IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

CITY OF DALLAS, TEXAS, § Case Nos. 96-60502

Petitioner, § 96-60581

§ 96-60844

vs. § (consolidated)

§

FEDERAL COMMUNICATIONS COMMISSION §

and THE UNITED STATES OF AMERICA, §

Respondents. §

J. Scott Carlson Joseph Van Eaton

Ronald D. Stutes William Malone

Assistant City Attorneys Matthew C. Ames

CITY OF DALLAS MILLER & VAN EATON, P.L.L.C.

1500 Marilla Room 7DN 1225 Nineteenth Street, N.W., #400

Dallas, TX 75201 Washington, D.C. 20036

(214) 670-3478 (202) 785-0600

Attorneys for Petitioner, the United

States Conference of Mayors

June 2, 1997

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

CITY OF DALLAS, TEXAS, § Case Nos. 96-60502

Petitioner, § 96-60581

§ 96-60844

vs. § (consolidated)

§

FEDERAL COMMUNICATIONS COMMISSION §

and THE UNITED STATES OF AMERICA, §

Respondents. §

TO THE HONORABLE JUDGES OF SAID COURT:

Petitioners, City of Dallas, Texas and the United States Conference of Mayors (jointly, "Dallas"), respectfully submit this brief in reply to the Briefs for Respondents and intervenor telephone companies and RCN.

This case revolves not around local regulation of OVS, but the use of local government property and who controls that use: the federal government or local governments. The FCC admits that it is preempting local franchising authority and that it is taking local government property, but it cannot present a cogent argument that proves it has the authority to do either. Instead, the FCC is forced to ignore the record below, misstate the history of cable television franchising, and resort to false logic.

In an effort to disguise the fact that its rules effect a taking of almost every state and local right-of-way in the country, the FCC claims its rules are only a "narrow preemption." But the power to regulate is not the power to appropriate. The FCC has certain authority to regulate OVS operators -- but that authority does not include the power to interfere with local government property rights. In granting OVS operators the right to physically occupy rights-of-way, and denying local governments the right to exclude, the FCC violates the Fifth Amendment. Loretto v. Manhattan Teleprompter CATV Corp., 458 U.S. 419 (1982); Nollan v. California Coastal Commission, 483 U.S. 825 (1987).

Furthermore, the FCC must be able to demonstrate that it has the authority to preempt state or local law. That authority may be express or implied, and the FCC insists that it has express authority. In fact, however, the FCC’s reading of the statute compels the conclusion that it has no more than implied authority, if that. Because Section 601(c) of the Telecommunications Act of 1996 (the "1996 Act") states that no state or local law may be preempted under the Act unless the statute expressly requires it, the FCC has no authority to preempt local franchising.

The FCC also misstates the purpose and effect of the 1984 Cable Act. Despite the Commission’s efforts, the fact remains that Congress meant for local governments to retain their traditional powers, and it never expressed any intention to preempt the field. The courts have recognized that cable television franchising power remains at the local level.

Unable to prevail on the merits, the FCC resorts to applying the wrong standard of review and introducing an irrelevant discussion of the appropriate standard of compensation. In the process, the agency misstates the record below regarding two critical points. First, despite the FCC’s assertion, there was evidence in the record showing that the presence of OVS providers in the right-of-way will impose substantial costs on local governments. Second, there is no evidence to support the argument that OVS providers will be able to deliver service over their existing facilities.

In any case, even if the FCC had the authority to take local rights-of-way, and its discussion of the standard of compensation were relevant, its compensation method is flawed. The OVS rules do not properly account for damages to the remainder. The "fee in lieu" caps compensation for use of the rights-of-way, but does not provide compensation for damages caused by the presence of multiple operators in the rights-of-way. Furthermore, the FCC cannot both effect a taking and determine the level of compensation.

Finally, the FCC cannot avoid the plain language of Section 653. Congress could have regulated compensation and required nondiscriminatory access to the right-of-way, without taking local government property, as it did in Section 221 of the Communications Act, but it did not. Instead, Congress simply removed existing federal restrictions under Title VI, leaving local governments free to franchise OVS operators. Section 653 offers no reason to believe that Congress finds local franchising incompatible with federal telecommunications policy.

