United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 11, 2006 Decided August 18, 2006
No. 05-1237
CHARTER COMMUNICATIONS, INC. AND
ADVANCE/NEWHOUSE COMMUNICATIONS,
PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS
CONSUMER ELECTRONICS ASSOCIATION AND
NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION,
INTERVENORS
On Petition for Review of an Order of the
Federal Communications Commission
John D. Seiver argued the cause for petitioners and
intervenor National Cable and Telecommunications Association.
With him on the briefs were Paul Glist, Paul B. Hudson,
Christopher A. Fedeli, Daniel L. Brenner, and Neal M.
Goldberg.
Joseph R. Palmore, Counsel, Federal Communications
Commission, argued the cause for respondent. With him on the
2
brief were Thomas O. Barnett, Assistant Attorney General, U.S.
Department of Justice, Catherine G. O'Sullivan and Andrea
Limmer, Attorneys, Samuel L. Feder, General Counsel, Federal
Communications Commission, Richard K. Welch, Associate
General Counsel, John E. Ingle, Deputy Associate General
Counsel, and Laurence N. Bourne, Counsel.
Robert S. Schwartz was on the brief for intervenor
Consumer Electronics Association.
Before: GINSBURG, Chief Judge, and TATEL and GARLAND,
Circuit Judges.
Opinion for the Court filed by Circuit Judge GARLAND.
GARLAND, Circuit Judge: Cable television operators
petition for review of an order of the Federal Communications
Commission (FCC). In that order, the FCC declined to rescind
a rule that will preclude cable operators from offering set-top
converter boxes that bundle both security (descrambling) and
non-security (e.g., channel selection) functions in a single
device. For the reasons explained below, we deny the petition
for review.
I
In the communications context, “navigation devices” are
“equipment used by consumers . . . to access multichannel video
programming and other services” from multichannel video
programming distributors (MVPDs), such as cable operators and
direct broadcast satellite services. 47 C.F.R. § 76.1200(c); see
id. § 76.1200(b) (defining MVPDs). The most common such
device is the set-top converter box. Cable television subscribers
typically lease converter boxes from their cable operators as part
of their overall service packages. As currently configured, these
3
devices integrate security and non-security functions. The
security function “contain[s] embedded technology that decodes
or descrambles” a cable signal, and it is “this function that
precludes a consumer from accessing tiers of cable
programming not part of his subscription package.” General
Instrument Corp. v. FCC, 213 F.3d 724, 726 (D.C. Cir. 2000)
(footnote omitted). Converter boxes also perform other tasks
“unrelated to security.” Id. For example, “converter boxes
commonly include channel tuners and provide access to video
programming guides.” Id. Historically, because only the cable
system operator could provide the conditional access (security)
technology, suppliers unaffiliated with the cable operator were
not able to offer consumers comparable navigation devices.
Hence, such devices were not available at retail.
In 1996, Congress amended the Communications Act to add
a new section 629, entitled “Competitive Availability of
Navigation Devices.” 47 U.S.C. § 549. The first sentence of
section 629(a) directs the FCC to “adopt regulations to assure
the commercial availability, to consumers of multichannel video
programming[,] . . . of converter boxes, interactive
communications equipment, and other equipment used by
consumers to access multichannel video programming[,] . . .
from manufacturers, retailers, and other vendors not affiliated
with any [MVPD].” Id. § 549(a). Section 629(a)’s second
sentence further provides that “[s]uch regulations shall not
prohibit any [MVPD] from also offering converter boxes,
interactive communications equipment, and other equipment
used by consumers to access multichannel video programming
. . . .” Id.
In 1998, pursuant to section 629(a)’s directive to assure the
commercial availability of navigation devices, the FCC adopted
regulations that required MVPDs, by July 1, 2000, to make the
security element available separately from the basic navigation
4
device. See Implementation of Section 304 of the
Telecommunications Act of 1996: Commercial Availability of
Navigation Devices, 13 FCC Rcd 14775, 14806, ¶ 76 (1998)
(“1998 Order”).1 The FCC’s 1998 Order concluded that
requiring MVPDs to make the security element separately
available would permit independent manufacturers and retailers
to market navigation devices while allowing MVPDs to retain
control over their system security. See 13 FCC Rcd at 14793-
94, ¶ 49. Thereafter, MVPDs began developing a separate
security module -- now commonly referred to as a CableCARD
-- that plugs into a slot in a host navigation device, permitting
the device to perform both the security and non-security
functions.
The 1998 Order further required MVPDs, as of January 1,
2005, to stop selling or leasing new integrated navigation
devices that perform both security and non-security functions.2
After the effective date, the rule would preclude cable operators
from offering subscribers the integrated set-top converter boxes
that had previously been standard. Should MVPDs wish to
continue selling or leasing converter boxes to subscribers after
the effective date, the FCC required that those boxes be non-
integrated and rely on the same technology -- the CableCARD --
available to independent manufacturers and retailers. The
Commission determined that, even with an unbundled security
1
See 47 C.F.R. § 76.1204(a)(1) (“A[n] [MVPD] that utilizes
navigation devices to perform conditional access functions shall make
available equipment that incorporates only the conditional access
functions of such devices.”).
