Brian T. Grogan

(612) 347-0340

E-Mail: GroganB@moss-barnett.com

Communications Law Update

To: Moss & Barnett Clients and Interested Parties

From: Brian T. Grogan, Esq.

Date: August 9, 2001

1. BIGGER ISN’T ALWAYS BETTER

On July 13, 2001, FCC Commissioner Gloria Tristani spoke before the Alliance for Community Media, a group that promotes local public, educational and governmental programming on cable television systems. Commissioner Tristani’s speech has gained national attention because for the first time a key-decision maker at the federal level has stated what many local franchising authorities have been concerned with for the past several years. The fact that the cable industry consolidation is increasing the power of large multiple system cable television operators and reducing the ability of franchising authorities to secure franchise agreements which meet a community’s local cable-related needs and interests.

Commission Tristani’s speech included the following:

On the one hand, cable industry consolidation is increasing the leverage of the largest cable operators in the franchising process. In the past, franchising authorities have benefited from seeing the kinds of deals other cable operators strike with their franchising authorities. But as the number of cable operators dwindles, the remaining MSOs may be able to move toward standardized franchise agreements. The result is that franchising authorities have fewer negotiated agreements from which to glean insights. That could make it harder for franchising authorities to secure the best deals for PEG access….

And just when consolidation may weaken the hand of franchising authorities, the importance of getting good agreements has never been greater. This is because of rapid advances in cable technology. A prime example is interactive television. It has the potential to provide exciting new services and features for millions of cable subscribers. It could make television more enjoyable, informative, and educational….

As cable operators get bigger, control over programming will be held by fewer and fewer. For better or worse, the content of television has far more influence on what Americans know, what they think, and how they govern themselves than whatever is on the Internet or in the newspapers. Television is a uniquely powerful and influential medium, and government regulators should think long and hard before approving another round of cable consolidation….

But the more consolidation that occurs, the greater the value of PEG access programming. PEG access is an antidote to the dangers of cable industry consolidation. It is a powerful idea that part of the media should exist directly in the hands of the public rather than large corporations. The ground-up programming you get when you empower individuals to create their own shows can be a welcome contrast to the top-down, lowest common denominator of network programming….

2. OPEN ACCESS REQUIREMENT FOUND TO BE INCONSISTENT WITH FEDERAL LAW

The Fourth Circuit Court of Appeals has upheld a District Court decision finding that Henrico County, Virginia is not permitted to impose an open access requirement on the provision of cable modem service as a condition for approval of the transfer of control of a cable television franchise. MediaOne Group, Inc. v. County of Henrico, No. 00-1680 (Fourth Cir. filed July 11, 2001) <http://pacer.ca4.uscourts.gov/cgi-bin/getopn.pl?OPINION=001680.P>.

In 1999, MediaOne Group, Inc. (“MediaOne”) provided cable service under a franchise in Henrico County, Virginia. On May 6, 1999 MediaOne entered into an agreement to merge with AT&T. The merger, which is now finalized, gives AT&T control of all of MediaOne’s cable television systems including the County’s franchise. In July of 1999 AT&T and MediaOne applied for approval from the County to transfer control of the franchise. The County granted approval in December 1999, however, conditioned its approval on a requirement that AT&T must provide “requesting Internet service providers [ISPs] access to its cable modem platform (unbundled from the provision of content) on rates, terms and conditions that are least as favorable as those on which it provides such access to itself, to its affiliates or to any other person.”

This condition has become known as an “open access” requirement forcing a cable operator to open its broadband pipeline to unaffiliated ISPs. MediaOne sued the County in federal court seeking a declaratory judgment that the open access condition violates the First Amendment and the Commerce Clause and is preempted by federal law as well as void under Virginia law. The District Court granted MediaOne’s motion for summary judgment. See MediaOne Group, Inc. v. County of Henrico, 97 F. Supp. 2d 712 (E.D. Va. 2000). The District Court concluded that the open access condition was not only preempted by federal law but was also void under Virginia law because nothing in the Virginia Code authorized the County to impose such a condition as part of a franchise transfer proceeding.

The County appealed to the Fourth Circuit which affirmed the District Court decision concluding that “Henrico County’s open access provision violates the Federal Communications Act, 47 U.S.C. § 541(b)(3)(D), by forcing MediaOne to provide its telecommunication facilities (its cable modem platform) to any ISP as a condition for the County’s approval of the transfer of control of the franchise.” The Fourth Circuit concluded that because the open access provision is inconsistent with federal law it is preempted and superceded.

