Breaking News

Federal Court Dismisses AT&T's Claims That Federal Law Prohibits Municipal Video Franchises For IP-Based Video Services

April 14, 2006

The United States District Court for the Northern District of California has dismissed claims by AT&T that federal law prohibits local franchising authorities from requiring that providers of Internet Protocol ("IP")-based video service obtain franchises as a prerequisite for offering such service. In Pacific Bell Telephone Company, d/b/a AT&T California v. the City of Walnut Creek and the City Council of Walnut Creek, No. C-05-4723 MMC (N.D.Cal. 2006), the court concluded that it did not have to reach AT&T's contention that its IP-based video service was not covered by the franchise requirement in Section 621 of the Communications Act because local governments have independent authority to require that a non-cable system provider of video services obtain a franchise. Moreover, the court found that a local video franchise requirement does not prohibit or have the effect of prohibiting a telecommunications carrier's provision of telecommunications services in violation of Section 253 of the Communications Act.

In June 2005, AT&T obtained a permit from the City of Walnut Creek, California to perform upgrades to its network to enable it to provide new services, including IP-based video services. The City had granted the permit with the condition that AT&T agree not to provide video programming over its facilities to subscribers within the City without first obtaining a cable or open video system franchise from the City.

AT&T filed suit asserting that the franchise condition violated various aspects of federal and state law. Among its federal claims, AT&T alleged that the franchise condition: 1) was preempted by Section 621, which applies only to cable operators providing cable service (AT&T alleged it is neither a cable operator nor a provider of cable service under federal definitions); 2) was preempted by Section 253, which invalidates state and local regulations which prevent any entity from providing interstate or intrastate telecommunications services; and 3) abridged its rights under the First Amendment, Due Process, and Contracts Clauses of the United States Constitution. In its state law claims, AT&T contended, among other things, that: 1) its authorization from the California Public Utilities Commission to access the public rights of way for the purpose of installing and operating telephone lines also permitted it to provide ally form of electronic communication service over its network, including video services, without obtaining all additional franchise from municipalities; and 2) the state law requirement for a city or county cable franchise to construct or operate a cable system did not apply to AT&T's provision of video service over its telephone lines.

The court dismissed AT&T's claim that Section 621 preempts the City from requiring a franchise for AT&T's IP-video service offering. While AT&T acknowledged that Section 621 prohibits cable operators from providing cable service without a franchise, it argued that IP video service is not a cable service within the meaning of Section 621 because it is a two-way transmission and that AT&T therefore is not a "cable operator" for purposes of Section 621. The City responded that IP-video is indeed a cable service under the federal definition, but that even if it is not, the Act does not prohibit the City from regulating non-cable video services. In its decision, the court did not reach a conclusion as to whether AT&T is a cable operator, or whether its IP-video service is a cable service as contemplated by Section 621. Instead, the Court found that even if Section 621 does not require AT&T to obtain a cable franchise, it does not preclude the City from imposing such a requirement, and dismissed AT&T's Section 621 claim with prejudice.

With respect to AT&T's Section 253 claim, the court found that AT&T failed to show how the franchise condition imposed by the City prohibited or would have the effect of prohibiting its provision of telecommunications service. AT&T had conceded that its IP-video service was not a telecommunications service, but nonetheless alleged that its service would be so integrated with existing telecommunications services provided on the same network that the condition would effectively prohibit provision of those other services. The court, however, concluded that the franchise condition applied only to the future provision of video services, and dismissed the claim without prejudice.

The Court also dismissed AT&T's First Amendment claim because AT&T failed to demonstrate that there were no circumstances under which the franchise condition would be valid, a requirement under First Amendment jurisprudence where a plaintiff asserts a facial First Amendment challenge to a government act. The Court abstained from considering AT&T's other constitutional claims, finding that the federal issues might be mooted or presented in a different posture by resolution of the state law claims in state court proceedings. In a similar vein, the court declined to rule on or assert supplemental jurisdiction over AT&T's state law claims because they presented novel or complex issues of state law that it felt should be resolved in the first instance by a state court.

Please let us know if you would like a copy of the decision. We would be pleased to respond to any questions regarding these matters.

Other News