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Case number 15-1295, National Association of Telecommunications Officers and Advisors at ELL Petitioners versus Federal Communications Commission at ELL.

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Mr. Kinnair for the petitioners, Mr. Carr for the respondents.

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Mr. Kinnaird.

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May it please the court, Stephen Kinnaird, for petitioners.

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The FCC here seized upon narrow, streamlining legislation to shed statutory duties that it had long been keen to escape.

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The Commission violated the statute in multiple respects, and I begin with the most straightforward violations.

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First, the FCC violated the Stellar Act, which instructed the Commission to establish a streamlined petitioning process for small operators, not to abolish it entirely for all cable operators, as the FCC did.

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And the Act instructed the FCC not to construe the legislation to have any effect on the operator's duty, its duty to prove the existence of effective competition.

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And the FCC instead improperly relieved all cable operators of that duty.

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Second, the mass suicide termination of the regulatory jurisdiction of 23,000 franchise authorities offends section 623A5.

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A5 places an express condition precedent

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upon the Commission's review and revocation power, namely a petition from the cable operator or other interested third party.

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This Court and Railway Labor emphasize that agencies must honor, express conditions precedent, and cannot claim an alternative power under Chevron Step 2 simply because Congress did not expressly withhold it.

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Third, the Commission's new presumption cannot be squared with the statutory requirement to make effective competition findings in each franchise area.

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Is there any reason to doubt that the Commission could simply, within its discretion, govern proceedings before it have approached this as it did, flipping the presumption that it imposed in 93?

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There wouldn't be the same, obviously, the same negative command that's in Stellar, but I don't think that they could do the presumption of the way that they did.

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And I would emphasize that petitioners... If they could have done that but for the new statute, that everything depends upon the negative implication for the new statute.

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I don't think everything does.

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It's certainly a ratification of the existing rules.

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But even within the confines of the Cable Act, they could not erect this presumption of effective competition.

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And I want to emphasize that petitioners here favor competition, but only when the commission finds it locally, as the Congress required.

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Because deregulation, absent competition, harms consumers.

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And the national market share of DBS providers is not prima facie evidence.

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that if un-rebutted proves effective competition in 23,000 localities.

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And the court in the Keystone Cole case, and that's 151, F3, 1096, 1109, held that even a high statistical probability that any individual has a trait is not proof that a specific individual does.

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Well, this is not, this presumption is rebuttable.

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That's not proof either.

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Oh, well, but the key, yes, it's a rebuttable presumption.

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But the key... So it's essentially an allocation of the burden of going forward.

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Well, that's right.

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But in order for there to be a finding, there has to be evidence.

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So the evidence that the Commission relied on to create the presumption

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has to actually serve as prima facie evidence.

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That's what the Supreme Court in Turnip Seed said, and this court in Chemical Manufacturers.

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If unrebutted, it has to be prima facie evidence of local competition.

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Mr. Kerner, can you help us to understand why this isn't prima facie evidence?

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As I understand the record, the satellite providers are present everywhere.

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They are.

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And so the first prong of the inquiry is Matt.

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Right?

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There's enough homogeneity that that would probably be met everywhere, yes.

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And so the challenge is with the second problem, is it the 34 percent market penetration by other providers?

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Well, you have to be careful with that number because it's 34 percent if you include the telcos, but the telcos

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are only, and I believe it's about, if I recall, 35 percent of jurisdictions, so they cannot justify a national figure.

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So it's really the 25.6 percent.

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of DBS providers.

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And we know from the Massachusetts data, which is the only data we have, that 37% of the jurisdictions in Massachusetts do not meet the 15% threshold.

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And that goes to the... Excuse me, but there are only three petitions, right, presented by local jurisdictions, Massachusetts being one of them.

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That's right.

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So isn't that suggestive that, in fact, the presumption is met factually?

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in almost everywhere.

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It is not, Your Honor.

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First of all, it makes sense for local franchising authorities to defer incurring this expense until this appeal is resolved.

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Secondly, the FCC cannot make that claim because they had only 90 days to file.

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Well, yeah, we lose the authority, but they can always go back and bring forth the evidence and reclaim the jurisdiction.

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Wouldn't it make sense from the point of view of any local jurisdiction or state to file and then wait for the outcome of the appeal?

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Well, it's very costly, and there are lots of reasons small municipalities won't do that.

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Why is it costly?

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If all they have to do is submit a paper saying the DPS operators have less than 15%.