In 2000, the Ninth Circuit also concluded that an open access provision required by Portland, Oregon was in violation of federal law and further concluded that the provision of cable modem service was a “telecommunications service.” See AT&T Corp. v. City of Portland, 216 F.3d 871 (Ninth Cir. 2000). Taken together, the Portland and Henrico decisions are particularly important to municipalities nationwide because the Federal Communications Commission (“FCC”) has issued a preceding, through a notice of inquiry, to examine classification and open access issues. The FCC’s notice seeks comment on whether cable modem technology should be classified as a “cable service, ” a “telecommunications service, ” or an “information service, ” and also seeks comment on the implications of adopting any particular classification. See In The Matter of Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, No. 00-355, 2000 WL 1434689, P 15 (Sept. 28, 2000).

To the extent the FCC concludes that cable modem service is a “telecommunication service” cable operators may no longer include cable modem revenues in their calculation of gross revenues for purposes of remitting franchise fees under cable television franchises. Given the increasing popularity of the cable modem product, this could result in a significant reduction in franchise fee revenue paid to cities from cable television operators. This is particularly true in jurisdictions where cities are unable to impose franchise fees on the provision of telecommunications services.

Generally, the Fourth Circuit summarized the nationwide open access debate by noting that cities argue that cable modem services should be a considered a “cable service” under federal law because it would allow cities to regulate a cable operator’s provision of Internet access over cable lines. Telephone companies argue that cable modem service is a “telecommunications service” because the service would then be subject to common carrier obligations including contributions to the universal service fund. Telephone companies also seek regulatory parity because their competing DSL service is already regulated as a telecommunications service under federal law. Cable operators, on the other hand, often argue that cable modem service should be considered an “information service” under federal law which would then mean that it is not subject to either local franchising or common carrier regulations.

Rather than undertake the difficult analysis of determining how cable modem service should be regulated, the Fourth Circuit simply held that "Henrico County violated [federal law] when it conditioned the transfer of control of MediaOne’s cable franchise by requiring MediaOne to unbundle its [cable modem service] and provide open access to its telecommunications facilities, that is, its cable modem platform. Because the open access provision is inconsistent with the Federal Communications Act, it is preempted.” The Fourth Circuit concluded that it was content to leave the question of classifying cable modem service to the expertise of the FCC.

Now all eyes turn to the FCC and its notice of inquiry to determine precisely what regulations apply to cable modem service. While most cities continue to collect franchise fees on cable modem services, the issue remains very much unresolved and one which will continue to be debated in both franchise transfers and renewals until the FCC acts.

3. BELLSOUTH V. TOWN OF PALM BEACH

MANAGING YOUR RIGHTS-OF-WAY – 11TH CIRCUIT GIVES A VICTORY

On May 25, 2001, the United States Court of Appeals for the Eleventh Circuit provided further clarification regarding the authority of local governments to adopt ordinances to manage their public rights-of-way. In the case, BellSouth v. Town of Palm Bch, Docket No. 99-14272 (Eleventh Cir. May 25, 2001), the Eleventh Circuit clarified the application of Section  253 of the Telecommunications Act of 1996 (“1996 Act”). The Town of Palm Beach and the City of Coral Springs had adopted ordinances in response to the 1996 Act to govern the use of their public rights-of-way by telecommunications service providers. BellSouth was the incumbent local telephone service provider and brought suit seeking a declaratory judgment that the ordinances were preempted under both Florida state law and Section 253 of the 1996 Act.

Section 253 consists of four (4) distinct subsections which have been the subject of considerable debate between cities and telecommunications providers since the 1996 Act became effective. Section 253 provides:

(a) In general

No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.

(b) State regulatory authority

Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 254 of this section, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers.

(c) State and local government authority

Nothing in this section affects the ability of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.

(d) Preemption

If, after notice and an opportunity for public comment, the [Federal Communications] Commission determines that a State or local government has permitted or imposed any statute, regulation or legal requirement that violates subsection (a) or (b) of this section, the Commission shall preempt the enforcement of such statute, regulation, or legal requirement to the extent necessary to correct such violation or inconsistency.

The key question before the court with respect with Section 253 was whether subsections (b) and (c) constitute “safe harbors,” which serve as exceptions to the general prohibition outlined in subsection (a). Other federal district courts have concluded that subsections (b) and (c) impose substantive limitations on state and local authority in the telecommunications field and the only regulatory authority retained by local governments is that which is contained in subsections (b) and (c).

