Review of the Commission's Regulations Governing Attribution Ownership Rule

SUMMARY: This document amends the Commission's broadcast, broadcast

cable cross-ownership and cable/Multipoint Distribution Service Cross-

ownership (``MDS'') attribution rules. The intended effect of this

action is to improve the clarity and precision of our current rules

while avoiding disruptions in funding to licensees.

DATES: Effective November 16, 1999, except for Sec. 73.3526(e)(14) and

(e)(16) and Sec. 73.3613(d) and (e) which contain information

collection requirements that are not effective until approved by the

Office of Management and Budget. The FCC will publish a document in the

Federal Register announcing the effective dates for those sections.

FOR FURTHER INFORMATION CONTACT: Mania K. Baghdadi, Jane Gross or Berry

Wilson at (202) 418-2120, Policy and Rules Division, Mass Media Bureau.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report

and Order (``R&O''), FCC 99-207, adopted August 5, 1999; released

August 6, 1999. The full text of the Commission's R&O is available for

inspection and copying during normal business hours in the FCC Dockets

Branch (Room TW-A306), 445 12 St. S.W., Washington, D.C. The complete

text of this R&O may also be purchased from the Commission's copy

contractor, International Transcription Services (202) 857-3800, 1231

20th St., N.W., Washington, D.C. 20036.

Synopsis of Report & Order

Introduction

1. The mass media attribution rules seek to identify those

interests in or relationships to licensees that confer on their holders

a degree of influence or control such that the holders have a realistic

potential to affect the programming decisions of licensees or other

core operating functions. In this R&O, we amend our broadcast and our

cable/Multipoint Distribution Service (``MDS'') attribution rules to

improve the precision of the attribution rules, avoid disruption in the

flow of capital to broadcasting, afford clarity and certainty to

regulatees and markets, and facilitate application processing--our

goals in initiating this proceeding. In taking these steps, we have

sought to avoid undue impact on our goal of promoting the rapid

conversion of broadcast television licensees to a digital mode. We

initiated this long-pending proceeding in 1995, sought further comment

after the passage of the Telecommunications Act of 1996, and have had

the benefit of numerous comments on the variety of issues resolved

herein. The new attribution rules we adopt today are integrally related

to the rules adopted in our companion local television ownership and

national television ownership proceedings. A reasonable and precise

definition of what interests should be counted in applying the multiple

ownership rules is a critical element in assuring that those rules

operate to promote the goals they were designed to achieve.

Background

2. The attribution rules that are the subject of this proceeding

define what constitutes a ``cognizable interest'' in applying the

broadcast multiple ownership rules, the broadcast/cable cross-ownership

rule, and the cable/MDS cross-ownership rule. We issued the Attribution

Notice, 60 FR 6483, February 2, 1995, to review the attribution rules

based on several considerations, including: (1) Changes in the

broadcasting industry and in the multiple ownership rules since our

last revision of the attribution rules over ten years ago and our

consequent desire to ensure that the attribution rules remain effective

in identifying interests that should be counted for purposes of

applying the multiple ownership rules; (2) concerns raised that certain

nonattributable investments, while permissible under current rules,

might permit a degree of influence that warrants their attribution; (3)

concerns that individually permissible cooperative arrangements between

broadcasters are being used in combination so as to result in

significant influence in multiple stations that is intended to be

prohibited by the multiple ownership rules; and (4) the need to address

attribution treatment of Limited Liability Companies (``LLCs'').

3. We solicited comment in the Attribution Notice on several

issues, including: (1) Whether to increase the voting stock benchmark

from 5 percent to 10 percent and the passive investor benchmark from 10

percent to 20 percent; (2) whether to expand the category of passive

investors; (3) whether and, if so, under what circumstances to

attribute nonvoting shares; (4) whether to retain our single majority

shareholder exemption from attribution; (5) whether to revise our

insulation criteria for limited partners, and whether to adopt an

equity benchmark for noninsulated limited partners; (6) how to treat

interests in LLCs and other new business forms under our attribution

rules; (7) whether to eliminate the remaining aspects of our cross-

interest policy; and (8) how to treat financial relationships and

multiple business interrelationships which, although not individually

attributable, should perhaps be treated as attributable interests when

held in combination.

4. Congress subsequently enacted the Telecommunications Act of 1996

(``1996 Act''), Public Law 104-104, 110 Stat. 56 (1996), which

substantially relaxed several of our ownership rules. We issued the

Attribution Further Notice, 61 FR 67275, December 20, 1996, to seek

comment as to how these ownership rule revisions should affect our

review of the attribution rules. We also sought comment on new

proposals, including a proposal to attribute the otherwise

nonattributable interests of holders of equity and/or debt in a

licensee where the interest holder is a program supplier to a licensee

or a same-market media entity and where the equity and/or debt holding

exceeds a specified threshold. Additionally, we sought comment on: (1)

Proposals to attribute television Local Marketing Agreements (``LMAs'')

and to modify the scope of the radio LMA attribution rules; (2) whether

we should revise our approach to joint sales agreements (``JSAs'') in

specified circumstances; (3) a study conducted by Commission staff,

appended to the Further Notice, on attributable interests in television

broadcast licensees and on the implications of this study for our

attribution rules, particularly on the voting stock benchmarks; (4)

whether we should amend the cable/MDS cross-ownership attribution rule;

and (5) transition issues.

5. We believe the rule revisions we adopt today promote these

goals. In this R&O, we: (1) Adopt an equity/debt plus attribution rule

that would narrow, but not eliminate, the current exemptions from

attribution for nonvoting stock and debt, as well as the single

majority shareholder exemption; (2) attribute certain television LMAs

and modify the radio LMA rules; (3) retain the 5 percent voting stock

attribution benchmark, but raise the passive investor voting stock

benchmark to 20 percent; (4) retain the current definition of passive

investor; (5) eliminate the cross-interest policy;

[[Page 50623]]

(6) decline to adopt attribution rules for JSAs; (7) adopt as an

attribution rule our interim processing policy under which we apply

limited partnership insulation criteria to LLCs; (8) retain the current

insulation criteria for attribution of limited partnerships; (9) revise

the cable/MDS cross-ownership attribution rule to conform it to the

broadcast attribution rules, as revised in this R&O; and (10) establish

transition measures with respect to interests made attributable as a

result of rules adopted in this R&O that would result in violations of

the multiple ownership rules. So that our broadcast attribution rules

remain consistent, we also modify the attribution rules that apply to

the broadcast/cable cross-ownership rule, Sec. 76.501(a) to incorporate

the attribution rule changes adopted today.

Issue Analysis

A. Stockholding Benchmarks

6. Background. The Attribution Notice sought comment on whether we

should increase the voting stock benchmarks from five to ten percent

for non-passive investors and from ten to twenty percent for passive

investors. This issue was originally raised in the Notice of Proposed

Rule Making and Notice of Inquiry, 57 FR 14684, April 22, 1992) in MM

Docket No. 92-51, (``Capital Formation Notice''), which cited concerns

about the availability of capital to broadcasters. Insufficient

evidence was submitted in comments to the Capital Formation Notice to

warrant raising the benchmarks, and, therefore, the Attribution Notice

again raised the issue of whether to increase the voting stock

benchmarks. In the Attribution Further Notice, the Commission noted

that commenters responding to the Attribution Notice had again not

submitted specific empirical data sufficient to conclude that the

benchmarks should be raised. The Attribution Further Notice thus asked

for additional information to justify raising the benchmarks, including

information on changes in the economic climate and competitive

marketplace, and the link between additional capital investment and

raising the voting stock benchmarks.

7. Comments. Few commenters responded to our requests in the

Attribution Further Notice for additional comments supporting the

increase in the active investor benchmark to 10 percent.

8. Decision. We have decided to retain the current active voting

stock benchmark at 5 percent. First and most importantly, in reviewing

the evidence related to the issue of non-passive voting equity

benchmarks, we remain convinced that shareholders with ownership

interests of 5 percent or greater may well be able to exert significant

influence on the management and operations of the firms in which they

invest. In this regard, we have not been presented with empirical

evidence to rebut our conclusion in the Attribution Order that a ``5%

benchmark is likely to identify nearly all shareholders possessed of a

realistic potential for influencing or controlling the licensee, with a

minimum of surplus attribution.''

9. In this regard, a growing body of academic evidence indicates

that an interest holder with 5 percent or greater ownership of voting

equity can exert considerable influence on a company's management and

operational decisions. This is particularly true with widely-held

corporations where a 5 percent stockholder is likely to be among the

largest shareholders in the firm. One recent study demonstrated that

block trades involving 5 to 10 percent of the firm's voting stock

resulted in a 27 percent turnover rate of the CEO of the traded firm,

that a 20 to 35 percent block trade resulted in a 40 percent turnover

rate of the CEO of the traded firm, and that block trades over 35

percent of the voting equity resulted in a 56 percent turnover rate,

L.E. Ribstein, Business Associations 987 (1990). The turnover of the

CEO was tracked over a one year period following the date of the trade.

These results, spanning an increasing level of ownership starting at 5

percent, demonstrate a consistent relationship between ownership trades

and the rate of replacement of top management. The results imply that

investors who acquire and hold such large blocks of voting stock can

influence the choice of management of the firms in which they invest.

10. Another study presents evidence that 5 percent or greater

stockholders vote more actively than less-than-five percent

shareholders, and they tend to vote more often against the

recommendations of management in votes over corporate anti-takeover

amendments (J.A. Brickley, R.C. Lease and C.W. Smith, Ownership

Structure and Voting on Antitakeover Amendments, 20 Journal of

Financial Economics 267-291 (1988)). This study suggests that larger

owners, starting at a 5 percent level of ownership, tend to be more

active in influencing management than smaller owners. The two studies

considered together provide evidence that ownership percentages

starting at 5 percent can influence management policies and have an

impact on firm value.

11. In addition, notwithstanding our requests for empirical

evidence, in the Attribution Notice and again in the Attribution

Further Notice, commenters have not provided the kind of specific data

to justify raising the non-passive investor benchmark even though they

generally supported raising the benchmark. And, while commenters have

not provided sufficient empirical evidence to justify raising the

active voting stock benchmark, the Attribution Further Notice did

incorporate and invite comment on a Commission staff study that

categorized and quantified attributable interests in commercial

broadcast television licensees, as reported in the Ownership Reports

that licensees are required to file. Several facts emerge from that

study that are relevant to our decision concerning the voting stock

benchmarks. First, the study found and reported that increasing the

attribution benchmark for non-passive investors from 5 percent to 10

percent would decrease by approximately one third the number of

currently-attributable owners. This increase in the non-passive

investor benchmark would also increase from 81 to 134 the number of

stations (out of 389 commercial for-profit television stations studied

that are incorporated and are not single majority shareholder

stations), for which no stockholders and only officers and directors

would be held attributable. These large potential changes in the number

of attributable owners heighten our concern about the impact of raising

the 5 percent benchmark. In light of the lack of sufficient evidence

that such an increase is necessary or appropriate, we are reluctant to

institute a change that would have such a major impact.

12. Further, we note that our concerns over capital availability

that originally prompted the proposal to increase the active voting

stock benchmark have eased somewhat, particularly in light of the

increasing strength shown by the communications sector and financial

markets in general over the past several years. For example,

communications transactions increased by 38 percent during 1996, with

the total value of mergers, acquisitions, share offerings and other

deals totalling $113 billion. Within the communications sector, TV

transfers of ownership in 1996 increased by 121.26 percent in dollar

terms over 1995 figures, and FM and AM transfers increased by 283.27

percent and 99.34 percent, respectively. In total, dollars spent on

radio and television transactions increased from $8.32 billion in 1995

to $25.362 billion in 1996, with the number of transactions

[[Page 50624]]

increasing from 849 to 1115 over the same period. Station trading

remained strong in 1997, with a total of 1067 radio and television

transactions worth $23.44 billion. In 1998, the total number of radio

and television transactions fell slightly, as a result of the slower

pace of radio consolidation, to 950 transactions, with the value of

these transactions remaining fairly stable at $22.8 billion. This

overall increase in capital spending from 1995 to 1998 occurred while

our current attribution rules were in effect, and therefore provides us

with strong evidence that those rules do not impede the availability of

capital in the communications industry. And, to the extent that there

are still concerns about not impeding capital flow to broadcasting, we

believe that they will be adequately addressed by our increase in the

passive investor benchmark. In sum, in reviewing the overall body of

evidence on this issue, we believe that our original decision to set a

5 percent benchmark to capture influential interests remains valid and

will not unduly restrict capital availability.

13. Finally, retention of the 5 percent benchmark remains

consistent with the SEC's analogous 5 percent benchmark. Pursuant to

Sec. 13(d)(1) of the Exchange Act, 15 U.S.C. 78m(d)(1), any person who

becomes a direct or indirect owner of more than 5 percent of any class

of stock of a company through a stock acquisition must file a statement

with the Securities and Exchange Commission (SEC). The purpose of this

reporting requirement is generally to ensure that investors are alerted

to potential changes in control. The broadcast attribution rules have a

similar objective as they are intended to identify ownership interests

that confer on their holders the potential to influence or control a

licensee's day-to-day operations.

Passive Investor Benchmarks

14. Comments. Most commenters that responded to this issue favored

raising the passive investor benchmark.

15. Decision. We will increase the voting stock benchmark from 10

percent to 20 percent for passive investors. We believe that increasing

the passive investor benchmark to 20 percent will give broadcasters

increased access to investment capital, while preserving the

Commission's ability to enforce its ownership rules effectively. This

decision takes into account the special nature of the passive investor

category, in terms of the legal and fiduciary requirements that

constrain passive investors' involvement in the management and

operational affairs of the firms in which they invest.

16. We believe that we can increase the passive investor benchmark

without incurring substantial risk that investors who should be counted

for purposes of applying the multiple ownership rules will avoid

attribution. Clearly, passive investors continue to face multiple

constraints on their ability to become directly involved with the

management and operations of the firms in which they invest, including

statutory and regulatory restrictions as well as fiduciary obligations.

17. In setting the limit at 10 percent, we noted that an increase

above 10 percent was not advisable at that time based on our concern

about the impact on corporate management that could result, even

unintentionally, from the trading and voting of large blocks of stock

by purportedly passive investors. We have not been presented with any

evidence to indicate that our ten percent benchmark has resulted in any

such block trading problems. Moreover, any inadvertent effect of a

passive investor's decision to sell its stock, for example, because it

is dissatisfied with the return on its investment, simply reflects the

marketplace at work, and a responsive action by management to make the

entity more profitable in response to a sale is simply an appropriate

reaction to market demands.

18. While we note that our concerns about capital availability have

eased somewhat, to the extent that these concerns remain, particularly

based on funding needs related to the conversion to digital television,

we believe that increasing the passive investor benchmark is a

relatively safe way to facilitate such further investment in

broadcasting, without compromising the ability of our attribution rules

to capture influential interests. Raising that benchmark will reduce

barriers to investment in broadcasting and result in greater

efficiencies in the use of capital.