2
See 47 C.F.R. § 76.1204(a)(1) (1998) (“Commencing on January
1, 2005, no multichannel video programming distributor subject to this
section shall place in service new navigation devices for sale, lease, or
use that perform both conditional access and other functions in a
single integrated device.”).
5
element available from MVPDs, the continued availability of
integrated devices -- devices that only MVPDs could provide --
would impede competition. See id. at 14803, ¶ 69.
Finally, the 1998 Order provided that an MVPD could
qualify for an exemption from the regulations if it “supports the
active use by subscribers of navigation devices that: (i) operate
throughout the continental United States, and (ii) are available
from retail outlets . . . throughout the United States that are not
affiliated with the [MVPD].” 47 C.F.R. § 76.1204(a)(2). In
1998, the only MVPDs that qualified for this exemption were
direct broadcast satellite (DBS) systems. By contrast to the
cable market, where navigation devices were unavailable except
through cable operators, in the DBS market integrated
navigation devices were already available at retail. In addition,
although the DBS devices were not interchangeable among DBS
providers, each DBS provider had a nationwide service
footprint. Thus, unlike cable subscribers, DBS subscribers
could continue using their equipment if they moved across the
country, as long as they used the same DBS service provider.
See 1998 Order, 13 FCC Rcd at 14800-02, ¶¶ 64-66.
The cable industry’s trade association, the National Cable
Television Association, Inc. (NCTA), challenged the 1998
Order as well as a 1999 Reconsideration Order3 in General
Instrument Corp. v. FCC, 213 F.3d 724 (D.C. Cir. 2000).4
3
See Implementation of Section 304 of the Telecommunications
Act of 1996: Commercial Availability of Navigation Devices, 14 FCC
Rcd 7596 (1999) (“1999 Reconsideration Order”).
4
NCTA intervened on behalf of petitioner General Instrument
Corp. in the 2000 challenge and intervenes on behalf of petitioners
Charter Communications and Advance/Newhouse Communications
here.
6
NCTA argued that the plain language of section 629(a)
precludes the FCC from adopting the ban on integrated
equipment. As NCTA noted, although the section’s first
sentence directs the FCC to adopt regulations to assure the
commercial availability of “converter boxes, interactive
communications equipment, and other equipment” from
unaffiliated manufacturers and retailers, its second sentence
directs that the regulations “shall not prohibit any [MVPD] from
also offering converter boxes, interactive communications
equipment, and other equipment.” 47 U.S.C. § 549(a). NCTA
maintained that the FCC had contravened the plain text of the
second sentence by prohibiting cable operators from offering
integrated converter boxes.
The General Instrument court rejected NCTA’s statutory
challenge, noting that the term “converter boxes” must be read
consistently in both sentences. See 213 F.3d at 730. If we
accepted NCTA’s reading, we said, the FCC would be “equally
compelled by the plain language of the statute to permit retailers
to provide integrated” converter boxes. That, we noted, would
“certainly [be] an unacceptable result from [the cable industry’s]
point of view,” because it would give unaffiliated companies
access to cable operators’ proprietary security technology. Id.
Instead, we accepted as reasonable the FCC’s interpretation,
which construed the term “converter boxes” as not including
integrated converter boxes. See id.
In September 2000, with its statutory authority confirmed,
the FCC issued a Further Notice of Proposed Rulemaking “to
review the effectiveness” of its navigation device rules.
Implementation of Section 304 of the Telecommunications Act
of 1996: Commercial Availability of Navigation Devices, 15
FCC Rcd 18199, 18199, ¶ 1 (2000) (“Further Notice”). The
Further Notice sought comment on the existence of “obstacles
or barriers preventing or deterring the development of a retail
7
market for navigation devices,” on the “effect operator provision
of integrated equipment has had on achieving a competitive
market for commercially available navigation devices,” and on
“whether the 2005 date for the phase-out of integrated boxes
remains appropriate.” Id. at 18203, ¶ 11. Before the FCC could
act on the Further Notice, however, the cable and consumer
electronics industries adopted a memorandum of understanding
to integrate the non-security navigation functionality of set-top
boxes directly into digital television sets. This innovation made
it possible for customers simply to “plug and play” by inserting
a CableCARD directly into a digital cable-ready television with
no need for an external navigation device.5 In April 2003, in
part because of this development, the FCC extended the
implementation date for the ban on new integrated boxes from
January 1, 2005, to July 1, 2006. See Implementation of Section
304 of the Telecommunications Act of 1996: Commercial
Availability of Navigation Devices, 18 FCC Rcd 7924, 7925-26,
¶ 4 (2003) (“Extension Order”). The Extension Order sought
additional comments from industry and promised that, by 2005,
the FCC would complete a reassessment of the state of the
navigation device market and “determine whether the designated
time frame remains appropriate or whether the ban on integrated
devices will no longer be necessary.” Id. at 7926, ¶ 5.
