Case Information
*1 LYNCH, Circuit Judge,
and SARIS, [**] District Judge.
David C. Kravitz, Deputy State Solicitor, with whom Maura Healy, Attorney General, was on brief, for Petitioner. James M. Carr, Counsel, with whom Makan Delrahim, Assistant Attorney General, Michael F. Murray, Deputy Assistant Attorney General, Robert B. Nicholson, Attorney, Steven J. Mintz, Attorney, the United States Department of Justice, Ashley S. Boizelle, Acting General Counsel, Richard K. Welch, Deputy Associate General Counsel, Adam G. Crews, Counsel, and the Federal *2 Communications Commission were on brief, for Respondent.
Howard J. Symons, with whom Jessica Ring Amunson and Jonathan A. Langlinais were on brief, for Intervenor.
Rick C. Chessen, Neal M. Goldberg, Mary Beth Murphy, and Radhika Bhat on brief for NCTA – The Internet & Television Association, amicus curiae.
December 18, 2020
*3
SARIS, District Judge. The Massachusetts Department of Telecommunications and Cable ("MDTC") petitions for review of an adverse FCC order dated October 25, 2019. The MDTC challenges the FCC's determination that the cable system operated by Charter Communications, Inc. ("Charter") in Massachusetts is subject to "effective competition" in its franchise areas under the statutory "Local Exchange Carrier" ("LEC") Test, Telecommunications Act of 1996, § 301(b)(3)(C), 47 U.S.C. § 543(l)(1)(D) (2018). Congress prohibits cable rate regulation when the FCC makes this finding. 47 U.S.C. § 543(a). Charter has intervened in opposition to the MDTC's petition. The Internet & Television Association has submitted a brief as amicus curiae supporting the respondent- intervenor and affirmance. We conclude that the petition for review should be denied.
I. BACKGROUND
A. Statutes and Regulations
Congress created a framework for regulating cable television in the Cable Communications Policy Act of 1984 ("1984 Cable Act") by adding Title VI to the Communications Act of 1934. Pub. L. No. 98-549, 98 Stat. 2779 (codified as amended at 47 U.S.C. § 543 (2018)). As originally enacted, 47 U.S.C. § 543 directed the FCC to "prescribe and make effective regulations which authorize a franchising authority to regulate rates for the provision of basic cable service in circumstances in which a cable *4 system is not subject to effective competition." Id. § 2 (codified as amended at 47 U.S.C. § 543(b)(1)). Congress left the definition of "effective competition" to the FCC's regulations. Id. (codified as amended at 47 U.S.C. § 543(b)(2)(A)). Under the FCC's 1985 regulations, "cable systems in approximately 96 percent of all communities were not rate regulated." H.R. Rep. No. 102- 628, at 31 (1992). From 1986 to 1992, "average monthly cable rate[s] . . . increased almost 3 times as much as the Consumer Price Index." Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460, § 2(a)(1) ("1992 Cable Act").
In response, Congress enacted the 1992 Cable Act. While Congress "strongly prefer[red] competition and the development of a competitive marketplace to [rate] regulation," H.R. Rep. No. 102-628, at 30 (1992), it acknowledged that there was "no certainty" that "competition to cable operators with market power [would] appear any time soon." S. Rep. No. 102-92, at 18 (1991). The amended 47 U.S.C. § 543 included a paragraph entitled "PREFERENCE FOR COMPETITION" stating: "If the Commission finds that a cable system is subject to effective competition, the rates for the provision of cable service by such system shall not be subject to regulation by the Commission or by a State or franchising authority under this section." Pub. L. No. 102-385, 106 Stat. 1460, § 3(a) (codified as amended at 47 U.S.C. *5 § 543(a)(2)). Under the statute, effective competition exists where one of three tests is met: 1) the Low Penetration Test, (2) the Competing Provider Test, and (3) the Municipal Provider Test. Id. (codified as amended at 47 U.S.C. § 543(l)(1)). The FCC's 1993 regulations adopted a rebuttable presumption that cable operators were "not subject to effective competition." Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, 8 FCC Rcd 5631, 5670 ¶ 43 (1993). A cable operator had the burden to rebut the presumption "with evidence of effective competition" in its franchise area. Id. at ¶ 42.
