AGAPE CHURCH, INC., ET AL., PETITIONERS, BRIEF FOR INTERVENOR NATIONAL HISPANIC MEDIA COALITION

Transcription

1 ORAL ARGUMENT NOT YET SCHEDULED In the UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No AGAPE CHURCH, INC., ET AL., PETITIONERS, V. FEDERAL COMMUNICATIONS COMMISSION AND THE UNITED STATES OF AMERICA, RESPONDENTS. ON PETITION FOR REVIEW OF AN ORDER OF THE FEDERAL COMMUNICATIONS COMMISSION BRIEF FOR INTERVENOR NATIONAL HISPANIC MEDIA COALITION November 26, 2012 *Andrew Jay Schwartzman 2000 Pennsylvania Avenue, NW Suite 4300 Washington, DC (202) Attorney for Intervenor *Counsel of Record

2 CERTIFICATE AS TO PARTIES, RULINGS AND RELATED CASES Parties All parties are listed in the Brief for Petitioners Rulings Under Review References to the ruling at issue appear in the Brief for Petitioners. Related Cases Intervenor adopts the statement of related cases presented in the Brief for Petitioners. -i-

3 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure, and Rule 26.1 of this Court, the National Hispanic Media Coalition (NHMC) respectfully submits this Corporate Disclosure Statement: NHMC is a non-profit corporation which does not issue stock. It has no parent companies, subsidiaries or affiliates. -ii-

4 TABLE OF CONTENTS Certificate of Parties, Rulings and Related Cases... i Corporate Disclosure Certificate...ii Table of Authorities... Glossary... Statutes and Regulations... iv viii ix Supplemental Statement of Facts...1 Viewers Interest in Receiving Access to Diverse Sources of Information. 2 The 1992 Cable Act...3 The Digital Television Transition...5 Differences Between the Digital Television Transition and the Impact of the Viewability Decision...9 The 2007 Viewability Order...10 The Viewability Sunset...14 Summary of Argument...17 Argument...20 I. THE COMMISSION VIOLATED THE NOTICE AND COMMENT PROVISION OF THE APA...20 II. THE COMMISSION S ACTION WAS ARBITRARY AND CAPRICIOUS...25 CONCLUSION iii-

5 TABLE OF AUTHORITIES JUDICIAL CASES: AFL-CIO v. Donovan, 757 F.2d 330 (D.C. Cir. 1985)...23 Ariz. Pub. Serv. Co. v. EPA, 211 F.3d 1280 (D.C. Cir. 2000)...22 Bd. Of Educ.v. Pico, 457 US 853 (1982)...3 CBS, Inc. v. FCC, 453 US 367 (1981)...3 Fertilizer Institute v. EPA, 935 F.2d 1303 (D.C. Cir. 1991)...22 *Home Box Office, Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1976)...22 International Union, United Mine Workers of America, Petitioner v. Mine Safety and Health Administration, 407 F.3d 1250 (D.C. Cir. 2005)...22 McLouth Steel Prods. Corp. v. Thomas, 838 F.2d 1317 (D.C. Cir. 1988)... 24,25 National Broadcasting Co. v. United States, 319 US 190 (1943)...3 Office of Communication of the United Church of Christ v. FCC, 359 F.2d 994 (D.C. Cir. 1966)...3 Prometheus Radio Project v. FCC, 652 F.2d 431 (3d. Cir. 2011)...24 *Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 507 (D.C. Cir. 1983)...22 Turner Broadcasting System, Inc. v. FCC, 512 US 622 (1994)...3 Turner Broadcasting System, Inc. v. FCC, 520 US 180 (1997)...5 -iv-

6 ADMINISTRATIVE CASES AND MATERIALS: *Basic Service Tier Encryption, 27 FCCRcd (2012)... 28,29 *Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission s Rules, 22 FCCRcd (2007)... 11,12,13,16 Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission s Rules, 27 FCCRcd 1713 (2012)... 1,14 Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission s Rules, 27 FCCRcd 6529 (2012)... 16,17,26,27 Open Commission Meeting- June 3, 2009, Open Commission Meeting- March 5, 2009, Open Commission Meeting, STATUTES Pub. L (1992)...3 Pub. L. No (1996)...5 Pub. L. No (1997)...5 Pub. L. No (2006)...5 Pub. L. No (2008)...5 Pub. Law (2009)...5 *5 U.S.C v-

7 47 U.S.C LEGISLATIVE MATERIALS Oversight of the DTV Transition - Countdown to February 2009, S. Hrg (September 23, 2008)... 6 Preparing for the Digital Television Transition: Will Seniors Be Left in the Dark? S. Hrg (September 19, 2007)...6 Preparing Consumers for the End of the Digital Television Transition, H. Hrg (March 10, 2005)...6 The Digital Television Transition, S. Hrg (July 20, 2005)...6 The Status of the DTV Transition: 154 Days and Counting, H. Hrg (September 16, 2008)...6 The Status of the Digital Television Transition, H. Hrg (March 28, October 17, October 31, 2007)...6 OTHER MATERIALS Broadcasters: Preparing America for the DTV Transition, org/documents/television/dtv/...8 Draft FCC Order Lets Hybrid Systems Distribute Only Must-Carry Stations in HD, With DTAs, Communications Daily, May 25, DTV Transition Did Not Require Cable Systems to Switch to Digital, FCC Announces $12 Million Call Center Contract to Assist DTV Call Center Capability, (January 16, 2009), DOC A1.doc...7 GfK-Knowledge Networks Home Technology Monitor Survey, Spring 2011-March -vi-

