State of Haw. v. FCC

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 21a0116p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

┐
CITY OF EUGENE, OREGON (19-4161); CITY OF
│
PORTLAND, OREGON, et al. (19-4162); STATE OF HAWAII
│
(19-4163); ALLIANCE FOR COMMUNICATIONS
│
DEMOCRACY, et al. (19-4164); ANNE ARUNDEL
│
COUNTY, MARYLAND, et al. (19-4165); CITY OF >
PITTSBURGH, PENNSYLVANIA (19-4166); CITY OF │
Nos. 19-4161/4162/4163
/4164/4165/4166/4183
CHICAGO, ILLINOIS, et al. (19-4183), │
Petitioners, │
│
│
v. │
│
FEDERAL COMMUNICATIONS COMMISSION; UNITED │
STATES OF AMERICA, │
Respondents, │
│
│
NCTA - THE INTERNET & TELEVISION ASSOCIATION │
(19-4161–4166/4183); CITY OF NEW YORK, NEW │
YORK, et al. (19-4162); BLOOMFIELD TOWNSHIP, │
MICHIGAN, et al. (19-4165); CITY OF AURORA, │
COLORADO, et al. (19-4183), │
Intervenors. │
┘

On Petitions for Review from an Order of the Federal Communications Commission.
Nos. 05-311 and 19-80.

Argued: April 15, 2021

Decided and Filed: May 26, 2021

Before: McKEAGUE, GRIFFIN, and KETHLEDGE, Circuit Judges.
_________________

COUNSEL

ARGUED: Tillman L. Lay, SPIEGEL & MCDIARMID LLP, Washington, D.C., Cheryl A.
Leanza, BEST BEST & KRIEGER LLP, Washington, D.C., for Petitioners. Maureen K. Flood,
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 2
4164/ 4165/ 4166/ 4183

FEDERAL COMMUNICATIONS COMMISSION, Washington, D.C., for Respondents. Jessica
Ring Amunson, JENNER & BLOCK, LLP, Washington, D.C., for Intervenor NCTA.
ON BRIEF: Tillman L. Lay, James N. Horwood, Jeffrey M. Bayne, SPIEGEL
& MCDIARMID LLP, Washington, D.C., Cheryl A. Leanza, Joseph Van Eaton, Gerard Lavery
Lederer, BEST BEST & KRIEGER LLP, Washington, D.C., Gail A. Karish, BEST BEST
& KRIEGER LLP, Los Angeles, California, Michael R. Bradley, Vincent Rotty, Michael Clarke
Athay, BRADLEY LAW, LLC, Woodbury, Minnesota, Michael J. Watza, KITCH DRUTCHAS
WAGNER VALITUTTI & SHERBROOK, Detroit, Michigan, Daniel S. Cohen, Joel S.
Winston, COHEN LAW GROUP, Pittsburgh, Pennsylvania, Kenneth S. Fellman,
KISSINGER & FELLMAN, P.C., Denver, Colorado, Brian T. Grogan, MOSS & BARNETT,
Minneapolis, Minnesota, for Petitioners and Intervenors. Maureen K. Flood, Jacob M. Lewis,
FEDERAL COMMUNICATIONS COMMISSION, Washington, D.C., Robert B. Nicholson,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Respondents. Jessica
Ring Amunson, Howard J. Symons, Ian Heath Gershengorn, Elizabeth B. Deutsch, JENNER &
BLOCK, LLP, Washington, D.C., for Intervenor NCTA. Elina Druker, NEW YORK CITY
OFFICE OF THE CORPORATION COUNSEL, New York, New York, for Intervenors City of
New York, et al.
_________________

OPINION
_________________

KETHLEDGE, Circuit Judge. Over the past 15 years, the Federal Communications
Commission has published a series of written orders that, together with Title VI of the
Communications Act (“the Act”), 47 U.S.C. § 521 et seq., set forth rules by which state and local
governments may regulate cable providers. Numerous local governments have petitioned for
review of the FCC’s most recent order, arguing that the FCC misinterpreted the Act. We grant
the petitions in part and deny them in part.

I.

Our opinion in Alliance for Community Media v. F.C.C., 529 F.3d 763 (6th Cir. 2008),
sets forth the relevant history of the Communications Act and cable regulation generally. In
brief, a cable operator may provide cable services only if a franchising authority—usually a local
body, but sometimes a unit of state government—grants the operator a franchise to do so. See
47 U.S.C. §§ 522(9), 541(b)(1). In exchange for a cable franchise, franchising authorities often
require (among other things) that cable operators pay fees, provide free cable service for public
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 3
4164/ 4165/ 4166/ 4183

buildings, and set aside channel capacity for “public, educational, and governmental [referred to
in the industry as ‘PEG’] use[.]” See, e.g., id. §§ 541(a)(4), 542(a). Some of those requirements
count as “franchise fees,” which the Act limits to five percent of a cable operator’s gross
revenues for cable services for any 12-month period. See id. § 542(b). The costs of franchise
fees, of course, are passed on to cable subscribers. See id. § 542(c), (e).

