In Re
TELEPROMPTER CABLE SYSTEMS, INC., ELMIRA, N.Y.
For a
License in the Cable Television Relay Service
CPCLD-12
FEDERAL COMMUNICATIONS COMMISSION
40 F.C.C.2d 1027
RELEASE-NUMBER: FCC 73-402
April 23, 1973 Released
Adopted April 17, 1973
JUDGES:
BY THE COMMISSION: COMMISSIONERS
ROBERT E. LEE. AND H. REX LEE ABSENT; COMMISSIONER JOHNSON
DISSENTING AND ISSUING A STATEMENT; COMMISSIONER HOOKS CONCURRING IN THE
RESULT.
OPINION:
[*1027] 1.
TelePrompTer Cable Systems, Inc., a subsidiary of TelePrompTer Corporation, has
filed an application in the Cable Television Relay Service for a license to
cover construction permit. The application has been processed, is consistent
with all requirements, and is available for grant. We have decided,
however, to examine the application in light of the criminal convictions of the
Corporation and its former president, Irving Kahn, to determine whether a grant
would be in the public interest.
2. TelePrompTer Corporation
and Mr. Kahn were convicted on October 20, 1971, of Federal Conspiracy (18
U.S.C. § 371) and violation of the Travel Act (18 U.S.C. § 1952).
In addition, Mr. Kahn was convicted individually of perjury (18 U.S.C. §
1621). The convictions resulted from unlawful payments made in 1966 to several
Johnstown, Pennsylvania city officials to induce them to award TelePrompTer a
cable television franchise. The convictions were recently affirmed on
appeal [United States v. Kahn, Nos. 71-2205,-6, 72-1776-7 (2d Cir., Jan. 9,
1973)], and, on March 1, 1973, the Corporation filed a writ of certiorari with
the Supreme Court. Consequently, the Commission on its own motion
undertook an investigation pursuant to Section 403 of the Communications Act to
ascertain whether TelePrompTer is qualified to be a licensee of the Commission.
3. The Commission has on past
occasions dealt with the question of the effect of criminal convictions on
applications for Commission authorizations. In Report on Uniform Policy
as to Violations by Applicants of Laws of the United States, 1 P & F Radio
Reg., Part 3, 91:495 (1951), the Commission concluded that if an applicant has
been involved in unlawful practices, an analysis of the substance of the practices
must be made to determine their relevance and weight with regard to the
applicant's qualification to use the requested authorization in the public
interest. The Commission also stated that there may be extenuating or
other favorable considerations which [*1028] outweigh the record of
unlawful conduct and qualify the applicant to receive Commission
authorization. In Westinghouse Broadcasting Company, Inc., 22 P & F
Radio Reg. 1023 (1962), the Commission held that violations of Federal
antitrust laws by the parent company of an applicant for renewal of broadcast
licenses was a serious reflection on the licensee's character but was
outweighed by the superior broadcast record of the licensee. Similarly,
the Commission held in General Electric Co., 2 P & F Radio Reg. 2d 1038
(1964), that violations of Federal antitrust laws are not absolutely
disqualifying, but are a circumstance from which the Commission may draw
inferences as to probable future conduct. The Commission noted a revised
organizational structure and compliance programs to avoid further antitrust
violations, considered the company's broadcast record, which was found to be
meritorious, and granted renewal. Significant in both the Westinghouse
and General Electric cases was the fact that the persons involved in the
criminal activity were not the same persons who managed and controlled the
broadcast facilities. Although these cases involved licenses for
broadcast facilities, they are instructive to point out how the Commission has
treated an applicant's past criminal record in its consideration of whether
grants of Commission authorizations would be in the public
interest. Thus in Page Boy, Inc., 8 P & F Radio Reg. 1108 (1954),
aff'd sub nom. Klein v. FCC, 232 F. 2d 73 (D.C. Cir. 1956), the
Commission, citing the Report on Uniform Policy, supra, denied an application
for a construction permit in the Domestic Public Land Mobile Radio Service on
the basis of the Hearing Examiner's finding that the applicant had engaged in
conduct leading to a fraud order by the Postmaster General and therefore lacked
the requisite qualification to be a licensee.
