Reflections on the FCC'S Recent Approach to Structural Regulation of the Electronic Mass Media.

• Author: Levi, Lili

1. INTRODUCTION

   Today's media marketplace showcases the rapid development of the new medium of the Internet, the consolidation of old, established mass media, and the combination of the two. The merger of CBS and Viacom represents the latest and biggest in a series of "old media" combinations. These consolidations would not have been possible without the deregulatory turn in mass media policy that began with the Fowler Commission in the Reagan era and was codified in the Telecommunications Act of 1996.

   This deregulatory turn and the consolidations it has permitted have led to a public debate about the Federal Communications Commission's (FCC's or Commission's) role in industry structure. Starting with the shared premise that the FCC is taking an increasingly market-facilitative role, commentators have applauded or criticized the impact of that approach on the mass media. This Essay seeks to put the Commission's current structural approach in fuller perspective. It contends that instead of taking a single, deregulatory course, the Commission is engaged in a multipronged approach to structural regulation of the mass media. This multivalent design has a deregulatory component, a regulatory counterweight, and a spectrum policy aspect. The regulatory counterweight in turn has two elements. One is explicit FCC rules that limit deregulation. The other element is voluntary public interest commitments by the regulated industries in response to FCC-articulated concerns. This Essay identifies the hard questions that face both sides of the existing regulatory debate and, having provided an alternative account of the FCC's strategy, also addresses the viability of the Commission's multipronged approach itself.

2. THE FCC'S STRUCTURAL REGULATIONS

   The FCC operates under the extremely broad statutory mandate of regulating broadcasting in the public interest, convenience, and necessity.(1) While the agency has imposed some direct content regulations from time to time(2), it has been primarily active in adopting structural regulations.(3) Over its regulatory history, the Commission has endorsed ownership prohibitions both within and across traditionally distinct media.

   Within broadcasting, for example, the FCC adopted local anticoncentration rules limiting multiple station ownership in individual markets(4) and national multiple ownership rules limiting the total number of stations allowed for any single entity.(5) The Commission also adopted a broadcast licensing approach in which comparative hearings among mutually exclusive broadcast license applicants would be resolved by reference, among other things, to the diversity in the various applicants' ownership of other media interests.(6)

   In a parallel to its structural regulations for broadcasting, the FCC also adopted horizontal ownership restrictions in the cable context. As a result of its findings of increasing cable concentration in 1990(7) and pursuant to the requirements of the Telecommunications Act of 1996 (1996 Act),(8) the Commission adopted rules prohibiting any one entity from having an attributable interest in cable systems reaching more than thirty percent of cable homes passed nationwide.(9)

   The Commission justified these ownership-regarding regulations as principally designed to prevent concentration, enhance competition, and promote diversity of voices.(10) On the Commission's view, diversity of outlets is in the public interest both because it will prevent the creation and exercise of market power and because it is likely to lead to a diversity of content and views.

   The agency also has a history of cross-ownership limitations across industries--restricting or prohibiting common ownership of broadcast networks and cable companies,(11) cable systems and broadcast stations,(12) telephone and cable,(13) and newspapers and broadcast stations.(14)

   However, starting even before the passage of the 1996 Act, but certainly since then, the Commission has taken what appears to be a deregulatory turn in its structural regulations.

   Regarding licensing, the 1996 Act extended broadcast license terms(15) and effectively eliminated the Commission's substantive comparative renewal process(16) In lieu of comparative hearings, the Balanced Budget Act of 1997 amended the Communications Act to authorize the FCC to use competitive bidding procedures to resolve most initial licensing proceedings involving mutually exclusive applications for commercial broadcast licenses.(17)

   As for broadcast ownership regulations, the deregulatory trend commenced in the 1980s. Industry arguments persuaded both Congress and the FCC that the relevant market for purposes of electronic media was the local market and that there would be no particular economic harms from allowing geographically dispersed radio and television stations to be owned by the same owners.(18) Accordingly, the Commission has made step-by-step upward adjustments to its national multiple ownership rules. Now, courtesy of the 1996 Act, there are no numerical limits on the number of radio stations a single entity can own across the country.(19) That has enabled recent development of extremely large radio station groups.(20)

