The D.C. Circuit is forcing the FCC—and telecom law—into the future

by Randolph J. May
Legal Times, May 6, 2002

Recall the rosy, and downright revolutionary, rhetoric that accompanied passage of the landmark Telecommunications Act of 1996, billed as the first comprehensive overhaul of our nation’s communications laws since 1934. At the signing ceremony, then-President Bill Clinton called the act “truly revolutionary legislation,” and proclaimed, “[W]ith the stroke of a pen, our laws will catch up with the future. We will help to create an open marketplace where competition and innovation can move as quick as light.”

Well, not quite. A funny thing happened on the way to the future. It ran into the not-so-quick Federal Communications Commission, the agency charged with implementing the new law. And with regard to the 1996 act, the FCC has behaved like it’s stuck in a time warp—plodding along and ignoring the new world of media and communications. Two recent D.C. Circuit decisions condemning the commission’s failure to revise its rules governing the ownership and structure of the broadcasting and cable industries highlight how out of touch the FCC’s actions have been. Hopefully, the D.C. Circuit’s opinions will jolt the agency’s commissioners into acting like the revolutionaries Clinton and Congress meant them to be.

Before turning to the specifics of the judicial setbacks, keep in mind the extent to which the 1996 act was characterized (even by persons other than the politicians seeking credit) as a watershed event in communications policy making. For example, the ABA’s Communications Lawyer magazine trumpeted in a boldface headline, “Telecom Act Throws Open Competition in Electronic Mass Media and Telecommunications.” And FCC Chairman Michael Powell wrote as a commissioner in 1998, “We are in the throes of a revolution.” His essay (in the Federal Communications Law Journal), with the bold title “Communications Policy Leadership for the Next Century,” states that the 1996 act “seeks to change forever the legal and regulatory structure that governs the communications industry as we know it.”

Perhaps the judges of the D.C. Circuit, to their credit, started to believe all the revolutionary rhetoric. Whatever the reason, the D.C. Circuit, which has occasionally acted as the FCC’s nemesis, clearly has begun forcing policy changes. Consider these decisions.

On April 2, in Sinclair Broadcast Group v. FCC, the court invalidated the commission’s rule limiting common ownership of television stations in the same market. The ostensible purpose of this and the various other ownership rules is to ensure competition among the media, thereby fostering diverse news and information sources. The television rule contains an exception to the ownership restriction where eight “independent voices” exist in the local market. But, unlike the commission’s ownership rule limiting radio-television combinations, which counts unaffiliated local newspapers and cable systems as independent voices, the television rule counts only unaffiliated television stations. The court concluded that the commission’s order adopting the television rule was arbitrary and capricious for not explaining why, if cable systems and newspapers serve as independent sources of information for diversity purposes in the one instance, they may be disregarded in the other.

Earlier, in February’s Fox Television Stations Inc. v. FCC, the court struck down two other ownership rules: the national television station ownership rule that prohibits one entity from controlling television stations with a combined audience reach exceeding 35 percent of U.S. television households, and the cable-broadcast ownership rule that prohibits common ownership of a cable system and television station in the same local market. The court found the FCC had provided no support for its view that group-owned television broadcasters exercise market power on a national or local basis. Indeed, the court pointed out that as far back as 1984, the commission had determined that competition in the media marketplace undermined the need for the national ownership rule as a means of fostering viewpoint diversity.

Ditto for the cable-broadcast ownership rule, where the court found especially irrational the commission’s failure to consider (since the rule’s 1970 adoption) the increased number of television stations in each local market, as well as the arrival of direct broadcast satellite providers offering hundreds of channels. In both cases, the court held that the commission had provided inadequate support for the proposition that the rules are necessary to advance the diversity of news and information sources.

A fair reading of the decisions leaves little doubt that the court is troubled that the commission continues to act as if three dominant television networks still force-feed us our news as they did during Walter Cronkite’s heyday. The commission seems to think that cable and satellite TV networks, VCRs, DVDs—not to mention the Internet—were never invented, and that radio stations and newspapers have ceased to exist!

Something Fundamental

Why are these D.C. Circuit rebukes so significant? First, note that there was no dissent from the invalidation of any of the rules, even though the panel’s judges span the ideological spectrum. Obviously, something fundamental is going on here.

Although Congress declared in the 1996 act’s preamble that the commission should “promote competition and reduce regulation,” it is certainly true, as Justice Antonin Scalia quipped in AT&T Corp. v. Iowa Utilities Board (1999), that overall the legislation “is not a model of clarity.” Nevertheless, with respect to the FCC’s ownership rules, the D.C. Circuit determined that Congress pointed in a deregulatory direction. In both Fox and Sinclair, a court for the first time relied on new Section 202 of the act, which requires the commission to review its media ownership rules biennially to “determine whether any such rules are necessary in the public interest as the result of competition.” The commission is directed to “repeal or modify any regulation it determines no longer to be in the public interest.”

By arguing before the D.C. Circuit that its determinations in the biennial review proceedings are not reviewable on finality, ripeness, and exhaustion grounds, the commission, in effect, maintains that Section 202 is essentially a hortatory housekeeping provision rather than a meaningful mandate. But, as Judge Douglas Ginsburg wrote in Fox, “Section 202 (h) carries with it a presumption in favor of repealing or modifying the ownership rules.” This interpretation gives bite to his statement that the 1996 act, in fact, “set in motion a process to deregulate the structure of the broadcast and cable industries.”

There is another provision in the 1996 act, entitled simply “Regulatory Reform,” that requires the commission to review biennially all its rules (not just those on ownership) and to “repeal or modify those no longer necessary in the public interest.” No doubt the commission is justifiably worried that the courts may now interpret this provision the same way the D.C. Circuit interpreted the nearly identical Section 202. Indeed, on April 19, it filed a rehearing petition in Fox arguing that the administrative burden of continually reviewing its rules under the presumptive standard “would strain agency resources.”

That concern might have some validity. Just last week, the Cellular Telecommunications and Internet Association filed a petition citing Fox asking the FCC to repeal rules that the association claims are no longer necessary. Others are sure to follow. But the bottom line is that the commission needs a kick in the pants if the 1996 act will really become, as Clinton described it, “truly revolutionary legislation.” For too long after the act’s passage, in the face of unprecedented technological change, the FCC’s approach has been too much business as usual.

Now the D.C. Circuit has told the FCC that Congress really did mean what it said when it directed the agency to repeal rules that no longer make sense. The commission should get on with the revolution.

Randolph J. May is a senior fellow and director of communications policy studies at the Progress & Freedom Foundation in Washington, D.C. The views expressed are his own and do not necessarily reflect the views of the foundation. He may be reached at rmay@pff.org. His column, “Fourth Branch,” appears regularly in Legal Times.

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