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In Re Applications of TELEPROMPTER TRANSMISSION OF KANSAS, INC, TELEPROMPTER TRANSMISSION OF NEW MEXICO, INC, TELEPROMPTER TRANSMISSION OF OREGON, INC. For Consent to Transfer Control of 17 Stations in the Domestic Public Point to Point Microwave Radio Service from Irving B. Kahn, H. J. Schlafly et al., Transferors, to William M. Jennings, Jack Kent Cooke, Hughes Aircraft Co. et al., Transferees; In Re Applications of TELEPROMPTER FLORIDA CATV CORP., LAKE WORTH, PALM SPRINGS, RIVIERA BEACH, AND WEST PALM BEACH, FLA. For Consent to Transfer Control of TelePrompTer Corp., parent company of TelePrompTer Florida CATV Corp., from Irving B. Kahn, H. J. Schlafly et al., Transferors, to Irving B. Kahn, H. J. Schlafly, Hughes Aircraft Co., William Jennings et al., Transferees and SANTA MARIA VALLEY CABLE TV, INC., SANTA MARIA, AND ORCUTT, CALIF, T.V. RECEPTORS, INC., SAN BERNARDINO, CALIF., H & B COMMUNICATIONS CORP., RENO AND SPARKS, NEV. JACK KENT COOKE, INC., WINONA, MINN. AND LA CROSSE, WIS. For Consent to Transfer Control of Licensees or Permittees of Eight Community Antenna Relay Stations, from H & B American Corp., Transferor, to TelePrompTer Corp., Transferee; In Re Applications of TELEPROMPTER CORP., PROPOSED TRANSFEREE OF CONTROL, AND THE FOLLOWING LICENSEES: AMERICAN CABLEVISION CO., AMERICAN CABLEVISION OF WEST VIRGINIA, INC. CARIBOU T.V., INC., ELMIRA VIDEO, GREAT FALLS COMMUNITY CABLE T.V. CO., H & B COMMUNICATIONS CORP, HI DESERT T.V. CABLE, INC., HIGHLINE COMMUNITY ANTENNA SERVICE, HOLLY HILL CABLE T.V., INC., JACK KENT COOKE, INC., JACK KENT COOKE, INC., KAISER TELEPROMPTER OF HAWAII, LEESVILLE CABLE TELEVISION, INC. LEESVILLE CABLE TELEVISION, INC., SANTA MARIA VALLEY CABLE T.V., INC., T.V. RECEPTORS, INC., TELEPROMPTER CABLE TELEVISION TELEPROMPTER OF COQUILLE, INC., TELEPROMPTER CORP., TELEPROMPTER ELECTRONICS CORP., TELEPROMPTER ELECTRONICS CORP, TELEPROMPTER OF LIBERAL, INC., TELEPROMPTER OF LOS GATOS, TELEPROMPTER MANHATTAN CATV CORP., TELEPROMPTER MANHATTAN CATV CORP, TELEPROMPTER OF SANTA CRUZ, TELEPROMPTER TRANSMISSION OF KANSAS, TELEPROMPTER TRANSMISSION OF OREGON, INC., TELEPROMPTER TRANSMISSION OF OREGON, INC.  For Consent to Transfer of Control of 80 Stations in the Safety and Special Radio Services

 

File No. 1601-C1-TC-(12)70; File No. 1602-C1-TC-70; File No. 1603-C1-TC-(4)70; File No. BTC-6044; File No. BTC-6045; File No. BTC-6046; File No. BTC-6047; File No. BTC-6048; File Numbers: 7582-2-T/C-1B-100 296-CA-70; 7583-1-T/C-IB-100 7589-1-T/C-IB-100 7588-4-T/C-IB-100 7136-32-IB-T/C-100X; 7585-1-T/C-IB-100 7586-3-T/C-IB-100 7587-1-T/C-IB-100 294-CA-70 7584-3-T/C-1B-100 292-CA-70 295-CA-70 7597-1-T/C-1B-100 7598-1-T/C-1B-100 7599-1-T/C-1B-100 7590-1-T/C-1B-100 7591-1-T/C-1B-100 290-CA-70 7596-4-T/C-1B-100 09567-3-T/C-1B-100; 7592-1-T/C-1B-100 9568-1-T/C-1B-100 293-CA-70 09569-3-T/C-1B-100; 7593-1-T/C-1B-100 7594-9-T/C-1B-100 291-CA-70 09570-7-T/C-1B-100

 

FEDERAL COMMUNICATIONS COMMISSION

 

25 F.C.C.2d 469

 

RELEASE-NUMBER: FCC 70-859

 

August 14, 1970 Released

 

Adopted August 5, 1970

 


 

JUDGES:

BY THE COMMISSION: COMMISSIONER BARTLEY DISSENTING; COMMISSIONERS COX AND H. REX LEE CONCURRING AND ISSUING STATEMENTS; COMMISSIONER JOHNSON DISSENTING AND ISSUING STATEMENT.


 

OPINION:

 [*470]  1.  On October 6, 1969, TelePrompTer Corporation (TelePrompTer) and H & B American Corporation (H & B) filed the above-captioned applications for Commission consent to the transfer of control of various radio facilities which would result from a proposed merger between them which would leave TelePrompTer as the surviving entity.  n1 On November 5, 1969, Comtel Inc. (Comtel), operator of a CATV system at New York, New York, filed a "Petition to Deny" pursuant to  [*471]  Section 309(d) of the Communications Act, directed against the grant of the above-captioned common carrier applications (File Nos. 1601-C1-TC-(12)-70, 1602-C1-TC-70, and 1603-C1-TC-(4)-70).  TelePrompTer and H & B opposed Comtel's pleading.  In addition, the Commission has sought the views of the Department of Justice, which are appended hereto. 

n1 On May 21, 1970, shareholders of the companies approved the proposed merger.

