integrated  equipment,  it  is 
 only  because  such  separate  equipment  is  not  yet  provided  in  sufficient  quantities  to  benefit  from 
 scale  economies;  in  their  view  implementation  of  the  integration  ban  would  allow  the  market  to 
 develop  and  result  in  lower  prices  and  technological  innovation.  Order,  paras.  23-  24  (J.  A.  ). 
 Finally,  DBS  service  providers  disputed  cable  claims  that  the  exemption  of  DBS  from  the 
 requirement  to  provide  separated  security  places  cable  providers  at  a  competitive  disadvantage. 
 DBS  providers  stated  that  MVPD  competition  still  weighs  heavily  in  favor  of  cable,  and  that, 
 unlike  cable,  geographically  portable  DBS  equipment  remained  widely  available  at  retail.  See 
 Order,  para.  26  (J.  A.  ). 
 The  Order  On  Review.  Addressing  the  timing  question  most  prominently  posed  in  the 
 Further  Notice  and  Extension  Order,  the  Commission,  on  the  basis  of  the  record  before  it, 


 7  The  devices  produced  by  consumer  electronics  manufacturers  pursuant  to  the  plug  and  play 
 rules  are  not  limited  to  set-  top  boxes  and,  in  many  cases  are  not  set-  top  boxes  at  all,  but  television  sets,  digital  video  recorders,  or  even  personal  computers,  with  built  in  navigation 


 functionality.  These  are  among  the  devices  that  the  consumer  electronics  manufacturers  claim  will  survive  only  if  the  cable  industry  relies  on  the  same  security  interface  as  competitors  (i.  e., 
 CableCARDs). 
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 13 
 determined  that  an  extension  of  the  deadline  for  phasing  in  the  integration  ban  until  July  1,  2007, 
 was  warranted.  Order,  para.  36  (J.  A.  ).  That  extension,  the  Commission  said,  would  provide 
 the  industry  time  to  determine  whether  it  was  feasible  to  implement  a  downloadable  security 
 solution  that  would  satisfy  common  reliance  objectives  without  the  expense  of  physically 
 separating  the  security  and  host  components  of  navigation  devices.  Order,  para.  31  (J.  A.  ).  The 
 Commission  stated  that  if  parties  demonstrate  that  downloadable  security  is  feasible,  but  cannot 
 be  implemented  by  July  1,  2007,  it  would  consider  requests  for  further  extension  of  the  deadline. 
 Order,  para.  36.  (J.  A.  ).  The  Commission  thus  held  open  the  possibility  that  successful 
 development  and  implementation  of  a  downloadable  security  system  might  obviate  the  need  for 
 the  integration  ban  before  it  actually  takes  effect. 
 While  extending  the  deadline,  the  Commission  declined  at  this  point  to  eliminate  the 
 prohibition  on  integrated  devices.  Order,  para.  27  (J.  A.  ).  The  Commission  acknowledged 
 progress  in  implementing  the  one-  way  plug  and  play  rules,  noting  that  CableCARD-  compatible 
 devices  are  available  at  retail  and  being  used  by  consumers.  Order,  para.  28  (J.  A.  ).  At  the 
 same  time,  the  Commission  credited  evidence  that  the  cable  industry  was  not  adequately 
 supporting  the  CableCARDs  themselves,  and  the  agency  expressed  disappointment  with  the 
 progress  of  negotiations  regarding  two-  way  plug  and  play  devices.  Order,  paras.  27,  28,  39  (J.  A. 
 ). 
 The  Commission  concluded  that  [  t]  he  prohibition  on  integrated  devices  appears  to  be 
 one  of  the  few  reasonable  mechanisms  for  assuring  that  MVPDs  devote  both  their  technical  and 
 business  energies  toward  the  creation  of  an  environment  in  which  competitive  markets  will 
 develop.  Order,  para.  30  (J.  A.  ).  [  C]  ommon  reliance  by  MVPDs  and  consumer  electronics 
 manufacturers  on  an  identical  security  function,  the  Commission  concluded,  will  align 
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 14 
 MVPDs  incentives  with  those  of  other  industry  participants  so  that  MVPDs  will  plan  the 
 development  of  their  services  and  technical  standards  to  incorporate  devices  that  can  be 
 independently  manufactured,  sold,  and  improved  upon.  Order,  para.  30  (J.  A.  ).  The 
 Commission  concluded  that  alternative  means  of  reaching  the  same  result  would  likely  be  far 
 more  intrusive  and  require  detailed  regulatory  oversight,  which  might  constrain  technological 
 advancement.  Id.  The  Commission  thus  saw  the  choice  before  it  as  being  between  one  rule   
 the  integration  ban    which  would  provide  economic  incentives  for  industry  participants  develop 
 a  competitive  market,  and  or  a  whole  list  of  detailed  technical  standards  and  conduct  rules.  8 
 The  FCC  acknowledged  that,  with  current  technology,  the  prohibition  on  the  use  of 
 integrated  devices  will  have  certain  cost  and  service  disadvantages  in  the  short  term.  Order, 
 para.  29  (J.  A.  ).  However,  the  Commission  credited  consumer  electronics  industry  assurances 
 that  the  costs  associated  with  separate  security  and  host  devices  likely  will  decrease  as  volume 
 usage  increases.  Id.  The  Commission  also  predicted  that  these  short-  term  costs  should  be 
 counterbalanced  to  a  significant  extent  by  the  benefits  likely  to  flow  from  a  more  competitive 
 and  open  supply  market,  including  potential  savings  to  consumers  from  greater  choice  among 
 navigation  devices.  Id.  Moreover,  the  Commission  promised  to  mitigate  the  potential  short-term 
 cost  burdens  of  the  integration  ban  by  entertaining  requests  for  waiver  of  the  ban  with 
 respect  to  certain  low-  cost,  limited  capability  boxes.  Order,  para.  37  (J.  A.  ).  The 
 Commission,  accordingly,  determined  that  the  balance  of  benefits  and  burdens  supported 


 8  See,  e.  g.,  Ex  Parte  Filing  of  Consumer  Electronics  Retailers  Coalition  Re  Retention  of  POD 
 Reliance,  CS  Docket  No.  97-  80,  at  2  (March  20,  2003)  (J.  A.  )  (arguing  that  the  integration  ban  eliminates  the  need  for  the  Commission  to  make  ongoing  regulatory  judgments  over  whether 


 cable  [operators]  are  giving  equivalent  support  to  competitive  entrant  products  that  rely  on  an  interface  devised  solely  for  their  [own]  use  [and  not  for  use  by  the  cable  operator]). 
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 15 
 retention  of  the  integration  ban  pending  further  consideration  of  reports  it  required  on 
 developments  (e.  g.,  regarding  CableCARD  usage  and  possible  downloadable  security  solutions) 
 in  the  market.  Order,  paras.  27,  32,  36,  39  (J.  A.  ). 
 The  Commission  did  not  consider  the  merits  of  claims  that  it  should  accord  the  same 
 treatment  to  the  navigation  devices  used  in  connection  with  DBS  service  that  it  does  with  respect 
 to  cable  navigation  devices.  As  shown  above,  the  Commission  determined  that  it  should  not  at 
 this  point  eliminate  the  integration  ban  for  navigation  equipment  used  in  connection  with  cable 
 services.  The  question  of  extending  the  integration  ban  to  DBS  equipment  was  not  within  the 
 scope  of  the  proceedings  that  had  been  defined  in  the  Further  Notice  and  Extension  Order.  The 
 Commission,  accordingly,  determined  that  this  proceeding  did  not  provid[  e]  a  record  on  which 
 *  *  *  to  resolve  the  latter  issue.  Order,  para.  38  (J.  A.  ). 
 Subsequent  Events.  Although  the  Commission  offered  to  consider  further  extensions  of 
 the  integration  ban  deadline  on  a  proper  showing,  Order,  para.  36  (J.  A.  ),  the  cable  industry  has 
 not  sought  any  additional  extension.  Instead,  as  in  General  Instrument,  members  of  the  cable 
 industry  once  again  seek  judicial  review  of  the  integration  ban,  this  time  by  challenging  the 
 Order. 
 INTRODUCTION  AND  SUMMARY  OF  ARGUMENT 
 This  is  mostly  a  case  of  second  impression.  The  Commission  did  not  adopt  its  integration 


