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Michael K. Powell
Federal Communications Commission
Before the
NAB Radio Group Head Fly In

Washington, D.C.
February 18, 1998

(As prepared for delivery)

Good afternoon and thank you for inviting me to be your luncheon speaker today. Truth be told, I would really prefer to make this more of a chat than a speech. To that end, I intend to keep my remarks brief. This approach has two virtues: (1) it allows me to open the floor to comments and questions so I can hear what is on your minds and talk directly to your concerns, and (2) it conveniently masks the fact that I have not thought of anything brilliant to regale you with today.

I was able to muster up a few thoughts that I would like to share with the captains of the radio industry, so I will take a few moments up front. This lets me set the stage for our discussion and also allows me to justify yet another free lunch from a major industry group. So, let me start by noting that we have just passed the second anniversary of the Telecommunications Act of 1996, and as we have been conditioned to do on such occasions by the talk shows and our spouses, it is time once again to reflect on the moment -- to share how we "feel" about where we have been and where we are going. You can see that I received a bit of a lesson this past weekend in proper Valentines Day etiquette, but I that is my problem not yours.

Well, how do we "feel" about the radio industry and its relationship with Washington. The current relationship was consummated in the Telecommunications Act of 1996 in which Congress demonstrated its undying trust in radio by substantially relaxing radio ownership rules. It was moonstruck by deregulation and competition and believed that radio could be trusted to compete effectively and to provide listeners and advertisers with all the benefits that flow from competition -- lower prices, greater choice, and more innovation. The evidence suggests that Congress' faith that the radio industry would benefit from more space (another lecture I have received at home on occasion) was well-founded.

Without question, the relaxation of radio regulation mandated by the 1996 Act has changed the face of your business. It has changed the faces of the hard-working folks in the FCC's Audio Services Division, too. They now have dark circles under their eyes and a lot more wrinkles! In 1995, the staff tells me, there were only 75 mergers and acquisitions worth about $1.5 billion. In 1996, this jumped to 3700 transaction applications, of which 859 were mergers or acquisitions worth about $14 billion. In 1997 there were 4100 assignment and transfer applications including more than 840 mergers. These consolidations have unquestionably made the radio industry more efficient and probably has made radio stations more effective competitors.

Another positive sign is that the industry is accommodating new entrants. From March 1996 to November 1997, the number of radio stations went up 2.5%. That surely is a sign of improving health in your industry.

Wall Street seems to agree. Stock market returns suggest that the radio industry is enjoying robust health and good future prospects. In 1997, Jacor Communications and American Radio both gained 92%; Clear Channel gained 120% and CBS Corp. gained 48%. Most industry analysts predict continued consolidation for at least another year. Such consolidation, the reports contend, will not only produce financial gain, but other possible benefits including bigger audiences, greater reach and more targeted programming.

But there are subtle signs of trouble in paradise. On the second anniversary of the Act we see a great deal of hand-wringing over whether the Act has been a failure or a success. (Put aside for a moment that it is entirely too soon to be asking that question.) In that debate one increasingly hears people citing "frenzied consolidation" as an example that the Act has failed. That is, the consolidation we have seen in the industry is somehow at cross purposes with the statute's desire for competition. This, of course, is misguided. Mergers are often a natural consequence of a sound competitive marketplace and should not be roundly denounced. Some mergers are troubling in that they result in anticompetitive harm, but most are good things for the market and consumers. One can only tell the difference between the two by examining each merger on its own facts and its own merits, and to otherwise declare in advance that a particular merger will lead to competitive harm is irresponsible.

So what is the problem here? Why do we continue to hear expressions of anxiety about consolidation in the radio industry? I think the answer lies in the traditional regulatory "public interest" approach that has been applied when the FCC looks at broadcast ownership issues. Traditional public interest analysis at the FCC has centered on two areas: competition and diversity.

