[Federal Register Volume 59, Number 233 (Tuesday, December 6, 1994)]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29941]


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[Federal Register: December 6, 1994]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

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

 

Revision of Radio Rules and Policies

AGENCY: Federal Communications Commission.

ACTION: Final rule; petitions for reconsideration.

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SUMMARY: In the Second Memorandum Opinion and Order (Second 
Reconsideration Order), the Commission revises the national radio 
ownership limits to permit minority broadcasters to own a controlling 
interest in up to 25 AM and 25 FM stations, and to permit non-minority 
broadcasters to hold a non-controlling interest in an additional five 
AM and five FM stations over the general national limits that are 
controlled by minorities or small businesses. The Commission declines 
to revise its local radio ownership limits or its rules and policies 
regarding time brokerage. The actions taken in the Second 
Reconsideration Order, in conjunction with the other actions taken in 
this proceeding, are needed to permit radio broadcasters to combine 
resources, as well as to provide greater opportunities for minority and 
small business broadcasters.

EFFECTIVE DATE: January 5, 1995.

FOR FURTHER INFORMATION CONTACT: Jane Hinckley Halprin, Mass Media 
Bureau, Policy and Rules Division, (202) 632-7792.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Second Reconsideration Order in MM Docket No. 91-140, adopted October 
20, 1994, and released November 8, 1994.
    The complete text of the Second Reconsideration Order is available 
for inspection and copying during normal business hours in the FCC 
Reference Center (Room 239), 1919 M Street, NW, Washington, DC, and 
also may be purchased from the Commission's duplicating contractor, 
International Transcription Service, 2100 M Street, NW, Washington, DC 
20036, (202) 857-3800.

Synopsis of Second Reconsideration Order

    1. The Second Reconsideration Order resolves issues raised in three 
petitions for reconsideration of the Memorandum Opinion and Order in MM 
Docket No. 91-140, 7 FCC Rcd 6387 (1992), 57 FR 42701 (Sept. 16, 1992) 
(First Reconsideration Order). Those petitions were filed by the League 
of United Latin American Citizens (LULAC), the National Association of 
Black Owned Broadcasters, Inc. and the National Black Media Coalition 
(NABOB/NBMC), and the Telecommunications Research and Action Center and 
the Washington Area Citizens Coalition Interested in Viewers' 
Constitutional Rights (TRAC/WACC). The Second Reconsideration Order 
also addresses a Petition for Rule Making (RM-8414) filed by the 
National Association of Broadcasters (NAB), and denies a NABOB/NBMC 
request for stay and rescission of the previous increase in the 
national ownership rules.
    2. The First Reconsideration Order, upon which the Second 
Reconsideration Order is based, revised the Commission rules governing 
the ownership of interests in multiple radio stations. The First 
Reconsideration Order revised Sec. 73.3555 of the Commission's Rules 
(47 CFR 73.3555) to increase the national radio ownership limit from 12 
AM and 12 FM stations to 20 AM and 20 FM stations. The Commission also 
revised the national minority ownership cap, which had permitted non-
minority owners to take a non-controlling interest in an additional two 
AM and two FM stations that were minority-controlled, and permitted 
minority owners to hold a controlling interest in 14 AM and 14 FM 
stations. The First Reconsideration Order modified the rule to permit 
all owners to take a non-controlling interest in an additional three 
stations per service above the national caps if those stations were 
controlled by minorities or small businesses. It declined to adopt a 
provision allowing minority broadcasters to own more stations outright.
    3. The First Reconsideration Order also relaxed the local ownership 
limit, which had been one AM and one FM station per area, to permit 
common ownership of up to two AM and two FM stations, depending on the 
size of the market. Specifically, in markets with 15 or more stations, 
an individual or group was permitted to acquire up to two AM and two FM 
stations provided that the combined audience shares of those stations 
did not exceed 25 percent of the local radio market. In markets with 
fewer than 15 stations, a single owner was permitted to acquire a total 
of three stations, no more than two of which may be in the same service 
(i.e., AM/AM/FM or AM/FM/FM), provided that the group owner's stations 
represent less than half of the total number of stations in the market. 
The First Reconsideration Order also declined to revisit the 
Commission's prior determination that certain time brokerage 
arrangements would be treated as attributable ownership interests for 
purposes of the multiple ownership rules.
    4. The Second Reconsideration Order generally affirms the rules 
adopted in the First Reconsideration Order, except that the Commission 
has decided to revise the national ownership rule with respect to 
minority and small business broadcasters. The Second Reconsideration 
Order increase the national limits for minority owners to 25 AM and 25 
FM stations, and raises to five the number, in excess of the national 
limits, of minority or small business controlled AM or FM stations in 
which a non-minority broadcaster may hold a non-controlling interest.
    5. In addition, because of concerns raised by a number of parties 
with respect to the effects of the revised rules on competition and 
diversity in radio markets, the Commission, on its own motion, reviews 
the radio ownership rules in light of relevant economic and antitrust 
principles. Pursuant to its analysis of these principles, the 
Commission concludes that the radio ownership rules are consistent with 
established principles of competitive analysis and at the present time 
provide adequate safeguards to ensure acceptable levels of diversity in 
the radio marketplace.

