[Congressional Record Volume 143, Number 29 (Monday, March 10, 1997)]
[Senate]
[Pages S2048-S2053]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  THE ROAD AHEAD IN TELECOMMUNICATIONS

  Mr. DORGAN. Mr. President, I rise today to offer some reflections to 
express some concerns about the direction of the implementation of the 
Telecommunications Act of 1996.
  It has been over a year since this landmark legislation was enacted. 
To my dismay, and I think to the dismay of some others, some of the 
concerns that I and others expressed a year ago are now concerns that 
are more real than when we expressed them.
  As the dust begins to settle after the major titans in the 
telecommunications industry battled for advantage under this act, the 
consumers, unfortunately, appear perhaps to be the losers.

[[Page S2049]]

 I hope that will not be the case in the long run, but I am concerned 
it shapes up to be the case now unless the course is altered.
  Some of this is directly related to the deregulation of the cable 
television and the media ownership rules under the act. Cable rates, 
for example, have risen almost three times faster than the rate of 
inflation, according to the Bureau of Labor Statistics. Consumers are 
also now getting hit by some preemptive rate increases on local 
telephone rates.
  Finally, the concerns about the direction being taken by the Federal 
Communications Commission raise the prospect of future increases in 
telephone rates if the FCC in its universal service proceeding does not 
implement the Telecommunications Act as we wrote it a year ago.
  When the Senate, Mr. President, passed its version of the 
Telecommunications Act in June 1996, I voted against it for a couple of 
reasons. First, I feared that the Senate measure would do more to 
promote concentration in media and telecommunications markets than it 
would to break up monopolies and to instill competitive markets. 
Second, in my judgment, the bill put the cart before the horse by 
deregulating monopoly carriers before the presence of competition.
  Despite the fact that it was sold widely on the floor of the Senate 
as a bill to promote competition in the telecommunications industry, I 
believed that it would do more to foster and facilitate concentration 
in the telecommunications industry, producing exactly the opposite of 
what competition would deliver to consumers.
  The Senate version deregulated broadcast ownership rules, and it 
would have prohibited the Justice Department from evaluating the 
competitive consequences of the entry into long-distance services by 
the Bell companies. The conference report then came back and made some 
improvements in these areas, and I voted for the conference report on 
final passage with some reservations.
  But I remained concerned enough about the issue of media 
concentration as a result of this act that I introduced legislation to 
repeal the changes made in the new law on the very same day that the 
conference report was approved.
  I also cited some concerns about increases in rates in the 
telecommunications services, especially cable services, as a potential 
problem that Congress is going to have to be concerned about and have 
to deal with.
  Under the Telecommunications Act, the rate regulations of some cable 
companies were immediately deregulated before the emergence of 
competition. As a consequence, I am told that some 20 percent of all 
cable subscribers were left to the mercy of whatever a monopoly might 
want to do with them upon the date of that enactment.
  Now that the new law has been enacted for over a year, let us look at 
what has happened and see what it means and what might lie ahead. 
Looking back, at least it seems to me the road ahead may be 
troublesome.
  Let me first talk about local phone rates.
  While the local competition rules are currently in abeyance, stayed 
by a Federal circuit court because of a lawsuit filed by local exchange 
telephone carriers and by the States, many of the Telecommunications 
Act's most important provisions have yet to be implemented. But before 
local competition emerges in any significant way, some local phone 
companies are already jumping the gun and saying that they want to 
raise local rates. Last April, most local phone companies filed 
comments at the FCC indicating that to them deregulation of the local 
price caps would allow something they called rebalancing of local 
telephone rates.
  Now, the FCC did not follow their recommendations, but several local 
phone companies have taken their rebalancing efforts to the States, 
seeking permission to increase local residential telephone rates.
  A number of regional Bell operating companies, for instance, are 
seeking legislation before State legislative assemblies to repeal price 
cap regulations, which most say will lead to an increase in local phone 
rates on residential customers. That was not what was contemplated by 
the Telecommunications Act.
  This deregulation they now seek is unnecessary. They say that they 
want to be deregulated to balance rates with cost. They say that is a 
necessity for a competitive environment. ``Rebalancing'' means doubling 
residential phone rates over the next 4 years for some local phone 
service customers in my State of North Dakota. North Dakotans are being 
told that local phone rate increases are necessary ``in order to 
implement the Federal law in a competitively fair manner,'' in the 
words of the company seeking deregulation.
  I was a hesitant supporter of the final version of the 
Telecommunications Act that came out of the conference. I did not vote 
for that legislation nor do I think did my colleagues vote for that 
legislation to allow an increase in residential telephone rates in this 
country. Any suggestion by an incumbent local telephone monopoly that 
the Federal law requires or even contemplates deregulation of local 
phone rates before there is any real competition for local phone 
service is, in my judgment, a gross misrepresentation of both the 
letter of the law as well as the intent of Congress. I simply do not 
understand the rationale that local rates must go up because of 
competition when, in fact, most consumers have not seen the benefits of 
competition. Local competition, in my State and in most States, does 
not yet exist.
  In the 1 year since the Telecommunications Act was enacted, there has 
been little change in the actual presence of local competition for 
telephone service. It seems that the prospect of future competition, 
not actual competition today, is driving up prices. That is not a 
derivative of this act, that is an aberration of this act. I do not 
believe there is one person who would have stood up on the floor of 
this Senate and said, ``We want to pass a Telecommunications Act 
because we want local phone service charges to go up.'' This makes no 
sense and has no justification in law or in the act that we passed.
  In fact, the conference committee specifically rejected language that 
would have mandated that we deregulate price caps under the 
Telecommunications Act. Instead, the Federal legislation correctly 
focused on promoting competition and establishing adequate universal 
service support systems that would prevent the necessity of any 
dramatic local phone rate increases.
  When the Telecommunications Act was being developed, a number of us 
from rural States who sat on the Senate Commerce Committee created 
something called the ``Farm Team.'' We went to great lengths to 
strengthen the bill's universal service provisions. Beginning with the 
Hollings-Danforth legislation of the 103d Congress, which was S. 1822, 
and through the entire legislative process in the 104th Congress, a 
number of us labored very, very hard to structure the legislation to 
make sure that consumers would not experience significant rate 
increases for telephone rates. Under the act, Congress mandated that 
universal service support mechanisms be sufficient and that rates be 
affordable.
  To the extent that competition, actual competition, imposes changes 
in the traditional revenue streams that have historically been 
available under regulated environments for local phone companies, this 
act provides that universal service support mechanisms must be in place 
to ensure that rates remain affordable.
  The Telecommunications Act once again does not sanction dramatic rate 
increases. There is no relationship between this Federal law that was 
passed last year and legislation before my home State legislature and 
others that seek to deregulate local monopoly phone service before 
there is any real price competition. It seems to me if there are 
circumstances in which local phone monopolies are being pinched on 
revenues, the debate should be about how to address that problem 
through the universal service support mechanisms, not through rate 
increases on captive customers.