4. Our investigation of
TelePrompTer was based on concepts derived from prior Commission actions in
analogous cases. We attempted to analyze the substance of the violations
to determine their relevance and weight, to ascertain the existence of
countervailing or extenuating circumstances and other favorable facts which
might outweigh the record of unlawful conduct, and to weigh these factors
against the relevant public interest considerations. Commission staff
interviewed the prosecutor who tried the case, reviewed the relevant portions
of the trial transcripts, addressed interrogatories to TelePrompTer, and examined
TelePrompTer's annual report forms and other documents on file with the
Commission. The Commission attempted particularly to determine which
TelePrompTer employees or officers participated in the unlawful acts for which
the Corporation was convicted, if any of these persons are employed presently
by the Corporation, whether the Corporation has undertaken its own
investigation to uncover other similar unlawful acts, and what corrective
measures and new programs the Corporation has instituted to guard against a
repetition of such criminal activity by its employees and officers.
5. Shortly after the
Corporation's and Mr. Kahn's convictions, the shareholders of the Corporation
elected a new Board of Directors. Prior to the election, the Board was
controlled by Mr. Kahn. A majority of the new Board is composed of
members selected by Jack Kent Cooke, a Director and the Corporation's largest
shareholder. Ten of the fourteen directors had not previously been
directors of the Corporation. [*1029] The only member of the
new Board who was part of management during the period of misconduct is Hubert
J. Schlafly, whose participation in management was confined completely to
engineering matters.
6. Soon after the new Board of
Directors was elected, Raymond Shafer, one of the new Directors, was
elected Chairman and Chief Executive Officer. Mr. Shafer, who serves
substantially full time, is a former District Attorney and Lieutenant Governor
of the Commonwealth of Pennsylvania; he was Governor of Pennsylvania from 1967
to January 1971.
7. On July 17, 1972, the Board
of Directors elected William Bresnan President of the Corporation. He was
subsequently elected Chief Operating Officer. Mr. Bresnan was previously
employed by Jack Kent Cooke, Incorporated and Continental Cablevision, Inc.,
which were acquired by H & B American Corporation in 1968. He then
became Executive Vice President and Director of H & B. On September
17, 1970, when H & B merged with TelePrompTer, Mr. Bresnan became Vice
President of TelePrompTer. Thus, Mr. Bresnan joined TelePrompTer more
than four years after the commission of the acts which resulted in the criminal
convictions. Mr. Bresnan is also currently Chairman of the National Cable
Television Association.
8. The election of the new
Board of Directors constitutes a transfer of control of the Corporation and
requires prior Commission approval under Section 310(b) of the Communications
Act. No such approval has been given.
9. On November 22, 1971 Mr.
Cooke, moving quickly after the October 20 criminal convictions of Kahn and the
Corporation, notified the Commission by letter from his counsel that he had
initiated a solicitation of proxies from TelePrompTer shareholders, with a view
toward electing a Board of Directors that would be "independent" of
the influence of Kahn. The names of the members of Mr. Cooke's
independent slate were furnished, along with their principal business and
professional identifications and assurances of United States citizenship and
basic qualification to hold communications licenses. The notification
contended at length that bringing off the program would not constitute a
transfer of control within the meaning of Section 310(b), but requested, if the
Commission were of a contrary view, that the letter and its attachments be
treated as an informal application and be granted on an expedited basis.
10. Three days earlier, or on
November 19, the Securities and Exchange Commission had cleared the proxy
material by Mr. Cooke and the mailing was accomplished by the time of the
November 22 notification to us. Contemporaneously with this activity,
suit was brought by Cooke against TelePrompTer in the United States
District Court for the Southern District of New York to compel adjournment of
the annual stockholders meeting then set for November 30. And on November
23, the day after the earlier-mentioned notification to us, decision was
rendered putting off the annual meeting to permit Cooke reasonable opportunity
to make his case with the shareholders. In the decision, Cooke v.
TelePrompTer Corp., 334 Fed. Supp. 467, 469 (S.D.N.Y. 1971), reference was made
to an affidavit submitted by the plaintiff advising that:
[*1030] "...
Cooke believes that a proxy fight will only injure TPT... his sole desire is to
have Kahn removed from office... if Kahn is removed as an officer and director
of TPT (as a result of which the voting agreement will automatically terminate)
Cooke will not launch or participate in a proxy fight."