2.  TelePrompTer and H & B are both CATV multiple system operators.  Comtel operates a CATV system using telephone company channel facilities at New York City where it competes with TelePrompTer, and will compete with the entity resulting from the proposed merger.  In these circumstances, we hold that Comtel is a "party in interest" within the meaning of Section 309(d) of the Act.  Federal Communications Commission v. Sanders Brothers Radio Station, 309 U.S. 470.

BACKGROUND

3.  TelePrompTer and H & B are publicly-held corporations traded on the American Stock Exchange.  On January 26, 1970, the appropriate officers of TelePrompTer and H & B executed a "Plan and Agreement of Merger" which provides that shares of H & B common stock outstanding on the effective date of the merger shall be exchanged into shares of TelePrompTer common at the rate of one share of TelePrompTer common for each 3 1/8 (3.125) shares of H & B common.  As of August 31, 1969, there were 1,064,862 shares of TelePrompTer common stock outstanding and 4,972,102 shares of H & B common outstanding.  Thus, TelePrompTer will issue approximately 1,591,072 additional shares for H & B's outstanding common stock so there would then be approximately 2,656,000 shares of TelePrompTer outstanding.  Thereafter, original TelePrompTer shareholders will own 1,064,862 shares of TelePrompTer common (40%), and H & B shareholders will own 1,591,072 shares of TelePrompTer common (60%).  The parties agree that although the present shareholders of H & B will hold 60% of the outstanding shares of the surviving Corporation, TelePrompTer's present management will continue in control.

4.  TelePrompTer Corporation is principally in the cable television business.  After the merger, TelePrompTer will own and operate the following CATV systems, including 63 now owned by H & B:

TelePrompTer/ *

 

 

Number of

Location

Subscribers

Tuscaloosa, Alabama

7,232

Los Angeles, California

20,733

Riviera Beach, California

1,330

Santa Cruz, California

16,640

Holly Hill, Florida

1,374

Hawaii Kai, Honolulu, Hawaii

2,497

Liberal, Kansas

2,450

Cut Bank, Montana

1,160

Great Falls, Montana

6,522

Shelby, Montana

644

Farmington, New Mexico

3,792

Silver City, New Mexico

2,416

Borough of Manhattan, New York

21,782

Elmira, New York

21,067

Newburgh, New York

7,653

Coquille, Oregon

1,509

Eugene, Oregon

15,985

Johnstown, Pennsylvania

16,674

Greenwood, South Carolina

1,807

Rawlins, Wyoming

2,027

 

* Information prepared as of June 19, 1970.  [*472]

Outstanding Franchises

 

Mobile, Alabama

West Palm Beach, Florida **

Chickasaw, Alabama

Lake Worth, Florida **

Prichard, Alabama

Lantana, Florida **

Saraland, Alabama

Boynton Beach, Florida **

Fairhope, Alabama

Palm Springs, Florida **

Daphne, Alabama

Mangonia Park, Florida **

Loxley, Alabama

Plantation, Florida **

Jackson, Alabama

Palm Beach County, Florida **

Bay Minette, Alabama

Boca Raton, Florida

Bayou La Batre, Alabama

St. Petersburg, Florida **

Las Gatos, California **

Jupiter, Florida **

Woodlake, California **

Hillsborough County, Florida

Santa Clara County, California **

Pahokee, Florida

Bethel, Connecticut

Hamilton Township, New Jersey

Middletown, Connecticut

Newark, New Jersey **

Portland, Connecticut

Trenton, New Jersey

East Hampton, Connecticut

Mt. Vernon, New York **

Cromwell, Connecticut

Islip, New York **

Middlefield, Connecticut

Yorktown, New York

Danbury, Connecticut

Tacoma, Washington

 

** Indicates under construction with less than 100 subscribers each.

H & B American *

 

 

Number of

Location

Subscribers

Dathan, Alabama

3,418

Prescott, Arizona

2,822

Camarillo, California

169

Fort Bragg, California

2,264

Hi Desert, California

2,441

Milpitas, California

251

Sierra Madre, California

2,667

Simi Valley, California

2,686

Trousdale, California

405

Twentynine Palms, California

2,218

Ukiah, California

2,547

Willits, California

1,402

Trinidad, Colorado

2.928

Marianna, Florida

841

Quincy, Florida

488

Galena, Illinois

964

Leesville, Louisiana

2.962

Caribou, Maine

3,446

Madawaska, Maine

1,506

Calumet, Michigan

2,209

Iron Mountain, Michigan

3,359

Sault Ste. Marie, Michigan

2,150

Brainerd, Minnesota

3,330

Columbia Falls, Montana

753

Hamilton, Montana

601

Polson, Montana

484

Whitefish, Montana

1,413

Lovington, New Mexico

1,306

Portales, New Mexico

1,223

Tucumcari, New Mexico

1,496

Portland, Oregon

290

Commerce, Texas

1,884

Graham, Texas

2,142

Edmundson, New Brunswick, Canada

2,049

Florence, Alabama

13,770

Lompoc, California

9,407

San Bernardino, California

7,244

San Marino, California

9,574

Lewiston, Idaho

5,781

Pocatello, Idaho

5,985

Dubuque, Iowa

11,898

Escanaba, Michigan

4,968

Ironwood, Michigan

3,552

Rochester, Minnesota

9,661

Winona, Minnesota

6,292

Kalispell, Montana

3,684

Missoula, Montana

6,861

Reno, Nevada

6,413

Keene, New Hampshire

5,467

Cape May, New Jersey

6,627

Ocean City, New Jersey

5,853

Ventnor, New Jersey

8,750

Wildwood, New Jersey

7,349

Jamestown, New York

8,342

Palestine, Texas

3,610

Richland, Washington

4,332

walla Walla, Washington

5,966

Wenatchee, Washington

3,976

Clarksburg, West Virginia

11,186

Fairmont, West Virginia

8,160

Morgantown, West Virginia

5,504

LaCrosse, Wisconsin

5,837

Sault Ste. Marie, Ontario, Canada

4,805

 