  I happen to think that the Bell system that serves our State of North 
Dakota, U S West, is an excellent company. They do a good job. They are 
a good strong company. I understand that their mission is to their 
stockholders. But where there is not effective competition, where a 
local provider has monopoly service, then there

[[Page S2050]]

must be good and effective regulation by Government regulators and 
oversight by State authorities. That is what this issue is, not just to 
North Dakota, but to many other States, as well.
  The Telecommunications Act anticipated a strong role for State 
legislatures and regulators, but the act does not anticipate that the 
States would exercise their authority in a manner that would leave 
consumers unprotected in the face of monopoly service. The objective of 
the Telecommunications Act is to foster competition and to encourage 
infrastructure investment. But as we know in rural States like North 
Dakota and others, competition can be a double-edged sword. In densely 
populated urban areas, competition can drive down consumer prices to 
create greater access to advanced telecommunications services. But in 
rural, less-populated areas, they may never see the benefits of 
competition, and we do not want to see monopolies extracting higher 
prices from captive consumers to subsidize services in markets where 
the carrier faces competition.
  We do not want to see the same result in telecommunication services 
that we see in deregulation of the airlines, or for that matter, 
deregulation of railroads. We are served in my State with one jet 
service and one railroad, and in both cases we are paying higher rates 
than are justified. We pay higher rates in airline service following 
deregulation despite its promise of benefits for everyone. In our part 
of the country, we pay anywhere from 20 to 30 to 40 percent more for 
airline tickets because we do not have competition for jet service. In 
fact, I can get on a jet in Washington, DC, and fly twice as far and 
pay half of the cost. If I get on a jet here in Washington, DC, to fly 
to a city in North Dakota as opposed to flying all the way to the west 
coast, Los Angeles, I will pay twice as much to fly half as far. Why 
does it cost that much to fly to a State like North Dakota? Because 
there is no effective real competition. That is the experience we have 
had in deregulation of the airline industry.
  The railroads, if you put a cargo of wheat on a railroad train in 
Bismarck and ship it to Minneapolis you pay $2,300 to ship the carload. 
Put the same carload of wheat on a hopper car in Minneapolis and ship 
it to Chicago, you do not pay $2,300, you pay $1,000. Why do we get 
more than double the price in North Dakota? Because between Minneapolis 
and Chicago there are several railroads competing to haul the wheat, 
and in North Dakota to Minneapolis there is one. We have long suffered 
as a result of deregulation, with less service and higher prices.
  No one anticipated passing a Telecommunications Act in which the 
Congress, the regulatory authority, or States would decide that they 
will deregulate and provide new pricing authority from monopolies to 
provide local telephone service. Everyone in this room, everyone in 
this room who played a role in the Telecommunications Act, if this 
continues, will be required to respond to constituents who are going to 
ask them, why did you pass a piece of legislation that resulted in 
increasing local phone service telephone rates all across this country?
  In North Dakota, the dominant local service carrier says that they 
need to rebalance, which means changing rates and means residential 
rate increases because they are not otherwise going to be able to 
invest in States in which they provide local phone services. But this 
company, like most others, has plenty of capital to invest in other 
things. This particular company purchased a cable company for about $11 
billion--the largest cable acquisition in 1996. They also bought a 
couple of other cable companies for over $1 billion, and they will 
spend up to $300 million this year alone to upgrade those cable systems 
outside their local phone company region. That company in North Dakota, 
which is a dominant local service carrier, has 15 million access lines 
in its local phone region, and 250,000 of those are in North Dakota. 
But, it has more cable subscribers in their foreign and domestic 
systems than it has in local phone subscribers.

