Opinion ID: 697242
Heading Depth: 2
Heading Rank: 3

Heading: The Cable Companies' Other Challenges

Text: 75 The cable petitioners make two other claims, both of which question the FCC's interpretation of certain provisions of the Act. Neither challenge can surmount the hurdle set for it by Chevron.
76 As discussed in Part I, the Commission decided to apply its ratemaking rules in a tier-neutral fashion, meaning that the same methodologies and standards are used to establish allowable rates for both the basic service tier and the cable programming service tier(s). First Reconsideration, 9 F.C.C.R. at 1182-85; Rate Order, 8 F.C.C.R. at 5759-60, 5881-82. It did so in order to avoid creating any incentive for cable operators to move programming between the basic service and cable programming service tiers by making any such move revenue neutral. See First Reconsideration, 9 F.C.C.R. at 1183; Rate Order, 8 F.C.C.R. at 5759-5760. The FCC further explained that because it is simpler, the tier-neutral approach also serves to reduce the administrative burden upon all concerned. Id. 77 The cable petitioners contend that the language, structure, and legislative history of the 1992 Cable Act simply do not permit the Commission to apply the same regulatory standard to the basic service tier and to cable programming service. That contention, however, is premised upon a significant misunderstanding of the Act. 78 First, the cable petitioners misconstrue the Congress's findings. Focusing solely upon Sec. 2(a)(1) of the Act, they suggest that the Congress found that only basic cable rates were excessive. Although that section begins with a reference to then-recent increases in the rates for basic cable service, it ends with the broader conclusion that [t]he average monthly cable rate has increased almost 3 times as much as the Consumer Price Index since rate deregulation. While it is possible that the Congress meant, as the cable petitioners suggest, only that average monthly rates for basic cable service had increased by thrice the CPI, that is not what the provision says. Moreover, after reviewing the rest of the Congress's findings it becomes clear that, regardless of the proper construction of Sec. 2(a)(1), the Congress was concerned with what it perceived to be the excessiveness of cable rates in general, not the rates for a particular type of service. Indeed, the Congress immediately followed the finding referenced by the cable operators with a general finding (in Sec. 2(a)(2)) that cable operators serving most cable subscribers do not face effective competition and consequently exercise undue market power. That finding admits of no distinction between basic tier and cable programming service. Similarly, the Congress made findings about increasing concentration and vertical integration in the cable industry generally. See Secs. 2(a)(4), (5). 79 The statute is even clearer when it broadly states that: 80 It is the policy of the Congress in this Act to ... 81 (4) where cable television systems are not subject to effective competition, ensure that consumer interests are protected in receipt of cable service; and 82 (5) ensure that cable television operators do not have undue market power vis-a-vis video programmers and consumers. 83 Secs. 2(b)(4), (5). Although the cable petitioners would like to limit that policy to the basic service tier, the stubborn fact remains that the Congress directed it to the cable industry in general. Put simply, the legislature's generalized approach to formulating the problem and to enumerating the objectives of the statute simply do not support the cable petitioners' position that the Act is concerned only (or even concerned more) with rates for the basic service tier than with rates for cable programming service; if anything, the Congress's non-tier-specific findings and policy statement support the FCC's view that tier-neutral regulation is appropriate. 84 The cable petitioners also mistake the significance of certain substantive differences between the statutory sections that govern respectively the basic service tier and cable programming service. Although the Act requires the Commission to establish regulations to ensure reasonable rates for the basic service tier, 47 U.S.C. Sec. 543(b)(1), with respect to cable programming service it authorizes the Commission to correct unreasonable rates. 47 U.S.C. Sec. 543(c)(1)(A). The cable petitioners perceive a middle ground between the reasonable and the unreasonable, suggesting that in light of those differing terms the Commission's regulation of cable programming service must be more lenient than its regulation of the basic service tier. That suggestion is at the least counterintuitive; if the Congress intended to invoke different levels of regulatory stringency, it seems most unlikely that they would have used those cognate terms to describe the two regimes. 85 Moreover, the Commission's explanation--that the terminological difference reflects a procedural rather than a substantive distinction in the two regulatory schemes--is a good deal more persuasive. See Rate Order, 8 F.C.C.R. at 5875. Although the Act requires local franchising authorities actively to regulate rates for the basic service tier in accordance with established FCC standards, it precludes the Commission from reviewing a system's rates for cable programming service unless and until it receives a complaint from a subscriber, the franchising authority, or some other relevant state or local governmental entity. Compare 47 U.S.C. Sec. 543(b) with 47 U.S.C. Sec. 543(c). Consequently, rates for the basic service tier will always be reviewed ex ante while rates for cable programming service will only be reviewed ex post. It therefore makes sense that the Congress would formulate the question respecting the basic service tier as whether, ex ante, a proposed rate would be reasonable, and yet formulate the question respecting cable programming service as whether, ex post, an existing rate is unreasonable. Because those key terms are strikingly similar and the slight difference between them is easily explained as a product of the different procedural postures in which they will arise, we conclude that this text actually supports the Commission's tier-neutral approach rather than the contentions of the cable companies. 