National Cable Television Ass'n v. Federal Communications Commission

Citations: 286 U.S. App. D.C. 229; 914 F.2d 285; 68 Rad. Reg. 2d (P & F) 176; 1990 U.S. App. LEXIS 16341Docket: No. 89-1517

Court: Court of Appeals for the D.C. Circuit; September 18, 1990; Federal Appellate Court

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The Federal Communications Commission (FCC) granted the General Telephone Company of California permission to construct coaxial cable and fiber optic facilities for Apollo Cablevision, despite a statutory prohibition under the Cable Communications Policy Act of 1984 against telephone companies providing video programming through affiliated cable companies without a waiver. General was deemed affiliated with Apollo due to its business relationship with Apollo’s parent company, T.L. Robak, Inc. The FCC justified the waiver based on the potential technological benefits for the public, but the court noted that the FCC did not adequately explain why General needed to retain Robak for the construction, thereby raising concerns about the prohibited affiliation. The court remanded the decision for further consideration. The statutory background outlines that Section 613 of the Communications Act prohibits common carriers from providing video programming directly or indirectly through affiliates, allowing waivers only under specific circumstances, such as the absence of cable service without the carrier's involvement or other good cause. The policy aims to promote competition by limiting telephone companies' ability to leverage their existing market power in video programming delivery.

Commission rules outline 'control' and 'affiliate' as terms that prohibit any financial or business relationships between a carrier and a customer, aside from the carrier-user relationship (47 C.F.R. 63.54, note 1(a), 1989). In the early 1980s, Cerritos, California initiated efforts to establish cable television services, issuing a Request for Proposal (RFP) after extensive studies of community needs. Despite significant outreach to over seventy cable operators and trade associations, the initial RFP deadline yielded no responses. Following two extensions, Cerritos received four proposals, including one from Apollo, which involved General's participation in facility construction and maintenance. An independent consultant found the Apollo proposal to be the most responsive, particularly noting General’s expertise in underground construction, aligning with the city’s preference for an underground system. Consequently, Cerritos issued a 'Resolution of Intent to Do Business' with Apollo in February 1987. Shortly thereafter, General applied to the FCC for permission to build and operate the proposed facilities, intended for Apollo's use but also to accommodate GTE Service Corporation, an affiliate of General. General's proposal aimed to enhance public interests by providing cable service to Cerritos and allowing testing of video transmission quality using different technologies. The National Cable Television Association, Inc. (NCTA), representing a majority of the nation's cable subscribers, filed a petition on March 20, 1987, to dismiss General's application, arguing it violated cross-ownership rules due to the affiliate relationship between Apollo and General.

NCTA's claim stemmed from a contract between General and T.L. Robak, Inc., Apollo's corporate parent, related to system construction. NCTA argued that the financing arrangements created an affiliation between General and Apollo. The Commission’s Common Carrier Bureau found that the Cable Act prohibits any financial relationship between a carrier and a customer, except for the carrier-user relationship. The Bureau ruled that the construction contract did not qualify as an exempt relationship, thus establishing an affiliation between General and Apollo, which violated the Cable Act and Section 63.54. However, the Bureau recognized the possibility of waiving the cross-ownership prohibition if it could be shown that cable service would not exist in Cerritos without it. Following an evaluation of proposals, the Bureau determined that only Apollo's proposal met the city's RFP specifications and justified the waiver based on the community's authority to define local cable service requirements.

NCTA sought review from the full Commission, which granted a temporary waiver of the cross-ownership rule on July 17, 1989. The Commission vacated the Bureau’s waiver, providing its own based on the Cable Act’s 'other good cause' criterion, considering potential technological and marketing innovations. It determined that General's proposed services would test significant new technologies and that preventing them would deprive the public of potential benefits. Consequently, the Commission granted General a five-year good cause waiver with specific conditions to mitigate negative impacts. NCTA subsequently petitioned for review in court.

The key issue is whether the Commission overstepped its authority in granting a waiver to General based on 'good cause.' Waivers from the Commission's rules can only be overturned if deemed arbitrary, capricious, or contrary to law. The Cable Act provides limited guidance for waivers, requiring them to comply with specific regulations and consider public interest. The Commission's prior interpretations emphasize the need for clear public benefit justifications for waivers. In this case, the Commission noted potential benefits from General's technological experiments, which were supported by evidence. However, the Commission failed to adequately justify why these benefits necessitated Robak's involvement as a contractor, particularly given that using an unrelated contractor could resolve the cross-ownership issue. The court cannot uphold the Commission's decision without a clear rationale from the Commission itself. Consequently, the petition for review is granted, and the case is remanded for further clarification from the Commission regarding the necessity of Robak's participation in the project.