This petition involves Federal Communications Commission (FCC) rules promulgated to allow the so-called "excess capacity" of microwave frequencies in a portion of the radio spectrum allocated for Instructional Television Fixed Services (ITFS) to be used for the transmission of noneducational materials. Petitioner, Telecommunications Research and Action Center (TRAC), and intervenor, Youth News,1 challenge two aspects of the new ITFS regulatory scheme, which the Commission established in Second Report and Order, 101 F.C.C.2d 49 (1985), J.A. at 1, and reaffirmed in Memorandum Opinion and Order, 51 Fed.Reg. 9796 (1986), J.A. at 89. First, TRAC questions the Commission's failure to regulate the newly permitted ITFS programming aimed at the general public as "broadcasting" under the Communications Act of 1934. 47 U.S.C. Sec. 153(o ). TRAC also takes exception to new FCC rules that provide for lotteries in ITFS licensing proceedings because they do not comply with 47 U.S.C. Sec. 309(i), governing lotteries for broadcast licenses, which requires the FCC to grant preferences to applicants who will diversify ownership of mass communications media.

Because the Commission has failed to give adequate reasons either for classifying the nonsubscription use of excess ITFS capacity as nonbroadcasting or for deferring examination of the issue, we remand the classification issue to the agency for further consideration. We also find that the Commission does not have the inherent authority to conduct lotteries under its current selection procedure for ITFS licensees without employing media diversity and minority ownership preferences as mandated by Sec. 309(i). We therefore vacate those portions of the rules dealing with nonsubscription leasing and lotteries and remand to the Commission for reconsideration.

The FCC established ITFS in 1963 to enable educational institutions to provide instructional and cultural material to enrolled students at selected receiving locations. See Educational Television, 39 F.C.C. 846, 852-54 (1963). Transmissions were normally made on a point-to-point basis to classrooms or other learning centers specially equipped for receiving and converting the signal. For two decades, in order to promote the educational purpose of the service, the Commission strictly limited both the permissible uses of ITFS and eligibility for ITFS licenses.

In 1983, however, the Commission instituted a series of policy changes intended to remedy the perceived inefficient use of that portion of the spectrum dedicated solely to ITFS. Faced with an increasing demand for radio frequencies, the Commission commenced a rulemaking that contemplated commercial use of underutilized ITFS channels. Notice of Proposed Rulemaking, 48 Fed.Reg. 29,553 (1983), J.A. at 94. The FCC decided to reallocate eight former ITFS channels per market for use by operators of Multipoint Distribution Service (MDS). Report and Order, 94 F.C.C.2d 1203 (1983), J.A. at 102.2 The Commission also decided to allow licensees on the remaining ITFS frequencies to transmit noneducational programming in addition to their regular instructional programming. Id. The Commission authorized ITFS licensees and their lessees to disseminate commercial programming to the general public, requiring only that several hours per weekday be used for traditional ITFS programming.

In conjunction with these decisions, the Commission issued its Notice of Proposed Rule Making, 48 Fed.Reg. 29,553 (1983), J.A. at 94, to reevaluate rules governing the licensing and operation of ITFS stations. On August 10, 1984, the FCC issued a Further Notice of Proposed Rulemaking, 98 F.C.C.2d 1249 (1984), J.A. at 188, soliciting comments on other issues including procedures for selecting among competing applicants.

This Further Notice made no mention of the Commission's regulatory classification of the newly authorized ITFS uses. In a separate statement, however, Commissioner Rivera solicited commentary on this issue and criticized his "colleagues' unfortunate head-in-the-sand approach. (i.e., refusing to admit the existence of a problem by failing even to solicit comment on this question.)" Id. at 1272, J.A. at 211. Commissioner Rivera was concerned that this court, in National Ass'n of Broadcasters v. FCC, 740 F.2d 1190 (D.C. Cir.1984), had recently held that a similar new service must be regulated as "broadcasting" under the Communications Act of 1934. 47 U.S.C. Sec. 153(o ). He noted that "by default" ITFS continued to be considered a private nonbroadcast service despite the FCC's authorization of uses substantially different from its original educational function.

