Report No. CS 98-10 CABLE SERVICES ACTION June 26, 1998 COMMISSION ACTS ON CABLE TELEVISION HORIZONTAL OWNERSHIP RULES (CS DOCKET 98-264) The Commission has adopted an order and further notice of proposed rulemaking regarding the cable television horizontal ownership rules. Section 613 of the Communications Act 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." This order on the cable horizontal ownership limits addresses the pending reconsideration petitions and maintains the current rule which provides that no person may hold attributable interests in cable systems reaching more than 30% of all homes passed nationwide by cable. The order generally denies a motion to lift the Commission's voluntary stay on enforcement of the 30% limit, but does lift the stay as to the rules' information reporting requirements. The further notice seeks to reexamine the cable television horizontal ownership rules to ensure consistency with the statutory objectives of these rules in the context of evolving market conditions. The notice seeks comment on whether, in light of evolving market conditions, 30% should remain the appropriate horizontal ownership limit. The notice also seeks comment on whether the Commission should revise the rules to consider the presence in the market of all multichannel video programming providers rather than cable operators alone, and whether to base the limit on actual subscribers rather than on homes passed. Comment is also sought on the 35% minority-control allowance. The order and further notice are based on the recognition that cable industry consolidation can result in certain economic efficiencies that benefit consumers. Congress, however, has also expressed concern that excessive horizontal concentration can adversely impact consumer access to programming. Accordingly 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 (over) - 2 - 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. Examination of the cable horizontal ownership rules reflects the Commission's efforts to promote competition in the video marketplace. Comments are due by August 14, 1998; reply comments are due by September 3, 1998. Action by the Commission June 23, 1998, by Memorandum Opinion and Order on Reconsideration and Further Notice of Proposed Rulemaking (FCC 98-138). Chairman Kennard, Commissioners Ness, Furchtgott-Roth and Powell and Commissioner Tristani dissenting part. Commissioners Furchtgott-Roth and Tristani issuing separate statements. -FCC - News Media contact: Morgan Broman at (202) 418-2358. Cable Services Bureau contact: John Norton at (202) 418-7200. TTY: (202) 418-7172 SEPARATE STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH In re: Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992, Horizontal Ownership Limits, Second Memorandum Opinion and Order and Further Notice of Proposed Rulemaking. I am pleased that the Commission seeks comment on the constitutionality of the 35% "minority-control allowance," 47 CFR section 76.503(b), for cable subscriber limits. See supra at 32. In my view, the constitutionality of this provision in light of intervening judicial decisions -- most notably, Adarand v. Pena, 515 U.S. 200 (1995) -- is, at best, dubious. Accordingly, while it certainly does no harm to seek comment on the efficacy of this regulation, I believe that such comment is entirely unnecessary and I would not have sought it. If a regulation appears to violate the Constitution, that is all we need to know in order to decide whether to affirm it on reconsideration. I. At the outset, I note that the Commission's statutory authority to promulgate the minority- control allowance (or any other race-based cable subscriber limits, for that matter) is scant. Section 613(f)(1)(a), which orders the Commission to set horizontal ownership rules, is entirely race-neutral. Its plain language supports no rational inference that Congress intended different subscriber limits to apply to different people based on nothing other than their race: "[T]he Commission shall . . . 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 person, or in which such person has an attributable interest." 47 U.S.C. section 613(f)(1)(a)(emphasis added). Nor do the "public interest" factors that Congress outlined make any distinctions between people based on minority or non-minority status. See id. section 613(f)(2)(A)-(G). To be sure, one of the factors states that the Commission shall "not impose limitations which would impair the development of diverse and high quality programming." Section 613(f)(2)(G). Congress clearly meant for the Commission to protect cable operators' ability to show a wide variety of choice programming by not setting subscriber limits so low as to dry up concentration-based efficiencies that facilitate costly programming investments. See House Report at 43; Senate Report at 33; see also 8 FCC Rcd at 8571 (observing that "higher concentration levels enable[] cable companies to take advantage of economies of scale and foster investment in more and better original programming and a wealth of viewing options for consumers"). But there is no indication in the statute, or even its legislative history, that Congress meant for the Commission to view the issue of subscriber limits and varied, quality programming through the historically troubled lens of race. In short, we simply do not have a clear Congressional directive that the Commission, in setting horizontal limits, make race-based distinctions among cable system owners. Given the weighty constitutional issues that arise whenever government employs such classifications, we should be reluctant to read them into statutes. See generally United States v. Thirty-Seven Photographs, 402 U.S. 363, 369 (1971) (statutes should be construed to avoid, not to create, constitutional problems). II. Section 76.503(b), which on its face employs racial classifications, raises grave constitutional questions. In particular, Adarand v. Pena, 515 U.S.200 (1995), which was decided after the Commission promulgated section 76.503(b), casts substantial doubt upon its constitutionality under the Equal Protection component of the Fifth Amendment. In Adarand, the Supreme Court held that all governmental action based on race is subject to strict scrutiny. Id. at 226. This standard of review obtains, the Court made clear, whether or not the government's motives can be characterized as "benign." Id. at 227. Thus, the use of racial classifications by any governmental actor is now constitutionally permissible only where the measure is narrowly tailored to serve a compelling government interest. Id. at 235. With respect to the government interest in section 76.503(b), the Supreme Court has never held that diversity of programming -- the Commission's purported goal in adopting the minority-control allowance, see 8 FCC Rcd 8565, 8578-79 (1993) -- qualifies as a compelling government interest. See Lutheran Church-Missouri Synod v. FCC, No. 97-1116, slip op. at 20- 21 (D.C. Cir. April 14, 1998) (observing that in Metro Broadcasting, Inc. v. FCC, 497 