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AMERITECH CORP. v. UNITED STATES

October 27, 1994

AMERITECH CORPORATION, ILLINOIS BELL TELEPHONE COMPANY, and MICHIGAN BELL TELEPHONE COMPANY, Plaintiffs, and CONSOLIDATED COMMUNICATIONS, INC. and ILLINOIS CONSOLIDATED TELEPHONE COMPANY, Intervenor-Plaintiffs,
v.
UNITED STATES OF AMERICA, FEDERAL COMMUNICATIONS COMMISSION, and JANET RENO, in her official capacity as Attorney General of the United States of America, Defendants.



The opinion of the court was delivered by: JOHN F. GRADY

 Ameritech Corporation and Illinois Bell Telephone Company filed this lawsuit against defendants United States of America, the Federal Communications Commission ("FCC"), and Janet Reno, in her official capacity as the Attorney General of the United States (collectively "the Government"), seeking a declaratory judgment and injunctive relief under 28 U.S.C. §§ 2201 and 2202. The lawsuit raises a First Amendment challenge to a provision of the Cable Communications Policy Act of 1984, 47 U.S.C. § 533(b), which prohibits the plaintiff local and regional telephone companies from providing cable television directly to customers within their service areas.

 On the same date, Ameritech and Michigan Bell Telephone Company filed a virtually identical action against the same defendants in the Eastern District of Michigan. See Ameritech Corp. v. United States, No. 93-CV-74617-DT (E.D. Mich. Nov. 1, 1993). On June 14, 1994, United States District Judge Patrick J. Duggan transferred the Michigan action to this court for consolidation with the action filed here. The Michigan case (N.D. Ill. No. 94 C 4089) has been consolidated for all purposes with this case (No. 93 C 6642).

 The court has granted two additional parties, Consolidated Communications, Inc. ("CCI") and Illinois Consolidated Telephone Co. ("ICTC"), leave to intervene as plaintiffs in this action.

 Now before the court are the parties' cross-motions for summary judgment. After considering the parties' briefs, which were originally filed in the Michigan action, along with the parties' supplemental memoranda and the submissions of the amici curiae in this case, the court grants plaintiffs' motions for summary judgment and denies defendants' motion, for the reasons discussed below.

 BACKGROUND

 Cable television is defined broadly as a communications medium in which video programs are transmitted to the homes of subscribers along a closed network of wires or cables, which are often buried underground or attached to utility poles. Cable television differs from broadcast television in that the latter's signals can be received free of charge through the air with a standard television set and antenna. Cable operators ordinarily charge their subscribers a monthly fee for the transmission of video programs along the cable network. Cable is believed to have been born in 1948 in rural Pennsylvania and Oregon, where a handful of entrepreneurs sought to bring television to residents who were too far away from the nearest broadcasting station to pick up the signal through the air. *fn1" Today the cable television industry is a $ 20 billion business with access to more than 90 percent of American homes, according to the FCC. In re Telephone Company-Cable Television Cross-Ownership Rules, Second Report and Order, Recommendation to Congress, and Second Further Notice of Proposed Rulemaking, 7 FCC Rcd. 5781, 5848 (1992) ("FCC Video Dialtone Order") (Plaintiff's Motion for Summary Judgment, App. Tab 5). Congress has found that more than 60 percent of American households with television sets actually subscribe to cable, and that for these households, cable has replaced broadcast television as the primary provider of video programming. See Turner Broadcasting Sys., Inc. v. FCC, 129 L. Ed. 2d 497, U.S. , 114 S. Ct. 2445, 2454 (1994).

 A detailed discussion of the relevant regulatory history of the cable television industry is contained in U S West, Inc. v. United States, 855 F. Supp. 1184, 1186-88 (W.D. Wash. 1994). To summarize, the FCC in 1970 issued a rule prohibiting telephone companies from providing cable television service to customers in their service areas, citing the likelihood of "undesirable consequences" stemming from "the monopoly position of the telephone company in the community, as a result of which it has effective control of the pole lines (or conduit space) required for the construction and operation of CATV [cable] systems." Id. at 1186 (quoting Applications of Telephone Companies for Section 214 Certificates for Channel Facilities Furnished to Affiliated Community Antenna Television Systems, Final Report and Order, 21 FCC2d 307, 324 (1970)). Congress codified the 1970 FCC rule in the Cable Communications Policy Act of 1984:

 
(1) It shall be unlawful for any common carrier . . . 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 . . . to provide channels of communication 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.

