IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

CITY OF DALLAS, TEXAS §

Petitioner, § Case Nos. 96-60502

§ 96-60581

vs. § 96-60844

§ (consolidated)

FEDERAL COMMUNICATIONS COMMISSION §

and UNITED STATES OF AMERICA, §

Respondents. §

Joseph Van Eaton

William Malone

Matthew C. Ames

MILLER & VAN EATON, p.l.l.c.

1225 Nineteenth Street, N.W., #400

Washington, D.C. 20036

(202) 785-0600

Attorneys for Petitioner, the United States

Conference of Mayors

February 26, 1997

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

CITY OF DALLAS, TEXAS §

Petitioner, § Case Nos. 96-60502

§ 96-60581

vs. § 96-60844

§ (consolidated)

FEDERAL COMMUNICATIONS COMMISSION §

and UNITED STATES OF AMERICA, §

Respondents. §

The undersigned counsel of record certifies that the following listed persons may have an interest in the outcome of this case. These representations are made in order that the Judges of this Court may evaluate possible disqualifications or refusal.

I. National League of Cities

1. National Association of Counties

2. U.S. Conference of Mayors

3. National Association of Telecommunications

Officers and Advisors

4. National Cable Television Association, Inc.

5. BellSouth Telecommunications, Inc.

6. United States Telephone Association

7. NYNEX Corporation

8. Bell Atlantic Telephone Companies

9. Bell Atlantic Video Services Company

10. GTE Service Corporation

11. GTE Media Ventures, Inc.

12. US West, Inc.

13. Residential Communications Network of Massachusetts

14. MFS Communications Company

15. Swidler and Berlin

16. Alliance for Community Media

17. Alliance for Communications Democracy

18. Consumer Project on Technology

19. People for the American Way

20. Consumer Federation of America

21. Office of Communication of the United Church of Christ

22. Spiegel & McDiarmid

23. Cox Communications

24. Dow Lohnes & Albertson

25. SBC Communications, Inc.

26. Southwestern Bell Telephone Company

27. Latham & Watkins

___________________________

William Malone

Attorney of record for

Petitioner

February 26, 1997

Petitioners respectfully request that this case be scheduled for oral argument. This case involves review of two Orders of the Federal Communications Commission ("FCC") that fundamentally affect the authority of states and governments to control their own property; the Orders potentially present serious questions under both the Fifth and the Tenth Amendments to the United States Constitution.

The amounts at stake are enormous. The FCC has purported to grant an "enforceable right" of access to streets and public rights-of-way across the nation to "open video system" ("OVS") operators. The FCC claims that the states and local governments can only charge a limited fee for use of their property, which fee is potentially insignificant. Because the use of the rights of way by OVS providers is potentially enormous, the FCC Orders impose serious burdens on local governments, which now pay billions of dollars to acquire and maintain their streets and rights-of-way. The FCC's Orders are not compelled by any Congressional statute, and indeed are inconsistent with the plain language of the Communications Act of 1934, as it has been amended. The issues raised by the FCC's actions would be better elucidated through oral argument and responses to the Court's questions.

CERTIFICATE AS TO INTERESTED PERSONS i

REQUEST FOR ORAL ARGUMENT iii

TABLE OF AUTHORITIES vi

STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION 2

STATEMENT OF ISSUES PRESENTED 2

STATEMENT OF THE CASE 3

Course of Proceedings Below 3

Statement of the Facts 5

Introduction 5

The Communications Act of 1934: Title II, Title III and Title VI 6

Local Franchising: Control Over the Public Rights-of-Way 8

Relation to Federal Law 12

The Statutory Framework for Open Video Systems 13

Right of Way Compensation 16

SUMMARY OF ARGUMENT 18

ARGUMENT 18

I. THE FCC'S OVS ORDERS ARE CONTRARY TO THE PLAIN MEANING OF THE STATUTE 18

A. The Statute Does Not Authorize the FCC to

Grant an "Enforceable Right" of Access to OVS Operators 18

B. The Plain Language of the Statute Does Not Limit Compensation for Use of Public Rights-of-Way to a Percentage of the Gross Revenues of the OVS Operator 21

II. THE FCC IS NOT FREE TO READ THE STATUTE IN A WAY THAT CREATES SERIOUS CONSTITUTIONAL QUESTIONS 23

A. If the FCC's Rules Interpret A Statute

In A Way That Raises Serious Constitutional

Questions, The Rules Can Only Be Upheld

Under Heightened Scrutiny 23

B. The FCC's Orders Raise

Significant Fifth and Tenth Amendment Issues 25

1. The FCC's Orders authorize precisely the sort of taking that were sufficient to create serious Fifth Amendment issues in Bell Atlantic 25