* Information prepared as of June 19, 1970. [*473]

Outstanding Franchises

 

Tucson, Arizona

Elwood, Indiana

Guadalupe, California

Duluth, Minnesota

Alexandria, Indiana

El Paso, Texas

 

Under agreements made in 1966, Hughes Aircraft Company and TelePrompTer, through jointly-held companies, are constructing and operating CATV systems to serve portions of New York City and Los Angeles.  TelePrompTer is also involved in related fields such as the master antenna television business, closed circuit television security and surveillance systems, closed circuit telecasting for entertainment, sports events and business meetings.  The transferee will also be engaged as a 50% participant in a joint venture, Television Testing Company, with Audits and Surveys Company Inc., for the purpose  [*474]  of utilizing CATV facilities to develop market research services for television advertisers and broadcasters.

5.  H & B Communications Corporation, subsidiary of H & B American Corporation, is the licensee of Standard Broadcast Station KNEZ, Lompoc, California.  H & B Communications has also filed an application (BPCT-4084) for a construction permit for a new UHF television broadcast station to operate on Channel 16, Dubuque, Iowa.  These are the only broadcast interests held by the parties to the merger; however, the parties expect to relinquish the Dubuque application, and H & B has already filed an application to dispose of KNEZ (BAL-6950).  Comtel has not opposed these applications.

REQUEST FOR WAIVER OF SECTION 21.700 OF THE COMMISSION'S RULES

6.  TelePrompTer indicates that after the transfer of control, TelePrompTer Transmission of Kansas, Montana division, will provide a total of 24 channels of service to affiliated customers, but only 14 channels to unaffiliated customers.  This would be contrary to the 50% non-affiliation requirement of Section 21.700 of the Rules.  n3 Consequently, TelePrompTer requests a waiver of Section 21.700 to permit the proposed transfer of control.  In event the Commission determines that a full waiver is not warranted, TelePrompTer requests a temporary waiver until February 1, 1971.  TelePrompTer's other microwave systems would be in compliance with Section 21.700 after the merger. 

 

n3 Section 21.700 of the Rules provides that,

Authorizations for stations in this service will be issued to existing and proposed communication common carriers.  Applications will be granted only in cases where it is shown that (a) the applicant is legally, financially, technically and otherwise qualified to render the proposed service, (b) there are frequencies available to enable the applicant to render a satisfactory service, and (c) the public interest, convenience or necessity would be served by a grant thereof.  In addition, applications for stations to be used to relay television signals to community antenna television systems must include a showing that at least 50 percent of the customers (on the microwave system involved), including customers of any interconnecting (carriers), receiving applicant's service are unrelated and unaffiliated with the applicant, and that the proposed usage by such customers, in terms of hours of use and channels delivered, constitutes at least 50 percent of the usage of applicant's microwave system.  Applications which do not contain the showing required by this section will be returned as unacceptable for filing.

TELEPROMPTER'S SHOWING

7.  In urging that the proposed merger is in the public interest, TelePrompTer states that "a primary goal of the proposed transaction is the enhancement of TelePrompTer's financial capability to engage in quality program origination which will result in greater program diversity for public television viewing." It has furnished an outline of its programming plans to be implemented upon consummation of the merger.  TelePrompTer states that the basic goals of the plan are fourfold: (a) development of meaningful local program capacity at the system level, (b) creation and production of new types of programming, (c) acquisition of programming from independent sources outside of the traditional network category, and (d) creation of a distribution  [*475]  system of such programming for other independent CATV operations.

8.  According to TelePrompTer, material of a "syndicated" as well as local nature would be used, with the former being distributed to unaffiliated systems at fair competitive prices.  On the local level, the plan aims at providing quality material, produced with professional skill.  Local news and announcements, public service programs (debates, meetings, interviews), and local entertainment, variety, talent and sports shows will be designed to meet the local tastes and interests of the viewing audience.  TelePrompTer also plans distribution to subscribers of centrally produced or procured shows of general interest which are generally not featured on broadcast television stations.  For example, concerts, live theatre performances, women's and children's programs, sports events, and the like, would be taped by the central or regional studio and distributed to local systems.

9.  TelePrompTer asserts that the increased capital and local outlets to be made available by the merger are essential to successful implementation of the plan.  It notes that the Commission has always sought to foster localism and diversity, key goals of its plan.  It further claims that a constructive contribution to program diversity on any continuing basis is now beyond the means of most systems and that, without adequate resources and a ready market, CATV origination will not be able to make a substantial contribution for at least another ten years.  CATV's present program origination capacity is allegedly curtailed by relatively high production costs (including personnel and equipment cost) and limited available program sources.  Finally, it states: "One of the principal objectives of the proposed merger is to overcome these inherent, natural obstacles to origination capability in a manner beneficial to both TelePrompTer and the cable TV industry, and ultimately to the public interest."

