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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. 


DISSENTBY: JOHNSON

 

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.


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