9962 Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations

(2) * * *

(ii) CCC = WER x (Chronic Conversion

Factor) x (exp{mc[ln(hardness)]+bc})

* * * * *

[FR Doc. 01–3617 Filed 2–12–01; 8:45 am]

BILLING CODE 6560–50–P

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.

SUMMARY: This document concerns rules

and policies for attributing cognizable

interests in applying the broadcast

multiple ownership rules, the broadcastcable 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

jboley@fcc.gov, and the Edward C.

Springer, OMB Desk Officer, Room

10236 NEOB, 725 17th Street, NW.,

Washington, DC 20503 or via the

Internet to

edward.springer@omb.eop.gov.

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

jboley@fcc.gov.

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.

Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations 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 forprofit.

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

9964 Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations

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 womenowned 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 crossownership 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 samemarket 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

Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations 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-bycase 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 caseby-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 caseby-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 caseby-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

9966 Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations

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 longterm. 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, nonstock, partnership or any other form of

equity in the calculation. The

Commission will also include all shortterm 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 samemarket 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 caseby-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

Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations 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 passthrough 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 nonEDP 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 nonattributable 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 multiplestation 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.

9968 Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations

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

§ 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

Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations 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 crossinterest 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 jboley@fcc.gov and to

Edward Springer, OMB Desk Officer,

10236 NEOB, 725 17th Street, N.W.,

Washington, DC 20503 or over the

Internet to

edward.springer@omb.eop.gov.

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

9970 Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations

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 passthrough 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

Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations 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

§ 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

§ 21.912’’;

b. Removing Note 1(b);

c. Redesignating Notes 1(c) through

Notes 1(l) as Notes 1(b) to § 21.912

through Note 1(k) to § 21.912;

d. Revising newly redesignated Note 1

(c) to § 21.912 and Note 1(e) to § 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

§ 21.912’’.

The revisions and deletion read as

follows:

§ 21.912 Cable television company

eligibility requirements and MDS/cable

cross-ownership.

* * * * *

Note 1 to § 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. * * *

* * * * *

9972 Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations

(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 crossownership 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 § 73.3555 are

amended by:

a. Designating Note 1 as ‘‘Note 1 to

§ 73.3555’’;

b. Designating Note 2 as ‘‘Note 2 to

§ 73.3555’’;

c. In Note 2 to § 73.3555 remove

paragraph (b);

d. In Note 2 to § 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 § 73.3555 revise newly

redesignated paragraph (f)(2);

g. In Note 2 to § 73.3555 revise newly

redesignated paragraph (h)(3);

h. In Note 2 to § 73.3555 revise the

introductory text to newly redesignated

paragraphs (i), and (i)(2)(i);

i. Designating Note 3 as ‘‘Note 3 to

§ 73.3555’’;

j. Designating Note 4 as ‘‘Note 4 to

§ 73.3555’’;

k. Designating Note 5 as ‘‘Note 5 to

§ 73.3555’’;

l. Designating Note 6 as ‘‘Note 6 to

§ 73.3555’’;

m. Designating Note 7 as ‘‘Note 7 to

§ 73.3555’’;

n. Designating Note 8 as ‘‘Note 8 to

§ 73.3555’’;

o. Designating Note 9 as ‘‘Note 9 to

§ 73.3555’’; and

p. Designating Note 10 as ‘‘Note 10 to

§ 73.3555’’.

The revisions and deletion read as

follows:

§ 73.3555 Multiple ownership.

* * * * *

Note 2 to § 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:

§ 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

Federal Register / Vol. 66, No. 30 / Tuesday, February 13, 2001 / Rules and Regulations 9973

defined in the local television multiple

ownership rule contained in

§ 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 § 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

§ 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:

§ 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

§ 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

§ 76.501’’;

b. Designating Note 2 as ‘‘Note 2 to

§ 76.501’’;

c. Designating Note 3 as ‘‘Note 3 to

§ 76.501’’;

d. Designating Note 4 as ‘‘Note 4 to

§ 76.501’’;

e. Designating Note 5 as ‘‘Note 5 to

§ 76.501’’;

f. Designating Note 6 as ‘‘Note 6 to

§ 76.501’’ and revising it.

The revision reads as follows:

§ 76.501 Cross-ownership.

* * * * *

Note 6 to § 76.501: In applying paragraph

(a) of § 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

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 25

Application for Special Temporary

Authorization; Correction

AGENCY: Federal Communications

Commission.

ACTION: Correcting amendment.

SUMMARY: This document contains a

correction to the final regulations

redesignated and amended at 62 FR

5928, 5929, February 10, 1997. The

regulations related to applications for

special temporary authorizations

contained in § 25.120(a).

EFFECTIVE DATE: February 13, 2001.

FOR FURTHER INFORMATION CONTACT:

Terry D. Johnson, (202) 418–0445 (not a

toll-free call).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the

subject of this correction prescribed the

procedures one must follow to apply for

special temporary authorization to

install and/or operate new or modified

equipment for earth stations.

Need for Correction

As published, § 25.120(a) contains an

incomplete mailing address which

could delay receipt and processing of

requests for special temporary

authorizations.

List of Subjects in 47 CFR Part 25

Administrative practice and

procedure, Communications common

carriers, Radio, Telecommunications,

Television.

PART 25—SATELLITE

COMMUNICATIONS

Accordingly, 47 CFR part 25 is

corrected by making the following

correcting amendment:

1. The authority citation for part 25

continues to read as follows:

Authority: 47 U.S.C. 151, 154(i), 154(j),

155, 225, 303(r), 309 and 325(e).

§ 25.120 Application for special temporary

authorization. [Corrected]

2. In § 25.120 revise the last sentence

in paragraph (a) to read as follows:

(a) * * * A copy of the request for

special temporary authority also shall be

forwarded to the Commission’s

Columbia Operations Center, 9200 Farm

House Lane, Columbia, MD 21046–

1609.

* * * * *

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 01–3636 Filed 2–12–01; 8:45 am]

BILLING CODE 6712–01–U

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[MM Docket No. 00–39; FCC 01–24]

Broadcast Services; Radio Stations,

Television Stations

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: This document resolves a

number of issues concerning the

transition to digital broadcast television

(DTV). Among the issues resolved in the

Report and Order are: when to require

election by licensees of their posttransition DTV channel; whether to

require replication by DTV licensees of

their NTSC Grade B service contours;

whether to require enhanced service to

the principal community served by DTV

licensees; and how we should process

mutually exclusive applications. We

also address in this document a host of

technical issues and determine that at

this time there is no persuasive

information to indicate that there is any

deficiency in the 8–VSB modulation

system of the DTV transmission

standard that would cause us to revisit