Opinion ID: 676985
Heading Depth: 2
Heading Rank: 1

Heading: Telephone Companies

Text: 17 Section 621(b)(1) of the Cable Act, 47 U.S.C. Sec. 541(b)(1) declares that a cable operator may not provide cable service without a franchise. The Commission determined both that (1) video dialtone service does not constitute cable service within the meaning of the Act, and that (2) a telephone company providing video dialtone service is not a cable operator subject to the Act. These are related but independent grounds for its decision respecting telephone companies.
The Act defines cable service as: 18 (A) the one-way transmission to subscribers of (i) video programming, or (ii) other programming service, and 19 (B) subscriber interaction, if any, which is required for the selection of such video programming or other programming service. 20 47 U.S.C. Sec. 522(6). 21 The Commission determined that a telephone company offering video dialtone service would not be providing cable service as defined by the statute because it would not be engaged in the transmission ... of video programming contemplated by Sec. 522(6)(A)(i). Memorandum Opinion and Order on Reconsideration, 7 FCC Rcd. at 5071. In the Commission's lexicon the term 'transmission' ... requir[es] active participation in the selection and distribution of video programming. Memorandum Opinion and Order on Reconsideration, 7 FCC Rcd. at 5071. The Cable Act does not define the term transmission; hence we uphold the agency's definition of that term if it is reasonable. Sierra Club v. EPA, 719 F.2d 436, 460 (D.C.Cir.1983). 22 NATOA argues that the Commission's definition of transmission is unreasonably narrow; a telephone company providing video dialtone service, they say, is engaged in the 'transmission' of programming because it sends that programming into the subscribers' homes. To transmit, according to NATOA (quoting Webster's New World Dictionary at 1511 (1982)), means to send or cause to go from one person or place to another, esp. across intervening space or distance; transfer, dispatch; convey. 23 As the Commission points out, however, a definition under which any entity that sends programming into the subscribers' homes is engaged in transmission is simply too broad to fit into the regulatory framework; under NATOA's approach, a telephone company providing channel service would require a franchise--which is at odds with all historical practice. At the time the Cable Act was adopted, many telephone companies provided channel service, which entails their building a video distribution facility and leasing it (in whole or in part) to a cable operator. A telephone company that wants to provide channel service must get FCC authorization under Section 214 of the Communications Act before constructing the facilities, 47 U.S.C. Sec. 214, but it need not procure a local franchise. According to the Commission, when the Congress passed the 1984 Act, it was well aware how channel service is regulated and gave no indication that it intended to change the regulatory framework. Memorandum Order and Opinion on Reconsideration, 7 FCC Rcd. at 5071. The Committee on Energy and Commerce report on the Cable Act noted that 24 nothing in section 613(b) is intended to prevent a common carrier from constructing, subject to applicable law, a local distribution system that is capable of delivering video programming and other communications or information services to multiple subscribers within a community. Section 613(b) does not prevent a common carrier from leasing or otherwise making available a part or all of the capacity of such a system to a franchising authority or to a cable operator who has received a franchise from the franchising authority in accordance with the conditions in Title VI.... Section 613(b) prohibits a common carrier from selecting or providing the video programming to be offered over a cable system. 25 H.R.Rep. No. 934, 98th Cong., 2d Sess. 57 (1984), U.S.Code Cong. & Admin.News 1984, p. 4655. 26 Furthermore, the Commission points out, even under the dictionary definition quoted by NATOA, the party that sends programming into the subscriber's home is more logically the customer-programmer, not the telephone company: no programming 'goes from one person or place to another' unless the video programmer transmits it. The telephone company acts merely as a transparent conduit that enables the customer-programmers to  'send or dispatch' video programming directly to subscribers. 27 Common usage supports the same conclusion. One sends a letter, although the post office actually delivers it; thus one says I sent you a letter, not The post office is sending you a letter for me. So, too, when one places a phone call; the signal must go through the telephone company's facilities before reaching the other party, but no one would say that the telephone company was making the call. Likewise, transmitting a video signal implies at least choosing the signal, or originating it, not necessarily conducting it personally to its destination. The telephone company is merely a conduit for those signals that originate with and are chosen by the caller or, in this case, the video programmer. The Congress that enacted the Cable Act was undoubtedly full of members to whom this is just as obvious as it is to us. 28 NCTA rejoins that channel service is not franchised as a cable service not because the telephone company providing it does not transmit video programming within the meaning of Sec. 522(6)(A)(i), but rather because it is not responsible for the subscriber interaction, if any needed to select the programming, as required by Sec. 522(6)(A)(ii). This argument fails because the qualification if any in the statutory definition of cable service clearly implies that the subscriber interaction to which the NCTA refers is not a necessary component of cable service. Hence the channel service provider's failure to offer subscriber interaction cannot be the reason it is exempt from the franchise requirement. 