Comments about this article should be sent to mttlr@umich.edu.
{2} This article is a survey of the law regarding the federal government's ability to regulate a telephone company's provision of video programming to subscribers in its service area. Part I of the article is a history of the telco-cable cross-ownership ban. Part II is an analysis of the cases striking down the ban, exploring the rationale of these cases on a consolidated basis. Part III is a summary of the applicable standards by which to evaluate future attempts by Congress or the FCC to regulate telephone companies' provision of video programming.
{4} In 1970, the FCC decided that telephone companies and their affiliates would be prohibited from providing CATV service within their telephone service areas.[8] The FCC further decided that any telephone company seeking section 214 authorization to provide service to a CATV company would be required to show that the CATV company was unaffiliated before section 214 authorization would be granted.[9]
{5} In its decision, the FCC found that pole and conduit access was essential to the provision of CATV, and that the telephone companies controlled the poles and conduits.[10] Because of this control, the FCC determined that telephone companies had the ability to "preempt the market" for CATV through discriminatory access.[11] Furthermore, according to the FCC, the telephone companies had the incentive to extend their regulated telephone monopoly into the area of CATV service.[12]
{6} Thus, the FCC banned telephone companies from providing CATV service, fearing that they would exclude competitors from the CATV market by engaging in discriminatory provision of pole and conduit access. The FCC stated that the ban would preserve "a competitive environment for the development and use of broadband cable facilities and services" and avoid the "concentration of control over communications media."[13]
{7} In 1978, Congress passed the Pole Attachment Act[14] which gave the FCC jurisdiction over the "rates, terms, and conditions for pole attachments."[15] The Pole Attachment Act and implementing regulations[16] addressed independent CATV operators' fears of discriminatory access to telephone poles. Further, the cable market had become much stronger since the initiation of the ban. Thus, three years after the Pole Attachment Act was enacted, the FCC staff issued a report[17] which noted that the fear of pole and conduit attachment discrimination did not, "by itself," justify the cross-ownership ban.[18]
{8} Nonetheless, the staff recommended that the ban remain in force, with a new justification: the problem of cross-subsidization.[19] The 1981 Staff Report found that a telephone company could hide cable costs in its telephone rate base.[20] The fear was that by including cable costs in its telephone rate base, the telephone company could provide cable service at a lower cost than independent cable operators. Because the telephone company could create this artificial cost advantage over independent cable operators, it would have the ability to price its cable service so low that the independent cable operators could not compete, possibly leaving the telephone company with a second monopoly.
{10} The legislative history of the statutory ban is limited. The House Committee Report states that the intent of section 533(b) was simply "to codify current FCC rules."[24]
{12} In the First Video Dialtone Order, the FCC found that the growth of the cable industry since 1970 mitigated the danger that the telephone company[28] could exclude independent cable television operators from the cable market.[29] The FCC found that with appropriate safeguards, there would be little risk of anticompetitive conduct.[30]
{13} Among other safeguards, the FCC suggested that telephone companies should be required to provide video programming through a separate subsidiary if the FCC determines that this is necessary after a balancing of the costs and benefits to the public interest.[31] Additionally, the FCC proposed that telephone companies be allowed to provide video programming only through their basic video dialtone platform, which would provide service to multiple programmers.[32] The FCC further proposed limiting a telephone company's provision of video programming to a certain percentage of common carrier capacity.[33] These safeguards would be in addition to the requirement, which also currently exists for the provision of channel service, that the telephone company provide the service on a common carrier basis.[34] Furthermore, the FCC found that the telephone company's entry into the cable market, subject to these safeguards, would bring public interest benefits by initiating competition in markets that had, themselves, become increasingly concentrated.[35]
{14} Other executive agencies reached the same conclusion. In response to the notice of proposed rulemaking leading up to the First Video Dialtone Order, the Department of Justice ("DOJ") submitted comments advocating that the FCC recommend repeal of section 533(b).[36] The DOJ argued that the potential procompetitive benefits of telephone companies' competition with cable companies would outweigh potential anticompetitive risks.[37] The DOJ suggested that the efficiencies gained by allowing telephone companies to vertically integrate would make it more likely that such competition would develop.[38] The comments of the National Telecommunications and Information Administration ("NTIA") also supported the removal of the ban.[39] The NTIA has argued for removal of the restriction in other reports as well, finding that the dangers of allowing telephone companies to provide video programming were either exaggerated or subject to minimization by the safeguards proposed by the FCC,[40] and that competition would be encouraged by the removal of the ban.[41]
{19} Rational-basis review requires only that a court find that the regulation in question "is rationally related to a legitimate government objective" before sustaining the regulation's constitutionality.[56]
{20} Rational-basis review is often applicable in cases where a law of general operation works, in a specific case, to burden a speaker's First Amendment rights. Fundamentally, this means that "the press is not immune . . . from regulations of general applicability."[57] In the antitrust context, Associated Press v. United States[58] provides an example of such an application. The Associated Press Court held that the Sherman Antitrust Act[59] could be enforced against a news distribution organization comprised of newspaper publishers, despite the organization's arguments that the enforcement of the Sherman Act would abridge the organization's First Amendment rights.[60]
{21} The Turner Court held, however, that rational-basis review is not the proper standard when the regulation at issue is a law directed specifically at members of the press, rather than at the population or industry as a whole.[61] Likewise, all of the courts reviewing the telco-cable cross-ownership ban have rejected the notion that because section 533(b)'s purpose was, at least in part, to promote competition in the cable television market, the statute would only be subject to rational-basis review.[62] As in Turner, "some measure of heightened First Amendment scrutiny [was] demanded"[63] because the telco-cable cross-ownership ban applies solely to the press and not to all industries generally.
