[Federal Register Volume 60, Number 117 (Monday, June 19, 1995)]
[Rules and Regulations]
[Pages 31924-31927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14833]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 63

[CC Docket No. 87-266; FCC 95-203]


Cross-Ownership Rules

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has voted to adopt the tentative conclusion 
regarding the Commission's legal authority to grant waivers to 
telephone companies allowing them to provide video programming directly 
to subscribers in their telephone service areas. For ``good cause'' the 
Commission may waive Section 613(b) of the Communications Act, the 
cable-telco cross-ownership restriction, where a waiver is ``justified 
by the particular circumstances.'' In response to the decisions of the 
Fourth and Ninth Circuits which found Section 613(b) unconstitutional 
on First Amendment grounds, the Commission concluded that under Section 
613(b)(4), the waiver provision, it has the legal authority to grant 
waivers to allow telephone companies to provide video programming in 
their telephone service areas on video dialtone networks. The 
Commission further concluded that waiving the restriction in that 
manner is fully consistent with the language of the statute and Section 
613(b)'s underlying policy, and obviates the constitutional infirmities 
identified by the court of appeals. This order is intended to provide 
guidance to the public regarding the Commission's legal authority to 
grant waivers of the cable-telco cross-ownership rule to telephone 
companies seeking to provide video programming directly to subscribers 
in their telephone service areas.

EFFECTIVE DATE: June 19, 1995.

FOR FURTHER INFORMATION CONTACT:
Aliza Katz, Office of General Counsel, (202) 418-1720.

SUPPLEMENTARY INFORMATION: A summary of the Commission's Third Report 
and Order (TR&O), adopted May 16, 1995 and released May 16, 1995, is 
set forth below. The full text of this document is available for 
inspection and copying during normal business hours in the 
Administrative Law Division, Office of General Counsel (Room 616), 1919 
M Street NW., Washington, DC. The full text may also be purchased from 
the Commission's copy contractor, International Transcription Services, 
Inc. (ITS), 2100 M Street NW., Suite 140, Washington, DC 20037.