Definition of Passive Investors

19. Background. In response to the Capital Formation Notice,

several commenters raised the issue as to whether the Commission should

expand its definition of ``passive investors'' to include such

institutional investors as pension funds, commercial and investment

banks, and certain investment advisors. These commenters argued that

these largely institutional investors invest primarily for reasons of

financial returns, rather than to exert significant influence or

control, and therefore their interests should be treated as passive

investments. In the Attribution Notice, the Commission stated that it

did not intend to revisit its 1984 decision, which defined the passive-

investor category to include only bank trust departments, insurance

companies and mutual funds, and we tentatively concluded that we would

not expand the passive investor category to include Small Business

Investment Companies (``SBICs'') and Special Small Business Investment

Companies (``SSBICs''), as we had not been able to conclude that these

entities met our definition of ``passive.'' Nonetheless, we invited

further comment on these tentative conclusions.

20. Comments. Several commenters urged the Commission to expand its

passive investor category.

21. Decision. We reaffirm our earlier decision to retain the

current definition of ``passive investors,'' which is limited to bank

trust departments, insurance companies and mutual funds. We noted that

we earlier stated that we ``do not intend to revisit our decision of

1984 in order to broaden the category of passive investors. . . .'' We

are not convinced that other types of investors lack the interest and/

or the ability to actively participate in the affairs of the firms in

which they invest. This is particularly true of public pension funds,

many of which have apparently become increasingly active in proxy

fights and other devices to put pressure on management perceived to be

underperforming. Furthermore, commercial and investment bank activities

do not fall under the same fiduciary restrictions, discussed above,

that apply to bank trust departments. And, we have not been presented

with sufficient evidence thus far to revise our earlier tentative

conclusion not to include SBICs and SSBICs in the definition of passive

investors.

B. Equity/Debt Plus and Attribution Exemptions

Background

22. In the Attribution Notice, we invited comment as to whether

multiple cross-interests or currently nonattributable interests, when

held in combination, raise diversity and competition concerns

warranting regulatory oversight. We anticipated that any regulation of

such inter-relationships would require case-by-case review of

applications, but we did not otherwise delineate specific proposals to

address these concerns. We also invited comment as to whether to

restrict or eliminate the current nonvoting stock and single-majority

shareholder attribution exemptions, expressing concerns that some

interest holders that are eligible for these

[[Page 50625]]

exemptions might nonetheless exert significant influence such that the

interest should be attributed.

23. In the Attribution Further Notice, we proposed to adopt a

targeted equity/debt plus (``EDP'') attribution approach to deal with

the foregoing concerns. We noted that our proposed new EDP rule would

operate in addition to other attribution standards and would attempt to

increase the precision of the attribution rules, address our concerns

about multiple nonattributable relationships, and respond to concerns

about whether the single majority shareholder and nonvoting stock

attribution exemptions were too broad. This approach would not

eliminate the nonvoting and single majority shareholder exemptions from

attribution, but would limit their availability in certain

circumstances. Under this approach, we proposed to attribute the

otherwise nonattributable debt or equity interests in a licensee where:

(1) the interest holder was also a program supplier to the licensee or

a same-market broadcaster or other media outlet subject to the

broadcast cross-ownership rules, including newspapers and cable

operators; and (2) the equity and/or debt holding exceeds 33 percent.

Under our EDP proposal, a finding that an interest is attributable

would result in that interest being counted for all applicable multiple

ownership rules, local and national.

Comments

24. Single Majority Shareholder and Nonvoting Stock Attribution

Exemptions. As discussed in the Attribution Further Notice, most

commenters in response to the Attribution Notice urged us to retain the

single majority shareholder and nonvoting stock attribution exemptions,

but network affiliates have expressed concerns that the exemptions have

allowed networks to extend their nationwide reach by structuring

nonattributable deals in which the networks effectively exert

significant influence if not control over licensees.

Decision

25. Overview. As we noted in the Attribution Further Notice, the

relaxation of the multiple ownership rules resulting from the 1996 Act

requires neither relaxation nor tightening of our attribution rules but

does underscore the importance of maximizing the precision of the

attribution rules. We should take care in enforcing the multiple

ownership limits, which have been deliberately set at certain levels,

to ensure that the attribution rules neither unduly loosen nor restrict

those limits, but rather apply them with the greatest precision to

entities that have the power to influence a licensee's operations. We

have been mindful of this goal in the decisions that follow.

26. We will not eliminate the single majority shareholder or

nonvoting stock exemptions, but, rather, to address the concerns that

we raised in the Attribution Notice and Attribution Further Notice, we

will adopt our equity/debt plus attribution proposal, modified as

discussed herein, as a new rule that would function in addition to the

other attribution rules. Under this new EDP rule, where the investor is

either (1) a ``major program supplier,'' as defined herein to include

all programming entities (including networks and inter-market time

brokers) that supply over 15 percent of a station's total weekly

broadcast programming hours, or (2) a same-market media entity subject

to the broadcast multiple ownership rules (including broadcasters,

cable operators, and newspapers), its interest in a licensee or other

media entity in that market will be attributed if that interest,

aggregating both debt and equity holdings, exceeds 33 percent of the

total asset value (equity plus debt) of the licensee or media entity.

As a shorthand, we will use the term, ``total assets,'' herein to refer

to the total asset value of the licensee. In the case of a major

program supplier, the EDP rule will apply and the interest will be

attributable only if the investment is in a licensee to which the

requisite triggering amount of programming is provided. A finding that

an interest is attributable under EDP would result in attribution for

purposes of applying all relevant multiple ownership rules, local and

national, except that, as discussed in the TV National Ownership Order,

we will not double-count same-market TV stations towards application of

the national TV ownership rules.

27. We will define equity to include all stock, whether common or

preferred and whether voting or nonvoting. We will also include equity

held by insulated limited partners in limited partnerships. Debt

includes all liabilities, whether short-term or long-term. Total

assets, by definition, is equal to the sum of all debt plus all equity.

Finally, an interest that is attributable pursuant to the EDP rule will

count in determining compliance with all applicable ownership rules,

national as well as local.

28. The equity/debt plus approach is intended to resolve our

concerns, expressed in the Attribution Notice, that multiple

nonattributable business interests could be combined to exert influence

over licensees. As we stated in the Attribution Notice, we are

concerned that our nonvoting stock, single majority shareholder, and

debt attribution exemptions can permit nonattributable investments that

could carry the potential for influence such that they implicate

diversity and competition concerns and should be attributed.

29. The EDP rule addresses the most serious concerns we raised in

the Attribution Notice and Attribution Further Notice concerning the

underinclusiveness of the attribution rules, particularly those that

were supported in the record. Based on the record, we have targeted our

remedy and focused those concerns in shaping the EDP rule. For example,

except in cases involving a same-market media entity or major program

supplier, as defined herein, the single majority shareholder exemption

and exemptions for nonvoting stock, preferred stock, corporate debt and

other corporate liabilities will continue to apply as they do now.

Moreover, the EDP rule will not apply to a program supplier's

investment in a licensee or station unless the program supplier

provides over 15 percent of that station's total weekly broadcast

hours. Thus, a program supplier may invest without limit in the

nonvoting stock, preferred stock or debt of a licensee to which it does

not provide the requisite level of programming without having its

interest attributed.

30. Furthermore, same-market or other relationships not within the

defined EDP triggering relationships described herein will continue to

be non-attributable. For example, an investor that is not a major

program supplier and that is not a same-market media entity (i.e., it

does not have an attributable interest in a station, newspaper, or

cable system in a given market) can continue to hold more than 33

percent of the total nonvoting assets of two stations or more in that

same market without either interest being attributable.

31. The targeted approach embodied in the EDP rule reflects our

current judgment as to the appropriate balance between our goal of

maximizing the precision of the attribution rules by attributing all

interests that are of concern, and only those interests, and our

equally significant goals of not unduly disrupting capital flow and of

affording ease of administrative processing and reasonable certainty to

regulatees in planning their transactions. In this regard, some

commenters have urged us to retain our

[[Page 50626]]

current approach or implement a new case-by-case approach, considering

the combined impact of multiple business and financial relationships in

a particular transaction.

32. However, we believe that the bright-line EDP test is superior

to a case-by-case approach. The EDP rule will provide more regulatory

certainty than a case-by-case approach that requires review of contract

language. Thus, the EDP rule will permit planning of financial

transactions, would also ease application processing, and would

minimize regulatory costs. While an ad hoc approach might be more

tailored than the EDP rule, it also might lead to complicated

interpretation and processing difficulties and would likely add

uncertainty to resolution of attribution cases. Of course, we retain

discretion to review individual cases that present unusual issues on a

case-by-case basis where it would serve the public interest to conduct

such a review. Such cases might occur, for example, when there is

substantial evidence that the combined interests held are so extensive

that they raise an issue of significant influence such that the

Commission's multiple ownership rules should be implicated,

notwithstanding the fact that these combined interests do not come

within the parameters of the EDP rule. We do not intend by this

reservation of discretion to resurrect the cross-interest policy,

elsewhere eliminated in this R&O. Rather, we merely emphasize our

obligation under the Communications Act to apply the public interest

standard and, as necessary, to scrutinize extraordinary or

unanticipated circumstances that may arise.

33. In the Attribution Further Notice, we invited comment on the

impact of a 33 percent EDP threshold on small business entities,

particularly on whether there would be a disproportionate impact on

small or minority entities. While some parties have argued that

adoption of an equity/debt plus proposal would deter capital flow to

broadcasting generally and might curb investment in smaller, minority,

or UHF stations, in particular, or in digital television, others have

argued strongly that this is not the case. We have no reason to believe

that the EDP rule would unduly deter investment. The equity/debt plus

proposal does not preclude investment by any entity; rather, it limits

nonattributable investment levels for entities that have the potential

to influence licensees. Moreover, the limit does not apply to all

entities that might invest or help fund the transition to digital

television or otherwise invest in licensees. In addition, we will

consider individual rule waivers in particular cases where substantial

evidence is presented that the conversion to digital television would

otherwise be unduly impeded or that a waiver would significantly

expedite DTV implementation in that particular case.

34. While we have invited comment on those issues, it is

nonetheless our view that promoting our goal of ensuring adequate

funding for the transition to digital television is better accomplished

through our ownership rather than our attribution rules. The

attribution rules are designed to attribute entities that wield

significant influence on core operations of the licensee. It is the

ownership rules that limit investment based on our core policies of

diversity and competition. Arguments with respect to whether additional

investment should be permitted have been made in the context of our

companion multiple ownership proceedings. We believe that the

attribution rules should function as precisely as possible to identify

influential interests and that relaxation of ownership limits, if

warranted, should be accomplished directly through revision of the

multiple ownership rules, not indirectly through manipulation of what

is considered ``ownership.''

35. Triggering Relationships. As we proposed in the Attribution

Further Notice, the EDP approach will focus directly on those

relationships that may trigger situations in which there is significant

incentive and ability for the otherwise nonattributable interest holder

to exert influence over the core operations of the licensee. The

approach of focusing on specified triggering relationships would extend

the Commission's current recognition that the category or nature of the

interest holder is important to whether an interest should be

attributed. For example, under the current broadcast attribution rules,

passive investors are subject to a higher voting stock attribution

benchmark, since these parties are subject to fiduciary and other

restraints on their exercise of influence over licensees and are, by

their nature, principally concerned with investment returns rather than

direct influence over the licensee. The two relationships that will

trigger the rule, major program supplier and same-market media entity,

are relationships that afford the interest holder the incentive and

means to exert influence over the licensee.

36. In adopting the EDP rule, we affirm our tentative conclusion in

the Attribution Further Notice that there is the potential for certain

substantial investors or creditors to exert significant influence over

key licensee decisions, even though they do not hold a direct voting

interest or may only have a minority voting interest in a corporation

with a single majority shareholder, which may undermine the diversity

of voices we seek to promote. They may, through their contractual

rights and their ongoing right to communicate freely with the licensee,

exert as much, if not more, influence or control over some corporate

decisions as voting equity holders whose interests are attributable.

37. Same-Market Media Entities. As we noted in the Attribution

Further Notice, same-market broadcasters and certain other same-market

media entities may raise particular concerns because of our goal of

protecting local diversity and competition. Firms with existing local

media interests may have an incentive and means to use financing or

contractual arrangements to obtain a degree of horizontal integration

within a particular local market that should be subject to local

multiple ownership limitations. Indeed, the Commission's cross-interest

policy reflected its concern for competition and diversity where an

entity has an attributable interest in one media outlet and a

``meaningful relationship'' with another media outlet serving

substantially the same area. Accordingly, we will include same-market

media entities as one of the relationships that will trigger

application of the EDP rule.

38. To trigger application of the EDP rule to same-market media

entities, the interest held in the non-EDP media entity in the same

market must be attributable without reference to the EDP rule; the

holding of a non-attributable interest in one station or entity in a

market does not trigger application of the EDP rule where an EDP level,

but otherwise non-attributable, interest is acquired. Thus, under this

prong of the EDP rule, a nonvoting interest in 34 percent of the total

assets of two stations in the same market will not result in

attribution of either station. This is because the EDP rule is only

triggered when the entity acquiring the second interest also holds an

interest in a same-market media entity that is attributable under the

current attribution rules other than the EDP rule. We follow case law

in the cross-interest policy context in this regard. As discussed

below, that policy is implicated in situations where a party holds an

attributable interest in one media outlet and has a ``meaningful

relationship'' with another media outlet serving ``substantially the

same area. As we proposed, we will include same-

[[Page 50627]]

market radio and television broadcasters as well as cable operators and

newspapers in the category of same-market media entities subject to the

equity/debt plus attribution standard. Cable operators and newspapers

are subject to cross-ownership rules and have also been subject to the

cross-interest policy. There is, accordingly, good reason to include

them in the EDP rule.

39. For purposes of applying this prong of the EDP rule to radio

stations, newspapers, and cable operators, as proposed in the

Attribution Further Notice, we will define the ``same market'' by

reference to the definition of the market used in the underlying

multiple ownership rule that is implicated. As noted by Knight-Ridder,

such an approach will help avoid confusion among the regulated entities

in applying the EDP rule. With respect to television stations, as we

also noted in the Attribution Further Notice, the definition of what is

the same market for purposes of applying the EDP attribution standard

is resolved in the companion television local ownership proceeding.

40. Program suppliers. In the Attribution Further Notice, we

invited comment on whether we should include program suppliers under

the ``equity/debt plus'' attribution test to address our concern and

that of some commenters that program suppliers such as networks could

use nonattributable interests to exert influence over critical station

decisions, including programming and affiliation choices. We cited

recent transactions involving program suppliers where it appeared that

nonattributable investors could be granted rights over licensee

decisions that might afford them significant influence over the

licensee. We invited comment as to whether we should encompass radio

and television time brokerage agreements or LMAs under the proposed

``equity/debt plus'' attribution approach, if we specify program

suppliers as a triggering category.

41. We will include major program suppliers in the EDP rule. We

will define the ``major program suppliers'' that are subject to this

new attribution standard to include entities that provide more than 15

percent of a station's total weekly broadcast programming hours. We

believe that the 15 percent standard should apply to all providers of

programming to stations, including those that provide programming

pursuant to inter-market LMAs. As noted above, the EDP rule would apply

only to the major program supplier's investments in a station to which

it supplies the requisite amount of programming. In addition, where a

person or entity has an attributable interest in a major program

supplier, that person or entity will be deemed to be a major program

supplier for purposes of applying the EDP rule.