In 2007, the FCC issued an order (the “First Order”) in which it read narrowly one of five
exceptions to the Act’s definition of franchise fee. The First Order also announced the FCC’s
“mixed-use rule,” under which franchisors could not regulate the non-cable services of cable
operators who were “common carriers” under Title II of the Act. Various franchising authorities
challenged that order, but we denied their petition. See Alliance, 529 F.3d at 775-87.

The FCC later issued another order (the “Second Order”), in which the FCC interpreted
the term “franchise fee” to include all noncash (or “in kind”) exactions required by a franchise
agreement, with the exception of exactions falling within a statutory exception to the Act’s
definition of franchise fee. Historically some of those exactions were unrelated to cable services,
such as a demand by St. Louis that a cable operator contribute 20 percent of its stock to the city.
Other exactions were cable-related, such as requirements for free cable service to
public buildings. Under the Second Order, the value of those exactions counted toward the
franchise-fee cap. See Implementation of Section 621(a)(1) of the Cable Communications Policy
Act, 22 FCC Rcd. 19633 (Nov. 6, 2007). The Second Order also extended the “mixed-use rule”
to “incumbent” cable operators, who for the most part were not common carriers under Title II.

Again various franchising authorities petitioned for review of the FCC’s conclusions.
We agreed with the FCC that the term “‘franchise fee’ as defined by § 542(g)(1) can include
noncash exactions.” Montgomery County. v. F.C.C., 863 F.3d 485, 491 (6th Cir. 2017). But we
held that the FCC had not explained why, under the Act, every cable-related noncash exaction
counted as a franchise fee. We likewise held that the FCC had not offered a statutory basis for
its application of the mixed-use rule to incumbent cable operators. We therefore vacated those
determinations and directed the FCC to set forth a statutory basis for them. Id. at 492-93.
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 4
4164/ 4165/ 4166/ 4183

The FCC did that in its Third Order, which it entered in 2019. See 84 Fed. Reg.
44,725-01 (Aug. 27, 2019). In that Order, the FCC analyzed various sections of the Act, and
concluded that most—though not all—cable-related noncash exactions are franchise fees. See id.
¶ 8. The FCC likewise explained its reasoning as to why the Act does not allow franchising
authorities to regulate the non-cable services of cable operators who are not common carriers.
See id. ¶¶ 64-70, 73-77. Finally, the FCC extended its rulings to state (rather than just local)
franchising authorities, reasoning that the Act makes no distinction between them. See id. ¶ 114.

Various franchising authorities petitioned for review of the Third Order in various circuit
courts, which in turn transferred those petitions to this circuit. The petitioners moved for a stay
of the Third Order during the pendency of this appeal, which we denied. We now adjudicate the
petitions themselves.

II.

The petitioners challenge the Third Order on multiple grounds. In most of those
challenges, the petitioners argue that the FCC interpreted the relevant statutory provisions
incorrectly; in others, the petitioners argue that the orders were entered in violation of the
Administrative Procedure Act. As to the interpretive challenges, absent some insuperable
ambiguity, “we give effect to Congress’s answer without regard to any divergent answers offered
by the agency or anyone else.” Montgomery County, 863 F.3d at 489 (cleaned up). There is no
such ambiguity here. As for the APA challenges, we determine whether the agency rules at issue
are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law[.]”
5 U.S.C. § 706(2)(A).

A.

1.

Several of the petitioners’ challenges concern the FCC’s interpretation of the term
“franchise fee” as defined by 47 U.S.C. § 542(g). The first is directed at the FCC’s conclusion
that most (though not all) noncash cable-related exactions count as franchise fees subject to the
five-percent cap. Those exactions are often substantial. Prior to the FCC’s ruling, for example,
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 5
4164/ 4165/ 4166/ 4183

a franchise agreement in Montgomery County, Maryland required the cable operator there to
provide “courtesy Basic and Expanded service” to an ever-growing number of public
buildings—totaling, in 2018, “898 complimentary accounts with an estimated value of $949,000
annually[.]” A franchise agreement in another locality required the cable operator to provide
free cable service to “three golf courses, an ice arena, a municipal pool, an airport, a park activity
center, a historical society and museum, a community college, and a water treatment plant.”
(The petitioners respond that, in both cases, the provision of these free services was negotiated.)

