Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-00-01381/USCOURTS-caDC-00-01381-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
Time Warner Entertainment Co., L.P.
Petitioner
United States of America
Respondent

Document Text:

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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

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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 Rodger 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

Page

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

C. Applying s 202(h) 7

1. The NTSO Rule 9

2. The CBCO Rule 9

II. Threshold Issues 10

A. Finality 10

B. Reviewability 12

C. Ripeness 13

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D. Exhaustion and Standing 15

III. The NTSO Rule 16

A. Section 202(h) and the APA 16

1. Is the Rule irrational? 16

2. Failure to comply with s 202(h) 22

3. Failure to address the 1984 Report 22

B. The First Amendment 23

C. Remedy 27

IV. The CBCO Rule 30

A. Section 202(h) and the APA 31

1. Competition 31

2. Diversity 33

B. Remedy 35

V. Conclusion 37

Ginsburg, Chief Judge: Before the court are five consolidated petitions to review and one appeal from the Federal Communications Commission's 1998 decision not to repeal or to modify the national

television station ownership rule, 47 C.F.R. s 73.3555(e), and

the cable/broadcast cross-ownership rule, 47 C.F.R.

s 76.501(a). Petitioners challenge the decision as a violation

of both the Administrative Procedure Act (APA), 5 U.S.C.

s 551 et seq., and s 202(h) of the Telecommunications Act of

1996, Pub. L. No. 104-104, 110 Stat. 56. They also contend

that both rules violate the First Amendment to the Constitution 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 ss 302(b)(1), 202(i), and overrode

the few remaining regulatory limits upon cable/network crossownership, id. s 202(f)(1). In radio it eliminated the national

and relaxed the local restrictions upon ownership, id.

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s 202(a), (b), and eased the "dual network" rule, id. s 202(e).

In addition, the Act directed the Commission to eliminate the

cap upon the number of television stations any one entity may

own, id. s 202(c)(1)(A), and to increase to 35 from 25 the

maximum percentage of American households a single broadcaster may reach, id. s 202(c)(1)(B).

Finally, and most important to this case, in s 202(h) of the

Act, the Congress instructed the Commission, in order to

continue the process of deregulation, to review each of the

Commission's ownership rules every two years:

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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.* 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.

__________

* "No license for a commercial TV broadcast station shall be

granted, transferred or assigned to any party (including all parties

under common control) if the grant, transfer or assignment of such

license would result in such party or any of its stockholders,

partners, members, officers or directors, directly or indirectly,

owning, operating or controlling, or having a cognizable interest in

TV stations which have an aggregate national audience reach

exceeding thirty-five (35) percent." 47 C.F.R. s 73.3555(e).

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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, s 304, 98 Stat. 1369, 1423

(1984). The Commission thereupon reconsidered the matter

and prohibited common ownership (1) of stations that in the

aggregate reached more than 25% of the national television

audience, and (2) of more than 12 stations regardless of their

combined audience reach. Amendment of Multiple 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 s 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.*

__________

* "No cable television system (including all parties under common

control) shall carry the signal of any television broadcast station if

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In conjunction with certain "must-carry" requirements, 47

U.S.C. ss 534-535; 47 C.F.R. s 76.55 et seq., to which cable

operators are subject, see Turner Broad. Sys., Inc. v. FCC,

512 U.S. 622, 630-32 (1994) (Turner I), the Rule has the effect

of prohibiting common ownership of a broadcast station and a

cable television system in the same local market.

The Commission first promulgated the CBCO Rule in 1970

along with a rule banning network ownership of cable 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, s 2,

98 Stat. 2779.

In 1992 the Commission repealed the rule prohibiting network 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 s 202(i).

C. Applying s 202(h)

As mentioned above, the 1996 Act, in addition to raising the

national ownership cap to 35% and repealing the statutory

__________

such system directly or indirectly owns, operates, controls, or has

an interest in a TV broadcast station whose predicted Grade B

contour, computed in accordance with s 73.684 of part 73 of this

chapter, overlaps in whole or in part the service area of such system

(i.e., the area within which the system is serving subscribers)." 47

C.F.R. s 76.501(a).