42. We have decided to define a major program supplier subject to

the EDP rule as all programming entities that supply over 15 percent of

a station's weekly programming for the following reasons. We agree with

those commenters that argue that not every program provider can exert

sufficient influence such that its otherwise non-attributable financial

interests in a licensee should potentially be subject to attribution.

We note the views of commenters that the major networks should be

subject to the EDP rule and those that argue for including providers of

substantial amounts of programming to a station. Those entities that

provide substantial quantities of programming to a licensee are, we

believe, in a strong position to exert significant influence over that

licensee, particularly when the programming connection is coupled with

the requisite financial investment, such that the EDP rule should be

triggered. We believe that the 15 percent standard accomplishes these

goals, as it would encompass those entities providing substantial

quantities of programming that also have the requisite investment in

the station and would exclude those entities that provide only small

amounts of programming and that therefore do not have potential to

exert significant influence over licensees. Moreover, it is a standard

that we have experience in applying, as it is the standard currently

used in determining whether an intra-market radio LMA is per se

attributable, and it is the standard that will be used in determining

whether an intra-market TV LMA is per se attributable. Under our new

rule, an intra-market LMA is per se attributable if it involves more

than 15 percent of a station's programming. In contrast, an inter-

market LMA is attributable, under the EDP rule, only if it involves

more than 15 percent of a station's programming and if the LMA is

accompanied by a financial investment that is above the 33 percent

investment threshold. It would sweep too broadly to attribute inter-

market LMAs that are unaccompanied by the requisite financial

investment. The substantial investment provides additional incentive

and ability for influence or control. Finally, it is a clear and

administratively simple standard to apply, promoting our goal of making

the EDP rule a bright-line test.

43. A clear rationale exists for not attributing network

affiliation agreements not accompanied by the requisite investment or

debt agreements not involving program suppliers or same-market

broadcasters. We do not attribute all network affiliation agreements

because, absent a substantial equity or other investment that may

create accompanying obligations, the affiliate is free to negotiate

with the network for particular terms. With respect to lenders, such as

banks, our experience indicates that their motivation is return on

their investment, and that they do not have the same incentive as the

networks to influence the programming or other core operational choices

of the licensee.

44. While some commenters strongly argued that applying the EDP

rule to program suppliers would curb investment in broadcast stations

and possibly hurt weaker UHF stations and might deter investment that

would facilitate the conversion to DTV, they do not provide empirical

evidence to support this argument. We also note that the rule does not

preclude investment, but merely provides that investments over a

certain level will be deemed presumptively attributable. Networks are

therefore free to invest in their affiliates, subject of course to the

applicable multiple ownership rules. Moreover, the EDP rule does not

attribute investments, even those by networks in their affiliates,

which fall below the 33 percent threshold. Thus, a major program

supplier may have an investment that is equivalent to 32 percent of the

total assets of a station to which it supplies programming in excess of

the 15 percent standard. This would comply with all EDP limits and the

interests would not be attributable. In addition, the EDP rule does not

affect investments by entities other than major program suppliers or

same-market media entities. Accordingly, we believe that the EDP rule

will not curb investment, deter new entry, or curb the conversion to

DTV.

45. We have decided not to sweep so broadly as to include all

entities from which a licensee obtains programming but only to include

those entities that provide more than 15 percent of a station's weekly

total programming. We have not been presented evidence that smaller

program suppliers and syndicators that do not provide substantial

quantities of programming to stations have the potential to wield

significant influence such that their investment should be attributed.

Under these circumstances, there appears to be no real need to impose

constraints on investments by these syndicators and by new networks

that do not provide the triggering amount of programming. If it

[[Page 50628]]

appears that problems arise in these areas, we can later broaden the

EDP rule.

46. Investment Thresholds. Under the EDP rule, where the creditor

or equity interest holder is a same-market broadcaster or major program

supplier, as defined herein, in addition to applying the existing

attribution criteria, we would attribute any financial interest or

investment in a station or other media outlet where it exceeds 33

percent of the total assets (debt plus voting, non-voting and preferred

stock) of the licensee. We intend to aggregate the equity and debt

interests of such an investor (including both non-voting stock in

whatever form it is held and voting stock) in a licensee or other media

outlet for purposes of applying the investment threshold. Thus, when

the investor's total investment in the licensee or other media outlet,

aggregating all debt and equity interests, exceeds a specified

threshold percentage of all investment in the licensee (the sum of all

equity plus debt), that investment would be attributable. In

aggregating the different classes of investment, equity and debt, we

intend to use total assets (debt plus voting, non-voting, and preferred

stock) as a base. We will not apply the percentage threshold separately

to debt and to equity interests because this could lead to distortions

in applying the EDP rule, depending on the percentage of total assets

that each class of interests comprises. For example, were we to apply

the percentage thresholds separately, a company with only 10 percent of

its capital from debt would be attributable to a creditor providing

only 3.4 percent of the company's total assets, while any equity holder

providing 32 percent of the total capital would be nonattributable.

47. The FCC has recognized that holding voting stock in sufficient

quantities confers the ability to exert influence or control over the

licensee. Our decision to expand our focus beyond voting stock to

nonvoting stock and debt is buttressed by academic literature.

Nonvoting stock and debt may now be used to control or influence a

licensee in a significant manner, especially when coupled with another

meaningful relationship or when held by someone that has the incentive

to influence the station or media entity. There is an incentive for

licensees and other entities that face regulatory constraints on their

acquisition of voting stock and other currently attributable interests

(e.g., networks that face the 35 percent national reach cap) to seek to

combine currently non-attributable investments with contractual rights

in such a manner so as to gain significant influence, and we believe

that the current attribution exemptions have afforded such entities the

ability to do so. Accordingly, the EDP rule examines not only the

investment in voting stock but also nonvoting equity and debt in order

to limit the ability of such entities to circumvent the attribution

rules.

48. We have decided to set the threshold at 33%, as proposed in the

Attribution Further Notice. We believe that a 50 percent threshold

would be inappropriately high. Our goal is not merely to attribute

interests with the potential to control but also those with a realistic

potential to exert significant influence. On the other hand, the

suggested thresholds of 25 percent or 10 percent seem too low. In

setting the threshold for attribution of these newly attributable

interests, we want to be cautious not to set the limit so low as to

unduly disrupt capital flow to broadcasting. In addition, we believe

that the threshold for attribution of nonvoting interests should be

substantially higher than the attribution level for voting interests,

which give the holder a ready means to influence the company. The

proposed 33% threshold seems to be an appropriate and reasonable

attribution threshold. We note that we have discretion to exercise our

judgment in setting a percentage threshold in this regard and to draw

an appropriate line, a challenging yet inevitable task for government

agencies. We have employed a 33 percent benchmark applied in the

context of the cross-interest policy, and that particular benchmark

does not appear to have had a disruptive effect. In Cleveland

Television, the Commission held that a one-third non-voting preferred

stock interest by a broadcaster in another station in the same market

conferred ``insufficient incidents of contingent control'' to violate

the multiple ownership rules or the cross-interest policy, and that the

holders, by virtue of ownership of the non-voting preferred stock

interest would not retain the means to directly or indirectly control

the station. More recently, we have applied Cleveland Television's 33

percent threshold in Roy M. Speer, where we limited the non-

attributable equity holdings of a same-market television licensee in

another local television station to 33 percent. We will use this

threshold in applying the EDP rule but note that we could adjust the

threshold later, if warranted.

49. We recognize that the attributable status of a certain

investment could change, based, for example, on a change in the firm's

assets, resulting in the investor's interests dropping below the 33

percent threshold, or vice versa. We will require parties to maintain

compliance with the attribution criteria as any such changes occur.

Where sudden, unforeseeable changes take place, however, we will afford

parties a reasonable time, generally one year, to come into compliance

with any ownership restrictions made applicable as a result of the

change in attributable status. Finally, we note that we have

conditioned a number of recent cases that have raised similar concerns

on the outcome of this proceeding. We intend to issue separate orders,

as necessary, to apply the EDP rule to any cases that have been

conditioned on the outcome of this proceeding.

C. Time Brokerage Agreements or LMAs

Background

50. An LMA or time brokerage agreement is a type of contract that

generally involves the sale by a licensee of discrete blocks of time to

a broker that then supplies the programming to fill that time and sells

the commercial spot announcements to support the programming.

Currently, we do not attribute television LMAs, and, accordingly, these

relationships are not subject to our multiple ownership rules. In the

radio context, however, time brokerage of another radio station in the

same market for more than fifteen percent of the brokered station's

weekly broadcast hours results in attribution of the brokered station

to the brokering licensee for purposes of applying our multiple

ownership rules.

51. In the Attribution Further Notice, we incorporated the

tentative proposal, initially set forth in the Local Ownership Further

Notice, 60 FR 6490, December 19, 1996, to attribute television LMAs

based on the same principles that currently apply to radio LMAs. Thus,

time brokerage of another television station in the same market for

more than fifteen percent of the brokered station's weekly broadcast

hours would be attributable and would count toward the brokering

licensee's national and local ownership limits. We specifically

proposed to count attributed television LMAs in applying our other

ownership rules, including, for example, the broadcast-newspaper cross-

ownership rule, the broadcast-cable cross-ownership rule, and the one-

to-a-market rule (or radio-television cross-ownership rule).

Comments

52. Most commenters addressing this issue supported our proposal to

attribute television LMAs based on the

[[Page 50629]]

same principles that currently apply to radio LMAs.

53. Many parties agreed with our tentative conclusion that

television LMAs should be attributable because they confer significant

influence over the programming of the brokered party's station.

54. Commenters opposed to attributing LMAs generally did not

disagree that LMAs confer significant influence over the programming of

the brokering party's station, but either denied that LMAs can have

negative competitive or diversity effects or argued that their public

interest benefits outweigh these other considerations.

55. We issued a Public Notice requesting all parties to all

existing television LMAs, or time brokerage agreements, to provide

certain factual information regarding the terms and characteristics of

these agreements. The responses received to the questionnaire also

provide information supporting our view that LMAs accord the broker

significant influence that warrants attribution. First, the LMA, or

time brokerage agreement, typically brokered most, if not all, of the

brokered station's broadcast time. The percent of time brokered with

both same-market and out-of-market LMA stations averaged 90 percent or

greater. Second, LMA contracts tended to have extended maturities,

which are renewable in the majority of cases. Same-market LMA contracts

averaged seven years in duration, and ranged from one to 21 years,

while out-of-market LMA contracts averaged somewhat less at five years,

with a range from two to ten years. In addition, a significant number

of LMA agreements contained options to purchase the station.

56. Decision. We will adopt a new rule to per se attribute

television LMAs, or time brokerage of another television station in the

same market, for more than fifteen percent of the brokered station's

broadcast hours per week and to count such LMAs toward the brokering

licensee's local ownership limits. We have determined in the TV

National Ownership Order that we will not count same-market LMAs

towards the brokering licensee's national ownership limits, as that

would constitute double-counting these LMAs. We will count inter-market

time brokerage agreements where they come under the EDP rule for

purposes of the national ownership limits. We believe that the

rationale for attributing LMAs set forth in the Radio Ownership Order,

57 FR 18089, April 29,1992--i.e., to prevent the use of time brokerage

agreements to circumvent our ownership limits--applies equally to same-

market television LMAs. We will determine whether an LMA involves a

``same market'' station based upon the revised duopoly rule's

standards. Thus, if the brokered station is in the same DMA as the

brokering station, the LMA is ``same market'' for purposes of

determining compliance with the ownership rules. If the LMA is found to

be a same-market LMA, we will then apply the other multiple ownership

rules to see if they are implicated.

57. We note that in the Radio Ownership Order, the Commission

voiced its concern that substantial time brokerage arrangements among

stations serving the same market, combined with the increased common

ownership permitted by the revised local rules, could undermine

broadcast competition and diversity. The Commission therefore decided

to preclude that possibility by attributing local time brokerage

arrangements, at least until it had some experience with the effect of

that new regulatory approach in broadcast markets. We are convinced

that the radio LMA attribution rule adopted in that Order has operated

successfully to ensure that the goals set forth in the radio ownership

rules are not undermined by the existence of unattributed influence

over radio stations in the same market. We believe that a similar

approach is warranted concerning television LMAs.

58. In the Attribution Further Notice, we reiterated our belief

that the attribution rules must function effectively and accurately to

identify all interests that are relevant to the underlying purposes of

the multiple ownership rules and that should therefore be counted in

applying those rules. Now, based on our experience with attribution of

radio LMAs and the record in this proceeding, we conclude that a stand-

alone, or per se, rule that attributes a same-market television LMA, or

time brokerage of a television station in the same market, for more

than 15 percent of the brokered station's weekly broadcast hours is

necessary to accomplish this goal.

59. We will count attributed television LMAs toward all applicable

broadcast ownership rules, which include the duopoly rule and the one-

to-a-market, or radio-television cross-ownership rule. We have

determined in the TV National Ownership Order that we will not count

same-market LMAs towards the brokering licensee's national ownership

limits, as that would constitute double-counting these LMAs. We will

count inter-market time brokerage agreements attributable under EDP

because they are accompanied by the requisite financial investment for

purposes of the national ownership limits. Attribution is based on

influence or control that should be considered cognizable and defines

what we mean by ownership. Indeed, with the exception of radio LMAs, an

exception which we eliminate today, our other current attribution rules

apply across the board to all the relevant ownership limits. There is

no reasonable basis for treating television LMAs any differently.

60. The record in this proceeding supports our decisions to

attribute television LMAs and to count attributed radio LMAs toward all

applicable radio ownership limits. Our analysis, above, of the

information submitted by parties to television LMAs in response to our

Public Notice indicates that television LMAs, or time brokerage

agreements, may give the brokering station influence over the

programming of the brokered station such as should be recognized as an

attributable relationship. Moreover, we agree with most commenters,

representing a variety of interests ranging from ABC to the public

interest group MAP, that television LMAs, like radio LMAs, permit a

degree of influence and control that warrants ownership attribution. We

find it particularly noteworthy that commenters that opposed

attributing television LMAs did not disagree that such LMAs confer

substantial influence over brokered stations. Instead, these commenters

argued that LMAs are beneficial and provide diversity benefits, an

issue relevant to the question of how much common ownership should be

permitted, consistent with our competition and diversity goals, rather

than the cognizability of the interest. This issue is being considered

in the TV Local Ownership and TV National Ownership proceedings.

61. We also note that, under the EDP rule, above, we will attribute

an inter-market time brokerage agreement or LMA (or any other program

supply arrangement) that brokers more than 15 percent of a station's

programming (i.e., a program supplier, as defined above) when held in

combination with more than 33 percent of the total assets (debt plus

voting, non-voting and preferred stock) of a station. Prior to the EDP

rule, an inter-market LMA would not have been attributed regardless of

the level of non-voting equity and debt interests held by the brokering

station. With the exception of the EDP rule, we will not attribute

television time brokerage agreements between stations in different

markets. We disagree with Pappas, which asserted that our proposal to

treat television LMAs as cognizable interests must also apply to

television network

[[Page 50630]]

affiliation agreements and argued that, for attribution purposes, there

is little substantive difference between an LMA and a network

affiliation agreement, in that both involve the provision of television

programming and the sale of television advertising time.

