Fox TV Statn Inc v. FCC ( 2002 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 7, 2001 Decided February 19, 2002
No. 00-1222
Fox Television Stations, Inc.,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
National Association of Broadcasters, et al.,
Intervenors
Consolidated with
00-1263, 00-1326, 00-1359, 00-1381, 01-1136
On Petitions for Review of an Order of the
Federal Communications Commission
Edward W. Warren and Paul T. Cappuccio argued the
cause for petitioners. With them on the joint briefs were
Bruce D. Sokler, Richard A. Cordray, Ashley C. Parrish,
Ellen S. Agress, Diane Zipursky, Michael D. Fricklas, Mark
C. Morril, John G. Roberts, Jr., Stuart W. Gold, Laurence H.
Tribe, Jonathan S. Massey, Arthur H. Harding, R. Bruce
Beckner and Henk Brands. Jay Lefkowitz entered an ap-
pearance.
C. Grey Pash, Jr., Counsel, Federal Communications Com-
mission, argued the cause for respondents. With him on the
brief were Jane E. Mago, General Counsel, Daniel M. Arm-
strong, Associate General Counsel, James M. Carr, Lisa S.
Gelb and Roger D. Citron, Counsel, Mark B. Stern and Jacob
M. Lewis, Attorneys, U.S. Department of Justice. Christo-
pher J. Wright, General Counsel, Federal Communications
Commission, Robert B. Nicholson and Robert J. Wiggers,
Attorneys, U.S. Department of Justice, entered appearances.
Robert A. Long, Jr. argued the cause for intervenors
National Association of Broadcasters and the Network Affili-
ated Stations Alliance. With him on the brief was Jack N.
Goodman.
Harold J. Feld, Andrew J. Schwartzman and Cheryl A.
Leanza were on the brief for intervenors/amici curiae Con-
sumer Federation of America and United Church of Christ,
Office of Communication, Inc. Wade H. Hargrove, Jr. entered
an appearance.
Before: Ginsburg, Chief Judge, Edwards and Sentelle,
Circuit Judges.
Opinion for the Court filed by Chief Judge Ginsburg.
Table of Contents
Page
Introduction 3
I. Background 4
A. The National Television Station Ownership (NTSO) Rule 5
Page
B. The Cable/Broadcasting Cross-Ownership (CBCO) Rule 6
C. Applying s 202(h) 7
1. The NTSO Rule 9
2. The CBCO Rule 9
II. Threshold Issues 10
A. Finality 10
B. Reviewability 12
C. Ripeness 13
D. Exhaustion and Standing 15
III. The NTSO Rule 16
A. Section 202(h) and the APA 16
1. Is the Rule irrational? 16
2. Failure to comply with s 202(h) 22
3. Failure to address the 1984 Report 22
B. The First Amendment 23
C. Remedy 27
IV. The CBCO Rule 30
A. Section 202(h) and the APA 31
1. Competition 31
2. Diversity 33
B. Remedy 35
V. Conclusion 37
Ginsburg, Chief Judge: Before the court are five consoli-
dated petitions to review the Federal Communications Com-
mission's 1998 decision not to repeal or to modify the national
television station ownership rule, 47 C.F.R. s 73.3555(e), and
the cable/broadcast cross-ownership rule, 47 C.F.R.
s 76.501(a). Petitioners challenge the decision as a violation
of both the Administrative Procedure Act (APA), 5 U.S.C.
s 551 et seq., and s 202(h) of the Telecommunications Act of
1996, Pub. L. No. 104-104, 110 Stat. 56. They also contend
that both rules violate the First Amendment to the Constitu-
tion of the United States. The network petitioners -- Fox
Television Stations, Inc., National Broadcasting Company,
Inc., Viacom Inc., and CBS Broadcasting Inc. -- address the
national television ownership rule, while petitioner Time War-
ner Entertainment Company, L.P. addresses the cable/broad-
cast cross-ownership rule. The National Association of
Broadcasters (NAB), the Network Affiliated Stations Alliance
(NASA), the Consumer Federation of America (CFA), and
the United Church of Christ, Office of Communications, Inc.
(UCC) have intervened and filed briefs in support of the
Commission's decision to retain the national television station
ownership rule.
We conclude that the Commission's decision to retain the
rules was arbitrary and capricious and contrary to law. We
remand the national television station ownership rule to the
Commission for further consideration, and we vacate the
cable/broadcast cross-ownership rule because we think it un-
likely the Commission will be able on remand to justify
retaining it.
I. Background
In the Telecommunications Act of 1996 the Congress set in
motion a process to deregulate the structure of the broadcast
and cable television industries. The Act itself repealed the
statutes prohibiting telephone/cable and cable/broadcast
cross-ownership, 1996 Act ss 302(b)(1), 202(i), and overrode
the few remaining regulatory limits upon cable/network cross-
ownership, id. s 202(f)(1). In radio it eliminated the national
and relaxed the local restrictions upon ownership, id.
s 202(a), (b), and eased the "dual network" rule, id. s 202(e). In addition, the Act directed the Commission to eliminate the
cap upon the number of television stations any one entity may
own, id. s 202(c)(1)(A), and to increase to 35 from 25 the
maximum percentage of American households a single broad-
caster may reach, id. s 202(c)(1)(B).
Finally, and most important to this case, in s 202(h) of the
Act, the Congress instructed the Commission, in order to
continue the process of deregulation, to review each of the
Commission's ownership rules every two years:
The Commission shall review its rules adopted pursuant
to this section and all of its ownership rules biennially as
part of its regulatory reform review under section 11 of
the Communications Act of 1934 and shall determine
whether any of such rules are necessary in the public
interest as the result of competition. The Commission
shall repeal or modify any regulation it determines to be
no longer in the public interest.
The Commission first undertook a review of its ownership
rules pursuant to this mandate in 1998. This case arises out
of the resulting decision not to repeal or to modify two
Commission rules: the national television station ownership
rule and the cable/broadcast cross-ownership rule.
A. The National Television Station Ownership (NTSO) Rule
The NTSO Rule prohibits any entity from controlling tele-
vision stations the combined potential audience reach of which
exceeds 35% of the television households in the United
States.* As originally promulgated in the early 1940s, the
Rule prohibited common ownership of more than three televi-
sion stations; that number was later increased to seven.
Amendment of Multiple Ownership Rules, Report & Order,
100 F.C.C.2d 17, p p 14, 16 (1984) (1984 Report). The stated
purpose of the seven-station rule was "to promote diversifica-
tion of ownership in order to maximize diversification of
program and service viewpoints" and "to prevent any undue
concentration of economic power." Id. p 17.
In 1984 the Commission considered the effects of techno-
logical changes in the mass media, id. p 4, and repealed the
NTSO Rule subject to a six-year transition period during
which the ownership limit was raised to 12 stations. Id.
__________
* "No license for a commercial TV broadcast station shall be
granted, transferred or assigned to any party (including all parties
under common control) if the grant, transfer or assignment of such
license would result in such party or any of its stockholders,
partners, members, officers or directors, directly or indirectly,
owning, operating or controlling, or having a cognizable interest in
TV stations which have an aggregate national audience reach
exceeding thirty-five (35) percent." 47 C.F.R. s 73.3555(e).
p p 108-112. The Commission determined that repeal of the
NTSO Rule would not adversely affect either the diversity of
viewpoints available on the airwaves or competition among
broadcasters. It concluded that diversity should be a concern
only at the local level, as to which the NTSO Rule was
irrelevant, id. p p 31-32, and that "[l]ooking at the national
level [the Rule was unnecessary because] the U.S. enjoys an
abundance of independently owned mass media outlets," id.
p 43. The Commission also concluded that group owners
were not likely to impose upon their stations a "monolithic"
point of view. Id. p p 52-54, 61. With respect to economic
competition, the Commission considered the markets for na-
tional and for local spot advertising and concluded that nei-
ther would be made less competitive by repeal of the NTSO
Rule. Id. p p 66-71.
