Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-05-01237/USCOURTS-caDC-05-01237-0/pdf.json

Parties Involved:
Advance/Newhouse Communications
Petitioner
Charter Communications, Inc.
Petitioner
Consumer Electronics Association
Intervenor
Federal Communications Commission
Respondent
National Cable & Telecommunications Association
Intervenor for Petitioner
United States of America
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 11, 2006 Decided August 18, 2006

No. 05-1237

CHARTER COMMUNICATIONS, INC. AND

ADVANCE/NEWHOUSE COMMUNICATIONS,

PETITIONERS

v.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

CONSUMER ELECTRONICS ASSOCIATION AND

NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION,

INTERVENORS

On Petition for Review of an Order of the

Federal Communications Commission

John D. Seiver argued the cause for petitioners and

intervenor National Cable and Telecommunications Association.

With him on the briefs were Paul Glist, Paul B. Hudson,

Christopher A. Fedeli, Daniel L. Brenner, and Neal M.

Goldberg.

Joseph R. Palmore, Counsel, Federal Communications

Commission, argued the cause for respondent. With him on the

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2

brief were Thomas O. Barnett, Assistant Attorney General, U.S.

Department of Justice, Catherine G. O'Sullivan and Andrea

Limmer, Attorneys, Samuel L. Feder, General Counsel, Federal

Communications Commission, Richard K. Welch, Associate

General Counsel, John E. Ingle, Deputy Associate General

Counsel, and Laurence N. Bourne, Counsel.

Robert S. Schwartz was on the brief for intervenor

Consumer Electronics Association.

Before: GINSBURG, Chief Judge, and TATEL and GARLAND,

Circuit Judges.

Opinion for the Court filed by Circuit Judge GARLAND.

GARLAND, Circuit Judge: Cable television operators

petition for review of an order of the Federal Communications

Commission (FCC). In that order, the FCC declined to rescind

a rule that will preclude cable operators from offering set-top

converter boxes that bundle both security (descrambling) and

non-security (e.g., channel selection) functions in a single

device. For the reasons explained below, we deny the petition

for review.

I

In the communications context, “navigation devices” are

“equipment used by consumers . . . to access multichannel video

programming and other services” from multichannel video

programming distributors (MVPDs), such as cable operators and

direct broadcast satellite services. 47 C.F.R. § 76.1200(c); see

id. § 76.1200(b) (defining MVPDs). The most common such

device is the set-top converter box. Cable television subscribers

typically lease converter boxes from their cable operators as part

of their overall service packages. As currently configured, these

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devices integrate security and non-security functions. The

security function “contain[s] embedded technology that decodes

or descrambles” a cable signal, and it is “this function that

precludes a consumer from accessing tiers of cable

programming not part of his subscription package.” General

Instrument Corp. v. FCC, 213 F.3d 724, 726 (D.C. Cir. 2000)

(footnote omitted). Converter boxes also perform other tasks

“unrelated to security.” Id. For example, “converter boxes

commonly include channel tuners and provide access to video

programming guides.” Id. Historically, because only the cable

system operator could provide the conditional access (security)

technology, suppliers unaffiliated with the cable operator were

not able to offer consumers comparable navigation devices.

Hence, such devices were not available at retail. 

In 1996, Congress amended the Communications Act to add

a new section 629, entitled “Competitive Availability of

Navigation Devices.” 47 U.S.C. § 549. The first sentence of

section 629(a) directs the FCC to “adopt regulations to assure

the commercial availability, to consumers of multichannel video

programming[,] . . . of converter boxes, interactive

communications equipment, and other equipment used by

consumers to access multichannel video programming[,] . . .

from manufacturers, retailers, and other vendors not affiliated

with any [MVPD].” Id. § 549(a). Section 629(a)’s second

sentence further provides that “[s]uch regulations shall not

prohibit any [MVPD] from also offering converter boxes,

interactive communications equipment, and other equipment

used by consumers to access multichannel video programming

. . . .” Id.

In 1998, pursuant to section 629(a)’s directive to assure the

commercial availability of navigation devices, the FCC adopted

regulations that required MVPDs, by July 1, 2000, to make the

security element available separately from the basic navigation

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1

See 47 C.F.R. § 76.1204(a)(1) (“A[n] [MVPD] that utilizes

navigation devices to perform conditional access functions shall make

available equipment that incorporates only the conditional access

functions of such devices.”).

2

See 47 C.F.R. § 76.1204(a)(1) (1998) (“Commencing on January

1, 2005, no multichannel video programming distributor subject to this

section shall place in service new navigation devices for sale, lease, or

use that perform both conditional access and other functions in a

single integrated device.”).

device. See Implementation of Section 304 of the

Telecommunications Act of 1996: Commercial Availability of

Navigation Devices, 13 FCC Rcd 14775, 14806, ¶ 76 (1998)

(“1998 Order”).1

 The FCC’s 1998 Order concluded that

requiring MVPDs to make the security element separately

available would permit independent manufacturers and retailers

to market navigation devices while allowing MVPDs to retain

control over their system security. See 13 FCC Rcd at 14793-

94, ¶ 49. Thereafter, MVPDs began developing a separate

security module -- now commonly referred to as a CableCARD

-- that plugs into a slot in a host navigation device, permitting

the device to perform both the security and non-security

functions. 

