[Federal Register Volume 66, Number 30 (Tuesday, February 13, 2001)]
[Rules and Regulations]
[Pages 9962-9973]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3175]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 21, 73, and 76

[MM Docket Nos. 94-150, 92-51, and 87-154; FCC 00-438]
[RIN 3060-AF82]


Attribution Rules

AGENCY: Federal Communications Commission.

ACTION: Final rule; petition for reconsideration.

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SUMMARY: This document concerns rules and policies for attributing 
cognizable interests in applying the broadcast multiple ownership 
rules, the broadcast-cable cross-ownership rule, and the cable-
Multipoint Distribution Service cross-ownership rule. The intended 
effect of this action is to clarify and resolve issues raised in 
petitions for reconsideration pertaining to the application of the 
Commission's attribution rules.

DATES: Effective April 16, 2001. Written comments by the public on the 
proposed information collections are due April 16, 2001. Written 
comments must be submitted by the Office of Management and Budget (OMB) 
on the proposed information collection(s) on or before April 16, 2001.

ADDRESSES: Federal Communications Commission, 445 Twelfth Street, SW, 
Washington DC 20554. A copy of any comments on the information 
collections contained herein should be submitted to Judy Boley, Federal 
Communications Commission, Room 1-C804, 445 12th Street, SW, 
Washington, DC 20554, or via the Internet to <a href="/cdn-cgi/l/email-protection#a9c3cbc6c5ccd0e9cfcaca87cec6df"><span class="__cf_email__" data-cfemail="9ff5fdf0f3fae6dff9fcfcb1f8f0e9">[email protected]</span></a>, and the 
Edward C. Springer, OMB Desk Officer, Room 10236 NEOB, 725 17th Street, 
NW., Washington, DC 20503 or via the Internet to 
<a href="/cdn-cgi/l/email-protection#cbaeafbcaab9afe5b8bbb9a2a5acaeb98ba4a6a9e5aea4bbe5aca4bd"><span class="__cf_email__" data-cfemail="5c39382b3d2e38722f2c2e35323b392e1c33313e7239332c723b332a">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Cyndi Thomas or Mania Baghdadi, Policy 
and Rules Division, Mass Media Bureau, at (202) 418-2120. For 
additional information concerning the information collection(s) 
contained in this document, contact Judy Boley at 202-418-0214, or via 
the Internet at <a href="/cdn-cgi/l/email-protection#e9838b86858c90a98f8a8ac78e869f"><span class="__cf_email__" data-cfemail="452f272a29203c052326266b222a33">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This is a summary of the Memorandum Opinion 
and Order on Reconsideration (``MO&O'') in MM Docket Nos. 94-150, 92-
51, and 87-154, FCC 00-438, adopted on December 14, 2000, and released 
on January 19, 2001. The full text of this decision is available for 
inspection and copying during regular business hours in the FCC 
Reference Center, 445 Twelfth Street, SW, Room CY-A257, Washington DC, 
and also may be purchased from the Commission's copy contractor, 
International Transcription Service, (202) 857-3800, 445 Twelfth 
Street, SW, Room CY-B402, Washington DC. The complete text is also 
available under the file name fcc00438.doc on the Commission's Internet 
site at www.fcc.gov.
    This MO&O contains either new or modified information collection(s) 
subject to the Paperwork Reduction Act of 1995 (PRA). The general 
public and other Federal agencies are invited to comment on the 
proposed information collections contained in this proceeding.

Paperwork Reduction Act

    This MO&O contains either new or modified information collections. 
The Commission, therefore, as part of its continuing effort to reduce 
paperwork burdens, invites the general public and the Office of 
Management and Budget to comment on the information collections 
contained in this MO&O as required by the Paperwork Reduction Act of 
1995, Public Law 104-13. Public and agency comments are due 60 days 
from date of publication of this MO&O in the Federal Register. Comments 
should address: (a) Whether the new or modified collection of 
information is necessary for the proper performance of the functions of 
the Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.
    OMB Approval Number: 3060-XXXX
    Title: Reconsideration of Mass Media Attribution Rules, MM Docket 
Nos. 94-150, 92-51, and 87-154.

[[Page 9963]]

    Form Nos.: FCC 301 (3060-0027), FCC 314 (3060-0031), FCC 315 (3060-
0032), FCC 323 (3060-0010).
    Type of Review: New collection.
    Respondents: Business or other for-profit.
    Number of Respondents: 1,156.
    Estimated Hours Per Response: 0.75 hours respondent; 2.0 hours 
contract attorney.
    Frequency of Response: On occasion.
    Estimated Costs to Respondents: $462,400.
    Estimated Total Annual Burden: 867.
    Needs and Uses: Among other things, the MO&O eliminates the single 
majority shareholder exemption for broadcast stations. This action will 
improve the precision of the Commission's attribution rules in 
identifying cognizable interests for purposes of its ownership rules. 
The Commission will revise the instructions for the FCC 301, FCC 314, 
FCC 315, and FCC 323 to conform to the new policy.

Synopsis of Memorandum Opinion and Order on Reconsideration

    In this MO&O, the Commission grants, in part, and denies, in part, 
five petitions seeking reconsideration of the Report and Order 
(``R&O'') (64 FR 50622, September 17, 1999) released in this proceeding 
on August 6, 1999. In response to one petition, the Commission provides 
clarification on certain issues related to the newly adopted 
attribution rules. In the R&O, the Commission, in relevant part, 
eliminated its cross-interest policy and adopted the new equity/debt 
plus (EDP) rule, retained the single majority shareholder exemption, 
adopted rules that make interests in certain television local marketing 
agreements (LMAs) or time brokerage agreements attributable for 
purposes of the ownership rules, and established policies for 
grandfathering certain newly attributable interests. Commenters seek 
reconsideration of issues related to these actions. In addition, on its 
own motion, the Commission provides guidance on several issues that the 
petitioners did not raise, but that pertain to application of the EDP 
rule.

A. The Equity/Debt Plus Rule

1. Scope of the Rule
    Background. The Commission adopted the EDP rule to address the 
concerns raised in the Notice of Proposed Rulemaking (``NPRM'') (60 FR 
6483, February 2, 1995) and Further Notice of Proposed Rulemaking 
(``FNPRM'') (61 FR 67275, December 20, 1996), and in the record that 
its attribution rules did not address some interests, including 
multiple business and financial relationships that conveyed significant 
influence such that they should be attributed. For example, network 
affiliates had expressed concerns that attribution exemptions had 
permitted networks to extend their nationwide reach by structuring 
nonattributable deals in which the networks effectively exert 
significant influence, if not control, over licensees. The EDP rule is 
a targeted approach that balances the Commission's goal of maximizing 
the precision of the attribution rules by attributing only interests 
that are of concern, and its goals of not unduly disrupting capital 
flow, affording ease of administration, and providing certainty to 
regulatees. Specifically, the Commission applies a two-pronged test to 
determine whether an interest is attributable under the EDP rule. Under 
the first prong, the Commission asks whether the investor is either a 
major program supplier or a same-market media entity subject to the 
broadcast ownership rules. A program supplier that supplies over 15 
percent of a station's total weekly broadcast programming hours is a 
``major program supplier'' under the rule. An interest holder is 
considered a ``same-market media entity'' where it has an existing 
attributable interest under the Commission's attribution rules, other 
than the EDP rule, in a broadcast station, newspaper, or cable system, 
in a given market. The second prong looks at the extent of the 
financial interest. Any interest the major program supplier has in a 
station, to which it supplies programming, will be attributable under 
the EDP rule if the interest, aggregating both equity and debt, exceeds 
33 percent of the total asset value of the station. Similarly, any 
interest the media entity has in another media entity in the same 
market will be attributable under the EDP rule if the interest, 
aggregating both equity and debt holdings, exceeds 33 percent of the 
total asset value of the additional media entity.
    Discussion. The Commission reaffirms the EDP rule as adopted in the 
R&O and declines, at this time, to allow any general exemptions to the 
rule. The Commission will neither limit the scope of the EDP rule to 
major program suppliers, nor will the Commission limit the interests 
attributable under the EDP rule to equity investments only. As the 
Commission has stated, the intent of its local broadcast ownership 
rules is to protect competition and program diversity in local 
broadcast markets. The smaller audiences and fewer advertising dollars 
available in small broadcast markets limit the number of viable local 
broadcast stations in those markets. The need to protect incumbents' 
broadcast signal quality from interference from nearby stations limits 
the number of stations in all broadcast markets. These limitations on 
the entry of new broadcast stations make the protection of competition 
and diversity in local broadcast markets particularly important 
objectives of the Commission's ownership rules.
    The function of the Commission's attribution rules is to define 
which interests will be counted in applying its ownership rules. The 
equity/debt approach is intended to resolve the Commission's concerns 
that multiple nonattributable business interests could be combined to 
exert influence over licensees. As a result, rather than applying its 
EDP rule to all investments in broadcasters in a single market, the 
rule is limited only to those relationships that afford the interest 
holder the incentive and means to exert influence or control over 
decisions regarding the core operations of broadcast stations. As the 
Commission stated in the R&O, this targeted approach balances its goal 
of maximizing the precision of the attribution rules by attributing 
only those interests that are of concern, and its equally significant 
goals of not unduly disrupting capital flow and of affording ease of 
administrative processing and reasonable certainty to regulatees in 
planning their transactions.
    Applying the EDP rule to same-market media entities is based, in 
part, on economic studies that have shown that the partial co-ownership 
of otherwise competing local business entities can lead to a decrease 
in competition between those local businesses. For example, the owner 
of a broadcast station that also has a significant financial interest 
in another local broadcast station has an incentive and may have the 
opportunity to decrease the level of competition between the two 
stations by controlling or influencing management decisionmaking of the 
stations' operations. In the R&O, the Commission noted that a same-
market media entity relationship affords the interest holder the 
incentive and means to exert this type of influence over licensees. 
Specifically, the Commission found that entities with existing local 
media interests may have an incentive and the means to use financing or 
contractual arrangements to obtain a degree of horizontal integration, 
within a particular market, that raises concerns because of the 
Commission's goal of

