Desai, Parul

Feld, Harold

Schwartzman, Andrew Jay

English

Indiana University Bloomington Maurer School of Law

Federal Communications LawJournalVolume 58 | Issue 3 Article 176-2006Section 202(h) of the Telecommunications Act of1996: Beware of Intended ConsequencesAndrew Jay SchwartzmanMedia Access ProjectHarold FeldMedia Access ProjectParul DesaiMedia Access ProjectFollow this and additional works at: http://www.repository.law.indiana.edu/fcljPart of the Administrative Law Commons, Antitrust and Trade Regulation Commons,Communications Law Commons, and the Legislation CommonsThis Symposium is brought to you for free and open access by the LawSchool Journals at Digital Repository @ Maurer Law. It has been acceptedfor inclusion in Federal Communications Law Journal by an authorizedadministrator of Digital Repository @ Maurer Law. For more information,please contact wattn@indiana.edu.Recommended CitationSchwartzman, Andrew Jay; Feld, Harold; and Desai, Parul (2006) "Section 202(h) of the Telecommunications Act of 1996: Beware ofIntended Consequences," Federal Communications Law Journal: Vol. 58: Iss. 3, Article 17.Available at: http://www.repository.law.indiana.edu/fclj/vol58/iss3/17Section 202(h) of the TelecommunicationsAct of 1996: Beware of IntendedConsequencesAndrew Jay Schwartzman*Harold Feld**Parul Desai***I. INTRODUCTION ............................................................................. 582H. JUDICIAL CONSTRUCTION OF SECTION 202(h) ............................. 584III. C ONCLUSION ................................................................................ 586*Andrew Jay Schwartzman is President and CEO of Media Access Project. Mr.Schwartzman represented Office of Communication, Inc., United Church of Christ, et al. inSinclair v. FCC, 284 F.3d 148 (D.C. Cir. 2002).Andrew Jay Schwartzman representedintervenors/amici curiae Consumer Federation of America and Office of Communication,Inc., United Church of Christ in Fox Television Stations, Inc. v. FCC (Fox 1), 280 F.3d1027, 1039 (D.C. Cir. 2002), modified on reh'g, 293 F.3d 537 (D.C. Cir. 2002).**Harold Feld is Senior Vice President, Media Access Project. Mr. Feld representedintervenors/amici curiae Consumer Federation of America and Office of Communication,Inc., United Church of Christ in Fox I.***Parul Desai is Assistant Director, Media Access Project.FEDERAL COMMUNICATIONS LAW JOURNALI. INTRODUCTIONThis is a story about a reasonably obscure provision of theTelecommunications Act of 1996 ("1996 Act"), and about the story behindthe story. Sadly, it is a tale that demonstrates one of the pitfalls ofundertaking comprehensive omnibus legislation.The notion of a comprehensive rewrite of the Communications Act of1934 had-and still has-understandable appeal. Technology has advancedever more quickly, and by the early 1990's it clearly had rendered manyaspects of the Communications Act incomplete, archaic, and/or overbear-ing.However, it bears notice that the broad definitional scope of the Act-which created an independent Federal Communications Commission("FCC") and empowered the FCC to regulate all interstate and foreigncommunication by wire or radio-worked very well and proved capable ofadapting remarkably to changed circumstances. The FCC was able to dealwith radar, lasers, microwave ovens, television, communications satellites,cable television, and countless other developments long before Congressadopted amendments specifically addressing them.However, there are costs as well as benefits from undertaking a top tobottom rewrite of the Communications Act. In particular such legislationinevitably becomes a vehicle for insertion of seemingly small, seeminglybenign, provisions which can, in fact, effect significant changes in powerrelationships.The 1996 Act was generally regarded as a bill which created localtelephone competition and which promoted competition between andamong the cable and telephone industries. Contemporary press reportsdevoted scant attention to the broadcast ownership and digital televisionprovisions in the statute. Few members of Congress other than members ofthe originating committees were likely aware of those aspects of the bill.When legislation is complicated and far reaching, it is inevitably thecase that effective lobbyists can use it as a vehicle for amendments whichare likely to go unnoticed and without discussion. Other affected parties,especially the general public, are usually left in the dark.Section 202(h) of the 1996 Act is one such amendment.1 As originallyenacted, it directed the FCC to subject its broadcast ownership rules to1. Telecommunications Act of 1996, Pub. L. No. 104-104, § 202(h), 110 Stat. 56,111-12 (1996). Another such provision is 47 U.S.C. § 204(a)(3) (2002). See also ACS ofAnchorage v. FCC, 290 F.3d 403, 410-14 (D.C. Cir. 2002).