The 1998 Order further required MVPDs, as of January 1,

2005, to stop selling or leasing new integrated navigation

devices that perform both security and non-security functions.2

After the effective date, the rule would preclude cable operators

from offering subscribers the integrated set-top converter boxes

that had previously been standard. Should MVPDs wish to

continue selling or leasing converter boxes to subscribers after

the effective date, the FCC required that those boxes be nonintegrated and rely on the same technology -- the CableCARD --

available to independent manufacturers and retailers. The

Commission determined that, even with an unbundled security

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3

See Implementation of Section 304 of the Telecommunications

Act of 1996: Commercial Availability of Navigation Devices, 14 FCC

Rcd 7596 (1999) (“1999 Reconsideration Order”).

4

NCTA intervened on behalf of petitioner General Instrument

Corp. in the 2000 challenge and intervenes on behalf of petitioners

Charter Communications and Advance/Newhouse Communications

here.

element available from MVPDs, the continued availability of

integrated devices -- devices that only MVPDs could provide --

would impede competition. See id. at 14803, ¶ 69.

Finally, the 1998 Order provided that an MVPD could

qualify for an exemption from the regulations if it “supports the

active use by subscribers of navigation devices that: (i) operate

throughout the continental United States, and (ii) are available

from retail outlets . . . throughout the United States that are not

affiliated with the [MVPD].” 47 C.F.R. § 76.1204(a)(2). In

1998, the only MVPDs that qualified for this exemption were

direct broadcast satellite (DBS) systems. By contrast to the

cable market, where navigation devices were unavailable except

through cable operators, in the DBS market integrated

navigation devices were already available at retail. In addition,

although the DBS devices were not interchangeable among DBS

providers, each DBS provider had a nationwide service

footprint. Thus, unlike cable subscribers, DBS subscribers

could continue using their equipment if they moved across the

country, as long as they used the same DBS service provider.

See 1998 Order, 13 FCC Rcd at 14800-02, ¶¶ 64-66. 

The cable industry’s trade association, the National Cable

Television Association, Inc. (NCTA), challenged the 1998

Order as well as a 1999 Reconsideration Order3

 in General

Instrument Corp. v. FCC, 213 F.3d 724 (D.C. Cir. 2000).4

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NCTA argued that the plain language of section 629(a)

precludes the FCC from adopting the ban on integrated

equipment. As NCTA noted, although the section’s first

sentence directs the FCC to adopt regulations to assure the

commercial availability of “converter boxes, interactive

communications equipment, and other equipment” from

unaffiliated manufacturers and retailers, its second sentence

directs that the regulations “shall not prohibit any [MVPD] from

also offering converter boxes, interactive communications

equipment, and other equipment.” 47 U.S.C. § 549(a). NCTA

maintained that the FCC had contravened the plain text of the

second sentence by prohibiting cable operators from offering

integrated converter boxes. 

The General Instrument court rejected NCTA’s statutory

challenge, noting that the term “converter boxes” must be read

consistently in both sentences. See 213 F.3d at 730. If we

accepted NCTA’s reading, we said, the FCC would be “equally

compelled by the plain language of the statute to permit retailers

to provide integrated” converter boxes. That, we noted, would

“certainly [be] an unacceptable result from [the cable industry’s]

point of view,” because it would give unaffiliated companies

access to cable operators’ proprietary security technology. Id.

Instead, we accepted as reasonable the FCC’s interpretation,

which construed the term “converter boxes” as not including

integrated converter boxes. See id.

In September 2000, with its statutory authority confirmed,

the FCC issued a Further Notice of Proposed Rulemaking “to

review the effectiveness” of its navigation device rules.

Implementation of Section 304 of the Telecommunications Act

of 1996: Commercial Availability of Navigation Devices, 15

FCC Rcd 18199, 18199, ¶ 1 (2000) (“Further Notice”). The

Further Notice sought comment on the existence of “obstacles

or barriers preventing or deterring the development of a retail

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5

The FCC subsequently adopted rules implementing the plug and

play memorandum. See Implementation of Section 304 of the

Telecommunications Act of 1996: Commercial Availability of

Navigation Devices and Compatibility Between Cable Systems and

Consumer Electronics Equipment, 18 FCC Rcd 20885 (2003). 

