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Report on Chain Broadcasting, U. S. Federal Communications Commission, May, 1941, pages 80-87:
We are satisfied that the Commission has jurisdiction to issue the regulations contained in the attached order, both as an exercise of its licensing function in the public interest and under the grant of authority contained in section 303 (i) "to make special regulations applicable to radio stations engaged in chain broadcasting." Either basis alone amply supports our jurisdiction; together they leave no doubt that the power exercised in these regulations is within the clear intent of Congress. But since much of the oral argument was devoted to the question of the Commission's jurisdiction, and since supplementary briefs discussing this question were filed by several interested parties pursuant to the direction of the Commission, we include a short statement of the legal basis for our conclusions.
A. JURISDICTION UNDER THE COMMISSION'S LICENSING POWER
In considering the scope of the Commission's licensing power as a basis of jurisdiction in this proceeding, two questions are presented. First, has the Commission authority to deny a license or a renewal on the ground that the applicant's contractual relations with a network either impair his ability to operate in the public interest or limit the maximum utilization of radio facilities by artificially restraining competition and restricting the growth and development of new networks? Secondly, if the first question is answered in the affirmative, can the Commission formulate into general rules and regulations the principles which it intends to apply in passing on individual applications?
1. The power to deny applications
Congress has delegated to the Commission the task of determining whether the grant of an application for a license or renewal will serve "public interest, convenience, or necessity." The standard of public interest is given significance "by its context, by the nature of radio transmission and reception, by the scope, character, and quality of services," and by the general objectives of the statute.1 As thus construed by the Supreme Court, the term "public interest" clearly refers to the interest of the listening public in the fullest and most effective utilization of radio facilities.
The general objectives of the Communications Act, as stated in section 1, are to "make available, so far as possible, to all people of the United States a rapid, efficient, Nation-wide, and world-wide wire and radio communication service." This provision is supplemented by section 303 (g) which provides that the Commission shall "study new uses for radio, provide for experimental uses of frequencies, and generally encourage the larger and more effective use of radio in the public interest." With the number of radio channels limited by natural factors, the public interest demands that those who are entrusted with the available channels shall make the fullest and most effective use of them. If a licensee enters into a contract with a network organization which limits his ability to make the best use of the radio facility assigned him, he is not serving the public interest.
We have already seen that many of the provisions of the affiliation contract do prevent the licensee from fully utilizing his facility. Time options adversely affect the ability of licensees to serve the local needs of their communities for program and advertising service. Artificial limitations on the price which licensees may charge national advertisers hamper licensees' efforts to render the best possible program service. Restrictions imposed on the affiliates' freedom to reject network commercial programs prevent them from assuming their full statutory responsibility (which under the Act they cannot delegate) of determining what programs should go out over the facilities licensed to them. Exclusivity provisions which prevent affiliates from carrying the programs of other networks and which prevent any other station within the "territory" of the affiliate from obtaining programs from the latter's network, deprive many listeners of the opportunity to hear certain worthwhile programs. Long-term affiliation contracts prevent the licensees from bargaining at reasonable intervals for the best network programs. Affiliation with a network organization operating two networks contributes to a concentration of control over stations and the programs they broadcast incompatible with the public interest. Network ownership of a large number of stations creates a potential conflict between the interest of the network as a station owner and its interest as a network organization.
It is no answer to say that the network stations render better service to the public than do unaffiliated stations. This is by no means established by the evidence, particularly if consideration is given to such factors as the needs of the local communities in which the stations are located. But, even if the superiority of network station service were assumed, it would not follow that the regulations we are adopting are either unnecessary or invalid. The Commission's licensing function is not limited to determining simply whether the service of one station is satisfactory as compared with that of other stations. The Commission has the duty to grant licenses and renewals only to those applicants who propose a maximum utilization in the public interest of the facilities they request.