8 mmunitiesfinal.pdf (citing Knowledge Networks, 2011 Home Technology Monitor Survey, Jan. 2011)...1 ttp:// munitiesfinal.pdf In the News, *Cases and authorities principally relied upon are marked with an asterisk. -vii-

9 GLOSSARY 2007 Order FCC order released on November 30, 2007 adopting the viewability rule. Cable Act DTA DTV NCTA NHMC Order Turner II Cable Television Consumer Protection and Competition Act of digital transport adapter digital television National Cable & Telecommunications Association Intervenor National Hispanic Media Coalition FCC order released on June 12, 2012 repealing the viewability rule Supreme Court decision upholding the must-carry provisions of the Cable Act. -viii-

10 Petitioners. STATUTES AND REGULATIONS All applicable statutes and regulations are reprinted in the brief for -ix-

11 SUPPLEMENTAL STATEMENT OF FACTS Intervenor National Hispanic Media Coalition ( NHMC or Intervenor ) appears here to protect the interests of viewers, most especially those who are lowincome and/or of color. In initiating this very proceeding, the Commission itself stated that: The sunset of the viewability rule would potentially impact millions of subscribers, and the broadcasters who would be unable to reach them. * * * * As the Supreme Court has made clear, preserving the benefits of free, over the air local broadcast television is an important governmental interest at the very heart of the must-carry regime. 1 The viewers that NHMC represents will be harmed by the sunset of the viewability rules in several ways. There are more than 12 million households, representing some 40 million viewers, which receive analog cable service, and many more which rely at least in part on analog signals for second television sets. 2 More than 17.5 million households representing 46 million consumers receive television exclusively through broadcast signals. In addition, 23 percent of Hispanic homes are over-the-air only, a proportion that increases to 27 percent among homes in which Spanish is the 1 Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission s Rules, 27 FCCRcd 1713, 1719 (2012)( NPRM )(quoting Turner Broadcasting System, Inc. v. FCC, 520 US 180 at (1997). [JA ] 2 HispanicCommunitiesFINAL.pdf (citing GfK-Knowledge Networks, 2011 Home Technology Monitor Survey, Jan. 2011)

12 language of choice. 3 These viewers are of lower-income, 4 and are disproportionately composed of seniors, people of color and non-english speakers. 5 Non-cable subscribers who are exclusively dependent on over-the-air TV will be harmed by the sunset, insofar as the very viability of the stations on which they place principal reliance will be endangered. Many of those who do subscribe to cable will no longer be able to view programming of over-the-air stations without obtaining additional equipment costing two dollars per month. Moreover, experience with the digital television transition demonstrates the difficulty of educating consumers, especially those with limited or no English language skills and the elderly, in how to install new equipment and reconfigure their television sets when the technology changes. Viewers Interest in Receiving Access to Diverse Sources of Information The viewing public is the primary intended beneficiary of the Communica- 3 NPRM, 27 FCCRcd at GfK-Knowledge Networks Home Technology Monitor Survey, Spring March 2011 (the average household income for digital cable subscribers is $70,940, while the average household income for analog cable subscribers is $49,450). 5 mmunitiesfinal.pdf -2-

13 tions Act. 6 The avowed aim of the Communications Act of 1934 was to secure the maximum benefits of radio to all the people of the United States. 7 The Supreme Court has emphasized the paramount First Amendment right of the viewers and listeners... 8 and that [i]t is the right of the public to receive suitable access to social, political, esthetic, moral and other ideas and experience which is crucial here. 9 The 1992 Cable Act The must-carry requirement and the ancillary viewability mandate were adopted in the Cable Television Consumer Protection and Competition Act of Section 2(a) of the Act contained unusually detailed statutory findings, 11 among them the following: 6 See Office of Communication of the United Church of Christ v. FCC, 359 F.2d 994 (D.C. Cir. 1966)(affording standing to viewers). 7 National Broadcasting Co. v. United States, 319 US 190, 217 (1943). 8 CBS, Inc. v. FCC, 453 US 367, 395 (1981) (quoting Red Lion Broadcasting Co., Inc. v. FCC, 395 US 367, 390 (1969). 9 Id. See also Bd. Of Educ.v. Pico, 457 US 853, 867 (1982) ( This right is an inherent corollary of the rights of free speech and press that are explicitly guaranteed by the Constitution. ) 10 Pub. L Turner Broadcasting System, Inc. v. FCC, 512 US 622, 646 (1994). -3-