  The point I am making is that there is nothing wrong with a dominant 
local phone service carrier having investments outside their region. 
There is nothing wrong with them asking for the authority to extract 
more revenue. But there is something wrong with deregulating prices for 
a monopoly providing telephone service in a region.
  As I said, every Member of the Senate will have to answer to that if 
local telephone rates go up, and we are told that local phone rates 
have increased throughout most of this country because Congress passed 
a Telecommunications Act. Every Member of Congress will have to respond 
to that. The response today is for me to say that there is nothing in 
this act that would allow the implementation of this act in a manner 
now described by some of the monopoly carriers and now described by 
some of the State authorities. The Telecommunication Act was not passed 
or was not enacted in order to provide 50 percent increases or double 
the price of local telephone service around this country.
  Now, one other point about this. The Federal Communications 
Commission is in the process of developing final rules to implement a 
portion of the Telecommunications Act on universal service. Some of 
this is very dull and boring and hard to understand. But it will play a 
very important role in determining how much you pay for local telephone 
service. If the FCC makes the wrong decision--and I am concerned that 
they are about to do that--they will guarantee that the universal 
service fund doesn't work to protect consumers and phone rate users in 
rural areas.
  I come from a county with 3,000 people. My hometown is 300 people. 
The county seat is 1,200 people. I saw a cost model that described what 
it would cost to build an infrastructure to serve Fargo, ND, with 
80,000 to 100,000 people, versus Mott, ND, with 1,200 people. If you 
are to build an infrastructure to service phones in Mott, a small town, 
versus Fargo, a fairly large town, the estimate was $210 per phone for 
the infrastructure to provide phone service in Mott, ND, and $19 per 
phone to provide service to Fargo, ND. Why don't we price telephone 
service that way and say to the folks living in small rural areas, 
``We're sorry, but it cost more to get the phone service out to you, so 
your bill is $210 a month"? Why don't we do that? It is because we 
decide that phone service should be universal. It doesn't matter where 
you live; the presence of one phone advantages any other phone. The 
fact that someone in Mott, ND, has a phone makes every phone in New 
York City more valuable because they can call that phone. That is the 
notion of universal service.
  All of that has been funded and developed by the present universal 
service system. In some areas, they provide some additional resources 
to support other areas. The result is that the price affordable and 
reasonably low phone service is maintained across the country. The FCC 
is now in the middle of a decision about how to restructure that 
universal service, as required under the act. If they make the wrong 
decision--and they are inching in that way, regrettably--they will 
decide, in my judgment, to erode the foundation of universal service.
  Last week, for example, the Chairman of the Federal Communications 
Commission announced that the Commission is considering excluding 
intrastate revenue streams from the Federal universal service support 
mechanisms. That means only interstate revenue streams will be 
available for those support mechanisms. That, in my judgment, doesn't 
comport at all with the act that we passed.
  It is imperative that the FCC, as well as local authorities, comply 
with not only the letter but the spirit of the Telecommunications Act 
that was passed by Congress. The Telecommunications Act is clear on 
this issue, and Congress never intended for each State to be on its own 
to ensure that services in rural or high-cost areas must be 
``reasonably comparable to those services provided in urban areas and 
that are available at rates that are reasonably comparable to rates 
charged for similar services in urban areas.'' That is what Congress 
affirmatively desired. We never intended for each State to be left to 
its own devices to ensure national universal service. We want this to 
be a universal telephone system that is universally affordable.
  I hope the FCC will reject this distinction that has been referenced 
now by the Chairman of the Commission.

