Supplemental Brief — FCC v. Beach Communications, Inc.

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

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TABLE OF CONTENTS

RENTS 6 0.4.60:0046:64 Gee ee MER e ase cece ee

NCTA’s Attempt To Divine A Rational Basis From

The FCC’s Pre-Cable Act Regulatory Policy Fails

On Account Of The NCTA’s Distortion Of That

i PPC TTT TTT TT CT TT

A. The FCC’s Pre-Cable Act Policy Does Not Provide

A Rational Basis For The Cable Act’s Distinction

Between Video Systems Serving Commonly

Owned Units and Video Systems Serving

Non-Commonly Owned Units ...............

B. The FCC’s Regulatory Treatment of MATV Sys-

tems, Upon Which NCTA Relies, Fails To

Justify The Cable Act’s Arbitrary Classifi-

cations With Respect To SMATV Systems.......

GPE 0 00 60 cos cee seeeceeeseseeseces

TABLE OF AUTHORITES

Cases:

In Re Amendment of Parts 1, 63, and 76 of the Commis-

sion’s Rules, 58 Rad. Reg. 2d (P&F) 1, modified 104

F.C.C.2d 386 (1986), aff'd in part and rev'd in part,

American Civil Liberties Union v. FCC, 823 F.2d

1554 (D.C. Cir. 1987), cert. denied, 485 U.S. 959

Bayhead Mobile Home Park, 47 F.C.C.2d 763 (1974). ...

Cable Television System, 67 F.C.C.2d 716 (1978)......

Cable Television Systems, 63 F.C.C.2d 956 (1977) .....

Citizens Development Corp., 52 F.C.C.2d 1135 (1975)...

City of Cleburne v. Cleburne Living Center, 473 U.S.

432 (1985)..... occccoccecoce SerTerre ree ee

Definition of a Cable System, 5 F.C.C. Red. 7638

(1)

Cases, continued: Page

In Re Earth Satellite Communications, Inc., 95 F.C.C.2d

1223 (1983), aff'd, New York State Commission on

Cable Television v. FCC, 749 F.2d 804 (D.C. Cir.

eee TELTTLTiLtTtT Th... 2-3, 6,7

Massachusetts Community Antenna Television Commission,

2 F.C.C. Red 7321 (1987), appeal dismissed sub nom.

Channel One Systems, Inc. v. FCC, 848 F.2d 1305

(D.C. Cir. 1988)

Notice of Proposed Rulemaking in Docket No. 20561, 54

F.C.C.2d 824 (1975)

In Re Orth-O- Vision, Inc., 69 F.C.C.2d 657 (1978), recon.

den’d, 82 F.C.C.2d 179 (1980), pet. for review den’d

sub nom, New York State Commission on Cable Tele-

vision v. FCC, 669 F.2d 58 (2d Cir. a PPP eee 7

Regulation of Domestic Receive-Only Satellite Earth Sta-

tions, 74 F.C.C.2d 205 (1979)... 0... ee eee eee, 6

Rules Re Microwave-Served CATV, 38 F.C.C. 683 (1965),

aff'd, Black Hills Video Corp. v. FCC, 399 F.2d 65

(8th Cir. 1968)

Constitutional Amendment:

U.S. Const. amend V

Statutes:

Cable Communications Policy Act of 1984, Pub. L. No.

heh Lili PETE l

Legislative Materials:

H.R. Rep. 934, 98th Cong., 2d Sess. (1984), reprinted in

1984 U.S. Code Cong. & Admin. News 4655

S. Rep. 67, 98th Cong., Ist Sess. GONND «60 e0eseeeee 7

SUPPLEMENTAL BRIEF OF RESPONDENTS

BEACH COMMUNICATIONS, INC., et ai.

Respondents Beach Communications, Inc., MaxTel

Limited Partnership, Pacific Cablevision, and Western

Cable Communications, Inc. (collectively, ‘“‘Beach’’)

submit this Supplemental Brief.'

ARGUMENT

NAL BASIS

NCTA’S ATTEMPT TO DIVINE A RATIO

FROM THE FCC’S PRE-CABLE ACT REGULATORY

POLICY FAILS ON ACCOUNT OF THE NCTA’S DISTOR-

TION OF THAT REGULATORY POLICY.

A. The FCC’s Pre-Cable Act Policy Does Not Provide

A Rational Basis For The Cable Act’s Distinction

Between Video Systems Serving Commonly

Owned Units And Video Systems Serving Non-

Commonly Owned Units.