14 (6) There is a substantial governmental and First Amendment interest in promoting a diversity of views provided through multiple technology media. * * * * (11) Broadcast television stations continue to be an important source of local news and public affairs programming and other local broadcast services critical to an informed electorate. (12) Broadcast television programming is supported by revenues generated from advertising broadcast over stations. Such programming is otherwise free to those who own television sets and do not require cable transmission to receive broadcast signals. There is a substantial governmental interest in promoting the continued availability of such free television programming, especially for viewers who are unable to afford other means of receiving programming. To implement these findings and to preserve free over-the-air broadcasting for the benefit of the viewing public, the Act, inter alia, provided must carry rights for less-viewed stations, which often serve niche audiences such as people of color, speakers of foreign languages and lower income viewers. 12 In upholding the must-carry rules, the Supreme Court held that: The must-carry provisions serve important governmental interests in a direct and effective way. Ward v. Rock Against Racism, 491 U.S. 781, 800. Congress could reasonably conclude from the substantial body of evidence before it that attaining cable carriage would be of increasing importance to ensuring broadcasters' economic viability, and that, absent legislative action, the free local off-air broadcast system was endangered. Such evidence amply indicated that: a broadcast station's viability depends to a material extent on its ability to secure cable carriage and thereby to increase its audience size and revenues; broadcast stations had fallen into bankruptcy, curtailed their 12 See 47 U.S.C

15 operations, and suffered serious reductions in operating revenues as a result of adverse carriage decisions by cable systems; stations without carriage encountered severe difficulties obtaining financing for operations; and the potentially adverse impact of losing carriage was increasing as the growth of clustering -i.e., the acquisition of as many cable systems in a given market as possible-gave multiple system operators centralized control over more local markets. 13 The Digital Television Transition The Telecommunications Act of created the basic scheme for the transition of over-the-air broadcasting from analog to digital. The initial deadline for the transition was set for 2006, 15 but early that year, the deadline was extended to February, The Deficit Reduction Act of 2005 created a fund of about $1 billion to fund vouchers to pay for adapters that would enable analog TV sets to receive over-the-air digital signals. Funds were also set aside for an educational and outreach campaign. In September, 2008, Congress appropriated an additional $20 million for public education on the DTV transition. 17 Because of the difficulties in preparing the nation for the transition, just before the deadline, 13 Turner Broadcasting System, Inc. v. FCC, 520 US 180, (1997) ( Turner II ). 14 Pub. L. No (1996). 15 Pub. L. No (1997). 16 Pub. L. No (2006). 17 Pub. L. No (2008). -5-

16 Congress further extended the transition date for four additional months, to June, Congress engaged in vigorous oversight of the DTV transition, holding numerous oversight hearings before the House 19 and Senate 20 Commerce Committees, as well as the Senate s Special Committee on Aging. 21 The FCC and Congress were especially concerned about the special problems faced by the elderly, non-english speakers, people of color and low-income viewers Pub. Law (2009). 19 See, e.g., The Status of the DTV Transition: 154 Days and Counting, H. Hrg (September 16, 2008), The Status of the Digital Television Transition, H. Hrg (March 28, October 17, October 31, 2007); Preparing Consumers for the End of the Digital Television Transition, H. Hrg (March 10, 2005). 20 See, e.g., Oversight of the DTV Transition - Countdown to February 2009, S. Hrg (September 23, 2008); The Digital Television Transition, S. Hrg (July 20, 2005). 21 Preparing for the Digital Television Transition: Will Seniors Be Left in the Dark? S. Hrg (September 19, 2007). 22 See, e.g, Testimony of Manual Abud, S. Hrg at ( Households where Spanish is the primary language are far more likely to rely on overthe-air television than other households. Nationally, 43 percent of households where Spanish is the primary language spoken watch over-the-air television exclusively. At the same time, analysis of the consumer market reveals that digital television technology has failed to make significant inroads into the Hispanic community. Nielsen data indicates that use of DTV receivers in Hispanic households is the lowest among all consumer groups. -6-

17 Because the digital transition disproportionately affected non-english speakers, people of color, the elderly and lower-income viewers, the FCC engaged in a robust outreach campaign, including special attention to Spanish language speakers, 23 to explain how to prepare for the change, and to make people aware of the need to obtain adapters, and to register for subsidized prices. FCC Commissioners spoke at community meetings and did local broadcast interviews to publicize the forthcoming change. 24 The Commission operated a 24-hour multilingual toll-free call center to field consumer questions. 25 It devoted several of its monthly meetings entirely to receiving testimony on oversight of the program, at which it heard from groups such as Consumers Union, the Leadership Conference on Civil Rights, and the National Association of Area Agencies on Aging. 26 The National 23 For example, the FCC maintained a Spanish language web site for consumers which mirrored the English language content: 24 See, e.g., In the News, (describing FCC Commissioners visits to numerous cities, including Charleston, Detroit, Las Vegas, McAllen, Miami and Phoenix, among many others) 25 FCC Announces $12 Million Call Center Contract to Assist DTV Call Center Capability, (January 16, 2009), DOC A1.doc 26 See, Open Commission Meeting- June 3, 2009, Open Commission Meeting- March 5, 2009, Open -7-

