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  • Copyright Tech Law Journal 1999. All rights reserved.

No. 99-35609
____________________

IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
____________________

AT&T CORP., et al.,

Appellants,

v.

CITY OF PORTLAND, et al.,

Appellees.
____________________

On Appeal from the United States District Court
for the District of Oregon
Case No. CV 99-65 PA
____________________

BRIEF OF AMICUS CURIAE THE openNET
COALITION IN SUPPORT OF APPELLEES CITY
OF PORTLAND AND MULTNOMAH COUNTY

STATEMENT OF INTEREST

The openNET Coalition (“openNET”) is a national coalition of more than 700 Internet service providers (“ISPs”) and technology companies that have joined together to promote and accelerate the provision of competitive broadband Internet access services to consumers.  OpenNET’s membership includes both national ISPs such as Prodigy, MindSpring, and America Online and local or regional providers from approximately 40 states, including Oregon.

OpenNET believes that openness and competition have driven the extraordinary success of the Internet.  Consumers have been able to choose from among thousands of Internet access providers, and from among even more providers of Internet content and services.  OpenNET considers it vitally important to preserve openness and competition – which have led to lower prices, better services, innovation, and investment – in the transition to broadband technologies.

To ensure that consumers continue to have a wide choice in the broadband era, openNET believes that AT&T should be prevented from engaging in the same practices to suppress competition in Internet markets that it used to suppress competition in telephone markets.  The dismal history of monopolistic practices in telephone markets should not be repeated in Internet markets.

OpenNET has moved for leave to file this amicus brief.

STATEMENT OF THE ISSUE

To prevent AT&T from using monopoly power to control the market for cable broadband access to the Internet the way it once controlled the telephone market, may a local government require, as a condition of AT&T’s taking control of a local cable franchise, that AT&T not dictate that cable subscribers purchase the Internet service provider which it controls?

STATEMENT OF FACTS

At Home Corporation (“At Home Corp.”) is an ISP controlled by AT&T.  See Appellants’ Excerpts of Record (“ER”) 196; Appellees’ Supplemental Excerpts of Record (“SER”) 77.

In September 1998, after AT&T and TCI had applied for local approval of the changes of control to AT&T, the Mount Hood Cable Regulatory Commission (“MHCRC”) posed this question to the companies:

To what extent, if any, will TCI afford access to cable modem services to other Internet Service Providers on nondiscrim-inatory terms and conditions?

SER 77.  AT&T’s October 1998 response made clear that it did not intend to allow consumers to chose an ISP unless they first purchased @Home, the Internet service supplied by AT&T’s affiliate At Home Corp.  Id.  AT&T planned to require consumers to pay a monthly subscription fee for @Home as a condition of obtaining cable modem-based Internet service.  AT&T later told the Portland City Council that access to the Internet through cable modems is “the highest speed network access there is,” and that such access was “better” than any existing alternative technology.  SER 258-59; see also SER 356-59.

AT&T’s comments at a public hearing before the MHCRC in November 1998 underscored its intention to insist that consumers buy @Home to obtain access to the Internet through cable modems.  An AT&T representative stated that a cable customer preferring another ISP to @Home could continue to use “any of the other [ISP] services that have been described here on a dial-up basis exactly as you currently do it.”  Id.  In short, AT&T contemplated that consumers either would pay for @Home, or settle for Internet access through telephone modems operating at a fraction of the speed of cable modems.  At Home Corp. has estimated that cable modems provide Internet Service “at peak transmission speeds over 100 times faster than typical dial-up connections.”  SER 315.

In December 1998 the Portland City Council passed an ordinance conditioning approval of the changes of control to AT&T on nondiscrimination against ISPs unaffiliated with AT&T.  SER 237-44, 274-81.[1]

SUMMARY OF ARGUMENT

The Portland ordinances represent reasonable measures to ensure that openness and competition, which have fueled the astounding development of the Internet in the narrowband era, continue to exist in the market for broadband Internet access.

Because telephone companies have been barred from limiting dial-up Internet access over their telephone lines to affiliated ISPs, thousands of ISPs have emerged to afford consumers a wide range of options for obtaining access to the Internet, on-line services, and Internet content.[2] If the rule had been otherwise as to narrowband dial-up telephone modems – i.e., if a local telephone company were allowed to control the ISPs consumers could access over the company’s phone lines – the healthy and vibrant market for on-line services would not exist today.

Now, technology is being developed and put in place to permit access to the Internet at broadband speeds many times faster than narrowband speeds available through dial-up telephone modems.  The faster connection allows users access to a wide variety of content that it is simply not practical to provide over a narrowband connection.  What is at stake in this case is whether one company can obtain a stranglehold on speedy access to the Internet through cable modems.

