WPC& 2B?J ZCourierphoenix#XP\  P6QynXP#HP LaserJet 5SiHPLAS5SI.PRSXj\  P6G;\%MXP3|j w Roman @-  -@#Xj\  P6G;ynXP#2Ke0Times New Romanw Roman"i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDdDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddxHxxHvppDXd<"dxtldpxxdEmphasisEmphasis ynXj\  P6G;XP7nC:,authority lies in 621, for "[i]n 1994, when a number of local authorities ... challenged the  xVFCC's determination that the franchise requirement of 621 did not apply to video dialtone, not  xba single city argued that it had independent authority to require a video dialtone franchise  xRregardless of whether 621 applied." There may have been a number of reasons for various  xcities' decision, and we will not attempt to discern a rule of law from unaffiliated parties'"&0*((&" litigation strategies in another case. the agency states that "[a]fter the 1984 Cable Act added Title VI to the"y0*((aa8"  xCommunications Act, Section 621 became the exclusive source of local franchising authority over  X2 xcable operators," Emphasisid.|aEmphasis, so 653(c)(1)(C)'s directive that 621 "shall not apply" to OVS operators  X2 xexpressly preempts local franchising authority over OVS operators, as 601(c)(1) and EmphasisGregorybEmphasis require.  xWe cannot agree with the Commission's unsupported assertion that local franchising authority  Xz2 xBarises from 621. While the agency cites no support for its position, there are persuasive EmphasisdictadEmphasis  xsupporting the contrary view that 621 merely codified and restricted local governments'  XN2independentlyexisting authority to impose franchise requirements.y|Ny; Xx 2 xԍEmphasisSee National Cable Television Ass'n v. FCC!Emphasis, 33 F.3d 66, 69 (D.C. Cir. 1994) (noting that  Xc 2 xone of the purposes of the 1984 Cable act was to "preserve[] the local franchising system"); EmphasisTime  XN 2 x\Warner Entertainment Co., L.P. v. FCCYEmphasis, 93F.3d 957, 972 (D.C. Cir. 1996) ("[P]rior to the  xpassage of the 1984 Cable Act, and thus, in the absence of federal permission, many franchise  xLagreements provided for [public, educational and governmental access] channels. ... Congress thus merely recognized and endorsed the preexisting practice....").y  x~Moreover, the legislative history of the 1984 Cable Act contradicts the Commission's claim that  xthat Act established 621 as the sole source of franchising authority. According to the House  xReport on H.R. 4103, whose terms were later incorporated into S. 66 to become the 1984 Cable Act,  xPrimarily, cable television has been regulated at the local government level through the franchise  xprocess.... H.R. 4103 establishes a national policy that clarifies the current system of local,  x*state, and Federal regulation of cable television. This policy continues reliance on the local  xfranchising process as the primary means of cable television regulation, while defining and limiting the authority that a franchising authority may exercise through the franchise process.  xH.R. Rep. No. 98934, at 19 (1984). These sources suggest that franchising authority does not  X2 xdepend on or grow out of 621. While 621 may have expressly Emphasisrecognized,mEmphasis the power of  X2 xlocalities to impose franchise requirements, it did not EmphasiscreatemEmphasis that power, and elimination of 621 for OVS operators does not eliminate local franchising authority.  xThe Commission could come to a contrary conclusion only by reading its preemptive authority  X2 x`broadly. But 601(c) precludes a broad reading of preemptive authority, as does EmphasisGregoryoEmphasis, 501  xU.S. at 460 (opining that courts must "assume Congress does not exercise [the power to preempt]  XZ2 xlightly" and must require Congress to state clearly its intent to preempt). EmphasisChevronqEmphasis deference is  xVnot appropriate here, for Congress, in 601(c), already has resolved the issue of preemption of local franchising authority. " 0*((aa"Ԍ xThe FCC also argues that to achieve Congress's deregulatory objectives, it is necessary to  xinterpret the statute to preempt local franchising authority to achieve Congress's deregulatory  x objectives. The provisions of title VI that "shall not apply" to OVS operators do not merely  x~require cable operators to obtain a franchise from a local authority; they also place limits on the  X2 x:conditions and restrictions a local franchising authority may impose. EmphasisSeektEmphasis, Emphasise.g.tEmphasis, 47 U.S.C.  x541(a)(2). The Commission maintains that if 653(c)(1)(C) does not preempt local franchising  xauthority altogether, but instead simply directs that local authorities will no longer be constrained  xto regulate OVS operators as provided in Title VI, localities will be able to impose more onerous  xregulations on OVS operators than on cable operators. This result would conflict with Congress's  xxexpress desire to reduce the regulatory burdens OVS operators face relative to their cable operator  X 2counterparts.Re ; X 2 xԍCongress plainly wanted to lower the regulatory hurdles OVS operators face. The Conference  xPReport explained that Congress was "streamlining the regulatory burdens of [open video] systems"  xBfor a number of reasons, including the need to promote competition and encourage new entrants  XP2 xin the market for video programming delivery. EmphasisSeeEmphasis H. Conf. Rep. No. 104458 (hereinafter  X;2 x"EmphasisConference Report_Emphasis") at 178. In addition, the heading that Congress adopted as part of 653(c) x\"REDUCED REGULATORY BURDENS FOR OPEN VIDEO SYSTEMS"underscores its  X2purpose to subject OVS's to decreased regulation. EmphasisSeeEmphasis 47 U.S.C. 573(c).R  x$While the agency's argument is plausible, it does not affect our holding. The statutory text, read  X 2 xin the light of EmphasisGregory|Emphasis's and 601(c)(1)'s warnings against implied preemption, does not support  xthe Commission's interpretation, and apparent congressional intent as revealed in a conference report does not trump a pellucid statutory directive.  Xf2 B. Limitation of Localities' Compensation Under 653(c)(2)(B)ă  XO2! to a Percentage of the Gross Revenues of the OVS Operator.ă  xZSection 653(c)(2)(B) provides for local franchising authorities to collect fees from OVS operators "in lieu of" franchise fees:  xAn operator of an open video system under this part may be subject to the payment of fees on  xthe gross revenues of the operator for the provision of cable service imposed by a local  xfranchising authority or other governmental entity, in lieu of the franchise fees permitted under  x*section 542 of this title. The rate at which such fees are imposed shall not exceed the rate at  xwhich franchise fees are imposed on any cable operator transmitting video programming in the franchise area ....  