Henry Weissmann *
On June 3, 1999, Judge Owen M. Panner issued an important ruling
upholding the authority of the City of Portland and surrounding
Multnomah County to require AT&T to provide open access to competing
Internet Service Providers ("ISPs") as a condition of
the approval of AT&T's acquisition of control over TCI's cable
franchise.
Background
AT&T/TCI have begun to roll out a high-speed data transport
service that utilizes cable facilities to provide Internet access
at speeds advertised as 50-100 times faster than dial-up connections.
AT&T/TCI market the service as an integrated offering that includes
ISP services provided by @Home, a publicly-traded company over which
AT&T has voting control. AT&T/TCI and @Home have agreed
to divide the revenue received from subscribers to the Internet
service. Other major cable operators have entered into similar exclusive
arrangements with @Home or with RoadRunner, a similar ISP that is
affiliated with Time Warner and MediaOne. @Home is now known as
Excite @Home, following the completion of its acquisition of Excite,
a leading portal and search engine provider, but we will simply
refer to the service as @Home.
In June 1998, AT&T applied to the City of Portland and Multnomah
County for approval of the change in control of TCI. City and County
officials became concerned that the exclusive relationship between
AT&T/TCI and @Home impaired the ability of independent ISPs
to compete and limited consumers' ability to select their preferred
ISP. Accordingly, the City and County conditioned its approval of
the change of control on AT&T's provision of nondiscriminatory
access to the cable modem platform for unaffiliated ISPs. AT&T
refused to accept the condition, and the City and County therefore
disapproved the change in control.
AT&T sued, alleging that the access condition was unlawful.
Judge Panner granted the City and County's motion for summary judgment
and denied AT&T's cross-motion.
Preemption
The Court first held that the City and County were not preempted
by Title VI of the Communications Act from imposing the access condition.
The Court began its analysis with 47 U.S.C. § 556, which preserves
state and local authority "regarding matters of public health,
safety, and welfare, to the extent consistent with the express provisions
of this subchapter," and which preempts state and local action
"which is inconsistent with this chapter." The Court deemed
this section to reflect congressional intent "to interfere
as little as possible with existing local government authority to
regulate cable franchises." The Court held that preemption
would not be found unless congressional intent to do so was "'unmistakably
clear.'" Judge Panner also alluded to 47 U.S.C. § 533(d)(2),
which preserves state and local authority to prohibit ownership
or control of a cable system where the acquisition "may eliminate
or reduce competition in the delivery of cable service in such jurisdiction."
The Court interpreted this section broadly to reflect congressional
recognition of local power to preserve competition for cable services.
The Court declined to second-guess the City and County's conclusion
that the access condition was necessary to preserve competition,
and further concluded that the power to prohibit the change of control
on this basis implied the lesser power to impose conditions on the
change of control.
The Court rejected AT&T's argument that the access condition
amounted to "common carrier" regulation prohibited by
47 U.S.C. § 541(c). The Court determined that requiring a business
to permit access to an essential facility is not the same as regulating
the business as a common carrier.
The Court also rejected AT&T's reliance on 47 U.S.C. §
544(e), which prohibits local authorities from requiring the "use
of any subscriber equipment or any transmission technology."
The Court concluded that the City and County had not dictated how
AT&T was to implement nondiscriminatory access and therefore
was technology-neutral.
The Court disagreed with AT&T's reliance on 47 U.S.C. §
544(f)(1), which prohibits local authorities from imposing "requirements
regarding the provision or content of cable services." The
Court construed the provision as applying to content-based requirements,
and it found that the access requirement was content-neutral economic
regulation.
Finally, the Court dismissed AT&T's argument that the access
condition was a form of programming regulation inconsistent with
the must carry, leased access, and PEG requirements of 47 U.S.C.
§§ 531, 532, 534, and 535. The Court concluded that the
access condition was not a programming requirement, but a physical
access requirement.
Constitutional claims
The Court disposed of AT&T's constitutional claims, as well.
Judge Panner found no First Amendment violation because AT&T
had stated that subscribers could reach any ISP or content by "clicking-through"
the @Home portal. The Court also viewed the access condition as
content-neutral economic regulation that advanced a substantial
government interest in preserving competition.
The Court found no commerce clause violation because AT&T failed
to show that the increase expense caused by the access condition
would create a burden on interstate commerce that outweighed the
local benefits of encouraging competition.
The Court rejected AT&T's contracts clause arguments because
the access condition was consistent with the franchise agreement.
Implications
Judge Panner's opinion is the first to determine whether a local
franchising authority may impose a nondiscriminatory access condition.
A number of cities are actively considering the imposing of a similar
access condition, including Seattle and surrounding King County,
Los Angeles, San Francisco, Dade and Broward Counties, and Washington,
D.C. AT&T has stated that it will ask the Ninth Circuit to expedite
the appeal of Judge Panner's ruling, and the outcome of the appeal
will be closely watched throughout the country.
* Henry Weissmann is a telecommunications attorney at Munger Tolles
& Olson LLP.
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