Unfortunately, the positive results of this change are
fettered by government policies that were meant to regulate a
different time and a less complex telecommunications field. As
Congress grapples with the proper method to regulate the
interactions between companies that are on the forefront of change,
other nations are allowing the entrepreneurial spirit to flourish.
These restrictive U.S. policies hinder the advancement of the
United States as the telecommunications standard-bearer of the
global village. These policies also retard growth in other
industries and occupations that rely on communications.
Cable television companies and telephone companies in the
United States are well situated to deploy a nationwide interactive
broadband communications network. Congress, by not allowing these
two forces to compete or cooperate, is missing a tremendous
opportunity to expedite the process. Congress's rationale for its
overreaching policy is rooted in an obsolete notion that telephone
companies (telcos or common carriers) would use their financial
power to thwart cable operators' technological advancement.
This Article analyzes how the changing marketplace and
technology has made unconstitutional the cross-ownership ban
prohibiting the telephone companies from entering the highly
profitable business of video programming distribution. Although
many constitutional attacks exist, this Article will analyze the
ban's constitutionality against the backdrop of prior restraint and
commercial speech jurisprudence. It will then outline a regulatory
approach that is more consistent with the contemporary technology
and the business atmosphere. Finally, it will review the potential
benefits of competition and cooperation between the emerging
leaders of wire-based telecommunications.
anomalous competitive situation between CATV [community antenna
television] systems affiliated with the telephone companies, and
those which have no such affiliation, but have to rely on the
telephone companies for either construction and lease of channel
facilities or for the use of poles for the construction of their
own facilities.(note 3)
In 1970, when the cable industry was in its infancy, the
Commission adopted rules that prohibited all telcos from providing
video programming to subscribers in their respective local service
area, either directly or indirectly through an affiliate.(note 4) The restrictions barred telcos
from having any sort of business or financial relationship with
cable operators, other than a carrier-user arrangement.(note 5) The Commission was concerned that telcos
would engage in improper cross-subsidization, hinder the
development of broadband cable services, and use control of
telephone poles and conduit space to prevent or hinder competition
from independent cable companies.(note
6)
Congress codified these rules, in a less restrictive manner,
in the 1984 Cable Act.(note 7) The
statutory language provided that the Commission could waive the
provisions in areas where the delivery of video programming would
not otherwise exist or upon a showing of good cause.(note 8)
The 1984 Cable Act essentially deregulated cable television,
allowing it to enjoy uninhibited growth. Subscriber rates rose
rapidly and the quality of service declined.(note 9) A 1990 FCC report concluded that the cable
industry enjoyed very little market pressure in the local service
area.(note 10) Soon thereafter,
Congress and the Commission began to ponder whether reregulation
was necessary, or whether a competitive marketplace would encourage
lower prices, improved service, and the distribution of advanced
technologies.
Since passage of the 1984 Cable Act, the cable industry has
undergone rapid growth. It has evolved from mere community antenna
television into an industry that generates billions in annual
revenues. "Nearly 56 million households, over 60 percent of the
households with televisions, subscribe to cable television, and
this percentage is almost certain to increase."(note 11) Cable service is now accessible to more
than 95 percent of the television households, and approximately 60
percent of those households subscribe to cable service.(note 12) Today over nine thousand
cable systems exist.(note 13)
However, the large number of cable systems has not promoted local
competition. The quality of service has decreased while the prices
have increased. In fact the General Accounting Office has concluded
that since deregulation, cable systems have raised rates for basic
service an average of 43 percent.(note
14)
Congress's goal of allowing growth in the cable industry was
realized. However, competition fell to the wayside. In fact, the
1992 Cable Act(note 15) codified a
strict review of local laws that prohibited awarding a competing
franchise in a locality that already had a pre-established cable
franchise.(note 16)
These changes did not go unnoticed by Congress. In creating
the Cable Act of 1992, Congress found that "competition to cable
from alternative multichannel video technology ha[d] failed to
materialize."(note 17) This resulted
in undue market control for cable operators as compared to that of
consumers and providers of video programming.(note 18) After the passage of the 1984 Cable Act,
not only did cable rates increase at three times the rate of
inflation,(note 19) but, in
addition, Congress found that cable operators were increasingly
vertically integrated into programming, and had the ability to
discriminate in favor of their affiliated programmers.(note 20) This power produced an effective barrier
to entry by potential competitors.(note
21)
The dramatic changes in the video services marketplace led the
three agencies responsible for administering the cable-telco banthe
FCC, the National Telecommunications and Information Administration
(NTIA), and the Department of Justice (DOJ)to independently
conclude that the cross-ownership ban was obsolete. The FCC
examined the status of the cable marketplace and rejected
reregulation as a solution to the problem. Instead, it favored
policies that would encourage competition in the marketplace.(note 22)
The NTIA supported the FCC's 1992 decision to amend its rules
to permit telcos to have a greater role in the distribution of
video programming.(note 23) It also
supported the FCC's recommendation to Congress that it repeal the
cable-telco cross-ownership prohibition.(note 24) The benefits of telco entry into the
video programming business would outweigh the potential costs of
telco provision of video programming. These costs were either
overstated or could be effectively ameliorated by adapting existing
regulatory safeguards to suit the video programming marketplace.(note 25) The NTIA also concluded that
telco provision of video programming would offer direct competition
to incumbent cable systems, thus expanding competition in the
provision of home video programming and multiplying opportunities
for entry by independent program providers.(note 26)
The Department of Justice concluded that telco ownership and
operation of video programming would have procompetitive benefits
that would outweigh any anticompetitive risks.(note 27)
Telephone company entry, according to DOJ, would introduce a needed
competitor to the video programming market; provide greater
incentives for telephone companies "to take the financial risk of
developing" improved telephone networks capable of carrying video
programming because relief "will insure an affordable source of
programming for their new networks"; and allow telephone companies
to compete more effectively with cable operators, which are already
vertically integrated.(note 28)
Most importantly, the video services consumers would be best served
by the removal of the ban.
