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Court Slams Brakes On Ownership Dereg

Federal judges last week put on ice, probably for at least a year, the deal-making bonanza expected as a result of the FCC's recent loosening of broadcast-ownership rules.

A three-judge panel of the federal appeals court in Philadelphia stayed the new rules until lawsuits to overturn them are settled, a process that could drag on well into 2005 and perhaps lead to overturning the deregulatory changes. The stay also removes some of the drama from a pending showdown between Congress and the White House over legislation to rewrite at least part of the FCC's changes (see story page 16).

"The stay is a killer," lamented former FCC Chairman Richard Wiley. "It deep-freezes everything if it remains."

The court's order, which came one day before the new rules' Sept. 4 effective date, thrilled public advocates and lawmakers fighting media concentration. "The court must have understood what we know: The FCC embarked on these dramatic rule changes without the benefit of national hearings and thoughtful analysis," said Sen. Byron Dorgan (D-N.D.)

"This action gives us the opportunity to convince Congress and, if necessary, the courts that the FCC's decision is bad for democracy and bad for broadcast localism," said Andrew Schwartzman, the attorney who argued for the stay on behalf of Prometheus Radio Project.

The judges, however, were careful to point out that the stay order does not indicate a predisposition to overturn the rules.

The court's decision keeps in place for now the 35% cap on one company's TV-household reach rather than imposing the 45% limit set by the commission in June. That development is a blow to the big broadcast networks, which have asked the court to raise the cap and would rather it were eliminated. If the cap isn't raised, CBS and Fox may have to sell a handful of stations to get below 35%.

A spokesman for FCC Chairman Michael Powell, who ordered agency lawyers to oppose the stay, vowed that the agency will "vigorously defend" the new rules when the court examines their merits. But Democratic Commissioner Michael Copps, who voted against the changes and was rebuffed by Powell in a request for a stay by the agency, found a measure of satisfaction. "The court has done what the commission should have done in the first place."

Network officials declined comment and would not discuss whether they will file an emergency appeal to the full complement of the Philadelphia court's judges or to the Supreme Court.

Separately last week, more than 25 petitions demanding that the FCC rethink its new broadcast-ownership rules were filed at the commission. They will be considered independently of the court challenges to the new rules. (See Breaking, page 4)

Also derailed was relaxation of limits on local TV duopolies and on broadcast/newspaper crossownership, changes that have been sought by the National Association of Broadcasters and the Newspaper Association of America.

Industry deal-trackers were frustrated. Mark Fratrik, vice president at BIA Financial, predicted the uncertainty could slow the planning of numerous deals.

The FCC said last week it will temporarily re-freeze applications—it had lifted the freeze only two weeks ago—until it could decide how to proceed.

Noted Connecticut-based broker Frank Boyle, "I'm sure there are duopoly and triopoly deals affected by this."

And Elliott Evers, of Media Venture Partners, said, "Nobody quite knows what will be the applicable law at any moment. It's a confusing half-step backward."

The judges, however worried more that the government would have little recourse to undo mergers that could later be found impermissible if the new rules are overturned. "The harm ... absent a stay would be the likely loss of an adequate remedy should the new ownership rules be declared invalid," they wrote.

The judges, led by Chief Judge Anthony Scirica, also indicated that they would rule quickly on a CBS, Fox and NBC petition to move the case to the federal appeals court in Washington, which ordered the FCC to alter its ownership rules in the first place. Briefs opposing the transfer are due to the court today; the networks' defense is due on Wednesday.