Docstoc

THE FCC RESCISSION OF THE TELEVISION CABLE

Document Sample
THE FCC RESCISSION OF THE TELEVISION CABLE Powered By Docstoc
					              THE FCC'S RESCISSION OF THE
              1970 TELEVISION-CABLE CROSS-
                     OWNERSHIP RULE
                                    INTRODUCTION

   In 1970, the Federal Communications Commission adopted a rule
prohibiting one person or organization from owning a television sta-
tion and cable television system within the same community. 1 The
rule was intended to promote diverse ownership of local media 2 and
to prevent the conflict of interest inherent in cross-ownership of di-
rectly competitive media.3 Existing cross-owners were ordered to di-
vest either their television stations or their cable systems to comply
with the rule. 4 For five years the FCC defended its rule against the
cross-owners' numerous attacks at the administrative and appellate
levels; it argued repeatedly that the public's right to separate televi-
sion and cable ownership outweighs the cross-owners' interests in ex-
emption from divestiture.
   In 1975, the FCC suddenly reversed itself, and with little explana-
tion, drastically "modified" its 1970 divestiture order. 5 The modifica-
tion effectively rescinded the order and enabled almost all television-

  1. CATV, Second Report and Order, 23 F.C.C.2d 816 (1970). The principal purpose
of a cable system is to bring clear television signals into the homes of its subscribers.
The cable system operator erects a large antenna on a site where many television sig-
nals may be received clearly and retransmits them into subscribers' homes in a coaxial
cable. These signals arrive in the subscribers' homes free from interference and thus
produce a clear picture. Since the coaxial cable can carry signals for many channels, the
cable operator can offer subscribers an almost unlimited selection of programs. See
generally   THE SLOAN COMMISSION ON CABLE COMMUNICATIONS, ON THE CABLE: THE
TELEVISION OF ABUNDANCE 11-27 (1971) [hereinafter cited as ON THE CABLE]; R.
SMITH, THE WIRED NATION (1972).
  2. CATV, Second Report and Order, 23 F.C.C.2d 816, 820 (1970).
  3. Id. at 820-21. As used herein, "cross-ownership" refers to the ownership by the
same person of different media located in the same community. Thus, cross-ownership
can involve television-radio combinations, newspaper-broadcast combinations, televi-
sion-cable combinations, cable-newspaper combinations, etc.
  4. Id. at 821. The FCC suggested that the cross-owners simply exchange properties
among themselves. Diversity of ownership would thereby be increased at the local
level, and each cross-owner would retain control of the same number and type of media.
  5. Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540 (1975),
adopting 47 C.F.R. § 76.501(a)(2) (1976), reconsiderationdenied, Cable Television Sys-
tems, 58 F.C.C.2d 596 (1976), appeal docketed sub nom. National Citizens Comm. for
Broadcasting v. FCC, No. 75-1933 (D.C. Cir., filed Sept. 22, 1975).
19771                         CROSS-OWNERSHIP RULE

cable cross-owners who had not complied with the 1970 divestiture
order to retain ownership of both media indefinitely.
   This comment will demonstrate that, in light of its acknowledged
obligation to promote the maximum diversity in media ownership,
the FCC acted arbitrarily and irrationally when it rescinded its 1970
divestiture order. It will contend that the apparent unreasonableness
of the Commission's grandfathering 6 of virtually all existing cross-
owners can be understood only if one assumes that the entire rule-
making proceeding rescinding the 1970 order was a pro forma exer-
cise enacted to legitimize an unlawful decision.

I.      THE NEED FOR SEPARATE OWNERSHIP OF TELEVISION STATIONS
         AND CABLE SYSTEMS LOCATED IN THE SAME COMMUNITY
   Under the mandate of the Communications Act of 1934, 7 the
FCC's regulatory policies and decisions must serve "the public in-
terest, convenience and necessity." 8 Diversification of media owner-
ship serves two goals which are subsumed within this broad "public
interest" standard: promotion of first amendment principles, and
promotion of the nation's antitrust policies.
   The first amendment "rests on the assumption that the widest pos-
sible dissemination of information from diverse and antagonistic
sources is essential to the welfare of the public." 9 Theoretically, an
infinite number of "diverse and antagonistic sources" is possible in
the print and film media. Scarcity of broadcasting frequencies, how-
ever, limits potential diversity in broadcasting. 10 Because of this scar-
city, the Supreme Court has held that "[i]t is the [first amendment]
right of the viewers and listeners, not the right of the broadcasters,
which is paramount." 1 1 Government regulations that diversify the
public's sources of information serve the first amendment's purpose of
preserving "an uninhibited marketplace of ideas in which truth will
ultimately prevail, rather than countenancing monopolization of that


  6. A party is "grandfathered" when it is exempted from the terms of a new rule that
would otherwise affect it. Thus, a rule that prohibits only the creation of future cross-
ownerships grandfathers all such existing cross-ownerships.
  7. Communications Act of 1934, as amended, 47 U.S.C. §§ 1-744 (1970).
  8. 47 U.S.C. § 303 (1970).
  9. Associated Press v. United States, 326 U.S. 1, 20 (1945).
  10. For an analysis critical of the assumption that scarcity of spectrum space justifies
government regulation of broadcasting, see Bazelon, FCC Regulation of the Telecom-
munications Press, 1975 DUKE L.J. 213, 223-29 (1975).
 11. Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 390 (1969).
                      THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688

market, whether it be by the Government itself or a private
licensee."'12
   In addition to promoting the public's first amendment rights, di-
verse media ownership serves antitrust policies by maximizing com-
petition. Although the FCC was not established to enforce the anti-
trust laws, preventing overconcentration of media control forms an
essential part of the "public interest" which the Commission was es-
tablished to serve.13
   The FCC itself has recognized that diversification of media owner-
ship is required under its public interest mandate.' 4 It has adopted
numerous rules and policies promoting diverse media ownership at
the national level. 15 Additionally, to promote local diversity, the FCC

  12.   Id. In Red Lion, the Court upheld the constitutionality of the fairness doctrine,
47 U.S.C. § 315(a) (1970), which allows the government to examine program content to
ensure that the public is provided with a "reasonable opportunity" to hear "discussion
of conflicting views on issues of public importance." See generally Barnett, Cable Tele-
vision and Media Concentration, Part 1: Control of Cable Systems by Local Broad-
casters, 22 STAN. L. REv. 221, 254-58 (1970) [hereinafter cited as Barnett].
   13. National Broadcasting Co. v. United States, 319 U.S. 190, 222-23 (1943). Section
311 of the Communications Act, 47 U.S.C. § 311 (1970), authorizes the Commission to
withhold licenses from persons convicted of violation of the antitrust laws. In licensing
"in the public interest," however, the Commission is not limited to giving recognition
to the policies of the antitrust laws only if convictions have been rendered. "Nothing
in the provisions or history of the [Communications] Act lends support to the inference
that the Commission was denied the power to refuse a license to a station not operating
in the 'public interest,' merely because its misconduct happened to be an unconvicted
violation of the antitrust laws." 319 U.S. 190, 223 (1943).
   While the bare finding that competition is likely to be increased may not adequately
fulfill the FCC's duty to find that the "public interest" will be seived by its actions,
FCC v. RCA Communications, Inc., 346 U.S. 86 (1953), increased competition may be
the decisive factor in determining which Commission alternative better serves that in-
terest, United States v. Radio Corp. of America, 358 U.S. 334, 351-52 (1959), General
Tele. Co. v. United States, 449 F.2d 846 (5th Cir. 1971). See generally Barnett, supra
note 12, at 258-60.
   14. See Barnett, supra note 12, at 253-54.
   15. In 1941, the FCC adopted "Chain Broadcasting" rules limiting network owner-
ship and control of local stations. FCC Report on Chain Broadcasting (1941). These
rules were upheld by the Supreme Court in National Broadcasting Co. v. United States,
319 U.S. 190 (1943). As a result, NBC was required to divest one of its two networks,
with the divested network becoming the American Broadcasting Co. in 1945. Howard,
Multiple Broadcast Ownership: Regulatory History, 27 FED. COMM. BAR. J. 1, 7 (1974).
  The Commission also has adopted "multiple ownership" rules, that prohibit one per-
son or organization from owning more than seven television stations, of which no more
than five may be VHF stations, seven AM stations, and seven FM stations. These rules
are codified at 47 C.F.R. §§ 73.636, 73.35 and 73.240 (1976), respectively. They were
upheld by the Supreme Court in United States v. Storer Broadcasting Co., 351 U.S. 192
(1956).
  In 1970, the FCC adopted two cross-ownership rules (in addition to the television-
cable cross-ownership rule discussed in this comment) which promoted diverse media
19771                         CROSS-OWNERSHIP RULE

long ago adopted "duopoly" rules which prohibit one person from
owning two AM stations, 16 two FM stations, 17 or two television
stations1 8 in the same community. 19 These rules were later amended
to prohibit prospectively the cross-ownership of an AM or FM station
with a television station 20 and, more recently, to prohibit cross-
                                                                   2
ownership between a broadcast station and a daily newspaper. '
These rules manifest the Commission's recognition that common
ownership of two directly competitive media is contrary to the public
          22
interest.


ownership on the national level. Network-cable cross-ownerships were prohibited al-
together, CATV, Second Report and Order, 23 F.C.C.2d 816 (1970). This rule was af-
finned in Iacopi v. FCC, 451 F.2d 1142 (9th Cir. 1971). Telephone company-cable
cross-ownerships were also prohibited, Section 214 Certificates, Final Report and
Order, 21 F.C.C.2d 307 (1970), aff'd, General Tel. Co. v. United States, 449 F.2d 846
(5th Cir. 1971).
   In addition to these rules, the FCC has adopted two policies which promote national
diversity of ownership. First, in weighing the comparative merits of two competing ap-
plicants for the same broadcast frequency, the FCC has established diversification of
media ownership as a "factor of primary significance since ... it constitutes a primary
objective in the licensing scheme .... " Policy Statement on Comparative Broadcast
Hearings, 1 F.C.C.2d 393, 394 (1965). Second, the "top fifty markets policy" requires a
"compelling public interest showing" by those seeking to acquire more than three sta-
tions (or more than two VHF stations) in the top fifty markets. Television Multiple
Ownership Rules, Report and Order, 12 RAD. REG.2d (P-F) 1501, 1507 (1968).
   16. FCC Seventh Annual Report 26 (1941) (rule proposed) and FCC Tenth Annual
Report 12 (1944) (rule adopted and divestiture required of existing duopolies). The rule
is codified at 47 C.F.R. § 73.35 (1976).
    17. FCC Seventh Annual Report 34 (1941). The rule is codified at 47 C.F.R. § 73.240
(1976).
   18. FCC Seventh Annual Report 34 (1941). The rule is codified at 47 C.F.R. § 73.636
(1976).
   19. In 1964, the FCC amended the duopoly rules to provide a workable definition of
the area of prohibited signal overlap. Thus, stations of the same type whose "grade B
contours" overlap may not be owned by the same person. For a definition of "grade B
contour," see note 41 infra.
   20. Multiple Ownership of Standard, FM & TV Broadcast Stations, 22 F.C.C.2d 306
(1970).
   21. Multiple Ownership, Second Report and Order, 50 F.C.C.2d 1046 (1975) aff'd in
part & rev'd in part sub nor. National Citizens Comm. for Broadcasting v. FCC, No.
75-1064, (D.C. Cir. Mar. 1, 1977). For a discussion of this case see notes 138-58 &
accompanying text infra.
   22. Clarksburg Pub. Co. v. FCC, 225 F.2d 511, 515 (D.C. Cir. 1955). See also Shen-
andoah Life Ins. Co., 19 RAD. REG. (P-F) 1 (1959) (FCC disallowed common ownership in
two AM stations in same market):
   [The] policy ... against permitting any degree of cross-interest, direct or indirect,
   in two or more stations in the same broadcast service serving substantially the same
   area . . . was adopted by the Commission for the purpose of insuring arms-length
   competition among such broadcast stations and has been followed over the course
  of many years ....   While it may be true that, at a given time, no impairment of
                     THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688


   The need for diverse ownership is especially important in the con-
text of television stations and cable systems located in the same
community. If one person or organization were permitted to own two
AM, two FM, or two television stations, or a station-newspaper com-
bination, the public would be deprived of one possible independent
source of information. A cable system, however, is the equivalent of
many television stations. Thus, cross-ownership of a television station
and a cable system concentrates in one person the control of 12, 20,
                23
or 35 channels.
   In addition to its extreme concentration of control, television-cable
cross-ownership involves an inherent conflict of interest similar to
that which would exist, were it not prohibited, in the ownership of
two television stations located in the same market. 24 Broadcast televi-
sion stations compete directly with local cable television systems for
viewers. The programming from each medium is available from the
same television set, and may be selected by rotation of the same
channel selector. The FCC has found that viewers do not distinguish
between programming made available by a local broadcasting station
and programming made available by a local cable system. 25 Thus, a
broadcast television station competes for viewers as directly with a
cable television system as it does with another local broadcast televi-
sion station.

