Opinion ID: 778650
Heading Depth: 2
Heading Rank: 2

Heading: Exclusivity

Text: 25 The Supremacy clause of the United States Constitution invalidates state laws that interfere with or are contrary to federal law. Gibbons v. Ogden, 9 Wheat. 1, 22 U.S. 1, 211, 6 L.Ed. 23 (1824). When acting on subjects within its constitutional power, Congress is empowered to preempt state law in several ways, including by expressly stating its intention to do so. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977). In this case, Section 253 expressly preempts state or local statutes, regulations, or other requirements that prohibit or have the effect of prohibiting market entry. 47 U.S.C. § 253(a). 26 In deciding whether the District Court correctly granted summary judgment to the Payphone Association on the issue of preemption, we review its legal determinations de novo. Gritzer v. CBS Inc., 275 F.3d 291, 296 (3d Cir.2002). We begin, as did the District Court, with the exclusive nature of the franchises that Section Three of the Ordinance and the Franchise Notice would create. We find that the exclusivity of the franchises that the Town would grant violates Section 253(a). There can be no question that designating a single company as authorized to provide payphones in the public rights of way in a large geographical area which currently is served by multiple companies, and which is capable of accommodating at least 75-100 separate telephones, reduces competition and constitutes a barrier to entry. The deliberate creation of scarcity by the Town in this case is directly at odds with the letter and spirit of the TCA. The District Court correctly noted that, it is well-recognized that the [TCA] marked a sea change in the regulation of the telephone industry in which Congress rejected the long-held premise that monopolies were necessary to reliable and universal service. 130 F.Supp.2d at 636 (quoting Cablevision, 184 F.3d at 97). Because Section Three of the Ordinance would act to recreate just such monopolies, it is preempted. See also 47 U.S.C. § 276 (directing the FCC to establish rules to promote competition among payphone service providers.) 27 The Town nevertheless protests that the Ordinance is not preempted because the auction process it wishes to use is itself competitive. It also argues that the Ordinance does not create a substantial burden on competition because other providers may still compete to place pay telephones on private property near to the public rights of way. We find both of these arguments unconvincing. A bidding competition where the winner is determined by willingness to share a monopoly profit with the Town is clearly not the kind of competition intended by the TCA. Even if an exclusive franchise were awarded solely on the basis of the nominal cost of services to the consumer, an auction run under such a rule would still be a highly imperfect substitute for actual market competition. In either case, the effect of such an ordinance is still to prohibit losing entities as a matter of law from competing for private customers, a violation of the plain language of Section 253(a). 28 As to placing pay telephones on private property, the Town provides no evidence for the inherently implausible proposition that such installations would allow other providers to fully compete for the patronage of people requiring use of a payphone while travelling or otherwise located in public places. In economic parlance, payphones on private property would, for various reasons such as the inconvenience of travelling to such phones or their lack of visibility from the rights of way, be imperfect substitutes for phones actually in the rights of way. The availability of competition from such locations thus does not save the Ordinance from the prohibitions of Section 253(a). 29 The Town also claims that Section Three of the Ordinance is protected by Section 253(c). It claims that the Ordinance is within the safe harbor because its purpose is to ensure the orderly flow of traffic unimpeded by the random placement of public payphones in unsafe locations as well as to prevent such telephones from becoming the focal points of various criminal activities and ensure that they are adequately maintained. It thus claims that it is properly an exercise of its reserved power to manage the public rights of way. 30 While we are extremely skeptical about the proposition that managing traffic patterns and crime requires an exclusive franchise, we do not deny that there may be a rational relationship between the two. The purchasing agent's candid admission that the amount of compensation offered to the Town was the primary criterion in selecting the winning bid certainly suggests that preserving the safety of the rights of way was not the real or primary purpose of the Ordinance. It has obvious use as a tool for revenue generation and regulation of the telecommunications services provided to the public. However, it is at least plausible that the Ordinance could ease the burden of policing the rights of way by limiting the number of providers of payphones that the Town would be required to monitor to one. Under conditions of limited resources, such a reduction in the cost of monitoring could possibly have a material bearing on the Town's ability to police the placement and maintenance of payphones. 5 Thus, although other courts have been willing to strike down local legal requirements that are only tenuously linked to rights-of-way management, see City of Auburn v. Qwest Corp., 260 F.3d 1160, 1178-79 (9th Cir. 2001), (financial reporting requirements and regulations on ownership related to fitness and stability of service providers struck down as more than necessary to manage rights of way and on the basis that permitting them on such a tenuous connection would leave no limiting principle on § 253(c)); City of White Plains, 125 F.Supp.2d at 1309 (reporting and inspection requirements are outside the scope of reasonable regulations of the rights of way), or that merely act as conditions on access to rights of way as a hook to achieve other regulatory purposes, see BellSouth Telecommunications v. City of Coral Springs, 42 F.Supp.2d 1304, 1309 (S.D.Fla.1999) rev'd in part on other grounds (excluding reporting requirements, financial, technical and legal qualifications); Town Of Palm Beach, 127 F.Supp.2d at 1355, we will assume that the Ordinance qualifies as manage[ment of] the public rights of way for the purposes of Section 253(c). 