market for navigation devices,” on the “effect operator provision

of integrated equipment has had on achieving a competitive

market for commercially available navigation devices,” and on

“whether the 2005 date for the phase-out of integrated boxes

remains appropriate.” Id. at 18203, ¶ 11. Before the FCC could

act on the Further Notice, however, the cable and consumer

electronics industries adopted a memorandum of understanding

to integrate the non-security navigation functionality of set-top

boxes directly into digital television sets. This innovation made

it possible for customers simply to “plug and play” by inserting

a CableCARD directly into a digital cable-ready television with

no need for an external navigation device.5

 In April 2003, in

part because of this development, the FCC extended the

implementation date for the ban on new integrated boxes from

January 1, 2005, to July 1, 2006. See Implementation of Section

304 of the Telecommunications Act of 1996: Commercial

Availability of Navigation Devices, 18 FCC Rcd 7924, 7925-26,

¶ 4 (2003) (“Extension Order”). The Extension Order sought

additional comments from industry and promised that, by 2005,

the FCC would complete a reassessment of the state of the

navigation device market and “determine whether the designated

time frame remains appropriate or whether the ban on integrated

devices will no longer be necessary.” Id. at 7926, ¶ 5.

Both the cable and the consumer electronics industries filed

voluminous comments in response to the Further Notice and the

Extension Order. Cable commenters argued that changes in

market conditions since the FCC adopted the integration ban

warranted its repeal. By contrast, the consumer electronics

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industry denied that conditions had materially changed and

opposed both repeal of the pending ban and any further

extensions of the implementation deadline.

On March 17, 2005, the FCC issued its Second Report and

Order. See Implementation of Section 304 of the

Telecommunications Act of 1996: Commercial Availability of

Navigation Devices, 20 FCC Rcd 6794 (2005) (“Second Report

and Order”). While acknowledging some market progress, the

FCC was “not persuaded that the current level of competition in

the navigation device market is sufficient to assure the

commercial availability of navigation devices to consumers

from sources other than” MVPDs. Id. at 6794, ¶ 2. It concluded

that the ban on integrated devices should be retained because

“common reliance by cable operators on the same security

technology and conditional access interface that consumer

electronics manufacturers must employ in developing

competitive navigation devices” was necessary to assure

development of the statutorily required competitive market for

navigation devices. Id. 

The FCC did, however, extend the implementation date for

the ban yet again, this time until July 1, 2007. See id. at 6811,

¶ 33. That extension, the FCC said, would provide the industry

time in which to determine whether it was possible to implement

a downloadable software security solution that would obviate

the need for the physical integration ban. See id. at 6794-95, ¶

3. The FCC further stated that, if the parties demonstrated that

downloadable security was feasible but could not be

implemented by July 1, 2007, it would consider granting still

another extension. See id. at 6812-13, ¶ 36. The FCC instructed

the cable industry to report on the feasibility of this solution by

December 1, 2005, and instructed the trade associations for both

the cable and consumer electronics industries to file joint status

reports regarding their progress. See id. at 6795, ¶ 3.

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Cable operators Charter Communications, Inc. and

Advance/Newhouse Communications, joined by intervenor

NCTA, now petition for review of the Second Report and Order.

They argue that: (1) the integration ban violates the plain

language of section 629(a); and (2) the FCC unreasonably

declined to rescind the ban notwithstanding changed market

conditions. We consider these arguments below.

II

We begin with the petitioners’ statutory argument, which is

essentially a spin-off of the argument addressed by this court in

General Instrument. There, we rejected NCTA’s contention that

the FCC was precluded from banning integrated converter boxes

by the second sentence of section 629(a), which states that the

FCC “shall not prohibit any [MVPD] from also offering

converter boxes, interactive communications equipment, and

other equipment used by consumers to access multichannel

video programming . . . .” 47 U.S.C. § 549(a). As discussed in

Part I above, in order to reconcile the use of the term “converter

boxes” in both the first and the second sentences of the section,

we accepted as permissible the FCC’s view that the term did not

extend to integrated converter boxes. General Instrument, 213

F.3d at 730. 

The petitioners now ask us to focus our attention not on the

term “converter boxes,” but on the term “other equipment.” The

petitioners argue that if integrated set-top boxes are not

“converter boxes,” as we held in General Instrument, then they

must be “other equipment,” a possibility we did not address

there. And if integrated boxes are “other equipment,” then

section 629(a)’s second sentence prevents the FCC from barring

cable operators from offering them. In response, the FCC’s

brief in this court points out that, like the term “converter

boxes,” the term “other equipment” appears in both sentences of

USCA Case #05-1237 Document #986903 Filed: 08/18/2006 Page 9 of 24
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section 629(a). And just as General Instrument held that

“‘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.” FCC Br. 22.

Before we may address the merits of the petitioners’

statutory argument, we must first consider a potential showstopper offered by the FCC. According to the Commission, two

considerations bar us from even reaching the petitioners’

statutory argument.

First, the Commission argues that the petitioners’ statutory

challenge is time-barred. According to the FCC, the integration

ban was based on an interpretation of section 629(a) that was

adopted in the 1998 Order and 1999 Reconsideration Order.