{23} Strict scrutiny is applicable in cases involving content-based regulation of speech.[66] The difficult issue is whether or not a ban on telephone companies' speech (in the form of video programming provided over transmission facilities owned by the telephone company in its own service area) is content-based.
{24} The telco-cable cross-ownership ban is not content-based on its face.[67] Section 533(b) makes no mention of what messages are being provided except to say that they are in the form of video programming.[68] And while the ban certainly differentiates among speakers, there is no indication that the ban distinguishes speakers based on the "[g]overnment's preference for the substance of what the favored speakers have to say (or aversion to what the disfavored speakers have to say)," as required by Turner to classify a speaker-partial law as content-based.[69]
{25} On the facts of Turner, it could be argued that the Court was mistaken in finding that the must-carry rules were not content-based. The Turner court found it unproblematic that Congress preferred broadcasters to cable programmers, even though the broadcast programmers are subject to greater government intrusion on the content of their speech than the cable programmers burdened by the must-carry rules.[70] The Court also dismissed the arguments of the cable operators, and of Justice O'Connor's partial dissent[71] and Justice Ginsburg's partial dissent,[72] that the many statements in the legislative history of the 1992 Cable Act indicate that Congress saw locally-oriented programming as beneficial and deserving of protection.[73]
{26} These issues, however, are not present with respect to the telco-cable cross-ownership ban. Cable companies are, in general, subject to no greater government regulation of content than telephone companies, and no suggestion has been seriously made that programming provided by cable operators would be any different, not to mention more attractive to the government, than that provided by telephone companies.
{27} Strict scrutiny is also triggered when there is evidence that the government had an "improper censorial motive" in enacting the regulation.[74] None of the reviewing courts found such a motive in Congress' or the FCC's enactment of the telco-cable cross-ownership ban.[75] The courts found no evidence to suggest that Congress was motivated by a desire to suppress the message that telephone companies might provide, rather than by a desire to achieve economic goals not related to the content of the speech.
{28} Thus, the telco-cable cross-ownership ban is not subject to strict scrutiny analysis.
{30} Under the intermediate scrutiny test, a content-neutral regulation which burdens speech must be "narrowly tailored to serve a significant government interest, and . . . leave open ample alternative channels for communication of the information."[79] As the Turner court expressed,
a content-neutral regulation will be sustained if "it furthers an important or substantial governmental interest; if the governmental interest is unrelated to the suppression of free expression; and if the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest."[80]{31} The Court has recognized that these two tests are essentially the same.[81] Application of intermediate scrutiny to the telco-cable cross-ownership ban requires the courts to answer 1) whether the ban serves a significant, important or substantial government interest, and 2) whether the ban is narrowly tailored, or no greater than necessary, to further the purported interest. The next section describes the courts' responses to these issues.
{35} The Ameritech court also considered the possibility that a telephone company's ability to provide video programming might increase the incentives of the telco to cross-subsidize, but found that the statements in favor of repeal by the FCC and the DOJ undercut the government's positions.[96] Not surprisingly, it proved difficult for the FCC and DOJ to argue for the ban on the grounds that it promoted competition after having previously argued against the ban on the grounds that it harmed competition.
{39} The FCC has initiated proceedings seeking comment on, inter alia, how it should alter its video dialtone regulations to reflect the entry of telephone companies into the video programming market.[107] In the Fourth Further NPRM, the FCC proposes a number of "safeguards," many of which burden the provision of video programming by telephone companies.[108]
{40} For example, the FCC seeks comment on whether it should allow telephone companies to provide video programming only over video dialtone platforms.[109] This requirement would prevent a telephone company from operating a traditional-style cable system in its service area, as well as prohibit it from acquiring the existing facilities of a cable company operating within the telephone company's service area.
