Opinion ID: 658298
Heading Depth: 2
Heading Rank: 1

Heading: Some Common Problems

Text: 13 We will address these arguments one by one, but first we raise some points that apply equally to all the three claimed substantive advantages.
14 Whatever the benefits of integration, they would last only if the Commission insisted on licensees maintaining the owner-manager relation or if successful licensees tended to adopt the integrated structure of their own free will. Neither appears to be the case. 15 Perhaps in recognition of integration's artificiality, the Commission has done little to ensure its continuation once the promise of integration has carried an applicant to victory. On the first anniversary of the commencement of program tests, people who have won their station in a comparative hearing must report any deviations from their integration proposals. 47 CFR Sec. 73.1620(g). But as long as they did not misrepresent their intentions in their applications, abandonment of those proposals apparently carries no consequences. See Proposals to Reform the Comparative Hearing Process, 6 F.C.C.Rec. 157 p 22 (1990); Hulse, Horn, Metzger & Wookey, 7 F.C.C.Rec. 5090, 5095 n. 12 (Rev.Bd.1992) (concurrence). After the first anniversary, moreover, no reports are required. Similarly, while successful applicants in comparative hearings generally cannot transfer or assign their stations during the first year of operations, see 47 CFR Sec. 73.3597(a), thereafter a licensee who had won his station through his integration proposal could turn around and sell it ... without regard to the buyer's 'integration' or lack thereof. Bechtel I, 957 F.2d at 880. 2 16 The Commission, while admitting that it has never actually addressed the issue, suggests that an applicant proposing integration and having, at the time of the proposal, a present intention to sell the station after one year would not be entitled to integration credit. First Remand Order, 7 F.C.C.Rec. at 4569 n. 10. But denying integration credit to people who manifest a present intention to sell out quickly--or revoking the licenses of the handful who could after the fact be proved to have misrepresented their intentions--is not the same thing as guaranteeing permanent integration. Indeed, Bechtel has repeatedly challenged the Commission to identify a single instance in which an applicant who won his station on the basis of his integration proposal continued to operate the station as promised for an appreciable period of time. Though such examples surely must exist, the Commission has failed to provide one. According to Bechtel, in fact, the Commission never has made any effort to determine the actual length of time its 'integrated' license winners have owned and operated their broadcast stations. Brief of Petitioner Susan M. Bechtel at 33. 17 The Commission has launched a rulemaking proceeding to consider boosting the one[304 U.S.App.D.C. 105] year holding period for stations won in comparative hearings to three years after the start of operations, and perhaps making parallel changes in the reporting requirement. 8 F.C.C.Rec. 5475 (1993). This proposal would mark a partial return to the policy that prevailed from 1962 until 1982, under which the Commission discouraged efforts to transfer or assign any station held for less than three years. See Procedures on Transfer and Assignment Applications, 32 F.C.C. 689, 691 (1962). The Commission abandoned this policy after concluding that the benefits of a three-year holding period did not outweigh the disadvantages of impeding the flow of resources to their most valued use; in broadcasting as in other businesses, the Commission observed, important services can be performed by people who trade in broadcast properties, rehabilitate ailing stations with new capital and ideas or relieve unwilling licensees of the responsibility of running a station they no longer want. Amendment of the Commission's Rules Regarding Applications for Voluntary Assignments or Transfers of Control, 47 Fed.Reg. 55924 p 28 (1982). And in 1989, in declining to open a proceeding to restore its former anti-trafficking policy, the Commission said, The buyer who is willing and able to pay the market price for a given facility would be more likely to deliver the service audiences want than the owner unable or unwilling to continue station operation. Amendment of Section 73.3597, 4 F.C.C.Rec. 1710, 1710 p 4 (1989). But even if the Commission reaches (and adequately defends) a new conclusion in the pending rulemaking, a three-year holding period would still give it no reason to think that integration proposals will be adhered to on a permanent basis, as the Commission contemplated in 1965. See 1965 Policy Statement, 1 F.C.C.2d at 395 n. 6. 3 18 Bechtel, who proposed to build a station that would serve 21% more people than the facility proposed by the applicant that won the Selbyville permit, argues that the ephemeral period of initial ownership of a broadcast station ... is vastly outweighed as a public interest factor by the lasting impact of a technical facility which provides greater coverage.... Reply Brief of Petitioner Susan M. Bechtel at 1. Since the Commission does not know how long the typical successful applicant adheres to his integrated proposal, it can offer no real response to this argument.
