Good morning. Thank you for having me to your radio show.
The '96 Act
The 1996 Telecommunications Act was, in many ways, a revolutionary piece of legislation. As you well know, one of the most significant changes that Congress made in that Act was the revision of ownership limits for radio stations.
Congress rewrote the Communications Act so that it now imposes no limits at all on national radio station ownership. Congress also relaxed local limits under the Communications Act, allowing common ownership of as many as eight radio stations, depending on the size of the relevant market.
The '96 Telecommunications Act did not, however, repeal the antitrust laws or shut down the Department of Justice or the Federal Trade Commission. But the '96 Act does, in my opinion, limit the Federal Communication Commission's review of markets in radio mergers.
Let me be clear that my view on this topic is not widely shared at the Commission, and that I speak for no one but myself today.
Effect of Deregulation
Since implementation of the '96 Act, the market value of radio stations has shot skyward. In 1997, the first full year after the relaxation of ownership limits, the Bloomberg/Broadcasting & Cable radio index jumped 107% in twelve months. By comparison, their cable system index rose 59%, and the television index 41%. So radio dramatically outpaced its media brethren, at least in 1997.
Radio stocks outperformed the broader market even more dramatically. As compared to radio's 107% gain, the Dow Jones Industrial Average increased 23%, and the Standard & Poor 500 gained 31%. Some analysts predicted that radio stocks would continue to outperform the market in 1998, although that question has not yet been answered.
These results may well reflect the inefficiency of the prior era of regulation, in all of its glory, including the national ownership limits. I do not know what will ultimately happen to the radio industry, which new technologies will drive markets, which combination of assets are valuable and which are not, or which firms will succeed and which will fail. None of these issues is clearly within the scope of the FCC's governmental interests.
But I do worry about markets, and about the effects of excessive government regulation on markets. Free markets and competition are a consumer's best friend. Regulation is an impediment to markets. And excessive regulation, frankly, destroys markets.
You know, some folks worried about the effect of deregulation of the ownership caps on format diversity. That worry was not necessary, as time has told. After all, it makes little business sense for an owner of several stations in one market to program them identically. Group owners have every incentive to direct their programming at different market segments and use each station to aim at specific demographic groups, thereby maximizing the group's total audience reach. To do otherwise would be to forego audience share. To do otherwise would be irrational.
All of this change that has occurred in the wake of the '96 Act is potentially good for listeners. And it is apparently good for advertisers, who seem to be able to buy spots at lower prices due to the cost-savings that group owners may have achieved by using consolidated sales forces and operating systems.
Good News and Bad News
What Congress did in the '96 Act by loosening ownership limits, then, looks at this point in time to have been healthy economic reform. That reform seems to be working in your markets, as the financial performance of radio companies would appear to indicate. That is the good news.
The bad news is that the FCC is getting in the way of the market's realization of the full benefits of Congress' reform.
The FCC's Radio Merger Policy
I am talking about the FCC's budding "radio merger policy." Unfortunately for American radio owners, listeners, and advertisers, the FCC is not processing applications for radio mergers expeditiously. Worse, it is not processing them according to the terms of the law.
Instead, the FCC is attempting to impose its own view of the effects of consolidation on radio license transfer applications - a view that was, however, squarely rejected by the drafters of the '96 Act, a view that was on the losing side of the Congressional debate over radio deregulation.
Rolling Back Congress' Deregulation
As I see it, the Communications Act, as amended in 1996, sets the definitive standards for radio ownership enforced by the FCC. Other government agencies, with different statutory authority, may consider other factors. But the FCC may not go outside the bounds of the Communications Act. When Congress set the numerical limits in the Act for local ownership, Congress made a predictive judgment about how many stations any one person could own in a market without triggering FCC review.
Congress decided, for instance, that as long as no one person owned 9 or more stations in a large market, there was no reason to prohibit multiple ownership under the Communications Act. Clearly, Congress felt these limits were sufficient to protect the broadcast policies of diversity and competition: section 202(b), the local ownership section that sets forth the limits, is even called "local radio diversity."
In going out of its way to pick specific numerical limits geared to market size, Congress made its own rough cut as to what levels of ownership would be permissible under the communications statutes, the only law that the FCC is charged with implementing. The FCC has no power to second-guess those judgments. If a transaction meets the cut that Congress made in the Communications Act, that should be the end of the matter, as far as he FCC is concerned, with respect to competition and diversity.
Regrettably, even when a transaction meets Congress' test under the '96 Act, the Commission is still not granting these applications. Lately, the Commission has put some of these applications out for public comment with what it calls a "red flag," saying that - and perhaps we need a dramatic drum roll here -
BASED ON OUR INITIAL ANALYSIS OF THIS APPLICATION AND OTHER PUBLICLY AVAILABLE INFORMATION, INCLUDING ADVERTISING REVNUE SHARE DATA FROM THE BIA DATABASE, THE COMMISSION INTENDS TO C0NDUCT ADDITIONAL ANALYSIS OF THE OWNERSHIP CONCENTRATION IN THE RELEVANT MARKET. THI S ANALYSIS IS UNDERTAKEN PURSUANT TO THE COMMISSION'S OBLIGATION UNDER SECTION 310(D) OF THE COMMUNICATIONS ACT . . . TO GRANT AN APPLICATION TO TRANSFER OR ASSIGN A BROADCAST LICENSE OR PERMIT ONLY IF SO DOING SERVES THE PUBLIC INTEREST, CONVENIENCE, OR NECESSITY. WE REQUEST THAT ANYONE INTERESTED IN FILING A RESPONSE TO THIS NOTICE SPECIFICALLY ADDRESS THE ISSUE OF CONCENTRATION AND ITS EFFECT ON COMPETITION AND DIVERSITY IN THE BROADCAST MARKETS AT ISSUE.
