INTRODUCTION

Today I'd like to talk about an issue near to your heart -- or should I say near and dear to your calculators and spreadsheets: broadcast ownership.

My message is simple: As steward of the airwaves, the FCC must adopt policies and rules that provide benefits to the public as well as reflect realities of the marketplace. These are not necessarily conflicting goals.

I'd like to discuss with you the impact of the Telecom Act of 1996 on the broadcast marketplace, and some of the issues that we are attempting to address in our ownership proceedings. But first, let's talk about why, in my view, broadcasting is such an important service.

Why Broadcasting is in the Public Interest

Free, over-the-air broadcasting -- when ownership is widely dispersed -- is an insurance policy for democracy. It is not in our national interest to rely solely on cable or satellite -- or any other bottleneck -- for receipt of news and information.

Free, any-time-any-place broadcast television brings us together, even in a fragmented video market.

As programming suppliers become more and more vertically integrated, it becomes more and more critical that communities have access to multiple independently-owned outlets for their news and political discourse.

In other words, as national markets become more consolidated, it becomes more important to maintain diversity of ownership at the local level.

Where there is excessive market power, freedom of expression is imperiled.

In the recent Turner Broadcasting System -- "must carry' -- case, the Supreme Court declared, "broadcasting is demonstrably a principal source of information for a great part of the Nation's population." It went on to say, "promoting the widespread dissemination of information from a multiplicity of sources, and...promoting fair competition in the market for television programming" are important government interests.

Thus, our policies at the FCC continue to stress the need for diversity of voices and robust competition -- goals which are paramount in broadcasting.

Broadcast Ownership

The Telecommunications Act of 1996 was watershed legislation for broadcast ownership. After a contentious debate, Congress loosened national caps on television and eliminated national caps on radio ownership entirely. It also significantly relaxed the local ownership limits for radio.

Spurred by these changes, broadcast station sales skyrocketed -- $25.4 billion changed hands in station trading in 1996, a full $17 billion ahead of the previous year.

Over a thousand radio mergers have taken place since the Act. Billion dollar radio deals are becoming almost commonplace.

Why, I'll bet that some group owners today can't even recite the call letters for all of their stations.

We have seen a host of transactions spawned by the Act. But we have only just begun to observe the profound impact of these marketplace consolidations.

• We do not yet know the impact of three companies owning or operating 7 of the top 10 ranked stations and 14 of the 30 radio stations in Louisville, KY, the 55th largest market;

• We do not yet know the impact of four firms holding 18 of the 22 top-rated commercial stations in Washington, DC -- the 8th largest market;

• We do not yet know the impact on minority and female station ownership -- which is already pitifully low -- of these changes; and

• We do not yet know the impact of our digital television decision to award every full-powered station a second, six megahertz to convert to digital broadcasting. With the ability to transmit five or more program streams in one six MHz signal, DTV will offer every television broadcaster the opportunity to provide multiple programming channels many desire.

In the new law, Congress did not repeal the requirement that the FCC review all transfers of licenses. The Commission's bottom line: every ownership transfer, assignment, and renewal that we approve must be found to be in the public interest, convenience, or necessity.

This has been the code since the 1930's and did not change with passage of the Telecom Act. That is why we continue to review television and radio transactions, looking at each one with particular focus on what the effect of the proposed combination would be on competition and diversity of voices in the local market.

As a side note: Wherever possible, the marketplace should govern which transactions get done. The Commission must move quickly on deals. Despite the huge volume of cases last year, unopposed radio transfers were processed more quickly than ever before. And we are working to further streamline our systems to accommodate electronic filing.

I care very much that we not delay ruling on transactions. Pizza companies and airlines have "on time" policies. Here is the Ness-On-Time Policy: I am committed to giving immediate attention to ownership transfers when they are presented to me for a vote.

BROADCAST OWNERSHIP ISSUES

But what is the likelihood that the Commission will further modify ownership rules? I cannot predict whether the four commissioners currently in office will achieve consensus on further changes to our rules -- but we are working on it.

We have several rulemaking proceedings underway to revise our ownership rules, most notably the television duopoly rules, along with a decision on whether to make local marketing agreements -- LMAs -- attributable for ownership purposes.

My goal is to remove the "loopholes" in our rules which enable circumvention of ownership caps, while slightly easing some television ownership restrictions. In other words, I would "close the back door" of unattributed LMAs while modestly opening the front door to television duopoly.

I also want to revise our rules to give greater certainty to broadcasters and the financial community. That means coming up with a bright line test -- but with a very high threshold.

I want to underscore: Big is not necessarily bad. But we need to ensure that the natural market forces leading to consolidation do not cause us to lose sight of our public interest goals of diversity and competition.