1. DESPITE THE EFFORTS OF THE FCC AND THE INTERVENORS TO DISGUISE THE FCC’S UNAUTHORIZED TAKING OF MUNICIPAL PROPERTY AS A MERE "NARROW PREEMPTION," A TAKING IS A TAKING.

The FCC and the Intervenors – particularly Bell Atlantic – know full well that the FCC must be able to demonstrate that it has express authority to take any property. Bell Atlantic Telephone Cos. v. FCC, 24 F.3d 1441 (D.C. Cir. 1994). Since the FCC has no such authority in this case, it tries to evade the issue by claiming it is taking nothing, but merely engaged in a "narrow preemption" of local authority.

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The FCC’s "Enforceable Right" to Use the Rights of Way Constitutes a Taking in Every Conceivable Instance, and Nothing the FCC or Intervenors Have Said Can Change that Fact.

The expropriatory effects of the OVS rules are undeniable. There are three possible classes of OVS operators, and in each case the FCC’s rule effects a taking. First, the FCC may grant authority to use local rights-of-way to new entrants into the video programming market. See DBOVS Order. Second, an existing right-of-way user may need to install additional facilities before it can provide OVS service. See BellSouth Brief at 21-24 (discussing need of incumbent telephone company to install additional facilities to support OVS). Third, the FCC may grant authority to an existing right-of-way user that will provide OVS service using only existing facilities. In all three cases, granting the right to install OVS facilities in public rights-of-way is undeniably a taking because the grant of the right to physically occupy the property of another constitutes a taking, no matter how small an area is actually occupied. Loretto v. Manhattan Teleprompter CATV Corp., 458 U.S. 419 (1982). This case is so clear that neither the FCC nor Intervenors have even cited Loretto: they cannot distinguish it and so have not tried to.

The FCC’s grant is also a taking under Nollan v. California Coastal Commission, 483 U.S. 825 (1987). In that case, the Supreme Court found that the right to exclude is at the core of the property rights protected by the Fifth Amendment. Id. at 831-32. If the FCC can grant an enforceable right to use local property over the objections of the right-of-way owner, it is denying the owner the right to exclude.

The FCC and the Intervenors know the OVS rules involve a taking – indeed, the FCC admits that at least in some cases there will be a taking. Respondents’ Br. at 31. The FCC, however, attempts to avoid the issue by asserting that Congress gave it no choice. Id. at ___. Under this theory, Congress allegedly required the FCC to preempt local franchising authority over OVS – and therefore take local property -- by including Section 621 in the list of Title VI provisions that do not apply to OVS. There are three flaws in this argument. First, it fails to explain how the FCC acquired its takings authority, since Section 653(c), which states that Section 621 will not apply to OVS operators, says nothing about takings. What the FCC is really saying is that it thinks it has implied authority to effect a taking, but under Bell Atlantic this is not enough. Second, the FCC fails to explain how the lifting of a restriction could possibly constitute a directive to do anything. As we discuss in Part II, Congress has not preempted the field of cable regulation, and even if it had, merely lifting the restriction imposed by Section 621 does not constitute an express directive to take municipal property. At most it would be an implied directive, and implied takings are, once again, forbidden under Bell Atlantic. Third, as noted in Kirby Forest Industries, Inc. v. U.S., 467 US 1 (1984), Congress has established statutory provisions governing the process by which property is taken. The federal eminent domain process includes independent appraisals, specific appropriations, and instructions to the Secretary of the Treasury or other department heads. 40 U.S.C. 257, 40 U.S.C. 258a. Congress has invoked none of these traditional processes in connection with Section 653. Consequently, it is disingenuous for the FCC to insist that it had no choice but to follow the course it chose.

2. The Power to Regulate Is Not the Power to Appropriate.

Because they cannot win on the takings issue, the FCC and Intervenors try to confuse the matter by emphasizing Congressional authority to preempt state law. But that is not the issue. We do not dispute that Congress has the authority to preempt state and local laws, or that it may grant that authority to the FCC. Nor do we dispute that the FCC has the authority to regulate certain aspects of the provision of video programming services. But we do dispute the notion that the power to regulate the provision of OVS necessarily carries with it the power to appropriate local rights-of-way. This case is about property rights, not regulation.

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C.The FCC’s Authority to Regulate OVS Does Not Include Preemption of Local Franchise Authority.