Local Ownership Limits

    6. The First Reconsideration Order revised Sec. 73.3555 to permit a 
single owner in a larger market to own up to two AM and two FM 
stations, subject to an audience share cap of 25 percent, and to permit 
an owner in a smaller market to own up to three stations, provided that 
no more than two are in the same service and that the stations 
represent fewer than half of the total number of stations in the area. 
A ``market'' is defined with respect to overlapping signal contours. 
For instance, the relevant market with respect to a combination of two 
stations in the same market would encompass those two stations as well 
as all other radio stations whose principal community contours overlap 
those of the two stations involved in the proposed transaction.
    7. Urging reconsideration, LULAC argues that the new local rules 
disadvantage small stations, and reiterates its suggestion that, rather 
than change the local ownership rules, the Commission should allow 
greater consolidation for financially failing radio stations. NABOB/
NBMC reiterate their previous argument that increased ownership limits 
will substantially reduce opportunities for increased minority 
ownership in broadcasting and will force minority broadcasters out of 
the radio industry. In opposition, NAB contends that adoption of 
LULAC's proposal would impede the positive effects of the new rules.
    8. The Commission notes that it directly addressed LULAC's 
suggestion to adopt a failed station standard in the First 
Reconsideration Order. It concludes that LULAC's argument, that its 
``failing'' station would permit a troubled station to obtain ownership 
relief well before it actually fails, does not adequately address the 
Commission's fundamental concern with the vitality of the industry 
generally. It therefore finds that LULAC has presented no new evidence 
or argument to revisit that review. The Commission also concludes that 
NABOB/NBMC likewise have not presented any new information that would 
persuade it to further modify the local limits.
    9. While it does not modify its local ownership rules, the 
Commission does make a minor correction. A reference to ``the most 
recent published audience share data available at the time that the 
application is filed'' was deleted from Sec. 73.3555(a)(3)(iii) when 
that rule section was revised (and renumbered) pursuant to the First 
Reconsideration Order. That deletion was inadvertent, and the quoted 
provision was intended by the Commission to remain in the rules. 
Section 73.3555(a)(3)(iii) will be modified to reinsert that language, 
as set forth below.
    10. In its petition for rule making. NAB suggests that when only 
one of the stations in a proposed combination has a principal community 
contour that would place the transaction in a market of 15 or more 
stations, the parties to the transaction should be permitted to elect 
whether to be governed by (1) the rules for small markets based on the 
number of stations overlapping the smaller facility's contour (thus 
avoiding the audience share limitation); or (2) the rules for large 
markets, but with the audience share calculated based on all counties 
receiving any one of the 15 or more stations counted as in the market 
pursuant to Sec. 73.3555(a)(3)(ii).
    11. NAB also proposes that the local ownership rule be modified so 
that ownership of ``not greater than 50 percent'' of the stations in a 
market would be permitted rather than the current ``less than 50 
percent'' rule. In addition, NAB contends that any single station or 
AM/FM combination licensee should be allowed in all situations to add 
one additional station to common ownership.
    12. Finally, in the event the above changes are not adopted, NAB 
believes that a clear and liberal set of criteria should be established 