2. Serious Tenth Amendment problems

Are Raised by the FCC's Orders 31

CONCLUSION 37

Appendix -- PROVISIONS OF TITLE VI APPLICABLE TO OVS A-1

STATUTORY ADDENDUM B-1

CASES

ACORN v. Edwards, 81 F.3d 1387 (5th Cir. 1996) 33, 34, 35

Ameritech Corp. v. U.S.,

867 F. Supp. 721 (N.D. Ill. 1994) 7

Bell Atlantic v. FCC,

24 F.3d 1441 (D.C. Cir. 1994) passim

BellSouth Corp. v. U.S.,

868 F. Supp. 1335 (N.D. Ala. 1994) 7

Bowman v. Birmingham Transit Co., 280 F.2d 531 (5th Cir. 1960) 11

Century Southwest Cable Television v. CIIF Associates,

33 F.3d 1068 (9th Cir 1994) 19

Chesapeake and Potomac Tel. Co. of Virginia v. U.S.,

830 F. Supp. 909 (E.D. Va. 1993), aff'd

42 F.3d 181 (D.C. Cir. 1994) 7

Chevron v. Natural Resources Defense Council,

467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) 18, 24

City of Ft. Worth v. U.S.,

188 F.2d 217 (5th Cir. 1951) 26

City of San Antonio v. United Gas Pipe Line Co.,

388 S.W. 2d 231 (Tx. Civ. App. 1965) 9

City of St. Louis v. Western Union Telegraph Company,

148 U.S. 92 (1893) passim

Denver Area Educational Telecommunications Consortium v. FCC,

116 S.Ct. 2374, 2411 (1996) 13

Edward J. DeBartolo Corp. v. Florida Gulf Coast Trades Council,

485 U.S. 568, 108 S. Ct. 1392, 99 L. Ed. 2nd 645 (1988) 23

Erie Telecommunications v. Erie,

659 F. Supp. 580 (W.D. Pa. 1987),

affirmed on other grounds, 853 F.2d 1084 (3d Cir. 1988) 8

FERC v. Mississippi,

456 U.S. 742, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982) 33

Garcia v. San Antonio Metro. Transit Authority,

469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed. 2d 1016 (1985) 33

Griggs v. County of Allegheny, Pennsylvania

369 U.S. 84, 82 S.Ct. 531, 7 L.Ed.2d 585 (1962) 19

Hodel v. Virginia Surface Mining & Reclamation Ass'n, Inc.,

452 U.S. 264, 101 S.Ct. 2352, 69 L.Ed.2d 1 (1981) 33, 34, 35

Houston Lighting and Power Co. v. Fleming,

143 S.W.2d 923 (Tex. 1940) 27

Kern River Gas Transmission Co. v. 18.91 Acres of Land

more or less, Located in Rights of Way in Clark

County Nevada, 809 F. Supp. 72 (1992) 31

Loretto v. Teleprompter Manhattan CATV Corp.,

458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982) 27, 29

Monongahela Navigation Co. v. United States,

148 U.S. 312 (1893) 29, 31

New York v. United States,

505 U.S. 144, 112 S. Ct. 2408, 120 L. Ed.2d 120 (1992) 32, 33, 35

North Texas Water Supply District v. City of Waco,

386 S.W.2d 155 (Tex. Civ. App. - Waco 1966,

writ refused n.v.e.) 27

Petrou Fisheries v. ICC,

727 F.2d 542 (5th Cir. 1984) 18

Rodriguez v. U.S.,

480 U.S. 522 (per curiam)(1987) 23

Rust v. Sullivan,

500 U.S. 173, 11 S. Ct. 1759, 114 L.Ed. 2d 233 (1991) 23

South Dakota v. Dole,

483 U.S. 203, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987) 33, 34

U.S. v. 8.41 Acres of Land,

105 S. Ct. 451, 469 U.S. 24, 83 L.Ed. 2d 376 (1984) 28

U.S. v. 50 Acres of Land, 105 S.Ct. 451, 469 U.S. 24, 83 L.Ed 2d. 376 (1984) 26

U.S. v. Commodities Trading Corp.,

339 U.S. 121 (1950) 31

U.S. v. Five Gambling Devices,

346 U.S. 441 (1953) 25

West Texas Utilities Co. v. City of Baird,

Tex Civ. App., 286 S.W. 2d 185 (writ ref'd n.r.e.) 10, 12

Western Union Tel. Co. v. Pennsylvania R.R.,

120 F. 362, 373 (C.C.W.D.Pa.), aff'd 123 F.3d (3rd Cir.

1903), aff'd 195 U.S. 540, 25 S.Ct. 133,

49 L.Ed. 312 (1904) 19

STATUTES

Cable Communications Policy Act

Pub. L. No. 98-549, 98 Stat. 2779 (1984),

codified at 47 U.S.C. §§ 521 et seq. 7

Communications Act of 1934, as amended

Section 1, 47 U.S.C. § 151 1

Section 3(10), 47 U.S.C. § 153(10) 5

Section 402(a), 47 U.S.C. §402(a) 2

Section 613(b), 47 U.S.C. § 533(b) 6

Section 613(b)(1), 47 U.S.C. § 533(b)(1) (1992). 5

Section 621(a), 47 U.S.C. §541(a) 21

Section 621(b), 47 U.S.C. §541(b) 19

Section 622(h), 47 U.S.C § 542(h) 22

Section 651, 47 U.S.C. § 571 5

Section 653, 47 U.S.C. § 573 1

Section 653(a)(1), 47 U.S.C. § 573(a)(1) 14

Section 653(b), 47 U.S.C. § 573(b) 15

Section 653(b)(1)(B), 47 U.S.C. § 573(b)(1)(B) 5, 6, 14

Section 653(c), 47 U.S.C. § 573(c) 20

Section 653(c)(2)(B), 47 U.S.C. § 573(c)(2)(B) 15, 20

Judicial Code

28 U.S.C. § 2342 2

28 U.S.C. § 2349(a) 4

Post-Roads Act 26

Telecommunications Act of 1996

Pub. L. No. 104-104, 110 Stat. 56 (1996)

Section 302(b)(3) 8

ADMINISTRATIVE MATERIALS

Rules of Federal Communications Commission

47 C.F.R. § 76.1502 14

47 C.F.R. § 76.1502(d) 14

47 C.F.R. § 76.1502(e) 14

47 C.F.R. 76.1511 16

47 C.F.R. § 76.1505 17

Implementation of Section 302 of the Telecommunications Act of 1996,

CS Docket No. 96-46, Petition for Reconsideration of the National

League of Cities; the United States Conference of Mayors; the

National Association of Counties; Montgomery County Maryland;

and the City of Los Angeles, California, filed July 8, 1996 (treated

as filed in Opposition and/or in Support of Petitions for

Reconsideration pursuant to the Commission's Order in

CS Docket No. 96-46, 11 FCC Rcd. 8149 (1996) 9, 10, 11

Implementation of Section 302 of the

Telecommunications Act of 1996,

Second Report and Order, 3 Comm. Reg. 196 (P&F) (1996) 2, 4, 15

Implementation of Section 302 of the

Telecommunications Act of 1996,

Third Report and Order and Second Order on Reconsideration,

4 Comm. Reg. 380 (P&F) (1996) passim

Telephone Company-Cable Television Cross-Ownership Rules,

Section 63.54-63.58, Further Notice of Proposed

Rulemaking, First Report and Order and Second

Further Notice of Inquiry, 7 FCC Rcd 300, 304 (1991),

at ¶ 6 7

Telephone Company-Cable Television Cross-Ownership Rules,

Section 63.54-63.58, Notice of Inquiry,

2 FCC Rcd 5092 (1987) *

OTHER AUTHORITIES

Joel L. Swerdlow, Under New York, 191 National Geographic 110, 1997 11

Application of Telephone Companies for § 214 Certiifcates

for Channel Facilities Furnished to Affiliated Community

Antenna Television System, 21 FCC 2d (1970) 6

Charles D. Ferris, Frank W. Lloyd & Howard J. Symons,

1 Cable Television Law, A Video Communications

Practice Guide ¶ 5.03 (1996) 5

Charter of the City of Dallas 12

Digital Broadcasting OVS Certification to Operate an

Open Video System, Order, DS 96-1703

(released October 10, 1996) 29

H.R. Rep. No. 934, 98th Cong. 2d Sess. 24 (1984),

reprinted in 1984 U.S.C.C.A.N. 4655 20

H. Conf. Rep. No. 104-458, 104th Cong. 2d Sess. (1996) 7, 13, 16

McQuillin,

10A Municipal Corporations § 30.39 (3d ed. 1990) 9

McQuillin,

19 Municipal Corporations § 54.11 (3d ed. 1994) 9, 10, 13

Tex. Const. Art. III, § 52 12

Tex. Rev. Civ. Stat. Ann. art. 1175 (Vernon Supp. 1997) 11

U.S. CONST. Art. I § 8 25

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

CITY OF DALLAS, TEXAS §

Petitioner, § Case Nos. 96-60502

§ 96-60581

vs. § 96-60844

§ (consolidated)

FEDERAL COMMUNICATIONS COMMISSION §

and UNITED STATES OF AMERICA, §

Respondents. §

TO THE HONORABLE JUDGES OF SAID COURT:

Petitioners, City of Dallas, Texas, and the United States Conference of Mayors respectfully submit this brief in support of their petitions to set aside, enjoin, or suspend orders issued by the Federal Communications Commission (the "FCC" or the "Commission") pursuant to new Section 653 of the Communications Act of 1934, 47 U.S.C. § 573.⁽¹⁾

STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION

The Court has subject matter and appellate jurisdiction to review final orders of the Federal Communications Commission pursuant to 47 U.S.C. §402(a); and the Hobbs Act, now 28 U.S.C. § 2844; Section 402(a) of the Communications Act, Section 10 of the Administrative Procedure Act, now 5 U.S.C. ch. 7. The City of Dallas and the U.S. Conference of Mayors were parties in the rulemaking before the FCC. The FCC orders that the City of Dallas is appealing, the second of which the U.S. Conference of Mayors is also appealing, constitute such final orders. The two orders were published in the Federal Register on June 5, 1996, and August 21, 1996. Petitioner City of Dallas filed timely Petitions for Review of the Second Report and Order and Third Report and Order in this Circuit on July 30 and September 3, 1996, respectively, and the U.S. Conference of Mayors filed its petition for review in the D.C. Circuit on October 21, 1996.

STATEMENT OF ISSUES PRESENTED

The four issues raised by the FCC's Orders, in addition to those raised in the brief of Petitioner National Association of Telecommunications Officers and Advisors, are:

I. Whether the FCC's conclusion that operators have an "enforceable right" of access is consistent with the plain meaning of the statute, given that the statute expressly disavows any intent to preempt state and local control over rights-of-way.

II. Whether the FCC's conclusion that local governments may collect a fee only for use of the rights-of-way on a portion of the revenue of the open video system is consistent with the plain language of the statute.

III. Whether, in light of the constitutional issues raised by its interpretation of the OVS provisions adopted by Congress, the FCC has the authority to adopt rules creating an unlimited, enforceable right of access, with compensation limited to the formula specified by the FCC when an alternative interpretation which gives effect to the statutory terms and creates no constitutional issues is available.

IV. Whether, assuming arguendo that the FCC's rules withstand scrutiny as an exercise of administrative authority, the statute itself is constitutional under the Fifth and 10th Amendments to the U.S. Constitution?

STATEMENT OF THE CASE

Course of Proceedings Below

In Section 302 of the Telecommunications Act of 1996, Congress added a new Part V to Title VI of the Communications Act. This Part, titled "Cable Services Provided By Telephone Companies," authorized local exchange carriers, i.e., local telephone companies, to provide cable service over an "open video systems." On March 11, 1996, the FCC released a Report and Order and Notice of Proposed Rulemaking on open video systems. 2 Comm. Reg. 846 (P&F) (1996). On June 3, 1996, the FCC released its Second Report and Order. 3 Comm. Reg. 196 (P&F) (1996). Finally, following petitions for reconsideration of the Second Report and Order, the FCC released its Third Report and Order, 4 Comm. Reg. 380 (P&F) (1996), on August 8, 1996. Appeals were filed in the Fifth and D.C. Circuits by various parties before the FCC, challenging the Orders on constitutional and statutory grounds. These appeals were ultimately consolidated in the Court under 28 U.S.C. § 2349(a).

The FCC has implemented the OVS provisions of Title VI by taking several steps which were not mandated by Congress and which are inconsistent with the statute, inter alia: it claims the authority to grant OVS operators an "enforceable right" to use every street and right of way in the country. Second, it purports to extend that right to local exchange carriers ("LEC's") and anyone else, with minimal, if any, qualifications.⁽²⁾ Third, it purports to limit the compensation paid for use of the rights of way to a percentage of gross revenues derived by the OVS operator and its affiliates.⁽³⁾

Statement of the Facts

Introduction

On February 8, 1996, the President signed the Telecommunications Act of 1996 (the "1996 Act") into law. The 1996 Act comprehensively amended the Communications Act of 1934 (the "1934 Act"). As part of these comprehensive amendments, the Congress eliminated provisions that had generally prohibited a local exchange carrier ("LEC") typically the local telephone company, from providing cable service to subscribers within its service territory.⁽⁴⁾ The amendments were meticulously crafted to permit a LEC to enter into the cable business as a traditional cable operator; as a traditional common carrier; as a wireless service provider; or by establishing an "open video system" ("OVS").⁽⁵⁾ Open video systems are much like cable systems. Both are used to deliver video programming to the home. And, like cable systems, open video system must make extensive use of property that belongs to state and local governments, namely, the streets and rights of way.