[[Page 9964]]

protecting local diversity and competition. The Commission therefore 
reaffirms its decision to include both same-market media entities and 
major program suppliers as the relationships that trigger the EDP rule.
    Similarly, the Commission included debt under the EDP rule because 
the potential for certain creditors to exert significant influence over 
the core operations of a licensee, even though the creditors do not 
hold a direct voting or other equity interest, may undermine the 
diversity of voices the Commission seeks to promote. The Commission has 
found that, in many cases, it is no longer possible to classify 
investments strictly as ``equity'' or ``debt,'' and its has recognized 
the complexity of distinguishing debt from equity in cases where 
alleged debt obligations were found to be more properly characterized 
as equity. In the R&O, the Commission concluded that creditors may, 
through contractual rights and their ongoing right to communicate 
freely with the licensee, exert as much, if not more, influence or 
control over some corporate decisions as voting equity holders whose 
interests are attributable. Based on these same concerns, the 
Commission has found that debt interests are attributable both under 
its cable equity plus debt attribution rule, and also in determining 
eligibility for the New Entrant Bidding Credit under its competitive 
bidding procedures for commercial broadcast licenses. The Commission 
has not found that traditional bona fide debt by itself is attributable 
under its rules. The Commission does find, however, that significant 
debt relationships combined with other attributable interests in the 
same market, or a major program supplier's holding of significant debt 
in a licensee to which it supplies substantial amounts of programming, 
provide an incentive to influence or control key decisions concerning 
the debtor-station's operations.
    Based upon the record in the R&O, the Commission found no reason to 
believe that the EDP rule would unduly curb investment in smaller, 
minority stations. The EDP rule does not preclude investment in any 
media entity, including minority and women-owned entities. In fact, the 
33 percent threshold allows an investor to own up to one-third of a 
station's total assets without triggering the EDP rule. To help ensure 
that its actions do not unduly impede capital flow to broadcasting, the 
Commission raised the passive investor voting stock benchmark from 10 
to 20 percent. As the Commission stated in the R&O, the function of its 
attribution rules is not to limit investment, but to identify 
influential interests over the core operations of a licensee that 
should be counted in applying the multiple ownership rules. The 
Commission's ownership rules, in turn, limit the extent of combined 
ownership based on its core policies of diversity and competition. 
Thus, if relaxation of ownership limits is warranted, those issues 
should be addressed through revision of the multiple and cross-
ownership rules, not through redefinition of an attributable interest.
    The commenter that raised the issue neither explains how the EDP 
rule will affect the transition to digital television or the ``spin 
off'' of broadcast stations, nor presents any evidence to support its 
concerns. In the R&O, the Commission stated that it would consider 
individual rule waivers in particular cases where substantial evidence 
is presented that the conversion to digital television would otherwise 
be unduly impeded or that a waiver would significantly expedite DTV 
implementation in that particular case. The Commission therefore 
reaffirms its decision to include debt interests in applying the EDP 
rule.
    Asserting that the EDP rule will have inconsistent regulatory 
effects depending on the capitalization of broadcast companies, one 
commenter would quarrel with the Commission's focus on total assets. 
The Commission focused on total assets rather than looking at equity 
and debt separately because separate consideration could lead to 
distortions in applying the EDP rule depending on the percentage of 
total assets that each class of interests comprises. That the rule may 
advantage equity holders in entities with large debt interests does not 
undermine the basis of the EDP rule. As the Commission has explained, 
the EDP rule examines both equity and debt interests that are otherwise 
nonattributable to limit the ability of same market media entities and 
major program suppliers to circumvent the attribution rules by using 
those interests to gain significant influence over the licensee.
    Commenters further argue that the rule is vague and overly broad, 
contending that the EDP rule could result in an attributable interest 
where no likelihood of control would exist, producing a lack of clarity 
in the rule that will cause problems both for licensees attempting to 
discern attributable interests and for the Commission attempting to 
administer the rule; and the Commission has not explained how an 
investment that is less than controlling can harm the public interest 
or competition in the marketplace. One commenter also asserts that the 
Commission has not demonstrated that the 33 percent threshold is 
appropriate, while another opposes adopting a more lenient threshold.
    The Commission reiterates that attribution extends to relationships 
that permit significant influence over the core operations of a 
licensee, not just to investments that constitute controlling interests 
or that exceed 50 percent of the ownership of an entity. Shareholders 
with voting stock interests amounting to 5 percent or more may not have 
actual control over the management and operations of a licensee, but 
the Commission has set the voting equity benchmark at 5 percent or more 
because those shareholders have a realistic potential to exert 
significant influence or control over the licensees in which they 
invest. For example, a shareholder with voting stock interests that 
exceed the benchmark can influence the selection of board members 
through mechanisms such as proxy fights and, therefore, exert influence 
on the management of a licensee's operations.
    In addition, as the Commission explained in the R&O, debt-holders 
or preferred stockholders, which do not have voting rights, might exert 
significant influence through contractual rights or other methods of 
access to a licensee. For example, an agreement entered into in 
conjunction with preferred stock might grant the holder the right to 
select the persons who will run for the board of directors. Based on 
its concern that multiple, substantial business interests could be 
combined to exert influence over licensees, the Commission determined 
that nonattributable interests held by major program suppliers and 
same-market media entities should be subject to limitation by the 
multiple ownership rules. Thus, the Commission's attribution rules are 
applicable where an interest holder has a realistic potential to affect 
the programming decisions or other core operating functions of a 
licensee.
    The Commission also reaffirms the 33 percent investment threshold 
under the EDP rule for the reasons stated in the R&O. The Commission 
adopted the 33 percent benchmark, in part, based on its previous 
experience of using a 33 percent threshold in the context of applying 
the cross-interest policy. The Commission found it an appropriate and 
reasonable threshold to use in applying the EDP rule and noted that 
applying a 33 percent threshold had not had a disruptive effect in the 
context of the cross-interest policy. The Commission found that a 50 
percent threshold would be inappropriately high and that the

