Court Affirms Applicability of State Cable Franchising and Level Playing Field

On July 1, 2003, the Minnesota Court of Appeals affirmed the City of Otsego’s decision to require an Open Video System (“OVS”) operator, WH-Link, to obtain a cable franchise and to comply with Minnesota’s “level playing field” statute. WH Link, LLC v. City of Otsego, File No. 200247 (Minn. Ct. App. July 1, 2003). Minnesota’s level playing field statute is similar to those of a number of other states. These statutes require new entrants providing cable service to comply with franchise requirements that are not “more favorable or less burdensome” than those imposed on existing franchised cable service providers. The decision is important in that it confirms the importance of fair and level competition, preventing new entrants from “cherry picking” or “cream-skimming” customers from only the most dense and affluent areas and from avoiding other franchising requirements while the incumbent bears a higher regulatory burden.

WH Link argued that the federal Cable Act preempted two aspects of the City of Otsego’s actions. First, WH Link argued that under the Telecommunications Act of 1996 (“1996 Act”), Congress exempted OVS from the federal franchise requirements of Section 621 of the Cable Act and that this exemption preempted any state or local cable franchise requirements for OVS. The court rejected this contention, relying on City of Dallas v. FCC, 165 F.3d 341 (5th Cir. 1999), wherein the Fifth Circuit held that the 1996 Act only preempted federal franchise requirements, but left local authorities free to impose franchise requirements to the extent permitted or required by state law.

The court also gave no credence to WH-Link’s arguments concerning an earlier Eighth Circuit decision, Guidry Cablevision/Simul Vision Cable Sys. v. City of Ballwin, 117 F.3d 383 (8th Cir. 1997). In Guidry, the court addressed a challenge to a city’s franchising requirement for a satellite master antennae system (“SMATV”) that did not cross any rights of way. Like OVS, this type of SMATV is also specifically exempted from the federal definition of a "Cable System", but unlike OVS, SMATV has an express exemption from the franchise requirements of Section 621. The court rejected WH Link’s reading of Guidry as “faulty logic,” and concluded that the determination of whether a particular system is or is not a “cable system” is not dispositive of whether the system is exempt from local franchising. According to the court, the SMATV system in Guidry was exempt from local franchising because it qualified for a “private cable exemption,” which does not apply to OVS, not because it did not fall within the definition of a “cable system.”

WH-Link’s second preemption argument involved Section 653 of the Cable Act (pertaining to establishment of OVS). That section states that a local exchange carrier “may [through OVS] provide cable service to its cable service subscribers in its telephone service area.” WH-Link argued that Section 653 preempted the Minnesota level playing field statute to the extent it required it to build out its system beyond the limits of its telephone service area. The court found no conflict between the statutes. Although Section 653 allows WH Link to offer OVS in its telephone service area, the court concluded it does not “regulat[e] (or prohibit[ ]) service-area or build-out requirements.” The court also rejected WH-Link’s suggestion that a service area requirement renders FCC certification meaningless, stating that FCC certification is intended to ensure compliance with federal OVS requirements, “not to create an enforceable right to operate such a system free from state or local regulation.”

In addition to federal preemption, the court also addressed whether under Minnesota statutory law, cable franchise requirements apply to an OVS system operated by a local phone company. WH-Link acknowledged that it fit the definition of a “cable communications system” as defined in the cable franchising law, but argued that a later-enacted statute exempting “telecommunications right of way user[s]” from having to obtain a local franchise rendered the cable franchising statute inapplicable to it. The court noted that under the later statute, “‘telecommunications right-of-way user’ is a term of art, which is defined to exclude cable communications systems.” Accordingly, since an OVS is a “cable communications system,” it must comply with cable franchising requirements.

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