86 The cable petitioners also point to other differences between the regulatory regimes for the basic service tier and for cable programming service. They note, for example, that the Act provides that in establishing the criteria for determining in individual cases whether rates for cable programming services are unreasonable the Commission shall consider six factors, 47 U.S.C. Sec. 543(c)(2), several of which are different from the factors that the statute requires the Commission to take into account in prescribing regulations to govern rates for the basic service tier. They focus upon two of the six statutory factors--rates for similarly situated cable systems offering comparable cable programming services, 47 U.S.C. Sec. 543(c)(2)(A), and the history of the rates for cable programming services, 47 U.S.C. Sec. 543(c)(2)(C)--and argue that the Commission failed to account for those factors in opting for tier-neutral regulation. 87 This argument is unpersuasive for several reasons. First, the statute by its terms merely requires the Commission to consider the six factors in deciding how best to determine whether a rate is unreasonable. 47 U.S.C. Sec. 543(c)(2). That means only that it must reach an express and considered conclusion about the bearing of a factor, but is not required to give any specific weight to it. Central Vermont Ry., Inc. v. ICC, 711 F.2d 331, 336 (D.C.Cir.1983). Therefore, when the Commission, after expressly considering the potential role of the rate history factor, ultimately concluded that it should not be given any weight, see Rate Order, 8 F.C.C.R. at 5764-65, 5766, 5882 n. 970, it did not violate the statute. 88 The cable petitioners are simply wrong in suggesting that the Commission never considered the role of similarly situated cable systems. The Act provides: 89 In establishing the criteria for determining in individual cases whether rates for cable programming services are unreasonable ... the Commission shall consider, among other factors ... (A) the rates for similarly situated cable systems offering comparable cable programming services, taking into account similarities in facilities, regulatory and governmental costs, the number of subscribers, and other relevant factors.... 90 47 U.S.C. Sec. 543(c)(2). This the Commission did by gathering data for both non-competitive and competitive systems and performing multiple regression analyses in order to isolate and to control for factors that affect cable rates other than the degree of competitiveness in the market. That exercise was in effect a comparison of similarly situated cable systems undertaken in order to determine which characteristics (such as types of facilities, number of subscribers etc.) have an effect on rates. See Second Reconsideration, 9 F.C.C.R. at 4178 n. 165, 4288-4301; Rate Order, 8 F.C.C.R. at 5768-69, 6143-47. We therefore reject the cable petitioners' claim that the Commission did not adequately consider similarly situated systems. 91 Finally, the cable petitioners seize upon the requirement in the provision regulating the basic service tier that the Commission's regulations shall be designed to achieve the goal of protecting subscribers ... from rates for the basic service tier that exceed the rates that would be charged ... if such cable system were subject to effective competition. 47 U.S.C. Sec. 543(b)(1). Although the provision regulating cable programming service includes, as one of the six factors that the Commission must consider in establishing the criteria for determining whether rates are unreasonable, the rates for cable systems ... subject to effective competition, 47 U.S.C. Sec. 543(c)(2)(B), it does not contain an express directive that rates not exceed the competitive level, as does the provision for the basic service tier. All that difference could establish, however, is that the Commission has greater discretion in determining whether a rate for cable programming service is unreasonable than it has in determining whether a rate for the basic service tier is reasonable; it does not mean, as the cable petitioners appear to suggest, that the Commission must permit rates for cable programming service that are higher than those that would occur were the system subject to effective competition. In adopting the tier-neutral approach, the Commission did not ignore the relatively minor constraints that the Act places upon it in determining what constitutes an unreasonable rate for cable programming service; quite the contrary, the Commission met those requirements and exceeded them. We therefore reject the cable petitioners' claim that the Commission cannot apply the effective competition lodestar to rates for both the basic service tier and cable programming service. 