for requests for waiver of the local ownership rule in traditionally 
small markets. Among the critical elements of any waiver policy 
according to NAB, would be the effort to save a dark or failing 
station.
    13. Duke Broadcasting, commenting on the NAB petition, raises 
similar concerns with the contour-based market definitions in the new 
rules when applied in small markets, but proposes a different solution. 
Duke suggests a delineation of two tiers of markets based on 
Metropolitan Statistical Area (MSA) ranking, with ``larger'' markets 
still subject to the combined audience share limitation of 25 percent, 
and ``smaller'' markets not subject to the combined audience share 
limitation in the absence of a showing that the particular combined 
share exceeding 25 percent creates an excessively high concentration of 
audience. Duke proposes that MSAs ranked above 150 would be placed in 
the larger market tier, while those ranked 150 and below, as well as 
non-MSA markets, would be placed in the smaller tier.
    14. The Commission declines to modify the local ownership rules. It 
notes that in designing the signal overlap standard, it specifically 
rejected suggestions that Arbitron data, MSAs (proposed by Duke here) 
or other narrow geographic designations be employed to count the number 
of stations in a market. It concludes that there is no evidence to 
suggest that the rationale underlying the adoption of the contour 
overlap approach--a more accurate measure of where a station's signal 
can be adequately received and, therefore, where it can compete for 
listeners--is any less appropriate for stations in smaller markets 
under the circumstances presented by NAB and Duke. It notes that a 
station combination with an aggregate principal community contour 
overlapped by 15 or more stations can be expected to compete for 
listeners with those stations, and the audience share cap is applied in 
such a case as an additional safeguard intended to identify potential 
concentration problems that may threaten diversity and competition.
    15. The Commission states that it declines to, in effect, ignore 
those stations, such as Class C FM stations, with superior signal 
coverage. It also declines to redefine the area to which county-by-
county audience share calculations apply in the manner suggested by 
NAB. The Commission believes that the suggested change would unduly 
dilute the diversity and competition safeguards adopted in its previous 
orders, and, in any event, would not reflect competitive conditions in 
the areas in which stations proposed to be combined provide the 
majority of their service, i.e., within their principal community 
contours.
    16. With respect to NAB's other proposals, the Commission notes 
that it already expressly rejected a change of the rule applicable to 
markets of fewer than 15 stations to permit ownership of half of the 
stations in a small market because it could result in an unwarranted 
level of consolidation in too many markets. Further, the Commission 
states that it is not persuaded that the specific changes NAB advocates 
are warranted as a means of rescuing failing or dark stations. The 
Commission is concerned that the proposed changes would be applicable 
without regard to the circumstances of an individual facility or its 
financial condition, and would have the potential to increase 
concentration signifcantly. It also believes that cases involving a 
genuine threat of station failure are best addressed via a waiver 
process that can appropriately account for the specific factual 
circumstances at hand. Moreover, the Commission states that because of 
the variety of circumstances that may be present in any given radio 
market, requests for waiver of the rule should not be limited to 
specific criteria.

