Case: 10-51113   Document: 00511724657     Page: 1   Date Filed: 01/13/2012




          IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                   Fifth Circuit

                                                                   FILED
                                                                January 13, 2012
                                  No. 10-51113
                                                                  Lyle W. Cayce
                                                                       Clerk
TIME WARNER CABLE INC.; TEXAS CABLE ASSOCIATION,

                                            Plaintiffs - Appellants,

v.

PAUL HUDSON, in His Official Capacity as Chairman of the Public Utility
Commission of Texas; JULIE PARSLEY, in Her Official Capacity as
Commissioner of the Public Utility Commission of Texas; BARRY
SMITHERMAN, in His Official Capacity as Commissioner of the Public Utility
Commission of Texas,

                                              Defendants - Appellees,

TCCFUI, Texas Coalition of Cities for Utility Issues; GTE SOUTHWEST INC.,
doing business as Verizon Southwest; SOUTHWESTERN BELL TELEPHONE
L.P., doing business as SBC Texas; GRANDE COMMUNICATIONS
NETWORKS, INC.,

                                            Intervenor Defendants - Appellees.



                  Appeal from the United States District Court
                       for the Western District of Texas


Before REAVLEY, ELROD, and GRAVES, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
        Time Warner Cable and Texas Cable Association appeal the district court’s
grant of summary judgment that dismissed their claims that a Texas statute
violates the First and Fourteenth Amendments of the Constitution or is
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preempted by federal law. Because the statute unjustifiably discriminates
against a small number of incumbent cable providers in violation of the First
Amendment, we REVERSE.
                                              I.
                                             A.
       A cable provider relies on public rights-of-way and easements to build
cable networks and provide video programming services to a municipality’s
residents. “As a result, the cable medium may depend for its very existence
upon express permission from local governing authorities.” Turner Broad. Sys.,
Inc. v. FCC, 

, 628 (1994). Historically, cable providers in Texas
obtained that local government permission by negotiating long-term franchise
agreements with each municipality. In return for the necessary access to public
rights-of-way, municipalities imposed franchise fees and subjected cable
operators to extensive regulation, such as requiring that they carry public-access
channels and “build-out,” or lay cable in, all of the municipal franchise area.
       Beginning in 1984, Congress introduced additional federal regulation to
these franchise agreements.           For example, federal law requires that the
franchising authority “[i]n awarding a franchise . . . shall assure that access to
cable service is not denied to any group of potential residential cable subscribers
because of the income of the residents of the local area in which such group
resides,” a practice known as red-lining. 47 U.S.C. § 541(a)(3).
       Many Texas municipalities have traditionally received cable services
entirely from a single “incumbent” cable operator, often the operator that first
installed a cable network for that community. See Tex. Cable & Telecomms.
Ass’n v. Hudson, 265 F. App’x 210, 212 (5th Cir. 2008). However, incumbent
operators began to face competition from overbuilders1 and telephone companies


       1
        “Overbuilder” is a term in the industry for companies that build their own cable
systems in areas already served by a cable operator. The term does not refer to what the cable
market can bear.

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entering the video services market.2 

cost of negotiating
separate franchise agreements with each targeted municipality across the state
hindered the ability of new entrants to compete.
       In response to this barrier to entry, the Texas legislature enacted Senate
Bill 5 (S.B. 5), an “Act Relating to Furthering Competition in the
Communications Industry,” aimed at reforming the cable service industry in
Texas. S.B. 5 creates a new state-level franchising system that obligates the
Public Utility Commission (PUC) to grant a franchise for the requested areas if
the applicant satisfies basic requirements. See Tex. Util. Code § 66.003. New
entrants, like the telephone companies, may obtain a single statewide franchise
that avoids the expense and inconvenience of separate municipal franchise
agreements across the state.              Overbuilders may terminate their existing
municipal franchise agreements in favor of the convenience of the statewide
franchise. § 66.004(b).3 Incumbent cable providers, on the other hand, cannot
similarly opt out for the statewide franchise, until after the expiration of the
municipal license. § 66.004(a).4
                                                 B.
       The day after S.B. 5 was signed into law, Texas Cable Association (TCA),
a trade organization representing incumbent cable operators in Texas, filed suit
against each of the PUC’s commissioners. TCA alleged that S.B. 5 violates the