COMTEL'S OBJECTION

10.  Comtel contends that the proposed combination of what are now the first (H & B) and third (TelePrompTer) largest CATV concerns in the United States in terms of subscribers served, would create a dominant anti-competitive force in the emerging CATV industry.  It claims that there would be undesirable effects on the ability of other concerns to compete for franchises, for program material and for customers (where there is competition for such), on the development and supply of equipment in the industry, and on standards of operation considered to be the norm in this field.  Pointing also to the circumstance that TelePrompTer's largest single stockholder is Hughes Aircraft Company, Comtel urges that of primary importance are the "rapidly expanding Hughes sports network, Hughes' access to the lavish entertainment spectacles in Las Vegas, and Hughes' capabilities in such areas as communication satellite technology." Comtel claims that a hearing is necessary to determine whether the proposed  [*476]  merger is consistent with antitrust policy, merger guidelines of the Department of Justice, Section 7 of the Clayton Act, and policies of the Commission under the Communications Act -- particularly in the area of diversification of control over the media of mass communication.

DISCUSSION AND CONCLUSIONS

11.  It is settled, of course, that this "Commission was not given the power to decide antitrust issues as such" and that Commission action in an area such as this does not "prevent enforcement of the antitrust laws in federal courts." United States v. R.C.A., 358 U.S. 334, 346. However, federal antitrust policy may be considered in determining whether Commission consent to the proposed merger and transfer of control of the microwave facilities would serve the public interest standard of the Communications Act.  Id. at 351; see also National Broadcasting Co. v. United States, 319 U.S. 190, 222-224. Accordingly, we have ascertained the views of the Department of Justice on this matter, which are set forth in the attached Appendix.  While the Department does not express any opinion on Comtel's assertion of possible violation of Section 7 of the Clayton Act and the Department's merger guidelines, it summarizes its views on competitive effects as follows:

To summarize, we believe that, in view of the present status of the CATV industry, the immediate effect of the TPT-H&B merger competition described above may well be slight; and indeed it may enable CATV to compete more strongly with the over-the-air broadcasters who dominate the major television markets.  On the other hand, the long-term competitive effect of combining these relatively large, strong system operators into a single industry leader may be substantial, if CATV should become the dominant source of TV-type programming for the American public.

12.  Comtel's allegations and the Department's position as to the possible long-term effects of the proposed merger on the developing CATV industry raise substantial questions that are clearly relevant to the issue which it is the Commission's responsibility to decide -- namely, whether the proposed merger is in the public interest as a matter of communications policy.  For the reasons set forth below, we believe that the public interest would be served by granting consent to the merger subject to the conditions specified herein.

13.  We have concluded in the First Report and Order in Docket No. 18397 that it is in the public interest to encourage CATV systems to originate programming, both locally and through regional or national interconnection (20 FCC 2d 201; see also, Memorandum Opinion and Order denying reconsideration, FCC 70-677).  In so concluding we noted that "the successful inauguration of any new network is not an easy matter, to a significant extent because of the high cost and other difficulties in producing or otherwise procuring programming in sufficient  [*477]  quantity and quality for network operation" (20 FCC 2d at 203). TelePrompTer has made extensive representations, upon which we rely, concerning its programming plans in the event that the merger is approved.  The effectuation of these plans would be a promising step toward realization of our goal of increased diversity of programming available to the public, both through local origination and through regional or national distribution.

14.  While it seems clear that the achievement of a CATV network will require adequate capital and the availability of local outlets, we do not think it appropriate to decide here whether successful CATV network cablecasting operations would hinge on ownership and operation of CATV systems, particularly in the nation's largest cities, or whether the total systems involved in the merger constitute an undue concentration of control.  These questions are being explored in the proceeding in Docket No. 18891, proposing limitations on multiple ownership of CATV systems (Notice of Proposed Rule Making and Notice of Inquiry released on July 1, 1970, FCC 70-674).  We there stated (paragraph 12):

It is our tentative belief that such ownership and operation is not fundamentally necessary to network operations, which may be conducted through affiliation with independently owned systems.  To the extent that it is claimed that CATV system ownership would facilitate experimentation and innovation in program production, it would appear that CATV networks could accomplish this within the framework of the proposed multiple ownership provisions set forth in paragraphs 9 and/or 10, above.  We are proposing to make such provisions applicable across-the-board to CATV networks as well as others.  Interested parties urging a more lenient standard for CATV owners should support their position by a substantial showing of need.

15.  We think that these question should be resolved in the proceedings in Docket No. 18891, in which all interested persons will have an opportunity to be heard, rather than in a proceeding limited to the parties before us here.  Our action here is subject to the outcome of that proceeding and any rules there adopted will be applicable to TelePrompTer.  n3 The further argument of Comtel with respect to the relationship between TelePrompTer and Hughes does not, in our judgment, pose a situation which is presently contrary to the public interest.  The various resources and capabilities of Hughes may facilitate the development of a CATV network.  We will pay close attention to this situation and, in the event that adverse consequences should develop, will take such action as may be necessary in the public interest.  In short, while the merger may give rise to questions requiring future resolution, we think that for the present the potential benefits to the  [*478]  public (paragraph 13, above) are the governing consideration.  Accordingly, we conclude that the public interest would be served by a grant of the instant applications subject to the outcome of Docket No. 18891 and upon the condition discussed below. 

n3 In the Second Report and Order in Docket No. 18397 (FCC 70-673), promulgating rules with respect to cross-ownership of CATV systems and television stations, the Commission required divestiture to achieve compliance with the rules.  As there stated (paragraph 7), it appears that CATV systems are readily transferable.