62. In the Radio Rules Order, the Commission stated that time

brokerage agreements involving radio stations licensed to different

markets ``raise little public interest concern; indeed they can be

difficult to distinguish from network affiliation agreements, of which

the Commission has long approved.'' Both LMAs and network affiliation

agreements clearly confer some level of influence over the programming

and commercial time of a licensee. Neither, however, taken alone,

constitutes an attributable interest. It is the combination of

ownership of a local competing media interest and programming and

direct operational influence via a substantial same-market LMA that

raises our concern and drives our decision to attribute such LMAs under

our multiple ownership rules. This concern does not arise where there

is no such combination of interests, as for example, network

affiliation contracts or out-of-market LMAs unaccompanied by

substantial investment in the programmed station. It is only when an

out-of-market LMA provides more than 15 percent of a station's

programming, in addition to holding an investment of more than 33

percent of total assets of the station, that we deem the level of

influence sufficient to warrant attribution. Under those circumstances,

where substantial investment in the licensee is combined with provision

of substantial quantities of programming, we believe that the level of

influence is sufficient to warrant attribution regardless of the fact

that the programming provider is not a media entity in the same market.

And, as we have noted, where the program supply agreement takes the

form of a network affiliation agreement, the network, like the out-of-

market LMA broker, will have its interest in its affiliate attributed

if it invests in the affiliate above the EDP threshold.

63. Modify radio rules. In our Attribution Further Notice, we

stated that if we adopt our proposal for attributing television LMAs,

we would also consider similarly modifying the radio LMA rules (47 CFR

73.3555(a)(3)), because radio LMAs are currently considered only for

purposes of applying the radio duopoly rule (47 CFR 73.3555(a)(1)), and

invited comment on how the radio LMA attribution rules should be

modified in this regard. Paxson, the only commenter to address this

issue, generally argued against attributing radio or television LMAs

for purposes of ownership restrictions other than the duopoly rules. We

have decided to adopt our proposal to attribute same-market radio LMAs

for purposes of applying our other multiple ownership rules that are

applicable to radio stations, including, for example, the daily

newspaper cross-ownership rule, and the one-to-a-market (or radio-

television cross-ownership) rule. The other attribution rules apply

across the board, and there is no reason not to apply attribution of

radio LMAs consistently to all applicable radio ownership rules.

Accordingly, we will modify our radio LMA attribution rules to reflect

this change.

64. Requirement to File TV LMAs. In our Attribution Further Notice,

we incorporated from the TV Local Ownership Further Notice the

tentative proposal that attributable television LMAs be filed with the

Commission in addition to being kept at the stations involved in an

LMA. In the Radio Ownership Order, the Commission required that all

radio time brokerage contracts be placed in the public inspection files

of the stations involved, and that local time brokerage agreements be

filed with the Commission within 30 days of execution. The Commission

noted that these requirements would impose only a minimal burden on

licensees but would permit it and others to monitor time brokerage

agreements to ensure that licensees retain control of their stations

and adhere to the Communications Act, Commission Rules and policies and

the antitrust laws. We believe that these same reasons are valid today

with respect to television time brokerage agreements.

65. We will require stations involved in television time brokerage

agreements (inter-market as well as intra-market agreements) to keep

copies of those agreements in their local public inspection files, with

confidential or proprietary information redacted where appropriate, and

require the licensee that is the brokering station to file with the

Commission, within 30 days of execution of such agreement, a redacted

copy of any time brokerage agreements that would result in the

arrangement being attributed in determining the brokering licensee's

compliance with the multiple ownership rules. We will amend our rules

accordingly. We note that these provisions impose an affirmative

obligation on licensees to determine, in the first instance, whether a

particular LMA is attributable (either under the per se rule or the EDP

rule), and to file the agreement with the Commission if it is.

66. Programming responsibility safeguards. In our Attribution

Further Notice, we emphasized, as we did in our radio ownership

proceeding, ``that the licensee is ultimately responsible for all

programming aired on its station, regardless of its source,'' and

invited comment on what, if any, specific safeguards we should adopt

with respect to television LMAs to ensure a brokered station's ability

to exercise its programming responsibility. We believe that attribution

of same-market television LMAs, along with our new filing requirements,

will subject LMAs arrangements to sufficient scrutiny by competitors,

the public and the Commission, that brokering stations will have strong

incentives to avoid unauthorized acquisition of control of the brokered

station. We remind all parties to LMAs that, as we noted in the Radio

Ownership Order, ``our rules require the licensee to maintain control

over station management and ultimate programming decisions, regardless

of any time brokerage agreements that may exist.''

67. Simulcasting. In our Attribution Further Notice, we stated that

we would resolve the issue, raised in the Local Ownership Further

Notice, as to whether the program duplication or simulcasting limits

that apply to commonly owned or time brokered radio stations should

apply to television LMAs. No commenters addressed this particular

question, although some argue generally that LMAs result in duplicative

programming. Other commenters disagree, pointing out that, from the

perspective of a time broker, time brokerage agreements pay off through

the ability to attract additional, new audiences to the brokered

station. A duplication of programming would not attract additional

audiences, but would merely divide the audience currently enjoyed by

the time broker's owned station with the audience of the brokered

station.

68. With respect to radio broadcasting, ``simulcasting,'' or

program duplication, refers to the simultaneous broadcasting of a

particular program over co-owned stations serving the same market, or

the broadcasting of a particular program by one station within 24 hours

before or after the identical program is broadcast over the other

station. In the Radio Ownership Order, the Commission limited

simulcasting on commonly owned stations in the same service serving

substantially the same area to 25 percent of the broadcast schedule,

stating that it saw no benefit to the

[[Page 50631]]

public from permitting commonly owned same-service stations in the same

market to substantially duplicate programming. The Commission reasoned

that the limited amount of available radio spectrum could be used more

efficiently by other parties to serve competition and diversity goals,

and that substantial same-service simulcasting would not aid

economically disadvantaged stations because the audience for the

programming in question would be shared by two or more stations.

69. At this time, we will not apply simulcasting limits to

television LMAs. We are not aware that broadcasters involved in

television LMAs are simulcasting their programming to any significant

extent. Moreover, we believe such simulcasting is unlikely to occur

because it would most likely work to the disadvantage of the stations

engaged in the LMA. We note that television coverage differs from

radio, in that there are fewer television stations per market, and

those stations cover a larger market area than do radio stations. We

assume that if television stations commonly operated under an LMA in

the same market simulcast programming, they would split the audience

for that programming between themselves, losing the audience for

alternative programming to other television stations in that market.

Because stations' advertising revenues are generally based on audience

share, revenue and basic profits would be negatively affected by such

practices. There consequently appears to be a significant market

disincentive against simulcasting in the context of same-market

television LMAs. To the extent that simulcasting occurs, it may reflect

the owner's (or broker') attempt to maximize the audience reach within

the DMA. As indicated above, we received no comments specifically

addressing this question, nor have we seen any evidence that the

concerns with respect to simulcasting by commonly owned or time

brokered radio stations apply to television stations operating under

LMAs. Should we find evidence to the contrary at a future date, we may,

of course, revisit this decision.

70. Grandfather Existing LMAs. In our Attribution Further Notice,

we stated that if we decided to attribute television LMAs as we

proposed in this proceeding, we intended to resolve the issues of

grandfathering, renewability and transferability of existing TV LMAs in

the separate TV Local Ownership proceeding so that we could evaluate

the extent to which grandfathering might be needed based on the nature

of the local ownership rules we adopt. These issues are outside the

scope of this proceeding, and, as we noted in the Attribution Further

Notice, will be resolved in the TV Local Ownership Order.

D. Cross-Interest Policy

Background

71. Overview. The cross-interest policy has been applied to

preclude individuals or entities from holding an attributable interest

in one media property (broadcast station, newspaper, cable system) and

having a ``meaningful'' albeit nonattributable interest in another

media entity serving ``substantially the same area.'' This policy

originally developed as a supplement to the multiple ownership

``duopoly'' rule which prohibited the common ownership, operation, or

control of two stations in the same broadcast service serving

substantially the same area. Ownership, operation or control as

contemplated by this rule was originally defined as actual control or

ownership of 50 percent or more of the stock of a licensee. Since this

definition did not encompass minority stock ownership, positional

interests (such as officers and directors), and limited partnership

interests, the cross-interest policy was developed to address the

competitiveness and diversity concerns created when a single entity

held these types of otherwise permissible interests in two (or more)

competing outlets in the same market. In essence, the cross-interest

policy filled gaps in our attribution criteria that had become apparent

through our case-by-case application of the ownership rules.

72. Through case-by-case adjudication, the following relationships

came to be viewed as constituting ``meaningful'' interests subject to

the cross-interest policy: key employees, joint ventures,

nonattributable equity interests, consulting positions, time brokerage

arrangements, and advertising agency representative relationships. The

cross-interest policy did not prohibit these interests outright, but

required an ad hoc determination regarding whether the nonattributable

interests at issue in each case would be permitted.

73. In 1989, after a comprehensive review to assess the continuing

need for the cross-interest policy, the Commission issued a Policy

Statement limiting the scope of the cross-interest policy so that it

would no longer apply to consulting positions, time brokerage

arrangements and advertising agency representative relationships. The

Commission decided that it no longer needed to apply the cross interest

policy to those relationships because: (1) the need for the policy had

decreased based on new attribution provisions that had superseded it;

(2) the costs to the public and the Commission of administering the

policy were difficult to justify given the reduced need for continued

oversight of these relationships; (3) growth of media outlets had

undercut the notion that any single individual or entity could skew

competition through the cross-interests at issue; and (4) alternative

safeguards, such as antitrust laws, fiduciary duties and private

contract rights were available to curb anti-competitive conduct.

Comments

74. Current Aspects of the Cross-Interest Policy. After the Policy

Statement, three aspects of the cross-interest policy remain in effect:

(1) Key employee relationships. The cross-interest policy has

generally prohibited an individual who serves as a key employee, such

as general manager, program director, or sales manager, of one station

from having an attributable ownership interest in or serving as a key

employee of another station in the same community or market. The

application of the cross-interest policy in these situations is

premised on the potential impairment to competition and diversity and

the apparent conflict of interest arising from the ability of key

employees to implement policies to protect their substantial equity

interest in the other station.

(2) Nonattributable equity interests. The cross-interest policy has

also typically proscribed an individual who has an attributable

interest in one media outlet from holding a substantial nonattributable

equity interest in another media outlet in the same market. The

Commission's concern with these relationships has been that the

individual could use the attributable interest in one media outlet to

protect the financial stake in the other media outlet, thus impairing

arm's length competition. (Two or more separate non-attributable

interests in a market are not proscribed by this policy, as neither

gives rise to the potential to influence station operations that would

concern us.)

(3) Joint venture arrangements. The cross-interest policy has

prevented two local broadcast licensees from entering into joint

associations to buy or build a new broadcast station, cable television

system, or daily newspaper, in the same market. These joint ventures

have triggered cross-interest scrutiny because the successful operation

of the joint venture was thought to require a

[[Page 50632]]

cooperative relationship between otherwise competing stations, and this

would impair competition in the local market.

75. Prior Notices. In the Cross-Interest Notice, we asked for

comments as to whether we should retain our cross-interest policy in

these three areas--key employees, non-attributable equity interests,

and joint ventures. We also invited comment as to whether we should

amend the attribution rules to incorporate the key employee portion of

the cross-interest policy. We sought further comment on whether

retention of the remaining named components of the cross-interest

policy was necessary to prevent anticompetitive practices, whether

alternative deterrent mechanisms exist to assure competition and

diversity, and whether continued regulation of relationships not

specifically addressed by the Commission's attribution rules is

necessary. We also questioned whether regulatory oversight of one or

more of these interests should be limited to geographic markets with

relatively few media outlets. Five comments and reply comments were

filed in response to the Cross-Interest Notice. The majority of

commenters urged the Commission to eliminate the cross-interest policy

as it applies to all of these relationships. One commenter, CFA/TRAC,

urged the Commission to retain the policy. In the Attribution Notice,

we sought to update the record with respect to retention of the cross-

interest policy in light of changes in the multiple ownership rules and

additional changes we were proposing to the attribution rules. In the

Attribution Further Notice, we sought additional comment as to the

effect on our cross-interest policy of our proposed equity/debt plus

approach, which would apply to cases raising concerns of competition

and diversity normally reflected in the cross-interest policy. We also

sought comment on whether the equity/debt plus approach would be

preferable to a case-by-case approach, which is used to administer the

cross-interest policy. We specifically noted that the bright line

approach could provide certainty and minimize regulatory costs.

76. Most commenting parties expressly discussing this issue favored

eliminating at least portions, if not all of the cross-interest policy.

77. A few commenters either opposed elimination of the cross-

interest policy, or urged the Commission not to change the rules.

Decision

78. We will eliminate the above noted remaining components of the

cross interest policy. Our goals in initiating this proceeding include

maximizing the clarity of the attribution rules, providing reasonable

certainty and predictability to parties to allow transactions to be

planned, and easing application processing. As discussed above,

commenters have argued that the vagueness and uncertainty imposed by

the ad hoc application of the cross-interest policy have chilled

investment. As CalPERS argues, this uncertainty impedes the ability of

broadcasters to enter into transactions because the policy can be

invoked to prohibit a seemingly permissible transaction.

79. Today, we have revised the attribution rules to adopt the EDP

rule, a bright line test, which we believe will increase regulatory

certainty and reduce regulatory costs. In adopting that rule, we will

reach those situations involving formerly nonattributable interests

that raised the most concern with respect to issues of competition and

diversity, some of which were previously addressed in administering the

cross-interest policy. We agree with commenters who argue that adoption

of the EDP rule, as well as the existence of the other attribution

rules, provides additional grounds for elimination of the cross-

interest policy.

80. We note that the EDP rule directly covers concerns treated

under the non-attributable interests prong of the cross-interest

policy, as it would attribute a substantial nonattributable interest by

a media entity in a second media outlet in the same market. We

recognize, however, that the EDP rule does not cover all the areas

encompassed by the cross-interest policy. It would not cover key

employees, for example. We nonetheless believe, as commenters have

pointed out, that internal conflict of interest policies, common law

fiduciary duty, and contract remedies provide adequate substitutes for

our administration of the policy with respect to key employees. In

addition, many key employees are also officers and directors and are

thus already covered by the attribution rules. In any event, we believe

that the very small risk of harm to competition by a key employee in an

instance not covered by any of these other regulations and remedies is

greatly outweighed by the benefits of minimizing our case-by-case

approach to transactions and applying bright line tests, such as the

EDP test and our other attribution rules.