Congress has required that petitions for review of such orders be

filed within 60 days, 28 U.S.C. § 2344; see 47 U.S.C. § 402(a),

and a petitioner’s failure to file within that window constitutes

a bar to our review. See Natural Res. Def. Council v. Nuclear

Regulatory Comm’n, 666 F.2d 595, 602 (D.C. Cir. 1981). There

is an exception to that bar for cases in which the FCC has

“reopened” its original rulemaking, see Kennecott Utah Copper

Corp. v. United States Dep’t of Interior, 88 F.3d 1191, 1214

(D.C. Cir. 1996), and the petitioners claim that this case falls

within that exception. They contend that, when the FCC issued

its Further Notice “to review the effectiveness of the rules,” 15

FCC Rcd at 18199, ¶ 1, and subsequently said that it would

“complete a reassessment of the state of the navigation devices

market and determine whether . . . the ban on integrated devices

will no longer be necessary,” Extension Order, 18 FCC Rcd

7926, ¶ 5, it reopened the question of its statutory authority to

adopt the rules in the first place.

But nothing in those notices suggested that, in reviewing the

“effectiveness” of the rules, the FCC intended to review their

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6

In Public Citizen, we said that, “[i]f in proposing a rule the

agency uses language that can reasonably be read as an invitation to

comment on portions the agency does not explicitly propose to

change, or if in responding to comments the agency uses language that

shows that it did in fact reconsider an issue, a renewed challenge to the

underlying rule or policy will be allowed.” 901 F.2d at 150. Here, the

statutory basis as well. There was not one word about the

proper interpretation of section 629(a) in the notices. And there

is not one word about the proper interpretation -- let alone the

construction the petitioners suggest here -- in the Second Report

and Order that is the subject of this case. Although the

petitioners cite our decision in Public Citizen v. Nuclear

Regulatory Comm’n, 901 F.2d 147 (D.C. Cir. 1990), in support

of their reopening argument, the petitioners “misread Public

Citizen to stand for the proposition that the substantive invalidity

of a previously adopted regulation can always be asserted upon

review of a later rulemaking on the same general subject even

though the statutory time period for review has expired.”

Kennecott, 88 F.3d at 1214. “To the contrary, we expressly

stated in [Public Citizen] that the appropriate way in which to

challenge a longstanding regulation on the ground that it is

‘violative of statute’ is ordinarily ‘by filing a petition for

amendment or rescission of the agency’s regulations, and

challenging the denial of that petition.’” Id. (quoting Public

Citizen, 901 F.2d at 152). Indeed, it is “absurd to suppose that

every time an agency requests parties to compare the regulatory

status quo with specific proposed alternatives, all facets of the

status quo become fair game for new challenges.” Safe Food

and Fertilizer v. EPA, 350 F.3d 1263, 1267 (D.C. Cir. 2003); see

Cellular Telecomms. & Internet Ass’n v. FCC, 330 F.3d 502,

508 (D.C. Cir. 2003) (holding that the 60-day window barred the

petitioners from challenging the statutory authority underlying

the FCC’s 1996 decision to impose wireless number portability

in a 2001 forbearance petition).6

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FCC neither invited comment on the statutory authority supporting the

integration ban, nor did it respond to comments in a way that

suggested it did in fact reconsider the issue. Indeed, as noted below,

there were no comments on the statutory issue.

7

See, e.g., American Family Ass’n, Inc. v. FCC, 365 F.3d 1156,

1166 (D.C. Cir. 2004); Sioux Valley Rural Television, Inc. v. FCC,

349 F.3d 667, 676 (D.C. Cir. 2003); New England Pub. Commc’ns

Council, Inc. v. FCC, 334 F.3d 69, 79 (D.C. Cir. 2003); Time Warner

Entm’t Co. v. FCC, 144 F.3d 75, 81 (D.C. Cir. 1998).

Moreover, even if our review were not barred by the limited

statutory window for filing petitions for review, it is certainly

barred -- as the FCC also points out -- by 47 U.S.C. § 405,

which requires that the Commission be afforded an “opportunity

to pass” on an issue as a “condition precedent to judicial

review.” 47 U.S.C. § 405(a). This circuit has strictly applied

that section, holding that we may not consider “arguments that

have not first been presented to the Commission.” BDPCS, Inc.

v. FCC, 351 F.3d 1177, 1182 (D.C. Cir. 2003).7 As the

petitioners concede, there is not a single page in the voluminous

record below in which they made the “other equipment”

argument that they now press before this court. See Oral Arg.

Tr. 6. 

Notwithstanding their failure to raise this argument below,

the petitioners urge us to reach it because they raised it in their

original attack on the FCC’s 1999 Reconsideration Order -- an

order that we upheld in General Instrument. According to the

petitioners, the General Instrument court misunderstood the

nature of their statutory argument, and thus addressed only the

“converter box” language in that opinion. This, they say, left the

“other equipment” language fair game for this appeal. 