Implementation of the 1984 Report was subsequently
blocked by the Congress. See Second Supplemental Appro-
priations Act, Pub. L. No. 98-396, s 304, 98 Stat. 1369, 1423
(1984). The Commission thereupon reconsidered the matter
and prohibited common ownership (1) of stations that in the
aggregate reached more than 25% of the national television
audience, and (2) of more than 12 stations regardless of their
combined audience reach. Amendment of Multiple Owner-
ship Rules, Mem. Op. & Order, 100 F.C.C.2d 74, p p 36-40
(1984). These limitations remained in place until 1996, when
the Congress (in s 202(c)(1) of the Act) directed the Commis-
sion to eliminate the 12-station rule and to raise to 35% the
cap upon audience reach, both of which actions the Commis-
sion promptly took. Implementation of Sections 202(c)(1)
and 202(e) of the Telecommunications Act of 1996 (National
Broadcast Television Ownership and Dual Network Opera-
tions), 61 Fed. Reg. 10,691 (Mar. 15, 1996).
B. The Cable/Broadcast Cross-Ownership (CBCO) Rule
The CBCO Rule prohibits a cable television system from
carrying the signal of any television broadcast station if the
system owns a broadcast station in the same local market.*
__________
* "No cable television system (including all parties under common
control) shall carry the signal of any television broadcast station if
In conjunction with certain "must-carry" requirements, 47
U.S.C. ss 534-535; 47 C.F.R. s 76.55 et seq., to which cable
operators are subject, see Turner Broad. Sys., Inc. v. FCC,
512 U.S. 622, 630-32 (1994) (Turner I), the Rule has the effect
of prohibiting common ownership of a broadcast station and a
cable television system in the same local market.
The Commission first promulgated the CBCO Rule in 1970
along with a rule banning network ownership of cable sys-
tems. Amendment of Part 74, Subpart K, of the Commis-
sion's Rules and Regulations Relative to Community Anten-
na Television Systems, Second Report & Order, 23 F.C.C.2d
816, p p 11, 15 (1970). In 1984 the Congress codified the
CBCO Rule but not the network ownership ban. Cable
Communications Policy Act of 1984, Pub. L. No. 98-549, s 2,
98 Stat. 2779.
In 1992 the Commission repealed the rule prohibiting net-
work ownership of cable systems. Amendment of Part 76,
Subpart J, Section 76.501 of the Commission's Rules and
Regulations, Report & Order, 7 F.C.C.R. 6156, p 10 (1992)
(1992 Report). The Commission also revisited the CBCO
Rule and concluded that "the rationale for an absolute prohi-
bition on broadcast-cable cross-ownership is no longer valid in
light of the ongoing changes in the video marketplace." Id.
p 17. Because the Congress had imposed a similar prohibi-
tion by statute, however, the Commission did not repeal the
Rule; instead, the Commission recommended that the Con-
gress repeal the statutory prohibition. Id. In the 1996 Act
the Congress did just that without, however, requiring the
Commission to repeal the CBCO Rule. 1996 Act s 202(i).
C. Applying s 202(h)
As mentioned above, the 1996 Act, in addition to raising the
national ownership cap to 35% and repealing the statutory
__________
such system directly or indirectly owns, operates, controls, or has
an interest in a TV broadcast station whose predicted Grade B
contour, computed in accordance with s 73.684 of part 73 of this
chapter, overlaps in whole or in part the service area of such system
(i.e., the area within which the system is serving subscribers)." 47
C.F.R. s 76.501(a).
ban upon cable/broadcast cross-ownership, required the Com-
mission biennially to review all its ownership rules in order to
determine whether they remain "necessary in the public
interest." To begin the first review thus called for in
s 202(h), the Commission, on March 13, 1998, issued a Notice
of Inquiry seeking comments on all ownership rules, including
specifically both the NTSO and the CBCO Rules. 1998
Biennial Regulatory Review, Notice of Inquiry, 13 F.C.C.R.
11276, p p 14, 43 (1998). The Commission described as fol-
lows the approach it intended to take:
We solicit comment on our broadcast ownership rules to
determine whether these rules are no longer in the
public interest as we have traditionally defined it in
terms of our competition and diversity goals. Once this
phase is completed, we will review the comments and
issue a report. In the event we conclude there is good
reason to believe that any of the rules within the scope of
the review, or portions thereof, should be repealed or
modified, we will issue the appropriate Notice(s) of Pro-
posed Rule Making.
Id. p 3.
Reply comments were filed in June, 1998 but as of the fall
of 1999 the Commission had not yet completed its review.
Therefore, in November, 1999 the Congress directed that:
"Within 180 days ... [the] Commission shall complete the
first biennial review required by section 202(h) of the Tele-
communications Act of 1996." Consolidated Appropriations
Act, 2000, Pub. L. No. 106-113, s 5003, 113 Stat. 1501,
1501A-593 (1999). The accompanying Conference Report
instructed: "[I]f the Commission concludes that it should
retain any of these rules under the review unchanged the
Commission shall issue a report that includes a full justifica-
tion of the basis for so finding." H.R. Conf. Rep. No. 106-464,
at 148 (1999).
On May 26, 2000 the Commission announced its decision
(by a 3-2 vote) to retain the NTSO and CBCO Rules, among
others, and to repeal or to modify certain other of its owner-
ship rules. A few weeks later the Commission issued a
written report in which it explained its actions. 1998 Bienni-
al Regulatory Review, Biennial Review Report, 15 F.C.C.R.
11058 (2000) (1998 Report).
1. The NTSO Rule
The Commission gave three primary reasons for retaining
the NTSO Rule: (1) to observe the effects of recent changes
to the rules governing local ownership of television stations;
(2) to observe the effects of the increase in the national
ownership cap to 35%; and (3) to preserve the power of
affiliates in bargaining with their networks and thereby allow
the affiliates to serve their local communities better. Id.
p p 25-30. The Commission also stated that it believed re-
pealing the rule would "increase concentration in the national
advertising market" -- presumably to the detriment of com-
petition -- and "enlarge the potential for monopsony power in
the program production market" -- presumably to the detri-
ment of both competition and diversity. Id. p 26 n.78. Com-
missioners Furchtgott-Roth and Powell dissented. Id. at 74; id. at 94.
The effect upon petitioners Fox and Viacom of the Commis-
sion's decision to retain the NTSO Rule was direct and
immediate. Viacom's acquisition of CBS brought its audience
reach to 41%; only a stay issued by this court has enabled
Viacom to avoid divesting itself of enough stations to come
within the 35% cap. Fox Television Stations, Inc. v. FCC,
No. 00-1222 at 2 (April 6, 2001). Similarly, the Rule is
preventing Fox from going forward with its purchase of
Chris-Craft Industries, which purchase would enable Fox to
reach more than 40% of the national audience.
2. The CBCO Rule
In the 1998 Report the Commission decided that retaining
the CBCO Rule was necessary to prevent cable operators
from favoring their own stations and from discriminating
against stations owned by others. 1998 Report p 104 ("cur-
rent carriage and channel position rules prevent some of the
discrimination problems, but not all of them"). The Commis-
sion also determined that the CBCO Rule was "necessary to
further [the] goal of diversity at the local level." Id. p 106. The Rule, according to the Commission, contributes to the
diversity of viewpoints in local markets by preserving the
voices of independent broadcast stations, which provide local
news and public affairs programming. Id. p p 106-108. Com-
missioners Furchtgott-Roth and Powell dissented from the
retention of this Rule as well. Id. at 74; id. at 100.
The effect upon Time Warner of the Commission's decision
to retain the CBCO Rule was significant. Although Time
Warner has not identified any specific transaction it would
have consummated but for the CBCO Rule, the Rule is
preventing it from acquiring television stations in markets,
such as New York City, where it owns a cable system. Time
Warner asserts that "obvious procompetitive efficiencies"
would result from "combining" a television station in that
area with its all-local-news cable programming service, NY1.
Time Warner also argues that the CBCO Rule hinders its
"WB" network from competing with networks that own sta-
tions in major television markets.
II. Threshold Issues
Before turning to the merits of the petitions we must
consider several threshold issues. The Commission, sup-
ported by the intervenors, contends that its decision not to
repeal or to modify the Rules is not final agency action, was
not meant by the Congress to be subject to review, and in any
event is not ripe for review. Intervenors NAB and NASA
also argue that the petitioners failed to exhaust their adminis-
trative remedies and lack standing.