It is clear that technology and marketplace demand have
obviated the need for the Section 613 ban on cable-telco cross-
ownership. Without competition, the cable industry grew into a
monopoly, and the rapid expansion of the cable industry effectively
eliminated the reasons supporting the prohibition against telephone
company entry into the video distribution market. The current
policy forces consumers to suffer the consequences of higher rates
and lower quality of service. The resultant myopic reregulation of
the industry only half-heartedly attacks one portion of the
problem.
Furthermore, the ban, for all of the same reasons, no longer
enjoys legal support. In fact, the evolution of the marketplace has
forced a law, already on dubious legal grounds, to become
unconstitutional.
The telcos desire to engage in the distribution of video
programming to homes. However, as established, the government
prohibits such distribution due to an unjustified fear that the
telcos would use their market power to force the cable operators
out of the market. The goal of Congress in the codification of the
prohibition was to circumscribe telco business activities that
could injure and delay the growth of a nascent industry and the
subsequent deployment of a broadband information highway. However,
in the process of reaching this goal, Congress shackled the telcos'
ability to express themselves to their customers. In reality,
Congress placed a prior restraint on the telcos' speech.
Sir William Blackstone laid the cornerstone for the
jurisprudence of prior restraint when he stated:
The liberty of the press is indeed essential to the nature of a
free state; but this consists in laying no previous
restraints upon publication, and not in freedom from censure for
criminal matter when published. Every freeman has an undoubted
right to lay what sentiments he pleases before the public: to
forbid this is to destroy the freedom of the press . . . .(note 29)
Nearly two centuries later, the Supreme Court introduced the theory
of prior restraint into American jurisprudence in Near v.
Minnesota.(note 30) This case
involved a statute that authorized judicial abatement of any
newspaper or periodical deemed "malicious, scandalous and
defamatory."(note 31) A Minneapolis
periodical sought to expose the corruption of gangsters and the
city officials who cooperated with them.(note 32) The state court found that the
publication violated the statute,(note
33) but the Supreme Court held the statute unconstitutional as
an invalid prior restraint on the freedom of expression.(note 34)
The theory of prior restraint has been used most commonly in
cases involving injunctions and protective orders. New York
Times Co. v. United States,(note
35) the "Pentagon Papers" case, is the most famous example of
government attempting to suppress the media through injunction.
However, the case involved a national security matter and was
decided with undue haste, yielding numerous concurring opinions
with varying rationales. Nebraska Press Ass'n v. Stuart(note 36) presents a more coherent and
refined holding for cases involving this sort of prior
restraint.
In Nebraska Press Ass'n, a Nebraska state trial judge,
in anticipation of a murder trial, issued an order that forbade the
confessions or statements of the accused from being published by
the press.(note 37) The Supreme
Court granted certiorari in order to determine whether the order
violated the constitutional guarantees of freedom of the press, and
found that pretrial publicity does not necessarily lead to an
unfair trial.(note 38) It also found
that the trial court's conclusion that pretrial publicity would
alter the outcome of the case was "speculative," and that the
record indicated that the judge explored no other means to prevent
this result.(note 39) The Supreme
Court reversed the decision of the Nebraska Supreme Court, holding
that "the heavy burden imposed as a condition to securing a prior
restraint was not met."(note 40)
The Court reiterated that the First Amendment guarantees that
Congress shall make no law abridging the freedom of speech. It also
stated that this guarantee affords "special protection against
orders that prohibit the publication or broadcast of particular
information or commentaryorders that impose a `previous' or `prior'
restraint on speech."(note 41) The
Court admonished, "[P]rior restraints on speech and publication are
the most serious and the least tolerable infringement on First
Amendment rights."(note 42) This
restraint is particularly loathsome due to the fact that it has an
immediate and irreversible effect, especially when it falls upon
the communication of news and commentary of current events.(note 43) In other words, "the gravity
of the evil, discounted by its improbability," did not justify the
invasion of free speech that was necessary to avoid the danger.(note 44) Injunctions, as one form of
prior restraint, are subject to the independent presumption of
unconstitutionality.(note 45)
Along with injunctions, a second form of prior restraint is
administrative preclearance.(note
46) Prior restraint arises within this arena when a license is
needed from an executive body in order to execute an action. The
Supreme Court, in Shuttlesworth v. City of Birmingham,(note 47) set the parameters by which
an administrative prior restraint must be judged. In
Shuttlesworth, the leader of a civil rights march in
Birmingham, Alabama, was arrested for violating a city statute that
prohibited parades or processions in the city streets without first
obtaining a permit from the City Commission.(note 48) The statute permitted the Commission to
refuse the permit if its members believed that the proposed parade
endangered the health, safety, or welfare of the city's
residents.(note 49)
The Court, in overturning the city code, held that this
ordinance contradicted the doctrine that had evolved in the
previous three decades: a law subjecting the exercise of First
