Construction of a cable television system to serve 181,000 households in South-Central Los Angeles may be delayed indefinitely as a result of a sweeping federal court decision that challenged the way the city grants cable television franchises.
In an opinion issued last week, a three-judge appellate court said the city's practice of awarding a cable franchise to only one company violates the First Amendment rights of other companies wishing to offer similar services.
Cable industry leaders believe that the case, which grew out of a dispute between rival South-Central cable companies, could set a constitutional precedent that will lead to more cable competition, less regulation and better customer service across the nation.
The decision's immediate effect, however, will be to further delay cable TV in the largely black South-Central community, one of three city franchise areas still without cable service.
"Right now, there is a legal cloud over this cable television franchise," said Bill Schainker, president of ACCESS-Sun Cable, the firm that was awarded the South-Central cable license by the City Council two years ago.
Schainker said his firm is reluctant to begin building the $48-million system as long as the possibility exists that another company might win a second franchise and compete for customers.
Assuming that Los Angeles appeals the decision by the U.S. 9th Circuit Court of Appeals, it could be three to four years before the case is settled, he said, adding:
"If you ask me when cable construction will come to South-Central, the answer is I honestly don't know. This case affects our ability to get financing. It puts us at an impasse."
The issue surfaced two years ago, when Preferred Communications Inc., a Los Angeles cable TV firm, asked the city for a license to serve the South-Central area.
City officials denied the request, saying the firm had not submitted a franchise proposal in keeping with Los Angeles' cable TV rules. They added that the council had already awarded the franchise to ACCESS, a company owned in part by the Kaufman and Broad development firm.
Under the city's regulations, cable applicants must post a $60,000 bond and provide detailed information regarding their proposed services and financing. The council reviews the competing proposals and eventually selects one company to serve a franchise area.
Preferred Communications subsequently filed a lawsuit, claiming that the city's awarding of the franchise to only one applicant--a practice followed by virtually all other municipalities--violated its right to free speech under the First Amendment.
'Had No Right'
Harold Farrow, the Oakland attorney who filed the lawsuit, said the city "had no right to restrict the comment and free speech of this company, or any other media voice. If a city can't tell a newspaper when or what to publish, the same is true of cable television."
The lawsuit also contended that Los Angeles' denial of a franchise violated antitrust laws and had unfairly restricted cable television competition.
A federal district court dismissed those claims last year, but last week the Court of Appeals reversed the decision on the First Amendment issue.
The panel sent the case back to the lower court for trial, agreeing with Farrow that cable television companies are similar to newspapers and can be subjected to only limited regulation.
Where does this leave cable television in South-Central Los Angeles?
In one sense, the community is back to square one. Three years ago, the City Council threw out two competing cable TV proposals for the area, finding that both applicants lacked proper financing.
"We're just going around in circles here; there's been no progress at all," complained Clinton Galloway, vice president of Preferred Communications.
Galloway, who headed one of the cable firms that was disqualified earlier, said his new company insists on the right to compete for a share of the cable market.
Financial Beating Feared
Meanwhile, Schainker said he believes that his company will take a financial beating if it begins building the franchise and the city later awards a license to Galloway's firm.
He said ACCESS could not make a reasonable profit if it is forced to compete with another company after spending millions of dollars to construct a cable system.
Councilwoman Joan Milke Flores, who chairs the council's cable oversight committee, believes, however, that ACCESS should begin building now because Los Angeles "was not technically ordered to do anything" by the federal court.
Flores said the city's franchising process is intact and expressed confidence that Los Angeles would overturn the decision with an appeal to the Supreme Court. The council is expected to decide on its next legal move within 90 days, she added.
"Los Angeles allowed the ACCESS people to delay construction of their system while the cable lawsuit was pending . . . at least until some kind of definitive court ruling came down," said Flores, who represents part of the cable franchise area.
"The truth is, if ACCESS does not want to go ahead until there is something more favorable (from the court), perhaps we should either re-bid the franchise or talk about other bidders. Perhaps the legal cloud is not real but manufactured."
Flores said there is an outside chance that the court case could also have an effect on cable television in the East San Fernando Valley and Boyle Heights, two other areas in which franchises have been awarded but construction has yet to begin.
If the Supreme Court eventually rules against the city and sweeps aside its franchising law, she said, there is a possibility that rival operators may decide to construct cable systems in those communities.
Flores said she doubts whether the case will affect customers served by CommuniCom, a cable firm that operates a 298,000-home franchise extending from the Civic Center area through mid-Wilshire to Venice.
The company has been criticized by city officials for poor customer service, including missed installation appointments and substandard television reception. CommuniCom declared bankruptcy earlier this year, although it continues to provide cable service to customers.
"Even with (CommuniCom's) problems, we know that cable operators are reluctant to compete with a company that essentially has built its cable system," Flores said.
Beyond Los Angeles, the court decision has sparked a debate over the changing relationship between American cities and cable companies.
James Mooney, president of the National Cable Television Assn. in Washington, said the court's ruling continues a trend away from municipal regulation of cable TV firms.
'Even More Autonomy'
Last year, he noted, Congress approved legislation that significantly weakened local control over cable TV. Under the law, cities will no longer be able to regulate the rates charged by cable operators.
"This court case could pave the way for even more autonomy for cable television," Mooney said. "We're getting cities out of the picture and letting cable television firms compete for customers like any other business."
Howard Gan, a Washington-based cable consultant who has advised Los Angeles and other cities, said, however, that unregulated competition poses the danger that some cable firms might choose to offer services only in affluent neighborhoods.
"This is a crucial issue for cities," he said. "There is a compelling interest in having cable available to all segments of the population, and if you sweep away all local power, you may run the risk of that happening."
Gan and industry leaders agree that cable operators are unlikely to compete head-to-head in established markets. They said the real changes that might reflect from the court case involve cable television programming.
Programs May Change
If the Supreme Court affirms cable operators' First Amendment rights, for example, it would conceivably free the industry from programming requirements that have been imposed by local governments, said Spencer Kaitz, president of the California Cable Television Assn.
Cable firms in Los Angeles and elsewhere are required to reserve a number of channels for public access programming. These shows, produced by viewers, are intended to promote more public use of the airwaves and are often subsidized by cable companies.
"The beauty of this decision is that it could lead to a situation where a city council can no longer determine which companies offer services, as well as the services they must offer," Kaitz said.
"That, more than anything, is the kind of future we're banking on."