A. Finality
This court has jurisdiction to review "final orders" of the
Commission and "final agency action for which there is no
other adequate remedy in a court." 28 U.S.C. s 2342(1); 5
U.S.C. s 704. Consequently, the court must determine
whether the Commission's determination was "final." Agen-
cy action is final if: (1) it is "the consummation of the
agency's decisionmaking process," and (2) "rights or obli-
gations have been determined" by the action or "legal conse-
quences will flow" from it. Bennett v. Spear, 520 U.S. 154,
178 (1997). The Commission argues that its retention deci-
sion does not meet this test; the networks and Time Warner
argue persuasively to the contrary.
There is no question a Commission determination not to
repeal or to modify a rule, after giving notice of and receiving
comment upon a proposal to do so, is a final agency action
subject to judicial review. Montana v. Clark, 749 F.2d 740,
744 (D.C. Cir. 1985). Equally clear, an agency's denial of a
petition to initiate a rulemaking for the repeal or modification
of a rule is a final agency action subject to judicial review.
Capital Network Sys., Inc. v. FCC, 3 F.3d 1526, 1530 (D.C.
Cir. 1993). The question presented here is whether the
Commission's determination not to repeal the NTSO and
CBCO Rules, made pursuant to s 202(h) after issuing a
"Notice of Inquiry" and receiving comment, is likewise a final
agency action subject to judicial review.
The Commission first appears to contend that only a deci-
sion made pursuant to an adjudicative or rulemaking proceed-
ing is final. The Commission fails, however, either to offer
support for this argument or to acknowledge that we have
held other types of agency actions to be final and reviewable.
See, e.g., Ciba-Geigy Corp. v. EPA, 801 F.2d 430, 435-37
(1986) (holding letter expressing EPA's position on procedur-
al question was final agency action because it was definitive
and had direct and immediate effect upon petitioners); Nat'l
Automatic Laundry and Cleaning Council v. Schultz, 443
F.2d 689, 702 (1971) (holding letter from Administrator of
Wage and Hour Division of Department of Labor interpreting
provision of Fair Labor Standards Act was final agency
action).
Second, the Commission argues that the 1998 Report is not
final because the agency intends to continue considering the
ownership rules. That, however, does not mean the determi-
nation is not "final" as a matter of law. The 1998 Report is
the Commission's last word on whether, as of 1998, the Rules
were still "necessary in the public interest as the result of
competition."
Finally, the Commission says the 1998 Report does not
impose an obligation or deny a right because the petitioners
would receive no immediate relief if they were to prevail in
their present challenge; all they could get would be an order
requiring the Commission to initiate a rulemaking. We shall
have more to say below about the relief to which the petition-
ers are entitled. For now it is sufficient to observe that by
the Commission's own account its decision is, in effect, at the
least a decision not to initiate a rulemaking, and it is estab-
lished that "an agency's refusal to institute [rulemaking]
proceedings has sufficient legal consequence to meet the
second criterion of the finality doctrine." Capital Network
Sys., 3 F.3d at 1530. Therefore we conclude, as we must,
that the decision under review -- holding that the NTSO and
CBCO Rules were necessary in the public interest -- is a
final agency action.
B. Reviewability
Separate from the question whether the 1998 decision is a
final agency action, the Commission argues that the "Con-
gress did not intend for the Commission's biennial reviews
... to create reviewable action." In support of this proposi-
tion, the Commission notes that s 202(c)(2) of the 1996 Act
calls for the Commission to conduct a rulemaking to deter-
mine whether to retain, to modify, or to eliminate local
television ownership limitations; in contrast, s 202(h) re-
quires only that the Commission "review" rules to determine
whether to repeal or to modify them. The Commission next
argues that under the 1996 Act a "determination," unlike a
rulemaking decision, is not a reviewable event. It contends
that if the Congress had wanted to subject to judicial scrutiny
determinations made pursuant to the biennial reviews re-
quired by s 202(h), then it would have said so, as it said in
s 252(e)(6) of the Act that a state commission's "determina-
tion" approving or disapproving an interconnection agreement
shall be reviewable in federal court. Additionally, the Com-
mission observes that s 202(h) does not require it to submit a
written report to the Congress. All this, according to the
agency, indicates the Congress did not intend that the courts
review agency determinations made pursuant to s 202(h). In
any event, the Commission argues, under Chevron, U.S.A.,
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the court must defer to the Commission's statutory
interpretation to that effect. Finally, the Commission con-
tends that if its every decision to retain a rule under s 202(h)
were subject to judicial review, then the agency and the
courts alike would face tasks so overwhelming as not to be a
result sensibly ascribed to the Congress.
In light of the presumption that final agency action is
reviewable, see Abbott Labs. v. Gardner, 387 U.S. 136, 140-41
(1967), we must reject the Commission's argument that the
text and structure of the 1996 Act preclude judicial review.
The contrasts the Commission draws between s 202(c) and
s 202(h), and between s 252 and s 202(h), fall short of the
"clear and convincing evidence" of congressional intent need-
ed to foreclose review under Abbott Labs., 387 U.S. at 141.
Nor is an agency's interpretation of a statutory provision
defining the jurisdiction of the court entitled to our deference
under Chevron. Adams Fruit Co. v. Barrett, 494 U.S. 638,
650 (1990). We appreciate that s 202(h) requires the Com-
mission to undertake a significant task in a relatively short
time, but we do not see how subjecting the result to judicial
review makes the Commission's responsibility significantly
more burdensome, let alone so formidable as to be improba-
ble. In sum, having held that the 1998 decision is a final
agency action, we see nothing in the 1996 Act that forecloses
judicial review thereof.
C. Ripeness
Next the Commission contends that its decision not to
repeal or to modify the ownership rules in question is not ripe
for review because the issues are not "fit" for judicial review,
and delay would not cause the petitioners any hardship. See
Abbott Labs., 387 U.S. at 149. First, the Commission points
out that it is in a better position than the court to determine
whether the challenged rules are necessary in the public
interest. Second, the Commission argues that the petitioners
will not be harmed if the 1998 Report is not subject to review
because they can seek relief from the operation of the rules in
other ways -- a petition for a rulemaking or a request for a
waiver; and again, the relief available to the petitioners
would be, in any event, only an order directing the Commis-
sion to conduct a rulemaking to consider modification or
repeal of the challenged rules. In addition, intervenors CFA
and UCC contend that the decision is not ripe for judicial
review because they "and other interested parties have not
yet had an opportunity to present responsive arguments
relating [to the] rules here at issue."
We find these arguments unpersuasive. First, the issues in
this case are fit for judicial review because the questions
presented are purely legal ones: whether the Commission's
determination was arbitrary and capricious or contrary to
law, and whether the challenged rules violate the First
Amendment. Because the court will not review de novo the
Commission's decision to retain the Rules, the Commission's
argument that it is in the better position to make that
determination is, while doubtless true, quite beside the point.
Second, the petitioners will indeed be harmed if we do not
review the Commission's decision now. Although they could
challenge the Rules by other means, retention of the Rules in
the interim significantly harms both the networks and Time
Warner. As we have said, the NTSO Rule constrains Fox
and Viacom from entering into or completing certain specific
transactions, and the CBCO Rule prevents Time Warner
from acquiring television stations in certain markets where it
would like to do so. Moreover, the Commission is mistaken
in asserting that the only remedy available to the petitioners
is a remand for rulemaking. For the reasons we provide
below (in Part III.C), we think that under s 202(h) a review-
ing court may vacate the underlying rule if it determines not
only that the Commission failed to justify retention of the
rule but that it is unlikely the Commission will be able to do
so on remand.
Finally, CFA, UCC, and all other interested parties were
invited in the Notice of Inquiry to comment specifically upon
whether the broadcast ownership rules should be retained.
1998 Biennial Regulatory Review, Notice of Inquiry, 13
F.C.C.R. 11276, p 3 (1998). Perhaps CFA and UCC, unlike
the other intervenors and many members of the public, chose
not to comment in anticipation of doing so if the Commission
were later to propose repealing the Rules. Be that as it may,
we do not see how that can make unripe an otherwise ripe
issue or deprive those harmed of their right to timely review
of a final agency action. Hence, we conclude the Commis-
sion's decision is ripe for review.
