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
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
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.