 ban  in  the  Order  that  is  now  before  the  Court.  That  rule  was  adopted  in  the  nearly  eight-  year-  old 
 1998  Order  that  was  affirmed  by  this  Court  on  review  in  General  Instrument.  The  principal  new 
 action  that  the  Commission  took  in  the  Order  on  review  now  was  to  extend  the  deadline  for  the 
 phase-  out  of  integrated  set-  top  boxes  to  July  1,  2007.  Petitioners  do  not  challenge  that  action. 
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 16 
 Petitioners  apparently  recognize  the  difficulty  of  their  position.  Thus,  they  repeatedly 
 assert  that  the  Commission  in  its  decision  readopted  the  1998  integration  ban  after  it  had 
 reopened  the  rulemaking  proceeding.  See,  e.  g.,  Br.  3,  8,  11,  13,  16,  28,  30.  They  contend  that 
 a  reopening  and  readoption  mean  that  the  rules  now  are  open  to  full  review  on  the  merits, 
 even  though  the  agency  merely  reaffirm[  ed]  its  original  decision.  Br.  3  (quoting  Harris  v. 
 Federal  Aviation  Administration,  353  F.  3d  1006,  1011  (D.  C.  Cir.),  cert.  denied,  543  U.  S.  809 
 (2004)).  The  Commission  may  have  reopened  the  question  whether  the  ban  should  be  applied 
 at  the  end  of  the  new  extension  period;  but  it  did  not  reopen  its  interpretation  of  the  statute  and  it 
 did  not  reopen  its  rule  exempting  DBS  providers  from  the  ban.  Those  issues  are  not  before  the 
 Court  in  this  proceeding. 
 1.  Petitioners  claim  that  section  629  does  not  provide  the  Commission  with  authority  to 
 adopt  an  integration  ban  is  barred  for  three  separate  threshold  reasons.  First,  the  claim  is 
 untimely,  because  it  challenges  an  interpretation  of  the  statute  that  the  Commission  adopted  in 
 the  1998  Order  and  the  Reconsideration  Order  and  never  reopened.  The  60-  day  period  for 
 seeking  review  of  that  interpretation  under  47  U.  S.  C.    402(  a)  and  28  U.  S.  C.    2344  passed  long 
 ago.  Second,  petitioners  trade  association    NCTA    previously  litigated  the  same  question  in 
 General  Instrument  and  lost.  213  F.  3d  at  730-  31.  Petitioners  are  bound  by  that  determination 
 and  are  precluded  from  relitigating  the  issue.  Third,  no  party  appears  to  have  presented  the 
 statutory  authority  question  to  the  Commission  in  the  proceedings  leading  to  the  issuance  of  the 
 Order  on  review,  and  the  claim  therefore  is  barred  by  47  U.  S.  C.    405(  a),  which  prevents  the 
 Court  from  considering  questions  on  which  the  Commission  has  been  afforded  no  opportunity 
 to  pass. 
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 17 
 Petitioners  statutory  authority  argument  fails  on  the  merits,  in  any  event,  because  it  is  in 
 all  pertinent  respects  indistinguishable  from  the  argument  that  this  Court  rejected  in  General 
 Instrument,  which  constitutes  controlling  precedent  on  the  question. 
 2.  The  Commission  reasonably  exercised  its  predictive  judgment  that  the  integration  ban 
 remains  necessary  to  implement  Congresss  direction  to  assure  the  commercial  availability  of 
 competitive  navigation  devices.  Although  the  Commissions  plug  and  play  rules  require  cable 
 companies  to  provide  CableCARDs  to  subscribers  who  wish  to  use  competitive  navigation 
 equipment,  and  although  CableCARD-  compatible  television  sets  are  now  on  the  market,  the 
 record  raised  grave  concerns  about  cable  operators  commitment  to  supporting  CableCARDs,  as 
 reflected  in  the  fact  that  only  a  de  minimis  percentage  of  CableCARD-  compatible  sets  are 
 actually  being  used  with  CableCARDs.  The  Commission  determined  that  without  common 
 reliance  of  cable  operators  and  competitive  equipment  suppliers  on  the  same  conditional  access 
 interface,  cable  operators  could  not  be  expected  to  ensure  that  competitors  have  the  equivalent 
 access  to  the  cable  network  needed  to  ensure  a  robust  retail  market  for  navigation  devices. 
 Contrary  to  petitioners  argument  (Br.  20-  29),  the  Commission,  in  concluding  that  the  integration 
 ban  remained  necessary,  reasonably  considered  and  balanced  the  costs  and  benefits  of  its 
 decision.  Order,  paras.  27-  39  (J.  A.  ). 
 3.  Petitioners  claim  that  the  Commission  arbitrarily  failed  to  take  affirmative  action  to 
 remedy  the  alleged  disparate  treatment  of  cable  and  DBS  with  respect  to  the  integration  ban.  Br. 
 29-  41.  However,  the  Commissions  decision  to  exempt  DBS  from  the  ban  was  adopted  in  the 
 1998  Order  and  the  Reconsideration  Order  and  was  never  reopened.  A  challenge  to  the 
 regulatory  distinction  the  Commission  drew,  therefore,  is  untimely.  On  the  merits,  moreover,  it 
 was  reasonable  for  the  Commission  to  retain  the  integration  ban  as  to  cable  for  the  reasons 
23
 18 
 already  discussed;  and  the  Commission  was  without  power  in  this  proceeding  to  extend  the  ban 
 to  DBS,  because  neither  the  Further  Notice  nor  the  Extension  Order  had  provided  any  notice  of 
 that  possibility  and  because  the  record  did  not  support  it.  See  Order,  para.  38  (J.  A.  ). 
 STANDARD  OF  REVIEW 
 The  FCCs  interpretations  of  the  Communications  Act  generally,  see,  e.  g.,  Cellco 