We also dispute the idea that anything in Section 653 authorizes the preemption of local franchising authority. In fact, the FCC can point to no affirmative authority for its rule authorizing access to the local right-of-way, even though Section 653(b) contains explicit, detailed rulemaking instructions regarding such issues as the amount of channel capacity for unaffiliated programmers, sports exclusivity rules and other minutiae. The 1996 Act also specifically forbids any implied preemption of state or local law. Consequently, the FCC has no power to preempt local franchise authority.

The Supreme Court has repeatedly warned against the casual preemption of state or local law, both by federal statutes and by administrative regulations. As the Court stated in Gregory v. Ashcroft, 501 U.S. 452, 460 (1991), "we must assume Congress does not exercise [the power to preempt] lightly." Congress must make its intention "clear and manifest" if it intends to preempt the traditional powers of the States. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). The power to franchise users of the rights-of-way is such a traditional power, so any intention to preempt it must be clearly stated.

Throughout the history of the Communications Act, Congress has deferred to state and local authority. For example, Title II of the Communications Act only grants the FCC authority over interstate communications, leaving to the states their traditional intrastate jurisdiction. The 1984 Cable Act established a similar jurisdictional separation, which the courts have recognized. See Part II, infra. Finally, in adopting the 1996 Act, Congress continued to defer to state and local property rights. For example, when it gave the FCC permission to preempt state and local "barriers to entry," Congress specifically excluded right-of-way matters. See Section 253. The OVS rules and the FCC’s brief, however, do not show this traditional deference.

Under recent Fifth Circuit precedent, the FCC must show that it has either express or implied authority to preempt local franchising authority over OVS providers. In U.S. v. Cajun Electric Power Cooperative, Inc., 109 F.3d 248 (5th Cir. 1997), the Court held that the Rural Electrification Administration (the "REA") did not have the authority to preempt the Louisiana Public Service Commission’s jurisdiction over rates. The agency had unambiguously intended to preempt the state rate order, so the question to be decided was whether the REA had that authority. The Court found that:

the [federal enabling statute] plainly does not expressly empower or authorize the Secretary to pre-empt the jurisdiction of a state regulatory agency or to regulate the [relevant] rates . . . The language and history of the [statute] convince us that, if Congress implicitly delegated to the Secretary the power to pre-empt state jurisdiction or to fix rates, the Act does not authorize the Secretary to do so [for the purpose stated by the REA].

Id. at ___.

The FCC claims it has express authority to preempt local franchising authority because (1) OVS is supposed to provide a viable alternative to cable; (2) Congress stated that certain provisions of Title VI would not apply to OVS, including Section 621; and (3) therefore, "given the plain language of the statute," the FCC has the authority to preempt local franchising authority. Respondents’ Br. at ___. The trouble with this line of reasoning is that it does not demonstrate that the FCC has express authority; the most that can be said is that it might mean the FCC has implied authority.

But implied authority is not enough. The savings clause, found in Section 601(c) of the 1996 Act, states that the statute "shall not be construed to modify, supersede or impair any federal, state or local law unless expressly so provided . . . ." Just to be sure that it was clear, in subsection (2) of Section 601(c), Congress identified those laws that it did intend to preempt. Nowhere is there an express indication that it intended to preempt the state and local requirements of a franchise, including the need to obtain the consent of local government to access the local right of way. The FCC’s brief, however, dismisses the significance of Section 601(c) by asserting that it had express authority to preempt local franchising authority. As discussed above, this is simply not true.

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The FCC’s Preemption of Franchising Authority Commandeers Local Governmental Processes by Granting Enforceable Rights to Use Rights-of-Way that Local Governments Have No Choice but To Maintain.

The FCC claims that preemption of franchising authority is not a commandeering of local government processes. The FCC blithely asserts that its rules do not require local governments to regulate OVS providers, and thus the FCC has not compelled the states to regulate, as prohibited by the Tenth Amendment. In fact, however, the FCC has compelled local governments to act because local governments have no choice but to acquire and maintain rights-of-way: After all, that is one of their primary functions.

By taking advantage of the established existence of local processes in this manner, the FCC has commandeered local government processes just as surely as if it had directed them to grant franchises to all comers. The reason that the FCC has given OVS providers the right to use local rights-of-way is that those rights-of-way are useful, and the rights-of-way are and will continue to be useful solely because of the continuing exercise of governmental functions at the local level.