       2
       Federal law once banned telephone companies from providing cable services, but
Congress repealed that ban in 1996. See 47 U.S.C. § 533(b)(1) (1994) repealed by
Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, 124. Telephone companies
subsequently have upgraded their networks to provide video services to certain municipalities.


       3
         Specifically, S.B. 5 provides that any cable system that is “not the incumbent cable
service provider and serves fewer than 40 percent of the total cable customers in a particular
municipal franchise area may elect to terminate [its] municipal franchise and seek a state-
issued certificate of franchise authority.” § 66.004(b).
       4
         “A cable service provider or a video service provider that currently has or had
previously received a franchise . . . is not eligible to seek a state-issued certificate of franchise
authority . . . until the expiration date of the existing franchise agreement.” § 66.004(a).

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First Amendment and the Equal Protection Clause and is preempted by federal
anti-redlining law. TCA argued that S.B. 5 singled out five cable operators for
discriminatory treatment, depriving them of the convenience of a statewide
franchise. In addition, the plaintiff asserted that, because S.B. 5 allowed
potential entrants to the cable market to define their own service footprint and
required the PUC to grant the franchise, it conflicted with federal anti-redlining
law.
       Shortly thereafter, four additional parties intervened as defendants:
(1) Grande Communications Networks, Inc., the largest overbuilder in Texas,
which had terminated its municipal franchises after passage of S.B. 5 in favor
of a state-issued franchise; (2) Verizon Southwest, a telephone company that
obtained a franchise under S.B. 5 shortly after its enactment; (3) AT&T Texas,
another telephone company that acquired a franchise under S.B. 55; and (4) the
Texas Coalition of Cities for Utility Issues (TCCFUI), which promotes the
interests of Texas municipalities. The PUC defendants and intervenors moved
for judgment on the pleadings.
       The district court dismissed TCA’s claims for lack of ripeness and Article
III standing under Federal Rule of Civil Procedure 12(b)(6), determining that
TCA failed to show “that the Act will inflict inevitable or even probable harm on
its member cable operators at this time.” We reversed and remanded, holding
that “[d]iscriminatory treatment at the hands of the government is an injury
long recognized as judicially cognizable.” Hudson, 265 F. App’x at 218 (internal
quotation marks omitted).
       On remand, Time Warner Cable, an incumbent cable provider with
numerous unexpired municipal franchises, joined TCA as a plaintiff. Each side
moved for summary judgment.              After determining that the plaintiffs had



       5
        Grande, Verizon, and AT&T filed a joint brief and will be referred to collectively as
the industry defendants.

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established sufficient injury to give them standing, the district court denied the
plaintiffs’ motion and granted the defendants’ motion for summary judgment,
determining that S.B. 5 survived intermediate scrutiny. The district court
rejected the plaintiffs’ argument that federal anti-redlining law in 47 U.S.C.
§ 541 preempts S.B. 5. This appeal followed.
       After the district court granted summary judgment in favor of the
defendants but before we heard oral argument, the Texas Legislature passed
S.B. 1087. See Tex. Util. Code § 66.004(b-1)–(b-2). That bill modified S.B. 5 by
authorizing cable incumbents to terminate their municipal franchises in favor
of the statewide license, but only for municipalities with fewer than 215,000
people. Id.6 As it currently stands, S.B. 5 allows certain incumbents the ability
to apply for a statewide franchise, but the legislation continues to exclude Time
Warner and one other TCA member from opting out of their remaining
unexpired municipal franchise agreements with cities of over 215,000 people.7
                                              II.
       Before we address the plaintiffs’ arguments on appeal, the industry
defendants repeat a threshold argument that this court previously rejected at
the motion to dismiss stage: namely, that the plaintiffs have not established
Article III standing to complain of S.B. 5 but instead have offered only
“speculations” of injury.8 We review questions of standing de novo. NAACP v.