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Well, because sometimes you have to make adjustments.

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Contested proceedings are going to be quite expensive.

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And that would be contested just before making that submission?

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Well, no.

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The submission may be contested by the cable operator.

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Oh, I understand that.

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But if the jurisdiction said, here to the FCC within 90 days, here's our submission, it appears that in our jurisdiction, the DBS provider in central Massachusetts or in the Berkshires doesn't have 15%.

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Well, they have to purchase that and, you know, the expense of that was not known and in the public record of what it would be in every jurisdiction.

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But I think the key point is that the FCC held under the prior rules

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that the failure of a cable operator to file an effective competition petition was not evidence of the absence of effective competition.

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So it cannot logically hold that the failure of a franchising authority to file a petition or file a certification is evidence of the presence of effective competition.

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No, and it didn't.

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I'm just asking this after the fact, not that we have evidence public notice about three files.

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Right.

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But I think that what the Massachusetts data does show, unless one thinks it's an outlier, if 37% of the jurisdictions don't have it, the universal presumption doesn't work.

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By the way, is it jurisdictions or population?

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No, those are 37% of the franchise areas do not meet the 15% threshold.

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So it really shows that this presumption does not work.

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And all the commission did in its order was that, for example, paragraph 7, it said that marketplace realities cause us to believe that the reason that all cable operators who do not file effective competition petitions

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actually face effective competition, but it's just too costly for them.

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This shows that that was just... That's in paragraph seven.

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In the joint appendix.

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It says in sentence 807, the last sentence, it says, marketplace realities cause us to believe that in nearly all communities where cable operators have declined to file effective competition petitions, effective competition is present, but the cable operator has not found it worthwhile to undertake the expense.

[00:10:36] Speaker 06:
And in paragraph 25, they again make the baseless claim that it's in nearly all communities.

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They had absolutely no evidence to do that, and that's what the Massachusetts data shows.

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And it's just simply a problem with trying to prove an individual fact by a national average.

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And we gave the example of how if the average US rainfall is 30 inches, that does not prove that every town, even in the Nevada desert, has 30 inches or even more than 15 inches.

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You just cannot make that proof

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based on statistical probability, at least have some homogeneity across individuals, which they don't show.

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And I think the Keystone cold case... If what you just said is true, then no presumption could ever be.

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No, that's not.

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We're talking about the use.

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When presumptions are proper, they are based when there's an actual association of facts about some individual or entity that is the ultimate issue, right?

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So there has to be actual association of facts, which is absent from a... But Mr. Kinnert, either way there's a presumption.

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I think, you know, just...

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building off Judge Ginsburg's question, either way there's a presumption.

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There's either a presumption of no effective competition, which was the previous status quo, or there's a presumption of effective competition, and then it's an allocation of burden.

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So I take it you have an argument why the presumption of no effective competition is the requisite default presumption under the statute?

[00:12:14] Speaker 06:
No, Your Honor, I think there is no need for a presumption either way.

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It doesn't have to be a presumption.

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There is a presumption.

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Either there's a presumption that there's not effective competition, and then one has to show that there is in order to get out from under the regulation, or the regulation rests on a presumption that it's

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We think I've just talked myself into a corner, but there is a presumption either way.

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There's either a presumption and what one has to show is competition or there's a presumption that there is competition and what one has to show is that there's not.

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There's a baseline either way.

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I would respectfully disagree and in fact the FCC going forward

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for all the jurisdictions that have certified, or they have said the presumption is gone, you just have to come forward and bring forth evidence of effective competition.

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There is no presumption going forward for future treasuries, and all you need is evidence.

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You don't have to have a presumption.

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They do have to have evidence.

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And the question is, is the evidence simply the national market share data, or do they have to have franchise area evidence?

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And I think in this case, it's plain it has to be franchise area.

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It's readily available.

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There's nothing that would prevent the commission from ordering, for example, the top five cable companies who have 80 percent of the market say, you know, show us

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the presence or absence of effective competition in all your jurisdictions.

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There are lots of ways for them to do that, and there are lots of ways also to implement Stellar.

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And NAB put those, and they were discussed at paragraph 16 of the commission's order.

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I would like to address the DMA evidence and make four points on that.

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First of all, the Commission made no findings about DMA evidence, did not analyze the record even though it has access to the DMA Kagan data, didn't even put it in the record for review.

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It simply reported an interested party MCTA's characterization of that data.

