Primestar
Assignment Petition to DenyPrimestar
Assignment Petition to Deny
|
____________________________________________ In re Application MCI Telecommunications Corporation For Consent to Assignment of Non-Final To: Chief, International Bureau |
) ) ) ) ) ) File No. 106-SAT-AL-97 ) ) ) ) ) ) ) |
The Office of Communication of the United Church of Christ, Consumers Union ("CU") and the National Association for Better Broadcasting (referred to herein as "UCC, et al."), by their counsel, Media Access Project, respectfully submit this petition to dismiss or deny the application for assignment from MCI Telecommunications Corporation ("MCIT") to an as-yet non-existent entity to be called PRIMESTAR, LHC. Inc. (generally and more accurately referred to herein as "PRIMESTAR, The Cable Industry's DBS Service").1 UCC, et al. also argue here that this case must be referred to the full Commission, since the Chief, International Bureau lacks delegated authority to act favorably on the application filed in this case.
MCIT seeks to assign its non-final authorization to construct, launch and operate a high-power Direct Broadcast Satellite service. UCC, et al. show here that there are serious legal impediments to grant of this request. That view is shared by the Assistant Secretary of Commerce, the Assistant Secretary of State and the Deputy U.S. Trade Representative in a letter to the Chairman, who have called for a rulemaking prior to finalizing the MCIT grant. And, not insignificantly, the same position has been forcefully presented to the Commission by PRIMESTAR Partners, L.P. (PRIMESTAR Partners"), the contingent assignee in this case.2 Because PRIMESTAR Partners, the contingent assignee, has presented such a forceful case in its January 6, 1997 Application for Review, it will be extensively quoted in this petition. That Application for Review, provided as Attachment B hereto, is incorporated here by reference as are Petitioners' own Application for Review Or, In the Alternative, Request to Vacate filed on the same date, and their August 22, 1997 Petition to Dismiss or Deny in File No. 91-SAT-TC-97.
Since action on the assignment application must either be held in abeyance, or referred to the full Commission for disposition, UCC, et al. have separately filed a Petition to Consolidate, And For Stay Or, In the Alternative, To Hold in Abeyance to provide for simultaneous consideration of the MCIT application, File No. 73-SAT-P/L-96, the assignment application, File No. 106-SAT-AL-97, and the integrally-related "PRIMESTAR roll-up," No. 91-SAT-TC-97. Abeyance will also enable the Commission to consider its response to the newly-filed Petition to Update Cable Television Regulations and Freeze Existing Television Rates, in which CU (joined by the Consumer Federation of America) asks, inter alia, that the Commission use its authority under 47 USC §§533(c) and (f) and Sections 47 USC §§548(b) and (c) to condition, regulate or prohibit cable operators' ownership of DBS and other multi-channel video programmers. Among actions which the Commission might take would be issuing rules prohibiting acquisition of DBS services by vertically integrated cable MSO's and/or requiring divestiture of such services.
The Chief, International Bureau has acknowledged that the plain language of the Commission's rules, and agency case law applying the rules, precludes granting any DBS authorization to MCIT, as well as the assignment to PRIMESTAR, the Cable Industry's DBS Service. Since MCIT has not established that the statutory qualifications to be a licensee, it does not as yet possess anything which could be assigned.3
Only the full Commission has the power to grant the requested assignment, and even it may do so only after conducting a notice and comment rulemaking. UCC, et al.'s Application for Review of the non-final MCIT authorization, now pending before the full Commission, is dispositive of the legal issues governing the assignment application which has been presented to the International Bureau. Since grant of the MCIT authorization, or of the subsequent assignment, would require overruling agency regulations and case law, the Chief, International Bureau lacks the delegated authority to rule favorably upon them. A recent and controlling decision of the U.S. Court of Appeals for the D.C. Circuit unambiguously and powerfully removes amy doubt that grant of the MCIT application (or the assignment to The Cable Industry's DBS Service) is contingent upon the conduct of a notice and comment rulemaking. The Departments of State and Commerce and the U.S. Trade Representative have also called upon the Commission to complete such a rulemaking before allowing the MCIT authorization to become final.4
Jurisdiction aside, neither the full Commission nor any member of the staff acting on delegated authority could, as a matter of substantive law, grant this application. PRIMESTAR, the Cable Industry's DBS Service, defiantly contends that neither [47 USC] Section 310(b) nor the corresponding rules in [47 CFR] Part 100 apply to [i]t...," Application for Consent to Assignment, p. 8, and demands favorable action without regard to those binding provisions. UCC, et al. will show that the application cannot be granted on that basis.