 Partnership  v.  FCC,  357  F.  3d  88,  94  (D.  C.  Cir.  2004)  (citation  omitted),  and  of  section  629  in 
 particular,  see  General  Instrument,  213  F.  3d  at  730,  are  governed  by  the  principles  set  out  in 
 Chevron  U.  S.  A.  Inc.  v.  Natural  Res.  Def.  Council,  Inc.,  467  U.  S.  837  (1984).  Under  Chevron,  if 
 Congress  has  directly  spoken  to  the  precise  question  at  issue,  the  Court  must  give  effect  to  the 
 unambiguously  expressed  intent  of  Congress.  467  U.  S.  at  842-  43.  But  if  the  statute  is  silent  or 
 ambiguous  with  respect  to  the  specific  issue,  the  question  for  the  court  is  whether  the  agencys 
 answer  is  based  on  a  permissible  construction  of  the  statute.  Id.  at  843.  See  also  National 
 Cable  &  Telecommunications  Assn  v.  Brand  X  Internet  Services,  125  S.  Ct.  2688,  2699  (2005) 
 (under  Chevron,  ambiguities  in  statutes  within  an  agencys  jurisdiction  to  administer  are 
 delegations  of  authority  to  the  agency  to  fill  the  statutory  gap  in  reasonable  fashion). 
 To  the  extent  that  petitioners  challenge  the  reasonableness  of  the  Commissions 
 application  of  section  629,  the  Court  must  uphold  the  Commissions  action  unless  it  is  arbitrary, 
 capricious,  an  abuse  of  discretion,  or  otherwise  not  in  accordance  with  law.  5  U.  S.  C.   
 706(  2)(  A).  This  [  h]  ighly  deferential  standard  of  review  presumes  the  validity  of  agency 
 action;  the  Court  may  reverse  only  if  the  agencys  decision  is  not  supported  by  substantial 
 evidence,  or  the  agency  has  made  a  clear  error  in  judgment.  AT&  T  Corp.  v.  FCC,  220  F.  3d 
 607,  616  (D.  C.  Cir.  2000)  (internal  quotations  omitted);  see  also  Consumer  Electronics  Assn  v. 
 FCC,  347  F.  3d  291,  300  (D.  C.  Cir.  2003);  Bell  Atlantic  Telephone  Cos.  v.  FCC,  79  F.  3d  1195, 
24
 19 
 1202-  08  (D.  C.  Cir.  1996).  The  Courts  review,  moreover,  is  particularly  deferential  when  the 
 agencys  predictive  judgment  is  involved,  because  where  the  FCC  must  make  judgments  about 
 future  market  behavior  with  respect  to  a  brand-  new  technology,  certainty  is  impossible. 
 Consumer  Electronics,  347  F.  3d  at  303  (internal  citation  omitted).  Ultimately,  the  Court  should 
 affirm  the  Commissions  decision  if  the  agency  examined  the  relevant  data  and  articulated  a 
 rational  connection  between  the  facts  found  and  the  choice  made.  Motor  Vehicle 
 Manufacturers  Assn  v.  State  Farm  Mutual  Automobile  Ins.  Co.,  463  U.  S.  29,  43  (1983)  (internal 
 quotations  omitted). 
 ARGUMENT 
 I.  Petitioners  Challenge  To  The  FCCs  Authority  Under  Section  629  To  Prohibit  Integrated  Navigation  Devices  Is  Not  Properly 


 Before  The  Court  And,  In  Any  Event,  Is  Without  Merit. 
 With  their  lead  argument,  petitioners  repeat  the  statutory  claim    rejected  previously  by 


 this  Court    that  the  Commission  lacks  authority  to  implement  the  prohibition  on  integrated 
 navigation  devices  under  section  629(  a).  Br.  17-  19.  This  challenge  is  not  properly  before  the 
 Court  because:  (1)  it  is  time-  barred;  (2)  it  is  barred  by  principles  of  issue  preclusion;  and  (3)  it 
 was  not  raised  below.  In  any  event,  the  challenge  lacks  merit. 
 First,  the  Commission  adopted  the  interpretation  that  section  629(  a)  authorized  the 
 integration  ban  in  the  1998  Order  and  in  the  Reconsideration  Order  issued  the  following  year   
 not  in  the  Order  on  review  here.  See  1998  Order,  paras.  25-  26,  49,  69;  Reconsideration  Order, 
 paras.  23-  27.  Thus,  unless  the  Commission  in  this  proceeding  reopened  the  statutory  question, 
 the  time  for  challenging  the  Commissions  interpretation  passed  long  ago.  See  47  U.  S.  C.   
 402(  a);  28  U.  S.  C.    2344  (requiring  petitions  for  review  of  FCC  orders  to  be  filed  within  60  days 
 after  issuance).  Neither  the  Further  Notice  nor  the  Extension  Order  purported  to  reopen  the 
25
 20 
 statutory  authority  question,  and  the  Order  on  review  did  not  address  it.  Petitioners  current 
 challenge  to  the  Commissions  authority  to  prohibit  the  deployment  of  integrated  navigation 
 equipment  under  section  629  thus  is  time  barred.  See  Kennecott  Utah  Copper  v.  U.  S.  Dept.  of 
 Interior,  88  F.  3d  1191,  1214  (D.  C.  Cir.  1996)  (challenge  to  a  previously  adopted  rule  as 
 violative  of  statute  is  time-  barred  where  the  subsequent  rulemaking  order  on  review  does  not 
 reopen  the  question). 
 Second,  petitioners  statutory  claim  is  foreclosed  by  principles  of  issue  preclusion,  which 
 bars  relitigation  of  an  issue  by  a  party  that  has  actually  litigated  [the]  issue.    SBC 
 Communications  Inc.  v.  FCC,  407  F.  3d  1223,  1229  (D.  C.  Cir.  2005)  (quoting  Restatement 
 (Second)  of  Judgments  at  6  (1982))  (emphasis  supplied  by  Court);  accord  Qwest  Corp.  v.  FCC, 
 252  F.  3d  462,  466  (D.  C.  Cir.  2001).  Parties,  including  NCTA,  argued  in  General  Instrument  that 
 the  FCC  lacked  authority  under  section  629  to  adopt  the  same  integration  ban  that  petitioners 
 challenge  here,  and  the  Court  expressly  rejected  that  claim.  213  F.  3d  at  730-  31.  As  members  of 
 NCTA    and  offering  no  argument  meaningfully  distinct  from  NCTAs  prior  challenge   
 petitioners  in  this  case  are  bound  by  that  determination.  See  Western  Coal  Traffic  League  v. 
 ICC,  735  F.  2d  1408,  1411  (D.  C.  Cir.  1984),  and  Aluminum  Company  of  America  v.  ICC,  761 
 F.  2d  746,  751  (D.  C.  Cir.  1985)  (both  holding  that  trade  association  members  are  precluded  from 
 relitigating  claims  previously  litigated  by  their  trade  associations).  9 
 9  As  discussed  below,  there  is  no  meaningful  difference  between  the  textual  argument  addressed 
 in  General  Instrument  and  the  one  petitioners  present  here.  However,  to  the  extent  that  petitioners  emphasis  here  on  the  statutory  phrase  other  equipment  used  by  consumers,  rather 


