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 P6QP.*2J=.,s&J\  P6Q&Pl+2N=.,&N4  pQ&,0J=.,33&J*f9 xQ&X.-P,%,'J,\  P6QJP..I(!,?,(\  P6Q,P{,C8*,3C*f9 xQX"5@^!)22SN!!28!2222222222888-\HCCH=7HH!'H=YHH7HC7=HH^HH=!!/2!-2-2-!222N2222!'22H22-006!!!!()!22H-H-H-H-H-YCC-=-=-=-=-!!!!H2H2H2H2H2H2H2H2H2H2H-H2H2H2H2H272H2H-H-C-C-C-=-=-=-H2H2HH2H2H2H2(2!2!!!2'H2==)H2H2H2YHC!C)7'7'N#-2!-22222KK2LL2K!!--2d!!22bd!-d!t!77778c<C,;C;C;,CC%%C%hCCCC,4%CC`CC;@@H!,,,,57,CC`;`;`;`;`;wYY;R;R;R;R;,%,%,%,%`C`C`C`C`C`C`C`C`C`C`;`C`C`C`C`CJC`C`;`;Y;Y;Y;R;R;R;`C`C``C`C`C`C5C,C,,,C4`CR%R7`C`C`Cw`Y,Y7J4J4N/!C,;C;C;,CC%%C%hCCCC,4%CC`CC;@@Hhhh,C;CC,J,whhhh,,;;/C,4,`hh`!,CCCCC,e%CK,eC5I((,M Paragraph (#  S('(#\I.Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1  S'II.Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5  S'III.Issues on Reconsideration . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9  S'A.` ` Requests to Lower the Current 30% Ownership Limit . . . . . . . . . . . . . . . . . . . . . . 9 ` ` 1. Consideration of Diversity Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ` ` 2. Alteration of the Status Quo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ` ` 3. Divestiture by TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ` ` 4. Current Levels of Horizontal Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ` ` 5. Impact of Other Statutory Provisions and Rules . . . . . . . . . . . . . . . . . . . . . . . . 46  S!'B.` ` Requests to Revise the Calculation Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ` ` 1. Inclusion of Affiliated Telephone Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ` ` 2. Exemption for Systems Facing Effective Competition. . . . . . . . . . . . . . . . . . . . . 60 ` ` 3. Attribution Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67  S %'IV.Motion to Lift Stay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72  S%'V.Further Notice of Proposed Rulemaking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78  S&'VI.Initial Regulatory Flexibility Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89"&0*''88%"Ԍ S'VII.Paper Work Reduction Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99  S'VIII.Procedural Provisions . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101  S'IX.Ordering Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Appendix A: List of Commenters  S' I. INTRODUCTION  S' e 1. ` ` This Second Memorandum Opinion and Order on Reconsideration and Further Notice  Sr' xkof Proposed Rulemaking ("Second Order on Reconsideration" or "Further Notice") addresses petitions for  SL ' xkreconsideration of the Second Report and Order in MM Docket No. 92264>L I yO 'ԍ8 FCC Rcd 8565 (1993).> ("Second Report and Order")  xfiled by the Center for Media Education/Consumer Federation of America ("CME/CFA") and Bell Atlantic  S ' xCorporation ("Bell Atlantic"). XI yO' x^ ԍPetition for Reconsideration of Center for Media Education & Consumer Federation of America (filed Dec. 15, 1993); Petition of Bell Atlantic for Limited Reconsideration (filed Dec. 15, 1993). Among other things, the Second Report and Order promulgated rules  xpursuant to Section 613 of the Communications Act, which requires the Commission to "prescribe rules  xand regulations establishing reasonable limits on the number of cable subscribers a person is authorized  xto reach through cable systems owned by such a person, or in which such a person has an attributable  S`' xQinterest" ("horizontal ownership rules").`I yO' x ԍSection 613 was adopted as Section 11(c) of Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102385, 106 Stat. 1460, 47 U.S.C.  533(f)(1)(A). The Commission's horizontal ownership rules established in the  S8' x3Second Report and Order provide that "no person or entity shall be permitted to reach more than 30%  xof all homes passed nationwide through cable systems owned by such person or entity or in which such  S' xperson or entity holds an attributable interest." I yO' x ԍ47 C.F.R.  76.503. As specified under 47 C.F.R.  76.503, note 1 (c), "Attributable Interest" is defined by reference to the criteria set forth in the Notes to the Commission's cable crossownership rules, 47 C.F.R.  76.501.  In addition, ownership of cable systems that reach up to  x35% of all homes passed nationwide is permitted "provided the additional cable systems, beyond 30% of  S'homes passed nationwide, are minoritycontrolled."` I yO' xg ԍ47 C.F.R.  76.503(b). For purposes of this regulation, "minoritycontrolled" is defined as "more than 50% owned by one or more members of a minority group." 46 C.F.R.  76.503, note 1(a).  SJ' e 2. ` ` In the Second Report and Order,PJ I {O!'ԍSecond Report and Order at  3.P the Commission voluntarily stayed the effective date  S$' x*of the horizontal ownership rules pending final judicial resolution of the District Court decision in Daniels"$J 0*&&88"  S' xCablevision, Inc. v. United States, I {Oh' x ԍDaniels Cablevision, Inc. v. United States, 835 F. Supp. 1, 10 (D.D.C. 1993), aff'd in part, rev'd in part, Time  {O2'Warner Entertainment Co., L.P. v. FCC, 93 F.3d 957 (D.C. Cir. 1996).  which held that the underlying statute violates the First Amendment.  S' xThe Daniels court expressly recognized that "there is substantial ground for difference of opinion" as to  S' xthe constitutionality of the underlying statute, meriting an immediate appeal of its judgment.8$I {Ox'ԍId. at 12.8  x3Accordingly, rather than enjoining the Commission from adopting and enforcing horizontal ownership  xrules, the court stayed further court proceedings, including determination and imposition of relief for the  S<' x"plaintiffs, pending appeal.1 <I {O 'ԍId.1 On December 15, 1993, CME/CFA moved that the Commission lift its  S' xadministrative stay.Z HI yO 'ԍCME/CFA Motion to Lift Stay (filed Dec. 15, 1993).Z The following month, Time Warner challenged the stayed rules in the D.C. Circuit  S' x<Court in Time Warner Entertainment Co., L. P. v. FCC.x I {Od'ԍTime Warner Entertainment Co., L. P. v. FCC, No. 941035 (D.C. Cir. 1994).x In August 1996, the D.C. Circuit Court  S' xconsolidated the Daniels appeal regarding the facial validity of the statute and the Time Warner challenge  xto the Commission's rules, and determined to hold court proceedings in abeyance while the Commission  Sx'reconsidered the horizontal ownership rules. xj I {O'ԍTime Warner Entertainment Co., L.P. v. FCC, 93 F.3d 957, 97980 (D.C. Cir. 1996).  S( ' e z3. ` ` In this Second Order on Reconsideration, the Commission maintains the current 30%  xZhorizontal ownership limit and denies the motion to lift the voluntary stay on enforcement of that limit.  x@We note that, while the most established programmers can obtain favorable terms from even the large  xcable multiple system operators ("MSOs"), the cable horizontal ownership rules remain necessary to  S ' xprevent MSOs from exercising market power against new, independent, and less prominent programmers.  I yO&' xk ԍThe consequent growth of these alternative programmers ultimately may help to check the exercise of market power by the most established programmers.  xIn order to facilitate monitoring of cable ownership interests, the Commission hereby lifts the voluntary  x&stay insofar as it applies to the information reporting requirements of 47 C.F.R.  76.503(c). Prior to  x@acquiring attributable interests in any additional cable systems, a person holding an attributable interest  xin cable systems reaching 20% or more of homes passed nationwide will be required to notify the  x}Commission of the incremental change the acquisition makes in terms of the 30% of homes passed  xpstandard, i.e. specifying the ownership in terms of homes passed before and after the acquisition is complete.  S"' e 4. ` ` In the Further Notice, we seek comment on possible revisions of the horizontal ownership  x7rules and the method by which horizontal ownership is calculated. Specifically, we ask whether changes  xare needed to provide a more accurate measure of horizontal concentration to reflect changes in the market  S' xas alternative MVPDs continue to grow in the future. The Further Notice seeks comment on two possible"T 0*&&88"  xchanges in the manner that the rules are applied: (1) whether the rules should consider the presence in  xthe market of all MVPDs rather than cable operators alone; and (2) whether the rules should be based on  xactual subscribers rather than on homes passed. Specifically, comment is sought on whether the rules  xshould provide that the number of cable subscribers an entity is authorized to reach through cable systems,  xwhen combined with the number of subscribers reached by that entity through other MVPD systems, may not exceed 30% of all MVPD subscribers nationwide.  S' II.BACKGROUND  S' e W5. ` ` The 1992 Cable Act and its legislative history indicate heightened Congressional concern  xregarding horizontal concentration among cable multiple system operators. Witnesses at the Congressional  xhearings, including representatives of the MSOs themselves, testified to the need for cable horizontal  S ' xownership limits to preserve competition and protect the public interest.BZ I {O ' x ԍSee, e.g., Report of the Senate Committee on Commerce, Science and Transportation, S. Rep. No. 92, 102d  x* Cong., 1st Sess. 34 (1991) ("Senate Report") (testimony of John Malone, TCI Chairman, regarding need for cable horizontal ownership limits).B Section 613(f) of the  xCommunications Act (Section 11(c) of the 1992 Cable Act) requires that the Commission, "[i]n order to  x&enhance effective competition . . . prescribe rules and regulations establishing reasonable limits on the  xnumber of cable subscribers a person is authorized to reach through cable systems owned by such a  S 'person, or in which such a person has an attributable interest."D I yO 'ԍ47 U.S.C.  533(f)(1)(A).D  S0' e 6. ` ` In adopting Section 613, Congress also recognized that multiple system ownership can  xbenefit consumers. The House Report stated that cable industry consolidation has benefited consumers  x by allowing efficiencies in the administration, distribution and procurement of programming, and also  xknoted that concentration of cable MSOs may help promote the introduction of new programming services  S' xxby providing capital and a ready subscriber base for new services.zI {O' x ԍReport of the House Committee on Energy and Commerce, H.R. Rep. No. 102628, 102d Cong., 2d Sess. 43 (1992) ("House Report"). The House Report also observed that  Sh' xDlarge cable MSOs can take competitive and programming risks that smaller operators cannot.1hI {O'ԍId.1 Similarly,  xthe Senate Report acknowledged that horizontal concentration can create efficiencies from lower  S'transaction costs in carriage negotiations between programmers and cable operators.Bf I yO 'ԍSenate Report at 33.B " 0*&&88n"Ԍ S' e `7. ` ` Recognizing these conflicting factors, Congress directed in Section 613(f)(2) that, in  xMaddition to other public interest concerns, the Commission must consider and balance seven particular public interest objectives:  S`' e (1)` ` to ensure that no cable operator or group of cable operators can unfairly impede the flow of video programming from the programmer to the consumer;(#`   S' e (2)` ` to ensure that cable operators do not favor affiliated video programmers in determining  e `carriage and do not unreasonably restrict the flow of video programming of affiliated video programmers to other video distributors;(#`  SH ' e (3)` ` to take account of the market structure, ownership patterns, and other relationships of the  e cable industry, including the market power of the local franchise, joint ownership of cable systems and video programmers, and the various types of nonequity controlling interests;(#`   S ' e (4)` ` to take into account any efficiencies and other benefits that might be gained through increased ownership or control;(#`  S0' e ,(5)` ` to make rules and regulations that reflect the dynamic nature of the communications marketplace;(#`  S' e (6)` ` to impose no limitations that prevent cable operators from serving previously unserved rural areas;(#`  S@' e (7)` ` to impose no limitations that will impair the development of diverse and high quality  S'programming.< I yO' x ԍ47 U.S.C.  533(f)(2). Beginning in 1994, the Commission has issued annual reports on the status of  {OH' xH competition in the delivery of video programming. In these annual Competition Reports, the Commission has noted  x the potential benefits as well as the potential competitive concerns of increased national horizontal concentration  {O' x among cable MSOs. See First Annual Report, In the Matter of Annual Assessment of the Status of Competition in  {O' xD the Market for the Delivery of Video Programming, FCC 94235, CS Docket No. 9448, 9 FCC Rcd 7442 at  148 {On' x 155 (1994) ("1994 Competition Report"); Second Annual Report, In the Matter of Annual Assessment of the Status  {O8' xD of Competition in the Market for the Delivery of Video Programming, FCC 95491, CS Docket No. 9561, 11 FCC  {O' x Rcd 2060 at  131, 146 (1995) ("1995 Competition Report"); Third Annual Report, In the Matter of Annual  {O' x Assessment of the Status of Competition in the Market for the Delivery of Video Programming, FCC 96496, CS  {O' x Docket No. 96133, 12 FCC Rcd 4358 at  138139 (1997) ("1996 Competition Report"); Fourth Annual Report,  x< In the Matter of Annual Assessment of the Status of Competition in the Market for the Delivery of Video  {O( ' xc Programming, FCC 97423, CS Docket No. 97141 at  14014, 149 (rel. Jan. 13, 1998) ("1997 Competition  {O 'Report").(#`  S' e '8. ` ` Based on an assessment of these factors, in the Second Report and Order, the Commission  xadopted a horizontal ownership limit prohibiting any person from having an attributable interest in cable  xtsystems that in the aggregate reach more than 30% of cable homes passed nationwide. We found that  xthis 30% ownership limit struck the proper balance between (1) ensuring that the structure of the cable"R 0*&&88m"  xindustry nationwide limited the possibility that large cable MSOs might exercise excessive market power  xin the purchase of video programming, and (2) ensuring that the majority of MSOs could continue to  xexpand and benefit from the economies of scale necessary to encourage investment in new video  S' xprogramming services, diverse program offerings, and the deployment of advanced cable technologies.xI {O'#X\  P6G;ߌP#эSecond Report and Order at  25.x  xIn order to promote minority ownership and diversity, we also adopted the minoritycontrol allowance,  x7which allows an MSO to reach an additional 5% of homes passed by cable nationwide if these homes are  S' xQreached by cable systems that are more than 50% owned by one or more members of a minority group.=ZI {O 'ԍId. at  28.=  S' III.ISSUES ON RECONSIDERATION  SH ' A.` ` Requests to Lower the Current 30% Ownership Limit  S ' e 9. ` ` In its reconsideration petition, CME/CFA requested that the Commission lower the current  S ' xlimit on the number of homes passed by cable systems owned by any one entity from 30% to 10%20%.> I yO\'ԍCME/CFA Petition at 4.>  S ' xViacom, in its comments, argued for a 15% limit.Q |I yO'ԍViacom Comments on CME/CFA Petition at 2.Q The arguments raised by CME/CFA and Viacom  x against the Commission's 30% limit fall into five broad categories consideration of diversity issues;  xkalteration of the status quo; divestiture by TeleCommunications, Inc. ("TCI"); current levels of horizontal concentration; and impact of other statutes and rules. We address the arguments for each category below.  S'` ` 1.   Consideration of Diversity Issues  S'` `  a.Background  S@' e S 10. ` ` CME/CFA argued that the Commission did not give sufficient consideration to media  xdiversity concerns in setting the 30% limit and that "[p]romoting First Amendment diversity may well  S'require limits below that needed to address anticompetitive concerns alone."@ I yO'ԍCME/CFA Petition at 34.@  S' e  11. ` ` Opposing reconsideration of the 30% limit, TCI noted that the CME/CFA diversity  xargument does not even attempt to balance the pros and cons of horizontal concentration, as the  xkCommission is required to do by Section 613. TCI noted that Congress, the Commission, the courts, and  xantitrust scholars and economists uniformly have recognized that horizontal ownership can enhance"(0*&&88"  xconsumer welfare and that this enhancement must be considered in addition to diversity aims.  