$// KCQL(AM), Aztec, New Mexico, MO&O, FCC 95-102//$ $/ 47 U.S.C. Section 311(c) (1) -- settlement agreements /$ $/ 47 C.F.R. Section 73.3525(a) -- settlement agreements /$ $/ 47 C.F.R. Section 73.3555(a) -- radio ownership rules /$ $///FCC 95-102 3/21/95///$ ///newjob/// BEFORE THE FEDERAL COMMUNICATIONS COMMISSION FCC 95-102 WASHINGTON, D.C. 20554 In re Applications of ) ) Frank Elwood and Wanda Jean Elwood, ) File Nos. BAL-921021EA, Assignors ) BALH-921021EB ) J. Thomas Development of New Mexico, Inc., ) Assignee ) ) For Assignment of the Licenses of Stations ) KCQL(AM), Aztec, New Mexico ) KKFG-FM, Bloomfield, New Mexico ) ) ) Robert D. Coker, Receiver, ) File Nos. BAL-921021EC, Assignor ) BALH-921021ED ) J. Thomas Development of New Mexico, Inc., ) Assignee ) ) For Assignment of Licenses of Stations ) KRZE(AM), KRAZ-FM, ) Farmington, New Mexico) MEMORANDUM OPINION AND ORDER Adopted: March 8, 1995 Released:March 24, 1995 By the Commission: 1. The Commission has before it an application for review filed June 24, 1993, on behalf of Basin Broadcasting, Kennland Broadcasting, and Dewey Matthew Runnels licensees of radio broadcast stations in Farmington and Aztec, New Mexico ("Petitioners"). Pursuant to 47 C.F.R. 1.115, Petitioners request review of the May 18, 1993 action by the Chief, Audio Services Division, Mass Media Bureau, denying Petitioner's petition to deny and granting the above-captioned application for assignment of licenses (BAL-921021EA; BALH-921021EB) of KCQL(AM), Aztec New Mexico, and KKFG-FM, Bloomfield, New Mexico, from Frank Elwood and Wanda Jean Elwood to J. Thomas Development of New Mexico, Inc. ("Thomas Development"), and the above-captioned application for assignment of licenses (BAL- 921021EC; BALH-921021ED) of KRZE(AM)/KRAZ-FM, Farmington, New Mexico from Robert D. Coker, Receiver to Thomas Development. See Letter from Larry D. Eads, Chief, Audio Services Division to David D. Oxenford, Jr., Esquire, (May 18, 1993). On July 12, 1993, Thomas Development filed an opposition to the application for review. On July 21, 1993, Petitioners filed a reply. Petitioners argue that Thomas Development's principal, Jeff Thomas ("Thomas"), made an unlawful settlement payment to induce a competing applicant for a new FM station in Kirtland, New Mexico to dismiss its application, and that the grant of the above-captioned applications contravened the Commission's radio ownership rules. 2. Settlement Payment. On February 26, 1991, Thomas filed an application for construction permit (BPH-910226MB) proposing a new FM station to serve Kirtland, New Mexico. On February 27, 1991, Roscoe Lee Hooper ("Hooper") filed a competing application for construction permit (BPH-910227MF). On October 8, 1991, Thomas and Hooper filed a joint request for approval of settlement agreement, which sought approval of a September 10, 1991 agreement pursuant to which Hooper sought dismissal of his application for construction permit in exchange for payment from Thomas of the lesser of $7,500 or expenses incurred by Hooper in the preparation, filing, and prosecution of his application. The joint request acknowledged that Hooper's application was subject to dismissal for failure to pay the required hearing fee and indicated that, consistent with the settlement agreement for which the parties sought approval, Hooper would not appeal a Commission action dismissing his application for failure to pay the fee. Thereafter, by letter dated November 4, 1991, the Commission dismissed Hooper's application for failure to pay the required hearing fee, and, as agreed upon, Hooper did not request reconsideration of that action. See Letter from Larry D. Eads, Chief, Audio Services Division to Jeff and Joella Thomas (November 4, 1991). Subsequently, by letter dated March 17, 1992, the Commission granted Thomas' application and dismissed the joint request for approval of settlement agreement as moot. See Letter from Dennis L. Williams, Chief, FM Branch to Jeff and Joella Thomas (March 17, 1992). Thomas states that after consulting with his attorney and Commission staff he paid Hooper $7,500 pursuant to the terms of the settlement agreement. 3. In a supplement to their petition to deny the above-captioned applications, Petitioners contended that Thomas' payment to Hooper pursuant to the settlement agreement contravened Section 311(c)(1) of the Communications Act of 1934, as amended (the "Act"), and Section 73.3525(a) of the Commission's rules. See 47 U.S.C. 311(c)(1); see also 47 C.F.R. 73,3525(a). Specifically, Petitioners asserted that notwithstanding the Commission's failure to approve the settlement agreement following dismissal of Hooper's application, Thomas paid Hooper an amount exceeding Hooper's documented out-of-pocket expenses. Petitioners further asserted that the allegedly unlawful payment rendered the joint request a false written statement to the Commission and undermined Thomas Development's character qualifications to be a Commission licensee. In its action granting the above-captioned applications, the staff concluded that no substantial and material question of fact existed warranting denial or designation of the applications for hearing, based on its review of the entire record, including an affidavit from Hooper stating that other than the consideration set forth in the settlement agreement he was neither paid nor promised anything for the dismissal of his application. In the instant application for review, Petitioners argue that notwithstanding the disputed amount of the payment from Thomas to Hooper, neither Thomas nor Hooper deny that Thomas reimbursed Hooper for his expenses pursuant to the settlement agreement, an action which Petitioners assert contravenes Section 311(c)(1) of the Act in view of the staff's failure to approve the terms of the agreement following dismissal of Hooper's competing application. 