D. Exhaustion and Standing
Intervenors NAB and NASA argue that the petitioners
failed to exhaust their administrative remedies because they
neither petitioned for a rulemaking to amend or repeal the
Rules nor asked the Commission for a waiver of the Rules.
They argue that in Tribune Co. v. FCC, 133 F.3d 61, 69
(1998), this court "made clear that the exhaustion require-
ment applies to challenges launched against the ownership
rules that are subject to the Commission's biennial review
process." The intervenors' reliance upon the Tribune case is
misplaced, however. When that case was decided the Com-
mission had not yet completed a review pursuant to s 202(h).
In this case, where the Commission had just determined that
the rules in question were still necessary in the public inter-
est, it obviously would have been futile for the petitioners to
have petitioned the agency for a rulemaking to repeal them.
And the intervenors cite no authority suggesting the petition-
ers were required to request a waiver from the agency even
though a waiver is not the relief they seek from the court;
nor do the intervenors proffer any reason to believe the
petitioners would have been entitled to a waiver had they
sought one.
The intervenors also argue that the petitioners lack stand-
ing because a favorable decision in this case would not
redress their injuries. Their point is that the Commission
would still have to consider in a rulemaking whether to repeal
the Rules, but as we have just seen in connection with the
Commission's objection that this case is not ripe for review,
that is not so. We therefore conclude that the petitioners
have standing to bring their claims before the court.
III. The NTSO Rule
Having found no obstacle to our adjudication of this dis-
pute, we turn at last to the merits. The networks assert that
the Commission's decision to retain the NTSO Rule was
contrary to s 202(h) and arbitrary and capricious in violation
of the APA; alternatively they contend the Rule violates the
First Amendment.
A. Section 202(h) and the APA
The networks argue that the Commission's decision not to
repeal the NTSO Rule was arbitrary and capricious and
contrary to s 202(h) for three reasons: (1) the Rule is
fundamentally irrational, and the Commission's justifications
for retaining it are correlatively flawed; (2) the Commission
failed meaningfully to consider whether the Rule was "neces-
sary" in the public interest; and (3) the Commission failed to
explain why it departed from its previous position that the
Rule should be repealed.
1. Is the Rule irrational?
The networks advance three reasons for thinking that
retention of the NTSO Rule was irrational: The 35% cap is if
anything less justified than the aggregate limitation upon
cable system ownership we held a violation of the First
Amendment in Time Warner Entertainment Co., L.P. v.
FCC, 240 F.3d 1126 (2001) (Time Warner II); the Commis-
sion has provided no persuasive reason to believe retention of
the Rule is necessary in the public interest; and retention of
the Rule is inconsistent with some of the Commission's other
recent decisions.
Time Warner II. According to the networks, "[t]he logic
of Time Warner II applies with even greater force here."
They contend that the television station ownership cap of 35%
is more severe than the cable system ownership cap of 30%
struck down in Time Warner II, because unlike cable systems
"broadcasters face intense competition from numerous sta-
tions in each local market" and the 35% cap is measured in
terms of homes potentially rather than actually served. In
response, the Commission, supported by intervenors NAB
and NASA, notes two distinctions between Time Warner II
and this case: The 30% cap in Time Warner II was set by the
Commission whereas the 35% cap at issue here was set by the
Congress; and the provision of the Cable Act at issue in the
prior case limited the extent to which the Commission could
regulate in furtherance of diversity, whereas s 202(h) man-
dates that a rule necessary "in the public interest" -- includ-
ing the public interest in diversity -- be retained.
The networks are right, of course, that a broadcaster faces
more local competition than does a cable system. We must
also acknowledge that under the cap expressed in terms of a
"potential audience reach" of 35%, an owner of television
stations cannot in practice achieve an audience share that
approaches 35% of the national audience. Nonetheless, we
find the networks' reliance upon Time Warner II less than
convincing for two reasons, one advanced by the Commission
and one not. As the Commission points out, we concluded in
Time Warner II that the 1992 Cable Act limited the agency's
authority to impose regulations solely in order to further
diversity in programming, Time Warner II, 240 F.3d at 1135-
36, whereas no such limitation is at work in this case. See
page 18 below. Additionally, in Time Warner II we reviewed
the challenged regulations under first amendment "intermedi-
ate scrutiny," which is more demanding than the arbitrary
and capricious standard of the APA. See Time Warner II,
240 F.3d at 1130 ("a government regulation subject to inter-
mediate scrutiny will be upheld if it 'advances important
government interests unrelated to the suppression of free
speech and does not burden substantially more speech than
necessary to further those interests' ") (quoting Turner
Broad. Sys., Inc. v. FCC, 520 U.S. 180, 189 (1997)). In sum,
although Time Warner II does give the court a point of
reference, it is not controlling here.
The Commission's reasons: competition, diversity, et al.
The networks next argue that neither safeguarding competi-
tion nor promoting diversity generally can support the Com-
mission's decision to retain the NTSO Rule. They then take
on the specific reasons given by the Commission in support of
its 1998 decision.
As to competition, the networks note that there is no
evidence "that broadcasters have undue market power," such
as to dampen competition, in any relevant market. The
Commission attempts to rebut the point, but to no avail. In
its brief the agency cites a single, barely relevant study by
Phillip A. Beutel et al., entitled Broadcast Television Net-
works and Affiliates: Economic Conditions and Relation-
ship--1980 and Today (1995). Insofar as there is any point
of tangency between that study and the matter at hand, it is
in the authors' conclusion that "the available evidence tends
to refute the proposition that affiliates have gained negotiat-
ing power since ... 1980." Id. at 12. The study plainly does
not, however, suggest that broadcasters have undue market
power. The only other evidence to which the Commission
points is a table said to show that "many group owners have
acquired additional stations and increased their audience
reach since the Telecom Act's passage." 1998 Report p 27.
As the networks point out, however, "such figures alone,
without some tangible evidence of an adverse effect on the
market, are insufficient to support retention of the Cap."
Finally, the Commission's reference in the 1998 Report to the
national advertising and the program production markets is
wholly unsupported and undeveloped. 1998 Report p 26 n.78.
Consequently, we must conclude, as the networks maintain,
that the Commission has no valid reason to think the NTSO
Rule is necessary to safeguard competition.
As to diversity, the networks contend there is no evidence
that "the national ownership cap is needed to protect diversi-
ty" and that in any event s 202(h) does not allow the Com-
mission to regulate broadcast ownership "in the name of
diversity alone." The Commission, again supported by inter-
venors NAB and NASA, persuasively counters the statutory
point: In the context of the regulation of broadcasting, "the
public interest" has historically embraced diversity (as well as
localism), see FCC v. Nat. Citizens Comm. for Broad., 436
U.S. 775, 795 (1978) (NCCB), and nothing in s 202(h) signals
a departure from that historic scope. The question, there-
fore, is whether the Commission adequately justified its re-
tention decision as necessary to further diversity or localism.
In the 1998 Report the Commission mentioned national diver-
sity as a justification for retaining the NTSO Rule but never
elaborated upon the point. 1998 Report p 26 n.78. This
justification fails for two reasons. First, the Commission
failed to explain why it was no longer adhering to the view it
expressed in the 1984 Report that national diversity is irrele-
vant. 1984 Report p p 31-32. Second, the Commission's
passing reference to national diversity does nothing to explain
why the Rule is necessary to further that end. The Commis-
sion did, however, discuss at some length fostering local
diversity by strengthening the bargaining position of affiliates
vis-a-vis their networks, 1998 Report p 30, a justification to
which we shall come shortly.
As to the Commission's three more specific reasons for
retaining the NTSO Rule, the networks contend that each is
inadequate. The Commission stated that retaining the cap
was necessary so it could: (1) observe the effects of recent
changes in the rules governing local ownership of television
stations; (2) observe the effects of the national ownership cap
having been raised to 35%; and (3) preserve the power of
local affiliates to bargain with their networks in order to
promote diversity of programming. 1998 Report p p 25-30.