       6
         “[A] cable service provider or video service provider in a municipality with a
population of less than 215,000 that was not allowed to or did not terminate a municipal
franchise under Subsection (b) may elect to terminate not less than all unexpired franchises
in municipalities with a population of less than 215,000 and seek a state-issued certificate of
franchise authority. . . .” § 66.004(b-1).
       7
        Time Warner Cable has unexpired franchise agreements with Dallas, Corpus Christi,
and Irving, while another TCA incumbent retains a franchise with Lubbock. The municipal
franchises expire in the following years: Irving in 2013, Lubbock in 2014, Dallas in 2015, and
Corpus Christi in 2017.
       8
        Neither the TCCFUI nor the PUC defendants contest the plaintiffs’ Article III
standing.

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City of Kyle, Tex., 

, 236 (5th Cir. 2010). As the parties seeking
federal court jurisdiction, TCA and Time Warner bear the burden of establishing
their standing. See Nat’l Fed’n of the Blind of Tex., Inc. v. Abbott, 

,
209 (5th Cir. 2011).
       The standing requirement originates from the Constitution confining
federal courts to “Cases” and “Controversies.” Lujan v. Defenders of Wildlife, 

, 560 (1992) (standing “set[s] apart the ‘Cases’ and ‘Controversies’ that
are of the justiciable sort referred to in Article III”).                  The “irreducible
constitutional minimum of standing contains three elements”: injury-in-fact,
causal connection, and redressability. 

       The industry defendants concentrate primarily on the injury-in-fact
element because plaintiffs allegedly failed to prove any concrete economic
damages.9 The injury-in-fact requirement helps ensure that courts resolve legal
questions “not in the rarified atmosphere of a debating society, but in a concrete
factual context conducive to a realistic appreciation of the consequences of
judicial action.” Valley Forge Christian Coll. v. Ams. United for Separation of
Church and State, Inc., 

, 472 (1982).
       As noted above, this court has already decided that TCA’s pleadings
alleged sufficient injury-in-fact to survive a motion to dismiss. Specifically, we
held that TCA claimed sufficient economic and constitutional injury. As to the
latter:
       The [TCA] contends that the Act unlawfully discriminates against
       its membership by unjustifiably favoring non-incumbents over
       incumbents. Discriminatory treatment at the hands of the
       government is an injury long recognized as judicially cognizable.


       9
        We can dispose briefly of the industry defendants’ arguments that plaintiffs failed to
show causal connection or redressability. S.B. 5 expressly prevents the plaintiffs from
obtaining a statewide franchise, while conferring the benefit on other cable and video
providers. Given this direct exclusion, there is “little question that the action or inaction has
caused [their] injury, and that a judgment preventing or requiring the action will redress it.”

–62.

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       And such injury is recognizable for standing irrespective of whether
       the plaintiff will sustain an actual or more palpable injury as a
       result of the unequal treatment under law or regulation. Here, the
       Act facially discriminates against the [TCA’s] membership by
       extending the benefit of a state-wide license to its competitors while
       denying that same benefit to incumbent cable providers. . . . [S]uch
       discrimination can constitute an injury because it positions similar
       parties unequally before the law; no further showing of suffering
       based on that unequal positioning is required for purposes of
       standing.
Hudson, 265 F. App’x at 218 (internal quotation marks and citations omitted).
       In their haste to insist on additional evidence, the industry defendants
completely ignore this clear language. Instead, they emphasize the opinion’s
earlier observation that general allegations may suffice for a motion to dismiss,
while specific facts must be adduced to survive summary judgment. 

