Transactional Transparency and Outreach Subcommittee Recommendation to
the

Federal Communications Commission's

Advisory Committee on Diversity for Communications in the Digital Age:

**Adoption of an Equal Transactional Opportunity Rule**

June 14, 2004

> The Subcommittee on Transactional Transparency and Outreach proposes
> that the full Advisory Committee endorse and commend to the Commission
> the adoption of the following regulation, as further explained below:
>
> > No FCC licensee shall discriminate intentionally against a qualified
> > person or entity with respect to the offering for sale or the
> > entertaining of offers to purchase any FCC-licensed facility because
> > of race, color, national origin, or gender.

# Explanation of Proposal

1.  [Authority To Adopt The Rule]{.underline}. There are two sources of
    jurisdiction for an equal transactional opportunity rule: Section 1
    of the Communications Act and the 14^th^ Amendment's equal
    protection clause.

    a.  Section 1 of the Communications Act, 47 U.S.C. §151, as amended
        in 1996, provides that the FCC was created to "make available,
        so far as possible, to all the people of the United States,
        [without discrimination on the basis of race, color, religion,
        national origin, or sex]{.underline}, a rapid, efficient,
        Nation-wide, and world-wide wire and radio communication
        service" (new language added in the Telecommunications Act of
        1996 underscored). Although the 1996 amendment to Section 151 is
        not self-executing, the Commission has not yet initiated a
        proceeding to implement the amendment. A proceeding to adopt an
        equal transactional opportunity rule could serve as the
        proceeding to implement Section 151. Further, Section 257 of the
        Telecommunications Act, 47 U.S.C. §257 (1996) underscores
        Congress' expectation that the FCC shall promote the "National
        Policy" of "diversity of media voices" and report triennially on
        "any regulations prescribed to eliminate barriers within its
        jursisdiction," 47 U.S.C. §257(a), (c) (1996).

    b.  An additional source of jurisdiction, used when the FCC adopted
        its original EEO rule is that broadcaster discrimination, while
        not state action, is aided by broadcasters' occupation of a
        public resource and thus contains "that degree of state
        participation and involvement in discriminatory action which it
        was the design of the Fourteenth Amendment to condemn."
        [Burton v. Wilmington Parking Authority]{.underline}, 365 U.S.
        715, 724 (1961) (barring segregation in a private restaurant on
        public land), [cited favorably in]{.underline} Letter to
        Rosel H. Hyde, Chairman, Federal Communications Commission, from
        Stephen J. Pollak, Assistant Attorney General, Civil Rights
        Division, Department of Justice, May 21, 1968 (the "Pollak
        Letter"), [reprinted in]{.underline} [Nondiscrimination in the
        Employment Practices of Broadcast Licensees (MO&O and
        NPRM)]{.underline}, 13 FCC2d 766, 776-77 (1968)) (adopting the
        original broadcast EEO rule, [codified at]{.underline} 47 C.F.R.
        §73.2080(a)).

2.  [Inapplicability Of The Crosley Rule]{.underline}. The Commission
    cannot consider a specific potential purchaser "other than the
    proposed assignee or transferee." This proscription is found in the
    Crosley Rule, codified at 47 U.S.C. §310(d), which limits the
    applicability of [Ashbacker]{.underline} in the transactional
    context. However, the Commission has determined that a proposed rule
    that would have governed the manner in which broadcast stations are
    offered for sale would not violate Section 310(d). [Public Notice of
    Intent to Sell Broadcast Station]{.underline}, 43 RR2d at 3 n. 3
    ("we do not believe that such a violation \[of Section 310(d)\]
    would occur since our enforcement would be limited to ensuring
    \[under the terms of Commissioner Hooks' "public notice of sale"
    proposal\] that a seller published and filed proof of publication
    with its application.") Four dispositive distinctions between
    Section 310(d) and an equal transactional opportunity rule can be
    summarized as follows: Section 310(d) prohibits [actual
    consideration]{.underline}, [by the Commission]{.underline}, of a
    [specific person]{.underline} other than the proposed assignee or
    transferee as the [actual purchaser]{.underline}. An equal
    transactional opportunity rule would instead address the
    [process]{.underline} by which [all Americans]{.underline} may be
    considered [by the licensee]{.underline} as [potential
    purchasers]{.underline}. Thus, while Section 310(d) prohibits the
    Commission from intervening in the ultimate selection of a buyer,
    Section 310(d) does not prevent the Commission from sanctioning
    misconduct that happens to occur in connection with a broadcast
    sale.

