Opinion ID: 697242
Heading Depth: 4
Heading Rank: 1

Heading: Low Penetration Data

Text: 30 The cable petitioners first contend that the Commission violated the Act by failing to assign proportionate weight to the data for low penetration systems in establishing the competitive differential that forms the basis for the initial rate reductions the agency required. Recall that the Act provides that regulations [to ensure the reasonableness of basic rates] shall be designed to achieve the goal of protecting subscribers ... from rates ... that exceed the rates that would be charged for the basic service tier if [the] cable system were subject to effective competition. 47 U.S.C. Sec. 543(b)(1). The Act further states that in prescribing such regulations, the Commission ... shall take into account seven listed factors, one of which is the rates for cable systems, if any, that are subject to effective competition.... 47 U.S.C. Sec. 543(b)(2). These provisions may well require the Commission, in establishing reasonable initial rates, to consider information about systems facing effective competition, which is, of course, precisely what the FCC has done. They do not, however, even suggest how the Commission should weigh the rate data from each subcategory of systems facing effective competition. Indeed, the text of the Act and its legislative history do not even provide the Commission with any guidance about how to weigh the seven factors that it is supposed to take into account, let alone how to weigh subcategories of data relevant to one particular factor. 31 The only other direction that the Act gives the FCC for the establishment of rates for the basic tier is that it must seek to reduce the administrative burdens on subscribers, cable operators, franchising authorities, and the Commission, to which end it may adopt formulas or other mechanisms and procedures. 47 U.S.C. Sec. 543(b)(2)(A), (B). The Congress thus refrained from micromanaging the Commission in the way that the cable petitioners now ask the court to do. In the absence of any statutory requirement that could be read to require the Commission to give proportionate weight to the rates charged by low penetration systems, however, we are not at liberty to oblige the petitioners. 32 Perhaps anticipating the futility of the proportionate weight argument, the cable companies argue in the alternative that the Act requires the Commission to assign at least some weight to the low penetration data, and that the Commission failed to do so. This claim is factually incorrect. Although the 37 percent competitive differential for municipal systems caused the Commission to believe that the 16 percent differential for overbuilds was too low, the Commission discounted [the municipal system data] somewhat ... on account of [its] consideration of low penetration systems, which had only a one percent competitive differential. Second Reconsideration, 9 F.C.C.R. at 4166, 4195. Thus we see that the Commission did give some weight to the data for low penetration systems. 33 The cable petitioners further contend that even if the Commission's treatment of the low penetration data did not violate the Act, it was nonetheless arbitrary and capricious for the agency not to have given the data greater weight. The Commission, however, articulated a powerful economic rationale for according only minimal weight to those data. 34 Under the statute, a cable system falls into the low penetration category if it serves less than 30 percent of the homes in its franchise area, regardless of its penetration rate for the subset of homes that it actually passes. 47 U.S.C. Sec. 543(l )(1)(A). The Commission noted that both its own data and an industry study suggest that a substantial number of the systems in the low penetration group serve more than 30 percent of the homes they pass. Second Reconsideration, 9 F.C.C.R. at 4162. The Commission reasonably concluded, therefore, that low penetration may reflect only the geographic limitations of the system rather than the presence of substitutes that restrain the cable operator from exercising market power; thus the low penetration group may well include systems that, due to market power, are able to charge rates substantially above the competitive equilibrium point. 35 The FCC could not verify this possibility without collecting and analyzing extensive data concerning the low penetration group's costs, but this was not realistically possible within the 180-day statutory deadline for the FCC to promulgate regulations. 47 U.S.C. Sec. 543(b)(2); see National Ass'n of Regulatory Utility Comm'rs v. FCC, 737 F.2d 1095, 1124, 1138-42 (D.C.Cir.1984) (accepting agency ratemaking decision based upon agency's expertise and best available information despite agency's failure to amass additional useful data). Bearing in mind that one of the Congress's declared purposes in enacting the Cable Act was to eliminate the effects of undue market power, see Sec. 2(b)(5), we conclude that the FCC's decision to give the data for low penetration systems only limited weight was reasonable. 36