4. Section 311(c)(1) of the Act makes it unlawful for competing applicants to effectuate an agreement whereby an applicant withdraws its application without approval of the Commission. See 47 U.S.C. 311(c)(1). Section 73.3525(a) of the Commission's rules limits settlement payments among competing applicants for broadcast station construction permits to an applicant's legitimate and prudent out-of pocket expenses. See 47 C.F.R. 73.3525(a)(1); see also In re Amendment of Section 73.3525 of the Commission's Rules Regarding Settlement Agreements Among Applicants for Construction Permits, 6 FCC Rcd 85 (1990). Thomas acknowledges that he paid Hooper $7,500 pursuant to the terms of their September 1991 settlement agreement following advice from communications counsel and Commission staff that the Commission's November 1991 action dismissing the joint request for approval of settlement agreement as moot eliminated the requirement that the Commission approve such payment. 5. Pursuant to their September 1991 settlement agreement, Hooper agreed to obtain dismissal of his competing application in exchange for reimbursement from Thomas of his out-of-pocket expenses. Effectuation of the agreement therefore required prior Commission approval. Under the Commission's rules, agreements providing for the removal of a conflict between pending applications by dismissal of one or more competing applications shall be submitted for Commission approval within five days after entering into the agreement. See 47 C.F.R. 73.3525(a). The Commission's rules require approval of such agreements whether the parties seek dismissal through an affirmative request to dismiss or procure dismissal by failure to prosecute, as in the instant case. See 47 C.F.R. 73.3568(b). From the circumstances surrounding dismissal of Hooper's application, however, it is clear that neither party intended to deceive or mislead the Commission respecting the settlement agreement for which they had sought approval. Consequently, we find that the improper payment does not raise a substantial and material question of fact whether Thomas Development possesses the character qualifications to become a Commission licensee. Similarly, we note that while Thomas' payment of $7,500 to Hooper exceeded Hooper's documented out-of-pocket expenses by almost $1,777, the amount of the payment was consistent with that disclosed to the Commission in the settlement agreement originally submitted for Commission approval. We will therefore deny Petitioners' application for review with respect to the foregoing questions presented. In order to avoid future confusion on the part of competing applicants for broadcast facilities as appears to have occurred in this case, we want to make clear that when dismissing an application for construction permit for a broadcast station, the Commission must affirmatively approve or disapprove a pending request for approval of settlement agreement filed pursuant to Section 311(c)(1) of the Act if the settlement agreement has a continuing effect on the rights of the parties after the dismissal. 6. Radio Ownership Rules. Petitioners also allege that Thomas Development's acquisition of the subject stations constitutes excessive concentration of control in violation of the local radio ownership rules, 47 C.F.R. Sec. 73.3555. In this regard, the staff found that Thomas Development had demonstrated that there are more than 15 commercial radio stations in the relevant market defined by the area encompassed by principal community contours of KCQL(AM), KKFG-FM, KRZE(AM) and KRAZ-FM, the stations Thomas Development proposed to acquire. Additionally, the staff determined that the combined audience share of the four station combination was 11.3 percent, and thus that Thomas Development's ownership of the combination was permissible under the local ownership rules. Petitioners acknowledge that there are thirteen radio stations whose principal community contours intersect the principal community contours of the stations Thomas Development seeks to acquire, and thus that there are seventeen stations counted in the market when the contour overlap standard is applied. Furthermore, the Petitioners concede that the combined audience share of the stations is less than 25 percent. However, Petitioners argue that the relevant market is comprised of fewer than 15 stations and thus that the staff failed to adequately address their argument that ownership of this combination will nevertheless result in excessive concentration of control. Specifically, Petitioners contend that there are, at most, eight stations that will actually compete with the four stations that Thomas Development proposes to co-own. Consequently, Petitioners urge the Commission to find that the common ownership of four stations in a 12 station market is impermissible. 