Appellate + Supreme Court, Technology Transactions, Litigation, and Technology
On June 22, 2000, the United States Court of Appeals for the 9th Circuit ruled that municipalities may not require cable television systems to open their facilities to unaffiliated Internet service providers ("ISPs"). The Court of Appeals decision reverses a contrary finding by a federal district court and deals a substantial setback to the efforts of ISPs to gain access to the broadband service platforms of cable companies. At the same time, however, the decision suggests that the Federal Communications Commission ("FCC") - unlike municipal franchising bodies -- has the authority to impose access obligations on cable companies under the Communications Act. This finding, which is not necessary to the court's decision and does not, in itself, create any new rights for ISPs, nonetheless may inspire new proceedings before the FCC.
Summary of Ninth Circuit Decision
The court's decision has its origins in the purchase of the TCI cable television interests by AT&T. Under the Communications Act, a municipality may approve a change in control of a cable company if the company's franchise calls for such approval. Exercising that authority, Multnomah County and the City of Portland, Oregon (collectively "Portland") conditioned approval of the transfer of a local TCI cable system's franchise to AT&T on the cable company's opening of its network to unaffiliated ISPs. Specifically, Portland ruled that AT&T could not grant exclusive access to its broadband platform to its proprietary @Home Internet service. Instead, Portland required AT&T to permit other ISPs to have nondiscriminatory access to AT&T's broadband cable facilities, and to permit AT&T cable subscribers to reach independent ISPs without also paying for the @Home service. AT&T refused to agree to these terms, and asked the U.S. district court in Portland to rule that Portland's action violated the Communications Act, the TCI franchise agreement and the U.S. Constitution. The district court agreed with Portland and granted summary judgment against AT&T.
On appeal, the Ninth Circuit reached only the statutory issue raised by AT&T - i.e., whether the Communications Act gives municipalities the authority to regulate a cable companies' Internet access service. The court noted that franchising authorities may regulate only cable services of cable systems and specifically may not regulate a cable companies' telecommunications services. Accordingly, the court made two inquiries: first, is the AT&T service at issue a cable service; and second, is the AT&T service that Portland seeks to regulate a telecommunications service?
The court answered the first question by reviewing the Act's definition of "cable service," which includes the one-way transmission to subscribers of video programming or other programming service and subscriber interaction, if any, needed to select or use such video programming or other programming service. Video programming, in turn, is defined in the Act as programming provided by - or comparable to programming provided by - broadcast television stations; and "other programming service" is defined as information that a cable operator makes available to all subscribers generally. Taking these definitional elements together, the court concluded that cable services are one-way programming made available to all subscribers generally, and as such are sharply distinguishable from the particularity and interactivity that typify the use of Internet access services. Accordingly, the court found that AT&T's Internet access service is not a cable service and may not be regulated by Portland or any other municipal franchising authority.
The court next considered whether the AT&T service to which the independent ISPs demanded access was a telecommunications service, which franchising authorities are not permitted by the Communications Act to regulate. In answering this question, the court focused on the cable company's local broadband transport network, as distinguished from the Internet access functionality the company offered its subscribers. In the court's view, Portland was regulating - i.e., mandating access to - the former rather than the latter. Because the court found that AT&T's broadband transport service met the statutory definition of telecommunications, the court concluded that Portland's open access requirement violated the Communications Act. The court also noted, somewhat gratuitously, that the FCC might choose to impose access requirements on this telecommunications service as an exercise of the Commission's authority under Title II (i.e., the common carrier provisions) of the Communications Act.
Implications of the Ninth Circuit Decision
The court's holding - that municipalities may not use their franchise power to impose open access requirements on cable companies for the benefit of independent ISPs - is binding on all district courts in the Ninth Circuit and will be persuasive authority for all other federal courts. For this reason, the decision is a discouraging development for the many municipalities that have imposed open access requirements on cable companies, and the other municipalities that are considering such requirements.
The significance of the court's legal rationale is less certain. The conclusion that broadband Internet access provided by cable systems is not a cable service is a reasonable reading of the Communications Act and comports with the FCC's own preferred view; but it is not without controversy and a contrary reading by another court is certainly possible.
The significance of the court's other legal conclusion - that cable broadband transport is a telecommunications service that might be regulated by the FCC on a common carrier basis - is much less certain. As a matter of statutory construction, this conclusion is more questionable than the finding that cable Internet access is not a cable service. This conclusion also is not likely to be endorsed by the FCC, which has repeatedly expressed its disinclination to treat cable systems' broadband Internet access platforms as common carrier services.
Nonetheless, ISP and competitive local exchange carrier ("CLEC") interests may be encouraged by the Ninth Circuit's decision to petition the FCC to impose open access obligations on cable systems' broadband Internet access services. In assessing such actions, a few points should be kept in mind.
First, even if the Commission should conclude that cable systems' broadband transport services are telecommunications services, as the Ninth Circuit suggests, that conclusion would not automatically result in Portland-type open access obligations. More likely, the Commission would classify cable systems as CLECs for this purpose. CLECs, unlike the incumbent local exchange carriers ("ILECs"), are not required to permit competitors to collocate equipment with theirs and are not required to make their network elements available to competitors on an unbundled basis. Instead, they are required only to interconnect, directly or indirectly, with other telecommunications carriers. This requirement might be satisfied by a cable subscriber's ability, after paying for the cable system's proprietary Internet service, to click through to a competing ISP that was not directly connected to the cable systems' broadband access platform.
Second, even if the Commission should impose collocation and unbundling requirements on cable systems, those obligations are owed, under the Communications Act, only to CLECs rather than directly to ISPs. Accordingly, the benefit of such a decision would flow primarily to ISPs owned by, or affiliated with, CLECs.
Finally, CLECs and ISPs might petition their state commissions directly, arguing on the basis of the Ninth Circuit decision that cable system broadband platforms are common carrier facilities, and demanding that the cable systems be required to conclude interconnection agreements with their competitors. Although such an approach is not without merit, the FCC has made clear, in its decision concerning digital subscriber line ("DSL") service, that it considers transport methods used to reach ISPs to be interstate and within its jurisdiction. Accordingly, the FCC may exercise its preemption authority to thwart any such attempts to obtain relief from state commissions.
Because of the generality of this memorandum, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
 AT&T v. City of Portland, D.C. No. CV-99-00065-OMP (9th Cir. 2000).
 47 U.S.C. § 541(b)(1). Strictly speaking, once the court determined that Portland was attempting to regulate a non-cable service, there was no need for the court to decide whether AT&T's service was also a telecommunications service.
 The court also noted that the statutory obligations of cable providers, such as leased access and public, educational and governmental access, make no sense when applied to ISPs.
 47 U.S.C. § 541(b)(3).
 In order to classify a cable system as an ILEC, the Commission would have to conclude that the system was providing telecommunications service as of February, 1996. Unless a cable system was offering broadband Internet access on that date, it probably would not qualify for ILEC status.
 Although the DSL decision was reversed by the D.C. Circuit Court of Appeals, the FCC has initiated a remand proceeding and almost certainly will reconfirm its assertion of jurisdiction over DSL service.
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