Amendment freedoms to prior restraint, without a narrow, objective,
and definite standard to guide its administration, is
unconstitutional.(note 50) "It is
settled . . . that an ordinance which . . . makes the peaceful
enjoyment of freedoms which the Constitution guarantees contingent
upon the uncontrolled will of an official . . . is an
unconstitutional censorship . . . ."(note 51) The Court affirmed that a government may
not empower an administrative official to "roam essentially at
will, dispensing or withholding permission to speak" in accordance
with the official's own "opinions regarding the potential effect of
the activity in question on the `welfare,' `decency,' or `morals'
of the community."(note 52)
The Section 613 ban can be viewed as nothing less than an
administrative prior restraint imposed by Congress. The ban seeks
to prohibit a group of speakers, telephone companies, from entering
the mass media.(note 53) The statute
seeks to suppress the speech of a class of speakers based simply
upon the nature of the business in which they engage.(note 54)
This situation is analogous to a licensing statute. In City
of Lakewood v. Plain Dealer Publishing,(note 55) the Court stated that a licensing
statute concerning the freedom of expression, which places
unbridled discretion in the hands of the government, constitutes a
prior restraint and may result in censorship.(note 56) The unfettered discretion to censor,
held in the hands of an administrative agent, coupled with the
power of a prior restraint, can intimidate a party into censoring
its own speech, even if the discretion is never abused.(note 57) Control of expression through
this scheme of administrative fiat results in a total exclusion of
speech, a result that is more insidious and loathsome than one that
selects only specific victims. "Proof of an abuse of power . . .
has never been deemed a requisite for attack on the
constitutionality of a statute . . . ."(note 58)
The Supreme Court has consistently condemned licensing schemes
that vest an administrative official with discretion to approve or
disapprove of a person's attempt at self-expression.(note 59) The Commission defends the
constitutionality of the ban by claiming that although the
"restrictions implicate First Amendment rights, as content neutral
regulations that affect speech incidentally they can be sustained
as narrowly tailored to achieve a substantial government
interest."(note 60) The Commission
relies on United States v. O'Brien(note 61) for the proposition that the ban can be
sustained as narrowly tailored to achieve a substantial government
interest.(note 62) The FCC concluded
that the current ban, in light of the contemporary technological,
competitive, and regulatory conditions, was an effective method to
curb anticompetitive behavior that would otherwise work to the
public's detriment and impede the development of competition in the
provision of broadband services.(note
63)
It is unlikely that a court would accept the Commission's
interpretation of the law, since this approach is similar to the
strategy that the Commission employed unsuccessfully in defense of
must-carry regulations.(note 64) In
Quincy Cable, the Commission used the more lenient First
Amendment scrutiny of the O'Brien standard to attempt to
defend the constitutionality of the must-carry rules,(note 65) casting the rules as having only an
incidental burden on speech. The FCC maintained that these
regulations evinced a content-neutral standard in which the
government interest was unrelated to the suppression or protection
of a particular set of ideas.(note
66) However, the court had "serious doubts about the propriety
of applying the standard of review reserved for incidental burdens
on speech" to the must-carry rules,(note
67) thus damning them to certain failure under the more
critical examination required by strict scrutiny.
The court found that these regulations favored one class of
speakers over another, thereby negating the Commission's claim that
it incidentally intruded upon speech.(note 68) The must-carry rules were created so as
to bolster the fortunes of one business over another.(note 69) The court further held that the "mere
abstract assertion of a substantial government interest" is
insufficient to maintain a law that subordinates First Amendment
freedoms.(note 70)
This case is analogous to the telco-cable cross-ownership ban,
in that Congress and the FCC have claimed that a situation exists
that demands the protection of a restrictive regulation. They have
not put forth any credible substantiation as to why the ban must
continue. They have undermined the constitutional rights of the
telcos in order to bolster the fortunes of a potential competitor,
a competitor that has cornered its market and has been accused of
monopolistic abuses. The prohibition is not a mere incidental
burden on the telcos' ability to express themselves. By
administrative fiat, telcos are completely excluded from a medium
of expression. This ban cannot withstand the lenient threshold of
the O'Brien standard proffered by the Commission.
Accordingly, the ban should be struck down as an obsolete and
burdensome prior restraint.
"[T]he Court's decisions involving corporations in the
business of communication or entertainment are based not only on
the role of the First Amendment in fostering individual self-
expression but also on its role in affording the public access to
discussion, debate, and the dissemination of information and
ideas."(note 72) Commercial speech
is thus constitutionally protected because it furthers the societal
interest in the free flow of commercial information.(note 73)
Speech in which telcos would engage is analogous to that of
current cable operators. The Supreme Court has held that the cable
television industry's operations plainly implicate First Amendment
interests,(note 74) including the
protection of commercial speech.