AT&T wants to force consumers seeking such access to purchase the services of the ISP controlled by AT&T, whether or not they would prefer another ISP.  AT&T has fashioned a “take it or leave it” proposition for consumers desiring high-speed, cable modem access to the Internet that is intended to foreclose competition and eliminate consumer choice.  Under AT&T’s monopoly model, every consumer who would prefer another ISP would have to pay for two ISP services in order to get the one that the consumer desired.  Left unchecked, AT&T’s anti-competitive plan would necessarily lead to higher prices, less consumer choice, and constraints on the free flow of information and electronic commerce.

AT&T’s model for cable broadband access to the Internet mirrors the model that AT&T used earlier in this century with respect to the telephone:  customers who wished to use AT&T’s local telephone lines were required to purchase AT&T’s affiliated long-distance telephone service.  They could not freely choose an unaffiliated long-distance provider.  This is a tried, true, and tested way of thwarting consumer choice and foreclosing competition.

The condition imposed by Portland – barring discrimination against ISPs unaffiliated with AT&T – is a measured and appropriate response to the threat to competition posed by AT&T’s plans.  It allows consumers to obtain the Internet services of their choice without having to pay for unwanted services, and simply seeks to prevent AT&T from doing in the market for Internet services what it once did in the telephone market.  The ordinances do not require AT&T to endorse any ISP or require AT&T to provide carriage at an economic loss.  The ordinances are designed simply to ensure that consumers who wish to obtain Internet service using the monopoly cable system are not restricted to AT&T’s affiliate for Internet service.  No federal statute requires a municipality to ignore the lessons of experience, or to sit on its hands while history repeats itself in a different market.

AT&T’s challenge to the Portland ordinances is based upon the wholly untenable premise that local franchising authorities have only a minor role in cable regulation and lack the authority to protect consumers in their jurisdictions.  The text, legislative history, and background of the relevant statutes demonstrate that local franchising authorities have far greater power than AT&T contends.  Local regulation has played a critical role in protecting consumers from cable operators wielding monopoly power, and Congress has preserved that role in its cable legislation.

ARGUMENT

I.  The FCC’s Views Support Affirmance.

Contrary to AT&T’s public pronouncements, the FCC’s official views in this case do not support reversal of the judgment below.  The agency has made its views clear in its brief, and those views can be summarized as follows:

First, because all the parties have assumed in this case that @Home is a “cable service,” and because the FCC has never addressed and resolved that issue, the Commission urges the Court to decide this case narrowly, resolving only those issues that have been contested by the parties.

Second, the FCC does not assert that the Portland ordinances are preempted either (i) by any federal statute, or (ii) by any action that the FCC has taken to date.

Third, the FCC does not contend that the judgment of the District Court should be reversed.[3]

OpenNET agrees with the FCC that this case should be decided narrowly.   The FCC correctly notes that the issue of whether cable modem broadband service should be deemed “cable service” under 47 U.S.C. § 522(6) has not been contested by the parties either in the District Court or on appeal.[4] That issue – which the FCC itself has not resolved, see FCC Br. 26 – is one of great importance, and should not be decided in a case in which it has not been contested.[5] The issue before the Court is thus whether, assuming that cable modem broadband service is a “cable service,” the ordinances are preempted by federal law or violate the Constitution.

As the FCC explains, it is also unnecessary for this Court to decide whether the Commission would have the power to issue a regulation preempting local nondiscrimination measures such as Portland’s.  The relevant point for present purposes is that to date the FCC has not issued any regulation, or taken any other action, that purports to preempt the Portland ordinances.[6]

Thus, the FCC’s position clearly supports affirmance of the judgment below – albeit in a manner that does not unduly restrict either the agency’s ability to take affirmative steps in the future to (re)classify the service at issue and/or take action that might preempt local decisionmaking.

II.  The Challenged Ordinances Are Within the Established Power of Local Franchising Authorities.

AT&T asserts that local franchising authorities (“LFAs”) have practically no role in the regulation of cable, “retain[ing] authority only over uses of public rights-of-way and related aspects of cable service.”  AT&T Br. 8; see also Hands Off The Internet Br. 9-11.  The pertinent statutes and their legislative history show that the authority of LFAs is far broader.  LFAs have the power to promote the public health, safety, and welfare by regulating cable operators.  Portland’s efforts to ensure that AT&T does not foist an AT&T-controlled ISP upon consumers is completely consistent with Congress’s intent to preserve local authority.

A.  LFAs Have Long Played a Major Role in Regulating Cable Operators.

With rare exceptions, cable operators are monopolies. In Turner Broadcasting System v. FCC, 520 U.S. 180, 197 (1997), the Supreme Court noted that “[o]nly one percent of communities are served by more than one cable system.”[7] In this case, AT&T/TCI is the monopoly cable operator in each of the affected franchise areas.