3.  [Non-Regulation Of Media Brokers]{.underline}. The regulation would
    not give the Commission regulatory jurisdiction over media brokers.
    To be sure, the Fair Housing Act covers real estate brokers, but
    there were two reasons for that, neither of which is applicable
    here. [First]{.underline}, real estate brokers were a primary cause
    of housing segregation. For example, before 1950, the [Code of
    Ethics]{.underline} of the National Association of Real Estate
    Boards required that "\[a\] Realtor should never be instrumental in
    introducing into a neighborhood\... members of any race or
    nationality\...whose presence will clearly be detrimental to
    property values in that neighborhood." The National Association of
    Media Brokers (NAMB), founded in 1984, never had such a policy.
    [Second]{.underline}, there are incentives under which real estate
    brokers could benefit from discrimination. Such tactics as
    redlining, steering and blockbusting sometimes still inure to the
    financial benefit of unscrupulous real estate brokers, who
    manipulate and exploit homeowners' fears of living next door to
    minorities. Such incentives tactics are absent from the broadcast
    transactional marketplace: even the most prejudiced broadcaster does
    not fear having a minority or woman owner next door on the radio
    dial. Further, without exception, the handful of media brokers who
    have survived consolidation have practiced and encouraged equal
    transactional opportunity. Thus, Commission regulation of its
    licensees' behavior is a complete remedy for discrimination at the
    point of sale, and there is no need for the Commission to exercise
    ancillary jurisdiction over brokers. The only occasion when the
    Commission might need a broker's assistance in connection with an
    equal transactional controversy is when the broker must serve as a
    witness in a hearing. That is a role from which no citizen with
    knowledge of a violation of law is immune; indeed, brokers sometimes
    appear in hearings involving other FCC rules, such as those
    involving ownership fraud. In these exceedingly rare instances, the
    Commission should use its subpoena power to protect the broker, and
    it should exercise its authority to allow the broker to preserve all
    trade secrets and confidences not germane to the subject matter of
    the hearing.

4.  [No Broad Solicitation Requirement]{.underline}. The proposed rule
    does not contemplate a fundamental change in the way FCC-regulated
    assets are bought and sold. Instead, it would proscribe the
    exclusion, on race and gender grounds, of a party qualified to
    participate in the transactional marketplace. Licensees could choose
    whether or not to widely disseminate the availability of an asset
    for sale. Transactional transparency is desirable, and the
    Commission is considering incentives to promote it.  However,
    licensees are not required to publicly or widely solicit buyers, as
    long as the methods used to solicit or consider buyers are
    nondiscriminatory.  For example, solicitation of the most logical
    buyers through such methods as a tax-free exchange, a solicitation
    only of in-market competitors, or a preference for those willing to
    retain a broadcast program format or to retain a tradition of
    responsiveness to certain community problems, issues and needs would
    not be deemed discriminatory, provided that race, color, national
    origin or gender were not factors in the decision to use particular
    methods of solicitation or selection of a buyer, or in the
    implementation of these methods. In particular, a seller's
    preference for a potential buyer because of the buyer's race, color,
    national origin or gender would be impermissible.

5.  [How Licensees Would Comply With The Rule]{.underline}. A licensee
    could adopt marketing parameters that preserve confidentiality and
    screen out unqualified potential bidders, as long as those criteria
    were race- and gender-neutral. For example, if the search parameters
    for a broadcast station call for solicitations of public companies
    only, the four minority-controlled public companies in broadcasting
    could easily be notified. If the search parameters call for reaching
    out to all successful broadcasters in the southeast, there are at
    least ten minority owned companies who should be solicited. If the
    search parameters allow for qualified new entrants, many of those
    who have graduated from the NAB Foundation's Leadership Training
    could be contacted. All of those contacted, of course, would be held
    to the standards of qualifications and confidentiality expected of
    any other potential buyer.