Local Marketing Agreements

On LMAs: In January 1995, we tentatively concluded that television LMAs should be attributable, just as we made radio LMAs attributable in 1994. One problem is that we don't even know how many television LMAs there are, where they are, when they began, how long they last, and what they cover. This is information we must have...now.

I would not eliminate LMAs. Some stations may prefer an LMA to outright ownership. They should be allowed to do so, so long as those agreements are attributed and are filed with the FCC.

Some suggest that LMAs should be permanently grandfathered. But others believe that LMAs give "doubled up" stations a significant competitive advantage over other stations in the market and should be eliminated.

LMAs clearly should be attributable. But my own view is that there may be very special circumstances where such combinations have provided exceptional, tangible, verifiable benefits to the public and should be allowed to continue. That is easy to say, but fashioning a workable rule is more challenging.

Duopoly

We have proposed to relax the definition of television duopoly. Our existing rules require that the stations have completely separate Grade B contours. We are considering also allowing common ownership where the stations are in separate DMAs with no Grade A overlap. This change alone will permit considerably more local television concentration than in the past.

If we redefine duopoly to refer to separate DMAs and no Grade A overlap, I believe we will have taken a big step. This modification, coupled with the dramatic consolidation that has already taken place, prompts me to conclude that any additional changes to our television duopoly rules must be modest.

I would note that today there are many willing buyers for television stations -- there is no widespread need for broadcasters to "rescue" stations in their local markets.

Many networks and group owners are also multi-channel video program providers. They have successfully negotiated with their local cable companies for retransmission consent agreements on second cable channels serving the same markets as their local station. They are free to do more.

And again, with DTV spectrum attached to each full power television license, the dynamic has yet to play out.

With these caveats in mind, I would follow the bumper sticker admonition: "Easy Does It."

Some proponents have advocated changing our duopoly policy to allow all combinations based upon UHF status. I am not convinced that a rule based simply on that factor will identify those duopolies which truly benefit the public.

While a struggling station is likely to be a UHF station, it does not necessarily follow that all UHF stations are struggling. Indeed, the fact is, that in many markets, UHF stations outperform VHF stations. With must-carry assured, cable carriage of UHF stations further reduces any perceived disadvantage.

Attribution Rules

Besides recognizing LMA's, there are other attribution issues. In particular, we need to address situations where program suppliers or competitors can exert influence over "core" station operations -- programming, personnel, and budgets. The issue is not "control," but rather, the "ability to influence."

We have proposed to count debt or equity investments in a station where: (1) the investment is made by a program supplier or another broadcast in the same market, and (2) the investment exceeds a certain benchmark.

This proposal was actually suggested by a number of stations based on their real-world experiences. Such a rule would curb the potential abuses of our "single majority shareholder" rule which allows someone to own up to 49% of the voting stock of a station without any attribution, so long as there is a single majority shareholder.

One to a Market Rule

Our one-to-a-market rules have also grown stale. The rule on the books actually prohibits cross-ownership of radio and television, yet we all know that radio/TV combinations have become common. Yet we make owners go through an arcane "public interest" recitation that does not result in concrete, verifiable benefits to the public.

TO RECAP: Because these ownership issues are so intertwined, we must be careful making wholesale changes without better understanding the full impact.

To illustrate, let's say you are the owner of a UHF station in a top 25 market, perhaps affiliated with an emerging network -- when one of the VHF "big four" affiliates with a 30% revenue share does an LMA with another UHF station.

• What if that combination generates 50% of the TV ad dollars in the market?

• What if that TV competitor acquires the top 5 FM and 3 AM signals in the market?

• And bankrolls all of the equity --- on a non-voting basis of course, of a third UHF in the market?

At what point are you -- the competitor -- kept from competing effectively?

At what point does a program supplier have a hard time finding options?

At what point does an advertiser face only one seller?

At what point is bigger no longer better? At what point is the public not served?

CONCLUSION

The ownership policies that promote public benefits do not have to be at odds with the industry. In fact, many broadcasters have made good suggestions on how we can harmonize the marketplace realities and serve the public interest.

I know that our current commissioners share my passion for broadcasting, and I am hopeful we will be able to conclude these rulemakings with them.

Our broadcast ownership rules are complex, interrelated, and critical to preserving competition and diversity. Local communities in particular, are served by having the kind of robust competition and thriving diversity of editorial voices to which I am so committed.

We must make sure that our rules are current and that they reflect the realities of the marketplace. The United States has the best broadcasting system in the world, and I believe we are poised to take steps that will result in even better service to the public.