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 appearance.

C. Grey Pash, Jr., Counsel, Federal Communications Commission, argued
the cause for respondents. With him on the brief were Jane E. Mago,
General Counsel, Daniel M. Armstrong, 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. Christopher 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 Affiliated 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 Consumer 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

B. The Cable/Broadcasting Cross-Ownership (CBCO) Rule 6

C. Applying § 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 § 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 consolidated petitions
to review the Federal Communications Commission\'s 1998 decision not to
repeal or to modify the national television station ownership rule, 47
C.F.R. § 73.3555(e), and the cable/broadcast cross-ownership rule, 47
C.F.R. § 76.501(a). Petitioners challenge the decision as a violation of
both the Administrative Procedure Act (APA), 5 U.S.C. § 551 et seq., and
§ 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 Warner Entertainment
Company, L.P. addresses the cable/broadcast 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 unlikely 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 §§
302(b)(1), 202(i), and overrode the few remaining regulatory limits upon
cable/network cross-ownership, id. § 202(f)(1). In radio it eliminated
the national and relaxed the local restrictions upon ownership, id. §
202(a), (b), and eased the \"dual network\" rule, id. § 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. §
202(c)(1)(A), and to increase to 35 from 25 the maximum percentage of
American households a single broadcaster may reach, id. § 202(c)(1)(B).

Finally, and most important to this case, in § 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 television stations
the combined potential audience reach of which exceeds 35% of the
television households in the United States.[^1] As originally
promulgated in the early 1940s, the Rule prohibited common ownership of
more than three television 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 diversification 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 technological 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. 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 national and for local spot
advertising and concluded that neither 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 Appropriations Act, Pub. L. No.
98-396, § 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 Ownership 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 § 202(c)(1) of the Act) directed the
Commission to eliminate the 12-station rule and to raise to 35% the cap
upon audience reach, both of which actions the Commission promptly took.
Implementation of Sections 202(c)(1) and 202(e) of the
Telecommunications Act of 1996 (National Broadcast Television Ownership
and Dual Network Operations), 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.[^2] In conjunction with
certain \"must-carry\" requirements, 47 U.S.C. §§ 534-535; 47 C.F.R. §
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 systems. Amendment of Part 74,
Subpart K, of the Commission\'s Rules and Regulations Relative to
Community Antenna 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, § 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 prohibition 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 prohibition by statute, however, the
Commission did not repeal the Rule; instead, the Commission recommended
that the Congress 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 § 202(i).

C. Applying § 202(h)

As mentioned above, the 1996 Act, in addition to raising the national
ownership cap to 35% and repealing the statutory ban upon
cable/broadcast cross-ownership, required the Commission 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 § 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 follows 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 Proposed 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 Telecommunications Act of 1996.\" Consolidated
Appropriations Act, 2000, Pub. L. No. 106-113, § 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 justification 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 ownership rules. A few weeks later the Commission
issued a written report in which it explained its actions. 1998 Biennial
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 repealing the rule
would \"increase concentration in the national advertising market\" \--
presumably to the detriment of competition \-- and \"enlarge the
potential for monopsony power in the program production market\" \--
presumably to the detriment of both competition and diversity. Id. p 26
n.78. Commissioners Furchtgott-Roth and Powell dissented. Id. at 74; id.
at 94.

The effect upon petitioners Fox and Viacom of the Commission\'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 (\"current carriage and channel position rules prevent some
of the discrimination problems, but not all of them\"). The Commission
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. Commissioners 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
stations in major television markets.

II\. Threshold Issues

Before turning to the merits of the petitions we must consider several
threshold issues. The Commission, supported 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 administrative
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. § 2342(1); 5 U.S.C. § 704. Consequently, the court
must determine whether the Commission\'s determination was \"final.\"
Agency action is final if: (1) it is \"the consummation of the agency\'s
decisionmaking process,\" and (2) \"rights or obligations have been
determined\" by the action or \"legal consequences will flow\" from it.
Bennett v. Spear, 520 U.S. 154, 178 (1997). The Commission argues that
its retention decision 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 §
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 decision made
pursuant to an adjudicative or rulemaking proceeding 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 procedural
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 determination 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 petitioners 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 established
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 \"Congress did not intend for the
Commission\'s biennial reviews \... to create reviewable action.\" In
support of this proposition, the Commission notes that § 202(c)(2) of
the 1996 Act calls for the Commission to conduct a rulemaking to
determine whether to retain, to modify, or to eliminate local television
ownership limitations; in contrast, § 202(h) requires 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
required by § 202(h), then it would have said so, as it said in §
252(e)(6) of the Act that a state commission\'s \"determination\"
approving or disapproving an interconnection agreement shall be
reviewable in federal court. Additionally, the Commission observes that
§ 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 § 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 contends that if its every decision to retain a
rule under § 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 §
202(c) and § 202(h), and between § 252 and § 202(h), fall short of the
\"clear and convincing evidence\" of congressional intent needed 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 §
202(h) requires the Commission 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 improbable. 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 Commission 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 § 202(h) a
reviewing 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
Commission\'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 requirement
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 Commission had not yet completed a review
pursuant to § 202(h). In this case, where the Commission had just
determined that the rules in question were still necessary in the public
interest, 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 petitioners 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 standing 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 dispute, we turn at
last to the merits. The networks assert that the Commission\'s decision
to retain the NTSO Rule was contrary to § 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 § 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
\"necessary\" 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 Commission 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 stations 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 § 202(h) mandates that a rule
necessary \"in the public interest\" \-- including 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 \"intermediate 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 intermediate 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 competition nor promoting diversity
generally can support the Commission\'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
Networks and Affiliates: Economic Conditions and Relationship\--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 negotiating 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 diversity\" and that in any
event § 202(h) does not allow the Commission to regulate broadcast
ownership \"in the name of diversity alone.\" The Commission, again
supported by intervenors 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 § 202(h) signals a departure from that
historic scope. The question, therefore, is whether the Commission
adequately justified its retention decision as necessary to further
diversity or localism. In the 1998 Report the Commission mentioned
national diversity 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 irrelevant. 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 Commission 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 Broadcasting, Report & Order, 14 F.C.C.R. 12903, p
64 (1999) \-- and retention of the national ownership cap, and the
Commission does nothing to suggest there is any non-obvious
relationship. Furthermore, as the networks point out, neither the first
nor the second reason is responsive to § 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,
ranking 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 Commission 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 imposed 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 unresponsive to § 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 \"counterbalancing\" 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 programming.\" 1984 Report p 53. The later decision
does not indicate 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 because it is inconsistent
with recent Commission decisions relaxing the local television station
ownership and the radio/televison cross-ownership rules, as well as its
decisions repealing the prime time access and the financial and
syndication 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. Although we are not convinced the
Congress required such an approach \-- the mandate of § 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 inconsistent with the
Commission\'s decision to retain the national ownership cap.