16.  As indicated in paragraph 6 above, TelePrompTer is seeking a waiver of Section 21.700 with respect to one of the common carrier microwave systems involved in the applications.  After the transfer of control, TelePrompTer Transmission of Kansas, Montana division, would provide 24 Channels of service to affiliated customers and 14 channels to unaffiliated customers, in violation of the rule's requirement for at least 50 percent unaffiliated customers.  We have occasionally waived the rule where the imbalance was slight and it was shown that the carrier would shortly achieve compliance.  The disparity here is much greater and TelePrompTer has not, other than through expressed hopes, made any substantial showing of anticipated compliance such as might warrant a temporary waiver.  Under ordinary circumstances, therefore, we would deny the request for a temporary waiver.  However, because of the potential benefits cited above we feel constrained to grant a temporary and carefully conditioned waiver which, on the one hand, will permit the proposed merger to be consummated and, on the other hand, will provide us with reasonable assurances that compliance with the 50% rule will be fully achieved by February 1, 1974.  n4 We will condition our approval as set forth below. 

n4 We note that several options are available.  For example, TelePrompTer Transmission of Kansas might acquire more unaffiliated customers or transfer to the CAR service.  Or TelePrompTer might sell some of the affiliated CATV systems or sell the carrier to an independent entity.  The means is up to TelePrompTer, so long as it ceases violating the rule by February 1, 1971.  Where the method of compliance requires prior Commission authorization and such authorization has not been issued by February 1, 1971, TelePrompTer will be considered to have made a good faith effort to comply, provided that application for such authorization is made no later than December 1, 1970.

17.  In view of our reliance upon TelePrompTer's representations as to its programming plans, we will also condition our approval upon a requirement that it file annual reports setting forth in detail its progress to date in implementing such proposals and the nature of its current plans for future implementation.

18.  Accordingly, IT IS ORDERED, That Comtel, Inc.'s "Petition to Deny" IS HEREBY DENIED.

19.  IT IS FURTHER ORDERED, That the above-captioned applications ARE GRANTED subject to the outcome of the proceedings in Docket No. 18891 and, in the case of the applications of TelePrompTer Transmission of Kansas, Inc. (File No. 1601-C1-TC- (12)-70), upon the further condition that TelePrompTer Corporation file with the Commission:

(a) At least 20 days prior to consummation of the merger a detailed plan showing how it proposes to achieve compliance with Section 21.700 of the Commission's rules by February 1, 1971 together with a timetable for effectuation of this plan,

(b) Progress reports on the first day of each month after the  [*479]  merger is consummated showing that the filed plan is being implemented on schedule, and

(c) An application for Commission authorization of its plan by December 1, 1970, if such authorization is needed to implement its plan of compliance.

20.  IT IS FURTHER ORDERED, That TelePrompTer Corporation SHALL FILE ANNUAL REPORTS, commencing on September 1, 1971, setting forth in detail its progress towards implementing the programming proposals described in the above-captioned applications and its plans for future implementation.

21.  IT IS FURTHER ORDERED, That the appropriate instruments of authorization for the transfer of control of radio licensees BE ISSUED subject to the above conditions.

 

FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.

 


 

CONCURBY: COX; LEE

 

CONCUR:

CONCURRING STATEMENT OF COMMISSIONER KENNETH A. COX

I concur in this action in reliance on TelePrompTer's representations as to its program plans.  I think this merger will enhance TPT's position as a franchise applicant, and that the combination of the profits of the two parties and the increased borrowing power of the merged company may improve its competitive position in acquiring or developing programming.  I agree, however, that such increased size is not necessary to permit development of a cable network.  Presumably any entity able to develop a substantial schedule of programs and to provide interconnection facilities would be able to arrange for local distribution of its programming over affiliated cable systems, since they will presumably be eager to get such an additional service to offer to their subscribers.  However, if the network also owns local systems in major markets, it may be in a position to block development of additional cable networks by refusing to open its facilities for their programming.  I think the Commission should be alert to this possibility.


CONCURRING STATEMENT OF COMMISSIONER H. REX LEE

I concur in approving the acquisition of H&B American's operating CATV systems and franchises by Teleprompter Corporation.  These  [*484]  transfers present extremely complex questions of antitrust law and national policies favoring competition.  Because I am not entirely convinced of what seems to be the Commission's approach to these questions, I can only give my qualified approval.

In formulating its view, the Commission is apparently deciding CATV has a pre-eminent role to play as a competitive alternative to newspaper and broadcast media influence.  Thus, the Commission tends to condone the formation of a new media concentration while, to some extent, neglecting the benefits normally assumed to flow from competition within a single industry.  It seems to say that, as a matter of national policy, competition within the CATV industry is less important than the potential of CATV to emerge as a competitor to the power of print and broadcast combinations.  In these terms, this merger is a healthy development -- encouraging the concentration of CATV financial and technological resources to better facilitate an open battle between giant competitors seeking Consumer appeal.

a large public service is promised and expected to be achieved by the merger.  The parties represent that the merger will give great impetus to an interconnected cable network, that the resources and locations of the two companies will secure the means of distributing programs to small communities, and provide easy access to CATV affiliates on which a cable network will depend.

With this development, the merged company claims it will be able to amass the resources for its own production of large scale cable program origination (eliminating the present total dependence of CATV systems on the carriage of broadcast signals), and, in addition, through its purchasing power stimilate competition in the development of a new program production market made up of diverse and unrelated sources.

This is the promise and hopefully it will be fulfilled.  Much rides on it.  The demand for new program production and origination is a tall order to place on this merged operation.  But I believe our approval is intended to have that result.  If the promise is not kept, public interest should require that we or the Justice Department deal with the misrepresentation on which our approval will prove to have been based.  I, therefore, concur in the Commission's action.  Teleprompter has asked the Government to give it a change to supply a large quantity and quality of new services to the public.  I agree that it should have that chance.  It remains for Teleprompter to show what it can do.

 


 

DISSENTBY: JOHNSON

 

DISSENT:

DISSENTING STATEMENT OF COMMISSIONER NICHOLAS JOHNSON

The FCC majority today finds the public interest served by the merger of the nation's largest cable television company (H & B American Corporation) with the nation's third largest cable television company (TelePrompTer Corporation).

