The authority of local government over cable operators has been established for some time; a government can act as a franchising authority and require a franchise (and payment) for use of public right-of-way. A recent decision from the Ninth Circuit Court of Appeals, AT&T v. City of Portland, addresses another nuance to cable regulation - the use of the cable system to act as a modem. This decision specifically addresses local government's ability to require a cable provider to allow competition over the cable system and should be of interest to local governments acting as a cable franchise authority.
The Portland decision revolves around the ability of the local cable operator to provide Internet services. The Internet access offered by a cable provider is much faster than the service offered by the traditional telephone line, because the so-called "broadband" technology allows transmission of both provider-to-consumer (downstream) and consumer-to-provider (upstream) data at a very fast speed. This "streaming" is much faster than Internet connections over telephone lines. Thus, the use of cable systems to provide Internet services is important in today's fast-changing technology.
The City of Portland, Oregon, and Multnomah County (collectively, Portland) had cable franchise agreements with TCI. TCI wanted to transfer the cable franchise to AT&T as a result of a merger of AT&T and TCI. Pursuant to the terms of the franchise, approval of the transfer was required. Opponents of the transfer, the local incumbent phone carrier and ISPs, called for open access to the TCI cable broadband network.
AT&T offers Internet access through @Home, its proprietary cable ISP, and planned to offer this cable "broadband" access through @Home to subscribers. The issue faced by Portland was whether the transfer of the franchise could be conditioned upon AT&T's agreement to provide access to ISPs that were competing against AT&T's @Home cable modem service. Portland approved the transfer, subject to the condition that AT&T allow ISPs not affiliated with AT&T to connect their equipment directly to AT&T's cable modem platform, bypassing @Home.
AT&T refused this condition of the transfer; the franchise was, therefore, denied and AT&T filed suit in federal district court in Oregon, arguing that Portland did not have the authority to require nondiscriminatory access to the cable platform as a condition of franchise transfer. The District Court sided with the City, ruling that Portland could adopt the open access condition.
AT&T appealed this decision to the Ninth Circuit Court of Appeals, again asserting that the conditional transfer was unlawful. The Ninth Circuit's decision reversed the District Court and concluded that federal law prohibits a franchising authority from conditioning a transfer of a franchise upon the cable operator's grant of unrestricted access to its cable broadband facilities for ISPs other than the operator's proprietary service.
The Ninth Circuit first concluded that @Home is not a "cable service" that can be governed by the franchise requirement. Under the Federal Communications Act, "cable service" is defined, essentially, as the one-way transmission of programming. @Home provides services that are not one-way (like cable) but are interactive and two-way. Because the Internet services AT&T provides through @Home are not "cable services," the City cannot regulate the services through its franchising authority.
The court next looked to whether the City could regulate Internet services provided by cable operators indirectly; for example, by imposing the condition that AT&T's provision of cable service be based upon open access to the network for competing ISPs. After examining @Home, the court determined that @Home is both a conventional ISP (providing information services) and a telecommunications carrier (providing Internet transmission over the cable broadband facility). The court concluded that the broadband Internet access service provided by cable operators is a "telecommunications service" under the Federal Communications Act. Pursuant to the Federal Communications Act, a cable franchise is not required for the provision of telecommunications services and a franchise authority cannot impose a requirement that prohibits or limits the provision of telecommunications services by a cable operator. The law also provides that a franchise authority cannot order a cable operator to discontinue the operation of a cable system, to the extent the system is used to provide telecommunications services. The court thus decided that AT&T is not required to obtain a franchise to offer cable broadband and the City cannot condition the provision of @Home in its capacity as franchising authority.
The Ninth Circuit said, essentially, that it is up to the FCC to decide whether to impose open access requirements on providers of cable modem service. FCC Chairman William Kennard, reacting to the Portland decision, proposed in a June 30th press release, that the FCC begin a formal proceeding on the issue of multiple ISPs gaining access to a cable company's platform. The new FCC proceeding is to resolve issues and "bring certainty to the marketplace." He went on to say that "I continue to believe that there are powerful marketplace incentives that will move the cable platform to an open platform. Now is an appropriate time for the FCC to address the legal issues and to assess developments in the marketplace."
As cable franchises come up for transfer or renewal, or as new cable operators approach communities to provide services, local officials should keep this Ninth Circuit decision in mind, as well as monitor any new regulations, in order to ensure that franchises appropriately regulate the system to be installed by the applicant in accordance with the services to be provided.
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