"The business of cable television, like that of newspapers and
magazines, is to provide its subscribers with a mixture of news,
information and entertainment. As do newspapers, cable television
companies use a portion of their available space to reprint (or
retransmit) the communications of others, while at the same time
providing some original content."(note
75)
This view was recently reaffirmed by the Supreme Court in
Leathers v. Medlock.(note
76)
Traditional First Amendment doctrine does not lose its
validity simply because it involves an analysis of the protection
afforded to a unique and new mode of communication.(note 77) In fact,
the core values of the First Amendment clearly transcend the
particular details of the various vehicles through which messages
are conveyed. Rather, the objective is to recognize that those
values are best served by paying close attention to the distinctive
features that differentiate the increasingly diverse mechanisms
through which a speaker may express his view.(note 78)
It is unlikely that a viewer would be able to differentiate between
cable service brought to the home through a cable-owned coaxial
cable and that of the telco-owned fiber optic cable. Therefore, the
application of the appropriate jurisprudence should not turn on
this distinction.
The Supreme Court outlined its criteria for upholding the
rights of commercial speakers in Central Hudson Gas & Electric
Corp. v. Public Service Commission of New York.(note 79) The Court developed a four-part analysis
to determine if commercial speech rights have been abridged by a
government regulation. Initially, a court must determine whether
the expression is protected by the First Amendment. For commercial
speech to be protected, it must neither concern an unlawful
activity nor be misleading.(note 80)
Next, the court must ascertain whether the asserted government
interest is substantial.(note 81) If
both inquiries yield positive responses, the third and fourth parts
of the test consist of determining whether the regulation directly
advances the governmental interest asserted and whether it is not
more extensive than is necessary to serve that interest.(note 82) The fourth part of the
analysis was modified in Board of Trustees of State University
of New York v. Fox,(note 83)
where the Court "conclude[d] that the reason of the matter
require[d] something short of a least-restrictive-means
standard."(note 84)
The Supreme Court reaffirmed the Central Hudson test as
modified by Fox in City of Cincinnati v. Discovery
Network, Inc.(note 85) This case
involved a city zoning ordinance that prohibited Discovery Network
from placing newsracks for distribution of commercial handbills on
city streets, but permitted newspapers to use newsracks. The City
claimed that it wanted to improve the safety and aesthetics of the
area. The Supreme Court, after analyzing the facts of the case
against the backdrop of the standard, held that the city ordinance
was a violation of Discovery's First Amendment rights, because it
infringed on its ability to engage in commercial expression.(note 86)
The Court noted that ample evidence existed that the City did
not establish the necessary reasonable fit between the purpose of
the statute and the factual result.(note
87) "The ordinance on which it relied was an outdated
prohibition against the distribution of any commercial handbills on
public property. It was enacted long before any concern about
newsracks developed."(note 88) The
Court also stated that the obsolescence of the statute was apparent
by the fact that the City did not carefully calculate the burden
that it imposed on free speech, as exemplified by the removal of
sixty-two Discovery newsracks, while allowing about two thousand
other newsracks to remain.(note
89)
If the Section 613 ban were tested against the Central
Hudson and Fox standard, it would be found an
unconstitutional intrusion on commercial speech. The ban prohibits
lawful commercial speech. As stated by the Court in Virginia
State Board of Pharmacy, speech does not lose its First
Amendment protection simply because money is spent to project it.(note 90)
The speech that is transmitted would pass the first prong of
the Central Hudson test, in that it would concern a legal
activity and would not be misleading to the viewer. No evidence
exists that suggests that the telcos would engage in the
transmission of speech banned by other statutes or precedent. In
fact, it is likely that they would deliver programming similar to
that of the current cable operators, as well as develop interactive
programming that could take advantage of the capacity of broadband
technology.
It must be determined then if the cross-ownership prohibition
advances a substantial government interest. As stated earlier, the
purpose of the ban was to prevent the telcos from using their
superior market and financial position to the disadvantage of the
nascent cable companies. This threat became moot almost as soon as
the provision became law. The cable companies grew at an
exponential rate and soon gained a financial status tantamount to
that of the telephone companies. Therefore, the ban, when viewed in
a contemporary light, must fail the second test.
Ordinarily, since the second question yielded a negative
response, the ban would fail the modified Central Hudson
test and be found unconstitutional as an infringement upon the
First Amendment rights of the telephone companies. However,
assuming arguendo that the second question yielded a positive
response, it is improbable that the ban could withstand the
scrutiny of the final tests. It must next be determined whether the
regulation directly advances the governmental interests
asserted.
The government's interest, as established earlier, was to
protect the cable companies. The prohibition does protect the cable
industry from substantial competition. However, the government
asserted that the original need for the protection was to create a
base upon which a broadband information highway could be built.(note 91) This, in effect, would be
giving a monopoly to the cable industry on the technology of the
future, a policy argument but not a legal assertion. A close
examination of the facts reveals that telcos, due to the nature of
their business, are in an equally sound position to build this
highway, either by themselves or in conjunction with the cable
industry.