x47 U.S.C. 573(c)(2)(B). In the orders on review, the Commission concludes that the fees  xassessed on OVS operators under this provision will be based solely on the gross revenues of the" 0*((aa`"  xoperators, "not includ[ing] revenues collected by unaffiliated video programming providers from  X2 xtheir subscribers or advertisers." EmphasisRulemaking OrderEmphasis  220. In other words, localities can charge  xOVS operators a percentage of the operators' revenue but not a percentage of their unaffiliated programmers' revenue.  xThe Cities argue that the Commission erred in calculating the fees chargeable to OVS operators.  xThey assert that (1) the statute does not preclude a franchise authority from levying charges on  x.persons, unaffiliated with the OVS operator, who provide video programming on the OVS; and  x>(2) the statute does not say that the franchise authority may not impose additional charges on  xOVS operators beyond the "in lieu of" fees authorized by 653(c)(2)(B). Limiting an OVS  xoperator's fees to a percentage of its gross revenue would result in OVS operators' paying less  xVthan cable operators, who do not have extensive obligations to make their channels available to  xVunaffiliated programmers and thus collect for themselves most of the revenue generated by their  xBcable systems. This result, the Cities contend, is contrary to Congress's desire, expressed in the  X 2legislative history, to maintain "parity" between cable operators and OVS operators. ; X92 xԍEmphasisSee Conference Report!Emphasis at 178 (describing the feeinlieu provisions as "another effort to ensure parity among video providers").  xjWe affirm the rule limiting the fees collectible under 653(c)(2)(B) to a percentage of the OVS  xDoperator's gross revenue. The plain language, which merely authorizes "fees on the gross  xrevenues of the operator," forecloses the argument that fees charged under 653(c)(2)(B) may be based on the revenues of unaffiliated video providers.  xThe reference in the legislative history to "parity" between cable operators and their OVS  xVcounterparts is not dispositive. The parity to which Congress referred in the Conference Report  X2 xis a parity of EmphasisratesEmphasis, not actual EmphasisfeeskEmphasis: The statute provides that "[t]he rate at which such fees are  x\imposed shall not exceed the rate at which franchise fees are imposed on any cable operator  xtransmitting video programming in the franchise area...." 47 U.S.C. 653(c)(2)(B). Hence,  xthe narrow rule in the agency orderthat the feeinlieu assessed on OVS operators must be based  x~solely on the gross revenues of the operator and its programming affiliatesis wholly consistent with the statute.  x(Because the Commission neither considered nor resolved the issues of whether local governments  x4could also require unaffiliated programmers to pay fees on their OVS revenues and whether  xjlocalities could levy fees on OVS operators in addition to the feesinlieu, the Cities' arguments  xon these points are premature. The sections of the FCC orders dealing with compensationthe  X2 xnonly compensation rules under review heremerely provide that fees Emphasischarged to an OVS operator  X2 xtunder 653(c)(2)(B)"Emphasis may not be based on unaffiliated programmers' revenues. EmphasisSee Rulemaking  X 2 xOrderEmphasis  220; EmphasisReconsideration OrderEmphasis  11522. The Cities argue that "the statutory provision  xdoes not prohibit the receipt of other compensation from the OVS operator, or limit fees that may  xbe imposed upon persons who use the OVS system to provide service to subscribers." But the"" d0*((aa "  xFCC did not state otherwise in the orders at issue, and the Cities did not raise these arguments  X2in the rulemaking proceedings. Accordingly, we decline to address these claims.}; Xb2 xԍEmphasisSee Time Warner Entertainment Co., L.P. v. FCC!Emphasis, 56 F.3d 151, 201 (D.C. Cir. 1995)  x(precluding party from raising issue on appeal because it "did not raise the issue before the Commission in the first instance").}  X2 C. The Commission's Failure To Authorize Local Governments  X2 To Require OVS Operators To Provide Institutional Networks.ă  XH2 xThe Commission's rules require an OVS operator to provide capacity on an institutional network% HM; XF 2 xԍAn institutional network is "a communication network which is constructed or operated by  x.the cable operator and which is generally available only to subscribers who are not residential subscribers." 47 U.S.C. 531(f).%  X12 xVonly if the operator has voluntarily elected to build such a network. EmphasisSeeEmphasis 47 C.F.R. 76.1505(e)  xp(1997). If the OVS operator has not elected to build an institutional network, the rules do not  X 2 xgive local governments authority to require construction of such a network. EmphasisId.Emphasis NATOA contends  xthat the agency acted contrary to the statute in failing to authorize local governments to demand  xthat OVS operators provide institutional networks. This argument rests on a misreading of the statute.  xNATOA's fourstep statutory argument proceeds as follows: (1)Section 653(c)(1)(B) states that  x611 shall apply to OVS operators. 47 U.S.C. 573(c)(1)(B). (2) Section653(c)(2) then  x.provides that the obligations on OVS operators under 611 shall be "no greater or lesser" than  xthey are for cable operators. 47U.S.C. 573(c)(2). (3) Section 611 permits localities to require  x$cable operators to provide institutional networks. 47U.S.C. 531(b). (4) Hence, 611, which  xapplies jotforjot to OVS operators, must permit localities to require OVS operators to provide  xLinstitutional networks. The problem with this argument lies in step three: Contrary to NATOA's  xassertion,  611 does not permit localities to require cable operators to build institutional  xnetworks but instead, by its terms, merely states that "[a] franchising authority  xmay...require...that ... channel capacity on institutional networks be designated for  xeducational or governmental use ...." 47 U.S.C. 531(b). In other words, localities may require  xthat cable operators devote space on their existing institutional networks, if there are any such  xnetworks, to educational or governmental use, but the statute does not authorize local  Xi2governments to EmphasisrequirekEmphasis the construction of institutional networks.  xSection 621(b)(3)(D) also indicates that NATOA is in error in reading 611 as empowering localities to require such construction. That section states: "  0*((aa"Ԍ x.Except as otherwise permitted by sections 611 and 612 of this title, a franchising authority may  X2 xtnot require a cable operator to provide any telecommunications service or facilities, Emphasisother than  X2 x.institutional networksťEmphasis, as a condition of the initial grant of a franchise, a franchise renewal, or a transfer of a franchise.  x.47 U.S.C. 541(b)(3)(D) (emphasis added). If 611 authorized localities to require provision  x2of institutional networks, the words "other than institutional networks" would be surplusage. Thus,  xthe plain language of 611(b), buttressed by the implicit interpretation 621(b)(3)(D) provides,  x>supports the Commission's conclusion that 611(b) does not authorize local governments to  X 2require the construction of institutional networks.  ; X 2 xԍThe FCC and Intervenors RCN and Bell Atlantic argue that 621(b)(3)(D)not 611(b)is  xthe source of local franchising authorities' power to order cable operators to provide institutional  xnetworks. NATOA responds convincingly by noting that the 1996 Act added 621(b)(3)(D) and  xthat the obligation to provide institutional networks predated the 1996 Act. Obviously, then, the obligation could not stem from 621(b)(3)(D).  x This observation, however, does not disturb the conclusion that 611(b) does not authorize  xjlocalities to order provision of institutional networks. That conclusion follows from (1) the fact  xDthat the plain language of 611(b) does not give localities authority to order institutional  x.networks, and (2) Congress's implied assertion, in 621(b)(3)(D), that 611(b) does not grant  xsuch authority. We do not have to decide that 621(b)(3)(D) is the source of localities' authority  xto order institutional networks to conclude that 611(b) is not the source of such authority.  x`NATOA has cited no case or agency decision interpreting 611(b) to permit localities to order institutional networks, and the plain language of 611 does not provide such authority.  X 2D. Permitting Entities Other than LEC's To Become OVS Operators.ă The first two sentences of 653(a)(1) of the Act state:  xA local exchange carrier may provide cable service to its cable service subscribers in its telephone  x service area through an open video system that complies with this section. To the extent permitted  x&by such regulations as the Commission may prescribe consistent with the public interest,  xconvenience, and necessity, an operator of a cable system or any other person may provide video programming through an open video system that complies with this section.  x47 U.S.C. 573(a)(1). The orders under review permit nonLEC cable operators who face "effective competition" to provide cable service as OVS operators. " 7 0*((aa"Ԍ xNATOA argues that the FCC erred in allowing nonLEC's to provide OVS service, for Congress  xexpressly permitted only LEC's to do so. NATOA points out that the first sentence of 653(a)(1)  xVsays LEC's may provide "cable service" through an OVS, and the second sentence merely gives  X2 xRthe FCC authority to permit cable operators to provide "video programming." EmphasisSee %Emphasis47 U.S.C.  xt573(a)(1). NATOA notes that not only do these terms have different common meaningscable  xservice refers to the physical connections, while video programming means television showsbut they are also defined differently in the statute.  xSection 602(6) defines "cable service" as "(A) the oneway transmission to subscribers of (i)  xvideo programming, or (ii)other programming service, and (B)subscriber interaction, if any,  x which is required for the selection or use of such video programming or other programming  xservice." 47 U.S.C. 522(6). Section 602(20) states that "the term 'video programming' means  xBprogramming provided by, or generally considered comparable to programming provided by, a  xtelevision broadcast station." 47U.S.C. 522(20). NATOA insists that the fact that Congress  xused two different terms that it had defined differently elsewhere in the statute means that it  xintended the two sentences of 653(a)(1) to authorize two distinct services: LEC's may provide cable service; cable operators may only provide television shows on others' OVS systems.  xThe fact that the first sentence of 653(a)(1) expressly authorizes LEC's to provide OVS service,  xhowever, does not bar the FCC from permitting other entities to provide it, for the FCC has  xancillary authority under 4(i) of the Communications Act to permit nonLEC's to be certified  xas OVS operators. Section 4(i) gives the Commission authority to "perform any and all such acts,  xmake such rules and regulations, and issue such orders, not inconsistent with [the Act], as may  xDbe necessary in the execution of its functions." 47 U.S.C. 154(i). Even before Congress  X2 xtexpressly authorized EmphasisanyEmphasis federal regulation of cable television, both the Supreme Court and this  xcourt had acknowledged the Commission's ancillary authority to regulate cable service under  X2 x4(I). EmphasisSee United States v. Southwestern Cable Co.׽Emphasis, 392U.S. 157, 17178 (1968);Emphasis General Tel.  X2 xCo. v. FCCEmphasis, 449 F.2d 846, 85354 (5th Cir. 1971). If the FCC had ancillary authority to adopt  xan entire regulatory regime for cable television, it surely has ancillary authority to extend to non xLEC's the permission to operate OVS's. NATOA contends that 4(i) does not apply, because  xthe FCC's actions are inconsistent with the Act. NATOA fails, however, to point out the  xjinconsistency. Citing no statutory provision that supports its view, it states that "Congress never intended to allow nonLEC's to be OVS operators."  xzThe language in 653(a)(1) is not inconsistent with the agency's interpretation. Sentence one  xjsays LEC's may provide cable service, and sentence two merely states that cable operators may  xprovide video programming according to rules the FCC prescribes. Permitting cable operators also  xto provide cable service according to rules the Commission prescribes is in no way inconsistent  xwith the language of either of these sentences. Hence, the Commission did not exceed its authority in adopting regulations permitting nonLEC's to be certified as OVS operators.  XB&2jxV. The Cable Companies' Claims.ă "+' 0*((aa$"Ԍ x4In its orders, the Commission generally takes the position that a cable operator may provide  x.neither OVS service nor video programming on an unaffiliated, inregion OVS unless the cable  X2 xoperator faces "effective competition."Y ; XK2 x ԍEmphasisSee Rulemaking Order!Emphasis 23, 25, 26 (stating that cable operator may not provide OVS  X62 xPservice in its cable service area in absence of effective competition); EmphasisReconsideration OrderEEmphasis  51  x(stating that cable operator generally may not obtain programming capacity on an unaffiliated inregion OVS).Y This effectivecompetition requirement applies to LEC's  X2 x8that are also cable operators, Emphasissee Rulemaking OrdertEmphasis 25, as well as to cable operators whose  X2 xcable franchises have terminated, see EmphasisReconsideration Order^Emphasis 27. The rules regarding carriage  xof video programming do, however, allow OVS operators to ignore the general ban on inregion  x~cable operators' providing programming on unaffiliated OVS's. An OVS operator has discretion  Xc2 x2to determine whether it will carry an inregion cable operator's programming. EmphasisSee  XN2Reconsideration OrderLEmphasis52.  