Revision of Radio Rules and Policies

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MM Docket No. 91-140; FCC 94-267]

Revision of Radio Rules and Policies

AGENCY: Federal Communications Commission.

ACTION: Final rule; petitions for reconsideration.

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SUMMARY: In the Second Memorandum Opinion and Order (Second

Reconsideration Order), the Commission revises the national radio

ownership limits to permit minority broadcasters to own a controlling

interest in up to 25 AM and 25 FM stations, and to permit non-minority

broadcasters to hold a non-controlling interest in an additional five

AM and five FM stations over the general national limits that are

controlled by minorities or small businesses. The Commission declines

to revise its local radio ownership limits or its rules and policies

regarding time brokerage. The actions taken in the Second

Reconsideration Order, in conjunction with the other actions taken in

this proceeding, are needed to permit radio broadcasters to combine

resources, as well as to provide greater opportunities for minority and

small business broadcasters.

EFFECTIVE DATE: January 5, 1995.

FOR FURTHER INFORMATION CONTACT: Jane Hinckley Halprin, Mass Media

Bureau, Policy and Rules Division, (202) 632-7792.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Second Reconsideration Order in MM Docket No. 91-140, adopted October

20, 1994, and released November 8, 1994.

The complete text of the Second Reconsideration Order is available

for inspection and copying during normal business hours in the FCC

Reference Center (Room 239), 1919 M Street, NW, Washington, DC, and

also may be purchased from the Commission's duplicating contractor,

International Transcription Service, 2100 M Street, NW, Washington, DC

20036, (202) 857-3800.

Synopsis of Second Reconsideration Order

1. The Second Reconsideration Order resolves issues raised in three

petitions for reconsideration of the Memorandum Opinion and Order in MM

Docket No. 91-140, 7 FCC Rcd 6387 (1992), 57 FR 42701 (Sept. 16, 1992)

(First Reconsideration Order). Those petitions were filed by the League

of United Latin American Citizens (LULAC), the National Association of

Black Owned Broadcasters, Inc. and the National Black Media Coalition

(NABOB/NBMC), and the Telecommunications Research and Action Center and

the Washington Area Citizens Coalition Interested in Viewers'

Constitutional Rights (TRAC/WACC). The Second Reconsideration Order

also addresses a Petition for Rule Making (RM-8414) filed by the

National Association of Broadcasters (NAB), and denies a NABOB/NBMC

request for stay and rescission of the previous increase in the

national ownership rules.

2. The First Reconsideration Order, upon which the Second

Reconsideration Order is based, revised the Commission rules governing

the ownership of interests in multiple radio stations. The First

Reconsideration Order revised Sec. 73.3555 of the Commission's Rules

(47 CFR 73.3555) to increase the national radio ownership limit from 12

AM and 12 FM stations to 20 AM and 20 FM stations. The Commission also

revised the national minority ownership cap, which had permitted non-

minority owners to take a non-controlling interest in an additional two

AM and two FM stations that were minority-controlled, and permitted

minority owners to hold a controlling interest in 14 AM and 14 FM

stations. The First Reconsideration Order modified the rule to permit

all owners to take a non-controlling interest in an additional three

stations per service above the national caps if those stations were

controlled by minorities or small businesses. It declined to adopt a

provision allowing minority broadcasters to own more stations outright.

3. The First Reconsideration Order also relaxed the local ownership

limit, which had been one AM and one FM station per area, to permit

common ownership of up to two AM and two FM stations, depending on the

size of the market. Specifically, in markets with 15 or more stations,

an individual or group was permitted to acquire up to two AM and two FM

stations provided that the combined audience shares of those stations

did not exceed 25 percent of the local radio market. In markets with

fewer than 15 stations, a single owner was permitted to acquire a total

of three stations, no more than two of which may be in the same service

(i.e., AM/AM/FM or AM/FM/FM), provided that the group owner's stations

represent less than half of the total number of stations in the market.

The First Reconsideration Order also declined to revisit the

Commission's prior determination that certain time brokerage

arrangements would be treated as attributable ownership interests for

purposes of the multiple ownership rules.

4. The Second Reconsideration Order generally affirms the rules

adopted in the First Reconsideration Order, except that the Commission

has decided to revise the national ownership rule with respect to

minority and small business broadcasters. The Second Reconsideration

Order increase the national limits for minority owners to 25 AM and 25

FM stations, and raises to five the number, in excess of the national

limits, of minority or small business controlled AM or FM stations in

which a non-minority broadcaster may hold a non-controlling interest.