Section 613 also fails to advance Congress's purpose of
promoting competition in cable communications. In the findings of
the Cable Act of 1992, Congress asserted that a goal of the
legislation was to create fair competition in the delivery of
television programming and thus foster the greatest possible choice
of programming and lower prices for consumers.(note 92) In the exclusion by statute of a
formidable competitor in the marketplace, Congress has expressly
circumvented one of the preeminent goals of the reregulatory
legislation.
The ban fails the final prong because it is more extensive
than is necessary to achieve the stated interest. This analysis
focuses on Congress's goal to protect the cable companies from
undue competition. Other means exist by which to protect the cable
companies from such a threat by the telcos. If telcos do have a
history of cross-subsidization, whereby they assign costs from
their unregulated ventures to their regulated phone business, this
practice would then force the rate payer, and not the shareholder,
to bear the burden of the telcos' forays into new lines of
business. However, a ban on entry into the provision of cable
television is not narrow enough to achieve the goal of preventing
cross-subsidization. A more appropriate measure would be to forbid
this practice with legislation aimed at addressing this issue
specifically.
For the purpose of argument, the Supreme Court, in City of
Cincinnati v. Discovery Network, Inc., assumed that the City
could prohibit the use of all newsracks for the reasons claimed.(note 93) It declared, however, that
"as long as this avenue of communication remains open, these
devices continue to play a significant role in the dissemination of
protected speech."(note 94)
This is analogous to the scenario involving the Section 613
ban. Congress could opt to ban cable operators, satellite dish
operators, and telephone companies from disseminating information
to subscribers because it would impinge upon the broadcasters'
fiduciary and public interest responsibilities and the goal of
localism. This would, of course, stunt the evolution of the
information age in the United States and place the nation's
telecommunications companies at a severe disadvantage. Therefore,
as long as the avenue for communication remains open, Congress must
open it to everyone. Otherwise, it is unconstitutionally
foreclosing a means of commercial communication to a potential
speaker.
The ban's underinclusiveness highlights its inherent
unconstitutionality and its fatal burden on a particular speaker's
desire to engage in commercial speech. The ban targets telcos. It
does not attempt to thwart the entry of municipalities, electric
companies, or film studios into the cable business, all of which
maintain interests in this industry.(note 95) These enterprises are capable of posing
a financial and competitive danger to the cable operators. Cities
could use their franchise powers to monopolize a market; electric
companies could be accused of building a system on the backs of
their rate payers; and film studios could limit the distribution of
their product.
The prohibition also precludes telcos from delivering one form
of speech, video programming, that is comparable to broadcast
television.(note 96) Yet, the telcos
can provide video transmissions, such as graphics, video
conferencing, and videotext services to customers in their service
area.(note 97) Even the Commission
has come to the realization that the technological metamorphosis
has caused the lines between voice, data, graphics, and video
transmissions to blur.(note 98)
Therefore, the ban on video programming is actually a ban on the
provision of commercial speech to subscribers.
One court has found these arguments persuasive. On August 24,
1993, the U.S. District Court for the Eastern District of Virginia,
Judge T.S. Ellis presiding, held in Chesapeake and Potomac
Telephone Co. of Virginia v. United States(note 99) that the Section 533 ban was an
unconstitutional burden on the telco's freedom of speech.
Specifically, the court held that the ban failed the O'Brien
intermediate scrutiny test. In a footnote, the court also stated
that if the "analysis regarding the appropriate standard of review
is flawed, and 533(b) is properly subject to strict scrutiny, then
the provision would fail the `narrowly drawn' element of that test
as well."(note 100)
The court, in accepting the fact that telecommunications is a
rapidly evolving industry, opted not to rely on precedent from
previous First Amendment broadcasting cases. "Each medium of
expression . . . must be assessed for First Amendment purposes by
standards suited to it, for each may present its own problems."(note 101) Furthermore, it limited
the possible standards of review to either strict scrutiny or
intermediate level scrutiny, since the ban directly abridged the
telephone company's "right to express ideas by means of a
particular, and significant, mode of communicationvideo
programming."(note 102) In support
of this rationale, the court noted that the Supreme Court has
recognized that video programming, as offered by cable companies,
is a form of speech protected by the First Amendment.
Although the court recognized that the statute must be viewed
within the parameters of heightened scrutiny, it did not feel that
the statute's wording and intention merited review under strict
scrutiny. Therefore, the ban was analyzed against the backdrop of
intermediate level scrutiny. In making this decision, the court
held that the statute was not a content-based restriction. In fact,
it was content-neutral, since it was "`justified' on grounds
unrelated to the suppression of speech . . . ."(note 103)
In addition to being content-neutral, to overcome intermediate
level scrutiny, the statute must be narrowly tailored to serve a
significant government interest and allow alternative channels for
communication.(note 104) The ban
does not foreclose all channels of communication through video
programming for the telcos. The telcos can provide programming to
subscribers outside their specific service areas. Furthermore, they
can produce programming and market it within their service areas to
broadcasters or cable operators.(note
105)
Therefore, the crux of constitutionality is whether the ban is
narrowly tailored to serve a significant government interest. The
court examined the government's justifications for the statute,
which were twofold: (1) the promotion of competition in the video
programming market, and (2) the preservation of diversity in the
ownership of communication media.(note
106) However, it discerned quickly and correctly that only one
of these reasons was valid, since the ban "simply does not, in a
direct fashion, promote competition in the video programming
market."(note 107) In fact, the
provision serves as a bar to entry into the market "by the one
class of potential competitors that has exhibited an inclination to
compete with the entrenched monopolists."(note 108)
Therefore, the court concentrated on the government's second
justificationpreservation of diversity of ownership. The government
has a justifiable concern with the implications of having a single
entity in control of all telecommunications conduits to the home.