Both the cable and the consumer electronics industries filed
voluminous comments in response to the Further Notice and the
Extension Order. Cable commenters argued that changes in
market conditions since the FCC adopted the integration ban
warranted its repeal. By contrast, the consumer electronics
5
The FCC subsequently adopted rules implementing the plug and
play memorandum. See Implementation of Section 304 of the
Telecommunications Act of 1996: Commercial Availability of
Navigation Devices and Compatibility Between Cable Systems and
Consumer Electronics Equipment, 18 FCC Rcd 20885 (2003).
8
industry denied that conditions had materially changed and
opposed both repeal of the pending ban and any further
extensions of the implementation deadline.
On March 17, 2005, the FCC issued its Second Report and
Order. See Implementation of Section 304 of the
Telecommunications Act of 1996: Commercial Availability of
Navigation Devices, 20 FCC Rcd 6794 (2005) (“Second Report
and Order”). While acknowledging some market progress, the
FCC was “not persuaded that the current level of competition in
the navigation device market is sufficient to assure the
commercial availability of navigation devices to consumers
from sources other than” MVPDs. Id. at 6794, ¶ 2. It concluded
that the ban on integrated devices should be retained because
“common reliance by cable operators on the same security
technology and conditional access interface that consumer
electronics manufacturers must employ in developing
competitive navigation devices” was necessary to assure
development of the statutorily required competitive market for
navigation devices. Id.
The FCC did, however, extend the implementation date for
the ban yet again, this time until July 1, 2007. See id. at 6811,
¶ 33. That extension, the FCC said, would provide the industry
time in which to determine whether it was possible to implement
a downloadable software security solution that would obviate
the need for the physical integration ban. See id. at 6794-95, ¶
3. The FCC further stated that, if the parties demonstrated that
downloadable security was feasible but could not be
implemented by July 1, 2007, it would consider granting still
another extension. See id. at 6812-13, ¶ 36. The FCC instructed
the cable industry to report on the feasibility of this solution by
December 1, 2005, and instructed the trade associations for both
the cable and consumer electronics industries to file joint status
reports regarding their progress. See id. at 6795, ¶ 3.
9
Cable operators Charter Communications, Inc. and
Advance/Newhouse Communications, joined by intervenor
NCTA, now petition for review of the Second Report and Order.
They argue that: (1) the integration ban violates the plain
language of section 629(a); and (2) the FCC unreasonably
declined to rescind the ban notwithstanding changed market
conditions. We consider these arguments below.
II
We begin with the petitioners’ statutory argument, which is
essentially a spin-off of the argument addressed by this court in
General Instrument. There, we rejected NCTA’s contention that
the FCC was precluded from banning integrated converter boxes
by the second sentence of section 629(a), which states that the
FCC “shall not prohibit any [MVPD] from also offering
converter boxes, interactive communications equipment, and
other equipment used by consumers to access multichannel
video programming . . . .” 47 U.S.C. § 549(a). As discussed in
Part I above, in order to reconcile the use of the term “converter
boxes” in both the first and the second sentences of the section,
we accepted as permissible the FCC’s view that the term did not
extend to integrated converter boxes. General Instrument, 213
F.3d at 730.
The petitioners now ask us to focus our attention not on the
term “converter boxes,” but on the term “other equipment.” The
petitioners argue that if integrated set-top boxes are not
“converter boxes,” as we held in General Instrument, then they
must be “other equipment,” a possibility we did not address
there. And if integrated boxes are “other equipment,” then
section 629(a)’s second sentence prevents the FCC from barring
cable operators from offering them. In response, the FCC’s
brief in this court points out that, like the term “converter
boxes,” the term “other equipment” appears in both sentences of
10
section 629(a). And just as General Instrument held that
“‘converter boxes’ does not have to mean all converter boxes,
‘other equipment used by consumers’ does not need to mean all
other equipment used by consumers.” FCC Br. 22.
Before we may address the merits of the petitioners’
statutory argument, we must first consider a potential show-
stopper offered by the FCC. According to the Commission, two
considerations bar us from even reaching the petitioners’
statutory argument.
First, the Commission argues that the petitioners’ statutory
challenge is time-barred. According to the FCC, the integration
ban was based on an interpretation of section 629(a) that was
adopted in the 1998 Order and 1999 Reconsideration Order.