29 On the other side of the same coin, NCTA argues that telephone companies that provide video dialtone will provide the subscriber interaction described in Sec. 522(6)(B), and that therefore they are required to obtain a franchise. As the petitioner points out, at the second level of video dialtone service a telephone company may provide 'video gateways,' which will permit subscribers to 'select and receive video programming made available by video programmers,'  as well as offering  'billing and collections services, equipment and installations.'  Quoting Second Report and Order, 7 FCC Rcd. at 5784 and n. 5. 30 This argument fares no better than the first. Preliminarily, we note that it is doubtful whether a telephone company's provision of billing, equipment, and installation services constitutes subscriber interaction ... required for the selection of ... video programming. 47 U.S.C. Sec. 522(6); see H.R.Rep. at 43-44 (The Committee intends that the interaction permitted in a cable service shall be that required for the retrieval of information from a specific number of options or categories, including, for example, video programming, pay-per-view, voter preference polls in the context of a video program video rating services [sic], teletext, one-way transmission of any computer software (including, for example, computer o[r] video games) and one-way videotex[t] services such a[s] news services, stock market information, and on-line airline guides and catalog services that do not allow customer purchases). More fundamentally, even if the video gateway offered by a telephone company qualifies as subscriber interaction, that alone does not render the telephone company a provider of cable service. Section 522(6) is written in the conjunctive--cable service is defined as the transmission of video programming and any subscriber interaction required for the selection of video programming. That a telephone company may provide unregulated enhanced services under its video dialtone authorization does not mean that it will engage in the transmission of video programming as contemplated by the Act; in fact, a telephone company providing video dialtone service is prohibited from providing video programming directly to subscribers. See First Report and Order, 7 FCC Rcd. at 312. 31 We conclude that the Commission reasonably interpreted the Act to require that an entity obtain a cable franchise only when that entity selects or provides the video programming to be offered. Id. at 5072. A local telephone company would act merely, as the Commission put it, as a transparent conduit that enables its [programmer] customers to 'send or dispatch' video programming directly to subscribers, and hence would not be engaged in the transmission of programming under the Act. 32 Nonetheless, NATOA objects that in National Ass'n of Broadcasters v. FCC, 740 F.2d 1190, 1205 (D.C.Cir.1984), we rejected as irrational the very argument that we find reasonable today. Not so. In that case the Commission had determined that neither a customer-programmer nor a separately owned satellite facility that together provided direct broadcast satellite service was engaged in broadcasting within the meaning of Title III, although the agency had earlier determined that subscription television service is indeed broadcasting. This court rejected the Commission's attempt to make integrated ownership the touchstone of broadcasting, id. at 1202, and vacated the rule under review for want of a reasoned explanation for the Commission's changed position. In a later rulemaking the FCC supplied the missing explanation, and we upheld its decision. National Ass'n For Better Broadcasting v. FCC, 849 F.2d 665, 669 (D.C.Cir.1988). Here, as we have seen, the Commission has provided a reasoned explanation for its determination that video dialtone service is not subject to regulation as cable service under the Cable Act. That explanation does not rest merely upon separate ownership of the telephone company and its customer-programmers. 33 It is also noteworthy that in the NAB case no one challenged the Commission's decision that a satellite owner that acts as a common carrier, offering satellite transmission services indiscriminately to the public pursuant to tariff under the provisions of Title II of the Act is not also subject to regulation as a broadcaster under Title III. 740 F.2d at 1200. While that case tells us nothing directly relevant to the FCC's decision here that a telephone company that offers video dialtone service as a common carrier under Title II is not also subject to regulation as though it offered a cable service, it is fully in keeping with the Commission's present interpretation of the term transmission. As we said then, the Commission applies [Title III] directly to the entities responsible for program selection and transmission--the broadcast licensees. Id. at 1202. 34 In sum, we hold that the Commission's definition of the term transmission to require active participation in the selection and distribution of video programming is reasonable.