But even if the petitioners did raise this issue in the 1999

proceedings -- an assertion for which they provide no citation --

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“we see no reason the Commission should be required to sift

through pleadings in other proceedings in search of issues that

a petitioner raised elsewhere and might have raised here had it

thought to do so.” Beehive Tel. Co., Inc. v. FCC, 179 F.3d 941,

945 (D.C. Cir. 1999). “[I]ndeed, such a duty would be

inconsistent with our adversarial system, in which the petitioner

‘has the burden of clarifying its position before the agency.’” Id.

(quoting Bartholdi Cable Co. v. FCC, 114 F.3d 274, 280 (D.C.

Cir. 1997)). Nor would “a reasonable Commission necessarily

. . . have seen the question raised before us as part of the case

presented to it.” Time Warner Entm’t Co. v. FCC, 144 F.3d 75,

81 (D.C. Cir. 1998). To the contrary, our affirmation of the

FCC’s statutory authority in General Instrument, as well as the

FCC’s understanding that it had not reopened the issue, surely

gave the Commission no reason to believe that the petitioners

meant to reassert a statutory argument on this go-round. And

that -- together with the petitioners’ failure to mention the point

at all -- certainly explains why the FCC did not address the

question in the Second Report and Order. Accordingly, we are

barred from considering the petitioners’ statutory argument. 

III

The petitioners also contend that the FCC unreasonably

refused to rescind the integration ban in light of changed

circumstances. This contention was raised below, and it is

therefore properly before us. The petitioners regard the ban as

unreasonable for an array of interrelated reasons. In considering

those arguments, “we apply the deferential standard of the

Administrative Procedure Act (APA), and will uphold the

Commission’s policy judgments as long as they are not

‘arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.’” Global Crossing Telecomms., Inc. v.

FCC, 259 F.3d 740, 745 (D.C. Cir. 2001) (quoting 5 U.S.C. §

706(2)(A)). Under that standard, the scope of review “‘is

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narrow and a court is not to substitute its judgment for that of

the agency.’” Cellular Telecomms., 330 F.3d at 507 (quoting

Motor Vehicle Mfrs. Ass’n v. State Farm Mutual Auto. Ins. Co.,

463 U.S. 29, 43 (1983)). The agency must, however, “examine

the relevant data and articulate a satisfactory explanation for its

action including a rational connection between the facts found

and the choice made.” Motor Vehicle Mfrs. Ass’n, 463 U.S. at

43 (internal quotation marks and citation omitted).

A

The petitioners’ first argument is that the integration ban is

no longer needed to comply with the statutory directive of

section 629(a) because navigation devices are already available

to consumers in the retail market. According to the petitioners,

in the period since the rule was promulgated, “the cable and

[consumer electronics] industries engaged in an extraordinary

collaborative undertaking to bring CableCARD-equipped

navigation devices to the retail market, and to implement the

‘separate security requirement’ of the 1998 Order.” Petitioners’

Br. 21. In addition, the FCC’s “plug and play” rules “legally

bound the cable industry to specific technical and operational

commitments to facilitate the commercial availability of digital

cable-ready equipment.” Id.; see supra note 5. As a result, by

mid-2004, “the record showed the commercial availability of

more than 140 models of CableCARD-compatible navigation

devices from 11 different” manufacturers. Id. The “momentum

and trajectory,” the petitioners assure us, “is inexorably toward

such availability regardless of any integration ban.” Petitioners’

Reply Br. 18. 

The FCC did not ignore the developments cited by the

petitioners, but its assessment both of the current state of the

market and of its trajectory differed from that of the cable

industry. Although the FCC agreed that there had been

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8

Citing, inter alia, the cable industry’s own comments, the FCC

also found that an industry initiative to support the retail availability

of integrated converter boxes “has not been successful.” Second

Report and Order, 20 FCC Rcd at 6799, ¶ 14; see id. at n.42 (citing

NCTA comments acknowledging that the results of the initiative have

been “disappointing”).

9

See Letter from Julie M. Kearney, Consumer Electronics Ass’n,

to FCC Secretary (March 14, 2005) (stating that CableCARDs have

been installed in “no more than 2.7% of the devices capable of

receiving them”) (J.A. 420); Comments of the Consumer Electronics

Ass’n on NCTA Downloadable Security Report, CS Docket 97-80, at

3 (January 20, 2006) (noting that “80,000 CableCARDs have been

provided for a total of 3.8 million TV receivers capable of relying on

the CableCARDs -- barely 2 percent”) (J.A. 313).

10See Letter from Lawrence Sidman to FCC Secretary (October

28, 2004) (detailing reports from consumer electronics manufacturers

that consumers were experiencing “numerous technical

implementation problems” including “persistent problems with

CableCARDs or their headend support, erroneous software or

firmware fixes, [and] inability of authorized subscribers to acquire

some channels that offer encrypted content”) (J.A. 534).

progress, it was “clear from the record that the market for

equipment used in conjunction with the distribution of digital

cable video programming presently remains a nascent market.”