2\. Failure to comply with § 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 §
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 \"provided no
analysis of the state of competition in the television industry to
justify its decision to retain the national ownership cap.\" The
Commission\'s brief description of the broadcasting market, a single
paragraph of the 1998 Report under the heading \"Status of Media
Marketplace,\" is woefully inadequate: The Commission merely listed the
number of television households, the number of television stations, the
percentage 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 § 202(h) requires. Consequently, we agree
with the networks that the Commission \"failed even to address
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 eliminate 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,
simply 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 Congress 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, however, it did
nothing to preclude the Commission from considering certain arguments in
favor of repealing the cap \-- including the arguments the Commission
had embraced in 1984. So long as the reasoning of the 1984 Report stands
unrebutted, 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 § 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 Broadcasting 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 ownership 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 Amendment 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 interest 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 networks\' 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 prohibition 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 presentation 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 government 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 \--
including in particular diversity in programming, for which diversity 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 § 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 possibility 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 wanting an explanation
adequate to sustain it. Thus, when an agency arbitrarily and
capriciously denies a petition for rulemaking 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
reconsideration). 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 § 202(h).

Although a decision under § 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: Section 202(h) carries with it a
presumption in favor of repealing or modifying the ownership rules.
Under § 202(h) the Commission 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 § 202(h) would lose
much of its bite. It is not surprising, therefore, that counsel for the
Commission conceded 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 § 202(h).

At the same time, it is clear that § 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 necessarily indicated even if an
agency acts arbitrarily and capriciously in promulgating a rule. United
States Telecom Ass\'n v. FBI, 2002 WL 63087, \*7 (D.C. Cir. 2002); Ill.
Pub. Telecomm. 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 procedurally 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 § 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 irrelevant,
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 presumably could require an
entity to divest any station it acquired, at peril of being in violation
of a newly promulgated ownership cap. Cf. NCCB, 436 U.S. at 802
(upholding Commission\'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 § 202(h). Because we agree
that the retention decision was arbitrary and capricious as well as
contrary to § 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 Commission\'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 impermissibly justified
retaining the Rule on a ground, namely that cable/broadcast combines
might \"discriminate against unaffiliated broadcasters in making
cable-carriage decisions,\" different 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
Commission does not respond but even so we think the argument is clearly
without merit. Nothing in § 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 advertising 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 referring 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 Commission\'s concern
about discriminatory carriage of broadcast signals is unwarranted.
First, must-carry provisions, see 47 U.S.C. §§ 534-535; 47 C.F.R. §
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 Commission 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, because 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 programming.

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
remedies does not necessarily preclude it from imposing a structural
remedy. We acknowledge that the court should ordinarily 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
prophylactic 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 competition. 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 programming, and would therefore compromise
diversity.\" 1998 Report p 107. Time Warner argues that this rationale
is contrary to § 202(h), as well as arbitrary and capricious, for
essentially three reasons.

First, Time Warner contends that § 202(h), by virtue of its exclusive
concern with competition, plainly precludes consideration 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 company\'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. Finally, 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
Governing Television Broadcasting, Report & Order, 14 F.C.C.R. 12903, p
64 (1999).

The Commission responds feebly. First, it does not address Time
Warner\'s argument that diversity may not be considered under § 202(h),
but that is of little moment because 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 Warner\'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 Commission does object that Time Warner failed to raise this
argument 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
comments 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 Commission\'s diversity rationale for retaining the
CBCO Rule is woefully inadequate.

B. Remedy

The only question left is whether, as Time Warner requests, we should
order the Commission to vacate the CBCO Rule itself \-- as opposed
merely to reversing the Commission\'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 Commission
put forward justifications for retaining the NTSO Rule \-- furthering
local diversity by strengthening the bargaining position of network
affiliates and furthering national diversity \-- that we rejected
principally because the Commission 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 reason 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, experience some
diminution of diversity, the loss would seemingly be no greater than the
diminution attendant upon the combination 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 proceedings 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 Commission
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.

[^1]: \"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. § 73.3555(e).

[^2]: \"No cable television system (including all parties under common
    control) shall carry the signal of any television broadcast station
    if 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 § 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. § 76.501(a).