{41} This sort of prohibition would burden a telephone company's ability to provide video programming in the manner it finds most advantageous, without banning the provision of video programming outright. Because it infringes to some degree on the telephone companies' First Amendment interests, any regulation along these lines will be subject to some amount of review.
{42} Since this regulation is not applicable to the industry generally (quite obviously, since a cable company can operate a traditional cable system), the regulation would be subject to heightened scrutiny. Such a regulation would also be no more content-based than the cross-ownership ban, and therefore would not be subject to strict scrutiny. Thus, a regulation prohibiting telephone companies from providing video programming via a traditional cable system, like most of the other possible regulations suggested in the Fourth Further NPRM, would be subject to the same intermediate-level scrutiny as the telco-cable cross-ownership ban itself.
{43} The results, however, could be quite different, and will certainly depend on the particular regulations actually implemented by the FCC. In addition to the proposal mentioned above, the FCC has also discussed a wide variety of other "safeguards."[110] These safeguards include limiting telephone companies to a certain percentage of their common carrier platform's capacity, regulations regarding non-discriminatory access to technical network information and customer proprietary network information ("CPNI"),[111] structural separation,[112] and others.
{44} The cases striking down the ban left the possibility for less restrictive regulation wide open, and did not comment on whether or not any of the less restrictive regulations would be constitutional. The mere mention of a less restrictive alternative, however, hardly amounts to a judicial determination that the alternative is constitutional. Indeed, the court of appeals in Chesapeake & Potomoc specifically pointed out that it was not passing on the constitutionality of anything except the ban.[113]
{45} Nonetheless, the cases striking down the cross-ownership ban do illustrate the most likely framework for how regulations emerging from the Fourth Further NPRM will be evaluated by the courts: are the regulations narrowly tailored to serve a substantial government interest? A ban on acquisitions to advance the FCC's two-wire policy will be evaluated on 1) whether the two-wire policy is a substantial governmental interest,[114] 2) whether the ban on acquisitions actually serves the purported interest, and 3) whether the ban on acquisitions is narrowly tailored.
{46} The regulations proposed by the Fourth Further NPRM will probably be justified by reference to the same governmental interests which supported the ban. Whether or not the restrictions serve the ban, and whether or not they are narrowly drawn will prove difficult questions which will not be resolved without reference to the provisions and effects of the regulations actually promulgated. An inquiry will necessitate a fact-specific analysis of the regulations in order to determine how narrowly drawn they are and whether they actually serve one or more of the purported government interests. It is likely, however, that the more burdensome any particular restriction is on a telephone company's provision of video programming, the more difficult it will be for the government to show that it is narrowly drawn.
{47} Limiting a telephone company's provision of video programming to a specified percentage of common carrier capacity would probably be more suspect than a requirement of structural separation. The percentage limit prohibits a telephone company from engaging in a particular type of speech at a certain point. Structural separation, on the other hand, while perhaps placing some burden on speech by increasing the costs of providing video programming by limiting economies of scope, does not, at any point, prohibit programming. Structural separation is more narrowly drawn because it focuses on the telephone company's corporate structure instead of its speech.
{48} Requiring non-discriminatory access and confidential treatment of CPNI in video dialtone platforms presents a different issue. If the telephone company elects common carrier treatment of its provision of video dialtone, there is little chance that the non-discriminatory access and confidential treatment of CPNI will be considered overly burdensome. If the telephone company does not wish to operate under these typical common carrier obligations, allowing it to operate as a traditional cable system would allow it to avoid them. However, if the telephone company is required to provide video programming under the common carrier model, the requirement of nondiscriminatory access may prove too great a restriction, as such a requirement would prohibit any editorial discretion which might be exercised by the telephone company.[115]
{49} In addition to providing a framework for future regulation of video programming provided by a telephone company, the cases striking down the cross-ownership ban help to drive home the federal courts' shift away from medium-based First Amendment standards. Although broadcast remains subject to more intrusive regulation,[116] cable, print, video dialtone, and most other communications media are being evaluated under the same standards. Application of these standards may vary somewhat due to the factual situations (such as market conditions and technical properties), but these variations only matter insofar as they relate to the government's goals or the feasibility of more or less narrow regulation.
{50} These cases indicate that courts may be moving towards an acceptance of the idea that technological advances should not, at least on their own, bring about new and discrete areas of First Amendment jurisprudence.