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Probably nothing in the world of communications regulation since the passage of the Telecommunications Act of 1996 has penetrated the public’s awareness as much as the Federal Communications Commission’s (FCC) June 2 decision revising and liberalizing its rules on media ownership limits. The decision, by vote of the FCC’s three Republican commissioners over its two Democratic commissioners, was a substantial compromise from what was initially assumed by communications analysts, lobbyists and lawyers would be complete deregulation of limits on media ownership within the bounds of the antitrust laws. Despite such compromise, the new rules are now headed for further rollback, if not reversal, in the face of public and congressional uproar. The state of the ownership rules before June 2 The FCC has the exclusive jurisdiction to grant, regulate and revoke radio licenses for “the transmission of energy or communications or signals by radio” pursuant to Title III of the 1934 Communications Act, to which the 1996 act was an amendment. The FCC therefore regulates all broadcasting activity, applying a broad “public interest” standard to its rule-making. Under this rubric, the FCC has long established rules governing how much of local and national markets broadcasters can control, and what other types of media they can control locally and nationally. These rules were intended to assure competition and a diversity of media content reaching the public. Under the rules, television broadcasters have been subject to a national ownership “cap” by which no entity could own broadcast stations reaching more than 35% of U.S. television households. Under “cross-ownership” rules, no entity could own both a newspaper and a commercial broadcast station in the same market. A cable television/broadcast television cross-ownership rule until last year forbade ownership of a broadcast station and a cable station in the same market. Cable service providers have also been subject to an ownership cap barring entities from owning cable systems that reached more than 30% of U.S. subscribers. There have been local, but no national, limits on radio station ownership since the passage of the 1996 act. The 1996 act was intended to promote competition and to lower entry barriers through a broadly deregulatory philosophy. In 1999, the FCC relaxed broadcast ownership restrictions for local television and radio stations, permitting one company to own more than one television station in a market without counting against the national coverage cap. Under the “duopoly” rule, common ownership of two television stations within the same local market was permitted if eight full-power commercial and noncommercial stations owned by other entities (called “independent voices” by the FCC) remained in the market following acquisition of the second station and one of the jointly owned stations was not among the top four-ranked stations in its market. A similar rubric governed common ownership of radio stations in any market. At the same time, the FCC liberalized “attribution” rules that regulate whether interests in stations count toward the ownership limits, and how the national audience cap is calculated. The “equity/ debt plus” rule provided that a holder of a financial interest, whether equity, debt or mixed, in excess of 33% in a broadcast licensee’s total assets would have an attributable interest in the licensee if the interest holder was either a major program supplier to the licensee (above 15% of the licensee’s weekly program hours) or if it was a “same-market media entity.” The FCC’s 1999 rules also loosened its rules for horizontal cable ownership and attribution. The existing 30% cap on the percentage of cable households that a single company can serve was maintained, but horizontal ownership was measured by total nationwide cable subscribers plus direct broadcast satellite and other multichannel video programming distributors, not just cable subscribers, theoretically allowing a single company to control nearly 37% of then-current cable subscribers. The FCC implemented a 33% “equity/debt” attribution rule like that for broadcasters and narrowed the interpretation of limited partnership interests that would count against the cap, insulating limited partners not “materially involved” with management and operation of the the partnership’s “video programming activities.” However, in 2001 and 2002, decisions by the U.S. Circuit Court for the District of Columbia began dismantling these rules. In 2001, the D.C. Circuit ruled that the FCC had failed to justify the 30% cable limit based on market data and directed the FCC to reconsider the rule. In February 2002, the court invalidated the cable/broadcast cross-ownership rule and directed the FCC to reconsider the television broadcast ownership limits, finding that the rule had not been shown to be in the public interest. In April 2002, the court held that the duopoly rule is arbitrary and capricious in its definition of “independent voices,” and directed the FCC to reconsider it as well. The FCC’s June 2 decision, part of its congressionally mandated biennial review of whether existing regulations are necessary, was rendered in a politically charged atmosphere following voluminous