The Commission, noting that the number of ITFS applicants had grown significantly since its announcement that "excess capacity" could be used for commercial transmissions, Second Report and Order, 101 F.C.C.2d at 52, J.A. at 3, proposed four alternative procedures for selecting between mutually exclusive applicants. Further Notice 98 F.C.C.2d at 1263, J.A. at 202. The alternative methods included: (1) a lottery with preferences; (2) a "paper hearing" approximating comparative hearings; (3) a mechanical point system; and (4) a combination of a point system with a random drawing among identical or very close applicants. Id. The Commission also specifically requested comment on "the appropriateness of following the lottery statute, Section 309(i) of the Act, for the ITFS service." Id.

On October 17, 1984, petitioner and Media Access Project (MAP), a party in the agency proceedings, filed comments in response to the Commission. J.A. at 213. These comments questioned the impact of the FCC's excess capacity decision upon the classification of ITFS as nonbroadcasting; they argued that omnidirectional transmission of general interest programming over ITFS frequencies should be regulated as broadcasting.3 J.A. at 217. Again, in reply comments filed on November 16, 1984, MAP and TRAC urged the Commission to classify ITFS as broadcasting for regulatory purposes. J.A. at 236, 256-57. After consideration of TRAC's and other comments on the broadcast classification issue, J.A. at 257, the Commission released its Second Report and Order, 101 F.C.C.2d 49 (1985), J.A. at 1, containing final regulations for ITFS, but again failing to discuss the broadcast classification issue.

A major portion of the Second Report and Order established procedures to be used in selecting among the increasing number of competing ITFS license applicants. The Commission promulgated rules employing a point system examining five factors with a total of fourteen possible points and a random lottery to resolve ties among those applicants with the same point score.4 The Commission claimed that it possessed inherent authority, derived from several broad provisions of the Communications Act of 1934, to employ a lottery in this selection system. See 47 U.S.C. Secs. 154(i), 154(j), 303(g).

In its order, the Commission expressly concluded that the lottery statute passed by Congress in 1982,5 did not provide authorization for any system of random selection for ITFS licensing. 101 F.C.C.2d at 67, J.A. at 18. Rather, the Commission concluded that Sec. 309(i) authorized lotteries only when certain criteria elaborated in the statute's conference report were met.6 Because ITFS did not meet these criteria the Commission considered such a procedure "neither required nor appropriate." Id. Specifically, the FCC reasoned that the number and backlog of mutually exclusive ITFS applications are neither so great nor expected to become so great, as to make the lottery the most practical and efficient method of selecting among applicants. Id. at 68, J.A. at 19. The Commission claimed that since its proposed tie-breaker lottery did not meet these prerequisites to application of Sec. 309(i), its lottery scheme need not conform to the requirements of Sec. 309(i) either. In particular, no preference need be given to "further diversify ... ownership" or to increase participation by "members of ... minority group[s]," as required by Sec. 309(i)(3).

TRAC and MAP challenged both the Commission's adoption of a lottery system that was not in conformity with Sec. 309(i) and its failure to address the issue of proper broadcast classification. Petition for Reconsideration (July 29, 1985), J.A. at 276. Rejecting both claims, the Commission denied their petition for reconsideration. Memorandum Opinion and Order, 51 Fed.Reg. 9796 (1986), J.A. at 89. See also ITFS Reconsideration Order, 59 Rad.Reg.2d (P & F) 1355 (1986), J.A. at 55. In its denial of reconsideration, the Commission relied on its recent determination7 that Sec. 309(i) was not intended to cover a "tie-breaker" situation. 51 Fed.Reg. at 9797, J.A. at 90; 59 Rad.Reg.2d (P & F) at 1373, J.A. at 73 (citing First Reconsideration/Random Selection, 49 Fed.Reg. 49,466, 49,467 (1984), petitions for review denied sub nom. National Latino Media Coalition v. FCC, 816 F.2d 785 (D.C.Cir.1987)).8 The Commission also finally addressed the issue of classifying excess capacity transmissions as broadcasting; since ITFS excess capacity is "generally" or "typically" provided on a subscription basis and the Commission, in another proceeding, Subscription Video Notice of Proposed Rulemaking, 51 Fed.Reg. 1817 (1986), was considering whether all subscription services should be treated as nonbroadcasting, it concluded that allowing noneducational uses of ITFS frequencies did not require a reclassification. 51 Fed.Reg. 9796 (1986), J.A. at 89.9

