Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) TELEPORT COMMUNICATIONS -- NEW YORK ) ) File No.13135-CF-TC(3)-92 For Transfer of Control of Stations ) WLU-372, WLW-316, and WLW-317 from ) Merrill Lynch Group, Inc., to Cox ) Teleport, Inc. ) REPLY OF THE NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION Thomas J. Sugrue Phyllis E. Hartsock Acting Assistant Secretary for Acting Chief Counsel Communications and Information William F. Maher, Jr. Jana Gagner Associate Administrator Attorney Tim Sloan Office of Policy Analysis and Development National Telecommunications and Information Administration U.S. Department of Commerce Room 4713 14th Street and Constitution Ave., N.W. Washington, D.C. 20230 (202) 377-1816 May 27, 1992 TABLE OF CONTENTS Section Page Summary i I. INTRODUCTION 1 II. THE CROSSOWNERSHIP RESTRICTION DOES NOT APPLY TO COX 4 TELEPORT BECAUSE TELEPORT DOES NOT HAVE A "TELEPHONE SERVICE AREA" III. APPLYING THE CROSSOWNERSHIP RESTRICTION TO COX 8 TELEPORT WOULD BE CONTRARY TO THE PURPOSE OF THE RESTRICTION IV. APPLYING THE CROSSOWNERSHIP RESTRICTION TO COX 10 TELEPORT WOULD BE INCONSISTENT WITH COMMISSION PRECEDENT V. CONCLUSION 12 SUMMARY The United States Telephone Association's ("USTA") petition arises from the proposed acquisition by Cox Enterprises ("Cox") of a majority ownership interest in Teleport, a common carrier certificated by the New York Public Service Commission to provide telecommunications services throughout the state, including Staten Island. Through an affiliate, Cox holds a 50 percent interest in Staten Island Cable. USTA contends that Cox's control of both Teleport and Staten Island Cable would violate the telephone-cable crossownership restrictions set forth in the Communications Act and Commission regulations. USTA therefore requests a Commission declaration that Cox's acquisition of Teleport would violate the crossownership ban, so long as Cox remains affiliated with Staten Island Cable. USTA's grievance appears to be against the crossownership restriction itself, rather than its applicability vel non to Cox Teleport. NTIA shares USTA's concerns about the continuing wisdom of that restriction, and we have repeatedly advocated its elimination. Allowing telephone companies to provide video programming in their local service areas would significantly increase competition in the video services market, which would, in turn, yield lower prices to viewers, better service quality, and greater programming diversity. Further, allowing telephone companies to participate fully in the video services market should also stimulate development of the nation's telecommunications infrastructure, with concomitant benefits for all users, residential and business alike. Nevertheless, the Commission cannot cure the adverse effects of the crossownership restriction by extending it to Cox Teleport, as USTA requests. To do so would be inconsistent with the language and underlying purpose of that regulation. It would also be contrary, as USTA's petition itself demonstrates, to a series of Commission decisions excluding common carriers similar to Teleport from the crossownership prohibition. For these reasons, the Commission should deny USTA's petition. Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) TELEPORT COMMUNICATIONS -- NEW YORK ) ) File No.13135-CF-TC(3)-92 For Transfer of Control of Stations ) WLU-372, WLW-316, and WLW-317 from ) Merrill Lynch Group, Inc., to Cox ) Teleport, Inc. ) The National Telecommunications and Information Administration ("NTIA"), as the Executive branch agency principally responsible for the development and presentation of domestic and international telecommunications and information policy, respectfully submits this reply in connection with the petition filed by the United States Telephone Association ("USTA") to deny the above-captioned applications by Teleport Communications ("Teleport") to transfer certain microwave licenses from Merrill Lynch to Cox Teleport, Inc. For the reasons set forth below, the Commission should deny USTA's petition, and allow the requested license transfers (and the underlying transaction) to go forward. I. INTRODUCTION USTA's petition arises from the proposed acquisition by Cox Enterprises ("Cox") of a majority ownership interest in Teleport,[1] a common carrier certificated by the New York Public Service Commission to provide telecommunications services throughout the state, including Staten Island.