18 Association of Broadcasters broadcast hundreds of millions of dollars worth of multilingual public service announcements, provided more than 8,000 speakers bureau presentations and distributed more than three million flyers in African- American churches. 27 A significant element of the education campaign, in printed materials and public service announcements, was the reassurance that cable television subscribers need do nothing to prepare, as over-the-air signals would be viewable on analog TV sets without technological fixes. For example, a fact sheet on the FCC website 28 reads as follows: Did the DTV Transition Affect TV Sets That Are Connected to Cable Services? No. If you subscribe to cable service, the DTV transition did not affect any TV sets that are connected to your cable services. The DTV transition applied only to full-power broadcast television stations - stations that use the public airwaves to transmit their programming to viewers through a broadcast antenna. Similarly, an FCC fact sheet explained that If you subscribe to cable service, the DTV transition should not have affected any TV sets that are connected to your Commission Meeting 27 Broadcasters: Preparing America for the DTV Transition,

19 cable service, 29 The PBS website assured viewers that If your TV is connected to cable or satellite or it has a built-in digital tuner, it will work without an upgrade. 30 The cable industry used bill stuffers in both English and Spanish 31 which said (in boldface) that As long as your older analog TV sets are connected to cable, they ll continue to display local commercial broadcast stations even after the digital transition on February 17, Differences Between the Digital Television Transition and the Impact of the Viewability Decision To understand the magnitude of the harm now faced by viewers, it is important to compare the current situation with the digital television transition described above. Essentially all American viewers were affected by the change, and Congress, the Commerce Department and the FCC engaged in an expensive years-long effort to educate the public and to subsidize the hardware costs associated with the digital transition. In the case of the viewability requirement, the immediate, and most 29 DTV Transition Did Not Require Cable Systems to Switch to Digital, ital (emphasis in the original)

20 detrimental, immediate impact of the FCC s action is concentrated on a smaller universe of viewers, i.e., analog cable subscribers. (The adverse effect on the viability of free over-the-air TV service and, hence, their viewers, will accrue over a slightly longer period of time.) There has been no money appropriated for federal outreach, and no subsidy for the hardware needed. Neither the FCC nor the cable industry is running an education campaign. There are no resources for an educational campaign for the disenfranchised audience, and even if there were, there was no time to organize one before the new rule becomes effective. Instead, the FCC has placed reliance on cable operators commitment to make the necessary hardware available at low cost and upon request. The Commission appears to believe that two dollars a month is an inconsequential cost, even for lower-income viewers. The situation is greatly exacerbated by the fact that cable subscribers have previously been reassured that they need do nothing to continue receiving over-theair channels on their cable-connected televisions. Thus, it will be necessary to convince them to ignore what they had been told just a few years ago. The 2007 Viewability Order This case turns on whether the Commission can justify its about-face from its 2007 viewability decision. Accordingly, Intervenor wishes to quote at length -10-

21 from that holding. In creating the viewability requirements for the post-dtv transition, the Commission took care to provide an extended period of time for implementation and stressed that We are mindful that the mandatory carriage rules serve their purpose only when such stations are viewable by all cable subscribers, including those who will only have analog sets after the transition. Furthermore, we act with the knowledge that Congress intended that the benefits of the digital transition should accrue to all consumers. 32 In requiring that analog service subscribers on hybrid systems should continue to receive the same as digital subscribers without extra equipment, the Commission rejected assurances from cable operators that they would voluntarily continue such service, the Commission said that Congress did decide to end analog broadcasting, but declined to turn its backs on the millions of Americans with analog sets. Thus, they established the NTIA converter box program to protect the continued availability of over-the-air signals to all Americans; they accepted the claims of the cable industry that subscribers with analog sets would continue to be served; and we now establish these rules to ensure that those subscribers do continue to be served. 33 In its analysis, the Commission explained why circumstances with respect to 32 Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission s Rules, 22 FCCRcd 21064, (2007) ( 2007 Order ) Order, 22 FCCRcd at (footnotes omitted). [JA ] -11-

22 viewability are not substantially different from those which motivated Congress to act in 1992: cable operators continue to exercise control over most (if not all) of the television programming that is channeled into the subscriber s home [and] can thus silence the voice of competing speakers with a mere flick of the switch. 34 The Commission took particular note of the fact that cable operators have strong incentives to interfere with the delivery of local broadcast signals: The incentives that the Turner II Court recognized for cable operators to drop local broadcasters in favor of other programmers less likely to compete with them for audience and advertisers also have steadily increased. The Court explained that: Independent local broadcasters tend to be the closest substitutes for cable programs, because their programming tends to be similar, and because both primarily target the same type of advertiser: those interested in cheaper (and more frequent) ad spots than are typically available on network affiliates. The ability of broadcast stations to compete for advertising is greatly increased by cable carriage, which increases viewership substantially. With expanded viewership, broadcast presents a more competitive medium for television advertising. Empirical studies indicate that cable-carried broadcasters so enhance competition for advertising that even modest increases in the numbers of broadcast stations carried on cable are correlated with significant decreases in advertising revenue for cable systems. Empirical evidence also indicates that demand for premium cable services (such as pay-per-view) is reduced when a cable system carries more independent broadcasters. Thus, operators stand to benefit by dropping broadcast stations. II) Order, 22 FCCRcd at (footnotes omitted)(quoting Turner -12-