Summary of Third Report and Order

    Introduction. In this Third Report and Order, we adopt the 
tentative conclusion set forth in the Fourth Further Notice of Proposed 
Rulemaking (``Fourth FNPRM''), 60 FR 8996, February 16, 1995, in the 
above captioned docket regarding the Commission's legal authority to 
waive Section 613(b) of the Communications Act, 47 U.S.C. Sec. 533(b). 
Section 613(b) generally prohibits telephone companies from providing 
``video programming directly to subscribers in the[ir] telephone 
service area.'' However, the statute expressly authorizes us to waive 
the restriction for ``good cause.'' We conclude that Section 613(b)(4) 
authorizes us to grant waivers to allow telephone companies to provide 
video programming directly to subscribers in their telephone service 
areas under certain conditions. In particular, in response to decisions 
of the Fourth and Ninth Circuits, we conclude that under Section 
613(b)(4) we have the legal authority to grant waivers allowing 
telephone companies to provide video programming in their telephone 
service areas on video dialtone networks. We adopt that construction of 
the waiver provision because it is fully consistent with the language 
of the statute and Section 613(b)'s underlying policy, and because 
waiving the restriction in that manner obviates the constitutional 
infirmities identified by the courts of appeals.
    2. Background and Summary. Section 613(b), the ``cable-telco cross-
ownership rule,'' prohibits a telephone company from operating a cable 
system where it has a monopoly on local telephone service. Although 
Section 613(b) does not bar a telephone company from acting as a 
conduit to carry video programming selected and provided by an 
unaffiliated party, it does generally bar a telephone company from 
selecting (or ``exerting editorial control over'') and providing the 
video programming carried over its wires in its local service area. Two 
counts of appeals, the Fourth and Ninth Circuits, have recently held 
Section 613(b) unconstitutional because it prohibits telephone 
companies from choosing the video programming to be provided in their 
local exchange telephone service areas altogether. See US West, Inc. v. 
United States, 48 F.3d 1092 (9th Cir. 1995) (US West); Chesapeake and 
Potomac Tel. Co. v. United States, 42 F.3d 181 (4th Cir. 1994) (C&P). 
In so holding, both courts referred to the Commission's 1992 
recommendation to Congress is our video dialtone docket, a proposal 
that the Ninth Circuit described in US West as a ``more speech-friendly 
plan'' than the absolute ban contained in the statute. Under the 
Commission's legislative recommendations, as described by the Fourth 
Circuit in C&P, ``telephone companies' editorial control 
[[Page 31925]] over video programming [would be limited] to a fixed 
percentage of the channels available; the telephone companies would be 
required to lease the balance of the channels on a common carrier basis 
to various video programmers.'' In short, the courts of appeals have 
held that a complete ban on editorial control over video programming in 
a telephone company's service area ``burden[s] substantially more 
speech than is necessary,'' especially since there appeared to be an 
``obvious less-burdensome alternative[]''--allowing the telephone 
company to provide some video programming in their telephone service 
areas on a video dialtone system.
    3. We now conclude, as we previously proposed in the Fourth NPRM, 
that we have the authority to grant waivers to telephone companies 
pursuant to Section 613(b)(4) allowing them to provide video 
programming directly to subscribers in their telephone service areas 
over video dialtone networks. Section 613(b)(4) provides that upon a 
showing of ``good cause'' the Commission may waive the cable-telco 
cross-ownership restriction where a waiver is ``justified by the 
particular circumstances * * *, taking into account the policy'' 
underlying the cross-ownership restriction.
    4. Construing the waiver provision to authorize telephone companies 
to provide video programming over video dialtone networks avoids the 
constitutional infirmity identified by the Fourth and Ninth Circuits by 
making available the `` `obvious less-burdensome alternative' '' 
referenced by those courts. Moreover, it is our duty to so construe the 
statute. The Supreme Court has recently reiterated in United States v. 
X-Citement Video, Inc., 115 S. Ct. 464, 467 (1964), that ``a statute is 
to be construed where fairly possible so as to avoid substantial 
constitutional questions.'' \1\