   competition exists in fact, it is the potential of such impairment which the
   Commission's policy is designed to guard against.
Id. at 2 (emphasis in original).
   23. The state of the art of cable technology presently permits a maximum of 25-35
channels. PUBLI-CABLE, CABLE HANDBOOK 1975-1976 at 13 (1975). FCC rules require
cable systems built after 1972 to provide 20 channels. 47 C.F.R. § 76.252 (1976).
   Of course, the ownership of a cable system without a cross-owned television station
also concentrates in one person control over multiple channels. Regardless of how
economically and technologically necessary for the efficient functioning of a cable sys-
tem, however, such concentrated control presents a prima facie case for prohibiting tele-
vision-cable cross-ownership in light of the FCC's ban on television-television co-owner-
ship. See note 18 & accompanying text supra.
   Futhermore, the FCC has attempted to minimize the dangers of cable's concentrated
control. It has adopted rules defining which broadcast signals cable systems may re-
transmit, 47 C.F.R. §§ 76.57-65 (1976); it has imposed its fairness doctrine, personal
attack rules and political editorial rules on programs originating from the cable system,
id. at §§ 76.205-209; and, it has required cable systems to provide "access" channels
available for programming on a first-come, nondiscriminatory basis to the public and
independent programming entrepreneurs, id. at §§ 76.254-256. (But see note 101 & ac-
companying text infra.) Thus, cable operators do not enjoy unlimited control over the
programming sources and viewpoints available on their systems.
   24. See 47 C.F.R. § 73.636 (1976); Shenandoah Life Ins. Co., 19 RAD. REG. (P-F)
1, 2 (1959).
   25. Cable Television Report & Order, 36 F.C.C.2d 141, 193 (1972).
1977]                         CROSS-OWNERSHIP RULE

   Because of the conflict of interest that arises from common owner-
ship of a directly competitive television station and cable system, the
cross-owner may be expected to favor whichever outlet offers the best
prospect for maximizing his overall revenues. 26 By favoring one
medium over the other, the cross-owner prevents the public from
enjoying the benefits of the maximum potential service each medium
can offer. For example, a cross-owner has no incentive to extend his
television station's signal coverage to enable more viewers to receive
the signal over-the-air if greater profits can be realized by requiring
distant viewers to subscribe to the cable system to receive the signal
clearly. Similarly, a cross-owner has no incentive to build an exten-
sive cable system offering many channels if, by not doing so, he can
derive greater profits by selling advertisers a large audience from his
television station. Perhaps the cross-owner will offer less than maxi-
mum service on both media, deriving lower profits from each than
would two independent owners, but enjoying combined profits higher
than any of his single-medium-owner competitors.
   Even if a television-cable cross-owner could operate both media
without sacrificing the potential of either, the cross-ownership would
threaten violations of both the public's and the cross-owner's first
amendment rights. The concentration of media ownership inherent
in the combination would threaten the public's "paramount" first
amendment right to diverse sources of information. This problem
could be alleviated only if the FCC monitored and directed the daily
operations of the cross-owned stations. Such government surveillance,
however, might violate the cross-owner's first amendment right to be
free from government intrusion. 2 7 Thus, no cross-owner can offer the
public maximum service from both media and maximum protection of
first amendment rights.

  26.   For an excellent discussion of the detrimental effects on service threatened by
television-cable cross-ownership, see Barnett, supra note 12, at 292-310.
   Professor Barnett submitted an earlier version of this article to the FCC as comments
in the rulemaking that culminated in the 1970 divestiture order. In that order, the FCC
acknowledged that Barnett's comments, which had strongly urged separate ownership of
television and cable in the same community, had been of "particular assistance." CATV,
Second Report and Order, 23 F.C.C.2d 816, 817 (1970). Later, when cross-owners ap-
pealed the divestiture order, the FCC relied extensively upon this article in its brief.
Brief for Respondent FCC, passim, Gill Cable, Inc. v. FCC, No. 73-1344 (9th Cir., filed
Feb. 28, 1973). For discussion of the disposition of this case, see note 74 and accom-
panying text infra.
   27. See National Citizens Comm. for Broadcasting v. FCC, No. 75-1064, slip op. at
22-24 (D.C. Cir. Mar. 1, 1977).
   In addition to potential first amendment problems, such governmental surveillance
would pose severe administrative burdens for the agency. The inefficacy of monitoring
                    THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688

   The problems arising from television-cable cross-ownership are not
remote regulatory issues of interest only to FCC bureaucrats and
communications lawyers. Since such cross-ownerships began to de-
velop over ten years ago, hundreds of people throughout the country
have joined together to express their opposition to continued cross-
ownership of their local video media. 28 With the average American
household watching television almost seven hours each day, 29 televi-
sion programming issues are of great public importance.

           II.   THE   FCC's   PROHIBITION OF TELEVISION-CABLE
                                CROSS-OWNERSHIP

                  A.    Early Considerationof the Problem
   The Commission's recognition of the conflict of interest inherent in
television-cable cross-ownership led it to inquire into the need for
duopoly rules prohibiting such combinations as early as 1964.30 The
Commission concluded that no rules were necessary at that time, cit-
ing its proposed regulation of the cable industry and its failure to find
any evidence of abuses by television-cable cross-owners as justifica-
tion for its decision. 31 Two commissioners concluded, however, that

as a means of promoting diversity of viewpoints and economic competition between
cross-owned media may be illustrated by the Commission's handling of newspaper-
cable combinations. Instead of prohibiting such combinations by rule, the FCC chose to
monitor them to ensure that no abuses resulted from the cross-ownership. Community
Antenna Television Systems, First Report, 52 F.C.C.2d 170 (1975). Since its decision
two years ago, the FCC has developed no systematic method of overseeing such cross-
ownerships, and has provided no indication that it is in fact "monitoring" in any way.
  28. For a discussion of citizen participation in FCC television-cable cross-ownership
proceedings, see notes 67-69, 84-85 & accompanying text infra.
  29.   BROADCASTING YEARBOOK 1976 A-2 (1976).
  30. Acquisition by Television Broadcast Licensees of CATV Systems, Notice of In-
quiry, 29 Fed. Reg. 5416 (1964).
  31. Acquisition of Community Antenna Television Systems, 1 F.C.C.2d 387, 388-89
(1965). The other rules being considered were actually designed to curb cable's com-
petitive power in a variety of ways. In Microwave Relays, First Report and Order, 4
RAD. REG.2d (P-F) 1725 (1965), the FCC conditioned grants of authorizations to transmit
microwaves, a necessary step in providing cable service, by requiring that the micro-
waves be transmitted only to cable systems that would not degrade or duplicate the
signals of local television stations. In Regulation of CATV Systems, Notice of Inquiry
and Notice of Proposed Rulemaking, 4 RAD. REG.2d (P-F) 1679 (1965) the Commission
asserted tentative jurisdiction over all cable systems while the Inquiry and Rulemaking
were in progress, and proposed a wide range of regulatory controls over cable.
  The Commission's reliance upon these rules in holding that no television-cable
cross-ownership rules were necessary is difficult to understand. In effect, the Commis-
sion stated that no rules ensuring competition between the two media were necessary
because it was adopting rules curbing cable's competition. Similarly, the Commission's
197                            CROSS-OWNERSHIP RULE

the inherent dangers of such combinations were so serious that they
                                   32
warranted immediate prohibition.
   The Court of Appeals for the District of Columbia Circuit also ex-
pressed early concern about television-cable cross-ownership. 3 3 In
1965 the court reversed the Commission's approval of the sale of a
city's only television station to the city's only cable system. 3 4 The
FCC had approved the sale without a hearing and over the objection
of local residents. The court rejected the FCC's assumption that if
the sale was acceptable to the other local media it would serve the
public interest, and directed the Commission to consider the effects
                                            35
of the sale on the viewers and subscribers.
      By 1968, cable was becoming a viable alternative to network-


claim that it had found no evidence of abuses is peculiar, considering the formal com-
plaint of such abuses then pending before the Commission from a citizens group. See
note 34 & accompanying text infra. Indeed, the Commission itself reported that broad-
casters had argued that no cross-ownership rules should be adopted since "[ifn many
places, especially small communities, CATV will come in any event and it is necessary
for the television station to own the CATV to protect [the station] against ruinous com-
petition." Acquisition of Community Antenna Television Systems, 1 F.C.C.2d 387
(1965).
   32. Chairman Henry and Commissioner Cox listed four potential harms from tele-
vision-cable cross-ownership: (1) less than maximum competition; (2) lack of incentive
to improve and expand the television signal; (3) concentration of control over mass com-
munications; and (4) unfair advantages between local television stations. Id. at 390-91.
   The Commission's conclusion that no abuses had been shown was rejected by Henry
and Cox, who pointed out that "this narrow concern with a hunt for 'abuses' simply
obscures our real goal, which is to promote effective competition between media in any
given community. Even the most honest man cannot compete with himself." Id. at 392.
   33. Citizens TV Protest Comm. v. FCC, 348 F.2d 56 (D.C. Cir. 1965).
   34. Id., rev'g Rust Craft Broadcasting Co., 36 F.C.C. 1549 (1964). The cable system
served two neighboring communities, each of which had its own television station. Prior
to the system's purchase of one of the television stations, all of its five channels carried
signals from distant stations unavailable over-the-air. After its purchase of the station,
however, the cable system provided only three distant signals, substituting the signals
of the two local stations on the other two channels. Residents in the cross-owned com-
munity complained that they did not want the neighboring station's signal substituted
for the distant signal they could receive before the cross-ownership. They requested
that, as a condition of the cross-ownership, the cable system be required to expand its
channel capacity or lower its rates. Citizens TV Protest Committee v. FCC, 348 F.2d 56,
58 (D.C. Cir. 1965).
   Two commissioners had dissented from the Commission's approval of the sale, argu-
ing that the FCC would consequently have to monitor the cross-owner's activities to
prevent abuses. "Such a course is impracticable, unduly burdensome from an adminis-
trative standpoint, and inconsistent with the concept of broadcasting as a field of free
enterprise." Rust Craft Broadcasting Co., 36 F.C.C. 1549, 1553 (1964).
   35. Citizens TV Protest Comm. v. FCC, 348 F.2d 56, 61-63 (D.C. Cir. 1965). After
the case was remanded, the station was sold to another buyer. Rust Craft Broadcasting
Co., 1 F.C.C.2d 1090 (1965).
                      THE AMERICAN UNIVERSITY LAW REVIEW                        (Vol. 26:688

dominated television. 36 This growth caused numerous problems for
the Commission and demonstrated the need for comprehensive rules
governing cable's orderly development.3 7 Relying upon the Supreme
Court's support of its "ancillary" jurisdiction over cable, 38 the FCC
initiated a proceeding to develop rules for a wide range of cable is-
sues, among them cable ownership.3 9 The FCC issued the strong
warning, "we stress that no grandfathering is contemplated . . ."40
and proposed to adopt a rule prohibiting television-cable cross-
ownership if the cable system overlapped with a station's "grade B
contour," the outer boundary of the area receiving the station's
        4
signal. '
           B.    Adoption of the 1970 Rule Requiring Divestiture
  In 1970 the FCC adopted the proposed rule and ordered existing
cross-owners to divest either their television station or their cable
system within three years.4 2 The Commission noted the increasing