11. The proxy contest was
terminated on December 2 when Mr. Cooke entered into an agreement with
TelePrompTer management providing for the nomination of a new slate of
directors, a majority of whom were also members of the slate of directors
proposed by Cooke in his earlier proxy solicitation. This was followed by
a letter dated the next day, or December 3, from counsel for Cooke
referring to the November 22 letter and reciting that:
"The specific relief requested
in the November 22, 1971 filing may not be required; however, a question may
still obtain whether or not de facto control under Section 310(b), supra, will
be changed when the TelePrompTer shareholders elect a new board of directors at
their postponed annual meeting now scheduled for January 21, 1972.
"We will continue to keep the
Commission advised of developments and request appropriate relief as promptly
as circumstances permit."
12. The new developments were
brought to the Commission's attention by letter from TelePrompTer's counsel on
January 7, 1972, or four days before the annual meeting at which the election
of directors was held. This letter described its purpose as
"... to report information to
the Commission concerning a prospective change in the Board of Directors of...
TelePromTer...
It is contemplated that a change
will take place in the current Board of Directors whereby new personnel will be
added in lieu of certain existing directors. With respect to each of the
new directors, TelePrompTer is furnishing the biographical and business
background information normally requested by the Commission in appropriate
application forms...
Attachments to the letter recited
that:
"TelePrompTer Corporation
contemplates that certain personnel changes will take place in its Board of
Directors pursuant to the resumption of an Annual Shareholders Meeting to take
place January 11, 1972... While certain personnel changes in the Board
will, in all probability, take place, such transactions do not represent
changes in stock ownership of the Corporation. Nor do these prospective
changes contemplate any modifications or other changes in the management
policies..."
Additionally, information was
included that furnished for all new directors relevant data as to status,
history of involvement in communications matters, stock and financial ties to
the Corporation, etc.
13. All of the material in the
January 7 letter was hand delivered to the Cable Bureau on January 10, along
with a covering letter that recited:
"The information furnished here
(in the January 7 letter) is tailored to that sought from applicants and their
principals in the Common Carrier Service insofar as such information relates to
management personnel. That information requested in the Common
Carrier Service is, as you know, substantially more comprehensive in scope and
character than that elicited for CARS applicants in this regard. The
changes in the parent-company Board do not contemplate any changes in the
management policy or, at this time, in the officers of the Corporation or its
subsidiaries.
Accordingly, we bring this matter to
your attention in order that the Cable Bureau may be may be certain that all of
the information sought in the CARS service, including citizenship data, other
broadcast interests, etc., is currently on file with the Commission and that it
is fully consistent, we believe, with all of the policies and requirements of
both the Bureau and the Commission."
[*1031] 14. The
agreed-upon slate of directors was elected at the annual meeting on January 11.
15. With the Commission's approval,
letters dated April 5, 1972 were addressed to TelePrompTer and to Mr. Cooke
asking for relevant documents and for explanation of the failure to follow
requirements of Section 310(b) that prior consent be obtained to transfer
control of a radio licensee. A consolidated response of April 27 combs
the factual background recited above, brings together and resubmits the
relevant documents, again places the matter before the Commission for its
ruling on whether a transfer did take place and, if so, asks that the submitted
materials be considered informal application for consent.
16. Transferring control of a
radio license without following the procedures that require prior consent is a
serious matter which is inconsistent with the standard of conduct expected of a
Commission licensee. It diminishes the tight informational controls on
license ownership that are necessary to the effective functioning of the
regulatory machinery, it permits the insinuation of disqualified persons into
the communications apparatus and, when we are faced with an application after
the fact, defuses our option to say "no".
17. We recognize that there
are unusual circumstances in this case. Prior to the signing of the
settlement agreement there must have been some confusion as to who was in a
position to file a formal application for prior consent. The group headed
by Mr. Cooke did keep the Commission advised, to a substantial extent, of many
of the events. They were understandably desirous of acting quickly to remove
Mr. Kahn from a position of control and restore public confidence in the
Corporation.
18. In view of the difficult
and unusual circumstances present in this case, we believe that there is no
point in pursuing this matter further. The new members of the Board are
qualified, and we hereby consent to the transfer of control. n1 At the same time, we believe that
the Corporation's failure to obtain prior Commission approval does reflect
adversely upon it and should be taken into account by them in their future operations.
In short, what is before us is most suitable for a forfeiture -- not a
beheading. Unfortunately, we do not now have legislative authority to
impose such a forfeiture; hopefully, cases like this will lead to the enactment
of legislative revision which the Commission is seeking in this area. The
new management is thus advised that strict adherence to the commission's
procedures is expected in the future. This Corporation, which
participated in corrupt activities in Johnstown and Trenton, simply can not
afford to engage in any conduct which would be inconsistent with the standards
expected of a licensee.
n1 Filing
fees, as appropriate, shall be submitted by the Corporation within 30 days.