Needless to say, the rationale for this extraordinary conclusion is extremely hard to fathom -- especially in view of the long and very  [*485]  thoughtful concerns expressed by the Honorable Richard W. McLaren, Assistant Attorney General, Antitrust Division, U.S. Department of Justice in his letter to Chairman Burch.

It is ironic that, once again, at a time when this Commission professes to be interested in formulating wise national communications policy in some area (here cable television, including ownership standards, see, e.g., CATV, 23 F.C.C. 2d 833 (1970) [Dkt. No. 18891, June 24, 1970]), it is prepared to approve willy-nilly, on a case-by-case basis, the corporate requests before it that may wholly gut its general policies.  Cf., Conglomerate Corporation Licensees, 16 F.C.C. 2d 436 (1969) [Dkt. No. 18449, Feb. 7, 1969] (general inquiry into conglomerate ownership of stations) and decisions on the same day, John Poole Broadcasting Co., Inc., 16 F.C.C. 2d 458 (1969); Martin Theatres of Georgia, Inc., 16 F.C.C. 2d 478 (1969); and Madison County Broadcasting Co., Inc., 16 F.C.C. 2d 471 (1969) (approving major conglomerate corporations' acquisition of additional broadcast properties).

The FCC has an obligation to evaluate the merits of a merger of this significance on its own motion.  The absence of complainants cannot be taken as evidence that the public interest will be affirmatively served.

Nevertheless, it happens that in this case we do have a complaining party -- Comtel, Inc. -- which raises significant charges regarding the anticompetitive consequences of this merger and urges us to at least hold a hearing.

In short, I dissent to the Commission's approval of this merger, making the combined H & B-TelePrompTer the most powerful CATV company in the nation.  There are several basic reasons.

First, the merger will substantially increase H & B-TelePrompTer's ability to acquire additional franchises in presently un-franchised areas.  Its size and power may make it extremely difficult for locally-owned systems to develop.

Second, and more important, the merger will substantially increase H & B-TelePrompTer's ability to compete with other CATV systems for CATV-originated programming.  As the Justice Department has pointed out, "the largest companies having the greatest resources and capital will be able to acquire the best and most varied production programming -- a fact that will most certainly be reflected in their ability to compete for new and valuable franchises, and may even affect their power with respect to smaller systems under an obligation to originate." (Comments of Department of Justice, Appendix, at p. 7.)

The Justice Department has warned that this merger may "result in the domination of the CATV field," and may "inhibit the successful entry on a comparable scale by other systems." (Justice, at p. 9.) I believe we are ignoring this warning.

Third, we have in our pending CATV ownership proceeding the proposal that no CATV system shall own more than 50 systems nationally.  H & B-TelePrompTer will now own more than 100.  We also  [*486]  propose to limit CATV ownership to one system in the top three national Standard Metropolitan Statistical Areas (SMSA's).  H & B-TelePrompTer will have systems in both New York and Los Angeles.  And finally, we propose to limit CATV ownership to a maximum of five systems in any one state.  H & B-TelePrompTer Already has 13 in California, and seven in Montana.  At the very least, our approval should be conditioned upon adoption of these rules -- which would require a substantial divestiture.  I believe we should not act until we have resolved these rulemaking proposals.

Fourth, Comtel has raised a number of objections to this merger which the majority fails adequately to address.  The majority does not seriously deal with the problems posed by this merger under Section 7 of the Clayton Act.  The majority does not address Comtel's argument that H & B-TelePrompTer will gain an unfair competitive advantage in areas where it is in direct competition with other CATV systems.  And the majority does not reply to Comtel's fear that H & B-TelePrompTer's power will enable it to dictate technical standards to the CATV equipment supply industry, thereby blocking many potentially valuable innovations or variations in equipment.

Accordingly, rather than adopting a my-mind-is-made-up-don't-confuse-me-with-the-facts stance, I would have granted Comtel's request for a hearing to at least develop a factual record on these terribly significant issues.


 

APPENDIX:

APPENDIX

DEPARTMENT OF JUSTICE

Washington, D.C. 20530, June 18, 1970.

Honorable DEAN BURCH

Chairman, Federal Communications Commission

Washington, D.C. 20554.

 

DEAR MR. CHAIRMAN: This is in response to your General Counsel's request that the Department of Justice give the Commission its views on the competitive effects of the proposed merger of TelePrompter Corporation (TPT) and H&B American Corporation (H&B), now under consideration by the Commission.  Our comments are based on information received in the course of our investigation of this merger.

1.  The Acquiring Company -- TelePrompter Corp. (TPT)

TPT is the fourth largest CATV operator in the country.  It entered the industry in 1959 by acquiring two operating systems in New Mexico having about 4500 subscribers.  TPT has since acquired some 18 systems and secured franchises in several locations, including valuable franchises covering 400,000 homes in the northern half of Manhattan and in a 135 square mile section of Los Angeles.

On February 1, 1970, TPT owned, in whole or in part n1, 29 systems in at least 13 States (Alabama, California, Florida, Hawaii, Kansas, Montana, New Jersey, New Mexico, New York, Oregon, Pennsylvania, South Carolina, and Wyoming).  Its subscribers number in excess of 151,000. 

n1 For example, the Manhattan and Los Angeles franchises are held by a TPT-Hughes Aircraft venture.

TPT is also engaged in a variety of other activities related to the CATV business, which is its principal endeavor.  These include:

(a) Its MATV division engages in the installation, maintenance, service and leasing of master antennas for TV reception as well as in the design, construction, repair and maintenance of educational closed circuit TV systems, closed circuit TV security and surveillance systems, and other custom-designed communications facilities.

