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Court to FCC: Prove it!

After federal judges ruled last week that the FCC must justify its cap on a company's TV-household reach, network executives could barely contain their enthusiasm. After all, the networks have been working to raise the ownership limits and succeeding by degrees, since at least the mid '40s, when NBC wanted more stations to seed its fledgling TV "chain."

Certainly, chiefs at Fox Television and CBS parent Viacom have reason to celebrate: They probably won't have to make good on obligations to reduce their TV group's reach from roughly 40% of U.S. households to the FCC's 35% threshold.

But anyone on Wall Street expecting the networks to embark on a new round of station acquisitions in the next few months is likely to be disappointed.

Although a three-judge panel of the federal appeals court in Washington found that the FCC was "arbitrary and capricious" in retaining the 35% limit without backing it up with rigorous economic analysis, it also rejected the networks' argument that broadcast ownership limits in general are unconstitutional, a violation of the First Amendment. Further, the court retained the cap at its current level pending an FCC effort to justify today's number, calculate a new one or do away with limits altogether.

Conventional wisdom had been that the FCC, through its ownership working group, would come up with a justification for a raised limit, perhaps as much as 50%. That may still be true, but it may take a while.

"It ought to be painfully clear today that we have a problem," agency Chairman Michael Powell told telecommunications attorneys at a Georgetown Law School conference last week. Although the FCC could seek a higher limit in a quick rulemaking, the court's scathing tone makes it nearly impossible for the FCC to impose a limit that would be any less arbitrary than 35%.

"The court is insisting on much more than the intuitive and sometimes subjective rationales we have offered," he added.

"Powell will be very methodical and rigorous with the court being so hypercritical," said former FCC Chairman Richard Wiley. "He's not going to change that 35% anytime soon."

"The FCC isn't going to be approving deals," added Andrew Schwartzman, president of Media Access Project. MAP may ask the Supreme Court to review the decision and stay the cap. If the stay is granted, the current number could be in place for up to two years."Nothing's changed," said Jeff Baumann, regulatory attorney for the National Association of Broadcasters. "The court set out a road map the FCC will have to meet. Everything is still up for FCC review, including either retaining the cap or raising it."

The NAB, along with a coalition of network affiliates, opposes lifting the cap because broadcasters fear that behemoth network O&O groups will soak up the bulk of ad dollars and use their muscle to demand draconian affiliation terms.

Even if Powell tried to lift the cap quickly, the NAB would need to sway only one of the other two Republican commissioners to block him. It's presumed that the one sitting Democrat, Michael Copps, and commissioner-in-waiting, Democrat nominee Jonathan Adelstein, would vote to keep the cap at its current level.

Further legal action could also hold up action on the cap. The non-network broadcasters last week were still mulling whether to ask for a rehearing before all 11 judges of the appeals court, appeal to the Supreme Court, or simply lobby the FCC to retain the cap.

The confident tone of the cap's broadcast-industry supporters contrasted sharply, however, with the nonplussed frustration of FCC officials and public advocates. Beyond the issue of the 35% cap, they say, the ruling puts nearly all the FCC's ownership rules at risk of court attack and obligates the agency to carry out extremely burdensome reviews of each of the hundreds of commission regulations every two years.

At issue is the court's finding that the FCC failed to meet obligations of the 1996 Telecommunications Act, which required the FCC to review all its rules every two years and "repeal or modify" those no longer in the public interest.

"We won't be doing anything else," complained Commissioner Copps.

If upheld, the decision also will cast doubt on the FCC's ability to defend other media ownership rules. In addition to remanding the ownership cap, the court jettisoned a rule barring cable systems from owning TV stations in their markets. By failing to consider increased competition from direct-broadcast satellite or the number of TV stations, the court predicted that justification of the crossownership ban would be "low."

The higher hurdle will make it difficult to defend FCC limits on multiple ownership of TV stations in the same market, which have been challenged in the same court, and the restriction on crossownership of broadcast stations and newspapers in the same market, which is currently being reviewed by the commission.

"If the court can't justify the cable crossownership rule, I can't imagaine they can justify a rule covering an industry one more step removed from broadcasting," said John Sturm, president of the Newspaper Association of America.

Although the judges agreed during oral argument that the "silly" and "bizarre" law places nearly impossible burdens on the FCC, they nevertheless concluded that its meaning is undeniable. The congressional mandate "might better be likened to Farragut's order at the battle of Mobile Bay," wrote Judge Douglas Ginsburg. " 'Damn the torpedoes! Full speed ahead.'"

Copps and public advocates are urging an immediate Supreme Court appeal, but Congress is another option.

"If Congress wants to preserve any semblance of diversity and localism, they will have to step in if the FCC doesn't appeal," said Christopher Day, an attorney with the Georgetown Law School's Center for Public Representation.

Democratic lawmakers quickly threatened to act. "Congress may have to re-establish the clear public and policy interest in rules that promote diversity and safeguard against undue media concentration,'' said Rep. Edward Markey (Mass.), ranking Democrat on the House Telecommunications Subcommittee.

Rep. John Dingell (Mich.), the Commerce and Energy Committee's top Democrat, complained that the court might have set in motion the death of local broadcasting. "If this stands, local television throughout the country will be controlled by a handful of media conglomerates in New York and Los Angeles."

Republicans, for the moment, are largely keeping quiet. House Commerce Committee Chairman Billy Tauzin praised the decision, but the GOP will likely be torn between the powerful network and broadcasting lobbies.

—Additional reporting by Paige Albiniak