[Federal Register Volume 63, Number 134 (Tuesday, July 14, 1998)]
[Rules and Regulations]
[Pages 37790-37792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18037]
[[Page 37790]]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MM Docket No. 92-264; FCC 98-138]
Horizontal Ownership Limits
AGENCY: Federal Communications Commission.
ACTION: Final rule; announcement of effective date.
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SUMMARY: In the Second Memorandum Opinion and Order on Reconsideration
(Second Order on Reconsideration), the Commission maintains the current
30% cable television horizontal ownership limit and generally denies
the motion to lift the voluntary stay on enforcement of that limit.
However, the Commission lifts the stay and announces the effective date
for information reporting requirements. A companion Further Notice of
Proposed Rulemaking seeks comment on possible revisions of the
horizontal ownership rules and the method by which horizontal ownership
is calculated.
DATES: Section 76.503(c) published at 58 FR 60141 (November 15, 1993)
is effective August 13, 1998.
FOR FURTHER INFORMATION CONTACT: John Norton, Cable Services Bureau,
(202) 418-7200.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Second Order on Reconsideration, MM Docket No. 98-138, adopted June 23,
1998, and released June 26, 1998. The full text of this decision is
available for inspection and copying during normal business hours in
the FCC Reference Center (Room 239), 1919 M Street, NW, Washington,
D.C. 20554, and may be purchased from the Commission's copy contractor,
International Transcription Service, (202) 857-3800, 1231 20th Street,
NW, Washington, D.C. 20036.
Synopsis of the Second Order on Reconsideration
1. This Second Order on Reconsideration addresses petitions for
reconsideration of the Second Report and Order in MM Docket No. 92-264,
58 FR 60135, November 15, 1993 (``Second Report and Order''). Among
other things, the Second Report and Order promulgated rules pursuant to
section 613 of the Communications Act (47 U.S.C. Sec. 533(f)(1)(A)),
which requires the Commission to ``prescribe rules and regulations
establishing reasonable limits on the number of cable subscribers a
person is authorized to reach through cable systems owned by such a
person, or in which such a person has an attributable interest''
(``horizontal ownership rules''). Section 613(f)(2) directs that, in
addition to other public interest concerns, the Commission must
consider and balance seven particular public interest objectives in
establishing the horizontal ownership rules: (1) To ensure that no
cable operator or group of cable operators can unfairly impede the flow
of video programming from the programmer to the consumer; (2) to ensure
that cable operators do not favor affiliated video programmers in
determining carriage and do not unreasonably restrict the flow of video
programming of affiliated video programmers to other video
distributors; (3) to take account of the market structure, ownership
patterns, and other relationships of the cable industry, including the
market power of the local franchise, joint ownership of cable systems
and video programmers, and the various types of non-equity controlling
interests; (4) to take into account any efficiencies and other benefits
that might be gained through increased ownership or control; (5) to
make rules and regulations that reflect the dynamic nature of the
communications marketplace; (6) to impose no limitations that prevent
cable operators from serving previously unserved rural areas; and (7)
to impose no limitations that will impair the development of diverse
and high quality programming. The Commission's horizontal ownership
rules established in the Second Report and Order provide that ``no
person or entity shall be permitted to reach more than 30% of all homes
passed nationwide through cable systems owned by such person or entity
or in which such person or entity holds an attributable interest.''
2. In the Second Report and Order, the Commission voluntarily
stayed the effective date of the horizontal ownership rules pending
final judicial resolution of the District Court decision in Daniels
Cablevision, Inc. v. United States (835 F. Supp. 1, 10 (D.D.C. 1993),
aff'd in part, rev'd in part, Time Warner Entertainment Co., L.P. v.
FCC, 93 F.3d 957 (D.C. Cir. 1996)) which held that the underlying
statute violates the First Amendment. The Daniels court stayed further
court proceedings, including determination and imposition of relief for
the plaintiffs, pending appeal. On December 15, 1993, petitions for
reconsideration of the stayed rules and a motion to lift the
administrative stay were filed with the Commission. The following
month, the stayed rules were challenged in Time arner Entertainment
Co., L.P. v. FCC (No. 94-1035 (D.C. Cir. 1994)). In August 1996, the
D.C. Circuit Court consolidated the Daniels appeal regarding the facial
validity of the statute and the Time Warner challenge to the
Commission's rules, and determined to hold court proceedings in
abeyance while the Commission reconsidered the horizontal ownership
rules (Time Warner Entertainment Co., L.P. v. FCC, 93 F.3d 957, 979-80
(D.C. Cir. 1996)).