Section 542(g)(1) provides in full: “the term ‘franchise fee’ includes any tax, fee, or
assessment of any kind imposed by a franchising authority or other governmental entity on a
cable operator or cable subscriber, or both, solely because of their status as such[.]” That this
definition comprises “‘any tax, fee, or assessment of any kind[,]’” we held in Montgomery
County, “requires us to give those terms maximum breadth.” 863 F.3d at 490. Moreover, this
language makes no distinction between noncash exactions that are not cable-related (which in
Montgomery County we held can be franchise fees) and noncash exactions that are. Hence the
question here is why noncash cable-related exactions should be categorically excluded, as
Petitioners argue, from the definition of franchise fee.

In Montgomery County, we observed, the petitioners had made a serious argument as to
why noncash cable-related exactions should be excluded from that definition—namely, that
doing so “would undermine various provisions of the Act that allow or even require [franchising
authorities] to impose cable-related obligations as part of their cable franchises.” Id. at 491. In
the Third Order, however, the FCC offered a nuanced response to that argument. The Act itself
imposes (or requires that franchising authorities impose) certain cable-related obligations upon
cable operators. For example, § 541(a)(3) provides that “a franchising authority shall assure that
access to cable service is not denied to any group of potential residential cable subscribers
because of the income of the residents of the local area in which such group resides” (emphasis
added)—a mandate, as we noted in Montgomery County, “that often brings with it expensive
‘build-out’ obligations for cable operators.” 863 F.3d at 491. Section 541(a)(2)—which
provides that “[a]ny franchise shall be construed to authorize the construction of a cable system
over public rights-of-way, and through easements”—likewise makes clear that those costs of
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 6
4164/ 4165/ 4166/ 4183

construction shall “be borne by the cable operator” (or by its subscribers). And § 552(b)
provides that “[t]he Commission shall . . . establish standards by which cable operators may
fulfill their customer service requirements.” (In our view those standards are not a “tax, fee, or
assessment” in the first place, and hence fall outside the franchise-fee definition altogether.) The
Act itself, rather than a franchise agreement, imposes these obligations on cable operators. The
FCC therefore concluded that network “build-out costs” and costs related to FCC-imposed
“customer service requirements”—along with PEG “capital costs[,]” which the Act expressly
excludes from the franchise fee definition, see id. § 542(g)(2)(C)—are not franchise fees. Hence
they do not count toward the five-percent cap. See Third Order ¶¶ 38-40, 57-58.

But other noncash cable-related exactions are not mandated by the Act. For example,
§ 531(b) provides that “[a] franchising authority may in its request for proposals require as part
of a franchise . . . that channel capacity be designated for [PEG] use[.]” (Emphasis added.) That
same subsection likewise provides that a franchising authority “may require” that
“channel capacity on institutional networks”—or “I-Nets,” which provide various services to
non-residential subscribers, see id. § 531(f)—“be designated for educational or governmental
use.” Relatedly, § 541(b)(3)(D) provides that a franchising authority “may” require a cable
operator to provide “institutional networks” as a condition of a cable franchise. And nobody
disputes that a franchising authority may—but need not—require the cable operator to provide
free cable service to government or other public buildings. But whether to require any of these
things—or to require free service to a handful of buildings, or 898—is up to the franchising
authority.

Thus, the Act makes a distinction between obligations that the Act itself imposes and
obligations that a franchising authority may choose to include in a franchise agreement as a
matter of negotiating discretion. Only the latter count as franchise fees. We therefore agree with
the FCC that, under the statutory text and structure, noncash (or “in-kind”) cable-related
obligations mandated by the Act are not franchise fees. But noncash cable-related exactions
(including I-Net exactions) that the Act merely permits a franchising authority to impose are
franchise fees under § 542(g) and thus count toward the five-percent cap.
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 7
4164/ 4165/ 4166/ 4183

Petitioners’ remaining arguments on this point are insubstantial. Petitioners invoke
§ 542(c), which allows cable operators to identify as separate line items on subscriber bills “the
amount of the total bill assessed as a franchise fee” and the amount of the bill assessed “to satisfy
any requirements imposed on the cable operator . . . to support [PEG][.]” Those separate line
items, Petitioners contend, would amount to a “deceptive billing practice” if PEG costs were
already included in the amount of the franchise fee. But PEG “capital costs” are expressly
excluded from the definition of franchise fee, see id. § 542(g)(2)(C), which means that some
PEG costs are not franchise fees. True, there is some overlap between the two items; but
Congress could have wanted subscribers to know the amount of their bills that is attributable to
public, educational, and governmental channels as a stand-alone expense. The inference that
Petitioners seek to draw from § 542(c) is therefore weak. (For substantially the same reasons, we
reject Petitioners’ nearly identical contention with regard to § 543(b)(2)(C).) Moreover, § 542(c)
allows a cable operator to identify franchise fees and PEG costs as separate line items only to the
extent consistent with “regulations prescribed by the Commission[,]” which is protection enough
against deceptive billing practices.