Second Report and Order, 20 FCC Rcd 6808, ¶ 28.8

 And

whatever number of CableCARD-compatible television models

might be available, the record reflected that less than three

percent of the compatible televisions sold to consumers were

actually being used with CableCARDs.9 Citing submissions

from the consumer electronics industry, the FCC also expressed

“concern[] about evidence that cable operators are not

adequately supporting CableCARDS.” Id. at ¶ 27.10 Given this

record, there was nothing unreasonable about the FCC’s

conclusion that “the competitive reasons that led the

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16

Commission to impose the integration ban have not been

eliminated by the developments in the market.” Second Report

and Order, 20 FCC Rcd at 6809, ¶ 28. 

Moreover, this court is bound to defer to the FCC’s

predictive judgment that, “[a]bsent common reliance on an

identical security function, we do not foresee the market

developing in a manner consistent with our statutory

obligation.” Id. at 6813, ¶ 36; see Melcher v. FCC, 134 F.3d

1143, 1151-52 (D.C. Cir. 1998) (noting that this circuit’s review

has been “particularly deferential” where the “FCC must make

judgments about future market behavior with respect to a

brand-new technology”). As the FCC explained: “At the heart

of a robust retail market for navigation devices is 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.” Second

Report and Order, 20 FCC Rcd at 6807, ¶ 27. 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.” Id. at 6809,

¶ 30. This explains the FCC’s “prohibition on integrated

devices,” as it “assur[es] that MVPDs devote both their technical

and business energies towards creation of an environment in

which competitive markets will develop.” Id. It is an

explanation that is neither arbitrary nor capricious.

B

The petitioners’ second contention is that the FCC failed to

explain adequately why the costs of the integration ban were

justified. The cable industry maintains that the costs of reengineering converter boxes will be “enormous,” and that these

costs will be passed on to subscribers who will obtain

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11Cf. Consumer Elec. Ass’n v. FCC, 347 F.3d 291, 303 (D.C. Cir.

2003) (holding that it was not unreasonable for the FCC to conclude,

“on the basis of admittedly imperfect evidence and inherent

uncertainty,” that the cost of a new consumer electronics device

“would likely fall” over time).

“absolutely no benefit.” Petitioners’ Br. 27-28. Quoting a line

from General Instrument, the petitioners declare that “[p]erhaps

there are benefits that will flow to consumers from the

integration ban, but the Commission did not clearly spell them

out.” 213 F.3d at 732. 

The quotation from General Instrument provides no succor

for the petitioners. Our reference there was to the 1998 Order,

not to the one we consider here, and we find the explanation

offered in the Second Report and Order satisfactory. On the

cost side, the agency noted that there was considerable dispute

between the cable and consumer electronics industries regarding

what those costs would actually be. See 20 FCC Rcd at 6809, ¶

29. While the FCC did not dispute that “consumers will face

additional costs in the short term,” it “agree[d] with the

[consumer electronics] parties and other commenters that the

cost[s] . . . likely will decrease over time as volume usage

increases.” Id.; see id. at 6805, ¶ 24 (citing comments arguing

that advances in technology, as well as volume production, will

bring costs down, and that the costs described by NCTA are for

first-generation products).11 The Commission also took steps to

minimize industry costs, both by extending the implementation

deadline from 2006 to 2007, and by promising to reconsider

eliminating the ban altogether should the cable and consumer

electronics industries achieve a downloadable security solution

capable of providing common reliance without requiring the

physical separation of security and non-security functions. See

id. at 6812-13, ¶ 36.

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The FCC further concluded that the costs of the integration

ban “should be counterbalanced to a significant extent by the

benefits likely to flow from a more competitive and open supply

market.” Id. at 6809, ¶ 29. Those benefits included the

“potential savings to consumers from greater choice among

navigation devices,” as well as the spurring of technological

innovations. Id. And, of course, there was the fact that

Congress regarded the commercial availability of navigation

devices from independent sources as a benefit in and of itself.

See Consumer Elec. Ass’n v. FCC, 347 F.3d 291, 303 (D.C. Cir.

2003) (indicating that the FCC had appropriately assessed, as a

benefit of a regulatory requirement, the regulation’s contribution

toward speeding achievement of a congressional mandate).

Given the congressional command “to assure” such availability,

47 U.S.C. § 549(a), and the FCC’s determination that the

integration ban was necessary to do so, we cannot regard the

agency’s cost-benefit balance as arbitrary. See generally

Consumer Elec. Ass’n, 347 F.3d at 304 (noting that

“‘cost-benefit analyses epitomize the types of decisions that are

most appropriately entrusted to the expertise of an agency’”

(quoting Office of Commc’n of United Church of Christ v. FCC,

707 F.2d 1413, 1440 (D.C. Cir. 1983))).

C

Third, the petitioners object that the FCC “arbitrarily

applied different decisional criteria in imposing the integration

ban on cable but not DBS.” Petitioners’ Br. 29 (emphasis

omitted). As we noted in Part I, the 1998 Order provided that

an MVPD could qualify for an exemption from the integration

ban if it “supports the active use by its subscribers of navigation

devices that: (i) operate throughout the continental United

States, and (ii) are available from retail outlets . . . throughout

the United States that are not affiliated with the [MVPD].” 47

C.F.R. § 76.1204(a)(2). At the time of the 1998 Order, the FCC

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concluded that only DBS systems qualified for the exemption.

