National Ass'n for Better Broadcasting v. Federal Communications Commission

Opinion for the Court filed by Circuit Judge SENTELLE. Dissenting opinion filed by Chief Judge WALD. SENTELLE, Circuit Judge: This petition presents for review a decision by the Federal Communications Commission (“the Commission” or “FCC”) concerning the status under Title III of the Communications Act of 1934 (“the Act”), 47 U.S.C. § 301 etseq. (1982 & Supp. Ill 1985), of subscription video services, including subscription television (“STV”) and direct broadcast satellite (“DBS”) services. Report and Order Subscription Video, 2 F.C.C.Rcd. 1001, Gen. Dkt. No. 85-305 (Feb. 17, 1987) (“Report and Order"). The petition by National Association for Better Broadcasting (“NABB”) takes issue with two aspects of the Commission’s decision: (1) the Commission’s designation of subscription television and subscription direct broadcast satellite services as not being broadcasting within the meaning of the Act, and (2) the Commission’s ruling that an existing licensee’s change from conventional broadcasting to subscription operation would not be considered a “major” change under the Act or FCC rules. For the reasons outlined below, we uphold the decision of the FCC and deny the petition in both respects. I. Statutory and Regulatory Background Title III of the Act establishes a broad grant of authority to the Commission to regulate radio (and television) communications 1 including classification of stations, prescription of the nature of services to be rendered, regulation of the apparatus used, study of new uses and encouragement of more and effective uses of radio, and ultimately the issuance of licenses to operate stations when it finds that the public interest will be served thereby. 47 U.S.C. §§ 303, 307 (1982). The Act distinguishes between stations engaged in “broadcasting” and those providing fixed point-to-point services. Broadcasting is defined as the “dissemination of radio communications intended to be received by the public, directly or by the intermediary of relay stations.” 47 U.S.C. § 153(o) (1982), § 3(o) of the Act.2 The Act imposes certain obligations and restrictions only on those stations that engage in “broadcasting.” See, e.g., 47 U.S.C. §§ 310(b), 312(a)(7), 315, 317, 318, 325, 503(b), 508, 509. Therefore, the determination of whether a station is engaged in broadcasting can at times be critical. In making the determination as to whether a particular transmission constitutes “broadcasting,” the Commission, following § 3(o) and its history, must look to the licensee’s intent. However, while the language of the section clearly mandates that the intent of the licensee is crucial in making this determination, neither that section nor any other provision of the Act provides criteria for determining that intent. For many years the Commission looked to the content of the transmissions to ascertain the intent of the licensee, reasoning that “broadcasting” did not occur when the transmissions were designed to be of interest to only a limited number of listeners. For example, the Commission has held that the provision of advice to specific listeners is not broadcasting, Scroggin & Company Bank, 1 F.C.C. 194 (1935); nor messages transmitted in cooperation with local police, — 336 — Adelaide Lillian Carrell, 7 F.C.C. 219 (1939); nor transmission of coded horse race results, Bremer Broadcasting Co., 2 F.C.C. 79 (1935); nor the transmission of messages requesting a specific doctor to call the physician bureau, KFAB Broadcasting Co., 1 Radio Reg. 2d (P & F) 403 (1963). More directly related to the issues now at bar, the question of subscription radio services vis-a-vis “broadcasting” arose in various contexts over the years. In Muzak Corporation, 8 F.C.C.2d 581 (1941), the Commission considered a proposal to lease decoding equipment to subscribers, without which receipt of the transmission would be disturbed by a discordant sound or “pig’s squeal” signal. The Commission at that time held this form of transmission to be broadcasting, since the service was “available to the public generally upon subscription therefor____” Id. Later in the 1955 Report and Order, the Commission concluded that subscription background music services of a sort were not “broadcasting” within the meaning of the Act because they were not primarily intended to be received by the public. Nonbroadcast Activities by FM Stations, 11 Radio Reg. (P & F) 1590, 1591-92 (1955). This Court reversed that decision. Functional Music, Inc. v. FCC, 274 F.2d 543 (D.C.Cir.1958), cert. denied, 361 U.S. 813, 80 S.Ct. 50, 4 L.Ed.2d 60 (1959). However, that decision did not involve pure subscription services, but rather a system in which music was simultaneously broadcast to subscribers and other receivers, the broadcasters being able by the transmission of a specific tone to delete advertising and other messages from the receivers of subscribers, leaving them only with the music. This Court held that “broadcasting remains broadcasting even though a segment of those capable of