For purposes of local franchising required by the Cable

Communications Policy Act of 1984 (“Cable Act ), 47

U.S.C. §541(b)(1), the court of appeals found no rational

basis for the distinction drawn between video systems

which use wire to interconnect commonly owned build-

! For A Writ Of Certiorari on

Beach received the Petition

October 8, 1992. Thereafter, unbeknownst to Beach, Responses

Set ie Ga fae RCTs eS

i of the Petition. U by

port of the Petition was due 10 days before the due date of Beach’s

Brief In Opposition, but Beach was not served with NCTA's brie!

until November 12, three days after Beach was required to file,

2

ings and systems which use wire to interconnect separately

owned buildings, 47 U.S.C. §522(6), and struck down

that distinction as violating the equal protection guaran-

tee of the Fifth Amendment. According to Respondent

National Cable Television Association (“NCTA”): “‘The

differing treatment accorded by Congress makes sense,

based on the [Federal Communications] Commission’s

experience with commonly owned SMATVs and its

reluctance to treat them as cable systems.” NCTA

Brief at 10.2 NCTA argues that Congress intended to

adopt the FCC’s pre-Cable Act policy relating to SMATV,

and that an examination of that policy reveals a rational

basis for the discriminatory classification. NCTA Brief

at 10. In fact, the FCC’s pre-Cable Act policy with res-

pect to SMATV offers no rational basis to support the

arbitrary distinctions drawn by the Cable Act. Brief In

Opp. at 7-10.

The FCC’s pre-Cable Act policy with respect to fran-

chising of SMATV systems begins and ends with Jn Re

Earth Satellite Communications, Inc., 95 F.C.C.2d 1223

(1983) (“ESCOM”), aff'd sub nom New York State

2SMATV uses a satellite receiving station and retransmission

equipment, located wholy on private property, to obtain video pro

gramming signals transmitted by satellite, which are then converted

and distributed by cable to tenants of the building or buildings

served. See New York State Commission On Cable Television v.

Federal Communications Commission, 749 F.2d 804, 806 (D.C.

Cir. 1984) (“NYSCCT”). Thus, SMATV includes “wholly private”

systems and “external, quasi-private systems,” but not “internal

systems.”” See Respondents’ Brief In Opp. at 3-4 describing the

nomenciature used by the court of appeals to identify the various

video distribution systems at issue. MATV, or master antenna tele-

vision, consists of a television antenna, usually located on the roof-

top of a multiunit dwelling, which captures on/y over-the-air, broad-

cast television signals for delivery to tenants of the building and

which obviates the need for individual antennas per tenant, an

impractical solution for television reception. NYSCCT, 749 F.2d

at 806. Accordingly, SMATV systems offer the full complement

of video programming offered by traditional cable systems, while

MATYV systems are restricted to retransmission of local broadcast

stations.

3

Commission on Cable Television v. FCC, 749 F.2d 804

(D.C. Cir. 1984) (“NYSCCT”’). In ESCOM, the FCC pre-

empted franchising of SMATV systems which make no

use of public rights-of-way. /d. at 1234. Although the

FCC found that local franchising impeded the growth of

video delivery systems, id. at 1231, limited local regula-

tion over traditional cable systems was justified by their

use of public rights-of-way. Jd. at 1234. Despite the tech-

nological similarity between traditional cable systems

and SMATV, the FCC exempted SMATV systems from

local franchising precisely because they do not use the

public rights-of-way. Jd.

There were no relevant FCC decisions relating to

SMATV before the ESCOM decision, and Congress passed

the Cable Act shortly after that decision and before its

affirmance by the D.C. Circuit. Thus, NCTA’s invitation

to examine pre-Cable Act regulation of SMATV as a

means of deducing a rational basis for the distinctions

drawn by the Cable Act leads to the invalidation of those

distinctions: the pre-Cable Act policy exempted facilities

from local regulation based on their non-use of public

rights-of-way and took no account whatsoever of whether

the facilities being served were commonly or separately

managed. Since ESCOM dealt with a SMATV system

serving a single multiunit dwelling, the FCC did not

address franchising of SMATV systems using wire to inter-

connect more than one multiunit dwelling until after pas-

sage of the Cable Act. In Re Amendment of Parts 1, 63,

and 76 of the Commission’s Rules, 58 Rad. Reg. 2d

(P&F) 1, modified, 104 F.C.C.2d 386 (1986), aff'd in

part and rev'd in part, American Civil Liberties Union v.