[2] Teleport also offers interstate services as a nondominant carrier subject to Commission regulation under Title II of the Communications Act.[3] Through an affiliate, Cox holds a 50 percent interest in Staten Island Cable. USTA contends that Cox's control of both Teleport and Staten Island Cable would violate the telephone-cable crossownership restrictions set forth in the Communications Act and Commission regulations.[4] USTA therefore requests a Commission declaration that Cox's acquisition of Teleport would violate the crossownership ban, so long as Cox remains affiliated with Staten Island Cable.[5] USTA's grievance appears to be against the crossownership restriction itself, rather than its applicability vel non to Cox Teleport.[6] NTIA shares USTA's concerns about the continuing wisdom of that restriction, and we have repeatedly advocated its elimination.[7] Allowing telephone companies to provide video programming in their local service areas would significantly increase competition in the video services market, which would, in turn, yield lower prices to viewers, better service quality, and greater programming diversity. Further, allowing telephone companies to participate fully in the video services market should also stimulate development of the nation's telecommunications infrastructure, with concomitant benefits for all users, residential and business alike. Nevertheless, the Commission cannot cure the adverse effects of the crossownership restriction by extending it to Cox Teleport, as USTA requests. To do so would be inconsistent with the language and underlying purpose of that regulation. It would also be contrary, as USTA's petition itself demonstrates, to a series of Commission decisions excluding common carriers similar to Teleport from the crossownership prohibition.[8] For these reasons, the Commission should deny USTA's petition. II. THE CROSSOWNERSHIP RESTRICTION DOES NOT APPLY TO COX TELEPORT BECAUSE TELEPORT DOES NOT HAVE A "TELEPHONE SERVICE AREA" USTA's contends that Cox's control of both Teleport and Staten Island Cable brings Cox within the letter of the crossownership ban, which makes it unlawful: for any common carrier, subject in whole or in part to title II of [the Communications] Act, to provide video programming directly to subscribers in its telephone service area, either directly or indirectly through an affiliate owned by, operated by, controlled by, or under common control with the common carrier.[9] As noted above, Teleport is a common carrier subject to Commission regulation under Title II.[10] Further, Staten Island Cable, an affiliate of Teleport through Cox, provides video programming directly to subscribers in Staten Island. Accordingly, the affiliation between Teleport and Staten Island Cable would violate the crossownership restriction only if Teleport has a "telephone service area" in Staten Island. In addressing this question, two preliminary points are pertinent. First, because the phrase "telephone service area" appears in a federal statute (the Communications Act), its construction is a matter of federal law, to be determined ultimately by a federal court.[11] USTA's pleading is devoid of any authority to the contrary. Second, as the agency charged with administering the Communications Act, the Commission is authorized to construe the critical phrase in the first instance, and its reading is entitled to deference from a reviewing court on appeal.[12] The Commission has defined "telephone service area" to mean a "local exchange service area" -- that is, an area in which a firm offers "telephone exchange service," as defined by Section 3(r) of the Communications Act.[13] In turn, the Commission has for many years construed the latter term to encompass only "the provision of two-way voice communications between individuals by means of a central switching complex which interconnects all subscribers within a geographic area."[14] USTA attempts to demonstrate that because the New York Public Service Commission has authorized Teleport to provide "local exchange switched telephone service," Teleport has a "telephone service area" within the meaning of the crossownership restriction.[15] In doing so, USTA argues that the Communications Act empowers state authorities to define "telephone service area" for the purpose of applying the crossownership restriction.