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Second, DMA evidence has the same problems, because there's on average 150 franchise areas per DMA.

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Third, even if DMA evidence were representative, then the presumption should require proof of the franchise area's DMA.

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That's not done.

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And fourth, what the NCTA said was that most of the jurisdictions were about 20.

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Well, most is a wiggle word, and it suggests that there might be between 15 and 20 percent in the number of jurisdictions which would defeat any presumption.

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So that evidence can support if the commission rises or falls on the national market share.

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So I think that's an important point.

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I would also emphasize in terms of any default by franchise authorities that effective competition under the statute also affects a number of provisions of the statute that have nothing to do with local franchise authorities.

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And there are at least four.

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First, subsection K, which imposes on the commission a duty to report the difference in prices between jurisdictions where it finds effective competition or not.

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Subsection B, which requires the commission to consider those differences in forming its rate regulation.

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Subsection D, which puts an independent duty upon the cable operator

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to maintain a uniform geographic structure and not to engage in predatory pricing with regards to multiple dwelling units if it does not face effective competition.

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And finally, the now sunset provision of C, where the commission at the time of the act used to have its independent regulatory authority over a cable programming service.

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So there really is no way that you – the plain fact of the matter is there's a reason that Congress did not make the requirement of a finding of effective competition contingent upon any act or duty of the local franchise authority.

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This is an act where Congress knew back then and still today that effective competition

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will vary by locality.

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They wanted findings of the Commission.

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If the Commission doesn't want to maintain that duty and finds it anachronistic, it can go to Congress.

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I see my time is almost up unless more questions.

[00:16:29] Speaker 03:
We'll give you some time and reply.

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Thank you.

[00:16:32] Speaker 03:
Mr. Carr.

[00:16:48] Speaker 04:
Good morning, Your Honor.

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May it please the Court, my name is James Carr.

[00:16:52] Speaker 04:
I represent the Federal Communications Commission.

[00:16:54] Speaker 05:
I thought we recognized you.

[00:16:56] Speaker 04:
Yes.

[00:17:01] Speaker 04:
My first point I'd like to make is what Judge Pillard was talking about concerning allocations of presumption, and Judge Ginsburg got into it a little bit too.

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Presumably to have an efficient process for finding effective competition, you need to put the burden of production somewhere.

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Mr. Kinnaird suggested that you could just not have any sort of presumption and just have people come forward with evidence, but I would point out that in paragraph seven of

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the commission's order, JA-6, it talked about how it had, over the last two years or so, processed about 228 effective competition petitions, and that was with a presumption.

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It took two years to do all of that.

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By petitioners' count, there are 23,000 of these franchise areas.

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So it makes perfect sense for the commission to use rebuttable presumptions to make this process more easy, more efficient.

[00:18:07] Speaker 04:
Clearly, the original rebuttable presumption of no effective competition that had been adopted in 1993 no longer makes any sense.

[00:18:17] Speaker 00:
That's a little unclear.

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I take it that that's your position, and I do agree that there has to be a presumption somewhere.

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But I have a few questions about the data on which the Commission based its decision to shift the presumption.

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One is that the fact that there's a very high degree of success in the petitions that are brought seems to me a little bit of a selection bias problem, because presumably the petitions that are brought are in the cases where they think there's

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adequate evidence to show.

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I understand that, Your Honor, and that's why the Commission was not relying exclusively on that.

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I think the Commission saw that pattern and then decided to focus more on the general market evidence to see what it could find.

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And that's really the crux of what it was relying on.

[00:19:01] Speaker 00:
Right, that's the crux.

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And the general market evidence seems to be general market evidence with respect to satellites because by their nature they're offered everywhere.

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with a footnote, what about when you live in a dwelling where your landlord won't let you put up a satellite receiving unit?

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But it's the second kind of data that I'm really not that persuaded by, or that I'd like your help walking through how, in the record, why isn't the Massachusetts situation typical?

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Do we have any basis to think

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that this 26% market penetration is actually distributed, or is it like the water in Nevada where it's dry and the, you know, you can't rely on average rainfall figures?

[00:19:46] Speaker 04:
It's actually 34% overall, Your Honor.

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And I understand that the DBS numbers are at 26%.

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It's 34% overall.

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That is more than double the figure that is needed for penetration to satisfy the second part of the test.

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And I think the commission's reasoning was, given that the national average number is so high, it was reasonable to assume, barring some sort of major deviation from the mean, that the vast majority of franchise areas would have at least

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a 15% competitive penetration rate in each area.