3. The Second Order on Reconsideration disposes of both the
reconsideration petitions, which seek to lower the 30% horizontal
ownership limit and revise the calculation factors, and the motion to
lift the voluntary stay on enforcement of the horizontal ownership
rules. In the Second Order on Reconsideration, the Commission maintains
the current 30% horizontal ownership limit and denied the motion to
lift the voluntary stay on enforcement of that limit. We note that,
while the most established programmers can obtain favorable terms from
even large cable multiple system operators (``MSOs''), the cable
horizontal ownership rules remain necessary to prevent MSOs from
exercising market power against new, independent, and less prominent
programmers. In order to facilitate monitoring of cable ownership
interests, the Commission lifts the voluntary stay insofar as it
applies to the information reporting requirements of 47 CFR 76.503(c).
Prior to acquiring attributable interests in any additional cable
systems, a person holding an attributable interest in cable systems
reaching 20% or more of homes passed nationwide by cable will be
required to notify the Commission of the incremental change the
acquisition makes in terms of the 30% of homes passed standard, i.e.
specifying the ownership in terms of homes passed before and after the
acquisition is complete.
4. The arguments raised against the Commission's 30% limit fall
into five broad categories--consideration of diversity issues;
alteration of the status quo; divestiture by Tele-Communications, Inc.
(``TCI''); current levels of horizontal concentration; and impact of
other statutes and rules.
5. With respect to diversity of ownership, the Second Report and
Order finds that the 30% horizontal ownership limit provides
considerable protection for diversity concerns. As required by section
613, the Commission balances those diversity concerns with many other
public interest factors, some of which support the growth of cable
MSOs. In the Second Order on Reconsideration, the Commission finds that
it properly
[[Page 37791]]
concluded that a 30% limit is generally appropriate to prevent the
largest MSOs from gaining excessive leverage, and also ensures that the
majority of MSOs continue to expand and obtain the economies of scale
necessary to encourage investment in new video programming services and
the deployment of advanced cable technologies.
6. In addition, petitioners contended that Congress sought to
change the status quo in the 1992 Cable Act because existing levels of
horizontal concentration were too high, and that the 30% horizontal
ownership limit is too high because it does not alter the status quo.
In the Second Order on Reconsideration, the Commission finds that the
statute does not direct the Commission to alter the status quo by
ordering divestiture by any cable MSO. Instead, Congress required that
the Commission set ``reasonable limits'' and left the parameters of
what ``reasonable limits'' would be to Commission discretion. The
statute and the legislative history make clear that the Commission was
not required to alter current industry structure, but to consider the
potential public interest concerns associated with the industry
structure. In the Second Order on Reconsideration, the Commission finds
that it fully considered such interests.
7. Petitioners also asserted that the Second Report and Order was
too concerned about avoiding divestiture by TCI and was not focused on
consumer welfare. In the Second Order on Reconsideration, the
Commission finds that inquiry into the impact divestiture would have
upon subscribers, programmers and industry investment are legitimate
public interest objectives that the Commission is entitled to consider.
We also noted that, in both First Report and Further Notice and the
Second Report and Order, the Commission considered arguments for low
limits that would require divestiture. The Commission expressly
confronted the divestiture issue and determined that, in the absence of
definitive evidence that existing levels of ownership are sufficient to
impede the entry of new video programmers or have an adverse effect on
diversity, existing arrangements should not be disrupted. In the Second
Order on Reconsideration, we find that the Commission properly
considered whether the substantial structural change that divestiture
would entail was warranted. The Commission based its final decision in
the Second Report and Order not solely on a determination to avoid
divestiture, as petitioners suggested, but, more importantly, upon the
public interest requirements of section 613.
8. With respect to current levels of horizontal concentration,
petitioners asserted that the Second Report and Order did not
sufficiently address the evidence that existing levels of horizontal
concentration are too high and that TCI, the largest MSO, already uses
its market power to disadvantage competing program services. All other
cable operators filing comments strenuously opposed the argument that
current levels of horizontal concentration are ``too high'' and cited
the benefits of horizontal concentration, including MSOs' ability to
achieve economies of scale in research and development of transmission
and distribution technology, savings in administrative costs such as
billing operations, advertising, marketing, and management, and
reduction in the costs of negotiating with programmers.