(quoting 

). Nevertheless, “the nature and extent of facts
that must be averred (at the summary judgment stage) . . . in order to establish
standing depends considerably upon whether the plaintiff is himself an object
of the action (or forgone action) at issue.” 

. There can be
no dispute that the plaintiffs are the object of the government action here where
S.B. 5 singles out certain incumbent operators as ineligible for the benefit of a
statewide franchise.10 When the government targets certain speakers for the
exclusion of benefits bestowed on similar parties, “no further showing of
suffering based on that unequal positioning is required for purposes of standing.”
Hudson, 265 F. App’x at 218; see also 

–62.
       Consequently, the industry defendants’ argument that the plaintiffs fail
to establish that the disparate treatment “imposes any burden at all on

       10
         Compare Tex. Util. Code § 66.004(a) (making incumbent operators ineligible for a
statewide franchise until their existing municipal franchises expire) with Tex. Util. Code
§ 66.004(b) (allowing overbuilders “that [are] not the incumbent cable service provider” to
terminate their existing municipal franchises and obtain a statewide franchise) and Tex. Util.
Code § 66.004(b-1) (allowing incumbent operators in municipalities with less than 215,000
people to immediately terminate their existing municipal franchise) and Tex. Util. Code
§ 66.003(a) (allowing new entrants to obtain a state-level franchise immediately).

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incumbent cable operators” misses the point.11 TCA and Time Warner need not
prove that they will sustain a quantifiable economic injury. Cf. Minneapolis
Star & Tribune Co. v. Minn. Comm’r of Revenue, 

, 588 (1983)
(observing that “the very selection of the press for special treatment threatens
the press not only with the current differential treatment, but with the
possibility of subsequent differentially more burdensome treatment” and “[t]hus,
even without actually imposing an extra burden on the press, the government
might be able to achieve censorial effects”). S.B. 5 subjects the plaintiffs to
disparate treatment by allowing their competitors to opt out of municipal
franchises in favor of the convenience of a statewide license. Because the
legislation targets the plaintiffs for exclusion from this benefit provided to
similarly situated speakers, TCA and Time Warner have shown constitutional
injury sufficient to establish standing.
                                            III.
       On appeal, the plaintiffs contend that S.B. 5 is preempted by federal law
and that it violates the First and Fourteenth Amendment. We begin with the
preemption argument.
       The plaintiffs rest their preemption attack on a conflict preemption claim.
“Conflict preemption requires that it would be physically impossible for a private
party to comply with both federal and state law, or that the law stand as an
obstacle to the accomplishment and execution of the full purposes and objectives
of Congress.” Empacadora de Carnes de Fresnillo, S.A. de C.V. v. Curry, 

, 334 (5th Cir. 2007) (internal alteration and quotation marks omitted).




      11
         Moreover, the fact that the industry defendants are Time Warner’s competitors
(AT&T, Verizon, and Grande), who vigorously oppose Time Warner’s eligibility for the same
statewide franchise that they currently enjoy, undermines their argument that the
convenience confers no economic benefit. In other words, if the state franchise provided no
competitive advantage, it is unlikely the industry defendants would invest so many resources
in opposing its extension to Time Warner.