[00:20:24] Speaker 00:
Tell us more about the structure of the industry, because it doesn't actually seem intuitive to me at all.

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It seems like if I'm a cable provider, I'm going to be providing it in the compact areas, in the cities, where it's cheap and easy to reach a lot of households.

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And there are going to be vast areas that I wouldn't be interested in serving, and lots and lots of households where it wouldn't be worth my while.

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Do you have anything you can point to that

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makes, assuages that kind of concern.

[00:20:47] Speaker 04:
Well, again, Your Honor, I think the only point that I think petitioners have been trying to make is that there could be a large cluster of franchise areas that are on the very low end, a major deviation from the national average.

[00:21:03] Speaker 04:
And I do believe that the DMA evidence in the record.

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Is it in the record?

[00:21:09] Speaker 04:
Yes, it was submitted for the record by the – by NCTA, the Cable Trade Association.

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And it's discussed in paragraph 9 of the commission's order at Joint Appendix 8.

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And that evidence indicated then in each of the 210 designated market areas that cover the United States.

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And my understanding is that those areas encompass everywhere except for about a dozen communities in Alaska.

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So it's a comprehensive national study.

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These are Nielsen-defined markets based on

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viewing patterns, and the finding there was that in each of those designated market areas, more than 15 percent of subscribers were subscribing to Cable's competitors.

[00:22:01] Speaker 04:
So, in other words, the test was met.

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Now, the commission is not saying that that means definitively that in each franchise area

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there will be effective competition because, understandably, the DMAs are larger than a single franchise area.

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Typically, they encompass multiple franchise areas.

[00:22:20] Speaker 04:
The point is simply this.

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There is not any evidence anywhere in this record, not any evidence that petitioners have brought up, that shows that there is some sort of marked deviation from the mean that would lead us to expect

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that there was a significant cluster of franchise areas that didn't meet the 15% threshold.

[00:22:40] Speaker 00:
That's the DMA data that relies on the Kagan study, which is not actually in the record, right?

[00:22:47] Speaker 00:
I think Judge Ginsburg had a question I was elbowing him out before.

[00:22:51] Speaker 05:
I think you answered it with regard to paragraph 9.

[00:22:55] Speaker ?:
Okay.

[00:22:55] Speaker ?:
Okay.

[00:22:55] Speaker 00:
And what about the areas in which relatively recently a franchise authority had sought, had received an adjudication of no effective competition?

[00:23:06] Speaker 00:
There they have to go back again and redo that in light of the flip in the presumption.

[00:23:12] Speaker 04:
They presumably would have to come forward and as the Commission pointed out and we mentioned this in our brief, the Commission specifically asked

[00:23:22] Speaker 04:
in the NPRM, are there any specific geographic areas we should exclude from the presumption?

[00:23:30] Speaker 04:
No one raised a peep about this argument.

[00:23:33] Speaker 04:
So the Commission – I suppose the Commission could have said areas where there have been findings of no effective competition in the last three years, we'll give them a pass.

[00:23:45] Speaker 04:
I would argue that given that this finding was just made, it should be a relatively simple matter for the local franchising authority to confirm that information.

[00:23:57] Speaker 04:
It's also possible that over the last two, three years, the competitive climate has changed, and in that particular franchise area, there is no longer evidence that justifies a finding of no effective competition.

[00:24:12] Speaker 04:
Now I wanted to discuss the Massachusetts evidence, which Mr. Kinnaird has relied on so heavily.

[00:24:21] Speaker 04:
And I think his argument there misses the forest for the trees.

[00:24:25] Speaker 04:
As Judge Ginsburg noted, the Commission gave

[00:24:30] Speaker 04:
franchising authorities 90 days to file in order to hold on to their existing certifications.

[00:24:37] Speaker 04:
Three franchising authorities filed.

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One of them failed to make a showing, the county in Kentucky.

[00:24:43] Speaker 04:
The only franchising authorities that were able to establish effective competition were Hawaii, which showed that there was no effective competition in two franchise areas in that state, and Massachusetts,

[00:24:58] Speaker 04:
which showed that there was no effective competition in about 118 franchise areas, which is about 35, 40 percent of the franchise areas in that state.

[00:25:08] Speaker 04:
That's 120 franchise areas for the entire country.

[00:25:13] Speaker 04:
And when you keep in mind that, as petitioners themselves admit, there are about 23,000 or so franchise areas nationwide, that's a relatively small number.