[[Page S2051]]

 To do otherwise, in my judgment, will contradict the intent and the 
letter of the law in the Telecommunications Act. But the FCC still has 
ample opportunity to address this concern, and others, under the time 
frame provided by this act. I was among the group of 25 Senators who 
sent a letter to the Chairman of the FCC last week highlighting some of 
the concerns we have about the FCC's deliberations. We have, between 
now and May of this year, to work with the FCC to develop a Federal-
State universal service support system that will ensure affordable 
telephone rates all around this country. In the absence of 
accomplishing that goal, we will see a number of monopolies, increased 
telephone rates, and blame it on the telecommunications bill. Why will 
it happen? It will happen because the act and the legislation was not 
implemented the way Congress intended it to be implemented.

  One additional point I want to raise is the issue of media 
concentration. I offered an amendment on the floor on this issue, and I 
won my amendment, actually. At that point, the majority leader was the 
major opponent to the amendment. I won by four or five votes. It was 4 
o'clock in the afternoon. At about 7 o'clock, there was 
reconsideration, and another vote was taken. Some people, having eaten 
a dinner that I am not privy to, decided they had better judgment after 
dinner than before. They came with arms in casts--having been broken in 
several places--and they changed their vote, and I lost. My victory was 
short-lived. My amendment was to strike what I thought was 
fundamentally unwise deregulation of the 12-station broadcast 
television rule and the limit on 25 percent of the national audience 
reach. The bill proposed that we unhitch and let whatever media 
concentration exists in broadcast properties and television is just 
fine. That is really what the act did, with no regulation in radio and 
little regulation on television ownership.
  I thought that was, in my judgment, exactly the wrong way to move. I 
repeatedly said so and offered an amendment and won the amendment for a 
few hours, and I subsequently lost. But since the enactment of the 1996 
Telecommunications Act and, along with it, the lifting of broadcast 
ownership limits in that act, media acquisitions hit a record $48 
billion in consolidation buyouts. In the first year of the act, 
broadcast television deals increased over 121 percent from the previous 
year, totaling $10.5 billion. Radio consolidation increased a whopping 
315 percent since passage of the act, leading to more than 1,000 deals 
worth a total of $14.9 billion.
  The Telecommunications Act of 1996 increased the national audience 
reach for television broadcast ownership from 25 to 35 percent. 
Already, two of the major networks are between 25 and 35 percent. It 
also allowed unlimited numbers of television stations to rest under one 
ownership.
  Mr. President, I ask unanimous consent that a couple of articles from 
Broadcasting and Cable magazine be printed in the Record. These 
articles will provide colleagues with a sense of how rapidly the 
broadcast industry has been consolidating.
  There being no objection, the articles were ordered to be printed in 
the Record, as follows:

               [From Broadcasting & Cable, Feb. 3, 1997]

        Trading Market Explodes--1996 Spending Tops $48 Billion

                         (By Donna Petrozzello)

       Spurred by the Telecommunications Act of 1996, 
     consolidation swept the broadcasting industry last year, 
     ushering in an unprecedented era of megagroups and 
     multibillion-dollar deals.
       In June, the $4.9 billion merger of Infinity Broadcasting 
     Corp. into Westinghouse Electric Corp./CBS Radio Inc. riveted 
     the attention of investors and advertisers to the radio 
     industry. In July, News Corp./Fox Television Stations Inc.'s 
     $3 billion purchase of the remaining 80% of New World 
     Communications Group Inc. made News Corp. the nation's 
     leading TV station owner.
       Almost without exception, brokers and group owners across 
     the country describe the year as their busiest--and most 
     lucrative--ever. In 1996, $25.36 billion changed hands. That 
     is an astonishing 204.8% increase over the $8.32 billion 
     spent on TV and radio deals in 1995, according to figures 
     compiled by Broadcasting & Cable (see chart at right). And 
     1996 is the fourth consecutive year of increased station 
     trading since the slump of 1990-92.
       Expectations also are high for this year. ``Last year and 
     1997 will represent the two highest levels of station trading 
     in the radio industry ever, and likely will never be 
     surpassed,'' says broker William J. Steding, managing 
     director, Star Media Group Inc., Dallas.
       ``Nineteen ninety-six was the best year in our history,'' 
     says broker Fred Kalil, of Kalil & Co., Tucson, Ariz. ``And 
     we already have enough in the hopper for 1997 to beat 1996.''
       Radio was the champion in 1996, with the all-radio 
     Westinghouse/Infinity merger topping the list of the year's 
     biggest deals (see box, page 23). The Telecommunications Act 
     did far more to deregulate radio than television, encouraging 
     radio-station consolidation and leaving many changes in the 
     TV rules in the hands of the FCC.