92 To recapitulate: the statutory findings and policy statement, and the text of the provisions requiring that the Commission prescribe reasonable rates for basic service and proscribe unreasonable rates for cable programming service all support the Commission's tier-neutral approach. Although there are some differences in the factors that the Commission must consider in crafting its regulations for the two different tiers, the agency did consider those factors and account for them in adopting the tier-neutral approach. We therefore conclude that the tier-neutral approach is based upon a permissible interpretation of the Act. 93 Finally the cable petitioners contend that even if the tier-neutral approach is permitted by the Act, the Commission erred by failing to give each cable operator the option instead to come under an overall rate limit by lowering its rates for the basic tier and raising its rates for cable programming service. They argue that such an umbrella option would harm nobody because it would still preclude cable operators from raising their rates, in the aggregate, above what would be allowed under the tier-neutral approach, and would benefit some subscribers because it would provide cable operators with the flexibility to lower their rates for the basic service tier that all subscribers are required to purchase under the Act. 94 Although the umbrella option might not result in higher rates, it would, as the Commission explained, significantly increase the administrative burden associated with regulating cable rates. Rate Order, 8 F.C.C.R. at 5759-60. Indeed, rather than having one set of rules that applies to all regulated tiers, the addition of the umbrella option would require the Commission to develop an alternative set of rules for those systems that opt to have their rates reviewed in the aggregate. Also, because local franchising authorities are primarily responsible for monitoring rates for the basic service tier while rates for cable programming service fall exclusively within the Commission's purview, 47 U.S.C. Sec. 543(a)(2), the umbrella approach would add administrative burdens by requiring greater coordination between the two regulators. In light of the Act's requirement that the Commission seek to reduce administrative burdens, 47 U.S.C. Sec. 543(b)(2)(A), we hold that the Commission's decision to reject the umbrella option was not unreasonable. 95
The 1992 Cable Act provides that: 96 The regulations prescribed by the Commission under [the basic service tier] subsection shall include standards to establish, on the basis of actual cost, the price or rate for-- 97 (A) installation and lease of the equipment used by subscribers to receive the basic service tier, including a converter box and a remote control unit and, if requested by the subscriber, such addressable converter box or other equipment as is required to access [video programming offered on a per channel or per program basis.] 98 47 U.S.C. Sec. 543(b)(3). Because this provision limits to actual costs the rate that a cable operator may charge for equipment, its scope is of considerable economic importance. The Commission has interpreted it to cover all equipment that a subscriber uses to receive the basic service tier in a system not subject to effective competition; that includes equipment that is also used to receive other cable services. Rate Order, 8 F.C.C.R. at 5800. Not surprisingly, the cable companies offer a more narrow interpretation; they argue that the provision does not extend to any equipment that is used in part to receive cable programming service. Equipment used in part to receive cable programming service would, under the cable companies' view, be regulated in accordance with the general rate regime for cable programming service, meaning only that the rates for such equipment may not be unreasonable. Although the statute is far from clear, the Commission's interpretation is a permissible one, and therefore must prevail. 99 The cable petitioners' interpretation is suspect for two reasons. First, it does violence to the natural meaning of the term used: that term is not normally understood to mean used exclusively, which is effectively the interpretation they propose. Second, and more important, because the actual cost provision expressly includes equipment required to access unregulated video programming offered on a per channel or per program basis, the cable petitioners' interpretation would produce the rather anomalous result that equipment used to receive unregulated channels would be regulated at actual cost while equipment used in part to receive regulated cable programming service channels would be regulated more leniently, viz., only to prohibit rates that are unreasonable. The cable petitioners have not been able to offer a convincing explanation for why the Congress would have intentionally created such an odd arrangement. 100 The cable petitioners are not, however, without some support in the statute for their position. They note that cable programming service is defined as: 101 any video programming over a cable system, regardless of service tier, including installation or rental of equipment used for the receipt of such video programming, other than (A) video programming carried on the basic service tier, and (B) video programming offered on a per channel or per program basis. 102 47 U.S.C. Sec. 543(l )(2). They make much of the phrase equipment used for the receipt of such video programming, arguing that it means that any equipment used to receive cable programming service falls within the unreasonable rate standard of regulation applicable to cable programming service, see 47 U.S.C. Sec. 543(c), rather than the actual cost standard of Sec. 543(b)(3). Although focusing upon that phrase might at first seem to help the petitioners' cause, it begs the ultimate question; both Sec. 543(b)(3) and Sec. 543(l )(2) refer to the equipment used to receive programming, so the question is which one effectively means used exclusively? The cable petitioners and the Commission each have their candidate, of course--the Commission wins if Sec. 543(l )(2) receives the additional modifier, the cable companies if that limitation applies to Sec. 543(b)(3)--and neither suggestion is unreasonable. 103 Although each side cites snippets of legislative history, neither can point to anything remotely close to dispositive. We are therefore left with a virtual dead heat, save for the observation that the cable petitioners' interpretation would produce the more anomalous result. Obviously, the Congress did not address the specific issue before us. Therefore, the FCC having offered a permissible interpretation of the statute, we are bound to accept it. Chevron, 467 U.S. at 842-43, 104 S.Ct. at 2781-82.