[[Page 9965]]

thresholds of 25 percent or 10 percent would be too low. In exercising 
its broad discretion to set the threshold, the Commission was guided by 
its goal of attributing not only interests with the potential to 
control, but also those interests that convey a realistic potential to 
exert significant influence. The Commission reiterates, however, that 
while it will use this threshold in applying the EDP rule now, it may 
adjust the benchmark in the future, if evidence is provided that would 
warrant an adjustment.
    One commenter asks the Commission effectively to review cases 
individually under the EDP rule by expanding the EDP rule to attribute 
any relationship that permits an entity to exert significant influence 
or control over the programming, management, or budgetary decisions of 
a licensee. The EDP rule takes into consideration an entity's 
participation in programming and is designed to make attributable debt 
or nonvoting equity interests that have the ability to influence a 
station's core management decisions. The Commission notes that the EDP 
rule may also result in attribution of interests that would otherwise 
be nonattributable by limiting the availability of the insulated 
limited partner, bona fide debt, and nonvoting stock attribution 
exemptions.
    The Commission notes that in the NPRM in this proceeding, it 
invited comment on whether to adopt a case-by-case review of 
applications to address its concerns about whether the combination of 
nonattributable interests and business relationships in a particular 
case could create significant influence so as to warrant attribution. 
The Commission sought comment as to whether the burdens and uncertainty 
created by individual case review would be outweighed by the benefits 
of addressing its concerns in this area in the context of specific 
factual situations. Based on its review of the comments filed in 
response to the NPRM, and in response to individual cases at that time, 
the Commission rejected the case-by-case approach in the FNPRM. 
Instead, the Commission proposed the EDP rule as a ``balanced, 
specifically tailored approach that would focus the rules more 
precisely on those relationships that potentially permit significant 
influence such that they should be attributed.''
    In ultimately rejecting case-by-case review and adopting the EDP 
rule in the R&O, the Commission found that the benefits of applying a 
rule that provides, to the greatest extent possible, regulatory 
certainty and eases application processing, outweighed the arguably 
increased accuracy that a case-by-case approach might afford. Indeed, a 
case-by-case approach might lead to lengthy fact-specific decisions of 
limited applicability and substantial processing difficulties and 
delays, impeding its goal of rapidly reviewing transactions and 
speeding new service to the public. Such a result would disserve the 
public interest. The Commission therefore believes that the bright-line 
EDP rule is superior to a case-by-case approach. Accordingly, the 
Commission denies the request to adopt a routine case-by-case approach 
to attribution. As it stated in the R&O, however, the Commission 
retains the discretion to review individual cases that present unusual 
issues and apply attribution on a case-by-case basis where it would 
serve the public interest to do so. The Commission finds that such 
discretion ensures a sufficient safety valve for unusual issues or 
cases that may arise.
    Two petitioners seek general exemptions from the EDP rule. One 
petitioner asks the Commission to amend the EDP rule to make an 
exception for banks and other lending institutions, asserting that the 
EDP rule will detrimentally affect a lending institution's ability to 
invest in media companies because various arms of any big bank operate 
independently, and these independent groups may finance different 
broadcasters in the same market.
    As it stated in the R&O, the Commission believes the EDP rule will 
not significantly curb investment in broadcast stations. The Commission 
finds no basis on which to distinguish banks or other lending 
institutions from other investors in media entities under the EDP rule. 
Under the Commission's attribution rules, commercial banks, including 
their venture capital subsidiaries, are treated as active investors. 
The Commission treats only the trust departments of banks as passive 
investors under its voting stock benchmark. Indeed, the EDP rule places 
no more restrictions on lending institutions, with respect to 
investment or foreclosure, than on any other type of entity interested 
in investing in a media entity. Similarly, the petitioner has not 
provided evidence that a large bank's obligation to track its 
investments for purposes of attribution differs from any other 
investor's obligation to do the same.
    The petitioner cites the Right to Financial Privacy Act (RFPA), 12 
U.S.C. 3401 et seq., to suggest that the EDP rule might force lending 
institutions to disclose private borrower information in violation of 
financial privacy laws. Congress enacted the RFPA to provide 
individuals with some privacy rights in financial records that are in 
the hands of third parties. Among other things, the RFPA defines the 
conditions under which financial institutions may disclose an 
individual's financial records and the conditions under which 
government officials may access an individual's financial records. The 
RFPA also provides a civil cause of action for anyone injured by a 
violation of the act's substantive provisions. Applications for 
construction permits, applications for consent to assignments, as well 
as applications for consent to transfers of control of broadcast 
stations must list: (1) Each party to the application whose ownership 
or positional interest in the applicant is attributable; (2) that 
party's citizenship; (3) the basis on which the interest is considered 
attributable, e.g., positional interest or investor attributable under 
the EDP rule; (4) the party's percentage of votes; and (5) the party's 
percentage of total assets in the station. The applications require 
information about the corporate or partnership structure of parties 
holding attributable interests and information on which the interests 
are deemed attributable. The applications do not inquire into the 
party's financial structure or amounts of loans involved in station 
acquisitions. Similarly, ownership reports do not require any 
information regarding financing or loan amounts. The petitioner does 
not explain how the information required in applications, or other 
forms, much less how the EDP rule itself, might cause lending 
institutions to violate privacy rights under the RFPA or any other law. 
In any event, if it is shown that materials filed with the Commission 
contain financial data that would customarily be guarded from 
competitors, its rules provide that the materials will not be made 
routinely available for public inspection.
    Another petitioner asks the Commission to make certain exceptions 
to the EDP rule where the interest is held in a socially and 
economically disadvantaged small business concern (SDB). The governing 
statute for the Small Business Administration defines SDBs as 
businesses where the majority owners' race or ethnicity has impaired 
the owners' ability to obtain capital or credit for their businesses, 
and therefore impaired the businesses' ability to compete. At this 
time, the Commission shall defer consideration of MMTC's request to 
create certain exemptions for SDBs. The Commission has sponsored fact-
finding studies as to whether preferences based on minority status may 
be justified consistent with the

[[Page 9966]]

Supreme Court's decision in Adarand Constructors v. Pena, 515 U.S. 200 
(1995). When the results of these studies have been evaluated, the 
Commission may initiate future proceedings in this area, as warranted.
2. Clarification of the Definition of ``Total Assets'' and the 
Requirement of Continuing Compliance
    Background. The EDP rule examines whether an interest holder has 
more than 33 percent of the total assets of a licensee or other media 
entity. In the R&O, the Commission defined total assets as the sum of 
all debt plus all equity. The Commission defined debt under the EDP 
rule to include all liabilities, whether short-term or long-term. 
Equity includes common or preferred stock, whether voting or nonvoting, 
as well as equity held by insulated limited partners in limited 
partnerships. The Commission also stated that it would require parties 
to maintain compliance with the attribution criteria as any changes in 
a firm's assets occur. Where sudden, unforeseeable changes take place, 
the Commission stated that it would afford parties a reasonable time, 
generally one year, to come into compliance with any ownership 
restrictions made applicable as a result of the change in attributable 
status.
    Discussion. One petitioner asks the Commission to clarify what is 
included in the definition of ``total assets'' under the EDP rule. 
Initially, the Commission clarifies that it will include all equity, in 
whatever manner or amount the debt or equity is held, in computing 
whether an interest exceeds the EDP rule's 33 percent benchmark. For 
example, the Commission will include stock, non-stock, partnership or 
any other form of equity in the calculation. The Commission will also 
include all short-term and long-term debt liabilities, in whatever 
manner or amount the debt is held, in computing whether an interest 
exceeds the EDP rule's 33 percent benchmark.
    Rather than itemizing what is included in the definition of ``total 
assets,'' the Commission clarifies that, for purposes of the EDP rule, 
an applicant may base the valuation of a station on either the book 
value as defined under standard financial accounting practices, or some 
other value, including the fair market value, provided the valuation is 
reasonable. In relying upon the book value, fair market value, or other 
reasonable value of a station, the applicant must use the valuation 
relevant at the time the application or ownership report is filed. If 
the issue arises in connection with a transfer or assignment 
application or an ownership report filed after consummation of a 
transfer or assignment, the applicant must use the sales price of that 
transfer or assignment as the total asset value. The Commission finds 
that clarifying the definition of total assets to include the foregoing 
reasonable methods of valuing a station's total assets for purposes of 
the EDP rule will provide applicants flexibility to use the most 
accurate valuation of the station at the time an application or 
ownership report is filed. The Commission may need to review an 
applicant's basis for computing its valuation where petitions are filed 
against the application. As a result, an applicant should retain the 
documentation on which it computes the value of the station so that it 
can produce the documentation as needed.
    One petitioner asks the Commission to clarify when equity and debt 
interests that change over time should be evaluated for purposes of the 
EDP rule. The Commission reaffirms that parties must maintain 
compliance with the attribution criteria as any changes in a firm's 
assets occur. As noted in the R&O, where sudden, unforeseeable changes 
take place, the Commission will afford parties a reasonable time, but 
no more than 12 months from the time the unforeseen change occurred, to 
come into compliance with any ownership restrictions made applicable as 
a result of the change in attributable status. The Commission further 
notes that the scheduled repayment of loans is clearly not an 
``unforeseeable'' or sudden event.
3. Clarification of Other EDP Issues
    In addition to the issues that the petitioners raise in their 
petitions for reconsideration, the Commission notes that certain other 
issues have arisen with respect to the application of the newly adopted 
EDP rule. While none of the petitioners formally sought clarification 
on these particular issues, the Commission determines that it is in the 
public interest and serves its goals of promoting clarity and certainty 
under its regulations to provide guidance, on its own motion, on four 
issues.
    a. Options, Warrants, and Loan Guarantees. Initially, the 
Commission considers how to apply the EDP rule to options, warrants, 
and loan guarantees. Bona fide debt, including a guarantee for a loan, 
is not ordinarily attributable under its rules. In addition, options, 
warrants, and other nonvoting interests with the right of conversion to 
voting interests are not ordinarily attributable until the conversion 
is effected. In the R&O, however, the Commission explained that the EDP 
approach would focus on those relationships that afford the interest 
holder the incentive and means to exert influence over the core 
operations of a licensee. For example, substantial investors or 
creditors that do not hold a direct voting interest may have the 
incentive and means, through contractual arrangements with the 
licensee, to exert as much, if not more, influence over some corporate 
decisions as voting equity holders whose interests are attributable. 
The Commission amended its rules to provide that where a major program 
supplier or same-market media entity holds a substantial financial 
interest in a licensee exceeding 33 percent of the total assets, that 
interest is attributable. In addition, the Commission amended its rules 
making the exemption of certain contractual arrangements, including 
debt and unexercised options and warrants, subject to the EDP rule.
    Until exercised, options and warrants do not convey the underlying 
interest they entail, but they do constitute assets that are sold for 
consideration. Accordingly, the Commission will include the amount of 
consideration paid for the option or warrant in determining whether the 
option or warrant holder's interest is attributable under the EDP rule, 
and it will include any security deposit or financial contribution made 
by a guarantor for the guarantee of a loan in determining whether the 
guarantor's interest is attributable under the EDP rule. As noted, the 
Commission wishes to establish, so far as possible, a bright-line test 
that avoids the uncertainty of case-by-case review, and to premise the 
EDP rule on whether the extent of a financial interest is significant 
and is coupled with a relationship between the investor and the 
licensee that gives the investor an incentive to exert influence. Thus, 
the Commission clarifies that it will add any consideration or other 
amounts paid for options or warrants to any other equity or debt 
investment the holder has in a licensee. Similarly, it will include any 
financial contributions made by a guarantor, including amounts placed 
into escrow as security for a loan guarantee or amounts otherwise made 
in connection with the guarantee, to any other equity or debt 
investments the guarantor has in a licensee. In all cases, the 
Commission will then divide that aggregated amount by the total asset 
value of the licensee to determine whether the option or warrant 
holder's interest exceeds the 33 percent benchmark.
    b. The Multiplier Rule. The Commission also clarifies, on its own 
motion, that it will use a ``multiplier'' in applying the EDP rule to 
indirect