5. In addition, because of concerns raised by a number of parties

with respect to the effects of the revised rules on competition and

diversity in radio markets, the Commission, on its own motion, reviews

the radio ownership rules in light of relevant economic and antitrust

principles. Pursuant to its analysis of these principles, the

Commission concludes that the radio ownership rules are consistent with

established principles of competitive analysis and at the present time

provide adequate safeguards to ensure acceptable levels of diversity in

the radio marketplace.

Local Ownership Limits

6. The First Reconsideration Order revised Sec. 73.3555 to permit a

single owner in a larger market to own up to two AM and two FM

stations, subject to an audience share cap of 25 percent, and to permit

an owner in a smaller market to own up to three stations, provided that

no more than two are in the same service and that the stations

represent fewer than half of the total number of stations in the area.

A ``market'' is defined with respect to overlapping signal contours.

For instance, the relevant market with respect to a combination of two

stations in the same market would encompass those two stations as well

as all other radio stations whose principal community contours overlap

those of the two stations involved in the proposed transaction.

7. Urging reconsideration, LULAC argues that the new local rules

disadvantage small stations, and reiterates its suggestion that, rather

than change the local ownership rules, the Commission should allow

greater consolidation for financially failing radio stations. NABOB/

NBMC reiterate their previous argument that increased ownership limits

will substantially reduce opportunities for increased minority

ownership in broadcasting and will force minority broadcasters out of

the radio industry. In opposition, NAB contends that adoption of

LULAC's proposal would impede the positive effects of the new rules.

8. The Commission notes that it directly addressed LULAC's

suggestion to adopt a failed station standard in the First

Reconsideration Order. It concludes that LULAC's argument, that its

``failing'' station would permit a troubled station to obtain ownership

relief well before it actually fails, does not adequately address the

Commission's fundamental concern with the vitality of the industry

generally. It therefore finds that LULAC has presented no new evidence

or argument to revisit that review. The Commission also concludes that

NABOB/NBMC likewise have not presented any new information that would

persuade it to further modify the local limits.

9. While it does not modify its local ownership rules, the

Commission does make a minor correction. A reference to ``the most

recent published audience share data available at the time that the

application is filed'' was deleted from Sec. 73.3555(a)(3)(iii) when

that rule section was revised (and renumbered) pursuant to the First

Reconsideration Order. That deletion was inadvertent, and the quoted

provision was intended by the Commission to remain in the rules.

Section 73.3555(a)(3)(iii) will be modified to reinsert that language,

as set forth below.

10. In its petition for rule making. NAB suggests that when only

one of the stations in a proposed combination has a principal community

contour that would place the transaction in a market of 15 or more

stations, the parties to the transaction should be permitted to elect

whether to be governed by (1) the rules for small markets based on the

number of stations overlapping the smaller facility's contour (thus

avoiding the audience share limitation); or (2) the rules for large

markets, but with the audience share calculated based on all counties

receiving any one of the 15 or more stations counted as in the market

pursuant to Sec. 73.3555(a)(3)(ii).

11. NAB also proposes that the local ownership rule be modified so

that ownership of ``not greater than 50 percent'' of the stations in a

market would be permitted rather than the current ``less than 50

percent'' rule. In addition, NAB contends that any single station or

AM/FM combination licensee should be allowed in all situations to add

one additional station to common ownership.

12. Finally, in the event the above changes are not adopted, NAB

believes that a clear and liberal set of criteria should be established

for requests for waiver of the local ownership rule in traditionally

small markets. Among the critical elements of any waiver policy

according to NAB, would be the effort to save a dark or failing

station.

13. Duke Broadcasting, commenting on the NAB petition, raises

similar concerns with the contour-based market definitions in the new

rules when applied in small markets, but proposes a different solution.

Duke suggests a delineation of two tiers of markets based on

Metropolitan Statistical Area (MSA) ranking, with ``larger'' markets

still subject to the combined audience share limitation of 25 percent,

and ``smaller'' markets not subject to the combined audience share

limitation in the absence of a showing that the particular combined

share exceeding 25 percent creates an excessively high concentration of

audience. Duke proposes that MSAs ranked above 150 would be placed in

the larger market tier, while those ranked 150 and below, as well as

non-MSA markets, would be placed in the smaller tier.