The existence of complicated procedural questions should in no event obscure the great threat to the public interest presented by the proposed transaction. Even if the application were not otherwise riddled with legal impediments, the transactions the applicants seek to consummate would not just be contrary to the public interest, but their approval would decimate the public interest. PRIMESTAR, the Cable Industry's DBS Service, is nothing less than a stake aimed at the heart of competition and diversity in video programming.
The vigorous competition in video promised by the 1992 Cable Act and the 1996 Telecommuni- cations Act has yet to materialize. CU's newly-filed request for a price freeze of basic cable rates shows that cable's monopoly power has not been blunted by slowly emerging competition. Basic cable rates in regulated markets have increased at three times the rate of inflation since enactment of the 1996 Telecommunications Act. Inflation adjusted rate hikes were lower in April, 1993, when the Commission froze cable rates, than they are today.
The best, but as yet unfulfilled, hope for competition is DBS. Since passage of the 1992 Cable Act, DBS has evolved into a nascent, but potentially viable and effective, alternative. It is an undeniable matter of fact that the effect of the proposed assignment is to reduce the ranks of independent DBS operators from four to three. In seeking to absorb MCIT's DBS service, PRIMESTAR, the Cable Industry's DBS Service, clearly hopes to eliminate the only competitor which had been preparing to provide a uniquely different alternative program offering. The inclusion of News Corp as a non-voting participant in the Cable Industry's DBS Service will permit evasion of the program access provisions of the 1992 Cable Act, since News Corp's cable networks are not subject to the restrictions of the 1992 Act. It is impossible to reconcile these anti-competitive outcomes with the public interest.
In authorizing MCIT to construct, launch and operate a DBS service, the Chief, International Bureau acted in excess of his delegated authority. There is even less authority to act upon the present application to assign that non-final authorization.
As is more fully discussed below, the Chief, International Bureau ruled that applications proposing subscription DBS service will not be processed as broadcasting applications and that precedent to the contrary was "mistaken." MCI Telecommunications Corporation, 11 FCCRcd 16275 (1996)("MCI DBS Order").
47 CFR §0.261(b) leaves exclusive authority to the full Commission to act upon applications which, inter alia, "[p]resent new or novel arguments not previously considered by the Commission...," or which "[c]annot be resolved under outstanding precedents...."
In the MCIT authorization application now being reviewed by the full Commission, objections to MCIT's qualifications relate to its foreign ownership and the refusal of the Chief, International Bureau's to adhere to the dictates of Section 47 CFR §100.11(g). It is contingent assignee PRIMESTAR Partners, which itself has presented the most thorough explication of why the same kind of action it has now seeks to have granted would be ultra vires. Contingent assignee PRIMESTAR Partners argues in its January 6, 1997 Application for Review, p. 19, that
[i]n unilaterally determining that a validly-promulgated rule should no longer be applicable, the MCI DBS Order addresses and resolves arguments never before considered by the Commission, reverses previous determinations that Section 100.11(g) is applicable to DBS applications, and therefore constitutes a pronounced reversal of Commission policy.