A proper understanding of the role of OVS and the meaning of the OVS statutory provisions requires a brief review of the development of telecommunications regulation and cable television franchising.

The Communications Act of 1934: Title II, Title III and Title VI

When the 1934 Act was adopted, it included separate titles dedicated to the discrete technologies of the time. Title II governed common carriers (telephone and telegraph). Title III governed broadcasters, regulating them in a different fashion and making it clear that they were not common carriers. See Section 3(10), 47 U.S.C. § 153(10).

The cable industry developed in the 1940's as a means of delivering broadcast television signals to communities that had inadequate television reception.⁽⁶⁾ As the technology improved and the capabilities of cable systems increased, the FCC found increasing occasion to attempt to regulate the industry.⁽⁷⁾ At the same time, local governments were heavily involved in cable because of its extensive use of public rights-of-way. Cable television posed such a challenge to the original statutory framework that Congress eventually adopted the Cable Communications Policy Act of 1984 (the "1984 Act").⁽⁸⁾ The 1984 Act added Title VI to the 1934 Act, devoted to cable television.

One of the provisions of the 1984 Act, Section 613(b), 47 U.S.C. § 533(b), was the so-called "cable-telco cross-ownership ban." This ban arose out of an earlier FCC rule intended to protect the nascent cable industry against competition from the telephone industry, and it prohibited a telephone company from providing cable service within its telephone service area.⁽⁹⁾

Eventually, most communities across the country were served by a local exchange company and a cable company providing two different services over two different wireline networks. By 1987, the FCC began to consider whether it should promote competition in the video marketplace by encouraging competition among these two systems. It initiated a rulemaking proceeding to consider this issue.⁽¹⁰⁾

The FCC ultimately developed the concept of "video dialtone" as a means of permitting telephone companies to deliver competitive video programming to subscribers despite the statutory cable-telco crossownership ban.⁽¹¹⁾ A video dialtone system was required to provide a "platform" on a nondiscriminatory, common carrier basis, to programmers who would individually lease capacity on the video dialtone service to deliver their programming to subscribers. The ability of video dialtone operators, i.e., the carriers themselves, to deliver programming over the system was to be sharply limited.

Video dialtone never developed into a competitor to cable television for a variety of reasons. Among other things, just as the FCC's rules were taking shape, several courts ruled that the cable television -- telephone company cross-ownership ban was unconstitutional.⁽¹²⁾ This weakened the original rationale for video dialtone.

In the 1996 Act, Congress rescinded the FCC's video dialtone rules.⁽¹³⁾ Congress had feared that the video dialtone rules depended too heavily on the common carrier model,⁽¹⁴⁾ and did not provide adequate financial incentives to telephone companies to enter the video programming delivery business. Congress decided to permit telephone companies to enter the market by establishing an open video system that would be subject to some, but not unlimited, common carrier obligations. Because it viewed the open video systems as new entrants that would be required to compete with existing cable operator that did not have the same common carrier obligations, Congress also chose to relieve the OVS operator of certain obligations under Title VI. However, the Congress did not expressly or impliedly eliminate requirements outside of Title VI, and in particular did not eliminate any state or local regulations arising outside of Title VI. Since Congress was surely aware that local exchange carriers and other right-of-way users are and have been subject to local franchising and other requirements outside of Title VI, that omission is significant.

Local Franchising: Control Over the Public Rights-of-Way

The legal status of rights-of-way involves issues of state and local sovereignty as well as property interests. Public rights-of-way represent a significant public asset that have always been managed, for the most part, by state and local authorities. Local governments often are considered to have a duty to maintain the streets as a trustee for the public.⁽¹⁵⁾ Historically, local governments have controlled access to the rights-of-way within their jurisdiction under franchising authority granted by state law. Local governments have -- and must retain -- control over local rights-of-way inter alia to ensure their effective management. This control is an inherent attribute of local government, and exercising that control is one of the principal functions of local government.⁽¹⁶⁾

Rights-of-way are often acquired and maintained by local officials with local tax dollars. Local officials are also often responsible for the safe maintenance of the streets.⁽¹⁷⁾ While the primary purpose of the rights-of-way is to facilitate local transportation,⁽¹⁸⁾ rights-of-way are not solely used for traffic. They are also used for delivery of various critical utility services to the community by publicly-owed companies and by privately-owned companies that operate pursuant to franchises or licenses.

The management of such subsurface and above-ground uses are also normally part and parcel of a local government's responsibilities. Demand for space in the rights-of-way can be quite high. Cable operators, telephone lines, sanitary and wastewater sewers, fiber optic lines, gas mains and water mains all compete for space.⁽¹⁹⁾ In allocating that space, Dallas and other local governments must preserve the ability to address critical municipal needs such as water, electric, and gas service.⁽²⁰⁾ Municipal authorities also must preserve both the value and integrity of the public asset represented by the right-of-way and the public's interest in the proper performance of the services provided by the right-of-way occupants. Enormous amounts are at stake, both in terms of the delivery and expansion of these services and in terms of the integrity of the right-of-way itself.

The record shows, for example, that allowing utilities, telecommunications providers and cable companies to use the public rights-of-way brings many benefits, but also imposes enormous direct costs on the public sector. Local governments incur sizable costs merely to acquire rights-of-way, and incur immense costs in constructing and developing rights-of-way.⁽²¹⁾ Texas courts have been consistent in holding that local government consent in necessary for facilities placed in the streets.⁽²²⁾

Each time a right-of-way occupant cuts into a street to install or repair a line it shortens the life of the street and imposes additional costs on the public.⁽²³⁾ It is far from obvious that all users can or should be accommodated.⁽²⁴⁾

The principal means by which private entities are allowed to use public property is the franchise. The right to grant a franchise for the use of public property is an attribute of sovereignty and not a product of federal largesse. A franchise establishes a particular type of relationship, distinct from those formed by permits. A franchise (or license) usually provides for the authorization to occupy public property, and the general conditions that apply to such occupancy.

Texas local governments, for example, do not derive their authority to franchise potential occupants of the rights-of-way from federal law.⁽²⁵⁾ Specific Texas statutes require the consent of local governments prior to occupancy of the right of way and require compensation for the use of the right of way.⁽²⁶⁾

The Charter of the City of Dallas requires a franchise fee not less than 4 per cent of gross receipts from the telephone company.⁽²⁷⁾ This gross revenues structure applies to telephone and other right of way occupants.⁽²⁸⁾ This is not an unusual arrangement. Many state constitutions require that those who wish to occupy public property obtain authorization and agree to pay fees for use of public property.⁽²⁹⁾ The Texas Constitution prohibits making a gift, grant or donation of public property.⁽³⁰⁾

Relation to federal law

Title VI of the 1934 Act does not empower states and local governments to franchise; its purpose has been to restrict the scope of local government authority over cable television and to divide that regulatory authority between the local, state and federal governments. Among other things, for example, Title VI contains certain broad limits on the amount and type of cash compensation local government are permitted to obtain for the use of their rights-of-way, in the form of franchise fees from cable operators; however, it also permits localities to obtain compensation in other ways, including through franchise terms and conditions establishing requirements for certain in-kind compensation, including channels, facilities and equipment for public, educational and governmental ("PEG") use.⁽³¹⁾ Where the Cable Act is silent, however, traditional local authority remains unaffected.⁽³²⁾

Title VI did not purport to give the federal government the right to grant an enforceable access right to cable operators or to commandeer the streets and rights-of-way on behalf of cable operators. To the contrary, the Congress affirmed that it was continuing to rely on the local franchising authority to grant permission to use the rights-of-way.

The Statutory Framework for Open Video Systems

When it amended Title VI to add the OVS provisions, Congress (1) authorized LEC's to provide cable service via open video systems; (2) defined the conditions under which the LEC could become eligible to establish such systems; (3) limited the application of certain provisions of Title VI to the OVS operator;⁽³³⁾ and (4) directed the FCC to adopt certain specified rules, including rules governing when a cable operator or other persons could use a carrier's open video system to deliver programming. Thus, Section 653(a)(1) states that "[a] local exchange carrier may provide cable service to its cable service subscribers in its telephone service area through an open video system that complies with this section." Section 653(b) directs the FCC to promulgate rules only in specific areas.⁽³⁴⁾

The OVS operator must make its system available to unaffiliated programmers. Once demand exceeds capacity, the OVS operator must lease up to two-thirds of the capacity of the system to others, at just and reasonable rates.

Under the FCC's rules, an applicant becomes an OVS operator upon issuance of an OVS certificate by the FCC.⁽³⁵⁾ To get the certificate, the operator must merely submit a form identifying the operator and its owners and affiliates, stating the anticipated capacity of the system and the communities to be served, certifying that it will comply with the FCC's rules, and providing a few other items of information.⁽³⁶⁾ The operator must notify the affected communities, which have five days in which to file oppositions or comments at the FCC, but the rules do not provide for any local involvement in the certification process.⁽³⁷⁾ Nor do the rules require that the OVS operator demonstrate that it has the right to be in the rights-of-way. The FCC does state that local governments may manage the activities of such right of way occupants as long as the local government controls are "competitively neutral and non discriminatory."⁽³⁸⁾ However, according to the FCC, once the certificate is issued, the OVS operator has "... an enforceable right to access the right of way."⁽³⁹⁾ Local governments may not require "Title VI franchises" or "Title VI franchise-like" requirements.⁽⁴⁰⁾

Right of Way Compensation

OVS will make extensive use of the rights-of-way. In addition to existing facilities, which will be used for a new purpose and earn additional revenue for the OVS operator, new equipment and lines will be required which will require new construction in the rights-of-way.