19 The Commission's uncertainty about the practical effects of its integration policy is not limited to the question of how long integration persists. Despite its twenty-eight years of experience with the policy, the Commission has accumulated no evidence to indicate that it achieves even one of the benefits that the Commission attributes to it. As a result, the Commission ultimately rests its defense of the integration criterion on the deference that we owe to its predictive judgments. See, e.g., Brief for Respondent at 19, 21-22, 27-28; Second Remand Order, 8 F.C.C.Rec. at 1675-76 p 14. 20 But as Bechtel protests, the relevant predictions have now had almost three decades to succeed or fail. There comes a time when reliance on unverified predictions begins to look a bit threadbare. The Commission's necessarily wide latitude to make policy based upon predictive judgments deriving from its general expertise implies a correlative duty to evaluate its policies over time to ascertain whether they work--that is, whether they actually produce the benefits the Commission originally predicted they would. Bechtel I, 957 F.2d at 881 (citations omitted). 21 What is more, the predictions at the root of the integration policy seem rather implausible. As Bechtel's counsel observed at oral argument, the fact that corporate America generally does not insist upon the integration of ownership and management casts doubt on the Commission's rosy speculations about the benefits of integration. 4 Without adopting [304 U.S.App.D.C. 106] the Panglossian view that all economic arrangements that exist must necessarily be efficient, one should still be skeptical when regulatory agencies promote organizational forms that private enterprise would not otherwise adopt. At least such skepticism is appropriate when the agencies are trying to accomplish something that is essential to the survival and prosperity of firms in an ordinary market--such as ensuring that a business identifies and fills available market niches, is responsive to its customers, and complies with laws whose violation can get its owners into serious trouble and jeopardize the value of their investment. 22 Finally, it is worth noting that the predictive judgments at the root of the integration policy concern an area that the Commission has sometimes considered beyond its expertise. In scrutinizing integration proposals asserted by rival claimants to be illegitimate, purely formal, or otherwise inadequate, the Commission has disclaimed any particular expertise in finance or business management and accordingly expressed itself reluctant to second-guess an applicant's business judgment--so long as it is, in fact, a good faith business decision. Victory Media, Inc., 3 F.C.C.Rec. 2073, 2075 p 19 (1988). And later: [T]here is difficulty in having the F.C.C. attempt to define what constitutes 'good' management. The Commission is reluctant to impose on applicants any one view of what constitutes a well managed broadcast venture. Omaha TV 15, Inc., 4 F.C.C.Rec. 730, 732-33 p 20 (1988). 23 Of course the Commission may believe that the goals that Congress has directed it to pursue in the license allocation process--the public interest, convenience, and necessity, 47 U.S.C. Sec. 309(a)--are in the end completely unmeasurable. Especially given the strictures of the First Amendment, that may be so. But see Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367, 89 S.Ct. 1794, 23 L.Ed.2d 371 (1969). But the Commission seems not to have taken that position; it seems to believe that it is applying testable hypotheses. On that assumption, its failure over a 28-year period to generate a shred of supporting evidence is rather telling.
24 Even if integration's claimed advantages were more plausible than we find them, they would not necessarily justify the extraordinary weight that the Commission assigns to integration. The Commission has identified two primary objectives for its comparative process: generating a maximum diffusion of control of the media of mass communications and securing the best practicable service to the public. 1965 Policy Statement, 1 F.C.C.2d at 394. In the typical case, the integration criterion is the most important element of best practicable service. Hassayampa Broadcasting, 92 F.C.C.2d 472, 475 p 7 (Rev.Bd.1982); cf. Northern Sun Corp., 100 F.C.C.2d 889, 891 p 3 (Rev.Bd.1985) (declaring that no more need be said about applicant once it was denied integration credit). In other words, the Commission generally deems an applicant's integration proposal [304 U.S.App.D.C. 107] more important than his past broadcast record, his proposed program service, or the efficiency of his proposed use of frequency. 5 25 Within the framework of the integration criterion, the Commission does take certain qualitative factors into account: an applicant's integration credit can be enhanced if the proposed owner-managers live in the station's service area, have participated in civic affairs, have broadcast experience, or belong to a minority group. But the quantitative portion of the integration credit tends to swamp the qualitative. 26 The Commission calculates the quantitative portion with a numerical precision that masks the fuzziness of the underlying facts (discussed below). It applies a formula conceived by analogy to the Hirschman-Herfindahl Index of antitrust law, under which a proposed owner-manager's integration score is 10000 X (ownership share) X (hours per week/40) 2 An applicant's overall quantitative score is the sum of the scores of each of its proposed owner-managers. Thus, applicants who get credit for full-time integration of all their owners receive the maximum score of 10,000. Because the formula squares the fraction representing the owner's proposed working portion of a 40-hour week, part-time management is discounted at a more-than-linear rate; a 100% owner who proposed to devote 30 hours a week to the station would get only 5625 points--(10000) X ( 3/4) 2 See Omaha TV 15, Inc., 4 F.C.C.Rec. 730, 734 p 30 (1988). 27 Qualitative factors cannot overcome a clear quantitative advantage--which the Commission defines as a difference of at least 1250. Miracle Strip Communications, Inc., 4 F.C.C.Rec. 5064, 5066 p 18 (1989). An applicant whose proposed owner-manager knows nothing about either broadcasting or the community but promises to work a 40-hour week, for example, will handily win an integration preference over one whose proposed owner-manager is a veteran broadcaster who has spent his whole life in the station's community but proposes to work a 36-hour week at the station (scoring only 8100). See also Cannon Communications Corp., 101 F.C.C.2d 169, 181 p 14 (Rev.Bd.1985) (acknowledging that quantitative predominance provides a 'leg-up' for the sole integrated proprietor over a multi-party applicant entity not proposing integration by all of its members, notwithstanding that the latter may bring more in terms of local residence and civic involvement as well as cultural diversity). All this occurs under a policy whose stated goal is to pick owners who are aware of and responsive to their communities' special needs. 28 Of course, comparative hearings turn on other issues when the applicants have similar integration proposals, and the integration preference itself can range from slight to substantial. But as the Review Board reports, Quite frequently, these days, the quantitative difference in the amount of ownership 'integration' credit awarded is all that dispositively separates the winning applicant from the also-rans. Religious Broadcasting Network, 3 F.C.C.Rec. 4085, 4087-88 p 7 (Rev.Bd.1988). An applicant that secures a clear quantitative advantage in integration (the 1250-point edge) will normally win the station, as long as it meets the Commission's threshold criteria and does not own other media interests. Given all the factors that affect a station's performance, the Commission faces a difficult task in justifying this remarkable system. 29 With these points in mind, we address the purported advantages of the integration criterion.