[16] Although Section 2(b) of the Act may entitle state agencies to establish "telephone service areas" for intrastate services, it in no way limits the Commission's authority to define that term as it determines whether to apply to a particular entity a provision of the Communications Act or a regulation adopted by the Commission pursuant to that Act. It might be a closer question if Commission action were to preempt state action in some way, but that is not the case here. The Commission's definition of a "telephone service area" for purposes of the crossownership restrictions would not interfere in any way with the states' freedom to define that term for any other purposes within their jurisdiction. USTA's unsubstantiated assertions to the contrary are without merit.[17] It is readily apparent that Teleport does not provide "telephone exchange service" as defined by the Commission and, thus, the crossownership restriction does not apply to Teleport. Its network does not interconnect all of the telephone subscribers within Staten Island, let alone New York City.[18] Moreover, because the bulk of Teleport's services are non-switched,[19] it lacks the "central switching complex" that, in the Commission's view, characterizes the provision of "telephone exchange service."[20] Finally, neither the Commission nor USTA's own members have ever treated Teleport as a provider of exchange service.[21] Because Teleport does not provide "telephone exchange service," it does not have a "telephone service area" for purposes of the crossownership prohibition. Accordingly, the affiliation between Teleport and Staten Island Cable does not violate that restriction. III. APPLYING THE CROSSOWNERSHIP RESTRICTION TO COX TELEPORT WOULD BE CONTRARY TO THE PURPOSE OF THE RESTRICTION Excluding Cox Teleport from the crossownership restriction is consistent with the intent and purpose of that prohibition. The Commission first adopted the crossownership restriction in 1970 to prevent telephone companies from using their monopoly position in their local service areas to preempt the growth of cable television service.[22] The Commission concluded that the companies could accomplish this by: (1) denying cable firms access to essential facilities, such as poles and conduits, and (2) improperly cross-subsidizing their cable operations from monopoly telephone services.[23] Teleport does not own any telephone poles.[24] Although it does control some 31 miles of conduit,[25] those facilities would not enable Teleport to deter entry by a competing cable system in Staten Island or anywhere else.[26] Additionally, Teleport has no monopoly telecommunications services or revenues that could fund a program of cross-subsidization. The Commission has "consistently held that when telephone common carriers . . . do not control essential exchange facilities such as poles and conduits, the concerns about exclusionary conduct which underlie the rules are not implicated."[27] Thus, not only does Cox Teleport not come within the language of the crossownership prohibition, subjecting the firm to that restriction would clearly be contrary to its underlying purpose. IV. APPLYING THE CROSSOWNERSHIP RESTRICTION TO COX TELEPORT WOULD BE INCONSISTENT WITH COMMISSION PRECEDENT Given the specific sorts of conduct that the crossownership restriction was meant to address, it is not surprising that the Commission has, as USTA acknowledges, progressively interpreted that prohibition to exclude an ever-growing number of common carriers.[28] Significantly, many of those exempted carriers are indistinguishable from Teleport. For example, USTA asserts that the Commission has ruled that the crossownership restriction does not apply to nondominant carriers.[29] USTA also concedes that Teleport is a nondominant carrier for purposes of Title II.[30] Thus, USTA's own pleading suggests that the Commission has already excluded Teleport from the crossownership restriction.[31] Additionally, USTA points out that the Commission has concluded that the crossownership restriction does not apply to non-wireline cellular radio operators.[32] The Commission's stated rationale for that decision was that such firms "do not have telephone service areas in the traditional sense."