xThe NCTA challenges these rules on several grounds. First, it argues that the Commission  xpexceeded its statutory authority in prohibiting LEC's that are also cable operators from being  x*eligible to be OVS operators in the absence of effective competition. Next, it avers that it is  xarbitrary and capricious for the FCC to impose an effective competition requirement on cable  xoperators that seek to provide OVS service in their cable service areas. Third, it contends that  xeven if it is reasonable for the agency to impose the effectivecompetition requirement on current  xcable operators, it is arbitrary and capricious for it to impose the requirement on cable operators  xwhose cable franchises have terminated. Finally, NCTA urges that the Commission's rules  xgenerally prohibiting cable operators from providing video programming on inregion OVS's, but  xgiving the OVS operators the discretion to grant access to cable operators, violate provisions of the Act prohibiting discrimination by OVS operators.  X2A +A. The EffectiveCompetition Requirement for LEC'să  X2That Are Also Cable Operators.ă  x4The Commission contends that its rule prohibiting cable operators who are also LEC's from  xproviding OVS service in the absence of effective competition represents a reasonable  Xm2 xinterpretation of ambiguous statutory language and thus deserves EmphasisChevronrEmphasis deference. Because we  xbelieve the Commission has ignored plain text and has attempted to manufacture an ambiguity  xin order to obtain an increased level of judicial deference, we invalidate the rule imposing an effective competition requirement on LEC's who are also cable operators.  xThe Commission argues that the first two sentences of 653(a)(1) leave an ambiguous "gap." The  xfirst sentence states, "A local exchange carrier may provide cable service to its cable service  xBsubscribers in its telephone area through an open video system that complies with this section."" 8 0*((aa"  x47 U.S.C. 573(a)(1). The meaning of that language is evident: LEC's in compliance with 653 may provide OVS service.  xThe second sentence then provides, "To the extent permitted by such regulations as the  xCommission may prescribe consistent with the public interest, convenience, and necessity, an  xoperator of a cable system or any other person may provide video programming through an open  Xv2 xvideo system that complies with this section." EmphasisId.Emphasis Again, the language appears untroubling: Cable  xoperators and others may provide video programming, which the FCC has defined to include OVS service, to the extent the agency determines that their doing so is in the public interest.  xThe Commission insists that ambiguity results from the conjunction of these two sentences.  x Sentence one deals with LEC's, sentence two with cable operators; the statute is silent as to  xLEC's who are also cable operators. Hence, the statute is ambiguous, the Commission asserts,  xand in the face of such congressional silence or ambiguity, we should defer to the agency's  xreasonable interpretation that "hybrid" LEC/cable operators should be governed by sentence two and thus are subject to the FCC's public interest standards.  xWe do not accept the Commission's claim that the statute is ambiguous as to "hybrid" LEC/cable  Xd2 xxoperators. The language of sentence one is straightforward: "A local exchange carrier Emphasismay provide  XO2 xcable serviceEmphasis to its cable service subscribers in its telephone area through an open video system  x8that complies with this section." 47 U.S.C. 653(a)(1) (emphasis added). The FCC recognized  xthe unequivocal nature of this provision when it stated, "[T]he first sentence of Section 653(a)(1)  X 2 x(allows LECs, Emphasiswithout qualification,Emphasis to operate open video systems within their telephone service  X2areas ...." EmphasisRulemaking OrderxEmphasis 25.  x|The Commission's assertion that Congress was silent as to "hybrid" LEC's and that the  xCommission thus may treat them not as LEC's under sentence one, but as cable operators under  x*sentence two, is not convincing. The agency claims that Congress was silent on how to treat  xphybrid LEC's because it just never thought about such entities. The Commission explains, "In  xnlight of the crossownership ban, it is hardly surprising that Congress failed specifically to address  xthe conditions under which the hybrid company described by NCTA could operate an open video  xsystem, because no such company existed." But such companies did exist, and Congress did know about them.  xWhile a general telephone companycable crossownership ban existed prior to the Act, for years  xtelephone companies have been able to apply for permission to provide cable service in their  xtelephone service areas pursuant to waivers or the liberal rural telephone company exemption  X!2 x$provided in the statute. EmphasisSeeEmphasis 47 U.S.C. 533(b)(3), Emphasisrepealed by*Emphasis 302(b)(1) of the 1996 Act. In  x`1984, Congress codified the Commission's previously existing cabletelephone company cross xownership ban but eliminated the requirement that rural LEC's apply for exemption from the ban.  xpIt did so out of concern that the FCC had been interpreting the crossownership ban in such a  xvway as "unnecessarily [to] prevent[] some rural telephone companies from offering cable"]% 0*((aa<#"  X2 x<television service in rural areas."\ ; Xy2 x`ԍH.R. Rep. No. 98934, at 5657 (1984) ("It is the intent of Section 613(b) to codify current  xFCC rules concerning the provision of video programming over cable systems by common carriers, except to the extent of making the exemption for rural telephone companies automatic.").\ Apparently, then, although Congress was well aware that there  X2 xare LEC's that are also cable operators, aK; X2 xԍMoreover, two of the primary goals of the Act were to facilitate cable companies' becoming  X2 xLEC's and to permit LEC's to become cable companies. EmphasisSee(Emphasis EmphasisConference Report7)Emphasis at 148 (noting  xthat "meaningful facilitiesbased [local telephone] competition is possible given that cable services  x4are available to more than 95 percent of United States homes" and that "[s]ome of the initial  xforays of cable companies into the field of local telephony therefore hold the promise of  x`providing the sort of local residential competition that has consistently been contemplated"); 47 U.S.C. 571(a)(3) ( 651(a)(3) of the Act) (permitting LEC's to provide cable service). it nonetheless stated "without qualification" that LEC's may provide OVS service.  xCongress also knew how to distinguish among respective groups of LEC's, and the fact that it  xdid not single out cable operatorLEC's for different treatment under sentence one of 653(a)(1)  x`indicates that it intended all LEC's to be treated the same. When Congress wanted to distinguish  xtraditional, "incumbent" LEC's from the new "competitive" LEC's (including cable companies) whose entry the Act facilitated, it did so in plain terms.  