Cable operators have long been subject to local regulation, not only because cable operations generally require franchises from local governments,[8] but also because state and local governments have broad power to protect the health, safety, and welfare of their citizens.[9] Although since 1984 federal law has expressly recognized that localities have franchising authority with respect to cable operations, see infra, federal law “did not create that power.”  City of Dallas v. FCC, 165 F.3d 341, 348 (5th Cir. 1999).  Rather, local governments had “independ-ently-existing authority to impose franchise requirements.”  Id.  Accordingly, the power of LFAs is governed by the rule that,

if Congress intends to preempt a power traditionally exercised by a state or local government, it must make its intention to do so unmistakably clear in the language of the statute.

Id. at 347-48 (internal quotation marks omitted).

From the late 1940s, when cable television originated,[10] through the end of the 1950s, the regulation of cable operators fell entirely to LFAs. During that period the FCC “disclaimed any power to regulate cable television.” Cable Television Ass’n v. Finneran, 954 F.2d 91, 95 (2d Cir. 1992).

Even when the FCC began to regulate in this area, the bulk of the responsibility for cable regulation remained with LFAs. In the 1960s, the FCC issued regulations restricting the ability of cable operators to import distant broadcast signals. The Supreme Court upheld the regulations as ancillary to the FCC’s power to regulate television broadcasting. See United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968). In 1972, the FCC issued regulations reflecting a “‘deliberately structured dualism’ whereby local governments would be responsible for selecting franchises, pursuant to minimum standards established by the Commission, while the Commission retained exclusive authority over all operational aspects of cable communication, including technical standards and signal carriage.” New York State Comm’n on Cable TV v. FCC, 749 F.2d 804, 809 (D.C. Cir. 1984). In 1978, the FCC relinquished much of the power it had asserted, by converting most of its franchise standards into voluntary guidelines. See Finneran, 954 F.2d at 96. By 1979, the FCC had power to regulate cable “only so long as [its] rules were reasonably ancillary to broadcasting goals (defined either as diversity of programming or protection of local broadcasters).” Id. The Supreme Court took a broader view of the FCC’s power in Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984), but a few months later Congress stepped in and definitively established the primary role of LFAs in cable regulation.

B.  The Cable Acts Establish the Local Franchising Process as the Primary Means of Cable Regulation

The Cable Communications Policy Act of 1984 (“the 1984 Cable Act”)[11] “delineate[d] within Federal legislation the authority of Federal, state and local governments to regulate cable systems.” H.R. Rep. No. 98-934, at 22. Congress noted that “[m]ost decisions related to the award of a cable franchise have historically been made at the municipal level,” and intended that under the Act “the franchise process [would] take place at the local level where city officials have the best under-standing of local communications needs and can require cable operators to tailor the cable system to meet those needs.” Id. at 23-24. To this end, the 1984 Cable Act codified the authority of the LFAs to award franchises. See sec. 2, § 621, 98 Stat. at 2786 (codified as amended at 47 U.S.C § 541). As explained in the House Report, the Act “continues reliance on the local franchising process as the primary means of cable television regulation, while defining and limiting the authority that a franchising authority may exercise through the franchise process.” H.R. Rep. No. 98-934, at 19 (emphasis added).[12]

In codifying the power of LFAs to grant cable franchises, Congress sought to establish franchise procedures and standards that would both “encourage the growth and development of cable systems” and “assure that cable systems are responsive to the needs and interests of the local communities they serve.” Id. at 99. The 1984 Cable Act set forth standards designed to prevent overreaching by LFAs in the franchising process and to establish rules for negotiations between LFAs and cable operators.[13]

The limitations Congress imposed on LFAs’ franchising authority did not extend to the traditional police powers exercised by states and localities. Congress expressly provided that

Nothing in this title shall be construed to affect any authority of any State, political subdivision, or agency thereof, or franchising authority, regarding matters of public health, safety and welfare, to the extent consistent with the express provisions of this title.

Sec. 2, § 636(a), 98 Stat. at 2800 (codified at 47 U.S.C. § 556(a)) (emphasis added). As noted by the District Court, traditional police powers have long been understood to include the power to promote competition. See ER 201; p. 26, infra; see also note 9, supra. Congress further provided that

Nothing in this title shall be construed to restrict a State from exercising jurisdiction with regard to cable services consistent with this title.

Sec. 2, § 636(b), 98 Stat. at 2800 (codified at 47 U.S.C. § 556(b)).