[[Page 9967]]

interests held in licensees. The Commission has traditionally used a 
multiplier under its attribution rules to determine the ownership 
interest of a party whose interest is held through intervening 
corporate entities. Specifically, attribution ownership interests in a 
broadcast licensee, cable television system, or daily newspaper that 
are held indirectly by a party through one or more intervening 
corporations are determined by successive multiplication of the 
ownership percentages for each link in the vertical ownership chain. 
Under the Commission's pass-through exception, however, a link in the 
ownership chain that represents a percentage interest exceeding 50 
percent is treated as a 100 percent interest, when calculating the 
successive links in the ownership chain. The Commission also notes that 
in calculating the foreign ownership of a licensee or its parent under 
Section 310(b) of the Communications Act, as amended, it multiplies the 
percentage of interest held by each foreign investor in the successive 
links of the ownership chain, regardless of the amount of equity the 
foreign investor holds.
    As the Commission does under its attribution rules in calculating 
whether an interest exceeds the voting stock benchmark in a 
corporation, the Commission will multiply the successive links in the 
vertical ownership chain of a licensee or other media entity to 
determine whether an indirect interest in the licensee or other media 
entity is attributable under the EDP rule. Specifically, the Commission 
will multiply the successive percentage interests, aggregating both 
equity and debt, in each intervening entity where a party holds an 
indirect interest in the licensee or other media outlet. Rather than 
applying the pass-through exception in determining whether an interest 
is attributable under the EDP rule, however, the Commission will 
multiply the percentage interest even where the interest in the link 
exceeds 50 percent.
    In adopting the use of a multiplier, the Commission concluded that 
multiplication of successive interests would more realistically reflect 
a party's attenuated interest in a licensee where there are intervening 
corporations. The Commission established the pass-through exception to 
reflect the de jure control, rather than the de facto control, an 
entity might have over a licensee. Because the EDP rule applies not 
only to voting equity, but also to nonvoting equity and debt, the 
Commission will not employ the pass-through exemption to determine 
which interests are attributable under the EDP rule. The Commission 
made this same determination in the context of foreign ownership. 
Accordingly, the Commission will multiply the successive interests, 
aggregating both equity and debt, in each intervening entity, even 
where the interest exceeds 50 percent, to determine whether an indirect 
interest in a licensee is attributable under the EDP rule. The 
Commission also clarifies that it will use the multiplier not only in 
applying the EDP rule to corporations, but also to financial interests 
in partnerships, limited liability companies, or any other type of 
organizational form.
    c. Interests in Multiple Stations. The Commission next clarifies 
how the EDP rule is applied where an investor holds an interest in an 
entity that owns several stations in one market or multiple stations in 
several markets. The issue of how to apply the EDP rule may arise, for 
example, where the investor holds a nonvoting financial interest 
amounting to over 33 percent of the total asset value of the entity 
that owns or is the licensee of the multiple stations. If the 
investor's interest is nonvoting stock, debt, an insulated limited 
liability company or limited partnership interest, the interest would 
not be attributable under the Commission's non-EDP attribution rules. 
If, however, the investor is either a major program supplier to a 
station owned by the multiple-station owner, or has a non-EDP 
attributable interest in another station in the same market in which 
the multiple-station owner owns a station, the issue arises whether the 
investor has, under the EDP rule, an attributable interest in all of 
the stations owned by the multiple-station owner. Such an issue might 
also arise in a case where a voting stock interest in the entity is 
non-attributable under the single majority shareholder exemption 
because the exemption is grandfathered, as discussed below.
    The Commission clarifies that the investor in the foregoing case 
will not automatically hold an attributable interest under the EDP rule 
in all of the stations or media outlets owned by or licensed to the 
multiple-station owner. Rather, the investor will have an attributable 
interest under the EDP rule only in those stations or media outlets 
owned by or licensed to the multiple-station owner where the investor 
meets the triggering relationship prong of the EDP rule, i.e., the 
investor is a major program supplier to a station owned by the 
multiple-station owner, or the investor is a same-market media entity. 
Specifically, an investor will have an attributable interest, under the 
EDP rule, in any station that is owned by or licensed to a multiple-
station owner and to which the investor supplies over 15 percent of the 
station's total weekly broadcast programming hours. An investor will 
also have an attributable interest under the EDP rule in a station or 
media outlet owned by or licensed to the multiple station owner that is 
in the same market as a station or media outlet in which the investor 
also has an attributable interest under the Commission's non-EDP 
attribution rules.
    d. Officers and Directors. The Commission clarifies how it will 
apply the EDP rule to officers and directors. In doing so, the 
Commission follows established precedent. Under the Commission's 
attribution rules, the officers and directors of a parent company of a 
broadcast licensee, cable television system, or daily newspaper, with 
an attributable interest in any subsidiary entity, are deemed to have a 
cognizable interest in the subsidiary. The Commission will apply the 
same principle under the EDP rule. Each director or officer is 
individually attributed with the company's full equity and debt 
interests for purposes of applying the EDP rule. Where an entity has a 
financial interest in a licensee, its officers or directors will be 
deemed to hold that same financial interest. The Commission will not, 
however, treat an officer's or director's investment in a media entity 
as the company's investment for the purpose of applying the EDP rule.

B. Single Majority Shareholder Exemption

    Background. Under the single majority shareholder exemption from 
attribution, in a corporation in which a single shareholder owns more 
than 50 percent of the voting stock of the corporation, the interests 
of minority shareholders are not attributable. In the R&O, the 
Commission intended that the EDP rule would limit the availability of 
the single majority shareholder exemption. Thus, for example, if a 
minority shareholder's financial interest in a licensee amounts to over 
33 percent of the licensee's total asset value and the minority 
shareholder is either a major program supplier to the licensee or a 
same-market media entity, the minority shareholder's interest would be 
attributable under the EDP rule, even if the licensee has a single 
majority shareholder. The Commission declined, in the R&O, to eliminate 
the single majority shareholder exemption for broadcast stations, while 
the Commission eliminated the exemption from its general cable 
attribution rules.