FCC, 823 F.2d 1554 (D.C. Cir. 1987), cert. denied, 485

U.S. 959 (1988). Therein, the FCC affirmed that “the

distinction between a cable system and other forms of

video distribution systems is now the crossing of the

public rights-of-way, not the ownership, control or man-

agement.” 104 F.C.C. 2d at 397. In its Report to the

aa. pie ee ee ——

4

D.C. Circuit in this case, the FCC repeated its “‘policy

preference” to exempt from local franchising systems

which interconnect separately owned buildings by wire,

as long as no public right-of-way is used. App. at 5la

Contrary to’ NCTA’s suggestion, FCC regulatory policy

with respect to SMATV offers no rational basis on which

to impose local franchising on SMATV systems using wire

to interconnect separately owned multiunit dwellings.°

B. The FCC’s Regulatory Treatment of MATV Sys

tems, Upon Which NCTA Relies, Fails To Justify

The Cable Act’s Arbitrary Classifications With

Respect To SMATV Systems.

While claiming to examine pre-Cable Act policy with

respect to SMATV, NCTA actually relies on the FCC’s

application of the “common ownership, control, or man-

agement” language in the MATV context. That language

was developed almost 30 years ago to distinguish MATV

3 Although the FCC found that the plain language of the

Cable Act compels this result, Definition Of A Cable System, 5

F.C.C. Red. 7638, 7641 (1990), until now it has never attempted

to articulate a rational basis for it, except in its Report to the court

of appeals, App. at 50a, wherein it adopted by reference, and with-

out discussion, the bases proffered by Chief Judge Mikva in his

concurring opinion. NCTA incorrectly states that the FCC “feared

that expressing any additional policy justifications might lead to

the court extending the cable system definition to cover facilities,

such as those interconnecting commonly owned multiple unit

dwellings by cable, that the FCC had never considered to be a

cable system.” NCTA Brief at 6, n.18. In fact, the FCC was not

referring to the exemption for interconnection of multiple unit

dwellings by cable, but rather to the exemption for wireless sys-

tems. See App. at 50a (citing the court of appeals’ discussion of

wireless systems found at App. 31la-32a, n.17). In short, the FCC

was acknowledging that a system which interconnects non-com-

monly owned buildings by wire is, for franchising purposes, indis-

tinguishable from a wireless system serving non-commonly owned

buildings. As the FCC noted, Congress meant to exclude wireless

systems from the franchising requirement, App. at 50a; therefore,

under the Fifth Amendment, systems interconnecting buildings by

wire must also be exempted.

5

systems from cable systems, Rules Re Microwave-Served

CATV, 38 F.C.C. 683 (1965), aff'd Black Hills Video

Corp. v. FCC, 399 F.2d 65 (8th Cir. 1968), and subse-

quently found its way into the Cable Act. The NCTA’s

approach actually proves the unconstitutionality of the

classification at issue here, because the FCC’s application

of the “‘common ownership” language in the MATV con-

text offers no rational basis for the disparate treatment of

video delivery systems imposed by the Cable Act, despite

the similarity of the “common ownership” language.

In 1965, the FCC imposed certain federal regulations

upon “CATV systems” which served to retransmit only

over-the-air broadcast signals, not satellite signals. 38

F.C.C. at 741. The FCC exempted from federal regula-

tion MATV systems, ze., any “facility which serves only

the residents of one or more apartment dwellings under

common ownership, control, or management... .” Jd.

at 741. That case marks the beginning of limited federal

regulation of cable systems, but offers no conceivable

basis for imposing local regulation, because local regula-

tion was not at issue. The decision does not provide a

rational basis for, or even discuss, its implicit distinction

between systems serving a group of apartments under

common control and systems serving apartments under

separate control

Similarly, NCTA cites Cable Television Systems, 63

F.C.C.2d 956 (1977), and Cable Television System, 67

F.C.C.2d 716 (1978), in which the FCC reaffirmed the

exemption for MATV, noting that a landlord’s use of a

master antenna used in common for the reception of

broadcast signals is “not a competitive entry into some-

thing like cable television service . . . .” Cable Television

System, 63 F.C.C.2d at 996. NCTA cites this case for

the proposition that, as early as 1976, “SMATVs provid-

ing service to non-commonly owned buildings presum-

ably were believed to fall more on the line of a ‘competi-

tive entry’ into cable television service,” NCTA Brief at

~~. El

6

11, as opposed to being mere “‘amenities,’”” NCTA Brief

at 14, thus allegedly justifying the imposition of local

franchising requirements. This grossly distorts FCC pol-

icy since the case never mentions SMATV and does not

discuss service.to non-commonly owned buildings, even

by MATV.*

In fact, the FCC and Congress greeted ‘competitive

entry” by SMATV systems by prohibiting the imposition

of local franchising requirements upon them. ESCOM,

95 F.C.C.2d at 1231 (preempting local franchising of

SMATV as a means of “creating a more diverse and com-

petitive telecommunications environment”). /d. at

1231-35. As Congress noted in adopting the Cable Act:

