Text Version

July 16, 1997



Re: California Payphone Association Petition for Preemption of Ordinance No. 576 NS of the City of Huntington Park, California Pursuant to Section 253(d) of the Communications Act of 1934.

I respectfully dissent from the Commission's decision today to deny petitioners' request to preempt the City of Huntington Park's Ordinance banning outdoor payphones on private property within its central business district.

At the outset, I do not question a state's or local government's legitimate right to exercise its police power to establish reasonable zoning requirements restricting the placement of payphones for public safety purposes. I believe, however, that the record before us demonstrates that the City's Ordinance, considered in conjunction with the City's overall program regulating payphones, has the effect of banning competitive offerings of outdoor public payphone service in Huntington Park's downtown district. In my view, the Ordinance violates Section 253(a) and (b),(1) as well as the twin statutory goals set forth in Section 276 of promoting competition among payphone service providers and the widespread deployment of payphone services.(2)

I agree with my colleagues that, on its face, the Ordinance is competitively neutral in that it effectively bans, in the downtown area, the provision of all payphone service on outdoor private property and within ten feet of any entrance to a building. As the majority acknowledges, however, the more difficult question is whether the Ordinance "has the effect of prohibiting" the ability of any entity to provide payphone service on both public and private property in the downtown area. Today's decision finds the record inadequate as to evidence demonstrating that competitors are essentially barred from entering the downtown outdoor payphone market in the City of Huntington Park. I disagree with my colleagues on this point.

In denying the petitioner's claims that the Ordinance in effect cordons off the City's downtown outdoor payphone market to new entrants, the majority focuses on the following: (i) competitive entry for outdoor payphones on public property is permitted under the terms of an existing contract between the City and its sole provider of outdoor payphones; and (ii) the record fails to indicate any affirmative attempt or action by a competitor to contract with the City to provide payphones on public property outdoors.(3)

In my view, the majority's analysis is too narrowly focused. I believe that our inquiry into the practical competitive effects of the Ordinance should not end because of the mere existence of contractual language which on its face appears to permit competitive entry. One cannot measure the competitive effect of an Ordinance on a dynamic marketplace looking only at the static language of a single contract between the City and a payphone provider. It would be preferable for the Commission to consider whether, under actual marketplace conditions, the City's Ordinance effectively is prohibiting payphone competition. In doing so, we should assess the Ordinance in the full context of both the City's overall actions and omissions in attempting to implement a payphone regulatory program, and the marketplace conditions that entrepreneurs currently face when seeking to provide competitive payphone services in downtown Huntington Park.

If we did this assessment, we would find that the City's program in fact is impairing payphone competition. Today's decision states that, before adoption of the Ordinance, payphone service providers could place a payphone in Huntington Park: "(1) indoors on private property (by contracting with the property owner); (2) outdoors on the public rights-of-way (by contracting with the City); and (3) outdoors on private property (by contracting with the property owner)."(4) The majority finds that the Ordinance does not violate section 253(a) because it eliminates the third category of locations for all providers, but does not, on its face, restrict the first two for any provider. I believe, however, that the record in this case raises questions about the majority's fundamental assumption that three separate relevant payphone markets exist within the City's downtown area. As the petitioners note, the relevant market for measuring the effects of the City's Ordinance on competitive entry should not be limited to the City's sidewalks nor to private premises, but rather should include the entire downtown business district -- both public and private property -- on which payphone services may be provided.

If viewed from the perspective of the relevant market being the entire downtown business district, our analysis would likely lead to a contrary result than that reached today. The record reflects that the City, under its police power authority, initiated the first step of its payphone regulatory program in October 1994, by signing a five year contract with one telecommunications provider to install and retain public telephones in the City's outdoor public rights of way. In December 1994, the City, under its authority to abate public nuisances, embarked on the second step of its program by ordering the removal of 70 to 80 outdoor non-permitted sidewalk pay telephones on public property belonging to private payphone service providers. Finally, in June 1996, the City enacted the Ordinance requiring the removal of all pay telephones located in the City's downtown business district on private property either outdoors or within ten feet of any outside doorway.

The record thus demonstrates that before adoption of the Ordinance, the City contracted with only one payphone service provider for all of the outdoor payphones on public property. The City then used its power to abate public nuisances to eliminate all competing public telephones on public property outdoors. Next, the City adopted its Ordinance requiring the removal of all pay telephones located on private property within the downtown business district. In my view, the Ordinance -- by effectively banning competing payphones on private property -- along with the other two regulatory measures taken by the City, impermissibly allows the City to exercise monopoly power over the payphone services market in the downtown business district.

The majority disagrees, and contends that, as a legal matter, potential competition for the provision of outdoor payphones on public sidewalks is unobstructed because contractual language exists which allows the City to contract with providers other than the incumbent provider. Today's decision also points out that petitioners failed to produce any factual evidence demonstrating that the City had ever rebuffed a "concrete contract proposal" from a competing payphone service provider to install outdoor payphones on public property.