S'CME/CFA's diversity argument focuses only on the potential negative consequences of horizontal concentration.RI yO@'ԍTCI Opposition to CME/CFA Petition at 23.R  S'` `  b.Discussion  S8' e  12. ` ` Congress specifically directed that the Commission "impose no limitations that will impair  S' xQthe development of diverse and high quality programming."XI {O ' x ԍ47 U.S.C.  533(f)(2)(G); see also House Report at 4243 ("[D]iversity of information sources can only be  xk assured by imposing limits on the ownership of media outlets that are substantially below those that a traditional  x antitrust analysis would support"); Senate Report at 32 ("[T]here are special concerns about concentration of the  xZ media in the hands of a few who may control the dissemination of information. The concern is that the media  x gatekeepers will (1) slant information according to their own biases, or (2) provide no outlet for unorthodox or unpopular speech because it does not sell well, or both."). Promoting diversity of ownership has been  S' xa longstanding policy of the Commission.h\I {OZ' x ԍFor a broad assessment of the Commission's diversity analysis in the mass media context, see Further Notice  {O$' x of Proposed Rule Making, Review of the Commission's Regulations Governing Television Broadcasting, MM Docket No. 91221, 10 FCC Rcd 3524 at  5480 (1994).h Diversity of information sources and viewpoints can be  xthreatened by substantial concentration among cable system operators. Moreover, as the Commission has  xfound, entry by new MVPDs is neither cheap nor easy and cable system operators remain the dominant  Sp' xdistributors of video programming.]p I {O'ԍ1997 Competition Report  126, 128, 150.] As a result, decreases in diversity of information sources or  xkviewpoints that accompany increased concentration among purchasers of programming may not be easily remedied.  S ' e 0 13. ` ` Diversity is not the sole factor the Commission must consider in promulgating the cable  xghorizontal ownership limits. As indicated above (paragraph 7), Section 613 lists seven public interest  S ' xfactors that the Commission must balance in making a decision.K I {O'ԍSee 47 U.S.C.  533(f)(2).K Before reaching a determination that  x30% was a proper limit, the Commission twice requested public comment regarding the benefits and  S0' xMproblems of horizontal concentration among cable MSOs.0I {O' x ԍSee Notice of Proposed Rule Making and Notice of Inquiry, Implementation of Sections 11 and 13 of the Cable  {O' x Television Consumer Protection and Competition Act of 1992, 8 FCC Rcd 210 at  37 (1992) ("First Notice and  {O~ ' x NOI"); Report and Order and Further Notice of Proposed Rule Making, Implementation of Sections 11 and 13 of  {OH!' xt the Cable Television Consumer Protection and Competition Act of 1992, 8 FCC Rcd 6928 at  13952 (1993)  {O"'("First Report and Further Notice").Ġ In addition to considering diversity aims,  xthe Commission considered the possibility that large MSOs might have the ability to preclude the launch  xof new video programming services (as required by public interest factors (1) and (2) above), the benefits  xand efficiencies that result from horizontal concentration (as required by public interest factor (4)), and"0*&&88k"  S' xQthe relative impact of other statutes and rules in addressing competitive concerns regarding large MSOs.XI {Oh'ԍSecond Report and Order at  2526.X  S' x3In the Second Report and Order, the Commission specifically noted that Section 19 of the 1992 Cable  xAct (the program access requirements), Sections 4 and 5 of the 1992 Cable Act (the mustcarry  xrequirements), and Section 612 of the Communications Act (the leased access requirements), combined  xIwith the 30% ownership limit, "will be appropriate to address the diversity aims which underlie the  S:' xstatutory horizontal ownership provisions."C :ZI {O4'ԍId. at  26.C The Commission also considered diversity in allowing  xZownership of additional cable systems up to 35% of cable homes passed, provided the additional cable  S'systems are minoritycontrolled.C!I {Ov 'ԍId. at  28.C  S' e  14. ` ` We believe the 30% horizontal ownership limit adopted by the Commission provides  xconsiderable protection for diversity concerns. The record in this docket clearly demonstrates that the  xCommission took into consideration diversity concerns in adopting the 30% cable horizontal ownership  xlimits. The Commission balanced those considerations, as required by Section 613, with many other  xfactors, some of which support the growth of cable MSOs. In fact, the Commission's consideration of  xdiversity concerns is reflected by the fact that we adopted a horizontal ownership limit lower than one that  S ' x7might have been indicated by a traditional antitrust analysis alone."Z ~I yO' x ԍHouse Report at 4243. In monopolization cases, the burden is on the plaintiff to prove that the defendant has  xt monopoly power and this "virtually never" occurs when a defendant has a market share less than 50%. ABA  {OX'Section of Antitrust Law, Antitrust Law Developments (Fourth) 236 (1997). The Commission was concerned that  xha lower horizontal ownership limit could "impair the development of diverse and high quality  SZ' x^programming."D#ZI yO'ԍ47 U.S.C.  533(f)(2)(G).D The Commission properly concluded that a 30% limit is generally appropriate to prevent  xthe largest MSOs from gaining excessive leverage, and also ensures that the majority of MSOs continue  xto expand and obtain the economies of scale necessary to encourage investment in new video  S'programming services and the deployment of advanced cable technologies.Q$0 I {O'ԍSecond Report and Order at  25.Q  S'` ` 2. Alteration of the Status Quo  SB'` `  a.Background  S' e 15. ` ` CME/CFA asserted that the 30% horizontal ownership limit is too high because it does  S' xnot alter the status quo. CME/CFA contended that the Commission "failed to acknowledge that existing  xlevels of horizontal concentration are too high," citing a passage from the Senate Report stating that large" $0*&&885"  S' xMSOs have market power visavis programmers._%I yOh'ԍCME/CFA Petition at 4 (citing Senate Report at 24, 33)._ Arguing that Congress had made a specific finding  xcthat MSOs have the power to exact equity from programmers in exchange for carriage, CME/CFA  S' x^asserted that Congress sought to change the status quo in the 1992 Cable Act.:&XI {O'ԍId. at 411.: In their reply comments,  xgCME/CFA argued, without citing any specific legislative history, that the 1992 Cable Act was intended  S`' xEto reverse the Commission's decision in the 1990 Cable Report not to adopt ownership limits.-'`I {O' x ԍCME/CFA Reply to Oppositions at 24 (citing Rate Deregulation & the Commission's Policies Relating to the  {O 'Provision of Cable Television Serv., Report on Competition, 5 FCC Rcd 4962 (1990) ("1990 Cable Report")).-  S:' xCME/CFA stated that the 30% limit in the Second Report and Order resembles the balance struck by the  S' xgCommission in its 1990 Cable Report more than those envisioned in the 1992 Act, and that the Second  S' x@Report and Order substituted the 1990 Cable Report judgment for the requirements of the 1992 Cable  S'Act.9(FI {O'ԍId. at 24.9  Sx' e 16. ` ` Time Warner Entertainment Co., L.P. ("Time Warner") and the National Cable Television  xAssociation ("NCTA") argued the Commission was given the discretion to balance competing concerns  S( 'by Congress and disagreed that the 1992 Cable Act requires the Commission to alter the status quo.)( I yO'ԍTime Warner Opposition to CME/CFA Petition at 78; NCTA Opposition to CME/CFA Petition at 78.  S '` `  b.Discussion  S ' e 17. ` ` The issue here is one of statutory interpretation whether Congress, in enacting Section  x613, made a final determination that then current levels of horizontal concentration were too high,  xrequiring the Commission to adopt rules to force divestiture and to reduce horizontal concentration. We  xbelieve that the text of Section 613 is clear that the Commission was given the discretion to adopt limits that may or may not require divestiture.  S' e 18. ` ` Section 613 gives the Commission the discretion "to prescribe rules and regulations  Sp' xgestablishing reasonable limits on the number of cable subscribers a person is authorized to reach ...."U*ph I yOx'ԍ47 U.S.C.  533(f)(1)(A) (emphasis added).U  SJ' xCME/CFA's argument ignores that the statute does not direct the Commission to alter the status quo by  xordering divestiture by any cable MSO. Instead, Congress required that the Commission set "reasonable limits" and left the parameters of what "reasonable limits" would be to Commission discretion.  S' e 19. ` ` Further, we note that this construction of the statute is supported by the legislative history.  xThe Senate Report explicitly states that "[t]he legislation does not imply that any existing company must" *0*&&88"  S' xZbe divested and gives the FCC flexibility to determine what limits are reasonable."<+I yOh'ԍSenate Report at 34.< The House Report  xQstates that: "Currently, the largest MSO controls access to almost 25 percent of all US cable subscribers.  xAlthough this percentage may appear low relative to other industries, the Committee believes that it may  xbe quite significant depending on the subscriber level needed to launch and sustain a cable programming  S`' xservice.";,`XI yOX'ԍHouse Report at 42.; The language of the House Report is significant on this point. While it demonstrates Congress'  xconcern about current levels of horizontal concentration, it expressly does not make a final conclusion,  xtbut simply states that current levels "may be quite significant depending on" the number of subscribers  S'needed to launch and sustain a programming service.1-I {Op 'ԍId.1  S' e  20. ` ` The statute and the legislative history make clear that the Commission was not required  xto alter current industry structure, but to consider the potential public interest concerns associated with the industry structure. The Commission fully considered such interests.  S '` ` 3. Divestiture by TCI  S '` `  a.Background  SX' e q21.  ` ` CME/CFA asserted that the Second Report and Order was too concerned about avoiding  S2' xdivestiture by TCI and was not focused on consumer welfare.A.2zI yOL'ԍCME/CFA Petition at 411.A Arguing that the legislative history of  xSection 613 indicates that divestiture might be warranted, CME/CFA contended that a passage in the  xSenate Report stating that the legislation "does not imply that any existing company must be divested"  S' xexpressly left open the possibility of divestiture.V/ I {Od'ԍId. (quoting Senate Report at 34).V CME/CFA urged that the Commission not be deterred  x^from imposing horizontal limits which would require TCI to divest, as Congress required the Commission  xto weigh seven public interest considerations, none of which was to ensure that MSOs could continue to  SB'expand.=0BI yO~'ԍCME/CFA Reply at 24.=  S4 e 22. ` ` Viacom agreed with CME/CFA that the Second Report and Order placed too much  xreliance on language in the Senate Report which states that the limit "does not imply that any existing  x*company must be divested." Viacom argued that the legislative history does not prohibit the Commission  xfrom adopting a limit that would require divestiture, but, at most, only indicates that the Commission  xshould not promulgate rules which would impose divestiture if the divestiture were not in the public  x/interest. Viacom stated that divestiture is relevant and should be considered by the Commission in", , 00*&&88"  xadopting horizontal ownership rules, but that avoiding divestiture should not override the public interest  S'concern regarding excess MSO market power against unaffiliated programmers.?1I yO@'ԍViacom Comments at 78.?  S' e 023. ` ` Time Warner, TCI, Liberty Media Corporation ("Liberty Media"), and NCTA responded  xDthat the Commission's decision not to order divestiture by TCI was based upon the finding that there was  xan "absence of definitive evidence that existing levels of ownership are sufficient to impede the entry of  S' xtnew video programmers or have an adverse effect on diversity."2XI {O ' x ԍTime Warner Opposition at 78; NCTA Opposition at 78; Liberty Media Reply at 911 (quoting Second  {O 'Report and Order at  27). Liberty Media argued that, since no  xgprogrammer claimed in the original proceeding that any cable operator had exercised horizontal market  xpower and no commenter introduced empirical evidence of such power, it was proper for the Commission  S' x+to make this finding.D3I yO 'ԍLiberty Media Reply at 911.D NCTA argued that avoiding divestiture was not the driving factor in the  xQCommission's decision, as the Commission considered a number of factors in proposing and adopting the  xlimits, including avoiding potential disruption in existing ownership and the absence of definitive evidence  S 'that existing levels of ownership are harmful.4 DI {O'ԍNCTA Opposition at 78 (quoting Second Report and Order at  27); NCTA Reply Comments at 34.  S '` `  b. Discussion  S ' e 24. ` ` We agree with Viacom and CME/CFA that the Commission has the authority under  xSection 613 to order divestiture. We disagree with CME/CFA to the extent they argue that the  xCommission should not consider the full impact divestiture would entail before promulgating such rules.  xInquiry into the impact divestiture would have upon subscribers, programmers and industry investment  x}are legitimate public interest objectives that the Commission is entitled to consider. A rule requiring  S' xMdivestiture must be based on consideration of all relevant factors.5I {O.' x ԍIn Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971), the Supreme Court held that courts  xp reviewing agency action under the arbitrary and capricious standard must make a "searching and careful"  {O' x examination of "whether the decision was based on a consideration of the relevant factors. . . ." See also Greater  {O' x Boston Television Corp. v. FCC, 444 F.2d 841, 85053 (D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971) (the  x; function of a reviewing court "is to assure that the agency has given reasoned consideration to all the material facts and issues"). We believe that the Second Report  S' xDand Order properly considered whether the substantial structural change that divestiture would entail was warranted.  S' e  25. ` ` We reject CME/CFA's argument that the impact of ordering divestiture should not have  x7entered into the Commission's decisionmaking because it is not one of the seven specificallyenumerated  xQpublic interest factors of Section 613. The statute explicitly contemplates that the factors enumerated are" T 50*&&88>"  S' xg"among other public interest objectives" that the Commission is to consider.]6ZI {Oh' xt ԍ47 U.S.C.  533(f)(2); see Greater Boston Television, 444 F.2d at 85053 ("Assuming consistency with law  x and the legislative mandate, the agency has latitude not merely to find facts and make judgments, but also to select the policies deemed in the public interest.").] Assessing the impact of  xdivestiture is consistent with Section 613's directive that the Commission "take particular account of the  xtmarket structure" and "not impose limitations which would impair the development of diverse and high  S'quality video programming."R7I yO'ԍ47 U.S.C.  533(f)(2)(C), (E), (G).R  S8' e 26. ` ` In both the First Report and Further Notice and the Second Report and Order, the  xCommission considered arguments for low limits that would require divestiture. The Commission based  x&its final decision not solely on a determination to avoid divestiture, as CME/CFA suggested, but, more  xkimportantly, upon the public interest requirements of Section 613. In its initial comments, the Association  S' xof Independent Television Stations, Inc. argued for a 10% subscriber cap.8zI {O' xk ԍSee Association of Independent Television Stations, Inc. Initial [Feb. 1993] Comments at 7; First Report and  {O~'Further Notice at  146. In the First Report and  St' xtFurther Notice, the Commission stated that this proposal not only would require divestiture but "would  SN ' xsacrifice the efficiencies achieved by horizontal concentration."Z9N I {O'ԍFirst Report and Further Notice at  148.Z The Commission determined that the  S& ' xMproposal would "be contrary to the legislative history" of Section 613.7:& h I {O.'ԍId.7 The Commission asked in the  S ' xgFirst Report and Further Notice that parties "favoring limits below 25%" that would require divestiture  x"discuss the effect that such divestiture would have on service to subscribers, programming carriage  S ' xtagreements, and on future MSO investment in new programming and technology."D; I {OJ'ԍId. at  149.D The Commission  xemphasized the overarching importance of striking "the proper balance among the competing public  xinterest objectives Congress directed us to consider" in setting the horizontal ownership limit, without  S8'excluding the possibility of divestiture.><8 I {Od'ԍId. at  134.>  S' e d27. ` ` In the Second Report and Order, the Commission again considered proposals that would  x*have required divestiture by the largest MSO, TCI, and also discussed the other effects divestiture would  xcreate. The Commission, after considering the "statutory factors and . . . the preponderance of the data  xprovided in the record," concluded that a 30% limit was appropriate because it would "prevent the nation's  x7largest MSOs from gaining enhanced leverage from increased horizontal concentration" while "ensur[ing]  xthat the majority of MSOs continue to expand and benefit" from the positive aspects of increased"" <0*&&88"  S' xxconcentration.Q=I {Oh'ԍSecond Report and Order at  25.Q The Commission expressly confronted the divestiture issue and explicitly determined that  x"in the absence of definitive evidence that existing levels of ownership are sufficient to impede the entry  xof new video programmers or have an adverse effect on diversity, existing arrangements should not be  S'disrupted."C>ZI {O'ԍId. at  27.C  S8'` ` 4. Current Levels of Horizontal Concentration  S'` `  a.Background  S' e m28. ` ` CME/CFA asserted that the Second Report and Order did not sufficiently address the  xkevidence that the largest MSO, TCI, already has market power and uses its market power to disadvantage  SJ ' xcompeting program services.A?J I yO'ԍCME/CFA Petition at 411.A CME/CFA argued that, from a competitive standpoint, the Commission  S" '"fail[ed] to acknowledge that existing levels of horizontal concentration are too high."9@" |I {O>'ԍId. at 24.9  S ' e  29. ` ` Viacom argued that a lower limit is needed because, based upon its own experience, 40  xmillion subscribers are necessary for an advertisingsupported, basic cable programming network to be  S ' x*successful.A I yO0' x ԍViacom Comments at 9. Viacom estimated that 40 million subscribers equaled approximately 69.1% of cable  {O'subscribers nationwide at the time of Viacom's filing. Id. Viacom extrapolated from this figure its argument that no MSO should be allowed to come  x3close to controlling access to enough subscribers that would prevent a programmer from reaching 40  x@million homes i.e., based on 1993 cable subscribership figures, no MSO should be allowed to come  x&close to controlling access to 30.9% of cable subscribers. Viacom also asserted that the then current  xlevels of market concentration allowed large MSOs to drive down the license fees they pay to  x programmers. This, Viacom argued, affects the entire market for license fees and drives them down  x^across the board. The result is that programmers cannot spend as much on development, thus potentially  Sj'reducing the diversity and quality of programming available to subscribers.1Bjh I {Or'ԍId.1  S' e 30. ` ` Both CME/CFA and Viacom provided anecdotal evidence to support their belief that TCI,  xthe nation's largest MSO, is too large. CME/CFA cited the Federal Trade Commission's ("FTC")  xgagreement with TCI and Liberty Media forcing divestiture of QVC, Inc. ("QVC")X01Í ÍX01Í Í as evidence that TCI  S' x/possesses currently anticompetitive influence resulting from its large horizontal size.C 1 {O<$' x! #X\  P6G;ߌP#эCME/CFA Petition at 78 (citing TeleCommunications, Inc., et al.; Proposed Consent Agreement with Analysis  {O%'to Aid Public Comment, 58 Fed. Reg. 63167 (Nov. 30, 1993)). In addition," V C0*&&885"  xCME/CFA cited Viacom's antitrust complaint against TCI and claimed that, according to the Viacom  x@complaint, TCI had dropped Viacom's The Movie Channel in favor of TCI affiliate Encore Media, and  xhad withheld affiliation with Viacom's Showtime to force Showtime either to merge with Encore Media  S' xor be destroyed.D1 {O' x #X\  P6G;ߌP#эId. at 89 (citing Viacom International, Inc. v. Telecommunications, Inc., Liberty Media, et. al, Civ. No. 93CIV6658(KC) (filed S.D.N.Y. Sept. 23, 1993)); CME/CFA Reply at 3. CME/CFA asserted that, if TCI can wield power over Viacom and its popular  xnetworks, it certainly has power to preclude the launching of new programming from smaller  S8' xprogrammers.E8"1 yO"'#X\  P6G;ߌP#эCME/CFA Petition at 711; CME/CFA Reply at 3. CME/CFA also cited a passage in the Senate Report stating that "[w]itnesses at the  xhearings testified that. . . [MSOs have the power] to determine what programming services can 'make it'  S' xon cable."wF1 {Ob '#X\  P6G;ߌP#эId. (quoting Senate Report at 33).w CME/CFA argued that independent programmers' failure to argue for lower levels of  xconcentration previously in this docket indicates "their reasonable fear of offending the MSOs who, after  S'all, have it in their power to put them out of business."kGl1 yO'#X\  P6G;ߌP#эCME/CFA Petition at 3, 711.k  SH ' e 31. ` ` Viacom stated that TCI's anticompetitive conduct led Viacom, after the initial comment  x*periods in this proceeding closed, to file its antitrust complaint against TCI, Liberty Media and others and  xalso convinced Viacom that stricter horizontal rules are necessary to prevent anticompetitive conduct in  S 'the market for programming services.zHX 1 yOl' x" #X\  P6G;ߌP#эViacom Motion for Leave to File Response and Response at 23. Pursuant to Section 1.415(d) of the  x Commission's rules, we deny Viacom's motion to submit its latefiled response. However, we will consider Viacom's response as informal comments under Section 1.419(b).z  S ' e q32. ` ` All other cable operators filing comments strenuously opposed the argument that current  xklevels of horizontal concentration are "too high." TCI stated that the arguments of CME/CFA and Viacom  x@fail to recognize the current benefits of horizontal concentration, which the Commission is required to  S' xconsider under its statutory mandate.eI 1 yO'#X\  P6G;ߌP#эTCI Opposition at 23.e TCI also asserted that horizontal concentration allows MSOs to  xachieve economies of scale in research and development of transmission and distribution technology and  xkachieve considerable savings in administrative costs such as billing operations, advertising, marketing, and  xmanagement. In addition, Time Warner stated that the costs of negotiating with programmers are reduced  Sh'on both sides of the table.Jh 1 {O '#X\  P6G;ߌP#эTime Warner Opposition at 35; see also House Report at 43.  S' e  33. ` ` TCI argued that under traditional antitrust analysis, the then current ownership level of  xMSOs did not equate to high concentration, citing legislative history which reported that the Herfindahl x*Hirshman Index ("HHI") of the top 20 MSOs was 491 and the FourFirm Ratio was 36%, well below the  xDepartment of Justice thresholds of 1,000 and 50%. TCI stated that these levels did not indicate that"> J0*&&88"  S' xMSOs are able to extract unreasonable concessions from their suppliers.oK1 {Oh'#X\  P6G;ߌP#эSee TCI Opposition at 45.o Time Warner pointed out that  xan MSO's incentive to undertake a foreclosure strategy is counterbalanced by desires to increase  S' xtsubscribership and decrease churning of programming.LZ1 {O'#X\  P6G;ߌP#эTime Warner Opposition at 89; see also Senate Report at 24. TCI also submitted a report from a group of  xeconomists that recommended against setting low ownership limits because, due to MSOs' recognition that  xgtheir own success depends on the availability of a high quantity and quality of programming, increased  x^concentration "will not affect the array of programming selected and distributed by the cable operator and  S'therefore will not distort the allocation of resources in the production of program services."M1 {O ' xk #X\  P6G;ߌP#эStanley M. Besen, Steven R. Brenner and John R. Woodbury, An Economic Analysis of the FCC's Proposed  {Of 'Cable Ownership Restrictions at 1922 (attached to TCI Opposition).  S' e !34. ` ` Cable MSOs and programmers also strongly disputed Viacom's suggestion that 40 million  xsubscribers are required for success. Several pointed out that a number of successful cable networks had  Sp' xnever achieved penetration levels above 60% to 70%.NpH1 {OX' x #X\  P6G;ߌP#эSee Time Warner Opposition at 67 (BET and Country Music Television in operation for years with levels below 6070%). Time Warner argued that there is no "magic"  SH ' x*level of penetration that necessarily assures, or prevents, a programming service's commercial success.OH 1 yO'#X\  P6G;ߌP#эTime Warner Reply to Viacom Comments at 6; Time Warner Opposition at 67.  xcTurner Broadcasting System, Inc. ("TBS") pointed out in its opposition that ESPN2, an unaffiliated  xIprogrammer, already had over 10 million subscribers, one million more than the vertically affiliated  xZCartoon Network, and the thenunaffiliated SciFi Channel was regarded as successful with 15 million  S ' xsubscribers.wP 2 1 yO'#X\  P6G;ߌP#эTBS Opposition to CME/CFA Petition at 2.w Liberty Media stated that 46 of the 68 listed national basic cable networks then had fewer  S 'than 40 million subscribers.qQ 1 yO '#X\  P6G;ߌP#эLiberty Media Opposition at 1011.q  S0' e i"35. ` ` TCI and Liberty Media responded to CME/CFA and Viacom's specific charges of  xanticompetitive conduct by arguing that the charges were unsupported. TCI argued that the consent decree  xcannot be used as evidence against TCI. TCI also stated that no competitive problems were ever proved  x^in the QVC matter and that TCI divested its interest solely because it did not want to interfere with QVC's  S' x&tender offer for Paramount.Rz 1 {O ' x #X\  P6G;ߌP#эSee Testimony of John C. Malone (TCI Chairman and CEO) before the Senate Subcommittee on Antitrust, Monopolies and Business Rights (Dec. 16, 1993) (attached to TCI Opposition). Liberty Media argued that the agreement with the FTC was intended to"R0*&&88;"  S' xaddress vertical concerns and not horizontal size.S"1 {Oh' xQ #X\  P6G;ߌP#эSee Liberty Media Opposition at 9, quoting Statement of Mary Lou Steptoe before the Senate Subcommittee  x on Antitrust, Monopolies and Business Rights, Committee on the Judiciary 56 (Nov. 18, 1993) ("Since the alleged  xQ competitive problems stem from the vertical link between TCI/LMC and QVC, the FTC's consent order addresses them by severing that link."). TCI and Liberty Media stated that Viacom's antitrust suit was filed in the  xZcontext of its attempt to prevent QVC from acquiring Paramount. Given this history, TCI and Liberty  xMedia argued that it would be improper for the Commission to decide its cable horizontal ownership  x*limits based upon unproven allegations made by a competitor with the desire to enhance Viacom's efforts  S8' xto increase its own ownership concentration in several markets.T81 yO '#X\  P6G;ߌP#эTCI Opposition at 67; Liberty Media Opposition at 812; Liberty Media Reply at 1215. TBS discounted Viacom's allegations  S' xxagainst TCI as "an extension of its current jihad with TCI."vUB1 yO '#X\  P6G;ߌP#эTBS Response to Viacom's Comments at 1.v Time Warner stated that Viacom's argument  S'consists of unproven allegations.hV1 yOZ'#X\  P6G;ߌP#эTime Warner Reply at 35.h  S' e m#36. ` ` Time Warner also pointed out that during the prior comment period, no programmer,  x/either failed or successful, proposed or wellestablished, claimed that any cable operator exercised  xhorizontal market power, and no commenter introduced any empirical evidence of the exercise of such  S ' xmarket power.`W b 1 {O"'#X\  P6G;ߌP#эId. at 35.` Liberty Media argued that without this evidence, the Commission appropriately  x&determined that cable horizontal ownership limits that freeze or reduce existing ownership levels were  S 'unjustified.mX 1 yO'#X\  P6G;ߌP#эLiberty Media Opposition at 6.m  S '` `  b. Discussion  S0' e $37. ` ` As stated above, the Commission found in the Second Report and Order that 30% was  xan appropriate limit "in the absence of definitive evidence that existing levels of ownership are sufficient  S' xto impede the entry of new video programmers or have an adverse affect on diversity ..."xY 1 {O.'#X\  P6G;ߌP#эSecond Report and Order at  27.x The legislative  xhistory of Section 613 indicates Congress' concern that excessive horizontal concentration had the potential  xpto facilitate the anticompetitive exercise of monopsony power and adversely impact the diversity of  Sj' xgprogramming.gZj> 1 yOH"'#X\  P6G;ߌP#эSenate Report at 3233. g Because cable MSOs generally purchase cable programming on a national level and at  xgthe same time distribute that programming to consumers on a local level through the locally franchised  xcable system, assessing the impact of cable concentration by examining both the national programming  S' xDmarket and the local distribution market is appropriate. In the Second Report and Order, the Commission"Z0*&&88"  xfound that a 30% limit was "appropriate to prevent the nation's largest MSOs from gaining enhanced  S' xleverage from increased horizontal concentration."x[1 {O@'#X\  P6G;ߌP#эSecond Report and Order at 25.x The Commission then concluded that the 30% limit  xis "reasonable to prevent the types of anticompetitive conduct which concerned Congress, particularly  x&when coupled with the behavioral restrictions contained in [the program access and program carriage  S`' xprovisions] . . . . "j\`Z1 {OZ'#X\  P6G;ߌP#эId. at  26.j In this reconsideration proceeding, no one has proffered any new evidence that  xrequires the Commission to alter this finding. Moreover, we believe the 30% limit complies with the intent of Congress and satisfies the criteria specified in Section 613.  S' e #%38. ` ` In enacting Section 613, Congress expressed concern about concentration of the media  S' xin the hands of a few "media gatekeepers'' who could control dissemination of information.g]1 yO$ '#X\  P6G;ߌP#эSenate Report at 32, 33.g The  xaccumulation of market share on a national level by a single or small number of large cable MSOs could  xdiminish the diversity of programming available to most households in the United States. As of June  x1997, there were more than 64 million cable subscribers representing more than 66% of all television  S ' xhouseholds in the United States.^ |1 {O'#X\  P6G;ߌP#э1997 Competition Report at  14 and 15. As such, cable television remains a primary source of information and  xprogramming for many households in the United States. The 30% rule limits the extent to which one or a few large cable MSOs could reduce the diversity of programming in the United States.  SX' e &39. ` ` The 30% limit diminishes the likelihood that either a large cable MSO acting unilaterally  xuor a group of cable MSOs acting in concert could exercise market power in the purchase of  S' xprogramming._1 {O' xg #X\  P6G;ߌP#эSee generally, David Waterman and Andrew Weiss, VERTICAL INTEGRATION IN CABLE TELEVISION (1997) at 5586 and 128141. While the exercise of market power could result in lower negotiated programming costs  xfor these MSOs in the short run, it could also adversely affect the development of diverse and innovative  xprogramming in the long run. In addition to preserving the development of programming, the 30% limit  S' x^decreases the likelihood that a large cable MSO acting unilaterally could coerce nonaffiliated programmers  Sh'into denying programming to alternative MVPDs, such as a DBS provider.`"hh 1 {Op' xt #X\  P6G;ߌP#эSee also 47 U.S.C.  548(b), which makes it "unlawful for a cable operator . . . to engage in unfair methods  xD of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or  x to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers."  S' e '40. ` ` The 30% limit may serve to facilitate the development of competition in those markets  xkwhere cable MSO market power already exists. The rule limits the extent to which large cable MSOs can  xmerge and result in one or two MSO's controlling local cable markets nationwide. Limiting this merger  xpotential may preserve opportunities for entry by overbuilders or other MVPD providers and reduce the"R `0*&&88"  xlikelihood that large MSOs can coordinate their behavior by mutually forbearing from overbuilding each  xother's service territories. Coordinated activity between cable MSOs, whether tacit or overt, is more likely  xwith few firms than many (due to greater ease in reaching a consensus, monitoring compliance, and  xxpunishing cheaters), and such behavior will have a greater impact the larger combined share of the market  xthese collusive firms control. The 30% limit also reduces the likelihood of coordinated activity between  xlarge cable MSOs in areas such as program purchasing and equipment purchasing (e.g., set top boxes and  S'converters).3a1 {Ox' x #X\  P6G;ߌP#э#X\  P6G;ߌP#See generally, James L. Langenfeld and Louis Silvia, Federal Trade Commission Horizontal Restraint Cases:  {OB' x An Economic Perspective, ANTITRUST LAW JOURNAL (1993); Alexis Jacquemin and Margaret E. Slade, Cartels,  {O ' x Collusion, and Horizontal Merger, HANDBOOK OF INDUSTRIAL ORGANIZATION, Richard Schmalensee and Robert  {O ' x Willig, ed., (1990); see also, NCAA v. University of Oklahoma, 468 U.S. 85 (1984); Northwest Wholesale Stationers,  {O 'Inc. v. Pacific Stationary and Printing Co., 105 S.Ct. 2613 (1985).3  S' e (41. ` ` The 30% limit permits cable MSOs to cluster systems in order to gain efficiencies related  xto economies of scale and scope in administration, deployment of new technologies and services,  Sp' xgextension into previously unserved territories, etc..bp1 {O'#X\  P6G;ߌP#эE.g., Second Report and Order at 2526; 1997 Competition Report at  140148. Accordingly, the 30% limit simultaneously guards  xagainst the potential anticompetitive effects of horizontal concentration and allows cable MSOs to realize the benefits of clustering.  S ' e )42. ` ` The 30% limit is a structural complement to the program access provisions.c 1 yO'#X\  P6G;ߌP#э47 U.S.C. 628; 47 C.F.R. 76.1000 et seq. The  xhorizontal ownership rules limit the potential for anticompetitive abuses of purchasing power in areas  xoutside of the core areas covered by the program access rules, such as programming contracts between  x^cable operators and nonvertically integrated programmers or contracts involving programming that is not  xVdelivered to cable operators via satellites. In addition, structural regulation generally is more easily  xenforced and detected than conduct regulation. We recognize that a large market share does not in and  S' x3of itself indicate that a firm or a collection of firms has the ability to exercise market power or engage  S' xin anticompetitive behavior.d\1 {O' xM #X\  P6G;ߌP#эSee, e.g., In re Motion of AT&T Corp. to be Reclassified as a NonDominant Carrier, 11 FCC Rcd 3271  yO' x (1995). We also recognize that the courts have generally found that a firm can not successfully obtain a monopoly  {O'with less than a 30% market share. Antitrust Law Developments (Fourth) 29899 and cases cited therein. Nevertheless, structural regulation imposes far fewer economic costs on  xthe market than regulatory models that use primarily price or casespecific conduct regulation as a way  Sh'to mitigate strategic, anticompetitive behavior.eh 1 {O ' xM #X\  P6G;ߌP#эCf., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, reh'g denied, 509 U.S. 940 (1993).  S' e *43. ` ` It appears that the current level of concentration among cable MSOs has not prevented  xgan expansion in programming sources and networks. The nation's largest cable MSO reached 24% of""e0*&&88a"  S' xhomes passed by cable in 1990;df1 yOh'#X\  P6G;ߌP#эSenate Report at 32. d grew to 27% by 1993;vgX1 {O'#X\  P6G;ߌP#эSecond Report and Order at n. 40.v and reached 29.32% at the time of the 1997  S' xCompetition Report.h1 {Od' x #X\  P6G;ߌP#э1997 Competition Report at Appendix E, Table E3. Because the Commission's reporting requirements have  x* been stayed along with the horizontal ownership limit, we currently do not have sufficient information regarding  x the many joint ventures and other transactions, recently announced by cable MSOs such as TCI, Cablevision,  x! Adelphia, Falcon, TimeWarner, etc., to determine conclusively whether these transactions will result in attributable ownership interests that would place some MSOs above the 30% threshold. At the same time, our annual competition reports indicate a gradual but continuous  xgrowth and expansion in both cableaffiliated and independent programming sources and programming  S' xnetworks.ki1 {O '#X\  P6G;ߌP#эId. at  158.k This evidence tends to suggest that the Commission properly struck a reasonable balance  xbetween concentration and diversity concerns. Thus, contrary to CFA's allegations, the actual evidence  xto date suggests that allowing a cable MSO to own systems reaching 30% of homes passed has not significantly hampered new video programmers' entry in the programming market.  S' e 1+44. ` ` Viacom's argument that 40 million subscribers are needed for a national cable  xprogramming network to be successful is not supported by the record. Other parties in the proceeding  xhave presented evidence disputing Viacom's 40 million figure, including several examples of cable  xprogramming services (such as BET, Nickelodeon, ESPN2) that were successful before reaching 40  xmillion subscribers. Prior comments in this docket also provide data that 40 million subscribers are not  S ' xnecessary for a national, basic cable programming network to be successful.]jZ . 1 {O' x #X\  P6G;ߌP#эSee Time Warner Initial [Feb. 1993] Comments at 2729 and TCI Initial [Feb. 1993] Comments at 2425 (both  xx listing several apparently successful national basic cable programming networks with below 40 million subscriber penetration).] Commenters, including  xnew networks, in other proceedings before the Commission likewise have stated that a new national,  S 'advertisersupported network requires a threshold subscriber base of ten to twenty million subscribers.lkN P 1 {O' x #X\  P6G;ߌP#эSee Outdoor Life Network, Speedvision Network, The Golf Channel, BET on Jazz, and America's Health  {Of' xc Network Comments at 1113, 34, 36 in Closed Captioning and Video Description of Video Programming,  {O0' xQ Implementation of Section 305 of the Telecommunications Act of 1996, Video Programming Accessibility, MM  xx Docket No. 95176; Affidavit of Christopher H. Murvin at 8, Affidavit of Jefferi K. Lee at 6, and Affidavit of Roger  {O' x Williams at 8 in Implementation of Sections of the Cable Television Consumer Protection and Competition Act of  {O' xM 1992: Rate Regulation (Leased Access), MM Docket No. 92266 & CS Docket No. 9660; Program Providers  {OV ' x Comments at 12 in Implementation of Sections of the Cable Television Consumer Protection and Competition Act  {O !'of 1992: Rate Regulation (Going Forward), MM Dockets Nos. 92266 & 96215.l  S\' e ,45. ` ` The 1997 Competition Report estimates the total number of MVPD subscribers nationwide  S6' xto be 73,646,970.l6f1 {O<%'#X\  P6G;ߌP#э1997 Competition Report at Appendix E, Table E1. Consequently, a programmer that fails to sell its product to an MSO having 30% of"6l0*&&88"  xDcable homes passed nationwide still would have the opportunity to reach (through the remaining MVPDs)  x"over 50 million subscribers, well over the threshold for national success. Many among the top 50  xprogrammers nationwide, including MSNBC, the Disney Channel, and Turner Classic Movies, reach  S' xsubstantially less than 40 million subscribers.rm1 {O'#X\  P6G;ߌP#эId. at Appendix F, Table F6.r Neither Viacom nor CME/CFA has provided sufficient  xZgrounds to warrant a lowering of the 30% horizontal ownership limit and freezing or reducing existing levels of cable ownership.  S'` ` 5. Impact of Other Statutory Provisions and Rules  S'` `  a.Background  SH ' e -46. ` ` CME/CFA argued that the Commission's reliance in the Second Report and Order upon  xexisting statutes and regulations, such as the program access and carriage rules, as a justification for  xhigher ownership limits was improper because structural regulations provide "a superior means of  S 'promoting diversity compared to behavioral regulations."n  Z1 yO' x #X\  P6G;ߌP#эCME/CFA Petition at 3. The Commission notes that in its original comments in this proceeding, CFA argued  xt that the Commission should "proceed with great caution and consider the effect of implementation of the rate  xo regulation and program access provisions of the 1992 Cable Act when creating rules with respect to cable ownership limits and concentration." CFA Initial [Feb. 1993] Comments at 3.  S ' e .47. ` ` Viacom also asserted that the Commission should not have relied on other sections of the  SZ' x1992 Cable Act, such as program carriage and access provisions,koZB1 yO<'#X\  P6G;ߌP#э47 U.S.C.  536, 548.k mustcarry requirements,kpZ1 yO'#X\  P6G;ߌP#э47 U.S.C.  534, 535.k channel  S2' xkoccupancy limits,kq2b 1 yO4'#X\  P6G;ߌP#э47 U.S.C.  533(f)(1)(B).k and leased access requirements.br2 1 yO'#X\  P6G;ߌP#э47 U.S.C.  532.b Viacom argued that Congress did not indicate that  xthe Commission should calibrate the cable horizontal ownership rules to take these provisions into  xaccount, as these provisions were enacted with purposes separate from the cable horizontal ownership  xVprovision. Viacom stated that these other provisions probably will not have any practical impact on  xrestraining anticompetitive conduct of cable operators: leased access is probably not a viable option for  xgprogrammers, mustcarry provisions are for television broadcasters (not unaffiliated programmers like  xQViacom), and the program access provisions only require MSOs to offer their own programming to other  xdistributors. Viacom also argued that although the program carriage provisions prohibit cable operators  xQfrom extracting a financial interest or exclusivity rights in exchange for programming carriage, the statute  xdoes not address the issue arising when an MSO "solely by virtue of the size of its subscriber base" has  xMmarket power to determine whether a programming service can reach the critical mass of subscribers" r0*&&88"  xneeded to succeed. Viacom also stated that programmers are not likely to bring program carriage  S'complaints against the largest MSOs, who are their biggest customers and therefore essential to success.fs1 yO@'#X\  P6G;ߌP#эViacom Comments at 45.f  S' e ~/48. ` ` Liberty Media and Time Warner responded by arguing that the existing restrictions in the  xD1992 Cable Act support maintaining the 30% ownership limit. Liberty Media argued that the Commission  x3properly considered the cumulative effect of these regulations to protect against the exertion of undue  S' xpower over the success of new video services.tX1 yO '#X\  P6G;ߌP#эLiberty Media Opposition to CME/CFA Petition at 67. Time Warner agreed, stating that the cable horizontal  xownership limits should not be viewed as an isolated measure and that the cumulative effect of all  S' xprovisions and rules should be taken into account.ku1 yOH '#X\  P6G;ߌP#эTime Warner Opposition at 5.k Liberty Media also pointed out that Viacom had  S' xtaken completely the opposite position on this point in the initial comment round in this docket.jvx1 yO'#X\  P6G;ߌP#эLiberty Media Reply at 59.j NCTA  xstated that Congress directed the Commission to take into account the market structure, ownership patterns  xand other relationships in the industry in establishing these limits, and that the Commission found that the  xcumulative effect of all these rules should protect against any one cable operator's exertion of excessive  S 'market power.yw 1 yO'#X\  P6G;ߌP#эNCTA Opposition at 78; NCTA Reply at 35.y  S '` `  b.Discussion  SX' e 049. ` ` We believe that the Second Report and Order properly considered the impact of other  xrules and statutes since the public interest requirements of Section 613 require the Commission to examine  xthe marketplace as it currently operates, which includes the effects of current Commission rules and  xstatutes. Specifically, the public interest factors of Section 613 state that the Commission is to "take  xVparticular account of the market structure, ownership patterns, and other relationships of the cable  xtelevision industry," "account for any efficiencies and other benefits that might be gained through  xincreased ownership or control," "make such rules and regulations reflect the dynamic nature of the  xccommunications marketplace," and "not impose limitations which would impair the development of  S'diverse and high quality video programming."zx1 yOR'#X\  P6G;ߌP#э47 U.S.C.  533(f)(2)(C), (D), (E), (G).z  S' e 150. ` ` Statutes and rules such as the program access, program carriage, channel occupancy limits,  xand mustcarry requirements all affect the way the cable television industry currently operates and have  Sz' xa profound effect on current industry structure and performance. For example, in the 1994 Competition  ST' x@Report, the Commission stated that, "[t]o the extent that large MSOs used their power over vertically xintegrated programmers to obtain exclusive distribution rights to satellitedelivered programming, and  x&those exclusive rights disadvantaged competitors of those large MSOs, the 1992 Cable Act's program"( x0*&&88["  x}access provisions and the Commission's program access rules appear to have largely addressed the  S' x7problem."yy1 {Oh'#X\  P6G;ߌP#э1994 Competition Report at  149.y In the 1997 Competition Report, the Commission noted that "the program access rules have  x@been credited as having been a necessary factor in the development of both the DBS [direct broadcast  S' xxsatellite] and MMDS [multichannel multipoint distribution service] industries."6z&1 {O' x7 #X\  P6G;ߌP#э1997 Competition Report at  230. See also Second Report and Order at  54 ("carriage of broadcast, PEG  x [public, educational, and governmental] and leased access channels promote diversity and provides alternative  {O>' x sources of unaffiliated programming to cable subscribers in furtherance of the statutory objectives"); First Order  {O'on Reconsideration at  27 (reaffirming same).6 Because these provisions  xthave real and substantive impact upon the market, the Commission, in setting the horizontal ownership  xlimit, may properly consider the impact of these provisions in alleviating some of the public interest and  S'anticompetitive concerns about horizontal concentration.{p1 yO" ' x #X\  P6G;ߌP#эTo insure that our other rules have their continued efficacy, we have explored, where necessary, suitable  {O ' xb adjustments to these rules. See, e.g., Memorandum Opinion and Order and Notice of Proposed Rulemaking, In the  x! Matter of Implementation of the Cable Television Consumer Protection and Competition Act of 1992, Petition for  x  Rulemaking of Ameritech New Media, Inc. Regarding Development of Competition and Diversity in Video  {OD'Programming Distribution and Carriage, FCC 97415, CS Docket no. 97248, RM No. 9097 (rel. Dec. 18, 1997).   S' e m251. ` ` In addition to CME/CFA's argument that the Commission should not have placed any  xreliance on the impact of these other statutes and rules, both CME/CFA and Viacom argued that the  xCommission placed too much weight on the impact of these other statutes and rules on alleviating  SJ ' xcompetitive concerns. In the Second Report and Order, the Commission recognized that anticompetitive  xDconcerns might indeed be present under the current market structure. The Commission did not conclude  xthat statutory provisions and rules such as the program carriage and access provisions, the mustcarry  xrequirements, and the channel occupancy limits were sufficient by themselves to address anticompetitive  xxconcerns about horizontal concentration. The Commission did find that, when combined with these other  xpstatutory provisions and rules addressing similar concerns, the 30% horizontal ownership limit was  x/"reasonable" and stated that: "The cumulative effect of these regulations coupled with a horizontal  xownership limit of 30% should protect against any one cable system exerting undue power that could  xprevent the success of new video programming services or `unfairly impede the flow of video  S' xprogramming to the consumer.'"|$ 1 {O'#X\  P6G;ߌP#эSecond Report and Order at  26 (quoting 47 U.S.C.  533(f)(2)(A)). The Commission's weighing of these other statutory provisions and  S'rules in crafting the rules adopted in the Second Report and Order was appropriate.  Sn' B.` ` Requests to Revise the Calculation Factors  S'` ` 1. Inclusion of Affiliated Telephone Companies  S'` `  a.Background  S~' e W352. ` ` CME/CFA requested that the Commission take into account in the calculation of "homes  xpassed" the number of telephone households of a telephone company affiliated with an MSO. CME/CFA"V |0*&&88"  xDargued that the current regulations do not take into account proposed mergers and joint ventures between  xZtelephone companies and cable companies e.g., the (then) proposed merger of Bell Atlantic and TCI  xthat would have resulted in access to 40% of all U.S. households, either through Bell Atlantic telephone  x lines or TCI's cable systems. CME/CFA argued that just as "homes passed" measures potential cable  xsubscribers, telephone customers should be viewed as potential "cable subscribers" via video dialtone or  xtbroadband networks. CME/CFA argued that if cable and telephone companies merge, the potential for  S' x*direct competition in their overlapping areas is removed and smaller video programmers are threatened.i}1 yOx'#X\  P6G;ߌP#эCME/CFA Petition at 1113.i  xCME/CFA further stated that its proposed expansion of the horizontal ownership rules is a logical  xkoutgrowth of the "homes passes" standard, as potential VDT subscribers are functionally indistinguishable  S'from potential cable subscribers.d~X1 yO '#X\  P6G;ߌP#эCME/CFA Reply at 57.d  SH ' e 453. ` ` MSOs and telephone companies uniformly responded that the Commission does not have  S ' xgthe authority under Section 613 to treat telephone customers as "cable subscribers."  1 yO' x< #X\  P6G;ߌP#эTime Warner Opposition at 910; TCI Opposition at 8; Liberty Media Opposition at 1213; U S West  x Communications, Inc. Opposition to CME/CFA Petition at 13; GTE Service Corporation Opposition to CME/CFA  x Petition at 2; BellSouth Telecommunications, Inc. Opposition to CME/CFA Petition at 37; Bell Atlantic Opposition to CME/CFA Petition at 25. NCTA and Bell  x/Atlantic argued that Section 613 specifically refers to "cable subscribers" reachable through "cable  xsystems" and that VDT and other systems are not regarded as "cable services or systems" in their  S ' xrespective proceedings. 1 yO'#X\  P6G;ߌP#эNCTA Opposition at 910; Bell Atlantic Opposition at 25. U S West Communications, Inc. ("U S West") argued that the Communications  xAct's definition of "cable system" specifically excludes common carrier facilities subject to Title II of the  SX' xgCommunications Act.X` 1 {OX'#X\  P6G;ߌP#эU S West Opposition at 2 (citing 47 U.S.C.  522(7)). In addition, Bell Atlantic argued that VDT service is not a single "facility" that  xincludes the necessary signal generation, reception and control equipment required of a "cable system,"  xysince a VDT network's generation and transmission equipment will generally be provided by the  S' xprogrammers.m 1 yOr'#X\  P6G;ߌP#эBell Atlantic Opposition at 4.m GTE Service Corporation ("GTE"), BellSouth Telecommunications, Inc. ("BellSouth")  xand Bell Atlantic also stressed that unlike cable, VDT is an openaccess, subscriber controlled system  xwhere the subscriber will not be the programming captive of the telephone company, because the  Sh' xptelephone company is a common carrier.h 1 {O!'#X\  P6G;ߌP#эId. at 45; GTE Opposition at 2; BellSouth Opposition at 57. Liberty Media pointed out that the proposal ignores the  xCommission's rules prohibiting a telephone company from acquiring a cable system within its telephone  S'service area.1 yO$'#X\  P6G;ߌP#эLiberty Media Opposition at 1213 (discussing 47 C.F.R.  63.54(d)(3))."0*&&88"Ԍ S' e ԙ554. ` ` Time Warner argued that the CME/CFA proposal would discourage telephone investment  S' xtin cable and would be fundamentally at odds with the Commission's "two wires" policy.n1 yO@'#X\  P6G;ߌP#эTime Warner Opposition at 910.n NCTA also  x stated that CME/CFA's proposition is absurd because it would require the Commission to consider all  S'telephone subscribers as "potential cable customers" in determining the percentages.gX1 yO'#X\  P6G;ߌP#эNCTA Opposition at 910.g  S8' e 5655. ` ` Bell Atlantic posited that the proposal would impose an arbitrary limit on the very  xcompanies capable of succeeding as new entrants against the cable companies and would provide a  xdisincentive in creating and upgrading VDT services. According to Bell Atlantic, under its then proposed  xmerger with TCI, Bell Atlantic would have upgraded TCI's systems to allow telephone service in  xcompetition with incumbent telephone companies. TCI would have divested itself of cable systems in Bell  xDAtlantic's region and Bell Atlantic would have upgraded its networks to compete with these systems. Bell  xAtlantic noted that similar arrangements were included in other cabletelco transactions proposed at the  S 'time the comments were filed.o 1 yO'#X\  P6G;ߌP#эBell Atlantic Opposition at 58.o  S ' e 756. ` ` Liberty Media also stated that since the Commission Notices in this docket did not  xmention potential application of the limits to telephone customers, to extend the limits would violate the  S 'Administrative Procedure Act ("APA").Z x1 {O' x #X\  P6G;ߌP#эLiberty Media Opposition at 1213 (citing National Black Media Coalition v. FCC, 791 F.2d 1016, 102223  x (2d Cir. 1986) (although final rule need not be an "exact replica of the rule proposed in the Notice," the Notice must be sufficient "to give the public advance notice of the scope of its proceedings")).  S0' e  857. ` ` CME/CFA responded that the Commission always has the authority to regulate in ways  x&"reasonably ancillary to the effective performance of the Commission's various responsibilities for the  S' xregulation of television broadcasting."1 {O'#X\  P6G;ߌP#эCME/CFA Reply at 57 (quoting United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968)). The Commission has authority under the "reasonably ancillary"  S' xtest to achieve "long established" goals or "ultimate purposes.", 1 {O'#X\  P6G;ߌP#эId. (citing Home Box Office, Inc. v. FCC, 567 F.2d 9, 28 (D.C. Cir.), cert. denied, 434 U.S. 829 (1977)). CME/CFA asserted that, since the  xCommission had power before Section 613 to impose horizontal limits on the cable industry, the  xtCommission certainly has authority to adopt limits which include affiliated telephone subscribers under  S@' xthe "reasonably ancillary" standard.b@ 1 yO!'#X\  P6G;ߌP#эCME/CFA Reply at 7.b However, CME/CFA stated, that if the Commission finds that  xconsiderations of fairness and the APA require further rulemaking, the Commission should initiate such a procedure. "N 0*&&88K"Ԍ S'` `  b.Discussion  S' e ~958. ` ` Section 613 specifically authorizes the Commission to place limits on "cable subscribers"  S' xa person may reach through "cable systems."1 yO'#X\  P6G;ߌP#эNCTA Opposition at 910; Bell Atlantic Opposition at 2. Where the use of a telephone company's lines is limited  xto the provision of local exchange services, we see no reason why that company's telephone subscribers  S8' x"should be counted as cable subscribers for the purposes of the cable horizontal ownership limit.8X1 yO0'#X\  P6G;ߌP#эWe note that the proposed TCIBell Atlantic merger was never consummated.  xLikewise, the cable horizontal ownership limit does not apply to subscribers of a telephone company that  xoffers multichannel video programming distribution service solely through means other than a "cable  S'system."{Z1 {OH ' x #X\  P6G;ߌP#эSee 47 U.S.C.  651 (setting forth options for telephone companies entering the video marketplace). We note  x that the Commission's VDT rules and policies were repealed by Section 302(b)(3) of the 1996 Telecommunications Act, Pub. L. No. 104104, 110 Stat. 56.{  Sp' e #:59. ` ` We note, however, that if a telephone company offers multichannel video programming  xdistribution service to subscribers through a "cable system," the households passed by that cable system  S ' xwould be regarded as "cable households" for purposes of the cable horizontal ownership rules.N" 1 yO' x #X\  P6G;ߌP#эThis standard is consistent with the current horizontal ownership limit, which is based on the cable system's  x potential reach, i.e., the number of homes passed. We note, however, that we are revisiting this issue under the  {OZ' x Further Notice of Rulemaking and seek comment on the possibility of changing the method of calculating the horizontal ownership limit from potential reach to actual reach, i.e., the number of subscribers served.N As  xdiscussed below, the Commission will be seeking further comment on possible revisions to the rules to  xDtake into account all MVPD subscribers, such that a person would be allowed to reach fewer subscribers  xZthrough cable systems if that person also reaches a large percentage of MVPD subscribers nationwide through other MVPD systems, including video distribution by a telephone company.  S0'` ` 2. Exemption for Systems Facing Effective Competition  S'` `  a.Background  S' e ;60. ` ` Bell Atlantic proposed that homes in franchise areas facing "effective competition" not  Sh' xbe included in calculating whether an operator has reached the 30% limit.mh 1 yO'#X\  P6G;ߌP#эBell Atlantic Petition at 12.m To illustrate Bell Atlantic's  xproposal, assume that cable company A passed 25% of cable homes nationwide, but 5% of these cable  x&households were in areas subject to "effective competition." Under Bell Atlantic's proposal, if 10% of  x"the cable homes passed nationally were in franchise areas subject to "effective competition," cable" 0*&&88"  S' xcompany A's horizontal share under the rules would not be 25% but would be 22%. 1 yOh' x* #X\  P6G;ߌP#эTo see how this result is reached, assume that 100 million homes are passed nationally, and cable company  x A serves 25 million of these. If 10% of the nation were in "competitive" markets, the number of households not  x subject to competition would be 90 million. Cable company A serves 20 million of these, resulting in a percentage of 20/90 or 22%. Bell Atlantic  xargued that horizontal ownership limits are only required to combat the local monopoly and "gatekeeper"  xpower of cable systems, so that the justification for these limits disappear where local distribution markets  S'are competitive.`1 {O'#X\  P6G;ߌP#эId. at 25.`  S8' e <61. ` ` Bell Atlantic argued that subjecting systems under "effective competition" to the horizontal  xownership limits will harm competition in the industry. Bell Atlantic contends that, in exempting  xcompetitive markets from rate regulation, Congress recognized that competition eliminates the ability of  xcable operators in those markets to exercise market power and that continued regulatory constraints hinder  xflexibility in those markets. According to Bell Atlantic, Congress found that cable operators' ability to  xZexercise market power arises from lack of competition in local service areas. As a result, Bell Atlantic  xasserts, national market power over programmers is diminished by the presence of competition at the local  S 'level. B1 {O'#X\  P6G;ߌP##X\  P6G;ߌP#эId. at 13, 46.  S ' e 0=62. ` ` CME/CFA argued that Bell Atlantic's argument ignores Congress' wellfounded concern  S ' xthat MSOs exercise market power at the national level by dint of sheer size. 1 yO'#X\  P6G;ߌP#эCME/CFA Opposition to Bell Atlantic Petition at 3. Congress did not provide  xQan "effective competition" exception here, as it did for rates in Section 3 of the 1992 Cable Act, indicating  SX' xthat Congress did not intend such an exception.XXd 1 S\'ԍ#X\  P6G;ߌP#Id.X CME/CFA noted that Bell Atlantic provides no  xMevidence that the presence of local competition diminishes the incentive or ability of cable operators to  S' xfavor affiliated programmers and disfavor independents.^ 1 S'ԍ#X\  P6G;ߌP#Id. at 4.^ CME/CFA argued that it is not clear how  xsporadic local competition seriously undermines the power which flows from "being able to provide ready S' xmade subscriber levels."` 1 S'ԍ#X\  P6G;ߌP#Id. at 67.` CME/CFA also pointed out that, because years and "billions of dollars" were  xQrequired before VDT was to become operational, VDT systems at that time could not compete with cable  Sh' xor offer independent programmers a viable alternative to delivery by cable.^hD1 SL#'ԍ#X\  P6G;ߌP#Id. at 5.^ Since broadcasters are  xsubject to analogous limits despite vigorous competition from local stations, CME/CFA stated that there"@0*&&88"  xis no reason for making local competition a basis for dropping the horizontal ownership limits on  S'MSOs.`1 {Oh'#X\  P6G;ߌP#эId. at 89.`  S' e >63. ` ` Bell Atlantic responded to the CME/CFA opposition by stressing that it was not asking  x the Commission to eliminate the ownership limits where only a "theoretical" possibility of competition  xexists. Instead, Bell Atlantic argued, it simply proposed that these limits not apply where actual headto xghead competition exists. Where competition exists, according to Bell Atlantic, distributors have strong  xincentives to ensure that consumers obtain the programming they value, regardless of source. The only  xIeffect of applying these limits in competitive markets, Bell Atlantic contended, would be to prevent  xestablished companies from invading each others' territories and to inhibit entry by those companies that  Sp'are best equipped to compete with existing MSOs.jp1 yO '#X\  P6G;ߌP#эBell Atlantic Reply at 13.j  S '` `  b.Discussion  S ' e ?64. ` ` We agree with Bell Atlantic that the concern that cable operators may "unfairly  S ' ximped[e]... the flow of video programming from the video programmer to the consumer"k 1 yOZ'#X\  P6G;ߌP#э47 U.S.C.  533(f)(2)(A).k will be  xreduced when there is sufficient competition at the local distribution level. If there is sufficient local  xdistribution competition, the local cable operator will no longer be a "gatekeeper" over that particular  S0' xZaudience and video programmers would have alternative means to reach that audience.|01 {Or'#X\  P6G;ߌP#эSee Second Report and Order at  29.| We disagree  xwith Bell Atlantic's conclusion that horizontal ownership limits are only required to combat the local  xmonopoly of cable systems, so that the justification for these limits disappears where there is sufficient local competition to satisfy the "effective competition" standard applicable to rate deregulation.  Sh' e J@65. ` ` A level of competition sufficient to support rate deregulation is not necessarily sufficient  S@' x&to address the public policy objectives of the horizontal ownership rules. As we observed in the First  S' xOrder on Reconsideration in rejecting Bell Atlantic's similar argument in the context of channel  xoccupancy limits, "the effective competition standard was not adopted for this specific purpose and [] it  x7is not clear that the presence of effective competition for any cable system will address all of the relevant  S' xconcerns that Congress expressed in enacting Section 11 of the 1992 Cable Act."41 {Ox'#X\  P6G;ߌP#эFirst Order on Reconsideration at  47. As an example, we  x/noted that, if both the cable system and the competing MVPD are vertically integrated, unaffiliated  xprogramming services may continue to be denied access from either outlet, thus frustrating the diversity  S,' xand competition objectives of the 1992 Act.Y,1 S#'ԍ#X\  P6G;ߌP#Id. Y We agree with CME/CFA that, had Congress intended to  xeliminate all cable regulations where systems face effective competition, the effective competition"f 0*&&88["  xZexemption would have been drawn much more broadly. Instead, the exemption is expressly limited to  x7rate regulation; nowhere in either its language or legislative history does it state that the presence of head S'tohead local distribution competition will render the horizontal ownership rules unnecessary.d1 S'ԍ#X\  P6G;ߌP#Id. at  48.d  S`' e A66. ` ` The "effective competition" standard determines when there is sufficient local competition  xto prevent an incumbent cable operator from exercising market power in setting local rates for cable  xQservices sold to local subscribers. In contrast, the horizontal ownership limit was designed to ensure that  xno cable MSO acquires a sufficiently large share of subscribers nationwide to exercise undue market  xpower at the national level in its purchase of programming from networks, which generally sell their  S' xprogramming nationwide.h1 {O '#X\  P6G;ߌP#эSee Second Report and Order at  29; see also 47 U.S.C.  533(f)(2)(A), (B) & (C). In the Second Report and Order, the Commission rejected an argument  x similar to that of Bell Atlantic, stating: "The presence of effective competition in any given system or  xgroup of systems does not, however, directly respond to Congress' concern about the exercise of undue  S" ' xcontrol by a single entity at the national level."^" 1 {O'#X\  P6G;ߌP#эId.^ We reaffirm that decision today. We will not assume  xthat, in their bargaining, programming networks and cable MSOs do not consider an MSO's total  xsubscribership, but only its subscribers in areas not subject to "effective competition." There may be  xgrounds for revising the 30% horizontal ownership limit, however, as more systems become subject to effective competition.  S2'` ` 3. Attribution Rules  S'` `  a.Background  S' e B67. ` ` CME/CFA asked that the Commission tighten its attribution rules by eliminating the single  xxmajority shareholder exception, which provides that minority interests will not be attributed where a single  SB' xshareholder owns more than 50% of the outstanding voting stock.B1 yOn'#X\  P6G;ߌP#эCME/CFA Petition at 2223 (incorporating by reference CFA's September 1993 Reply Comments at 45). CME/CFA argued that this  xgexception to the attribution rules is "unduly mechanistic" and ignores the minority shareholder's "ability  xQto influence the actual operation of the property" even when a majority shareholder is present. CME/CFA  xposited that there are situations where a single majority shareholder may be forced to accommodate minority shareholders.  SR' e C68. ` ` Responding to the CME/CFA proposal, NCTA noted that the attribution rules address the  xability of an MSO to influence in a meaningful way the programming decisions of an individual cable  xMsystem. NCTA argued that the single majority shareholder exception appropriately recognizes that the"0*&&88["  xkinfluence of nonmajority shareholders is significantly attenuated when a majority shareholder exists, such  S'that attribution is not required.h1 yO@'#X\  P6G;ߌP#эNCTA Opposition at 1516.h  S'` `  b.Discussion  S8' e D69. ` ` In the Second Report and Order, the Commission adopted the broadcast attribution rules,  S' xwhich contain the single majority shareholder exception,nX1 yO '#X\  P6G;ߌP#э47 C.F.R.  73.3555 n. 2(b).n in the cable horizontal ownership context  x@because "the objectives of the broadcast attribution model are consistent with our goals in establishing  S' xownership standards for subscriber limits."x1 {OJ '#X\  P6G;ߌP#эSecond Report and Order at  35.x The Commission explicitly stated that the broadcast rules  x"focus on ownership thresholds that enable a broadcast licensee to influence or control management or  xprogramming decisions" and that "these same issues are also relevant to addressing the concerns at issue  xEin this proceeding relating to the ability of cable operators to unduly influence the programming  S" 'marketplace.d" z1 {O<'#X\  P6G;ߌP#эId. at  35.d  S ' e E70. ` ` The Commission does not believe there is enough evidence in this docket to justify  xgreversing our prior opinion that, in single majority shareholder situations, ownership of minority voting  xstock alone is unlikely to grant sufficient "influence" over programming decisions to warrant attribution.  xThe single majority shareholder provision of the rules is currently under review in the broadcast context  S2' xin MM Docket Nos. 94150, 9251 and 87154.2 1 {O' x #X\  P6G;ߌP#эSee Notice of Proposed Rulemaking, In the Matter of Implementation of the Cable Television Consumer  {O' x Protection and Competition Act of 1992, Review of the Commission's Cable Attribution Rules, MM Docket Nos.  {Or' x 94150, 9251 and 87154, FCC 94324, 10 FCC Rcd 3606 (1995); Further Notice of Proposed Rule Making, In  x the Matter of Implementation of the Cable Television Consumer Protection and Competition Act of 1992, Review  {O' xt of the Commission's Cable Attribution Rules, MM Docket Nos. 94150, 9251 and 87154, FCC 96436, 11 FCC Rcd 19895 (1996). In that proceeding, the Commission sought comment  xon the nature of "influence" and "control" and the connection between equity ownership and such  xinfluence and control. The Commission is also issuing a Notice of Proposed Rulemaking seeking  xcomment on whether and how the cable attribution rules should be revised. Given the paucity of  xZinformation in this proceeding from which to make an informed decision as to the need for changes in the attribution standards, that appears to be the preferable course.  S' e ,F71. ` ` This determination regarding the cable attribution rules applies to both our horizontal  S' xownership rules and channel occupancy limits. As we noted in the First Order on Reconsideration, 1 {O$' xb #X\  P6G;ߌP#э Memorandum Opinion and Order on Reconsideration of the Second Report and Order in MM Docket 92264, FCC 95147, 10 FCC Rcd 7364, n. 3 (1995). that"0*&&88n"  xorder addressed the issues on reconsideration regarding our cable channel occupancy limits, but left issues  S'concerning the cable attribution standard for the current proceeding.  S' IV.MOTION TO LIFT STAY  S8' ` ` a. Background  S' e d G72. ` ` In the Second Report and Order, the Commission voluntarily stayed the effective date of  xthe cable horizontal ownership rules pending final judicial resolution of the District Court decision in  S' xDaniels that the underlying statute violates the First Amendment.y1 {O '#X\  P6G;ߌP#эSecond Report and Order at  109.y While the Daniels Court had stayed  xMfurther District Court proceedings pending interlocutory appeal of its judgment, it had not enjoined the  SL ' x^Commission from adopting and enforcing horizontal ownership rules under the statute.pL Z1 {OF '#X\  P6G;ߌP#эDaniels, 835 F.Supp. at 12.p CME/CFA filed  S$ 'a motion to lift the Commission's voluntary stay, which was opposed by NCTA.$ 1 yO'#X\  P6G;ߌP##X\  P6G;ߌP#эCME/CFA Motion to Lift Stay; NCTA Opposition to Motion to Lift Stay.  S ' e  H73. ` ` CME/CFA argued that, because the Daniels Court elected to stay further District Court  xproceedings pending appeal, the Commission's stay "cancels out the Court's stay, resulting in a situation  xwhere there are no regulations controlling the growth of cable systems while the constitutionality of the  S^' xlimits is being appealed."r^|1 Sz'ԍ#X\  P6G;ߌP#CME/CFA Motion to Lift Stay at 12.r As a result, CME/CFA argued, while stays are generally granted to preserve  S6' xQthe status quo, the Commission's stay does not preserve the status quo.^61 S'ԍ#X\  P6G;ߌP#Id. at 2.^ CME/CFA further argued: (1)  S' xthat the Commission and the United States are likely to prevail on the merits on appeal;`1 Sj'ԍ#X\  P6G;ߌP#Id. at 24.` (2) that lifting  xthe stay during the litigation will not result in irreparable harm to cable operators because the current rule  xstill allows expansion for all cable systems and only causes "a temporary inability to expand beyond the  S' x30% limit;"^\ 1 S'ԍ#X\  P6G;ߌP#Id. at 4.^ (3) that continuance of the stay could result in harm to video programmers and the public;` 1 S2 'ԍ#X\  P6G;ߌP#Id. at 46.`  xand (4) that the public interest in "achieving competition and diversity in the cable television marketplace"  SF'requires that the rules be enforced while the constitutionality of the limits are under review.^F 1 S#'ԍ#X\  P6G;ߌP#Id. at 6.^ "<0*&&88"Ԍ S' e I74. ` ` In its opposition, NCTA argued that the case for a stay is one of "surpassing strength."  xNCTA stated: (1) that it is "far from clear" that the cable horizontal ownership limits will be upheld; (2)  xthat "irreparable injury will result if cable systems are prevented from lawfully expanding their  x@operations;" (3) that continuance of the stay during the litigation will not harm other interested parties,  xsuch as video programmers and the public; and (4) that the public interest favors the stay because the stay  S8'avoids "potential confusion and uncertainty during the period of judicial review."{81 S'ԍ#X\  P6G;ߌP#NCTA Opposition to Motion to Lift Stay at 3.{  S' ` ` b. Discussion  S' e m J75. ` ` In August 1996, the D.C. Circuit Court consolidated the Daniels appeal regarding the  Sr' x&facial validity of the statute and the Time Warner challenge to the Commission's rules, and determined  SL ' xkto hold court proceedings in abeyance while the Commission reconsidered the horizontal rules.tL h1 {OT '#X\  P6G;ߌP#эTime Warner, 93 F.3d at 97980.t In light  xof the continuing pendency of the judicial proceedings relating to the underlying provision, we will retain  S ' xthe voluntary stay of the 30% horizontal ownership limit at this time.i6 1 S' x  ԍ#X\  P6G;ߌP#Consumers Union/CFA filed a petition for rulemaking on September 23, 1997, requesting, among other  {On' xx things, that the Commission lift its voluntary stay. Petition to Update Cable Television Regulations and Freeze  {O8' xk Existing Cable Television Rates, RM9167, MM Docket Nos. 92264, 92265, 92266, at 1415 (filed Sept. 23, 1997)  {O'("CU/CFA Petition for Rulemaking"). This Second Order on Reconsideration denies that particular request.i That decision has been appealed and the Commission has argued that the provision in question is indeed constitutional.  S ' e K76. ` ` In order to facilitate monitoring of MSOs' ownership interests, we will lift the stay insofar  xas it applies to the information submission provisions of 47 C.F.R.  76.503(c) that are applicable when  xany person or entity holding an attributable interest in cable systems reaching 20% or more of homes  xpassed nationwide acquires additional cable systems. The existing rules require a certification that no  x&violation of the 30% limit will occur as a result of such acquisition. In light of the continuation of the  xkstay, however, the certification should only specify the incremental change the acquisition makes in terms  x*of the 30% of household passed standard, i.e. specifying the ownership in terms of homes passed before and after the acquisition is complete.  S' e 0L77. ` ` Affected parties will be required to come into compliance with the horizontal ownership  xZrules within 60 days of the appellate court's issue of a mandate upholding Section 613(f)(1)(a) and the  xZrules, unless the Commission determines as part of this ongoing proceeding to lift the stay at an earlier  xdate. Interested parties, including in particular parties that are now entering into business arrangements  xthat would violate the rules but for the existence of the stay, should be well aware of the existence of the rules and thus have a full opportunity to be prepared to comply with them. ",0*&&88q"Ԍ S' :V. FURTHER NOTICE OF PROPOSED RULEMAKING  S'  S' e M78. ` ` We stated in the Second Report and Order, adopting the rules in question in this proceeding, that :  ~Xwe plan to review subscriber limits every five years to determine whether such limits are  reasonable under the prevailing market conditions and whether such limits continue to  serve the objectives for which they were adopted. We regard such periodic review as an   important means of addressing Congress' intent that such rules reflect the "dynamic nature  S'of the communications marketplace."1 {O '#X\  P6G;ߌP#эSecond Report and Order at  40 (citing 47 U.S.C.  533(f)(2)(E)).   xDThe rules in question were adopted in 1993, and it is appropriate that we undertake this review to address  xxintervening changes in the communications marketplace. We seek comment on whether 30% remains the  xappropriate horizontal ownership limit in light of evolving market conditions. In addition, the current  xrules allow ownership of additional cable systems reaching up to 35% of cable homes passed, provided  S ' xsuch additional cable systems are minoritycontrolled.j Z1 yO'#X\  P6G;ߌP#э 47 C.F.R.  76.503(b).j The purpose of the minoritycontrol allowance  xwas to encourage diversity of viewpoints by fostering increased minority participation and ownership in  SZ' xthe cable industry, through increased MSO investment in minorityowned cable systems.zZ1 {O'#X\  P6G;ߌP#э Second Report and Order at  28.z Recognizing  xthat the minoritycontrol allowance has never been utilitized by any MSO, we seek comment on the  xeffectiveness of this rule and on the development of alternative rules to serve our purpose of promoting  x3minority participation. We also recognize that, since this rule was adopted, the Supreme Court issued  S' xAdarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995). We seek comment on the constitutionality of  xthe minority-control allowance in light of that decision. We also seek comment on how we can develop  Sl'our policies consistent with the standards set forth in Adarand.  S' e N79. ` ` We also seek comment on two specific issues concerning the method of ownership  xZcalculation: (1) whether the rules should consider the presence in the market of all MVPDs rather than  xxcable operators alone, and (2) whether the rules should be based on actual subscriber numbers rather than  S' xgon homes passed.$|1 {O' x #X\  P6G;ߌP#эThe Commission also has issued a Notice of Proposed Rulemaking, In the Matter of Streamlining of the  {O' x Commission's Rules for the Direct Broadcast Satellite Service, FCC 9826, IB Docket No. 9821 (rel. Feb. 26, 1998),  xx requesting comment as to whether limitations on cable/DBS crossownership are necessary to address horizontal concentration in the MVPD market. The rules proposed here would provide that, in calculating a cable MSO's market  xshare, the numerator would consist of the MSO's cable subscribers plus its noncable MVPD subscribers,  xIand the denominator would consist of the total number of cable subscribers plus noncable MVPD  x*subscribers nationwide. In addition to these proposed rule changes, we seek comment as to whether the method of ownership calculation should be modified in some way to support cable overbuild competition." h 0*&&88A"Ԍ S' e ԙO80. ` ` The MVPD market has continued to evolve since our adoption of the horizontal ownership  S' xrules. The 1997 Competition Report noted the growth of MVPDs other than cable operators and  xsuggested that a true measure of horizontal concentration ought to take into account all MVPDs and MVPD subscribers, rather than cable operators and cable subscribers alone:  X[I]n assessing the impact that national concentration may have in the MVPD programming  S' market, we believe that it is appropriate to consider the presence of all MVPDs and  =MVPD subscribers in national concentration figures, and not just cable MSOs and cable  zsubscribers. As noncable MVPD subscribership increases, the significance of DBS,  S'MMDS and SMATV operators in the MVPD program purchasing market also increases.y1 {O '#X\  P6G;ߌP#э1997 Competition Report at  150.y   xgWith the growth of alternative MVPDs, network programmers gain alternative avenues for distribution  xof their products, thus reducing cable operators' market power or influence in the purchase and distribution  xof network programming. Conversely, just as growth in alternative MVPDs' subscribership can reduce  xa cable MSO's market power, a cable MSO also can increase its market power by acquiring interests in alternative MVPDs.  SZ' e  P81. ` ` We seek comment on a proposal to revise the rules to include alternative MVPDs in the  xDmeasure of horizontal concentration in order to reflect the emergence of competitors to cable in the video  x7marketplace, as well as potential MSO increases in market power through acquisition of interests in other  xxMVPDs. By recognizing the impact of all purchasers of video programming, not just cable operators, this rule revision would provide a more accurate measure of MSOs' market power.  Sj' e qQ82. ` ` We seek comment on whether the proposed revision of the horizontal ownership rules is  xconsistent with the Commission's authority under Section 613 of the Communications Act to "prescribe  xrules and regulations establishing reasonable limits on the number of cable subscribers a person is  S' xauthorized to reach through cable systems . . .."kZ1 yO'#X\  P6G;ߌP#э47 U.S.C.  533(f)(1)(A).k This proposal would result in a sliding or adjustable  xtcable horizontal ownership limit, under which the number of subscribers a cable operator is authorized  xto reach through cable systems would decrease in proportion with any increase in the number of  xsubscribers that entity reaches through other MVPD systems. Conversely, the cable horizontal ownership  xlimit would rise for a cable operator that reaches fewer subscribers through other MVPD systems. The  xproposed rules would impose no limit on the number of subscribers a cable operator may reach through  x"alternative MVPD systems. These rules also would not apply to persons who have no attributable  x7ownership interests in cable systems. We seek comment on this proposal and on whether it is consistent  xwith the terms of the underlying statute, given Section 613's focus on the cable industry and the establishment of a cable subscribership limit rather than an MVPD subscribership limit.  S:' e qR83. ` ` We also seek comment on the possibility of changing the method of calculating the basis  xof the horizontal ownership limits from potential reach, i.e., number of homes passed, to actual reach, i.e.,  S ' xxnumber of MVPD subscribers served. In the Second Report and Order, we stated that the homes passed" !0*&&88"  xkstandard reflects a cable operator's potential reach and constitutes a more stable basis on which to impose  S' xhorizontal limits than a subscriber based standard.j1 {O@'#X\  P6G;ߌP#эId. at  24.j We also noted some commenters' argument that a  S' x3subscriber based standard may have the effect of discouraging subscriber growth.dZ1 {O'#X\  P6G;ߌP#эId. at  19.d In revisiting the  xhorizontal ownership rules, we seek comment on whether the homes passed standard continues to be an  xaccurate measure of horizontal concentration and market power in today's marketplace, and whether the  xeasier to measure subscriber standard can be adapted for use in a fashion that will not require an abrupt halt to the addition of new subscribers to established cable systems.  S' e SS84. ` ` While homes passed reflect the number of subscribers an MVPD has the potential of  xtreaching, the MVPD often secures only a fraction of those potential subscribers. The MVPD typically  xdoes not purchase programming for all potential subscribers, only for those subscribers that it actually has.  xAs alternative MVPDs continue to grow in the future, the number of homes passed by a cable operator  x*may become an increasingly inaccurate measure of its actual subscribership and thus of its actual market  xpower. We seek comment on whether the ownership calculation should be based on the number of actual subscribers, rather than homes passed, in order to reflect an MVPD's actual purchasing power.  S ' e T85. ` ` The homes passed standard is also difficult to apply if we revise the horizontal ownership  x7rules to consider all MVPDs in the calculation, since several different MVPDs may pass the same homes.  xFurthermore, the homes passed standard is a particularly inaccurate measure of market power for a new  x}MVPD whose actual subscribership is only a small fraction of its potential reach in terms of homes  xpassed. For example, under a homes passed standard, each direct to home satellite service provider, no  xmatter how weak or new an entrant, could be deemed to pass virtually all homes in the country and thus  xZbe deemed to have far greater market power than an established cable operator passing 30% of homes  xnationwide. We ask commenters to comment on the best method for counting subscribers, including those residing in multidwelling units and commercial subscribers such as hotels, bars, etc.  S' e U86. ` ` We seek comment on whether the greater accuracy provided by a subscriber based  xstandard outweighs the greater stability provided by a homes passed standard. With regard to the  xargument that a subscriber based standard may have the effect of discouraging subscriber growth, we seek  xcomment on whether system operators would have a sufficient opportunity to anticipate the approaching  xlimit and to dispose of systems sufficient to stay under the limit rather than to simply cease the addition of new subscribers.  S' e V87. ` ` We ask commenters to address whether these proposed revisions will serve the public  xZinterest objectives that Congress directed the Commission to consider and balance in implementing the  x*horizontal ownership limits, particularly the objectives "to ensure that no cable operator or group of cable  S`' xoperators can unfairly impede the flow of video programming from the programmer to the consumer;"k`1 yO#'#X\  P6G;ߌP#э47 U.S.C.  533(f)(2)(A).k"`"|0*&&88Z"  S' x"to ensure that cable operators do not favor affiliated video programmers in determining carriage . . .;"k1 yOh'#X\  P6G;ߌP#э47 U.S.C.  533(f)(2)(A).k  x"to take account of the market structure, ownership patterns, and other relationships of the cable industry,  S' xincluding the market power of the local franchise . . .;"kX1 yO'#X\  P6G;ߌP#э47 U.S.C.  533(f)(2)(C).k and "to make rules and regulations that reflect  S'the dynamic nature of the communications marketplace."k1 yO'#X\  P6G;ߌP#э47 U.S.C.  533(f)(2)(E).k  S8' e W88. ` ` We ask commenters to address whether the proposed revisions are consistent with the  S' xCommission's legal authority under Section 613 and other provisions of the Actx1 {O( '#X\  P6G;ߌP#эSee, e.g., 47 U.S.C.  151, 154, and 303. and are reasonable and  x7appropriate given our objectives. We seek comment on whether the proposed horizontal ownership rules  xwould provide a more accurate measure of horizontal concentration and market power than the current  xrules. We also seek comment on the practical impact of the proposed rule changes on MSO ownership  xxand operation. In particular, we ask that commenters address whether the proposed changes would place  xany cable MSO in violation of the 30% horizontal ownership limit and to provide specific factual  xinformation in support of any such conclusions. We seek comment on whether we should develop special  xQrules to address situations where a cable MSO may exceed the 30% limit as a result of subscriber growth  xQwithin an existing area of homes passed. We further invite comment on any other matters relevant to our proposals and tentative conclusions.  S '  SX'VI.INITIAL REGULATORY FLEXIBILITY ANALYSIS  S' e X89. ` ` As required by Section 603 of the Regulatory Flexibility Act, 5 U.S.C.  603 ("RFA"),  x/the Commission is incorporating an Initial Regulatory Flexibility Analysis ("IRFA") of the expected  S' ximpact on small entities of any policies or proposals contained in this Further Notice of Proposed  S' xRulemaking ("Further Notice"). Written public comments concerning the effect of the proposals in the  Sl' xFurther Notice, including the IRFA, on small businesses are requested. Comments must be identified as  xresponses to the IRFA and must be filed by the deadlines for the submission of comments in this  S' xproceeding. The Secretary shall send a copy of this Further Notice, including the IRFA, to the Chief  xCounsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the  S' xRegulatory Flexibility Act.m 1 yOz'#X\  P6G;ߌP#э5 U.S.C.  603(a).m In addition, this Notice and IRFA will be published in the Federal  S'Register.e1 {O !'#X\  P6G;ߌP#эSee id.e "#R 0*&&88"Ԍ S' A.Need for, and Objectives of, the Proposed Rules pp  S' e Y90. ` ` The 1992 Cable Act and subsequent actions to implement it, and Section 11(c) of the 1992  xVCable Act in particular, are intended to encourage competition in the cable industry and prevent the  S`' xgexercise of undue market power by large cable multiple systems owners. The Commission issues this  S8' xFurther Notice to obtain comment on whether certain aspects of the Commission's horizontal ownership  x@rules should be revised to make them more effective in serving the public interest objectives Congress charged the Commission with protecting in Section 11(c).  S' B.Legal Basis  SJ ' e JZ91. ` ` Authority for the actions proposed in this Further Notice may be found in Sections 1, 4,  S$ '303, and 613 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154, 303, 533.  S ' "6! C.XDescription and Estimate of the Number of Small Entities to Which the Proposed Rules Will  S 'Apply (#  S^' e q[92. ` ` The RFA generally defines "small entity" as having the same meaning as the terms "small  xbusiness," "small organization," and "small governmental jurisdiction" and "the same meaning as the term  xD'small business concern' under the Small Business Act unless the Commission has developed one or more  S' x_definitions that are appropriate for its activities.1 yON' "8 #X\  P6G;ߌP#э5 U.S.C.  601(3) (incorporating by reference the definition of "small business concern" in 15 U.S.C.  632). A small business concern is one which: (1) is  xindependently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any  S' x@additional criteria established by the Small Business Administration ("SBA").k 1 yOV'#X\  P6G;ߌP#э15 U.S.C.  632.k Pursuant to 5 U.S.C.   x601(3), the statutory definition of a small business applies "unless an agency after consultation with the  xcOffice of Advocacy of the SBA and after opportunity for public comment, establishes one or more  xdefinitions of such term which are appropriate to the activities of the agency and publishes such  S'definition(s) in the Federal Register."M1 yOF' "" #X\  P6G;ߌP#эWhile we tentatively believe that the SBA's definition of "small business" greatly overstates the number  x of cable entities that are small businesses and is not suitable for purposes of determining the impact of any proposals  {O' x on small cable entities, for purposes of this Notice, we utilize the SBA's definition in determining the number of  x small businesses to which proposed rules would apply. However, we reserve the right to adopt a more suitable  yOh' x. definition of "small business" as applied to cable or other entities subject to our rules, and to further consider in the future the number of existing small cable entities.M   S' e \93. ` ` The SBA has developed a definition of small entities for cable and other pay television  xservices under Standard Industrial Classification 4841 (SIC 4841), which covers subscription television  SV' xtservices, which includes all such companies with annual gross revenues of $11 million or less.nV* 1 yO %'#X\  P6G;ߌP#э13 C.F.R. 121.201.n This"V$ 0*&&88"  x@definition includes cable systems operators, closed circuit television services, direct broadcast satellite  xservices, multipoint distribution systems, satellite master antenna systems and subscription television  xDservices. According to the Census Bureau, there were 1,323 such cable and other pay television services  xIgenerating less than $11 million in revenue that were in operation for at least one year at the end of  S`'1992.$`1 {O' " #X\  P6G;ߌP#э1992 Census, supra, at Firm Size 1-123. See Memorandum Opinion and Order and Notice of Proposed  x Rule Making, Implementation of Sections of the Cable Telecommunications Consumer Protection and Competition  {OZ' x7 Act of 1992, Rate Regulation and Cable Pricing Flexibility, MM Docket No. 92266 and CS Docket No. 96157, 11 FCC Rcd 9517, 9531 (1996).  S' e q]94. ` ` The Commission has developed its own definition of a "small cable company" and "small  xsystem" for the purposes of rate regulation. Under the Commission's rules, a "small cable company," is  S' xMone serving fewer than 400,000 subscribers nationwide.$1 yO ' "" #X\  P6G;ߌP#э47 C.F.R.  76.901(e). The Commission developed this definition based on its determinations that a small  {O ' x cable company is one with annual revenues of $100 million or less. Sixth Report and Order and Eleventh Order  {O' xH on Reconsideration, Implementation of Sections of the 1992 Cable Act: Rate Regulation, MM Docket Nos. 92266 & 93215, 10 FCC Rcd 7393 (1995). Based on our most recent information, we  xestimate that there were 1,439 cable companies that qualified as small cable companies at the end of  Sp' x1995.p1 {O'#X\  P6G;ߌP#эPaul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for Dec. 30, 1995). Since then, some of those companies may have grown to serve over 400,000 subscribers, and  xothers may have been involved in transactions that caused them to be combined with other cable  xcompanies. Consequently, we estimate that there are fewer than 1,439 small entity cable companies that  S ' xmay be affected by the proposal adopted in this Notice. The Commission's rules also define a "small  S ' xDsystem," for the purposes of cable rate regulation, as a cable system with 15,000 or fewer subscribers.q 2 1 yO'#X\  P6G;ߌP#э47 C.F.R.  76.901(c).q  xWe do not request nor do we collect information concerning cable systems serving 15,000 or fewer subscribers and thus are unable to estimate at this time the number of small cable systems nationwide.  S2' e =^95. ` ` The Communications Act also contains a definition of a "small cable operator," which is  x"a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent of all  xsubscribers in the United States and is not affiliated with any entity or entities whose gross annual  S' xprevenues in the aggregate exceed $250,000,000."q 1 yO'#X\  P6G;ߌP#э47 U.S.C.  543(m)(2).q The Commission has determined that there are  xg61,700,000 subscribers in the United States. Therefore, we found that an operator serving fewer than  x 617,000 subscribers is deemed a small operator, if its annual revenues, when combined with the total  SB' xannual revenues of all of its affiliates, do not exceed $250 million in the aggregate.rBR 1 yO4#'#X\  P6G;ߌP#э47 C.F.R.  76.1403(b).r Based on available"B%0*&&88"  S' xdata, we find that the number of cable operators serving 617,000 subscribers or less totals 1,450.1 {Oh'#X\  P6G;ߌP#эPaul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for Dec. 30, 1995). Although it seems  x7certain that some of these cable system operators are affiliated with entities whose gross annual revenues  xexceed $250,000,000, we are unable at this time to estimate with greater precision the number of cable  xsystem operators that would qualify as small cable operators under the definition in the Communications  xAct. We are likewise unable to estimate the number of these small cable operators that serve 50,000 or fewer subscribers in a franchise area.  S' D.XDescription of Projected Recording, Record keeping, and Other Compliance Requirements (#  Sp' e 4_96. ` ` If our horizontal ownership rules are changed, the Commission may have to change certain  xcable reporting requirements. Cable entities also may have to adjust the organization of their business interests in order to comply with any new rules that we may adopt.  S ' " E.XSteps Taken to Minimize Significant Economic Impact on Small Entities, and Significant  S 'Alternatives Considered (#  SX' e q`97. ` ` The actions proposed in the Further Notice are intended to ensure that the Commission's  xhorizontal ownership rules are effective in preventing the exercise of undue market power by large cable  xmultiple systems owners and promote a competitive, diverse and fair marketplace. Accordingly, as  S' xdiscussed in the above descriptions of the proposed rule changes, the approaches proposed in this Further  S' x}Notice should promote fairness and diversity for all cable systems, including the small entities listed  xabove. We invite comments on these approaches, including comment on whether alternative approaches will mitigate any unwarranted expenses incurred by smaller entities by virtue of their size alone.  S' F.XFederal Rules that Overlap, Duplicate or Conflict with the Proposed Rules(#  S' a98. ` ` None.  S~' VII.PAPERWORK REDUCTION ACT  S.' e Wb99. ` ` The proposals contained herein in the Further Notice have been analyzed with respect to  x/the Paperwork Reduction Act of 1995 (the "1995 Act") and found to impose modified information  xxcollection requirements. Implementation of any new or modified requirements will be subject to approval  xby the Office of Management and Budget ("OMB"). The Commission, as part of its continuing effort to  xreduce paperwork burdens, invites the general public to take this opportunity to comment on the  Sh' xinformation collection requirements contained in this Further Notice, as required by the 1995 Act.  xkComments should address: (1) whether the proposed collection of information is necessary for the proper  xperformance of the functions of the Commission, including whether the information shall have practical  xutility; (2) the accuracy of the Commission's burden estimates; (3) ways to enhance the quality, utility,  xand clarity of the information collected; and (4) ways to minimize the burden of the collection of"!&Z0*&&88 "  xinformation on the respondents, including the use of automated collection techniques or other forms of information technology.  S'  S' e Wc100.` ` Written comments by the public on the modified information collection requirements are  S`' xdue 45 days from date of publication of this Second Order on Reconsideration and Further Notice in the  xFederal Register. OMB comments are due 60 days from the date of publication in the Federal Register.  xComments on the information collection requirements contained herein should be submitted to Judy Boley,  x*Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington, DC 20554, or via  xxthe Internet to jboley@fcc.gov and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 17th Street,  xDN.W., Washington, DC 20503 or via the Internet to fain_t@al.eop.gov. For additional information on the  xinformation collection requirements, contact Judy Boley at 2024180214 or via the Internet at the above address.  S ' VIII.PROCEDURAL PROVISIONS  S ' e  d101. ` ` Ex parte Rules "PermitbutDisclose" Proceeding. This proceeding will be treated as  xIa "permit-but-disclose" proceeding subject to the "permit-but-disclose" requirements under Section  S\' xy1.1206(b) of the rules.t\1 yO'#X\  P6G;ߌP#э47 C.F.R.  1.1206(b), as revised.t Ex parte presentations are permissible if disclosed in accordance with  xCommission rules, except during the Sunshine Agenda period when presentations, ex parte or otherwise,  xgare generally prohibited. Persons making oral ex parte presentations are reminded that a memorandum  xsummarizing a presentation must contain a summary of the substance of the presentation and not merely  xa listing of the subjects discussed. More than a one or two sentence description of the views and  S' xarguments presented is generally required.X1 {O'#X\  P6G;ߌP#эSee 47 C.F.R.  1.1206(b)(2), as revised. Additional rules pertaining to oral and written presentations  Sl'are set forth in Section 1.1206(b).hl1 yO'#X\  P6G;ߌP#э47 C.F.R. 1.1206(b).h  S' e e102. ` ` Filing of Comments and Reply Comments. Pursuant to applicable procedures set forth in  S' xSections 1.415 and 1.419 of the Commission's Rules,rz1 yO'#X\  P6G;ߌP#э47 C.F.R.  1.415 and 1.419.r comments are due August 14, 1998, and reply  xcomments are due September 3, 1998. To file formally in this proceeding, you must file an original plus  xfour copies of all comments, reply comments, and supporting comments. If you want each Commissioner  x&to receive a personal copy of your comments and reply comments, you must file an original plus nine  xcopies. You should send comments and reply comments to Office of the Secretary, Federal  xcCommunications Commission, 1919 M Street, NW, Washington, DC 20554. Comments and reply  xcomments will be available for public inspection during regular business hours in the FCC Reference Center, Room 239, Federal Communications Commission, 1919 M Street NW, Washington DC 20554. "' 0*&&88"  S' IX.ORDERING CLAUSES  S'  S' e f103. ` ` Accordingly, IT IS ORDERED that the petitions for reconsideration filed in this proceeding ARE DENIED.  S8' e g104. ` ` IT IS FURTHER ORDERED that the Motion to Lift Stay filed December 15, 1993 by  xthe Center for Media Education and Consumer Federation of America IS GRANTED as to the  xcCommission's voluntary stay on enforcement of 47 C.F.R.  76.503(c), and IS DENIED as to the Commission's voluntary stay on enforcement of 47 C.F.R.  76.503(a), (b), (d), (e) and (f).  Sp' e Bh105. ` ` IT IS FURTHER ORDERED that, pursuant to Sections 1, 4, 303 and 613 of the  xCommunications Act of 1934, as amended, 47 U.S.C.  151, 154, 303 and 533, NOTICE IS HEREBY  xGIVEN of proposed amendments to the Commission's rules, in accordance with the proposals, discussions  S ' xand statements of issues in the Further Notice of Proposed Rulemaking, and COMMENT IS SOUGHT regarding such proposals, discussions and statements of issues.  S ' e i106. ` ` IT IS FURTHER ORDERED that the Commission SHALL SEND a copy of this Report  S\' xQand Order and Second Further Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analyses, to the Chief Counsel for Advocacy of the Small Business Administration. ` `  hhCqFEDERAL COMMUNICATIONS COMMISSION ` `   ` `  hhCqMagalie Roman Salas ` `  hhCqSecretary"(0*&&88]"  S'Y APPENDIX A   S'OList of Commenters   S8'\Petitions for Reconsideration of Cable Horizontal Ownership Rules Bell Atlantic Center for Media Education and Consumer Federation of America (joint petition)  S'Comments in Support of Petition(s) for Reconsideration Viacom International, Inc.  S 'Oppositions to Petition(s) for Reconsideration Bell Atlantic BellSouth Telecommunications, Inc. Center for Media Education and Consumer Federation of America (joint opposition) GTE Service Corporation Liberty Media Corporation National Cable Television Association, Inc. TeleCommunications, Inc. Time Warner Entertainment Company, L.P. Turner Broadcasting System, Inc. US West Communications, Inc.  S@'Replies to Comments and Oppositions Bell Atlantic Center for Media Education and Consumer Federation of America (joint reply) Liberty Media Corporation National Cable Television Association, Inc. Time Warner Entertainment Company, L.P. Turner Broadcasting System, Inc. Viacom International, Inc.  S'Motion to Lift Stay Center for Media Education and Consumer Federation of America (joint motion)  S`'Opposition to Motion to Lift Stay National Cable Television Association, Inc. " )0*&&88"  S' * ` ` Separate Statement of Commissioner Harold FurchtgottRoth In re: Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition  S'Act of 1992, Horizontal Ownership Limits, Second Memorandum Opinion and Order and Further Notice of Proposed Rulemaking.  S' "I am pleased that the Commission seeks comment on the constitutionality of the 35% "minority S' xkcontrol allowance," 47 CFR section 76.503(b), for cable subscriber limits. See supra  at 32. In my view,  S' xMthe constitutionality of this provision in light of intervening judicial decisions most notably, Adarand  S'v. Pena, 515 U.S. 200 (1995) is, at best, dubious.  SP ' "Accordingly, while it certainly does no harm to seek comment on the efficacy of this regulation,  xI believe that such comment is entirely unnecessary and I would not have sought it. If a regulation appears  xlto violate the Constitution, that is all we need to know in order to decide whether to affirm it on reconsideration.  "At the outset, I note that the Commission's statutory authority to promulgate the minoritycontrol  x^allowance (or any other racebased cable subscriber limits, for that matter) is scant. Section 613(f)(1)(a),  S8' xxwhich orders the Commission to set horizontal ownership rules, is entirely raceneutral. Its plain language  xsupports no rational inference that Congress intended different subscriber limits to apply to different people based on nothing other than their race:  "X"[T]he Commission shall . . . prescribe rules and regulations establishing reasonable limits on the  Sr' "Vnumber of cable subscribers a person is authorized to reach through cable systems owned by such  SL'person, or in which such person has an attributable interest." (# 47 U.S.C. section 613(f)(1)(a)(emphasis added).  "Nor do the "public interest" factors that Congress outlined make any distinctions between people  S' xxbased on minority or nonminority status. See id. section 613(f)(2)(A)(G). To be sure, one of the factors  xstates that the Commission shall "not impose limitations which would impair the development of diverse  x and high quality programming." Section 613(f)(2)(G). Congress clearly meant for the Commission to  xprotect cable operators' ability to show a wide variety of choice programming by not setting subscriber  xklimits so low as to dry up concentrationbased efficiencies that facilitate costly programming investments.  S' xSee House Report at 43; Senate Report at 33; see also 8 FCC Rcd at 8571 (observing that "higher  xconcentration levels enable[] cable companies to take advantage of economies of scale and foster  xZinvestment in more and better original programming and a wealth of viewing options for consumers").  xBut there is no indication in the statute, or even its legislative history, that Congress meant for the  xRCommission to view the issue of subscriber limits and varied, quality programming through the historically troubled lens of race.  "8In short, we simply do not have a clear Congressional directive that the Commission, in setting  x8horizontal limits, make racebased distinctions among cable system owners. Given the weighty  xkconstitutional issues that arise whenever government employs such classifications, we should be reluctant"Z$*0*&&88""  S' xto read them into statutes. See generally United States v. ThirtySeven Photographs, 402 U.S. 363, 369 (1971) (statutes should be construed to avoid, not to create, constitutional problems). [}II.  "Section 76.503(b), which on its face employs racial classifications, raises grave constitutional  S' x^questions. In particular, Adarand v. Pena, 515 U.S.200 (1995), which was decided after the Commission  xpromulgated section 76.503(b), casts substantial doubt upon its constitutionality under the Equal Protection component of the Fifth Amendment.  St' "<In Adarand, the Supreme Court held that all governmental action based on race is subject to strict  SN ' x_scrutiny. Id. at 226. This standard of review obtains, the Court made clear, whether or not the  S( ' xgovernment's motives can be characterized as "benign." Id. at 227. Thus, the use of racial classifications  xby any governmental actor is now constitutionally permissible only where the measure is narrowly tailored  S 'to serve a compelling government interest. Id. at 235.?R 1 SB' x^ ԍ#X\  P6G;ߌP#As an initial matter, this regulation plainly requires the government to engage in racebased decisionmaking.  x In situations where a cable operator has more than 30% but less than 36% of national subscribers, the question  xU whether that person is within legal limits for subscribership depends entirely on the racial identity of those who own  x or control affiliated systems. Therefore, whatever claims might be advanced with respect to the applicability of  {Or' x7 Adarand to other Commission regulations, cf. Lutheran ChurchMissouri Synod v. FCC, No. 971116, slip op. at  x* 13 (D.C. Cir. April 14, 1998) (summarizing and rejecting argument that FCC's equal employment opportunity rules  xx do not involve racebased decisionmaking), it cannot be maintained that government action under this regulation does not turn expressly and precisely upon considerations of race.?   S ' "With respect to the government interest in section 76.503(b), the Supreme Court has never held  x<that diversity of programming the Commission's purported goal in adopting the minoritycontrol  S<' x@allowance, see 8 FCC Rcd 8565, 857879 (1993) qualifies as a compelling government interest. See  S' xLutheran ChurchéMissouri Synod v. FCC, No. 971116, slip op. at 2021 (D.C. Cir. April 14, 1998)  S' x(observing that in Metro Broadcasting, Inc. v. FCC, 497 U.S. 547 (1990), the Court held programming  xdiversity to be an important but not a compelling government interest). There is simply no affirmative  xauthority for the proposition that the interest that has been asserted by the Commission in support of its  Sz'regulation is legally sufficient under strict scrutiny.z1 S' x ԍ#X\  P6G;ߌP#In fact, this legal problem i.e., the lack of a compelling government interest would arise with respect to  yO' x  any regulation created in order to foster programming diversity. I thus find it hard to see how any horizontal  {O' x ownership rule intended to advance such a goal could be fashioned under Adarand, as the Commission suggests.  {Of' x See supra at 32 ("We seek comment on how we can develop our policies consistent with the standards set forth in  {O0 'Adarand").  "Furthermore, as in other contexts, the Commission's stated goal is something of a moving target.  xThe Second Report & Order adopting the allowance does not explain what the Commission actually  S' xintends to accomplish when it speaks of promoting "diversity" in cable programming. Cf. id. at 19 ("The  xCommission never defines exactly what it means by 'diverse programming.'"). Of course, were "diversity""+ 0*&&88"  xdefined in a contentspecific way, such an interpretation would trigger the First Amendment, as the D.C.  S' xCircuit has noted. See id. at 1920 ("Any real contentbased definition of the term may well give rise to  S'enormous tensions with the First Amendment.").,41 S' xg ԍ#X\  P6G;ߌP#In contrast to broadcasters, cable operators receive full First Amendment protection with respect to their  {O' x transmission and selection of programming. See Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 63641  {O' xH (1994). Accordingly, the First Amendment "tensions" referred to in Lutheran Church, which involved broadcasting,  yO'would be even stronger here.,  "With respect to the second step under strict scrutiny, the fit between the means and ends here is  xQloose, if not sloppy. The Commission has stated that the 5% allowance will foster investment in minority xowned cable systems, in turn create more minority ownership, and ultimately result in more minority  S' x"viewpoints" in programming. See 8 FCC Rcd at 857879. But the record in this proceeding is devoid of  S' xany evidence to support the Commission's predictive rationale, particularly the assumption that cable  xsystem ownership by a person of a certain race will lead to an identifable type of programming content.  St' xCf. Lutheran Church, slip op. at 2223 (faulting Commission, in overturning EEO rules as  xkunconstitutional, for lack of evidence "linking lowlevel employees [at broadcast stations] to programming  S& ' xcontent"); Lamprecht v. FCC, 958 F.2d 382 (D.C. Cir. 1992) (criticizing Commission, in finding gender  x preferences in licensing hearings unconstitutional, for lack of evidence of connection between female  S 'ownership of broadcast stations and "female programming").  "Nor has the Commission made any attempt to explain why a 5% allowance is a more appropriate  x*remedy for the posited diversity problem than a more limited allowance of, say, 3%. To the contrary, the  xflat 5% of extra passage for minoritycontrolled systems seems an exceedingly blunt instrument for  xachieving the Commission's goal (even if that goal were a legally compelling one, which, under current  xprecedent, it is not). For instance, I can find no connection in the record between the particular percentage  xof extra subscribers that minoritycontrolled companies may serve under this regulation and the degree  xto which that allowance furthers ownership and programming. The 5% allowance thus appears to be a  xrigid numerical preference, with no record evidence to support either its necessity or efficacy in relation to the purported goal.  "lRelatedly, there appears to have been no consideration in this docket of raceneutral alternatives  xfor increasing minority ownership or programming participation, as required under the narrowtailoring  S' xprong of strict scrutiny. See Adarand, 500 U.S. at 23738 (citing Richmond v. J.A. Croson, 488 U.S. 469,  xt507 (1989)). The Commission seems to have approached the use of this explicit racial classification as  xa foregone conclusion, rather than as an alternative approach after first evaluating the utility of rules that  xdo not draw lines among citizens based on their race. Indeed, in the notices of proposed rulemaking and  S ' x@the order of adoption, the Commission never even broached the possibility of raceneutral rules. See 8  xFCC Rcd 210, 217 n. 58 (1992); 8 FCC Rcd 6828, 685051 (1993); 8 FCC Rcd at 867879. This is  S' xperhaps understandable given that AdarandĠhad not been decided at the time these documents were issued,  S'but that fact does not solve the basic deficiency in this proceeding that now exists under that case. "n,0*&&88M"Ԍz~`III.  "For the foregoing reasons, governing judicial precedent strongly suggests that section 76.503(b),  xw`hich literally creates two sets of rules for regulated entities based solely on the racial identity of those  xwho own or control related systems, constitutes a denial of equal protection of the laws. The Commission  xxhas failed to articulate either a compelling government interest or to achieve a carefully crafted fit between  xthe means it has chosen and the ends it says it intends to promote. The regulation therefore appears to be, at this juncture, facially unconstitutional.  S'` `  hhC*q**  "As indicated above, I certainly cannot object to my fellow Commissioners asking questions about  xthe practical workings of the rule. The significance of such information, however, pales in comparison  xto the strong indication under existing caselaw that the regulation is unconstitutional. As the courts have  xadmonished us, "[f]ederal officials are not only bound by the Constitution, they must also take a specific  S ' xoath to support and defend it." Meredith Corp. v. FCC, 809 F.2d 863, 874 (D.C. Cir. 1987). If a  xkregulation appears to be unconstitutional, I believe that is reason enough indeed, it is the most important reason that I can imagine to eliminate the rule. "Z-0*&&88 "  S'    PARTIAL DISSENT OF COMMISSIONER GLORIA TRISTANI ă  Q' xIn the Matter of Implementation of Section 11(c) of the Cable Television Consumer Protection and  Q'Competition Act of 1992 Horizontal Ownership Limits, MM Docket No. 92264  "I would have lifted the Commission's voluntary stay on the enforceability of the horizontal  xownership rules. In 1993, when the stay was imposed, a stay may have made sense: the largest cable  xgoperator, TCI, still controlled significantly less than 30% of cable subscribers nationwide and appellate  S' xreview of the Daniels decision could have been expected well before the horizontal limit was threatened.  xIn the past five years, that situation has changed dramatically. By the middle of 1997, TCI controlled  x29.3% of cable subscribers, and with the flurry of deals announced over the last several months, it is clear  x@that TCI has breached, or will soon breach, the 30% limit. Moreover, the anticipated appellate review  xnever happened and may not happen anytime soon the D.C. Circuit has been waiting for the  xCommission to release this reconsideration of our rules before examining the underlying statute's constitutionality.  "Under these circumstances, the 30% limit we are reaffirming today may be rendered moot unless  xthe stay is lifted. To the extent that TCI already exceeds the 30% limit, I would identify those cases and  x@address them separately. That task may be difficult, but not nearly as difficult as the situation we will  xface if TCI's dealmaking continues and a year from now the D.C. Circuit upholds the statute. Then we  xwill face a situation in which the "facts on the ground" may severely hamper our ability to implement the right policy.  "/I recognize that the majority has put cable operators on notice that they must be prepared to come  xinto compliance within 60 days if our rules are upheld. I am supportive of such an admonishment, but I am not convinced that it will be enforced. I therefore dissent on this part of the item.