9. The Commission found in the Second Report and Order that 30% was
an appropriate horizontal ownership limit ``in the absence of
definitive evidence that existing levels of ownership are sufficient to
impede the entry of new video programmers or have an adverse affect on
diversity . . .'' The Second Report and Order concluded that a 30%
limit was ``appropriate to prevent the nation's largest MSOs from
gaining enhanced leverage from increased horizontal concentration,''
and is ``reasonable to prevent the types of anti-competitive conduct
which concerned Congress, particularly when coupled with the behavioral
restrictions contained in [the program access and program carriage
provisions] * * *.'' In the Second Order on Reconsideration, the
Commission finds that no one has proffered any new evidence that
requires the Commission to alter this finding, and that the 30% limit
complies with the intent of Congress and satisfies the criteria
specified in section 613.
10. In the Second Order on Reconsideration, the Commission finds
that the 30% limit adequately constrains the extent to which either a
large cable MSO acting unilaterally or a group of cable MSOs acting in
concert could exercise market power in the purchase of programming to
reduce the diversity of programming or to coerce nonaffiliated
programmers into denying programming to alternative MVPDs. In addition,
the 30% ceiling limits the extent to which large cable MSOs can merge
and result in one or two MSOs controlling local cable markets
nationwide, thereby helping to preserve opportunities for entry by
overbuilders or other MVPDs and reduce the likelihood that large MSOs
can coordinate their behavior by mutually forbearing from overbuilding
each other's service territories. The Commission found that the 30%
limit also reduces the likelihood of coordinated activity between large
cable MSOs in areas such as program purchasing and equipment
purchasing. Accordingly, in the Second Order on Reconsideration, the
Commission finds that the 30% limit simultaneously guards against the
potential anticompetitive effects of horizontal concentration and
allows cable MSOs to realize the benefits of clustering in order to
gain efficiencies related to economies of scale and scope in
administration, deployment of new technologies and services, extension
into previously unserved territories, etc.
11. In the Second Order on Reconsideration, the Commission also
concludes that the gradual but continuous growth and expansion in both
cable-affiliated and independent programming sources and programming
networks over the past several years tends to suggest that current
levels of horizontal concentration have not significantly hampered new
video programmers' entry, and that the Commission's 30% limit properly
struck a reasonable balance between concentration and diversity
concerns.
12. With respect to the impact of other statutory provisions and
rules, one petitioner argued that the Commission's reliance in the
Second Report and Order upon existing statutes and regulations to
support the 30% ownership limit was improper. In the Second Order on
Reconsideration, the Commission finds that the Second Report and Order
properly considered the impact of other statutes and regulations, given
the requirements of Section 613 that the Commission examine the
marketplace as it currently operates. The Commission finds that
statutes and rules such as the program access, program carriage,
channel occupancy limits, and must-carry requirements all affect the
way the cable television industry currently operates and have a
profound effect on current industry structure and performance. In the
Second Order on Reconsideration, the Commission finds that, because
these provisions have real and substantive impact upon the market, the
Commission properly considered the impact of these provisions in
alleviating some of the public interest and anticompetitive concerns
about horizontal concentration.
13. In addition to requesting the lowering of the 30% ownership
limit, petitioners proposed that the
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Commission revise the calculation factors. One petitioner argued that
the 30% limit should include households served by a telephone company
that is affiliated with an MSO. In the Second Order on Reconsideration,
the Commission finds that, where the use of a telephone company's lines
is limited to the provision of local exchange services, the telephone
company does not operate as a ``cable system'' and its telephone
subscribers should not be counted toward the number of subscribers
served by an MSO affiliated with the telephone company. Likewise, the
Commission states that the cable horizontal ownership limit does not
apply to subscribers of a telephone company that offers multichannel
video programming distribution service solely through means other than
a ``cable system.'' However, the Second Order on Reconsideration
emphasizes that telephone companies offering MVPD service through cable
systems are subject to the cable horizontal ownership limits.