                        new law drives the deals

       ``The Telcom Act drove the deal business,'' says broker 
     Gary Stevens, of Gary Stevens & Co., New Canaan, Conn. ``I've 
     never seen such a quantum leap in the industry, particularly 
     in the radio industry, in so short a time. I think it 
     exceeded everyone's expectations, and it went much faster 
     than anyone could have imagined.''
       The act allows broadcasters to own as many radio stations 
     as they want, nationally. Locally, the most generous cap 
     still in place allows ownership of up to eight stations in a 
     market with 45 or more other radio stations.
       The amount spent on radio in 1996, $14.87 billion, topped 
     1995's radio total by a whopping 315.5%. Meanwhile, dollars 
     spent on TV stations rose 121.3%. to $10.49 billion. The 
     number of TV deals actually dropped, however, from 112 in 
     1995 to 99 last year.
       ``Ninety-six was not as big a year as everybody thought it 
     would be [in TV],'' says Steve Pruett, senior vice president, 
     Communications Equity Associates, New York. Early in the 
     year, in anticipation of deregulation, TV stations were 
     drawing multiples of 14, 15 even 16, he says. However, 
     ``buyers drew a line [and] there just weren't a lot of 
     sellers. . . . Clearly, [TV trading] was not the deal-a-
     minute thing that radio was.''


                      prices rise for radio deals

       Indeed, ``1996 was the most active trading year in the 
     history of radio broadcasting, and there was a tremendous 
     amount of consolidation,'' says Scott Ginsburg, chairman, 
     Evergreen Media Corp., Dallas. More than 1,000 radio deals 
     were made last year, compared with 737 in 1995.
       Prices also ran high as radio stations became increasingly 
     popular investments. The average deal price was $14.64 
     million last year, compared with $4.86 million in 1995. 
     Multiples, which have risen steadily since the early 1990s, 
     ``went out the window'' last year, says broker Brian Cobb, of 
     Media Venture Partners, Fairfax, Va. ``We've never seen 
     anything like this, ever.''
       ``Consolidation has given buyers the ability to pay great 
     prices and still get good returns on their investments,'' 
     says broker Glenn Serafin, president, Serafin Bros., Tampa, 
     Fla. ``Watching the largest radio companies trade stations in 
     the 12, 14 or 16 times cashflow range'' increased trading 
     values even in the smallest markets, Serafin says, like ``a 
     rising tide lifts all ships.''
       But the news wasn't all good. In October, radio companies' 
     stock plunged as much as 20% after the Justice 
     Department limited the number of stations and the amount 
     of radio revenue that American Radio Systems Corp. could 
     control in Rochester, N.Y. The previously fast-paced year 
     went out like a lamb. But by last month, radio stocks had 
     largely returned to pre-October levels.
       Justice's ``inquiries and companies'' digesting earlier 
     acquisitions tapped the brakes a little on trading in the 
     fourth quarter.'' Serafin says. ``But that's temporary. 
     Stocks are rising, capital remains plentiful [and] 
     consolidation is working.''


                         Mid-market groups grow

       Midsize groups also gained clout with investors in 1997 and 
     acquired the muscle to grow at unprecedented levels.
       ``The Telcom Act created a structural shift in the industry 
     that for the first time allowed the creation of middle-market 
     companies that are large enough to be of interest to public 
     markets,'' Pruett says. ``We are looking at a structural 
     change that is permanent.''
       Nevertheless, some brokers expect smaller, privately held 
     radio companies to survive and perhaps even thrive in 1997. 
     Any private companies still in business are in for the long 
     term, Stevens says: They are not likely to accept a buyout if 
     they haven't already.
       Other brokers envision a different scenario. Richard 
     Foreman, president, Richard A. Foreman Associates, Stamford, 
     Conn., anticipates a time when private groups may feel unable 
     to compete larger entities and eventually will sell.
       ``In radio, we are hearing the onset of privately held 
     groups being in the minority,'' Foreman says. ``Their plight 
     is that eventually someone will make them a godfather offer 
     they can't refuse.''
       Operating stations in a market with larger station groups 
     has ``made competition more intense. You've got better 
     competitors, and we're finding that the surviving companies 
     are much more savvy and they have more resources,'' says Jeff 
     Smulyan, chairman, Emmis Broadcasting Corp., Indianapolis.


                        Groups become megagroups

       The biggest deals of 1996 were marriages of publicly traded 
     radio groups: ``1996 was characterized by big-on-small 
     mergers,'' or big companies buying small companies, Stevens 
     says. ``In 197, we'll see combinations of the big companies 
     with each other.''

[[Page S2052]]

       Although brokers and owners don't expect the frenzied 
     levels of 1996 to last through 1997, they do expect trading 
     to remain strong through year's end.
       ``The trading dollar volume will be high in 1997, but the 
     number of deals will be lower,'' Stevens predicts. ``There 
     will be fewer--but bigger--deals.''
       ``In terms of the number of [radio] stations, I don't think 
     consolidation will keep up at the same pace,'' says Robert 
     F.X. Sillerman, executive chairman, SFX Broadcasting Inc., 
     New York. But, he says, ``there will be intriguing 
     transactions taking place.''
       ``There's still an awful lot of acquisitions to be done,'' 
     especially in markets 20-100, says broker Dean Meiszer, 
     president, Crisler Co., Cincinnati. Swaps will continue as 
     buyers whittle down their large deals. ``Companies trading 
     [stations with similar] cash flow . . . improve their 
     positions in markets where they want to be,'' he says.
       The year's ``hot'' properties will be ``strong cash-flow 
     stations with a rock-solid niche in a format or [audience] 
     demographic,'' says broker Michael Bergner, Bergner & Co., 
     Boca Raton, Fla.
       ``In radio, the most sought-after situations in 1997 will 
     be any market where there is a facility left `unduopolized,' 
     particularly in large and medium markets,'' Cobb says.
       Ginsburg expects trading to pick up as the year unfolds. He 
     describes 1996 as the first six innings of a baseball game 
     and the first 60 days of 1997 as ``the seventh-inning 
     stretch.'' Now ``we're ready to play the rest of the ball 
     game,'' Ginsburg says. ``I think it will last through 1996, 
     but then it will be pretty much done.''


                     ``unprecedented'' tv multiples

       In television, many brokers expect duopoly rules and 
     technology and must-carry issues that have limited the 
     industry's growth to be resolved in coming months, spurring a 
     period of heightened trading.
       While television trading stepped up in markets of all sizes 
     last year, ``medium and small markets were particularly 
     active,'' Cobb says. Within the past two years, the number of 
     TV station owners has declined by 20%, he adds. Multiples 
     ranging from 10.5 to 15 ``are the highest multiples we've 
     seen. It's just unprecedented.
       Pruett predicts ``a few more strategic moves in 1997'' 
     similar to last year's $1.13 billion purchase of Renaissance 
     Communications Corp. by Tribune Co., and the $1.2 billion 
     merger of River City Broadcasting and Sinclair.
       Stevens anticipates a higher pace of TV trading in 1997. 
     ``Television is on the cusp of further deregulation, and 
     there will be more duopoly buys in television that will send 
     TV down the same road as radio,'' he says.
       Most brokers agree that 1997 will be another seller's year: 
     ``More money than ever is looking for stock values and since 
     the beginning of 1997, radio stocks have rebounded anywhere 
     from 20 percent to 35 percent,'' Steding says.
       ``Barring economic catastrophe, 1997 will be just as good a 
     year as 1996,'' says broker Ted Hepburn, Palm Beach, Fla. 
     ``This will even extend into the next century,'' he says. 
     ``Consolidation just can't happen overnight.''
                                                                    ____


               [From Broadcasting & Cable, Jan. 27, 1997]

                        Consolidation Yea or Nay

                          (By Chris McConnell)