23 In addition, the Court observed that [t]he incentive to subscribe to cable is lower in markets with many over-the-air viewing options. 35 Thus, the Commission likened its viewability regime to the must-carry rules upheld in Turner, saying that The steps we take here to ensure that cable operators comply with the statutory viewability requirement after the DTV transition serve these same interests. 36 Addressing cable operators objections that Turner standards would not justify the viewability requirements, the Commission said If cable operators did not downconvert the digital signals, broadcasters would stand to lose an audience of millions of households that are analog cable subscribers and the concomitant advertising revenues, thus jeopardizing their continued health and viability. Should these stations deteriorate or cease to exist, the impact of these lost programming options would fall most heavily on those that most need them: the roughly fifteen percent of Americans who rely solely on over-the-air television, which disproportionately consist of low-income and minority households. This is precisely the harm that Congress sought to prevent when it enacted the must-carry provisions upheld by the Supreme Court in Turner II, and no party has suggested a plausible argument that preserving free, over-the-air broadcast television no longer qualifies as an important governmental interest. The Court also recognized that preserving a multiplicity of broadcasters serves the related governmental interest of promoting the widespread dissemination of information from a multiplicity of sources. All cable programming other than that carried in fulfillment of must-carry obligations is under the control of cable operators. Unless we act, analog cable subscribers and households that rely Order, 22 FCCRcd at (footnotes omitted)(quoting Turner Broadcasting System, Inc. v. FCC, 520 US 180, (1997)( Turner II ) Order, 22 FCCRcd at

24 solely on over-the-air broadcast television may well face a reduction in the number of media voices and the loss of the widest possible dissemination of information from diverse and antagonistic sources. 37 The Viewability Sunset The Commission s Notice of Proposed Rulemaking signaled a routine extension of the viewability requirement for three more years. 38 Having waited until February 10, 2012, just four months prior to the expiration of the viewability requirement, the Commission proceeded on an unusually expedited basis. 39 The due date for comments was March 12, 2012, and reply comments were due only ten days later, on March 22, Not surprisingly in view of the proposal to maintain the status quo, only four comments and five reply comments were filed. In particular, public interest groups which represent the interests of viewers, and which have many competing priorities, discerned no need to participate in the Commission s proceeding, as it Order, 22 FCCRcd at (footnotes omitted)(quoting Turner II, 520 U.S. at ). 38 For example, the Commission reasoned that, [w]ithout the viewability rule, many cable subscribers would be required to pay more for access to mustcarry broadcast stations, by replacing existing and still-functional analog equipment with digital equipment or leasing set top boxes to view the complete service they currently pay for and receive in analog. NPRM, 27 FCCRcd at [JA ] 39 NPRM, 27 FCCRcd 1713 (2012). [JA ] -14-

25 contemplated that the current regime would remain in place. Long after the formal comment period ended, on May 25, 2012, a trade press report indicated that the Commission was considering a termination of the original viewability mandate. 40 Only then did affected broadcasters, to whom these trade publications are directed, begin to communicate aggressively with the FCC. 41 Civil rights and consumer groups, which do not ordinarily monitor trade press reports, 42 were caught unawares of the pending action and thus had no opportunity to express their concerns Draft FCC Order Lets Hybrid Systems Distribute Only Must-Carry Stations in HD, With DTAs, Communications Daily, May 25, 2012 (reporting that a draft decision was circulated to Commissioners on May 22, 2012). 41 See, e.g., Notice of Ex Parte Presentation filed by National Black Religious Broadcasters, Liberman Broadcasting, Una Vez Mas, NRJ, TV and ION Media Networks (June 9, 2012) at p. 2. [JA ] ( It has become abundantly clear in the few short weeks since Must-Carry Broadcasters learned (from an article in Communications Daily, not though any substantive release by the agency itself) that the Commission was considering anything other than the three-year extension proposed in the NPRM. ) 42 A subscription to Communications Daily costs more than five thousand dollars per year. 43 On June 5, 2012 and June 7, 2012, two weeks after the Commission s draft decision was circulated for a vote, and only six and four days before the Commission adopted its decision, a representative of Consumers Union telephoned legal advisors to the five Commissioners and the agency s Chief of Staff to express concern that over 12 million analog cable customers are likely to face unfair costs to receive their analog signals. Letters from Consumers Union to Marlene Dortch, June 5, 2012 and June 7, [JA - ; JA - ] -15-

26 Significantly, the Commission did not solicit any further comment which would have put consumer or civil rights groups on notice that it might adopt a requirement that additional hardware would become necessary for analog cable customers to view their cable service, much less that they would be required to bear the cost of such hardware. Accordingly, there was no real discussion of these questions in the comments and reply comments, and no record upon which the Commission could base its determination with respect to the impact of requiring these viewers to rent or purchase additional equipment, or the ready availability of such hardware. Notwithstanding its earlier assurance that Congress had declined to turn its backs on the millions of Americans with analog sets..., 44 the Commission switched course and decided that an operator of a hybrid system may comply with the viewability mandate by carrying a must-carry signal in a format that is capable of being viewed by analog customers either without the use of additional equipment or alternatively with equipment made available by the cable operator at no cost or at an affordable cost that does not substantially deter use of the equipment. 45 The Commission defined an affordable cost as being Order, 22 FCCRcd at [JA ] 45 Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission s Rules, 27 FCCRcd 6529, 6538 (2012) ( Order ). [JA ] -16-