Thus, the court focused on whether the regulation was narrowly
tailored as required by the O'Brien test.
The court concluded that less restrictive means could have
been chosen by Congress or the FCC that would have allowed the
telephone companies to enter the video programming market while
limiting their ability to force cable operators out of the
market.
In short, if there exists a range of regulatory strategies that
would effectively eliminate the threat of anticompetitive conduct
by the telephone companies in the cable television industry, then
533(b) would "burden substantially more speech than is necessary to
further the government's legitimate interests," and would therefore
violate the First Amendment.(note
109)
The government, to substantiate its "diversity of ownership"
argument, claimed that the elimination of Section 533(b) would
allow the telephone companies to engage in pole access
discrimination and cross-subsidization in order to monopolize the
market. The court determined that the statute does not address the
telephone companies' ability to undertake these practices. It made
clear that "it is the concern the telephone companies will act
anticompetitively in the video programming market, not the
video transport market, that ultimately must provide the
justification for 533(b)."(note
110)
The court further noted that the telephone companies do not
have any inherent advantage that would allow them to evade the
regulation of anticompetitive behavior in the video programming
market. It also noted that there were other regulatory options
available to achieve the government's interests, but it opted not
to explore these since Section 533(b) did not even address the
behavior the government was seeking to prevent.(note 111)
The court concluded that Section 533(b) is not narrowly
tailored to serve a significant government interest. Rather, the
law substantially burdens more speech than is necessary to further
the government's legitimate interest. Therefore, it fails the
O'Brien test and is facially unconstitutional as a violation
of the telephone company's First Amendment rights.(note 112)
The bill, if enacted, would amend Section 613(b) of the
Communications Act of 1934 to allow any common carrier subject to
Title II of the Act to provide video programming directly to
subscribers in its telephone service area, either through its own
facilities or through those of an affiliate under the control of
that common carrier.(note 116)
Second, any common carrier subject in whole or in part to Title II
would be allowed to provide channels of communication, pole line
conduit space, or other rental arrangements to any entity
controlled or connected to the carrier, so long as these
arrangements are used for the provision of video programming to
subscribers in the telephone service area.(note 117)
The telco would be required to establish a separate affiliate
to manage the cable distribution portion of the business. The
affiliate would also be required to maintain all necessary books
and accounts, and to carry out the bulk of its own marketing, but
would be allowed to engage in institutional advertising by the
parent telephone company. The affiliate would be prohibited from
owning real or personal property in conjunction with the common
carrier. The bill would subject all business transactions between
the telco and the video programming affiliate to regulation by the
Commission.(note 118)
In order to ensure equal access and competition within the
industry, the telco would be required to establish a basic video
dialtone platform, to be regulated by the Commission.(note 119) The telephone company would have to
make available such capacity as is requested by an unaffiliated
video program provider. However, the telco would not be required to
provide more than 75 percent of the equipped capacity of its basic
video dialtone platform to the unaffiliated video program
providers.(note 120)
To prevent uncompetitive behavior on the part of the telcos,
the bill prohibits cross-subsidization. The common carriers would
be forbidden to include costs or expenses associated with provision
of video service in their rates for telephone exchange service.
Furthermore, the telephone company would be prohibited from
purchasing or retaining control over any cable system that is in
its telephone service area and owned by an unaffiliated person.
However, it could obtain a noncontrolling interest in a cable
system through a joint venture. The bill also provides that the
Commission could waive the prohibition if the buyout would result
in a substantial upgrade through the deployment of modern
technology, if it would expand the capacity and services of the
cable system, if the purchase would be in the public interest, and
if the local franchising authority approves the waiver.(note 121)
This provision does not attempt to regulate the speech of the
common carriers. Instead, by focusing specifically on business
practices, it attempts to quell the concerns of those who believe
that a telephone company might use its financial strength to
overpower a competing cable company. This is a narrowly tailored
approach to achieve the government's interests in allowing
competition to flourish and providing advanced telecommunications
services to those areas that are most often underserved.
Furthermore, the bill empowers the Commission to assess fines
and penalties as it deems appropriate in the event a common carrier
knowingly and willfully violates any provision. Penalties could
range from fines to a mandated complete divestiture of the video
programming affiliate.(note 122)
These penalties could be categorized as a subsequent punishment, as
opposed to a prior restraint. Even so, the penalty strikes not at
punishing the expression, but at punishing the business practices
that resulted in the exclusion of or the limitation upon a
competing speaker in the marketplace.(note 123)
Currently, cable operators are deploying advanced technology
in order to offer an expanded array of video programming, and to
experiment with two-way and point-to-point communications.