The petitioners contend that, by the time of the Second Report

and Order, the cable industry had met the exemption

requirements while DBS service was backsliding. Yet, they

claim, the FCC “refused to even consider an exemption of cable

-- whatever the evidence -- on the same grounds that the FCC”

relied on to exempt DBS. Petitioners’ Br. 30. This, they

declare, was unfair to cable operators and put them at a

competitive disadvantage.

It is simply not true that the FCC “refused to even consider”

the petitioners’ arguments, particularly as to disparate treatment.

To the contrary, the Commission noted the petitioners’

“concerns regarding the lack of parity in treatment between DBS

operators and other MVPDs.” Second Report and Order, 20

FCC Rcd at 6814, ¶ 38. But it also determined that “DBS

equipment remains widely available at retail outlets from

various DBS service providers and a number of different

equipment manufacturers, on a geographically portable basis,”

and that “the distinctions that led the Commission to

differentiate between DBS and other MVPDs in 1998 remain

valid.” Id. 

Although the petitioners insist that more than 140 models

of CableCARD-compatible navigation devices are commercially

available, and that “all CableCARD-enabled devices are

portable geographically and interoperable among cable

systems,” they concede that “the integrated set-top boxes cable

operators lease to consumers are not geographically portable.”

Petitioners’ Br. 36. And that is the rub, since the record reflects

that less than three percent of CableCARD-compatible

television sets are actually being used with CableCARDs. This

means that the vast majority of cable subscribers remain

dependent upon non-portable converter boxes available only

from their cable companies. On these facts, it was not

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unreasonable to doubt that the cable industry “supports the

active use by its subscribers of navigation devices” that satisfy

the two criteria required for exemption from the integration ban.

47 C.F.R. § 76.1204(a)(2).

The FCC also recognized the petitioners’ point that

“[a]voiding rule based market distortions with respect to DBS as

a competitor to cable . . . is an important consideration.” Second

Report and Order, 20 FCC Rcd at 6814, ¶ 38. It did not,

however, regard the present proceeding “as providing a record

on which the Commission can resolve these issues.” Id. The

FCC’s assessment of the state of the record appears correct.

Indeed, while the petitioners claim that the ban places them at a

serious competitive disadvantage vis-a-vis DBS, they concede

that there is no quantitative evidence of such a disadvantage in

the record. See Oral Arg. Tr. 8. The absence of a sufficient

record is hardly surprising, since neither the Further Notice nor

the Extension Order sought comment on the DBS exemption or

on the relationship between developments in the DBS and cable

markets. See Further Notice, 15 FCC Rcd at 18199, ¶ 1;

Extension Order, 18 FCC Rcd at 7924, ¶ 3.

Under these circumstances, it was not unreasonable for the

FCC to decline to resolve the DBS-related issues. As FCC

counsel said at oral argument, the cable industry is “perfectly

capable of filing a petition tomorrow with the Commission” that

will generate a record appropriate for consideration of those

issues. Oral Arg. Tr. 24. The FCC has discretion “to defer

consideration of particular issues to future proceedings when it

thinks that doing so would be conducive to the efficient dispatch

of business and the ends of justice.” United States Telecom

Ass’n v. FCC, 359 F.3d 554, 588 (D.C. Cir. 2004). We perceive

no abuse of that discretion here.

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D

Fourth, the petitioners contend that the Second Report and

Order failed to address the cable industry’s argument that

“vibrant intermodal competition has displaced any remaining

justification for the integration ban.” Petitioners’ Br. 43. The

“intermodal competition” they have in mind includes not only

DBS services, but also “incumbent local telephone companies

[that] are now entering the video market through multi-billion

dollar construction of new fiber networks.” Id. at 42. The

petitioners’ contention is that “intense competition from DBS

[and others] in the marketing of video services to both current

and potential cable customers . . . gives cable operators every

incentive to maximize, rather than limit, the range of . . .

equipment options and distribution outlets for equipment that

enables consumers to access their services.” Id. at 43 (internal

quotation marks omitted).

The petitioners do not cite record evidence to support their

depiction of the current state of intermodal competition as

“vibrant” and “intense.” But their larger problem is that,

whatever the theoretical incentives, the FCC found that the realworld result that section 629(a) commanded it to assure -- the

commercial availability of navigation devices from vendors

unaffiliated with MVPDs -- has not arrived. The Commission

determined that only “common reliance . . . on an identical

security function [that] will align MVPDs’ incentives with those

of other industry participants” will achieve that result. Second

Report and Order, 20 FCC Rcd at 6809, ¶ 30. As an example of

the need for aligned incentives, the Second Report and Order

recounted the cable industry’s reluctance to provide TiVo -- an

intermodal competitor -- with a multistream CableCARD: a

device that TiVo needed to allow its customers to receive two

streams of programming, but that cable did not need to provide

the same service. Id. at 6803-04, ¶ 21 & n.88; see Oral Arg Tr.