Congress preserved local authority to obtain compensation for use of property by an open video system. The Congress made it clear that an OVS operator could be required to pay a "fee in lieu of" a franchise fee:

An operator of an open video system under this part may be subject to the payment of fees on the gross revenues of the operator for the provision of cable service imposed by a local franchising authority or other governmental agency, in lieu of the franchise fees permitted under Section 622. The rate at which such fees are imposed shall not exceed the rate at which franchise fees are imposed on any cable operator transmitting video programming in the franchise area, as determined in accordance with regulations prescribed by the FCC.⁽⁴¹⁾

The legislative history explains that this fee provision is intended "to ensure parity among video providers."⁽⁴²⁾

The FCC rules however, do not require and are not designed to achieve parity. According to the FCC, the in-lieu fee is to be calculated based upon the gross revenues derived by the OVS operator and its affiliates, but the revenues of unaffiliated programmers are not to be included in gross revenues.⁽⁴³⁾ While certain other charges may be imposed upon an OVS provider, the FCC's Orders thus limits compensation for use of rights-of-way to the fee imposed on the revenues of the operator itself, no matter what the resulting level of compensation: "it is undisputed that Congress enacted the cable franchise fee as the consideration given in exchange for the right to use the right of way. [Footnote omitted] It is apparent that the gross revenue fee "in lieu of" a franchise fee was intended as compensation by open video system operators for use of the public "rights-of-way. [Footnote omitted]."⁽⁴⁴⁾

The FCC does not address the definitions of "rate" and "rate imposed upon a cable operator transmitting video programming" in the statute but appears to conclude that Congress intended by the use of the term that the same percentage be applied to the gross revenues of the OVS operator for calculation of the "fee in lieu of" as is applied to the gross revenues of the cable operator in calculating the franchise fee. Other than the right to impose PEG access requirements equivalent to those required of an incumbent cable operator, the FCC's rules do not provide for any in-kind compensation.⁽⁴⁵⁾

SUMMARY OF ARGUMENT

The FCC Orders are contrary to the plain meaning of the statute. Further, the FCC purports to take state and local property and to limit the compensation for use of that property to a fee on the gross revenues earned by the open video system operator. It is clear that this decision intrudes on state and local control of property that is traditionally subject to their control -- namely, the streets and rights-of-way. It is also clear that any effort by the FCC to take this property, or to eliminate that traditional control, would raise the most serious constitutional issues. In this situation, the FCC's rules can only be upheld if the Congress clearly and manifestly intended the result. Moreover, the FCC is not free to read the statute in a way that creates serious constitutional doubts. Indeed, were the Court to uphold the FCC's rules as written, it would be required to find that the provisions of the Communications Act governing the establishment and operation of open video systems are unconstitutional under the Fifth and Tenth Amendments to the Constitution.

ARGUMENT

I. THE FCC'S OVS ORDERS ARE CONTRARY TO THE PLAIN MEANING OF THE STATUTE.

In reviewing the FCC's Orders, the Court must determine whether the plain meaning of the statute can be ascertained by using standard canons of statutory construction. If it can be so determined, then the issue of what the statute means is an issue of law for the Court, and the FCC interpretation of the statute is entitled to little deference.⁽⁴⁶⁾ In this case, the statute's meaning is plain -- and the FCC's Orders are not consistent with that plain meaning.

As noted above, on its face, the OVS provisions do little more than (1) authorize LEC's to choose between providing cable service through an open video system, or in some other manner; (2) state that certain provisions of Title VI are not applicable, or are applicable only in part to open video systems;⁽⁴⁷⁾ and (3) allow the FCC to decide under what circumstances other persons may use the capacity as an OVS system. The FCC nonetheless reads the statute to imply that it may grant OVS operators an enforceable right to use public rights-of-way, and preempt local and state law requirements to the contrary. That reading, however, cannot be squared with the plain language of the statute.

Section 601(a) of the 1996 Act, adopted at the same time the OVS rules were adopted, specifically provides that "the amendments...shall not be construed to modify, impair, or supersede Federal, State or local law unless expressly so provided in such Acts or amendments." That is to say, under the express provisions of the legislation, in order to preempt state or local control of access to rights-of-way the FCC must point to a specific provision authorizing that preemption. The FCC cannot justify its rules by implication merely because the FCC believes that doing so would advance OVS development.⁽⁴⁸⁾ The FCC Orders point to no express authority that in fact grants such an enforceable right to OVS operators. To the contrary, Congress specifically enumerated FCC rulemaking authority for OVS. The rulemaking authority does not direct the FCC to preempt state and local franchising authority over OVS or grant an enforceable right to access the right of way for any OVS operator whether its facilities already exist in the right of way or not.⁽⁴⁹⁾

The absence of express authority is particularly obvious when one reviews provisions of the Cable Act that do not apply to OVS operators. Section 621(b), 47 U.S.C. §541(b) provides that a cable franchise "shall be construed to authorize the construction of a cable system over public rights-of-way....", but that provision does not apply to open video systems under Section 653(c), 47 U.S.C. § 573(c), and the OVS provisions contain no comparable clause stating that an FCC certificate grants OVS operators the right to use rights-of-way or giving the FCC authority to issue such a certificate.

An examination of those sections of Title VI that do not apply to OVS shows that the subject matter of many of them falls within the traditional scope of local franchising authority. Consequently, Congress's failure to apply them to OVS operators means that local governments are no longer bound by the limitations that govern their relationship with cable operators. This point is emphasized by Section 653(c)(2)(B), which establishes that even though Section 622 does not apply to OVS operators, a franchising authority's ability to require the payment of fees is limited to the rate at which the incumbent cable operators pays fees under Section 622. Congress enacted no such limitation with respect to the myriad of other issues addressed in Title VI, such as the procedures governing the renewal of a cable franchise. Indeed, Congress meticulously avoided eliminating local franchising authority, and said nothing that indicated it wished to preempt pre-existing local authority over occupancy of rights-of-way. Instead, the legislative history made it clear that Congress intended to preserve such authority.⁽⁵⁰⁾

The FCC reads the OVS provisions to limit compensation received by states and local governments to a percentage of the gross revenues of the OVS operator from providing cable service. The FCC also concludes that states and local governments can not, as part of the compensation for use of rights-of-way, reach revenues derived by persons who lease capacity over the OVS system and provide cable service to the public.

This reading misconstrues the obvious meaning of the statute. Section 653 merely provides that the fee imposed under that section on the OVS operator are in lieu of the franchise fee imposed upon the cable operator under Section 622 of the Cable Act. By its terms, the statutory provision does not prohibit the receipt of other compensation from the OVS operator, or limit fees that may be imposed upon persons who use the OVS system to provide service to subscribers, nor could it reasonably be read to do so. Sections 601(a)-(b) of the 1996 Act makes it clear no effect on state and local authority to charge can be implied; local authority is only affected "as provided" in Section 622 and 653(c). Silence, in this case, affirms local authority to impose a fee.

The FCC's reading of the law, however, presumes that the authority to charge for use of public rights-of-way by video programmers is derived from the Cable Act, so that the limitation in Section 653 ipso facto acts as a complete bar to imposition of other fees. Not only is this inconsistent with the statute, it is unsupportable as a matter of law. As the Supreme Court made clear last century in City of St. Louis v. Western Union Telegraph Company, 148 U.S. 92 (1893), the power to charge for use of rights-of-way derives from state and local law. The Cable Act itself recognizes that additional compensation can be obtained in Section 622(h), 47 U.S.C § 542(h). That subsection makes it clear that the provisions of Section 622 which permit imposition of a franchise fee on a cable operator do not affect, inter alia, local or state authority to impose fees on persons who use a cable system.

It follows that elimination of the Cable Act -- or parts of the Act -- does not affect the right of states or localities to charge for and obtain fair compensation for use of rights-of-way.⁽⁵¹⁾ All Section 653 does is precisely what it purports to do, and no more: namely, place limits on the Section 622 in lieu fees that can be charged to an OVS operator.

As a result, under the plain language of the statute, states and local governments, for example, remain free to impose fees that reach the gross revenues of persons who use OVS systems to provide cable service.⁽⁵²⁾ The FCC's rules -- which can result in an OVS system paying far less than a cable operator for use of the same right-of-way -- is not consistent with either the plain language or that legislative history.

II. THE FCC IS NOT FREE TO READ THE STATUTE IN A WAY THAT CREATES SERIOUS CONSTITUTIONAL QUESTIONS.

The FCC here has acted to (1) take state and local property by reading the OVS provisions of the Communications Act to create an enforceable right to use state and local rights of way; and (2) preempt state authority in an area traditionally reserved to the states -- namely, the right to control access of third parties to the right of way for the purpose of constructing, installing and maintaining facilities.