(b) Its Group Communications Division produces closed circuit telecast and live productions for such functions as entertainment and sports events and business meetings.  In June, 1969 TPT acquired Filmation Associates, a company which produces animated cartoons for television.

(c) TPT operates microwave transmission facilities which serve its own CATV systems and other systems located in New Mexico, Kansas, Oregon and Montana.  Moreover, according to a Standard & Poor's report TPT has announced (March 24, 1970) that it would apply to the Commission to use domestic communications satellite circuits.

(d) Under agreement with Hughes Aircraft Co. (a 17% stockholder of TPT), TPT has developed wideband transmission microwave equipment which is designed to use radio frequencies for short-haul transmission of signals.  In 1966, the Commission authorized the use of this equipment; and in 1969, it set aside a portion of the 12.7-12.95 GHZ band specifically for this type of short-haul transmission.  Since the use of such microwave is likely to be much cheaper than cable transmission over the same distance, TPT should benefit both as a system operator and as a seller of this equipment to other CATV system operators.

TPT reported revenues of $11,494,294 and net income of $1,268,145 in 1969.  Figures for the three months ended March 31, 1970 indicate that first quarter revenues were $3,074,881, with net income to that date $512,595.

Standard & Poor's reported that on April 21, 1970, TPT was considering the offering of up to $30 million of convertible debentures to help finance construction and possible development of its own television programming.

 

2.  The Acquired Company -- H&B American Corp. (H&B)

H&B is currently the largest CATV operator in the United States.  It entered the industry in 1960 with the acquisition of nine systems covering six states.  By 1965 it operated 25 systems in 12 states and served close to 80,000 subscribers.  In the fall of 1968, H&B merged with American Cablevision, the second largest CATV system at that time.  The combination of H&B and American Cablevision gave the combined company 62 systems in 22 states and approximately 230,000 subscribers.  It presently operates approximately 100 systems located in Alabama, Arizona, California, Colorado, Florida, Idaho, Illinois, Iowa, Louisiana, Maine, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oregon, Texas, Washington, West Virginia, Wisconsin, and two provinces of Canada.

In addition to its CATV properties, H&B also owns a radio station in Lompoc, California, which it has agreed to dispose of in order to facilitate the Commission proceedings with respect to the TPT-H&B merger.  It has diversified into two areas which it regards as supplementary to its broadband cable holdings.  In 1967 it acquired Hanover House Industries, Inc., a mail order company selling a variety of specialty items and gifts.  H&B's announced purpose in acquiring Hanover House was to develp a program under which such items could be offered for sale to CATV subscribers via printed catalogs and TV.  In 1966, in conjunction with Audits and Surveys Company, Inc., the second largest marketing research firm in the country, it formed Television Testing Co.  The purpose of the company is to conduct market research for advertisers and broadcasters.

At the end of its fiscal year, July 31, 1969, H&B reported revenues of $14,192,544, and net income of $1,449,345.  Its revenues for the period ended January 31, 1970 were $7,973,975, with net income of $660,964.

 

3.  The CATV Industry Structure

In spite of regulatory limitations and restrictions employed by some telephone and utility companies limiting the use of available distribution and cable facilities, the industry has grown from 70 systems with 14,000 subscribers in January 1952 to 2,490 systems having 4,500,000 subscribers as of February 1, 1970.  Part of the reason for this growth is that CATV systems are attractive investments; once the system has been installed, the owner can then project low operating and maintenance costs, liberal depreciation allowances (which cause negligible net income in the early years but a large cash flow), and a potential growth rate at least equal to the population increase.

In its most recent compilation (February 1, 1970) of CATV system owners and their respective subscriber totals, the Television Factbook lists the 20 largest companies as follows:

 

Rank

Company

Subscribers

Percent of total

1

H&B

262,577

5.8

2

Cox Cable Communications

175,000

3.9

3

American TV & Communications

158,500

3.5

4

TPT

151,007

3.4

5

CBS

150,000

3.3

6

Jerrold Corp

132,973

2.9

7

Harris Scope

110,000

2.5

8

CableCom General

94,449

2.1

9

Midwest Video

88,000

1.9

10

Community TV

87,800

1.9

11

Service Electric Co

81,250

1.8

12

Genco Cable (LVO)

80,000

1.8

13

TV Communications

75,500

1.7

14

National Trans Video

67,933

1.5

15

Cypress Communications

54,909

1.2

16

Continental Transmission

52,763

1.2

17

Reeves TeleCom

50,642

1.1

18

United Artists

42,200

under 1%

19

Columbia Cable

41,706

under 1%

20

Continental Cable

41,000

under 1%

According to TPT's submission to the FCC, concentration in the industry has not increased since 1965: n2

n2 Our computations do show, however, an increase of approximately 4% in the share held by the top 20 systems, over 1969 figures.  Acquisitions by multiple owners, and their continuing growth indicates a probable trend towards increased concentration among the leading firms.

 

Grouping

1965

1969

(1970)

 

Two largest

10.2

10.7

(9.7)

Three largest

14.3

14.1

(13.2)

Four largest

18.1

17.3

(16.6)

Five largest

20.8

20.2

(19.9)

Six largest

23.45

22.6

(22.8)

Seven largest

25.95

24.7

(25.3)

Eight largest

28.30

26.7

(27.4)

According to an analysis of the CATV industry published in August 1969, by Legg & Co., an investment company, industry sources claim that by 1975 the total number of subscribers will be close to 30 million.

4.  The Nature of Competition in CATV

CATV operators can "compete" in a variety of direct and indirect ways.