   36. ON THE CABLE, supra note 1, at 29-30.
   37. Id.
   38. United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968) (the Commis-
sion may regulate cable to the extent "reasonably ancillary" to the effective perfor-
mance of the Commission's various responsibilities for the regulation of television broad-
casting). For a discussion of the rationale and limits of the concept of the Commission's
"ancillary jurisdiction" over cable, see Home Box Office, Inc. v. FCC, No. 75-1280,
slip op. at 29-67 (D.C. Cir. Mar. 25, 1977); STAFF OF HOUSE SUBCOMM. ON COMMUNI-
CATIONS OF THE COMM. ON INTERSTATE AND FOREIGN COMMERCE, 94TH CONG., 2D
SESS., CABLE TELEVISION: PROMISE VERSUS REGULATORY PERFORM.IANCE 27-29 (Sub-
comm. Print 1976).
   39. CATV, Notice of Proposed Rulemaking, 15 F.C.C.2d 417 (1968). An inquiry into
cable ownership begun in 1967 was subsumed by this proceeding. CATV Ownerships,
Notice of Inquiry, 7 F.C.C.2d 853 (1967).
   40. CATV, Notice of Proposed Rulemaking, 15 F.C.C.2d 417, 426 (1968).
   41. Id. The area served by a television station is divided by three imaginary concen-
tric circles, or "contours" around the station. The "grade B contour" is the largest circle,
marking the circumference of the station's service area. This contour is drawn by con-
necting the points around the station at which a good picture can be expected to be
available at least 90% of the time at 50% of the furthest receiver locations. Clarksburg
 Pub. Co. v. FCC, 225 F.2d 511, 516 n.12 (D.C. Cir. 1955). The middle circle is the
"grade A contour," which is drawn by connecting the points around the station at which
a good picture can be expected to be available at least 90% of the time at 70% of the
furthest receiver locations. Id. at 515-16. The smallest circle is the "city grade contour."
The FCC has not defined this contour since, unlike grade A and grade B contours, it is
not required to be measured and reported to the Commission. See 47 C.F.R. § 73.683
(1976). Presumably, the city grade contour encloses the city limits of the station's coin-
 munity of service, where the best signals are available. See Multiple Ownership, Sec-
ond Report and Order, 50 F.C.C.2d 1046, 1081 n.33, 1082 n.34 (1975).
   42. CATV, Second Report and Order, 23 F.C.C.2d 816 (1970). In addition, the FCC
prohibited cable ownership by networks and television translator stations, which re-
19771                         CROSS-OWNERSHIP RULE

concentration of control developing in the cable industry, and stated
that it had an "obligation now, while CATV is still in an early forma-
tive stage, to weigh the implications of this trend and take appro-
                43
priate action."
   The FCC considered across-the-board divestiture to be the "appro-
priate action" because it would "further the Commission's policy
favoring diversity of control over local mass communications media"
and because none of the arguments against such a rule were per-
suasive. 44 Only by prohibiting cross-ownership throughout the tele-
vision station's service area-the entire area within the grade B con-
tour 4 5 -could the FCC fully protect the public against the potential
harms of television-cable cross-ownership. 4 6 Thus, divestiture would
be required even if the number of cable subscribers living within the
area served by the cross-owned television station was small. However
few their number, their right to diversity was found to be superior to
any interest the cross-owner might have in continuing to control both
         47
media.
   The Commission reassured cross-owners that it was not opposed to


transmit television signals. Id. at 821. NBC and CBS divested their cable property; ABC
had not acquired any cable systems and thus was unaffected by the divestiture order.
Pearson, Cable: The Thread by Which Television Competition Hangs, 27 RUTGERS L.
REv. 800, 824 n.137 (1974).
   43. CATV, Second Report and Order, 23 F.C.C.2d 816, 820 (1970).
   44. Id. The Commission gave examples of the arguments against the rule, with its
reasons for rejecting them. Cross-owners had argued that, without the assistance of a
co-owned television station, a cable system's locally originated programming might suf-
fer. The Commission found "no evidence or reason to assume" that this would be so.
"[I]ndeed, such joint ownership might discourage effective CATV program origination,
insofar as it threatened to reduce the station's own program audience." Id. Other broad-
casters had argued that cross-ownership should be allowed if the cross-owner abstained
from originating any cable programming. The FCC found this suggestion unacceptable
because such an arrangement "would deprive the viewer of an additional source of
television programming." Id. While the subscriber might have access to independent
program sources on leased or free access channels, such access would also be available
if the cable system were independently owned. With independent ownership the cable
system could also originate its own programming, without any of the duopoly problems
of cross-ownership. Id. Additionally, broadcasters had argued that the value of their
experience with the FCC's rules and policies would greatly benefit the developing
cable industry. The FCC replied that it had "no doubt that CATV operators will also
quickly develop such 'expertise . . . . ... Id. Finally, the Commission concluded that
"where there is -more than one local television station, it does not appear desirable
either to permit a joint venture in a related medium or to permit one to gain a competi-
tive advantage over others excluded from such a television-CATV combination." Id.
   45. See note 41 supra.
   46. CATV, Second Report and Order, 23 F.C.C.2d 816, 820-21 (1970).
   47. Id.
                     THE AMERICAN UNIVERSITY LAW REVIEW                        [Vol. 2.6:688

broadcasters owning cable systems; it was opposed only to their own-
ing overlapping television stations and cable systems. 4 8 Thus, cross-
owners were encouraged to divest their cable systems by exchanging
them for systems located in other areas. 49 The Commission observed
that the high number of voluntary sales of cable systems indicated
that they were easily transferable. 50 A grace period of three years was
provided specifically to aid such exchanges, 51 and tax certificates were
                                                              52
promised to exempt the divestitures from capital gains tax.

                       C.    Affirmation of the 1970 Rule
   Several cross-owners petitioned for reconsideration of the rule. In
1973, the Commission denied reconsideration, explaining that it had
adopted the rule to further two goals, "both of which have long been
established as basic legislative policies." 53 They were "increased
competition in the economic marketplace" and "increased competi-
tion in the marketplace of ideas." 54 The Commission noted the prob-
lems it faced in trying to remedy the overconcentration of control
that had developed in the broadcasting industry, and stated that its
1970 rule would help avoid those problems in the cable industry by
prohibiting cross-ownership in cable's early years. 55 Furthermore, the
Commission reiterated that, in light of cable's direct competition with
local television stations, "cable systems are more likely to grow, in
size and service to their subscribers, if they are not under common
                                              56
control with co-located television stations."
   While the Commission refused to rescind its 1970 divestiture order
it did allow two extra years for divestiture, with the new deadline set
for August 1975. 57 Also, it invited cross-owners to file petitions for

  48. Since one person may own only a total of seven television stations throughout
the country, 47 C.F.R. § 73.686(a)(2) (1976) (see note 15 supra), prohibiting television-
cable cross-ownership means, in effect, that a television station owner is barred from
cable ownership in a maximum of only seven markets.
  49. CATV, Second Report and Order, 23 F.C.C.2d 816, 821-22 (1970).
  50. Id. at 822.
  51. Id. at 822 n.7.
  52. Id. at 822. In fact, tax certificates were liberally granted to parties who divested.
See, e.g., King Videocable Co., 49 F.C.C.2d 1297 (1974); Cosmos Cablevision Corp., 33
F.C.C.2d 293 (1972), in which certificates were granted for the sale of cable systems not
even subject to the divestiture order.
  53. Cable Television Cross-Ownership, Memorandum Opinion and Order, 39
F.C.C.2d 377, 391 (1973).
  54. Id.
  55. Id. at 391-92.
  56. Id. at 392.
  57. The deadline was thus set for five years after adoption of the rule, seven years
after the first warning that divestiture would be ordered.
1977]                          CROSS-OWNERSHIP RULE

waiver of the divestiture order. 58 The Commission asked assistance in
developing waiver criteria that would "both serve the underlying
objectives of [the rule] and avoid unnecessary hardship [to cross-
owners]." 59 Specifically, information was sought in three areas: (1) the
extent (if any) of financial loss the cross-owner would suffer from di-
vestiture; (2) the effect of cross-ownership on local economic competi-
tion and diversity of media control; and (3) the cable system's quality
of service and the extent to which cross-ownership impaired or en-
           60
hanced it.
              D.   Cross-Owners'Attempts to Avoid Divestiture
   Despite the Commission's extension of the divestiture deadline and
its invitation of petitions for waiver, cross-owners continued to attack
the 1970 divestiture order. In Gill Cable, Inc. v. FCC6 1 they sought
appellate review to have the rule declared unlawful. At the same
time, they continued their campaign at the Commission to weaken
the rule. Many asked permission to increase, rather than divest, their
cross-owned interests. Most of these requests were granted, for a var-
iety of reasons. 62 Some were granted over the opposition of the

  58. Cable Television Cross-Ownership, 39 F.C.C.2d 377, 394 (1973). The Commis-
sion had adopted rules in 1972 that required cable systems with over 3,500 subscribers
to reserve three channels for the use of educational, governmental and other non-profit
public groups and individuals, and to reserve at least one channel for lease to an inde-
pendent programmer. Cable Television Report and Order, 36 F.C.C.2d 141, 190-92
(1972). The Commission concluded that, while not sufficient to alter the need for a
cross-ownership prohibition, these rules increased the possibility that waivers in indi-
vidual cases would be justified. 39 F.C.C.2d at 393. For a discussion of the FCC's sub-
sequent drastic modification of its access requirements, see note 101 & accompanying
text infra.
   59. 39 F.C.C.2d at 394 (1973).
   60. Id.
   61. No. 73-1344 (9th Cir., filed Feb. 28, 1973). Although the case was remanded
before decision, see note 74 & accompanying text infra, the Commission filed a brief
strongly defending its rule. Brief for Respondent FCC, Gill Cable, Inc. v. FCC, No.
73-1344 (9th Cir., filed Feb. 28, 1973). The Commission emphasized that the rule would
promote the first amendment and antitrust goals of diversity in local media ownership.
It describes its attempts to make divestiture as fair to cross-owners as possible-pro-
viding a five-year grace period, encouraging exchanges of property, offering tax certifi-
cates, and inviting petitions for waiver. Finally, it explained that the rule did not pre-
vent broadcasters from owning cable systems; they were only prevented from owning
cable systems in.the markets in which they owned television stations.
  The Department of Justice filed a brief for the United States which also strongly
defended the 1970 divestiture rule. Brief for Respondent, United States Dep't of Justice,
Gill Cable, Inc. v. FCC, No. 73-1344 (9th Cir., filed Feb. 28, 1973).
  62. E.g., NewChannels Corp., 46 F.C.C.2d 1001 (1974) (purchase of cable systems
 within applicant's predicted grade B contour allowed, since actual grade B contour
 would not overlap); Mountain Zone TV, 48 F.C.C.2d 1046 (1974) (local cable system is
                     THE AMERICAN UNIVERSITY LAW REVIEW                       [Vol. 26:688

cross-owners' competitors. 63 The Commission justified others on the
ground that temporary increases would not irreparably harm the pub-
lic interest since divestiture would ultimately be required. 64 Finally,
in other cases, the FCC claimed that the need for prompt resolution
of the pending petitions for reconsideration would justify the approval
                               65
of increased cross-ownership.
   Over seventy petitions for waiver were filed, involving over one
hundred cross-owned stations. The Department of Justice opposed
forty-two of the petitions, arguing that without divestiture, the
cross-owners would have an excessive control of local media. 6 6 Many
local community groups also opposed the cross-owners' petitions for
waiver, contending that divestiture was necessary to alleviate the
mediocre service resulting from the concentrated media control of the
cross-owners. 6 7 One national media reform organization, the National

only potential buyer of failing translator station in sparsely populated area); Bass Bros.
Enterprises, 49 F.C.C.2d 904 (1974) (purchase of television station casting grade B con-
tour over applicant's cable system allowed, since the two properties were in different
markets and could not realistically be considered competitive).
   63. E.g., Community Television of Utah, Inc., 43 F.C.C.2d 390 (1973) (cross-owner
who had not yet even begun construction of the cross-owned system when the 1970 rule
was adopted allowed to construct, despite competitor's charge that the cross-owner
would thereby have every incentive to build an inadequate system).
   64. E.g., Stauffer Publications, Inc., 25 RAD. REG.2d (P-F) 111 (1972); CATV of Rock-
ford, Inc., 31 F.C.C.2d 696 (1974); Community TV of Utah, Inc., 49 F.C.C.2d 767
(1974); McClatchy Newspapers, Inc., 46 F.C.C.2d 987 (1974); Valley Broadcasters, Inc.,
37 F.C.C.2d 613 (1972).
   65. E.g., Warner Communications, Inc., 25 RAD. REG.2d (P-F) 298 (1972); Federated
Media, Inc., 40 F.C.C.2d 974 (1973); Gill Indus., 33 F.C.C.2d 818 (1971); Kern Cable
Co. Inc., 33 F.C.C.2d 823 (1971).
   66. See Justice Pushes for Hard Line on Cross-Ownership Waiver Pleas, BROAD-
CASTING, May 21, 1973, at 42; Justice Doesn't Budge On Cross-Ownership,BROADCAST-
ING, May 28, 1973, at 59-60; Justice Keeps Up Pressure on TV-Cable Cross-Ownership,
BROADCASTING, July 23, 1973, at 22-23; Justice Frowns on Eight More Cross-Owner-
ship Waiver Requests, BROADCASTING, Sept. 10, 1973, at 44.
   67. E.g., Comments of Atlanta Urban League, in re Georgia Cablevision Corp.,
F.C.C. File No. CSR-398(X), Dec. 12, 1973; Opposition of Community Coalition for
Media Change to Petition for Waiver, in re Concord TV Cable, F.C.C. File No.
CSR-409(X), Aug. 31, 1973; Opposition [of Citizens United for Better Broadcasting] to
 Petition for Waiver of Rules for Gross Telecasting, Inc., in re Gross Telecasting, Inc.,
F.C.C. File No. CSR-390(X), Aug. 31, 1973; Opposition [of Civil Liberties Union of
Alabama] to the Petition of NewChannels Corp. for Waiver, in re NewChannels Corp.,
F.C.C. File No. CSR-411(X), Sept. 25, 1973; Opposition [of Committee for Open Media]
to the Petition of Gill Cable Co. for Permanent Waiver of Media Cross-Ownership
Rules, in re Gill Cable, Inc., F.C.C. File No. CSR-395(X), Aug. 31, 1973; Opposition [of
residents of Geneva, N.Y.] to Ontario Petition for Waiver of Rules, in re Ontario Cable
Television, Inc., F.C.C. File No. CSR-423(X), Aug. 31, 1973.
  All of these comments and oppositions are available for inspection in the Public Ref-
erence Room, Cable Bureau, Federal Communications Commission, Washington, D.C.
                              CROSS-OWNERSHIP RULE