With respect to the former, there is a well established regime in place to determine whether a merger is of the positive variety or the negative variety. The antitrust laws have served the nation well for many years. The Department of Justice has, in my opinion, been very effective in teaching your industry its antitrust obligations, and policing anticompetitive conduct. It will continue to do so, even though I am no longer there.

Competition analysis does not stop at DOJ, however, any more than I did. The FCC has to evaluate mergers as well. Not only do we have authority under section 7 of the Clayton Act, as does DOJ, but we also have the authority to determine if a proposed merger is in the public interest.

You might understandably ask how DOJ's analysis is different from the Commission's and whether you can safely assume that if DOJ passes on your merger the FCC will as well. Well you cannot. There are some fundamental differences in how the process works that can, in theory, lead to very different results.

DOJ is a law enforcement agency, a prosecutor. In order for it to block a merger it must sue you in court, where it has the burden of proving your merger would violate the antitrust laws. The FCC, however, is prosecutor, judge and jury. In our case, you must come to the FCC and prove to us that your merger is "pro-competitive." You can appeal that decision to court, but the standard of review there is highly deferential to the agency's decision.

There is a more important difference between the DOJ's review and ours. DOJ is not permitted to consider the impact on diversity in its analysis, while the FCC must. More often than not, competitive concerns, while often cited, are not the true focus of our analysis nor are they the major source of anxiety you are seeing over rapid consolidation in your industry. The real issue more often than not is diversity.

While competition analysis is marked by at least apparent academic rigor -- it uses econometric models and the Herfindahl-Hirschman Index -- evaluating diversity is a more visceral exercise. Diversity, while often cited as a goal of broadcast regulation, is an ambiguous concept. What is government's objective when it talks about diversity in broadcasting? Is it an attempt to rectify past discrimination in the industry? Is it to promote diversity of programming, diversity of ownership, diversity of outlets or some other kind of diversity? How can we know when there is enough diversity to serve the public interest? Do our goals change over time as more outlets come into the market or as technology expands opportunity? Is, at bottom, the anxiety really nostalgia, a longing for a time when there were more corner radio stations?

I have a lot of questions here and not many answers. But I suggest you need to be thinking about these things because the next big episode in the continuing saga of deregulation and competition is how we define these "diversity" objectives and how we pursue them in light of a more competitive free-market paradigm. I believe we are at a crossroads in our regulatory processes where we must step back and re-evaluate our diversity goals, decide what we really hope to accomplish and devise a judicially sustainable means of achieving that goal.

I want to be clear that in my mind we are right to be concerned when we see trends that suggest that minorities and women may not be enjoying the fruits of economic opportunity present in this industry. We can and should work to find the reasons why disparity exists and put sustainable solutions into place.

But the real question is how do we do it? I submit that the answers given to this question in the past are not viable today. The Courts now demand that government offer more rigorous defenses of its race-based and gender-based policies. We can no longer rely on the obvious worthiness of our objectives to validate the policies we adopt to achieve them.

Moreover, in a competitive free-market we cannot employ the same tools we once used to advance the interests of under-represented groups. The rewards of competition are many (choice, price, innovation) but the rules of the game are strict and unforgiving of those who do not abide by them. We need policies designed to work within a competitive environment and not against it. If we fail to develop policies that compliment this environment, and instead depend on the policies crafted for a regulatory world overseen by benevolent regulators, we will fail to achieve anything at all.

I am working hard to find new creative approaches to moving us along. In doing so, I am guided by five principles:

  1. Pursue Race- and Gender-Neutral Policies. Lets level the playing field for all participants. Minorities and women want a fair chance, not a hand out, and policies that remove barriers and facilitate entry will give minority and women entrepreneurs and small businesses a chance to enjoy the fruits of the telecommunications revolution.