submissions of comments and public hearings on the proposed rule-making. In that decision, the FCC relaxed the national television ownership cap from 35% to 45% of U.S. television households. The June 2 decision also relaxed the duopoly rule: In markets with five or more television stations, a company can own two stations, only one of which may be among the top four rated, while in markets with 18 or more, a company can own three stations, only one of which may be among the top four. A case-by-case waiver review process is available for mergers of top-four-rated stations. The June 2 decision continued existing local radio ownership limits, but changed the methodology for defining local radio markets. In markets with 45 or more radio stations, a company can own eight stations, only five of which may be in one class (AM or FM); in markets with 30 to 44 radio stations, a company can own seven, only four of which may be in one class; in markets with 15 to 29 radio stations, a company can own six, only four of which may be in one class; and in markets with 14 or fewer radio stations, a company can own five, only three of which may be in one class. The June 2 decision also relaxed the cross-ownership rules: In markets with three or fewer television stations, no cross-ownership is permitted among television, radio and newspapers. In markets with four to eight television stations, a company can own either one television station, one daily newspaper and up to half of the local radio ownership limit for that market; or no television station, one daily newspaper and up to the local radio station ownership limit for that market; or two television stations (if allowable under the local television ownership limit for that market), up to the radio station limit for that market and no daily newspaper. For markets with nine or more television stations, the FCC eliminated such rules altogether. The decision also kept the ban on mergers among the four top-ranked national broadcast networks. In reaching its June 2 rulings, the FCC relied upon a “diversity index” that it developed, based upon similar tools used in antitrust review, to measure the degree of media concentration in local markets. Fundamentally, the index measures diversity of independent voices by adding the sum of the square of market shares of competitors in each local market. Of course, as with any data-processing algorithm, the end result is only as good as the data input, and the index has generated controversy based on its assumptions about which, and how many, media sources are actually competing in given local markets and which are available to provide choice to consumers. Opposition to the decision came from unlikely allies Public and congressional groundswell in opposition to the June 2 decision increased immediately after its announcement. The opposition comes from unlikely allies from the political left wing, such as the National Organization for Women, and the political right wing, such as the National Rifle Association. Both sides are expressing concern that the new rules will lead to further media concentration that will deny them outlets for the expression of their views. Members of Congress from both sides of the aisle have also risen up, expressing concern about the rules’ effect on their access to the airwaves to speak to their constituents and the fate of independent media outlets in nonmedia center districts. The alignment of such normally divergent groups clearly caught the White House and the FCC by surprise. On June 20, the Senate Commerce Committee passed legislation to reverse the new rules, reinstating the 35% national television ownership cap and cross-ownership rules and to force Clear Channel Communications of San Antonio to divest radio stations it has acquired since the national radio ownership cap was eliminated. On July 23, the House of Representatives, by a vote of 400-21, also voted to roll back the national ownership cap to 35%. Despite threats by the White House, the House vote may be presumed veto-proof, and, particularly with the broad coalition opposing the new rules, wholesale expenditure of political capital to preserve them is unlikely. Substantial compromise and rollback to pre-June 2 limits and perhaps beyond may be expected. The reaction to the June 2 rules may also represent an emerging “re-regulatory” attitude grounded not only in concern over media-ownership concentration that has already occurred since the 1996 act’s passage, but in reaction to the last two years’ accounting and securities scandals and to what is widely perceived as a failure of the 1996 act in other areas, such as ensuring local telephone competition. Among legislation proposed is a requirement for the FCC to conduct biennial reviews not only of what existing regulations may not be needed, but what nonexisting regulations may need to be promulgated. A rule like that would dramatically change the deregulatory philosophy of recent years. If so, the entire direction of communications regulation may be open for reconsideration. Owen D. Kurtin is a partner in the New York office of Salans and co-chairman of the law firm’s information technologies and communications practice group. He may be reached at [email protected].

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