It would hardly be contended, for example, that the Commission lacks authority to deny a license or renewal to an applicant whose use of his facility is limited by an inefficient antenna design which fails to make the optimum use of an advantageous transmitter site. Surely the Commission would not be required to issue a license just because the applicant could show that he was laying down as strong a signal as that of other stations with the same power. If the peculiar advantages of his transmitter site would enable him to achieve more extensive coverage with a more efficient antenna system, the public interest demands that he install such an antenna.
It is fundamental that any determination of public interest must be based upon a consideration of the service a station renders against the background of the service it could render. We have found that however meritorious the service of network affiliates as compared to that of nonnetwork stations, that service could be markedly improved if the affiliates were free from the restrictions that now bind them. This is no different from the determination that a licensee does not operate in the public interest if he merely renders as good a service as that of other stations with equal power where his advantageous transmitter site would enable him to render a superior service with an efficient antenna system.
So far we have considered only the direct impact of these restrictions on the licensee's ability to serve the public interest. But this is only a part of the Commission's responsibility. The public interest in the fullest and most effective utilization of radio facilities is likewise adversely affected by the curtailment of competition which these restrictions entail. In the last chapter we noted that the network-outlet contracts have resulted in closing the door of opportunity to new networks and have stifled competition among stations for network affiliation, among networks for station outlets and between networks and stations for advertisers and listeners. We noted too that network ownership of numerous radio stations has likewise meant the curtailment of opportunities for new networks and has given the existing networks a substantial competitive advantage over any newcomers. We noted, further, that, with two of the four major networks managed by one organization, affiliation with that organization contributed to the continuance of the present noncompetitive situation in the network-station market. The net effect has been that broadcasting service has been maintained at a level below that possible under a system of free competition. Having so found, we would be remiss in our statutory duty of encouraging "the larger and more effective use of radio in the public interest" if we were to grant licenses to persons who persist in these practices.
The Commission's duty to act also flows from the fact that Congress expressly wrote into the act the requirement of free competition in the radio field. It provided in section 3 (h) that persons engaged in radio broadcasting should not be deemed common carriers. By section 313 it specifically made the antitrust laws applicable to persons engaged in radio communication and authorized the courts to revoke the license of any person found guilty of violating the antitrust laws. In section 311 it directed the Commission to refuse a license to any person whose license has been revoked by a court under section 313 and authorized the Commission to refuse a license to any person found guilty by a Federal court of having violated the antitrust laws with respect to radio communication. By section 314 it forbade persons engaged in radio communications from engaging in communication by wire, or vice versa, if the effect thereof is substantially to lessen competition or to restrain commerce. These elaborate provisions against restraints on competition leave no doubt that Congress intended to safeguard free competition in the radio broadcasting industry. In the very Act in which it made clear its mandate as to free competition, Congress set up this Commission to license radio stations in the public interest. We cannot believe that Congress intended to leave us powerless to deal with restraints which might fetter the free competitive field it sought to maintain or to require us to promote unlawful conduct by our own affirmative action.
The Supreme Court decisions interpreting the Communications Act and its predecessor support the view that the preservation of free competition is one of the objectives recognized by Congress. In Federal Communications Commission v. Sanders Bros. Radio Station, 309 U. S. 470, 474-5, the Court said:
Thus the Act recognizes that the field of broadcasting is one of free competition. The sections dealing with broadcasting demonstrate that Congress has not, in its regulatory scheme, abandoned the principle of free competition, as it has done in the case of railroads, in respect of which regulation involves the suppression of wasteful practices due to competition, the regulation of rates and charges, and other measures which are unnecessary if free competition is to be permitted.
In Federal Communications Commission v. Pottsville Broadcasting Co., 309 U. S. 134, 137, the Court said:
Congress moved under the spur of a widespread fear that in the absence of governmental control the public interest might be subordinated to monopolistic domination in the broadcasting field. To avoid this Congress provided for a system of permits and licenses.