The FCC has largely justified these actions on the ground that they are consistent with the Congress' intent in adopting OVS provisions. However, "it frustrates rather than effectuates legislative intent simplistically to assume that whatever furthers the statute's primary objective must be law."⁽⁵³⁾ In a federal system where the powers of the central government are inherently limited, an agency is obligated to interpret a statute to avoid constitutional issues and issues that displace the sovereign powers of state governments and local governments operating on their behalf. Where an agency reads a statute in a way that creates a serious constitutional issue, its decision is subject to heightened scrutiny. "[W]ithin the bounds of fair interpretation, statutes will be construed to defeat administrative orders that raise substantial constitutional questions."⁽⁵⁴⁾

In Bell Atlantic v. FCC, 24 F.3d 1441 (D.C. Cir. 1994), the D.C. Circuit Court of Appeals was faced with a fact situation analogous to the one confronting this Court. The FCC had ordered that LEC's make a portion of their facilities available to competitive access providers for physical co-location, i.e., actual placement of equipment on the premises of the LEC's. The FCC set the amount of compensation for the occupancy.

The Bell Atlantic Court recognized that the FCC's rules, which allowed third parties to place their facilities in the LEC's property "implicated the Just Compensation Clause of the Fifth Amendment."⁽⁵⁵⁾ Hence, if the FCC rules were read to create a compensable taking, the rules would create a correlative obligation of just compensation and expose the federal Treasury to multiple claims in the event that the compensation set by the FCC did not meet the constitutional level of just compensation. "Where administrative interpretation of a statute" creates a class of persons who may be able to raise takings claims, the Court concluded that it was required to adopt a narrowing interpretation of the statute to prevent executive encroachment on Congress's exclusive powers to raise revenues, U.S. CONST. Art. I § 8 (The Congress shall have the Power To lay and collect Taxes) and to appropriate funds, id. § 9 ("no money shall be drawn from the Treasury but in Consequence of Appropriations made by Law.")⁽⁵⁶⁾ Id. at 1445. The Bell Atlantic Court therefore examined the statute closely to determine whether the FCC had clear authority to take the action it purported to take, and interpreted the statute, to the extent possible, to avoid the constitutional issue. It granted almost no deference to the agency interpretation of the statute. As in Bell Atlantic, this Court should read the statute to avoid serious constitutional questions. As a result, if the Court finds that the FCC's Orders raise serious constitutional questions, it should only uphold the Order if it finds that the FCC was granted clear authority to take each of the actions it did take,⁽⁵⁷⁾ and "if the statutory language leaves no reasonable alternative."⁽⁵⁸⁾ As shown in Part I, the plain language of the statute does not support the FCC's rules; it follows that there clearly was a reasonable alternative to the interpretation adopted by the FCC. As we now show, it is also clear that the FCC's Orders in fact raise serious constitutional questions that may also be avoided with the same alternative reading.

1. The FCC's Orders authorize precisely the sort of taking that were sufficient to create serious Fifth Amendment issues in Bell Atlantic.

It is beyond dispute that the FCC took state and local property when it purported to grant OVS operators an enforceable right to access the right of way. For over 100 years, the courts have recognized that a local government is entitled to just compensation when the federal government authorizes a communications company to place wires on local property.⁽⁵⁹⁾ In the St. Louis case, the City claimed that it was entitled to compensation for use of its streets by a telegraph company that had entered the market under the authority of the former Post-Roads Act. The Supreme Court concurred:

No matter how broad and comprehensive might be the terms in which the franchise was granted [by the national government], it would be confessedly subordinate to the right of the individual not to be deprived of his property without just compensation....This rule extends to streets and highways...[w]hen an appropriation of any part of this public property to an exclusive use is sought, whether by a citizen or corporation of the same of another state or a corporation of the national government, it is within the competency of the state, representing the sovereignty of that local public, to exact for its benefit compensation for this exclusive appropriation. It matters not for what that exclusive appropriation is taken, whether for steam railroads or street railroads, telegraphs or telephones, the state may if it chooses exact from the party or corporation given such exclusive use pecuniary compensation to the general public for being deprived of the common use of the portion thus appropriated...." [emphasis added]

Going further, the Court states,

"[W]hile permission to a telegraph company to occupy the streets is not technically a lease and does not in terms create the relation of landlord and tenant, yet it is the giving of exclusive use of real estate, for which the giver has a right to exact compensation, which is in the nature of rental". Id. at 383.⁽⁶⁰⁾

The reasoning of the Supreme Court in St. Louis -- that the City is entitled to fair rent for use of its property -- is hardly surprising. The Texas Supreme Court has adopted this view.⁽⁶¹⁾

The decision in St. Louis was reaffirmed in Loretto v. Teleprompter Manhattan CATV Corp.⁽⁶²⁾ In that case, the Supreme Court reviewed a takings challenge to a New York statute that purported to authorize a cable operator to place an unobtrusive line on the roof of an apartment building. The Court concluded that authorizing the placement of the facilities on the apartment building constituted a taking, notwithstanding the size of the facilities that were placed on the property:

where the character of the governmental action .... is a permanent physical occupation of property, our cases uniformly have found a taking to the extent of the occupation, without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner. Id. at 434.

The Loretto Court noted that "permanent occupations of land by such installations as telegraph and telephone lines, rails and underground pipes or wires are takings even if they occupy only relatively insubstantial amounts of space and do not seriously interfere with the landowner's use of the rest of his land."⁽⁶³⁾

This case involves intrusions onto property by third parties similar to the intrusions in Loretto and in St. Louis. It follows that the Fifth Amendment interests of states and local governments are implicated by the FCC's decision to give OVS operators an enforceable right of entry. Under Bell Atlantic, that is enough to trigger heightened scrutiny of the FCC's Order, and enough to require the Court to adopt an alternative reading of the statute to avoid the constitutional question. But, this case is actually even more compelling than Bell Atlantic because the FCC has interpreted the statute to require states and local governments to turn over property without any assurance that there will be an opportunity to obtain fair compensation.

The FCC Orders seem to imply that the takings issue can be avoided in this case because (the FCC suggests), the impact on the right-of-way is insignificant, and in any case, Congress has specified the compensation that OVS operators must pay states and local governments in return for the right to occupy streets and rights of way. Second Report and Order, ¶ 211, citing U.S. v. 8.41 Acres of Land, 680 F.2d 388 (5th Cir. 1982). The first point is irrelevant, according to Loretto. In any case, given the FCC's order, it is impossible to find that the taking is de minimis. Under the FCC's certificate process, anyone may become an OVS operator without regard to qualifications, and there is no limit on the number of certificates the FCC will issue. It is obvious, then, that the FCC rules effectively involve an unlimited taking of the streets and rights of way.⁽⁶⁴⁾

The second point misapprehends the law. The fact that some money is paid to a person whose property is affected by a takings does not establish that the taking is constitutional, and does not make the compensation paid "just compensation." Indeed, the determination of just compensation must reside with the judiciary.⁽⁶⁵⁾ Thus, the FCC's interpretation of the law -- namely that states and localities only can obtain the compensation specified by Congress -- compounds the constitutional problems by removing the judiciary from the equation.⁽⁶⁶⁾ Even setting aside the basic problem that it is up to the judiciary, not the Congress, to prescribe the just compensation due for a taking, it is plain that the compensation provided for here -- at least as interpreted by the FCC -- will not be just compensation.

Assuming the FCC interpretation of the "fee in lieu of" is correct, the level of compensation under the "fee in lieu of" formula will vary dramatically depending upon the amount of carriage fees and the amount of unaffiliated programming vis a vis OVS operator and affiliate provided programming.⁽⁶⁷⁾

For example, the same block in a street may be occupied by two OVS operators with identical capacity, but under the "fee in lieu of" interpretation, if one OVS carries primarily unaffiliated programming and the other OVS carries strictly OVS operator and affiliate programming, the level of compensation is dramatically different. Such an outcome is possible because the two OVS operators provide substantially different amounts of unaffiliated programming. The carriage revenues will not make up the difference between the two. By definition, carriage revenues will be less than programming revenues. The same disparate result in compensation for use of the same block of right of way also results between the "fee in lieu of" paid by an OVS operator and the franchise fee paid by a cable operator with programming and revenues comparable to programming and revenues derived from OVS operator, affiliate and unaffiliated programming.

As noted, although both the "fee in lieu of" and the franchise fee paid by a cable operator represent a portion of the compensation paid for use of the right of way, the amount of compensation will vary widely depending solely upon the business structure of the entity. Yet both are delivering cable services and both will likely be making similar demands upon the right of way -- a traditional local function. As a result, it is impossible to conclude that the "fee in lieu of" can provide "just compensation" for use of state and local property. Indeed, as noted above, under the FCC's rules, the compensation paid by an OVS operator could well be insignificant. In other words, this is a compensation formula that doesn't even require compensation, much less "just" compensation.