U.S. 547 (1990), the Court held programming diversity to be an important but not a compelling government interest). There is simply no affirmative authority for the proposition that the interest that has been asserted by the Commission in support of its regulation is legally sufficient under strict scrutiny. Furthermore, as in other contexts, the Commission's stated goal is something of a moving target. The Second Report & Order adopting the allowance does not explain what the Commission actually intends to accomplish when it speaks of promoting "diversity" in cable programming. Cf. id. at 19 ("The Commission never defines exactly what it means by 'diverse programming.'"). Of course, were "diversity" defined in a content-specific way, such an interpretation would trigger the First Amendment, as the D.C. Circuit has noted. See id. at 19-20 ("Any real content-based definition of the term may well give rise to enormous tensions with the First Amendment."). With respect to the second step under strict scrutiny, the fit between the means and ends here is loose, if not sloppy. The Commission has stated that the 5% allowance will foster investment in minority-owned cable systems, in turn create more minority ownership, and ultimately result in more minority "viewpoints" in programming. See 8 FCC Rcd at 8578-79. But the record in this proceeding is devoid of any evidence to support the Commission's predictive rationale, particularly the assumption that cable system ownership by a person of a certain race will lead to an identifable type of programming content. Cf. Lutheran Church, slip op. at 22-23 (faulting Commission, in overturning EEO rules as unconstitutional, for lack of evidence "linking low-level employees [at broadcast stations] to programming content"); Lamprecht v. FCC, 958 F.2d 382 (D.C. Cir. 1992) (criticizing Commission, in finding gender preferences in licensing hearings unconstitutional, for lack of evidence of connection between female ownership of broadcast stations and "female programming"). Nor has the Commission made any attempt to explain why a 5% allowance is a more appropriate remedy for the posited diversity problem than a more limited allowance of, say, 3%. To the contrary, the flat 5% of extra passage for minority-controlled systems seems an exceedingly blunt instrument for achieving the Commission's goal (even if that goal were a legally compelling one, which, under current precedent, it is not). For instance, I can find no connection in the record between the particular percentage of extra subscribers that minority-controlled companies may serve under this regulation and the degree to which that allowance furthers ownership and programming. The 5% allowance thus appears to be a rigid numerical preference, with no record evidence to support either its necessity or efficacy in relation to the purported goal. Relatedly, there appears to have been no consideration in this docket of race-neutral alternatives for increasing minority ownership or programming participation, as required under the narrow-tailoring prong of strict scrutiny. See Adarand, 500 U.S. at 237-38 (citing Richmond v. J.A. Croson, 488 U.S. 469, 507 (1989)). The Commission seems to have approached the use of this explicit racial classification as a foregone conclusion, rather than as an alternative approach after first evaluating the utility of rules that do not draw lines among citizens based on their race. Indeed, in the notices of proposed rulemaking and the order of adoption, the Commission never even broached the possibility of race-neutral rules. See 8 FCC Rcd 210, 217 n. 58 (1992); 8 FCC Rcd 6828, 6850-51 (1993); 8 FCC Rcd at 8678-79. This is perhaps understandable given that Adarand had not been decided at the time these documents were issued, but that fact does not solve the basic deficiency in this proceeding that now exists under that case. III. For the foregoing reasons, governing judicial precedent strongly suggests that section 76.503(b), which literally creates two sets of rules for regulated entities based solely on the racial identity of those who own or control related systems, constitutes a denial of equal protection of the laws. The Commission has failed to articulate either a compelling government interest or to achieve a carefully crafted fit between the means it has chosen and the ends it says it intends to promote. The regulation therefore appears to be, at this juncture, facially unconstitutional. * * * As indicated above, I certainly cannot object to my fellow Commissioners asking questions about the practical workings of the rule. The significance of such information, however, pales in comparison to the strong indication under existing caselaw that the regulation is unconstitutional. As the courts have admonished us, "[f]ederal officials are not only bound by the Constitution, they must also take a specific oath to support and defend it." Meredith Corp. v. FCC, 809 F.2d 863, 874 (D.C. Cir. 1987). If a regulation appears to be unconstitutional, I believe that is reason enough -- indeed, it is the most important reason that I can imagine -- to eliminate the rule. June 26, 1998 PARTIAL DISSENT OF COMMISSIONER GLORIA TRISTANI In the Matter of Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992 -- Horizontal Ownership Limits, MM Docket No. 92-264 I would have lifted the Commission's voluntary stay on the enforceability of the horizontal ownership rules. In 1993, when the stay was imposed, a stay may have made sense: the largest cable operator, TCI, still controlled significantly less than 30% of cable subscribers nationwide and appellate review of the Daniels decision could have been expected well before the horizontal limit was threatened. In the past five years, that situation has changed dramatically. By the middle of 1997, TCI controlled 29.3% of cable subscribers, and with the flurry of deals announced over the last several months, it is clear that TCI has breached, or will soon breach, the 30% limit. Moreover, the anticipated appellate review never happened and may not happen anytime soon -- the D.C. Circuit has been waiting for the Commission to release this reconsideration of our rules before examining the underlying statute's constitutionality. Under these circumstances, the 30% limit we are reaffirming today may be rendered moot unless the stay is lifted. To the extent that TCI already exceeds the 30% limit, I would identify those cases and address them separately. That task may be difficult, but not nearly as difficult as the situation we will face if TCI's dealmaking continues and a year from now the D.C. Circuit upholds the statute. Then we will face a situation in which the "facts on the ground" may severely hamper our ability to implement the right policy. I recognize that the majority has put cable operators on notice that they must be prepared to come into compliance within 60 days if our rules are upheld. I am supportive of such an admonishment, but I am not convinced that it will be enforced. I therefore dissent on this part of the item.