Petitioners also invoke § 546(c)(1)(D), which directs franchising authorities—when
reviewing a cable operator’s proposal to renew a franchise—“to consider” whether the proposal
“is reasonable” to meet the community’s cable-related needs, “taking into account the cost of
meeting such needs and interests.” Petitioners say they would have no need to “consider” the
costs of noncash cable-related exactions if they already needed to tally up those costs as part of
the five-percent cap. As an initial matter, this provision is practically hortatory, and hence a
flimsy basis for structural inferences. Moreover, as shown above, some noncash cable-related
exactions are not franchise fees, which means this provision is not surplusage. Nor, as the
Petitioners seem to assume, is the five-percent figure a floor on the costs that local franchisors
may impose under a franchise agreement. Instead it is a ceiling, below which franchisors should
“consider” the utility of each cost they choose to impose on cable operators and (by extension)
subscribers.

We likewise reject Petitioners’ argument that the Third Order in any way contradicts
§ 542(i), which provides that a federal agency may not regulate the manner in which a
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 8
4164/ 4165/ 4166/ 4183

franchising authority uses funds collected as franchise fees. The Third Order does not do that: it
clarifies what counts as a franchise fee under § 542(g), and otherwise allows franchisors to use as
they wish the monies they lawfully collect. Petitioners’ interpretive arguments with respect to
noncash cable-related exactions are without merit.

Finally, we reject summarily Petitioners’ various arguments that the FCC was arbitrary
and capricious as to the manner in which it issued its determination that noncash cable-related
exactions are franchise fees. For the reasons already stated, the FCC amply explained the
statutory bases for that interpretation. Moreover, we have no authority to set aside a correct
interpretation of the statutory text in favor of the “reliance interests” invoked by Intervenor New
York City. And as far back as 2007—when the FCC issued the Second Order—the FCC
advanced largely the same interpretation of franchise fee (with respect to noncash cable-related
exactions) that it advances now. Fourteen years later, nobody can claim unfair surprise. Nor do
we see any basis for Petitioners’ complaint that the FCC disregarded public safety in the Third
Order. To the contrary, the FCC expressly addressed public safety in the Order, see Third Order
¶ 107, and acknowledged that PEG and I-Nets facilitate “reporting on local issues,” like public
emergencies. Id. ¶¶ 50, 55. But the FCC properly concluded that those public-safety benefits
cannot “override” the Act’s text. Id. ¶ 55.

In sum, we reject Petitioners’ challenge to the FCC’s determination that noncash
cable-related exactions are franchise fees under § 542(g).

2.

Petitioners have a point, however, as to the standard by which noncash cable-related
exactions should be assigned a monetary value for purposes of counting them toward the
five-percent cap on franchise fees. In the Third Order, the FCC provided an administrative
answer to that question but not an interpretive one. Specifically, in a single paragraph of
analysis—and without any reference to the Act’s text—the FCC said that noncash cable-related
exactions should be assigned their “market value” for purposes of the five-percent cap. The
reason, in the FCC’s view, was that the market value of these exactions “is easy to ascertain[,]”
because “operators have rate cards to set the rates that they charge customers[.]” Third Order
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 9
4164/ 4165/ 4166/ 4183

¶ 61. The FCC also observed that, absent these exactions, the franchising authority “would have
no choice but to pay the market rate for services it needs from the cable operator or another
provider.” Id.

But the FCC has its payors mixed up. Franchisors do not “pay” franchise fees; cable
operators do. See 47 U.S.C. § 542(a). A franchisor’s replacement cost is therefore beside the
point. And a cable operator does not “pay” the hypothetical profit that it would have obtained
had it sold its services to a paying customer (as opposed to providing those services gratis to a
franchisor). Nor, presumably, could a cable operator pass through to subscribers—as a
“franchise fee”—its hypothetical profit on services it provides to franchisors. See id. § 542(c),
(e). Not a word in § 542 supports the notion that franchise fees can be a source of profit for
cable operators.

Meanwhile, § 542 does refer to the “costs of the franchise fees” paid by cable operators.
Id. § 542(d). And a cable operator does, in a meaningful sense, “pay” the out-of-pocket costs it
incurs when providing noncash cable-related services pursuant to a franchise agreement. Those
costs affect the operator’s bottom line precisely as a monetary exaction would. And—as the
FCC itself made clear in its Third Order—the Act provides no reason to treat cash and noncash
exactions differently. On this point, therefore, we grant the petitions and hold that, for purposes
of § 542(b), noncash cable-related exactions should be assigned a value equal to the cable
operator’s marginal cost in providing them.

B.

1.

Petitioners next challenge the so-called “mixed-use rule,” which concerns the extent to
which the Act bars franchising authorities from regulating non-cable services provided by cable
operators. The “rule” itself is not set forth in the Act; instead, the rule is the FCC’s synthesis of
the Act’s preemption clause and various limitations that Title VI places upon franchisors’
regulatory authority. Under the mixed-use rule, as described by the FCC, a franchising authority
may not regulate the non-cable services of a cable operator “except as expressly permitted in the
Act.” Third Order ¶ 64. And that express permission, the FCC believes, is something the Act
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 10
4164/ 4165/ 4166/ 4183

almost never grants. See 47 C.F.R. § 76.43 (“A franchising authority may not regulate the
provision of any services other than cable services offered over the cable system of a cable
operator, with the exception of channel capacity on institutional networks.”).

