Document ID: A:\NYSCCT.TXT NEW YORK STATE COMMISSION ON CABLE TELEVISION, PETITIONER v. FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS, DIRECT SATELLITE COMMUNICATIONS, INC., TIME, INC., NATIONAL SATELLITE CABLE ASSOCIATION, UNITED SATELLITE COMMUNICATIONS, INC., WWHT CORPORATION, et al., SOCIETY FOR PRIVATE & COMMERCIAL EARTH STATIONS, CITY OF NEW YORK, SATELLITE TELEVISION CORPORATION, BOARD OF PUBLIC UTILITIES, STATE OF NEW JERSEY, SUBURBAN CABLEVISION, MINNESOTA CABLE COMMUNICATIONS BOARD, INTERVENORS Nos. 83-2160, 83-2190, 83-2196 UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT 749 F.2d 804; 57 Rad. Reg. 2d (P & F) 363; 242 U.S. App. D.C. 126 September 6, 1984, Argued November 30, 1984 PRIOR HISTORY: Petitions for Review of an Order of the Federal Communications Commission. COUNSEL: John H. Reichman, with whom Edward P. Kearse and Peter Bienstock were on the brie Robert Alan Garrett, with whom Stephanie M. Phillipps was on the joint brief, for Inter nces for City of New York. Gregory M. Christopher, Counsel, Federal Communications Commission, with whom Bruce E. ef, for Respondents. Barry B. Grossman and Robert B. Nicholson, Attorneys, Department of J Mark J. Tauber, with whom Deborah C. Castlaw, Richard L. Brown, and Frederick W. Finn w Jack N. Goodman and Robert Trager were on the brief for Intervenors United Satellite Co J. Michael Miles, Assistant Attorney General, and Martha J. Casserly, Special Assistant Monica E. Olszewski, was on the brief for Intervenor Suburban Cablevision. Clement H. B Phillip L. Spector and Jeffrey H. Olson, were on the brief for Intervenor Direct Satell Margaret M. Foti, was on the statement in lieu of brief for Intervenor Board of Public y. John S. Hannon, Jr., Keith H. Fagan, Alan B. Sternstein, Richard E. Wiley, Lawrence W. Robert T. Perry and Donna A. Demac, were on the brief for Amici Curiae Joseph Ferris, e Ronald A. Siegel and Robert Clifton Burns entered appearances for Intervenors WWHT Corp Richard L. Brown, Frederick W. Finn, and Lauritz S. Hilland entered appearances for Int JUDGES: Tamm, Wilkey, and Edwards, Circuit Judges. Opinion for the court filed by Circuit OPINIONBY: TAMM OPINION: [*805] TAMM, Circuit Judge This is an appeal from a decision of the Federal Communications Commission (the Commiss ission held that the "potential for such state regulation to chill the development of SMAT lite Communications, Inc., 732 F.2d 962, 55 Rad. Reg. 2d (P & F) 1427, 1434 (1983), recon. local jurisdictions the same regulatory control over SMATV as they have over traditional f dation of the conflicting policies' that are within the agency's domain," Capital Cities C . Ct. 1554 (1961)), and therefore affirm the order in all respects. I. BACKGROUND The rapidly expanding cable industry has spawned a variety of methods by which cable vi uted from the large antennas to viewers through coaxial cable laid under city streets or a c rights-of-way to distribute "cable" viewing to some subscribers. Large apartment buildi ial cables that run through the buildings. In addition to improving normal television rec ion signals from satellites directly to satellite receiving stations ("receive-only earth lar system, multipoint distribution service (MDS), beams microwave signals terrestrially t will be available to those who do not reside in large apartment dwellings. Direct broadca advantage of high-powered satellites and small, efficient earth receiving stations. See N The Commission has allowed state and local governments some regulatory control over the ner New York State Commission on Cable Television, have promulgated regulations governing ms, such as SMATV and MDS, that do not use the public rights-of-way. In 1977, however, th mmission on Cable Television v. FCC, 669 F.2d 58 (2d Cir. 1982). The Commission refused, h Earth Satellite Communications, Inc. (ESCOM) builds and operates SMATV systems around t as the Movie Channel and ESPN. Joint Appendix (J.A.) 1. In 1983, ESCOM began installing a njoin the installation. Suburban Cablevision alleged that ESCOM violated the New Jersey Ca ulations did not apply to SMATV, and, even if they did apply, had been preempted by the Co m until it received a state certificate of approval. Suburban Cablevision [*807] v. E ESCOM filed a petition with the Federal Communications Commission, urging it to extend s from over 25 interested parties. In a decision released November 17, 1983, the Commissi tions services" is preempted. Earth Satellite Communications, Inc., 55 Rad. Reg. 2d (P & F rt for review. - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n1 The Commission announced that its preemption ruling did not extend to all state and undertaken as pretext for the actual purpose of frustrating achievement of the preeminent 3), recon. denied, FCC 84-206 (May 14, 1984). The preemption ruling is limited to systems - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - II. DISCUSSION A. Introduction Because the Commission has expressed its unambiguous intention to preempt state regulat asonable exercise of that authority. As the Supreme Court stated in Capital Cities Cable, s determination 'represents a reasonable accommodation of conflicting policies' that are w & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 153-54, 73 L. Ed. 2d 664, 102 S. Ct. 3014 (19 s are subject to judicial review only to determine whether he has exceeded his statutory a Commission acted properly in preempting state [regulation], . . . we must examine the Comm . B. The Commission's Authority Congress created the Commission in 1934 to regulate "communication by wire and radio so 151 (1982). Although the Commission's general regulatory authority over cable television w Communications Act empowered the Commission to regulate cable television to the extent tha s the [*808] Supreme Court recently stated in Capital Cities Cable, Inc. v. Crisp, 467 nsure the achievement of the Commission's statutory responsibilities.'" (quoting FCC v. Mi - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n2 For an excellent overview of the Commission's early approach to the regulation of ca - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - In its preemption order the Commission based its authority over SMATV upon the federal development would be frustrated, the Commission found, if each state could impose their o that open entry policies in the satellite field would create a more diverse and competiti Petitioners do not challenge the general authority of the Commission to preempt state a how that preemption is necessary "to ensure the achievement of the Commission's statutory tion, petitioners advance two closely related arguments. First, they contend that preempt tutory responsibilities. n3 Second, petitioners contend that the policies underlying the C e arguments and conclude that the Commission's action is not only consistent with prior Co - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n3 See or embodies the agency's informed judgment that, by pursuing that course, it will carry ou ) (quoting Atchison T. & S.F.R. Co. v. Wichita Board of Trade, 412 U.S. 800, 807-08, 37 L. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - 1. The Allocation of Regulatory Responsibilities Between the Commission and State and During the past twelve years, the Commission has given local jurisdictions significant uthority over SMATV as they have over traditional cable is a reversal of well-established e between cable television systems that use public rights-of-way and systems, like SMATV, - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n4 Although petitioners assert that various state interests would be served by allowing L. Ed. 2d 580 (1984), that the federal interest in preemption is outweighed by a counterva d by federal regulations that required open access. This case, on the other hand, feature es. Petitioners contend that the state and local regulatory regimes should be upheld beca ties (New York City), opposing the Commission, stated, "clearly the lawfulness of an agenc tion." Brief for New York City at 29 (emphasis deleted); see also id. at 13. See also Fid d 180, 82 S. Ct. 1089 (1962)) (in preemption cases the critical inquiry is whether "'there - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - The Commission recognized in 1972 that direct federal licensing of the thousands of cab 36 F.C.C.2d 143, 207 (1972). The physical realities of constructing cable systems -- the therefore created a "deliberately structured dualism" whereby local governments would be r nal aspects of cable communication, including technical standards and signal carriage. Id - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n5 The Commission explained: "Moreover, local governments are inescapably involved in t to parcel large urban areas into cable districts." 36 F.C.C. at 207. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - As the Commission later explained, the 1972 rules "were an attempt to create a flexible Television Rules, 46 F.C.C.2d 175, 176 (1974). Although the Commission recognized that "th autioned that "the developing duplicative and burdensome overregulation of cable televisio Following a comprehensive study of the effect of dual regulation upon the cable industr elevision's use of public rights-of-way as the primary rationale for local control: The ultimate dividing line, as we see it, rests on the distinction between reasonable regu iction of the states and their political subdivisions. The latter, to the degree exercised Duplicative and Excessive Over-Regulation of Cable Television, 54 F.C.C.2d 855, 861 (1975) al communications structure." Id. at 863. n6 - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n6 The Commission outlined the specific boundaries of regulation: The subject areas this agency has preempted include, of course, signal carriage, pay cable non-operational aspects of cable franchising including bonding agreements, maintenance of 54 F.C.C.2d at 863. In 1977 the Commission reaffirmed its authority over the setting of ma n the states, tempted to view cable television as "a convenient revenue-producing enterpri - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [*810] Under this dual regulatory framework, the Commission has consistently retained er the licensing of the satellites that transmit SMATV signals, see Network Project v. FCC See also Regulation of Domestic Receive-Only Satellite Earth Stations, 74 F.C.C.2d 205, 