81. With respect to joint ventures, we believe that application of

a cross-interest policy is unwarranted. The ownership and attribution

rules define the level of combined ownership that is permissible in the

local market. Many joint ventures are already covered by the

attribution/ownership rules, and they may also be covered to some

extent by the EDP rule. Accordingly, a joint venture between two

licensees in a market to acquire additional broadcast entities in the

same market may be subject to the radio-television cross-ownership rule

or the relevant duopoly rule. As CBS contended, to continue to regulate

these interests under a separate policy when many are covered by the

attribution rules is redundant. In addition, according to CBS, the ad

hoc application of the cross-interest policy has ``clouded the future

of potential joint ventures with uncertainty'' regarding their eventual

approval by the Commission. We agree that the cross-interest policy as

applied to joint ventures is largely subsumed by the application of the

current multiple ownership rules. To the extent that the cross-interest

policy is not so subsumed, we believe that it should be eliminated. We

have made a judgment to limit combined local ownership to certain

degrees, as delineated in our local ownership rules. Accordingly, it

makes no sense to have a routine additional layer of case-by-case

review for those joint ventures that fully comply with those rules. In

these cases, the burdens of case-by-case review are not justified for

transactions that already comply with the multiple ownership rules.

Furthermore, as other commenters noted, the application of the

antitrust laws should prevent or remedy any abuses of joint venture

relationships not already subject to the multiple ownership rules.

82. In sum, we believe that the regulatory costs and the chilling

effects of the cross-interest policy and the benefits of applying a

clear and discernable standard outweigh any risks of potential abuses

in eliminating the policy. Moreover, many remaining aspects of the

cross-interest policy are subsumed under our attribution rules, as

revised herein.

E. Joint Sales Agreements (JSAs)

83. Background. In the Attribution Notice, we requested comment on

whether, through multiple cooperative arrangements or contractual

agreements, broadcasters could so merge their operations as to

implicate our diversity and competition concerns. We noted, however,

that we did not intend to reopen our earlier decisions permitting joint

sales practices in radio and television. These decisions had allowed

joint sales agreements (``JSAs'') (i.e., agreements for the joint sales

of broadcast commercial time), subject to compliance with the antitrust

laws.

[[Page 50633]]

84. After issuing the Attribution Notice, the staff was presented

with cases involving joint sales agreements that raised diversity and

competition concerns. These cases raised questions as to whether non-

ownership mechanisms such as JSAs that might convey influence or

control over advertising shares should be considered attributable under

certain circumstances. Accordingly, in the Attribution Further Notice

we invited additional comments on the potential effects of JSAs among

same-market broadcasters on diversity and competition. We also sought

comment on whether we should attribute JSAs among licensees in the same

market, including both radio and television licensees, irrespective of

whether they are accompanied by the holding of debt or equity. In

addition, we sought general information concerning the typical

contractual terms of JSAs.

85. Decision. We will not attribute JSAs. Based on the record in

this proceeding, we do not believe that agreements which meet our

definition of JSAs convey a degree of influence or control over station

programming or core operations such that they should be attributed. We

define JSAs as contracts that affect primarily the sales of advertising

time, as distinguished from LMAs, which may affect programming,

personnel, advertising, physical facilities, and other core operations

of stations. We note that in our DTV 5R&O, we stated that we would look

with favor upon joint business arrangements among broadcasters that

would help them make the most productive and efficient uses of their

channels to help facilitate the transition to digital technology. JSAs

may be one such joint business arrangement. We recognize the

significant competitive concerns about same-market radio JSAs raised by

DOJ, but we also note that the factors considered by DOJ and the

Commission in analyzing business arrangements may differ in some

respects. Although both DOJ and the Commission are concerned about the

competitive consequences of business agreements such as JSAs, our

concerns are not identical. DOJ's comments explicitly recognize that in

addition to competition issues, the Commission is also concerned with

issues of diversity and reducing unnecessary administrative burdens.

Some JSAs may actually help promote diversity by enabling smaller

stations to stay on the air. Furthermore, to reduce administrative

burdens, we will not require the routine filing of JSAs with the

Commission.

86. Accordingly, after weighing competition, diversity, and

administrative concerns, we decline to impose new rules attributing

JSAs as long as they deal primarily with the sale of advertising time

and do not contain terms that affect programming or other core

operations of the stations such that they are, in fact, substantively

equivalent to LMAs. We will retain our current policies concerning

JSAs. Furthermore, in the absence of specific evidence of widespread

abuse of JSAs by broadcasters, we also decline to adopt the general

disclosure and reporting requirement for radio JSAs recommended by DOJ

in its comments. We will, however, require broadcasters who have

entered into JSAs to place such agreements in their public inspection

files, with confidential or proprietary information redacted where

appropriate. This requirement will facilitate monitoring of JSAs by the

public, competitors and regulatory agencies. We do, however, retain

discretion, in any event, to review cases involving radio or television

JSAs on a case by case basis in the public interest, where it appears

that such JSAs do pose competition or other concerns. Finally, we

emphasize that all JSAs are of course still subject to antitrust laws

and independent antitrust review by the Department of Justice.

F. Partnership Interests

87. Background. Under the Commission's current attribution rules

governing partnership interests, general partners and non-insulated

limited partnership interests are attributable, regardless of the

amount or percentage of equity held. An exception from attribution

applies only to those limited partners who meet the Commission's

insulation criteria and certify that they are not materially involved

in the management or operations of the partnership's media interests.

88. The Attribution Notice asked for comment on whether the

insulation criteria remain effective and specifically whether the

insulation criteria needed to be tightened or relaxed to meet the needs

of certain new types of business entities. For example, widely-held

limited partnerships, and in particular business development companies,

may be required by federal and state statutes to grant voting rights to

limited partners in such matters as the selection and removal of

general partners. However, the insulation criteria require that such

voting rights be restricted, except under certain circumstances, in

order to support a presumption of partner non-involvement in the

management of the partnership. The Attribution Notice inquired whether

the insulation criterion should be relaxed to remove this potential

conflict with state law, or whether equity benchmarks combined with a

more limited relaxation of the insulation criteria should be applied to

these widely-held limited partnerships. We noted that commenters in

response to the Capital Formation Notice had argued that allowing

specific voting rights would not compromise our attribution rules

since: (1) the remaining insulation criteria are sufficient to prevent

material involvement of a partnership member in media operations; and

(2) the dispersed interests in a widely-held limited partnership would

preclude member involvement in management and operations.

89. In addition, the Attribution Notice asked whether an equity

benchmark, such as 5 percent, should be used to establish attribution

with respect to all ``widely-held'' limited partnerships, and if so,

how should the Commission define widely-held limited partnerships, and

what factors could be used to guarantee that these entities remain

widely-held. More generally, the Attribution Notice asked whether an

equity benchmark, under which investments below the threshold would be

exempted from the insulation criteria and would be held non-

attributable, should be applied to all partnership forms, widely-held

or not. In this latter case, the Attribution Notice asked whether we

should set the equity benchmarks for partnership interests along lines

similar to those used for voting corporate equity interests. We stated,

however, that, based on the record thus far, we were not inclined to

apply an equity benchmark to limited partnerships but would instead

retain the insulation criteria, and that parties that disagreed must

provide us with more data and analysis to demonstrate that our earlier

decision to apply the insulation criteria is no longer justified. We

also asked for information on the financial and legal structures of

limited partnerships to enable us to determine whether there is a

uniform equity level below which we need not be concerned with the

application of the insulation criteria.

90. Comments. No commenters favored adding to the current list of

insulation criteria.

91. Decision. We see no reason to revise our previous decision to

treat limited partnership interests as distinct from corporate voting

equity interests, and therefore elect not to adopt equity benchmarks

for limited partnership interests. As we stated in the Attribution

Further Reconsideration, ``[t]he partners in a limited partnership,

through contractual arrangements, largely have

[[Page 50634]]

the power themselves to determine the rights of the limited partners.''

Therefore, the insulation criteria adopted by the Commission serve to

identify those situations within which it is safe to assume that a

limited partner cannot be ``materially involved'' in the media

management and operations of the partnership. As we also stated

therein, the powers of a limited liability holder to exert influence or

control are not necessarily proportional to their equity investment in

the limited partnership, since the extent of these powers can be

modified by the contractual arrangements of the limited partnership. In

the Attribution Notice, we stated our disinclination to change our

approach of applying insulation criteria in favor of an equity

benchmark, and we have not been provided sufficient evidence to revise

that view and to indicate that these original reasons for declining to

adopt an equity benchmark for limited partnerships are no longer valid.

92. We also see no need at this time to add to, relax, or otherwise

revise our limited partnership insulation criteria. Some commenters

suggested that the insulation criteria should be modified to eliminate

conflicts with state law, or that RULPA or other relevant standards

should be used in their place. However, in our Attribution

Reconsideration, the Commission decided for several reasons to abandon

the use of RULPA, combined with a no material involvement standard, as

a standard for judging whether limited partners were exempt from

attribution. First, we judged the joint use of these two disparate

standards for determining limited partner exemptions from attribution

to be unnecessarily complicated. Second, we noted that there was a lack

of uniform interpretation of the RULPA provisions, and that the scope

of permissible limited partner activities was not statutorily set by

RULPA, but rather was determined by the limited partnership agreement

itself. Third, we determined that reliance on the RULPA provisions did

not provide sufficient assurance that limited partners would not

significantly influence or control partnership affairs. We are

convinced that these conclusions remain valid today, and therefore we

see no reason to revise our insulation criterion in favor of a RULPA

standard. We also feel that similar considerations apply to state laws

that regulate limited partnership activities, since these statutes may

vary significantly from state to state, and may fail to provide

sufficient assurance that the limited partner will lack the ability to

significantly influence or control the partnership's media activities.

93. We will not create exceptions for widely-held limited

partnerships, such as Business Development Companies, from the current

insulation criteria applicable to limited partnerships or otherwise

revise those insulation criteria. The essential character of these new

business forms for determining attributable interests is the

contractual flexibility they allow in setting up and managing the

association. Therefore, we believe that the insulation criteria are

needed for these business forms to insure ``lack of material

involvement'' on the part of investors. This would imply that in some

limited number of cases, interests may not be insulated because of

state laws that require investor rights that conflict with the

insulation criterion. However, commenters have not provided sufficient

evidence concerning the number or importance of such instances that

would compel the Commission to create special exemptions for these

specialized business forms. Since these entities are allowed greater

contractual flexibility under state law than are limited partnerships,

we believe that greater caution is warranted in dealing with these

novel forms. Further, we have not been presented with evidence to

demonstrate that the current insulation criteria are no longer valid or

effective in achieving their goals.

94. A number of commenters have asked us to clarify certain issues

with respect to the scope or other aspects of the insulation criteria.

We do not believe that this is the proper forum for declaratory rulings

as to the scope of the insulation criteria. Indeed, the questions

raised by commenters as to the application of the criteria to specific

activities are best resolved by the Commission on a case-by-case basis

based on the facts of the case. In addition, some of the proposed

clarifications would, in effect, amount to a relaxation of the

criteria. For example, Capital Cities/ABC asked the Commission to

confirm that an insulated limited partner's interest in a licensee does

not preclude the interest holder from also holding an affiliation

agreement with the licensee. However, a contractual arrangement to

provide programming would be inconsistent with the insulation criterion

that ``the limited partner may not perform any services for the

partnership materially relating to its media activities,'' and

therefore would not allow insulation of the limited partner's interest.

As discussed, we decline to relax the insulation criteria. Moreover, we

believe that the insulation criteria have worked effectively in the

past, and that there is no need for further clarification on a general

basis in this Report and Order. Any issues that may arise as to the

application of the criteria to particular transactions will be resolved

on a case-by-case basis.

G. LLCs and Other Hybrid Business Forms

95. Background. In the Attribution Notice, we sought comment as to

how we should treat, for attribution purposes, the equity interest of a

member in a limited liability company or LLC, a then relatively new

form of business association regulated by state law, or in other new

business forms, such as Registered Limited Liability Partnerships

(``RLLPs''). LLCs are, in general, unincorporated associations that

possess attributes of both corporations and partnerships. The specific

attributes of LLCs may vary, since their form is regulated by state

statutes. LLCs are, however, generally intended to afford limited

liability to members, similar to that afforded by the corporate

structure, while also affording the management flexibility and flow-

through tax advantages of a partnership, without many of the

organizational restrictions placed on corporations or limited

partnerships. Depending on the requirements of the applicable state

statute, LLCs afford their members broad flexibility in organizing the

management structure and permit members to actively participate in the

management of the entity without losing limited liability. Thus, with

some variation depending on the applicable statute, LLCs may be

organized with centralized management authority residing in one or a

few managers (who may or may not be members) or decentralized

management by members.

96. In the Attribution Notice, we tentatively proposed to treat

LLCs and RLLPs like limited partnerships and adopted that proposal as

an interim processing policy. Thus, membership in an LLC or RLLP would

be attributed unless the applicant certifies that the member is not

materially involved, directly or indirectly, in the management or

operation of the media-related activities of the LLC or RLLP. We

proposed that such certification should be based on our limited

partnership insulation criteria and invited comment on whether those

insulation criteria developed with respect to limited partnerships are

sufficient to insulate members of LLCs and RLLPs or whether other

criteria would be more effective. We also tentatively concluded that we

were not prepared to adopt an equity benchmark

[[Page 50635]]

for non-insulated LLC interests, but we invited comment on that

conclusion. In addition, we invited comment on whether, if we adopt the

certification approach, we should, either routinely or on a case-by-

case basis, require parties to file copies of the organizational

filings and/or operating agreements with the Commission when an

application is filed. Finally, we asked whether we should differentiate

our treatment of LLCs based on whether their management form is

centralized or decentralized.

97. Decision. We adopt our tentative conclusion in the Attribution

Notice to treat LLCs and other new business forms including RLLPs under

the same attribution rules that currently apply to limited

partnerships. The insulation criteria that currently apply to limited

partnerships would apply without modification to these new business

forms. Therefore, LLC or RLLP owners would be treated as attributable

unless the owner can certify their lack of direct or indirect

involvement in the management and operations of the media-related

activities of the LLC or RLLP based on existing insulation criteria. We

will not distinguish among LLCs based on whether they adopt a more

centralized or decentralized form.

98. We believe that this decision is justified for the reasons

discussed in the Attribution Notice, which are supported by the record.

State laws grant more liberal organizational powers to LLCs and RLLPs

than to limited partnership forms. Thus, equity holders can retain

their limited liability even though they participate in the management

of the entity. Under these circumstances, we believe that it is

important to apply the insulation criteria to assure that those equity

holders that purport to be insulated from management are in fact so

insulated. In addition, even when an LLC adopts a ``corporate form'' of

organization, there is still sufficient discretion afforded by state

law so that the owners of the enterprise may retain some level of

operational control on their own part. The organizational restrictions

applicable to corporations do not necessarily apply. The Commission

could also apply a control test to determine attribution, or require

these companies to incorporate insulation criteria directly into their

governing documents. However, these case-by-case solutions would reduce

regulatory certainty and delay processing of applications. We also

believe that using equity benchmarks would be inappropriate for reasons

similar to those discussed above in terms of limited partnerships. In

addition, we have been applying the interim processing policy, it has

worked well and effectively, and we see no reason to change it.