Indisputably, ITFS that is used for its original purpose of providing educational programming is not broadcasting; transmissions with a precise educational purpose intended for use by a narrow group of students are clearly not "dissemination of radio communications intended to be received by the public...." 47 U.S.C. Sec. 153(o ). Furthermore, whether noneducational ITFS transmissions provided on a subscription basis are properly considered broadcasting is the subject of another appeal pending in this court and an issue that we will pretermit at this time.11 TRAC and Youth News, however, urge that we do need to decide now whether noneducational ITFS transmissions provided on a nonsubscription basis should be regulated as broadcasting. See 47 U.S.C. Sec. 153(o ). Broadcasting, as defined by Sec. 153(o ), is subject to regulation under Title III of the Communications Act, and if an ITFS service constitutes broadcasting, the Commission has the duty to ensure its conformity with statutory requirements.12

The Commission initially claimed that alternative uses of ITFS frequencies are not broadcasting because they are "typically" provided on a subscription basis. Now, while conceding that its new regulations allow ITFS to be used for nonsubscription commercial programming, the Commission claims that it has merely deferred the classification issue until it becomes aware of a licensee who is actually providing such nonsubscription service. The Commission, however, has failed to provide a reasoned basis for either position.

The problem with the Commission's first rationale is that it has already made a decision on the broadcast classification of nonsubscription ITFS. By making such services permissible, it has enabled them to operate within the nonbroadcast classification of traditional ITFS but without prior FCC approval. Second Report and Order, 101 F.C.C.2d 49 (1985), J.A. at 1. It has done so, moreover, without ever forthrightly addressing the issue of whether they are subject to "broadcast" regulation. When fundamentally changing the permissible use of a medium, however, the Commission has a duty to address significant issues that parties raise in the course of its rulemaking.13 3] Here the FCC simply said that because the new service would "typically" be provided on a subscription basis and because an ongoing rulemaking was considering classifying all subscription services as not broadcasting, there was no reason to change the initial classification of ITFS. See supra note 9.

Only after this petition for review was filed did the FCC explicitly adopt its deferral explanation; in a terse footnote in its Subscription Video decision the Commission stated that:

Although section 2.106 of our rules indicates that the frequencies could be used for some types of nonsubscription service, we know of no proposals to use excess capacity to provide nonsubscription service on the spectrum. Accordingly, it is not necessary at this time to decide the appropriate classification of any such service that might be offered.

Subscription Video, General Docket No. 85-305, 2 F.C.C. Rec. 1001, 1009 n. 27 (1987), appeal docketed sub nom. National Ass'n for Better Broadcasting v. FCC, No. 87-1198 (D.C.Cir. May 4, 1987). Even if this post hoc explanation in a subsequent case is appropriately considered in the context of this petition for review, the Commission has failed to offer a reasoned basis for its position. See Action for Children's Television v. FCC, 821 F.2d 741, 745 (D.C.Cir.1987).

The Commission's disavowal in a subsequent case that it had rendered a final decision about the status of nonsubscription ITFS excess capacity leasing does not disturb its earlier decision in this proceeding that all ITFS would remain classified as nonbroadcasting for the indefinite present. That decision not to reclassify presently affects the rights and obligations of ITFS licensees, despite the FCC's claim that the issue of service classification for nonsubscription, alternative ITFS is still an open one. The status quo remains: the FCC will not apply Title III regulation to any ITFS nonsubscription licensees.