We agree with the networks that these reasons cannot justify
the Commission's decision.
The first reason is insufficient because there is no obvious
relationship between relaxation of the local ownership rule --
which now permits a single entity to own two broadcast
stations in the same market in some situations, see Review of
the Commission's Regulations Governing Television Broad-
casting, Report & Order, 14 F.C.C.R. 12903, p 64 (1999) --
and retention of the national ownership cap, and the Commis-
sion does nothing to suggest there is any non-obvious rela-
tionship. Furthermore, as the networks point out, neither
the first nor the second reason is responsive to s 202(h): The
Commission's wait-and-see approach cannot be squared with
its statutory mandate promptly -- that is, by revisiting the
matter biennially -- to "repeal or modify" any rule that is not
"necessary in the public interest."
The Commission, with the support of intervenors NAB and
NASA, argues that it was required to defer to the decision of
the Congress to set the initial ownership cap in the 1996 Act
at 35%. For this the Commission relies upon both the House
and the Senate having rejected a proposal to raise the cap to
50%, and upon the statement of Congressman Markey, rank-
ing minority Member of the relevant subcommittee of the
House, that the Congress's choice of the 35% cap "should
settle the issue for many years to come." 142 Cong. Rec.
H1145-06, H1170 (daily ed. Feb. 1, 1996). This legislative
history is no basis whatever for the Commission's decision.
First, the choice of 35% rather than any other number
determined only the starting point from which the Commis-
sion was to assess the need for further change. Section
202(h) itself requires the Commission to determine whether
its ownership rules -- specifically including "rules adopted
pursuant to this section," such as the present NTSO Rule --
are necessary in the public interest. Thus, the statute im-
posed upon the Commission a duty to examine critically the
new 35% NTSO Rule and to retain it only if it continued to be
necessary; for the Commission to defer to the Congress's
choice of 35% as of 1996 is to default upon this ongoing duty.
Second, "the remarks of a single legislator, even the sponsor,"
cannot be allowed to alter the plain meaning of the legislation
upon which he comments. Chrysler Corp. v. Brown, 441 U.S.
281, 311 (1979). In this instance, moreover, the congressman
did not even purport to interpret the statute; he merely
offered his own prediction that competitive conditions would
not warrant a change in the Rule anytime soon. Maybe yes,
maybe no. The statute says that is for the Commission to
decide. Consequently, the first two reasons given by the
Commission do nothing to support its decision.
Nor does the Commission's third reason -- that the Rule is
necessary to strengthen the bargaining power of network
affiliates and thereby to promote diversity of programming --
have sufficient support in the present record. Although we
do not agree with the networks that this reason is unrespon-
sive to s 202(h) -- as we have said, that section allows the
Commission to retain a rule necessary to safeguard the public
interest in diversity -- we must agree that the Commission's
failure to address itself to the contrary views it expressed in
the 1984 Report effectively undermines its present rationale.
In the 1998 Report (p 30) the Commission asserted that
independently-owned affiliates play a valuable role by "coun-
terbalancing" the networks' strong economic incentive in
clearing all network programming "because they have the
right ... to air instead" programming more responsive to
local concerns. In the 1984 Report, however, the Commission
said it had "no evidence indicating that stations which are not
group-owned better respond to community needs, or expend
proportionately more of their revenues on local program-
ming." 1984 Report p 53. The later decision does not indi-
cate the Commission has since received such evidence or
otherwise found reason to repudiate its prior conclusion.
In sum, we agree with the networks that the Commission
has adduced not a single valid reason to believe the NTSO
Rule is necessary in the public interest, either to safeguard
competition or to enhance diversity. Although we agree with
the Commission that protecting diversity is a permissible
policy, the Commission did not provide an adequate basis for
believing the Rule would in fact further that cause. We
conclude, therefore, that the 1998 decision to retain the NTSO
Rule was arbitrary and capricious in violation of the APA.
Other Commission actions. The networks argue that the
Commission's decision is also arbitrary and capricious be-
cause it is inconsistent with recent Commission decisions
relaxing the local television station ownership and the ra-
dio/televison cross-ownership rules, as well as its decisions
repealing the prime time access and the financial and syndica-
tion rules. The Commission answers that it has properly
followed the lead of the Congress in taking an "incremental"
approach to the deregulation of broadcast ownership. Al-
though we are not convinced the Congress required such an
approach -- the mandate of s 202(h) might better be likened
to Farragut's order at the battle of Mobile Bay ("Damn the
torpedoes! Full speed ahead.") than to the wait-and-see
attitude of the Commission -- because the decisions to which
the networks point deal with regulations that are not closely
related, analytically, to the NTSO Rule, they are not inconsis-
tent with the Commission's decision to retain the national
ownership cap.
2. Failure to comply with s 202(h)
The networks argue that the Commission's decision to
retain the NTSO Rule was not only arbitrary and capricious
but also contrary to s 202(h). As just discussed, we agree
with the networks that two of the reasons the Commission
gave for retaining the Rule did not even purport to show the
Rule was necessary in the public interest, as required by the
statute. Furthermore, we agree that the Commission "pro-
vided no analysis of the state of competition in the television
industry to justify its decision to retain the national owner-
ship cap." The Commission's brief description of the broad-
casting market, a single paragraph of the 1998 Report under
the heading "Status of Media Marketplace," is woefully inade-
quate: The Commission merely listed the number of televi-
sion households, the number of television stations, the per-
centage of those stations that are affiliated with networks,
and the number of stations an average viewer can receive,
without defining the relevant markets, let alone assessing the
state of competition therein. See 1998 Report p 9. Nor did
the Commission attempt to link the listed facts to its decision
to retain the national ownership cap. That, however, is
precisely what s 202(h) requires. Consequently, we agree
with the networks that the Commission "failed even to ad-
dress meaningfully the question that Congress required it to
answer."
3. Failure to address the 1984 Report
The Commission's failure to address its 1984 Report in the
course of its contrary 1998 Report is yet another way in which
the decision to retain the NTSO Rule was arbitrary and
capricious. Recall that in the 1984 Report the Commission
concluded the NTSO Rule should be repealed because it
focuses upon national rather than local markets and because
even then any need for the Rule had been undermined by
competition. 1984 Report p 108. Indeed, even when the
Commission subsequently reconsidered its decision to elimi-
nate the national ownership cap -- as necessitated by the
moratorium the Congress imposed upon implementing the
1984 Report -- it expressly re-affirmed the conclusions
reached in the Report. Amendment of Multiple Ownership
Rules, Mem. Op. & Order, 100 F.C.C.2d 74, p 3 (1984). To
retain the cap in 1998 without explanation of the change in
the Commission's view is, therefore, to all appearances, sim-
ply arbitrary. The Commission may, of course, change its
mind, but it must explain why it is reasonable to do so. See
Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 57 (1983) ("An agency's view of what is in
the public interest may change, either with or without a
change in circumstances. But an agency changing its course
must supply a reasoned analysis."); Telecomm. Research and
Action Ctr. v. FCC, 801 F.2d 501, 518 (D.C. Cir. 1986).
The Commission now argues that the refusal of the Con-
gress to allow the agency to implement the 1984 Report and
its decision in the 1996 Act to retain an ownership cap
rendered irrelevant the views the Commission expressed in
the 1984 Report. When the Congress in 1996 directed the
Commission periodically to review the ownership cap, howev-
er, it did nothing to preclude the Commission from consider-
ing certain arguments in favor of repealing the cap -- includ-
ing the arguments the Commission had embraced in 1984.
So long as the reasoning of the 1984 Report stands unrebut-
ted, the Commission has not fulfilled its obligation, upon
changing its mind, to give a reasoned account of its decision.
In sum, we hold that the decision to retain the NTSO Rule
was both arbitrary and capricious and contrary to s 202(h) of
the 1996 Act. The networks argue that this requires us to
vacate the Rule rather than merely to remand the case to the
agency for further consideration. As will be discussed below,
we disagree, and for this reason we must go on to consider
the networks' first amendment challenge to the NTSO Rule
which, if successful, without question would require that the
Rule be vacated.