6.  [Prohibited Practices]{.underline}. Two practices that would be
    prohibited by an equal transactional rule are:

    a.  [Intentional Discrimination in Marketing]{.underline}. A
        licensee decides, deliberately, to solicit offers from a wide
        variety of potential buyers, but actually constructs a
        solicitation list that excludes, because of their race or
        gender, minorities or women who the licensee knows are at least
        as qualified as the others on its list.

    b.  [Intentional Discrimination in Consideration of
        Offer]{.underline}. A licensee decides, deliberately, to reject
        or not to consider an offer to purchase because of the offeror's
        race or gender.

> Both types of discrimination would be prohibited if they stem from
> race or gender animus [per se]{.underline}. They would also be
> prohibited if they stem from intentional and invidious stereotyping.
> For example, licensees would be prohibited from deciding,
> deliberately, to withhold from minorities or women the fact that his
> asset is for sale because he believes that minorities and women,
> because of their race or gender, might breach confidentiality or might
> not be able to close a transaction. In the case of broadcasting, a
> licensee would be prohibited from deciding, deliberately, to exclude
> minorities from his solicitation list because, in his opinion,
> minorities are only qualified for, or only interested in, urban or
> Spanish stations, and his station broadcasts a different format.

7.  [Permitted Practices]{.underline}. The following practices would be
    expressly permitted:

    a.  [Ideal Buyer]{.underline}. The rule would not prohibit the rare
        transaction in which there is only one "ideal buyer," such as
        the operator of a station in a longstanding LMA or one offering
        an equal-value tax-free exchange. A similar issue arose in the
        2002 EEO rulemaking. The Commission held that a broadcaster
        would not be considered noncompliant with the EEO rule if it had
        an opportunity to hire "a talent so unique and exceptional that
        a broadcaster could reasonably conclude that a comparable talent
        is unlikely to be found by recruitment." [2002 EEO Second
        R&O]{.underline}, 17 FCC Rcd at 24047 ¶85. Similarly, an equal
        transactional opportunity rule would not preclude a licensee
        from accepting an offer so extraordinary that no could possibly
        trump it, since acceptance of such an offer would be
        business-justified and would not involve race or gender
        discrimination.

    b.  [Non-English Language Stations]{.underline}. The seller of a
        station broadcasting in a language other than English could take
        into account the length of time and depth of experience that a
        potential buyer has had with that language, since this
        information could help predict, in a non-racial way, the buyer's
        prospective ability to close the transaction and satisfy the
        financial obligations (including cash at closing or a seller
        note) attendant to the transaction.

    c.  [FCC Remedial and Diversity Policies]{.underline}. To the extent
        permitted by law, consideration of race under an FCC policy
        (such as the Distress Sale Policy) that is aimed at promoting
        racial diversity or remedying the present effects of past racial
        discrimination would not be prohibited. Contemporary principles
        of constitutional law would govern the question of the extent to
        which a seller (including a seller who is a racial minority) may
        prefer potential buyers who are racial minorities.

8.  [Abuse of Process Essentially Impossible]{.underline}. If a petition
    to deny, based on personal knowledge, alleges that a licensee
    intentionally because of the offeror's race or gender, the
    Commission should take it very seriously and conduct an
    investigation using the procedures set forth in [Bilingual
    Bicultural Coalition on the Mass Media v. FCC]{.underline}, 595 F.2d
    621, 629-30 (D.C. Cir. 1978). There is no financial incentive to
    file, or threaten to file, a false, frivolous, or strike petition;
    [see]{.underline} 47 C.F.R. §§73.3588 and 73.3589 (the greenmail
    rules).