 Citizens Committee for Broadcasting (NCCB), filed extensive "Com-
ments" on the seventy petitions, consolidating -and analyzing their ar-
 guments according to the three categories of information sought by
the Commission. 68 NCCB concluded that all of the petitioners either
had misunderstood the Commission's central concerns of promoting
 economic competition and a marketplace of ideas or had failed to
support their conclusory allegations with the data or affidavits re-
                               69
quested by the Commission.
   Fourteen cross-owners went even further to avoid the divestiture
order. In November and December 1973, they filed a "Joint Sup-
plement" to their petitions for waiver, asking the Commission for a
general waiver and reconsideration of the divestiture order. They
claimed that the financial condition of the cable industry was such
that they would lose money if forced to sell their systems. 70 The
Commission promptly rejected their request, pointing out that even
if cable systems were not easily transferable, the cross-owners could
divest their television stations instead. 7 1 It strongly admonished the
cross-owners not to expect their profits or losses to be placed above
the public's interest in diverse media ownership. 72
   In 1974, the cross-owners asked the FCC to seek remand of the
Gill Cable case, still pending in the Ninth Circuit, "for the limited
purpose of. . . eliminating the requirement of divestiture ....        73
Four months later the FCC requested remand of Gill Cable, giving
the Ninth Circuit only two reasons for its petition. It stated that
about seventy petitions for waiver had been filed by cross-owners,
and that it had adopted newspaper-broadcast cross-ownership rules in
Docket 18110 that included generous grandfathering provisions for
existing cross-owners. 74 With Gill Cable remanded, the Commission


   68. Comments of National Citizens Committee for Broadcasting Concerning Peti-
tions for Waiver of § 76.501, Aug. 20, 1973 [hereinafter NCCB Waiver Comments]. See
NCCB Argues for Stiffer Stand on Crossownership, BROADCASTING, Aug. 27, 1973, at
32-33.
   69. NCCB Waiver Comments, supra note 68, at 22-23.
   70. The Joint Supplement was filed just eleven months after the Commission denied
general waiver, i.e., grandfathering, and reconsideration of the rule.
   71. Midessa Television Co., 44 F.C.C.2d 317 (1973).
   72. Id. at 318-20.
   73. Petitioners' Joint Petition and Request for Remand and Reconsideration, Docket
18397, Sept. 19, 1974, at 2.
   74. Motion for Remand for Respondent FCC, Jan. 31, 1975, Gill Cable, Inc. v. FCC,
No. 73-1344 (9th Cir., filed Feb. 28, 1973). On the same day that the FCC filed its
Motion, it released to the public its Docket 18110 newspaper-television cross-ownership
rules. Multiple Ownership, Second Report and Order, 50 F.C.C.2d 1046 (1975), rev'd in
part & aff'd in part sub nom. National Citizens Comm. for Broadcasting v. FCC, No.
                    THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688


prepared to rescind its 1970 divestiture requirement, thereby re-
pudiating a position it had spent five years defending.

                 III.   THE FCC's RESCISSION OF ITS 1970
                              DIVESTITURE ORDER

            A.    The Proposed Modifications of the 1970 Rule
   In April 1975, the Commission initiated a rulemaking proceeding
proposing the replacement of the 1970 rule with one whose terms were
parallel to those adopted for newspaper-television cross-ownerships in
Docket 18110. 75 In Docket 18110 the Commission prohibited the cre-
ation of new newspaper-television combinations if the community of
                                                                       76
publication overlapped with the television station's grade A contour.
Divestiture of existing combinations was ordered only where a com-
munity's sole daily newspaper was cross-owned with the only televi-
sion station providing the city with a city grade signal. 77 Applying
these terms to its 1970 television-cable rule, the Commission pro-
posed to replace its absolute ban on television-cable cross-ownership
throughout the station's grade B contour with a two-part rule. First,
it proposed to prohibit new television-cable combinations if the cable
system overlapped with the station's grade A contour; second, it
proposed divestiture of existing cross-ownerships only if the television
station was the only one providing the cable system's subscribers with
                    78
city grade signals.
   In effect, the Commission proposed to modify its 1970 absolute ban
on cross-ownership in a way that would not only grandfather virtually
all existing combinations, but would also allow new combinations to
be formed. By proposing to prohibit new combinations only within
the grade A contour, instead of the grade B contour, the FCC ex-


75-1064, (D.C. Cir. Mar. 1, 1977). In Docket 18110 the FCC prohibited the creation of
new newspaper-television combinations, but it ordered divestiture only in "egregious"
cases in which the cross-owner controlled a community's only newspaper and only tele-
vision station casting a city grade signal over the community. See note 41 supra. Adop-
tion of this narrow grade divestiture standard meant that only seven of the seventy-
nine existing cross-owners were ordered to divest. 50 F.C.C.2d at 1098. For a more
detailed discussion of the newspaper-broadcast cross-ownership rules, see notes 138-58
& accompanying text infra.
   75. Cable Television Systems, Notice of Proposed Rulemaking, 52 F.C.C.2d 161
(1975).
   76. Multiple Ownership, Second Report and Order, 50 F.C.C.2d 1046, 1075 (1975).
   77. Id. at 1081-82. See note 74 supra.
   78. Cable Television Systems, Notice of Proposed Rulemaking, 52 F.C.C.2d 161, 162
(1975).
19771                         CROSS-OWNERSHIP RULE

 posed all cable subscribers living in the station's grade B contour to
 the threat of potential cross-ownership. Additionally, by substituting a
 new and extremely narrow divestiture standard for the 1970 rule, the
 FCC proposed to allow all but a few isolated television stations to
 keep their co-owned cable systems.
   The Commission's Notice of Proposed Rulemaking announcing
these proposed changes was virtually devoid of explanation for the
drastic reversal of policy. It stated only that about seventy petitions
for waiver of the divestiture requirement had been filed 79 and that the
proposed modification of the divestiture standard was "based on the
knowledge concerning multiple ownership we have acquired in our ex-
tensive and recently completed study of newspaper-television combi-
nations in Docket 18110."80 The FCC did not explain why the waiver
petitions or Docket 18110 warranted elimination of the five year old
rule for television-cable cross-ownership; nor was any information pro-
 vided showing specifically which existing cross-owners would be
 grandfathered under the proposed modifications.
    The cross-owners generally supported the proposed revisions. They
 argued that television and cable were not really competitive media
 because the advertising revenues from cable are much smaller than
 those derived from television and because cable systems do not have
 as much discretion over what to offer on their channels as television
 stations have."' They claimed that because the two media serve dif-
 ferent advertisers and different audiences, they "are competitive in
 no way."82 Cross-owners who would be forced to divest even under
 the modifications argued that the proposals did not go far enough. 8 3

  79. Id. at 161. No mention was made of the many oppositions to the petitions, how-
ever. See notes 66-68 & accompanying text supra.
  80. Id. at 162.
  81. See, e.g., Joint Comments [of Chronicle Pub. Co., Gill Indus., Gill Cable, Inc.,
and WCEE-TV, Inc.] in Reply to the Comments of National Citizens Committee for
Broadcasting and Department of Justice, May 30, 1975, Docket 20423, at 7-8 [herein-
after cited as Joint Comments of Chronicle Pub. Co.]; Joint Reply Comments [of Cox
Broadcasting Corp., Cox Cable Communications, Inc., Georgia Cablevision Corp.,
Fetzer Broadcasting Co., McClatchy Newspapers, Midcontinent Broadcasting Co., New-
Channels Corp., Ontario Cable Television, Inc.], May 30, 1975, Docket 20423.
  At the time these comments were filed, cable systems were subject to rules requiring
that cable owners retransmit the signals of certain television stations and that certain
channels be reserved as free and leased "access" channels. The FCC has rescinded
some of these rules, however, giving cable systems considerable discretion in the ser-
vices they can offer. See discussion in note 101 & accompanying text infra.
  82. Joint Comments of Chronicle Pub. Co., supra note 81, at 8.
  83. See, e.g., Reply of North Platte Multi-Vue TV Systems, Inc., May 30, 1975, Doc-
ket 20423, at 2; Reply Comments of Lawton Cablevision, Inc. and KSWO-Television
Co., May 30, 1975, Docket 20423, at 5.
                     THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688

The Department of Justice, NCCB, and local community groups con-
tended that none of the arguments for abandoning the 1970 rule set
forth either in the FCC's Notice of Proposed Rulemaking or the
cross-owners' petitions for waiver and rulemaking comments was suf-
ficient to justify the revisions.8 4 NCCB also asserted that the FCC's
curious hostility to the public's participation in the rulemaking dem-
onstrated that the proceeding was simply a pro forma exercise
                                     85
necessary to enact afait accompli.
                        B.    The Adopted Modifications
   After considering the comments, the Commission rejected one part
of its proposed modifications. 86 Thus, although its 1975 Notice of
Proposed Rulemaking would have prohibited prospective cross-
ownership only in the grade A contour, the Commission decided in-
stead to retain the grade B contour of its 1970 rule for future cross-
ownerships. While the 1975 proposal had been modeled on the
newspaper-television rule, the Commission recognized that the sig-
nificant differences between the two kinds of combinations warranted
adoption of different prospective rules:
     [W]e are now persuaded that there are . . . factors present in the
     [television-cable] area not found in the newspaper-television . . .
     area which weigh against the apparent logic of making the two
     rules precisely parallel .... The more successful a cable system is
     in introducing new types of programming and services, the more
     the audience of local broadcasters is likely to be reduced, and con-
     versely, the poorer the quality of over-the-air broadcast service, the
     greater the demand for the signal enhancement and increased
     choice made possible by a cable system. There is thus a potential
     conflict of interest in having both media commonly owned. This
                                                            87
     conflict does not cease at a station's Grade A contour.


  84. See, e.g., Comments of the United States Department of Justice, May 19, 1975,
Docket 20423; Comments of the National Citizens Committee for Broadcasting, May 19,
1975, Docket 20423 [hereinafter cited as NCCB Docket 20423 Comments]; Joint Reply
Comments of the Atlanta Urban League, Lertie Wells, et al., Geneva, New York, Citizens
United for Better Broadcasting, Committee for Open Media, and Community Coalition
for Media Change, June 27, 1975, Docket 20423.
  85. NCCB Docket 20423 Comments, supra note 84, at 29-33; Reply Comments of
National Citizens Committee for Broadcasting, June 23, 1975, Docket 20423, at 2-4
[hereinafter cited as NCCB Docket 20423 Reply Comments]. For a description of the
events which led NCCB to allege FCC hostility to public participation, see notes 127-36
& accompanying text infra.
  86. Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540 (1975).
  87. Id. at 542 (emphasis added).
19771                           CROSS-OWNERSHIP RULE

   Despite this affirmative finding of a conflict of interest with regard
to future cross-ownerships, the FCC adopted its proposed modifica-
tion regarding existing cross-ownerships, and rescinded its 1970 di-
vestiture order.8 8 Thus, existing cross-owners were ordered to divest
only if "the sole broadcast television station placing a city grade con-
tour over the cable community is that of the cross-owned station." 89
The few Darties who would be reauired to divest even under this
new standard were allowed another two years to find a buyer. 90 In ad-
dition, the FCC invited them to petition for waiver of the divestiture
order, promising to apply the same generous waiver criteria it had
adopted in Docket 18110 for newspaper-television combinations. 91
   The FCC claimed that its rescission of the 1970 divestiture order
was not based "to any significant extent on changes in the [cable]
industry," 92 but rather "on a general re-evaluation of the equities in-
volved prompted by our decision in Docket 18110." 93 Thus, the FCC
revised its 1970 television-cable rule to make it "parallel" to the new
newspaper-television rule. 9 4 In doing so, the FCC admitted that the
regulatory issues raised by newspaper-television combinations are
quite different from those of television-cable combinations. 95 In spite