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12TiVo is “an independently manufactured digital video recorder”

that is “a direct competitor with digital video recorders that are

supplied and now sold by the cable companies.” Oral Arg. Tr. 26-27

(FCC counsel). TiVo needed a multistream CableCARD to allow a

customer to receive two streams of programming so that one could be

recorded and the other watched. Id.

at 26-27.12 Nothing about the petitioners’ “intermodal” variant

on the argument we considered in Part III.A calls into question

the reasonableness of the FCC’s conclusion that an integration

ban remains necessary to achieve the statutory objective.

E

We next address the petitioners’ charge that the

Commission said “it would insist, now and in the future, upon

an integration ban regardless of the extent of commercial

availability of cable-ready navigation devices.” Petitioners’ Br.

41 (citing Second Report and Order, 20 FCC Rcd at 6812-13, ¶

36). That charge is simply not true. The paragraph that the

petitioners cite states that, “[a]lthough we agree with NCTA that

the significant efforts by the cable and consumer electronics

industries since 1998 indicate that a competitive environment

sufficient to relax the prohibition on integrated equipment may

develop, that day has not yet come.” Second Report and Order,

20 FCC Rcd at 6812, ¶ 36 (emphasis added). Far from saying

it would never consider progress in commercial availability, the

FCC said that, “[a]s part of the Commission’s consideration of

any further extensions, we will consider the extent to which

there has been progress towards making navigation devices

commercially available.” Id. at 6813, ¶ 36 (emphasis added). 

What apparently disturbs the petitioners is the paragraph’s

next sentence, in which the FCC advises that it is “not inclined”

to grant any further extensions “on the basis of the level of

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13Section 629’s sunset provision states that FCC “regulations

adopted under this section shall cease to apply” when:

the Commission determines that -- (1) the market for

multichannel video distributors is fully competitive; (2) the

market for converter boxes, and interactive communications

equipment, used in conjunction with that service is fully

competitive; and (3) elimination of the regulations would

promote competition and the public interest.

47 U.S.C. § 549(e); see 47 C.F.R. § 76.1208.

competition in the navigation device market” because, “[a]bsent

common reliance on an identical security function, we do not

foresee the market developing in a manner consistent with our

statutory obligation.” Id. (emphasis added). That is a

predictive judgment that the FCC is entitled to make and to

which we defer. See Consumer Elec. Ass’n, 347 F.3d at 303-04.

Moreover, notwithstanding its doubts, the Commission “note[d]

that Section 629 contains a sunset provision triggered by fully

competitive markets for video programming and navigation

devices,” and that FCC “rules provide[] that any interested party

may petition the Commission for a determination” that the

sunset provision has been satisfied. Second Report and Order,

20 FCC Rcd at 6813, ¶ 36.

13

At oral argument, the petitioners pointed to another place in

the Second Report and Order -- footnote 142 -- that they also

insist shows the FCC has plugged its ears against the cable

industry’s arguments. Oral Arg. Tr. 12-13. The second

sentence of that footnote reads: “The Commission will not

entertain arguments regarding the need for the cable industry to

rely on the same security function as their consumer electronics

competitors.” 20 FCC Rcd at 6811 n.142. But while that

sentence did foreclose the specified arguments, it did so only in

a single forum. As the footnote’s preceding sentence makes

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clear, the edict of the sentence in question applied only to the

“December 1, 2005 report by the cable industry and the

comments in response” thereto. Id. Because the December

2005 report was “limited to . . . issues [relating to] the feasibility

of a downloadable security function,” id., it was perfectly

appropriate for the Commission to restrict that filing to those

issues.

F

Finally, we note that the FCC’s Second Report and Order

extended the deadline for implementation of the integration ban

in order to provide the cable and consumer electronics industries

with more time to work toward the implementation of a new

technology that may moot this entire controversy. The

industries are currently developing the downloadable security

system referenced above, which would “allow cable operators

and consumer electronics manufacturers to rely on an identical

security function, but would not require the potentially costly

complete separation of the physical security element.” 20 FCC

Rcd at 6810, ¶ 31. In light of the evolving nature of that

technology, it was hardly unreasonable for the FCC to delay, but

not to delete, the integration ban. “Although the enforcement

regime chosen by the Commission may not be the only one

possible, we must uphold it as long as it is a reasonable means

of implementing the statutory requirements.” Global Crossing

Telecomms., Inc., 259 F.3d at 745. It is and we do.

IV

For the foregoing reasons, the petition for review is 

Denied.

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