[Vol. 58Number 3] BEWARE INTENDED CONSEQUENCESwhat amounted to non-stop scrutiny.2 On its face, it simply calls on theFCC to conduct periodic reviews of its broadcast ownership rules. Section202(h) reads as follows:Further Commission Review: The Commission shall review its rulesadopted pursuant to this section and all of its ownership rulesbiennially as part of its regulatory reform review under section 11 ofthe Communications Act of 1934 and shall determine whether any ofsuch rules are necessary in the public interest as the result ofcompetition. The Commission shall repeal or m~dify any regulation itdetermines to be no longer in the public interest.There is no legislative history explaining its origin or what Congressmay have intended in adopting it. Nor could there have been anymeaningful discussion of what its unidentified sponsors may have sought,or what the conference committee which adopted it might have thought, asSection 202(h) was not subject to any public discussion prior to itsadoption. Indeed, for several years after enactment of the 1996 Act, no onewould publicly claim credit for having anything to do with its drafting andenactment.Seven years after Section 202(h) became law, an intrepid reporter,named Alicia Mundy, ultimately discovered the story of Section 202(h)'sbirth. She found that Section 202(h) was "carefully crafted language"developed in secret by 4two in-house lobbyists then employed by RupertMurdoch's News Corp.Mundy reported that the two lobbyists, Peggy Binzel and PrestonPadden, recognized that Congress was ultimately unlikely to makesignificant changes to the national ownership cap, which limited how manyTV stations one company could own. Thus, as Ms. Mundy states:That's when Binzel and Padden and others devised a plan to keep thecap in play after the bill, in whatever form, passed .... If the networksand deregulators in the Senate, such as [Senator John] McCain,couldn't get legislation to remove the cap, they could punt it to theFCC. It meant that the FCC would have to eliminate or justify the cap,and this presented companies with an opportunity to use the FCC'sinnate lethargy... against itself ....Several veteran Republicans and Democrats who signed on to thatoriginal bill are now busy denouncing its consequences, acting as2. The provision has been amended to provide for quadrennial rather than biennialreview. Because of the length of time it took to conduct these proceedings, the originalrequirement for biennial review meant that, in practice, there was nonstop scrutiny.3. Telecommunications Act of 1996, Pub. L. No. 104-104, § 202(h), 110 Stat. 56,111-12 (1996).4. See Alicia Mundy, Put the Blame on Peggy, Boys, CABLE WORLD, June 30, 2003,http://www.cableworld.com/cgi/cw/show-mag.cgi?pub=cw&mon=063003&file=put-blame_peggy.inc.FEDERAL COMMUNICATIONS LAW JOURNALthough provision 202h had been dropped on their doorstep by somewayward stork. Although these senators would like to distancethemselves from 202h, it is actually their very own love child.5For a while, at least, it appeared that Section 202(h) would be a potentweapon. Although the Clinton-era FCC initially construed Section 202(h)as little more than a reporting requirement, News Corp., which reportedlyhad retained litigation counsel even before the FCC completed its firstbiennial review, mounted a successful judicial challenge, obtaining aruling that temporarily gave a broad reading to Section 202(h).II. JUDICIAL CONSTRUCTION OF SECTION 202(h)The FCC's first biennial review proceeding was initiated in a timelyfashion in1998, but was not completed until June 20, 2000, shortly beforethe Commission was required to initiate its next review (i.e., 2000). Assoon as the FCC completed the 1998 biennial review, News Corp. andother