  2. Encourage Private-Sector Initiatives. The market is inherently the domain of private actors, not public officials. Often the most creative and beneficial approaches to advancing the interests of minorities and women come from the private sector and not the government. It is simply good business to be a good citizen. What government can do is find and highlight these private initiatives and encourage the industries we regulate to follow the examples set. Players in the private sector, rather than us in government, are more likely to know the real keys to success in the industry.

  3. Jettison the Self-Evident Rationales of the Past. The courts will no longer accept as valid the assertion that a female broadcast station owner will produce female-oriented programming, nor will they accept the same predictive judgment with respect to race -- no matter how obvious this rationale seems to some. Our new policies will require a much more rigorous defense in order to be sustained. It is time to rethink what it is we are trying to achieve through government policy.

  4. Pursue Economics-Based Initiatives. Let's recognize that markets and competition are the domain of economics, not social policy. That is not to say that we cannot pursue social good in a competitive market. It does mean, however, that we must do so in a manner that is consistent with bedrock economic principles or we will again be going against traffic.

  5. Look for "Win-Win" Policies. Crafting policies that help minorities and women need not be a "zero sum" game. A great deal of the anxiety in our society about race-based policies comes from a perception among the majority that policies designed to help minorities will necessarily harm them. This is nonsense. There are undoubtedly any number of ways to promote the interests of all Americans. It does, however, take some work and creativity. The abandoned tax certificate policy was one such policy. While it fostered economic opportunity for minorities it also provided a tangible benefit to the majority. When a policy offers a "win" for both minority and majority interests, there is greater commitment to the policy and, consequently, a higher chance that it will succeed.

This effort is not just the task of government it is in your interest to be proactive in this area. Create initiatives and programs that you believe will actually advance these interests we all share.

Let me lastly turn to an area near and dear to every broadcaster's heart, content regulation and the public interest standard. While a strong case can be made that broadcasters can profit from doing business in a manner consistent with the "public interest," there has been a fair amount of tension between the public interest, as that term has been defined by regulators and public interest groups over the years, and the commercial self-interest of broadcasters. Indeed, some have contended that anything of commercial benefit should not be credited toward fulfillment of public interest obligations. It is a bit like the old adage about medicine -- that it has to taste bad to be good for you.

To me, that is not sound public policy. As regulators, we should make every effort to pursue policy objectives and the public interest in a manner that is as consistent with commercial self-interest as possible. In that way, we are more likely to obtain true commitments from you, the industries we regulate. And, we are less likely to invite litigation. As a consequence, we will be more likely to achieve our national ends and really make a difference in people's lives.

So how does this inform my view of public interest regulation? I believe that as one of the keepers of the public interest, I have an obligation to develop and clearly communicate guiding principles that I will apply in the exercise of this public trust. In that way, I can reach conclusions that I am comfortable are consistent with the public interest, not just the result of the most effective lobbyist or the result of well-placed political pressure. In effect, conclusions that are the product of reasoned analysis.

This is not easy when dealing with the concept of "public interest." The term itself offers little guidance and thus invites a struggle over how to satisfy it every time it is invoked. You might say that the public interest standard is a bit like modern art, people see in it what they want to see in it. That may be fine for art, but it is a bit of a problem when that quality exists in a legal standard. I dare say, it invites mischief by regulators and politicians, and it invites other groups to advance parochial interests under the umbrella of the public interest. Such a clouded standard is particularly dangerous when applied by the simple majority of five commissioners who are not directly accountable to the very public they purport to be protecting.

This is not to suggest that the Commission cannot effectively regulate in the public interest, or that it needs to establish rigid quantified public interest standards. It does point to, however, the need to be cautious when invoking the public interest. In the context of communications, where the cherished American value of free speech may be impinged by the government, the government should exercise extraordinary caution in adopting policies that may be politically popular or may enjoy the support of a particularly vocal constituency. There is a reason the constitutional protection against the government infringing on speech was the first amendment set out in the Bill of Rights.

Now that I have sung for my supper, I am happy to take questions. Thank you.