Congress has required that petitions for review of such orders be
filed within 60 days, 28 U.S.C. § 2344; see 47 U.S.C. § 402(a),
and a petitioner’s failure to file within that window constitutes
a bar to our review. See Natural Res. Def. Council v. Nuclear
Regulatory Comm’n, 666 F.2d 595, 602 (D.C. Cir. 1981). There
is an exception to that bar for cases in which the FCC has
“reopened” its original rulemaking, see Kennecott Utah Copper
Corp. v. United States Dep’t of Interior, 88 F.3d 1191, 1214
(D.C. Cir. 1996), and the petitioners claim that this case falls
within that exception. They contend that, when the FCC issued
its Further Notice “to review the effectiveness of the rules,” 15
FCC Rcd at 18199, ¶ 1, and subsequently said that it would
“complete a reassessment of the state of the navigation devices
market and determine whether . . . the ban on integrated devices
will no longer be necessary,” Extension Order, 18 FCC Rcd
7926, ¶ 5, it reopened the question of its statutory authority to
adopt the rules in the first place.
But nothing in those notices suggested that, in reviewing the
“effectiveness” of the rules, the FCC intended to review their
11
statutory basis as well. There was not one word about the
proper interpretation of section 629(a) in the notices. And there
is not one word about the proper interpretation -- let alone the
construction the petitioners suggest here -- in the Second Report
and Order that is the subject of this case. Although the
petitioners cite our decision in Public Citizen v. Nuclear
Regulatory Comm’n, 901 F.2d 147 (D.C. Cir. 1990), in support
of their reopening argument, the petitioners “misread Public
Citizen to stand for the proposition that the substantive invalidity
of a previously adopted regulation can always be asserted upon
review of a later rulemaking on the same general subject even
though the statutory time period for review has expired.”
Kennecott, 88 F.3d at 1214. “To the contrary, we expressly
stated in [Public Citizen] that the appropriate way in which to
challenge a longstanding regulation on the ground that it is
‘violative of statute’ is ordinarily ‘by filing a petition for
amendment or rescission of the agency’s regulations, and
challenging the denial of that petition.’” Id. (quoting Public
Citizen, 901 F.2d at 152). Indeed, it is “absurd to suppose that
every time an agency requests parties to compare the regulatory
status quo with specific proposed alternatives, all facets of the
status quo become fair game for new challenges.” Safe Food
and Fertilizer v. EPA, 350 F.3d 1263, 1267 (D.C. Cir. 2003); see
Cellular Telecomms. & Internet Ass’n v. FCC, 330 F.3d 502,
508 (D.C. Cir. 2003) (holding that the 60-day window barred the
petitioners from challenging the statutory authority underlying
the FCC’s 1996 decision to impose wireless number portability
in a 2001 forbearance petition).6
6
In Public Citizen, we said that, “[i]f in proposing a rule the
agency uses language that can reasonably be read as an invitation to
comment on portions the agency does not explicitly propose to
change, or if in responding to comments the agency uses language that
shows that it did in fact reconsider an issue, a renewed challenge to the
underlying rule or policy will be allowed.” 901 F.2d at 150. Here, the
12
Moreover, even if our review were not barred by the limited
statutory window for filing petitions for review, it is certainly
barred -- as the FCC also points out -- by 47 U.S.C. § 405,
which requires that the Commission be afforded an “opportunity
to pass” on an issue as a “condition precedent to judicial
review.” 47 U.S.C. § 405(a). This circuit has strictly applied
that section, holding that we may not consider “arguments that
have not first been presented to the Commission.” BDPCS, Inc.
v. FCC, 351 F.3d 1177, 1182 (D.C. Cir. 2003).7 As the
petitioners concede, there is not a single page in the voluminous
record below in which they made the “other equipment”
argument that they now press before this court. See Oral Arg.
Tr. 6.
Notwithstanding their failure to raise this argument below,
the petitioners urge us to reach it because they raised it in their
original attack on the FCC’s 1999 Reconsideration Order -- an
order that we upheld in General Instrument. According to the
petitioners, the General Instrument court misunderstood the
nature of their statutory argument, and thus addressed only the
“converter box” language in that opinion. This, they say, left the
“other equipment” language fair game for this appeal.
But even if the petitioners did raise this issue in the 1999
proceedings -- an assertion for which they provide no citation --
FCC neither invited comment on the statutory authority supporting the
integration ban, nor did it respond to comments in a way that
suggested it did in fact reconsider the issue. Indeed, as noted below,
there were no comments on the statutory issue.
7
See, e.g., American Family Ass’n, Inc. v. FCC, 365 F.3d 1156,
1166 (D.C. Cir. 2004); Sioux Valley Rural Television, Inc. v. FCC,
349 F.3d 667, 676 (D.C. Cir. 2003); New England Pub. Commc’ns
Council, Inc. v. FCC, 334 F.3d 69, 79 (D.C. Cir. 2003); Time Warner
Entm’t Co. v. FCC, 144 F.3d 75, 81 (D.C. Cir. 1998).
13
“we see no reason the Commission should be required to sift
through pleadings in other proceedings in search of issues that
a petitioner raised elsewhere and might have raised here had it
thought to do so.” Beehive Tel. Co., Inc. v. FCC, 179 F.3d 941,
945 (D.C. Cir. 1999). “[I]ndeed, such a duty would be
inconsistent with our adversarial system, in which the petitioner
‘has the burden of clarifying its position before the agency.’” Id.