The Eleventh Circuit, however, concluded that “subsection (a) contains the only substantive limitations on state and local governmental regulation of telecommunications, and that subsections (b) and (c) are ‘safe harbors,’ functioning as affirmative defenses to preemption of state or local exercises of authority that would otherwise violate (a).” Thus, the Eleventh Circuit found that subsections (b) and (c) “were added to the statute to preserve rather than to limit, state and local government authority.” (emphasis added)

This is an important decision for cities because now a federal district court, before declaring a local ordinance preempted, must conduct both the § 253(a) and the § 253(b) and (c) analyses. In the present case, the Eleventh Circuit concluded that the lower court had erred by declaring the ordinances preempted without first determining that BellSouth had established its case under § 253(a).

By way of example, let us assume a city adopts an ordinance which requires that telecommunications providers must provide, on an annual basis, a map outlining the placement of facilities within the city’s rights-of-way. As a result of the Eleventh Circuit decision, a district court must first look to § 253(a) to determine whether this requirement has the affect of “prohibiting” the provision of telecommunications service. If the requirement does not prohibit telecommunications service then the provision is upheld and the analysis ends. If, however, the court concludes that the requirement does have the affect of prohibiting telecommunications service, the court must then look to § 253(b) and (c) to determine whether it may still be permissible because it falls within the “safe harbor” of § 253(b) and (c) (i.e. falls within the city’s authority to protect the public safety and welfare or manage its public rights-of-way).

The next question before the Eleventh Circuit was whether a telecommunications provider such as BellSouth must seek review before a federal district court or whether it can go straight to the FCC under § 253(d). After a lengthy review of the legislative history of § 253 the Eleventh Circuit held that “a private cause of action in federal district court exists under § 253 to seek preemption of a state or local statute, ordinance or other regulation only when that statute, ordinance or regulation purports to address the management of the public rights-of-way, thereby potentially implicating subsection (c).” (footnote omitted) However, “all other challenges brought under § 253 must be addressed to the FCC.”

This is an important aspect of the decision because it clarifies that in cases involving purely local matters regarding right-of-way management, the FCC does not have jurisdiction to enjoin the enforcement of local ordinances. As the legislative history points out, this will relieve cities of the obligation of sending delegations of city attorneys to Washington, D.C. to go before the FCC but rather a city can meet challenges to their local authority on home ground in their local district courts.

In the present case, the Eleventh Circuit held that certain subsections of the ordinances in question were preempted by Florida statutes but others were valid exercises of local authority under Florida law. Further, the court found that the district court erred by failing to consider whether the ordinances violated § 253(a) and therefore the lower court decision was affirmed in part, reversed in part, and remanded to the district court for further proceedings.

w w w

Brian T. Grogan is a shareholder with the Minneapolis law firm of Moss & Barnett. He represents entities throughout the country on franchise renewals, transfers of ownership, telecommunications planning, right-of-way issues, wireless sitting disputes, First Amendment issues, litigation and other related communication matters. Brian is a frequent presenter at state and national conferences regarding communications law. He is a member of the American Bar Association (Forum Committee on Communications Law), National Association of Telecommunications Officers and Advisors, International Municipal Lawyers Association, and is the past Chair of the Communications Law Section of the Minnesota State Bar Association.

For further information on Moss & Barnett’s cable communications practice, please see the firm’s website at www.moss-barnett.com.

w w w

The materials in this Communications Law Update have been complied from a variety of sources and address only a portion of the relevant issues contained within hundreds of pages of regulations and decisions. We have not addressed many important points which may apply to your situation. You should consult with legal counsel before taking any action on matters covered by this Communications Law Update.

SUPPLEMENTAL INFORMATION

If you would like to receive the Communications Law Update via e-mail or fax, please complete all the information below and return this form to Terri Hammer at Moss & Barnett.

Yes, I would like you to send the Communications Law Update to me at the e-mail address below.

OR

Yes, I would like you to send the Communications Law Update to me at the fax number below.

Name:

Title:

Address:

City/State/ZIP:

E-mail Address:

Facsimile Number:

w w w w w w w w w

Additional information (complete as applicable):

Please remove my name from your Communications Law Update Mailing List as noted below.

OR

Please place my friend’s name on your Communications Law Update Mailing List as noted below.

Name:

Title:

Address:

City/State/ZIP:

E-mail Address:

Facsimile Number:

Please return this form to:

Terri Hammer, Moss & Barnett

4800 Wells Fargo Center, 90 South 7th Street

Minneapolis, MN 55402-4129

Phone: (612) 347-0349; Fax: (612) 339-6686

E-mail: hammert@moss-barnett.com