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In a major blow to large television and newspaper companies looking for acquisition opportunities, a federal appeals court on Thursday rejected the Federal Communications Commission’s latest effort to ease media merger rules. The 3rd U.S. Circuit Court of Appeals ordered the FCC to better justify many of the restrictions it placed on media mergers. It also said the new limits may not take effect until the court evaluates the new evidence compiled in support of the regulation. “We must remand certain aspects of the commission’s order that are not adequately supported by the record,” the court said. FCC Chairman Michael Powell suggested Thursday that the agency would either seek to have the entire appeals court consider the case or ask the Supreme Court to intervene. “This is deeply troubling and hampers the flexibility of the agency to protect the American public, as this agency is charged to do,” Powell said. The chairman has support for this view. The chief judge of the 3rd Circuit dissented from the decision, saying the court was improperly substituting its judgment for that of the FCC. But the chief judge was overruled by two of his colleagues. The majority ordered the agency to reconsider its decision to revoke a prohibition on a single company owning both a newspaper and broadcast outlet in the same market. The court said the FCC was authorized to strike this ban, but must find a better justification for the move. The court threw out a prohibition that would have allowed greater ownership of television and radio stations in a local market. The now defunct rule would have allowed a company to own a maximum of three TV stations in large markets, such as New York or Los Angeles, instead of two TV stations. It also allowed some companies to own two TV stations instead of one in midsize markets. The agency will need to re-examine the data it used as a basis for the rules. The judges were particularly vocal in their criticism of a controversial index the FCC developed to measure media diversity. The ruling is a major victory for consumer advocates, who have fought against the media rules since their release in June 2003. “This is a near to total win for our clients and the public interest,” said Harold Feld, director of the Media Advocacy Project, a Washington advocacy group that challenged the FCC rules. “The 3rd Circuit has made clear that Congress cared about preserving democracy and competition, not encouraging rampant consolidation.” Some media companies had argued that the merger limits were unconstitutional. The court rejected that argument, affirming the agency’s constitutional right to adopt media ownership rules in order to preserve democratic discourse. Media companies hoping to make acquisitions may have a long wait before they are permitted to continue an ongoing pattern of consolidation. That’s because the FCC has until 2006 to adopt new rules. The presidential election in November may also play a serious role in how fast the agency adopts new rules. Andrew Lipman, a partner at law firm Swidler Berlin Shereff Friedman in Washington, said that a victory by presumed Democrat presidential candidate John Kerry could delay implementation of the new rules until 2005 and, more importantly, change them substantially. If President Bush wins, new rules could be adopted much sooner because a Republican administration may be more interested in developing rules that encourage consolidation than a Democratic one. Regardless, Lipman said Powell is unlikely to try and rush new regulations through before the November elections. “This is a politically partisan and emotionally charged enough issue that it is likely to carry over until after the election,” Lipman said. The FCC also may take extra time in adopting new rules because the Philadelphia court said it plans to keep jurisdiction over the agency’s media ownership rules. The Third Circuit didn’t send all the media rules back to the agency for review. The court decided not to consider a rule limiting the percentage of U.S. households a single TV company may reach, leaving intact a 39 percent national TV cap established by Congress in January. The statute protects large network-owned broadcast companies, such as Viacom Inc. and News Corp., from having to divest outlets. In a small victory for some big broadcasters, the court also did not send the so-called UHF discount, an FCC regulation that effectively allows TV companies to skirt a federal limit on the number of U.S. viewers they may serve, back to the agency for further review. The court also upheld the FCC’s new market definition for radio mergers, which will make it more difficult for companies such as industry leader Clear Channel Communications Inc. to buy more radio stations. Copyright �2004 TDD, LLC. All rights reserved.

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