(quoting Bartholdi Cable Co. v. FCC, 114 F.3d 274, 280 (D.C.
Cir. 1997)). Nor would “a reasonable Commission necessarily
. . . have seen the question raised before us as part of the case
presented to it.” Time Warner Entm’t Co. v. FCC, 144 F.3d 75,
81 (D.C. Cir. 1998). To the contrary, our affirmation of the
FCC’s statutory authority in General Instrument, as well as the
FCC’s understanding that it had not reopened the issue, surely
gave the Commission no reason to believe that the petitioners
meant to reassert a statutory argument on this go-round. And
that -- together with the petitioners’ failure to mention the point
at all -- certainly explains why the FCC did not address the
question in the Second Report and Order. Accordingly, we are
barred from considering the petitioners’ statutory argument.
III
The petitioners also contend that the FCC unreasonably
refused to rescind the integration ban in light of changed
circumstances. This contention was raised below, and it is
therefore properly before us. The petitioners regard the ban as
unreasonable for an array of interrelated reasons. In considering
those arguments, “we apply the deferential standard of the
Administrative Procedure Act (APA), and will uphold the
Commission’s policy judgments as long as they are not
‘arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.’” Global Crossing Telecomms., Inc. v.
FCC, 259 F.3d 740, 745 (D.C. Cir. 2001) (quoting 5 U.S.C. §
706(2)(A)). Under that standard, the scope of review “‘is
14
narrow and a court is not to substitute its judgment for that of
the agency.’” Cellular Telecomms., 330 F.3d at 507 (quoting
Motor Vehicle Mfrs. Ass’n v. State Farm Mutual Auto. Ins. Co.,
463 U.S. 29, 43 (1983)). The agency must, however, “examine
the relevant data and articulate a satisfactory explanation for its
action including a rational connection between the facts found
and the choice made.” Motor Vehicle Mfrs. Ass’n, 463 U.S. at
43 (internal quotation marks and citation omitted).
A
The petitioners’ first argument is that the integration ban is
no longer needed to comply with the statutory directive of
section 629(a) because navigation devices are already available
to consumers in the retail market. According to the petitioners,
in the period since the rule was promulgated, “the cable and
[consumer electronics] industries engaged in an extraordinary
collaborative undertaking to bring CableCARD-equipped
navigation devices to the retail market, and to implement the
‘separate security requirement’ of the 1998 Order.” Petitioners’
Br. 21. In addition, the FCC’s “plug and play” rules “legally
bound the cable industry to specific technical and operational
commitments to facilitate the commercial availability of digital
cable-ready equipment.” Id.; see supra note 5. As a result, by
mid-2004, “the record showed the commercial availability of
more than 140 models of CableCARD-compatible navigation
devices from 11 different” manufacturers. Id. The “momentum
and trajectory,” the petitioners assure us, “is inexorably toward
such availability regardless of any integration ban.” Petitioners’
Reply Br. 18.
The FCC did not ignore the developments cited by the
petitioners, but its assessment both of the current state of the
market and of its trajectory differed from that of the cable
industry. Although the FCC agreed that there had been
15
progress, it was “clear from the record that the market for
equipment used in conjunction with the distribution of digital
cable video programming presently remains a nascent market.”
Second Report and Order, 20 FCC Rcd 6808, ¶ 28.8 And
whatever number of CableCARD-compatible television models
might be available, the record reflected that less than three
percent of the compatible televisions sold to consumers were
actually being used with CableCARDs.9 Citing submissions
from the consumer electronics industry, the FCC also expressed
“concern[] about evidence that cable operators are not
adequately supporting CableCARDS.” Id. at ¶ 27.10 Given this
record, there was nothing unreasonable about the FCC’s
conclusion that “the competitive reasons that led the
8
Citing, inter alia, the cable industry’s own comments, the FCC
also found that an industry initiative to support the retail availability
of integrated converter boxes “has not been successful.” Second
Report and Order, 20 FCC Rcd at 6799, ¶ 14; see id. at n.42 (citing
NCTA comments acknowledging that the results of the initiative have
been “disappointing”).
9
See Letter from Julie M. Kearney, Consumer Electronics Ass’n,
to FCC Secretary (March 14, 2005) (stating that CableCARDs have
been installed in “no more than 2.7% of the devices capable of
receiving them”) (J.A. 420); Comments of the Consumer Electronics
Ass’n on NCTA Downloadable Security Report, CS Docket 97-80, at
3 (January 20, 2006) (noting that “80,000 CableCARDs have been
provided for a total of 3.8 million TV receivers capable of relying on
the CableCARDs -- barely 2 percent”) (J.A. 313).