  88. Id. at 548.
  89. Id. at 543. No divestiture is required if the station is a satellite station, which
passively receives and retransmits the signals of a principal station in a distant location.
Id. at 547. For a discussion of the practical effects of this divestiture standard, see notes
103-08 & accompanying text infra.
  90. Id. at 548. These parties were not identified until three months later, when the
FCC extended the deadline for filing petitions for waiver. Nine parties were listed as
required to divest. Order, Docket 20423, FCC Mimeo No. 58291, Dec. 2, 1975, n.1. In
another footnote, however, the FCC indicated that it was uncertain whether the list was
complete. Id. at n.2.
  91. The waiver criteria were (1) absence of buyers for the facilities; (2) the economic
integration of the two operations, such that they could not operate separately; (3) any
other reason tending to indicate that the purposes of the rules would not be served by
divestiture. Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540, 547
(1975).
  92. Id. at 544.
  93. Id.
  94. Id. at 541.
  95. Id. at 545. An obvious difference is in the nature of the competition between the
two kinds of combinations. Newspapers and television stations compete for advertisers
more directly than cable systems and television stations. Only about 200 of the 3,350
operating cable systems even offer advertising time for sale. BROADCASTING, CABLE
SOtRJCEBOOK   1976, at 5 (1975). On the other hand, cable systems and television sta-
tions, which cannot be viewed simultaneously, compete more directly for consumers
than newspapers and television, which are not mutually exclusive media.
  Another difference between newspaper-television combinations and cable-television
combinations is their market definitions. A newspaper's market is much more difficult to
                    THE AMERICAN UNIVERSITY LAW REVIEW                    [Vol. 26:688

of these recognized differences, however, the FCC believed that the
same factors which justified newspaper-television cross-ownerships
also applied to television-cable combinations. These factors which
were found to outweigh the public's right to diverse media owner-
ship, were "continuity of operations, local ownership, demand for
capital equity and local dislocations." 9
   Commissioner Robinson dissented, arguing that the Commission's
    failure of nerve is doubly irksome here in view of the fact that the
    Commission previously recognized the need for, and ordered, and
    subsequently reaffirmed, divestiture. Thus, what we have is not
    merely a failure to attack a recognized evil, but a retreat. Given
    our one step forward (in 1970), one step to the side (in 1973), and
    one to the rear (in 1975), I shall not wonder if some observers
                                                 97
     mistake our order of battle for a fox trot.
   Four cross-owners ordered to divest under the new rule petitioned
for reconsideration, contending that the new divestiture standard was
unreasonable and that they did not enjoy a monopoly of local video
media. The FCC dismissed their petitions, but at the same time
promised all grandfathered cross-owners that they would not be re-
quired to divest in the future even if conditions changed to bring
                                              98
them within the 1975 divestiture standard.
   At about the same time, the FCC took several other actions which
exacerbated the antidiversity effects of its rescission. The Commission
allowed cross-owners to increase their cross-owned interests even
while it was devising a means of grandfathering almost all of them. 9 9
define than a cable system's, which is established by the wire connecting all subscri-
bers. Thus, while one might have difficulty deciding whether or not a television station
and a newspaper are competing within the same market, no such difficulty arises with
television-cable combinations, whose markets clearly do or do not overlap.
   96. Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540, 544
(1975).
   97. Id. at 549.
   98. Cable Television Systems, Memorandum Opinion and Order, 58 F.C.C.2d 596,
600 (1976). Thus, a cross-owner grandfathered in 1975 because of the existence of an-
other, independent television station will not have to divest in the future even if tile
second station goes out of business, leaving the cross-owner with a complete video
monopoly.
   99. E.g., Cable TV Co. of York, 54 F.C.C.2d 1031 (1975); Newchannels Corp., 55
F.C.C.2d 623 (1975). The Commission had previously allowed other such increases, see
note 64 supra, on the grounds that they might aid in the divestiture which would even-
tually eliminate all cross-ownership. Once the FCC proposed to rescind its 1970 dives-
titure order this rationale was no longer applicable. It therefore justified the new
increases by claiming that relatively few subscribers would be affected, apparently for-
getting its earlier finding that the rights of such subscribers, however few, to diverse
media ownership were superior to the interests of the cross-owners. CATV, Second Re-
port and Order, 23 F.C.C.2d 816, 820-21 (1970).
1977]                          CROSS-OWNERSHIP RULE

Second, it declined to issue rules prohibiting cable-newspaper cross-
ownership. 10 0 Third, it reduced the requirements for cable systems to
provide at least twenty channels, and for at least three to be made
available to government, educational and non-profit groups and indi-
viduals. 10 1 Finally, the FCC refused to loosen the restrictions it had
previously placed on pay cable programming, effectively crippling
one of cable's most promising sources of revenue. 102

          C.    PracticalEffects of the New Divestiture Standard
  The 1975 divestiture standard differs from the 1970 grade B con-
tour prohibition in several significant ways. Under the 1970 standard,
divestiture would have been required if a cable system overlapped


  100. Community Antenna Television Systems, First Report, 52 F.C.C.2d 170 (1975).
Reiterating its rationale in grandfathering most newspaper-broadcast cross-ownerships,
the Commission held "the traditional values of open market entry" to outweigh "what-
ever theoretical benefits cross-ownership rules might have." Id. at 171.
   101. Cable TV Capacity and Access Rules, Report and Order, 59 F.C.C.2d 294
(1976). Although the Commission found that access channels could "result in the open-
ing of new outlets for local expression, aid in the promotion of diversity in television
programming ... (and] aid in the functioning of democratic institutions . .. id. at 296,
                                                                              ,"
it replaced its 1972 requirement of four access channels with one allowing the addition
of such channels as needed, and one "composite" access channel if four are not readily
available. Id. at 297. Systems with fewer than 3500 subscribers are not required to pro-
vide any access channels at all. Id. Systems begun before 1972 with 3500 or more
subscribers which do not now provide access channels are not required to reconstruct
their systems to do so until 1986, instead of 1977. Id. Such systems have thus been
given fourteen years to comply with the access rule.
   102. Subscription TV Program Rules, 52 F.C.C.2d 1 (1975), reconsideration, Cable-
casting of Programs, 54 F.C.C.2d 797 (1975), rev'd sub nor. Home Box Office, Inc. v.
FCC, No. 75-1280, (D.C. Cir. Mar. 25, 1977). "Pay cable" or "subscription cablecasting"
is a means of offering programs to viewers for a per-program or per-channel fee, in
addition to monthly cable subscriber rates. Because pay cable programs are directly
subsidized by their viewers, they need not be interrupted by commercials, and they can
appeal to special interest groups. The additional revenues can aid the cable owner in
developing other services in the system. See generally, Baruch, Pay Cable Revenues
Could Realize Cable's Viability, TELEVISION AGE, February 4, 1974, at 33; Pearson,
Cable: The Thread by Which Television Competition Hangs, 27 RuTGERs L. REV. 800,
818-20 (1974).
   Essentially the FCC's rules prevented the showing of current movies or sports
events-two features which would attract large audiences-on pay cable channels. In
reversing these rules, the court of appeals held that the Commission had not articulated
a rational basis for its jurisdiction over pay cable programming, that no evidence existed
in the record that any rules were needed, and that no rational nexus could be found
between the purported need for rules and the adopted rules. The court also held that ex
parte contacts had fatally tainted the rulemaking proceeding. Home Box Office, Inc. v.
FCC, No. 75-1280 (D.C. Cir. Mar. 25, 1977); see generally, On Free Speech and Pay TV,
N.Y. Times, Mar. 30, 1977, § A, at 26, col. 1 (editorial); Pay Television's Future, Wash.
Post, Mar. 30, 1977, § A, at 20, col. 1 (editorial).
                     THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688

within the grade B contour of the cross-owned station, no matter how
many other stations' contours also overlapped with the cable system.
 Under the 1975 standard, however, divestiture is not necessary un-
less two conditions are met: (1) the cable system must be in the city
limits, overlapping the city grade signal contour, and (2) the cable
system must be located in a community so small that only one televi-
sion station provides it with city grade signals.
   Thus, if a cross-owned cable system is located in the suburbs of a
city, in an area that receives grade A or grade B signals instead of
city grade signals from the cross-owned station, no divestiture will be
required. If a cross-owned cable system receives city grade signals
from both its cross-owned television station and just one indepen-
dently owned station, no divestiture will be required. Moreover,
should the other local station subsequently go out of business, the
cross-owner will not be required to divest. If the cable system is
jointly owned by the only two local stations, divestiture will not be
required. 103
   Although the Commission claimed that its 1975 rule would force
 divestiture of "the most egregious cases," 10 4 it in fact grandfathered
some of the most monopolistic media ownerships in the country. For
example, the 1975 modification grandfathered Cox Broadcasting Co.
in Atlanta, Georgia. Cox owns the city's two daily newpapers, the
dominant AM, FM and television stations, and the cable systems for
Atlanta and its suburbs.' 0 5 San Francisco's Chronicle Broadcasting
 Co. was also grandfathered. It owns the largest newspaper in the
 market, enjoys a joint operating agreement with the second largest
newspaper, owns the dominant television station, three cable systems


    103. Thus the 1975 divestiture standard directly contradicts the FCC's finding in
1970 that "where there is more than one local television station, it does not appear
desirable either to permit a joint venture in a related medium or to permit one to gain a
competitive advantage over others excluded from such a TV-CATV combination."
CATV, Second Report and Order, 23 F.C.C.2d 816, 820 (1970).
    104. Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540, 544
(1975).
    105. Opposition of Department of Justice to Petition [of Cox Broadcasting Co.] for
Special Relief for a Waiver of Section 76.501 of the Commission's Rules, F.C.C. File
No. CSR-398(X), Aug. 14, 1973, at 10-11. The Department of Justice observed that
    [t]he combination of Cox's almost total dominance of the Atlanta newspaper market,
    Cox's first ranked television station, Cox's superior radio facilities, and the enor-
    mous potential for development of Cox's Atlanta CATV systems creates a prima
    facie case that there is at present greater concentration of media control in Atlanta
    than in any other top twenty markets in the country.
Id.
1977]                         CROSS-OWNERSHIP RULE

serving South San Francisco and suburban areas, and four other cable
systems in the region. 100 The Steinman family in Lancaster, Pennsyl-
vania was also grandfathered. They control Lancaster's one Sunday
and two daily newspapers, its only VHF television station, the cable
system, and two of five radio stations. Moreover, two of the other
three are owned by Steinman's minority interest partners in the cable
        10 7
system.
   Even the retained portion of the 1970 divestiture rule, the prohibi-
tion of new cross-ownerships in the grade B contour, was weakened.
The Commission promised to consider waiving its prospective rule for
grandfathered cross-owners who desire to increase their cross-owned
interests in violation of the rule. 10 8 Thus, despite the Commission's
claim that it was promoting diverse media ownership, the substance
of its new rule actually promotes concentrated media ownership.
   In short, the FCC abandoned its simple, diversity-promoting 1970
rule for a vague and complicated rule protecting concentrated media
ownership. The 1970 rule provided the public with maximum protec-


  106. Opposition of Department of Justice to Petition for Waiver of Section 76.501 of
the Commission's Rules, in re Concord TV Cable, F.C.C. File No. CSR-409(X), Aug. 31,
1973, at 1-4. The Department of Justice observed that
  [t]hese additional factors, most particularly the common newspaper ownership, so
  significantly aggravate media concentration in the San Francisco-Oakland area as to
  make divestiture of Chronicle's . . . cable systems essential, both as a matter of
  fidelity to [the rule's] purposes and as a matter of consistency with the public in-
  terest.
Id. at 8.
  107. BROADCASTING YEARBOOK 1976 A-51 (1976); BROADCASTING, CABLE SOURCE-
BOOK 1976, at 197 (1975). A Lancaster community group opposing modification of the
1970 divestiture order stated in its comments
  [a] newcomer to Lancaster County with a VHF TV set, has a choice of the follow-
  ing: (1) subscribe to [Steinman's] CATV at $15.00 installation fee and $63.00 a year
  to get a variety of stations .... (2) Buy a TV with UHF channels and hope you're in
  a good enough location to get some CBS and ABC UHF stations. (3) Subscribe to an
  out of town newspaper and forget about getting local news.
Comments of Lancaster Women's Center, May 19, 1975, Docket 20423, at 4.
  108. In response to cross-owners' inquiries concerning expansion of existing cable
systems, the Commission stated
  it is clear that the expansion of a system into a new community within a cross-
  owned station's Grade B contour could not take place without a waiver of the rules.
  In other areas of cable regulation, such as signal carriage and access requirements,
  we have granted such waivers where we have found them to be in the public in-
  terest. We believe it appropriate to follow that policy here as well as allowing such
  expansion where technical or economic factors mandate that the new areas be
  served by the existing cross-owned system rather than by the creation of a new
  independent system or the extension of a non-cross-owned system.
Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540, 546 (1975).
                    THE AMERICAN UNIVERSITY LAW REVIEW                   [Vol. 26:688

tion: all cable subscribers were assured that their systems could not
be owned by any television station whose signals were receivable
over the air; and all television viewers were assured that their sta-
tions could not be purchased by the local cable systems. The 1975
rule provides minimum protection. The only hope for residents of
cross-owned communities is that their cross-owners will decide at
some point to sell either the television station or the cable system.
           IV.    THE UNLAWFULNESS OF THE RESCISSION OF
                       THE   1970   DIVESTITURE ORDER

   The FCC, like other regulatory agencies, is to be accorded consid-
erable discretion in performing its regulatory duties. Nevertheless, it
must act within the general boundaries of reasoned decisionmaking.
These boundaries are designed to ensure that the agency's proce-
dures are fair and that substantive decisions are explained with suffi-
cient clarity to allow a court to review their reasonableness. 10 9
   An agency must first compile an adequate record. 110 This includes
studying possible alternatives, particularly when they are sug-
gested. 1 1 ' Public participation is essential in this process; if neces-
sary, the agency must affirmatively solicit the views of non-industry
parties who will be affected by its proposed action. 112 It may not
simply balance the interests of the competing industries and assume
that the public interest will thereby be served. 113 Where antitrust
issues are involved in a rulemaking, the views of the Department of
Justice should be considered.114
   As the agency reaches its decision, it must consider all the relevant
facts pertaining to an issue, and may not put on "rigid and arbitrary