xFor instance, Congress established different interconnection obligations for incumbent LEC's  X 2 xversus all LEC's. EmphasisCompareEmphasis 47U.S.C. 251(b) (obligations of all LEC's) EmphasiswithiEmphasis 251(c)  x(additional obligations of incumbent LEC's). The absence of distinction among LEC's in sentence one indicates that Congress intended the provision to cover all LEC's.  xFinally, we reject the agency's reading of 653(a)(1), because it nullifies the first sentence of  xthe provision. The second sentence permits the Commission to apply its public interest criteria xVthe statutory basis for its effectivecompetition requirementto "any other person" as well as to  Xd2 xpcable operators. EmphasisSee /Emphasis47 U.S.C. 573(a)(1). If sentence one is subject to sentence two, as the  XO2 x Commission's reading suggests, then Emphasisevery&Emphasis LEC is covered by the second sentence and may provide video programming only at the Commission's discretion.  xUnder this reading, however, the first sentence is a nullity, because the FCC may always decide,  xon the basis of the public interest, convenience, and necessity, which persons may provide video  xprogramming. The only way to avoid nullifying the first sentence is to recognize that the sentence  xcarves out a groupLEC'swhose right to provide video programming is not subject to the agency's public interest standard.  Xk2 B. The Effective Competition Requirement for Cable Operatorsă  XT2 mWho Seek To Provide OVS Service.ă"Tt 0*((aa"Ԍ  xNCTA challenges the rule that cable operators may not operate OVS's in their cable service areas  xunless they face effective competition, but it does not claim that the plain language of 653  xforecloses the effectivecompetition requirement. Instead, NCTA argues that the Commission has  x exercised its authority in an arbitrary and capricious manner in adopting the effectivecompetition  X2 xrequirement under 653(a)(1)'s public interest standard.; X2 xԍEmphasisSee!8Emphasis 5 U.S.C. 706(2) (requiring reviewing courts to "hold unlawful and set aside agency  xaction, findings, and conclusions found to be ... arbitrary, capricious, an abuse of agency discretion, or otherwise not in accordance with law"). In particular, NCTA argues that the  Xv2 xeffectivecompetition requirement is unnecessary because OVS creates its own competition.#vM; Xt 2 xLԍOVS's create their own competition because each OVS operator must surrender twothirds  xHof the system's carrying capacity to unaffiliated programmers, as long as there is demand for carriage. 47 U.S.C. 573(b)(1)(B).#  xLBecause of the deference accorded agency judgments regarding the public interest, and because  x8the agency considered appropriate arguments and reasonably adopted its conclusion, we affirm the general effective competition requirement.  xJudicial deference to agency judgments is near its zenith where issues of the public interest are  X 2 xinvolved. In EmphasisFCC v. WNCN Listeners Guild Emphasis, 450 U.S. 582, 596 (1980), the Court explained that  xits opinions had "repeatedly emphasized that the Commission's judgment regarding how the  xpublic interest is best served is entitled to substantial judicial deference." Accordingly, the Court held that  x\[t]he Commission's implementation of the publicinterest standard, when based on a rational  xLweighing of competing policies, is not to be set aside by the Court of Appeals, for the weighing  xof policies under the public interest standard is a task that Congress has delegated to the Commission in the first instance.  X2 xId.(; Xr2 xdԍEmphasisSee also American Transfer & Storage Co. v. Interstate Commerce Comm'n!@Emphasis, 719 F.2d 1283,  X]2 xf1300 (5th Cir. 1983) (deferring to ICC's view of how to promote public interest); EmphasisMissouri XH 2KansasTexas R.R. v. United StatesLAEmphasis, 632 F.2d 392, 399400 (5th Cir. 1980).( Given these precedents, we affirm the Commission's policy choice if it considered competing arguments and articulated a reasonable basis for its conclusion. It did both.  xrNCTA presented to the FCC its argument that an effective competition requirement is  X2 x`unnecessary because an OVS creates its own competition, Emphasissee Reconsideration OrderEmphasis  21, but  x the Commission reasonably rejected that argument. The agency concluded, "There is no assurance  xthat any particular system will generate sufficient competition between providers of 'comparable'  xvideo programming services to qualify as a meaningful standin for effective facilitiesbased"RY 0*((aa@"  X2 xcompetition." EmphasisId. Emphasis at  26. This, we believe, represents a fair weighing of policies and a reasonablybased conclusion.  xThe Commission did provide a plausible basis for its effectivecompetition requirement. In  xessence, it determined, on the basis of the text and legislative history of the Act, that Congress  xwanted to exempt OVS operators from much title VI regulation because they would be competing  Xx2 xwith incumbent cable subscribersEmphasis. Emphasis If an entity is not facing competition, it should not get the  xregulatory "break" the OVS provisions provide, especially as its greater market power likely  xmerits increased regulation. Hence, the effectivecompetition requirement works to ensure that  X52 x`the regulatory relief in 653 is properly targeted at new entrants. EmphasisSee Reconsideration Orderq Emphasis   X 225. ; X 2ԍThat part of the order states:  xWe believe that Congress exempted open video system operators from much of Title VI  xregulation because, in the vast majority of cases, they will be competing with incumbent cable  x$operators for subscribers. Our effective competition restriction implements Congress' intent by  xensuring that, where it is the incumbent cable operator itself that seeks to enter the marketplace  xas an open video system operator, there is at least one other multichannel video programming  xprovider competing in the market (or, if the cable operator enters under the "low penetration" test  xfor effective competition, that it does not possess a level of market power that Congress believed requires regulation).  Xn2EmphasisReconsideration Order[Emphasis  25.  xGiven this reasonable argument and the substantial deference courts should afford agencies  X 2 ximplementing public interest standards, Emphasissee WNCN Listeners GuildEmphasis, 450 U.S. at 596, we uphold" P0*((aaT "  X2 xthe effective competition rule.;h; Xy2 xjԍNCTA makes two other arguments that are worth addressing. It asserts that if Congress had  xbeen as focused on fostering competition as the Commission suggests, it would have forbidden  x\OVS operators to start up service in areas where they would be the sole video programming  xproviders. There are two responses to this argument. First, because 96% of homes have cable  xaccess, it was reasonable for Congress not to spend time legislating over the few instances in  X2 x2which an OVS operator who starts up will not face competition. EmphasisSee Reconsideration OrderZEmphasis  26.  