The FCC claims that it is only preempting the manner of regulation, that is, it has declared "that state and local officials may not regulate OVS operators through the franchise system." Respondents’ Br. at 38. This is more sleight-of-hand. The right to grant a franchise is an attribute of sovereignty. By preempting the right to issue a franchise, the FCC deprives local governments of an element of sovereignty, thereby appropriating a power that the Constitution reserves to the States. The local government is left with no role other than to administer the rights-of-way for the benefit of the goals established by the FCC. Furthermore, the residual authority to manage the rights-of-way is of limited value because the local government can never implement the ultimate sanction and evict a user for failure to follow local law.

2. THE FCC BRIEF’S NOVEL INTERPRETATION OF THE SOURCE OF LOCAL FRANCHISING AUTHORITY COMPLETELY IGNORES THE LAW AND THE FACTS.

The arguments of the FCC and the Intervenors hinge on a single unsupported – and unsupportable – statement in the FCC’s brief: "After the 1984 Cable Act added Title VI to the Communications Act, Section 621 became the exclusive source of local franchising authority over cable operators." Respondents’ Br. at 28. To any person who knows anything about the history and purpose of the 1984 Cable Act, this statement is simply astonishing.

As we noted in our opening brief, local governments have always had franchising authority, and were using that authority to govern their relationships with cable operators long before the 1984 Cable Act became law. When the FCC first attempted to regulate cable television it did not interfere with the basic structure of the franchising system.

Congress pursued the same policy in enacting the 1984 Cable Act. For example, nowhere does the 1984 Cable Act state that existing local authority to grant franchises is preempted. Indeed, the term "franchising authority" is defined as "any governmental entity empowered by Federal, State, or local law to award a franchise." Section 602(10). Thus, state and local franchising authority is implicit in the statute. In addition, Section 621 does not state that local governments must award franchises; it states that a franchising authority "may" award a franchise. Section 621(a). The franchise requirement imposes an obligation only on the cable operator, who may not provide service without first obtaining a local franchise. Section 621(b)(1).

Nor is Section 621 a delegation of federal authority to local franchising authorities. On its face, Section 621 merely permits a local franchising authority to exercise its pre-existing authority to grant franchises, but within federal limits. Section 621 does not authorize the franchising authorities to do anything they cannot already do under state law. Much as Section 414 of the Communications Act, 47 U.S.C. § 414, saves rights under state law, Section 621 of the Cable Act is confirmed in the recitation of Congressional purpose in Section 601. Section 601 reflects a Congressional choice of continued reliance on the local franchising process as the primary means of cable television regulation, while defining and limiting the authority that a franchising authority may exercise through the franchise process.

The courts agree with this analysis. The Court of Appeals for the District of Columbia Circuit has stated that the one of the purposes of the 1984 Cable Act was to "preserve[] the local franchising system . . . " National Cable Television Ass’n v. FCC, 33 F.3d 66, 69 (D.C. Cir. 1994). Later, in Time Warner Entertainment Co., L.P. v. FCC, 93 F.3d 957 (1996), the same court stated:

Prior to 1984, cable television was largely regulated at the local level, primarily through the franchise process. [Citation to House Report omitted.] The 1984 Act established a national policy for local, state, and federal regulation of cable; but it continued to rely on local franchising as the primary means of regulation. . . .

Id. at 963. The court went on to say:

In fact, prior to the passage of the 1984 Cable Act, and thus, in the absence of federal permission, many franchise agreements provided for [public, educational and governmental access] channels. . . . Congress thus merely recognized and endorsed the preexisting practice . . . [A] statute that simply permits franchise authorities to regulate where they had previously done so raises no First Amendment problems unless the localities themselves infringe on cable operators’ speech.

Id. at 972-973.

The Supreme Court has likewise recognized that "[t]he Cable Act left franchising to state or local authorities . . . " City of New York v. FCC, 486 U.S. 57, 61 (1988). And, in Turner Broadcasting v. FCC, 512 U.S. 622, ____, (1994), the Supreme Court stated: "The construction of [a cable system’s] infrastructure entails the use of public rights-of-way and often results in the disruption of traffic on streets and other public property. The cable medium may depend for its very existence upon express permission from local government authorities."