Petitioners argue that the mixed-use rule does not follow from the Act’s terms. To a
significant extent we agree with them: the Act nowhere states or implies that franchisors may
regulate cable operators only as “expressly permitted in the Act.” Accord City of Dallas v.
F.C.C., 165 F.3d 341, 348 (5th Cir. 1999). What the Act does say, in § 544(a), is that a
“franchising authority may not regulate the services, facilities, and equipment provided by a
cable operator except to the extent consistent with this subchapter.” (Emphasis added.) And the
Act’s preemption clause recites, not coincidentally, that “any provision of law of any State,
political subdivision, or agency thereof, or franchising authority, or any provision of any
franchise granted by such authority, which is inconsistent with this chapter shall be deemed to be
preempted and superseded.” 47 U.S.C. § 556(c) (emphasis added). (Although Petitioners
suggest otherwise, the “subchapter” referenced in § 544(a) is obviously part of the “chapter”
referenced in § 556(c).)

The relevant question as to preemption, therefore, is not whether the Act itself authorized
a franchisor’s action. Indeed, the awkward, negative formulation of § 544(a)—that the
franchisor “may not” regulate cable operators “except to the extent consistent with”
Title VI, as opposed to saying simply that franchisors “may regulate” cable operators to that
extent—suggests that Congress went out of its way not to suggest that federal law is the
fountainhead of all franchisor regulatory authority. What we know from §§ 544(a) and 556(c),
rather, is that federal law circumscribes the franchisors’ authority as to cable operators. The
relevant “rules” as to the preemption of state or local actions are the rules stated in those
provisions. The FCC’s formulation, respectfully, only gets in the way.

The question presented, therefore, is simply one of preemption; and §§ 544(a) and 556(c)
tether the preemption analysis to the terms of the Act itself. Vague references to a “bargain”
between cable operators and franchisors, Third Order ¶ 84, are thus beside the point. Instead, the
test for preemption under those provisions is whether state or local action is “inconsistent with” a
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 11
4164/ 4165/ 4166/ 4183

specific provision of the Act. “Inconsistent” means, most concisely, “incompatible.”
Am. Heritage Dictionary at 914-15 (3d ed. 1992). The Act therefore preempts actions that
violate or circumvent any of its provisions. See Verizon North, Inc. v. Strand, 309 F.3d 935, 941
(6th Cir. 2002) (affirming preemption of a state order that “completely bypasses and ignores the
detailed process for interconnection set out by Congress in the [Act]”); Verizon North, Inc. v.
Strand, 367 F.3d 577, 585 (6th Cir. 2004) (affirming preemption of a state order that “eliminates
all incentive to adhere to the federal statutory process”). Thus, on this point, we agree with the
FCC’s conclusion that “states and localities [may] not ‘end-run’ the Act’s limitations by using
other governmental entities or other sources of authority to accomplish indirectly what
franchising authorities are prohibited from doing directly.” Third Order ¶ 81.

2.

a.

With that framework, we turn to the preemption question here. That question itself
requires some definition. In Montgomery County, we held that “franchising authorities may
regulate Title II carriers only to the extent they provide cable services.” 863 F.3d at 492 (citing
47 U.S.C. § 522(7)(C)). For practical purposes that proposition was common ground in that
case: the petitioners there, to their credit, did not dispute that, “to the extent the Title II common
carrier facility is not used to provide cable services, the facility is not a cable system.” Pet’r Br.
at 47, Montgomery County. v. F.C.C. (No. 15-3578). That proposition follows inescapably from
§ 522(7)(C), which provides in relevant part that “[t]he term ‘cable system’ . . . does not
include . . . a facility of a common carrier which is subject, in whole or in part, to the provisions
of [Title II], except that such facility shall be considered a cable system . . . to the extent such
facility is used to” provide cable services.1

1We reject the argument by certain petitioners here that § 522(7)(C) excludes from the definition of a
“cable system” only “the portion” of a common carrier’s facility that is used to provide telecommunications
services. Portland Br. at 51. The “extent” to which a facility is a “cable system” under § 522(7)(C) does not depend
on which wires are used to provide cable service; instead it “depend[s] on the service [the facility is] providing at a
given time.” MediaOne Grp., Inc. v. County of Henrico, 257 F.3d 356, 364 (4th Cir. 2001) (emphasis added).
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 12
4164/ 4165/ 4166/ 4183

But in Montgomery County we remanded to the FCC the question whether the Act bars
franchisors from regulating the non-cable services of cable operators “who[] are not Title II
carriers.” 863 F.3d at 493. Here, that question is part of a concrete dispute regarding the validity
of a fee that the City of Eugene, Oregon imposes on broadband services (which the FCC
classifies as an “information service” under the Act, see 33 FCC Rcd. 311, 321 (Jan. 4, 2018))
provided by a cable operator there. Hence we answer that question to the extent it is part of that
dispute here.2

b.