xSecond, while competition is ideal and should be pursued to the extent possible, it is certainly  x.in the public interest for OVS operators to enter markets where there is no video programming.  xWhile they would have a monopoly, at least some form of cable service would be available at some price.  xNCTA also argues that the fact that the FCC exempts cable operators from the effective  XP2 xcompetition rule when entry by a competitor is infeasible, EmphasisseeM]Emphasis EmphasisRulemaking Order]Emphasis  24, indicates  xthat the effectivecompetition rule is irrational. Again, the fact that the Commission permits OVS  xservice to exist by itself in a few areas where competition simply could not occur does not mean  xthat it is irrational (or "arbitrary and capricious") to require effective competition when such  X2competition Emphasisis_Emphasis feasible.; While we might have weighed the competing policies differently, we cannot say that the balance the Commission struck is irrational.  X2 %C. Extending the Effective Competition Requirement toă  X2Q Cable Operators Whose Cable Franchises Have Terminated.ă  xNCTA advances two arguments in support of its claim that the Commission acted arbitrarily and  xcapriciously in adopting a rule precluding cable operators who do not face effective competition  xfrom providing OVS service even after their cable franchises have terminated. Although couched  xas a claim that the Commission made an arbitrary and capricious policy choice, the first argument  xXNCTA makes is really a statutory claim. It contends that, as a matter of law, once a cable  xzoperator's franchise has been terminated, it is no longer a "cable operator" under the Act and  X 2 xtherefore should be subject to the same OVS requirements as "any other person."q ; Xg 2 xԍEmphasisSee!`Emphasis 47U.S.C. 573(a)(1) (stating that "an operator of a cable system or any other person  x*may provide video programming" according to the rules the Commission promulgates in the public interest).q In other  X 2 xwords, the rule requiring effective competition for cable operators does not apply to Emphasisexq"Emphasiscable operators.  xWhile NCTA may be correct from a purely formalistic perspective, we do not find this argument  xHconvincing. Under the second sentence of 653(a)(1), the FCC could always regulate video"M}0*((aa"  xzprogramming by former cable operators by using its power to set the terms under which "any  xother person" may provide such programming. For example, it could adopt a rule stating, "Any  xtother person who seeks to provide OVS service must face effective competition if he used to be  x.a franchised cable operator." Such a rule would be identical in substance to the rule the agency has adopted, and we decline to require such extreme formalism.  xNCTA's second argument does attack the soundness of the FCC's policy choice. NCTA contends  xthat a cable operator loses its market power when it gives up its franchise, and it therefore should  x2not be subject to the effectivecompetition requirement. Because a cable operator may not provide  X12 xcable service without a franchise, Emphasissee'Emphasis 47 U.S.C.  541(b)(1), a disenfranchised cable operator is  xvimpotent; it cannot provide any video programming, much less dominate the local market.  x Moreover, even if the company is certified as an OVS operator, it loses much of its market power  X 2 xhbecause it must surrender up to twothirds of its programming capacity. EmphasisSee)Emphasis 47 U.S.C.  x573(b)(1)(B). Hence, NCTA argues, the Commission's decision to impose the effective xcompetition requirement on cable operators who have lost their franchises is arbitrary and capricious.  xBThe Commission offers a plausible response. It contends that a cable company does not lose its  x market power upon losing its franchise, for "[a] cable operator's market power arises from,  xamong other things, the ownership of its transmission network, its customer base, and its carriage  xagreements with various programmers[,] ... factors [that] would survive the termination of an  xoperator's cable franchise and would put any wouldbe competitor at a substantial disadvantage."  xMoreover, the Commission argues, if a cable company could avoid the effectivecompetition rule  xby giving up its franchise, it could just let the franchise expire, then offer OVS service over its  X2 xexisting network. By so doing, it could maintain its monopoly positionL; XU2 xԍOf course, if the cable company gave up its cable franchise, the locality likely would accept  xZbids for a new cable operator. But whatever entity began cable operations would have to construct  xor acquire a networka costly and timeconsuming venture. The former cable operator probably  X2would maintain a monopoly position EmphasisandqEmphasis get the benefits of regulatory relief, for some time.L Emphasisand0Emphasis get the regulatory  xrelief available to OVS operators, who are expected to be new entrants. Given this rational basis  x<for the FCC's policy determination and the deference owed its public interest decisions, we affirm  x$the rule precluding cable operators who do not face effective competition from providing OVS service even after their cable franchises terminate.  X=2 D. Prohibiting Inregion Cable Operators from Obtainingă  X&2 &Capacity on an OVS, While Permitting OVS Operatorsă  X2&oTo Waive This General Prohibition.ă  x~Claiming authority under sentence two of 653(a)(1), 47U.S.C. 573(a)(1), the FCC generally  xLbanned cable operators from providing video programming on unaffiliated OVS systems within"!60*((aa"  X2 xtheir cable service areas.; Xy2 xԍEmphasisSee Reconsideration Order!pEmphasis 51 (providing that "pursuant to the second sentence of Section  x653(a)(1), the public interest, convenience and necessity is served by generally prohibiting a competing, inregion cable operator from obtaining capacity on an open video system"). The Commission also ruled, however, that "a competing, inregion  x(cable operator may access an open video system when the open video system operator determines  X2 x4that it is in its interests to grant access."M; X2ԍEmphasisId.xEmphasis  52. In other words, an OVS operator has discretion to  xdetermine whether it will carry a cable operator's video programming. Because this regulation  x`is contrary to the plain language of 653(b)(1)(A), which requires the Commission to "prohibit  xan operator of an open video system from discriminating among video programming providers  xwith regard to carriage on its open video system," 47 U.S.C. 573(b)(1)(A), we invalidate these  xrules and remand for further consideration. On remand, the agency must forbid discrimination among video programming providers, as 653(b)(1)(A) requires.  