21 khaven Cable TV, Inc. v. Kelly, 573 F.2d 765 (2d Cir. 1978), cert. denied, 411 U.S. 904, 9 Ed. 2d 580 (1984). As the Supreme Court stated in its unanimous Crisp decision, "over the ulation of this entire array of signals carried by cable television systems." Id. at 2701. A case similar to this appeal, Orth-O-Vision, Inc., 69 F.C.C.2d 657 (1978), recon., 82 preempt state regulation of systems that do not involve the use of public rights-of-way. O ers programming terrestrially by microwave. Like SMATV, MDS's primary market is large mul MDS-MATV system, was refused an operating permit from the petitioner in this case, New Yor mment, issued a declaratory ruling preempting state and local regulations of MDS. In its comments opposing Orth-O-Vision's petition, the NYSCCT argued, as it does in thi an unfair competitive advantage over an already franchised system." Orth-O-Vision, 69 F.C ith interstate communications." Id. at 666. In affirming the Commission's preemption, the Second Circuit found that by denying fran sion's policy of advancing the development of MDS was within its statutory authority, the Petitioners argue vigorously that the Orth-O-Vision decisions are irrelevant to this ap able in one critical respect: it is operated solely on private property and makes no use o heory as to why this relatively minor difference should compel the Commission to treat SMA , is not whether the order in Orth-O-Vision, preempted SMATV but whether the Commission's le system, which, like the system involved in this appeal, does not use public rights-of-w - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n7 The Orth-O-Vision case also disposes of petitioner NYSCCT's claim that the eliminati rators to extend cable lines throughout the entire franchise district. The elimination of e Commission notes, however, the regulation upon which the petitioners in part base this " n force, the regulation "'was not expected to guarantee full construction of the franchise over, we fail to see how the "distribution equity" policy could sensibly be applied to SMA ervice available to the entire community by extending cable lines along every right-of-way tallation of an earth station on private property. A franchise authority can no more requ 8 Orth-O-Vision proceeding presaged preemption of local imposition of "distributional equi "distribution equity" argument; the preemption of MDS, however, involves the identical "di - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - 2. Commission Reliance on Market Forces to Regulate SMATV In a general challenge to the Commission's decision not to impose entry regulations upo ranchise cable television and SMATV have flourished under local regulation, they claim, an Although the Commission does not have unbridled discretion to use the marketplace to re titute for direct Commission regulation in appropriate circumstances." Wold Communications approving FCC reliance on market forces to promote diversity in entertainment programming) C, 674 F.2d 160 (2d Cir. 1982), that "newly unleashed [*812] market forces" constitute ners v. FCC, 173 App. D.C. 413, 525 F.2d 630, 645 (D.C. Cir.) (approving Commission's conc Indeed, the Commission has increasingly come to rely upon market forces to regulate the en ption of state entry regulation of MDS); Malrite T.V. v. FCC, 652 F.2d 1140 (2d Cir. 1981) Brookhaven Cable TV, Inc. v. Kelly, 573 F.2d 765 (2d Cir. 1978) (affirming Commission pre - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n8 Clearly, the Commission cannot promote competition for competition's sake. Indeed, " a wasteful duplication of facilities contrary to the public good." Telocator Network of A ed without undesirable side effects would be effectively to relegate the Commission to pre - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - Petitioners advance no credible argument to show that the market is an inappropriate to ng cable franchises. The Commission's determination that SMATV should be allowed to serve and developed franchises. n9 Measuring the public interest standard of the Communications e cannot read into the Communications Act a congressional intent to so prevent innovative the entry of SMATV into the cable television marketplace is consistent with its statutory - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n9 As the Commission stated in CATV Syndicated Program Exclusivity Rules, 79 F.C.C.2d 6 We strongly emphasize, however, as we have on previous occasions that the Commission's und eives" and not, as some might erroneously perceive, "with shifting or safeguarding revenue (footnotes omitted). - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - 3. Conclusion We find, therefore, that the preemption of state and local entry regulation of SMATV is F.2d 765, 768 (2d Cir. 1978), cert. denied, 441 U.S. 904, 60 L. Ed. 2d 372, 99 S. Ct. 1991 levision regulation. State and local entry regulation that has either the purpose or the re, are a proper subject of preemption. C. The Reasonableness of the Commission's Exercise of Authority Having established that preemption of state regulation of SMATV is within the Commissio v. De La Cuesta, 458 U.S. 141, 151-54, [*813] 73 L. Ed. 2d 664, 102 S. Ct. 3014 (1982 this