[T] his bill does not affect the authority of a state

or local political subdivision to license or regulate

an SMATV system which does not use public

right-of-way. Recently the FCC sought to preempt

state regulation [citing ESCOM]. The committee

does not intend anything in this title to affect the

FCC’s decision, or to affect any review of this deci-

sion by the courts.

H. Rep. No. 934, 98th Cong., 2d Sess. 63 (1984) reprinted

in 1984 U.S. Code Cong. & Admin. News 4655 (“H.

Rep.”). By adopting ESCOM, Congress recognized that

a SMATV system serving a single multiunit dwelling rep-

resented competitive entry, and exempted such a system

from local franchising. Since competitive entry justified

an exemption from local franchising, it cannot be a con-

ceivable basis for the imposition of franchising.°

*The decision’s omission of any reference to SMATV is

understandable given that the advent of SMATV did not occur

until around 1979 when the FCC deregulated the licensing of the

satellite receive-only antennas necessary to pick up SMATV pro-

gramming. See ESCOM, 95 F.C.C.2d at 1231 citing Regulation

of Domestic Receive-Only Satellite Earth Stations, 74 F.C.C.2d

205 (1979).

> Congress’ adoption of ESCOM belies NCTA’s conclusory

statement that Congress might have believed that systems serving

[footnote continued |

7

Congress did not intend “‘competitive entry” to be the

basis for local franchising of wireless systems serving non-

commonly owned buildings. Definition Of A Cable Tele-

vision System, 5 F.C.C. Red. at 7638-39; see In Re

Orth-O-Viston, Inc., 69 F.C.C.2d 657 (1978), recon.

den'd, 83 F.C.C.2d 179 (1980), pet. for review den’d

sub nom. New York State Commission on Cable Tele-

vision v. FCC, 669 F.2d 58 (2d Cir. 1982) (exempting

wireless systems located wholly on private property from

local franchising as a means of encouraging competitive

development of wireless technology). Nor did Congress

intend to impose franchising in the event of “competitive

entry’ by a SMATV operator who interconnects non-

commonly owned buildings by radio or who serves num-

erous, non-commonly owned buildings by installing sep-

arate facilities at each property. Definition Of A Cable

Television System, 5 ¥F.C.C. Red. at 7639-40. Congress

exempted these alternative delivery systems, all of which

make no use of the public rights-of-way, from local fran-

chising as a means of encouraging competition with tradi-

tional cable operators. Jd. at 7639, citing H. Rep. at 22-

23, and citing S. Rep. 67, 98th Cong., 1st Sess. 30 (1983).

Since competitive entry was the basis on which alterna-

tive video delivery systems were exempted from local

franchising, it cannot be a conceivable basis for imposing

a franchise requirement.°®

non-commonly owned buildings are more likely to “share the

attributes of” traditional cable systems and therefore should be

subject to local franchising. NCTA Brief at 13. To the contrary,

Congress adopted ESCOM’s reasoning that the attributes which

traditional cable operators share with video delivery systems

located wholly on private property do not justify the imposition

of local franchising on the latter since no use of the public right-of-

way is made. See supra at 3.

6

Although Congress intended to exempt these alternative

all of them remain subject to

8

The latter Cable Television System decision does note

that the MATV exception to the cable system definition

is based, in part, on the inefficiency of regulating smaller

systems. 67 F.C.C.2d at 726. Yet the decision does not

explain how the “‘common ownership” language furthers

this purpose. There is no suggesting that a system serving

apartments which are commonly controlled is likely to

have fewer viewers than a system serving apartments that

are separately controlled.

As applied in the Cable Act with respect to SMATYV,

it is inconceivable that Congress included the ‘“‘common

ownership” language as a means of imposing the local

franchising requirement on the basis of system size, in

light of the fact that the Act does not prohibit a video

provider from serving an infinite number of subscribers

without obtaining a franchise. The Act does not even

prohibit a SMATV provider from serving non-com-

monly owned buildings without a franchise; it merely

prohibits the interconnection of those buildings by cable.