Contingent assignee Primestar Partners also points to "communications from Executive Branch departments and Members of Congress [which] raise important unresolved questions...." Id., p. 20. "As such," it argues, "the Bureau is not afforded delegated authority to act on applications which present such novel and important issues." Id.
The reasons why the current assignment application cannot be acted upon by the staff are even stronger. Like MCIT, PRIMESTAR, "The Cable Industry's DBS Service," denies that it may be subjected to the provisions of Section 310(b) of the Communications Act and 47 CFR §100.11. Application for Consent to Assignment, p. 8. The larger questions surrounding the application of Title III remain as well: must PRIMESTAR, a subscription DBS applicant, be subjected to the additional character and other qualification questions which come with such status, and can or must the FCC overrule its subscription video policies, Subscription Video Services, 2 FCCRcd 1001 (1987), affd sub nom. NABB v. FCC, 849 F.2d 665 (D.C. Cir. 1988), in light of changed circumstances? Finally, there is also present here a further impediment to the Bureau Chief's authority - the fact that the full Commission is already considering these other questions in the context of the pending Commission review of the MCI DBS Order. These, then, are matters which the Bureau Chief has no jurisdiction to consider at this time.
Even if adequate authority had been delegated to the Chief, International Bureau to consider the assignment application it cannot be granted. Since the grant of the assignor's application (review of which is now pending before the full Commission) was wrongly decided, and is not final, assignor MCIT has nothing to transfer.
Nothing could be more fundamental to Commission policy than the principle that where there are outstanding questions as to the seller's basic statutory qualifications, the Commission will not give its consent to a transfer. There is "no authorization susceptible of transfer,..." Jefferson Radio v. FCC, 340 F.2d 781, 783 (D.C. Cir. 1964). See also, Stereo Broadcasters, Inc. v. FCC, 652 F.2d 1026 525 (D.C. Cir. 1981); Northland Television, Inc., 42 RR2d 1107, 1110 (1978).
Primestar, like MCIT before it, contends that it need not demonstrate that its ownership meets the terms in compliance with both Section 310(b) of the Communications Act and the 47 CFR §100.11(g) of the International Bureau's rules. This is based on a fundamental misunderstanding of the Commission's Subscription Video decision, Subscription Video Services, 2 FCCRcd 1001 (1987), affd sub nom. NABB v. FCC, 849 F.2d 665 (D.C. Cir. 1988); the ruling actually was that broadcasters, having been first found to be qualified to be licensees, will not thereafter be subjected to program content and related trusteeship regulations.5
47 CFR §100.11(g) specifically provides that "An authorization for a station in the Direct Broadcast Satellite Service shall not be granted to or held by...[a]ny corporation directly or indirectly controlled by any other corporation of which more than one-forth" is owned by aliens, foreign governments or a foreign corporation.
MCIT did not even attempt to present the information necessary to establish its qualifications. It argued that under the Subscription Video decision, applicants proposing a subscription-only service are not regulated as broadcasters. This, MCIT claimed, meant that it did not have to expose itself to the special scrutiny reserved for those who volunteer to serve as fiduciaries for the public in providing "equal opportunities" and "reasonable access" to candidates, and in agreeing to provide other service in the public interest pursuant to 47 USC §335.
In the MCI DBS Order granting the MCIT application, the Chief, International Bureau ruled that Section 310(b) does not apply to MCIT, and that Section 100.11(g) was not applicable to MCIT because it had purported to apply as a subscription DBS provider. MCI Telecommunications Corp., 11 FCCRcd 11265, 11284 (IB 1996). Without citation, he erroneously abandoned the statutory mandate that broadcast licenses must not be awarded to unqualified applicants by misinterpreting the Subscription Video policy. Using that as authority to relieve such licensees of future compliance with content regulation, he stated that "subscription DBS is a non-broadcast service not subject to the statutory provisions applicable to broadcasters, including the alien ownership restrictions of Section 310(b)." Id. (emphasis supplied). Unable to rationalize the clear conflict between that holding and the express language of 47 CFR §100.11(g), the Chief discerned an implied intent to modify the rule from later Commission conduct, and concluded that "in the absence of any express discussion indicating that" Section 100.11(g) should be enforced in subscription DBS cases, he would not do so. Id., at 11286. Confronted with a contrary holding of his own bureau, Continental Satellite Corporation, 10 FCCRcd 10473 (IB 1996), he declined to follow it, saying that his predecessor "merely assumed (mistakenly) that the rule applied....[That] assumption was incorrect." Id.