 47 U.S.C. § 533(b)(1), (2).

 The term "common carrier" includes telephone companies, which carry interstate wire communications for hire. See 47 U.S.C. § 153(h). "Video programming" is defined as "programming provided by, or generally considered comparable to programming provided by, a television broadcast station." 47 U.S.C. § 522(19). The FCC has interpreted that definition as including any video programming comparable to that provided by broadcast television in 1984, the year of enactment. FCC Video Dialtone Order, 7 FCC Rcd. at 5820. By prohibiting telephone companies from providing "video programming," § 533(b) on its face keeps telephone companies out of the television business altogether in the companies' service areas. Because the plaintiff telephone companies, by virtue of their existing telephone service networks, are in a position to provide video programming along those networks to their telephone subscribers, § 533(b) affects plaintiffs most acutely by preventing them from competing in the potentially lucrative cable television market. Thus plaintiffs challenge the statute as being unconstitutional "on its face" and "as applied." The statute's applicability to over-the-air television broadcasting by plaintiffs' is not at issue, as plaintiffs apparently have no interest in broadcasting.

 The parties do not dispute that by its terms, § 533(b) does not bar telephone companies from providing: video programming to consumers outside their service areas; other information services taking the form of visual images -- but not "video programming" -- to consumers within their service areas; or, video programming to any consumer, if such programming is transmitted indirectly through some other independent entity's facilities (for example, by producing a video program and marketing it to cable or broadcast operators). See Chesapeake & Potomac Tel. Co. v. United States, 830 F. Supp. 909, 922-23 & n.19 (E.D. Va. 1993). Plaintiffs argue that § 533(b) nonetheless places impermissible restrictions on speech by preventing them from providing cable television to their own customers along their own networks.

 Congress made no findings of fact at the time it enacted § 533(b), which left little in the way of legislative history. U S West, 855 F. Supp. at 1187. A House of Representatives committee report stated that § 533 "establishes clearly-defined cross-ownership rules and standards to prevent the development of local media monopolies and to encourage a diversity of ownership of communications outlets." Id. (quoting H.R. Rep. No. 934, 98th Cong., 2d Sess. 55 (1984), reprinted in 1984 U.S.C.C.A.N. 4692).

 As the Government points out in its brief, Congress and the FCC began to rethink § 533(b)'s cross-ownership ban by the late 1980s and early 1990s. See Defendants' Memorandum in Support of Their Motion, and in Opposition to the Plaintiffs' Motion, for Summary Judgment ("Defendants' Memorandum"), at 11. Several legislative attempts to repeal § 533(b) at that time failed, while the FCC embarked on a five-year rulemaking process that culminated in 1992, when the FCC formally reversed course and recommended § 533(b)'s repeal. The agency stated that although the 1970 FCC rule and its statutory successor had given cable television operators "an opportunity to firmly establish themselves as viable competitors," the cable industry's "enormous growth" since then had "attenuated" the once-feared risks of anticompetitive behavior by the telephone companies. FCC Video Dialtone Order, 7 FCC Rcd. at 5848.

 The Government does not dispute that the FCC's 1992 decision came amid growing concern about monopolistic practices within the cable television industry. According to the undisputed evidence submitted by plaintiffs on the pending summary judgment motion, "cable television systems generally operate as monopolies in the local markets they serve." Plaintiff's Motion for Summary Judgment, Exh. A (Affidavit of Thomas W. Hazlett) at P 3. Only about two percent of American households have a choice among cable systems, and the national level of subscribership of "wireless cable" service received by microwave dishes is estimated to be only one percent of cable viewership. Id. In enacting the Cable Television Consumer Protection and Competition Act of 1992 ("the 1992 Cable Act") over a presidential veto, Congress made similar findings of fact:

 
For a variety of reasons, including local franchising requirements and the extraordinary expense of constructing more than one cable television system to serve a particular geographic area, most cable television subscribers have no opportunity to select between competing cable systems. Without the presence of another multichannel video programming distributor, a cable system faces no local competition. The result is undue market power for the cable operator as compared to that of consumers and video programmers [persons or organizations which produce and market video programs for consumption by the viewing public].
 
* * *
 
The cable industry has become highly concentrated. The potential effects of such concentration are barriers to entry for new programmers and a reduction in the number of media voices available to consumers.
 
* * *
 
The cable industry has become vertically integrated; cable operators and cable programmers often have common ownership. As a result, cable operators have the incentive and ability to favor their affiliated programmers. This could make it more difficult for noncable-affiliated programmers to secure carriage on cable systems. Vertically integrated program suppliers also have the incentive and ...

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