14. One petitioner argued that homes in franchise areas facing
``effective competition'' should not be included in calculating the 30%
limit because horizontal ownership limits are only required to combat
the local monopoly and ``gatekeeper'' power of cable systems, so that
the justification for these limits disappear where local distribution
markets are competitive. Rejecting this argument in the Second Order on
Reconsideration, the Commission finds that, had Congress intended to
eliminate all cable regulations where the ``effective competition''
standard applicable to rate deregulation is satisfied, the ``effective
competition'' exemption would have been drawn much more broadly. The
Commission observes that the ``effective competition'' standard
determines when there is sufficient local competition to prevent an
incumbent cable operator from exercising market power in setting local
rates for cable services sold to local subscribers. In contrast, the
horizontal ownership limit was designed to ensure that no cable MSO
acquires a sufficiently large share of subscribers nationwide to
exercise undue market power at the national level in its purchase of
programming from networks, which generally sell their programming
nationwide. The Second Order on Reconsideration concludes that the
``effective competition'' exemption is expressly limited to cable rate
regulation and is not sufficient to address all the concerns expressed
by Congress in enacting Section 613.
15. In the Second Order on Reconsideration, a petitioner also
requested that the Commission tighten its attribution rules by
eliminating the single majority shareholder exception, which provides
that minority interests will not be attributed where a single
shareholder owns more than 50% of the outstanding voting stock. The
petitioner argued that this exception to the attribution rules is
``unduly mechanistic'' and ignores the minority shareholder's ``ability
to influence the actual operation of the property'' even when a
majority shareholder is present.
16. In the Second Order on Reconsideration, the Commission finds
that there was not enough evidence in this docket to justify
eliminating the single majority shareholder exception. The single
majority shareholder provision of the rules is currently under review
in the broadcast context in MM Docket Nos. 94-150, 92-51 and 87-154. In
that proceeding, the Commission sought comment on the nature of
``influence'' and ``control'' and the connection between equity
ownership and such influence and control. The Commission is also
issuing a Notice of Proposed Rulemaking seeking comment on whether and
how the cable attribution rules, including the single majority
shareholder exception, should be revised. In the Second Order on
Reconsideration, the Commission notes that its determination regarding
the cable attribution rules applies to both the horizontal ownership
rules and channel occupancy limits.
17. A motion also was filed with the Commission to lift the
Commission's voluntary stay on enforcement of the cable horizontal
ownership rules. In the Second Report and Order, the Commission had
voluntarily stayed the effective date of these rules pending final
judicial resolution of the District Court decision in Daniels that the
underlying statute violates the First Amendment. While the Daniels
Court had stayed further District Court proceedings pending
interlocutory appeal of its judgment, it had not enjoined the
Commission from adopting and enforcing horizontal ownership rules under
the statute. In August 1996, the D.C. Circuit Court consolidated the
Daniels appeal regarding the facial validity of the statute and the
Time Warner challenge to the Commission's rules, and determined to hold
court proceedings in abeyance while the Commission reconsidered the
horizontal rules.
18. In the Second Order on Reconsideration, the Commission retains
the voluntary stay of the 30% horizontal ownership limit at this time,
in light of the continuing pendency of the judicial proceedings
relating to the underlying provision. In order to facilitate monitoring
of MSOs' ownership interests, the Commission lifts the stay insofar as
it applies to the information submission provisions of 47 CFR 76.503(c)
that are applicable when any person or entity holding an attributable
interest in cable systems reaching 20% or more of homes passed
nationwide acquires additional cable systems. The existing rules
require a certification that no violation of the 30% limit will occur
as a result of such acquisition. In the Second Order on
Reconsideration, the Commission finds that, in light of the
continuation of the stay, the certification should only specify the
incremental change the acquisition makes in terms of the 30% of
household passed standard, i.e. specifying the ownership in terms of
homes passed before and after the acquisition is complete. The Second
Order on Reconsideration also states that affected parties will be
required to come into compliance with the horizontal ownership rules
within 60 days of the appellate court's issue of a mandate upholding
section 613(f)(1)(a) and the rules, unless the Commission determines as
part of this ongoing proceeding to lift the stay at an earlier date.
Interested parties, including in particular parties that are now
entering into business arrangements that would violate the rules but
for the existence of the stay, should be well aware of the existence of
the rules and thus have a full opportunity to be prepared to comply
with them.
Ordering Clauses
19. Accordingly, it is ordered that the petitions for
reconsideration filed in this proceeding are denied.
20. It is further ordered that the Motion to Lift Stay filed
December 15, 1993 by the Center for Media Education and Consumer
Federation of America is granted as to the Commission's voluntary stay
on enforcement of 47 CFR 76.503(c), and is denied as to the
Commission's voluntary stay on enforcement of 47 CFR 76.503(a), (b),
(d), (e) and (f).
List of Subjects in 47 CFR Part 76
Cable television.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-18037 Filed 7-13-98; 8:45 am]
BILLING CODE 6712-01-P