Despite this array of precedent and evidence, the FCC insists that local governments no longer have any franchising authority independent of Section 621. We submit that this reveals the true weakness of the OVS rules. Unless the FCC can convince the Court to ignore the facts and the law surrounding cable franchising, the FCC’s OVS rules must fall. Congress has shown no desire to interfere with the property rights of local governments.

3. THE FCC’S BRIEF IGNORES THE RECORD BELOW AND RESTS ON MISSTATEMENTS OF FACT REGARDING THE BURDEN OVS WILL IMPOSE ON THE RIGHT-OF-WAY.

The FCC’s brief claims that "at this preliminary juncture, the cities can only assert a facial challenge to the 1996 Act." Respondent’s Br. at 32. The FCC then argues that such a facial challenge fails because the compensation provided under the FCC’s rules is adequate.

The Court should not be fooled by this attempted sleight-of-hand. The Court need not examine such questions as the applicability of the before-and–after test or the adequacy of compensation. The Court need only consider whether the statute granted the FCC express authority to preempt franchising authority and to effect a taking. Since we have shown it did not, the matter ends there. In the process of rebutting our alleged "facial challenge," however, the FCC’s brief makes a number of claims that ignore the record below and misstate the facts about the burden OVS will impose on right-of-way that we cannot allow to go uncorrected.

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There Was Evidence in the Record Below Demonstrating that the Presence of OVS Operators in the Streets Would Diminish the Value of the Rights-of-Way.

The FCC makes the remarkable assertion that there is no evidence that granting OVS operators access "would substantially diminish the property value of the community’s right-of-way." Respondents’ Br. at 35. Dallas and other local government interests did not only argue this point, but introduced many pages of studies and reports demonstrating that even one service provider can have a substantial effect on the value of the right-of-way. Every time a service provider cuts into the surface of the roadway, the useful life of that roadway is diminished. Thus, the presence of service providers imposes costs on the local government, which in turn causes a reduction in the value of the right-of-way.

The Appendices to the NLC Petition amply demonstrate the size of the burden imposed on public rights-of-way by telecommunications and cable providers and other users. For example, a study conducted for the City of San Francisco found that street cuts made by right-of-way users to install and maintain their facilities had a dramatic effect on the average life of the City’s streets. A street that has been subject to three or fewer cuts has an average life of 26 years; when the number of cuts exceeds nine, that life is cut by half, to 13 years. San Francisco spends $13.4 million each year to repair its streets. Much of that expenditure would not be required but for the presence of service providers in the rights-of-way.

Another report, prepared by the City of Anaheim, noted that telecommunications deregulation would mean increased construction in the rights-of-way, and thus increased costs on the City. Installation of OVS facilities is a component of those costs. The Anaheim report estimated that, for a new arterial street, one street cut would reduce the life of the street by 4.5 years and cost the City $7.70 per square yard of pavement. Id. at 5-6. When converted to a linear foot measure, the City concluded that each such street cut cost the City $10.24. Id. In other words, installation of a new network – or replacement or upgrade of an existing network -- causes the City over $54,000 per street mile in repair costs.

It is thus a simple fact that right-of-way occupants impose substantial costs, and local governments all across the country face the same problems. The FCC may believe, however wrongly, that its compensation mechanism adequately accounts for any diminution in value, but it may not ignore the record before it and blandly assert that there is no evidence of harm.

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Contrary to the FCC’s Assertions, There Is No Credible Evidence that OVS Providers Will Rely Entirely on Existing Facilities.

The FCC attempts to dismiss the burden on the right-of-way and minimize the effect of its rules by claiming that:

LECs who become OVS operators may not need "to string additional wires in some places, but merely to use or replace existing wires to deliver video as well as telephone service." [citation omitted] When LECs provide open video service "over the same network they use to provide telephone service," there is no basis for concluding that a ‘taking’ has occurred.

Respondent’s Br. at 32.

The truth is, however, that there is no evidence that any telephone company is prepared to provide video service over a significant portion of its service area using its existing telephone network. Indeed, in its brief in this case, Petitioner BellSouth acknowledges that it must install substantial new facilities if it is to become an OVS operator. BellSouth Brief at 20-24 (arguing that FCC’s rules hinder BellSouth’s ability to develop an OVS network because the company has not completed its OVS network planning).