10
See Letter from Lawrence Sidman to FCC Secretary (October
28, 2004) (detailing reports from consumer electronics manufacturers
that consumers were experiencing “numerous technical
implementation problems” including “persistent problems with
CableCARDs or their headend support, erroneous software or
firmware fixes, [and] inability of authorized subscribers to acquire
some channels that offer encrypted content”) (J.A. 534).
16
Commission to impose the integration ban have not been
eliminated by the developments in the market.” Second Report
and Order, 20 FCC Rcd at 6809, ¶ 28.
Moreover, this court is bound to defer to the FCC’s
predictive judgment that, “[a]bsent common reliance on an
identical security function, we do not foresee the market
developing in a manner consistent with our statutory
obligation.” Id. at 6813, ¶ 36; see Melcher v. FCC, 134 F.3d
1143, 1151-52 (D.C. Cir. 1998) (noting that this circuit’s review
has been “particularly deferential” where the “FCC must make
judgments about future market behavior with respect to a
brand-new technology”). As the FCC explained: “At the heart
of a robust retail market for navigation devices is the reliance of
cable operators on the same security technology and conditional
access interface that consumer electronics manufacturers must
rely on in developing competitive navigation devices.” Second
Report and Order, 20 FCC Rcd at 6807, ¶ 27. If cable operators
“must take steps to support their own compliant equipment, it
seems far more likely that they will continue to support and take
into account the need to support services that will work with
independently supplied and purchased equipment.” Id. at 6809,
¶ 30. This explains the FCC’s “prohibition on integrated
devices,” as it “assur[es] that MVPDs devote both their technical
and business energies towards creation of an environment in
which competitive markets will develop.” Id. It is an
explanation that is neither arbitrary nor capricious.
B
The petitioners’ second contention is that the FCC failed to
explain adequately why the costs of the integration ban were
justified. The cable industry maintains that the costs of re-
engineering converter boxes will be “enormous,” and that these
costs will be passed on to subscribers who will obtain
17
“absolutely no benefit.” Petitioners’ Br. 27-28. Quoting a line
from General Instrument, the petitioners declare that “[p]erhaps
there are benefits that will flow to consumers from the
integration ban, but the Commission did not clearly spell them
out.” 213 F.3d at 732.
The quotation from General Instrument provides no succor
for the petitioners. Our reference there was to the 1998 Order,
not to the one we consider here, and we find the explanation
offered in the Second Report and Order satisfactory. On the
cost side, the agency noted that there was considerable dispute
between the cable and consumer electronics industries regarding
what those costs would actually be. See 20 FCC Rcd at 6809, ¶
29. While the FCC did not dispute that “consumers will face
additional costs in the short term,” it “agree[d] with the
[consumer electronics] parties and other commenters that the
cost[s] . . . likely will decrease over time as volume usage
increases.” Id.; see id. at 6805, ¶ 24 (citing comments arguing
that advances in technology, as well as volume production, will
bring costs down, and that the costs described by NCTA are for
first-generation products).11 The Commission also took steps to
minimize industry costs, both by extending the implementation
deadline from 2006 to 2007, and by promising to reconsider
eliminating the ban altogether should the cable and consumer
electronics industries achieve a downloadable security solution
capable of providing common reliance without requiring the
physical separation of security and non-security functions. See
id. at 6812-13, ¶ 36.
11
Cf. Consumer Elec. Ass’n v. FCC, 347 F.3d 291, 303 (D.C. Cir.
2003) (holding that it was not unreasonable for the FCC to conclude,
“on the basis of admittedly imperfect evidence and inherent
uncertainty,” that the cost of a new consumer electronics device
“would likely fall” over time).
18
The FCC further concluded that the costs of the integration
ban “should be counterbalanced to a significant extent by the
benefits likely to flow from a more competitive and open supply
market.” Id. at 6809, ¶ 29. Those benefits included the
“potential savings to consumers from greater choice among
navigation devices,” as well as the spurring of technological
innovations. Id. And, of course, there was the fact that
Congress regarded the commercial availability of navigation
devices from independent sources as a benefit in and of itself.
See Consumer Elec. Ass’n v. FCC, 347 F.3d 291, 303 (D.C. Cir.
2003) (indicating that the FCC had appropriately assessed, as a
benefit of a regulatory requirement, the regulation’s contribution
toward speeding achievement of a congressional mandate).
Given the congressional command “to assure” such availability,
47 U.S.C. § 549(a), and the FCC’s determination that the
integration ban was necessary to do so, we cannot regard the
agency’s cost-benefit balance as arbitrary. See generally
Consumer Elec. Ass’n, 347 F.3d at 304 (noting that
“‘cost-benefit analyses epitomize the types of decisions that are
most appropriately entrusted to the expertise of an agency’”
(quoting Office of Commc’n of United Church of Christ v. FCC,
707 F.2d 1413, 1440 (D.C. Cir. 1983))).
C
Third, the petitioners object that the FCC “arbitrarily
applied different decisional criteria in imposing the integration
ban on cable but not DBS.” Petitioners’ Br. 29 (emphasis
omitted). As we noted in Part I, the 1998 Order provided that
an MVPD could qualify for an exemption from the integration
ban if it “supports the active use by its subscribers of navigation
devices that: (i) operate throughout the continental United
States, and (ii) are available from retail outlets . . . throughout
the United States that are not affiliated with the [MVPD].” 47
C.F.R. § 76.1204(a)(2). At the time of the 1998 Order, the FCC
19
concluded that only DBS systems qualified for the exemption.