35 As a separate and sufficient reason for holding that a telephone company providing video dialtone service does not need a cable franchise, the Commission determined that the telephone company is not a cable operator. Recall that the Cable Act provides that a cable operator may not provide cable service without a franchise. The Act goes on to define a cable operator as 36 any person or group of persons (A) who provides cable service over a cable system and directly or through one or more affiliates owns a significant interest in such cable system, or (B) who otherwise controls or is responsible for, through any arrangement, the management and operation of such a cable system. 37 47 U.S.C. Sec. 522(5), and to define a cable system as 38 a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community, but such term does not include ... 39 (c) a facility of a common carrier which is subject, in whole or in part, to the provisions of title II of [the Communications Act], except that such facility shall be considered a cable system ... to the extent such facility is used in the transmission of video programming directly to subscribers.... 40 47 U.S.C. Sec. 522(7) (emphases added). 41 According to the Commission, a telephone company providing a video dialtone service is not a cable operator because a video dialtone facility is not a cable system. Rather, it comes within the exemption in paragraph (c) for a facility of a common carrier subject to regulation under Title II of the Communications Act. Regulation as a cable system would be duplicative because common carrier regulation incorporate[s] the same concerns about public safety and convenience and use of public rights of way that provide a key justification for the cable franchise requirement. Memorandum Opinion and Order on Reconsideration, 7 FCC Rcd. at 5072. The Commission found no reason to believe that the Congress intended to subject a telephone company to such duplicative regulation. Id. 42 The Commission went on to determine that the exception to the exemption in paragraph (c) does not apply to video dialtone service because it does not involve the local telephone company in providing video programming directly to subscribers. The exception, it says, was directed at telephone companies providing a conventional cable service, which they are permitted by the Cable Act to do in rural areas and other communities where no other entity is likely to offer cable service. Id.; see 47 U.S.C. Secs. 533(b)(3), (4). In such a situation, the telephone company is subject to the franchise requirement, presumably because it is exempt from common carrier regulation. See 47 U.S.C. Sec. 541(c). 43 NCTA would have us believe instead that the exception only excludes ... a telephone company facility that stops short of subscribers' homes, but merely transmits signals internally from one cable operator facility to another (e.g. from a distant receiver to a headend). That reading would render the exception meaningless, however; for a facility transmitting signals from one cable operator to another and not to multiple subscribers would not be subject to regulation as a cable system in the first place. See 47 U.S.C. Sec. 522(5). While an exception that excepts nothing may commend itself to NCTA, both the FCC and the court must, if possible, give effect to every phrase of the statute. National Insulation Transportation Comm. v. ICC, 683 F.2d 533, 537 (D.C.Cir.1982). 44 The Commission's interpretation of the exemption to avoid duplicative regulation is self-evidently reasonable. Its reading of the exception to the exemption strikes us as quite reasonable as well. A telephone company providing video dialtone service to programmers is prohibited from providing video programming directly to subscribers, see First Report and Order, 7 FCC Rcd. at 312; therefore the exception does not apply. This is consistent with the Commission's determination (with which we agreed in Part II.A.1, above) that a telephone company providing video dialtone service is not engaged in the transmission of video programming. 45 The Commission also determined that a video dialtone facility does not constitute a cable system because it 46 will not ordinarily include the necessary signal generation, reception and control equipment. As a video dialtone provider, a telephone company generally will not control this headend equipment, which is associated with selection and provision of video programming. 47 Memorandum Opinion and Order on Reconsideration, 7 FCC Rcd. at 5072-73. The petitioners argue that ownership of the component parts of a system is irrelevant to the question whether it is a cable system; they cite as support the channel service arrangement, under which the customer-programmer of the telephone company's facilities is required to obtain a franchise. Because we have already held that the Commission reasonably interpreted the exemption to Sec. 522(7) so as to exclude from the definition of a cable system a telephone company providing video dialtone service, we need not address the agency's other argument to the same effect.