In addition, even if the telephone companies did have the technology and infrastructure in place to deliver video programming over existing facilities, the FCC has already granted certification to new entrants that are not now in the rights-of-way. Intervenor RCN is just one of those new entrants. These entities will need to install entire new networks and therefore will impose substantial additional burdens on the right-of-way. The FCC, however, asserts those costs are de minimis and ignores them. As shown above, the record clearly indicates that the cost of installing facilities is not de minimis.

Finally, the FCC’s references to "an additional wire" crossing the right-of-way are misleading and self-contradictory. Respondents’ Br. at 34, citing Second Order at ¶ 221. The statement is misleading because it implies that only a single wire crossing a street is involved, when in fact that wire will run the length of the right-of-way. If placed underground, that single wire will require a trench, with all the accompanying disruption and expense. If above ground, it will add to the visual blight that strikes anybody who enters an older community with a wall of wires on its utility poles. The FCC’s image is also self-contradictory, because on the very next page the FCC states that "it seems unlikely that more than a few OVS operators will seek to provide service in any particular municipality." Respondents’ Br. at 35. Which is it? An additional wire, or a few additional wires? And how many is "a few"? All of a sudden the effect of the FCC’s "narrow preemption" and "de minimis" burden has doubled, tripled, maybe even quadrupled.

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The FCC’s Emphasis on the Before and After Test Fails To Recognize the Full Effects of the OVS Rules on Local Rights-of-Way.

The FCC points to the "before and after" test as the appropriate measure of damages for the taking effected by its rules. But in applying the before and after test, the FCC fails to recognize that just compensation has more than one component. The OVS rules affect local government property rights in two ways: they restrict a local government’s ability to obtain compensation for the use of public property, and they fail to provide compensation for the additional burdens imposed on the rights-of-way by additional occupants. Both of these components are compensable. The FCC apparently believes that the before and after test adequately accounts for both categories, Respondents’ Br. at 33, because of the so-called "de minimis" effects of OVS on the rights-of-way. But even if we were to assume that the fee in lieu is adequate compensation for the loss of the right to negotiate payment for the use of the rights-of-way, the FCC’s application of the before and after test fails to account properly for costs arising out of the OVS providers’ presence in the rights-of-way.

For example, consider again the case of RCN and other new entrants. As it stands now, it is not at all clear that local governments will be compensated for all the new costs such entities might impose. Suppose RCN builds its networks, but finds it cannot compete with the incumbent cable operators and goes out of business. Every local government in RCN’s operating area will face increased street repair costs, but will receive little or nothing in fees under the FCC’s rules, because if RCN has little or no revenue, the cities get little or no compensation.

Put another way, the FCC ignores the substantial damages to the remainder that an OVS occupancy may create. Such damages are compensable under the before and after test. The "fee in lieu" represents (at most) the lost ability to obtain rent for that portion of the right-of-way taken for the benefit of the OVS provider. The "fee in lieu" is not a substitute for damages to the remainder, represented by the burden of additional street cuts and other costs. Indeed, the FCC’s Third Order seems to recognize that such costs are recoverable as long as they are assessed on a nondiscriminatory basis (see ¶ 196), but the FCC’s brief and the Second Order confuse the issue by asserting such costs are de minimis.

Unless local governments are permitted to recover the full cost of an OVS provider’s presence in the right-of-way, the FCC’s rules impose a taking without compensation. For example, in Bell Atlantic, the court pointed to the difference between the measure of compensation authorized by the FCC and both the measure of compensation required for just compensation and the potential drain on the Treasury that a shortfall might create. Just this case, those factors supported a finding that the FCC had usurped Congressional spending power in the event of a taking and therefore that no taking was authorized.

4. Determining Just Compensation Is a Judicial Function.

Congress could have preempted state and local franchising authority over OVS in Section 653(c) but instead chose to eliminate only federal cable franchising requirements found in Section 621 of the Communications Act. That is not a surprising result given that an OVS is not a cable system and is a new, discrete and different regulatory regime from cable. See Section 651. The FCC, however, defends its decision on the ground that local franchising would hinder Congressional policy, and therefore Congress must have meant to preempt. This is incorrect, as the history of cable and telephone franchising proves.