[00:25:25] Speaker 04:
It tends to confirm, with a commission's view, that

[00:25:31] Speaker 04:
the shifting of the presumption made sense because it is more likely that the volume of filings that will try to rebut the new presumption will be much less than the volume of effective competition petitions that cable operators were filing under the old presumption.

[00:25:48] Speaker 00:
Just to help with the sort of the common sense absorption of that point, why would the Massachusetts situation be atypical in terms of cable providers,

[00:26:01] Speaker 00:
incentive to offer competitive products?

[00:26:05] Speaker 04:
I don't know, Your Honor.

[00:26:06] Speaker 04:
I don't really have a particularly good answer for that.

[00:26:10] Speaker 04:
I think one thing to keep in mind is that this is more from the regulator's perspective than from the cable operator's perspective.

[00:26:21] Speaker 04:
Not every community where there was a finding of no effective competition decided to regulate cable rates.

[00:26:28] Speaker 04:
It's an expensive proposition.

[00:26:30] Speaker 04:
Massachusetts made a determination that it was worth their while to regulate cable rates, and they have a state body that regulates, which is different from some other communities where there is a more local governmental presence.

[00:26:45] Speaker 04:
So they obviously had

[00:26:48] Speaker 04:
a keen interest in making sure that they would retain the regulatory authority in those areas where they could, and that's why they filed the – I think the filing, by the way, shows that the rebuttable presumption works, that where there is evidence that there remains an absence of effective competition, the franchising authority can come forward

[00:27:13] Speaker 04:
and can make a showing.

[00:27:16] Speaker 00:
And like with all presumptions, there's a concern about who's in the best position to bear the burden.

[00:27:21] Speaker 00:
And you accurately point out that in many areas, it's not a state body.

[00:27:27] Speaker 00:
It's a smaller local body.

[00:27:29] Speaker 00:
And the question of whether they're monitoring the commission's call for input and responding to that 90 days and giving you all the information you wish you had is a very real question.

[00:27:42] Speaker 04:
I don't think it should be, Your Honor, for this reason.

[00:27:46] Speaker 04:
Each franchising authority that takes on the responsibility of cable rate regulation has an obligation to make sure that its rules are consistent with FCC regulations.

[00:27:57] Speaker 04:
That's the case under the statute.

[00:28:00] Speaker 04:
And this may be part of the reason why, in addition to the expense, a lot of local areas decided we're not getting into this business.

[00:28:07] Speaker 04:
But the ones who did

[00:28:10] Speaker 04:
were basically held responsible to keep an eye on what was going on at the FCC.

[00:28:15] Speaker 04:
So it should not have come as a surprise to anybody.

[00:28:19] Speaker 04:
And by the way, the lead petitioner here, NATOA, the Trade Association, presumably has a responsibility to notify its members that this was going on.

[00:28:28] Speaker 04:
And it appears that at least some of the members know about this litigation, because according to Mr. Kinnair, they decided not to come forward with what evidence they might have to see how the litigation might come out.

[00:28:40] Speaker 04:
So I'm assuming that these franchising authorities are highly motivated to monitor the Commission, and they're also highly motivated in a situation where they believe that the Commission has improperly taken away their regulatory authority to come forward with evidence and say, hey, wait a second.

[00:29:01] Speaker 04:
We do not have effective competition in our community.

[00:29:05] Speaker 04:
We need to retain our certification.

[00:29:08] Speaker 04:
And after a 90-day period, we had only three franchising authorities come forward, only two of which were able to make the showing.

[00:29:17] Speaker 05:
I'd like to ask you a question about that.

[00:29:19] Speaker 05:
Yes, Your Honor.

[00:29:20] Speaker 05:
As Judge Pollard pointed out in that particular divide, there's a tremendous selection bias in the 200 or whatever.

[00:29:29] Speaker 05:
So you said, well, that's why the commission didn't rely on that exclusive.

[00:29:36] Speaker 05:
I think that's what you said, is that it?

[00:29:40] Speaker 04:
Yes, the earlier, yes.

[00:29:42] Speaker 05:
So my question is, does it not rely on it at all?

[00:29:46] Speaker 05:
Because if so, and the selection bias is fatal, then we have a January problem.

[00:29:55] Speaker 04:
Oh, I think it relied on its experience in the recent period with the previous effective competition petitions, if that's your point.