 than  on  the  statutory  term  converter  boxes,  could  be  construed  as  presenting  a  discrete  issue,  see  Pet.  Br.  17,  petitioners  challenge  nevertheless  is  barred  by  principles  of  claim  preclusion. 
 Under  that  doctrine,  parties  and  those  in  privity  with  them  are  barred  from  relitigat[  ing]  not  only  as  to  all  matters  which  were  determined  in  the  previous  litigation,  but  also  as  to  all  matters  that 
 might  have  been  determined.  NRDC  v.  Thomas,  838  F.  2d  1224,  1235  (D.  C.  Cir),  cert.  denied,  488  U.  S.  888  (1988)  (emphasis  added). 
26
 21 
 Third,  petitioners  brief  does  not  indicate  that  the  question  actually  was  raised  by  any 
 party  before  the  agency  during  the  proceedings  on  the  Further  Notice  and  the  Extension  Order. 
 And  with  good  reason:  The  Court  already  had  considered  that  question  in  its  review  of  the  1998 
 Order  and  Reconsideration  Order  and  had  affirmed  the  Commissions  interpretation  as 
 reasonable.  Because  the  question  apparently  was  not  raised  below,  review  of  the  statutory 
 authority  question  is  barred  by  47  U.  S.  C.    405(  a),  which  prevents  the  Court    from  considering 
 any  issue  of  law  or  fact  upon  which  the  Commission  has  been  afforded  no  opportunity  to  pass.   
 American  Family  Assn  v.  FCC,  365  F.  3d  1156,  1166  (D.  C.  Cir.),  cert.  denied,  543  U.  S.  1004 
 (2004)  (quoting  section  405(  a));  accord  AT&  T  Corp.  v.  FCC,  317  F.  3d  227,  235-  36  (D.  C.  Cir. 
 2003). 
 Petitioners  statutory  claim  fails  on  the  merits,  in  any  event,  in  light  of  this  Courts 
 holding  in  General  Instrument.  There  this  Court  affirmed  as  reasonable  the  Commissions 
 conclusion  that  the  second  sentence  of  section  629(  a)    providing  that  the  Commissions 
 regulations    shall  not  prohibit  any  multichannel  video  programming  distributor  from  also 
 offering  converter  boxes,  interactive  communications  equipment,  and  other  equipment  used  by 
 consumers  to  access  multichannel  video  programming    did  not  grant  cable  operators  an 
 absolute  right  to  lease  integrated  navigation  devices  merely  because  integrated  converter  boxes 
 were  the  most  commonly  available  type  of  navigation  device  at  the  time  the  statute  was  enacted 
 in  1996.  General  Instrument,  213  F.  3d  at  730  (quoting  47  U.  S.  C.    549(  a)).  The  Court  noted 
 that  the  identical  description  of  covered  equipment  also  appeared  in  the  first  sentence  of  section 
 629(  a),  which  requires  the  Commission    to  assure  the  commercial  availability  of  such 
 equipment.  Id.  If  converter  boxes  in  the  second  sentence  necessarily  meant  all  converter 
 boxes,  the  Court  continued,  the  FCC  unacceptab[  ly]  would  be  compelled  by  the  plain 
27
 22 
 meaning  of  the  statute  to  permit  retailers  to  provide  integrated  navigation  devices,  even  where 
 MVPDs  did  not  want  to  relinquish  control  of  the  security  component.  213  F.  3d  at  730  (emphasis 
 in  original).  The  Court  held  that  the  Commission  reasonably  could  construe  the  statute  to  avoid 
 that  result.  Id. 
 Petitioners  now  assert  that  their  statutory  claim  was  not  completely  answered  by 
 General  Instrument,  because  that  decision  focused  on  the  statutory  term  converter  boxes  in 
 section  629(  a)  and  did  not  address  the  additional  textual  reference  to  other  equipment  used  by 
 consumers.  Pet.  Br.  17-  18.  Aside  from  the  fact  no  party  apparently  made  this  assertion  below, 
 both  terms  appear  symmetrically  in  the  first  and  second  sentences  of  section  629(  a)  and  are 
 properly  subject  to  the  same  interpretive  analysis  that  the  Court  conducted  in  General 
 Instrument.  Applying  that  analysis,  it  is  clear  that  just  as  converter  boxes  does  not  have  to 
 mean  all  converter  boxes,  other  equipment  used  by  consumers  does  not  need  to  mean  all  other 
 equipment  used  by  consumers.  Petitioners  categorical  reading  of  the  term  other  equipment 
 used  by  consumers,  by  contrast,  would  lead  to  the  same  unacceptable  result  the  Court  held 
 that  the  Commission  reasonably  could  construe  the  statute  to  avoid    that  of  giving  retailers  the 
 right  to  provide  integrated  navigation  devices,  even  where  MVPDs  do  not  want  to  relinquish 
 control  of  the  security  component.  213  F.  3d  at  730.  10 


 10  Indeed,  petitioners  categorical  reading  would  have  far-  reaching  implications  that  go  beyond 
 the  integration  ban  and  are  inconsistent  with  the  cable  industrys  own  understanding  of  the  Commissions  authority.  For  example,  the  plug  and  play  rules    which  implement  a  cable 


 industry  and  consumer  electronics  industry  memorandum  of  understanding  regarding  the  compatibility  of  consumer  electronics  equipment  with  cable  systems    require  cable  operators  to 
 make  boxes  available  with  a  particular  (IEEE  1394)  interface,  and  effectively  prohibit  cable  operators  from  making  boxes  available  without  that  interface.  See  47  C.  F.  R.    76.640(  b). 
 Neither  petitioners,  nor  the  cable  industry  generally,  suggest  that  that  interface  restriction  on  other  equipment  used  by  consumers  violates  section  629. 
28
 23 
 II.  The  Commission  Reasonably  Declined  To  Eliminate  The  Phased  Prohibition  On  Integrated  Navigation  Devices. 


 In  its  initial  implementation  of  section  629  in  the  1998  Order  and  the  Reconsideration 
 Order,  the  Commission  dealt  with  a  host  of  issues    statutory  construction  questions  regarding 
 the  entities  and  equipment  covered,  11  the  right  of  subscribers  to  attach  independently-  provided 
 equipment  to  the  MVPD  network,  12  subscriber  access  to  technical  information  concerning 
 interface  parameters,  13  protection  of  network  facilities  from  harm  due  to  equipment 
 attachments,  14  safeguards  against  theft  of  service,  15  signal  leakage  standards,  16  the  prohibition  on 
 subsidies  for  MVPD-  provided  navigation  devices,  17  and  numerous  other  matters  in  addition  to 
 questions  relating  to  the  separation  of  security  and  non-  security  components  in  navigation 
 devices.  Indeed,  that  last  topic  itself  involved  a  number  of  sub-  issues,  including  the  application 
 of  separation  requirements  to  DBS,  the  timing  of  cable  operators  obligation  to  make  modular 
 security  devices  available  (July  1,  2000),  technical  standards  for  such  devices,  and  the  question 
 whether  separate  modules  were  needed  for  analog  devices,  as  opposed  to  digital  or  hybrid 
 (analog  and  digital)  devices.  See  generally  1998  Order,  paras.  49-  81;  Reconsideration  Order, 
 paras.  7-  22,  36-  37.  Given  the  breadth  of  issues  simultaneously  before  the  Commission,  the 
 agency  in  1998  provided  a  relatively  terse  economic  justification  for  prohibiting  (following  a 