Neither the Commission's decision nor the record contains any evidence bearing on the likelihood of ITFS use for the transmission of general interest programming on a nonsubscription basis.14 The naked assertion that most excess capacity ITFS services are offered on a subscription basis carries little weight because the Commission does not require licensees to disclose the basis upon which their lessees will offer programming.15 Quite plausibly an ITFS supplier might offer two advertiser supported channels as an inducement to viewers to install receiver/converters--hoping that they would then buy subscription services on the remaining channels. The Commission admits that nothing in its regulations prohibits such uses of excess ITFS capacity and that the technical capability for such uses exists.16 Yet, the FCC totally fails to address what practical or economic factors combine to make ITFS offerings feasible only on a subscription basis.

The Commission, moreover, failed to suggest why broadcast regulation should not apply to nonsubscription commercial ITFS programming. It argues only that regulating nonsubscription, noneducational ITFS now would be premature because of the "difficulty of deciding the issue without a concrete proposal to examine." Respondent's Brief at 20. But the Commission offers no explanation why the status of nonsubscription ITFS as broadcasting should be any more fact-specific than subscription ITFS. The Commission has completed a rulemaking that classifies all subscription services, including ITFS, as nonbroadcast. Yet, it provides no reasons why nonsubscription ITFS services would be so much more difficult to classify.

The Commission argues finally that it need not address this issue until it is shown that some ITFS licensee is providing nonsubscription service. It claims that if any providers of nonsubscription ITFS transmissions emerge, the Commission will find out about them and then determine their proper classification. We do not doubt the Commission's authority to modify a licensee's classification in the context of a specific adjudication, SEC v. Chenery Corp., 332 U.S. 194, 67 S. Ct. 1575, 91 L. Ed. 1995 (1947), although we do note that even if the FCC were to find out about violations of Title III on nonsubscription ITFS, it could not order retroactive relief, because ITFS is and always has been classified as nonbroadcasting. Thus, it appears highly unlikely that any victims of an interim erroneous classification of nonsubscription ITFS as nonbroadcasting would have any practical remedy.

Our basic problem, however, is with the FCC's assumption that it will inevitably find out about the existence of any nonsubscription ITFS use because any one allegedly injured by an ITFS service's failure to comply with broadcast regulation will inform the Commission. The very fact that the Commission itself has failed to reclassify the service as broadcasting may well deter private citizens from objecting since there is no apparent law violation about which to complain. The Commission nonetheless anticipates that viewers and their representatives, slighted political candidates, and ITFS competitors will likely challenge the nonbroadcast status of any nonsubscription ITFS services. But even assuming these groups will become aware of any such cases, the fact remains that it is not their responsibility but the FCC's to regulate broadcast services and to decide how those services should be classified. What the Commission is doing by its inaction is silently authorizing possible statutory violations but refusing to decide the issue until a private challenge arises. It is an administratively awkward posture, at best.

We therefore remand for the FCC to make the basic classification determination or to explain why it should not have to at this time. Its duty is to "execute and enforce" the Communications Act. See 47 U.S.C. Sec. 151. If it continues to defer, it should explain what useful information it expects to learn in any interim period and, at a minimum, consider requiring licensees to inform the agency of any plans to provide noneducational ITFS on a nonsubscription basis.

The second issue in this case implicates the Commission's authority to establish a selection procedure employing a random lottery at the end of a limited comparative proceeding when there is a tie between competing applicants for an ITFS license. The Commission has adopted such a modified comparative hearing system including a tie-breaker device in a formal rule, 47 C.F.R. Sec. 74.913(c) (1986) ("the tentative selectee will then be determined through a tie-breaker mechanism"), and has announced its intention to employ the lottery procedures in a particular case.17 TRAC claims that there is no statutory authority for the Commission's establishment of this lottery system for ITFS licenses.