Under standard constitutional analysis, states and local governments are entitled to compensation equivalent to the fair market value of the property taken.⁽⁶⁸⁾ In this case, at least one measure of the adequacy of the compensation proposed would be the compensation that can be derived from other users of the right-of-way. By the FCC's own admission, its rules can result in payments to states and localities that are far below levels paid by cable operators...and indeed, are far below levels that persons besides cable operators pay for use of the same property. Under these circumstances, there is no reason to suppose that the OVS compensation scheme defined by the FCC could possibly lead to just compensation, and therefore, no basis for finding that the statute is constitutional.

The FCC decision has three clear effects. First, it purports to preempt state law, including state constitutional law traditionally governing access to rights of way. Second, it purports to compel states and local governments to allow OVS operators to take advantage of the funds and condemnation powers that are used to acquire streets and rights of way. Third, because local governments often have a legal obligation to protect the streets and roads, the Orders impose potentially enormous new burdens on local efforts to effectively manage that property in furtherance of the federal legislative program. While state law obviously can be preempted under appropriate circumstances, in a federal system that presumes the existence of sovereign federal and state governments, preemption is not lightly implied, and is to be avoided where possible. Moreover, the manner in which the federal authority is exercised is critical to its constitutionality; the federal government cannot, for example, commandeer a state's legislative processes.⁽⁶⁹⁾ The FCC's decision adopts just the opposite approach: it assumes that the statute should be read in a manner to compel preemption, and it assumes an authority to convert local and state processes to its OVS program.

In New York v. United States, 505 U.S. 144, 112 S. Ct. 2408, 120 L. Ed.2d 120 (1992), the Supreme Court determined that a statute which forced the State of New York to choose between two alternatives, each of which violated its sovereignty, violated the Tenth Amendment. In examining the issues presented, the Court analyzed the tension between the actions of Congress under the Commerce Clause and the Tenth Amendment:

In some cases, the Court has inquired whether an Act of Congress is authorized by one of the powers delegated to Congress in Article I of the Constitution. [Citations omitted]. In other cases the Court has sought to determine whether an Act of Congress invades the province of state sovereignty reserved by the Tenth Amendment. In a case like this one, involving the division of authority between federal and state governments, the two inquiries are mirror images of each other.

Id. at 155-56, L Ed.2d 137.

Congress was empowered to regulate individuals under the Commerce Clause, not states. The Court stated:

States are not mere political subdivisions of the United States. State governments are neither regional offices nor administrative agencies of the Federal Government. The positions occupied by state officials appear nowhere on the Federal Government's most detailed organizational chart. The Constitution instead "leaves to the several States a residuary and inviolable sovereignty."

Whatever the outer limits of that sovereignty may be, one thing is clear: the Federal Government may not compel the States to enact or administer a federal regulatory program.

Id. at 188, 112 S. Ct. at 2434-35.

In reliance upon New York, this Court has determined that Congress could influence the action of states in several ways that comport with federalism.

"....States are subject to laws of general applicability - i.e. laws which apply equally to the States as to private parties. See, e.g. Garcia v. San Antonio Metro. Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed. 2nd 1016 (1985). Also under its spending power, Congress may attach to the receipt of federal funds conditions that have the affect [sic] of influencing state legislative choices. See, e.g. South Dakota v. Dole, 483 U.S. 203, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987). Further, where Congress may regulate pursuant to its Commerce Clause power, it also has the power to offer States a choice of legislating according to Congressional instruction or having state law preempted by federal regulation. See, e.g. FERC v. Mississippi, 456 U.S. 742, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982); Hodel v. Virginia Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264, 101 S.Ct. 2352, 69 L.Ed.2d 1 (1981)."

ACORN v. Edwards, 81 F.3d 1387 (5th Cir. 1996) at n.13.

The first two categories do not apply to OVS. The OVS statute is not a law of general applicability. Only the right-of-way practices of local governments are involved. The second category does not apply to OVS either. There are no federal funds which attach to the OVS statute to encourage implementation. Although the OVS operator is to pay the "fee in lieu of", the payments are not federal funds and can not be characterized as an enticement to enact and participate in the federal regulatory scheme without any choice on the part of the local government for enactment. OVS can be differentiated from South Dakota,supra, where the state had the choice to enact legislation or not receive the federal highway funds. Rather, the OVS statute, if it fits within any of the categories enumerated by this court in ACORN and the Supreme Court must fall within the third category if it is to survive under Tenth Amendment analysis.

The decision in Hodel v. Virginia Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264 (1981) provides a good example of the distinction between employment of states as states in the federal regulatory scheme, as in New York and the legitimate exercise of Commerce Clause authority. In analyzing federal regulations which overlapped state coal mining regulations, the Hodel court noted that the State of Virginia is not required: to enforce the steep slope standards, to expend any state funds, or to participate in the federal regulatory program in any manner whatsoever. If a State does not wish to submit a proposed permanent program that complies with the Act and implementing regulations, the full regulatory burden will be borne by the Federal Government. Thus, there can be no suggestion that the Act commandeers the legislative processes of the States by directly compelling them to enact and enforce a federal regulatory program. (Hodel at 288).

Section 653, as interpreted by the FCC, does not have the same supplanting effect. The State of Virginia in Hodel could choose to let the federal government provide the regulatory enforcement or seek approval of regulations. A state or local government under OVS has no such choice. Among other things, Petitioner when it uses its sovereign state power to acquire or maintain rights-of-way, must allow the OVS operator to take advantage of the exercise of that power.⁽⁷⁰⁾

Just as in New York, when Congress was addressing the disposal of radioactive waste, the creation of competition among video programming is a worthwhile goal. But as Justice O'Connor stated for the New York Court in discussing the federal system:

Much of the Constitution is concerned with setting forth the form of our government, and the courts have traditionally invalidated measures deviating from the form. The result may appear "formalistic" in a given case to partisans of the measure at issue, because such measures are typically the product of the era's perceived necessity. But the Constitution protects us from our own best intentions. It divides power among sovereigns and among branches of government precisely so that we may resist the temptation to concentrate power in one location as an expedient solution to the crisis of the day. The shortage of disposal sites for radioactive waste is a pressing national problem, but a judiciary that licensed extra-constitutional government with each issue of comparable gravity would, in the long run, be far worse. (New York at 158, 120 L.Ed.2d.)

* * *

Both the Fifth and Tenth Amendment issues can be avoided by applying the plain meaning of the statute. Under the statue's plain meaning, an OVS operator can have no "enforceable right" to access the right-of-way. This plain language interpretation of the compensation provisions of the statute avoids constitutional questions because it leaves states and localities free to obtain fair market value for the property that is being used by the OVS operator and those who are using the OVS system. It also ensures that states and localities are not required to provide access to their property for less than the amount cable operators and those who use cable systems pay to obtain access to state and local property. By contrast, the FCC's interpretation both raises serious constitutional questions and is inconsistent with the plain language of the statute. Under these circumstances, the FCC Orders cannot stand. Serious constitutional issues cannot be avoided if the FCC's interpretation of the OVS provisions is adopted. Accordingly, this Court must reject the FCC's interpretation of the OVS rules, for the same reasons the Bell Atlantic court rejected the FCC's interpretation of the "actual colocation" rules.

II. IF THE FCC'S ORDERS ARE UPHELD, THEN THE STATUTE ITSELF IS UNCONSTITUTIONAL

If the FCC's Orders were deemed to properly interpret the OVS provisions of the Communications Act, the statutory provisions would have to be stricken as unconstitutional. As shown above, when the FCC gave OVS operators an "enforceable right" to use public rights-of-way, it took that public property. In the absence of a judicial remedy for establishing just compensation, the statute cannot survive. But even with a judicial remedy, the taking exposes the federal Treasury to claims that Congress surely did not anticipate. If one assumes there was no taking under the Fifth Amendment, the statute would fall under the Tenth Amendment, inter alia because it would inevitably intrude upon basic state legislative powers, in a manner prohibited under the rationale in New York, and impose impermissible burdens on the exercise of state sovereignty.

CONCLUSION

The FCC order deserves no deference because it is at odds with the statute's plain meaning. Congress did not direct preemption of state and local franchising requirements. The savings clause included in the bill expressly directs a deferential and preservation related approach to State and local franchising requirements. Since no express intention is manifested by Congress in Section 653 to supersede, modify, or impair state or local law, the FCC has exceeded its statutory authority, in the preemption of state and local franchising authority including the ability to seek full and fair compensation for providing access to the right-of-way.

The FCC's reading of the OVS provisions raises serious constitutional issues. With the granting of an enforceable right to access the right of way by third parties, the order creates an unnecessary taking. No consent to a permanent physical occupation of the right-of-way is required. With the taking comes a right of just compensation. The "fee in lieu of" never provides just compensation when measured against the compensation paid by other right-of-way users and further, the taking, when coupled with the Congressional determination of compensation is impermissible under the Constitution. Further, the statute as interpreted by the FCC raises serious 10th Amendment issues. In addition to imposing significant burdens on local government exercising traditional sovereignty over streets and roads, the statute inter alia, may be read to require that the machinery of government be used to function in favor of the federally-approved trespasser.