14. The Commission declines to modify the local ownership rules. It

notes that in designing the signal overlap standard, it specifically

rejected suggestions that Arbitron data, MSAs (proposed by Duke here)

or other narrow geographic designations be employed to count the number

of stations in a market. It concludes that there is no evidence to

suggest that the rationale underlying the adoption of the contour

overlap approach--a more accurate measure of where a station's signal

can be adequately received and, therefore, where it can compete for

listeners--is any less appropriate for stations in smaller markets

under the circumstances presented by NAB and Duke. It notes that a

station combination with an aggregate principal community contour

overlapped by 15 or more stations can be expected to compete for

listeners with those stations, and the audience share cap is applied in

such a case as an additional safeguard intended to identify potential

concentration problems that may threaten diversity and competition.

15. The Commission states that it declines to, in effect, ignore

those stations, such as Class C FM stations, with superior signal

coverage. It also declines to redefine the area to which county-by-

county audience share calculations apply in the manner suggested by

NAB. The Commission believes that the suggested change would unduly

dilute the diversity and competition safeguards adopted in its previous

orders, and, in any event, would not reflect competitive conditions in

the areas in which stations proposed to be combined provide the

majority of their service, i.e., within their principal community

contours.

16. With respect to NAB's other proposals, the Commission notes

that it already expressly rejected a change of the rule applicable to

markets of fewer than 15 stations to permit ownership of half of the

stations in a small market because it could result in an unwarranted

level of consolidation in too many markets. Further, the Commission

states that it is not persuaded that the specific changes NAB advocates

are warranted as a means of rescuing failing or dark stations. The

Commission is concerned that the proposed changes would be applicable

without regard to the circumstances of an individual facility or its

financial condition, and would have the potential to increase

concentration signifcantly. It also believes that cases involving a

genuine threat of station failure are best addressed via a waiver

process that can appropriately account for the specific factual

circumstances at hand. Moreover, the Commission states that because of

the variety of circumstances that may be present in any given radio

market, requests for waiver of the rule should not be limited to

specific criteria.

Minority Ownership and Small Business Incentives

17. NABOB/NBMC urge the Commission to reinstate the aspect of the

prior rule that permitted minority-owned companies to take a

controlling interest in additional stations above the national

ownership caps. NABOB/NBMC maintain that the change from the prior rule

will decrease the total number of stations that can be controlled by

existing minority licensees, and, with the increase of the national

ownership limits generally, will lead to further concentration of

ownership in the broadcast industry, diluting substantially the

opportunities for increased minority ownership. NABOB/NBMC also contend

that the First Reconsideration Order did not provide evidence with

which to evaluate the effect of the rule changes on minority ownership,

and they reiterate their argument that the Commission's appropriations

legislation prohibits modification of the minority ownership incentive.

Further, NABOB/NBMC reiterate their request, denied in the First

Reconsideration Order, that the national ownership limits be returned

to 12 stations per service. LULAC, NABOB/NBMC and NAB urge the

Commission to repeal the small business incentive established in the

First Reconsideration Order. LULAC and NAB argue that adoption of the

small business incentive violated the Administrative Procedure Act

(APA), 5 U.S.C. 553, because such an incentive was not proposed in the

initial Notice of Proposed Rule Making in this proceeding. They also

maintain that the small business incentive will dilute or otherwise

undermine any incentive for group owners to invest in minority-

controlled stations.

18. The Commission states that it continues to believe, as

discussed both above and previously in this docket, that further

expansion of the national ownership limits would not hinder diversity

of viewpoint and could spur competition in the industry. The Commission

notes that the arguments raised by petitioners with respect to the

increase in the general national ownership limits from 12 to 20

stations per service were fully addressed earlier in this proceeding.

19. The Commission is persuaded by petitioners, however, that

permitting minority owners to hold a controlling interest in additional

radio stations will serve the goal of increasing minority ownership

without posing a significant threat to competition or diversity. It

will therefore amend Sec. 73.3555 of its rules to permit minority

owners to own and control additional stations over and above the

general national caps. Moreover, based on its belief that further

national consolidation is appropriate, it will increase from three to

five the number of additional stations per service that may be acquired

pursuant to the incentive. The Commission's aim in making these

modifications is to permit minorities to own more stations as well as

to make the investment incentive aspect of the rule more attractive to

large group owners.

20. The Commission is not persuaded to delete the small business

incentive. It states that its current application processing standards,

which involve a case-by-case analysis of each transaction, are

sufficient to guard against sham small business applications. With

respect to petitioners' arguments regarding notice, the Commission

points out that the Notice of Proposed Rule Making in this proceeding,

6 FCC Red 3275 (1991), 56 FR 26365 (June 7, 1991), invited commenters

to discuss a range of issues regarding the national ownership caps, and

some commenters emphasized that access to capital is a problem for new

entrants and small businesses in general, not just minority-owned

entities. The Commission further notes that it intends to explore

minority ownership issues in an upcoming proceeding.