Congress "expanded[ed] the effective competition test for deregulating" cable rates under 47 U.S.C. § 543 in the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 ("1996 Act"). S. Rep. No. 104-230, at 170 (1996) (Conf. Rep.); see 47 U.S.C. § 521(6) (enumerating as one of the purposes to "promote competition in cable communications and minimize unnecessary regulation that would impose an undue economic burden on cable systems"). As the Supreme Court stated, "its primary purpose was to reduce regulation and encourage the rapid deployment of new telecommunications technologies." See Reno v. ACLU, 521 U.S. 844, 857 (1997) (pointing out that the statute was designed to promote, among other things, competition in the multi-channel video market). The 1996 Act added a fourth effective competition *6 test focusing on competition from providers of local telephone service. Called the Local Exchange Carrier Test, it provides that effective competition exists when
a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area.
47 U.S.C. § 543(l)(1)(D). The LEC Test is the effective competition test at issue in this case.
The FCC's regulations provide that a competing video programming service will be "deemed offered" under the LEC Test if (1) the distributor is "physically able to deliver service to potential subscribers, with the addition of no or only minimal additional investment by the distributor, in order for an individual subscriber to receive service," and (2) "no regulatory, technical or other impediments to households taking service exist, and potential subscribers are reasonably aware that they may purchase" the competing service. 47 C.F.R. § 76.905(e)(1)-(2) (2020). The regulations define "comparable" service as offering "at least 12 channels of video programming, including at least one *7 channel of nonbroadcast service programming." Id. § 76.905(g). [1] A cable operator can "file a petition for a determination of effective competition with the [FCC]." 47 C.F.R. § 76.907(a). With respect to franchise areas where cable rate regulation is contested, the cable operator "bears the burden of demonstrating the presence of such effective competition." Id. § 76.907(b). B. The FCC Order
On September 14, 2018, Charter, a cable operator, filed a petition with the FCC seeking a determination that it faces effective competition in its franchise areas in Massachusetts and Kauai, Hawaii. See id. § 76.907(a). Charter's petition alleged *8 that the availability of DIRECTV NOW [2] in those franchise areas constitutes effective competition under the LEC Test. DIRECTV NOW is a video programming service that provides live television and on-demand programs via a broadband internet connection. DIRECTV NOW is offered by DIRECTV, which is an affiliate of AT&T.
Charter argued that DIRECTV NOW satisfies the LEC Test because (1) DIRECTV is a subsidiary of AT&T and therefore affiliated with LECs owned by AT&T; (2) DIRECTV is physically able to deliver DIRECTV NOW "to any current Charter-serviced household that wishes to subscribe" given that broadband internet service is "available to virtually 100 percent of Charter's customers in the Franchise Areas," and customers are reasonably aware of its availability; and (3) DIRECTV NOW is comparable to Charter's cable service because DIRECTV NOW "offers subscribers a minimum of 65 channels."
The Massachusetts Department of Telecommunication and
Cable and the State of Hawaii filed oppositions to Charter's
petition. Charter filed a reply to those oppositions. During
meetings with FCC staff, Charter confirmed that if its petition
were granted, it would raise the monthly rate for its basic cable
service to $23.89. Then current regulated monthly rates ranged
from $12.49 to $23.99. In contrast, the lowest price of a DIRECTV
*9
NOW package was $40 per month. The FCC granted Charter's petition
on October 25, 2019 and issued a Memorandum Opinion and Order
concluding that Charter had proven effective competition under the
LEC Test in Kauai, Hawaii and the thirty-two franchise areas in
Massachusetts.
[3]
Petition for Determination of Effective
Competition in 32 Massachusetts Communities and Kauai, HI
(HI0011),
First, the FCC found that DIRECTV NOW is provided by a "LEC affiliate" due to AT&T's common ownership of DIRECTV NOW and LECs. Id. at 10232. MDTC does not dispute this finding.
Second, the FCC found that DIRECTV NOW is "offered" in the franchise areas because "DIRECTV is 'physically able' to deliver DIRECTV NOW to subscribers via existing broadband facilities in the Franchise Areas" and "no regulatory, technical or other impediments to households taking" DIRECTV NOW exist in the franchise areas. Id. at 10233–34; see 47 C.F.R. § 76.905(e)(1)-(2). The FCC found that the cost of broadband service is not an impediment to households subscribing to DIRECTV NOW.