31 However, this does not end the inquiry as the scope of the Section 253(c) safe harbor is limited by its use of the terms competitively neutral and nondiscriminatory. The use of these terms in the section is not immediately obvious but rather poses something of an interpretive challenge of its own. The FCC reads them as straightforward limits on both the power to manage the rights of ways reserved for local governments in general and their freedom to impose fees for use of the rights of way. See In re Classic Telephone, Inc., 11 F.C.C.R. 13082 ¶ 39; TCI Cablevision, 12 F.C.C.R. 21,396, ¶ 108; In re State of Minnesota, 14 F.C.C.R. 21697 ¶ 61. The majority of courts that have ruled on this issue have also followed the lead of the FCC without comment. See City of Dallas, 8 F.Supp.2d at 593; TCG Detroit v. City of Dearborn, 977 F.Supp. 836, 840-41 (E.D.Mich.1997) aff'd 206 F.3d 618 (6th Cir.2000). The First Circuit, however, has questioned this reading, reasoning that as a matter of syntax, the phrase on a competitively neutral and nondiscriminatory basis as it appears in the middle of Section 253(c) can only modify the phrase to require fair and reasonable compensation immediately preceding it in the text and not to manage the public rights of way. Cablevision of Boston 184 F.3d at 100-101. On its reading, the phrase for use of public rights-of-way following on a competitively neutral and nondiscriminatory basis must as a matter of logic modify compensation, thereby trapping on a competitively neutral and nondiscriminatory basis on the same grammatical level as itself. In other words, the First Circuit reasons that the relevant phrase is followed by text making it part of a subordinate clause that only makes sense as a condition on compensation requirements. 6 32 Our own appraisal of the text of Section 253(c) read in isolation is that the function of on a competitively neutral and nondiscriminatory basis is ambiguous. While the reading of the First Circuit is most consistent with the syntax to which it points, it is also possible to read the relevant phrase as limiting both the power to manage the rights of way in general and to demand compensation. Although such a reading is awkward, it is, unfortunately, not significantly more so than the available alternatives because Section 253(c) is simply not well drafted. It is, rather, written in such a way as to make problems of syntax unavoidable regardless of the reading. 33 For example, immediately following the language already cited above, Section 253(c) uses the phrase for use of public rights of way on an nondiscriminatory basis. A natural reading of that phrase might suggest that it means that telecommunications providers must use the public rights of way in a non-discriminatory manner. However, such a reading — odd on it own terms — is nonsensical in context, because this phrase is located in a safe harbor that preserves powers for state and local governments and does not deal with regulation of service providers themselves. This second use of the term nondiscriminatory may therefore be meant to signify that compensation requirements and perhaps general rights-of-way management are to be nondiscriminatory. But if so, the term is at least partially duplicative of the same term used in the previous phrase. We are thus forced to choose between illogical uses of the term nondiscriminatory. 34 In trying to ferret out the intention of Congress, we therefore conclude that it would not be proper to place too much interpretive weight on the niceties of the syntax of Section 253(c), given the inconsistencies of the section as a whole. The most that we can safely conclude looking at the text of this section in isolation is that there are multiple readings possible, several of which require rights-of-way management to be at least nondiscriminatory and others of which require it to be both nondiscriminatory and competitively neutral. 35 However, in looking for the meaning of this statutory language, we must look to the statutory context in which that language is used and the broader context of the statute as a whole as well as the language itself. See Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 477, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992); McCarthy v. Bronson, 500 U.S. 136, 139, 111 S.Ct. 1737, 114 L.Ed.2d 194 (1991); Rosenberg v. XM Ventures, 274 F.3d 137, 141-42 (3d. Cir.2001). In this instance, the statutory framework indicates that Congress intended permissible management of the rights of way to be limited to those local statutes or regulations that are nondiscriminatory and competitively neutral. A reading of Section 253(c) placing no limit on management of public rights of way outside of compensation requirements would be demonstrably at odds with the Congressional intent expressed in Section 253(a) to foster competition. We can find no reasonable basis in light of the overarching scheme of the TCA to conclude that Congress intended to reserve for the states and localities the power to discriminate against certain telecommunications service providers in regulating rights of way while otherwise generally preempting local laws burdening market entry. Rather, a more reasonable reading of the section in context is that Congress simply intended to preserve local power to regulate the public rights of way for purposes unrelated to the competition to provide telecommunications services to the public and in a manner consistent with that competition. 