A major purpose of the 1984 Cable Act was to “promote competition in cable communications and minimize unnecessary regulation that would impose an undue economic burden on cable systems.”  Sec. 2, § 601(6), 98 Stat. at 2780 (codified at 47 U.S.C. § 521(6)).  But by the time of the Cable Television Consumer Protection and Competition Act of 1992 (“the 1992 Cable Act”),[14] it had become apparent that the deregulation begun eight years earlier had not lowered cable rates or stimulated competition in the cable industry at all.  Although cable services for 97 percent of all franchises had been deregulated by 1986, rates for basic cable service had greatly increased – by 40 percent or more for 28 percent of cable subscribers.  See 1992 Cable Act, sec. 2(a)(1), 106 Stat. at 1460.  Moreover, as Congress found in the 1992 Cable Act, “most cable television subscribers have no opportunity to select between competing cable systems,” resulting in “undue market power for the cable operator as com-pared to that of consumers and video programmers.”  Sec. 2(a)(2), 106 Stat. at 1460 (emphasis added).[15] Congress determined that the “cable industry has become highly concentrated,” and that the “potential effects of such concentration are barriers to entry for new programmers and a reduction in the number of media voices available to consumers.”  Sec. 2(a)(4), 106 Stat. at 1460.

One of Congress’s particular concerns was vertical integration.  Congress found that the cable industry

has become vertically integrated; cable operators and cable programmers often have common ownership. As a result, cable operators have the incentive and ability to favor their affiliated programmers. This could make it more difficult for noncable-affiliated programmers to secure carriage on cable systems. Vertically integrated program suppliers also have the incentive and ability to favor their affiliated cable operators over nonaffiliated cable operators and programming distributors using other technologies.

Sec. 2(a)(5), 106 Stat. at 1460-61.  Further, because of limitations imposed on LFAs under the 1984 Cable Act, LFAs were “finding it difficult under the current regulatory scheme to deny renewals to cable systems that are not adequately serving cable subscribers.”  Sec. 2(a)(20), 106 Stat. at 1463.

Because Congress recognized that steps to deregulate cable had caused more problems than they had solved, it backtracked in the 1992 Cable Act.  The 1992 legislation sought to combat the alarming increase in cable rates by implementing a definition of “effective competition” that subjected virtually all cable systems to rate regulation.  Sec. 3, § 623(l), 106 Stat. at 1470-71 (codified as amended at 47 U.S.C. § 543(l)).  To address the appalling customer service standards of most cable operators, the 1992 Cable Act required that the FCC issue rules governing customer service, which LFAs would enforce, sec. 8, § 632(a)(1) & (b), 106 Stat. at 1484 (codified at 47 U.S.C. § 552(a)(1) & (b)), while allowing LFAs to enact more stringent consumer protection measures should they deem it necessary.  See sec. 8, § 632(c)(1), 106 Stat. at 1484 (“Nothing in this title shall be construed to prohibit any State or any franchising authority from enacting or enforcing any consumer protection law, to the extent not specifically preempted by this title”) (codified at 47 U.S.C. § 552(d)(1)).  To promote competition, Congress prohibited LFAs from granting exclusive franchises to cable operators and from “unreasonably refus[ing] to award an additional competitive franchise.”  Sec. 7(a)(1), amending § 621(a)(1), 106 Stat. at 1483 (codified at 47 U.S.C. § 541(a)(1)).  Congress also provided that local or municipal authorities could operate as cable providers without having to secure a franchise.  Sec. 7(c), § 621(f), 106 Stat. at 1483-84 (codified at 47 U.S.C. § 541(f)).

Most importantly, Congress amended § 613(d) of the Communications Act of 1934, 47 U.S.C. § 533(d), to make clear that LFAs possess extensive power to regulate competition in their localities.  The 1992 Cable Act provides that, while LFAs may not prohibit ownership of a cable system simply because the entity seeking ownership owns or controls any other media or mass communications or other media interests,

Nothing in this section shall be construed to prevent any State or franchising authority from prohibiting the ownership or control of a cable system in a jurisdiction by any person (1) because of such person’s ownership or control of any other cable system in such jurisdiction; or (2) in any circumstances in which the State or franchising authority determines that the acquisition of such a cable system may eliminate or reduce competition in the delivery of cable service in such jurisdiction.

Sec. 11(b)(2), amending § 613(d), 106 Stat. at 1487 (codified at 47 U.S.C. § 533(d)) (emphasis added). In 1991, a federal district court had held that LFAs “may not prohibit the ownership or control of a local cable television system because of ownership or control of any other cable television system.” Cable Alabama Corp. v. City of Huntsville, 768 F. Supp. 1484, 1496 (N.D. Ala. 1991). The first part of the 1992 amendment overrules Cable Alabama, a decision Congress criticized as “inconsistent with the intent of subsections 613(c) and 613(d)” and “inconsistent with one of the major purposes of the Cable Act [of 1984], which is to ‘promote competition in cable communications,’ section 601(6) of the Cable Act, 47 U.S.C. sec. 521(6).” H.R. Rep. No. 102-628, at 91 (1992).