Looking beyond the four corners of the contract, I believe the record contains ample evidence of the City's intent to contract with only one provider. For example, several staff memoranda regarding payphones forwarded to the Mayor and City Council of Huntington Park, before the City payphone contract was signed, contained recommendations advocating that the City should contract with only one payphone service provider.(5) Unrefuted evidence in the record indicates that, in seeking the provision of payphone service for its "pilot program," the City neither engaged in a "Request for Proposal Process" nor sought to solicit any bids from private payphone providers before signing the payphone contract.(6)

The record also provides some insight as to why petitioners did not submit a "concrete contract proposal" from the City. According to a signed and unrefuted declaration from a corporate officer of a private payphone provider, a City official had informally told the payphone company that it was free to submit a proposal to the City, "but that the City sees no need to add more sidewalk phones at present or in the foreseeable future."(7) The record further indicates that the incumbent payphone provider nearly doubled its commission payments to the City after signing the contract to provide payphone service on city sidewalks.(8)

In my view, the weight of the evidence supports the petitioners' contention that the City's Ordinance, viewed in conjunction with its payphone regulatory program, is designed to ensure that payphone services provided in the outdoor downtown area of Huntington Park are the exclusive domain of the City's hand-picked provider. It is no coincidence that the chosen provider is one who has doubled its commission payments to the city coffers in exchange for the privilege of a de facto monopoly, despite Section 276's mandate that the payphone market be procompetitive in the future. Thus, I would have found that the City's payphone program shortchanges payphone users, because it effectively bans competition for outdoor payphone service in the City's downtown district.

I also cannot join the portion of the majority's decision that finds the record insufficient as to whether the Ordinance frustrates competition because, as petitioners contend, it limits competitive payphone providers to the offering of services only inside downtown commercial buildings. In my view, common sense tells us that such an overly narrow restriction will result in competitors not entering the market, because as a practical matter, offering payphones only well inside downtown buildings is not likely to be a commercially viable opportunity.(9) A limit to only indoor payphone sites will significantly reduce the number of calls placed, and therefore, the revenue potential of the payphone.

Today's decision, however, rejects this sensible conclusion on the basis that petitioners failed to submit extremely-detailed economic analyses that would include "actual revenue potentials and break-even levels for indoor payphones" demonstrating that these type of payphones are impractical and uneconomic. In my view, petitioners have met their evidentiary burden and the additional data which the Commission seeks is unnecessary, overly burdensome, and runs contrary to our general procompetitive, deregulatory charge under the 1996 Act. In my opinion, the City's requirement limiting the placement of competitive payphones in the downtown area to indoor private property not only has a negative effect on competition, but also frustrates Section 276's mandate to encourage the "widespread deployment of payphone services."

Since today's decision finds no violation of Section 253(a), it does not reach the issue of the applicability of Section 253(b), which permits a State to supersede Section 253(a) if it imposes "on a competitively neutral basis and consistent with Section 254, requirements necessary to . . . protect the public safety and welfare." In the matter at hand, petitioners seek federal preemption of a local Ordinance that the City of Huntington Park contends was enacted to prevent criminal activity in the Central Business District. I address the applicability of Section 253(b), because I think we should have found that the Ordinance violates Section 253(a).

As I stated above, I do not question a state or local government's legitimate right to exercise its police power to set reasonable zoning requirements restricting the placement of payphones for public safety purposes. The City has the power to take reasonable measures to protect its citizens from criminal activity. Yet, it would be preferable if the City exercises that authority in a way that promotes its public safety goals, while doing so in a competitively neutral fashion as to telecommunications competitors. I am quite troubled by the fact that nowhere in the record does the City provide a rationale as to why it chose to ban all competing payphones on outdoor private property rather than mandate, in a competitively neutral fashion, that all outdoor payphones should have the same anti-crime features and functions required under its contract for all nearby payphones on public property. Further, I see no evidence on the record from the City that would explain why a payphone on outdoor private property poses a greater threat to public safety and welfare thus necessitating a complete ban, whereas a payphone across the street provided on public property would not pose that same threat. If the City does need to restrict the placement of payphones for public safety purposes, it ought to do so in a way that is fair and does not pose an arbitrary entry barrier to competitive payphone providers.

I agree with the petitioners that Section 253(b) does not permit the City to protect its proprietary interest in the provision of sidewalk payphones by applying different regulations to competitors on private property. Thus, I would have preempted the ordinance.

1. 1 47 U.S.C. Section 253(a), (b).

2. 2 47 U.S.C. Section 276 (b)(1).

3. 3 See paras. 34-35.

4. 4 See para. 28.

5. 5 Memorandum, dated November 13, 1993, from Jack L. Wong, Director of Community Development, to Mayor Loya and Members of the City Council (attached to CPA's Petition at Exhibit 1); Memorandum, dated September 19, 1994, from Jack L. Wong, Director of Community Development, to Mayor Loya and Members of the City Council (attached to CPA's Petition at Exhibit 3).

6. 6 XyCom Reply Comments at 1.

7. 7 Ex Parte Letter dated April, 4, 1997, from Martin A. Mattes, Attorney for California Payphone Association, to William F. Caton, Acting Secretary, FCC, at Exhibit B.

8. 8 See California Payphone Association Petition, Exhibit 3 at 1.

9. 9 Again, the relevant market at issue here is the entire downtown area.