court recently stated in Wold Communications, Inc. v. FCC, 237 App. D.C. 29, 735 F.2d table, could arrive at the judgment the agency made." See also Home Box Office, Inc. v. FC monstrated a 'rational connection between the facts found and the choice made'") (citation ionality of its decision. A finding that the Commission has the power to preempt state re ken -- preemption -- and Commission policy involves, at least to a certain extent, the det upon which the determination was reached: the parties do not so much dispute the factual e Commission has chosen rationally among competing policies, we cannot reverse because we 749, 32 L. Ed. 2d 453, 92 S. Ct. 1941 (1972), "we do not inquire into the wisdom of the r the latter are rationally supported." - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n10 We evaluate the Commission's action under the arbitrary and capricious standard of be raised that since the Commission has chosen not to promulgate rules, the highly deferen ule is extremely limited because such a decision "'is inevitably based, in large measure, quoting Natural Resources Defense Council v. SEC, 196 App. D.C. 124, 606 F.2d 1031, 1046 ( ation of a regulatory vacuum -- is an affirmative exercise of agency power; it involves th ng process is susceptible to judicial review under the normal application of the arbitrary - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - Petitioner NYSCCT claims that there is inadequate evidence in the record to justify the ness of its contention. The petitioner argued that "the principal evil of allowing privat e dominant theme of the petitioner's opposition to the preemption order is the alleged nee e programming. n11 See National Association of Regulatory [*814] Commissioners v. FCC, free entry and competition"), cert. denied, 425 U.S. 992, 96 S. Ct. 2203, 48 L. Ed. 2d 81 - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n11 In a closely related argument, petitioner NYSCCT claims that there is inadequate ev assumption that subscribers in large apartments will be forced to subscribe to SMATV and t contentions. First, as the brief for the petitioner notes, New York law requires that trad ave a choice between SMATV and traditional franchise cable. Second, the petitioners recog e NYSCCT's Comments in Opposition at 31, J.A. 429 (estimating that SMATV can be installed - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - Petitioners contend with only slightly more force that the Commission acted arbitrarily of SMATV into the New York City marketplace would cost franchise cable systems between $3 would have to increase their rates of their remaining subscribers from $7.00 to $11.00 pe - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n12 The higher figure is based on the assumption that SMATV operators will completely r able in every complex of over 200 tenants. Brief for NYSCCT at 21. These amounts are equ - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - The Commission found NYSCCT's analysis unpersuasive for several reasons. First, the Com F) at 1433. Second, the Commission noted that NYSCCT's arguments had been raised and answe wellings, franchise cable and SMATV could co-exist or at least compete for the same subscr The Commission's response, while terse, was reasonably commensurate with the persuasive stead of doing so, it simply assumes that SMATV will replace franchise cable in every apar izes: the unregulated entry of SMATV into the cable television marketplace will have a com he petitioner's basic quarrel with the Commission's policy of allowing SMATV to compete wi try regulations that have the purpose or the effect of restricting SMATV's competitive pos ion. See Computer and Communications Industry Ass'n v. FCC, 224 App. D.C. 83, 693 F.2d 19 e and not arbitrary or capricious), cert. denied, 461 U.S. 938, [*815] 103 S. Ct. 2109 - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n13 Since we have found that the Commission's action does not represent a reversal of p liberately changed not casually ignored.'" Brief for NYSCCT at 13 (quoting Greater Boston - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - D. Procedural Objections Petitioners claim that the Commission abused its discretion by failing to engage in a r cation under section 5(e) of the Administrative Procedure Act, 5 U.S.C. @ 554 (e), which p The decision whether to proceed by rulemaking or adjudication lies within the Commissio S. Ct. 1575 (1947). This is true "regardless of whether the decision may affect agency pol 2d 173 (1976). We find no abuse of discretion in the Commission's choice of procedures. In a factuall issue a declaratory ruling to preempt state and local regulation of MDS, following notice ed, 429 U.S. 1027, 50 L. Ed. 2d 631, 97 S. Ct. 651 (1976), manufacturers and distributors tomer-provided equipment to telephone facilities. The Commission "after adequate notice a ion, thereby precluding any state intervention. 537 F.2d at 791. The court affirmed, holdi 2. Furthermore, to remand solely because the Commission labeled the action a declaratory r he proceedings below, identical to the issues on appeal, provided the Commission with both For the foregoing reasons, the Commission's order is Affirmed.