  109. See generally, K. DAVIS, ADMINISTRATIVE LAW TREATISE §§ 29.01-29.11
(1958); Geller, Judicial Review of Administrative Action: Communications Law, 63
GEO. L.J. 39 (1974); Leventhal, Environmental Decisionmaking and the Role of the
Courts, 122 U. PA. L. REV. 509 (1974); Wright, Court of Appeals Review of Federal
Regulatory Agency Rulemaking, 26 AD. L. REV. 199 (1974).
  110. Scenic Hudson Preservation Conf. v. FPC, 354 F.2d 608, 612 (2d Cir. 1965).
  111. Id.
  112. National Ass'n of Indep. Tel. Producers & Distribs. v. FCC, 502 F.2d 249, 258
(2d Cir. 1974); Calvert Cliffs' Coordinating Comm., Inc. v. AEC, 449 F.2d 1109, 1117
(D.C. Cir. 1971); Office of Communication of United Church of Christ v. FCC, 425 F.2d
543, 546 (D.C. Cir. 1969).
  113. National Ass'n of Indep. Tel. Producers & Distribs. v. FCC, 502 F.2d 249,
257-58 (2d Cir. 1974); Citizens TV Protest Comm. v. FCC, 348 F.2d 56, 59 (D.C. Cir.
1965).
  114. National Ass'n of Indep. Tel. Producers & Distribs. v. FCC, 502 F.2d 249,
256-57 (2d Cir. 1974).
19771                          CROSS-OWNERSHIP RULE

blinders" to ignore critical issues. 115 The agency's final decision must
be reasonable, 116 especially when it has retroactive effects. 117 The
agency must articulate its reasons with clarity, 11 8 particularly when
altering a previously determined policy. 119
   Review of agency actions ensures that the agency has "really taken
a 'hard look' at the salient problems, and . . . has genuinely engaged
in reasoned decisionmaking." 120 The court determines whether the
agency's findings "are supported by 'substantial evidence.' -121 To
complete this review function, the "court must not be left to guess as
                                      ' 122
to the agency's findings or reasons. "
   In conducting its 1975 rulemaking the FCC failed to comply with
all of the above criteria for reasoned decisionmaking. Its rulemaking
was procedurally defective and its result was substantively unreason-
able.
                              A.    ProceduralErrors
  The Commission failed to compile a record that fully considered
the implications of rescinding the 1970 divestiture order. It admitted
that its proposed rule modifications were intended to respond to the
seventy petitions for waiver of the 1970 divestiture order. 123 It made
no effort, however, to notify any of the parties opposing these waiver
requests that it was considering granting the petitions by changing
the rule. 124 This failure is particularly egregious in light of the fact

  115.   Columbia Broadcasting Sys., Inc. v. FCC, 454 F.2d 1018, 1027, 1033 (D.C. Cir.
1971).
  116. Id. at 1025, 1027.
  117. General Tel. Co. v. United States, 449 F.2d 846, 863 (5th Cir. 1971).
  118. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970),
cert. denied, 403 U.S. 923 (1971); Melody Music, Inc. v. FCC, 345 F.2d 730, 733 (D.C.
Cir. 1965).
   119. Columbia Broadcasting Sys., Inc. v. FCC, 454 F.2d 1018, 1026 (D.C. Cir. 1971).
   120. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970),
cert. denied, 403 U.S. 923 (1971).
   121. National Ass'n of Indep. Tel. Producers & Distribs. v. FCC, 502 F.2d 249, 256
(2d Cir. 1974).
   122. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970).
   123. Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540, 545-46
(1975).
   124. Except for NCCB and the Department of Justice, all the opponents were small
community groups outside Washington with no direct access to FCC Notices or the
Federal Register. See note 67 supra. The Administrative Procedure Act, 5 U.S.C.
§ 553(b) (1970), requires agencies to give public notice of rulemakings by publication in
the Federal Register or by personal service. The Act also requires that "interested per-
sons" be given "an opportunity to participate in the rulemaking through submission of
written data, views, or arguments with or without opportunity for oral presentation." Id.
at 5 U.S.C. § 553(c).
                     THE AMERICAN UNIVERSITY LAW REVIEW                        [Vol. 2-6:688

 that the FCC had acknowledged that granting the petitions for waiver
would affect residents of the grandfathered communities "indefin-
itely."' 125 Considering the serious implications of its proposed rule mod-
ifications, the Commission's bare compliance with the notification re-
                                                                         26
 quirements of the Administrative Procedure Act was inadequate.'
   Furthermore, the FCC actively discouraged non-industry participa-
tion in the rulemaking. Requests for basic information necessary for
understanding the scope of the proposed rule modifications were met
with misinformation and hostility.' 27 The Commission actually admit-
ted that, in its view, as long as the information was available to the
affected industries, it need not be provided to the public. 128 Some
information "not conclusive" and containing "some errors," was made
available only in response to a Freedom of Information Act Re-
quest.' 2 9 Even then it was withheld until the deadline for filing reply


   125. Midessa Television Co., 44 F.C.C.2d 317, 320 (1973).
   126. Bare compliance with the APA may not adequately solicit public participation
to produce a record upon which reasonable rules can be based. See National Ass'n of
Indep. Tel. Producers & Distribs. v. FCC, 502 F.2d 249 (2d Cir. 1974), in which the court
remanded for further rulemaking an FCC rule concerning prime time programming that
had been reached without adequate participation of non-industry representatives. The
Commission's compliance with the APA's notification requirements had not solicited
adequate participation in the proceeding.
   The FCC's failure to notify the seven media reform groups that filed oppositions to
the petitions for waiver of the 1970 rule is peculiar in light of its extensive efforts to
notify "every station licensee and network organization" of proposed regulations regard-
ing network-station affiliation arrangements. See National Broadcasting Co. v. United
States, 319 U.S. 190, 195-97 (1943) (Commission sent individual notifications to at least
341 stations).
   127. In its Comments, NCCB described the FCC's hostility toward non-industry par-
ticipation in the rulemaking. See note 85 & accompanying text supra. It stated that, to
understand the scope of the proposed rule, it was necessary to know which cable sys-
tems lay within the city grade contours of their cross-owned stations. City grade con-
tours, however, unlike grade A and grade B contours, are not plotted on the contour
maps available at the FCC; nor are they published in industry factbooks. When NCCB
asked the FCC for the information, it was told to hire an engineer to study old station
maps in the FCC archives in Suitland, Maryland, to determine for itself the city grade
contours.
   128. NCCB Docket 20423 Comments, supra note 84, at 31-32. When asked for a list
of cross-owners who would be grandfathered by the proposed revisions the FCC ini-
tially claimed that it had not prepared such a list. Later it stated that it had prepared a
list, but that there was no need to make it public since the information was known to
cross-owners. Id.
   129. The FCC agreed to release the information sought by NCCB, see notes 127-30
& accompanying text supra, only if NCCB filed a Freedom of Information Act Request.
NCCB Docket 20423 Comments, supra note 84, at 31-32. NCCB filed the Request.
NCCB Request for Inspection of Records, May 23, 1975, Docket 20423. On the day
reply comments were due, the FCC released what it admitted to be "not conclusive"
19771                         CROSS-OWNERSHIP RULE

               0
comments. 13
   The FCC not only discouraged non-industry representatives from
compiling an adequate record on which a public interest finding
could be made, it apparently did not compile the necessary informa-
tion on its own. The charts and data finally released by the FCC
pursuant to the Freedom of Information Act Request indicate that the
FCC never compiled complete data showing (1) which cross-owners
would be forced to divest under the new rule; (2) the independent
media available in the communities where divestiture would take
place; (3) the independent media available in the communities where
grandfathering would occur; (4) the other local media owned by the
cross-owners; (5) the local market share of advertising revenues con-
trolled by the cross-owners. 131
   Without this information the FCC was unable to consider its pro-
posed modifications in their entire factual context. It insisted upon
wearing "rigid and arbitrary blinders" so that it could achieve the
overall grandfathering that it desired. Once the FCC proposed to
abandon its across-the-board divestiture order, which had ensured
maximum diversity to the public, it was obliged to ascertain the ef-
fects on diversity that any substitute rule would have. The Commis-
sion apparently failed to consider the five factors listed above-factors
which are essential to the development of a new television-cable
cross-ownership rule. The Commission's failure to take these factors


data containing "some errors" concerning television-cable cross-ownership. Letter from
David Kinley, Chief, Cable Television Bureau, to NCCB (CN:5-42), May 29, 1975. See
also Letter from David Kinley, Chief, Cable Television Bureau, to NCCB (CN:5-61),
July 9, 1975. These letters are available for inspection in the Cable Bureau, Federal
Communications Commission, Wash., D.C. For a list of the items released, see note 131
infra.
   130. The FCC refused to extend the deadline for reply comments, thus preventing
any party from including the information in its reply comments. Order, May 30, 1975,
Docket 20423, FCC Mimeo No. 50902.
   131. The information provided in response to the Freedom of Information Act Re-
quest was made available for inspection by NCCB's counsel, the Citizens Communica-
tions Center, Washington, D.C. It consisted of two undated, untitled charts, both show-
ing some of the cross-owners who had petitioned for waiver, some who had divested,
and some who had not yet divested and had not petitioned for waiver; two memoranda
considering rescission of the cablecasting requirements; two undated charts analyzing
cable-newspaper cross-ownership; summaries of 51 petitions for waiver of the 1970 di-
vestiture order; an undated chart analyzing eight "Petitions [for Waiver] Involving Sub-
stantial Cross-Ownership Concentration and Lack of Diversity of Media"; an undated
chart showing four petitioners who control their communities' only television, radio,
and cable facilities; and an undated chart showing four petitioners with cross-owned
television-radio-cable and newspaper property.
                    THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688

into account necessarily renders its new rule arbitrary and unreason-
able.
   The FCC's decision was issued just six months after the rulemaking
was opened. This short gestation period is a "danger signal" 132 that
the "agency has not really taken a 'hard look' at the salient problems,
and has not genuinely engaged in reasoned decisionmaking."' 133
   Finally, the Commission's report of its decision is unclear, 134 inter-
nally inconsistent, 13 5 and inadequate. 136 It leaves a court reviewing
                                                           1 7
                                                           3
the action "to guess at the agency's findings or reasons."
                            B.    Substantive Errors
   In justifying its rescission of the 1970 divestiture order, the Com-
mission relied entirely upon its action in Docket 18110 in which it
grandfathered virtually all existing newspaper-television combina-
tions. The Commission failed to explain, however, why it found the
factors it had considered relevant in Docket 18110 to be relevant to
television-cable cross-ownerships. This failure made the 1975 rescis-
sion of its divestiture order substantively irrational.
1.   Reliance upon an unlawful model: Docket 18110
  In Docket 18110, the FCC prohibited the creation of new news-
paper-television combinations, holding that the prohibition would

   132. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970).
   133. Id. This six month period should be compared with other FCC actions. The
1970 divestiture rule, for example, was adopted after a two-year rulemaking, and two
and one half years of deliberation were required before the FCC finally decided not to
reconsider its 1970 rule.
   134. The Commission's attempt to explain why it adopted a different standard for
divestiture, for example, seems to make no sense whatsoever: "In adopting a different
standard for divestiture than for the prospective rule, the Commission is recognizing
that the rule does not apply with the same urgency at locations removed from a station's
core service area as it does in more distant locations ...." Cable Television Systems,
Second Report and Order, 55 F.C.C.2d 540, 544 (1975). Whatever the difference be-
tween the two locations, if one can be found, it is unclear why the rule does not apply
with the same urgency throughout the station's service area, as the Commission re-
peatedly held in defending its 1970 divestiture order. See, e.g., CATV, Second Report
and Order, 23 F.C.C.2d 816, 820-21 (1970).
   135. In the same decision, the Commission found that television-cable cross-owner-
ship is so dangerous to the public interest that nonexisting combinations must be pro-
hibited throughout the television station's service area, but that existing combinations
need not be separated except in extremely narrow circumstances. Compare the FCC's
statements in Cable Television Systems, 55 F.C.C.2d 540, at 542-44 with its statements
at 544-46.
   136. See discussion of the inadequacy of the FCC's explanation for its grandfather-
ing in notes 164-74 & accompanying text infra.
   137. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970).
1977]                         CROSS-OWNERSHIP RULE

serve the public interest goal of increased diversity in media.'               38   The
Commission found that
   If our democratic society is to function, nothing can be more important
   than insuring that there is a free flow of information from as many di-
  vergent sources as possible . . . .[i1t is unrealistic to expect true diver-
  sity from a commonly owned station-newspaper combination. The di-
   vergency of their viewpoints cannot be expected to be the same as if
   they were antagonistically run.' 39
   Despite these findings the Commission refused to order divestiture
of all seventy-nine existing newspaper-television combinations. In-
stead, it ordered divestiture only in the seven "egregious" cases in
which the cross-owner held a complete local newspaper-television
monopoly. 140 The Commission deliberately devised an extremely nar-
row divestiture standard. 14 1 It had not found conclusive evidence of
abuses resulting from cross-ownership, 142 and thus believed that the
threat of adverse consequences from divestiture outweighed the "ab-
stract goal" of diversification. 1 43 Specifically, the Commission found
the goals of "local ownership,"' 14 4 "continuity of operation,' 1 45 and
avoidance of "local economic dislocations"' 146 to be superior to the
"hope or expectation that a change in ownership would bring public
benefits. "147
   On March 1, 1977, the Court of Appeals for the District of Colum-
bia, while upholding the Commission's prospective ban on new com-
binations, reversed and remanded the Commission's rule for existing