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      Specifically, the plaintiffs contend that the Federal Communications Act
conflicts with and therefore preempts S.B. 5 because Congress requires that the
franchising authority assure that redlining does not occur. See 47 U.S.C.
§ 541(a)(3) (“In awarding a franchise . . . a franchising authority shall assure
that access to cable service is not denied to any group of potential residential
cable subscribers because of the income of the residents of the local area in
which such group resides.”). According to the plaintiffs, S.B. 5 contradicts this
clear anti-redlining command because it requires the PUC simply to approve
franchise applications, rendering the agency powerless to protect against a
perceived red-lining problem at the time of issuing the franchise. See Tex. Util.
Code § 66.003(b) (providing that the PUC “shall issue a certificate of franchise
authority” after receiving the necessary affidavits).
      This argument mischaracterizes the law. Rather than conflicting with
Congress’s anti-redlining command, the Texas statute expressly prohibits
income discrimination in terms that mirror the FCA. See § 66.014(b) (“A cable
service provider or video service provider that has been granted a state-issued
certificate of franchise authority may not deny access to service to any group of
potential residential subscribers because of the income of the residents in the
local area in which such group resides.”). When applying for a franchise, the
applicant must submit an affidavit affirming that it “agrees to comply with all
applicable federal and state statutes and regulations.” § 66.003(b)(2). More to
the point, in awarding a franchise, S.B. 5 requires the PUC to include language
in the license expressly conditioning any grant of authority to the lawful
operation of the cable service.    § 66.003(c)(3). The PUC then retains the
authority to monitor the deployment of cable services. § 66.014(e). Finally, S.B.
5 authorizes the PUC to hold proceedings to determine whether a provider is
violating the anti-redlining provisions, § 66.014(c), and a court of competent
jurisdiction may then invoke sanctions for noncompliance, including the
revocation of the franchise authority. § 66.015(a).

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       Given this harmony between state and federal law, the plaintiffs present
a conflict preemption claim without any conflict. The Texas statute prohibits
income discrimination, commands an applicant to swear an affidavit that it will
abide that standard, requires the state agency to condition the license to the
continued compliance with that standard, and authorizes the agency to
determine non-compliance, which may ultimately lead to revocation of the
franchise.     In doing so, S.B. 5 fully authorizes the PUC to fulfill the
Congressional mandate that in awarding franchises, the agency “shall assure”
that income discrimination does not occur. We therefore hold that the anti-
redlining provisions of the Federal Communications Act do not preempt S.B. 5.
                                            IV.
       We turn now to the question of whether S.B. 5 violates the First
Amendment. This court reviews the grant of summary judgment de novo,
applying the same legal standard as the district court. Greater Hous. Small
Taxicab Co. Owners Ass’n v. City of Hous., Tex., 

, 238 (5th Cir.
2011); see also Ortiz v. Quarterman, 

, 496 (5th Cir. 2007) (“We
review questions of constitutional law, including the constitutionality of a State
statute, de novo.”).
       Our First Amendment analysis begins with determining the applicable
level of scrutiny. Although together the various parties insist on all three
possible levels,12 “[t]here can be no disagreement on an initial premise: Cable
programmers and cable operators engage in and transmit speech, and they are
entitled to the protection of the speech and press provisions of the First
Amendment.” 

. Here, S.B. 5 is not a law of general
applicability as it excludes statewide franchises from certain incumbents and

       12
          TCA and Time Warner argue that we should apply strict scrutiny but that S.B. 5 is
unconstitutional regardless of whether we apply strict or intermediate scrutiny. The industry
defendants and the PUC assert that S.B. 5 is subject to, and fails, intermediate scrutiny.
TCCFUI contends that S.B. 5 should be reviewed only under rational basis scrutiny because
it does not implicate First Amendment interests.

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singles out elements of the press for special treatment. Therefore, we must
determine which form of heightened scrutiny to apply. See 

(“Because
the must-carry provisions impose special obligations upon cable operators and
special burdens upon cable programmers, some measure of heightened First
Amendment scrutiny is demanded.”).
                                       A.
      The plaintiffs argue that S.B. 5 must endure strict scrutiny because it
targets only a few incumbents. We agree.
      Laws singling out a small number of speakers for onerous treatment are
inherently suspect. For example, the Supreme Court applied strict scrutiny to
Minnesota’s ink and paper tax because it not only singled out the press but also
targeted a small number of newspapers. Minneapolis 

(holding that the practical effect of a $100,000 exemption “is that only a handful
of publishers pay any tax at all, and even fewer pay any significant amount of
tax.”). “Whatever the motive of the legislature in this case,” the Court held that
a state’s power to target a small selection of speakers “presents such a potential
for abuse that no interest suggested by Minnesota can justify the scheme” under
strict scrutiny. 