       Washington.--More TV consolidation may be around the 
     corner, some broadcasters say.
       Others contend it has already happened.
       TV broadcasters gathering in Naples, Fla., this week for 
     the National Association of Broadcasters joint board of 
     directors meeting will consider supporting further relaxation 
     of the FCC's TV ownership restrictions. Some broadcasters--
     particularly those heading smaller groups--fear that such 
     deregulation could open the door to placing more channels in 
     the hands of fewer owners.
       Those worries are echoed by advertisers, watchdog groups 
     and even the Clinton administration. They fear that the 
     buying trend--totaling more than $10 billion in TV 
     transactions in 1996 compared with $4.7 billion in 1995--is 
     leading toward an era of Charles Foster Kane--type media 
     moguls.
       ``Monopoly power, pricing power, is not a good thing no 
     matter what the medium is,'' says John Kamp, senior vice 
     president of the American Association of Advertising 
     Agencies.
       ``It's a way for the good old boys to keep everybody out,'' 
     adds Andrew Schwartzman, president of the Media Access 
     Project.
       But others say that much of the feared consolidation 
     already exists. They cite the widespread use of local 
     marketing agreements (LMAs), which allow broadcasters to 
     manage stations without counting them as ``owned'' 
     facilities. Some 49 of the deals now exist in 45 markets.
       ``People have been slipping around the rule anyway,'' says 
     Philip Jones. Meredith Corp. Broadcast Group presidents 
     Jones--who opposes LMAs and further consolidation--also says 
     relaxing restrictions on owing more than one TV station in a 
     market would merely make people striking the LMA deals ``feel 
     less guilty.''
       ``The major (deals) are probably already done,'' adds 
     William Sullivan, manager of the Cordillera 
     Communications station group.
       Those LMA deals will eventually be subject to local 
     ownership restrictions, under the proposal issued by 
     commissioners last November. The proposal would treat new 
     LMAs as owned stations and would grandfather existing 
     agreements until they expire.
       The move to attribute LMAs follows a series of actions in 
     Washington to relax the ownership rules. In response to the 
     1996 Telecommunications Act, the FCC last year eliminated the 
     12-station cap on TV ownership and raised the national 
     audience-reach limit from 25% to 35%. In 1995 the commission 
     also eliminated the financial interest and syndication (fin-
     syn) rule.
       Such relaxations cleared the way for Disney to buy Capital 
     Cities/ABC and for Westinghouse to buy CBS.
       But while the FCC now is proposing to tighten its 
     ``attribution'' rules, it also is asking comment on whether 
     it should relax more ownership rules to allow common 
     ownership of two UHF stations or a UHF/VHF combination within 
     a market.
       Policymakers have differed on the question. President 
     Clinton last fall said that he does not think that allowing 
     common ownership of two TV stations in a market is a good 
     idea.
       ``Outside of group owners, no one thinks [further 
     concentration] is a good idea,'' adds Larry Irving, head of 
     the National Telecommunications and Information 
     Administration, ``Syndicators and advertisers are scared to 
     say anything.''
       FCC commissioners, however, do not rule out the notion of 
     some ownership relaxation. FCC Commissioner James Quello says 
     he could see a UHF/UHF or even a UHF/VHF combination in areas 
     where the combination would not give the owner too much 
     control over the local advertising market.
       And FCC Chairman Reed Hundt last month asked whether 
     allowing common ownership of two stations might increase 
     diversity of viewpoint and programing in some markets.
       That was the argument favored by broadcasters at this 
     month's NATPE convention in New Orleans. Discussing the 
     remaining restrictions, executives on one panel pitched the 
     notion that more consolidation might mean more diversity. 
     Clear Channel Television's Rip Riordan pointed to the use of 
     LMAs to revive stations that otherwise would not be 
     broadcasting.
       LIN TV President James Babb, in favoring more relaxation, 
     points to competition with cable and DBS, ``We need to be 
     active in proposing that,'' Babb says.
       Other disagree. Hubbard Television Group President Robert 
     Hubbard says important distinctions remain between LMAs and 
     outright ownership. And he predicts that further relaxation 
     of local ownership rules will spur more consolidation.
       ``We feel very strongly that it's not good for the industry 
     and it's not good for consumers,'' says Hubbard.
       ``It removes from the market precisely those stations that 
     have historically provided entry to new and different 
     voices--minorities and women,'' adds Media Access Project's 
     Schwartzman.
       One issue threatening to affect the ownership status of 
     several stations is the must-carry law pending before Supreme 
     Court justices. Defenders of the law requiring cable carriage 
     of local broadcast signals had a rough outing before the 
     court last October, and several expect the court to throw out 
     the law.
       Broadcasters say that could threaten the viability of many 
     UHF stations. ``It makes the weak weaker,'' says Meredith's 
     Jones.
       ``It could be a major negative impact,'' adds LIN's Babb, 
     who predicts that a struck-down must-carry law combined with 
     relaxed restrictions could accelerate TV consolidation.

  Mr. DORGAN. This consolidation is a direct result of a green light 
provided under the deregulation in broadcast ownership limits in the 
Telecommunications Act. We have to ask ourselves if this is the result 
that Congress intended and, if it is, I ask all of those who stood on 
the floor of the Senate and said this act is going to provide much more 
competition: How do you square that with the notion that you have many 
fewer competitors? Competition means many competitors competing in a 
market system. Concentration is exactly the opposite of competition.
  At present levels, I think every one of my colleagues ought to be 
alarmed. If this consolidation continues, we will soon be facing the 
question of how we deal with the prospect of a small handful of media 
moguls controlling the majority of all media sources in this country. 
At what point is the issue of localism and diversity so seriously 
compromised that the Congress finally wakes up to pay attention to this 
situation?
  Where is responsibility in these areas? Well, I think the time for 
that is now. In addition to the deregulation allowed under this act 
with respect to broadcast ownership, the FCC is considering further 
ownership rule changes that could further increase concentration. In 
one proceeding, the FCC is considering changes to its so-called 
attribution rules that will allow for a more liberal use of local 
marketing agreements, which they call LMA's. That will allow 
broadcasters to