This Court can avoid the Constitutional concerns by giving effect to state and local law that requires an entity wishing to access the right-of-way obtain the consent of the owner of the right-of-way to occupy the right-of-way. The taking of local right-of-way is not necessary to accomplish the goals of OVS roll-out. It is not called for in the statute except by implication found by the FCC. The FCC attempted to similarly justify its actions in the Bell Atlantic case with a finding of implied authority. The implied preemption, though, simply does not comport with the plain meaning of the statute.

Accordingly, Petitioner respectfully prays that the Court declare set aside, enjoin, or suspend the order of the Federal Communications Commission.

Respectfully submitted,

OFFICE OF THE CITY ATTORNEY

CITY OF DALLAS, TEXAS

1500 Marilla Street, 7BN

Dallas, Texas 75201

(214) 670-3510

Telecopier (214) 670-0622

By:

J. SCOTT CARLSON

Assistant City Attorney

State Bar of Texas No. 03813800

By:

RONALD D. STUTES

Assistant City Attorney

State Bar of Texas No. 19452600

Joseph Van Eaton

William Malone

Matthew C. Ames

MILLER & VAN EATON, p.l.l.c.

1225 Nineteenth Street, N.W.

Washington, D.C. 20036

(202) 785-0600

Attorneys for Petitioner, the United States Conference of Mayors

February 26, 1997

MVE\49991.3\107577-00001

Provisions Directly Applicable to OVS

Section 653(c)(1)(A) specifically provides that the following provisions of Title VI will apply to OVS operators: Section 613 (other than subsection (a)) [ownership restrictions]; Section 616 [programming carriage agreements]; Section 623(f) [prohibition on negative-option billing of subscribers]; Section 628 [competition in video programming distribution]; Section 631 [cable subscriber privacy]; and Section 634 [equal employment opportunity].

Provisions Applicable in Accordance with Rules

Section 653(c)(1)(B) provides that the following provisions of Title VI apply to OVS operators in accordance with rules issued by the Commission: Sections 611 [PEG channels]; 614 [carriage of local commercial broadcast stations] and 615 [carriage of noncommercial broadcast stations].

Provisions Not Applicable to OVS

Section 653(c)(1)(B) states that the following provisions of Title VI will not apply to OVS operators: Section 612 [leased access channels]; 617 [sales of cable systems]; and those sections in parts III and IV of Title VI that are not listed above as included. The unlisted sections of part III that do not apply to operators are:

Section 621 [general franchise requirements], limiting the authority of franchising authorities to address certain issues in their franchises; Section 622 [cable franchise fees], limiting the fee a cable franchising authority may impose; Section 623 [cable rate regulation], which, among other things, preempts local rate regulation authority; Section 624 [services facilities and equipment], limiting franchising authorities' ability to regulate cable services, facilities, and equipment; Section 624A [consumer electronic equipment compatibility]; Section 625 [modification of franchise obligations]; Section 626 [renewal], establishing uniform cable franchise renewal procedures; Section 627 [conditions of sale of cable franchises].

The unlisted sections of part IV that do not apply to operators are: Section 632 [consumer protection], restricting franchising authority over consumer protection and customer service issues; Section 633 [unauthorized reception of cable service]; Section 635 [judicial proceedings]; Section 635A [limitation of franchising authority liability]; Section 636 [coordination of federal, state and local authority]; Section 637 [existing cable franchises]; Section 638 [criminal and civil liability]; Section 639 [obscene programming]; Section 640 [scrambling of cable channels for nonsubscribers]; and Section 641 [scrambling of sexually explicit adult video service programming].

III. TELECOMMUNICATIONS ACT OF 1996

SEC. 601. APPLICABILITY OF CONSENT DECREES AND OTHER LAW.

* * *

(c) FEDERAL, STATE, AND LOCAL LAW. --

(1) NO IMPLIED EFFECT. -- This Act and the amendments made by this Act shall not be construed to modify, impair, or supersede Federal, State, or local law unless expressly so provided in such Act or amendments.

IV. COMMUNICATIONS ACT OF 1934 AS AMENDED BY THE TELECOMMUNICATIONS ACT OF 1996

SEC. 602. [47 U.S.C. § 522] DEFINITIONS.

For purposes of this title -------

* * *

(5) the term "cable operator" means any person or group of persons (A) who provides cable service over a cable system and directly or through one or more affiliates owns a significant interest of such cable system, or (B) who otherwise controls or is responsible for, through any arrangement, the management and operation of such a cable system;

(6) the term "cable service" means --

(A) the one-way transmission to subscribers of (i) video programming service, and

(B) subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service;

(7) the term "cable system" means a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community, but such term does not include (A) a facility that serves only to retransmit the television signals of 1 or more television broadcast stations; (B) a facility that serves subscribers without using any public right-of-way; (C) a facility of a common carrier which is subject, in whole or in part, to the provisions of title II of this Act, except that such facility shall be considered a cable system (other than for purposes of section 621(C)) to the extent such facility is used in the transmission of video programming directly to subscribers, unless the extent of such use is solely to provide interactive on-demand services; (D) an open video system that complies with section 653 of this title; or (E) any facilities of any electric utility used solely for operating its electric utility systems;

* * *

(9) the term "franchise" means an initial authorization, or renewal thereof (including a renewal of an authorization which has been granted subject to section 626), issued by a franchising authority, whether such authorization is designated as a franchise, permit, license, resolution, contract, certificate, agreement, or otherwise, which authorizes the construction or operation of a cable system;

(10) the term "franchising authority" means any governmental entity empower by Federal, State, or local law to grant a franchise;

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(18) the term "State" means any State, or political subdivision, or agency thereof;

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SEC. 611. [47 U.S.C. § 531] CABLE CHANNELS FOR PUBLIC,

EDUCATIONAL, OR GOVERNMENTAL USE.

(a) A franchising authority may establish requirements in a franchise with respect to the designation or use of channel capacity for public, educational, or governmental use only to the extent provided in this section.

(b) A franchising authority may in its request for proposals require as part of a franchise, and may require as part of a cable operator's proposal for a franchise renewal, subject to section 626, that channel capacity be designated for public, educational, or governmental use, and channel capacity on institutional networks be designated for educational or governmental use, and may require rules and procedures for the use of the channel capacity designated pursuant to this section.

(c) A franchising authority may enforce any requirement in any franchise regarding the providing or use of such channel capacity. Such enforcement authority includes the authority to enforce any provisions of the franchise for services, facilities, or equipment proposed by the cable operator which relate to pubic, educational, or governmental use of channel capacity, whether or not required by the franchising authority pursuant to subsection (b).

(d) In the case of any franchise under which channel capacity is designed under subsection (b), the franchising authority shall prescribe --

(1) rules and procedures under which the cable operator is permitted to use such channel capacity for the provision of other services if such channel capacity is not being used for the purposes designated, and

(2) rules and procedures under which such permitted use shall cease.

(e) Subjection to section 624(d), a cable operator shall not exercise any editorial control over any public, educational, or governmental use of channel capacity provided pursuant to this section, except a cable operator may refuse to transmit any public access program or portion of a public access program which contains obscenity, indecency, or nudity.

(f) For purposes of this section, the term "institutional network" means a communication network which is constructed or operated by the cable operator and which is generally available only to subscribers who are not residential subscribers.

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SEC. 613. [47 U.S.C. § 533] OWNERSHIP RESTRICTIONS.

* * *

(b)(1) It shall be unlawful for any common carrier, subject in whole or in part to title II of this Act, to provide video programming directly to subscribers in its telephone service area, either directly or indirectly through an affiliate owned by, operated by, controlled by, or under common control with the common carrier.

(2) It shall be unlawful for any common carrier, subject in whole or in part to title II of this Act, to provide channels of communications or pole line conduit space, or other rental arrangements, to any entity which is directly or indirectly owned by, operated by, controlled by, or under common control with such common carrier, if such facilities or arrangements are to be used for, or in connection with, the provision of video programming directly to subscribers in the telephone service area of the common carrier.

(3) This subsection shall not apply to any common carrier to the extent such carrier provides telephone exchange service in any rural area (as defined by the Commission).

(4) In those areas where the provision of video programming directly to subscribers through a cable system demonstrably could not exist except through a cable system owned by, operated by, controlled by, or affiliated with the common carrier involved, or upon other showing of good cause, the Commission may, on petition for waiver, waive the applicability of paragraphs (1) and (2) of this subsection. Any such waiver shall be made in accordance with section 63.56 of title 47, Code of Federal Regulations (as in effect September 20, 1984) and shall be granted by the Commission upon a finding that the issuance of such waiver is justified by the particular circumstances demonstrated by the petitioner, taking into account the policy of this subsection.

(Repealed by Section 302(b)(1) of the Telecommunications Act of 1996)

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* * *

SEC. 622. [47 U.S.C. § 542] FRANCHISE FEES.

(a) Subject to the limitation of subsection (b), any cable operator may be required under the terms of any franchise to pay a franchise fee.

(b) For any twelve-month period, the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator's gross revenues derived in such period from the operation of the cable system to provide cable services. For purposes of this section, the 12-month period shall be the 12-month period applicable under the franchise for accounting purposes. Nothing in this subsection shall prohibit a franchising authority and a cable operator from agreeing that franchise fees which lawfully could be collected for any such 12-month period shall be paid on a prepaid or deferred basis; except that the sum of the fees paid during the term of the franchise may not exceed the amount, including the time value of money, which would have lawfully been collected if such fees had been paid per annum.