27 a monthly fee of no more than $2 [which] would satisfy the requirement for affordable equipment because the minimal additional cost, if any, is unlikely to discourage use of this equipment. Materially higher leasing fees, however, could deter subscriber willingness to order the equipment needed to ensure viewability on a hybrid cable system. Accordingly, such fees would not meet the statutory viewability requirement as we interpret it. 46 SUMMARY OF ARGUMENT This Court can and should resolve this case on the basis of the statutory issues discussed in Petitioners brief. However, in the event that it resolves the statutory issues adversely to Petitioners, it must still reverse because the Commission failed to comply with the notice and comment provisions of the APA and in any event, the decision below was arbitrary and capricious. In adopting the viewability rule in 2007, the Commission said that Congress declined to turn its back on the millions of Americans with analog sets. In proposing to extend that rule, the Commission noted that a sunset of the viewability rule would potentially impact millions of subscribers and the broadcasters who would be unable to reach them. The Commission abandoned this view without explanation. Comments and reply comments filed in the agency s docket addressed the premise that the Commission intended to extend the rule, and did not discuss the 46 Order, 27 FCCRcd at [JA ] -17-

28 implications of a sunset. Two months after the end of the comment period, and three weeks before the decision was issued, an expensive and limited circulation trade publication revealed that the FCC Chairman had already circulated a draft decision which would sunset the 2007 viewability rule. While this led to a last minute effort by affected broadcasters to salvage the rule, public interest and civil rights groups, lulled into complacency by the Commission s initial proposal, were unaware of this development and were not able to make their views known. There was not a word in the Commission s Notice of Proposed Rulemaking which would have put consumers on notice that the Commission intended to sunset the 2007 viewability rule. Despite the Commission s experience with the massive outreach and educational effort needed to effectuate the digital television transition in 2009, it asked no questions, and developed no record, on the difficulties that low-income consumers, people of color and seniors would encounter as a result of the sunset. Nor did it ask about how long a transition period might be needed or what price point would be affordable for these people. Even though cable customers had been taught that they needed no new equipment as a result of the digital television transition, the Commission asked no questions about what kind of education and outreach campaign would be need. Because of the woefully inadequate notice, the Commission was deprived of -18-

29 the input necessary for robust give-and-take contemplated by the APA. This is especially true of the critical element of the Commission s decision - its reliance on a vague promise conveyed by letter to the FCC dated just five days before the Commission s draft order was circulated for a vote. The lack of notice led to creation of a deficient record, and precipitated an arbitrary and capricious decision. Lacking support in the comments to justify its conclusions about the availability and affordability of hardware, the Commission relied on a privately published analyst s report and a vague assurance from the NCTA for this essential finding. Similarly, the Commission s findings that free converters might be widely available was based on letters filed in a different docket, another private analyst s report and two stale weblinks which do not prove the point for which they are cited. Nor can the Commission square this result with its recent conclusions in an analogous matter. On October 10, 2012, the Commission permitted cable operators to encrypt signals to digital tier customers, thereby requiring acquisition of new hardware. Although this action affected many fewer, and more affluent, customers, the Commission required operators to provide free hardware and a 150 day window for availability of new equipment. Recognizing the special burdens faced by low-income consumers, the Commission took special steps to insure that -19-

30 Medicaid recipients would have five years of access to free equipment. Because of the paucity of evidence in the record, the Commission s failure to consider its experience with the digital television transition and its differential handling of an analogous issue, the Commission s action was arbitrary and capricious, and must be reversed. ARGUMENT Petitioners have set forth why the Commission s reinterpretation of Section 614 is contrary to the plain language and meaning of its text at pages of their brief. This Court need go no further. However, in the event the Court rules otherwise, it should still reverse the Commission because the Commission s determination that Section 614 can be interpreted to allow cable operators to require analog subscribers on hybrid systems to use digital transport adapters ( DTAs ) was also adopted in contravention of the Administrative Procedure Act s notice and comment provisions and is in any event arbitrary and capricious and must be reversed. I. THE COMMISSION VIOLATED THE NOTICE AND COMMENT PROVISION OF THE APA. NHMC concurs with Petitioners (at pages of their brief) that the Commission did not provide adequate notice of its intention to adopt an equipment based alternative. NHMC emphasizes the impact of this failure of notice upon -20-

31 consumers and, in particular, the failure to create a record on the ease and affordability of the measures established by the Commission. 5 U.S.C. 553(c). There is not a word in the February 11, 2012 Notice of Proposed Rulemaking which would have put analog cable subscribers on notice that the Commission intended to require the use of hardware to allow continued use of their analog televisions. Nor did it put over-the-air viewers on notice that stations they view might be adversely impacted. Despite the Commission s experience with the digital television transition, it asked no questions about the difficulties that such customers might encounter in securing and installing DTA s and in reconfiguring their televisions. Notwithstanding the fact that considerable effort had been expended training cable subscribers to believe that no additional hardware would be needed to view television programming after the DTV transition, the Commission did not propose any measures to give notice to these people, much less about whether and how an education and outreach campaign might be conducted. It did not inquire as to the proper length of time for a transition to a new regime. So, too, the Commission did not ask about the ability of these consumers - many of whom are low income, senior citizens and people of color - to pay extra charges for DTAs, and what price would be affordable for these people. Agency notice must describe the range of alternatives being considered with reasonable specificity. Otherwise, interested parties will not know what to -21-