    \1\ While the courts have identified video dialtone as a 
possible means by which telephone companies could provide 
programming in their service areas to remedy the constitutional 
infirmities of Section 613(b), and while we agree with the 
suggestion of these courts that waiving Section 613(b) as discussed 
above will cure these constitutional infirmities, we will address 
the terms and conditions under which telephone companies should be 
permitted to provide video programming directly to subscribers in 
their local service areas in a subsequent order addressing the other 
issues raised in the Fourth FNPRM.
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    5. In light of the ongoing litigation concerning the 
constitutionality of Section 613(b), we have decided to adopt the 
construction of Section 613(b)(4) that we proposed in the Fourth FNPRM 
before answering the other questions presented in this rulemaking.
    6. Discussion. In the Fourth FNPRM, we asked for comment on the 
terms and conditions under which local telephone companies should be 
permitted to provide video programming directly to subscribers in their 
local service areas. For instance, we asked whether we should permit 
them to do so over video dialtone systems. While we construe Section 
613(b)(4), the waiver provision, as authorizing us to permit telephone 
companies to act as programmers on video dialtone systems pursuant to 
certain conditions, the remaining issues raised in the Fourth FNPRM 
will be resolved in a further order in this proceeding.
    7. Two statutory issues are presented in construing Section 
613(b)(4): (1) whether ``good cause'' exists to waive the statutory 
restriction to permit a telephone company that wants to provide 
programming in its service area to do so over a video dialtone system, 
and (2) whether ``the issuance of such waiver is justified by the 
particular circumstances demonstrated by the petitioner, taking into 
account the policy of this subsection,'' when a telephone company 
requests waiver of Section 613(b) to provide video programming over a 
video dialtone system.
    8. As the D.C. Circuit recognized in its 1990 NCTA v. FCC decision, 
``the policy [of Section 613(b)] is to promote competition.'' When the 
Commission adopted its cable-telco cross-ownership rules in 1970, it 
sought to prevent the telephone companies from using their monopoly 
position to preempt the market for cable service by excluding others 
from entry. Since 1970, however, the cable industry has grown from a 
fledgling service to a more mature industry that now serves a majority 
of households and Congress's interest in ensuring that the cable 
industry not be extinguished before it is established is no longer 
relevant. ``Good cause'' is a phrase that is commonly associated with 
changed circumstances. The relevant circumstances have changed greatly 
since the Commission adopted its cross-ownership rules in 1970 and 
Congress ``modeled [Section 613(b)] after the FCC['s] rules'' in 1984.
    9. We also conclude that significant advances in technology have 
changed the circumstances relevant to determining whether telephone 
companies should be permitted to provide video programming directly to 
subscribers in their service areas. These developments have made it 
possible for a multitude of programmers to reach end user customers and 
have mitigated to a fair degree the competitive concerns that led the 
Commission and Congress to adopt the cross-ownership ban. These 
technological developments also support the conclusion that ``good 
cause'' exists to authorize telephone companies to provide video 
programming within their service areas where that will promote 
competition in the multichannel video programming market.
    10. We also conclude that the rules we will promulgate in the 
immediate future to authorize telephone companies to provide video 
programming in their service areas will constitute ``particular 
circumstances * * *, taking into account the policy'' of Section 
613(b). While we have not yet adopted definitive rules governing the 
conditions under which telephone companies may be permitted to act as 
video programmers over their video dialtone systems, the outline of two 
of those requirements is clear. First, video dialtone necessarily 
includes a common carriage element, and we have previously concluded 
that a telephone company may not allocate all or substantially all of 
its capacity to a single ``anchor programmer.'' Second, our current 
video dialtone rules contain provisions intended to ensure that 
telephone companies providing video programming directly to subscribers 
do not discriminate in favor of their affiliated programmers and do not 
subsidize video programming operations with rates collected from their 
provision of monopoly telephone services. These restrictions are 
intended to promote the underlying purpose of Section 613(b) by 
fostering fair competition in the multi-channel video programming 
market.\2\

    \2\ It is possible that we will decide in the ongoing rulemaking 
proceeding that telephone companies ought to be permitted to provide 
traditional cable service, rather than participate as programmers on 
video dialtone systems, under ``particular circumstances'' that will 
promote competition in the multichannel video programming market.
    11. Construing the waiver provision to authorize telephone 
companies to provide video programming pursuant to our video dialtone 
rules obviates the constitutional difficulties associated with Section 
613(b). Specifically, the Fourth Circuit and Ninth Circuit have held 
that the cable-telco cross-ownership restriction ``burden[s] 
substantially more speech than is necessary'' to promote the 
government's interest in promoting a competitive multi-channel video 
programming market. Waiving Section 613(b), however, constitutes 
implementation of the ``obvious less burdensome alternative'' to the 
ban identified by the [[Page 31926]] Fourth Circuit.\3\ Or, to quote 
the Ninth Circuit, it implements the ``more speech-friendly plan that 
allows telephone companies ``to compete in the video programming 
market'' while ``requiring that a portion of their transport volume be 
set aside for sale to unaffiliated third parties on a common carrier 
basis.'' As a result of our construction of the waiver provision, 
telephone companies' free speech interests are not unduly burdened.