As contingent assignee PRIMESTAR Partners explains in its Application for Review, p.4, "The Bureau's reliance on the Subscription Video decision is misplaced...," and Section 310(b) of the Communications Act does in fact apply. Contingent assignee PRIMESTAR Partners argued that the decision
specifically addressed the applicability of political broadcasting requirements and equal employment opportunity provisions, as well as theft of service issues. Conspicuously absent from the Subscription Video decision is any reference to foreign ownership, or any discussion as to why the policies underling the foreign ownership restrictions are not applicable to all DBS licensees. In the absence of any statement of intent in the Subscription Video decision, or in the ten years after such decision, much less any explanation of why such limitations should not apply, the Bureau's statement...[is] a post hoc rationalization for the Bureau's decision to ignore the statute and an existing regulation.
Id. The contingent assignee also points out that the decision "entirely ignores" Section 25 of the 1992 Cable Act, 47 USC §335, which "expressly established broadcast-type public interest obligations for all DBS licensees,..." Id., p. 5, and shows that "[t]o the extent that the Subscription Video decision might be read to conclude that subscription DBS should not be subject to any broadcast requirements, Congress overruled that conclusion" by enacting Section 335. "Finally," PRIMESTAR argues, even if one accepts that the Commission found no basis in 1987 to apply foreign ownership restrictions to DBS operators, that conclusion must be revisited now...." Id., p.6. Pointing to the 1995 Market Entry Order, 11 FCCRcd 3873 (1995), continent assignee PRIMESTAR Partners argues that "[t]hese policies require scrutiny of the foreign ownership issues implicated by MCI's application." Id., p.8
Even if the Bureau or the full Commission were to take up this matter, neither could properly grant the MCIT authorization, much less the application to assign it, without the Commission first completing a notice and comment rulemaking. Moreover, the Executive Branch has forcefully demanded that such a proceeding be conducted prior to acting here. See footnote 3, supra.
It bears emphasis here that the Chief, International Bureau appears to have prejudged any such proceeding. In the MCI DBS Order, the Chief states that "In the interest of clarity, Section 100.11(g) may be modified in a separate proceeding in the future to insure that no further confusion occurs." 11 FCCRcd at 16286.
The actual issue here is not "clarity," but "authority." In the event a rulemaking is convened, the Commission and the Bureau must decide the issue after receiving comments. It is one thing to propose a result, but (as was done here) quite another to announce that the purpose of such a proceeding would be to "modify" the rule "to avoid confusion" rather than to consider whether "modification" would be lawful.
Here again, contingent assignee PRIMESTAR Partners forcefully states why a rulemaking must be conducted:
[F]or the first time, the Bureau, acting on delegated authority,
has chosen not to apply a validly promulgated rule which remains
codified....Even if it is concluded that Section 310(b) does
not mandate foreign ownership restrictions for DBS, the Commission
retains discretion to impose such restrictions....
* * * *
Whether or not Section 100.11 was mandated by the Act, the rule
remains in effect unless and until it is repealed by the Commission
in accordance with the applicable Administrative Procedure Act
requirements****The Bureau failed to meet these requirements
here.
* * * *
Clearly, neither the Commission, nor the Bureau acting on delegated
authority, may deter- mine in disregard of those requirements
that an agency rule still in effect is no longer applicable.
Id., pp. 12-14.