19. On January 11, 1972 -- the
same date the new Board of Directors was elected -- the Board authorized an
exhaustive special study by the Corporation's new law firm.
Simultaneously, the new management began a "housecleaning" in an
attempt to purge itself of its criminal past.
20. The only TelePrompTer
employee or officer charged in the Johnstown criminal proceeding was Irving
Kahn. Four other representatives of TelePrompTer were present in the
motel room where, according [*1032] to the trial testimony, the
first bribe offer was made by Mr. Kahn to city officials: Caywood C. Cooley,
Jr., Vice President, CATV Division; Walter A. Kinash, manager of the Johnstown
cable system; Walter C. Schier, outside New York counsel for the Corporation;
and Sam DiFrancesco, Jr., TelePrompTer's Johnstown counsel. The Corporation
checks which were indirectly channeled to city officials as payments for the
unlawful scheme were signed variously by Messrs. Kahn, George Leibowitz, then
Treasurer of TelePrompTer, and Eugene Weinrich, then Secretary. False
invoices were initialed by Messrs. Kahn, Weinrich, and Kinash. None of the
above-mentioned persons is now associated with TelePrompTer except Mr. Kinash
and Mr. DiFrancesco. The new management concluded that the nature
of Mr. Kinash's involvement in the scheme did not warrant termination of his
employment since his duties did not and do not include franchising matters, and
since he is closely supervised by the Corporation's Northeast Regional
Office. Present management feels Mr. Kinash was not involved in Mr.
Kahn's decision to make the payments and did not have the alternative of
reporting the matter to a higher corporate level since Mr. Kahn was the Chief
Executive Officer. Management is satisfied that when Mr. Kinash initialed
approval of the false invoice he acted under the direction of Mr. Weinrich, a
corporate officer, who was in turn acting under the direction of Mr. Kahn. Sam
DiFrancesco, Jr., is a member of the firm of Gleason, DiFrancesco, Shahade
& Markowitz, which apparently still handles local real estate, title, and
easement matters for TelePrompTer.
21. TelePrompTer officials
were also involved in a criminal proceeding in connection with the award to the
Corporation of its franchise for the City of Trenton, New Jersey. On
March 24, 1971, three public officials and TelePrompTer's former counsel in
Trenton, Richard L. Gray, were indicted by a Mercer County grand jury for
conspiracy to accept monies, misconduct in office, extortion, and receiving
monies in exchange for official votes. Mr. Kahn; Robert H. Symons, then
Vice President, CATV Division; Thomas Moscarello, an employee of TelePrompTer's
Master Antenna Division who resided in Trenton; and the Corporation were named
as co-conspirators but not indicted. Messrs. Kahn, Symons, and Moscarello
testified before the grand jury and at the trial under grants of
immunity. Mr. Gray has not yet been brought to trial because of
illness. Two of the public officials were found not guilty by the jury
and the charges against the third were dismissed at the conclusion of the
State's case.
22. The Corporation's
investigation of the circumstances surrounding the Trenton case revealed that
several checks amounting to over $100,000 were paid by the Corporation to Mr.
Gray, purportedly for professional services which in fact were not
rendered. The checks were signed variously by Messrs. Kahn, Weinrich, and
Hubert Schlafly, Vice President. The false invoices paid by the checks
were variously initialed by Messrs. Kahn, Symons, Weinrich and Moscarello.
Of the persons named, only Schlafly and Moscarello remain with the
Corporation. In management's opinion there was no basis for Mr. Schlafly
to have suspected any misconduct. Mr. Moscarello is involved in clerical,
budgeting, and administrative matters and not franchising. He was a long
time resident of Trenton and apparently Mr. Symons [*1033] asked
Mr. Moscarello to introduce Symons to the city officials. Management is
satisfied that Mr. Moscarello was not a party to any bribe offers and was in no
way involved in the decision of Kahn and Symons to make the payments. He
was aware of what was going on around him but, like Mr. Kinash, did not have
the alternative of reporting the matter to a higher corporate level.
Beyond the Johnstown case, the Trenton incident was the only case of misconduct
TelePrompTer's investigation uncovered.