  138.    Multiple Ownership, Second Report and Order, 50 F.C.C.2d 1046, 1074-78
(1975).
   139. Id. at 1079-80 (emphasis added).
   140. For a description of this narrow divestiture standard, see note 74 supra.
   141. "It is plain that what we are doing is grandfathering present newspaper-
television owner combinations; we are only requiring divestiture in egregious cases
        .
       Multiple Ownership, Second Report and Order, 50 F.C.C.2d 1046, 1050 (1975).
   142. The Commission held that "it is not necessary to have proof of abuses before
we can act," id. at 1080 n.29, but concluded that if the two media were operated as
mirror images of each other, "it might have been necessary for the Commission to act to
require divestiture in many more situations." Id. at 1089.
   143. Id. at 1078.
   144. "Requiring divestiture could reduce local ownership as well as the involvement
of owners in management as many sales would have to be to outside interests." Id.
   145. "The continuity of operation would be broken as the new owner would lack the
long knowledge of the community and would have to begin raw." Id.
   146. "Local economic dislocations are also possible as a result of the vast demand
for equity capital and wide-scale divestiture could increase interest rates and affect
selling price too." Id.
   147. Id.
                    THE AMERICAN UNIVERSITY LAW REVIEW                      [Vol. 26:688

newspaper-television combinations. 148 The court found that because
of the lack of conclusive evidence in the record, "the Commission
necessarily had to rely primarily on policy, not factual considera-
tions."' 149 The court stated that while the Commission had observed
that the record lacked evidence of cross-owners' abuses, it had failed
to emphasize that the record also did not show that cross-ownership
                               0
serves the public interest.15
   The court believed that, in the absence of firm evidence, the
Commission reasonably could have ordered across-the-board divesti-
ture, since such "divestiture is prima facie in the public interest."''
Instead, the FCC had concluded that the importance of local owner-
ship, continuity of operations, and local economic dislocations re-
quired that divestiture not be ordered unless harm from cross-own-
ership was proven. The court held that the Commission's preference
for these three factors over the increased diversity resulting from di-
                            52
vestiture was erroneous.1
   The court also found that, even if these factors would justify cross-
ownership, no evidence existed to support the Commission's fears
that divestiture would in fact adversely affect local ownership and con-
tinuity of operation and result in local economic dislocations. In addi-
tion to the fact that local ownership is not of primary importance in
Commission licensing decisions, 153 the record did not show that di-
vestiture would decrease local ownership. 154 Similarly, no threat to
the benefits from continuity of operation was found to exist, par-
ticularly since the Commission routinely allows licensees to sell their
stations voluntarily without fear of disrupting such continuity. 155 Fi-
nally, the court held that if the Commission's vague fear of "local
economic dislocations" referred to financial hardship to cross-owners,
the fear was groundless. 156 The court concluded that

   148. National Citizens Comm. for Broadcasting v. FCC, 555 F.2d 938 (D.C. Cir. 1977).
   149. Id. at 957.
   150. Id. at 962.
   151. Id.
   152. Id. at 964-65.
   153. Id. at 963. For example, the Commission does not even consider local owner-
ship when it allows licensees to sell their stations voluntarily to new licensees. Id.
   154. In fact, it appeared that at least one-quarter of the grandfathered combinations
were not locally owned; divestiture might increase local ownership in those cases. In
the others, the Commission had no reason to assume that local buyers would not be
available. Id. at 963-64.
  155. Id. at 964.
   156. Private losses are a relevant concern under the Communications Act only
  when shown to have an adverse effect on the provision of broadcasting service to
19771                             CROSS-OWNERSHIP RULE

  [t]he gains in diversity from divestiture may be speculative, but since
  divestiture is the most promising method for increasing diversity that
  does not entail governmental supervision of speech, the Commission
  could not rationally conclude that lesser policies, lacking support in the
  record, require maintenance of the status quo .... 157
     * * .The Commission has sought to limit divestiture to cases where
  the evidence discloses that cross-ownership clearly harms the public in-
  terest . . . .[W]e believe precisely the opposite presumption is com-
  pelled, and that divestiture is required except in those cases where the    58
  evidence clearly discloses that cross-ownership is in the public interest. 1

   The Commission's decision to rescind the 1970 television-cable
divestiture order was based solely upon what was held to be an un-
lawful decision in Docket 18110. This reliance renders the rescis-
sion itself unlawful; without the support of its newspaper-television
decision, the Commission's rescission had no basis in law.
   Furthermore, the significant differences between newspaper-tele-
vision combinations and television-cable combinations made the Com-
mission's reliance upon Docket 18110 inappropriate. One major dif-
ference is the role history has played in the regulation of both kinds
of cross-ownership. The newspaper-broadcast rule was developed
after fifty years of intermittent attempts to devise some means of con-
trolling increased concentration of media ownership. 159 By not for-
bidding such cross-ownership outright in the early years of regulation
the Commission allowed the growth of many local newspaper-
broadcast combinations. Thus, when it adopted cross-ownership rules
that grandfathered most cross-owners, the Commission accommo-
dated the cross-owners' desire to retain licenses that they had come
to regard as their property. 160
   Such accommodation is unnecessary in controlling television-cable
cross-ownership. There is no fifty-year history of such cross-ownership


  the public. .   .   . Yet . . . divestiture should not even produce substantial private
  losses. Most cross-owned stations are held by their original owners who by now
  have long recouped their original investment.
Id. at 963 (citations omitted).
  157. Id. at 965.
  158. Id. at 966.
  159. See R. BUNCE, TELEVISION IN THE CORPORATE INTEREST 46-64 (1976).
  160. Multiple Ownership, Second Report and Order, 50 F.C.C.2d 1056, 1064, 1074,
1078 (1975). But see FCC v. Sanders Bros. Radio Station, 309 U.S. 470, 475 (1940): "The
policy of the [Communications] Act is clear that no person is to have anything in the
nature of a property right as a result of the granting of a license."
                    THE AMERICAN UNIVERSITY LAW REVIEW                   [Vol. 26:688


that can even arguably balance the need for diversity. Television-
cable cross-owners can claim at most a fifteen-year investment prior
to the FCC's divestiture order; and all cross-owners have been on
notice since 1968 that they would likely be ordered to divest. 161
   More importantly, the newspaper-broadcast rule is inappropriate
for television-cable cross-ownerships because its safeguards do not
protect against the dangers of television-cable combinations. The
Commission believed that the primary harm from newspaper-
television combinations was that they deprived the public of max-
imum diversity of information sources. 1 62 It thus defined a divestiture
standard that responded to the need for diversity: it ensured that in
every town with a newspaper-television combination at least one in-
dependent local newspaper or television station was available. While
television-cable cross-ownerships also result in a loss of diversity,
these combinations present an additional problem: a television-cable
cross-owner will tend to favor one medium over the other, thereby
denying the public the maximum potential service from each.16 3 The
standard adopted in Docket 18110 fails to provide adequate protec-
tion against this inherent conflict of interest. The Commission could
not rationally conclude that the existence of one independent televi-
sion channel could protect the public against the cross-owner's inher-
ent tendency to operate a mediocre cable system. Nothing protects
against that tendency except divestiture.

2.   The Commission'sfailure to show that divestiture would have
     an adverse effect on "local ownership, continuity of operation,
     and local dislocations"
   Even if the court had found that in Docket 18110 "local ownership,
continuity of operation and local economic dislocations" prevailed over
the value of diversity, the Commission's application of those factors to
television-cable combinations would have been arbitrary, because no
evidence existed in the record showing how they would be adversely
affected by divestiture.


   161. Cf., General Tel. Co. v. United States, 449 F.2d 846, 863-64 (5th Cir. 1971)
(petitioners should not have relied upon the Commission's acquiescence in their cre-
ation of telephone company-cable system combinations because the Commission had for
many years hinted that it might curtail those activities).
   162. Multiple Ownership, Second Report and Order, 50 F.C.C.2d 1046, 1080-81
(1975).
   163. See notes 24-26 & accompanying text supra.
1977]                             CROSS-OWNERSHIP RULE

a.   "Local ownership"
   The FCC has never before placed a preference on local ownership
of cable systems. Unlike choices between applicants for broadcast
frequencies, choices between applicants for cable franchises have
been left almost entirely to the municipalities.16 4 Even in the broad-
cast area the FCC has held diverse ownership to be superior to local
            1 65
ownership.
  The Commission did not explain why local ownership is more im-
portant than diverse ownership for grandfathered cross-owners. In
the seven "egregious" cases in which divestiture was ordered, no con-
sideration was given to whether the cross-owners were local; the
Commission there found diversity to be more important than "local-
ness." Similarly, in its prospective prohibition on cross-ownership,
the Commission did not carve out an exception for local cross-owners.
Diversity was held to be superior. The FCC also failed to find that all
grandfathered cross-owners are actually "local" owners. 16 6 Finally, it
did not explain why divestiture would decrease local ownership, since
many stations or systems might be divested to local buyers.
b.      "Continuity of operation"
   The Commission did not cite any basis for its belief that the public
has an interest in "continuity of operation" that outweighs its interest
in diversity. 167 Even if continuity is a valid concern, no evidence
appeared in the five-year history of the 1970 divestiture order to
show that divestiture would interrupt the service provided by either
affected medium. The Commission itself referred consistently to cable
and broadcast properties as "readily transferable," as evidenced by
                                                  68
"widespread voluntary sales" of such properties.1


     164.   See 47 C.F.R. § 76.31 (1976) (federal/state/local jurisdiction over franchising).
     165.   See Policy Statement on Comparative Broadcast Hearings, 1 F.C.C.2d 393, 395
(1965).
   166. At least fifteen of the fifty cross-ownerships outlined on the FCC's own chart
involve absentee ownership. See note 131 supra.
   167. The Court of Appeals, in reversing the FCC's reliance upon the value of "con-
tinuity of operation" in Docket 18110, was not persuaded that any legal basis exists for
the policy. See National Citizens Comm. for Broadcasting v. FCC, 555 F.2d 938, 964
(D.C. Cir. 1977).
   168. CATV, Second Report and Order, 23 F.C.C.2d 816, 822 (1970); Brief for Re-
spondent FCC, Gill Cable, Inc. v. FCC, No. 73-1344, at 24 (9th Cir., filed Feb. 28,
1973); Midessa Television Co., 44 F.C.C.2d 317, 320 (1973).
   During the five years in which the cross-owners most vigorously attacked the cross-
ownership ban, the Commission approved the voluntary sales of 165 television stations,
                     THE AMERICAN UNIVERSITY LAW REVIEW                       [Vol. 26:688

   A chart prepared by the FCC showed that at least thirty-nine cable
systems were divested in compliance with the 1970 rule, and at least
thirty-three additional cross-owners did not seek waiver of the rule,
presumably because they planned to divest. 16 9 No complaints of "dis-
continuity of operations" can be found from viewers and subscribers
of these divested media. In fact, throughout the five-year history of
the rule, viewers and subscribers argued only for divestiture, to
                                                                     170
remedy the unsatisfactory service rendered by their cross-owners.
   Thus, all of the evidence before the Commission showed that the
only parties for whom divestiture would mean a disruption in "con-
tinuity of operations" were the cross-owners themselves. Discon-
tinuance of their operations, however, is the very result divestiture is
designed to achieve, to eliminate the harmful conflict of interest in-
herent in their operations. Furthermore, cross-owners were provided
an adequate means of minimizing their "discontinuity of operations";
the Commission repeatedly encouraged them to exchange property
among themselves in order to retain both broadcast and cable prop-
erty while still complying with the divestiture order.

c.   "Demand for capital equity and local dislocations"
   The terms "capital equity" and "local dislocations" are vague, and
are not explained in the FCC's decision.' 71 Perhaps they refer to the
oft-alleged "difficult financial condition" of the cable industry and to
cross-owners' alleged "financial losses. "172 If so, they belie the FCC's
specific claim that it did not rely on these factors in rescinding its


never expressing concern that the high turnover would disserve any public interest in
"continuity of operations." FCC ANNUAL REPORTS 1969-1974. Indeed, this factor was
not even considered in the Commission's approval of three sales involving a total of
sixteen television stations. Triangle Publications, Inc., 28 F.C.C.2d 80 (1971); John Hay
Whitney, 28 F.C.C.2d 736 (1971); Time-Life Broadcast, Inc., 33 F.C.C.2d 1099 (1972).
   169. See note 131 supra.
   170. See, e.g., sources cited in note 67.supra.
   171. The FCC's use of these terms in Docket 18110 caused the Court of Appeals
some puzzlement as well. See National Citizens Comm. for Broadcasting v. FCC, 555
F.2d 938, 965 (D.C. Cir. 1977).
   172. Virtually every petition for waiver of the 1970 divestiture order filed by cross-
owners argued that the cable industry's financial basis was unsteady, and that divesti-
ture would cause the cross-owners financial hardship. These arguments were made in
response to the FCC's first suggested criterion for waiver, "the extent (if any) of finan-
cial loss the cross-owner would suffer from divestiture." Cable Television Cross-
Ownership, 39 F.C.C.2d 377, 394. See notes 58-60 & accompanying text supra. See also
 Midessa Television Co., 44 F.C.C.2d 317, 318-20 (1975).
1977]                         CROSS-OWNERSHIP RULE