The FCC found that DIRECTV NOW is offered "directly to subscribers" because DIRECTV has "an unmediated relationship" with *10 subscribers through direct marketing, subscription, billing, and payment. Petition for Determination of Effective Competition in 32 Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd at 10237. In the FCC's view, there is no facilities-based restriction on how a LEC affiliate delivers service given the provision that a LEC or its affiliate can provide effective competition by offering video programming service "by any means," the term used in the statute. Id. at 10241.
Third, the FCC found that DIRECTV NOW is "comparable" to Charter's cable service because DIRECTV NOW "provides packages starting with access to 45 channels" including "both local broadcast channels and nonbroadcast channels." Id. at 10238 ; see 47 C.F.R. § 76.905(g) (regulation defines comparable as offering at least twelve channels with one nonbroadcast channel). The FCC determined that the term "channels" in the FCC regulation "can refer to 'programming sources'" based on its "colloquial meaning." Petition for Determination of Effective Competition in 32 Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd at 10243.
II. STANDARD OF REVIEW
Under the Administrative Procedure Act ("APA"), a court
"may only overturn" an agency decision if the court finds the
decision "was 'arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.'" City of Taunton v. EPA,
*11
895 F.3d 120, 126 (1st Cir. 2018) (quoting 5 U.S.C. § 706(2)(A)
(2018)). "'[T]he APA standard affords great deference to agency
decision making' and 'the [agency's] action is presumed valid.'"
Int'l Jr. Coll. of Bus. & Tech. v. Duncan,
When an issue "turns on questions implicating an
agency's construction of the statute which it administers," we
"apply the principles of deference described in Chevron, USA, Inc.
v. Natural Resources Defense Council, Inc.,
The Supreme Court has long followed a deferential
standard in reviewing an agency's interpretation of its own
regulation. See Bowles v. Seminole Rock & Sand Co.,
[A] court must apply all traditional methods of interpretation to any rule, and must enforce the plain meaning those methods uncover. There can be no thought of deference unless, after performing that thoroughgoing review, the regulation remains genuinely susceptible to multiple reasonable meanings and the agency's interpretation lines up with one of them. And even if that is the case, courts must on their own determine whether the nature or context of the agency’s construction reverses the usual presumption of deference. Most notably, a court must consider whether the interpretation is authoritative, expertise-based, considered, and fair to regulated parties.
Kisor v. Wilkie,
III. ANALYSIS
A. Offer Video Programming Directly to Subscribers The MDTC argues that the FCC erred because DIRECTV NOW does not "offer" video programming services " directly to subscribers" as the LEC Test required, and that is because the FCC's own regulations provide that the word "offer" encompasses the delivery of video. See 47 C.F.R. § 76.905(e)(1). Because *13 DIRECTV NOW is delivered via broadband internet service provided by a third party, the MDTC contends that DIRECTV NOW is providing services indirectly and cannot satisfy this requirement. Specifically, the MDTC argues a LEC affiliate must use its own facilities in the franchise area to offer a competing service to satisfy the LEC Test. DIRECTV NOW's reliance on third-party delivery matters, the MDTC explains, because the requirement of direct delivery reflects the "purpose of the LEC Test: to recognize the competitive threat from local telephone companies, which are already hardwired into most households."