23. In view of the facts of
the Johnstown and Trenton cases, management has instituted several corrective
measures and new programs to guard against repetition of such criminal
activities by its employees and officers. The new Board of Directors
established a Franchise Committee headed by Charles Luckman, President of Ogden
Development Corporation, architects and planners. The Franchise
Committee has established policies for the acquisition of franchises and
supervises franchising activities. Governor Shafer bears the ultimate
responsibility to prevent such acts. He receives weekly reports from each
department head and is involved personally in every franchise
application. Hugh E. Flaherty has been appointed Vice President,
Community Development, and is in charge of franchising matters; he reports
directly to Governor Shafer. Prior to joining TelePrompTer, Mr. Flaherty
was Vice President of Information and Communications for the Western Pennsylvania
National Bank in Pittsburgh. During Governor Shafer's term as Governor of
Pennsylvania, Mr. Flaherty served as Secretary for Legislation and Public
Affairs.
24. The new Board of Directors
also established an Audit and Accounting Committee headed by Ralph F. Lewis,
Publisher and Editor of the Harvard Business Review and former Senior Partner
of Arthur Young & Co. Recently, William M. Trust, Jr., was named
Controller. Mr. Trust was formerly Vice-President -- Controller of
American Securities Corporation. The Corporation also completed a
computerized accounting system which furnishes comparative data to
highlight deviations from period to period and to provide for tighter controls.
25. In addition to dismissing
employees that the company determined were involved in illegal acts and
appointing new top management who were not involved in past misconduct, the
Corporation has begun a program of control and education at all levels to
prevent future conflicts of interest or misconduct. In March, 1972, the
Corporation adopted a Conflict of Interest Disclosure Policy and Questionnaire
for all officers and employees from the level of system chief technician
through officers and directors; no such policy had existed in the past.
All affected employees must disclose financial interests they have or had since
March, 1969, in TelePrompTer's suppliers, customers, and competitors. In
addition, they must disclose outside employment, including outside
directorships. Employees are warned not to accept gifts or entertainment
of more than nominal value, not to acquire property which might create a
conflict of interest, and not to accept a profit opportunity acquired as a
result of employment. Each affected employee must sign a statement
indicating he is familiar with these policies and submit an annual list
of transactions which might contravene the policies. Furthermore,
TelePrompTer has instructed [*1034] its lawyers to intensify their
educational efforts at all levels of the Corporation, placing special emphasis
on the importance of avoiding recurrence of relationships which might lead to a
conflict of interest or misconduct.
26. In the Cable Television
Report and Order, 36 FCC 2d 141 (1972), the Commission determined that it was
in the public interest for cable television to develop into more than a
community antenna. We stated there that "[we] envision a future for
cable in which the principal services, channel uses, and potential sources of
income will be from other than over-the-air signals." Para. 120, Cable Television
Report and Order, id. at 190. In this regard we particularly have encouraged
public access channels, local origination of programs, and networking and
interconnection among cable systems. We have also encouraged the
development of new broadband uses for cable. Thus, the record of such
uses by TelePrompTer is relevant to our consideration of the fitness of the
Corporation and its subsidiaries to hold Commission authorizations.
27. TelePrompTer's management
has stated that the company is deeply committed to the development of new
services that will fulfill cable's promise; the facts seem to bear out
management's stated intent. TelePrompTer's public access experiment in
New York City is well known in the industry; programming on two public access
channels averages 100 hours weekly, and the company maintains a storefront
studio in Harlem to encourage walk-in use by community residents.
TelePrompTer originates programs on ninety-six of its systems. Ninety
percent of TelePrompTer's subscribers -- 650,000 homes -- receive locally
originated programs on cable. The schedules range from one and one-half
to sixty hours per week and the production equipment ranges from a single black
and white arrangement to an elaborate color studio. TelePrompTer employs
78 full-time program managers and four regional directors. The company
also has begun implementing plans for networking and syndication of programs
for cable systems. Sports events are already fed to a five-state regional
network from the Nassau Coliseum in Uniondale, Long Island, and the company
recently created an Office of Satellite Development to plan for satellite
interconnection of cable systems. In the meantime, the company
distributes several programs by sending video tapes to its various systems.