[[Page 9968]]

    Discussion. One petitioner asks the Commission to eliminate the 
single majority shareholder exemption for broadcasters, arguing that it 
is arbitrary and capricious to eliminate the exemption for cable 
systems and not for broadcast stations. The Commission grants the 
request. In the Cable Attribution Report and Order (64 FR 67193, 
December 1, 1999), the Commission concluded that the single majority 
shareholder exemption should be eliminated because of its concern 
``that a minority shareholder may be able to exert influence over a 
company even where a single majority shareholder exists.'' The 
Commission generally found in that proceeding no evidence that 
differences in ownership, financing, or management structures between 
the cable and broadcast industries warrant creating an attribution 
standard for applying the cable horizontal ownership, or other cable 
rules, that is different than the standard the Commission uses in 
applying the broadcast multiple ownership rules. Thus, the Commission 
sees no rational basis to distinguish between cable and broadcasting 
that would justify eliminating the exemption for the cable ownership 
rules while retaining it for the broadcast ownership rules.
    In addition to resolving the apparent inconsistency that resulted 
from the Commission's decision to eliminate the single majority 
shareholder exemption in the cable context, eliminating this exemption 
from the broadcast attribution rules would promote one of its primary 
goals in this proceeding: to improve the precision of its attribution 
rules in identifying cognizable interests for purposes of its ownership 
rules. In adopting the single majority shareholder exemption in 1984, 
the Commission reasoned that minority interest shareholders ``would be 
unable to direct the affairs or activities of the licensee on the basis 
of their shareholdings'' where a single majority shareholder controls 
the corporation. The Commission therefore determined that these 
minority interests would not be deemed cognizable for purposes of the 
multiple ownership rules.
    In this proceeding, as in the cable attribution rulemaking, the 
Commission has repeatedly stated that its attribution rules are 
designed to identify not only interests that enable an entity to 
control a company, but also interests that give an entity the potential 
to exert significant influence on a company's major decisions, even if 
the entity cannot control the company. Minority shareholders may not be 
able to control the affairs or activities of licensees, but, in certain 
circumstances, they clearly have the potential to influence a 
licensee's actions. Although the influence of a minority shareholder 
may be diminished somewhat where a single majority shareholder controls 
the licensee, the Commission has no reason to believe that the minority 
shareholder's influence is eliminated or so attenuated in such 
circumstances that the Commission should ignore its ownership interest 
for purposes of its ownership rules. Accordingly, the Commission will 
amend Note 2 of Sec. 73.3555 of its rules to eliminate the single 
majority shareholder exemption from the broadcast attribution rules.
    The Commission further concludes that the single majority 
shareholder exemption will no longer apply to minority interests 
acquired on or after the adoption date of this MO&O. Accordingly, any 
minority interests in a company with a single majority shareholder will 
be grandfathered if the interest was acquired before the adoption date 
of this MO&O. Grandfathering of these minority interests will be 
permanent until the grandfathered interest is assigned or transferred. 
The Commission notes, however, that grandfathered minority interests in 
companies with single majority shareholders remain subject to the EDP 
rule.

C. LMA Attribution and Filing Requirements

    Background. An LMA or time brokerage agreement is a type of 
contract that generally involves the sale by a licensee of discrete 
blocks of time to a broker that then supplies the programming to fill 
the time and sells the commercial spot announcements to support the 
programming. In the R&O, the Commission adopted attribution rules for 
television LMAs. Specifically, an intra-market television LMA is per se 
attributable if the LMA involves more than 15 percent of a brokered 
station's weekly broadcast hours. In contrast, the Commission will not 
attribute television time brokerage agreements between stations in 
different markets, unless the agreements come under the EDP rule. 
Specifically, an inter-market television LMA is attributable only if 
the broker supplies more than 15 percent of a station's programming 
(i.e., the broker is a major program supplier), and it has a financial 
investment that is more than 33 percent of the brokered station's total 
asset value. The Commission also decided to attribute intra-market 
radio LMAs for purposes of applying all of its multiple ownership rules 
that are applicable to radio stations, not just the radio duopoly rule, 
as in the past.
    In the R&O, the Commission decided to review the issue of 
grandfathering existing intra-market radio LMAs on a case-by-case 
basis. Specifically, the Commission concluded that it would consider 
the issue of grandfathering radio LMAs whose attribution as of November 
16, 1999, the effective date of the newly adopted rules, resulted in 
ownership violations. The Commission further concluded that any 
interest, other than intra-market radio and television LMAs, newly 
attributable under the rules that would result in violations of the 
ownership rules, would be grandfathered if the triggering interest was 
acquired before November 5, 1996, the date of the FNPRM in this 
proceeding. The Commission determined that grandfathering would apply 
only to the current holder of the attributable interest, and if the 
grandfathered interest was later assigned or transferred, new owners 
would be given one year to come into compliance with the multiple 
ownership rules. Non-grandfathered interests, except for non-
grandfathered intra-market television LMAs, must be divested to comply 
with the Commission's multiple ownership rules within twelve months of 
the date of adoption of the R&O. The Commission requires the licensee 
that is the brokering station to file with the Commission, within 30 
days of execution of a time brokerage agreement, a copy of any such 
agreement, redacted as necessary, that would result in the arrangement 
being attributed.
    Discussion. One petitioner asks the Commission to deem unlawful 
LMAs entered into after August 6, 1999, the date the R&O was released, 
arguing that LMAs are an unlawful evasion of the ownership rules that 
hinder diversity and competition and are no longer necessary with 
adoption of the revised duopoly rule; the grandfathering plan for 
existing LMAs protects existing equity interests; and suggests that 
LMAs entered into after August 6, 1999, may have been entered into to 
bypass the Commission's transfer or assignment authorization 
requirements or to prevent a competitor from obtaining a transfer. 
Another petitioner urges the Commission to reject the request because 
the Commission has already found that the record shows that a number of 
television LMAs have resulted in public interest benefits.
    The Commission made no finding in the R&O that LMAs are per se 
unlawful as of any date. The Commission's newly adopted attribution 
rules do not preclude parties from entering into LMAs. Rather, the 
Commission

[[Page 9969]]

amended its rules to make intra-market LMAs and some inter-market LMAs 
attributable for purposes of its broadcast ownership rules. Some LMAs 
are grandfathered, while interests in others may need to be divested. 
Parties may still enter into LMAs with the understanding that they may 
be subject to applicable ownership rules. Nothing suggests that 
Congress intended the Commission to deem per se unlawful all LMAs 
entered into after a certain date. Indeed, in the Conference Report on 
Section 202(g) of the Telecommunications Act of 1996, the conferees 
recognized ``the positive contributions of television LMAs.'' The 
Commission finds no reason to reconsider its decision that LMA 
interests may be attributable under its newly adopted rules, but that 
LMAs are not unlawful.
    One petitioner also urges the Commission to require all existing 
LMAs, not just attributable LMAs, to be filed with the Commission. The 
Commission will not change the filing requirements for LMAs as adopted 
in the R&O. The attribution rules impose an affirmative obligation on 
licensees to determine whether a particular LMA is attributable and, if 
it is, to file the agreement with the Commission. Commercial radio and 
television licensees must also maintain copies of time brokerage 
agreements in their local public inspection files. As the Commission 
stated in the R&O, it believes a licensee's affirmative obligation in 
combination with its filing requirements will subject LMAs to 
sufficient scrutiny by competitors, the public, and the Commission. The 
Commission therefore reaffirms the requirement that brokering stations 
must file redacted copies of attributable LMAs with the Commission 
within 30 days of execution of the agreement.