[33] Yet, in many ways, the services provided by cellular carriers are more like "telephone exchange service" (which, as noted above, determines whether they have "telephone service areas")[34] than Teleport's offerings. Accordingly, if non-wireline cellular carriers are not subject to the crossownership prohibition, a fortiori Cox Teleport should not be. V. CONCLUSION For the foregoing reasons, USTA's effort to extend the crossownership prohibition to Cox Teleport is not required by the language of the restriction, is contrary to its underlying purpose, and is inconsistent with previous and long-standing Commission precedents. NTIA therefore respectfully requests that the Commission deny USTA's petition. Respectfully submitted, Thomas J. Sugrue Acting Assistant Secretary for Phyllis E. Hartsock Communications and Information Acting Chief Counsel William F. Maher, Jr. Jana Gagner Associate Administrator Attorney Tim Sloan Office of Policy Analysis and Development National Telecommunications and Information Administration U.S. Department of Commerce Room 4713 14th Street and Constitution Ave., N.W. Washington, D.C. 20230 (202) 377-1816 May 27, 1992 CERTIFICATE OF SERVICE I hereby certify that on the 27th day of May, 1992, copies of the foregoing "Reply of the National Telecommunications and Information Administration" were sent by first-class United States mail, postage prepaid, to the following: Martin T. McCue Vice President and General Counsel United States Telephone Association 900 19th Street, N.W. Suite 800 Washington, D.C. 20006 William Malone Miller & Holbrooke 1225 19th Street, N.W. Suite 400 Washington, D.C. 20036 Richard Singer Hopkins & Sutter 888 16th Street, N.W. Washington, D.C. 20006 Werner K. Hartenberger Dow, Lohnes & Albertson 1255 23rd Street, N.W. Suite 500 Washington, D.C. 20037 Cheryl A. Kinsey ----------------------------------------------------------------------------- ENDNOTES [1] Cox currently owns 12.5 percent of Teleport. Tele-Communications Inc., the largest cable television company owns 49.9 percent, with the balance held by Merrill Lynch. [2] Petition to Deny of the United States Telephone Association at 3, File No. 13135-CF-TC(3)-92 (filed May 1, 1992) ("USTA Petition"). Teleport also provides telecommunications services in California, Illinois, Massachusetts, New Jersey, and Texas. See id. at 5 n.5. [3] Id. at 8 n.7 (citing Comments of Teleport Communications Group in CC Docket No. 91-141 at 2 n.2 (filed Aug. 6, 1991)). [4] See 47 U.S.C.  533(b)(1) (1988); 47 C.F.R.  63.54(a) (1991). [5] USTA Petition at 14. [6] See id. at 4-5 (USTA members subject to the crossownership restriction are hampered in competing with cable operators). [7] See, e.g., National Telecommunications and Information Administration, U.S. Dep't of Commerce, The NTIA Infrastructure Report: Telecommunications in the Age of Information, NTIA Special Pub. 91-26, at 226-246 (Oct. 1991); Communications Competitiveness and Infrastructure Modernization Act of 1990: Hearings on S.2800 Before the Subcomm. on Communications of the Senate Comm. on Commerce, Science and Transportation, 101st Cong., 2d Sess. 28-29 (1990) (statement of Thomas J. Sugrue, Deputy Administrator of NTIA); Comments of NTIA in CC Docket No. 87-266 at 4-8 (filed Feb. 3, 1992). [8] USTA Petition at 3-4 and the cases cited therein. [9] 47 U.S.C.  533(b)(1) (1988). [10] Supra note 3. [11] See, e.g., Barrera v. Wheeler, 475 F.2d 1338, 1351-1352 (8th Cir. 1973); United States v. L.R. Foy Construction Co., 300 F.2d 207 (10th Cir. 1962); United Parcel Serv., Inc. v. United States Postal Serv., 455 F. Supp. 857, 866 (E.D. Pa. 1978), aff'd, 604 F.2d 1370 (3d Cir. 1979), cert. denied, 446 U.S. 957 (1980). Cf. Clearfield Trust Co. v. United States, 318 U.S. 363 (1943). [12] Chemical Mfr's Ass'n v. National Resources Defense Council, 470 U.S. 116, 125 (1985); CBS, Inc. v. FCC, 453 U.S. 367, 382 (1981); Black Citizens for a Fair Media v. FCC, 719 F.2d 407, 411 (D.C. Cir. 1983), cert. denied, 467 U.S. 1255 (1984). [13] Telephone Company-Cable Television Cross-Ownership Rules, Sections 63.54-63.58, 7 FCC Rcd 300, 323, para. 46 (1991) (Cable-Telco Order). Section 3(r) provides that "Telephone exchange service" means service within a telephone exchange, or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers inter-communicating service of the character ordinarily furnished by a single exchange, and which is covered by the exchange service charge. 