While many of the network practices raise serious questions under the antitrust laws,2 our jurisdiction does not depend on a showing that they do in fact constitute a violation of the antitrust laws. It is not our function to apply the antitrust laws as such. It is our duty, however, to refuse licenses or renewals to any person who engages or proposes to engage in practices which will prevent either himself or other licensees or both from making the fullest use of radio facilities. This is the standard of public interest, convenience or necessity which we must apply to all applications for licenses and renewals.3
The networks contend, however, that the Commission has no jurisdiction over the contractual relations between licensees and networks because they are "business" practices and policies beyond the pale of Commission action. The language of the Supreme Court in the Sanders case--"The act does not essay to regulate the business of the licensee"--is cited in support of this argument. The simple answer to this contention is that it misreads the Sanders case. The Court there held that the Commission has no authority over the business of broadcast licensees qua business, as it does in the case of common carriers. This is very different from a holding that, even in the presence of adequate ground of jurisdiction, an activity is exempt from regulations merely because it is a business practice. As stated by the Court:
In contradistinction to communication by telephone and telegraph which the Communications Act recognizes as a common carrier activity and regulates accordingly in analogy to the regulation of rail and other carriers by the Interstate Commerce Commission, the act recognizes that broadcasters are not common carriers and are not to be dealt with as such. Thus the act recognizes that the field of broadcasting is one of free competition. The sections dealing with broadcasting demonstrate that Congress has not, in its regulatory scheme, abandoned the principle of free competition, as it has done in the case of railroads, in respect of which regulation involves the suppression of wasteful practices due to competition, the regulation of rates and charges, and other measures which are unnecessary if free competition is to be permitted.
There is nothing in the Sanders opinion which gives any support to the contention that we cannot, in exercising our licensing function, consider factors which might affect the ability of the station to serve the public interest just because those factors happen to be what might be called the business of the licensee. In denying licenses to applicants on the ground that their contractual arrangements with the networks prevent them from utilizing the available radio facilities in the fullest and most effective manner, the Commission does not regulate the business practices of licensees. There is here no attempt to fix rates, to prescribe a uniform system of accounts, to regulate advertising, to supervise the programs or the business policies of the licensee, or to impose any of the obligations which are applicable to common carriers. The denial by the Commission of a license or renewal merely involves a determination that the contractual relations with the networks affect adversely the ability of licensees to operate their stations in the public interest. This is no different in principle from a denial of a license on the ground that a contract which a licensee has with a third person for the exchange of certain of his assets--obviously a business matter--renders him insolvent and incapable of operating in the public interest. Licensees cannot escape the consequences of their acts or shirk their duty of properly serving the public by the simple device of describing their operating activities as business practices.
2. The power to issue rules and regulations
The objection has been raised that even if we have the power to deny a license or renewal on the ground that a particular affiliation contract prevents an individual station from operating in the public interest, we are nevertheless without power to issue rules and regulations of general applicability. But this contention reads out of the Communication Act the power given to the Commission by Congress in section 303 (f) to "make such regulations * * * as it may deem necessary * * * to carry out the provisions of this act." See also section 303 (r). It would deny the Commission, too, the power contained in section 4 (j) "to conduct its proceedings in such manner as will best conduce to the proper dispatch of business and to the ends of justice." We believe that the announcement of the principles we intend to apply in exercising our licensing power will expedite business and further the ends of justice.
Announcements of policy may take the form of regulations or of general public statements. In either case, the applicant's right to a hearing on the question whether he does in fact propose to operate in the public interest is fully preserved. The regulations we are adopting are nothing more than the expression of the general policy we will follow in exercising our licensing power. The formulation of a regulation in general terms is an important aid to consistency and predictability and does not prejudice any rights of the applicant. Good administrative practice would seem to demand that such a statement of policy or rules and regulations be promulgated wherever sufficient information is available upon which they may be based.4
B. JURISDICTION UNDER THE COMMISSION'S POWER TO MAKE SPECIAL REGULATIONS RESPECTING CHAIN BROADCASTING
If any doubts exist as to the propriety of the regulations viewed as an exercise of the Commission's licensing power, they are completely dispelled by section 303 (i). This section gives to the Commission the specific power to "make special regulations applicable to radio stations engaged in chain broadcasting." No language could more clearly cover what we are doing here.