D. Cross-Interest Policy

    Background. The cross-interest policy has been applied to preclude 
individuals or entities from holding an attributable interest in one 
media property (broadcast station, newspaper, cable system) and having 
a ``meaningful'' albeit nonattributable interest in another media 
entity serving ``substantially the same area.'' In the R&O, the 
Commission eliminated the cross-interest policy.
    Discussion. One petitioner asks the Commission to reconsider its 
decision to eliminate the cross-interest policy, contending that the 
Commission has not explained why the policy should not be retained in 
small and medium markets and arguing that the Commission has failed to 
consider the impact of its decision on diversity. The petitioner argues 
that repeal of the cross-interest policy may result in allowing 
business combinations and relationships, that were not permitted under 
the cross-interest policy, that are not covered by the EDP rule, and 
that are not addressed by other rules and remedies referenced by the 
Commission in its R&O.
    The Commission declines to reconsider its decision to eliminate the 
cross-interest policy. Its decision in the R&O to eliminate the cross-
interest policy was based on its judgment that the regulatory costs and 
chilling effects of administering the cross-interest policy and the 
benefits of applying clear ownership and attribution standards outweigh 
any risks of abuses in eliminating the policy. As the Commission noted, 
the cross-interest policy did not prohibit the relationships it covered 
outright, but required an ad hoc determination as to whether the 
relationships at interest would be permitted. The Commission determined 
that the public interest would be better served by administering, to 
the greatest extent possible, bright line tests with respect to 
attribution and ownership rather than case-by-case determinations, 
which delay processing and involve public and regulatory costs. The 
Commission did not base its conclusion simply on the increased 
certainty that a rule-based proscription provided. Rather, the 
Commission carefully reviewed the interests typically addressed by the 
cross-interest policy and included within the ambit of the new rules 
those interests that the Commission concluded warranted continued 
limitation. Most obvious among these is the consideration of nonvoting 
equity and debt interests under the Commission's EDP standard.
    In short, the Commission's attribution tests were based on its best 
judgment, after a review of the record, as to what relationships should 
count in terms of administering the ownership rules. The ownership 
rules, in turn, are based on the Commission's competition and diversity 
analysis. The local ownership rules do take into account the nature and 
size of the market. Further, the Commission also retained discretion, 
in an appropriate case, ``to review individual cases that present 
unusual issues on a case-by-case basis where it would serve the public 
interest to conduct such a review.'' Administering regulatory 
procedures that are, to the greatest extent possible, clear and 
consistent is an important aspect of the public interest.

Procedural Matters

    Authority for issuance of this MO&O is contained in Sections 4(i), 
303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 
U.S.C. 154(i), 303(r), 403, and 405.
    Paperwork Reduction Act Analysis. This MO&O contains either new or 
modified information collections. The Commission, therefore, as part of 
its continuing effort to reduce paperwork burdens, invites the general 
public and the Office of Management and Budget to comment on the 
information collections contained in this MO&O as required by the 
Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency 
comments are due 60 days from date of publication of this MO&O in the 
Federal Register. Comments should address: (a) Whether the new or 
modified collection of information is necessary for the proper 
performance of the functions of the Commission, including whether the 
information shall have practical utility; (b) the accuracy of the 
Commission's burden estimates; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) ways to 
minimize the burden of the collection of information on the 
respondents, including the use of automated collection techniques or 
other forms of information technology. In addition to filing comments 
with the Secretary, a copy of any comments on the information 
collections in this MO&O should be submitted to Judy Boley, Federal 
Communications Commission, 445 Twelfth Street, S.W., Room 1-C804, 
Washington, DC 20554, or over the Internet to <a href="/cdn-cgi/l/email-protection#a5cfc7cac9c0dce5c3c6c68bc2cad3"><span class="__cf_email__" data-cfemail="d3b9b1bcbfb6aa93b5b0b0fdb4bca5">[email protected]</span></a> and to 
Edward Springer, OMB Desk Officer, 10236 NEOB, 725 17th Street, N.W., 
Washington, DC 20503 or over the Internet to 
<a href="/cdn-cgi/l/email-protection#3a5f5e4d5b485e14494a4853545d5f487a555758145f554a145d554c"><span class="__cf_email__" data-cfemail="046160736576602a7774766d6a636176446b69662a616b742a636b72">[email protected]</span></a>.
    Supplemental Final Regulatory Flexibility Analysis. As required by 
the Regulatory Flexibility Act (RFA), the Commission has prepared a 
Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA) 
of the possible impact on small entities of the rules adopted in the 
MO&O. The Supplemental FRFA is set forth in the MO&O.

Supplemental Final Regulatory Flexibility Analysis

    As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in the NPRM and 
the FNPRM in this proceeding. The Commission sought written public 
comment on the proposals in the NPRM and FNPRM, including comment on 
the

[[Page 9970]]

IRFAs. The comments received were discussed in the Final Regulatory 
Flexibility Analysis (FRFA) contained in the R&O in this proceeding. As 
described below, this MO&O grants reconsideration of one action taken 
in the R&O and provides clarification of other issues. This associated 
Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA) 
addresses the rule modifications on reconsideration and conforms to the 
RFA.

Need for, and Objectives of, the Memorandum Opinion and Order

    The attribution rules seek to identify those interests in licensees 
or media entities that confer on their holders a degree of influence or 
control such that the holders have the potential to affect the 
programming decisions of licensees or other core operating functions. 
The attribution rules are used to implement the Commission's broadcast 
multiple ownership rules. The Commission's goals in this proceeding are 
to improve the precision of the attribution rules, avoid disruption in 
the flow of capital to broadcasting, afford clarity and certainty to 
regulatees and markets, and facilitate application processing. While 
its focus is on the issues of influence or control, the Commission must 
also tailor the attribution rules to permit arrangements where an 
ownership or positional interest involves minimal risk of influence to 
avoid unduly restricting the means by which investment capital may be 
made available to the broadcast industry. The rule revisions and 
clarifications contained in this MO&O meet these goals.

Summary of Significant Issues Raised by the Public

    The comments in response to the IRFAs that addressed small business 
issues were discussed in the FRFA contained in the R&O in this 
proceeding. We received no petitions for reconsideration in direct 
response to that FRFA. In its petition for reconsideration, however, 
the Office of Communications, Inc. of United Church of Christ et al. 
(UCC) asked the Commission to eliminate the single majority shareholder 
exemption for broadcast stations, arguing that it is arbitrary and 
capricious to eliminate the exemption for cable systems and not 
broadcasters. Under the single majority shareholder exemption from 
attribution, in a corporation in which a single shareholder owns more 
than 50 percent of the voting stock of the corporation, the interests 
of minority shareholders are not attributable. The Commission grants 
UCC's request, finding no rational basis to distinguish between cable 
and broadcasting that would justify eliminating the exemption for the 
cable ownership rules while retaining it for the broadcast ownership 
rules. Any minority interest in a company with a single majority 
shareholder will be grandfathered if the interest was acquired before 
the adoption date of this MO&O. Grandfathered minority interests in 
companies with single majority shareholders, however, remain subject to 
the equity/debt plus (EDP) rule.

Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply

    The rules revisions contained in this MO&O will apply to full 
service television and radio licensees and permittees, potential 
licensees and permittees, cable services or systems, Multipoint 
Distribution Service, Multichannel Multipoint Distribution Service, and 
Instructional Television Fixed Service, and newspapers. These entities 
are discussed in detail in the FRFA contained in the R&O at Section 
III.

Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    The MO&O clarifies various aspects of the EDP rule adopted in the 
R&O. One clarification is to use the ``multiplier'' in calculating an 
EDP interest. Specifically, the Commission will multiply the successive 
percentage interests, aggregating both equity and debt, in each 
intervening entity where a party holds an indirect interest in the 
licensee or other media outlet. In calculating an EDP interest, 
however, the Commission will not apply the pass-through exception, 
which applies to indirect voting stock interests in corporations where 
a link in the ownership chain that represents a percentage interest 
exceeding 50 percent is treated as a 100 percent interest. Thus, the 
Commission will multiply successive interests for purposes of EDP, even 
where the interest exceeds 50 percent. The decision not to apply the 
pass-through exception is less restrictive than the traditional 
application of the multiplier on all entities, including small 
businesses.
    The MO&O also eliminates the single majority shareholder 
attribution exemption. Elimination of the single majority shareholder 
attribution exemption does not affect grandfathered small entities. 
Elimination of the single majority shareholder exemption does not 
affect the Commission's ownership reporting requirements. The reporting 
requirements for non-grandfathered licensees may increase, however, 
because those licensees will be required to report interests that are 
newly attributable as a result of elimination of the exemption. Those 
entities are already required to file ownership reports with the 
Commission, so any additional cost associated with this reporting 
requirement is nominal.

Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    The RFA requires an agency to describe any significant alternatives 
that it has considered in reaching its proposed approach, which may 
include the following four alternatives (among others): (1) The 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    Under the Commission's pass-through exception to the multiplier 
rule, a link in the ownership chain that represents a percentage 
interest exceeding 50 percent is treated as a 100 percent interest, 
when calculating the successive links in the ownership chain. The MO&O 
clarifies that the Commission will not apply the pass-through exception 
in using the multiplier to calculate interests under the EDP rule. An 
alternative to this decision is to apply the pass-through exception for 
purposes of EDP, which would make the calculation of attributable EDP 
interests as restrictive on all entities, including small businesses, 
as those calculated under the traditional application of the 
multiplier.
    The MO&O eliminates the single majority shareholder attribution 
exemption. To minimize the disruptive effect of this attribution rule 
change, the MO&O grandfathers entities, subject to the EDP rule, 
relying on the single majority shareholder exemption whose interests 
were acquired before the adoption date of the MO&O. An alternative to 
eliminating the exemption would be to leave the rule as is. In addition 
to the prior decision to eliminate the exemption for cable operators, 
however, the Commission believes that eliminating the exemption from 
the broadcast attribution rules will promote one of its primary goals 
to improve the precision of the

[[Page 9971]]

Commission's attribution rules in identifying cognizable interests for 
purposes of the ownership rules.
    Report to Congress: The Commission will send a copy of the MO&O, 
including this Supplemental FRFA, in a report to be sent to Congress 
pursuant to SBREFA. In addition, the Commission will send a copy of the 
MO&O, including the Supplemental FRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration. A copy of the MO&O and 
Supplemental FRFA (or summaries thereof) will also be published in the 
Federal Register.

Ordering Clauses

    The petitions for reconsideration or clarification are granted to 
the extent provided herein and otherwise are denied pursuant to 
sections 4(i), 303(r), 403, and 405 of the Communications Act of 1934, 
as amended, 47 U.S.C. 154(i), 303(r), 403, and 405, and Sec. 1.429(i) 
of the Commission's rules, 47 CFR 1.429(i).
    Sections 4(i) & (j), 303(r), 307, 308 and 309 of the Communications 
Act of 1934, as amended, 47 U.S.C. 154(i) & (j), 303(r), 307, 308 and 
309, parts 21, 73, and 76 of the Commission's rules, 47 CFR. Parts 21, 
73, 76, are amended as set forth in the MO&O.
    The rule amendments set forth in the MO&O shall be effective sixty 
days after publication in the Federal Register.
    The Commission's Consumer Information Bureau, Reference Information 
Center, shall send a copy of this MO&O in MM Docket Nos. 94-150, 92-51, 
and 87-154, including the Supplemental Final Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration.
    The new or modified paperwork requirements contained in this MO&O 
(which are subject to approval by the Office of Management and Budget 
(OMB)) will go into effect upon OMB approval.
    This proceeding is hereby terminated.

List of Subjects in

47 CFR Part 21

    Multipoint distribution service.

47 CFR Part 73

    Television broadcasting, Radio broadcasting.

47 CFR Part 76

    Cable television service.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    For the reasons set forth in the preamble, Parts 21, 73, and 76 of 
Chapter 1 of Title 47 of the Code of Federal Regulations are amended as 
follows:

PART 21--DOMESTIC PUBLIC FIXED RADIO SERVICES

    1. The authority citation for part 21 continues to read as follows:

    Authority: Secs. 1, 2, 4, 201-205, 208, 215, 218, 303, 307, 313, 
403, 404, 410, 602, 48 Stat. as amended, 1064, 1066, 1070-1073, 
1076, 1077, 1080, 1082, 1083, 1087, 1094, 1098, 1102; 47 U.S.C. 151, 
154, 201-205, 208, 215, 218, 303, 307, 313, 314, 403, 404, 410, 602; 
47 U.S.C. 552, 554.


    2. Section 21.912 is amended by:
    a. Designating Note 1 as ``Note 1 to Sec. 21.912'';
    b. Removing Note 1(b);
    c. Redesignating Notes 1(c) through Notes 1(l) as Notes 1(b) to 
Sec. 21.912 through Note 1(k) to Sec. 21.912;
    d. Revising newly redesignated Note 1 (c) to Sec. 21.912 and Note 
1(e) to Sec. 21.912;
    e. Revising the first and second sentence of newly redesignated 
Note 1(f)(2);
    f. Revising newly redesignated Note 1(h)(3);
    g. Revising the introductory text to newly redesignated Note 1(i), 
and revising redesignated Note 1(i)(2); and
    h. Designating Note 2 as ``Note 2 to Sec. 21.912''.
    The revisions and deletion read as follows:


Sec. 21.912  Cable television company eligibility requirements and MDS/
cable cross-ownership.

* * * * *

    Note 1 to Sec. 21.912: * * *

* * * * *
    (c) Attribution of ownership interests in an MDS licensee or cable 
television system that are held indirectly by any party through one or 
more intervening corporations will be determined by successive 
multiplication of the ownership percentages for each link in the 
vertical ownership chain and application of the relevant attribution 
benchmark to the resulting product, except that wherever the ownership 
percentage for any link in the chain exceeds 50%, it shall not be 
included for purposes of this multiplication. For purposes of paragraph 
(i) of this note, attribution of ownership interests in an MDS licensee 
or cable television system that are held indirectly by any party 
through one or more intervening organizations will be determined by 
successive multiplication of the ownership percentages for each link in 
the vertical ownership chain and application of the relevant 
attribution benchmark to the resulting product, and the ownership 
percentage for any link in the chain that exceeds 50% shall be included 
for purposes of this multiplication. [For example, except for purposes 
of paragraph (i) of this note, if A owns 10% of company X, which owns 
60% of company Y, which owns 25% of ``Licensee,'' then X's interest in 
``Licensee'' would be 25% (the same as Y's interest because X's 
interest in Y exceeds 50%), and A's interest in ``Licensee'' would be 
2.5% (0.1 x 0.25). Under the 5% attribution benchmark, X's interest in 
``Licensee'' would be cognizable, while A's interest would not be 
cognizable. For purposes of paragraph (i) of this note, X's interest in 
``Licensee'' would be 15% (0.6 x 0.25) and A's interest in ``Licensee'' 
would be 1.5% (0.1 x 0.6 x 0.25). Neither interest would be attributed 
under paragraph (i) of this note.]
* * * * *
    (e) Subject to paragraph (i) of this note, holders of non-voting 
stock shall not be attributed an interest in the issuing entity. 
Subject to paragraph (i) of this note, holders of debt and instruments 
such as warrants, convertible debentures, options or other non-voting 
interests with rights of conversion to voting interests shall not be 
attributed unless and until conversion is effected.
    (f) * * *
    (2) For a licensee or system that is a limited partnership to make 
the certification set forth in paragraph (f)(1) of this note, it must 
verify that the partnership agreement or certificate of limited 
partnership, with respect to the particular limited partner exempt from 
attribution, establishes that the exempt limited partner has no 
material involvement, directly or indirectly, in the management or 
operation of the MDS or cable television activities of the partnership. 
For a licensee or system that is an LLC or RLLP to make the 
certification set forth in paragraph (f)(1) of this note, it must 
verify that the organizational document, with respect to the particular 
interest holder exempt from attribution, establishes that the exempt 
interest holder has no material involvement, directly or indirectly, in 
the management or operation of the MDS or cable television activities 
of the LLC or RLLP. * * *
* * * * *

[[Page 9972]]

    (h) * * *
    (3) The sum of the interests computed under paragraph (h)(1) of 
this note plus the sum of the interests computed under paragraph (h)(2) 
of this note is equal to or exceeds 20 percent.
    (i) Notwithstanding paragraphs (e) and (f) of this note, the holder 
of an equity or debt interest or interests in an MDS licensee or cable 
television system subject to the MDS/cable cross-ownership rule 
(``interest holder'') shall have that interest attributed if:
* * * * *
    (2) The interest holder also holds an interest in an MDS licensee 
or cable television system that is attributable under paragraphs of 
this note other than this paragraph (i) and which operates in any 
portion of the franchise area served by that cable operator's cable 
system.
* * * * *

PART 73--RADIO BROADCAST SERVICES

    3. The authority citation for Part 73 continues to read as follows:

    Authority: 47 U.S.C. 154, 303, 334 and 336.