 11  1998  Order,  paras.  19-  27. 
 12  Id.,  paras.  28-  32. 
 13  Id.,  paras.  33-  34. 
 14  Id.,  paras.  35-  39. 
 15  Id.,  paras.  40-  43. 
 16  Id.,  paras.  44-  46. 
 17  Id.,  paras.  84-  99. 
29
 24 
 transition  period)  cable  operators  from  deploying  integrated  navigation  equipment.  See  1998 
 Order,  paras.  49,  69;  Reconsideration  Order,  paras.  28-  31.  Petitioners  accurately  note  this 
 Courts  observation  in  General  Instrument  that  the  Commission  did  not  clearly  spell  *  *  *  out 
 the  benefits  that  will  flow  to  consumers  from  the  integration  ban.  Pet.  Br.  20  (quoting  General 
 Instrument,  213  F.  3d  at  732).  But  it  was  nothing  more  than  an  observation  because  the  issue  to 
 which  it  was  relevant  had  not  been  properly  raised  in  that  case.  And  the  Court  did  not  remand 
 anything  to  the  Commission  or  even  suggest  that  the  agency  was  obligated  to  consider  the 
 question  further. 
 In  any  event,  no  such  criticism  reasonably  could  be  leveled  at  the  Order  on  review  here, 
 which  devotes  eight  detailed  pages  to  discussing  why  the  integration  ban  continues  to  be  needed 
 and  what  the  benefits  to  consumers  are.  See  Order,  paras.  27-  39  (J.  A.  ).  The  heart  of  the 
 Commissions  analysis  is  the  predictive  judgment  that  the  development  of  a  robust  retail  market 
 for  navigation  devices  depends  upon  the  reliance  of  cable  operators  on  the  same  security 
 technology  and  conditional  access  interface  that  consumer  electronics  manufacturers  must  rely 
 on  in  developing  competitive  navigation  devices.  Order,  para.  27  (J.  A.  ).  The  Commission 
 explained  that  if  cable  operators  must  take  steps  to  support  their  own  compliant  equipment,  it 
 seems  far  more  likely  that  they  will  continue  to  support  and  take  into  account  the  need  to  support 
 services  that  will  work  with  independently  supplied  and  purchased  equipment.  Order,  para.  30 
 (J.  A.  ).  The  ban  is  thus  designed  to  create  incentives  for  cable  operators  to  work  toward  the 
 development  of  a  competitive  market  for  navigation  devices  as  required  by  Congress.  See 
 Order,  paras.  21,  30  (J.  A.  ).  And  it  blunts  cable  operators  natural  inclination  and  historic 
 tendency  to  cling  to  the  monopoly  provision  of  proprietary  set-  top  boxes. 
30
 25 
 Petitioners  various  challenges  to  the  Commissions  analysis  are  insubstantial. 
 Petitioners  argue  that  section  629  only  requires  the  FCC  to  assure  commercial  availability  of 
 retail  devices,  and  not  that  consumers  actually  choose  to  use  them.  Br.  33.  However,  the 
 market  for  such  devices  clearly  will  not  last  if  consumers  do  not  use  them,  and  the  Commission 
 reasonably  determined  that  imposing  a  common  reliance  regime  (i.  e.,  an  integration  ban)  on 
 cable  operators  with  respect  to  the  security  component  of  navigation  devices  was  needed  to  give 
 the  market  a  chance  to  flourish. 
 Petitioners  also  contend  that  the  integration  ban  is  unnecessary  to  create  an  economic 
 incentive  to  support  CableCARDs.  They  assert,  in  this  regard,  that  by  the  time  the  Commission 
 issued  the  Order,  more  than  140  models  of  CableCARD-  compatible  navigation  devices  from  11 
 different  [consumer  electronics]  manufacturers  were  commercially  available,  and  that  the  cable 
 industry  had  provided  extensive  technical  and  developmental  support  to  consumer  electronics 
 manufacturers    allegedly  [  w]  ithout  regulatory  compulsion.  Br.  21,  22.  They  claim,  further, 
 that  even  if  economic  incentives  alone  are  insufficient  to  promote  CableCARD  usage,  the  plug 
 and  play  rules  now  require  cable  operators  to  support  CableCARDs.  Br.  21. 
 As  a  general  matter,  petitioners  overstate  the  alleged  voluntarism  associated  with  cable 
 industry  programs  to  facilitate  an  open  market  for  navigation  devices,  given  that  the  activities  to 
 which  they  refer  were  undertaken  under  a  clear  threat  of  regulatory  intervention.  In  any  event, 
 notwithstanding  the  CableCARD  support  subsequently  mandated  by  the  plug  and  play  rules,  the 
 Commission  had  ample  basis  to  express  serious  continuing  concerns  regarding  the  cable 
 industrys  incentive  to  make  CableCARD  use  viable  absent  the  integration  ban.  Order,  paras. 
 27,  39  (J.  A.  ).  Consumer  electronic  manufacturers  had  reported  that  consumers  were 
 experiencing  numerous  technical  implementation  problems,  including  persistent  problems 
31
 26 
 with  CableCARDs  or  their  headend  support,  erroneous  software  or  firmware  fixes,  [and  the] 
 inability  of  authorized  subscribers  to  acquire  some  channels  that  offer  encrypted  content.  18  The 
 evidence  suggested  that  these  problems  were  not  simply  the  result  of  cable  company 
 intransigence;  good  faith  on  the  part  of  most  cable  operators  was  assumed,  but  consumer 
 electronics  commenters  argued  that  success  nevertheless  was  unlikely,  because  CableCARD 
 support  run[  s]  counter  to  [the  cable  companies]  own  market  imperatives  [when]  they  need  not 
 rely  on  the  technology  that  has  been  mandated  for  the  benefit  of  others.  19  The  record  suggested 
 that  the  development  of  new  services,  in  particular,  highlighted  the  need  for  common  reliance  by 
 cable  providers  and  competitive  equipment  suppliers  on  the  CableCARDs: 
 [CableCARD]  design  itself  cannot  remain  static  without  consigning  [CableCARD]-  reliant  devices  to  backwater  status  *  *  *  *  Completely  new 
 services  will  be  deployed  on  cable  systems  in  the  future  that  will  have  to  interoperate  with  [CableCARDs]    at  least  not  conflict  with  [CableCARDs]    or 
 else  [CableCARD]-  equipped  devices  will  be  unable  to  receive  them.  Every  such  innovation  will  require  intensive  work  on  design,  development,  testing,  and 
 debugging.  If  such  attention  is  apportioned  to  the  [CableCARD]  by  companies  not  planning  to  rely  on  [CableCARDs]  in  their  own  products  or  on 
 [CableCARDs]  to  carry  their  own  programming  or  services,  this  work  cannot  possibly  receive  the  necessary  resources  or  priority.  20 


 18  Letter  from  Lawrence  Sidman,  representing  Thomson  Inc.  and  Mitsubishi  Digital  Electronics 
 America  Inc.,  to  FCC  Secretary,  CS  Docket  No.  97080,  at  1  (filed  October  28,  2004)  (J.  A.  ).  See  also  Comments  of  the  Consumer  Electronics  Assn  on  NCTA  Downloadable  Security 


 Report,  CS  Docket  No.  97-  80,  at  2-  4  (January  20,  2006)  (cataloguing  record  evidence  of  problems  with  CableCARD  implementation)  (J.  A.  ). 


 19  Letter  from  Julie  M.  Kearney,  Consumer  Electronics  Assn,  to  FCC  Secretary,  CS  Docket  No. 
 97-  80,  at  2  (November  23,  2004)  (J.  A.  ).  See  also  Consumer  Electronics  Industry  Comments,  CS  Docket  Nos.  97-  80  &  00-  67,  at  6  (February  19,  2004)  (J.  A.  )  (noting  that,  even  with  the 


 best  of  intentions,  the    learning  curve  is  inescapable,  and  [  t]  here  is  simply  no  substitute  for  doing  a  task  under  circumstances  where  success  is  essential).. 


 20  Consumer  Electronics  Industry  Comments,  CS  Docket  Nos.  97-  80  &  00-  67,  at  8  (February 
 19,  2004)  (J.  A.  ). 
32
 27 
 Given  these  difficulties  in  the  absence  of  common  reliance,  it  is  not  surprising  that,  at  the 
 time  the  Order  was  issued  (and  even  today),  only  a  de  minimis  percentage  of  the  viewing  public 
 used  CableCARDs,  notwithstanding  petitioners  claim  that  scores  of  CableCARD-  compatible 
 television  models  are  commercially  available.  21 
 Petitioners  complain  that  the  Commission,  in  a  footnote,  repeats  language  from  paragraph 
 69  of  the  1998  Order  to  the  effect  that  integration  acts  as  an  obstacle  to  the  creation  of  a 
 functioning  competitive  market  for  navigation  devices  by    impeding  consumers  from  switching 
 to  devices  that  become  available  through  retail  outlets.    Br.  24  (quoting  Order,  para.  28  n.  133 
 (J.  A.  ).  In  petitioners  view,  this  passing  statement  demonstrates  that  the  Commissions  decision 
 is  arbitrary,  because  the  Court  in  General  Instrument  had  said  that  that  statement,  standing  alone, 
 did  not  explain  why  consumers  would  be  impeded.    Br.  24  (quoting  General  Instrument,  213 
 F.  3d  at  731).  The  thrust  of  the  Commissions  analysis,  however,  was  that  common  reliance  by 
 cable  operators  and  consumer  electronics  manufacturers  on  the  same  security  components  was 
 required  to  give  cable  operators  the  necessary  incentives  to  make  separate  host  devices 
 technologically  and  economically  workable. 
 It  is,  of  course,  possible    although  the  Commission  predicted  otherwise  22    that 
 experience  ultimately  will  demonstrate  that  todays  integrated  devices  are  better  and  more 
 21  See  Letter  from  Neal  M.  Goldberg,  NCTA,  to  FCC  Secretary,  CS  Docket  No.  97-  80,  at  2 
 (March  7,  2005)  (J.  A.  )  (stating  that  27,000  CableCARDs  have  been  deployed  for  use  in  plug  and  play  devices);  Letter  from  Julie  M.  Kearney,  Consumer  Electronics  Assn,  to  FCC  Secretary, 