The continent assignee PRIMESTAR Partners is correct. Even if the Bureau disagrees with Section 100.11(g), but most certainly where it believes that prior applications of the provision were "mistaken," it must continue to follow that rule and its own precedent until it completes a rulemaking proceeding. See, e.g, Consumer Energy Council of America v. FERC, 673 F.2d 425, 446 (D.C. Cir. 1982), aff'd on other grounds sub nom. Process Gas Consumers Group v. Consumer Energy Council, 463 U.S. 1216 (1983). Any decision to change a statutory interpretation, especially one of long standing, must be clearly articulated and justified as having a reasoned basis. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970).
Whatever doubt may have remained about the legal necessity for rulemaking prior to abandoning Section 100.11(g), it has been settled by the recent decision of the U.S. Court of Appeals for the District of Columbia Circuit in Paralyzed Veterans of America v. D.C. Arena L.P., 117 F.3d 579, 586, rehg denied, ___ F.3d ___ (D.C. Cir. 1997). There, the Court ruled that even if an agency "could have reached the present interpretation originally, it can only change that interpretation as it would formally modify the regulation itself: through the process of notice and comment rulemaking." The Court rejected the agency's argument that it "has the same latitude to modify its interpretation of a regulation as it does its interpretation of a statute...," id., and that the Court must afford deference to an agency's reasonable reinterpretation of its own regulations. Instead, it held that
[u]nder the [Administrative Procedure Act], agencies are obliged to engage in notice and comment before formulating regulations, which applies as well to "repeals" or "amendments." See 5 USC §551(5). To allow an agency to make a fundamental change in its interpretation of a substantive regulation without notice and comment obviously would undermine those APA requirements.
Id.
There is no doubt that the Commission has previously applied Section 100.11 to "non-broadcast" DBS applicants. Abandoning this posture, and characterizing a prior decision as "mistaken" is precisely the kind of reinterpretation to which the Paralyzed Veterans case was addressed. To grant the assignment, there must first be a rulemaking.
Just days before the filing deadline in this case, the Chief of the Commission's Cable Services Bureau "said the most effective regulator of cable rates was more robust competition from satellite television services." The New York Times, September 24, 1997, p. D1. UCC, et al. emphatically agree with her assertion that "Competition is clearly the best way to promote consumer choice and reasonable prices in the delivery of video programming." Statement of Meredith J. Jones, Chief, Cable Services Bureau (September 23, 1997).
The Commission must now show that it can transform aphorisms into action. To move from rhetoric to effective policy, the Commission must be decisive, as further delay may jeopardize the Commission's ability to restore competitive conditions.
CU's newly-filed Petition to Update Cable Television Regulations and Freeze Existing Television Rates, shows that:
CU's petition also demonstrates how the Commission's failure to police cable ownership or promote competition has facilitated cartelization of nationally program distribution, and permitted a small group of MSO's to thwart new entrants. The coercive arrangement it has forged with News Corp, which kills off the planned News Corp-EchoStar joint venture ends the greatest competitive threat cable has ever faced. It also enhances the power of PRIMESTAR, the Cable Industry's DBS Service to destabilize or neutralize the threat posed by the remaining DBS operators. To these considerations should be added the anti-competitive elements of the PRIMESTAR service in their August 22, 1997 Petition to Dismiss or Deny.
UCC, et al. believe that the Commission's recent handling of the Bell Atlantic-NYNEX merger is pertinent to the circumstances it faces here. See Application of NYNEX Corp. and Bell Atlantic Corp., FCC 97-286 (August 14, 1997). In approving modifications to mitigate concerns that the merger as originally proposed was anti-competitive, the Commission was especially concerned that the merger would eliminate Bell Atlantic as likely significant independent competitor to NYNEX in the New York City market. It concluded that Bell Atlantic and NYNEX were two of the five most likely significant market participants in those markets, that the merger would thus retard development competitive challenges to NYNEX's market dominance, and that it would eliminate the unique benefits of Bell Atlantic's likely entry into NYNEX's market.