The phenomenal growth of the cable industry over the last 20 years – both before and after passage of the 1984 Cable Act – demonstrates the utility of local franchising. Without it, the FCC would have been forced to police the day-to-day activities of every operator in the country in minute detail. It is also critical to note that in many states, including Texas, the telephone industry obtains access to rights-of-way under local telephone franchises. We find it particularly ironic that USTA insists that Congress could not have intended to allow franchising of OVS operators, when Congress has never interfered with local telephone franchising over the course of the last century.

The Court should bear in mind what is really at stake: if OVS franchising is banned, every telephone company in the country will eventually be able to avoid its obligations under its telephone franchises, as well as regulation under Title II and Title VI. Cable operators may receive the same right. The merging of technologies means that the traditional line between voice and video is rapidly blurring. Section 653 and the FCC’s rules are being used to create a wholly national regulatory scheme, governed entirely by the FCC, unlike anything the Congress has ever before enacted in the communications field. We find it hard to believe that Congress meant to effect such a fundamental change in policy using only the language of Section 653.

It may be true that the delivery of video programming would be more efficient if the federal system were abolished and the FCC given total control over every element of the telecommunications infrastructure in this country, including the power to manage all property used by telecommunications and video programming providers. But we have not abolished the federal system, and local governments still have property rights. Granting the FCC authority to regulate OVS simply does not and cannot abrogate those property rights.

Congress knows how to restrict local franchising authority, as it did in the 1984 Cable Act. Congress also knows how to grant nondiscriminatory rights-of-way without taking property. This is exactly what Congress did under Section 221 of the Communications Act. In FCC v. Florida Power, 480 U.S. 245 (1987), the Supreme Court held that Section 221 was not a taking because utilities were subject to it only if they chose to open their rights-of-way to third parties. That case affirmed the FCC’s authority to regulate the terms of access, including rates. The 1984 Cable Act, as amended by the 1992 Cable Act, does much the same thing for cable operators.

But the OVS rules are not like Section 221. The OVS rules grant a right of access regardless of local policy, and also set the amount of compensation. Thus, if Florida Power is any guide, the OVS rules are unconstitutional.

Despite this, the FCC insists that because Congress meant for OVS providers to face reduced burdens, Congress must have intended to prevent local governments from imposing even greater requirements on an OVS than are imposed upon a cable operator. But the FCC has ignored the possibility that local governments will impose fewer requirements because they, too, want competition in the area of video programming. It is not a foregone conclusion that untying the hands of local governments will hinder the growth of OVS, and in any case the courts have been unwilling to sanction such a rationale to support a taking.

The FCC’s emphasis on reducing regulatory burdens is also misplaced because there is no reason to believe Congress saw a conflict between reducing federal regulatory burdens and protecting local government property rights. Section 653(c)(1) relieves OVS operators of a large number of federal law restrictions under Title VI without once alluding to any state or locally-imposed restrictions. Furthermore, the law also specifically exempts OVS providers from the provisions of Title II. Section 653(c)(3). Given the earlier history of video dialtone, this is perhaps the most important provision in Section 653. See BellSouth Brief at 14, 27-30. So the title of the section, "Reduced Regulatory Burdens for Open Video Systems," is perfectly accurate, even with local franchising authority undisturbed.

The FCC also attempts to distinguish authority to manage the rights-of-way from authority to franchise, quoting the Conference Report on the 1996 Act, which stated that OVS operators would be subject to "the authority of a local government to manage its public rights-of-way in a nondiscriminatory and competitively neutral manner." 1996 Conference Report at 178, quoted in Respondents’ Br. at 29, n. 8. Contrary to the FCC’s view, this language is not necessarily different from local franchising authority. It is perfectly compatible with it, so long as local governments grant nonexclusive franchises in accordance with fair procedures.

Consequently, there is no reason to believe that Congress viewed local franchising as inimical to the purposes of Section 653, and every reason to believe that Congress meant to respect local property rights and franchising authority.

Accordingly, Petitioner respectfully prays that the Court of Appeals set aside, enjoin or suspend the order of the Federal Communications Commission and uphold the construction urged by Petitioner.

By: ___________________________

By: __________________________

____________________________

Attorneys for Petitioner, the United States

June 2, 1997