FCC Lifts Ban on Big TV Network Ownership of Smaller Rival

The Federal Communications Commission voted Thursday to allow big television networks to own one of their smaller rivals--paving the way for CBS owner Viacom Inc. to control the struggling UPN network.

In a second action, the FCC announced that it will free large regional phone companies from paying $1 billion or more to rivals for linking consumers to Internet service providers.

The 55-year-old prohibition against two networks with a single owner fell on a vote of 3-1. The four big networks--ABC, CBS, NBC and Fox--still can’t merge with each other, but any of them may own either UPN or the WB network.

Viacom, which would have been forced to sell UPN next month in order to keep CBS, hailed the FCC’s decision. The company also encouraged the FCC to throw out other rules that prevent large media companies from expanding their empires.

“We are extremely pleased that the FCC has amended its rules regarding broadcast network ownership,” Viacom said in a statement. “We hope that the commission will take additional actions in the future to rationalize other areas under its oversight.”

But whether Thursday’s vote is the beginning of an about-face on the contentious ownership issue remains unclear. At least three other FCC rules limit broadcast ownership. What’s more, media giants such as Viacom are at odds with owners of some smaller TV stations who want some ownership limits kept in place.

FCC Commissioner Gloria Tristani, a staunch defender of ownership limits, dissented in Thursday’s vote, saying it “will only further erode the already tenuous level of diversity on the public airwaves.”

Even though FCC Chairman Michael K. Powell voted to approve modification of the dual network rule, he indicated that UPN may be a special case. “I don’t take the view that diversity is not important” when considering matters of broadcast ownership, Powell said.

One expert on the FCC, who said his relationship with the commissioners would be damaged if he spoke for attribution, speculated that Powell may simply be trying to placate opponents such as Tristani until he has had more time to develop political support at the FCC. Powell has been chairman only since January.

Earlier this month, President Bush nominated two Republicans to fill vacancies on the FCC. If confirmed by the Senate, Kevin J. Martin, a Bush policy advisor, and Kathleen Q. Abernathy, a telecommunications lobbyist, are expected to give Powell strong backing in his effort to deregulate the communications industry.

Powell has already indicated he will review an FCC rule restricting companies from owning a newspaper and TV station in the same market. The agency also may reexamine a regulation barring companies from owning two television stations in a market under most circumstances.

Meanwhile, the television networks have gone to the federal courts to attack an FCC rule that limits broadcast companies to a potential national audience of no more than 35%.

The FCC may have averted a court challenge in reforming the fees that local phone carriers pay to each other to cover the costs of handling calls.

PacBell parent SBC Communications Inc. and other large regional phone companies had long sought the overhaul, contending the current system created an imbalance.

That’s because rivals discovered that Internet users, who mostly dial up outbound to connect to the Web, would trigger huge fees when local phone companies handed off the call to the rival specializing in carrying Internet traffic. Yet the local phone company would get little traffic in return requiring reciprocal compensation.

“This [artificial] regulatory arbitrage produced profits greater than you could earn by importing illicit drugs,” said Scott C. Cleland, an analyst at Precursor Group, a Washington research firm.

Rivals countered that any reduction in carrier compensation would be passed along to consumers.

A survey released in December by two professors at UC Berkeley said a majority of 103 California Internet service providers indicated they would boost Internet access rates to their subscribers by as much as 20% if the big phone companies reduced their payments.

But professor Yale M. Braunstein, who helped conduct the study, said it is unclear whether most consumers--who now pay an average of about $20 a month for Internet access--might see any immediate effect because the FCC chose to introduce the fee change over time.

“We’ve seen this coming for at least a year . . . so these companies have had the opportunity to revise their business plans in a way that would minimize the impact on consumers,” Braunstein said.