PRIMESTAR, the Cable Industry's DBS Service, poses a far greater threat to competition. DBS is national, not regional; the merged entity would combines five major MSO's which serve customers thorough the country with national programming services, leaving the other DBS operators without other regions to enter. Moreover, PRIMESTAR's plan (under consideration in File No. 91-SAT-TC-97) to reduce the owners' ability to sell PRIMESTAR service outside of their own region, raises very significant competitive concerns. In addition, abandonment of the News Corp-EchoStar arrangement eliminates the possibility of especially vigorous localized competition.
CU has asked for a rate freeze and other action to restore progress towards competitive markets. Denial of the transfer of the MCIT authorization to PRIMESTAR, the Cable Industry's DBS Service, is one of the other steps the Commission should take. In fact, in considering CU's petition, the Commission should not only explore the option of exercising its powers to deny the assignment application, but also determine if it should issue rules prohibiting al future acquisitions of this kind and, perhaps, divestiture of DBS authorizations held by cable MSO's. See, e.g., 47 USC §533(c)("The Commission may prescribe rules with respect to the ownership or control of cable systems by persons who own or control other media of mass communication which serve the same community."); 47 USC §533(f)(1)(B) (The Commission should "consider..imposing limitations on the degree to which multichannel video programming distributors may engage in the...production of video programming."); 47 USC §548(b)("It shall be unlawful for a cable operator, a satellite cable programming vender in which a cable operator has an attributable interest, or a satellite broadcast programming vender to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or prevent any multichannel video distribuort form providing satellite broadcast programming to subscribers or consumers."); 47 USC 548(c)(2)(The Commission shall issue regulations which "establish effective safeguards to prevent a cable operator which has an interest in a satellite cable programming vender or a satellite broadcast programming vendor from unduly or improperly influencing...such vendor....")
WHEREFORE, UCC, et al. respectfully ask that the application for assignment of the non-final authorizations be summarily dismissed or denied. In the alternative, they ask that the matter be referred to the full Commission for further action consistent with this petition, and with the Petition to Consolidate, And For Stay Or, In the Alternative, To Hold in Abeyance to be filed on this date, and that the Commission grant all such other relief as may be just and proper.
| September 25, 1997 |
Respectfully submitted, Andrew Jay Schwartzman Gigi B. Sohn Joseph S. Paykel MEDIA ACCESS PROJECT Counsel for Petitioners |
2. If there is no action on the companion "PRIMESTAR roll-up" transaction by a specified date (270 days after June 11, 1997), and the transaction is otherwise ready for consummation, PRIMESTAR Partners will be substituted for PRIMESTAR LHC, Inc." Application for Consent to Assignment, p. 4.
3. Until MCIT and its joint venturer, News Corp, surrendered, PRIMESTAR Partners opposed the grant of MCIT's application. While PRIMESTAR Partners thereafter withdrew its opposition, UCC, et al.'s Application for Review is based on the same arguments. UCC, et al. incorporated by reference the November 22, 1996 letter which PRIMESTAR Partners sent to the Commission. Commission policy requires that the Commission consider all arguments which go to whether its actions are in the public interest, even if the party presenting them withdraws from participation. See, e.g., TEMPO Satellite, Inc., 7 FCCRcd 2728 (1991).
4. "[W]e respectfully recommend that the Commission promptly undertake and conclude a rulemaking proceeding on whether and how foreign ownership restrictions and public interest criteria should be applied to subscription DBS services on U.S. licensed satellites prior to reaching a final determination on any application that may be affected by the outcome of the rulemaking." Letter from Amb. Vonya B. McCann, Hon. Larry Irving and Amb. Jeffrey M. Lang (May 5, 1997).
5. UCC, et al. have asked the Commission to overrule the Subscription Video decision.