United States v. Chesapeake & Potomac Telephone Co. of Va.

PETITIONER: United States et al.
RESPONDENT: Chesapeake & Potomac Telephone Company Of Virginia et al. 516 U.S. 415
LOCATION: 10th Judicial Circuit Court - Jefferson

DOCKET NO.: 94-1893
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 516 US 415 (1996)
ARGUED: Dec 06, 1995
DECIDED: Mar 27, 1996

ADVOCATES:
Laurence H. Tribe - on behalf of the Respondents
Lawrence G. Wallace - on behalf of the Petitioners

Facts of the case

To prevent "local media monopolies," Section 533(b) of the Cable Communications Policy Act of 1984 barred local phone service providers (local exchange carriers or LECs) from directly providing video programming to their local phone service subscribers. The government claimed that because LEC- controlled phone lines could also transmit video signals, allowing LECs to provide video programming would hurt competing cable companies. First, LECs could deny competitors access to their data lines. Second, LECs could offer lower cable prices than competitors by raising the costs of telephone service and using the extra profits to subsidize the costs of cable service.

Chesapeake and Potomac Telephone Company of Virginia (Chesapeake) challenged the constitutionality of the statute, pointing out that "video programming" is a form of speech protected by the First Amendment. The government argued that the statute's regulation of the cable market had a "content-neutral" objective. The District Court ruled that the statute's restrictions were not "narrowly tailored" to serve the statute's objective. The U.S. Court of Appeals for the Fourth Circuit affirmed, adding that the statute did not leave open "ample alternative channels for communication" between LECs and local residents. The Supreme Court consolidated the case with National Cable Television Assn., Inc. v. Bell Atlantic Corp.

Question

Does 47 U.S.C. 533(b), which bars local telephone companies from directly providing video programming to their local phone service subscribers, violate the First Amendment's protection of free speech?

Media for United States v. Chesapeake & Potomac Telephone Co. of Va.

Audio Transcription for Oral Argument - December 06, 1995 in United States v. Chesapeake & Potomac Telephone Co. of Va.

William H. Rehnquist:

We'll hear argument now in Number 94-1893, United States, the Federal Communications Commission v. Chesapeake & Potomac Telephone Company, and National Cable Television v. Bell Atlantic Corporation.

Mr. Wallace.

Lawrence G. Wallace:

Thank you, Mr. Chief Justice, and may it please the Court:

The provision of the 1984 cable act that the court of appeals invalidated in this case, section 533(b) of title 47, addresses the special capacity for anticompetitive conduct by local telephone companies in providing cable television programming services.

That capacity stems from the telephone companies' established situation as regulated monopolies, and it is important to an understanding of the premises on which the commission and Congress have acted over the past 25 years not to elide too quickly over what it has meant for these companies to be regulated monopolies.

They have in the first place been given exclusive franchises.

The Virginia statutory provision involved in this case is set forth in footnote 17 of the district court's opinion on page 77a of our appendix to the petition, which protected them against competition in providing the telephone services regulated on the basis of recovery of costs and return of capital type of rate regulation still the predominant and historically the only form of rate regulation to which they've been subject in providing telephone service.

They've been granted rights of way sometimes with the exercise of the power of eminent domain to construct poles and conduits and their expenses in doing so have been included as part of their rate base, so at the advent of modern cable television, when it was replacing the old community antenna systems, they had not only the capacity to provide wire service throughout the communities they served, they had the wires in place to virtually every residence and a capacity through their Government-sponsored regulated monopolies to stifle the development of any other competition in the provision of cable television services.

I don't mean to suggest that any of this was in any way improper.

Obviously, this served an important public interest on the part of the local governments in assuring that telephone service would be available throughout their communities at a reasonable cost.

But the situation with which the commission and Congress have been concerned is that not just through their legitimate use of the advantage that they had were they in a position to stifle the development of others in providing these services, but they also would have the capacity incentive to use unfair competitive methods.

Mr. Wallace--

Lawrence G. Wallace:

Yes, sir.

Clarence Thomas:

--All that is well and good, but to date has that changed, and are cable companies competitive with each other, or are they equally in the monopoly position, and are we just talking about monopolists versus monopolists?

Lawrence G. Wallace:

Well, there have been franchises granted to the cable companies.

We're talking about an historical evolution of a provision--

Clarence Thomas:

I know it, but the evolution has taken place.

The... as I understand it, the cable industry is no longer at its infancy state, it is a developed industry with over 90 percent saturation, right?

Lawrence G. Wallace:

--Well, I not only do not deny it, I'm not in a position to deny it, because it's part of the basis of the commission's Third Report and Order, which has been issued--

Clarence Thomas:

Well, doesn't the Third Report, the basis of the Third Report conflict with much of what you've just said, as to the development ability of the cable industry?

Lawrence G. Wallace:

--What I have said is more of a historical nature in showing the development of regulation in this field, and why the 1984 act with its provision for good cause waivers, that was intended to have flexibility so that the commission could adapt it to changing situations in the industry and changing technologies, was a legitimate response to the congressional concerns, which were to try to nurture a multiplicity of voices in the provision of these services and to prevent unfair--

Antonin Scalia:

Mr. Wallace, if we're going to get into history, wasn't it proposed to Congress and rejected early in the history of cable to prevent cable from becoming a monopoly by making the cable owners common carriers only and preventing them from programming, which would have made cable much more open to any kind of programming not within the control of a single monopolist?

That was rejected, right?

Lawrence G. Wallace:

--That was a--

Antonin Scalia:

So you have cable monopolies in 99 percent of localities now, is that right?

Lawrence G. Wallace:

--The commission is undertaking--

Yes.

Lawrence G. Wallace:

--right now to try to do something constructive about this--

Antonin Scalia:

And the Government is concerned about monopoly power, having created this thing.

Lawrence G. Wallace:

--Well, we were... the concern at the outset with the 1970 commission study and regulations that were then adopted by Congress was that the telephone companies were in a position to preempt the entry of any other players into this at all.