In the Second Report and Order, 101 F.C.C.2d 49, J.A. at 1, the FCC set out its new procedure for selecting among mutually exclusive ITFS license applicants. See supra note 4. The Commission chose neither a traditional comparative hearing nor the random selection procedures with minority and diversity preferences authorized by Sec. 309(i); instead, the FCC established a hybrid procedure for ITFS licenses with a limited number of points assigned for relevant criteria and a random lottery to resolve deadlocks. In the Second Report and Order, the Commission also abandoned its earlier position that its authority to conduct tie-breaker lotteries was derived from Sec. 309(i) and claimed instead "inherent authority" to conduct tie-breaker lotteries under Secs. 303(g), 154(j) and 154(i) of the 1934 Communications Act.18 The Commission claims that the lottery used in its selection procedure is merely an ad hoc tie-breaker and, as such, a reasonable exercise of its authority to regulate in the "public interest."

Since we find that the ITFS selection procedure constitutes a "system of random selection" within the meaning of the 1982 amendment, we reverse and remand. While in the absence of specific indicia of Congressional intent, we normally defer to an agency's reasonable interpretation of its organic statute, Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984), in this case, the Commission's interpretation of the 1934 Act19 is precluded by the language and legislative history of the 1982 amendment, which the Commission itself initially viewed as governing tie-breaker lotteries. See NLRB v. Food and Commercial Workers, Local 23, --- U.S. ----, ----, ---- n. 20, 108 S. Ct. 413, 420, 421 n. 20, 98 L. Ed. 2d 429, 4041 n. 20 (U.S.1987); INS v. Cardoza-Fonseca, --- U.S. ----, 107 S. Ct. 1207, 1221 & n. 30, 94 L. Ed. 2d 434 (1987) (the court may employ traditional tools of statutory construction to ascertain clear congressional intent and where an agency's interpretation is inconsistent, "it is entitled to less deference").

Our first stop is at the language of the lottery statute itself. The plain language of Sec. 309(i) supports the view that a selection system that relies on a tie-breaker lottery but is conducted without media diversity and minority preferences is impermissible. It authorizes the Commission to grant licenses to qualified applicants "through the use of a system of random selection." 47 U.S.C. Sec. 309(i)(1). Furthermore, it indicates that Congress envisioned more than one possible system, because it requires the Commission to establish rules and procedures for "any system of random selection under this subsection." Id. at Sec. 309(i)(3)(A) (emphasis added). Finally, in the administration of "any system of random selection" it requires "significant preferences ... to applicants ... the grant to which of the license or permit would increase the diversification of ownership of the media of mass communication."20

The ITFS licensee selection procedure constitutes such a system of random selection within the meaning of Sec. 309(i). The regulations require the use of a lottery in the case of a tie. No exercise of agency discretion is involved. More importantly, deadlocks are made more likely by the limited point system employed to assess competing applicants; by initially limiting the relevant factors to a handful of single digit ratings (only whole number scores from 1 to 14 are mathematically possible) the Commission's scheme itself contributes to a greater need for a tie-breaker lottery. One would expect that the wider the range of relevant factors considered in comparative hearings the less frequently ties will occur. Thus, the ITFS selection procedure appears to constitute a "system of random selection" purposely designed to by-pass the time and resource consuming process of traditional comparative hearings. As such, it is something more than the merely ad hoc device for avoiding arbitrary decisionmaking the Commission claims.21

The FCC cites Black's Law Dictionary, which defines "system" as an "orderly combination or arrangement, as of particulars, parts, or elements into a whole...." Black's Law Dictionary 1621 (4th ed. rev. 1968). It reasons that this definition indicates that "a random selection system is not being employed when a lottery is not contemplated at the outset of a proceeding and is used only as a last resort to resolve a deadlocked comparative proceeding." 49 Fed.Reg. at 49,467, J.A. at 270. The ITFS rules, however, do contemplate a lottery at the outset of the proceeding. They say that lotteries "will" be applied in ties and the truncated rating system itself makes ties likely.