The provider is free to offer service to a limitless number

of multiunit dwellings by interconnecting them with

radio waves, or by installing and operating separate sys-

tems on each property served. Likewise, under the Cable

Act a single video provider can serve every tenant of

every multiunit dwelling in the nation and never obtain a

franchise, if the provider simply uses a wireless system

and makes no use of the public rights-of-way. Congress’s

exemption of wireless systems from the franchise require-

ment regardless of the number of dwellings served proves

that the cable system definition cannot conceivably have

been intended to impose franchising on the basis of sys-

tem size.’

is to increase the number of “unregulated” video delivery provid

ers. See NCTA Brief at 11-12, 14, 15.

™NCTA avoids a discussion of the franchising exemption for

wireless systems on the grounds that neither the court of appeals

[footnote continued]

ee ee eee ee

9

NCTA cites three additional FCC cases holding that

the cable system definition included MATV facilities

which made no use of public rights-of-way. NCTA

Brief at 10, n. 28 citing Notice of Proposed Rulemaking

in Docket No. 20561, 54 F.C.C.2d 824 (1975) (MATV

facilities serving planned communities); Citizens Develop-

ment Corp., 52 F.C.C.2d 1135 (1975) (MATV facility

serving single family homes in private community); Bay-

head Mobile Home Park, 47 F.C.C.2d 763 (1974) (MATV

facility serving mobile home park). These cases were

decided when the exception to the cable system defini-

tion exempted facilities serving “one or more apartment

dwellings under common ownership, control, or manage-

ment,” and thus simply stand for the proposition that

“apartment dwellings’ do not include single-family

homes or mobile home parks. They offer no rational

basis to distinguish separately owned multiunit dwellings

from commonly owned ones for purposes of requiring a

local franchise.®

Thus, NCTA’s observation that the arbitrary franchis-

ing requirements created by the Cable Act are “firmly

grounded in FCC precedent,” NCTA Brief at 14, misses

nor Petitioners addressed that issue. NCTA Brief at 5,n.13. NCTA

is correct that the exemption for wireless operators is settled law,

Definition Of A Cable Television System, 5 F.C.C. Red. at 7638-

39, and has not been challenged in this case. But these are not

reasons to ignore the exemption. Indeed, the absolute exemption

for wireless systems, regardless of system size, proves that the com

gressional line-drawing contained in the Cable Act was not based

on a desire to impose franchising on those systems of larger size.

Ssimilarly, NCTA mistakenly relies on the post-Cable Act

decision in Massachusetts Community Antenna Television Com-

mission, 2 F.C.C. Red. 7321 (1987), appeal dismissed sub nom.

Channel One Systems, Inc. v. FCC, 848 F.2d 1305 (D.C. Cir.

1988), in which the FCC found that “multiple unit dwellings” do

not include planned unit developments including single family

homes, but again offered no rational basis to distinguish between

video facilities serving separately owned dwellings and video sys-

tems serving commonly owned dwellings.

10

the point that such precedent did not involve SMATV,

but rather MATV, and was silent with respect to any

rational basis for discriminatory treatment of video sys-

tems serving separately owned dwellings.

CONCLUSION

Beach has shown herein and in its initial brief that the

two ‘‘conceivable’”’ bases proffered below to justify the

distinction between wired video systems which intercon-

nect commonly owned versus non-commonly owned

buildings, 1.e., an intent to impose franchising on larger

video systems, and an intent to encourage the use of

radio waves, are not rational bases for the discriminatory

classification. The distinctions drawn by the Cable Act

cannot be justified on the basis of alleged governmental

interests that are not furthered by the classification or

that conflict with actual federal policy. Given the absence

of a conceivable basis on which to distinguish systems

using wire to interconnect commonly owned buildings

and systems using wire to interconnect non-commonly

owned buildings, the court of appeals properly ruled that

the distinction does not withstand equal protection scrut-

iny under the Fifth Amendment. City of Cleburne v.

Cleburne Living Center, 473 U.S. 432, 439 (1985).

For the foregoing reasons, Beach respectfully requests

that the Court deny the Petition For Writ Of Certiorari.

Respectfully submitted,

DEBORAH C. CosTLOW

Counsel of Record

Tuomas C. POWER

WINSTON & STRAWN

1400 L Street, N.W.

Washington, D.C. 20005

(202) 371-5700

November 24, 1992 Counsel for Respondents.