broadcasters immediately challenged the action in the U.S. Court ofAppeals for the D.C. Circuit.In Fox I, the petitioners challenged the FCC's determination that theretention of the national television ownership rule and the cable broadcastcross-ownership rule were necessary in the public interest, within themeaning of Section 202(h).8 In siding with the broadcasters, the Courtfound that the FCC's decision to retain both rules under the necessarypublic interest standard was arbitrary and capricious.9 The Court madeclear that it was not construing what the term necessary meant; that is, theCourt was not deciding if it imposed a higher standard of "indispensable"or a lower standard of "useful" as the FCC had failed to justify retention ofthe rules under both standards. 10 The Court remanded the nationaltelevision ownership rule and vacated the cable broadcast cross-ownershiprules. Significantly, in determining the appropriate remedy, the Courtconstrued Section 202(h) to "carr[y] with it a presumption in favor ofrepealing or modifying the ownership rules."" Unbeknownst to the Court,the FCC would eventually attempt to use this language to prescribe an5. Id.6. Binzel had already lined up an appellate lawyer for the inevitable day ofreckoning-Ed Warren of Kirkland and Ellis. Id.7. See Fox Television Stations, Inc. v. FCC (Fox 1), 280 F.3d 1027 (D.C. Cir. 2002),modified on reh'g, 293 F.3d 537 (D.C. Cir. 2002).8. Id. at 1040.9. Id. at 1045, 1049.10. Fox Television Stations, Inc. v. FCC (Fox I1), 293 F.3d 537, 539-40 (D.C. Cir.2002).11. Fox , 280 F.3d at 1048.[Vol. 58Number 3] BEWARE INTENDED CONSEQUENCESextreme deregulatory scheme.A few months after Fox I, but before Fox II, a different panel of theD.C. Circuit relied upon the Fox I "presumption" in finding that the FCC'sdecision to restrict local television ownership had also been arbitrary andcapricious and remanded the rule back to the FCC. 12 Again, as in Fox I, theSinclair Court did not construe the definition of "necessary."Following its obligation under Section 202(h), the FCC initiated yetanother biennial review in 2002. This time it did so by issuing a singlenotice of proposed rule making ("NPRM"). Rather than deal with eachprovision separately, the NPRM proposed to address all of the FCC'sbroadcast ownership rules: (1) national TV ownership; (2) local duopoly(on remand from Fox and Sinclair decisions); (3) local radio ownership;and, (4) broadcast cross-ownership. Relying on Fox and Sinclair, the FCCconducted its review with the notion that "Section 202(h) carries with it apresumption in favor of repealing or modifying the ownership rules."13Thus, the FCC majority ultimately concluded the review by determiningthat existing ownership restrictions were no longer necessary to achieve theCommunication Act's goals of diversity, localism, and competition.Consequently, the FCC's June 2003 Biennial Review decision eithereliminated or greatly relaxed most of the existing ownership rules. Forexample, the national TV audience cap was increased from 35% to 45%.14Both Congress and public interest groups immediately reacted.Congress began the process of enacting a resolution of disapprovalpursuant to 42 U.S.C. § 9655, but this became unnecessary once the ThirdCircuit issued a stay in September 2003.15 Later, Congress partiallyoverruled the Commission by amending the national ownership cap inSection 202(c) from 35% to 39%, thereby showing its disapproval of theFCC's attempt to increase the cap to 45%. 6 Congress provided additionalrelief in the form of directing that subsequent reviews would be conductedquadrennially rather than biennially. 17The new rules were then successfully challenged by public interestgroups. 18 In Prometheus, the Third Circuit took a careful and detailed12. Sinclair Broad. Group v. FCC, 284 F.3d 148, 152 (D.C. Cir. 2002).13. See 2002 Biennial Regulatory Review, Report and Order and Notice of ProposedRulemaking, 18 F.C.C.R. 13620, para. 11 (2003) (citing Fox I, 280 F.3d at 1048, andSinclair, 284 F.3d at 159).14. Id. para. 501.15. See Prometheus Radio Project v. FCC, 373 F.3d 372, 382 (3rd Cir. 2004).16. See Consolidated Appropriations Act, 2004, Pub. L. No. 108-199, § 629, 118 Stat.3, 99 (2004).17. Id. at § 629(3).18. See Prometheus, 373 F.3d at 395 (allowing many public interest groups toparticipate in the suit).FEDERAL COMMUNICATIONS LAW JOURNALapproach in construing the FCC's duty under Section 202(h). Of greatestrelevance to this discussion, the court expressly rejected the FCCmajority's application of a "presumption in favor of deregulation."' 