In its Order, the FCC concluded that DIRECTV NOW met the
statutory requirement that the competing video programming service
must be offered in the franchise area. Petition for Determination
of Effective Competition in 32 Massachusetts Communities and
Kauai, HI (HI0011),
The FCC rejected the argument that a LEC affiliate must
directly deliver its service using its own facilities to satisfy
the LEC Test. Id. at 10233, 10241. The FCC pointed out that the
word "facilities" appears in the statutory provision inside a
parenthetical that refers to "any multichannel video programming
distributor using the facilities" of a LEC or its affiliate --
that is, those distributors that are not themselves LECs or LEC
affiliates. Id. at 10239 n.65; see 47 U.S.C § 543(l)(1)(D). In
contrast, the FCC emphasized that the provision broadly provides
that a LEC or LEC affiliate may offer "services directly to
subscribers by any means (other than direct-to-home satellite
services)." Petition for Determination of Effective Competition
in 32 Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd
at 10241; see 47 U.S.C § 543(l)(1)(D) (emphasis added)
;
see
generally SAS Inst., Inc. v. Iancu,
The parties also debate the meaning of the word
"directly." While acknowledging that "directly" is not defined
in the statute, the FCC concluded in its Order that the "best
reading" of the requirement that a LEC or LEC affiliate offer video
programming service "directly to the subscribers" is that the LEC
affiliate "must have (or offer to have) a direct customer
relationship with consumers in the franchise area." Petition for
Determination of Effective Competition in 32 Massachusetts
Communities and Kauai, HI (HI0011),
The MDTC interprets "directly" as modifying the regulatory definition of "offer," requiring the physical delivery of services by the LEC or its affiliate without a third party broadband provider. The MDTC argues that the FCC's statutory interpretation of "directly to subscribers" should not be given deference because the FCC applied it to a definition of "offer" that is different from the definition in its regulation. However, the FCC's focus here is on the words "directly to subscribers." *17 Petition for Determination of Effective Competition in 32 Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd at 10236. The plain meaning of those words supports the FCC's interpretation of the statute. See American Heritage Dictionary
257 (3rd. ed. 1992) (defining "directly" as "in a direct line or
manner" or "without anyone or anything intervening"). Further,
as the MDTC concedes, Congress uses the "by any means" adverbial
phrase to refer to various means by which video can be delivered
to subscribers. Even if the MDTC's interpretation of the term
"directly to subscribers" were "reasonable" under Chevron Step
Two, the Court must defer to the FCC's reasonable construction.
See Chevron,
B. Cost as Impediment
The MDTC argues that the FCC acted arbitrarily and capriciously by failing to consider "the affordability of internet service" in addition to the cost of the DIRECTV NOW service as an impediment to customers relying on basic cable service. Without regulation by Massachusetts, the MDTC emphasizes, Charter's basic cable rates are likely to double for some consumers. The MDTC emphasizes that subscribers to basic cable are often the poorest segment of the population and vulnerable to losing cable access due to a price increase. The problem is exacerbated because DIRECTV NOW requires subscribers to have a broadband internet subscription, which costs significantly more than basic cable. *18 The MDTC contends that roughly twenty percent of households in the franchise areas do not have broadband internet service. For this reason, the MDTC argues that cost is an impediment for the poorest subscribers to basic cable.
In its Order, the FCC concluded that DIRECTV met the second part of the "offer" rule –- that "no regulatory, technical or other impediments to households taking service exist" because no regulatory or technical barriers "prevent or inhibit consumers from subscribing." Petition for Determination of Effective Competition in 32 Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd at 10234. Specifically, it found that the cost of broadband internet service was not an impediment to households taking DIRECTV NOW in the franchise areas. While it recognized that "some consumers may not want or be able to" pay for broadband, the FCC noted that the record showed that the vast majority of households in Massachusetts and Hawaii already have broadband. Id. at 10235.
Further, the FCC concluded that a consumer's
expenditures on "additions" such as a broadband internet
connection to receive programming are not an impediment to service.
Id. at 10235–36. Rather, it found that the LEC Test can be met
"in circumstances that require reasonable customer–provided
additions . . . to receive programming." Id. It relied on an
earlier ruling that "requiring customers to purchase a satellite
*19
dish to receive satellite service" was not "an impediment to
finding that the competing service was offered in the franchise
areas." Id. at 10235; see Implementation of Section of the Cable
Television Consumer Protection and Competition Act of 1992: Rate
Regulation,
Based on this precedent, and widespread internet
availability, the FCC reasonably concluded that a household's need
to purchase broadband internet service to access DIRECTV NOW is
not an "impediment[]" within the meaning of its regulation.
Petition for Determination of Effective Competition in 32
Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd at
10234–35. Importantly, the FCC did not take the position that the
cost of a customer-provided addition could never be an impediment
within the meaning of its regulation. Id. Rather, it reasonably
found that the widespread use of broadband undermines the argument that the customer-provided investment to gain broadband access was
an "impediment[]" within the meaning of the regulation. Id. Thus
the FCC did not act arbitrarily and capriciously in determining
*20
that no "impediment[]" exists. See Motor Vehicle Mfrs. Ass'n of
U.S.,
C. "Channels"
The parties duel over the meaning of the word "channels."
