The Federal Communications Commission's attempt to limit media ownership was scuttled yesterday by a federal appeals court that ruled the agency used faulty reasoning to determine how many newspapers, television stations and radio stations companies can own.
The decision was a significant setback for the FCC, the White House and Republican congressional leadership, all of which backed the ownership rules. The FCC began writing the regulations in 2002 and must now either write new ones or appeal yesterday's the decision to the Supreme Court.
In the meantime media acquisitions brought before the FCC will be subject to existing rules. But there is no FCC rule limiting the purchase of local television stations, and radio companies are free again to buy more stations. The rules sent back yesterday would have limited both.
"Today's decision perversely may make it dramatically more difficult for the commission to protect against greater media consolidation," FCC Chairman Michael K. Powell said in a written statement.
Critics of the proposed FCC rules said some were too lax and would allow media giants such as Viacom Inc. and NBC Universal to grow too large and wield too much influence. The FCC argued that the new rules set reasonable, contemporary caps on ownership in an era when the public has access to more forms of communications, including the Internet and cable and satellite television, than when the existing regulations were drawn up decades ago.
Yesterday, the U.S. Court of Appeals for the 3rd Circuit, in Philadelphia, agreed with many of the FCC's premises but said the agency "falls short of its obligation to justify its decisions to retain, repeal, or modify its media ownership regulations with reasoned analysis."
At issue was the FCC's reliance on something called the "diversity index," which sought to ascribe values to the impact various forms of media -- newspapers, radio and television stations, cable channels and the Internet -- have on consumers. But the court said the decisions made in setting the various values were "not rational."
As a result, the court sent back proposed FCC rules determining how many newspapers, local television and radio stations a company can own and ordered that they be rewritten. Media mergers brought before the FCC in the interim may be subject to existing rules or the FCC may choose not to act on them, forcing companies to ask the courts to rule on proposed purchases because they involve the transfer of broadcast licenses.
The ruling is a particularly harsh blow to Powell, who had seen past media ownership rules tossed out by courts for being based on flimsy data and reasoning. Powell, a former Justice Department antitrust lawyer, argued that his rules were backed up by empirical data and thorough analysis.
"This is the second time a court has put aside exhaustive efforts by the expert agency to set numerical limits," said Powell, who, working with FCC media bureau chief W. Kenneth Ferree, was the chief architect of the new rules. "This has created a clouded and confused state of media law."
Critics of the FCC's rules disputed Powell's contention that the appeals court ruling could lead to further consolidation. They argued that it was the FCC's action that would have effectively given many companies the green light to begin gobbling each other up by relaxing some limits and doing away with others.
"Getting the deregulatory thumb off the scale is a big win," said Andrew Jay Schwartzman, president of the Media Access Project, which led the lawsuit that led to yesterday's decision. "We can now go back to the FCC without the presumption of deregulation."
The FCC is charged with granting radio and television broadcast licenses and approves their transfer from one company to another through sales and mergers. The agency is periodically mandated by Congress to revisit its media ownership rules to assure that they still function in the public interest, providing a diverse range of viewpoints and choices.
The rules were passed by a politically split FCC last June. Republicans Powell, Kevin J. Martin and Kathleen Q. Abernathy voted for them and Democrats Michael J. Copps and Jonathan S. Adelstein against.
Soon after the vote, the Media Access Project and others sued and persuaded the federal appeals court to put the rules on hold shortly before they were to go in effect last September.
The appeals court panel voted 2 to 1 yesterday to return the regulations to the FCC for revision, with Judges Thomas L. Ambro and Julio M. Fuentes in the majority.
Chief Judge Anthony J. Scirica wrote in a dissent that the panel has overstepped its bounds.
"It is not the role of the judiciary to second-guess the reasoned policy judgments of an administrative agency acting within the scope of its delegated authority," Scirica wrote. "The majority [of the panel] has substituted its judgment for that of the FCC."
Even before the court's decision, the rules were criticized by members of Congress from both parties. One of the rules, which said that no company can own a group of television stations reaching more than 45 percent of the national audience, was voided by Congress, which set the figure at 39 percent.
The FCC's two Democrats championed a nationwide series of public hearings . Yesterday, a satisfied Copps and Adelstein phoned from Portland, Ore., where they were to attend another meeting on media ownership last night.
"We've now heard from the courts and the Congress and the people that we got it wrong," Copps said in an interview. "We need to reverse course."
Media companies potentially affected by yesterday's decision adopted a wait-and-see attitude.
"I think there's going to be a lot of heavy reading and pondering going on," said Tara Connell, spokeswoman for Gannett Co., which backed the proposed rules because the company seeks to increase the size of its empire, which now includes 101 newspapers and 22 television stations.
Tribune Co., which owns 14 newspapers and 26 television stations and seeks to buy more of each, was happy that the court affirmed the FCC's attempt to lift a 1975 ban preventing one company from owning a newspaper and a television station in the same market, an arrangement known as "cross-ownership." The court, however, told the FCC that it did not give sound enough reasons for the rules it had proposed on cross-ownership.
A Tribune representative said yesterday's ruling will have the effect of placing potential acquisitions on hold. "I think we'll let the dust settle a little bit before we go anyplace else," said Shaun M. Sheehan, one of Tribune's Washington lobbyists.