The Eugene Code states that any “operator”—cable or not—that provides
“telecommunications services” over the city’s rights-of-way must pay “a fee in the amount of 7%
of the licensee’s gross revenues derived from telecommunications activities within the city, to
compensate the City for the use of the rights-of-way.” Eugene City Code §§ 3.410, 3.415(2).
The Eugene Code defines “telecommunication activities” to include three different kinds of
services under the Communications Act: cable services, telecommunications services, and
information services. See id. § 3.005; 47 U.S.C. § 153(24), (53).

Here, nobody disputes that, as applied to cable operators, Eugene’s seven-percent fee on
cable revenues is capped at five percent by operation of the Act’s cap on franchise fees. See
47 U.S.C. § 542(b); Eugene City Code § 3.415(4). The question, instead, is whether Eugene’s
fee on broadband services is “consistent with” Title VI as applied to a cable operator that is not a
common carrier. 47 U.S.C. § 544(a). In the Third Order, the FCC concluded that such a fee, so
applied, was inconsistent with Title VI on two grounds: first, the FCC determined, the fee is a
franchise fee that (when added to the five-percent fee on cable revenues) is imposed in violation
of the franchise-fee cap in § 542(b); and second, the FCC determined, the fee amounts to
regulation of a cable operator’s provision of information services, which is proscribed by
§ 541(b). We address those determinations in turn.

2We do not address, however, the question whether a state or local government (as opposed to a franchising
authority) may impose a fee on telecommunications services provided by cable operators. The question whether a
fee of that sort would circumvent Title VI’s limits on franchisor regulation of a cable operator’s telecommunications
services is neither fully briefed nor clearly presented on the facts here.
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 13
4164/ 4165/ 4166/ 4183

(i)

Section 542(g)(1) provides: “the term ‘franchise fee’ includes any tax, fee, or assessment
of any kind imposed by a franchising authority or other governmental entity on a cable operator
or cable subscriber, or both, solely because of their status as such[.]” (Emphasis added.) Thus,
if the Eugene fee is imposed on a cable operator “solely because of [its] status” as a cable
operator, then the fee is a “franchise fee” and hence invalid under § 542(b) (assuming that the
operator has already paid a fee equal to five percent of its gross revenue from cable services).

Section 522(5) defines “cable operator” and provides in full:

the term “cable operator” means any person or group of persons (A) who provides
cable service over a cable system and directly or through one or more affiliates
owns a significant interest in such cable system, or (B) who otherwise controls or
is responsible for, through any arrangement, the management and operation of
such a cable system[.]

Of all the words in this definition, the FCC’s argument focuses relentlessly on two:
“management” and “operation.” By way of background, everyone agrees that “Congress was
well aware that ‘cable systems’ would be used to carry a variety of cable and non-cable
services.” Third Order ¶ 88. The “management or operation of a cable system[,]” id., thus
includes the operation of a cable system to provide broadband services. Thus, in the FCC’s
view, the conduct giving rise to the imposition of Eugene’s fee—namely, an operator’s use of the
right of way to provide broadband services—falls within the § 522(5) definition of “cable
operator.” Hence, the FCC concludes, the Eugene fee on broadband services is imposed on a
cable operator “solely because of [its] status as such.” See id. ¶ 91.

But the FCC reads “management and operation” woefully out of context. Indeed, all the
contextual indicators cut against the FCC’s interpretation. As an initial matter, the franchise-fee
cap itself is based only on revenues from “cable services.” 47 U.S.C. § 542(b). True, Congress
can define however it wants the fees that count toward that cap. But one would normally expect
that the fees that count towards a revenue-based cap would be fees on the same kind of revenue
used to set the cap itself—here, revenue from “cable services.”
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 14
4164/ 4165/ 4166/ 4183

Section 522(5)(A) bears out that expectation, given that it defines a “cable operator” to
be a person who “provides cable service over a cable system” and “owns a significant interest in
such cable system.” A fee imposed on such a cable operator “based on [its] status as such[,]”
id. § 542(g)(1), would be a fee based on the provision of “cable service over a cable system,”
id. § 522(5)(A). Thus, so far as § 522(5)(A) is concerned, the fees that count toward the § 542(b)
cap are fees on the same revenues used to set the cap itself—namely, revenue from “cable
services.” Id. §§ 522(5)(A), 542(b). The City of Eugene’s fee on broadband services, of course,
is not such a fee.