Simultaneously, the telcos are deploying fiber optic cable within
their public switched networks. This technology holds out the
promise of providing video, audio, and high speed data
transmission. The removal of the ban would create a competitive
atmosphere in which to expedite the development of public networks
with switched broadband capabilities.
The repeal of the cable-telephone company cross-ownership ban
would promote and expedite the continued development of the United
States' telecommunications infrastructure. It would provide an
incentive to the telcos to replace copper wires with broadband
fiber optic cable more quickly than the current rate of
depreciation.
The argument that the telephone companies can already
facilitate the provision of video programming ignores the risk that
competitors to the current cable operators would not want to invest
in a market in which the latter already has a stake. Furthermore,
cable operators would not deploy programming over a telco
distribution facility because they have already made an
infrastructure investment and can sustain market power in their
current service areas.
If the telcos are not allowed to provide their own
programming, they may not be able to secure programming to be
carried over their video dialtone. By 1990, large multiple system
operators (MSOs) held ownership interests in six of the eight
national pay cable networks, and thirteen of the top twenty
national basic cable networks.(note
124) It is reasonable to expect the competing MSOs to prohibit
distribution of their property to a new competitor. In fact,
Congress found that this practice had become so egregious that in
the Cable Act of 1992 it passed an access to programming
provision.(note 125)
The NTIA also cited arguments that if Local Exchange
Carriers (LECs) could provide programming, they "could realize
revenues in the programming market . . . which revenues could then
be used to fund `investment in a broadband public network.'"(note 126) Although the NTIA
recognized that LECs might conceivably realize efficiencies as
program providers and stimulate a competitive video market, the
NTIA, based on the sparse record before it, concluded "there will
not be any long-term excess profits available to subsidize" network
development activities.(note
127)
The most tangible result from the elimination of the cross-
ownership ban would be lower rates and increased efficiency of
service. Currently, cable companies have little incentive to
improve either program choices or services. However, the advent of
a potential competitor in the marketplace would provide the impetus
for progress. Furthermore, a recent study concluded that the
elimination of Section 613 would result in $74.9 billion in
consumer surplus from price reductions by the year 2003.(note 128)
The revolution in communications extends beyond the mere
provision of programming. Health care, education, business
communications, and residential communications will undergo a
significant change in the wake of the deployment of a broadband
network, whether provided by cable operators or telephone
companies.
Broadband networks threaten to break down the four walls of
the traditional classroom. Experiments in distance learning
occurring nationwide highlight the advantages of interconnecting
students and teachers from different areas and backgrounds. College
professors can reach an exponentially larger field of high school
students in order to teach advanced level classes. The new
technology allows these professors not only the ability to teach,
but also the ability to interact with the students as though they
were in the same classroom. Fiber optics also brings new
opportunities to rural area students, who have traditionally been
deprived of the benefits of being in a large city. The students now
have access to college libraries and computers through the use of
the telephone lines.
Mississippi 2000, an experiment implemented by BellSouth, IBM,
Apple, and Northern Telecom, has improved educational facilities
available to students in the Mississippi Delta region of the state.
Fiber optics connects three colleges, four high schools, and the
Mississippi Educational Television Network studio. It allows the
institutions to interact in simultaneous, two-way, full-motion
instructional programming.(note
129) Michigan Bell has linked six school facilities through
fiber optics in the Lansing-Jackson area. Besides other benefits,
it allows high school students from Pottersville High School to
receive classes from Lansing Community College.(note 130) Finally, students in the Findlay,
Ohio, School District have been interconnected to the facilities of
two area colleges by a fiber optic system deployed by Ameritech.(note 131)
Health care providers are using broadband telecommunications
facilities to improve health care. Of course, this benefits
hospitals and patients in major urban centers. However, the most
beneficial impact is felt by patients in traditionally underserved
areas. Since 1980, more than two hundred rural hospitals have
closed and one-fifth of the remaining rural institutions are at
risk of closing.(note 132) From a
technological standpoint, the average rural hospital is a
generation or more behind its urban counterpart.(note 133) Employment of a broadband network
would allow these hospitals to engage in rapid transfer and
information sharing, such as the transmission, storage, and
retrieval of x-rays and other medical images. Experiments in this
field are still in the early stages, but the initial results are
encouraging.
By turning the home into an office, telecommuting promises to
improve the quality of life for millions of Americans. President
Bush declared, "Millions have already found their productivity
actually increases when they work nearer the people they're really
working for: their families at home."(note 134) Telecommuting can reduce stress and
lost time, while increasing job satisfaction. Furthermore, it can
help businesses reduce office overhead and allow them to reap the
benefits of increased productivity. These benefits have been
enjoyed by only a handful. The infrastructure for this sort of
experiment is not yet in place. As a broadband fiber optics network
is deployed, telecommuting may become more commonplace.
Elimination of the cross-ownership ban will allow the United
States to remain competitive in the international marketplace. The
first country to have nationwide implementation of a fiber optic
network will lead the world in the telecommunications race in the
twenty-first century. The United States has begun developing this
infrastructure. However, Japan and other nations are surpassing us.