The petitioners contend that, by the time of the Second Report
and Order, the cable industry had met the exemption
requirements while DBS service was backsliding. Yet, they
claim, the FCC “refused to even consider an exemption of cable
-- whatever the evidence -- on the same grounds that the FCC”
relied on to exempt DBS. Petitioners’ Br. 30. This, they
declare, was unfair to cable operators and put them at a
competitive disadvantage.
It is simply not true that the FCC “refused to even consider”
the petitioners’ arguments, particularly as to disparate treatment.
To the contrary, the Commission noted the petitioners’
“concerns regarding the lack of parity in treatment between DBS
operators and other MVPDs.” Second Report and Order, 20
FCC Rcd at 6814, ¶ 38. But it also determined that “DBS
equipment remains widely available at retail outlets from
various DBS service providers and a number of different
equipment manufacturers, on a geographically portable basis,”
and that “the distinctions that led the Commission to
differentiate between DBS and other MVPDs in 1998 remain
valid.” Id.
Although the petitioners insist that more than 140 models
of CableCARD-compatible navigation devices are commercially
available, and that “all CableCARD-enabled devices are
portable geographically and interoperable among cable
systems,” they concede that “the integrated set-top boxes cable
operators lease to consumers are not geographically portable.”
Petitioners’ Br. 36. And that is the rub, since the record reflects
that less than three percent of CableCARD-compatible
television sets are actually being used with CableCARDs. This
means that the vast majority of cable subscribers remain
dependent upon non-portable converter boxes available only
from their cable companies. On these facts, it was not
20
unreasonable to doubt that the cable industry “supports the
active use by its subscribers of navigation devices” that satisfy
the two criteria required for exemption from the integration ban.
47 C.F.R. § 76.1204(a)(2).
The FCC also recognized the petitioners’ point that
“[a]voiding rule based market distortions with respect to DBS as
a competitor to cable . . . is an important consideration.” Second
Report and Order, 20 FCC Rcd at 6814, ¶ 38. It did not,
however, regard the present proceeding “as providing a record
on which the Commission can resolve these issues.” Id. The
FCC’s assessment of the state of the record appears correct.
Indeed, while the petitioners claim that the ban places them at a
serious competitive disadvantage vis-a-vis DBS, they concede
that there is no quantitative evidence of such a disadvantage in
the record. See Oral Arg. Tr. 8. The absence of a sufficient
record is hardly surprising, since neither the Further Notice nor
the Extension Order sought comment on the DBS exemption or
on the relationship between developments in the DBS and cable
markets. See Further Notice, 15 FCC Rcd at 18199, ¶ 1;
Extension Order, 18 FCC Rcd at 7924, ¶ 3.
Under these circumstances, it was not unreasonable for the
FCC to decline to resolve the DBS-related issues. As FCC
counsel said at oral argument, the cable industry is “perfectly
capable of filing a petition tomorrow with the Commission” that
will generate a record appropriate for consideration of those
issues. Oral Arg. Tr. 24. The FCC has discretion “to defer
consideration of particular issues to future proceedings when it
thinks that doing so would be conducive to the efficient dispatch
of business and the ends of justice.” United States Telecom
Ass’n v. FCC, 359 F.3d 554, 588 (D.C. Cir. 2004). We perceive
no abuse of that discretion here.
21
D
Fourth, the petitioners contend that the Second Report and
Order failed to address the cable industry’s argument that
“vibrant intermodal competition has displaced any remaining
justification for the integration ban.” Petitioners’ Br. 43. The
“intermodal competition” they have in mind includes not only
DBS services, but also “incumbent local telephone companies
[that] are now entering the video market through multi-billion
dollar construction of new fiber networks.” Id. at 42. The
petitioners’ contention is that “intense competition from DBS
[and others] in the marketing of video services to both current
and potential cable customers . . . gives cable operators every
incentive to maximize, rather than limit, the range of . . .
equipment options and distribution outlets for equipment that
enables consumers to access their services.” Id. at 43 (internal
quotation marks omitted).
The petitioners do not cite record evidence to support their
depiction of the current state of intermodal competition as
“vibrant” and “intense.” But their larger problem is that,
whatever the theoretical incentives, the FCC found that the real-
world result that section 629(a) commanded it to assure -- the
commercial availability of navigation devices from vendors
unaffiliated with MVPDs -- has not arrived. The Commission
determined that only “common reliance . . . on an identical
security function [that] will align MVPDs’ incentives with those
of other industry participants” will achieve that result. Second
Report and Order, 20 FCC Rcd at 6809, ¶ 30. As an example of
the need for aligned incentives, the Second Report and Order
recounted the cable industry’s reluctance to provide TiVo -- an
intermodal competitor -- with a multistream CableCARD: a
device that TiVo needed to allow its customers to receive two
streams of programming, but that cable did not need to provide
the same service. Id. at 6803-04, ¶ 21 & n.88; see Oral Arg Tr.