But Congress did not stop with overruling Cable Alabama. The 1992 amendment went on to confirm that states and LFAs also may prohibit ownership or control of a cable system when they determine that its acquisition “may eliminate or reduce competition in the delivery of cable service in such jurisdiction.” The explanation in the House report of the dual purpose of the amendment shows that Congress’s intent extended well beyond simply overruling Cable Alabama: “The amendment to subsection 613(d) clarifies the right of franchising authorities to promote competition by denying a franchise to a person if the grant of the franchise would limit competitive cable service in a franchise area. The amendment to section 613(d) also overturns the decision in Cable Alabama Corp.” H.R. Rep. No. 102-628, at 91 (emphasis added).

Assuming that @Home is a “cable service,” as AT&T has contended, Portland’s authority under 47 U.S.C. § 533(d) is apparent.   AT&T’s plan to require cable subscribers seeking fast Internet access to purchase @Home plainly threatens to “eliminate or reduce competition in the delivery of cable service” in Portland.  The Portland ordinances are intended to address that threat.

C.  LFAs Have the Power To Take Reasonable Measures To Protect Competition

It is thus apparent that LFAs’ role in cable regulation is not limited merely to “uses of public rights-of-way and related aspects of cable service.”  AT&T Br. 8.  Portland has the authority to protect its citizens from AT&T’s attempt to dictate that consumers must use the ISP affiliated with AT&T to obtain cable broadband access to the Internet.  This authority is derived from LFAs’ traditional police powers regarding matters of public health, safety, and welfare, which are expressly recognized in 47 U.S.C. § 556(a), and from Congress’s explicit delegation of power to LFAs under 47 U.S.C. § 533(d)(2) to prohibit the ownership or control of a cable system where competition in cable services is threatened.[16]

Congress’s express recognition in § 556(a) of the authority of LFAs “regarding matters of public health, safety, and welfare” must be viewed in light of the long line of cases establishing that the police power of states and localities includes the power to promote competition and to regulate monopolies. In German Alliance Insurance Co. v. Hale, 219 U.S. 307, 316 (1911), the Supreme Court declared that “the state is competent to adopt appropriate regulations that will tend to substitute competition in the place of combination or monopoly.” Such regulations, the Court explained, “are enacted under the power with which the States have never parted, of caring for the common good within the limits of constitutional authority.” Id. at 316-17. See also, e.g., Watson v. Buck, 313 U.S. 387, 404 (1941) (referring to the states’ “long-recognized power to regulate combinations in restraint of trade”); International Harvester Co. v. Missouri, 234 U.S. 199, 209 (1914); National Cotton Oil Co. v. Texas, 197 U.S. 115, 129-30 (1905).

Moreover, this Court has recognized that a major purpose of the 1984 and 1992 Cable Acts is to increase competition in the cable industry, and has rejected a claim by cable operators that the Acts preempted application of a state law “designed to ‘encourage competition, by prohibiting unfair . . . and discriminatory practices by which fair and honest competition is destroyed or prevented.’” Total TV v. Palmer Communications, Inc., 69 F.3d 298, 302 (9th Cir. 1995) (quoting California Unfair Practices Act). “Declaring that “[t]he Cable Acts were passed to foster competition in the cable industry,” the Court concluded that the state prohibition against unfair and discriminatory practices “complements, not undermines, the Cable Acts.” Id.

In acting as it did, Portland lawfully exercised its “authority . . . regarding matters of public health, safety, and welfare,” 47 U.S.C. § 556(a), and, as in Total TV, did so in a manner that complements the purpose of the Cable Acts to foster competition.  Openness and competition have been critical to the success of the Internet.  Portland was not obligated to disregard the proven benefits of openness and competition in addressing AT&T’s bid to take control of the cable franchises in the Portland area.  AT&T itself had stated to the Portland City Council that access to the Internet through cable modems is “the highest speed network access there is,” and that such access is “better” than any existing alternative technology.  SER 259.[17] Portland was not required to sit by and let AT&T lock up this vital path to the Internet.

History confirms that Portland was justifiably concerned about AT&T’s “take it or leave it” plan whereby consumers seeking cable broadband access would have no choice but to purchase @Home.  For years before its breakup, AT&T improperly used its monopoly in local telephone services to prevent competition in the long-distance telephone market.  Among other things, AT&T imposed “customer premises” restrictions that “[e]ssentially . . . forced customers to use AT&T for intercity service even with respect to routes served by other companies if they wanted service on any connecting route which was served only by AT&T.”  United States v. AT&T, 524 F. Supp. 1336, 1354 (D.D.C. 1981); see United States v. AT&T, 552 F. Supp. 131, 161-62 (D.D.C. 1982), aff’d mem., 460 U.S. 1001 (1983).  When AT&T told Portland it would not allow consumers to reach ISPs unaffiliated with AT&T without first paying for @Home, Portland had every reason to take action to prevent AT&T from again using a monopoly in one market to destroy competition in another.