The Japanese government plans to have 100 percent fiber penetration
by the year 2015.(note 135) In
comparison, at the current rate, the United States will reach this
mark by the year 2030 or 2045.(note
136)
The United States is the standard-bearer of telecommunications
technology. However, its position is beginning to erode in the wake
of the farsighted policy decisions of other countries. U.S.
companies have the knowledge and technology that will allow them to
retain the lead, but current policies prevent them from utilizing
this potential and may eventually cost us the advantage in the
international marketplace.
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*United States Representative, 4th District of Ohio, elected 1981.
House Committee on Energy and Commerce Subcommittee on
Telecommunications and Finance. B.A. 1966, Miami University (Ohio);
J.D. 1969, Ohio State University. I wish to thank Carl Artman,
Esq., legislative assistant, for his help in researching and
writing this article.Return to Text
If there is a kind of commercial speech that lacks all First
Amendment protection, therefore, it must be distinguished by its
content. Yet speech whose content deprives it of protection cannot
simply be speech on a commercial subject.
Introduction
The United States stands at the brink of a revolution.
Telecommunications technology evolves at a pace that makes even the
most contemporary systems obsolete. This technological revolution
could yield tremendous results in fields as diverse as education
and health care.I. History of the Cable-Telephone Company Ownership
Restrictions
Telephone company provision of cable television
service has concerned the Federal Communications Commission (FCC or
Commission) for over two decades.(note
1) In 1969, the Commission initiated a rulemaking proceeding in
order to determine whether telephone companies should be able to
provide cable television service, and if so, what conditions should
be attached to any such authorization.(note 2) The Commission subsequently determined
that a central problem in the evolving cable television marketplace
was theII. The Section 613 Ban as a Prior Restraint
From the moment Congress enacted the Section 613 ban on cross-
ownership, the telcos' First Amendment rights have been relegated
to a tertiary level of concern. Telcos have been regarded as
entities deserving unique and more onerous attention due to their
historical monopoly over the local telephone loop. However, this
status should not deprive them of their First Amendment rights,
especially in light of the fact that the industry that was to be
protected from the telcos' omnipotence has built an equally strong
financial foundation, and now enjoys a similar monopoly in the
local cable loop. Therefore, the ban should no longer be viewed as
a mere protection, but instead as a restraint on
expression.III. Section 613 as an Infringement on Commercial
Expression
The prohibition on telco entry into the cable
market circumscribes the telcos' desire to communicate with
potential subscribers. Inevitably, this communication would involve
commercial speech, such as self-promotional advertisements and
those of program sponsors. This commercial speech could be
understood as video programming much like that which would be seen
on broadcast stations and, therefore, a direct violation of
the ban. Further, this step into the information age would be part
of a larger scheme to interconnect the nation. Therefore, cable
would be a stepping-stone to a greater design, which would, by plan
and necessity, be built partially upon commercial speech. Thus, the
prohibition collides with the First Amendment doctrine that
protects commercial speech.(note
71)IV. A More Rational and Contemporary Approach to the Regulation
and Development of the Broadband Infrastructure
Congress and
the Commission wish to regulate telco entry into cable service.
However, as discussed above, the current method has become
unconstitutional through obsolescence. Therefore, a new method must
be proposed. In the last three Congresses, several of my colleagues
and I have introduced legislation that would fulfill the desires of
those who wish to regulate, while simultaneously giving telcos the
freedom to diversify into cable programming.(note 113) The current House version of the bill
is House Bill 1504, the Communications Competitiveness and
Infrastructure Modernization Act of 1993.(note 114) The purpose of the bill is to
encourage the modernization of the nation's telecommunications
infrastructure. It would also promote competition in the cable
television industry by permitting telephone companies to provide
video programming.(note 115)V. The Benefits of an Open and Competitive Telecommunications
Marketplace
The Section 613 prohibition has a direct and
immediate effect on the lives and futures of the citizens of the
United States that extends beyond home entertainment. The
prohibition is not designed to cope with the technological
convergence and evolution of two traditionally separate wings of
the United States' telecommunications industry. Together, these two
wings provide the two essential items in the American home: the
television and the telephone.Conclusion
Telecommunications regulatory policies are necessary to ensure
that the benefits of the evolving technology reach all sectors of
the United States. However, the policymakers must avoid stifling
the expression of speakers in the marketplace. An infringement on
their First Amendment rights injures speakers and has serious
repercussions on all those who benefit from the advances that they
may make. In an era of technological upheaval in
telecommunications, policymakers must not act on the basis of a
particular industry's past. Instead, they should look to the
benefits that this industry and its competitors can bring to the
future generations, not only in terms of technology, but in the
ability of the citizens to express themselves.Notes
We begin with several propositions that already are settled or
beyond serious dispute. It is clear, for example, that speech does
not lose its First Amendment protection because money is spent to
project it, as in a paid advertisement of one form or another.
Speech likewise is protected even though it is carried in a form
that is "sold" for profit, and even though it may involve a
solicitation to purchase or otherwise pay or contribute money.
Id. at 761 (citations omitted). Return to text