xThe agency contends that its two rules (the "general prohibition" and the "discretion to waive the  xLgeneral prohibition") are authorized by the second sentence of 653(a)(1), which provides that  xta cable operator "may provide video programming through an open video system" only "[t]o the  xextent permitted by such regulations as the Commission may prescribe consistent with the public  x<interest, convenience, and necessity." 47 U.S.C. 573(a)(1). The general prohibition is authorized  x2because the Commission has determined that the public interest would best be served by generally  xbanning carriage of a cable operator's programming on an OVS. This is so because "a competing,  x(inregion cable operator should be encouraged to develop and upgrade its own system, rather than  xto occupy capacity on a competitor's system that could be used by another video programming  XK2provider." EmphasisRulemaking Orderc?Emphasis 52.  xThis rule, the Commission argues, does not conflict with 653(b)(1)(A)the provision requiring  x4it to enact regulations to prohibit discrimination by OVS operators against and among video  xprogrammersbecause "[b]y definition, an OVS operator does not discriminate by denying  xXcarriage to one who, pursuant to the Commission's rules, is not eligible 'to provide video  xfprogramming through an open video system.'" In other words, the Commission has adopted a  xblanket rule that inregion cable operators are not eligible to provide programming, and denying  xFcarriage of ineligible cable operators' programming therefore is not discrimination against a video programming provider.  x$This "eligibility" argument does not work as long as OVS operators are permitted to ignore the  xVban and carry cable operators' video programming. If OVS operators may disregard the general prohibition, then the FCC has not really declared cable operators ineligible.  X2 xIf the Commission is declaring cable operators ineligible to the extent OVS operators EmphasiswantDEmphasis them  xto be ineligible, then it is permitting discrimination by OVS operators among video programming  xproviders. Section 653(b)(1)(A) requires the agency not to do that. Alternatively, the Commission" 0*((aa@"  xis impermissibly delegating to the OVS operators its authority to determine "the extent" to which  X2cable operator carriage promotes the public interest.; Xb2 xԍEmphasisSee Carter v. Carter Coal Co.!Emphasis, 298 U.S. 238, 31011 (1936); EmphasisSierra Club v. SiglerEmphasis, 695  xF.2d 957, 963 n. 3 (5th Cir. 1983) (holding that "an agency may not delegate its public duties  X62 xZto private entities"); EmphasisNational Ass'n of Regulatory Utility Comm'rs v. FCCEmphasis, 737 F.2d 1095, 114344 (D.C. Cir. 1984).  xThe FCC argues that there is no impermissible delegation here, as there was in the cases cited,  xbecause those cases involved delegation where a private party had been given regulatory power  xVthat could be exercised to the detriment of other regulated entities or for the improper benefit of  xthe entity receiving the delegation. Here, by contrast, the OVS operator is merely given power  xto invoke an exception and thereby benefit, at its discretion, another regulated entity. The rule  xhas the same effect as would a private party's decision not to seek enforcement of some administrative restriction against a regulated entity.  xThis argument elevates form over substance. Regardless of whether the rule is that OVS operators  X 2 xmay choose to disregard a default rule Emphasisgranting`MEmphasis cable operators carriage rights, or is that they  X 2 x8may elect to disregard one Emphasisdenying7NEmphasis such rights, the fact remains that they are being permitted to  xchoose whether they want to give cable operators access rights. This is a delegation of regulatory  xauthority to impose a cost on another regulated entity and, hence, violates general principles of  xFadministrative law as well as the particular antidiscrimination provisions of 653(b). The FCC's  xformalistic wrangling amounts to a distinction without a difference, and the genesis of the rule  xreveals as much: Not until the cable operators complained about illegal discrimination did the  xCommission switch from a rule allowing OVS operators to ban inregion cable operators' video  x`programming to one permitting OVS operators to exempt such programming from a general ban.  X!2 x EmphasisCompare Rulemaking Order/REmphasis  54 withEmphasis Reconsideration OrderREmphasis  52. Thus, we invalidate the rule  xLpermitting OVS operators selectively to lift the general ban on cable operators providing video programming on OVS systems.  X2?VI. BellSouth's Claim.ă  xThe FCC adopted a new construction notification rule requiring a carrier to obtain FCC approval  Xk2 xLof its certification before constructing new physical plants needed to operate OVS systems. EmphasisSee  XV2 xRulemaking OrderUEmphasis  34. A carrier may not request certification, however, until it can make  x detailed verifications concerning the proposed OVS, including details about ownership, the  x4communities to be served, the analog and digital capacities of the system, and the number of  X2 xchannel ports.8; X$2 xԍEmphasisSee Rulemaking Order!Emphasis Appendix C, Instructions for FCC Form 1275 Open Video System Certification of Compliance.  BellSouth claims this rule is contrary to the statutory language and is arbitrary"0*((aa"  xand capricious. We agree that the rule violates the statute but do not reach BellSouth's claim that the policy choices are arbitrary and capricious.  xjTwo convincing statutory arguments support the view that the Commission erred in adopting the  xlnew construction rule. The first relies on the mandatory language of 653(a)(1), the third  X2 xbsentence of which states, "An operator of an open video system Emphasisshall qualifyvZEmphasis for reduced  xjregulatory burdens under subsection (c) of this section if the operator of such system certifies to  Xa2 xjthe Commission that such carrier complies with the Commission's regulations Emphasisunder subsection  XL2 x(b) of this section[Emphasis and the Commission approves such certification." 47 U.S.C. 573(a)(1)  x(emphasis added). Any new construction rule the Commission promulgates is not a "regulation[]  x under subsection (b)," so, consistently with the statute, failure to follow the rule could not prevent an operator from qualifying for reduced regulatory burdens under subsection (c).  xThe second argument rests on two provisions in the statute in which Congress expressly exempted  x4common carriers who operate OVS's from the preconstruction notice requirement normally  xapplicable to common carriers. First, 651(c) states that "[a] common carrier shall not be  xrequired to obtain a certificate under section 214 of this title with respect to the establishment or  xNoperation of a system for the delivery of video programming." 47 U.S.C. 571(c). It thus exempts common carriers providing video service from the 214 rule that  x[n]o carrier shall undertake the construction of a new line or of an extension of any line ...  