FCC Mulls Erasing Cable-TV Station Ban

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Washington -- After Congress relaxed radio ownership rules
in 1996, the industry experienced rapid consolidation, with at least three deals becoming
the subject of consent decrees with the Department of Justice.

But with those rules squeezing small radio companies ever
tighter, concern for the little guy -- as well as for women and minorities -- is taking
center stage at the Federal Communications Commission and animating the agency's
first-ever congressionally mandated review of its broadcast-ownership rules.

The FCC plans to put under a microscope key ownership
rules, including at least one of importance to cable operators, to determine whether they
continue to serve the public interest in promoting competition and ownership diversity.

Of great interest to the cable industry is the FCC's
promise to decide whether to repeal, modify or validate the 28-year-old rule that bans the
common ownership of a cable system and a TV station located in the same market.

It will also consider abolishing restrictions on the joint
ownership of a newspaper and a TV station in the same market; ownership of more than one
TV station in overlapping markets; and ownership of a TV station and a radio station in
the same market.

There is plenty of interest among some cable operators to
acquire local TV stations, according to Frank Lloyd, a cable attorney with Mintz, Levin,
Cohn, Ferris, Glovsky & Popeo.

"Several cable operators would like to at least invest
up to a certain percentage of ownership in a broadcast station, or have a number of cable
operators combine to acquire an interest in a broadcast station in a particular
market," Lloyd said.

To what appears to be a majority of the FCC, the 1996
repeal on the national ownership cap on radio stations was particularly instructive. In
the first 24 months alone, about 2,200 (out of some 10,300) commercial radio stations
changed hands in transactions with an estimated value of about $15 billion.

FCC member Susan Ness noted that the country's top
four radio groups saw their share of advertising revenue rise from 80 percent to 90
percent within one year of repeal.

"How are the smaller stations supposed to
compete?" Ness said. "I often joke that some owners today cannot even recite all
the call letters of all the stations they own."

But she might be fighting a losing battle.

Even if an FCC majority were to find that its various
ownership rules are still necessary, some in the agency fear the FCC would have a tough
time sustaining them in court.

In the wake of developments in the radio market since 1996,
some FCC observers argue that FCC chairman William Kennard is in no mood to unleash
another buyout binge that could threaten his agenda; Kennard, the first African-American
to head the agency, is hoping to boost minority ownership of mass-media properties.

"We have seen unprecedented changes in the broadcast
industry, consolidation at the most dramatic pace that we have ever seen in
broadcasting," Kennard said. "Is it important that we remain concerned that
small business and minority companies and women-owned companies have access to this vital
medium? Of course it is."

Kennard, Ness, and fellow Democrat Gloria Tristani have the
votes necessary to block any wholesale ownership changes potentially favored by the
FCC's two Republican commissioners, Michael Powell and Harold Furchtgott-Roth.

"I think there are at least three solid votes for no
change," said a Washington cable lobbyist, who asked not to be identified. The
lobbyist said the FCC is also under pressure from the Clinton administration to preserve
the status quo.

"The politics of this are intense," Lloyd said.
"It's very clear from the separate statements of the various commissioners that
there's a wide variety of views on whether these cross-ownership rules serve
diversity interests."

Daniel Brenner, vice president of law and regulatory policy
for the National Cable Television Association, said there was "a good chance"
the FCC would repeal the cable system-TV station ban in light of the deregulatory thrust
of the Telecommunications Act of 1996.

"You would have to sense that the 1996 Act took a very
dim view of unnecessary cross-ownership rules," Brenner said.

If Brenner's prediction comes true, Time Warner Inc.
would then be allowed to retain ownership of a 68,000-subscriber cable system in the same
Atlanta market as WTBS, the local TV station Time Warner acquired in the purchase of
Turner Broadcasting System Inc. The FCC has temporarily stayed an order forcing the sale
of either the cable system or WTBS.