Indeed, selecting “such a narrowly defined group
to bear the full burden of the tax” caused the law “to resemble more a penalty for
a few of the largest newspapers.” 

      The Supreme Court subsequently followed Minneapolis Star to apply strict
scrutiny to a state sales tax that exempted certain magazines in a way “that only
a few Arkansas magazines pay any sales tax.” Ark. Writers’ Project, Inc. v.
Ragland, 

, 229 (1987). Thus, “Arkansas Writers’ Project . . .
reaffirmed the rule” that differential treatment of the press “through the narrow
targeting of individual members offends the First Amendment.” Leathers v.
Medlock, 

, 446 (1991) (citing Ark. Writers’ 

–26). Indeed, the Court has reiterated this rule even in cases that did not
require strict scrutiny because the laws at issue did not specifically target a

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small number of speakers. See 

–62 (applying only
intermediate scrutiny to a federal regulation because it required “almost all
cable systems in the country, rather than just a select few” to carry local stations
and therefore “the provisions do not pose the same dangers of suppression and
manipulation that were posed by the more narrowly targeted regulations in
Minneapolis Star and Arkansas Writers’ Project”); 

(holding that the state law at issue “extended [the state] sales tax uniformly to
the approximately 100 cable systems then operating in the State” so that it
“hardly resembles a penalty for a few”) (internal quotation marks omitted).
       Here we are faced with a law that plainly discriminates against a small
and identifiable number of cable providers.13 As recently amended, S.B. 5
permits incumbents to terminate their municipal franchise in favor of a
statewide franchise, unless the municipality in question has a population over
215,000. § 66.004(b-1). The plaintiffs represent, and the defendants do not
dispute, that only Time Warner and one other incumbent have unexpired
franchises with municipalities of that size. Even before the amendment limited
the exclusion to these two incumbents, plaintiffs argued that S.B. 5’s treatment
of incumbents discriminated against five incumbents.14 In response, defendants
pointed only to deposition testimony that a few small “mom and pop” operators
also exist and that the five incumbents represent 95 percent to 99 percent of
those initially excluded by S.B. 5. In Minneapolis Star, however, the law
“target[ed] a small group of newspapers” where thirteen publishers paid a tax,
one of which paying two-thirds of the total burden, because “only a handful of


       13
          At oral argument, the defendants pointed out that S.B. 5 does not mention the
individual cable providers by name. As Minneapolis Star and Arkansas Writers’ Project make
clear, however, a law may target a small number of speakers without expressly identifying
those singled out. Rather, legislation “targets a small group” by structuring its burdens in a
way that apply to the few. Minneapolis 

.
       14
        These five incumbents include Time Warner Cable, Comcast, Charter, Suddenlink,
and CableOne, all of which are members of the plaintiff TCA.

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publishers pay any tax at all, and even fewer pay any significant amount of tax.”
Minneapolis 

–79, 591. Regardless, the current law removes
any doubt that it impacts a small number of speakers as it focuses the exclusion
on incumbents of a few large cities. Consequently, the exclusion of this handful
of incumbents is structured “in a manner that carries the inherent risk of
undermining First Amendment interests.” 