7. Petitioners assert that it is appropriate to count as stations in the market only stations whose principal community contours provide coverage to at least 92.5 percent of the population within the area encompassed by the principal community contours of the stations proposed for co-ownership. Using this method, Petitioners contend there are 12 stations in the market, including the four stations Thomas Development proposes to co-own. Moreover, Petitioners apparently argue in the alternative that it would also be appropriate to define the market as San Juan county, and that eleven stations serve this market- 10 "local" stations and a class C FM station licensed to Cortez, Colorado. Petitioners claim that their method for determining the number of stations in the market more accurately reflects the actual competition facing the proposed co-owned stations. In this regard, Petitioners assert that audience share data corroborates their assertion that it is appropriate to exclude from the market defined by the contour overlap standard stations which fail to serve at least 92.5 percent of the population within the principal community contours of the proposed co-owned stations. Petitioners argue that these stations either receive no audience share in San Juan county or only a small share of the San Juan county audience. 8. Petitioners' argument concerning the number of stations to be counted in the market is essentially an untimely request for reconsideration of the radio ownership rulemaking proceeding. When the local ownership rules were amended, the Commission rejected the use of geographic definitions, including the county in which the stations proposed for co-ownership are located, to determine the relevant radio market. Additionally, the Commission declined to determine the number of stations in a market by counting only those stations licensed to communities within the area encompassed by the principal community contours of the proposed co-owned stations. Instead, the Commission decided to use a contour overlap standard to determine the number of stations in a radio market. See In re Revision of Radio Rules and Policies, 7 FCC Rcd 2755 ("Report and Order"); recon. granted in part and denied in part, 7 FCC Rcd 6387 (1992) ("Recon. Order"). In this connection, the Commission concluded that: This count will be made with reference to a contour overlaps standard in all situations . . . . Specifically, we will define the radio market as that area encompassed by the principal community contours . . . of the mutually overlapping stations proposing to have common ownership. The number of stations in the market will be determined based on the principal community contours of all commercial stations whose principal community contours overlap or intersect the principal community contours of the commonly-owned and mutually overlapping stations . . . . Recon. Order, 7 FCC Rcd at 6395. The Commission found that the contour overlap standard addresses the core concerns of diversity and competition while reflecting the actual options available to listeners as well as the market conditions facing the particular stations in question. See Memorandum Opinion and Order, 7 FCC Rcd at 6395. Moreover, the Commission also noted that this standard for market definition is likely to be conservative because listeners in rural areas where there are few operating station, and thus low levels of daytime interference, may be able to receive signals beyond the predicted principal community contour. See Patteson Brothers , Inc., 8 FCC Rcd 7595, 7596, citing Report and Order, 7 FCC Rcd 2755, 2779. Although Petitioners argue that some of the stations counted in the market under the contour overlap standard receive little or no audience share in San Juan county, the audience share of a station is sensitive to many factors, including the programming offered on the station. See Recon. Order, 7 FCC Rcd at 6395. Consequently, the Commission has already determined that the contour overlap standard, and not market share, should be used to determine the number of stations in a given market. Id. 9. Thus, the Commission has already considered and rejected Petitioners alternative arguments that the number of stations in market should be determined by counting the stations serving the area within the principal community contours of the proposed co-owned stations or the county in which the proposed co-owned stations are located. See Patteson Brothers, 8 FCC Rcd at 7596. The contour overlap standard is embodied in 47 C.F.R. Sec. 73.3555(a)(3)(ii). Under these circumstances, the staff's application of the contour overlap standard, and thus its determination, pursuant to Section 73.3555(a)(3)(ii), that there are more than 15 stations in the market, was not, as Petitioners allege, arbitrary and capricious. See Pacific Gas & Electric Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974)(Agency entitled to apply properly adopted rule without entertaining challenge to policy underlying rule). Petitioners do not challenge the staff's finding that the combined audience share of the stations Thomas Development proposes to co-own is less than 25 percent, and have not otherwise demonstrated an anomaly in the audience share data used to calculate the stations' combined audience share. See Eads Broadcasting Corporation, 9 FCC Rcd 2859 (1994). We therefore affirm the staff's finding that grant of the assignment of the stations to Thomas Development is permissible under the multiple ownership rules. 10. Accordingly, for the foregoing reasons, IT IS ORDERED, that the motion to set aside grant of the above-captioned applications IS DENIED, and that, pursuant to 47 C.F.R. 1.115, the application for review filed by Basin Broadcasting, Kennland Broadcasting, and Dewey Matthew Runnels IS DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary