| In Re | Application of Great Empire Broadcasting, Inc. and Journal Broadcast Corp. for Transfer of Control of Omaha Great Empire Broadcasting, Inc., Licensee of WOW(AM) and WOW(FM), Omaha, Nebraska File Nos. BTC-980831GH, BTCH-980831GI |
I concur in the decision to grant the application for transfer of the above-referenced radio licenses. I cannot, however, subscribe to the bulk of the reasoning of this Order, which focuses heavily on the competitive effects of the proposed merger between the transferor and transferee of the licenses.
I believe that if, as this item states, the proposed transfer complies with the numerical limits in section 202(b) of the Telecommunications Act of 1996, this Commission's "competitive" analysis is at an end.
The Telecommunications Act of 1996
The 1996 Telecommunications Act was, in many ways, a revolutionary piece of legislation. One of the most significant changes that Congress made in that Act was the revision of ownership limits for radio stations.
Congress rewrote the Communications Act so that it now imposes no limits at all on national radio station ownership. See 47 U.S.C. section 202(a). Congress also relaxed local limits under the Communications Act, allowing common ownership of as many as eight radio stations, depending on the size of the relevant market. See id. section 202(b)(1). FCC regulations were amended to reflect these new limits. See 47 C.F.R. section 73.3555(a)(1).
The Telecommunications Act did not, of course, repeal the antitrust laws or shut down the Department of Justice or the Federal Trade Commission. But the Act does, in my opinion, limit the Federal Communication Commission's review of radio license transfers.
License Transfer Review Authority Versus Merger Review Authority
This particular decision involves the transfer of licenses in the context of a merger between two radio companies. The Commission seems to think that this background fact gives it authority to consider the larger ramifications of the transaction, such as concentration in the radio industry generally. See, e.g., supra at para. 10 (discussing "[t]he likely competitive effects of a proposed merger").
It should be noted, however, that nothing in the Communications Act grants the Commission authority to review mergers writ large. Rather, the licensing provisions of the Act require the Commission to review applications for the transfer of station licenses. See id. section 310(d) ("No . . . station license . . . shall be transferred . . . to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby."). As I have noted in other contexts,(1) there is a world of difference between the business transaction known as a "merger" and a simple "license transfer."
By using section 310(d) as the basis of authority over radio mergers in the general sense, the Commission bootstraps itself into a position of much greater power than the organic statute actually gives it. I would not discuss the "merger", as this item does at length, only the license transfers.(2)
The FCC's Radio Merger Policy
Soon after the Commission implemented the changes to its rules required by section 202(b) of the '96 Act, it began developing a novel radio merger policy under the "public interest" standard of section 310(d). Pursuant to this policy, the FCC is attempting to impose its own (negative) view of the effects of consolidation on radio license transfer applications. This view of consolidation was, however, squarely rejected by the drafters of the '96 Act. In other words, it was on the losing side of the Congressional debate over radio deregulation.
As I see it, the Communications Act, as amended in 1996, sets the definitive standards for radio ownership to be enforced by the FCC. When Congress set the numerical limits in the Act for local ownership, it made a specific, predictive judgment about how many stations any one person could own in a particular market. Congress decided, for instance, that as long as no one person owned nine or more stations in a large market, there was no reason to prohibit multiple ownership under the Communications Act. Clearly, Congress felt these limits were sufficient to protect the broadcast policies of diversity and competition: section 202(b), the local ownership section that sets forth the limits, is even called "local radio diversity."
In going out of its way to pick specific numerical limits geared to market size, Congress made its own considered judgments as to what levels of ownership should be permissible under the communications laws. The FCC has no power to second-guess or to undermine those judgments. If a transfer complies with the cut that Congress made in the Communications Act, that should be the end of the matter, as far as the FCC is concerned, with respect to permissible ownership levels. The only limits on local radio station ownership are those set forth in section 202(b).
Regrettably, even when a transaction meets Congress' test under the '96 Act, the Commission is still not granting these applications. Lately, the Commission has put some of these applications -- including the instant one -- out for public comment with what it calls a "red flag," saying:
BASED ON OUR INITIAL ANALYSIS OF THIS APPLICATION AND OTHER PUBLICLY AVAILABLE INFORMATION, INCLUDING ADVERTISING REVENUE SHARE DATA FROM THE BIA DATABASE, THE COMMISSION INTENDS TO CONDUCT ADDITIONAL ANALYSIS OF THE OWNERSHIP CONCENTRATION IN THE RELEVANT MARKET. THIS ANALYSIS IS UNDERTAKEN PURSUANT TO THE COMMISSION'S OBLIGATION UNDER SECTION 310(D) OF THE COMMUNICATIONS ACT . . . TO GRANT AN APPLICATION TO TRANSFER OR ASSIGN A BROADCAST LICENSE OR PERMIT ONLY IF SO DOING SERVES THE PUBLIC INTEREST, CONVENIENCE, OR NECESSITY. WE REQUEST THAT ANYONE INTERESTED IN FILING A RESPONSE TO THIS NOTICE SPECIFICALLY ADDRESS THE ISSUE OF CONCENTRATION AND ITS EFFECT ON COMPETITION AND DIVERSITY IN THE BROADCAST MARKETS AT ISSUE.
This "flagging" procedure of course invites challenges and subjects companies to the time and cost of extended proceedings, even if their applications are ultimately granted, as here. There are many problems with this approach to reviewing license transfer applications.
First, the section of the Communications Act that expressly deals with radio ownership says nothing whatsoever about advertising revenue share, the apparent test for determining whether petitions will be "flagged" for heightened scrutiny. I thus fail to see our authority to deny transactions on this basis.(3) Even if we had such authority, this policy makes little sense on the merits: while I can understand how a person might think that advertising revenue bears some relation to the regulatory goal of competition, I cannot discern what relation that data could have to the question of diversity, either with respect to programming or ownership. And yet, according to its own statement in the public notices, the Commission expressly relies on ad revenue data as a means of gauging the merger's effect on both competition and diversity.
Second, the BIA database that the Commission seems to be using was not constructed for this form of "merger" market analysis. It was developed for entirely other purposes, and reliance upon it in the context of merger policy is thus a risky business. Indeed, the Commission's understanding of the relevant market in merger review is inconsistent with the Department of Justice's position.
Third, the "public interest" standard that the notice invokes as legal authority to conduct this analysis is undefined and vague. The FCC has never set forth any real guidelines for the implementation of this standards - preferring instead a "flexible" approach that maximizes its discretion - and it has certainly never done so for purposes of radio mergers. Indeed, the Commission regulations applicable to this license transfer say not a word about "competitive effects" review: they simply incorporate (as they should) the numerical limits of the Telecommunications Act. See 47 C.F.R. section 73.3555(a)(1). It is a notable case indeed when one can say that the Commission appears to be operating in excess of not just its statutory authority, but its own regulations.
The fourth -- and chief -- problem with the FCC's current approach to radio transactions is this: the Commission is using its generalized "public interest" authority under section 310 to override and effectively nullify the specific judgments that Congress made about acceptable levels of concentration in radio in section 202(b) of the '96 Act. The creation of a regulatory scheme under section 310 that limits ownership to a greater degree than does section 202(b), the specific section on ownership limits, is an end-run around Congress' policy judgment. What authority does the Commission have to "conduct additional analysis of the ownership concentration in the relevant market" when that concentration is expressly permissible under the Communications Act? Whatever the role of competitive analysis as a general matter, it is clear to me that in the radio context, Congress has plucked that issue -- as expressed in ownership limits -- out of the ambit of the public interest standard.(4)
(This is not to say that the public interest standard has no content, however. We can and should properly consider issues such as threshold qualifications, past compliance with Commission regulations, likelihood of future compliance with Commission regulations, and so forth. We cannot shrink the radio ownership limits of the Act, however.)
Notably, the only exception to the limits set forth in 202(b)(1) is that provided in (b)(2), which authorizes higher levels of ownership in certain circumstances.(5) Clearly, the only flexibility in the caps is in an upward direction. Upward departures from the caps are permissible under subsection (b)(2), but downward departures are clearly violative of the statutory scheme. In short, the Commission cannot use section 310 to deprive a party of ownership rights to which he is entitled under subsection 202(b).
Essentially, the Commission disagrees with the ownership levels set by Congress in the '96 Act and is attempting to rewrite history with this back-door review. The Commission should not be rolling back Congress' determination to deregulate in this area by coming at the transactions through the back door of the "public interest" standard, effectively raising the legal bar set by the '96 Act, and making the implicit threat of a denial of the flagged applications, all when the directly relevant statutory provisions of the Communications Act affirmatively say that the transactions are lawful. Even when applications are eventually granted, such as this one, it is clear that the Commission has imposed added expenses on the applicants by subjecting them to this extra layer of review, and that this added burden could constitute legally cognizable harm. Cf. Lutheran Church v. FCC, 141 F.3d 344, 350 (D.C. Cir. 1998)(regulations can cause economic harm by increasing the expense of maintaining a license).
Antitrust Authority
I know that many people are genuinely concerned about the effects of consolidation in the radio industry. I am one of those people. But the United States has some of the toughest and best enforced antitrust laws -- both federal and state -- in the world. They have and will continue to be enforced by the appropriate authorities.