21. Pursuant to the rules adopted in the First Reconsideration

Order, the national ownership limits automatically increased from 18 AM

and 18 FM to 20 AM and 20 FM on September 16, 1994. On October 7, 1994,

NABOB and NBMC filed a ``Joint Motion for Rescission and Stay'' asking

the Commission to rescind the automatic increase and stay the effective

date of that increase until the Commission has acted on their petition

for reconsideration and evaluated the effect of the 18AM/18FM cap on

minority ownership. The Commission notes that NABOB/NBMC's petition for

reconsideration is resolved in the Second Reconsideration Order, and

that the Radio Station Ownership Report released concurrently with that

Order analyzes the effect that the increase in the national caps has

had on minority broadcasters to the extent presently possible. The

Commission finds the request for stay to be moot, and denies the

request for rescission.

Time Brokerage Arrangements

22. The Commission defines time brokerage as a type of joint

venture that generally involves the sale by a licensee of discrete

blocks of time to a ``broker'' who then supplies the programming to

fill that time and sells the commercial spot announcements to support

it. The First Reconsideration Order affirmed the Commission's earlier

holding that if a time brokerage agreement between two stations in the

same market involves more than 15 percent of the brokered station's

programming per week, the brokered station will be treated as if it was

owned by the brokering station for purposes of the national and local

ownership rules.

23. TRAC/WACC note that time brokerage decisions have been made by

the Commission's staff and argue that the Commission should not be

bound in future rulemakings by policy decisions of its staff made in ex

parte informal adjudications. TRAC/WACC also note that members of the

public are not given notice of, and may not have standing to

participate in, declaratory rulings at the staff level. NAB counters

that the revised time brokerage rules and policies, as adopted and

applied by the staff in its rulings, are lawful and are designed to

adequately ensure that licensees do not relinquish control of their

stations and remain responsive to the obligations of a licensee.

24. The Commission states that the language of the First

Reconsideration Order was intended to reflect the Commission's

continuing view that particular situations are better resolved on a

case-by-case basis. The Commission further finds that the specific

aspects of time brokerage arrangements questioned by TRAC/WACC in its

petition were thoroughly discussed previously in this proceeding, where

the Commission adopted restrictions on time brokerage arrangements so

that they will be counted as ownership interests where significant

brokering between competing stations is involved. Furthermore, the

Commission reiterates that a licensee must retain ultimate control over

its station. The Commission concludes that TRAC/WACC has not introduced

any new arguments to convince it that it needs to take further action

in this proceeding with respect to time brokerage. It also states its

belief that imposition of any additional restrictions on time brokerage

arrangements would run counter to one of the objectives of this

proceeding, which was to strengthen the radio industry by giving radio

broadcasters more flexibility.

25. The Commission notes that it previously decided not to require

the termination of an agreement that does not comply with the local

ownership rules if the agreement was entered into prior to the

effective date of the rules. These agreements were, in effect,

``grandfathered.'' The Commission clarifies that when a brokering

station is sold, an existing brokerage agreement that would be barred

by the rules if entered initially at the time of the sale, may be

transferred. The new owner may enjoy all rights and limitations with

respect to the multiple ownership rules as the original owner, but only

for the duration of the term of the agreement in effect at the time of

transfer. The purchaser of a station or stations involved in a

brokerage agreement, however, cannot create a new violation or

exacerbate an existing rule violation by that acquisition. Thus, for

example, a station combination that involves a brokerage agreement and

that exceeds the 25 percent audience share limit, but is nonetheless

permissible under the rules, could not be acquired by a party with

another station in the same market. A similar station combination with

an audience share of 24 percent could not be acquired by a licensee

with a station enjoying a 3 percent share in the same market. In

addition, parties will not be permitted to renew or extend time

brokerage agreements, including those that are grandfathered, once the

initial term expires if, at the time of expiration, the agreement would

not be permissible under the rules.

Remaining Matters

26. There is an inconsistency between the language of the First

Reconstruction Order and that of Sec. 73.3555(a)(1)(ii) as published,

as to the benchmark for permissible audience share. In order to remove

any ambiguity on this point, the Commission states that it intended the

language of the rule to be controlling. Thus, only audience shares that

exceed 25 percent are to be considered prima facie inconsistent with

the public interest.