Minority Ownership and Small Business Incentives

    17. NABOB/NBMC urge the Commission to reinstate the aspect of the 
prior rule that permitted minority-owned companies to take a 
controlling interest in additional stations above the national 
ownership caps. NABOB/NBMC maintain that the change from the prior rule 
will decrease the total number of stations that can be controlled by 
existing minority licensees, and, with the increase of the national 
ownership limits generally, will lead to further concentration of 
ownership in the broadcast industry, diluting substantially the 
opportunities for increased minority ownership. NABOB/NBMC also contend 
that the First Reconsideration Order did not provide evidence with 
which to evaluate the effect of the rule changes on minority ownership, 
and they reiterate their argument that the Commission's appropriations 
legislation prohibits modification of the minority ownership incentive. 
Further, NABOB/NBMC reiterate their request, denied in the First 
Reconsideration Order, that the national ownership limits be returned 
to 12 stations per service. LULAC, NABOB/NBMC and NAB urge the 
Commission to repeal the small business incentive established in the 
First Reconsideration Order. LULAC and NAB argue that adoption of the 
small business incentive violated the Administrative Procedure Act 
(APA), 5 U.S.C. 553, because such an incentive was not proposed in the 
initial Notice of Proposed Rule Making in this proceeding. They also 
maintain that the small business incentive will dilute or otherwise 
undermine any incentive for group owners to invest in minority-
controlled stations.
    18. The Commission states that it continues to believe, as 
discussed both above and previously in this docket, that further 
expansion of the national ownership limits would not hinder diversity 
of viewpoint and could spur competition in the industry. The Commission 
notes that the arguments raised by petitioners with respect to the 
increase in the general national ownership limits from 12 to 20 
stations per service were fully addressed earlier in this proceeding.
    19. The Commission is persuaded by petitioners, however, that 
permitting minority owners to hold a controlling interest in additional 
radio stations will serve the goal of increasing minority ownership 
without posing a significant threat to competition or diversity. It 
will therefore amend Sec. 73.3555 of its rules to permit minority 
owners to own and control additional stations over and above the 
general national caps. Moreover, based on its belief that further 
national consolidation is appropriate, it will increase from three to 
five the number of additional stations per service that may be acquired 
pursuant to the incentive. The Commission's aim in making these 
modifications is to permit minorities to own more stations as well as 
to make the investment incentive aspect of the rule more attractive to 
large group owners.
    20. The Commission is not persuaded to delete the small business 
incentive. It states that its current application processing standards, 
which involve a case-by-case analysis of each transaction, are 
sufficient to guard against sham small business applications. With 
respect to petitioners' arguments regarding notice, the Commission 
points out that the Notice of Proposed Rule Making in this proceeding, 
6 FCC Red 3275 (1991), 56 FR 26365 (June 7, 1991), invited commenters 
to discuss a range of issues regarding the national ownership caps, and 
some commenters emphasized that access to capital is a problem for new 
entrants and small businesses in general, not just minority-owned 
entities. The Commission further notes that it intends to explore 
minority ownership issues in an upcoming proceeding.
    21. Pursuant to the rules adopted in the First Reconsideration 
Order, the national ownership limits automatically increased from 18 AM 
and 18 FM to 20 AM and 20 FM on September 16, 1994. On October 7, 1994, 
NABOB and NBMC filed a ``Joint Motion for Rescission and Stay'' asking 
the Commission to rescind the automatic increase and stay the effective 
date of that increase until the Commission has acted on their petition 
for reconsideration and evaluated the effect of the 18AM/18FM cap on 
minority ownership. The Commission notes that NABOB/NBMC's petition for 
reconsideration is resolved in the Second Reconsideration Order, and 
that the Radio Station Ownership Report released concurrently with that 
Order analyzes the effect that the increase in the national caps has 
had on minority broadcasters to the extent presently possible. The 
Commission finds the request for stay to be moot, and denies the 
request for rescission.