The Commission also argues from Sec. 309(i)'s language that tie-breaker lotteries must be immune from Sec. 309(i)'s preference requirement because to apply such a requirement "could create the anomalous result of according diversity or minority preferences in a lottery, even though the Commission after a full hearing applied such preferences in finding the rival applicants equally qualified." Id. Whatever merit this argument may have in the abstract, it is irrelevant in reality; the Commission expressly declined to include any minority preference in its ITFS selection criteria and grants only a small bonus for general diversity of ownership.22 Thus, the statutory preferences are not duplicated in this scheme. It may be that a valid lottery under Sec. 309(i) could be held without duplicating preferences already incorporated into the comparative rating scheme but that case is not before us.

The Commission next turns to the legislative history of Sec. 309(i) to show that it was not meant to cover a tie-breaker lottery that is a supplement to, not a substitute for, traditional comparative hearings. It relies on the legislative history of the 1981 and 1982 lottery amendments for this interpretation, pointing to the second statute's conference report's statement that the amendment was "intended to alleviate many of the delays and burdensome costs faced by both applicants and the Commission in an initial comparative licensing proceeding with mutually exclusive applicants." Communications Amendments Act of 1982, H.R.Conf.Rep. No. 765, 97th Cong., 2d Sess. 37 (1982), U.S.Code Cong. & Admin.News 1982, p. 2281.23

During passage of the first lottery bill in 1981, Congress and the Commission both focused their attention primarily on the use of lotteries as total substitutes for traditional time-consuming comparative hearings. The Chairman of the FCC testified that the lottery bill as initially proposed "would permit the Commission to dispense with comparative hearings...." Hearings Before the Subcomm. on Communications of the Senate Comm. on Commerce, Science and Transportation, S. 601, 97th Cong., 1st Sess. 7 (1981) (statement of Robert E. Lee, Acting Chairman, FCC). See also id. at 21 ("By reviewing basic qualifications and eliminating comparative hearings, we could eliminate much of the delay and expense with little or no adverse effect on the final provision of television service."). The House and Senate conferees agreed that the 1981 amendment authorized the "elimination of intial comparative hearings." Omnibus Budget Reconciliation Act, H.R.Conf.Rep. No. 208, 97th Cong., 1st Sess. 897 (1981), U.S.Code Cong. & Admin.News 1981, pp. 396, 1259.

After the 1981 amendment was passed, granting the Commission authority to use a system of random selection to choose among competing applicants, the Commission objected to that part of the provision which allowed use of lotteries only "after determining the qualifications of each such applicant under section 308(b)." 47 U.S.C. Sec. 309(i)(1) (1982 Supp.) (repealed 1982).24 The Commission had initially requested the authority to conduct a lottery before passing on the applicants' qualifications, Hearings at 10, and renewed this request in refusing to implement the 1981 amendment. The Commission reasoned that the requirement that each applicant's qualifications be examined before any lottery took place fatally undermined its ability to avoid the costs and delays of processing numerous applications.

During deliberations on the Commission's proposed 1982 amendments, however, commentators along with the Commission itself assumed that the 1981 lottery authority authorized lotteries that were supplements to, not just complete substitutes for, comparative hearings. For example, in the abortive FCC rulemaking on implementing the 1981 lottery amendment, the Corporation for Public Broadcasting claimed the 1981 amendment would not allow the Commission to eliminate consideration of the comparative qualifications of noncommercial applicants but suggested that it might authorize tie-breakers in the public television context. Report and Order, 89 F.C.C.2d 257, 261 (1982). Another group of commentators argued that lotteries need not be used as a total substitute for comparative hearings; the Commission, they argued could hold "paper hearings" and turn to a lottery as a "last resort." Id. at 267-68.

The Commission itself, in discussing the problems involved in assessing the 308(b) qualifications of each applicant, stated its view that the 1981 amendment provided authority for tie-breaker lotteries:

The effect of this new authority would be to enable the ALJ to declare that the licensee could be selected from among the "dead-locked" applicants (i.e., that there is no material public interest basis for selecting one over another) by a lottery.