36 Further evidence that the contrary could not have been Congress' intent is found in Section 253(b). This section, which is largely parallel to Section 253(c), includes the general requirement that state regulation be on a competitively neutral basis, indicating that Congress understood quite well that a broader carve-out of state authority would permit states to use the areas in which their regulatory authority was preserved to undermine the competitive framework established by the TCA as a whole. In this context, it would make no sense for regulation of the rights of ways, access to which is critical to the ability of service providers to reach potential customers, to be exempted from a requirement that is otherwise generally applied to state law protecting public safety and welfare. Section 253(b) demonstrates the balance Congress chose as necessary to effectuate its intent to enhance competition and eliminate local monopolies while leaving room for reasonable regulation of issues of particular state and local concern. 37 Thus, in looking at the statutory language in context, we find that the more logical reading of Section 253(c) requires management of public rights of way to be competitively neutral and nondiscriminatory. Nevertheless, since Section 253(c) is facially ambiguous, we also look to the legislative history. While most of the Congressional discussion of Section 253 was on subjects tangential to those of concern here, see e.g., 141 Cong.Rec. H8460-01 (August 4, 1995) (statements by Congressmen Stupak and Barton), 7 such commentary as is available touching on this issue support this reading. For example, the report of the conference committee reconciling the House and Senate versions of the TCA notes the authority of a local government to manage its public rights-of-way in a nondiscriminatory and competitively neutral manner in several places. S.Rep. 104-230, , ,  (February 1, 1996). During floor debate of an amendment brought by Senator Feinstein to eliminate a prior version of Section 253(d) giving the FCC authority to preempt municipal rights-of-way regulations, Senator Hollings described the history of the section as follows: 38 Section [253] is the removal of the barriers to entry, and that is exactly the intent of the Congress.... What we are trying to do is say, now, let the games begin, and we do not want the States and the local folks prohibiting or having any effect of prohibiting the ability of any entity to enter interstate or intrastate telecommunications services. When we provided that, the States necessarily came and said ... we have the responsibilities over the public safety and welfare.... 39 So what about that? ... So we said, well, right to the point: Nothing in this section shall affect the ability of a State to impose on a competitively neutral basis—those are the key words there.... 40 The mayors came ... and they said we have our rights of way and we have to control — and every mayor must control the rights of way. So then we wrote in there: Nothing shall affect the authority of a local government to manage the public rights of way or to acquire fair and reasonable compensation on a competitively neutral and nondiscriminatory basis. 41 Competitively neutral and nondiscriminatory basis. Then we said finally, indeed, if they do not do it on a competitively neutral or nondiscriminatory basis, we want the FCC to come in there in an injunction. 42 141 Cong.Rec. S8134-01, S8174 (June 12, 1995). Similarly, one of the authors of Section 253(c) noted that it does not let the city governments prohibit entry of telecommunications service providers for pass through or for providing service to their community. 141 Cong.Rec. H460-01,  (August 4, 1995) (statement of Congressman Barton). Finally, those statements on the floor of the House of Representatives that touched on the issue during debate on the Conference Report to accompany the TCA also reflected the understanding that municipalities were to be limited to nondiscriminatory and competitively neutral rights of way management. 142 Cong.Rec. H1145, H1150, H1173 (February 1, 1996) (statements of Congressman Goss and Congresswoman Pelosi). 43 Though somewhat cursory, this evidence of legislative intent supports the reading of Section 253(c) adopted by the FCC and other jurisdictions. In combination with this legislative history, the context provided by the other parts of Section 253 and the structure of the statute as a whole persuades us that the competitively neutral and nondiscriminatory requirement applies to management of the rights of way as well as compensation. 44 In deciding whether the Ordinance is protected under Section 253(c) we must thus determine whether it is competitively neutral and nondiscriminatory. We find that it is not. The Ordinance is facially discriminatory in that it permits the Town to choose one service provider allowed to provide pay telephone service to the public to the exclusion of all others based on criteria determined by it rather than the market. The Town may, of course, make distinctions that result in the de facto application of different rules to different service providers so long as the distinctions are based on valid considerations. It can, for example, have different policies for companies wishing to dig up the streets in order to lay new conduit, from those who wish to convert existing conduit and do not need to dig up the streets. What it cannot do is what it has tried to do: create a set of rules the purpose of which is to select one company over others for preferential treatment. 45 The attempt to create zones of exclusive franchise also fails the test of competitive neutrality. Bidders are required according to Section Three and the Franchise Notice to compete for service of two zones requiring a minimum of 75-100 payphones. As an integral part of that requirement they must demonstrate the ability to service such zones and are also required to pay a deposit tied to the number of payphones they will install. The Ordinance thus favors larger companies with the resources to service the zones as defined by the Town. The Town cannot, consistent with the requirement to be competitively neutral, force companies into a competition the terms of which favor larger telecommunications companies with the resources to meet such demands over smaller competitors who may not have similar resources. 46 Because Section Three of the Ordinance sets up an exclusive franchise that is inherently discriminatory and creates competitive inequalities, it is not protected by Section 253(c).