22
at 26-27.12 Nothing about the petitioners’ “intermodal” variant
on the argument we considered in Part III.A calls into question
the reasonableness of the FCC’s conclusion that an integration
ban remains necessary to achieve the statutory objective.
E
We next address the petitioners’ charge that the
Commission said “it would insist, now and in the future, upon
an integration ban regardless of the extent of commercial
availability of cable-ready navigation devices.” Petitioners’ Br.
41 (citing Second Report and Order, 20 FCC Rcd at 6812-13, ¶
36). That charge is simply not true. The paragraph that the
petitioners cite states that, “[a]lthough we agree with NCTA that
the significant efforts by the cable and consumer electronics
industries since 1998 indicate that a competitive environment
sufficient to relax the prohibition on integrated equipment may
develop, that day has not yet come.” Second Report and Order,
20 FCC Rcd at 6812, ¶ 36 (emphasis added). Far from saying
it would never consider progress in commercial availability, the
FCC said that, “[a]s part of the Commission’s consideration of
any further extensions, we will consider the extent to which
there has been progress towards making navigation devices
commercially available.” Id. at 6813, ¶ 36 (emphasis added).
What apparently disturbs the petitioners is the paragraph’s
next sentence, in which the FCC advises that it is “not inclined”
to grant any further extensions “on the basis of the level of
12
TiVo is “an independently manufactured digital video recorder”
that is “a direct competitor with digital video recorders that are
supplied and now sold by the cable companies.” Oral Arg. Tr. 26-27
(FCC counsel). TiVo needed a multistream CableCARD to allow a
customer to receive two streams of programming so that one could be
recorded and the other watched. Id.
23
competition in the navigation device market” because, “[a]bsent
common reliance on an identical security function, we do not
foresee the market developing in a manner consistent with our
statutory obligation.” Id. (emphasis added). That is a
predictive judgment that the FCC is entitled to make and to
which we defer. See Consumer Elec. Ass’n, 347 F.3d at 303-04.
Moreover, notwithstanding its doubts, the Commission “note[d]
that Section 629 contains a sunset provision triggered by fully
competitive markets for video programming and navigation
devices,” and that FCC “rules provide[] that any interested party
may petition the Commission for a determination” that the
sunset provision has been satisfied. Second Report and Order,
20 FCC Rcd at 6813, ¶ 36.13
At oral argument, the petitioners pointed to another place in
the Second Report and Order -- footnote 142 -- that they also
insist shows the FCC has plugged its ears against the cable
industry’s arguments. Oral Arg. Tr. 12-13. The second
sentence of that footnote reads: “The Commission will not
entertain arguments regarding the need for the cable industry to
rely on the same security function as their consumer electronics
competitors.” 20 FCC Rcd at 6811 n.142. But while that
sentence did foreclose the specified arguments, it did so only in
a single forum. As the footnote’s preceding sentence makes
13
Section 629’s sunset provision states that FCC “regulations
adopted under this section shall cease to apply” when:
the Commission determines that -- (1) the market for
multichannel video distributors is fully competitive; (2) the
market for converter boxes, and interactive communications
equipment, used in conjunction with that service is fully
competitive; and (3) elimination of the regulations would
promote competition and the public interest.
47 U.S.C. § 549(e); see 47 C.F.R. § 76.1208.
24
clear, the edict of the sentence in question applied only to the
“December 1, 2005 report by the cable industry and the
comments in response” thereto. Id. Because the December
2005 report was “limited to . . . issues [relating to] the feasibility
of a downloadable security function,” id., it was perfectly
appropriate for the Commission to restrict that filing to those
issues.
F
Finally, we note that the FCC’s Second Report and Order
extended the deadline for implementation of the integration ban
in order to provide the cable and consumer electronics industries
with more time to work toward the implementation of a new
technology that may moot this entire controversy. The
industries are currently developing the downloadable security
system referenced above, which would “allow cable operators
and consumer electronics manufacturers to rely on an identical
security function, but would not require the potentially costly
complete separation of the physical security element.” 20 FCC
Rcd at 6810, ¶ 31. In light of the evolving nature of that
technology, it was hardly unreasonable for the FCC to delay, but
not to delete, the integration ban. “Although the enforcement
regime chosen by the Commission may not be the only one
possible, we must uphold it as long as it is a reasonable means
of implementing the statutory requirements.” Global Crossing
Telecomms., Inc., 259 F.3d at 745. It is and we do.
IV
For the foregoing reasons, the petition for review is
Denied.