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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

s 202(h), the Commission, on March 13, 1998, issued a Notice

of Inquiry seeking comments on all ownership rules, including

specifically both the NTSO and the CBCO Rules. 1998

Biennial Regulatory Review, Notice of Inquiry, 13 F.C.C.R.

11276, p p 14, 43 (1998). The Commission described as 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, s 5003, 113 Stat. 1501,

1501A-593 (1999). The accompanying Conference Report

instructed: "[I]f the Commission concludes that it should

retain any of these rules under the review unchanged the

Commission shall issue a report that includes a full 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

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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

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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. s 2342(1); 5

U.S.C. s 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

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quences 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 s 202(h) after issuing a

"Notice of Inquiry" and receiving comment, is likewise a final

agency action subject to judicial review.

The Commission first appears to contend that only a 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."

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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 s 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, s 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 s 202(h), then it would have said so, as it said in

s 252(e)(6) of the Act that a state commission's "determination" approving or disapproving an interconnection agreement

shall be reviewable in federal court. Additionally, the Commission observes that s 202(h) does not require it to submit a

written report to the Congress. All this, according to the

agency, indicates the Congress did not intend that the courts

review agency determinations made pursuant to s 202(h). In

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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 s 202(h)

were subject to judicial review, then the agency and the

courts alike would face tasks so overwhelming as not to be a

result sensibly ascribed to the Congress.

In light of the presumption that final agency action is

reviewable, see Abbott Labs. v. Gardner, 387 U.S. 136, 140-41

(1967), we must reject the Commission's argument that the

text and structure of the 1996 Act preclude judicial review.

The contrasts the Commission draws between s 202(c) and

s 202(h), and between s 252 and s 202(h), fall short of the

"clear and convincing evidence" of congressional intent 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 s 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

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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 s 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

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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 s 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.

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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 s 202(h) and arbitrary and capricious in violation

of the APA; alternatively they contend the Rule violates the

First Amendment.

A. Section 202(h) and the APA

The networks argue that the Commission's decision not to

repeal the NTSO Rule was arbitrary and capricious and

contrary to s 202(h) for three reasons: (1) the Rule is

fundamentally irrational, and the Commission's justifications

for retaining it are correlatively flawed; (2) the Commission

failed meaningfully to consider whether the Rule was "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

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and NASA, notes two distinctions between Time Warner II

and this case: The 30% cap in Time Warner II was set by the

Commission whereas the 35% cap at issue here was set by the

Congress; and the provision of the Cable Act at issue in the

prior case limited the extent to which the Commission could

regulate in furtherance of diversity, whereas s 202(h) 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.

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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 s 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 s 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.

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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 s 202(h): The

Commission's wait-and-see approach cannot be squared with

its statutory mandate promptly -- that is, by revisiting the

matter biennially -- to "repeal or modify" any rule that is not

"necessary in the public interest."

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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 s 202(h) -- as we have said, that section allows the

Commission to retain a rule necessary to safeguard the public

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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 s 202(h) might better be likened

to Farragut's order at the battle of Mobile Bay ("Damn the

torpedoes! Full speed ahead.") than to the wait-and-see

attitude of the Commission -- because the decisions to which

the networks point deal with regulations that are not closely

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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 s 202(h)

The networks argue that the Commission's decision to

retain the NTSO Rule was not only arbitrary and capricious

but also contrary to s 202(h). As just discussed, we agree

with the networks that two of the reasons the Commission

gave for retaining the Rule did not even purport to show the

Rule was necessary in the public interest, as required by the

statute. Furthermore, we agree that the Commission "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 s 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

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nate the national ownership cap -- as necessitated by the

moratorium the Congress imposed upon implementing the

1984 Report -- it expressly re-affirmed the conclusions

reached in the Report. Amendment of Multiple Ownership

Rules, Mem. Op. & Order, 100 F.C.C.2d 74, p 3 (1984). To

retain the cap in 1998 without explanation of the change in

the Commission's view is, therefore, to all appearances, 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 s 202(h) of

the 1996 Act. The networks argue that this requires us to

vacate the Rule rather than merely to remand the case to the

agency for further consideration. As will be discussed below,

we disagree, and for this reason we must go on to consider

the networks' first amendment challenge to the NTSO Rule

which, if successful, without question would require that the

Rule be vacated.