B. The First Amendment
The networks contend that the NTSO Rule violates the
First Amendment because it prevents them from speaking
directly -- that is, through stations they own and operate --
to 65% of the potential television audience in the United
States. They would have the court subject the Rule to
"intermediate scrutiny," rather than to rationality review, on
the grounds that: (a) in today's populous media marketplace
the "scarcity" rationale associated with Red Lion Broadcast-
ing Co. v. FCC, 395 U.S. 367 (1969) -- but in fact, we note,
first set forth in National Broadcasting Co. v. United States,
319 U.S. 190, 226-27 (1943) (NBC) -- "makes no sense" as a
reason for regulating ownership; (b) even if scarcity is still a
valid concern, the NTSO Rule, which does not prevent an
entity from owning more than one station in the same local
market, does nothing to mitigate the effect of scarcity; and
(c) FCC v. League of Women Voters, 468 U.S. 364 (1984),
which postdates Red Lion, mandates heightened scrutiny for
all restrictions on broadcast speech. In the alternative, the
networks argue that even if the NTSO Rule is subject only to
review for mere rationality -- the least demanding type of
first amendment scrutiny -- then it is still unconstitutional
because it "severely restricts [their] free speech rights and
fails to advance any countervailing public interest."
The Commission urges the court to accord the NTSO Rule
more deference than is accorded under intermediate scrutiny
on the ground that the Supreme Court upheld similar owner-
ship rules in NCCB and NBC upon determining they were
merely reasonable. Just so.
In NCCB the court upheld the newspaper/broadcast cross-
ownership rule stating: "The regulations are a reasonable
means of promoting the public interest in diversified mass
communications; thus they do not violate the First Amend-
ment rights of those who will be denied broadcast licenses
pursuant to them." 436 U.S. at 802. In NBC the court
upheld a regulation that prohibited a network from owning
more than one radio station in a market and from owning any
station in a market with few stations. 319 U.S. at 206-08.
As in NCCB, the Court in NBC held the regulation to be
consistent with the First Amendment because it was based
upon network practices deemed contrary to the public inter-
est and not upon the applicants' "political, economic or social
views, or upon any other capricious basis." Id. at 226-27.
The networks offer no convincing reason those cases should
not control. First, contrary to the implication of the net-
works' argument, this court is not in a position to reject the
scarcity rationale even if we agree that it no longer makes
sense. The Supreme Court has already heard the empirical
case against that rationale and still "declined to question its
continuing validity." Turner I, 512 U.S. 622, 638 (1994). In
any event, it is not the province of this court to determine
when a prior decision of the Supreme Court has outlived its
usefulness. Agostini v. Felton, 521 U.S. 203, 237 (1997).
Second, contrary to the networks' express protestations,
the scarcity rationale is implicated in this case. The scarcity
rationale is based upon the limited physical capacity of the
broadcast spectrum, which limited capacity means that "there
are more would-be broadcasters than frequencies available."
Turner I, 512 U.S. at 637. In the face of this limitation, the
national ownership cap increases the number of different
voices heard in the nation (albeit not the number heard in any
one market). But for the scarcity rationale, that increase
would be of no moment.
Third, we do not think League of Women Voters mandates
heightened scrutiny in this case. That case involved a prohi-
bition upon editorializing by noncommercial broadcasters that
received government money under the Public Broadcasting
Act, which prohibition the Court concluded was a content-
based restriction upon speech. 468 U.S. at 383-84. The
Court applied heightened scrutiny, noting that restrictions
placed upon broadcasters in order to "secure the public's
First Amendment interest in receiving a balanced presenta-
tion of views on diverse matters of public concern," such as
the fairness doctrine at issue in Red Lion, 395 U.S. at 386,
"have been upheld only when we were satisfied that the
restriction is narrowly tailored to further a substantial gov-
ernment interest." 468 U.S. at 380. The Court did not
question, however, the continued propriety of deferential
scrutiny of structural regulations. Id. The NTSO Rule,
unlike the ban upon editorializing at issue in League of
Women Voters, is not a content-based regulation; it is a
regulation of industry structure, like the newspaper/broadcast
cross-ownership rule the Court concluded was content-neutral
in NCCB, and like the network ownership restriction upheld
in NBC. See NCCB, 436 U.S. at 801; NBC, 319 U.S. at 226-
27. For these reasons, the deferential review undertaken by
the Supreme Court in NCCB and NBC is also appropriate
here.
The networks, drawing directly upon the Commission's
1984 Report, argue that the Rule fails even rationality review
because "[p]ermitting one entity to own many stations can
foster ... more programming preferred by consumers."
They also suggest that but for the Rule "buyers with superior
skills [could] purchase stations where they may be able to do
a better job" of meeting local needs even as they realize
economies of scale.
This paean to the undoubted virtues of a free market in
television stations is not, however, responsive to the question
whether the Congress could reasonably determine that a
more diversified ownership of television stations would likely
lead to the presentation of more diverse points of view. By
limiting the number of stations each network (or other entity)
may own, the NTSO Rule ensures that there are more
owners than there would otherwise be. An industry with a
larger number of owners may well be less efficient than a
more concentrated industry. Both consumer satisfaction and
potential operating cost savings may be sacrificed as a result
of the Rule. But that is not to say the Rule is unreasonable
because the Congress may, in the regulation of broadcasting,
constitutionally pursue values other than efficiency -- includ-
ing in particular diversity in programming, for which diversi-
ty of ownership is perhaps an aspirational but surely not an
irrational proxy. Simply put, it is not unreasonable -- and
therefore not unconstitutional -- for the Congress to prefer
having in the aggregate more voices heard, each in roughly
one-third of the nation, even if the number of voices heard in
any given market remains the same.
C. Remedy
We have concluded that, although the NTSO Rule is not
unconstitutional, the Commission's decision to retain it was
arbitrary and capricious and contrary to law because the
Commission failed to give an adequate reason for its decision,
failed to comply with s 202(h), and failed to explain its
departure from its previously expressed views. Now we must
determine the appropriate remedy.
The networks ask us to vacate the Rule, relying upon this
court's opinion in Radio-Television News Directors Ass'n v.
FCC, 229 F.3d 269 (2000) (RTDNA II). See also RTNDA I,
184 F.3d 872, 888 n.21 (D.C. Cir. 1999) (holding open possibili-
ty court could vacate political editorial and personal attack
rules after deciding Commission, which had proposed to
repeal them, had inadequately justified decision not to do so).
The Commission, supported by the intervenors, argue that
the petitioners are entitled only to an order requiring the
Commission to "conduct a rule making proceeding, which
might or might no[t] result in repeal of the rules...."
Under the APA reviewing courts generally limit themselves
to remanding for further consideration an agency order want-
ing an explanation adequate to sustain it. Thus, when an
agency arbitrarily and capriciously denies a petition for rule-
making the proper remedy is typically to remand the case for
reconsideration. See, e.g., Geller v. FCC, 610 F.2d 973, 980
(D.C. Cir. 1979) (vacating denial of petition for rulemaking to
repeal cable television rules and remanding for reconsidera-
tion). The case upon which the networks rely involved
extraordinary circumstances -- extreme delay and non-
responsiveness by the Commission -- that ultimately caused
the court to issue a writ of mandamus. RTDNA II, 229 F.3d
at 272; see also Am. Horse Prot. Ass'n, Inc. v. Lyng, 812
F.2d 1, 7 (D.C. Cir. 1987) (explaining that remand with
instructions to institute rulemaking is appropriate "only in
the rarest and most compelling of circumstances"). In the
present case, however, the agency appears to have been more
errant than recalcitrant. At the same time, the Commission's
argument that the court should limit itself to setting aside the
decision found to be deficient overlooks the relevance of
s 202(h).
Although a decision under s 202(h) to retain a rule is
similar to an agency's denial of a petition for rulemaking, the
underlying procedures differ in at least one important respect
that requires a different approach upon judicial review: Sec-
tion 202(h) carries with it a presumption in favor of repealing
or modifying the ownership rules. Under s 202(h) the Com-
mission may retain a rule only if it reasonably determines
that the rule is "necessary in the public interest." If the
reviewing court lacked the power to require the Commission
to vacate a rule it had improperly retained and could require
the Commission only to reconsider its decision, then the
presumption in s 202(h) would lose much of its bite. It is not
surprising, therefore, that counsel for the Commission con-
ceded at oral argument that the court has the power to
vacate -- technically, to order the Commission to vacate --
the ownership rules. For this reason, we conclude that
vacatur is one remedy available to redress a violation of
s 202(h).