   On the local front, the 1996 Act had already relaxed radio multiple ownership rules even in local markets depending on the size of the market and the number of other media voices.(21) The Commission had been issuing waivers of its "one-to-a-market" and "duopoly" rules in the television context.(22) In August 1999, the Commission further revised its local television ownership rules in order to reflect changes in the media marketplace.(23) It relaxed the television duopoly rule--under which one entity could not own two television stations with Grade B signal contour overlap.(24) It also radically modified the one-to-a-market rule, under which one entity could not own radio and VHF TV stations in the same market.(25) In place of the old rules, the Commission adopted minimum "voice count" floors in local markets--the only exception to which is a broadcast owner's offer to buy a failing or failed station in the market.(26) The Commission's rationale for this move was that a "rule based on the number of independent voices more accurately reflects the actual level of diversity and competition in the market."(27)

   In sum, the FCC's recent relaxation of its ownership rules has been designed to provide clear, "bright line" tests--"commonsense rules that recognize the dramatic changes [in] ... the media marketplace" --in order to "provide broadcasters with flexibility to seize opportunities and compete in this increasingly dynamic media marketplace ... [and] help preserve free local broadcast service."(28)

   The Commission is still engaged in a biennial review of its remaining ownership rules, pursuant to its statutory mandate. That pending proceeding will address, inter alia, whether the agency should relax its newspaper/broadcast cross-ownership policy and increase its broadcast audience reach cap.(29) And, of particular salience to the current CBS/Viacom merger proposal,(30) the Commission's biennial review is considering revision of the remaining dual network prohibition.(31) In addition, there will be a de facto deregulatory effect if the Commission accedes to broadcast parties' requests for extensions of time to comply with ownership rules.(32)

   With regard to cable horizontal ownership rules, the Commission did not explicitly change the limit from the current rate of 30%. However, in a recent rule, the agency changed the method by which the horizontal ownership cap is to be calculated.(33) Because the new rule focuses only on a cable operator's actual subscribers as a percentage of the whole multichannel video programming market (rather than just the universe of cable), the actual effect of the calculation method is to raise the allowable audience reach from 30% of current cable subscribers to 36.7% of current cable subscribers.(34) The Commission also repealed the minority control allowance which, under the old rules, had allowed cable operator's to have ownership interests in up to 35% of the cable market so long as 5% of its systems were controlled by minorities.(35)

   As for cross-industry entry barriers, the Commission--through Chairman Kennard in particular--has staked much of its structural regulatory policy on the removal of barriers to entry across traditional industries in light of technological convergence.(36) This is in keeping with the 1996 Act, which eliminated network-cable cross-ownership rules, allowing one entity to own both.(37) The 1996 Act also excised rules hampering cable-telephone cross-ownership.(38)

3. Two CLASSIC CRITIQUES FOCUSING ON THE FCC'S DEREGULATORY APPROACH TO INDUSTRY STRUCTURE

   The Commission's structural rules--both traditional and revised-have been subjected to two principal models of critique. One model--the "market failure" approach--criticizes the Commission for not having achieved adequate access and diversity of viewpoints through its regulations and for having unduly succumbed to a flawed market ideology in its regulatory philosophy regarding the mass media.(39) Critics from this vantage point decry the deregulatory direction of the Commission on ownership and structure issues.(40) On this view, the agency's approach to mass media mergers accounts neither for market failure nor for the harmful effects of excess consolidation on diversity and free democratic discourse.

   By direct contrast to the market failure critique, a number of media theorists (including Commissioner Furchtgott-Roth) mount a market-based, "regulatory failure" challenge to the Commission's structural approach in the mass media context.(41) Some of these critics, like Commissioner Furchtgott-Roth, go so far as to say that the FCC should "not have structural ownership regulation."(42) The market-oriented critics contend that it is bad policy--and potentially unconstitutional to boot--to end-run...