Time Brokerage Arrangements

    22. The Commission defines time brokerage as a type of joint 
venture that generally involves the sale by a licensee of discrete 
blocks of time to a ``broker'' who then supplies the programming to 
fill that time and sells the commercial spot announcements to support 
it. The First Reconsideration Order affirmed the Commission's earlier 
holding that if a time brokerage agreement between two stations in the 
same market involves more than 15 percent of the brokered station's 
programming per week, the brokered station will be treated as if it was 
owned by the brokering station for purposes of the national and local 
ownership rules.
    23. TRAC/WACC note that time brokerage decisions have been made by 
the Commission's staff and argue that the Commission should not be 
bound in future rulemakings by policy decisions of its staff made in ex 
parte informal adjudications. TRAC/WACC also note that members of the 
public are not given notice of, and may not have standing to 
participate in, declaratory rulings at the staff level. NAB counters 
that the revised time brokerage rules and policies, as adopted and 
applied by the staff in its rulings, are lawful and are designed to 
adequately ensure that licensees do not relinquish control of their 
stations and remain responsive to the obligations of a licensee.
    24. The Commission states that the language of the First 
Reconsideration Order was intended to reflect the Commission's 
continuing view that particular situations are better resolved on a 
case-by-case basis. The Commission further finds that the specific 
aspects of time brokerage arrangements questioned by TRAC/WACC in its 
petition were thoroughly discussed previously in this proceeding, where 
the Commission adopted restrictions on time brokerage arrangements so 
that they will be counted as ownership interests where significant 
brokering between competing stations is involved. Furthermore, the 
Commission reiterates that a licensee must retain ultimate control over 
its station. The Commission concludes that TRAC/WACC has not introduced 
any new arguments to convince it that it needs to take further action 
in this proceeding with respect to time brokerage. It also states its 
belief that imposition of any additional restrictions on time brokerage 
arrangements would run counter to one of the objectives of this 
proceeding, which was to strengthen the radio industry by giving radio 
broadcasters more flexibility.
    25. The Commission notes that it previously decided not to require 
the termination of an agreement that does not comply with the local 
ownership rules if the agreement was entered into prior to the 
effective date of the rules. These agreements were, in effect, 
``grandfathered.'' The Commission clarifies that when a brokering 
station is sold, an existing brokerage agreement that would be barred 
by the rules if entered initially at the time of the sale, may be 
transferred. The new owner may enjoy all rights and limitations with 
respect to the multiple ownership rules as the original owner, but only 
for the duration of the term of the agreement in effect at the time of 
transfer. The purchaser of a station or stations involved in a 
brokerage agreement, however, cannot create a new violation or 
exacerbate an existing rule violation by that acquisition. Thus, for 
example, a station combination that involves a brokerage agreement and 
that exceeds the 25 percent audience share limit, but is nonetheless 
permissible under the rules, could not be acquired by a party with 
another station in the same market. A similar station combination with 
an audience share of 24 percent could not be acquired by a licensee 
with a station enjoying a 3 percent share in the same market. In 
addition, parties will not be permitted to renew or extend time 
brokerage agreements, including those that are grandfathered, once the 
initial term expires if, at the time of expiration, the agreement would 
not be permissible under the rules.