Id. at 279.

And finally, in reviewing the history of the 1981 amendment, Congress asserted that it applied to "[a ]ny use of a lottery system." H.R. Conf.Rep. No. 765, 97th Cong., 2d Sess. 23 (1982), U.S.Code Cong. & Admin.News 1982, p. 2267 (emphasis added).

In enacting the 1982 amendment Congress did nothing to contradict this inclusive view of the intended scope of its lottery statute. Rather Congress gave the Commission the power to establish any kind of lottery system or systems it found necessary to deal with the unique problems involved in licensing different services.

Moreover, after Congress enacted the 1982 amendment, the Commission actually did propose a tie-breaker lottery with preferences under Sec. 309(i). Second Notice of Proposed Rulemaking, 91 F.C.C.2d 911, 913 (1982). Specifically, it proposed the use of tie-breaker lotteries in any area "where the qualifications of competing applicants are so close that no material difference between the parties' ability to serve the public interest can be distinguished." Id. at 913. Similarly, the FCC formally concluded in its Second Report and Order, 93 F.C.C.2d 952, 959 (1983), that Sec. 309(i) included tie-breaker authority.We have analyzed the arguments that have been raised and concluded that the language of both the statute and the Conference Report permits the use of ad hoc lotteries in "tied" cases.

Id. The Commission decided, however, not to implement its proposed tie-breaker lottery at that time because it wanted to deliberate further on procedures for identifying ties and breaking them. Id.

Having sought broad authority to conduct a variety of random selection procedures and having acknowledged that the 1982 authority included tie-breaker lotteries, the Commission is now in a poor position to ignore the conditions upon which Congress granted that authority.25 If an agency seeks authority, even clarifying authority, from Congress, and Congress grants it conditioned upon certain provisions, the agency may not ignore these requirements. Therefore, the FCC's explicit conclusion that the ITFS "random chance tie-breaker need not follow the provisions of the lottery statute" is simply incorrect. 51 Fed.Reg. at 9797, J.A. at 90. The 1982 statute clearly mandates minority and media ownership diversity preferences in any system of random selection. See 47 U.S.C. Sec. 309(i)(3).26

In contrast, the decision of what kind of lottery system to establish in what circumstances clearly lies within the discretion of the Commission. The 1982Conference Report lists criteria for the Commission to consider in making such decisions but these factors do not rise to the level of statutory requirements binding on the Commission. As long as the use of some form of random selection lottery is "appropriate in the public interest," the "use of a lottery system ... is discretionary with the Commission." H.R.Conf.Rep. No. 765, 97th Cong., 2d Sess. 37 (1982), U.S.Code Cong. & Admin.News 1982, p. 2281. In short, if an ad hoc lottery would be in the public interest, then the Commission may use one under the 1982 amendment but it must incorporate the preferences that are mandated by the statute.

Accordingly, we vacate the ITFS lottery rule and remand for the Commission to reconsider its authority under Sec. 309(i) to conduct tie-breaker lotteries in ITFS licensing proceedings. The Commission has previously determined that the ITFS situation was not appropriate for Sec. 309(i) lotteries. But this determination was based on a strict construction of the criteria set forth in the Conference Report as binding and was made at a time when the Commission believed it had inherent authority to establish a tie-breaker lottery outside of Sec. 309(i)'s limitations. Second Report and Order, 101 F.C.C.2d at 67, J.A. at 18; Memorandum Opinion and Order, 51 Fed.Reg. at 9797, J.A. at 90. In light of our interpretation of Sec. 309(i)27 as governing all lotteries, tie-breaker or otherwise, employed on a systematic basis, the Commission must reconsider whether the kind of lottery it wishes to employ in ITFS proceedings is in the public interest. Any such lottery must conform to Sec. 309(i) standards.

Remanded.