32 comment on, and notice will not lead to better-informed agency decisionmaking. 47 By failing to indicate that it contemplated terminating the viewability requirement, 48 and by not mentioning the possibility that hardware might not be made available for free, the Commission did not permit the robust give-and-take contemplated by the Administrative Procedure Act. [T]hese procedural requirements are intended to assist judicial review as well as to provide fair treatment for persons affected by a rule. To this end there must be an exchange of views, information, and criticism between interested persons and the agency. 49 A critical element of the Commission s decision is its unquestioning reliance on the National Cable & Telecommunication s ( NCTA s ) spare and unexplicated promise, contained in a letter dated May 17, 2012, stating that the largest cable operators would make available to analog-only households, upon request, lowcost set-top devices capable of displaying basic service tier signals on analog television sets Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 507, 549 (D.C. Cir. 1983). See also Fertilizer Institute v. EPA, 935 F.2d 1303, (D.C. Cir. 1991). 48 Parties should not have to divine [the Agency s] unspoken thoughts. Ariz. Pub. Serv. Co. v. EPA, 211 F.3d 1280, 1299 (D.C. Cir. 2000)(quoting Shell Oil Co. v. EPA, 950 F.2d 741, 751 (D.C. Cir. 1991)). 49 Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 (D.C. Cir. 1976)(citations omitted); International Union, United Mine Workers of America, Petitioner v. Mine Safety and Health Administration, 407 F.3d 1250, 1259 (D.C. Cir. 2005). 50 Letter from NCTA to Marlene Dortch, May 17, [JA ] -22-

33 Coming as it did, just five days before the Commission s draft order was circulated to Commissioners for a vote, 51 there was no way for consumer advocates to know about this commitment, much less address its obvious incompleteness, such as: why must hardware be requested rather than offered? would cable operators attempt to sell more complicated, expensive set-top boxes before advising that a cheaper alternative might be requested? what does NCTA mean by low-cost? what consumer education would the cable operators provide? for how long will the offer stand? is the required hardware presently available, and in what quantities? Even had the NCTA promise been made during the comment phase, that would have been insufficient to give the public effective notice. In AFL-CIO v. Donovan, 52 this Court said that [W]e [cannot] properly attribute notice to the other appellants on the basis of an assumption that they would have monitored the submission of comments. Moreover, [a]s a general rule, [an agency] must itself provide notice of a regulatory proposal. Having failed to do so, it cannot bootstrap notice from a comment... Small Refiner Lead Phase-Down Task Force v. United States Environmental Protection Agency, 705 F.2d at 549 (emphasis in original) See n.39, supra. 52 AFL-CIO v. Donovan, 757 F.2d 330, 340 (D.C. Cir. 1985). -23-

34 5 See also Wagner Electric Corp. v. Volpe, 466 F.2d 1013, 1019 (3d Cir. 1972) ( The fact that some knowledgeable manufacturers...responded[] is not relevant. Others possibly not so knowledgeable were interested persons within the meaning of 5 U.S.C ). Perhaps the most egregious element of the Commission s mishandling of this proceeding is the fact that the parties, or at least the broadcast parties, only became aware of the Commission s intentions by means of what appeared to be an unsourced leak in an article in a limited circulation daily newsletter for the in crowd. 53 This enabled the Petitioners in this case (but not public interest groups) to make a belated effort to address the hardware issue. This is not the agency engagement the APA contemplates. 54 Plainly, [a]fter the FCC began to formulate an approach to this important and complex rule, the public was entitled to a new opportunity to comment in which commenters would [] have their first occasion to offer new and different criticisms which the Agency might find 53 See Prometheus Radio Project v. FCC, 652 F.2d 431, 450 (3d. Cir. 2011) (New York Times Op-Ed and press release did not satisfy the APA s notice requirements ). 54 Id., 652 F.3d at 453. See also McLouth Steel Prods. Corp. v. Thomas, 838 F.2d 1317, 1325 (D.C. Cir. 1988) (quoting National Tour Brokers Ass'n v. United States, 591 F.2d 896, 902) (D.C. Cir. 1978). ( 553's requirement of a chance to comment serves two purposes: (1) to allow the agency to benefit from the expertise and input of the parties who file comments with regard to the proposed rule, and (2) to see to it that the agency maintains a flexible and open-minded attitude towards its own rules. -24-