At the same time, it is clear that s 202(h) should not be
read to require the court always to vacate a rule improperly
retained by the Commission. After all, vacatur is not neces-
sarily indicated even if an agency acts arbitrarily and capri-
ciously in promulgating a rule. United States Telecom Ass'n
v. FBI, 2002 WL 63087, *7 (D.C. Cir. 2002); Ill. Pub. Tele-
comm. Ass'n v. FCC, 123 F.3d 693, 693 (D.C. Cir. 1997). The
question is one of degree; as we said in Allied-Signal, Inc. v.
United States Nuclear Regulatory Comm'n, 988 F.2d 146 (D.C. Cir. 1993): "The decision whether to vacate depends on
the seriousness of the order's deficiencies (and thus the
extent of doubt whether the agency chose correctly) and the
disruptive consequences of an interim change that may itself
be changed." Id. at 150-51. Although here we are reviewing
an order declining to institute a rulemaking rather than an
order promulgating a rule, we think the Allied-Signal test
remains appropriate. Indeed, the situation at hand is proce-
durally similar to that we faced in RTNDA I, where we
applied the Allied-Signal test. 184 F.3d at 887-89.
Applying that test we conclude the NTSO Rule should not
be vacated. Although the Commission's decision to retain the
Rule was, as written, arbitrary and capricious and contrary to
s 202(h), we cannot say with confidence that the Rule is likely
irredeemable because the Commission failed to set forth the
reasons -- either analytical or empirical -- for which it no
longer adheres to the conclusions in its 1984 Report. We do
not infer from this silence that the agency cannot justify its
change of position, for the Commission apparently labored
under the misapprehension of law that the Congress, by
blocking implementation of the 1984 Report, had relieved the
Commission from further concern with the analysis therein.
If the Commission rested its decision upon the erroneous
premise that the Congress had made its 1984 Report irrele-
vant, then having been disabused the Commission may yet
conclude the Rule is necessary to promote diversity at the
local or the national level. To reach these conclusions, of
course, the Commission would have to state the reason(s) for
which it believes its contrary views set out in the 1984 Report
were incorrect or are inapplicable in the light of changed
circumstances, but that is by no means inconceivable; the
Report is, after all, now almost 20 years old. For this reason
alone, a remand rather than vacatur is indicated. Moreover,
we note that although the Commission, in its 1998 Report,
failed to develop any affirmative justification for the Rule
based upon competitive concerns, it did, albeit somewhat
cryptically, advert to possible competitive problems in the
national markets for advertising and program production,
1998 Report p 26 n.78; and intervenors NAB and NASA
make a plausible argument that the NTSO Rule indeed
furthers competition in the national television advertising
market. The Commission needs either to develop or to
jettison these points on remand. In sum, we cannot say it is
unlikely the Commission will be able to justify a future
decision to retain the Rule.
In these circumstances, the other factor to be considered
under Allied Signal -- the disruption that might be caused if
the court were now to vacate the Rule and the agency were
later to re-promulgate it with an adequate explanation -- is
only barely relevant. It does not appear to us that there
would be a significant disruption of the agency's regulatory
program -- contrast Allied-Signal, 988 F.2d at 151, where
the agency would have had to pay refunds and could not have
regulated retroactively -- because the Commission presum-
ably could require an entity to divest any station it acquired,
at peril of being in violation of a newly promulgated owner-
ship cap. Cf. NCCB, 436 U.S. at 802 (upholding Commis-
sion's decision, upon promulgation of newspaper/broadcast
cross-ownership rule, to require divestiture in some markets
where ownership concentration was particularly high). At
the same time, if the Commission is right about the NTSO
Rule, vacating it would for a time deprive some viewers of
some diversity in the points of view available on the airwaves.
See Davis County Solid Waste Mgm't v. EPA, 108 F.3d 1454,
1458-59 (D.C. Cir. 1997) (considering harm to environment
that vacatur of emissions standards would impose). In the
end, it appears that vacatur could cause some but not a great
loss to the viewing public.
Upon consideration of both the Allied-Signal factors, we
conclude that, though the disruptive consequences of vacatur
might not be great, the probability that the Commission will
be able to justify retaining the NTSO Rule is sufficiently high
that vacatur of the Rule is not appropriate. See United
States Telecom Ass'n, 2002 WL 63087 at *7 (focusing upon
first factor of Allied-Signal test). We therefore remand this
case to the Commission for further consideration whether to
repeal or to modify the NTSO Rule.
IV. The CBCO Rule
Time Warner's principal contention is that the CBCO Rule
is an unconstitutional abridgment of its first amendment right
to speak. Time Warner also argues that the Commission's
decision to retain the Rule was arbitrary and capricious and
contrary to s 202(h). Because we agree that the retention
decision was arbitrary and capricious as well as contrary to
s 202(h), and that this requires us to vacate the Rule, we do
not reach Time Warner's first amendment claim.
A. Section 202(h) and the APA
Time Warner raises a host of objections to the Commis-
sion's decision to retain the CBCO Rule. The Commission is
largely unresponsive to these arguments; to the extent it is
responsive, it is unpersuasive.
First, Time Warner argues that the Commission impermis-
sibly justified retaining the Rule on a ground, namely that
cable/broadcast combines might "discriminate against unaffili-
ated broadcasters in making cable-carriage decisions," differ-
ent from the one it gave when it promulgated the Rule,
namely, that "cable should be protected" from acquisition by
networks bent upon pre-empting new competition. The Com-
mission does not respond but even so we think the argument
is clearly without merit. Nothing in s 202(h) suggests the
grounds upon which the Commission may conclude that a rule
is necessary in the public interest are limited to the grounds
upon which it adopted the rule in the first place.
Next, Time Warner argues that the Commission applied
too lenient a standard when it concluded only that the CBCO
Rule "continues to serve the public interest," 1998 Report
p 102, and not that it was "necessary" in the public interest.
Again the Commission is silent, but this time we agree with
Time Warner; the Commission appears to have applied too
low a standard. The statute is clear that a regulation should
be retained only insofar as it is necessary in, not merely
consonant with, the public interest.
Finally, Time Warner attacks the specific reasons the
Commission gave for retaining the Rule. All three reasons
relate either to competition or to diversity, and we have
grouped them below accordingly.
1. Competition
The Commission expressed concern that a cable operator
that owns a broadcast station: (1) can "discriminate" against
other broadcasters by offering cable/broadcast joint advertis-
ing sales and promotions; and (2) has an incentive not to
carry, or to carry on undesirable channels, the broadcast
signals -- including the forthcoming digital signals -- of
competing stations. 1998 Report p p 103-105. Addressing
the first concern, Time Warner argues that the Commission
failed both to explain why joint advertising rates constitute
"discrimination -- which is simply a pejorative way of refer-
ring to economies of scale and scope" -- and to "point to
substantial evidence that such 'discrimination' is a non-
conjectural problem." Addressing the second concern (in
part), Time Warner contends that refusals by cable operators
to carry digital signals must not be a significant problem
because the Commission has declined to impose must-carry
rules for duplicate digital signals. See Carriage of Digital
Television Broadcast Signals, First Report & Order and
Further Notice of Proposed Rulemaking, 16 F.C.C.R. 2598
(2001). Both of Time Warner's points are plausible -- indeed
the first is quite persuasive -- and we have no basis upon
which to reject either inasmuch as the Commission does not
respond to them.
Next, Time Warner gives four reasons for which the Com-
mission's concern about discriminatory carriage of broadcast
signals is unwarranted. First, must-carry provisions, see 47
U.S.C. ss 534-535; 47 C.F.R. s 76.55 et seq., already ensure
that broadcast stations have access to cable systems; indeed,
the Commission pointed to only one instance in which a cable
operator denied carriage to a broadcast station (Univision).