Yet the FCC’s interpretation would yield a radically different result if a cable operator
“otherwise controls” the cable system rather than “owns” it. For the FCC overlooks a host of
words that Congress “careful[ly] cho[se]” to include in § 522(5). Third Order ¶ 89. The first is
“owns”: as noted above, if the cable operator “owns” the cable system over which it “provides
cable service[,]” the only fees that are imposed “based on [its] status as such”—and thus the only
fees that count as franchise fees under § 542(g)(1)—are fees on revenues from the operator’s
provision of “cable service[.]” 47 U.S.C. § 522(5)(A). Again, the City of Eugene’s fee on the
provision of broadband services is not such a fee. Even under the FCC’s interpretation,
therefore, Eugene’s fee on broadband services—as imposed on a cable operator that owns its
cable system, which is presumably most of them—is not a “franchise fee” that counts toward the
§ 522(b) cap.

But the same is not true, under the FCC’s interpretation, if the cable operator “otherwise
controls” the cable system. Id. § 522(5)(B). (Emphasis added.) “[O]therwise[,]” as used in
§ 522(5)(B), plainly distinguishes control of the cable system by “own[ership]”—which is
governed by § 522(5)(A)—from control by some other “arrangement”—which is governed by
§ 522(5)(B). And only § 522(5)(B) references an operator’s “management and operation” of a
cable system. Under the FCC’s interpretation, therefore, only under § 522(5)(B) does a person’s
“operation” of a cable system—which can include the provision of broadband services—give
rise to the person’s status as a “cable operator.” Only as to cable operators as defined under
§ 522(5)(B), therefore, would the City of Eugene’s fee on broadband services be imposed on the
operator “based on [its] status as such.” Id. § 542(g)(1). Only as to those operators, therefore,
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 15
4164/ 4165/ 4166/ 4183

would Eugene’s fee on broadband services be a “franchise fee” that counts toward the § 542(b)
cap.

The FCC’s interpretation thus leads to a distinction that makes no apparent sense:
Eugene’s fee on broadband services is a “franchise fee” as imposed on cable operators who do
not own the cable system over which they provide broadband services; but is not a “franchise
fee” as imposed on cable operators who do own the cable system over which they provide
broadband services. Not even the FCC argues otherwise—because it simply elides the
distinction between “owns” and “otherwise controls” in § 522(5).

In fact, however, the FCC’s interpretation is mistaken altogether. For the FCC also
overlooks some other words in § 522(5)—namely, “such cable system” and “such a cable
system[.]” Id. § 522(5)(A), (B). Section 522(5)(A) refers to a cable operator “who provides
cable service over a cable system” and who “owns a significant interest in such cable system.”
“[S]uch cable system[,]” as used there, refers to a particular cable system—namely, the cable
system over which the operator “provides cable service[.]” Section 522(5)(B), in turn, refers to a
cable operator who “otherwise controls . . . the management and operation of such a cable
system.” “[S]uch a cable system,” as used there, refers to the same type of system described
in § 522(5)(A)—namely, a cable system over which the operator provides cable services.
Cf. AES-Apex Employer Servs., Inc. v. Rotondo, 924 F.3d 857, 864 (6th Cir. 2019). The two
subsections therefore do not create radically different rules for operators who “own[]” a cable
system and operators who “otherwise control[]” one. Id. § 522(5)(A), (B). Instead, read as a
whole, the two subsections ensure that both kinds of cable operators are treated the same.

What gives a person the status of a cable operator under § 522(5), therefore, is the
person’s provision of cable services. And the City of Eugene’s fee on broadband services, by
definition, is not imposed based on the operator’s provision of cable services. The fee is
therefore not imposed “solely because” of a cable operator’s “status as such[.]” Hence the fee is
not a “franchise fee” under § 542(g)(1); the fee does not count toward the § 542(b) cap; and its
imposition is not, on that ground, “inconsistent with” Title VI. Id. § 556(c).
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 16
4164/ 4165/ 4166/ 4183

(ii)

But the FCC also determined that the City of Eugene fee on broadband services—as
applied to a cable operator that is not a common carrier under Title II—is inconsistent with
§ 544(b)(1) and thus preempted on that ground. By way of background, as noted above,
Congress undisputedly contemplated that cable operators would use their facilities to provide
both cable and non-cable services. For example, § 544(a) provides that “[a]ny franchising
authority may not regulate the services, facilities, and equipment provided by a cable operator
except to the extent consistent with this subchapter.” (Emphasis added.) That reference to
“services” notably is not limited to cable services.