[00:30:11] Speaker 05:
But it refers to the fact that it had received, what was it, 200-and-some

[00:30:17] Speaker 04:
228 and it grant 99.5 percent.

[00:30:22] Speaker 05:
That's right.

[00:30:23] Speaker 05:
So that's right.

[00:30:24] Speaker 05:
If it relied on that to any extent and if that's not in any way a reliable figure because of the selection bias and it relied on two other factors as well.

[00:30:35] Speaker 05:
We have a child every problem and the Commission's would have to reaffirm or not position without regard to that.

[00:30:43] Speaker 04:
I don't read the order that way, Your Honor.

[00:30:47] Speaker 04:
I think the Commission's principal reliance was on the nationwide data.

[00:30:55] Speaker 05:
I don't know if we can decide which of the principal reliance, but it certainly expended more ink on the nationwide data.

[00:31:03] Speaker 05:
It did, and I think that's an indication of the Commission's mindset here.

[00:31:07] Speaker 05:
I think maybe the way out of this, if you want to

[00:31:11] Speaker 05:
adopted is that the relevance of those data is that had the numbers been significantly different, had it been only 70 percent rather than 99.5 percent, they would have a problem.

[00:31:26] Speaker 04:
Well and I think the Commission pointed out that it recognized the selection bias and it said that

[00:31:34] Speaker 04:
this was a situation where these particular petitions were at least not inconsistent with what it understood to be the state of the marketplace.

[00:31:47] Speaker 04:
And that's why, yes, 99.5% is a much higher number, but it's more consistent with... I'd say it's less of a reason for going forward than it is the absence of a reason for stopping.

[00:32:04] Speaker 04:
Yes.

[00:32:05] Speaker 04:
Yes.

[00:32:07] Speaker 04:
And I think also another concern that the Commission had, and this was a concern that Congress had,

[00:32:12] Speaker 04:
when it enacted Stellar was the fact that there were a number of small cable operators that also were being placed to the burden of having to file these effective competition petitions.

[00:32:25] Speaker 04:
And if you look at Joint Appendix, page 114, there was a letter submitted by the American Cable Association detailing the various burdens that the small cable operators were having to face.

[00:32:42] Speaker 04:
While the commission recognized there were also going to be burdens on franchising authorities, it believed that there would be fewer opportunities.

[00:32:50] Speaker 04:
There would be relatively few franchise areas where there would be sufficient evidence to come forward and file a petition.

[00:32:57] Speaker 04:
So I'm sorry, Your Honor.

[00:32:58] Speaker 00:
Go ahead.

[00:32:59] Speaker 00:
So Congress said, let's streamline this.

[00:33:02] Speaker 00:
And the commission streamlined it by actually flipping the presumption.

[00:33:10] Speaker 00:
I have a bit of a question of how that squares with the statute with 623, which, as I read, it creates the mechanism by which a cable operator can seek commission review of whether there is effective competition.

[00:33:33] Speaker 00:
this relates a little bit to a case where we were, the kind of issue that we faced a couple days ago in another FCC case, whether the statement of the authority there carries any negative implication that that is the way and the only way for triggering a commission finding of effective competition.

[00:33:56] Speaker 04:
I understand your point, Your Honor, and I would argue that the Commission did not rely on A5 at all, and I would argue that A5 is not really the relevant provision here, and I'll explain why.

[00:34:09] Speaker 04:
If you look at the language when it talks about revocation of jurisdiction,

[00:34:15] Speaker 04:
That provision nowhere mentions effective competition.

[00:34:19] Speaker 04:
When it talks about revocation, it talks about a commission determination, quote, that the state and local laws and regulations are not in conformance with the regulations prescribed by the commission under subsection B of this section.

[00:34:33] Speaker 04:
It's clear what Congress was contemplating there was some sort of inconsistency between local rules and FCC regulations.

[00:34:40] Speaker 04:
And that becomes even clearer when you look at the discussion of A5 in the very next subsection, A6.

[00:34:48] Speaker 04:
where it says that the Commission disapproves of franchising authority certification under paragraph 4 or invokes such authority's jurisdiction under paragraph 5.

[00:34:57] Speaker 04:
The Commission shall exercise the franchising authority's regulatory jurisdiction under paragraph 2A.

[00:35:03] Speaker 04:
The idea was it was understood that there would still in fact be jurisdiction.

[00:35:08] Speaker 04:
We're talking about areas where there is no effective competition.