See 1998 Report p 104. Second, competition from direct
broadcast satellite (DBS) providers makes discrimination
against competing stations unprofitable. Third, the Commis-
sion failed to explain why it departed from the position it took
in the 1992 Report, where it said that the CBCO Rule was not
necessary to prevent carriage discrimination. Fourth, be-
cause a cable operator may lawfully be co-owned with a cable
programmer or a network, the Rule does little to cure the
alleged problem of cable operators having an incentive to
discriminate against stations that air competing program-
ming.
In response the Commission concedes it did not address
Time Warner's second and third points -- competition from
DBS services and the contradiction of the 1992 Report:
"Since the Commission did not address any of these issues in
the 1998 Report, counsel for the Commission are not in a
position to respond to Time Warner's claims concerning these
issues." The same might have been said of Time Warner's
fourth point. These failings alone require that we reverse as
arbitrary and capricious the Commission's decision to retain
the CBCO Rule. See Motor Vehicles Mfrs. Ass'n v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (a decision is
arbitrary and capricious if the agency fails "to consider an
important aspect of the problem").
The only argument to which the Commission does respond
is that the Univision incident alone cannot justify retention of
the Rule: The Commission first points to its predictive
judgment that there would be more discrimination without
the CBCO Rule and then, citing Time Warner I, 211 F.3d at
1322-23, points out that the availability of behavioral reme-
dies does not necessarily preclude it from imposing a struc-
tural remedy. We acknowledge that the court should ordi-
narily defer to the Commission's predictive judgments, and
we take the Commission's point about remedies. In this case,
however, the Commission has not shown a substantial enough
probability of discrimination to deem reasonable a prophylac-
tic rule as broad as the cross-ownership ban, especially in
light of the already extant conduct rules. A single incident
since the must-carry rules were promulgated -- and one that
seems to have been dealt with adequately under those
rules -- is just not enough to suggest an otherwise significant
problem held in check only by the CBCO Rule.
We conclude that the Commission has failed to justify its
retention of the CBCO Rule as necessary to safeguard com-
petition. The Commission failed to consider competition from
DBS, to justify its change in position from the 1992 Report,
and to put forward any adequate reason for believing the
Rule remains "necessary in the public interest."
2. Diversity
As for retaining the Rule in the interest of diversity, the
Commission had this to say: "Cable/TV combinations ...
would represent the consolidation of the only participants in
the video market for local news and public affairs program-
ming, and would therefore compromise diversity." 1998 Re-
port p 107. Time Warner argues that this rationale is con-
trary to s 202(h), as well as arbitrary and capricious, for
essentially three reasons.
First, Time Warner contends that s 202(h), by virtue of its
exclusive concern with competition, plainly precludes consid-
eration of diversity and that, in any event, it should be so
interpreted in order to avoid the constitutional question
raised by the burden the CBCO Rule places upon the compa-
ny's right to speak. Second, Time Warner argues that the
increase in the number of broadcast stations in each local
market since the promulgation of the CBCO Rule in 1970
renders any marginal increase in diversity owing to the
operation of the Rule too slight to justify retaining it. Final-
ly, Time Warner asserts that the decision to retain the Rule
cannot be reconciled with the TV Ownership Order, in which
the Commission concluded that a single entity may own two
local television stations as long as there are eight other
stations in the market and one of the two stations coming
under common ownership is not among the four most watched
stations. See Review of the Commission's Regulations Gov-
erning Television Broadcasting, Report & Order, 14 F.C.C.R.
12903, p 64 (1999).
The Commission responds feebly. First, it does not ad-
dress Time Warner's argument that diversity may not be
considered under s 202(h), but that is of little moment be-
cause it adequately addressed essentially the same argument
when it was presented by the networks in connection with the
NTSO Rule: A rule may be retained if it is necessary "in the
public interest"; it need not be necessary specifically to
safeguard competition. Second, the Commission concedes
that it decided to retain the Rule without considering the
increase in the number of competing television stations since
it had promulgated the Rule in 1970. The Commission gives
no explanation for this omission, yet it is hard to imagine
anything more relevant to the question whether the Rule is
still necessary to further diversity.
Finally, the Commission makes no response to Time War-
ner's argument that the concern with diversity cannot support
an across-the-board prohibition of cross-ownership in light of
the Commission's conclusion in the TV Ownership Order that
common ownership of two broadcast stations in the same local
market need not unduly compromise diversity. The Commis-
sion does object that Time Warner failed to raise this argu-
ment before the agency, but it appears that Time Warner did
what it could to bring the argument to the Commission's
attention. The TV Ownership Order was issued in August,
1999, after the close of the comment period, but almost a year
before the 1998 Report was issued (in June, 2000). A few
months thereafter Time Warner proffered supplemental com-
ments raising this point but the Commission declined to
consider them. 1998 Report p 100 n.257. For this reason, we
find the Commission's forfeiture argument unpersuasive.
Even if it was proper for the agency to refuse to accept the
comments, however, it does not follow that the agency was
free to ignore its own recently issued TV Ownership Order.
Yet the Commission made no attempt in the 1998 Report and
makes no attempt in its brief to harmonize its seemingly
inconsistent decisions.
In sum, the Commission concedes it failed to consider the
increased number of television stations now in operation, and
it is clear that the Commission failed to reconcile the decision
under review with the TV Ownership Order it had issued only
shortly before. We conclude, therefore, that the Commis-
sion's diversity rationale for retaining the CBCO Rule is
woefully inadequate.
B. Remedy
The only question left is whether, as Time Warner re-
quests, we should order the Commission to vacate the CBCO
Rule itself -- as opposed merely to reversing the Commis-
sion's decision not to initiate a proceeding to repeal the Rule
and remanding the matter for further consideration by the
agency. Again, this type of decision is governed by the test
laid out in Allied-Signal. As discussed above, the Commis-
sion put forward justifications for retaining the NTSO
Rule -- furthering local diversity by strengthening the bar-
gaining position of network affiliates and furthering national
diversity -- that we rejected principally because the Commis-
sion failed to address the contrary position it took in its 1984
Report. We noted, however, that the Commission's failure to
explain why it departed from the views it expressed in 1984
appears to have stemmed from an error of law and not
necessarily from an inability to do so. In addition, the
intervenors presented plausible reasons for thinking the
NTSO Rule may be necessary to further competition. The
same cannot be said with respect to the CBCO Rule. The
Commission gave no reason to think it could adequately
address its conclusions in the 1992 Report or in the TV
Ownership Order. Rather, the Commission simply failed to
respond to the objections put before it. Furthermore, neither
the Commission nor the intervenors gave any plausible rea-
son for believing the CBCO Rule is necessary to further
competition. Although the Commission presumably made its
best effort, the reasons it gave in the 1998 Report for
retaining the CBCO Rule were at best flimsy, and its half-
hearted attempt to defend its decision in this court is but
another indication that the CBCO Rule is a hopeless cause.
Nor does it appear that vacating the CBCO Rule will be
disruptive of the agency's regulatory program. If the agency
wants to re-promulgate the Rule and is able to justify doing
so, it presumably can require any entity then in violation of
the Rule to divest either its broadcast station or its cable
system in any market where it owns both. Cf. NCCB, 436
U.S. at 802. Although viewers may, in the interim, experi-
ence some diminution of diversity, the loss would seemingly
be no greater than the diminution attendant upon the combi-
nation of two broadcast stations in the same market, which
combination the Commission recently sanctioned in the TV
Ownership Order. In sum, vacating the Rule might cause
some disruption, but we hardly think it could be substantial.
Because the probability that the Commission would be able
to justify retaining the CBCO Rule is low and the disruption
that vacatur will create is relatively insubstantial, we shall
vacate the CBCO Rule.
V. Conclusion
The decision of the Commission not to repeal or to modify
the NTSO Rule is vacated and the question whether to retain
the Rule is remanded to the Commission for further proceed-
ings consistent with this opinion. This court's stay order of
April 6, 2001 is vacated without prejudice to the petitioners'
ability to seek a further stay from the Commission during the
pendency of such proceedings. The decision of the Commis-
sion not to repeal or to modify the CBCO Rule is also
vacated, and the Commission is directed to repeal the CBCO
Rule forthwith.
So ordered.