99. We agree with those commenters who argued that business

associations, such as LLCs, are similar to partnership forms in terms

of organizational flexibility, and we will treat them comparably for

attribution purposes. Indeed, the greater flexibility in governance

granted such entities under state law, to elect either a ``corporate

form'' or a ``partnership form'' of governance, underscores the need

for caution in our approach to the attribution of new business forms.

The current insulation criteria serve to directly address our concerns

over the influence of an interest holder. Creating specialized

attribution standards for new business forms as they arise will serve

only to complicate the attribution rules, without better addressing our

core concerns over the potential influence exerted by the owners of a

particular entity, however organized.

100. To reduce paperwork burdens, we will not routinely require the

filing of organizational documents for LLCs. However, to remain

consistent with our treatment of limited partnerships and insulation

criteria, we will require the same ``non-involvement'' statement for

LLC members who are attempting to insulate themselves from attribution

that we require for limited partners who are attempting to insulate

themselves. We will also require LLC members who submit the foregoing

statement to submit a statement that the relevant state statute

authorizing LLCs permits an LLC member to insulate itself/himself in

the manner required by our criteria, since our experience shows that

state laws vary considerably with respect to the obligations and

responsibilities of LLC members. This policy will help us to avoid any

potential confidentiality concerns, referred to in the Attribution

Notice, that may arise if we require filing of organizational

documents.

H. Cable/MDS Cross-Ownership Attribution

101. Background. The Attribution Further Notice considered changes

to the cable/Multipoint Distribution Service (``MDS'') cross-ownership

attribution rule, For purposes of this item (MDS also includes single

channel Multipoint Distribution Service (``MDS'') and Multichannel

Multipoint Distribution Service (``MMDS'')). Section 21.912 of the

rules, which implements Sec. 613(a) of the Communications Act,

generally prohibits a cable operator from obtaining an MDS

authorization if any portion of the MDS protected service area overlaps

with the franchise area actually served by the cable operator's cable

system. In addition, Sec. 21.912(b) prevents a cable operator from

leasing MDS capacity if its franchise area being served overlaps with

the MDS protected service area. For purposes of this rule, the

attribution standard used to determine what entities constitute a

``cable operator'' or an MDS licensee, is generally defined by the

Notes to Sec. 76.501. In sum, we presently consider a cable operator to

have an attributable interest in an MDS licensee if the cable operator

holds five percent or more of the stock in that licensee, regardless of

whether such stock is voting or non-voting. We also attribute all

officer and director positions and general partnership interests.

However, unlike the broadcast attribution standard, our current cable/

MDS standard contains no single majority shareholder exception, and

attributes limited partnership interests of five percent or greater,

notwithstanding insulation.

102. As we recognized in the Attribution Further Notice, the

strictness of the existing attribution standard severely limits

investment opportunities that would advance our goals of strengthening

wireless cable and providing meaningful competition to cable operators.

We also saw no reason to have different attribution criteria for

broadcasting and MDS, and reiterated our previous observation that the

broadcast attribution criteria could be used for the purpose of

determining attribution in the context of cable/MDS cross-ownership.

Thus, in the Attribution Further Notice, we invited comment on whether

we should apply broadcast attribution criteria, as modified by this

proceeding, in determining cognizable interests in MDS licensees and

cable systems. In addition, we sought comment as to whether we should

add an equity/debt plus attribution rule where the competing entity's

holding exceeds 33 percent or some other benchmark. We further stated

our belief that these proposed modifications of our attribution rules

would increase the potential for investment and further diversity,

while preventing cable from warehousing its potential competition.

103. Decision. After reviewing all of the comments submitted on our

proposals to relax the cable/MDS attribution rules, we are persuaded

that the broadcast attribution criteria, as modified by this

proceeding, should be applied in determining what interests in MDS

licensees and cable systems are cognizable. We continue to see no

reason, and none has been suggested by

[[Page 50636]]

any of the commenters, that would warrant different attribution

criteria for broadcasting and MDS. As we have discussed here and in the

Attribution Further Notice, 60 FR 6483, February 2, 1995, investment

opportunities critical to the development of MDS as a competitive

service to cable have been severely limited by the current attribution

standard.1 Therefore, continued application of the current

cable/MDS attribution standard would frustrate our goals of

strengthening wireless cable, providing meaningful competition to cable

operators and benefitting the public interest by offering consumers

more choice in their selection of video programming providers. In view

of these considerations and the record before us, we conclude that the

public interest would be better served if the modified broadcast

attribution criteria were employed for the purpose of determining

attribution in the context of cable/MDS cross-ownership. Such

modification of our existing attribution standard will increase

investment possibilities without adversely affecting competition. Thus,

we believe this attribution standard will identify ownership interests

with the potential to exert significant influence on a licensee's

management and operations, and the cross-ownership provision by its

very nature will address the concern that common ownership of different

multichannel video programming distributors may reduce competition and

limit diversity. We are persuaded, moreover, that relaxing our current

attribution standard will have genuine meaning for institutional

investors who, though not involved in the day-to-day activities of

either cable or MDS companies, have been precluded from making

investments in MDS due to pre-existing or anticipated investments in

cable.

---------------------------------------------------------------------------

\1\ We have recently taken additional steps to expand investment

opportunities to further strengthen MDS. Amendment of Parts 21 and

74 to Enable Multipoint Distribution Service and Instructional

Television Fixed Service Licensees to Engage in Fixed Two-Way

Transmissions, 13 FCC Rcd 19112 (1998), recon., FCC 99-178, released

July 29, 1999.

---------------------------------------------------------------------------

104. The Wireless Association also fails to persuade us that it

would be unfair to impose a debt limitation on cable/MDS cross-

ownership when no such limitation has been placed on cable/LMDS cross-

ownership. We consider it significant that, unlike our recently adopted

cable/LMDS cross-ownership rules, the cable/MDS cross-ownership rule

implements a statutory prohibition, Section 613(a) of the Act.

Therefore, in revisiting our cable/MDS attribution standard, we must

consider both the rule and the statutory implications. As we

tentatively concluded in the Attribution Further Notice, the potential

exists:

For certain substantial investors or creditors to have the

ability to exert significant influence over key licensee decisions

through their contract rights, even though they are not granted a

direct voting interest or may only have a minority voting interest

in a corporation with a single majority shareholder, which may

undermine the diversity of voices we seek to promote. They may,

through their contractual rights and their ongoing right to

communicate freely with the licensee, exert as much or more

influence or control over some corporate decisions as voting equity

holders whose interests are attributable.

That tentative conclusion has been affirmed here, and we believe

applies with equal force to our competitive concerns underlying cable/

MDS cross-ownership. We have also determined that our broadcast

attribution rules will be triggered when the aggregated debt and equity

interests in a licensee exceed a 33 percent benchmark. Our EDP

broadcast attribution provision is intended to address our concerns

that multiple nonattributable interests could be combined to exert

influence over licensees such that they should be attributable. Based

on the same reasons, we likewise regard the 33 percent EDP provision as

an appropriate addition to the modified cable/MDS attribution standard.

Furthermore, by adopting the 33 percent EDP provision for cable/MDS

attribution, we believe that we are acting in a manner consistent with

the statutory directive by furthering congressional intent to promote

competition among video providers.

105. Accordingly, we will adopt the broadcast attribution criteria,

as modified in this proceeding, for determining cognizable interests in

MDS licensees and cable systems. The modified attribution criteria will

also apply to the cable/MDS and cable/ITFS cross-leasing rules. A

supplemental note will follow those cross-leasing rules and state that

the attribution standard applicable to cable/MDS cross-ownership also

applies to them. In addition, given the considerations discussed above,

and for the same reasons we are adopting the 33 percent EDP provision

for the broadcast attribution standard, we will adopt the 33 percent

EDP provision as part of the cable/MDS attribution standard. A

description of the resulting changes to our existing cable/MDS

attribution standard follows.

106. In assessing cable/MDS attribution, we will distinguish

passive investors from non-passive investors, applying the voting stock

attribution benchmark applicable to each. As a preliminary matter, the

definition of ``passive investors'' will be identical to that used in

the context of broadcast attribution, and thus limited to bank trust

departments, insurance companies and mutual funds. Passive investors

will be subject to the same 20 percent voting stock benchmark as we

adopt today for broadcast passive investors. With regard to a non-

passive voting equity benchmark, we have already determined that

shareholders with a five percent or greater ownership interest still

have the ability to wield significant influence on the management and

operations of the firms in which they invest. Therefore, we will

continue to apply our five percent benchmark to determine the

attributable interests of non-passive investors. We believe that

employing a more liberal voting stock benchmark for passive investors

than that used for non-passive investors will provide the MDS industry

with increased access to much needed investment capital, while

maintaining the Commission's ability to apply its ownership rules to

influential interests.

107. Though positions such as officers and directors will remain

attributable interests, we will further relax the current cable/MDS

standard by exempting from attribution minority stockholdings in

corporations with a single majority shareholder and non-voting stock,

to the extent permitted by the other rule changes made in this

proceeding. However, here as in broadcasting, we will carefully

scrutinize cases to ensure that nonattributable minority or non-voting

shareholders are not able to exert greater influence than what their

attribution status should allow.

108. We further note that adoption of the EDP attribution rule for

cable/MDS will limit, under certain circumstances, the availability of

the single majority shareholder and non-voting stock exemptions from

attribution. Under the EDP rule as adopted for cable/MDS attribution,

where a cable franchise area and an MDS protected service area overlap,

we will consider an investor (including a cable operator or MDS

licensee) that has already invested in either the cable operator or MDS

licensee, to have an attributable interest in the other entity if that

interest exceeds 33 percent of the total assets of that entity. Thus,

when the investor's total investment in the other entity, aggregating

all debt and equity interests, exceeds 33 percent of all investment in

that entity (the sum of all equity plus debt), attribution will be

triggered. We

[[Page 50637]]

will use total assets as a base in aggregating the different classes of

investment, equity and debt, and will presume that nonvoting stock

should be treated as equity. We will set the threshold at 33 percent

for the cable/MDS EDP rule because we see no reason to have a different

benchmark than that which will be used for the broadcast EDP rule.

109. We will also modify the existing cable/MDS attribution

standard with respect to partnership interests and new business forms,

such as LLCs and RLLPs, consistent with our treatment of such entities

in the broadcast context. First, we will continue to hold all

partnership interests attributable, regardless of the extent of their

equity interests, unless they satisfy the insulation requirements.

However, we will not attribute sufficiently insulated limited

partnership interests when the limited partner certifies that it is not

materially involved, directly or indirectly, in the management or

operation of the partnership's cable or wireless cable activities. Nor

will we adopt voting equity benchmarks for limited partnership

interests. A limited partnership interest will not be attributable if

the limited partner meets the Commission's insulation criteria and

makes the requisite certification. Second, consistent with our earlier

findings, we will subject widely-held limited partnerships, such as

Business Development Companies, to the same set of attribution rules as

limited partnerships. We will also treat LLCs and other new business

forms, including RLLPs, under the same attribution rules that currently

apply to limited partnerships. We believe that these changes, which

generally relax our existing cable/MDS attribution standard and make

them consistent with the broadcast attribution rules, will afford

increased opportunities for investment in the wireless cable and cable

industries.

I. Broadcast-Cable Cross-Ownership Attribution Rules

110. In the Attribution Further Notice, we stated that we would

address, in this proceeding, the attribution criteria applicable to the

broadcast-cable cross-ownership rule, Sec. 76.501(a) of the

Commission's rules. While we recognized that the attribution standards

used in a number of other cable rules were implicitly or explicitly

based on Sec. 76.501 of the Commission's rules, we stated that we were

considering establishing a separate proceeding to modify the

attribution criteria for the other cable multiple ownership rules.

111. Accordingly, we will modify the attribution criteria

applicable to the cable/broadcast cross-ownership rule to conform to

the new broadcast attribution criteria adopted in this R&O. In this

manner, all the broadcast attribution criteria will remain consistent.

When we revised the cross-ownership attribution rules in 1984, we

stated that there did not seem to be a justification for separate

benchmarks as applicable to cable systems. We did not receive comments

in this proceeding to justify treating the cable/broadcast cross-

ownership attribution rules differently from the other broadcast

attribution rules at issue in this proceeding. We reiterate that the

attribution revisions made herein apply only to the cable/broadcast and

the cable/MDS cross-ownership rules (and cable/ITFS cross-leasing

rules) and that revisions to the other cable attribution rules will be

addressed CS Docket No. 98-82. We also note that because these cross-

ownership rules apply where the entities at issue are in the same

market, these entities will always be subject to the EDP rule assuming

that the requisite financial interest is held.

J. Transition Issues

112. Background. In the Attribution Notice, we stated our concern

that any action taken in this proceeding not disrupt existing financial

arrangements, and accordingly invited comment as to whether we should

grandfather existing situations or allow a transition period for

licensees to come into compliance with the multiple ownership rules if

we adopted more restrictive attribution rules. As we stated in the

Attribution Further Notice, commenters who addressed this issue in

response to the Attribution Notice overwhelmingly urged the Commission

to grandfather existing interests indefinitely if it adopted more

restrictive attribution rules because of the disruptive effect and the

unfairness to the parties of mandatory divestiture.

113. Decision. We conclude that any interests acquired on or after

November 5, 1996, the date of adoption of the Attribution Further

Notice in this proceeding, should be subject to the rules adopted in

this R&O. We believe this cutoff date is reasonable and appropriate. We

proposed the new EDP rule in the Attribution Further Notice, and it was

therefore then that parties were on notice of the proposed new rule and

that any interests acquired on or after that date could be subject to

any rule changes. Thus, we believe that the November 5, 1996

grandfathering date is more reasonable than the earlier grandfathering

date we proposed. While we tentatively concluded in the Attribution

Notice that any interests acquired on or after December 15, 1994 should

be subject to the final rules adopted in the R&O in this proceeding, we

have decided to use the date of adoption of the Attribution Further

Notice as the grandfathering date. Accordingly, any interests (other

than radio LMAs) newly attributable pursuant to this R&O that would

result in violations of the ownership rules, will be grandfathered if

the triggering interest was acquired before November 5, 1996. Except in

the case of TV and radio LMAs, such grandfathering will be permanent

until such time as the grandfathered interest is assigned or

transferred.

114. In this R&O, we have decided to count attributable radio LMAs

for purposes of applying all applicable multiple ownership rules,

including the one-to-a-market rule and the radio-newspaper cross-

ownership rule, not just the radio duopoly rules. As discussed, we will

treat grandfathering of radio LMAs on case-by-case basis. The issue of

grandfathering television LMAs is resolved in the television local

ownership proceeding.

115. We will apply the November 5, 1996 grandfathering date to

interests, newly attributable under our EDP rule, that would result in

new violations of the multiple ownership rules. Such grandfathering

will be permanent so long as the interest is not transferred or

renewed. Thus, if an inter-market LMA triggers the EDP rule,

grandfathering will be for the term of the LMA, since the LMA cannot be

renewed. Grandfathering will apply only to the current holder of the

attributable interest. If the grandfathered interest is later assigned

or transferred, the grandfathering will not transfer to the assignee or

transferee. New owners cannot demonstrate the same equitable

considerations that prompt us to grandfather existing owners whose

current interests are now unavoidably placed in violation of the

multiple ownership rules based on adoption of the EDP rule. Such new

owners will be given a year to come into compliance with the multiple

ownership rules.