receiving the broadcast signal are equipped to delete a portion of that signal.” Id. at 548. But subsequent court and agency decisions addressing “pure” subscription radio services (those receivable only by subscribers) concluded that such services are not “broadcasting” under the Act. E.g., KMLA Broadcasting Corp. v. Twentieth Century Cigarette Vendors Corp., 264 F.Supp. 35 (C.D.Cal.1967); FM Table of Assignments, 61 F.C.C.2d 113, 117-18 (1976); Greater Washington Educ. Telecommunications Ass’n, Inc., 49 F.C.C.2d 948 (1974); WFTL Broadcasting Co., 45 F.C.C.2d 1152 (1974). The Commission exhibited some inconsistency in its treatment of various forms of subscription television service as being or not being “broadcasting.”3 However, with varying degrees of fidelity the Commission clung to a content-based approach, viewing the transmission of programming designed to appeal to mass audiences as constituting “broadcasting,” without regard to the technology employed. The combination of rapidly expanding technology and Commission uncertainty finally brought to this Court National Ass’n of Broadcasters v. FCC, 740 F.2d 1190 (D.C.Cir.1984). In that case, we vacated a portion of the underlying FCC decision which had held DBS satellite lessees distributing programming to individual homes not to be engaged in broadcasting. We did so noting that “the test for whether a particular activity constitutes broadcasting is whether there is ‘an intent for public distribution’ and whether programming is ‘of interest to the general ... audience.’ ” Id. at 1201 (citations omitted) (emphasis in original). We held that “the FCC at the time of the DBS decision was bound not to depart without reasoned explanation” from its prior determination that the appeal to general public as opposed to message-specific individuals distinguishes broadcasting from point-to-point service, and reminded the Commission of its prior words that “ ‘broadcasting remains broadcasting even though a segment of the public is unable to receive programs without special equipment —’” Id., quoting from Further Notice in the Matter of Subscription Television Service, 3 F.C.C.2d 1,9-10 (1966). Thereafter, in Janu — 337 — ary of 1986, the Commission published a Notice of Proposed Rulemaking, proposing to classify subscription video services as point-to-multipoint nonbroadcast video services rather than as broadcasting. Subscription Video Services, 51 Fed.Reg. 1817 (1986). The Commission proposed to, and ultimately did, adopt new indicia of intent, abandoning the program content method, focusing on technology and re-classifying the SVS now before this Court as being outside the statutory definition of “broadcasting.” Report and Order, Subscription Video, 2 F.C.C.Rcd. 1001 (1987). It is this decision of the Commission that petitioner now seeks to have us vacate. II. Analysis As noted above, petitioner attacks both the Commission’s new criteria for determining intent and therefore exclusion from “broadcasting,” and the determination that a change from conventional “free” telecasting to subscription services is not a “major” change. We will discuss these attacks in turn. A. The New Criteria for “Broadcasting” As indicated above, the Commission in its February 1987 Order abandoned the previous content-based intent determination, finding new indicia of intent relating to the use by the programming services of transmission techniques preventing the reception of the programming by nonsubscribers. Report and Order at 1140, et seq. Under the new approach, such signals as STV and DBS, being unreceivable without special antenna converters and/or decoding equipment supplied by the licensee or programmer, are now classified by the Commission as “point to multi-point” services rather than broadcasting. Shortly put, the Commission’s determination, focusing on the transmission and receipt techniques involved, rather than program content, is that the licensee or programmer intends the signal to be received only by subscribers and not by the general public. Cf. National Ass’n of Broadcasters v. FCC, 740 F.2d 1190 (D.C.Cir.1984). To restate the familiar, the Commission’s “construction of a statutory scheme it is entrusted to administer” is entitled to great deference. Chevron v. Natural Resources Defense Council, 467 U.S. 837, 844, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). However, as Chevron teaches, before we apply that deference we must first ask the question “whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the Court, as well as the Agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43, 104 S.Ct. at 2781. Petitioner argues here that the Commission’s determination is contrary to the express intent of Congress.4 First, petitioner asserts the absence of any adjective modifying the word “public” in Congress’ definition of “broadcasting” in § 3(o) of the Act, arguing that the Commission’s new rule focusing on whether a signal is receivable by the “indeterminate” public or by a limited number of subscribers improperly departs from Congress’ definition of broadcasting. NABB contends that since the programmer makes the signal available to as many of the public as will buy it, the communication is “intended to be received by the public” within the meaning of the Act. While having a certain facial appeal, this argument proves too much. No matter how broadcasting is distinguished from point-to-point or other nonbroadcasting transmissions, the nonbroadcast signals are intended for some part of the public and presumably, in commercial situations, for as many of the public as will “buy” them. Even under the old content-based criteria it was important to this Court that a signal was “ ‘of interest to the general ... audience.’ ” National Ass’n of Broadcasters v. FCC, 740 — 338 — F.2d at 1201 (citations omitted) (emphasis in original). Beyond the language of the statute, petitioner quite properly urges that we look to the history of the legislation to determine Congressional intent. C.f National Ass’n of Broadcasters v. FCC, 740 F.2d at 1202. Specifically, petitioner notes that Senator Dill, a principal sponsor of the original legislation, in the debates concerning the legislation used the term “broadcast” in a broad sense inconsistent with the limitations the Commission now seeks to apply. Specifically, Dill stated, referring to the possibility of possible future “inventions” limiting the availability of particular transmissions to subscribers, “[I]f any broadcaster wants so to limit his listening public to those who have bought the attachment, while the other broadcasters allow everybody to listen, that is his privilege.” 68 Cong.Rec. 3033 (1926) (emphasis supplied). As petitioner further notes, Dill and other Senators extended that colloquy, repeatedly referring to stations using such an attachment as “broadcasters” contrasting them only with “general broadcasting.” Id. Once again, while that argument has a certain appeal, it proves too much. Further review of the recorded debate and Senator Dill’s involvement in it makes it plain that the Senators did not purport to be using the term “broadcasting” in any technical sense. For example, the colloquy between Senators Pitman and Dill at 68 Cong.Rec. 3227 shows Pitman asking Dill a question in terms of “broadcasting” and Dill responding with an example concerning interoceanic telephone, which even petitioner and the dissent presumably would concede is a point-to-point service. It must be presumed that the Senators, like most of the rest of us, at times use “broadcasting” not in its statutorily defined sense, as in Section 3(o), but as if it were synonymous with “transmission.” In sum, the legislative history in this case, as in Chevron itself, is at best ambiguous. Therefore, there being no “unambiguously expressed intent of Congress” we must move to the second tier of the Chevron analysis. Having determined that Congress has not unambiguously defined the meaning of “intended to be received by the public” in the definition of “broadcasting” and noting that the Commission has now done so, the principle of deference requires us to determine not whether the agency’s choice is the best one, but merely whether it is “reasonable,” and if so, afford it controlling weight unless it is arbitrary, capricious, or manifestly contrary to the statute. As the language of the Act and its ambiguous history reveal, this administrative decision cannot be held manifestly contrary to the statute.5 Therefore, we will uphold the Commission’s new rule unless it is arbitrary or capricious. Petitioner would have us find arbitrariness and capriciousness in an alleged inconsistency between the new criteria and prior court decisions, specifically NAB v. FCC, 740 F.2d 1190 (D.C.Cir.1984). As we noted above, that decision did require the FCC “not to depart without reasoned explanation” from its prior conclusions that subscription services were broadcasting. However, the FCC in a properly noticed rulemaking has now supplied that reasoned explanation. Without rehashing the entire language of the Report and Order, the Commission’s conclusions in !HI 41 and 42 that “subscription program services exhibit the most significant indicia of intent of the purveyor that the service not be received by the public,” pointing to the special equipment requirements already mentioned and the “private contractual relationship” between the purveyor and the subscribing audience certainly constitute a reasoned explanation. The Commission’s decision is neither arbitrary nor capricious and is within the authority given by Congress. Therefore, it must be upheld. B. The “Major” Change Petitioner’s other objection to the FCC’s new classification of the subscription — 339 — services focuses on the decision that initiation of pay t.v. service by a licensee previously offering “free” broadcasting service would not constitute a “major” change under § 309 of the Act. Report and Order, II43. The significance of this decision is that § 309 requires the Commission upon the filing of an application for “any substantial amendment” of a license, 47 U.S.C. § 309(b), to determine “whether the public interest, convenience and necessity will be served” by allowing the application. 