Portland could reasonably conclude that the public would be harmed were AT&T allowed to require cable subscribers seeking fast access to the Internet to purchase the ISP controlled by AT&T.  Since few customers would pay for a second ISP after having to pay for the ISP controlled by AT&T, AT&T’s scheme threatened to give AT&T effective control over cable broadband access to the Internet.  There was ample basis for Portland to act to prevent AT&T from doing in the market for Internet services what it once did in the telephone market, and to ensure that the proven benefits of openness and competition in the narrowband arena are not lost in the transition to broadband technologies.

III.  Open Access Would Not Be “Exceedingly Difficult” To Implement.

AT&T affiliate At Home Corp. seeks to support AT&T’s appeal by arguing that providing nondiscriminatory access to ISPs would be “[e]xceedingly [d]ifficult.”  At Home Br. 19.  According to At Home Corp., there would be “complex technical problems,” the resolution of which “would add to the cost of the service without directly benefiting consumers,” and cable operators or At Home Corp. would be required “to devote considerable resources to managing bandwidth demand for unaffiliated ISPs or their customers as well as for users of the @Home Service.”  Id. at 20.

Professor Lawrence Lessig’s recent comments on similar arguments advanced by AT&T, which controls At Home Corp., put At Home Corp.’s claims about technical difficulties in perspective:

The last time AT&T had something interesting to say about what wouldn’t work, it was when it told the government . . . that the Internet could not work. Then, when competitors suggested AT&T open up its telephone network, it was telephone competition that couldn’t work. And now that cable may be the broadband channel of choice, it turns out that designing the cable network to allow multiple ISPs also can’t work. Nothing seems to work, until competitors or governments insist.

Lawrence Lessig, The Cable Debate, Part I, The Industry Standard, Aug. 2, 1999, at 22. The insubstantial nature of At Home Corp.’s arguments is also evidenced by AT&T’s failure to offer proof to support them before either the LFAs or the District Court.

Not only does At Home Corp. fail to specify the “complex technical problems” that purportedly would arise, but Portland presented evidence that open access is feasible.  See SER 360-74.  There is no reason that TCI – which had only designed 10% of its upgraded cable systems in the Portland area when the open-access issue arose, and which was redesigning its system in any event in light of its anticipated merger with AT&T, SER 76 – cannot configure its equipment to allow multiple connections at the cable head-end.  AT&T itself told Portland that the open-access condition involved “a not yet developed ‘cable modem platform.’”  SER 282, 290.[18]

At Home Corp.’s contention that allowing ISPs access on a nondiscriminatory basis would not directly benefit consumers is also untenable.  As this Court has observed, “[c]ompetition is essential to the effective operation of the free market because it encourages efficiency, promotes consumer satisfaction and prevents the accumulation of monopoly profits.  When a producer is shielded from competition, he is likely to provide lesser service at a higher price; the victim is the consumer who gets a raw deal.”  United States v. Syufy Enters., 903 F.2d 659, 668 (9th Cir. 1990).  The established effect of competition on price is sure to have a far greater impact on the price consumers are charged than any costs associated with permitting multiple ISPs to connect to the cable head-end.

At Home Corp.’s suggestion that cable operators or At Home Corp. would have to bear the costs of managing bandwidth demand for unaffiliated ISPs is baseless as well.  AT&T would be free to pass any such costs along to ISPs.  The challenged ordinances merely forbid discrimination.  They do not dictate the price AT&T may charge ISPs.

Moreover, the need to manage bandwidth demand is not related to the number of ISPs which have access to a cable system.  See SER 309.  Bandwith demand is a function of the number of customers using cable modems at a particular time and the functions the customers are performing (e.g., downloading data, viewing a website), not of the number of ISPs.  Consequently, the need to manage bandwidth demand exists independently of the number of ISPs which are allowed access to the cable modem platform.  At Home Corp. itself has indicated that there are many cost-effective means of addressing bandwidth demand.[19]

At Home Corp. repeatedly discusses the “backbone” facilities it uses and then implies that the local ordinances would give other ISPs a “free ride” on At Home Corp.’s backbone.  This implication again finds no support in the record and is highly misleading.