The FCC is not an appropriate authority in antitrust, however. Although the Commission had geared up to conduct its own antitrust review to assess the "competitive effects" of radio mergers under the licensing provisions of the Communications Act, we at the Commission have neither the clear statutory authority or the expertise of the Justice Department's Antitrust Division.
Moreover, for the FCC to conduct antitrust review is to duplicate the efforts of the Antitrust Division. To have two government agencies conducting essentially the same sort of review is simply a waste of federal resources. It also a waste of applicants funds', who must pay fees to lawyers and others in order to go through the same issues twice. If a particular radio deal raises competitive issues, I am confident that the Antitrust Division can and will handle the enforcement of antitrust rules.
Standards Not Promulgated in Accordance With the APA
In this Order, the Commission for the first time exposes to the public the basis of its new processing guidelines for radio license transfers that involve merging companies.
Unfortunately, the advertising revenue "screens" that are being applied in order to determine which applications should be "flagged" and thus subjected to rigorous scrutiny have not been promulgated pursuant to the notice and comment requirements of the Administrative Procedure Act. Nor have the added considerations -- such as HHI levels or the effect of a transaction on particular subgroups in markets -- been set out in any Commission rule. As noted above, the actual Commission rules under which this application arises speaks only of the ownership limits in the Act, and give no notice that any other review with respect to ownership levels will obtain.
Whatever radio merger standards the FCC has that go above and beyond the rules set forth in the Communications Act - and, as I have explained, I do not think the FCC should have any such standards - they must at a minimum be adopted pursuant to notice and comment. If the Commission is applying these screens in a relatively uniform way, and I think it clear that the Commission is, interested parties ought to have an opportunity to comment on the Commission's authority to create such standards and what such standards should be. See generally United States Telephone Ass'n v. FCC, 28 F.3d 1232 (D.C. Cir. 1994).
Possible Violation of Section 310(d)
By limiting ownership under 310(d) in order to avoid what it considers to be unacceptable levels of concentration, the Commission creates tension with the language of 310(d) itself. That section provides that "in acting" on transfer applications, "the Commission may not consider whether the public interest, convenience, and necessity might be served by the transfer, assignment, or disposal of the permit or license to a person other than the proposed transferee or assignee." (emphasis added).
The unspoken assumption of the Commission's extra-statutory "concentration" review, however, is that the radio world would be a better place if the license at issue were located not in the hands of the proposed transferee but in the hands of some other, third party. That is, this sort of review presumes that a license should not go to the transferee because it ought to go into the hands of some other, unaffiliated party, and therefore concentration is avoided and "diversity" enhanced. I think it can be argued that this sort of a theory creates an inconsistency with the plain language of section 310(d)'s prohibition on consideration of third party transferees or assignees.
Conclusion
I am pleased that this transfer application has been granted. I regret, however, that the applicants were subjected to a process which includes substantive tests that have not been adopted as required under the Administrative Procedure Act; that is inconsistent with sections 202 and 310; and which has cost them extra time and money.
2. The Commission does possess authority under the Clayton Act, which prohibits combinations in restraint of trade, to review mergers per se. See 15 U.S.C. section 21 (granting FCC authority to enforce Clayton Act where applicable to common carriers engaged in wire or radio communication or radio transmission of energy). That power is rarely invoked by the Commission, however. If the Commission intends to exercise authority over mergers and acquisitions as such, it ought to do so pursuant to the Clayton Act, with its carefully prescribed procedures and standards of review, not the licensing provisions of the Communications Act.
3. Relatedly, nothing in the Act talks about the other, entirely novel factors that the Commission expounds upon today, such as HHI levels or specific demographic groups in station markets.
4. Proponents of this approach often rely upon FCC v. RCA, 346 U.S. 86 (1953),for the proposition that the Communications Act requires analysis of competition and that failure to conduct such analysis thus could constitute reversible error. That case did not hold that competition was a necessary to a public interest determination, however; it only asserted, in dicta, that competition was certainly "relevant" to such a determination. See id. at 1004. Indeed, the Court made this statement in the course of rejecting the argument that competition could be relied on exclusively; thus, this was not a case in which the agency had failed to consider competition and was reversed for that failure, but a case in which the Commission relied only on competition and was reversed on that ground. Moreover, RCA does not deal with a situation where, as here, Congress has expressly addressed the specific issue -- namely, concentration -- that the Commission seeks to address under the more general public interest standard. That case simply did not address the pivotal question here, whether specific expressions of Congressional intent regarding concentration levels trump more generalized provisions of the Act.
5. See 47 U.S.C. section 202(b)(2) ("Exception. -- Notwithstanding any limitation authorized by this subsection, the Commission may permit a person or entity to own, operate, or control, or have a cognizable interest in, radio broadcast stations if the Commission determines that such ownership, operation, control, or interest will result in an increase in the number of radio broadcast stations in operation.").