There are many problems with this approach to reviewing license transfer applications. First of all, the section of the Communications Act that deals with radio ownership says nothing about advertising revenue share, the apparent test for determining whether petitions will be "flagged" for heightened scrutiny. I simply do not see where we get the authority to consider this information.
Moreover, the BIA database that the Commission seems to be using was not constructed for this form of market analysis. It was developed for entirely other purposes, and reliance upon it in the context of merger policy is thus a risky business.
Also, the "relevant market" that the notice purports to examine has no clear definition at the agency. While the term "relevant market" has a precise meaning in antitrust law, the FCC has never defined what the "relevant market" is for the radio stations that are subject to this additional inquiry.
Similarly vague and undefined is the "public interest" standard that the notice invokes as legal authority to conduct this analysis. The FCC has of course never set forth any real guidelines for the implementation of this standards - preferring instead a, shall we say, "flexible" approach that maximizes its discretion - and it has certainly never done so for purposes of radio mergers.
The chief problem with the FCC's current approach to radio transactions, though, is this: the Commission is using its generalized "public interest" authority to override and effectively nullify the specific judgments that Congress made about acceptable levels of concentration in radio under the Communications Act, and thus of the FCC's ability to review radio transactions. What authority does the Commission have to "conduct additional analysis of the ownership concentration in the relevant market" when that concentration is expressly permissible under the Communications Act?
Basically, the Commission disagrees with the ownership levels set by Congress in the '96 Act and is attempting to rewrite history with this back-door review. The Commission should not be rolling back Congress' determination to deregulate in this area by coming at the transactions through the back door of the "public interest" standard, effectively raising the legal bar set by the '96 Act, and making the implicit threat of a denial of the flagged applications, all when the directly relevant statutory provisions of the Communications Act affirmatively say that the transactions are lawful.
I know that many people are genuinely concerned about the effects of concentration in the radio industry. I am one of those people. But the United States has some of the toughest and best enforced antitrust laws in the world. They have and will continue to be enforced by the appropriate authorities.
The FCC is not an appropriate authority in antitrust, however. Although the Commission seems to be gearing up to conduct its own antitrust review to assess the "competitive effects" of radio mergers, we at the Commission - with the notable exception of my colleague Commissioner Powell - are definitely the "junior varsity." I say "junior varsity" not out of any sense of disrespect for the Commission as an institution, but in recognition of our limitations and out of respect for the expertise and unambiguous legal authority of the Antitrust Division of the United States Department of Justice.
For they are the varsity players on the antitrust field: they have the training, the experience, the funding, and most importantly, the direct statutory authority - indeed, the solemn duty - to see to it that the federal antitrust laws are faithfully executed. We do not have any of these things.
Moreover, for the FCC to conduct antitrust review is to duplicate the efforts of the Antitrust Division. To have two government agencies conducting essentially the same sort of review is simply a waste of federal resources. It also a waste of applicants funds', who must pay fees to lawyers and others in order to go through the same issues twice. If a particular radio deal raises competitive issues, I am confident that the Antitrust Division can and will handle the enforcement of antitrust rules.
Here is my final concern about the FCC's radio merger policy: neither you, nor your clients, know what it is. What set of facts triggers review of a radio merger at the Commission? If the Commission is deciding to "flag" certain transactions based on advertising revenue (not even designed for this purpose), what share numbers does it find unacceptable?
You can search the vast public record of Commission rules, regulations and decisions, and you will not find an answer to these questions. That information has not been made public. Nor have the screens that are seemingly being applied been promulgated pursuant to the notice and comment requirements of the Administrative Procedure Act.
I find that troubling. Whatever radio merger standards the FCC has that go above and beyond the rules set forth in the Communications Act - and, as I have explained, I do not think the FCC should have any such standards - they must be adopted pursuant to notice and comment and made known to the public. Otherwise, federal administrative law is made in a vacuum, and those who must comply with it have no idea what the relevant standards are before they get to the Commission.
Given this lack of public disclosure as to the rules of the road for radio mergers, it is particularly galling for the Commission to rely on the "public interest" standard. As I said earlier, the Commission has never given any limits to that term, either generally or for purposes of reviewing broadcast license transfers. And to invoke that standard based on a review of data not constructed for this purpose, and apply it to undefined markets, adds insult to injury.
But let's go back to the basic problem of regulatory uncertainty. This "gotcha" approach to federal regulation - you don't know what the test is until you find out that you didn't pass it - is bad policy. In fact, it's that kind of policy that offends the public interest, not radio deals that by all accounts meet the relevant statutory requirements that we are authorized to implement. It's that kind of policy, with all its uncertainty, that makes it difficult for Wall Street to back radio deals - at least not without compensation for the added risk, which, of course, is bad for would-be owners.
I believe that you and your clients should know in advance what the regulatory standards are for the deals you want to do. It is only the fair, and it is only the right, way to regulate. Because without your willingness to invest in the radio industry, it cannot succeed in the growing marketplace of communications technologies, where radio faces more and more competitors.
And that risk - the risk of losing our radio industry due to inadequate capital investment - is what poses the greatest long-term threat to "diversity and competition" in radio. If we destroy radio by excessive regulation, we won't have any diversity or competition to worry about.
Thank you very much.