An Internet backbone consists of routers connected together by high-speed data lines.  Backbone providers route traffic between Internet access providers and interconnect with other Internet backbone providers.  Allowing another ISP access to AT&T’s cable modem platform would in no way grant that ISP access to the backbone facilities used by At Home Corp.  Rather, absent At Home Corp.’s consent, the other ISP would have to use backbone facilities which it owned or had contracted for the right to use.  There would be no “free ride,” and no ISP is asking for one.  In his testimony before the MHCRC, the President of ORISPA, Richard Hoswell, made clear that, if nondiscriminatory access were allowed, ISPs other than At Home Corp. would use their own networks of high-speed data lines to reach the Internet.  SER 199-200.[20]

In sum, At Home Corp.’s arguments about technical problems and use of its backbone are unfounded.

CONCLUSION

For the foregoing reasons, The openNET Coalition respectfully urges the Court to affirm the judgment of the District Court.

Respectfully submitted,

WILLIAMS & CONNOLLY

By:    _________________________

David E. Kendall
Paul Mogin
M. Elaine Horn
Thomas G. Ward

725 Twelfth Street, N.W.
Washington, D.C. 20005-5901
(202) 434-5000

Counsel for Amicus Curiae
The openNET Coalition

September 14, 1999

[1] Multnomah County adopted a resolution containing the same conditional approval.  For simplicity the Portland ordinance and the Multnomah County resolution are referred to hereafter as “the Portland ordinances.”

[2] See, e.g., Matt Richtel, Small Internet Providers Survive Among the Giants, N.Y. Times, Aug. 16, 1999, at C1 (describing market for ISPs as “a diverse industry with wide open possibilities for competitors, including mom-and-pop operations”).

[4] In seeking approval of the change of control of the cable franchises, AT&T and TCI took the position that @Home is a cable service.  SER 77, 124.  Similarly, the  complaint alleges that “TCI @Home . . . is a cable service under the Cable Act.”  ER 8.  The government defendants also treated @Home as a “cable service.”  The intervenor defendants took no position on that issue, but argued that the complaint should be dismissed even accepting AT&T’s characterization.  See Memorandum in Support of Motion To Dismiss, at 4 n.9 (Feb. 24, 1999).  Similarly, on appeal, whether @Home is a “cable service” has not been contested by the parties.

[5] See, e.g., United States v. Weyerhaeuser S.S. Co., 294 F.2d 179, 185 (9th Cir. 1961) (“In the absence of an actual controversy with adequate briefing by both sides, this court should not be called upon to render a decision on the issue.”), rev’d on other grounds, 372 U.S. 597 (1963); Dupree v. Jefferson, 666 F.2d 606, 610 n.24 (D.C. Cir. 1981) (where it was an open question whether local law or federal law applied, but the parties agreed that local law controlled, the court “decline[d] to address the question ourselves. Rather, we take the case as we find it, and proceed for purposes of this appeal on the parties' common premise that [local] law does control.”); see also A&A Concrete, Inc. v. White Mountain Apache Tribe, 676 F.2d 1330, 1333 (9th Cir. 1982) (“[t]he district court did not rule on these issues, and they were not briefed to this court . . . we do not consider them”).

[6] Although the FCC itself does not assert that its actions or statements give rise to preemption, amicus curiae Hands Off the Internet (“HOTI”) argues that the Portland ordinances are preempted by the absence of FCC regulation of the Internet. Hands Off the Internet Br. 13-14. (AT&T is one of HOTI’s 17 affiliate members and supporters.) That argument is untenable.

In Ray v. Atlantic Richfield Co., 435 U.S. 151, 173 (1978), upon which Hands Off the Internet relies, the Supreme Court held that a state law which regulated ship traffic in Puget Sound was invalid in light of the Secretary of Transportation’s authority under the Ports and Waterways Safety Act. The Court concluded that, when Congress enacted that statute, it contemplated that “there would be a single decisionmaker, rather than a different one in each State.” Id. at 177.  In contrast, when Congress has legislated with respect to cable, it has made clear its intent to preserve the local franchising process as the primary means of cable regulation. See Part II, infra.

Freightliner Corp. v. Myrick, 514 U.S. 280 (1995), underscores the limited scope of Ray. In Freightliner, the Court rejected a claim that the absence of federal regulation gave rise to preemption, distinguishing Ray on the ground that there the Court had concluded that “Congress intended to centralize all authority over the regulated area in one decisionmaker: the Federal Government.” Id. at 286. Finding no evidence of a comparable centralization of authority, the Freightliner Court held that state and local regulation was not forceclosed. Id. Similarly, Congress did not intend to centralize all authority over the regulation of cable services in the FCC, but instead intended to preserve a system of dual federal/local regulation of cable.

[7] See also, e.g., Time Warner Entertainment Co. v. FCC, 93 F.3d 957, 965-66 (D.C. Cir. 1996) (“Studies conducted by Congress subsequent to the passage of the 1984 [Cable] Act concluded that cable operators possessed excessive market power at the expense of consumers because of a lack of competition”).