    4. The notes following Sec. 73.3555 are amended by:
    a. Designating Note 1 as ``Note 1 to Sec. 73.3555'';
    b. Designating Note 2 as ``Note 2 to Sec. 73.3555'';
    c. In Note 2 to Sec. 73.3555 remove paragraph (b);
    d. In Note 2 to Sec. 73.3555 paragraphs (c) through (k) are 
redesignated as paragraphs (b) through (j);
    e. In Note 2 to 73.3555 revise newly redesignated paragraphs (c) 
and (e);
    f. In Note 2 to Sec. 73.3555 revise newly redesignated paragraph 
(f)(2);
    g. In Note 2 to Sec. 73.3555 revise newly redesignated paragraph 
(h)(3);
    h. In Note 2 to Sec. 73.3555 revise the introductory text to newly 
redesignated paragraphs (i), and (i)(2)(i);
     i. Designating Note 3 as ``Note 3 to Sec. 73.3555'';
    j. Designating Note 4 as ``Note 4 to Sec. 73.3555'';
    k. Designating Note 5 as ``Note 5 to Sec. 73.3555'';
    l. Designating Note 6 as ``Note 6 to Sec. 73.3555'';
    m. Designating Note 7 as ``Note 7 to Sec. 73.3555'';
    n. Designating Note 8 as ``Note 8 to Sec. 73.3555'';
    o. Designating Note 9 as ``Note 9 to Sec. 73.3555''; and
    p. Designating Note 10 as ``Note 10 to Sec. 73.3555''.
    The revisions and deletion read as follows:


Sec. 73.3555  Multiple ownership.

* * * * *

    Note 2 to Sec. 73.3555: * * *

    (c) Attribution of ownership interests in a broadcast licensee, 
cable television system or daily newspaper that are held indirectly by 
any party through one or more intervening corporations will be 
determined by successive multiplication of the ownership percentages 
for each link in the vertical ownership chain and application of the 
relevant attribution benchmark to the resulting product, except that 
wherever the ownership percentage for any link in the chain exceeds 
50%, it shall not be included for purposes of this multiplication. For 
purposes of paragraph (i) of this note, attribution of ownership 
interests in a broadcast licensee, cable television system or daily 
newspaper that are held indirectly by any party through one or more 
intervening organizations will be determined by successive 
multiplication of the ownership percentages for each link in the 
vertical ownership chain and application of the relevant attribution 
benchmark to the resulting product, and the ownership percentage for 
any link in the chain that exceeds 50% shall be included for purposes 
of this multiplication. [For example, except for purposes of paragraph 
(i) of this note, if A owns 10% of company X, which owns 60% of company 
Y, which owns 25% of ``Licensee,'' then X's interest in ``Licensee'' 
would be 25% (the same as Y's interest because X's interest in Y 
exceeds 50%), and A's interest in ``Licensee'' would be 2.5% (0.1 x 
0.25). Under the 5% attribution benchmark, X's interest in ``Licensee'' 
would be cognizable, while A's interest would not be cognizable. For 
purposes of paragraph (i) of this note, X's interest in ``Licensee'' 
would be 15% (0.6 x 0.25) and A's interest in ``Licensee'' would be 
1.5% (0.1 x 0.6 x 0.25). Neither interest would be attributed under 
paragraph (i) of this note.]
* * * * *
    (e) Subject to paragraph (i) of this note, holders of non-voting 
stock shall not be attributed an interest in the issuing entity. 
Subject to paragraph (i) of this note, holders of debt and instruments 
such as warrants, convertible debentures, options or other non-voting 
interests with rights of conversion to voting interests shall not be 
attributed unless and until conversion is effected.
    (f) * * *
    (2) For a licensee or system that is a limited partnership to make 
the certification set forth in paragraph (f)(1) of this note, it must 
verify that the partnership agreement or certificate of limited 
partnership, with respect to the particular limited partner exempt from 
attribution, establishes that the exempt limited partner has no 
material involvement, directly or indirectly, in the management or 
operation of the media activities of the partnership. For a licensee or 
system that is an LLC or RLLP to make the certification set forth in 
paragraph (f)(1) of this note, it must verify that the organizational 
document, with respect to the particular interest holder exempt from 
attribution, establishes that the exempt interest holder has no 
material involvement, directly or indirectly, in the management or 
operation of the media activities of the LLC or RLLP. * * *
* * * * *
    (h) * * *
    (3) The sum of the interests computed under paragraph (h)(1) of 
this note plus the sum of the interests computed under paragraph (h)(2) 
of this note is equal to or exceeds 20 percent.
    (i) Notwithstanding paragraphs (e) and (f) of this note, the holder 
of an equity or debt interest or interests in a broadcast licensee, 
cable television system, daily newspaper, or other media outlet subject 
to the broadcast multiple ownership or cross-ownership rules 
(``interest holder'') shall have that interest attributed if:
* * * * *
    (2)(i) The interest holder also holds an interest in a broadcast 
licensee, cable television system, newspaper, or other media outlet 
operating in the same market that is subject to the broadcast multiple 
ownership or cross-ownership rules and is attributable under paragraphs 
of this note other than this paragraph (i); or
* * * * *
    5. Section 73.3613 is amended by revising the first sentence of 
paragraph (d) and revising paragraph (e) to read as follows:


Sec. 73.3613  Filing of contracts.

* * * * *
    (d) Time brokerage agreements. Time brokerage agreements involving 
radio stations, where the licensee (including all parties under common 
control) is the brokering entity, there is a principal community 
contour overlap (predicted or measured 5 mV/m groundwave for AM 
stations and predicted 3.16 mV/m for FM stations) with the brokered 
station, and more than 15 percent of the time of the brokered station, 
on a weekly basis, is brokered by that licensee; time brokerage 
agreements involving television stations where licensee (including all 
parties under common control) is the brokering entity, the brokering 
and brokered stations are both licensed to the same market as

[[Page 9973]]

defined in the local television multiple ownership rule contained in 
Sec. 73.3555(b), and more than 15 percent of the time of the brokered 
station, on a weekly basis, is brokered by that licensee; time 
brokerage agreements involving radio or television stations that would 
be attributable to the licensee under Sec. 73.3555 note 2(i). * * *
    (e) The following contracts, agreements or understandings need not 
be filed but shall be kept at the station and made available for 
inspection upon request by the FCC: contracts relating to the joint 
sale of broadcast advertising time that do not constitute time 
brokerage agreements pursuant to Sec. 73.3555 note 2(j); subchannel 
leasing agreements for Subsidiary Communications Authorization 
operation; franchise/leasing agreements for operation of 
telecommunications services on the TV vertical blanking interval and in 
the visual signal; time sales contracts with the same sponsor for 4 or 
more hours per day, except where the length of the events (such as 
athletic contests, musical programs and special events) broadcast 
pursuant to the contract is not under control of the station; and 
contracts with chief operators.

    6. Section 73.3615 is amended by revising the second sentence in 
paragraph (a)(3)(iii)(B) to read as follows:


Sec. 73.3615  Ownership reports.

* * * * *
    (a) * * *
    (3) * * *
    (iii) * * *
    (B) * * * If X has a voting stockholder interest in the licensee, 
only those voting interests of X that are cognizable after application 
of the ``multiplier'' described in note 2(c) of Sec. 73.3555 of the 
rules, if applicable, shall be reported. * * *
* * * * *

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

    7. The authority citation for Part 76 continues to read as follows:

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 
307, 308, 309, 312, 317, 325, 503, 521, 522, 531, 532, 534, 535, 
536, 537, 543, 544, 544a, 545, 548, 549, 552, 554, 556, 558, 560, 
561, 571, 572, 573.


    8. Section 76.501 is amended by:
    a. Designating Note 1 as ``Note 1 to Sec. 76.501'';
    b. Designating Note 2 as ``Note 2 to Sec. 76.501'';
    c. Designating Note 3 as ``Note 3 to Sec. 76.501'';
    d. Designating Note 4 as ``Note 4 to Sec. 76.501'';
    e. Designating Note 5 as ``Note 5 to Sec. 76.501'';
    f. Designating Note 6 as ``Note 6 to Sec. 76.501'' and revising it.
    The revision reads as follows:


Sec. 76.501  Cross-ownership.

* * * * *

    Note 6 to Sec. 76.501: In applying paragraph (a) of Sec. 76.501, 
for purposes of paragraph note 2(i) of this section, attribution of 
ownership interests in an entity covered by this rule that are held 
indirectly by any party through one or more intervening 
organizations will be determined by successive multiplication of the 
ownership percentages for each link in the vertical ownership chain 
and application of the relevant attribution benchmark to the 
resulting product. The ownership percentage for any link in the 
chain that exceeds 50% shall be included. [For example, if A owns 
10% of company X, which owns 60% of company Y, which owns 25% of 
``Licensee,'' then X's interest in ``Licensee'' would 15% 
(0.6x0.25), and A's interest in ``Licensee'' would be 1.5% 
(0.1x0.6x0.25).]

[FR Doc. 01-3175 Filed 2-12-01; 8:45 am]
BILLING CODE 6712-01-P


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