Adopted in 1970 by a Nixon-era FCC, the cable system-TV
station ban had two objectives: to prevent a growing cable industry from discriminating
against an unaffiliated TV station and likewise to deter mature TV stations from retarding
the growth of cable.

"The concern was that a cable operator would not carry
the broadcast signals of the stations it didn't have an interest in," Lloyd
said.

He said the FCC wanted to ensure that a cable operator
could not burden unaffiliated TV stations with "inferior channel positions or degrade
their signals in some way to make them less qualitatively sound than the signal that they
owned."

The rule was not a straightforward line-of-business
restriction. Instead, it prohibited a cable system from carrying a local TV station if the
operator had a direct or indirect financial interest in the station.

The indirect approach was necessary because, at that time,
the FCC did not have regulatory authority over cable operators, but it did have authority
over TV station licensees.

"Back then [cable] was ancillary to its jurisdiction
over broadcasting," Lloyd said. "It didn't have any direct authority over
cable back in 1970."

Congress gave the FCC power over cable in 1984 when it
passed a major deregulation law. It went further in 1992 when it directed the FCC to
ensure that cable operators carry local TV stations, protect a station's channel
position and maintain a station's picture quality.

"Those worries which were around in 1970 are no longer
in existence," said Lloyd, who advocates repeal of the ban. "It should be
eliminated. It's definitely served its purpose."

Brenner agreed.

"It's hard to know why, in a world of analog
must-carry and a world where local signals are an important part of the cable programming
menu, that the issues that concerned government in the early '70s would apply
now," Brenner said.

Clearly, there are forces inside and outside the FCC that
see radio consolidation as an important lesson to bear in mind during the review of
broadcast ownership-policies, a process that could take the balance of the year to
complete.

"Our position is straightforward and simple on
this," said Andrew Jay Schwartzman of the Media Access Project, a public interest law
firm based here. "The Congress made a huge change in the ownership structure of the
mass media in the '96 telecom bill. It has been followed by a waive of consolidations
and mergers. It is inappropriate to start changing it even more."

But those on the deregulation side of the debate made the
point that the marketplace and legal climate have changed so much in recent years that the
FCC will have to use hard data, not abstract legal theories, to preserve ownership
restrictions and protect them in court.

Traditionally, the courts have permitted the FCC the
latitude to regulate radio and television stations based on the 55-year-old spectrum
scarcity doctrine -- that the airwaves are a limited public resource capable of sustaining
a finite number of speakers.

A Washington cable lobbyist, who asked not to be
identified, said that rationale was rapidly losing credibility.

"In large markets, you have dozens of television
stations, you got 50 or 60 radio voices, several newspapers, [and] development of the
Internet," the lobbyist said. "And you've got assignment of new spectrum
right and left" for direct-broadcast satellite, local multipoint distribution service
and digital broadcasting.

An FCC source, who asked not to be identified, said it
would be difficult for the FCC to sustain the cable system-TV station rule in light of the
local telephone industry's success several years ago in using the First Amendment to
overturn the ban on their entry into cable television within their phone territories.

Nevertheless, Ness said she sees a connection between
competition and ownership diversity. Consolidation, she said, can led to fewer players in
a market and fewer owners can lead to a reduction in the amount of "diverse and
antagonistic" opinions reaching the public.

"Some argue that media consolidation does not have an
adverse effect on diversity. That is not so," Ness said. "What's needed are
independently owned outlets, not a variety of content controlled by one owner."

Sustaining ownership restrictions based on the theory that
they foster mass-media ownership of women and minorities could drive a wedge between the
FCC's Democrats and Republicans.

More so than Furchtgott-Roth, Powell has made clear from
the outset that he thinks the FCC would lose in court if it retained ownership
restrictions based on a poorly defined "diversity" rationale.

Powell told reporters that the Supreme Court's 1995
ruling in Adarand Constructors Inc. v. Pena -- which exposed federal affirmative-action
policies to the most exacting judicial review -- called into question whether FCC
ownership rules designed to support women and minorities could survive in court.

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