The MDTC argues that the FCC's finding is arbitrary because DIRECTV
NOW does not provide "channels" as that term is defined in one
provision of the 1984 Cable Act, which is stated in terms of an
electromagnetic frequency spectrum. See 47 U.S.C. § 522(4)
("[T]he term 'cable channel' or 'channel' means a portion of the
electromagnetic frequency spectrum which is used in a cable system
and which is capable of delivering a television channel."). It
relies on American Civil Liberties Union v. FCC, which held that
the FCC did not have discretion "to adopt, as part of its
regulations implementing the Cable Act, a definition of a
particular term that is at odds with a definition of that very
term contained in the Act itself."
The LEC Test provides that the video programming
services offered by the LEC or its affiliate must be "comparable
to the video programming services provided by the unaffiliated
cable operator in that [franchise] area." 47 U.S.C.
§ 543(l)(1)(D). As can be seen, the statutory test does not use
the term "channels." Id. The FCC regulation defines "comparable"
video programming as "at least 12 channels of video programming,
*21
including at least one channel of nonbroadcast service
programming." 47 C.F.R. § 76.905(g). In its Order, the FCC found
that DIRECTV NOW offered comparable programming to Charter because
it provided packages with access to forty-five channels including
both broadcast channels and nonbroadcast channels. Petition for
Determination of Effective Competition in 32 Massachusetts
Communities and Kauai, HI (HI0011),
Congress left the definition of "comparable" under the LEC Test to
the FCC's regulations. See 47 U.S.C. § 543(b)(2). In its order,
the FCC interpreted the term "channels" in its regulations using
the term's "colloquial meaning." Petition for Determination of
Effective Competition in 32 Massachusetts Communities and Kauai,
HI (HI0011),
IV. CONCLUSION
The Court DENIES the petition. Each party is to bear its own costs.
Notes
[*] While this case was submitted to a panel that included Judge Torruella, he did not participate in the issuance of the panel's opinion. The remaining two panelists therefore issued the opinion pursuant to 28 U.S.C. § 46(d).
[**] Of the District of Massachusetts, sitting by designation.
[1] In 2015, the FCC amended its regulations to adopt a rebuttable presumption that effective competition exists in each franchise area under the Competing Provider Test. Amendment of the Commission's Rules Concerning Effective Competition, 30 FCC Rcd 6574, 6577-82 ¶¶ 6-10 (2015); see Nat'l Ass'n of Telecomms. Officers & Advisors v. FCC, 862 F.3d 18, 29 (D.C. Cir. 2017) (rejecting petition challenging the amendment). The Competing Provider Test is satisfied where "at least two unaffiliated multichannel video programming distributors each . . . offer[] comparable video programming to at least 50 percent of the households in the franchise area" and more than fifteen percent of households in the franchise area subscribe "to programming services offered by multichannel video programming distributors other than the largest multichannel video programming distributor." 47 U.S.C. § 543(l)(1)(B). That test is not at issue in this case. The FCC did not adopt a presumption that the other statutory tests for effective competition were satisfied. Id. at 6582 ¶ 10. Only Kauai, Hawaii and thirty-two franchise areas in Massachusetts rebutted the Competing Provider presumption. Petition for Determination of Effective Competition in 32 Massachusetts Communities and Kauai, HI (HI0011), 34 FCC Rcd at 10230. Cable rate regulation thus continued only in those franchise areas.
[2] According to Charter, DIRECTV NOW was recently rebranded as AT&T TV NOW.
[3] This appeal involves only the Massachusetts communities.
[4] In its brief, citing Brand X, the FCC suggests that terms like "offer" are ambiguous because they admit of "two or more reasonable usages." See Brand X, 545 U.S. at 989. Given that ambiguity, the FCC argues that its reading of the term "offer" in Section 543(l)(1)(D) is entitled to deference. See Chevron, 467 U.S. at 843. Charter disagrees and argues that the term "offer" is not ambiguous in the LEC Test. Regardless of whether the term is ambiguous in some contexts, here the term is defined by regulation, and no one has argued that the regulation is unreasonable.
[5] The MDTC criticizes the FCC because it provided no
information about the cost of satellite dishes. The FCC responded
that the MDTC had to file a motion for reconsideration pursuant to
47 U.S.C. § 405(a) to raise this point. The Court need not address
this argument because the FCC stated that "the fact that broadband
access constitutes a separate cost does not mean" that DIRECTV NOW
is not offered under the LEC test. Petition for Determination of
Effective Competition in 32 Massachusetts Communities and Kauai,
HI (HI0011),