116. For non-grandfathered interests that are now attributable,

i.e., those acquired on or after November 5, 1996, and which must be

divested to comply with our multiple ownership rules, we believe that a

twelve-month period should be sufficient for parties to identify

buyers. Accordingly, parties holding such non-grandfathered interests

must come into compliance, filing an appropriate application if

necessary, within 12 months of the date

[[Page 50638]]

of adoption of this R&O. We recognize that we have specified a

different divestiture period in some of the cases that have been

conditioned on the outcome of this proceeding. In all of these cases,

we will apply the one-year divestiture period. Thus, in a case

conditioned on the outcome of this proceeding, where, for example, a

six-month divestiture period is specified, the twelve-month period

specified herein would nonetheless be operative.

117. We note that grandfathering treatment of television LMAs that

result in violations of the multiple ownership rules varies depending

on whether they are intra-market LMAs that are attributable under the

per se LMA attribution rule or inter-market LMAs that are attributable

under the EDP rule because they are accompanied by a financial

investment that exceeds the 33 percent threshold. For intra-market

LMAs, the grandfathering period is as discussed in the TV Local

Ownership R&O. Grandfathering for interests newly attributable under

the EDP rule is permanent, and, accordingly, for inter-market LMAs

attributable under EDP, grandfathering will last for the length of the

LMA term since no renewal or transfer is permitted.

K. Ownership Report, Form 323

118. We intend to modify the Ownership Report form, Form 323, to

reflect the addition of the EDP rule, as well as the other attribution

changes adopted in this R&O. We direct the Mass Media Bureau to make

the necessary modifications to the form to reflect these changes.

Further, the Mass Media Bureau is delegated authority to revise the

Ownership Report rule, Sec. 73.3615, to reflect the addition of the EDP

rule, as well as the other attribution changes adopted in this R&O.

Thereafter, we will issue a public notice with the revised Ownership

Report Form and Ownership Report rule to reflect and incorporate these

changes.

IV. Administrative Matters

119. Paperwork Reduction Act of 1995 Analysis. This R&O contains

either new or modified information collections. Therefore, the

Commission, as part of its continuing effort to reduce paperwork

burdens, invites the general public and the Office of Management and

Budget (``OMB'') to comment on the information collections contained in

this R&O as required by the Paperwork Reduction Act of 1995, Public Law

104-13. Public and agency comments are due November 16, 1999. Comments

should address: (a) whether the new or modified collection of

information is necessary for the proper performance of the functions of

the Commission, including whether the information shall have practical

utility; (b) the accuracy of the Commission's burden estimates; (c)

ways to enhance the quality, utility, and clarity of the information

collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated

collection techniques or other forms of information technology. In

addition to filing comments with the Secretary, a copy of any comments

on the information collections contained herein should be submitted to

Judy Boley, Federal Communications Commission, Room 1-C1804, 445 12th

Street S.W., Washington, DC 20554, or via the Internet to

[email protected] and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-

17th Street, N.W., Washington, DC 20503, or via the Internet to

fain__al.eop.gov.

120. For additional information concerning the information

collections contained in this R&O contact Judy Boley at 202-418-0217.

121. Pursuant to the Regulatory Flexibility Act of 1980, as

amended, 5 U.S.C. 601 et seq., the Commission's Final Regulatory

Flexibility Analysis included in this R&O.

Final Regulatory Flexibility Analysis

122. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C.

603, an Initial Regulatory Flexibility Analysis (IRFA) was incorporated

in the FNPR in MM Docket Nos. 94-150, 92-51, & 87-154, 11 FCC Rcd 19895

(1996) (``Attribution Further Notice''). The Commission sought written

public comment on the proposals in the Attribution Further Notice,

including comment on the IRFA. The comments received are discussed.

This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

I. Need For, and Objectives of the Report and Order

123. The attribution rules seek to identify those interests in or

relationships to licensees or media entities that confer on their

holders a degree of influence or control such that the holders have a

realistic potential to affect the programming decisions of licensees or

other core operating functions. The attribution rules are used to

implement the Commission's broadcast multiple ownership rules. Our

goals in this proceeding are to maximize the precision of the

attribution rules, avoid disruption in the flow of capital to

broadcasting, afford clarity and certainty to regulatees, ease

application processing, and provide for the reporting of all the

information we need in order to make our public interest finding with

respect to broadcast applications. While our focus is on the issues of

influence or control, at the same time, we must tailor the attribution

rules to permit arrangements in which a particular ownership or

positional interest involves minimal risk of influence, in order to

avoid unduly restricting the means by which investment capital may be

made available to the broadcast industry. The rules adopted meet these

goals.

II. Summary of Significant Issues Raised by the Public in Response to

the IRFA

124. One comment, filed specifically in response to the IRFA

contained in the Second Further Notice of Proposed Rulemaking in MM

Dockets 91-221 and 87-8, 61 FR 66978, December 19, 1996, addressed an

issue relevant to all the Commission's proceedings dealing with the

mass media multiple ownership rules.

125. Other commenters did not specifically respond to the IRFA, but

did address small business issues.

III. Description and Estimate of the Number of Small Entities To Which

Rules Will Apply

1. Definition of a ``Small Business''

126. Under the RFA, small entities may include small organizations,

small businesses, and small governmental jurisdictions. 5 U.S.C.

601(6). The RFA, 5 U.S.C. 601(3), generally defines the term ``small

business'' as having the same meaning as the term ``small business

concern'' under the Small Business Act, 15 U.S.C. 632. A small business

concern is one which: (1) is independently owned and operated; (2) is

not dominant in its field of operation; and (3) satisfies any

additional criteria established by the Small Business Administration

(``SBA''). According to the SBA's regulations, entities engaged in

television broadcasting Standard Industrial Classification (``SIC'')

Code 4833--Television Broadcasting Stations, may have a maximum of

$10.5 million in annual receipts in order to qualify as a small

business concern. Similarly, entities engaged in radio broadcasting,

SIC Code 4832--Radio Broadcasting Stations, have a maximum of $5

million in annual receipts to qualify as a small business concern. 13

CFR 121.101 et seq. This standard also applies in determining whether

an entity is a small business for purposes of the RFA.

127. Pursuant to 5 U.S.C. 601(3), the statutory definition of a

small business applies ``unless an agency after consultation with the

Office of Advocacy of the SBA and after

[[Page 50639]]

opportunity for public comment, establishes one or more definitions of

such term which are appropriate to the activities of the agency and

publishes such definition(s) in the Federal Register.'' While we

tentatively believe that the foregoing definition of ``small business''

greatly overstates the number of radio and television broadcast

stations that are small businesses and is not suitable for purposes of

determining the impact of the new rules on small television and radio

stations, we did not propose an alternative definition in the IRFA.

Accordingly, for purposes of this R&O, we utilize the SBA's definition

in determining the number of small businesses to which the rules apply,

but we reserve the right to adopt a more suitable definition of ``small

business'' as applied to radio and television broadcast stations and to

consider further the issue of the number of small entities that are

radio and television broadcasters in the future. Further, in this FRFA,

we will identify the different classes of small radio and television

stations that may be impacted by the rules adopted in this R&O.

2. Issues in Applying the Definition of a ``Small Business''

128. As discussed, we could not precisely apply the foregoing

definition of ``small business'' in developing our estimates of the

number of small entities to which the rules will apply. Our estimates

reflect our best judgments based on the data available to us.

129. An element of the definition of ``small business'' is that the

entity not be dominant in its field of operation. We were unable at

this time to define or quantify the criteria that would establish

whether a specific television or radio station is dominant in its field

of operation. Accordingly, the following estimates of small businesses

to which the new rules will apply do not exclude any television or

radio station from the definition of a small business on this basis and

are therefore overinclusive to that extent. An additional element of

the definition of ``small business'' is that the entity must be

independently owned and operated. We attempted to factor in this

element by looking at revenue statistics for owners of television

stations. However, as discussed further below, we could not fully apply

this criterion, and our estimates of small businesses to which the

rules may apply may be overinclusive to this extent. The SBA's general

size standards are developed taking into account these two statutory

criteria. This does not preclude us from taking these factors into

account in making our estimates of the numbers of small entities.

130. With respect to applying the revenue cap, the SBA has defined

``annual receipts'' specifically in 13 CFR 121.104, and its

calculations include an averaging process. We do not currently require

submission of financial data from licensees that we could use in

applying the SBA's definition of a small business. Thus, for purposes

of estimating the number of small entities to which the rules apply, we

are limited to considering the revenue data that are publicly

available, and the revenue data on which we rely may not correspond

completely with the SBA definition of annual receipts.

131. Under SBA criteria for determining annual receipts, if a

concern has acquired an affiliate or been acquired as an affiliate

during the applicable averaging period for determining annual receipts,

the annual receipts in determining size status include the receipts of

both firms. 13 CFR 121.104(d)(1). The SBA defines affiliation in 13 CFR

121.103. In this context, the SBA's definition of affiliate is

analogous to our attribution rules. Generally, under the SBA's

definition, concerns are affiliates of each other when one concern

controls or has the power to control the other, or a third party or

parties controls or has the power to control both. 13 CFR

121.103(a)(1). The SBA considers factors such as ownership, management,

previous relationships with or ties to another concern, and contractual

relationships, in determining whether affiliation exists. 13 CFR

121.103(a)(2). Instead of making an independent determination of

whether radio and television stations were affiliated based on SBA's

definitions, we relied on the data bases available to us to provide us

with that information.

3. Estimates Based on Census Data

132. The rules amended by this R&O will apply to full service

television and radio licensees and permittees, potential licensees and

permittees, cable services or systems, MDS and ITFS, and newspapers.

Radio and Television Stations

133. The rules adopted in this R&O will apply to full service

television and radio stations. The Small Business Administration

defines a television broadcasting station that has no more than $10.5

million in annual receipts as a small business. Television broadcasting

stations consist of establishments primarily engaged in broadcasting

visual programs by television to the public, except cable and other pay

television services. Included in this industry are commercial,

religious, educational, and other television stations. Also included

are establishments primarily engaged in television broadcasting and

which produce taped television program materials. Separate

establishments primarily engaged in producing taped television program

materials are classified under another SIC number.

134. There were 1,509 television stations operating in the nation

in 1992. That number has remained fairly constant as indicated by the

approximately 1,594 operating television broadcasting stations in the

nation as of June 1999. For 1992 the number of television stations that

produced less than $10.0 million in revenue was 1,155 establishments.

The amount of $10 million was used to estimate the number of small

business establishments because the relevant Census categories stopped

at $9,999,999 and began at $10,000,000. No category for $10.5 million

existed. Thus, the number is as accurate as it is possible to calculate

with the available information.

135. The rule changes will also affect radio stations. The SBA

defines a radio broadcasting station that has no more than $5 million

in annual receipts as a small business. A radio broadcasting station is

an establishment primarily engaged in broadcasting aural programs by

radio to the public. Included in this industry are commercial,

religious, educational, and other radio stations. Radio broadcasting

stations which primarily are engaged in radio broadcasting and which

produce radio program materials are similarly included. However, radio

stations which are separate establishments and are primarily engaged in

producing radio program material are classified under another SIC

number. The 1992 Census indicates that 96 percent (5,861 of 6,127) of

radio station establishments produced less than $5 million in revenue

in 1992. Official Commission records indicate that 11,334 individual

radio stations were operating in 1992. As of June 1999, official

Commission records indicate that 12,560 radio stations are currently

operating.

136. Thus, the rule changes will affect approximately 1,594

television stations, approximately 1,227 of which are considered small

businesses. Additionally, the rule changes will affect 12,560 radio

stations, approximately 12,057 of which are small businesses. These

estimates may overstate the number of small entities since the revenue

figures on which they are based do not include or aggregate revenues

from non-television or non-radio affiliated companies.

[[Page 50640]]

Cable Services or Systems

137. SBA has developed a definition of small entities for cable and

other pay television services (SIC 4841), which includes all such

companies generating $11 million or less in revenue annually. This

definition includes cable systems operators, closed circuit television

services, direct broadcast satellite services, multipoint distribution

systems, satellite master antenna systems and subscription television

services. According to the Census Bureau data from 1992, there were

1,788 total cable and other pay television services, and 1,423 had less

than $11 million in revenue.

138. The Commission has developed its own definition of a small

cable company for the purposes of rate regulation. Under the

Commission's rules, a ``small cable company,'' is one serving fewer

than 400,000 subscribers nationwide. Based on our most recent

information, we estimate that there were 1439 cable operators that

qualified as small cable companies at the end of 1995. Since then, some

of those companies may have grown to serve over 400,000 subscribers,

and others may have been involved in transactions that caused them to

be combined with other cable operators. Consequently, we estimate that

there are fewer than 1439 small entity cable system operators that may

be affected by the decisions and rules proposed in this R&O. The

Commission's rules also define a ``small system,'' for the purposes of

cable rate regulation, as a cable system with 15,000 or fewer

subscribers. We do not request nor do we collect information concerning

cable systems serving 15,000 or fewer subscribers and thus are unable

to estimate at this time the number of small cable systems nationwide.

139. The Communications Act also contains a definition of a small

cable system operator, which is ``a cable operator that, directly or

through an affiliate, serves in the aggregate fewer than 1 percent of

all subscribers in the United States and is not affiliated with any

entity or entities whose gross annual revenues in the aggregate exceed

$250,000,000.'' Section 76.1403(b) of the Commissions' rules defines a

small cable system operator as one which serves in the aggregate fewer

than 617,000 subscribers, and whose total annual revenues, when

combined with the total annual revenues of all of its affiliates, do

not exceed $250 million in the aggregate. Based on available data, we

find that the number of cable operators serving 617,000 subscribers or

less totals 1450. Although it seems certain that some of these cable

system operators are affiliated with entities whose gross annual

revenues exceed $250,000,000, we are unable at this time to estimate

with greater precision the number of cable system operators that would

qualify as small cable operators under the definition in the

Communications Act.

MDS and ITFS

140. Other pay television services are also classified under

Standard Industrial Classification (SIC) 4841, which includes cable

systems operators, closed circuit television services, direct broadcast

satellite services (DBS), multipoint distribution systems (MDS),

satellite master antenna systems (SMATV), and subscription television

services.

141. The Commission refined the definition of ``small entity'' for

the auction of MDS as an entity that together with its affiliates has

average gross annual revenues that are not more than $40 million for

the preceding three calendar years. This definition of a small entity

in the context of the Commission's R&O concerning MDS auctions that has

been approved by the SBA.

142. The Commission completed its MDS auction in March 1996 for

authorizations in 493 basic trading areas (``BTAs''). Of 67 winning

bidders, 61 qualified as small entities. Five bidders indicated that

they were minority-owned and four winners indicated that they were

women-owned businesses. MDS is an especially competitive service, with

approximately 1573 previously authorized and proposed MDS facilities as

of 1996. Information available to us indicates that no MDS facility

generates revenue in excess of $11 million annually. We tentatively

conclude that for purposes of this IRFA, there are approximately 1634

small MDS providers as defined by the SBA and the Commission's auction

rules.