27. Further, the Commission clarifies that while it is appropriate

to exclude non-operational stations from calculation of the number of

stations in the market where it cannot be presumed that they will add

to the competition and diversity in a market, such as analysis is not

appropriate when the non-operational station is a part of the

transaction under scrutiny, because the applicant has control over and

can generally be presumed to intend to put the station on the air.

Thus, if the non-operational station is one of the proposed commonly

owned stations involved in the transaction, the principal community

contour of the non-operational station will not be disregarded in

calculating how many stations are counted as in the market or in

determining the geographic area for which audience share is calculated.

28. The Commission also notes that current rules permit an AM

licensee to own an existing AM station in the 535-1605 kHz band and

apply for a construction permit for an AM station in the expanded band,

1605 kHz-1705 kHz, without regard to otherwise prohibited principal

community contour overlap. Moreover, the national ownership

restrictions are not applied when an entity with an attributable

interest in an AM station in the existing band applies for an AM

station in the expanded band. Note 10 to Sec. 73.3555 specifies a five-

year period during which joint ownership of existing band and expanded

band AM authorizations will be acceptable; at the expiration of this

five-year period, the licensee must elect to operate either the

expanded band station or to operate the station on its former frequency

in the existing band.

29. The Commission clarifies that if, during the five-year

transition period, the licensee has not yet elected whether to move to

the expanded band or retain its existing facility, the expanded band

station will be disregarded for purposes of the local and national

ownership rules. Thus, the principal community contour of the existing

band station will be considered for purposes of determining the

relevant market and for purposes of determining the number of stations

in the market. Moreover, if it is necessary to determine whether the

combination complies with the audience share cap, the Commission will

consider only the audience share attributable in the relevant market to

the existing band station.

Ordering Clauses

30. It is therefore ordered that, pursuant to the authority

contained in section 4(i) and 303(r) of the Communications Act of 1934,

as amended, 47 U.S.C. section 154(i), 303(r), part 73 of the

Commission's rules, 47 CFR part 73 is amended as set forth below.

31. It is further ordered that the petitions for reconsideration

filed in this proceeding are granted to the extent indicated herein and

are denied in all other respects.

32. It is further ordered that, pursuant to Sec. 1.401(e) of the

Commission's rules, 47 CFR 1.401(e), the Petition for Rule Making filed

on August 23, 1993, by the National Association of Broadcasters, RM-

8414, is denied.

33. It is further ordered that the Joint Motion for Rescission and

Stay filed October 7, 1994, by the National Association of Black-Owned

Broadcasters and the National Black Media Coalition is denied.

List of Subjects in 47 CFR Part 3

Radio broadcasting.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 73 of title 47 of the U.S. Code of Federal regulations is

amended to read as follows:

PART 73--RADIO BROADCAST SERVICES

1. The Authority citation for part 73 continues to read as follows:

Authority: 47 U.S.C. 154, 303, 334.

2. Section 73.3555 is amended by revising paragraphs (a)(3)(iii)

and (e)(1)(i) to read as follows:

(a) * * *

(3) * * *

(iii) A station's ``audience share'' is the average number of

persons age 12 or older on an average quarter-hour basis, Monday-

Sunday, 6 a.m.-midnight, who listen to the station expressed as a

percentage of the average number of persons listening to AM and FM

stations in that radio metro market or a recognized equivalent, in

which a majority of the overlap between the same service stations

involved in the transaction takes place. The ``combined audience

share'' is the total audience share of all AM or FM stations that would

be under common ownership or control following a proposed acquisition.

In situations where the majority of the overlap between the same

service stations does not lie in a single metro market, the relevant

audience share data is the data for all counties that are within the

principal community contours of the mutually overlapping stations

proposed for common ownership, in whole or in part, weighted based on

the listening population, age 12 and older, and totalled to determine

the average audience share. Audience share shall be calculated by using

the most recent published audience share data available at the time

that the application is filed, unless an alternative showing is

submitted pursuant to the Note following 47 CFR 73.3555(a)(1)(ii).

* * * * *

(e) * * *

(1) * * *

(i) more than 20 AM or more than 20 FM stations, provided, however,

that minority controlled entities may acquire an additional five

stations per service above the national limit, and that multiple owners

that are not minority controlled may hold an attributable, but not

controlling, interest in five additional stations per service above the

national limit that are minority controlled or small business

controlled;

* * * * *

[FR Doc. 94-29941 Filed 12-5-94; 8:45 am]

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