[[Page S2053]]

manage stations without counting them under their ownership column. 
Currently, there are 49 LMA's in 45 markets, and if the FCC liberalizes 
those attribution rules, LMA's could become even more widespread. In 
the strictest sense, station ownership is limited to a nationwide reach 
of 35 percent. But these so-called LMA's permit far greater influence 
in many more stations beyond the 35 percent audience reach limit. 
Liberalizing the attribution rules will further encourage consolidation 
under this loophole.
  In addition, the FCC is also considering changes to the newspaper and 
broadcast cross-ownership restriction and is seeking comments on what 
kind of objective criteria should the FCC consider when evaluating 
waivers to the newspaper/radio combinations.
  The prospect of further consolidation in the media industry, I think, 
should be of serious concern. This wasn't what was contemplated by the 
Telecommunications Act, although I feared that was going to be result 
of it. There has been this orgy of concentration in the industry, and 
that is exactly the antithesis of competition.
  It is interesting that on this floor we talk about what we are 
seeing, especially from the broadcast industry, from television, and 
from the airwaves, pollution that comes into our living room and hurts 
our children with excessive violence and course language. Where is the 
accountability? Where is all that produced? It is produced, apparently, 
on the coast to be broadcast into our living rooms, and some are 
fighting--myself included--to see if we can't see more responsibility 
in what is broadcast during times when children are watching. But you 
find more and more concentration in this industry, and what you will 
have is less and less accountability. More concentration is not moving 
toward more accountability; it is moving towards less accountability. 
And that concerns me as well.
  Mr. President, I wanted to describe some of my concerns today largely 
because many believe--and I felt it worthy to support something that 
would encourage competition in an industry that was changing 
dramatically. The telecommunications industry is making breathtaking 
changes in our lives, and it can be changes for the good. But also it 
can be destructive, and changes that are unhelpful to the market 
system.
  I am concerned about local phone companies demanding deregulation of 
rates before there is effective competition. That would mean higher 
telephone rates across the country. I am concerned about the FCC and 
the decision it is going to make on universal service funds which will 
determine how much someone in one of our local rural counties pays for 
telephone service. I am concerned about concentration in the 
telecommunications industry, because I believe that determines what 
kind of an industry we have and at what price it is made available to 
the consumers as well. I hope as we have oversight hearings in the 
Commerce Committee that we will begin to address these issues.
  If the Telecommunications Act of 1996 is not implemented as intended, 
if its implementation is a perversion of the intent of that act, if it 
moves toward less competition rather than more competition, if it moves 
toward greater monopoly rather than toward more competition, if it 
moves toward higher prices for cable television, for telephone service, 
and for other services in that industry, then I think Congress ought to 
revisit this issue, because that is not what was intended.
  Mr. President, let me finish with one note. I have from time to time 
held up a little vacuum tube to describe what this revolution is all 
about, and with it a little computer chip that is half the size of my 
little fingernail. We are all familiar with the vacuum tube, which is 
old technology, and the little computer chip. The computer chip is the 
equivalent of five million vacuum tubes. That is what we have done in 
this country in terms of technology.
  The head of one of our major computer firms, in a report to 
stockholders, was talking about storage density technology. He said, 
``We are near a point where I can believe that we will have in the 
future the capability of putting on a small wafer all 14 million 
volumes of work which exist at the Library of Congress,'' which is the 
largest repository of recorded human knowledge anywhere on Earth. The 
largest deposit of recorded human knowledge anywhere on Earth is at the 
Library of Congress. Fourteen million volumes we will put on a wafer 
the size of a penny. Think of what that means--the capability of and 
the development and distribution of information and knowledge. It is 
breathtaking what is happening. But it must happen the right way to be 
accessible to all Americans and at an affordable price. If it doesn't, 
if the on ramp and off ramp doesn't exist in the smallest towns of 
Alaska, or the smallest towns of North Dakota, or Nebraska, then we 
will not have built an information superhighway that works for all 
Americans.

  That is why the implementation of this act is so critical to the 
American people. And it is why I am so concerned about what I think is 
happening in three areas that will represent a contradiction of what 
Congress intended with the passage of this act.
  So, Mr. President, I hope that the Commerce Committee will have 
oversight hearings and that we will continue to address these special 
and important issues.
  Mr. President, I yield the floor.
  Mr. DeWINE addressed the Chair.
  The PRESIDING OFFICER. The Senator from Ohio is recognized for up to 
10 minutes.
  Mr. DeWINE. I thank the Chair.

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