    \3\ We recognize that the Fourth Circuit reserved judgment on 
the constitutionality of our recommended model. C&P, 42 F.3d at 202 
n.34. However, if that recommended approach does not render the 
statute constitutional then, contrary to the court's holding it is 
not `` `Kobvious less-burdensome alternative,' '' because it is no 
alternative at all. Id. at 202.
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    12. The fact that waiver of the cable-telco cross-ownership 
restriction obviates the constitutional difficulties identified by the 
courts of appeals supports our decision to construe our waiver 
authority to permit telephone companies to provide video programming 
over video dialtone systems. As the Supreme Court recently reiterated 
in X-Citement Video, ``a statute is to be construed where fairly 
possible so as to avoid constitutional questions,'' The Court also 
articulated this principle in Jean v. Nelson, 472 U.S. 846 (1985), when 
it found that ``[p]rior to reaching any constitutional questions 
federal courts must consider nonconstitutional grounds for decision.''
    13. Several commenters opposed our reading of the wavier provision. 
Southwestern Bell argued that our proposal constitutes an evisceration 
of the rule. That is not so. It would eviscerate the statute if we were 
to waive Section 613(b) to allow telephone companies to provide video 
programming directly to subscribers in their service areas over video 
dialtone facilities and, as a general matter, to purchase cable systems 
in their telephone service areas that do not face competition. But we 
are not authorizing such waivers in this order. Instead, we conclude 
only that Section 613(b)(4) authorizes us to waive the cable-telco 
cross-ownership rule to permit a telephone company to provide video 
programming over video dialtone systems in its telephone service area 
in competition with existing cable operators, a result that furthers 
the purpose of the rule.\4\