Section 544(b)(1) in turn provides that a franchising authority, “in its request for
proposals for a franchise . . . may establish requirements for facilities and equipment, but may
not . . . establish requirements for video programming or other information services[.]” Likewise
undisputed here is that “information services,” as used in § 544(b)(1), includes broadband
services. Under § 544(b)(1), therefore, a franchising authority cannot require payment of an
information-services fee as a condition of obtaining a franchise under § 541(b)(1). Meanwhile,
§ 541(a)(2) provides that “[a]ny franchise shall be construed to authorize the construction of a
cable system over public rights-of-way[.]” Section 541(b)(1) also makes clear, albeit by
implication, that a franchise shall be construed to allow the cable operator to operate the cable
system.

A franchising authority in the City of Eugene therefore could not, consistent with
§ 544(b)(1), impose on a cable operator a seven-percent broadband fee as a condition for a cable
franchise. The question, then, is whether the City circumvented that limitation when it imposed
the same fee on a cable operator by means of the City’s police power.

We conclude that it did. The power of a franchisor qua franchisor, as explained above, is
the power to grant (or deny) access to public rights-of-way to construct and operate a cable
system. 47 U.S.C. § 541(a)(2), (b)(1). The City (or its franchisor) exercised that power when it
granted a cable operator there a franchise under § 541(b)(1). In doing so, the City granted the
cable operator the right to use its cable system, including—as Congress plainly anticipated—the
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 17
4164/ 4165/ 4166/ 4183

right to use that system to provide information services. The City also surrendered its right
to exclude the cable operator from the City’s rights-of-way. Yet the City imposes a
seven-percent “license fee” upon the same cable operator to use the same cable system on the
same “rights-of-way.” Eugene City Code § 3.415(2).

As applied to the cable operator, therefore, the City’s imposition of a “license fee” equal
to seven percent of the operator’s revenues from broadband services is merely the exercise of its
franchise power by another name. And § 544(b)(1) expressly barred the City from exercising its
franchise power to that end. See Liberty Cablevision of P.R., Inc. v. Municipality of Caguas,
417 F.3d 216, 221 (1st Cir. 2005) (holding that “the municipalities’ attempts to assess fees for
use of these same rights-of-way are inconsistent with the [Act] and are necessarily preempted”).
The City’s imposition of its broadband fee on the cable operator therefore circumvents “the Act’s
limitations by using other governmental entities or other sources of authority to accomplish
indirectly what franchising authorities are prohibited from doing directly.” Third Order ¶ 81.
Thus, the fee is not “consistent with” Title VI and is therefore preempted. 47 U.S.C. §§ 544(a),
556(c).

Petitioners respond that the fee is rescued by § 544(b)(2)(B), which provides that a
franchisor “may enforce any requirements contained within the franchise . . . for broad categories
of video programming or other services.” But that provision refers only to provisions that a
franchisor and cable operator agree upon as part of a franchise agreement. And a fee imposed by
legislative fiat is hardly that. (Nor do we think it clear that the reference to “other services” in
§ 544(b)(2)(B) includes “information services.” Although we need not decide the issue here, the
“other” in “other services” might distinguish the services referenced in § 544(b)(2)(B) from the
“information services” mentioned in § 544(b)(1).) The FCC is therefore correct that, as applied
to a cable operator that is not a common carrier, the City of Eugene’s fee on broadband services
is preempted.
 Nos. 19-4161/ 4162/ 4163/ City of Eugene, Or., et al. v. FCC, et al. Page 18
4164/ 4165/ 4166/ 4183

C.

We make shorter work of Petitioners’ remaining two arguments.

1.

Petitioners argue that the FCC’s extension of its determinations in the Third Order to
state (as opposed to local) franchisors was arbitrary and capricious. With respect to that
extension, the FCC reasoned that it saw “no statutory basis for distinguishing between state- and
local-level franchising actions.” Third Order ¶ 113. Neither do we: section 544(a) provides that
“[a]ny franchising authority” may not regulate a cable operator “except to the extent consistent
with this subchapter.” (Emphasis added.) Section 556(c) likewise provides that “any provision
of law of any State, political subdivision, or agency thereof, or franchising authority, or any
provision of any franchise granted by such authority, which is inconsistent with this chapter,” is
preempted. Petitioners thus argue in essence that the FCC was bound to adopt a distinction that
Congress expressly rejected. Nor was the FCC obligated, as Petitioners suggest, to catalogue the
effect of its entirely lawful extension upon particular state laws or provisions. Petitioners’
arguments are without merit.

2.

Finally, Petitioners seek to challenge the FCC’s determination that a cable operator may
challenge in court any request for PEG support that is “more than adequate[,]” as the term
“adequate” is used in § 541(a)(4)(B). Third Order ¶ 49. Suffice it to say, however, that no party
has remotely presented this issue in a concrete form justiciable under Article III. See Sierra Club
v. E.P.A., 793 F.3d 656, 662 (6th Cir. 2015); Sierra Club v. E.P.A., 292 F.3d 895, 899-900 (D.C.
Cir. 2002).

* * *

For the reasons stated above, the petitions are granted in part and denied in part.