## Facts

- Federal law required the Federal Communications Commission (FCC) to periodically review broadcast ownership rules and repeal or modify rules no longer necessary in the public interest due to competition.
- After a biennial review, the FCC issued a 2003 order revising national and local broadcast ownership limits and adopting new cross-media limits to replace prior cross-ownership bans.
- Public-interest groups, labor, and local media interests sought review, arguing the changes lacked reasoned support and threatened viewpoint diversity and localism.
- Large media companies intervened, contending some rules remained too restrictive.
- Multiple petitions were consolidated in the Third Circuit, which stayed implementation of the new rules pending review.
- The FCC’s cross-media regime relied on a “Diversity Index” intended to quantify viewpoint diversity across media outlets in local markets, treating outlets within a medium as equal and assigning substantial weight to the internet.
- The FCC revised local television ownership rules using a market-concentration approach and numerical thresholds, and it adjusted aspects of the local radio ownership framework.
- The FCC repealed the Failed Station Solicitation Rule, which had required certain solicitation efforts aimed at small, minority-owned, and female-owned businesses before some failed-station transfers.

## Issues

1. Whether the Telecommunications Act’s periodic-review provision required a deregulatory presumption or instead preserved FCC discretion subject to reasoned decision-making.
2. Whether the FCC’s 2003 ownership revisions were arbitrary and capricious under the Administrative Procedure Act for lacking a reasoned explanation and record support.
3. Whether particular components—(a) the Diversity Index and resulting cross-media limits, (b) local television ownership thresholds, (c) aspects of local radio market definitions and caps, and (d) repeal of the Failed Station Solicitation Rule—were lawfully justified.

## Decision

- The court upheld the FCC’s general statutory authority to regulate broadcast ownership in the public interest and rejected the view that the periodic-review provision compelled broad deregulation.
- The court held several central parts of the 2003 order were arbitrary and capricious and therefore could not take effect without further agency explanation and support.
- The court remanded the Diversity Index and, because the cross-media limits were derived from it, remanded the cross-media limits as well.
- The court remanded the revised local television ownership rule for insufficient justification of the numerical thresholds and related assumptions.
- The court remanded aspects of the local radio ownership framework due to inadequate explanation and inconsistencies in market definition and outcomes.
- The court remanded the repeal of the Failed Station Solicitation Rule because the FCC failed to meaningfully analyze effects on minority and female ownership.
- The court affirmed in part and remanded in part, and it maintained the stay, leaving prior ownership rules in place pending further FCC action.

## Legal Principles

- A statutory requirement to periodically review agency rules does not eliminate agency discretion; the agency remains bound to justify regulatory choices under the public interest standard.
- Under the Administrative Procedure Act, an agency must provide a reasoned explanation that connects the facts found to the choices made; conclusory assertions and unexplained policy shifts are insufficient.
- Predictive judgments in complex policy areas are permitted, but they must be grounded in record evidence and coherent reasoning.
- If an agency adopts a quantitative methodology as the basis for rules, the methodology’s premises must be supported; flawed premises render resulting rules arbitrary and capricious.
- When repealing rules affecting ownership diversity, the agency must meaningfully consider and explain impacts on minority and female ownership opportunities.

## Conclusion

The Third Circuit sustained the FCC’s power to regulate media ownership and interpreted the periodic-review statute as requiring reassessment rather than automatic deregulation, but it remanded major parts of the FCC’s 2003 media-ownership changes because the Commission failed to support key assumptions and thresholds with a reasoned, record-based explanation as required by the APA.


Prometheus Radio Project v. FCC, 373 F.3d 372 (3d Cir. 2004)