xunless and until there shall first have been obtained from the Commission a certificate that the  xpresent or future public convenience and necessity require or will require the construction ... of such additional or extended line .... 47 U.S.C. 214(a).  xSecond, 653(c)(3) states that "with respect to the establishment and operation of open video  xsystems, the requirements of [ 653] shall apply in lieu of, and not in addition to, the  x requirements of title II." 47 U.S.C. 573. Title II includes the 214 preconstruction notice  xrequirement. These two provisions651(c) and 653(c)(3)thus affirmatively prohibit the Commission from adopting a preconstruction notice requirement for OVS operators.  x.The FCC maintains that the certification it requires for OVS operators is not nearly as complex  xor detailed as that required by 214, so the preconstruction notice is not "precisely the same  xrequirement" as that imposed on common carriers under 214. The Commission then argues that,  xlwhile the criticisms set forth above assume that the agency may not adopt a regulation not  X#2 xspecifically prescribed in the Act, Emphasisexpressio uniusxfEmphasis "'has little force in the administrative setting,'  xwhere [courts] defer to an agency's interpretation of a statute unless Congress has 'directly  XY%2 xspoken to the precise question at issue.'" EmphasisMobile Communications Corp.gEmphasis, 77F.3d at 1405 (Emphasisquoting  XD&2Texas Rural Legal AidjhEmphasis, 940 F.2d at 694). "/'0*((aa$"Ԍ X2 xBoth of the Commission's arguments are inadequate. The Emphasisexpressio uniusiEmphasis argument fails because  X2 xjthe reasoning does not rely on the Emphasisexpressio unius[jEmphasis canon. The Act plainly says a cable provider  x"shall qualify" for regulatory relief as an OVS operator if it complies with the FCC's "regulations  xfunder subsection (b)." 47 U.S.C. 573(a)(1). The regulations required by subsection (b) are  xdnarrowly tailored and relate to carriage obligations. The new construction notification requirement  xis not a subsection(b) regulation, and, consistently with the mandatory terms of the statute,  xfailure to comply with the requirement may not preclude a cable service provider from qualifying for regulatory relief under subsection (c).  xtNor do we accept the agency's argument that its new construction rule is less onerous than is the  x$214 requirement and therefore should not be barred by the provisions exempting, from 214,  xcommon carriers who provide video service from 214. The plain language of 214 says "[n]o  xLcarrier shall undertake construction ... unless and until there shall have been obtained from the  xCommission a certificate that the present or future public convenience and necessity require or  xwill require the construction ...." 47U.S.C. 214. Sections 651(c) and 653(c)(3) state that this  xLrule shall not apply to common carriers providing an OVS. The Commission should not be able  xto deny the regulatory relief these sections provide merely by pointing out that there are some  xdifferences between its new preconstruction certification rule and the old one it is expressly forbidden to impose.  X82 xRMoreover, the legislative history supports the view that Congress meant to preclude Emphasisall%rEmphasis pre xZconstruction notification rules for OVS operators. The Conference Report states that Congress was  X 2 xHprohibiting the Commission from "impos[ing] titleIIlike regulation" on OVS operators, Emphasissee  X2 xConference Report}sEmphasis at 178, and explains that "common carries [sic] are not required to obtain  x certificates under section 214 in order to construct facilities to provide video programming  X2 xservices," Emphasissee id.tEmphasis at 175 (summarizing Senate version). Even if it is less burdensome than the  xcertification required under 214, the new construction rule is a titleIIlike regulation that  x<directly contravenes the text and legislative history of  651 and 653. Accordingly, we invalidate  X2the rule.; X2 xԍEmphasisSee Presley v. Etowah County Comm'n!Emphasis, 502 U.S. 491, 50809 (1992) (agency entitled to  X2 xEmphasisChevronEmphasis deference "only if Congress has not expressed its intent with respect to the question, and then only if the administrative interpretation is reasonable").   x Finally, we note that the Commission's rationale for requiring preconstruction certification likely  xdisappears in the wake of this opinion. The Commission ordered preconstruction certification  xbecause of the need to let local authorities know which entities had been granted enforceable  X2 xrights to use local rightsofway. EmphasisSee Rulemaking Order{zEmphasis 34. While the need to provide such  xbinformation may have been a genuine concern if the OVS provisions had preempted local"O0*((aa`"  xfranchising authority, we say in this opinion that localities retain franchising authority over OVS  X2operators. Hence, the rationale for the preconstruction certification rule no longer exists.; Xb2 x^ԍDuring oral argument, counsel for the FCC admitted that the rationale for the pre xconstruction certification rule would disappear were we to hold that localities retain franchising authority over OVS operators.  X2EVII. Conclusion.ă  xjThe petitions for review are GRANTED, so we may interpret the subject rules in such a way as  x4to be consistent with the text of the Act and the principles of agency deference articulated in  XH2 xEmphasisChevron~Emphasis, resulting in a regulatory regime for OVS's that preserves local authority and permits  x.widespread entry into this video programming medium. In summary, on the issues raised by the  xCities, we reverse, on statutory grounds, the Commission's preemption of local franchising  xauthority. We affirm the rules permitting nonLEC's to become OVS operators, the Commission's  xformula for determining the "fee in lieu of" a franchise fee, and its refusal to authorize local  xgovernments to demand provision of institutional networks. As for the claims raised by NCTA  xzon behalf of cable operators, we hold that the Commission exceeded its statutory authority in  x imposing an effectivecompetition requirement on LEC's that also are cable operators. We affirm,  x however, the rules prohibiting nonLEC cable operators, even those whose franchises have  xexpired, from providing OVS service in the absence of effective competition. We invalidate and  xremand the rules generally prohibiting inregion cable operators from providing video  xprogramming, but giving OVS operators discretion to lift this ban. Finally, we invalidate the pre xconstruction certification requirement, which violates the text of 653 and is no longer justified, given our conclusion that localities retain franchising authority over OVS operators. This matter is REMANDED for further proceedings consistent with this opinion.