Although most franchises are in form stated to be non-exclusive, CATV systems generally do not compete directly with one another for subscribers in the same area.  In the few instances where two systems have attempted to operate in the same area, one has usually dropped out of the "race" fairly early in the game.  n3 Providing local CATV service therefore is generally regarded as being inherently monopolistic in that it is uneconomic for more than one operator to string or lay coaxial cable in the same area.  n4 We are not certain whether this is a necessary conclusion or whether more direct competition may be possible, at least in heavily populated areas.  The present system of de facto local monopolies may have reflected the policies of the telephone companies which have been in control of vital pole and duct space.  If this is so, the Commission's recent changes in pole attachment and conduit policy, increasing the potential number of occupants for any given pole or conduit, n5 may open up more direct competition between CATV operators in the same area. 

n3 See e.g., Jerrold Electronics Corp. v. Wescoast Broadcasting Co., 341 F. 2d 353 (9th Cir. 1965), cert. denied 382 U.S. 817 (1966), which documents examples of small operators being "squeezed" out of communities.

n4 Barnett, Cable Television and Media Concentration, 22 Stan. L. Rev. 221, 239; Comments of the U.S. Department of Justice, FCC Docket No. 18397, Sept. 5, 1969, at 5-6.

n5 See Notice of Proposed Rule Making, Docket Nos. 16928, 16943 and 17098 (1968).

Beyond this CATV operators can compete for subscribers in the same general area -- if not subscribers to be reached by the same pole -- at least subscribers within a few blocks of each other.  n6 This is more a form of "yardstick" competition -- but it may be a factor when franchises come up for renewal.  It is most likely to occur in densely populated metropolitan areas where more than one system is usually franchised. 

n6 Chances of this becoming a significant reality are likely to be enhanced by the introduction of such innovative tools as "shorthaul" microwave transmission equipment and receivers.

CATV operators also compete for franchises in "new" or un-franchised areas; this is possibly the most direct form of competition that exists now n7.  It will become less important as un-franchised areas cease to exist.  CATV could also compete for franchises in areas where established franchises have expired or where franchisees are unable or unwilling to provide or to extend service; however, we have seen no evidence that this is actually occurring. 

n7 For example, the applications of three cable firms are now awaiting final selection by the City Commission of Tulsa, Oklahoma.

Programming is another area of possible competition.  The advent of wide-spread and, perhaps, large scale origination, in accordance with the Commission's recent orders, may stimulate competition for the development and purchase of various types of programming.  n8 This competition is likely to be especially keen among the large systems serving metropolitan areas which must compete more strenuously against larger numbers of broadcast television stations.  It is to be foreseen that the largest companies having the greatest resources and capital, will be able to acquire the best and most varied production programming -- a fact that will most certainly be reflected in their ability to compete for new and valuable franchises, and may even affect their power with respect to smaller systems under an obligation to originate. 

n8 First Report and Order, FCC Docket 18397, 20 FCC 2d 201 (1969).

The outgrowth of such a situation may be a greater impetus toward rapid interconnection and the development of CATV "networks." The natural hubs of these interconnection systems or "networks" would, it seems, be the larger CATV systems, which by virtue of their resources and locations will be most able to secure, provide, and distribute programming to small systems.  Thus competition among such large cable systems for "network affiliates" is entirely possible in the near future.

 

5.  The Effect of Merger

If this merger is consummated, TPT will own (in whole or in part) approximately 129 systems serving some 413,500 subscribers in 28 states -- approximately 10% of those presently receiving CATV service.  It will have an untapped potential in its franchise areas.  H&B's systems are on the average, about 50% "saturated." Thus, without additional franchises, and if all homes in those franchise areas elected to receive service, H&B systems could contribute additional subscribers almost equal in number to its current 262,500.

TPT, which has apparently placed major attention on the acquisition of new properties, is currently only about 9% saturated.  It holds potentially important franchises in major metropolitan areas (particularly New York and Los Angeles) where CATV is likely to grow substantially if existing regulatory restrictions are modified or eliminated.  This means that more than one million potential subscribers already reside in its franchised areas.  Therefore, if each system reached its full potential the combined systems could reach in excess of 1.7 million subscribers.

The size of CATV system and its financial and technological resources will certainly be decisive factors in the development and future of the competitive context outlined above.  These same advantages are sure to have at least some effect, if only negligible, in those areas, such as new franchises, where there is presently competition between systems.  It is not unreasonable to posit that the future may well see the accentuation of that effect.  This merger would produce a clear leader among the largest CATV system owners, and a leader whose position is reinforced by interests in technical development and program production.  By doing so, this merger may lead to more immediate development of CATV's full potential as an effective competitor of the broadcast and print media, particularly in the larger markets.  However, the advantage inherent in such size and the special technical and production capabilities of the merged company could also result in the domination of the CATV field, and the growth of a single CATV "network" whose early success might well inhibit the successful entry on a comparable scale by other systems.  Such a development could have important prospective consequences with respect, not only to possible competition for programming and "network affiliates," but also to the maintenance of diversity in ideas, viewpoints, and entertainment.  It would be of particular concern if CATV was to emerge as the predominate video-communication medium -- as many have predicted it will.  Obviously, the Commission must weigh and evaluate these long term possibilities, as well as the more immediate effects of this merger.

To summarize, we believe that, in view of the present status of the CATV industry, the immediate effect of the TPT-H&B merger competition described above may well be slight; and indeed it may enable CATV to compete more strongly with the over-the-air broadcasters who dominate the major television markets.  On the other hand, the long-term competitive effect of combining these relatively large, strong system operators into a single industry leader may be substantial, if CATV should become the dominant source of TV-type programming for the American public.

Sincerely yours,

 

RICHARD W. McLAREN,

Assistant Attorney General, Antitrust Division.

 


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