28. TelePrompTer has also been
experimenting with non-entertainment uses of cable. In New York, the
company has installed a telemedicine channel between a pediatric clinic in East
Harlem and the Mount Sinai Medical Center to aid in the delivery of health
care. In Mobile, Alabama, subscribers can telephone information requests
to a library where a librarian then places the requested information in front
of a television camera for display on a designated channel. TelePrompTer
is also conducting an experiment in El Segundo, California, with a two-way
"Subscriber Response System" which permits communications between
terminals in subscribers' homes and a central computer and can be used for
security and fire detection, opinion polling, interactive instructional
programs, and pay-program selection.
29. TelePrompTer has continued
to demonstrate its position of leadership in the cable television
industry. The Corporation won fifteen [*1035] of twenty-five
Local Origination Awards given in 1972 by the National Cable Television
Association. TelePrompTer established the industry's first Washington
News Bureau. In minority employment, a subject with which the Commission
is particularly concerned, TelePrompTer has the highest percentage of minority
employees among the major multiple system operators. TV Communications,
October, 1972, at 20. Hubert J. Schlafly, Executive Vice President,
Technological Development, is coordinator of the Commission's Cable Television
Technical Advisory Committee. Raymond Shafer served as a subcommittee
chairman of the Federal/State-Local Advisory Committee.
30. The Trenton and Johnstown
cases involved conduct that sharply draws the issue of TelePrompTer's
qualifications. On occasions when the corporation was threatened with the
loss of a franchise Mr. Kahn would enlist a local TelePrompTer employee to put
him in contact with local officials. Kahn would then do what was
necessary to pacify the officials, even if it meant channeling unlawful
payments to the officials in exchange for their votes. Kahn and the
Corporation claim to have been victims of extortion, which in certain cases
might be a defense to a charge of bribery. But, whether or not the
defense of extortion can be successfully interposed in a criminal trial,
this Commission will in no way sanction the making of unlawful payments to
secure cable television franchises. We agree with Judge Brieant's
comments in a civil case arising out of the proxy battle which ensued after
Kahn's conviction: "A listed American corporation dealing with municipal
officials is simply not supposed to submit to extortion. If threatened
with extortion, an officer of the corporation should report the attempted crime
to State or Federal authorities." Cooke v. TelePrompTer Corp., 334 Fed. Supp.
467, 472 (S.D.N.Y. 1971). On the other hand we must consider that -- as a
practical matter -- TelePrompTer is not the same corporation it was from 1965
to 1967 when the unlawful acts took place. None of the corporate officers
involved in the franchising process then is part of today's management
team. Furthermore, the Corporation has amply demonstrated that it is a
leader in and committed to the research and experimentation necessary for the
development of non-broadcast uses of cable television.
31. In our judgment, and based
on our review of corporate efforts to avoid future improprieties, we anticipate
that the future conduct of the licensee will measure up to the
expectations held when the license was issued. In the process of measuring
fitness for the authorization being sought, we comb an applicant's background
in an effort to uncover anything that might illuminate likely performance after
the license is in hand. If TelePrompTer were applying as a new entrant
into the business, other considerations might obtain. There would then be
little indication of the public benefit likely to flow from a license
grant. But this company is a long-time leader, its everyday operations
giving repeated evidence of its commitment to the evolution of cable television
as a promising component of the nation's communications structure. The
grant of licenses, therefore, can take into account the public benefits likely
to flow from permitting TelePrompTer to continue to move forward in such areas
as access, originations, satellites, two-way, and the other promising areas of
cable television. We are persuaded that the company has been turned
around and that [*1036] controlling management has high credentials
and the necessary motivation to make internal procedures work to avoid
misconduct. We have balanced the considerations, and have given
weight to the circumstances that this fledgling cable industry needs
reassurance that its single biggest operator has successfully survived what
must be considered a searing experience for the company. We are appalled
by the lurid exposures in Johnstown and Trenton. We also think that the
company has moved boldly to cleanse itself and that the public interest
benefits from a healthy TelePrompTer seem assured. We, therefore, are
resolving the question in the company's favor.