9.  [Enforcement]{.underline}. Commission resources are limited; thus,
    the Commission might not be able to complete investigations of
    allegations of discrimination in sufficient time to allow for their
    prompt consideration in the context of specific transactions.
    Consequently:

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a.  If the Commission receives such an allegation in a petition to deny
    a transaction, and the allegation is obviously inadequate on its
    face, the petition will immediately be dismissed. An example of an
    obviously inadequate allegation is a complainant's bare assertion
    that she did not learn of or secure a transaction, presented without
    evidence that the seller appears to have acted improperly on the
    basis of race, color, national origin or gender.

b.  If the allegation is not immediately dismissed, the Commission will
    not investigate the matter in the context of the challenged
    application but will instead do so following disposition of the
    subject application, generally in connection with the next renewal
    application filed for one of the seller's other facilities. If the
    next such renewal application will not arise for a year or more, the
    Commission will investigate the matter within one year of the filing
    of the original allegation. If, for any licensee, a potentially
    disqualifying rule violation is found, the Commission may call in
    the licensee's next renewal application early under Section
    312(a)(2) of the Communications Act. Further, when the Commission
    first determines to investigate the matter in connection with the
    filing of the original allegation, it will direct all parties to
    preserve all relevant evidence for use in the forthcoming
    investigation. Finally, where appropriate, the Commission will make
    its Alternate Dispute Resolution (ADR) capacity available to the
    parties. By using these procedures, the Commission would manifest
    its recognition that a legitimate complaint is important enough to
    require more time than the transactional review process allows for
    consideration of complaints. It also recognizes that legitimate
    transactions should not be delayed pending consideration of
    complaints that may prove unfounded.

> c\. In the unusual instance in which a complaint arises in connection
> with the sale of a licensee's only facility (or where the Commission's
> investigation of an earlier-filed complaint has not been completed
> when a licensee is selling its last remaining facility), the
> Commission will assign the matter to the Chief of the Enforcement
> Bureau personally, with clear instructions to call in the parties and
> their witnesses for interviews, and to report findings to the
> Commission within no more than fourteen days.  Such a matter would
> then to go the top of the processing queue.
>
> d\. Finally, in the (very) rare instance in which a court of law has
> rendered a final judgment of discrimination ([i.e.]{.underline}, under
> 42 U.S.C. §1981, or Title VI of the 1964 Civil Rights Act in the case
> of an entity receiving federal financial assistance), the Commission
> will review the matter immediately under Section 312(a)(2) of the
> Communications Act.
>
> This procedure would minimize the risk of ill-taken litigation, while
> still allowing the meritorious civil rights litigant to have his or
> her day in court.
>
> The category of last-facility sales for which the 14-day procedure
> (¶9(c) above) would be applicable is small.  The FCC often delays
> matters, but when it really wants to move quickly, it is very capable
> of doing that.  Assigning the allegation specifically to the
> Enforcement Bureau Chief for his personal review would ensure that the
> 14-day timetable would always be met.

10. [Likelihood Of Enforcement Actions]{.underline}. The proposed rule
    is premised on the desire of most broadcasters to obey the law -- an
    attribute that underlies enforcement of nearly all FCC regulations.
    Thus, the rule would succeed due to its general deterrent,
    prophylactic effect. It is unlikely that any but a handful of
    enforcement actions would be necessary.

**[Conclusion]{.underline}**

Minorities are nearly 30% of the population, but minority ownership in
the world's most influential industries is [de minimis]{.underline} --
in broadcasting it is approximately 1.3% of asset value, and in cable,
wireless and wireline minority ownership is [de minimis]{.underline}.
That is unfair, inefficient and anticompetitive. As a first step toward
correcting this anticompetitive and inefficient distribution of assets,
the FCC should readily adopt race- and gender-neutral tools, such as
equal opportunity rules.

From 1998 through 1995, the FCC's tax certificate policy did much to
ensure that minority broadcasters and cable companies learned of
opportunities to pursue broadcast and cable transactions. An equal
transactional opportunity rule would also have this effect, and thus it
is desirable as a matter of public policy. It should not, however, be
regarded as a substitute for the tax certificate policy, whose partial
restoration ought to be a high priority for Congress.