6th Circuit Upholds FCC’s Cable Franchising Order

The 6th Circuit Court of Appeals today upheld a multi-party challenge to the FCC's 2007 Cable Franchising Order. The underlying FCC Order was designed to spur competition to incumbent cable operators by reducing alleged impediments to the franchising of competing telephone companies. The FCC Order was expressly premised on Section 621(a)(1) of the Communications Act, which prohibits local franchising authorities from “unreasonably refus[ing] to award” competitive cable franchises.

The Court's ruling in Alliance for Community Media, et al., v FCC is very deferential to the Commission. It expressly rejects arguments that the FCC overstepped its authority in restricting local franchising discretion. The Court concludes instead that the Commission has broad powers to regulate matters under the Communications Act, even where (as is the case with Section 621) the relevant section of the Communications Act does not expressly provide for Commission rulemaking. The Court recognizes broad FCC rulemaking authority under Section 201(b) of the Communications Act, which provides that the “Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this Act.”

The Court's ruling also defers to the Commission's substantive judgments regarding particular franchising practices. It rejects arguments that the FCC had an inadequate factual record upon which to base its new regulations. In particular, the Court finds reasonable the FCC's determination that local franchising authorities must act on pending franchise applications within 90 days or 6 months, depending on whether the applicant already has access to the rights-of-way or is an entirely new entity. The Court also upholds the FCC's determination that certain “build-out mandates constitute[] an unreasonable refusal to award a competitive franchise.”

The 6th Circuit decision accepts the FCC's treatment of franchise fees, including the Commission's determination that a variety of franchise-related costs (e.g., attorneys' fees and consultants' fees) must be applied against the 5 percent federal franchise fee cap and cannot be excluded from that cap as an “incidental” charge. Finally, the 6th Circuit decision sustains the FCC's treatment of PEG Access contributions (exempting equipment costs associated with the construction of access facilities from the 5 percent franchise cap) and PEG carriage requirements (permitting pro rata sharing schemes).

Within the context of cable franchising, it remains to be seen how much practical effect the court's decision may have, because many states have recently adopted state-level video franchising to facilitate entry by telephone companies, and other state and local laws have reduced somewhat the disparity between the franchise terms applied to telephone companies and those applied to incumbent cable operators. But in a broader context, the decision is surprising in the expanded scope of authority it seems to have given the FCC. Until today, the conventional understanding of the Communications Act was that the Commission was far more circumscribed in its authority and that the Cable Act in particular was a carefully negotiated and balanced allocation of authority among federal, state and local governments—which has now been brought into question.