 CS  Docket  No.  97-  80,  at  1  (March  14,  2005)  [first  page  of  letter  incorrectly  indicates  a  March  14,  2004  date]  (J.  A.  )  (stating  that  CableCARDs  have  been  installed  in  no  more  than  2.7%  of 
 the  devices  capable  of  receiving  them);  Comments  of  the  Consumer  Electronics  Assn  on  NCTA  Downloadable  Security  Report,  CS  Docket  97-  80,  at  2-  3  (January  20,  2006)  (J.  A.  ) 
 (estimating  that,  8  months  after  the  Order  was  issued,  only  about  2  percent  of  the  CableCARD-compatible  televisions  sold  to  consumers  were  being  used  with  CableCARDs). 


 22  Order,  paras.  29-  30  (J.  A.  ). 
33
 28 
 efficient  than  the  separate  security  and  non-  security  components  that  necessarily  will  develop 
 under  the  integration  ban.  However,  the  Commission  reasonably  concluded  that,  without  the 
 integration  ban  or  more  intrusive  regulation,  the  marketplace  might  never  have  a  fair  opportunity 
 to  test  that  hypothesis    and  the  Congressional  objective  of  section  629  to  assure  the  commercial 
 availability  of  competitive  navigation  devices  would  not  be  served.  See  Order,  para.  36  (J.  A.  ) 
 (  Absent  common  reliance  on  an  identical  security  function,  we  do  not  foresee  the  market 
 developing  in  a  manner  consistent  with  our  statutory  obligation.);  see  also  id.,  paras.  2,  28-  30 
 (J.  A.  ).  23  That  objective,  in  turn,  reflected  Congresss  determination  that  the  availability  of 
 competitive  devices  would  best  serve  consumer  interests. 
 There  is  no  basis  for  petitioners  contention  that  the  Commission  arbitrarily  failed  to 
 consider  the  costs  that  will  result  from  the  integration  ban.  Br.  27-  29.  Although  the  Commission 
 acknowledged  that  the  integration  ban  would  impose  some  costs  on  cable  operators  and 
 consumers  in  the  short  term,  the  agency  reasonably  concluded  that  such  costs  were  a  necessary 
 predicate  to  achieving  the  competitive  market  for  navigation  devices  that  section  629  required 
 the  Commission  to  ensure.  Order,  paras.  27,  29  (J.  A.  ).  The  Commission  also  reasonably 


 23  Petitioners  contend  that  this  conclusion  is  arbitrary  in  light  of  several  Commission  references 
 to  progress  that  the  cable  and  consumer  electronics  industries  had  made  in  resolving  technical  concerns  and  in  bringing  new  security  and  host  products  to  market.  See,  e.  g.,  Br.  23,  26  (citing 


 Order,  paras.  28,  34  n.  146  (J.  A.  )).  However,  whatever  progress  occurred  did  so  under  impending  integration  ban  deadlines.  The  Commission  fully  rewarded  that  progress  by 
 extending  the  deadline  on  several  occasions,  including  in  the  Order  itself,  but  the  agency  reasonably  concluded  that  that  progress  at  this  point  did  not  warrant  eliminating  the  common 
 reliance  requirement. 
34
 29 
 predicted    with  substantial  record  support  24    that  scale  economies  would  bring  costs  down 
 significantly  as  subscribers  began  using  CableCARDs  with  both  consumer  electronics  host 
 devices  and  host  devices  provided  by  cable  operators.  Order,  para.  29  (J.  A.  ).  At  the  same  time, 
 the  Commission  predicted    again  with  record  support  25    that  the  integration  ban  would  spur 
 innovation  and  greater  choice  for  consumers  as  consumer  electronics  manufacturers  gained  a 
 meaningful  opportunity  to  compete  in  the  market  for  navigation  devices.  Order,  para.  29  (J.  A. 
 ).  26  These  reasonable  predictions,  grounded  in  the  record,  of  consumer  benefits  from  future 
 market  behavior  with  respect  to  brand  new  technologies  are  entitled  to  deference.  Consumer 
 Electronics,  347  F.  3d  at  303;  Melcher  v.  FCC,  134  F.  3d  1143,  1151  (D.  C.  Cir.  1998). 
 The  FCC  not  only  considered  the  likelihood  that  there  would  be  a  future  downward  trend 
 in  costs  as  the  navigation  equipment  market  developed;  it  also  took  immediate  action  to 
 minimize  costs.  The  Commission  deferred  the  deadline  for  implementing  the  integration  ban 


 24  See,  e.  g.,  Consumer  Electronics  Industry  Comments,  CS  Docket  No.  97-  80  &  PP  Docket  No. 
 00-  67,  at  3-  4  (February  19,  2004)  (J.  A.  );  Consumer  Electronic  Industry  Reply  Comments,  CS  Docket  No.  97-  80  &  PP  Docket  No.  00-  67,  at  4  (March  10,  2004)  (J.  A.  );  Ex  Parte  Filing  of  the 


 Consumer  Electronics  Retailers  Coaltion  Re  Retention  of  POD  Reliance,  CS  Docket  No.  97-  80,  at  3-  4,  Attachment  (Declaration  of  Jack  W.  Chaney)  at  1-  3  (March  20,  2003)  (J.  A.  );  Letter  from 
 Julie  M.  Kearney,  Consumer  Electronics  Assn,  to  FCC  Secretary,  CS  Docket  No.  97-  80,  at  2-  3  (November  23,  2004)  (J.  A.  );  Letter  from  Jeffrey  T.  Lawrence,  Intel  Corp.,  to  FCC  Secretary, 
 CS  Docket  No.  97-  80,  at  2  (November  17,  2004)  (J.  A.  ).  See  also  Order,  para.  24  (J.  A.  )  (cataloguing  comments). 


 25  See  Order,  para.  22  (J.  A.  )  (cataloguing  comments). 
 26  Petitioners  assert  (Br.  26-  27)  that  the  integration  ban  will  chill  innovation.  However,  the 
 Commission  stressed  that    apart  from  the  prohibition  on  integration  of  security  and  host  components  in  navigation  devices    cable  operators  remain  free  under  the  prohibition  to 


 innovate  and  introduce  new  products  and  services  without  regard  to  whether  consumer  electronics  manufacturers  are  positioned  to  deploy  substantially  similar  products  and  services. 
 Order,  para.  30  (J.  A.  ).  If  a  common  reliance  requirement  with  respect  to  security  were  proscribed,  it  is  hard  to  imagine  any  equipment  technology  standard  that  the  Commission  would 
 be  permitted  to  impose. 
35
 30 
 from  July  1,  2006,  to  July  1,  2007    and  promised  to  consider  requests  for  further  extensions    to 
 give  the  cable  industry  time  to  test  the  feasibility  of  utilizing  a  downloadable  security  solution 
 that  potentially  could  achieve  the  goal  of  common  reliance  without  requiring  physical  separation 
 of  security  and  non-  security  functions.  Order,  paras.  31-  36  (J.  A.  ).  27 
 Similarly,  recognizing  the  value  of  preserving  a  low-  cost  set-  top  box  option  for 
 consumers,  at  least  until  volume  usage  of  CableCARDs  over  time  reduced  the  price  of  host 
 devices,  the  Commission  undertook  to  consider  waivers  of  the  integration  ban  with  respect  to 
 limited  capability  set-  top  boxes  (e.  g.,  boxes  that  do  not  contain  capability  for  recording,  display 
 of  high-  definition  programming,  or  broadband  Internet  access).  28  The  Commission  determined 
 that  waivers  for  such  boxes  would  benefit  those  cable  subscribers  most  concerned  about  the  cost 
 of  equipment,  while  maintaining  the  overall  benefits  of  the  integration  ban  with  respect  to  boxes 
 with  more  advanced  capabilities  (and  therefore  more  likely  to  be  the  subject  of  a  competitive 
 market)  Order,  para.  37  (J.  A.  ).  This  careful  consideration  of  the  costs  of  implementing  a 


 27  Petitioners  contend  that,  in  granting  this  extension  of  the  deadline,  the  Commission 
 insist[  ed],  now  and  in  the  future,  upon  an  integration  ban  regardless  of  the  extent  of  commercial  availability  of  cable-  ready  navigation  devices.  Br.  41  (emphasis  in  original)  (citing  Order,  para. 