[00:35:12] Speaker 04:
The question of whether or not there is effective competition in an area is something that is addressed in A2, a separate provision, where it says if the commission finds that a cable system is subject to effective competition, the rates for the provision of cable service by such system shall not be subject to regulation by anybody, federal, state, or local.

[00:35:34] Speaker 04:
And that provision does not say anything about a petition process.

[00:35:39] Speaker 04:
And the Commission read A2 to permit it to make findings with respect to effective competition at any time, whether or not it received a petition or a request from a third party.

[00:35:53] Speaker 04:
That it seems to me is consistent with

[00:35:57] Speaker 04:
Congress's view that it wanted this process to move very efficiently and very promptly so that as soon as the Commission was in a position to make a finding with respect to effective competition that would end rate regulation, that nothing should delay it, that rate regulation should end as soon as the Commission was able to make a finding that there was effective competition.

[00:36:22] Speaker 00:
But the standard process was pursuant to petitions.

[00:36:27] Speaker 04:
Well, the process again, Your Honor.

[00:36:29] Speaker 00:
Isn't that the whole point of STILA?

[00:36:30] Speaker 00:
We don't want to burden these potential petitioners in having to do this.

[00:36:35] Speaker 00:
Was that not under 623A-5?

[00:36:39] Speaker 04:
Well, A-5 was strictly about revocation in that context.

[00:36:43] Speaker 04:
There's a separate provision where

[00:36:47] Speaker 04:
actually under A4, talks about approval by the Commission.

[00:36:51] Speaker 04:
Franchising authorities initially filed certifications.

[00:36:55] Speaker 04:
Once the FCC made a finding back in 1993, made a, made a rebuttable, adopted a rebuttable presumption, there was no effective competition.

[00:37:05] Speaker 04:
At that point, franchising authorities that were interested in rate regulation came to the Commission.

[00:37:10] Speaker 04:
with certification filings.

[00:37:12] Speaker 04:
And among other things, they indicated they had no reason to believe that the rebuttal presumption was incorrect.

[00:37:19] Speaker 04:
The Commission then reviewed those certifications, made sure they were consistent with the requirements under A4, and then granted them.

[00:37:31] Speaker 04:
So there's that petition process.

[00:37:35] Speaker 04:
Now, there is also a separate petition process.

[00:37:38] Speaker 04:
The Commission has a separate rule that allows for cable operators to file effective competition petitions.

[00:37:46] Speaker 04:
I would argue that that rule really has nothing to do with A5.

[00:37:52] Speaker 04:
The commission made its own decision for its own processes that it made sense to have a petition process that would allow cable operators to come forward.

[00:38:02] Speaker 04:
But A5 is dealing with a different situation where, for example, a franchising authority may have taken action that is inconsistent with FCC regulations.

[00:38:11] Speaker 04:
I'll give you an example.

[00:38:12] Speaker 04:
There was a 1995 case.

[00:38:15] Speaker 04:
involving a cable vision outfit in Florida where Dade County and some of its municipalities were both exercising rate regulation authority over the same cable systems.

[00:38:31] Speaker 04:
The SEC found when there was a petition for revocation by cable vision that that was inconsistent with federal rules to have two

[00:38:40] Speaker 04:
local bodies regulating rates.

[00:38:43] Speaker 04:
That it had to be one.

[00:38:44] Speaker 04:
It had to be a unitary process.

[00:38:46] Speaker 04:
So that would be an example of a revocation petition under A5.

[00:38:49] Speaker 00:
So the authority for the commission rule that allows cable operators to seek a ruling of effective competition, in your view, is 623A2.

[00:38:56] Speaker 04:
I would say it flows under A2, yes.

[00:38:59] Speaker 00:
And that rule, just so I have it in my notes, the commission rule on the petitioning is?

[00:39:06] Speaker 04:
There is a commission rule

[00:39:10] Speaker 04:
76.907 is the rule.

[00:39:14] Speaker 04:
And you'll notice that's a rule dealing with effective competition petitions.

[00:39:19] Speaker 04:
There is a separate rule, 76.914, that deals with petitions for revocation.

[00:39:27] Speaker 04:
I think the commission itself in creating separate rules indicated that it had an understanding that effective competition was a different matter from what was being discussed in A5.

[00:39:41] Speaker 04:
All right.

[00:39:43] Speaker 04:
If there are no further questions, I'd just like to say I think the Commission did hear what regulatory agencies are supposed to do.