47 U.S.C. § 309(a) (1982). In the process of that determination, public notice must be given, 47 U.S.C. § 309(b); 47 C.F.R. § 73.3580. Interested parties may file petitions for denial of such applications, 47 U.S.C. § 309(d); 47 C.F.R. § 73.3584. The Commission must hold hearings where appropriate. 47 U.S.C. § 309(e); 47 C.F.R. § 73.3593. However, the § 309 requirements do not apply to applications for “a minor change in the facilities of an authorized station.” 47 U.S.C. § 309(c)(2)(A). Therefore, the decision by the Commission that the change from “free” broadcasting to subscription service does not constitute a “major change” is a decision of great significance. Petitioner contends it is one which we must void since, they argue, even applying the Chevron standard, the decision of the Commission is arbitrary and capricious. It is counterintuitive to hold that nothing major has changed when a television viewer who is accustomed to turning to channel 9, for example, and receiving his favorite program, finds one day that upon turning to that same channel he receives merely scrambled static, which he cannot decipher without the aid of an expensive decoder. However, the eounterintuitiveness of an agency decision does not necessarily render it a decision which we can vacate under the Chevron standard. Nothing in the Act indicates that Congress had a specific intent as to what constituted a “major” change. Therefore, again applying the Chevron analysis, the Court must determine “not whether in its view the concept is ‘inappropriate’ ... but whether the [agency’s] view that it is appropriate ... is a reasonable one.” Chevron, 467 U.S. at 845, 104 S.Ct. at 2783. Again, we must ask whether the decision was an arbitrary and capricious one. It is not. The Commission’s stated rationale is a reasoned one that “[currently, the only TV facilities modifications that are considered ‘major’ are changes in frequency and city of license.” Report and Order at H 43 (citing 47 C.F.R. 73.3572(a)(1)). So the Commission has, with apparent consistency, followed the reasoning that a change is “major” only when it affects the interference potential of the station, the preclusive effect of the operation on other potential stations or the area served. Report and Order at 1143. Since the change from “free” broadcasting to subscription point-to-multipoint service has none of these effects, it cannot be arbitrary and capricious for the Commission in reasoned adherence to its existing practices to hold that this change is not “major.” Nonetheless, in this regard, we join the petitioner’s observation that the Commission is entrusted with its power and responsibility largely for the protection of the public interest. E.g., 47 U.S.C. § 309(a). If, as petitioner fears, a mass exodus of transmitting services from “free” broadcasting to subscription viewing now occurs, or if the only stations in a given market make such a transformation, the Commission might be well advised to recall its power under NAB v. FCC, supra, and this decision to make changes in its own interpretation of its enabling act and revisit the question of what constitutes a “major” change. III. Conclusion For the reasons set forth above, NABB’s petition is denied and the decision of the Commission is affirmed. Footnotes [1] "Radio" communications under the Act include television. See Dumont Laboratories v. Carroll, 184 F.2d 153 (3rd Cir.1950), cert. denied, 340 U.S. 929, 71 S.Ct. 490, 95 L.Ed. 670 (1951). [2] This definition had its origin in Washington International Radio Telegraph Convention of 1927, which defined a "broadcasting service” as "a service carrying on the dissemination of radio communications intended to be received by the public." Radio Telegraph Convention & General Regulations. Treaties Series No. 767 (GPO, 1929). See H.R.Rep. No. 1850, 73d Cong. 2d Sess. 4 (1934); S.Rep. No. 781, 73d Cong., 2d Sess. 3 (1934). [3] See generally, Fourth Report and Order, 15 F.C.C.2d 466 (1968), affirmed sub nom. National Assn. of Theatre Owners v. FCC, 420 F.2d 194 (1969), cert. denied, 397 U.S. 922, 90 S.Ct. 914, 25 L.Ed.2d 102 (1970); Earth Satellite Communications, 95 F.C.C.2d 1223, 1229-35 (1983), affirmed sub nom. New York State Commission on Cable Television v. FCC, 749 F.2d 804 (D.C.Cir.1984). [4] It would be difficult to say that the Commission's definition is in any way contrary to the plain meaning of the statute. The word “broadcast" in its common definition is "so as to scatter or be scattered in all directions (as of seed): so as to spread widely: specif: so as to reach by radio or television the greatest possible number of receiving sets.” Webster's Third New International Dictionary (1961). [5] Given the technological advances in radio since the enactment of the statute, it would be most surprising if we found legislative history which did unambiguously speak to the technology now before the Court, which could be only dimly anticipated at the time of the enactment of the Act.