[8] See id. at 972 (noting “the wide discretion local authorities enjoy in imposing franchise requirements”).

[9] See, e.g., Wisconsin Pub. Intervenor v. Motier, 501 U.S. 597, 607-08 (1991) (“The principle is well settled that local governmental units are created as convenient agencies for exercising such of the govern-mental powers of the State as may be entrusted to them in its absolute discretion.”) (ellipsis, brackets, and internal quotation marks omitted); City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976) (“States are accorded wide latitude in the regulation of their local economies under their police powers . . . .”); Veix v. Sixth Ward Bldg. & Loan Ass’n, 310 U.S. 32, 38 (1940) (police power “is not limited to health, morals and safety. It extends to economic needs as well”); Sullivan v. City of Shreveport, 251 U.S. 169, 172-73 (1919) (“every intendment is to be made in favor of the lawfulness of the exercise of municipal power, making regulations to promote the public health and safety”); House v. Mayes, 219 U.S. 270, 282 (1911) (“among the powers of the State . . . is the power to so regulate the relative rights and duties of all within its jurisdiction so as to guard the public morals, the public safety and the public health, as well as to promote the public convenience and the common good”).

[10] See H.R. Rep. No. 98-934, at 20 (1984); S. Rep. No. 98-67, at 5 (1983).

[11] Pub. L. No. 98-549, 98 Stat. 2779 (1984).

[13] For example, Congress capped the amount of franchise fees LFAs could require of cable operators at five percent of gross annual revenues from cable service, and limited the ability of LFAs to condition the grant or renewal of a cable franchise on the provision of services, facilities, or equipment unrelated to the “establishment or operation of a cable system.”  Sec. 2, §§ 622(b), 624, 98 Stat. at 2787, 2789-90 (codified as amended at 47 U.S.C. §§ 542(b), 544).

[14] Pub. L. No. 102-385, 106 Stat. 1460 (1992).

[15] See also U.S. West, Inc. v. United States, 48 F.3d 1092, 1096 (9th Cir. 1994), vacated, 516 U.S. 1155, dismissed as moot, 84 F.3d 1153 (9th Cir. 1996).

[16] The greater power to prohibit ownership or control in such circumstances necessarily includes the lesser power to impose conditions on approval of a change in ownership or control designed to address the threat to competition. See, e.g., Nollan v. California Coastal Comm’n, 483 U.S. 825, 836 (1987).

[17] Even when one looks beyond the franchises involved in this case, as AT&T repeatedly seeks to do, the facts confirm the reasonableness of the challenged measures. Cable companies currently have approximately 90 percent of the broadband market. See SER 394; Jeff Fischer, Industry Analysis: Broadband Connectivity, Motley Fool’s Internet Report, at 11 (July 1999) <http://www.foolmart.com>. Cable modem access is expected to remain the leading broadband technology for at least several years. See id. at 10.

[18] The lack of substantiation for the alleged technical obstacles is not surprising. In Montgomery, Alabama, a cable operator named Knology is currently providing cable broadband service and offering subscribers a choice between its ISP and MindSpring, a popular ISP offered by MindSpring Enterprises, Inc. See MindSpring Introduces Cable Internet Service, Business Wire, March 8, 1999, available in LEXIS, News Library, BWIRE File; ISPs Battle for Access to Coax Cable, Communications Today, Nov. 25, 1998.

[19] At Home Corp.’s Chief Technology Officer has stated:

Proximate users share high-bandwidth access . . . and may limit the effective bandwidth that is available to a given subscriber at a given time.  However, this shared connection is particularly efficient and well suited to the sporadic nature of Internet traffic, where browsing tends to consume bandwidth in discrete bursts intermixed with periods of inactivity.  As subscriber penetration increases, the cable operator has multiple cost-effective alternatives to increase capacity, including allocating additional 6 MHz channels for the @Home service or reducing the number of subscribers sharing a given bandwidth by adding nodes, with each node serving a smaller number of subscribers over the same fiber-optic infrastructure.

Written Statement of Milo Medin, Senior Vice President for Engineering and Chief Technology Officer for @Home Network, FCC En Banc Hearing on Bandwith, July 9, 1998 <http://www.fcc.gov/enbanc/070998/eb070998.html>.

[20] Several companies are or are becoming broadband backbone providers. AT&T is one, but others include MCI, Qwest, Sprint, and UUNet Technologies. See In re Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, 14 F.C.C. R. 2398, ¶ 38 (1999). For example, UUNet Technologies has invested in the development of “backbone network infrastructure that will be leased to Internet service providers, large corporations, and organizations with large Web sites.” Id. This past February the FCC described as “enormous” the amounts of broadband backbone that long-distance companies already had constructed. Id.; see also id. ¶ 44.