.
       Defendants protest that such a standard reduces the level of constitutional
scrutiny to a counting exercise. In the arena of constitutional rights, however,
there is often safety in numbers. See Minneapolis 

(“A
power to tax differentially, as opposed to a power to tax generally, gives a
government a powerful weapon against the taxpayer selected.”); Ark. Writers’

(“We need not fear that a government will destroy a
selected group of taxpayers by burdensome taxation if it must impose the same
burden on the rest of its constituency.”) (quoting Minneapolis 

); 

(“The danger from a tax scheme that targets a
small number of speakers is the danger of censorship.”). Allowing the state to
burden the few sets the stage for manipulation in the marketplace of ideas. See
Minneapolis 

(observing that the mere threat of differential
treatment “can operate as effectively as a censor to check critical comment”).
Moreover, a law that targets a small handful of speakers for discriminatory
treatment “suggests that the goal of the regulation is not unrelated to
suppression of expression, and such a goal is presumptively unconstitutional.”15

cannot countenance such treatment unless the State asserts
a counterbalancing interest of compelling importance” that cannot be achieved
without the exclusion of certain incumbents from the statewide franchise. 

emphasize that “[w]e need not and do not impugn the motives of the [Texas]
legislature.” Minneapolis 

. “Illicit legislative intent is not the sine qua
non of a violation of the First Amendment.” 

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      The defendants also argue that strict scrutiny is not warranted here
because the problematic provisions are “justified by some special characteristic
of the particular medium being regulated.” 

–61 (internal
quotation marks omitted). They rely on Turner where the Supreme Court
applied intermediate scrutiny to a law imposing must-carry obligations on cable
operators only because the cable medium uniquely allowed for the bottleneck
control that explained Congress requiring just cable operators, and not other
video service providers, from carrying certain stations. See 

Turner
made clear, however, that the must-carry requirement impacted “almost all
cable systems in the country, rather than just a select few” and therefore, that
statute did “not pose the same dangers of suppression and manipulation that
were posed by the more narrowly targeted regulations in Minneapolis Star.” 

case differs from Turner because there are no similar
characteristics of the cable medium that would justify S.B. 5 excluding certain
incumbent cable providers—and not other incumbents, overbuilders, and new
entrants—from a statewide franchise.
      Applying strict scrutiny, the exclusion of certain incumbents violates the
First Amendment. The state fails to show that the exclusion “is necessary to
serve a compelling state interest and is narrowly drawn to achieve that end.”
Ark. Writers’ 

. Indeed, none of the defendants even
argued that the relevant provisions of S.B. 5 would meet such an exacting
standard. This is not surprising in this case where, as discussed in the following
section, the discriminatory provisions would not survive the more relaxed
standard of intermediate scrutiny.          We therefore hold that S.B. 5’s
discrimination against a small number of speakers is unconstitutional.
                                       B.
      Even assuming the defendants are correct that intermediate scrutiny
applies, the legislation’s exclusion of incumbents would not survive. Under
intermediate scrutiny, we would sustain the provisions if they “further an

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                                  No. 10-51113

important or substantial governmental interest; if the governmental interest is
unrelated to the suppression of free expression; and if the incidental restriction
on alleged First Amendment freedoms is no greater than is essential to the
furtherance of that interest.” 

(quoting United States v.
O’Brien, 

, 377 (1968). While the regulation need not be “the least
speech-restrictive means” of advancing the state’s interests, the means chosen
must be narrowly tailored so they “do not burden substantially more speech than
is necessary to further the government’s legitimate interests.” 

marks omitted).
      The government emphasizes that creating the statewide franchise
promotes its legitimate interest in facilitating competition. We do not question
the significance of the state’s interest in promoting competition. See 

(“[T]he Government’s interest in eliminating restraints on fair competition is
always substantial, even when the individuals or entities subject to particular
regulations are engaged in expressive activity protected by the First
Amendment.”). However, promoting competition bears no relationship to the
problematic exclusions at issue here.        See City of Cincinnati v. Discovery
Network, Inc., 

, 424 (1993) (holding under intermediate scrutiny
that the city’s distinguishing between commercial and noncommercial speech
“bears no relationship whatsoever to the particular interests that the city has
asserted. It is therefore an impermissible means of responding to the city’s
admittedly legitimate interests.”). The advantages of a statewide franchise
explain why the state created this pro-competition benefit, but they do not justify
the exclusion of other speakers from that same benefit.
      The state also asserts an interest in protecting the reliance of
municipalities who entered into contracts with cable providers. However, the
plaintiffs argue persuasively that S.B. 5 already protects the reliance of
municipalities on their franchise agreements because cable providers that opt
out must still: 1) pay municipalities the maximum franchise fee allowed under