[00:39:51] Speaker 04:
It exercised its congressionally delegated authority to amend its rules in response to change circumstances, and the Court should affirm.

[00:40:00] Speaker 04:
Thank you.

[00:40:02] Speaker 03:
Does Mr. Knauer have any time?

[00:40:07] Speaker 03:
All right, why don't you take a couple minutes.

[00:40:09] Speaker 06:
Oh, thank you.

[00:40:10] Speaker 06:
I'll try to be very brief.

[00:40:12] Speaker 06:
Number one, on the revocation, paragraph 101 of the 1993 order says that A5 is the basis for revocation for emergence of effective competition.

[00:40:24] Speaker 06:
And that makes sense because A5 is for inconsistency with the subsection, which includes 1 and 2, not just paragraph 3.

[00:40:32] Speaker 06:
Elsewhere, the statute refers to paragraphs.

[00:40:34] Speaker 06:
Second, you can impose a burden of production without a presumption, but the distinctive part of this statute is the requirement of a finding of effective competition in each area.

[00:40:45] Speaker 06:
In position of a burden of production is a separate question from whether there's actual evidence that could, if un-rebutted, stand as prima facie evidence of local competition.

[00:40:56] Speaker 06:
The national market share does not do it.

[00:40:59] Speaker 06:
Stellar says, even if there has to be a burden of production, keep the duty on the cable operator.

[00:41:04] Speaker 06:
Fourth, I would also disagree with the repetition by Mr. Carr that says that the vast majority of jurisdictions don't have effective competition.

[00:41:15] Speaker 06:
There's really nothing in the order, and Massachusetts data disproves that.

[00:41:19] Speaker 06:
If Massachusetts hadn't filed, the Commission would have found effective competition in 100 percent of jurisdictions and therefore left 37 percent

[00:41:29] Speaker 06:
vulnerable to deregulated cable pricing where there was no competition.

[00:41:35] Speaker 06:
This can't be the rule.

[00:41:36] Speaker 06:
The Commission has to do more.

[00:41:38] Speaker 06:
The Commission rushed through this process because it was under the 180-day timeline of Stellar.

[00:41:44] Speaker 06:
It didn't do the work.

[00:41:45] Speaker 06:
Whether it could do the work on some other kinds of modeling, that's an open question.

[00:41:49] Speaker 06:
This has to go back.

[00:41:51] Speaker 06:
I would agree with Your Honor on the Chenery point.

[00:41:52] Speaker 06:
They definitely relied on the self of this.

[00:41:56] Speaker 06:
Did you argue that?

[00:41:57] Speaker 06:
We did argue that that was not a proper basis for their finding because it was self-selected.

[00:42:03] Speaker 06:
I don't know if we put it in terms of channeling, but we did argue self-selection.

[00:42:09] Speaker 06:
And I would point out, if the commission is going to find failure to file to be probative of the absence or presence of effective competition, the failure of cable operators to file in 23,000 jurisdictions would have compelled them to find absence of effective competition.

[00:42:25] Speaker 05:
Your second or third point you just said was stellar.

[00:42:29] Speaker 05:
It says to keep the burden on the cable operator.

[00:42:31] Speaker 05:
Yes.

[00:42:31] Speaker 05:
But you're not suggesting that that's anything other than the burden of proof.

[00:42:37] Speaker 06:
That would be what it says is the duty to prove.

[00:42:40] Speaker 06:
Yeah.

[00:42:40] Speaker 06:
Right.

[00:42:41] Speaker 06:
So I think that's exactly what they kept on the cable operator.

[00:42:45] Speaker 06:
And the commission itself says it makes no sense to have a more stringent rule on the small cable operator than the big cable operator.

[00:42:54] Speaker 06:
I think the only fair interpretation of this act is they were ratifying the entirety of the rules.

[00:43:00] Speaker 06:
And I think in terms of cost prohibition, they say it's too costly for the cable operators.

[00:43:06] Speaker 06:
Local municipalities don't have money.

[00:43:09] Speaker 06:
And the five major cable companies control 80% of the market.

[00:43:13] Speaker 06:
They have plenty of money to do these cable petitions.

[00:43:17] Speaker 06:
So I think for all these reasons, both in terms of a step one statutory violation of Chevron and also for arbitrariness and capriciousness and failing to show rational nexus for this national data to prove local competition, this order needs to be set aside.

[00:43:36] Speaker 06:
Thank you.