35 convincing. 55 II. THE COMMISSION S ACTION WAS ARBITRARY AND CAPRICIOUS. NHMC agrees with the Petitioners argument (at pages of their brief) that the Commission s determinations about the availability and affordability of DTAs for analog TV set owners are arbitrary and capricious. NHMC calls particular attention to the complete absence of any discussion in the record as to whether and how the public would be educated about the changed requirements, and the sufficiency of the six month transition period adopted by the Commission. In light of the lessons learned with the DTV transition (which required legislating a four month extension), it is wholly irrational to make these conclusions without considering the difficulties of implementing the new regime. Not surprisingly, given the lack of notice, the comments and reply comments filed in the Commission s docket did not address the many questions discussed in the previous section. Lacking support in the record to justify its conclusions about the availability and affordability of DTAs, the Commission relies upon a privately published industry analysis not generally available to the public, 56 and an April 26, 2012 letter from the NCTA which is hardly a model of the precision one would 55 Id. (quoting BASF Wyandotte Corp. v. Costle, 598 F.2d 637, 642 (1st Cir.1979)) 56 Order, 27 FCCRcd at 6540 n.63 (citing to SNL Kagan report). [JA ] -25-

36 expect for a matter affecting the pocketbook of millions of American households: such set-top equipment is readily available to consumers and is, in fact, commonly offered to analog customers at low cost by cable operators. While the precise number and availability of such equipment is difficult to quantify, we note in response to inquiries from Commission staff that some cable operators (serving approximately 2.3 million analog-only customers) are already providing digital transport adapters (DTAs) to some or all of their customers at minimal or no cost. 57 The NCTA s one sentence promise contained in yet another ex parte letter on May 17, was equally vague in stating the largest cable operators would make available to analog-only households, upon request, low-cost set-top devices capable of displaying basic service tier signals on analog television sets. Similarly, the Commission s finding that for a period of time...comcast...typically offers two or three free DTAs to consumers at no cost, and charges less than $2 for additional boxes, 58 does not cite directly to anything Comcast may have said to the Commission in this proceeding. Instead, the Commission cites to two more ex parte letters filed in a different docket (one of which argues that the Communications Act requires that set-top hardware be made available for free), a three year-old privately published report, a four year-old article stating that Comcast plans to make hardware available in the future, and a six-month old article which reports that customers will certainly howl, but Comcast is trying to 57 Letter from NCTA to Marlene Dortch, April 26, [JA ] 58 Order, 27 FCCRcd at [JA ] -26-

37 appease them by offering three free DTAs. 59 Not only did the Commission lack adequate basis for its findings as to affordability, it ignored warnings that requiring the renting or purchase of hardware would impose barriers on the viewers least able to acquire such hardware. 60 It also ignored reminders that an education campaign and adequate transition time would be needed for any rule as it might adopt Order 27 FCCRcd at 6540 n.68 (citing to The Comcast Digital Transport Adapter at All About Digital Adapters at Jeff Baumgartner, Digital Transport Adapters (DTAs), Light Reading (Jul. 15, 2009) at 60 Letter from NBRB, Liberman, Una Vez Mas and Ion to Marlene Dortch, June 9, 2012 at 2 (an equipment-based option will disproportionately affect minority and low-income consumers, who over index as analog-only subscribers ); id. ( If the Viewability Rule is allowed to sunset prematurely... then for a large number of consumers, including the elderly, those who do not speak English, families that cannot afford set-top boxes for incremental television sets or for whom an equipment solution otherwise presents a significant impediment, the analog tier will include only those big media programmers who are able to provide for analog carriage contractually. )[JA ]; See also, Letter from NAB to Marlene Dortch, June 8, 2012 at 2 [JA ]; Letter from NAB to Marlene Dortch, May 22, 2012 at 1[JA ]. 61 Letter from Northwest Broadcasting to Marlene Dortch, June 5, 2012 at 2 ( the vast majority of affected viewers will be unaware of the change and will abruptly lose access to programming they now enjoy if the viewability rule is allowed to sunset. The learning curve for affected customers would be akin to the digital transition, which took three years and hundreds of millions of dollars in education. Six month is simply not enough time. )[JA ]; Letter from Entravision to Marlene Dortch, June 4, 2012 at 2 ( We are all reminded of the digital transition and the extensive efforts the Commission undertook to alert the viewing public that analog television was being terminated. )[JA ]; Letter from Ion and Liberman to -27-

38 Nor can the Commission square this result with its recent conclusions in an analogous matter. On October 10, 2012, the Commission permitted cable operators to encrypt signals provided to digital-tier customers. 62 This means that additional hardware must be employed. 63 Even though the Commission found that the change affects only a handful of consumers, 64 it took a number of steps to protect consumers. Instead of accepting mere promises, it required cable operators to offer affected subscribers equipment necessary to receive the encrypted programming without charge...and to notify subscribers about encryption and the equipment offers. 65 For many consumers, the free equipment must be made available for two years. 66 However, the Commission recognized the special burdens faced by lower-income users, so for existing subscribers who receive Medicaid, the free equipment must Marlene Dortch, June 1, 2012 at 6 ( During the digital transition, the Commission spent years designing and implementing a government subsidized digital-to-analog converter program. )[JA ]. 62 Basic Service Tier Encryption, 27 FCCRcd (2012). By definition, there is no overlap with the customers in this proceeding, which involves hybrid analog/digital systems. 63 See id., 27 FCCRcd at ( they will need to obtain a set-top box or CableCARD ). 64 See id., 27 FCCRcd at 12797, n. 75 (change affects one-tenth of 1 per cent of Cablevision s customers). 65 Id., 27 FCCRcd at Id., 27 FCCRcd at