47 U.S.C.  153(r) (1988). [14] The Offshore Telephone Co., 3 FCC Rcd 4131, 4141 (1988) (quoting Domestic Public Radio Serv., 76 FCC 2d 273, 281 (1980); Midwest Corp., 53 FCC 2d 294, 300 (1975)). See also National Ass'n of Reg. Util. Comm'rs v. FCC, 533 F.2d 601, 607 n.23 (D.C. Cir. 1976) ("`Telephone exchange' connotes a highly developed, interconnected system operated to provide `service of the character ordinarily furnished by a single [telephone] exchange.'") (quoting 47 U.S.C. 153 (r)). [15] USTA Petition at 9-10. [16] Id. at 10-14. In any event, it appears that the New York commission has never defined a "telephone service area" for Teleport. See Opposition to Petition to Deny of Cox Teleport, Inc. at 15 n.14 and n.17, File No. 13135-CF-TC(3)-92 (filed May 14, 1992) ("Cox Opposition"). [17] USTA Petition at 12-13. The fact that the Commission has "acceded" to state certification of cellular radio provider does not bolster USTA's argument. Id. at 11-12. Although the Commission did not disturb the states' ability to certificate and regulate providers of intrastate cellular services, the Commission did define and license the geographic areas (i.e., the "telephone service areas") to be served by each facilities-based cellular carrier. USTA's suggestion that the Pole Attachment Act of 1978 gave cable operators access to utility poles and conduits is incorrect. See id. at 13. That statute specifically authorized the Commission to regulate pole attachment rates (if a utility chose to make such attachments available) if state agencies did not regulate. The legislative history is explicit that the Pole Attachment Act was not intended to give cable systems a right of access to utility poles and conduits. S. Rep. No. 580, 95th Cong., 2d Sess. 16 (1978), reprinted in 1978 U.S.C.C.A.N. 109, 124. [18] Opposition to Petition to Deny of Teleport Communications-New York at 19, File No. 13135-CF-TC(3)-92 (filed May 14,1992) ("Teleport Opposition"). [19] Cox Opposition at 13. [20] Teleport Opposition at 19. [21] Cox Opposition at 13 (concerning FCC treatment); Teleport Opposition at 20-21 (concerning the treatment of Teleport by New York Telephone and New Jersey Bell, both USTA members). [22] See Section 214 Certificates, 21 FCC 2d 307, 324, recon. in part, 22 FCC 2d 746 (1970), aff'd sub nom. General Tel. Co. of the Southwest v. FCC, 449 F.2d 846 (5th Cir. 1971). [23] Telephone Company-Cable Television Cross-Ownership Rules, Sections 63.54-63.58, 7 FCC Rcd at 322, para. 46 (citing Section 214 Certificates, 21 FCC 2d at 324). [24] Teleport Opposition at 4; Cox Opposition at 10. [25] Cox Opposition at 10. [26] Teleport Opposition at 4-5. For example, Staten Island Cable leases no facilities from Teleport. Id. at 5. Consequently, another firm could construct a competing cable system in Staten Island without dealing with Teleport. In other words, Teleport could do nothing to impede entry by that second firm. [27] Cable-Telco Order, 7 FCC Rcd at 322-23, para. 46. [28] USTA Petition at 3-4. [29] Id. at 3 (citing Section 214 Authorizations, 98 FCC 2d 354, 356 (1984)). In actuality, the order cited applies only to nondominant carriers "not affiliated with an exchange telephone common carrier." Section 214 Authorizations, 98 FCC 2d at 356 (emphasis in original). As demonstrated supra at 4-8, Teleport cannot be classified as an "exchange telephone common carrier" under existing Commission precedents. [30] Supra note 3. [31] USTA has not argued that a firm deemed to be nondominant for purposes of Title II of the Communications Act should be treated as dominant for purposes of Title VI (which includes the crossownership restriction). Cf. Morrison-Knudsen Constr. Co. v. Director, OWCP, 461 U.S. 624, 633 (1983) (presumption is that a word or phrase used in one part of a statute should mean the same thing in all other parts of that statute); Mohasco Corp. v. Silver, 447 U.S. 807, 826 (1980) (same). [32] USTA Petition at 4 (citing Implementation of the Cable Communications Policy Act of 1984, 58 R.R.2d 1, 16 (1985), recon., 60 R.R.2d 514 (1986), rev'd in part on other grounds sub nom. American Civil Liberties Union v. FCC, 823 F.2d 1554 (D.C. Cir. 1987), cert. denied, 485 U.S. 959 (1988)). [33] Implementation of the Cable Communications Policy Act of 1984, 58 R.R.2d at 16. [34] See text accompanying notes 13-14 supra.