It has been contended, however, that this provision only empowers the Commission to deal with problems of a technical nature involved in chain broadcasting. The complete answer to this contention is that the language employed by Congress is too broad and general to permit of so narrow an interpretation. We cannot assume that Congress did not mean what it said.
Moreover, the legislative history of this provision demonstrates that Congress did intend section 303 (i) to be of general application and specifically that it should include the power to deal with restrictions upon competition in chain broadcasting.
Section 303 (i) is carried over verbatim from section 4 (h) of the Radio Act of 1927.5 It appeared for the first time, in a somewhat different form, in the bill as reported by the Senate Committee on Interstate Commerce. It reads as follows:
When stations are connected by wire for chain broadcasting, [the Commission should] determine the power each station shall use and the wave lengths to be used during the time stations are so connected and so operated, and make all other regulations necessary in the interest of equitable radio service to the listeners in the communities or areas affected by chain broadcasting.
The report of the Senate committee states that this provision gives to the Commission "complete authority * * * to control chain broadcasting."6
The bill passed the Senate in the above form. The conference committee revised the section and reported it back in the more general and flexible form which finally became law.
The meaning of section 4 (h) was explained by Senator Dill, the Senate sponsor of the bill, in the debate on the conference report. He said:
In the first place, under this bill chain broadcasting today * * * is absolutely without any regulation. We have no law today to handle the situation, and the various radio organizations, including the Radio Corporation of America and the American Telephone & Telegraph Co., are going ahead and building up the chain stations as they desire without let or hindrance and without any restrictions, because the Secretary of Commerce has no power to interfere with them. Unless this proposed legislation shall be enacted they will continue to do so, and they will be able by chain-broadcasting methods practically to obliterate the independent small stations, as the man who wrote the telegram suggests.
While the commission would have the power under the general terms of the bill, the bill specifically sets out as one of the special powers of the commission the right to make specific regulations for governing chain broadcasting. As to creating a monopoly of radio in this country, let me say that this bill absolutely protects the public, so far as it can protect them, by giving the commission full power to refuse a license to anyone who it believes will not serve the public interest, convenience, or necessity. It specifically provides that any corporation guilty of monopoly shall not only not receive a license but that its license may be revoked; and if after a corporation has received its license for a period of three years it is then discovered and found to be guilty of monopoly, its license will be revoked.
* * * * * * *
* * * In addition to that, the bill contains a provision that no license may be transferred from one owner to another without the written consent of the commission, and the commission, of course, having the power to protect against a monopoly, must give such protection.
I wish to state further that the only way by which monopolies in the radio business can secure control of radio here, even for a limited period of time, will be by the commission becoming servile to them. Power must be lodged somewhere, and I myself am unwilling to assume in advance that the Commission proposed to be created will be servile to the desires and demands of great corporations of this country.7 [Italics supplied.]
This explanation of the scope of section 4 (h) by the Senate sponsor of the bill completely substantiates the Commission's jurisdiction to issue the regulations involved here. It shows that section 4 (h) was written into the statute to remove any possible doubt which might exist under the licensing provision of the Act with respect to the Commission's power to regulate chain broadcasting. As Senator Dill said: "While the Commission would have the power under the general terms of the bill, the bill specifically sets as one of the special powers of the Commission the right to make specific regulations for governing chain broadcasting."
1 Federal Radio Commission v. Nelson Bros. Bond and Mortgage Co., 289 U. S. 266, 285; cf. United States v. Lowden, 308 U. S. 225.