B. The First Amendment

The networks contend that the NTSO Rule violates the

First Amendment because it prevents them from speaking

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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 crossownership 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

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est and not upon the applicants' "political, economic or social

views, or upon any other capricious basis." Id. at 226-27.

The networks offer no convincing reason those cases should

not control. First, contrary to the implication of the 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 contentbased 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,

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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.

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C. Remedy

We have concluded that, although the NTSO Rule is not

unconstitutional, the Commission's decision to retain it was

arbitrary and capricious and contrary to law because the

Commission failed to give an adequate reason for its decision,

failed to comply with s 202(h), and failed to explain its

departure from its previously expressed views. Now we must

determine the appropriate remedy.

The networks ask us to vacate the Rule, relying upon this

court's opinion in Radio-Television News Directors Ass'n v.

FCC, 229 F.3d 269 (2000) (RTDNA II). See also RTNDA I,

184 F.3d 872, 888 n.21 (D.C. Cir. 1999) (holding open 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 nonresponsiveness 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

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decision found to be deficient overlooks the relevance of

s 202(h).

Although a decision under s 202(h) to retain a rule is

similar to an agency's denial of a petition for rulemaking, the

underlying procedures differ in at least one important respect

that requires a different approach upon judicial review: Section 202(h) carries with it a presumption in favor of repealing

or modifying the ownership rules. Under s 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 s 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

s 202(h).

At the same time, it is clear that s 202(h) should not be

read to require the court always to vacate a rule improperly

retained by the Commission. After all, vacatur is not 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.

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Applying that test we conclude the NTSO Rule should not

be vacated. Although the Commission's decision to retain the

Rule was, as written, arbitrary and capricious and contrary to

s 202(h), we cannot say with confidence that the Rule is likely

irredeemable because the Commission failed to set forth the

reasons -- either analytical or empirical -- for which it no

longer adheres to the conclusions in its 1984 Report. We do

not infer from this silence that the agency cannot justify its

change of position, for the Commission apparently labored

under the misapprehension of law that the Congress, by

blocking implementation of the 1984 Report, had relieved the

Commission from further concern with the analysis therein.

If the Commission rested its decision upon the erroneous

premise that the Congress had made its 1984 Report 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

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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 s 202(h). Because we agree that the retention

decision was arbitrary and capricious as well as contrary to

s 202(h), and that this requires us to vacate the Rule, we do

not reach Time Warner's first amendment claim.

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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 s 202(h) suggests the

grounds upon which the Commission may conclude that a rule

is necessary in the public interest are limited to the grounds

upon which it adopted the rule in the first place.

Next, Time Warner argues that the Commission applied

too lenient a standard when it concluded only that the CBCO

Rule "continues to serve the public interest," 1998 Report

p 102, and not that it was "necessary" in the public interest.

Again the Commission is silent, but this time we agree with

Time Warner; the Commission appears to have applied too

low a standard. The statute is clear that a regulation should

be retained only insofar as it is necessary in, not merely

consonant with, the public interest.

Finally, Time Warner attacks the specific reasons the

Commission gave for retaining the Rule. All three reasons

relate either to competition or to diversity, and we have

grouped them below accordingly.

1. Competition

The Commission expressed concern that a cable operator

that owns a broadcast station: (1) can "discriminate" against

other broadcasters by offering cable/broadcast joint 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

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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 nonconjectural 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. ss 534-535; 47 C.F.R. s 76.55 et seq., already ensure

that broadcast stations have access to cable systems; indeed,

the Commission pointed to only one instance in which a cable

operator denied carriage to a broadcast station (Univision).

See 1998 Report p 104. Second, competition from direct

broadcast satellite (DBS) providers makes discrimination

against competing stations unprofitable. Third, the 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

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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 ReUSCA Case #00-1381 Document #659024 Filed: 02/19/2002 Page 33 of 37
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port p 107. Time Warner argues that this rationale is contrary to s 202(h), as well as arbitrary and capricious, for

essentially three reasons.

First, Time Warner contends that s 202(h), by virtue of its

exclusive concern with competition, plainly precludes 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 s 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

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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

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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 halfhearted 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.

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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.

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