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                                       No. 10-51113

federal law;16 2) provide the same number of public, educational, and
governmental access channels;17 and 3) furnish municipalities the same
institutional network capacity, which supports services like traffic light
coordination.18 Moreover, the text of S.B. 5 casts to the wayside the agreements
of most municipalities in Texas, indicating the actual unimportance of the state’s
asserted interest. The law allows overbuilders to renege on their contracts with
municipalities in favor of a statewide franchise. Tex. Util. Code § 66.004(b).
And although defendants initially insisted that S.B. 5 could still further
municipal reliance by preserving the primary agreements with incumbents, the
legislature amended the law to allow incumbents to terminate their
arrangements with all municipalities with a population under 215,000.
§ 66.004(b-1). At oral argument, the state provided no logical explanation why
the reliance interests of heavily populated municipalities should matter more
than those of less populated municipalities. Finally, this same disregard for the
reliance of most municipalities indicates a lack of “fit” between the asserted
municipal reliance interest and the state’s “choice of a limited and selective
[number of municipalities to protect] as the means chosen to serve those



       16
             S.B. 5 requires licensees to pay a fee of 5% of gross revenue. Tex. Util. Code
§ 66.005(a) (“The holder of a state-issued certificate of franchise authority shall pay each
municipality in which it provides cable service or video service a franchise fee of five percent
based upon the definition of gross revenues as set forth in this chapter.”). Federal law caps
the franchise fee at 5%. 47 U.S.C. § 542(b) (“[T]he franchise fees paid by a cable operator with
respect to any cable system shall not exceed 5 percent of such cable operator’s gross revenues
. . . .”). Indeed, plaintiffs point out that some municipal agreements have a lower franchise
fee than the federal maximum.
       17
         “The holder of a state-issued certificate of franchise authority shall provide no fewer
than the number of PEG access channels a municipality has activated under the incumbent
cable service provider’s franchise agreement as of September 1, 2005.” § 66.009(b).
       18
          This institutional network capacity provides a “private line” data network that cities
may use for non-commercial purposes. See § 66.006(d) (“[I]nstitutional network capacity,
however defined or referred to in the municipal cable franchise but generally referring to a
private line data network capacity for use by the municipality for noncommercial purposes,
shall continue to be provided at the same capacity . . . .”).

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                                       No. 10-51113

interests.” Discovery 

. See 

(applying
intermediate scrutiny to a ban on newsracks providing commercial handbills and
agreeing that the “benefit to be derived from the removal of 62 newsracks while
about 1,500-2,000 remain in place” was “paltry” and “minute”); 

(“That the Government’s asserted interests are important in the abstract
does not mean, however, that the must-carry rules will in fact advance those
interests.”) (plurality opinion); Knowles v. City of Waco, Tex., 

,
436–37 (5th Cir. 2006) (striking down parade ordinance allegedly justified by
traffic control and safety interests because the city “is so willing to disregard the
traffic problems” with exceptions to the ordinance) (internal quotation marks
omitted). Thus, even under intermediate scrutiny, the provisions would not pass
constitutional muster.
                                              V.
       We hold that the provisions excluding incumbents from a statewide
franchise violate the First Amendment.19 We consequently REVERSE the
district court’s grant of summary judgment on behalf of the defendants and
REMAND for proceedings consistent with this opinion. Acknowledging that the
plaintiffs have waited long to validate rights that are time-sensitive, we trust the
district court will handle the matter expeditiously.




       19
        In light of this holding, we do not reach the plaintiff’s claim that S.B. 5 violates the
Equal Protection Clause of the Fourteenth Amendment.

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