32. One other matter
remains. In consenting on August 5, 1970, to the merger of TelePrompTer
and H & B American, TelePrompTer Transmission of Kansas, Inc., 25 FCC 2d
469, the Commission temporarily waived the provisions of Section 21.700 of its
Rules, giving TelePrompTer an opportunity to cure a violation of the 50 percent
non-affiliation requirement that was caused by the fact that the H & B
systems were converted by the merger from unaffiliated to affiliated customers
of TelePrompTer's common carrier microwave system. The authorization in
that proceeding was specifically conditioned on TelePrompTer's filing with the
Commission: (a) a detailed plan showing how it proposed to achieve compliance
by February 1, 1971; (b) a monthly progress report on implementation of
the plan; and (c) any necessary application for Commission authority by
December 1, 1970. TelePrompTer did promptly notify the Commission that it
would achieve compliance by the sale of one of its cable systems, and it made
monthly progress reports, but they continued only until March 1971.
33. Compliance with the rule
was not achieved by February 1, 1971 as required, nor has it yet been
achieved. Apparently, TelePrompTer was unable to find a buyer for the
cable system it sought to sell and is now attempting to reach compliance by
adding new unrelated customers to its microwave system. After the merger
the carrier was providing 24 channels of service to affiliated customers and 14
channels to unaffiliated customers. By February 1, 1971 it had added
another channel to an unaffiliated subscriber. Subsequently, other
applications were filed to provide service to unaffiliated customers, the most
recent being filed on April 5, 1973. If these pending applications are
granted and the facilities constructed, TelePrompTer would then be in
compliance with the Rules.
34. Despite TelePrompTer's
belated effort to reach compliance by this alternate method of adding new
subscribers, it has failed to meet the February 1, 1971 date or to file any
necessary applications by December 1, 1970 as required. It is apparent
that TelePrompTer has not complied in timely manner with the conditions
imposed. n2 Therefore, these facilities are, and have been, operating contrary to
the terms of the authorization. We are of the view that TelePrompTer
should not be permitted to reap any rewards as a result of its operations that
are conducted in non-compliance with the Commission's order.
n2 TetlePrompTer had more than one or two options in
achieving compliance. In addition to acquiring more unaffiliated
customers, it could have sold one or more of seven cable systems, or
transferred some or all of its common carrier facilities to the Community
Antenna Relay Service.
[*1037] 35.
Accordingly, we are directing TelePrompTer to reduce its common carrier charges
to each of its affiliated cable systems by an amount equal to a ratio by which
the number of affiliated channels exceeds the number of unaffiliated channels
in service. n3
This savings to each cable system shall be passed on proportionately through
refunds, as appropriate, to its individual subscribers. The
reduction in charges shall cover the period from February 1, 1971, until April
5, 1973. However, as the ratio representing the imbalance has been
reduced from time to time, the reduction in charges shall be reduced, as
appropriate.
n3 This ratio is expressed as a fraction of which
the numerator is the number of affiliated channels in service in excess of
unaffiliated channels in service and the denominator is the number of
affiliated channels in service. For example: 24 affiliated and 15
unaffiliated channels are in service. The average per channel rate per
affiliated customer is $300 per month. Therefore, the charge to each
affiliated system will be reduced by $112 per month per channel (9/24 X $300).
The foregoing disposes of the issue
as to TelePrompTer generally, including, of course, its future operations.
Thus, this determination will be deemed dispositive of the same general
character issue in other pending TelePrompTer applications for licenses and
Certificates of Compliance. But there remains the issue as to the proper
course of action with respect to Johnstown and Trenton, where the improper
conduct by TelePrompTer occurred. And here the foregoing discussion
of the general issue is not dispositive, and there is presented an issue as to
the applicability of the Root Refining doctrine ( Root Refining Co. v.
Universal Oil Products Co., 169 F. 2d 514 (3d Cir., 1948), certiorari denied,
335 U.S. 912 (1949)). This doctrine is pertinent to "... the adjudicatory
functions of an administrative agency." n4 WKAT, Inc. v. FCC, 219 F.2d 375, 382 (D.C. Cir., 1960), certiorari
denied, 368 U.S. 841 (1961). We shall therefore proceed in an orderly and
prompt fashion to consider the issue of the applicability of the Root doctrine
raised as to Johnstown and Trenton. We have reached no final decision: That
would not be fair to TelePrompTer which is entitled to present its side fully
before any final determination. An application for Trenton is already on
file with the Commission, but not yet ripe for consideration; for Johnstown,
the recently-filed application proposes only to add additional signals to an
existing system and is not the full application contemplated for validating a
grandfathered operation under Section 76.11(b) of the Rules. Accordingly,
we are hereby directing that an appropriate application be filed within
60 days from the effective date of this order to permit the Commission to
examine the Johnstown operation in light of the facts uncovered in the criminal
proceeding. When we look at the facts and circumstances of these applications,
we intend to examine fully the conduct of all those now connected with the
company who may have participated in such activities and whether their
continued association with the company would serve the public interest.