 36  (J.  A.  )).  That  is  incorrect.  Having  watched  market  developments  for  seven  years  and  having  granted  two-  and-  a-  half  years  of  integration  ban  extensions,  the  Commission  stated  that  it  would 
 not  be  inclined  to  grant  any  further  extensions,  past  July  2007,  on  the  basis  of  general  levels  of  competition  in  the  navigation  device  market.  Order,  para.  36  (J.  A.  ).  The  Commission  made 
 clear,  however,  that  it  would  consider  claims  that  the  markets  for  video  programming  and  for  navigation  devices  had  become  fully  competitive  sufficient  to  trigger  the  sunset  provision  in 
 section  629(  e).  Id. 
 28  Among  other  reasons  for  preserving  a  low-  cost  set-  top  option,  the  Commission  found  that  as 


 programming  increasingly  is  delivered  in  digital  form  and  cable  operators  upgrade  their  facilities  to  all-  digital  networks,  consumers  must  have  access  to  inexpensive  boxes  that  will 


 downconvert  digitally  delivered  signals  to  analog  format  to  permit  viewing  on  analog  television  sets.  Order,  para.  37  (J.  A.  ). 
36
 31 
 common  reliance  regime  refutes  petitioners  charge  that  the  Commission  arbitrarily  discounted 
 the  costs  of  its  regulatory  program.  29 
 III.  Conditions  In  The  DBS  Market  Were  Beyond  The  Scope  Of  The  Proceedings  Established  By  The  Further  Notice  And 
 Extension  Order  And  Provide  No  Basis  On  Which  To  Eliminate  The  Integration  Ban  With  Respect  To  Cable  Operators. 


 The  notice  portions  of  the  Further  Notice  and  the  Extension  Order  defined  the  scope  of 
 the  administrative  proceedings  leading  to  the  Order  on  review.  Those  notices  clearly  sought 
 comment  on  whether  the  phase-  in  date  for  the  integration  ban  should  be  advanced,  extended,  or 
 kept  as  it  was.  See  Further  Notice,  para.  11.  The  Commission  also  asked  whether  cable 
 operators  should  be  permitted  to  continue  providing  integrated  navigation  devices  if  [their] 
 integrated  boxes  are  also  commercially  available.  Id.  And,  broadly  construed,  the  Commission 
 may  have  sought  comment  in  the  alternative  on  whether  it  should  remove  the  ban  on  cable-provided 
 integrated  navigation  equipment.  Extension  Order,  paras.  5,  6.  Neither  notice, 
 however,  even  remotely  could  be  read  as  seeking  comment  on  the  DBS  exemption  that  had  been 
 adopted  in  the  1998  Order,  or  on  the  relationship  between  developments  in  the  DBS  and  cable 
 markets.  Indeed,  neither  notice  mentioned  DBS  at  all. 
 Not  surprisingly,  in  light  of  the  fact  that  the  DBS  issue  had  not  been  raised  in  the  notices, 
 the  question  drew  little  comment.  NCTA,  the  cable  trade  association,  filed  comments 


 29  In  light  of  the  Commissions  careful  assessment  of  likely  cost  trends,  its  adoption  of 
 immediate  measures  to  limit  costs,  and  its  assessment  that  the  integration  ban  was  necessary  to  assure  commercial  availability  of  navigation  devices  under  section  629,  this  case  does  not 


 implicate  this  Courts  prior  observation  that  another  provision  of  the  Communication  Act  provided  no    license  to  the  Commission  to  inflict  on  the  economy  *  *  *  costs  *  *  *  where  it  has 
 no  reason  to  think  doing  so  would  bring  on  corresponding  benefits.  See  Br.  28  n.  67  (quoting  United  States  Telecom  Assn  v.  FCC,  290  F.  3d  415,  429  (D.  C.  Cir.  2002),  cert.  denied,  538  U.  S. 
 940  (2003)). 
37
 32 
 complaining  in  a  general  way  that  the  integration  ban  puts  a  thumb  on  the  scale  in  favor  of  one 
 competitor  over  another  and  urging  the  Commission,  as  a  result,  to  eliminate  the  ban.  30  The 
 consumer  electronic  commenters  responded  briefly    stating  that  NCTA  had  supplied  no 
 concrete  evidence  that  differing  treatment  of  cable  and  DBS  with  respect  to  navigation  device 
 security  would  have  a  real  world  impact  on  competition  between  the  two  multichannel  video 
 programming  vehicles.  31  DBS  commenters  argued  briefly  that,  as  in  1998,  market  circumstances 
 continued  to  justify  application  of  the  integration  ban  to  cable  and  an  exemption  for  DBS.  See 
 Order,  para.  26  (J.  A.  ).  The  Commission  acknowledged  the  parties  comments  in  the  Order,  but 
 reasonably  ruled  that  the  proceeding  did  not  provid[  e]  a  record  on  which  *  *  *  [to]  resolve  these 
 issues  regarding  the  lack  of  parity  in  treatment  of  DBS  and  cable.  Order,  para.  38  (J.  A.  ). 
 Petitioners  now  contend  that  the  Commissions  failure  to  take  affirmative  action  to 
 remedy  the  alleged  disparate  treatment  of  cable  and  DBS  was  arbitrary,  particularly  in  light  of 
 evidence  that  cable-  ready  plug  and  play  devices  increasingly  are  available,  while  the  DBS 
 equipment  market  allegedly  is  becoming  more  restrictive  than  it  was  in  1998.  See  generally  Br. 
 29-  41,  42-  44.  This  claim  provides  no  basis  upon  which  to  set  aside  the  Order. 
 As  a  threshold  matter,  the  claim  is  an  untimely  challenge  to  the  FCCs  1998  Order  and 
 Reconsideration  Order,  which  adopted  the  ban  and  exempted  DBS.  The  FCC  in  the  Order  under 
 review  here  did  not  reopen  or  readopt  that  decision  to  distinguish  between  cable  and  DBS  for 


 30  NCTA  Comments,  CS  Docket  No.  97-  80,  at  17  (February  19,  2004)  (J.  A.  ).  See  generally  id. 
 at  17-  20  (J.  A.  ).  The  cable  industry  added  a  brief  flurry  of  comments  on  the  DBS  issue  on  the  eve  of  the  Order.  See  petitioners  brief  at  34. 