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SEC. 651. [47 U.S.C. 571] REGULATORY TREATMENT OF VIDEO

PROGRAMMING SERVICES.

(a) LIMITATIONS ON CABLE REGULATION. --

(1) RADIO-BASED SYSTEMS. -- To the extent that a common carrier (or any other person) is providing video programming to subscribers using radio communication, such carrier (or other person) shall be subject to the requirements of title III and section 652, but shall not otherwise be subject to the requirements of this title.

(2) COMMON CARRIAGE OF VIDEO TRAFFIC. -- To the extent that a common carrier is providing transmission of video programming on a common carrier basis, such carrier shall be subject to the requirements of title II and section 652, but shall not otherwise be subject to the requirements of this title. This paragraph shall not affect the treatment under section 602(7)(C) of a facility of a common carrier as a cable system.

(3) CABLE SYSTEMS AND OPEN VIDEO SYSTEMS. -- to the extent that a common carrier is providing video programming to its subscribers in any manner other than that described in paragraphs (1) and (2) --

(A) such carrier shall be subject to the requirements of this title, unless such programming is provided by means of any open video system for which the Commission has approved a certification under section 653; or

(B) if such programming is provided by means of an open video system for which the Commission has approved a certification under section 653, such carrier shall be subject to the requirements of this part, but shall be subject to parts I through IV of this title only as provided in 653(c).

(4) ELECTION TO OPERATE AS OPEN VIDEO SYSTEM. -- A common carrier that is providing video programming in a manner described in paragraph (1) or (2), or a combination thereof, may elect to provide such programming by means of an open video system that complies with section 653. If the Commission approves such carrier's certification under section 653, such carrier shall be subject to the requirements of this part, but shall be subject to parts I through IV of this title only as provided in 653(c).

(b) LIMITATIONS ON INTERCONNECTION OBLIGATIONS. -- A local exchange carrier that provides cable service through an open video system or a cable system shall not be required, pursuant to title II of this Act, to make capacity available on a nondiscriminatory basis to any other person for the provision of cable service directly to subscribers.

(c) ADDITIONAL REGULATORY RELIEF. -- A common carrier shall not be required to obtain a certificate under section 214 with respect to the establishment or operation of a system for the delivery of video programming.

* * *

VIDEO SYSTEMS.

(a) OPEN VIDEO SYSTEMS. --

(1) CERTIFICATES OF COMPLIANCE. -- A local exchange carrier may provide cable service to its cable service subscribers in its telephone service area through an open video system that complies with this section. To the extent permitted by such regulations as the Commission may prescribe consistent with the public interest, convenience, and necessity, an operator of a cable system or any other person may provide video programming through an open video system that complies with this section. An operator of an open video system shall qualify for reduced regulatory burdens under subsection (c) of this section if the operator of such system certifies to the Commission that such carrier complies with the Commission's regulations under subsection (b) and the Commission approves such certification. The Commission shall publish notice of the receipt of any such certification and shall act to approve or disapprove any such certification within 10 days after receipt of such certification.

(2) DISPUTE RESOLUTION. -- The Commission shall have the authority to resolve disputes under this section and the regulations prescribed thereunder. Any such dispute shall be resolved within 180 days after notice of such dispute is submitted to the Commission. At that time or subsequently in a separate damages proceeding, the Commission may, in the case of any violation of this section, require carriage, award damages to any person denied carriage, or any combination of such sanctions. Any aggrieved party may seek any other remedy available under this Act.

(b) COMMISSION ACTIONS. --

(1) REGULATIONS REQUIRED. -- Within 6 months after the date of enactment of the Telecommunications Act of 1996, the Commission shall complete all actions necessary (including any reconsideration) to prescribe regulations that--

(A) except as required pursuant to section 611, 614, or 615, prohibit an operator of an open video system from discriminating among video programming providers with regard to carriage on its open video system, and ensure that the rates, terms, and conditions for such carriage are just and reasonable, and are not unjustly or unreasonably discriminatory;

(B) if demand exceeds the channel capacity of the open video system, prohibit an operator of an open video system and its affiliates from selecting the video programming services for carriage on more than one-third of the activated channel capacity on such system, but nothing in this subparagraph shall be construed to limit the number of channels that the carrier and its affiliates may offer to provide directly to subscribers;

(C) permit an operator of an open video system to carry on only one channel any video programming service that is offered by more than one video programming provider (including the local exchange carrier's video programming affiliate): Provided, That subscribers have ready and immediate access to any such video programming service;

(D) extend to the distribution of video programming over open video systems the Commission's regulations concerning sports exclusivity (47 C.F.R. 76.67), network nonduplication (47 C.F.R. 76.92 et seq.), and syndicated exclusivity (47 C.F.R. 76.151 et seq.); and

(E)(i) prohibit an operator of an open video system from unreasonably discriminating in favor of the operator or its affiliates with regard to material or information (including advertising) provided by the operator to subscribers for the purposes of selecting programming on the open video system, or in the way such material or information is presented to subscribers;

(ii) require an operator of an open video system to ensure that video programming providers or copyright holders (or both) are able suitably and uniquely to identify their programming services to subscribers;

(iii) if such identification is transmitted as part of the programming signal, require the carrier to transmit such identification without change or alteration; and

(iv) prohibit an operator of an open video system from omitting television broadcast stations or other unaffiliated video programming services carried on such system from any navigational device, guide, or menu.

(2) CONSUMER ACCESS. -- Subject to the requirements of paragraph (1) and the regulations thereunder, nothing in this section prohibits a common carrier or its affiliate from negotiating mutually agreeable terms and conditions with over-the-air broadcast stations and other unaffiliated video programming providers to allow consumer access to their signals on any level or screen of any gateway, menu, or other program guide, whether provided by the carrier or its affiliate.

(c) REDUCED REGULATORY BURDENS FOR OPEN VIDEO SYSTEMS.-

(1) IN GENERAL. -- Any provision that applies to a cable operator under--

(A) sections 613 (other than subsection (a) thereof), 616, 623(f), 628, 631, and 634 of this title, shall apply,

(B) sections 611, 614, and 615 of this title, and section 325 of title III, shall apply in accordance with the regulations prescribed under paragraph (2), and

(C) sections 612 and 617, and parts III and IV (other than sections 623(f), 628, 631, and 634), of this title shall not apply, to any operator of an open video system for which the Commission has approved a certification under this section.

(2) IMPLEMENTATION. --

(A) COMMISSION ACTION. -- In the rulemaking proceeding to prescribe the regulations required by subsection (b)(1), the Commission shall, to the extent possible, impose obligations that are no greater or lesser than the obligations contained in the provisions described in paragraph (1)(B) of this subsection. The Commission shall complete all action (including any reconsideration) to prescribe such regulations no later than 6 months after the date of enactment of the Telecommunications Act of 1996.

(B) FEES. -- An operator of an open video system under this part may be subject to the payment of fees on the gross revenues of the operator for the provision of cable service imposed by a local franchising authority or other governmental entity, in lieu of the franchise fees permitted under section 622. The rate at which such fees are imposed shall not exceed the rate at which franchise fees are imposed on any cable operator transmitting video programming in the franchise area, as determined in accordance with regulations prescribed by the Commission. An operator of an open video system may designate that portion of a subscriber's bill attributable to the fee under this subparagraph as a separate item on the bill.

(3) REGULATORY STREAMLINING. -- With respect to the establishment and operation of an open video system, the requirements of this section shall apply in lieu of, and not in addition to, the requirements of title II.

(4) TREATMENT AS CABLE OPERATOR. -- Nothing in this Act precludes a video programming provider making use of an open video system from being treated as an operator of a cable system for purposes of section 111 of title 17, United States Code.

(d) DEFINITION OF TELEPHONE SERVICE AREA. -- For purposes of this section, the term `telephone service area' when used in connection with a common carrier subject in whole or in part to title II of this Act means the area within which such carrier is offering telephone exchange service.'

1. The Communications Act of 1934 is codified at 47 U.S.C. § 151 et seq. ("the Communications Act"). That Act includes separate titles governing the operations of common carriers (Title II), broadcasters (Title III), and cable operators (Title VI). Section 653 was added to Title VI, by Section 302 of the Telecommunications Act of 1996, P.L. 104-104, 110 Stat. 56, approved February 8, 1996. The orders implementing Section 653, 47 U.S.C. § 573, that are the subject of this brief are: 1) In the Matter of: Implementation of Section 302 of the Telecommunications Act of 1996, Second Report and Order, 3 Comm. Reg. 196 (P&F) (1996) ("Second Report and Order") and 2) In the Matter of: Implementation of Section 302 of the Telecommunications Act of 1996, Third Report and Order and Second Order on Reconsideration, 4 Comm. Reg. 380 (P&F) (1996) ("Third Report and Order"). The Second Report and Order and the Third Report and Order amend Part 76 of Title 47 of the Code of Federal Regulations and are sometimes referred to collectively herein as the Orders.