a quick #telecom thread on the CA1 opinion issued last Friday in MDTC v. FCC (here: http://media.ca1.uscourts.gov/pdf.opinions/19-2282P-01A.pdf)

(there's a quick patent payoff for my IP friends near the end...)

1/

I'll admit that it's a close question of statutory interpretation. But this opinion is bound to have bad effects for a number of reasons.

Let me start with a bit of background. 2/

Charter is a cable monopolist in certain parts of Massachusetts. As a result, it was subject to rate regulation.

Federal statutes allow such rate regulation where providers are not subject to "effective competition."

What's effective competition, you ask? 3/

A few things count (other cable, satellite) and, importantly, TV provided by a telephone company (this is known as the "LEC test"), and is meant to encompass things like AT&T U-verse.

Does AT&T offer U-Verse in these areas? No. Any other LEC? No. 4/

So how did Charter persuade the FCC to let it out from under the local regulatory regimes?

Charter claimed that DIRECTV NOW --- the streaming service sold by AT&T's affiliate, made it subject to "effective competition" under the LEC test. 5/

That should seem weird to you. If DIRECTV NOW counts, why doesn't Hulu? Or YouTube TV?

It's simply an artifact of the statutory design. It only matters that DIRECTV Now was owned by a telephone company.

Why would that matter, you ask? 6/

Because Congress, in focusing on telephone companies here, intended to spur *facilities-based* competition. It wanted the telephone company to string high-capacity cables to these houses to improve the quality of service you get.

But that's not what happened here. 7/

In fact, in order to get DIRECTV NOW, you still need to be a Charter subscriber. You need Charter internet access! Charter is, after all, the friendly neighborhood monopolists.

8/

The FCC's determination essentially amounts to a finding that Charter's cable service is subject to effective competition from ... well ... Charter's internet service, coupled with a separate subscription.

That's nonsensical. 9/

But CA1 affirmed. And here's where the statutory interpretation gets tricky. It's true that a LEC technically "offers" (that word again...) a comparable video service "by any means" "directly" to consumers. 10/

CA1 found (here's the patent part) that SAS Inst.'s construction of "any" --- expansive --- precludes the imposition of a facilities-based test. Even if the competing offering relies on Charter's facilities, it still counts as effective competition.

11/

And, notably, it makes it at Chevron Step 1. The FCC now can't even change the interpretation in future years.

(One in a series of bad Step 1 decisions this FCC has made, including Global*Tel.)

So where do we go from here? 12/

Well, one possibility is that AT&T will sell off DIRECTV NOW, meaning that there will no longer be a service that satisfies the LEC test, and the FCC could reverse its order on that ground. 13/

Another possibility is that, in a future case/proceeding (Comcast and others have sought similar relief, based on DIRECTV NOW, from rate regulation in Massachusetts and Hawaii), a circuit split with CA9 might arise.

14/

And maybe (optimistically), the Supreme Court will take a more a careful approach to the LEC test.

15/

But barring that, we're left in a strange place where competition from competing video services matters only if that video service is owned by a telephone company, and even if that service must rely on the rate regulated entity for transmission.

16/

The statute needs fixing. I'm hoping to write more about that in 2021.

-end-