2 In this category would be included at least territorial exclusivity and exclusivity or affiliation (Montague & Co. v. Lowry, 193 U. S. 38; Shawnee Compress Co. v. Anderson, 209 U. S. 423; United States v. Terminal Railroad Assoc., 224 V. S. 383; Standard Fashion Co. v. Marijrane-Houston Co., 258 U. S. 346); and agreements between outlets and networks penalizing stations for selling time to national advertisers at less than the network rate. (Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S. 373; United States v. Trenton Potteries Co., 273 U. S. 392; United States v. Socony-Vacuum Oil Co., 310 U. S. 150.)
3 The networks seem to contend that our power to deal with restrictions on competition is limited to the authority conferred in section 311. That section provides:
"The Commission is hereby directed to refuse a station license and/or the permit hereinafter required for the construction of a station to any person (or to any person directly or indirectly controlled by such person) whose license has been revoked by a court under section 313, and is hereby authorized to refuse such station license and/or permit to any other person (or to any person directly or indirectly controlled by such person) which has been finally adjudged guilty by a Federal court of unlawfully monopolizing, or attempting unlawfully to monopolize, radio communication, directly or indirectly, through the control of the manufacture or sale of radio apparatus, through exclusive traffic arrangements, or by any other means, or to have been using unfair methods of competition."
It is not entirely clear just what point the networks seek to make. If the argument they advance is that we cannot deny a license to an applicant on the ground that his practices violate the antitrust laws unless a Federal court has first found the applicant guilty, then they misinterpret our decision. We do not predicate our jurisdiction to issue the regulations on the ground that the network practices violate the antitrust laws. We are issuing these regulations because we have found that the network practices prevent the maximum utilization of radio facilities in the public interest.
If the contention is that we cannot consider restrictions on competition unless they do constitute violations of the antitrust laws and have been so declared by a Federal court, it completely disregards the legislative history of the Communications Act and its predecessor as well as Supreme Court decisions. The encouragement "of the larger and more effective use of radio in the public interest" which we are required to foster and the power to license stations to serve in the public interest arc independent of the grant of authority contained in section 311. That section merely emphasizes the importance which Congress attached to the preservation of competition in the radio field. It directs or authorizes the Commission, as the case may be, to refuse a license on the basis of a finding by a court that the applicant violated the antitrust laws, without requiring the Commission to hold its own hearing to verify the facts found by the court or to determine whether the practices which constitute the violation would in fact prevent the fullest use of radio facilities, it certainly does not detract from our power to refuse a license or renewal when our own hearing or investigation reveals that practices of the applicant (whether violations of the antitrust laws or not) prevent the maximum utilization of radio facilities.
4 See Administrative Procedure in Government Agencies, 77th Cong. 1st sess., S. Doc. 8, p. 27.
5 The NBC brief in this proceeding quotes from page 21 of the Federal Radio Commission's First (sic: Second) Annual Report to Congress (1928) as evidence for the view that the Commission considered its power to regulate chain broadcasting under section 4 (h) of the 1927 act was limited to its obligation to maintain a fair, efficient, and equitable distribution of broadcasting facilities. The brief suggests that when Congress thereafter reenacted without change section 4 (h) as section 303 (i) of the Communications Act, it presumptively approved this interpretation by the Federal Radio Commission. In fact, however, the Commission merely pointed out that it had issued a regulation (General Order No. 43, Sept. 8, 1928) limiting the use of cleared channels for chain programs by requiring a separation of 300 miles between stations broadcasting such programs, with certain exceptions; and that later, for reasons of policy, it had suspended the order. Neither in the passage quoted nor elsewhere in the report did the Commission even allude to any limitation in its jurisdiction over chain broadcasting. Moreover, it does not follow from the fact that this regulation was concerned with fair distribution of facilities that the Commission construed this section as applicable only to problems of a technical nature involved in chain broadcasting. Consequently, there is no logical basis for the presumption contended for by NBC. Cf. Helvering v. Hallock, 309 U. S. 196.
6 S Rep. 772, 69th Cong., 1st sess. (1926), p. 3.
7 68 Cong. Rec. 2881. See also statements by Representative White, 68 Cong. Rec. 2579-2580, and by Senator Dill, 67 Cong. Rec. 12,352.
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