And in connection with that filing and the pending Trenton [*1038]
request, TelePrompTer shall submit a statement setting forth fully its position
on the issues presented by these two situations. After consideration of
that submission, we shall then consider the next appropriate step.
n4 We generally leave the issue of character to the
franchising entity. In the Cable Television Report, we stressed that the
cable applicant's good character is a requisite part of the public interest
scheme and that the local franchising entity must focus on this matter (36 FCC
2d 141, 208 (1972)). It follows that the applicability of the Root doctrine
bears directly on our public interest scheme for cable, and that in the unusual
situation like this, the Commission itself can and must consider this aspect in
the certification process. We stress that our intervention does not
signal a new broad departure but rather is limited to the unique facts of this
case -- undisputed evidence concerning corruption of the governmental
franchising process.
Accordingly, IT IS ORDERED, That the
above-captioned application IS GRANTED, and an appropriate license will be
issued.
IT IS FURTHER ORDERED, That
TelePrompTer Transmission of Kansas, Inc. and the TelePrompTer cable systems it
serves SHALL REDUCE THEIR CHARGES as specified in paragraph 35 above, and that
TelePrompTer Corp. SHALL PROVIDE the Commission with a report within 30
days of the release date of this order containing a full accounting of the
amount refunded, including the method of computation.
FEDERAL
COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
DISSENT:
DISSENTING OPINION OF COMMISSIONER
NICHOLAS JOHNSON
There is much to be said about this
case, little time to say it, but a necessity for some brief explanation of my
dissent.
Teleprompter's officials have been
charged, and convicted, with bribing local officials to gain cable television
franchises.
The F.C.C. has today imposed no sanction with
regard to the company in general, or those franchises in particular.
Although the former President of
Teleprompter is now in jail, a few of the others who participated in this
action are still employed or retained by Teleprompter in its day-to-day
affairs.
The Commission imposes no sanctions
regarding these facts.
Teleprompter has engaged --
deliberately, and with over misrepresentation to the Commission -- in an
unauthorized transfer of control of the corporation, in express violation of
the Communications Act of 1934.
The F.C.C. has winked at these
violations, and now retroactively approves the transfer of control.
In view of the shortness of time
before the Commission's opinion must be released (because of its impact upon
the stock market), I will not discuss at length the applicable precedents nor
put forward my analysis of the numerous errors in the Commission's past actions
and its current disposition. Perhaps even these skeletal facts speak for
themselves and it's just as well not to elaborate.
A summary of my view of the
rock-bottom minimum appropriate disposition, however, is that we should:
(1) Dispose of the Trenton and
Johnstown cases (where the bribery occurred) prior to granting the dozens of
additional applications before us today. In my view, the disposition of
those cases should require complete forfeiture and divestiture of all related
franchises and any direst or indirect fruits of the wrongdoing.
(2) Require that current management
be forbidden to continue operation of the company until proper applications for
transfer of control have been filed and disposed of by the Commission.
The current board of directors might be retained in the interim solely for the
purpose of selecting new management.
[*1039] (3) Require that
the company discharge all employees found to have engaged in the bribery
transactions.
(4) Grant no more than short term,
conditional licenses for the dozens of applications we do approve.
I might simply note that this is but
one more example of the range of sanctioned corporate abuse in this
country. We have already found over $40,000 of fraud to be consistent
with "the public interest." Apparently there will be no limit to what
this Commission will permit as consistent with "the public interest,"
no case in which a corporation will be found to have violated its trust.
Our most severe penalties continue to be reserved for people -- the shrimp boat
captain caught uttering a profanity over his radio telephone, the small town AM
radio station operator who fails to paint his antenna tower, the radio amateur
who strays off frequency. But the corporations are superhuman, above and
beyond the law. If, perchance, one of their employees gets caught, that's
the end of the matter. So long as he's disposed of, the corporation goes
merrily on. And, in this case, not even all the guilty parties need be
removed.
If and when America falls, it will
be from the dry rot within. In an age when a $325,000 cash
"contribution" to the President one day can produce a $700 million
milk price rise for an inflation-weary people the next, perhaps we should not
expect more from our independent regulatory agencies. But I would.
And I do. And I dissent.