Remaining Matters

    26. There is an inconsistency between the language of the First 
Reconstruction Order and that of Sec. 73.3555(a)(1)(ii) as published, 
as to the benchmark for permissible audience share. In order to remove 
any ambiguity on this point, the Commission states that it intended the 
language of the rule to be controlling. Thus, only audience shares that 
exceed 25 percent are to be considered prima facie inconsistent with 
the public interest.
    27. Further, the Commission clarifies that while it is appropriate 
to exclude non-operational stations from calculation of the number of 
stations in the market where it cannot be presumed that they will add 
to the competition and diversity in a market, such as analysis is not 
appropriate when the non-operational station is a part of the 
transaction under scrutiny, because the applicant has control over and 
can generally be presumed to intend to put the station on the air. 
Thus, if the non-operational station is one of the proposed commonly 
owned stations involved in the transaction, the principal community 
contour of the non-operational station will not be disregarded in 
calculating how many stations are counted as in the market or in 
determining the geographic area for which audience share is calculated.
    28. The Commission also notes that current rules permit an AM 
licensee to own an existing AM station in the 535-1605 kHz band and 
apply for a construction permit for an AM station in the expanded band, 
1605 kHz-1705 kHz, without regard to otherwise prohibited principal 
community contour overlap. Moreover, the national ownership 
restrictions are not applied when an entity with an attributable 
interest in an AM station in the existing band applies for an AM 
station in the expanded band. Note 10 to Sec. 73.3555 specifies a five-
year period during which joint ownership of existing band and expanded 
band AM authorizations will be acceptable; at the expiration of this 
five-year period, the licensee must elect to operate either the 
expanded band station or to operate the station on its former frequency 
in the existing band.
    29. The Commission clarifies that if, during the five-year 
transition period, the licensee has not yet elected whether to move to 
the expanded band or retain its existing facility, the expanded band 
station will be disregarded for purposes of the local and national 
ownership rules. Thus, the principal community contour of the existing 
band station will be considered for purposes of determining the 
relevant market and for purposes of determining the number of stations 
in the market. Moreover, if it is necessary to determine whether the 
combination complies with the audience share cap, the Commission will 
consider only the audience share attributable in the relevant market to 
the existing band station.

Ordering Clauses

    30. It is therefore ordered that, pursuant to the authority 
contained in section 4(i) and 303(r) of the Communications Act of 1934, 
as amended, 47 U.S.C. section 154(i), 303(r), part 73 of the 
Commission's rules, 47 CFR part 73 is amended as set forth below.
    31. It is further ordered that the petitions for reconsideration 
filed in this proceeding are granted to the extent indicated herein and 
are denied in all other respects.

    32. It is further ordered that, pursuant to Sec. 1.401(e) of the 
Commission's rules, 47 CFR 1.401(e), the Petition for Rule Making filed 
on August 23, 1993, by the National Association of Broadcasters, RM-
8414, is denied.

    33. It is further ordered that the Joint Motion for Rescission and 
Stay filed October 7, 1994, by the National Association of Black-Owned 
Broadcasters and the National Black Media Coalition is denied.

List of Subjects in 47 CFR Part 3

    Radio broadcasting.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

    Part 73 of title 47 of the U.S. Code of Federal regulations is 
amended to read as follows:

PART 73--RADIO BROADCAST SERVICES

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

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

    2. Section 73.3555 is amended by revising paragraphs (a)(3)(iii) 
and (e)(1)(i) to read as follows:
    (a) * * *
    (3) * * *
    (iii) A station's ``audience share'' is the average number of 
persons age 12 or older on an average quarter-hour basis, Monday-
Sunday, 6 a.m.-midnight, who listen to the station expressed as a 
percentage of the average number of persons listening to AM and FM 
stations in that radio metro market or a recognized equivalent, in 
which a majority of the overlap between the same service stations 
involved in the transaction takes place. The ``combined audience 
share'' is the total audience share of all AM or FM stations that would 
be under common ownership or control following a proposed acquisition. 
In situations where the majority of the overlap between the same 
service stations does not lie in a single metro market, the relevant 
audience share data is the data for all counties that are within the 
principal community contours of the mutually overlapping stations 
proposed for common ownership, in whole or in part, weighted based on 
the listening population, age 12 and older, and totalled to determine 
the average audience share. Audience share shall be calculated by using 
the most recent published audience share data available at the time 
that the application is filed, unless an alternative showing is 
submitted pursuant to the Note following 47 CFR 73.3555(a)(1)(ii).
* * * * *
    (e) * * *
    (1) * * *
    (i) more than 20 AM or more than 20 FM stations, provided, however, 
that minority controlled entities may acquire an additional five 
stations per service above the national limit, and that multiple owners 
that are not minority controlled may hold an attributable, but not 
controlling, interest in five additional stations per service above the 
national limit that are minority controlled or small business 
controlled;
* * * * *
[FR Doc. 94-29941 Filed 12-5-94; 8:45 am]
BILLING CODE 6712-01-M