1970 divestiture order. 173 The FCC rejected such claims in defense
of its 1970 divestiture order several times. It had reminded cross-
owners that they could exchange their properties, that broadcast
property could be divested if cable stock was not readily saleable,
that tax certificates would assist their divestitures, that other cross-
owners had managed to divest successfully, and that its duty to max-
                                                                   174
imize diversity could not be subverted to their private interests.
          V.   RESCISSION OF THE 1970 DIVESTITURE ORDER IN THE
          OVERALL CONTEXT OF THE          FCC's    REGULATION OF CABLE

   The apparent procedural and substantive irrationality of the Com-
mission's rescission of its 1970 divestiture order invites further exam-
ination of the causes of its action. Considered in the context of the
Commission's overall regulation of cable, the rescission appears en-
tirely consistent with other FCC attempts to reconcile the competi-
tive tension between the broadcasting and cable industries.
   In regulating cable television the Commission has vacillated be-
tween two goals: protection of broadcast television stations, and en-
couragement of cable's potential for increasing and diversifying avail-
able programming services. In 1966, when the FCC first asserted
broad jurisdiction over cable, its intention was to protect competing
television stations. Three years later the Commission adopted a rule
designed specifically to stimulate program diversity on cable systems.
It required cable systems to "cablecast," 175 since cablecasting could
"[increase] the number of local outlets for community self-expression
and [augment] the public's choice of programs and types of services,
                                     1 76
without use of broadcast spectrum."
   These dual purposes again were evident in 1970, when the Com-
mission ordered divestiture of cross-owned television-cable combina-

  173. "[W]e have not based our revised divestiture requirement to any significant
extent on changes in the [cable] industry .... Rather our change . . . is based on a
general re-evaluation of the equities involved prompted by our decision in Docket
18110." Cable Television Systems, Second Report and Order, 55 F.C.C.2d 540, 544
(1975).
   174. E.g., CATV, Second Report and Order, 23 F.C.C.2d 816, 821-22 (1970); Cable
Television Cross-Ownership, Memorandum Opinion and Order, 39 F.C.C.2d 377, 392
(1973); Midessa Television Co., 44 F.C.C.2d 317, 318-20 (1973).
  175. CATV, First Report and Order, 20 F.C.C.2d 201 (1969). The rule was upheld by
the Supreme Court in United States v. Midwest Video Corp., 406 U.S. 649 (1972). In
1974, the FCC rescinded its cablecasting rule, leaving to the discretion of cable opera-
tors whether to provide such programming. Cable Television Service, Report and Order,
49 F.C.C.2d 1090 (1974).
  176. CATV, 15 F.C.C.2d 417, 421 (1966).
                     THE AMERICAN UNIVERSITY LAW REVIEW                       [Vol. 26:688

tions 1 77 while simultaneously placing severe restrictions on pay cable
programming to protect broadcast television against cable's diversify-
ing potential. 178 The numerous cable rules adopted in 1972 also re-
flected the FCC's dual purposes. 17 9 To promote cable's potential for
diversifying programming services, the Commission required systems
to provide at least twenty channels, three free "access" channels and
leased "access" channels.' s0 To protect local broadcasters, the Com-
mission restricted the television signals which cable systems were al-
lowed to import from distant markets. 181
   Generally, the broadcasting industry supported the cable rules, be-
cause they effectively emasculated cable's competitive threat by re-
stricting the two programming services most likely to draw large au-
diences away from broadcast television channels: distant stations'
programs and pay cable programs.' 82 Broadcasters who also owned
their local cable systems, however, opposed the cable rule requiring
divestiture, since they feared any competition from cable, however
restricted. The cable industry opposed all of the cable rules, both
those that limited cable's programming and those that encouraged
cable's diversifying potential.' 8 3 The Department of Justice and vari-
ous public interest groups urged the FCC to relax its rules restrict-
ing pay cable and signal importation. This relaxation would enable
cable systems to earn the necessary revenues to meet their diversity-
maximizing obligations-the provision of twenty channels, access
                                   84
channels, and leased channels.1

  177. CATV, Second Report and Order, 23 F.C.C.2d 816 (1970).
  178. CATV, Memorandum Opinion and Order, 23 F.C.C.2d 825 (1970). For a discus-
sion of the FCC's pay cable restrictions, see note 102 supra.
   179. Cable Television Report and Order, 36 F.C.C.2d 141 (1972).
   180. Id. at 189-98.
   181. Id. at 170-85.
   182. When he retired, Sol Schildhause, ex-Chief of the Cable Bureau, observed, "A
good many people think that our cable regulations are fine. They are called broad-
casters." CATV, February 11, 1974, at 17.
   For a more detailed discussion of the anomaly of the cable rules, see Pearson, Cable:
The Thread by Which Television Competition Hangs, 27 RUTGERS L. REV. 800 (1974).
  183. See, e.g., [National Cable Television Association] Board Targets FCC Cable
Rules for Going-Over, BROADCASTING, July 1, 1974, at 38; Drive Is On To Free Cable
From FCC Rules, BROADCASTING, October 21, 1974, at 23-24; Cable Again Denounces
FCC Restrictions, BROADCASTING, November 11, 1974, at 42-43 ("Gary Christensen, a
former NCTA general counsel . . .and still an influential figure in NCTA policymaking
[called on industry to] work for the removal of restrictions on broadcast signal carriage,
nonduplication and exclusivity, access channels and local origination, franchise stan-
dards and performance tests.").
   184. See, e.g., Justice Faults FCC for Curbs on CATV, BROADCASTING, January 18,
1971, at 36; Liberate Cable, Justice Again Tells FCC, BROADCASTING, May 10, 1971, at
1977]                        CROSS-OWNERSHIP RULE

   Thus, by 1975, the FCC was under heavy pressure from broad-
casters, cable operators, and public interest groups to revise some or
all of its cable rules. Its response was (1) to grandfather broadcasters
owning local cable systems, shielding them forever from divestiture
(at the expense of diversity); (2) to keep its television-protective re-
strictions on cable's programming (at the continued expense of di-
versity); 185 and (3) to relieve cable of its obligations to "cablecast 18 6
and to provide at least twenty channels, including reserved free and
leased access channels (again at the expense of diversity).1 8 7 Thus,
broadcasters got everything they had asked for and cable operators
got part of what they had asked for. The public, however, lost every-
thing.
   Placing the rescission of the 1970 divestiture order in this broader
context of the Commission's general regulation of cable suggests that,
although the rescission appears completely irrational, it is in fact con-
sistent with the Commission's overall approach to cable. Despite its
repeated acknowledgement of cable's great potential for diversifying
programming services, the FCC simultaneously has recognized the
serious threat to broadcasting posed by that very potential. When
forced to choose between protecting broadcasting and encouraging
cable's diversification potential, the Commission consistently has
chosen to protect broadcasting. Its decision to protect dozens of
broadcasters from the cable systems which would be free to compete
if divestiture were required was simply one more manifestation of
this choice. The unreasonableness of the FCC's explanations for its
rescission is understandable when the rescission is viewed in this
broadcaster-protective context. The explanations seem illogical be-
cause they are basically irrelevant to the Commission's policy; they
were used simply to justify an otherwise untenable decision. The
Commission could not write a decision rescinding the 1970 divesti-
ture order on the straightforward grounds that its consistent regula-


20-21; Justice Wants FCC to Loosen Cable Controls, BROADCASTING, July 21, 1975, at
36-37; Black Group Asks FCC to Tighten Up "Clarification" of Its Cable TV
Regulations, BROADCASTING, May 27, 1974, at 56; PhiladelphiaGroup Goes After Basic
FCC Cable Policy, BROADCASTING, February 25, 1974, at 53.
  185. Subscription Television Program Rules, 52 F.C.C.2d 1, reconsideration, 54
F.C.C.2d 797 (1975), rev'd sub nom. Home Box Office, Inc. v. FCC, No. 75-1280, (D.C.
Cir. Mar. 25, 1977). See note 102 supra.
  186. Cable Television Service, 49 F.C.C.2d 1090 (1974).
  187. Cable TV Capacity and Access Rules, 59 F.C.C.2d 294 (1976), appeal docketed
sub non. Midwest Video Corp. v. FCC, No. 76-1496 (8th Cir., filed June 15, 1976). See
note 101 supra.
                      THE AMERICAN UNIVERSITY LAW REVIEW                    [Vol. 26:688

tory policy is one which protects broadcasters from cable's competi-
tive threat and that the rescission furthers this policy. Such a decision
would have been too obvious an admission of domination by the
broadcasting industry. Instead, it wrote a decision that rested on
high-sounding explanations, the irrationality of which is apparent
upon close scrutiny.
                                    CONCLUSION

   The public's first amendment right to diverse media control and
the nation's antitrust policy are basic to the FCC's statutory public
interest standard. The FCC acknowledged its fundamental obligation
to uphold these principles in 1970 when it adopted its across-the-
board ban on television-cable cross-ownership and ordered existing
cross-owners to divest. It reiterated this obligation on numerous
occasions-when it denied reconsideration of the rule, when it de-
fended the rule on appeal, when it refused to allow specific petitions
for waiver to be used as petitions for overall waiver, and when it
allowed cross-owners to increase their prohibited interests to enhance
divestiture possibilities. By rescinding the 1970 rule, the FCC appar-
ently decided that the private interests of its regulated industries
outweighed the previously "paramount" first amendment and anti-
trust policies. The significance of this reversal of position required a
clear and reasonable explanation. The FCC has failed to provide such
an explanation, preferring instead to mask its capriciousness with
equivocations about "equities" and the need for "parallel" rules.
   Former FCC Commissioner Nicholas Johnson might easily have
been describing this rulemaking proceeding when he wrote:
  In future years, when students of law or government wish to study the
  decision making process at its worst, when they look for examples of
  industry domination of government . . . they will look to the FCC's
  handling of the never-ending saga of cable television as a classic case
  study.188

                                      EPILOGUE

   A petition for review of the FCC's rescission of the 1970 divestiture
order was filed by NCCB in the Court of Appeals for the District of
Columbia on September 22, 1975. Numerous procedural motions de-
layed briefing of the case for over a year. On November 5, 1976,


 188.   Cable   Television Report and Order, 36 F.C.C.2d 141, 307 (1972).
19771                       CROSS-OWNERSHIP RULE

NCCB filed its brief.'8 9 On February 11, 1977, the Justice Depart-
ment filed a brief as statutory respondent,' 90 in which it confessed
error, arguing that the FCC's decision was arbitrary and capri-
cious. 191 The FCC was scheduled to file its own respondent's brief
defending its decision on March 21, 1977. It did not file a brief, how-
ever. Instead, on March 18, 1977, it filed a Motion for Remand of
the case. 19 2 It confessed that "[c]learly, the orders here under re-
view, which relied so heavily upon Docket 18110, cannot be de-
fended in the face of the [c]ourt's Docket 18110 opinion."' 19 3 Instead
of seeking remand in order to rescind its unlawful rule, however, the
FCC sought remand to vacate the divestiture order for the handful of
"egregious" total monopolists. It informed the court that it intended
to appeal its Docket 18110 case on an expedited basis to the United
States Supreme Court, and that it would hold the remanded tele-
vision-cable case in abeyance pending the outcome of the Docket
18110 appeal. In the meantime, the grandfathered television-cable
combinations would continue to enjoy their grandfathered status, and
the total monopolies, ordered to divest by August 10, 1977, would be
grandfathered until a new rule was developed pursuant to the Su-
preme Court's ruling on Docket 18110. Fifteen cross-owners filed
motions supporting the Commission's motion for remand. The Justice
Department and NCCB opposed the motion, arguing that even while
it confessed error the FCC sought to prolong and extend the effects
of its admittedly unlawful rule.
                                                                SUSAN DILLON


  189. Brief for Petitioner NCCB, National Citizens Comm. for Broadcasting v. FCC,
No. 75-1933 (D.C. Cir., filed Sept. 22, 1975).
  190. Pursuant to 28 U.S.C. § 2344 (1970).
  191. Brief for Respondent United States of America, National Citizens Comm. for
Broadcasting v. FCC, No. 75-1933 (D.C. Cir., filed Sept. 22, 1975).
  192. Motion for Remand for Respondent FCC, National Citizens Comm. for Broad-
casting v. FCC, No. 75-1933 (D.C. Cir., filed Sept. 22, 1975).
  193. Id. at 2.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:5
posted:10/25/2012
language:Unknown
pages:38