Oral Arguments Likely on FCC Franchise Appeal

A U.S. appeals court will likely hear oral arguments on a challenge of the FCC video franchise order because the case raises high-stakes questions on whether U.S. regulators’ authority trumps cities’, said industry lawyers and law professors. It’s uncertain which court will make the call, since municipal groups last week filed appeals with a half- dozen courts (CD April 4 p8). Bells cheered March’s FCC order because it clears some hurdles for them to compete with cable by selling IPTV and fiber TV service in addition to broadband. Cities slammed the rulemaking as exceeding FCC constitutional and statutory authority.

“There [are] likely to be oral arguments” in this “meteor” of a case, a telecom lawyer said. But that lawyer and others warned against handicapping the outcome until the several cases are consolidated. “The practices really vary by circuit,” the lawyer said: “Until we sort of see where the case lands, it’s really hard to predict.” A lawyer for local franchising authorities (LFAs) had similar observations. “Whichever court that ends up receiving it is going to give it a lot of substantial thought and effort,” Nicholas Miller said: “It’s highly likely this will get oral argument… This is a very big case, and this is not a very hard case for the circuit courts to understand.”

Both sides agree the rulemaking is ripe for oral argument, but are divided on whether the order will be voided. Municipal officials predict victory, saying local rights are being infringed. Telecom officials doubt cities will prevail. AT&T and Verizon have told the FCC ample regulatory and legal precedent undergirds the franchise order, which relied on section 621 of the Act. “The Commission’s exercise of jurisdiction specifically to enforce or interpret Section 621 also has been upheld on numerous occasions,” said a Verizon filing with the Commission in Dec. It cited cases including AT&T v. Ia. Utilities Board, a 1999 Supreme Court decision in the FCC’s favor, and Chicago v. FCC. In Chicago, 7th U.S. Appeals Court, Chicago, ruled in 1999 that Congress authorized the FCC under the Act to administer rules similar to those in the franchise case.

AT&T also cited Ia. Utilities Board to support its claim that the FCC has authority to intervene when it finds local franchising processes anticompetitive. “That case, like this one, involved a federal statue that granted state authorities jurisdiction to make certain determinations affecting the offering of competitive services,” AT&T told the Commission last year: “The Supreme Court flatly dismissed the claim that the Commission lacked rulemaking authority over the Act’s local competition provisions.”

Cities and counties dispute Bells and the FCC. Issues likely to draw appellate judges’ attention include whether the FCC violated the 5th and 10th Amendments by usurping local authority over video franchising or overstepped authority it got from Congress in the Telecom Act, said municipal officials and their lawyers. “A strict reading of federal law by the courts will lead to this [order’s] being overturned,” Anthony Riddle, Alliance for Community Media exec. dir., said: “In the meantime, we believe it will cause market imbalances that will in turn distort the political process.” The order hurts public access channels - among Alliance members - because it caps fees cities can collect to fund the programmers, said Riddle. That may mean less money to fund such networks, he said, citing actions by Time Warner Cable (TW) in San Antonio after passage of a Tex. statewide franchise law. The company canceled “use of their studio by the public access center with scarcely a month’s notice,” Riddle said: “This is a real world example of unintended consequences we can anticipate until the ruling is overturned.” TW turned over control of San Antonio PEG channels to the city, as dictated by state franchise law, said a company spokesman. The handover meant San Antonio needed a studio of its own, after using TW facilities before the franchise law passed, he said: “The funding is there -- over $2 million [annually] -- and also the channels are there… Because the responsibility of access now falls on the city, that responsibility now belongs to the city.”

Such concerns prompted Riddle’s group to sue the FCC, joining the National Assn. of Counties, National Assn. of Telecom Officers & Advisors and other municipal groups. Representatives didn’t return messages or declined to comment. A spokesman said the NCTA hasn’t decided whether to join in. A telecom official predicted NCTA will sit out the legal challenge because cable hopes to benefit from a streamlined franchising process through a coming FCC order defining whether existing operators can opt out of existing franchises. The FCC likely will decide cable operators can opt out, said the telecom official.

Cities stand a good chance of prevailing in court because the FCC may have violated the 5th Amendment, its franchise order essentially taking away local control of telecom rights of way, said LFA lawyer Miller. A good case can be made that the Commission violated the 10th Amendment by exercising authority over local decisions, he added: “Franchising is about the award of a special privilege to use government property… The courts think they interpret the Constitution, not regulators, so a court is likely to say this is more than the normal regulatory decision that [typically] comes to our attention.” Cities’ best bet for winning may be allegations that the FCC overstepped its authority and the franchise order violates the 10th Amendment, Philip Weiser, U. of Colo. Law School prof., said: “This is certainly a non-frivolous challenge to it, and there’s certainly some chance the court will reject it on statutory or Constitutional grounds.”

Cities face an uphill fight, other legal scholars said. Courts generally have given federal regulators wide latitude over municipalities, a law professor said: “I would bet that they will probably lose on their claims, but they raise some legitimate issues.” A constitutional law professor agreed. “There doesn’t seem to be much dispute about the existence of federal authority in an area like this,” Yeshiva U. Prof Stewart Sterk said: “I don’t really see any constitutional questions that would arise… You'd have to argue somehow that cable franchises are not interstate commerce, and that argument is a dead loser these days.” No matter what the ruling, it won’t come soon, Miller and other lawyers said. Oral arguments may not be heard for months, with the case unlikely to be decided before winter, he said. - Jonathan Make