9 Forthe FCC to determine whether a rule was indeed necessary in the publicinterest, the Prometheus court, unlike the Fox and Sinclair courts, decidedthe appropriate standard for which the FCC was to conduct its review. ThePrometheus court adopted the reasoning of a D.C. Circuit opinion issuedafter the FCC had issued its Biennial Review decision.20The Prometheus court concluded that the meaning of "necessary" wasto be "convenient," "useful," or "helpful" and not "essential" or"indispensable." '2 1 Using this standard, while the court affirmed much ofthe FCC's Order, the court also remanded some of the provisions becausethe FCC had "fall[en] short of its obligation to justify its decisions to retain,repeal, or modify its media ownership regulations with reasonedanalysis."' 22In adopting the less stringent standard, the court noted that neitherFox nor Sinclair held that the term "necessary" resulted in a presumption in23favor of modifying or repealing existing regulations. Rather, the Fox andSinclair courts finding of a presumption was limited to the context in whichit was made.24 That is, since the Fox and Sinclair Courts had alreadydetermined the challenged rules were arbitrary and capricious, the pre-sumption was only applicable to the appropriate remedy: whether to vacateor remand the rule.25Despite the attempt to deregulate through the back door, it wouldseem that the courts have resolved ambiguities relating to the interpretationof Section 202(h) in favor of making it a less intrusive provision.III. CONCLUSIONThe history of Section 202(h) is ultimately one of a partiallysuccessful legislative ambush. Although, in the end, the statute has beenconstrued as not creating a new standard of review, and Congress has cutthe frequency of review by half, Section 202(h) nonetheless remains as amajor resource drain for the FCC and offers broadcasters an assuredopportunity to seek greater ownership deregulation on a regular schedule.19. Id. at 423.20. Id. at 393 (citing Cellco P'ship v. FCC, 357 F.3d 88, 98 (D.C. Cir. 2004)).21. Id. at 394.22. Id. at 435.23. Id. at 393.24. Id.25. Id.[Vol. 58Number 3] BEWARE INTENDED CONSEQUENCESOne obvious lesson is that members of Congress-even those not onthe originating committees-have a serious obligation to review whatcomes out of conference and to question unexplained provisions. Reducingboth the expectations for, and size of, legislative packages would make itmore likely that rank and file members could actually review what comesout of conference. However, even where they do so, it remains the case thatunless Congress makes wholesale changes in its traditional rules, thosewith special access to the legislative process will always be able to addmeasures such as Section 202(h) to large, or major bills. Such changes areunlikely to happen soon, if ever. While more modest changes affordinggreater transparency would at least assure greater public notice, they wouldnot likely alter the process significantly. Campaign finance reform, whichminimized the role of money in the legislative process, probably wouldalso help by reducing incentives to give special access to contributors.However, that too would probably not end the tradition of insertingseemingly small amendments into big bills.Responsible legislators thus face a dilemma. Targeted legislation maybe less susceptible to manipulation of the kind represented by Section202(h). However, such small scale measures do not facilitate the big picturevision that can only come with more comprehensive legislation. Viewed inthat light, Section 202(h) and similar provisions may impose unavoidablecosts in any major legislative rewrite of the Communications Act.588 FEDERAL COMMUNICATIONS LAW JOURNAL [Vol. 58

Section 202(h) of the Telecommunications Act of 1996: Beware of Intended Consequences

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Section 202(h) of the Telecommunications Act of 1996: Beware of Intended Consequences

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