 31  Consumer  Electronics  Industry  Reply  Comments,  CS  Docket  No.  97-  80  &  PP  Docket  No.  00- 
 67,  at  6  (March  10,  2004)  (J.  A.  ). 
38
 33 
 purposes  of  the  integration  ban  and  thus  did  not  provide  a  new  opportunity  for  judicial  review. 
 Kennecott  Utah  Copper  v.  U.  S.  Dept.  of  Interior,  88  F.  3d  at  1213-  15. 
 On  the  merits,  the  petitioners  fare  no  better.  First,  assuming  for  the  sake  of  argument  that 
 cable  operators  and  DBS  providers  were  in  pertinent  respects  similarly  situated,  one  way  that  the 
 Commission  theoretically  could  have  remedied  the  lack  of  parity  in  treatment  would  have  been 
 to  extend  the  integration  ban  to  DBS.  However,  because  the  FCC  never  provided  any  notice  in 
 the  Further  Notice  or  the  Extension  Order  of  the  possibility  of  extending  the  ban  to  DBS,  any 
 action  to  do  so  in  the  Order  in  all  likelihood  would  have  been  found  unlawful.  See  MCI 
 Telecommunications  Corp.  v.  FCC,  57  F.  3d  1136,  1140-  43  (D.  C.  Cir.  1995)  (vacating  FCC  rule 
 modification  for  failure  to  provide  adequate  notice  under  the  Administrative  Procedure  Act  (5 
 U.  S.  C.    553(  b)),  where  the  NPRM  focused  almost  entirely  on  one  category  of  industry 
 participant  (enhanced  service  providers)  while  the  modified  rule  applied  to  another  category  of 
 participant  (interexchange  carriers)).  Indeed,  petitioners  do  not  argue  that  the  ban  should  have 
 been  extended  to  DBS  here. 
 Another  way  in  which  the  Commission  could  have  addressed  the  allegedly  disparate 
 treatment  of  cable  and  DBS  would  have  been  to  eliminate  (or  provide  an  exemption  from)  the 
 integration  ban  for  cable  providers.  For  reasons  already  discussed  in  Argument  II,  above,  the 
 Commission  determined  that  maintaining  the  integration  ban  with  respect  to  cable  was  necessary 
 to  ensure  that  the  objectives  of  section  629  were  met.  Nothing  in  the  Administrative  Procedure 
 Act  or  elsewhere  required  the  Commission  here  to  remove  necessary  regulatory  requirements 
 with  respect  to  cable  on  the  ground  that  existing  regulations    which  the  agency  could  not  change 
 without  a  further  notice    did  not  already  extend  as  well  to  DBS.  Courts  do  not  demand  that  the 
 Government  make  progress  on  every  front  before  it  can  make  progress  on  any  front.  United 
39
 34 
 States  v.  Edge  Broadcasting  Co.,  509  U.  S.  418,  434  (1993).  Rather,  regulation  may  take  place 
 one  step  at  a  time.  National  Assn  of  Broadcasters  v.  FCC,  740  F.  2d  1190,  1207  (D.  C.  Cir. 
 1984). 
 In  all  events,  any  putative  Commission  obligation  (in  another  proceeding)  to  adjust  its 
 rules    one  way  or  the  other    to  accord  cable  and  DBS  the  same  treatment  with  respect  to  the 
 integration  ban  would  depend  upon  a  finding  that  they  are,  in  pertinent  respects,  similarly 
 situated.  Petitioners  do  not  demonstrate    on  the  basis  of  the  current  record    that  such  a  finding 
 would  be  warranted.  The  Commission  determined  in  1998  that  integrated  navigation  devices  for 
 DBS  service  already  were  available  at  retail;  and,  due  to  the  [nationwide  footprint]  of  [DBS] 
 signal  delivery,  a  particular  providers  equipment  [was]  already  portable  as  to  that  provider 
 across  the  continental  United  States.  1998  Order,  para.  66  (emphasis  added).  32  Although 
 petitioners  point  (Br.  33-  37)  to  the  increasing  availability  since  1998  of  CableCARD-  compatible 
 television  sets  with  embedded  non-  security  host  devices,  that  development  has  had  little  practical 
 impact  on  portability.  Most  televisions  in  use  today  are  not  CableCARD-  compatible,  and  thus 
 still  are  technologically  reliant  on  non-  portable,  cable  operator-  supplied  integrated  set-  top  boxes. 
 Moreover,  the  record  showed  that,  of  the  CableCARD-  compatible  sets  already  in  homes,  less 
 than  three  percent  were  actually  being  used  with  CableCARDs  (see  note  21,  above)    meaning 
 that,  if  the  sets  were  being  used  by  cable  subscribers,  those  subscribers  continued  to  depend  upon 
 non-  portable  cable  boxes  and  the  embedded  host  devices  were  lying  dormant.  Accordingly, 


 32  The  regulation  that  exempts  DBS  does  not  explicitly  except  DBS  providers,  but  states  that  the 
 ban  does  not  apply  to  MVPDs  whose  practices  meet  certain  criteria  that  obviate  the  need  for  the  ban.  See  47  C.  F.  R.    76.1204(  a)(  2).  Petitioners  have  not  filed  a  petition  alleging  that  DBS  no 


 longer  meets  those  criteria  or,  for  that  matter,  that  cable  operators  do  meet  those  criteria,  but  instead  seek  repeal  of  the  integration  ban. 
40
 35 
 there  was  ample  basis    as  a  practical  matter    for  the  Commissions  conclusion  that  the 
 distinction  between  cable  and  DBS  equipment  portability  that  it  had  identified  in  1998  remained 
 valid  in  2005,  Order,  para.  38  (J.  A.  ),  and  there  is  no  substance  to  petitioners  assertion  (Br.  42- 
 44)  that  the  Commission  arbitrarily  ignored  intermodal  aspects  of  the  market  for  navigation 
 devices. 
41
 36 
 CONCLUSION 
 For  the  foregoing  reasons,  the  Court  should  deny  the  petition  for  review. 


 Respectfully  submitted, 


 THOMAS  O.  BARNETT  ASSISTANT  ATTORNEY  GENERAL 


 CATHERINE  G.  O'SULLIVAN  ANDREA  LIMMER 
 ATTORNEYS 
 UNITED  STATES  DEPARTMENT  OF  JUSTICE  WASHINGTON,  D.  C.  20530 


 SAMUEL  L.  FEDER  GENERAL  COUNSEL 
 RICHARD  K.  WELCH  ASSOCIATE  GENERAL  COUNSEL 
 JOHN  E.  INGLE  DEPUTY  ASSOCIATE  GENERAL  COUNSEL 


 LAURENCE  N.  BOURNE  COUNSEL 
 FEDERAL  COMMUNICATIONS  COMMISSION  WASHINGTON,  D.  C.  20554 
 (202)  418-  1740  (TELEPHONE)  (202)  418-  2819  (FAX) 


 March  7,  2006 
42
 IN  THE  UNITED  STATES  COURT  OF  APPEALS  FOR  THE  DISTRICT  OF  COLUMBIA  CIRCUIT 
 CHARTER  COMMUNICATIONS,  Inc.  and 
 Advance/  Newhouse  Communications, 


 PETITIONERS, 
 V. 
 FEDERAL  COMMUNICATIONS  COMMISSION  AND  UNITED  STATES  OF  AMERICA, 


 RESPONDENTS. 


 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 


 NO.  05-  1237 


 CERTIFICATE  OF  COMPLIANCE 
 Pursuant  to  the  requirements  of  Fed.  R.  App.  P.  32(  a)(  7),  I  hereby  certify  that  the 
 accompanying  Brief  for  Respondents  in  the  captioned  case  contains  10531  words. 


 LAURENCE  N.  BOURNE  COUNSEL 
 FEDERAL  COMMUNICATIONS  COMMISSION  WASHINGTON,  D.  C.  20554 
 (202)  418-  1740  (TELEPHONE)  (202)  418-  2819  (FAX) 


 March  7,  2006 
43