    \4\ We do not decide today whether we could grant a waiver 
authorizing a telephone company to build a traditional cable system 
in its telephone service area in competition with an existing cable 
system. Nor do we address the conditions under which a waiver might 
be warranted to allow a telephone company to purchase an in-region 
cable system.
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    14. Both the United States Telephone Association and US West invoke 
Secretary of State of Maryland v. Munson, 467 U.S. 947 (1984), to argue 
that the statute cannot be saved by its waiver provision. But this case 
is not at all similar to Munson. The Munson case involved a 25% 
limitation on the percentage of funds a charitable organization could 
keep, on the theory that a charity that used less than 75% of the funds 
that it raised on charitable purposes was engaged in fraud. The Court 
invalidated the state statute imposing the limitation upon concluding 
that ``[t]he flaw in the statute is not simply that it includes within 
its sweep some impermissible applications, but that in all its 
applications it operates on the fundamentally mistaken premise that 
high solicitation costs are an accurate measure of fraud.'' Moreover, 
the Court concluded that the statute stifled speech and discriminated 
against certain viewpoints, explaining that ``the statute will restrict 
First Amendment activity that results in high costs but is itself a 
part of the charity's goal or that is simply attributable to the fact 
that the charity's cause proves to be unpopular.'' The Court went on to 
hold that the statute was not saved by a provision allowing for waivers 
of the limitation. The Court stated that ``[b]y placing discretion in 
the hands of an official to grant or deny a license, such a statute 
creates a threat of censorship that by its very existence chills free 
speech.'' ``Particularly where the percentage limitation is so poorly 
suited to accomplishing the State's goal,'' the Court added, ``and 
where there are alternative means to serve the same purpose, there is 
little justification for straining to salvage the statute by invoking 
the possibility of official dispensation to engage in protected 
activity.'' In this case, in contrast, permitting telephone companies 
to provide video programming over a video dailtone system plainly 
advances the goal of making programming for a variety of sources 
available to the public--a goal that furthers rather than hinders First 
Amendment interests. Unlike Munson, speech is not stifled and unpopular 
viewpoints are not disadvantaged. Moreover, no discretion remotely 
comparable to that in Munson would be lodged in any official to grant 
or deny particular waivers under our approach. Rather, as part of any 
decision under 47 U.S.C. Sec. 214 authorizing a telephone company to 
construct facilities, we will routinely grant a waiver of Section 
613(b) where the telephone company agrees to abide by the regulations 
we will establish governing its provision of video programming. 
Accordingly, there is no ``threat of censorship that by its very 
existence chills free speech.''
    15. In light of our duty to interpret Section 613(b) in a fashion 
that renders the statute constitutional, there is no merit at all to 
the suggestion by some commenters that the Commission's interpretation 
of Section 613(b)(4) is barred by res judicata, collateral estoppel, or 
some unnamed principle that allegedly prevents the Commission from 
construing a statute that a court has held unconstitutional. In X-
Citement Video, the Supreme Court read the federal child pornography 
statute in a manner that the Court acknowledged was not its ``most 
natural grammatical reading'' in order to avoid a serious 
constitutional issue after a court of appeals had held the statute 
unconstitutional. In particular, the Court held that the statute 
required the government to prove that the defendant in a child 
pornography case knew that the material on which the prosecution was 
based contained child pornography even though the statute did not 
appear to contain such a scienter requirement. In this case, in 
contrast, the language of the waiver provision is flexible, speaking of 
``good cause'' and ``particular circumstances * * *, taking into 
account the policy of this subsection.'' Unlike the Court in X-Citement 
Video, we do not have to strain to construe the waiver provision so 
that it renders the statute constitutional. Rather, as we have 
explained, we believe that such an interpretation is fully consistent 
with both the language of the waiver provision and the policy 
underlying Section 613(b), and therefore is the best interpretation of 
Section 613(b)(4). For those reasons, and in light of the fact that 
such an interpretation also avoids a serious constitutional issue, we 
now adopt our tentative conclusion that the waiver provision should be 
interpreted to authorize us to consider and approve requests by 
telephone companies to provide video programming over video dialtone 
systems, subject to the rules we have enacted and any further rules we 
will enact to govern video dialtone systems.
    16. Finally, we also conclude that our reading of Section 613(b)(4) 
is not foreclosed by the D.C. Circuit's 1990 decision in NCTA v. FCC, 
914 F.2d 285 (D.C. Cir. 1990). That case did not involve video dialtone 
service and presented no constitutional issue. It instead involved a 
waiver of FCC cross-ownership rules authorizing a cable operator to 
provide cable service over a [[Page 31927]] telephone companies' wires 
even though the cable operator was affiliated with the telephone 
company in violation of the rules by virtue of their joint interest in 
the contractor that was to build the cable system. The court 
acknowledged that the project ``presents a number of advantages that 
might justify a good cause waiver.'' However, it held that the 
Commission had ``failed * * * to explain why any of these advantages 
require [the contractor's] participation as [the telephone companies'] 
contractor.'' In this case, in contrast, in light of the decisions 
holding Section 613(b) unconstitutional, it is necessary to waive 
Section 613(b) to allow affiliates of telephone companies to provide 
video programming in order to render the statute constitutional. The 
Ninth Circuit recognized that a waiver might be warranted in these 
circumstances in GTE California, Inc. v. FCC, 39 F.3d 940 (1994), a 
case that (unlike NCTA v. FCC) involved a constitutional challenge to 
Section 613(b). The Ninth Circuit stated in that case, in response to 
the argument that Section 613(b) is unconstitutional, that ``GTECA did 
not present the constitutional issue to the Commission at a point in 
this proceeding where it could have tried to obviate the constitutional 
question by granting discretionary relief, such as a permanent 
waiver.'' As that statement recognizes, a waiver is warranted to 
implement what the Ninth Circuit in US West termed our ``more speech-
friendly plan'' and hence avoid a serious constitutional issue.
    17. Conclusion. Accordingly, it is ordered that Section 613(b)(4) 
of the Communications Act is interpreted to authorize waivers 
permitting telephone companies to provide video programming directly to 
subscribers in their telephone service area pursuant to the rules we 
will adopt in this docket or related rulemaking proceedings.

List of Subjects in 47 CFR Part 63

    Ownership rules, Telephone.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-14833 Filed 6-16-95; 8:45 am]
BILLING CODE 6712-01-M