Newspapers

143. Some of the rule changes may also apply to daily newspapers

that hold or seek to acquire an interest in a broadcast station that

would be treated as attributable under the rules. A newspaper is an

establishment that is primarily engaged in publishing newspapers, or in

publishing and printing newspapers. The SBA defines a newspaper that

has 500 or fewer employees as a small business. Based on data from the

U.S. Census Bureau, there are a total of approximately 6,715

newspapers, and 6,578 of those meet the SBA's size definition. However,

we recognize that some of these newspapers may not be independently

owned and operated and, therefore, would not be considered a ``small

business concern'' under the Small Business Act. We are unable to

estimate at this time how many newspapers are affiliated with larger

entities. Moreover, the rule changes would apply only to daily

newspapers, and we are unable to estimate how many newspapers that meet

the SBA's size definition are daily newspapers. Consequently, we

estimate that there are fewer than 6,578 newspapers that may be

affected by the rule changes in this R&O.

IV. Description of Projected Reporting, Recordkeeping, and Other

Compliance Requirements

144. The R&O imposes compliance with the amended attribution rules

set forth in the R&O. Compliance will require licensees to file with

the Commission amended Ownership Report Forms (FCC Form 323) to reflect

interests attributable under the amended attribution rules. Compliance

will also require licensees that have entered into Joint Sales

Agreements (JSAs) to place such agreements in their public inspection

files with confidential or proprietary information redacted where

appropriate. In addition, pursuant to the new rules, certain television

time brokerage agreements will be required to be filed with the

Commission where they are intra-market agreements or are inter-market

agreements that come under the equity/debt plus attribution standard

adopted by the R&O. Finally, compliance may require some licensees

whose ownership interests under the amended attribution rules violate

the multiple ownership rules, to divest the prohibited interests within

the time periods specified in the R&O.

V. Steps Taken To Minimize Significant Economic Impact on Small

Entities, and Significant Alternatives Considered

145. The R&O retains the current 5 percent active voting stock

attribution benchmark. We believe that our original decision to set a 5

percent benchmark to capture influential interests remains valid and

will not unduly restrict capital availability. Further, we note that

our concerns over capital availability that originally prompted the

proposal to increase the active voting stock benchmark have eased

somewhat, particularly in light of the increasing strength shown by the

communications sector and financial markets in general over the past

several years. This increase in capital spending occurred within the

context of our current attribution rules, and therefore provides us

with strong evidence of the continued availability of capital in the

[[Page 50641]]

communications industry. And, to the extent that there are still

concerns about not impeding capital flow to broadcasting, we believe

that they will be adequately addressed since the increases the passive

investor benchmark.

146. The R&O increases the voting stock benchmark from 10 to 20

percent for passive investors. We believe that increasing the passive

investor benchmark to 20 percent will give broadcasters increased

access to investment capital, while preserving the Commission's ability

to effectively enforce its ownership rules. This decision takes into

account the special nature of the passive investor category, in terms

of the legal and fiduciary requirements that constrain passive

investors' involvement in the management and operational affairs of the

firms in which they invest. In addition, passive investors have become

an increasingly important source of investment capital to the corporate

sector. Finally, the Commission recognizes that the pace of

technological change within broadcasting, particularly the transition

to DTV, might require access to such new sources of investment capital.

147. Further, we note that the record strongly supports an increase

in the passive investor benchmark and supports our belief that such an

increase will help assure that the attribution changes adopted herein

will reinforce the trends in broadcast investment and growth in passive

investment levels noted above, particularly at a time when television

broadcasters are undertaking the conversion to digital television. We

believe that increasing the passive investor benchmark is a relatively

safe way to increase capital flows into broadcasting, without

compromising the ability of our attribution rules to capture

influential interests. The R&O retains the current definition of

``passive investors,'' which is limited to bank trust departments,

insurance companies and mutual funds.

148. The R&O does not eliminate the single majority shareholder or

nonvoting stock exemptions, but, rather, to address the concerns that

we raised in the Attribution Notice and Attribution Further Notice, we

will adopt our equity and/or debt plus (``EDP'') attribution proposal,

as a new rule that would function in addition to the other attribution

rules. Under this new EDP rule, where the investor is either (1) a

``major program supplier,'' as defined herein to include all

programming entities (including networks and time brokers) that supply

over 15 percent of a station's total weekly broadcast programming

hours, or (2) a same-market media entity subject to the broadcast

multiple ownership rules (including broadcasters, cable operators, and

newspapers), its interest in a licensee will be attributed if that

interest exceeds 33 percent of the total asset value (equity plus debt)

of the licensee. The R&O refers to total asset value as ``total

assets.'' In the case of a major program supplier, the investment will

be attributable only if the investment is in a licensee to which the

requisite triggering amount of programming is provided.

149. The targeted approach embodied in the EDP rule reflects our

current judgment as to the appropriate balance between our goal of

maximizing the precision of the attribution rules by attributing all

interests that are of concern, and only those interests, and our

equally significant goals of not unduly disrupting capital flow and of

affording ease of administrative processing and reasonable certainty to

regulatees in planning their transactions. The bright-line EDP test

will provide more regulatory certainty than a case-by-case approach

that requires review of contract language. Thus, the EDP rule will

permit planning of financial transactions, would also ease application

processing, and would minimize regulatory costs.

150. In the Attribution Further Notice, we invited comment on the

impact of a 33 percent EDP threshold on small business entities,

particularly on whether there would be a disproportionate impact on

small or minority entities. While some parties have argued that

adoption of an equity/debt plus proposal would deter capital flow to

broadcasting generally and, in particular, for digital television,

others have argued strongly that this is not the case. We have no basis

to conclude or reason to believe that the EDP rule would unduly deter

investment. The equity/debt plus proposal does not preclude investment

by any entity; rather, it caps nonattributable investment levels for

entities that have the potential to influence licensees. The limit does

not apply to all entities that might invest or help fund the transition

to digital television or otherwise invest in licensees. Additionally,

to help assure that our actions today do not unduly impede capital flow

to broadcasting, we have raised the passive investor benchmark. As

discussed above, we believe that because of the nature of passive

investors, we may raise that benchmark consistent with our goal of

maximizing the precision of the attribution rules. In addition, we will

consider individual rule waivers in particular cases where compelling

evidence is presented that the conversion to digital television would

otherwise be unduly impeded or that a waiver would significantly

expedite DTV implementation in that particular case.

151. While some commenters strongly argued that applying the EDP

rule to program suppliers would curb investment in broadcast stations

and possibly hurt weaker UHF stations and might deter investment that

would facilitate the conversion to DTV, they do not provide empirical

evidence to support this argument. We also note that the rule does not

preclude investment, but merely provides that investments over a

certain level will be deemed presumptively attributable. Networks are

therefore free to invest in their affiliates, subject of course to the

applicable multiple ownership rules. Moreover, the EDP rule does not

attribute investments, even those by networks in their affiliates,

which fall below the 33 percent threshold. Thus, a major program

supplier may hold 32 percent of the total assets of a station to which

it supplies programming in excess of the 15 percent standard. This

would comply with all EDP limits and the interests would not be

attributable. In addition, the EDP rule does not affect investments by

entities other than major program suppliers or same-market media

entities. Under these circumstances, we believe that the EDP rule will

not curb investment, deter new entry, or curb the conversion to DTV.

152. The R&O also adopts a new rule to attribute television LMAs,

or time brokerage of another television station in the same market, for

more than fifteen percent of the brokered station's broadcast hours per

week and to count such LMAs toward the brokering licensee's local

ownership limits. We believe that the rationale for attributing LMAs

set forth in the Radio Ownership Order,--i.e., to prevent the use of

time brokerage agreements to circumvent our ownership limits--applies

equally to same-market television LMAs.

153. The record in this proceeding supports our decisions to

attribute television LMAs and to count attributed radio LMAs toward all

applicable radio ownership limits. We agree with most commenters,

representing a variety of interests ranging from ABC to the public

interest group MAP, that television LMAs, like radio LMAs, represent a

degree of influence and control that warrants ownership attribution and

that, to decide otherwise, based on the precedent of the attribution of

radio LMAs, would be inconsistent.

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154. We will require stations involved in television time brokerage

agreements (inter-market as well as intra-market agreements) to keep

copies of those agreements in their local public inspection files, with

confidential or proprietary information redacted where appropriate, and

to file, with the Commission, within 30 days of execution, a copy of

any local time brokerage agreements that would result in the

arrangement being counted in determining the brokering licensee's

compliance with the multiple ownership rules. We note that these

provisions impose an affirmative obligation on licensees to determine,

in the first instance, whether a particular LMA is attributable (either

under the per se rule or the EDP rule), and to file the agreement with

the Commission if it is.

155. This also eliminates the cross interest policy. Our goals in

initiating this proceeding include maximizing the clarity of the

attribution rules, providing reasonable certainty and predictability to

parties to allow transactions to be planned, and easing application

processing. Commenters have argued that the vagueness and uncertainty

imposed by the ad hoc application of the cross-interest policy have

chilled investment. As CalPERS argues, this uncertainty impedes the

ability of broadcasters to enter into transactions because the policy

can be invoked to prohibit a seemingly permissible transaction.

156. We note that the EDP rule directly covers concerns treated

under the non-attributable interests prong of the cross-interest

policy. In adopting that rule, we will reach those situations involving

formerly nonattributable interests that raised the most concern with

respect to issues of competition and diversity, some of which were

previously addressed in administering the cross-interest policy. We

recognize, however, that the EDP rule does not cover all the areas

encompassed by the cross-interest policy. It would not cover key

employees, for example. We nonetheless believe, as commenters have

pointed out, that internal conflict of interest policies and common law

fiduciary duty and contract remedies provide adequate substitutes for

our administration of the policy with respect to key employees. In

addition, many key employees are also officers and directors and thus

already covered by the attribution rules. In any event, we believe that

the very small risk of harm to competition by a key employee in an

instance not covered by any of these other regulations and remedies is

greatly outweighed by the benefits of minimizing our case-by-case

approach to transactions and applying bright line tests, such as the

EDP test and our other attribution rules.

157. With respect to joint ventures, we believe that application of

a cross-interest policy is unwarranted. The ownership and attribution

rules define the level of combined ownership that is permissible in the

local market. We recognize that the cross-interest policy as applied to

joint ventures is mostly, if not completely, subsumed by the

application of the current multiple ownership rules. To the extent that

it is not so subsumed, we believe that it should be eliminated. We

agree that the burdens of case-by-case review are not justified for

transactions that already comply with the multiple ownership rules.

Furthermore, as other commenters noted, the application of the

antitrust laws should prevent or remedy any abuses of joint venture

relationships not already subject to the multiple ownership rules.

158. The R&O declines to attribute JSAs. Based on the record in

this proceeding, we do not believe that agreements which meet our

definition of JSAs convey a degree of influence or control over station

programming or core operations such that they should be fully

attributed. We define JSAs as contracts that affect primarily the sales

of advertising time, as distinguished from LMAs, which may affect

programming, personnel, physical facilities, and core operations of

stations. We note that in our DTV 5R&O, we stated that we would look

with favor upon joint business arrangements among broadcasters that

would help them make the most productive and efficient uses of their

channels to help facilitate the transition to digital technology. JSAs

may be one such joint business arrangement. Although both DOJ and the

Commission are concerned about the competitive consequences of business

agreements such as JSAs, our concerns are not necessarily identical.

DOJ's comments explicitly recognize that in addition to competition

issues, the Commission is also concerned with issues of diversity and

reducing unnecessary administrative burdens.

159. Accordingly, upon considering and weighing competition,

diversity, and administrative concerns, we decline to impose new rules

attributing JSAs as long as they are truly JSAs that deal with the sale

of advertising time and do not contain terms that affect programming or

other core operations of the stations such that they are, in fact,

substantively equivalent to LMAs. We will retain our current policies

concerning JSAs. Furthermore, in the absence of specific evidence of

widespread abuse of JSAs by broadcasters, we also decline to adopt the

general disclosure and reporting requirement for radio JSAs recommended

by DOJ in its comments. We will, however, require broadcasters who have

entered into JSAs to place such agreements in their public inspection

files, pursuant to 47 CFR 73.3526 and 73.3613(e) of the Commission's

Rules, with confidential or proprietary information redacted where

appropriate. This requirement will facilitate monitoring of JSAs by the

public, competitors and regulatory agencies. We do, however, retain

discretion, in all events, to review cases involving radio or

television JSAs on a case-by-case basis in the public interest, where

it appears that such JSAs do pose competition, diversity, or

administrative concerns. Finally, we emphasize that all JSAs are of

course still subject to antitrust laws and independent antitrust review

by the Department of Justice.

160. We see no reason to revise our previous decision to treat

limited partnership interests as distinct from corporate voting equity

interests, and therefore elect not to adopt equity benchmarks for

limited partnership interests. As we stated in the Attribution Further

Reconsideration, ``[t]he partners in a limited partnership, through

contractual arrangements, largely have the power themselves to

determine the rights of the limited partners.'' Therefore, the

insulation criteria adopted by the Commission serve to identify those

situations within which it is safe to assume that a limited partner

cannot be ``materially involved'' in the media management and

operations of the partnership. As we also stated therein, the powers of

a limited liability holder to exert influence or control are not

proportional to their equity investment in the limited partnership,

since the extent of these powers can be modified by the contractual

arrangements of the limited partnership. In the Attribution Notice, we

stated our disinclination to change our approach of applying insulation

criteria in favor of an equity benchmark, and we have not been provided

sufficient evidence to revise that view and to indicate that these

original reasons for declining to adopt an equity benchmark for limited

partnerships are no longer valid.

161. We also see no need at this time to add to, relax, or

otherwise revise our limited partnership insulation criteria. Some

commenters suggested that the insulation criteria should be modified to

eliminate conflicts with state law, or that RULPA or other relevant

standards should be used in their place. However,

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in our Attribution Reconsideration, the Commission decided for several

reasons to abandon the use of RULPA, combined with a no material

involvement standard, as a standard for judging whether limited

partners were exempt from attribution. First, we judged the joint use

of these two disparate standards for determining limited partner

exemptions from attribution to be unnecessarily complicated. Second, we

noted that there was a lack of uniform interpretation of the RULPA

provisions, and that the scope of permissible limited partner

activities was not statutorily set by RULPA, but rather was determined

by the limited partnership agreement itself. Third, we determined that

reliance on the RULPA provisions did not provide sufficient assurance

that limited partners would not significantly influence or control

partnership affairs. We are convinced that these conclusions remain

valid today, and therefore we see no reason to revise our insulation

criterion in the direction of a RULPA standard. We also feel that

similar considerations apply to state laws that regulate limited

partnership activities, since these statutes may vary significantly

from state to state, and may fail to provide sufficient assurance that

the limited partner will lack the ability to significantly influence or

control the partnership's media activities.

162. We will not create exceptions for widely-held limited

partnerships, such as Business Development Companies, from the current

insulation criteria applicable to limited partnerships or otherwise

revise those insulation criteria. The essential character of these new

business forms for determining attributable interest

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