FCC Approves UHF Discount NPRM Over Pai Dissent

The vote split along party lines, with Commissioner Ajit Pai voting against the NPRM as expected (CD Sept 26 p4). By attaching the deadline for grandfathering to the NPRM rather than the actual order, the FCC was turning the rest of the rulemaking process into a formality, he said. “The UHF discount will be the law of the land tomorrow and every day after that until the commission formally votes to repeal it,” said Pai. “But today’s NPRM effectively tells the private marketplace to behave as though the UHF discount has already been eliminated.” Commissioner Jessica Rosenworcel and acting Chairwoman Mignon Clyburn both supported the proposal to eliminate the discount. “Our rules should not be grounded in technical constraints that no longer exist,” Rosenworcel said.

The commission has created a “regulatory purgatory for broadcasters” that could cost “countless jobs and billions of dollars in new investment” between the NPRM’s release and when an order is adopted, said House Commerce Committee Chairman Fred Upton, R-Mich., and Communications Subcommittee Chairman Greg Walden, R-Ore., in a news release Thursday. The chairmen called the NPRM a “a startling failure to recognize the chilling effect of regulatory uncertainty” and said the grandfathering deadline “will apply as yet undefined rules to applications filed anytime after today.” Upton and Walden had asked the commission in a letter last week not to apply the new rule to pending transactions (CD Sept 16 p10).

The NPRM proposes that if the 50 percent UHF discount is eliminated, existing station groups and those involved in transactions pending by the date the NPRM is released -- Thursday -- would be grandfathered if they exceed the 39 percent national ownership cap without the discount. The cutoff being linked to the NPRM means that the pending Tribune/Local transaction -- which would result in a company with a 42.7 percent ownership calculation -- would be grandfathered if the eventual order matches the current proposal. “We appreciate the Commission’s fair treatment of currently pending transactions,” a Tribune spokesman told us in an email.

Sinclair -- already projected to be very close to the 39 percent cap if the discount is eliminated -- announced a deal to acquire eight stations from New Age Media Wednesday (CD Sept 26 p21), and filed an application for the transaction with the FCC the same day, according to an FCC spokeswoman.

If an order eliminating the UHF discount is approved, Tribune, Sinclair and other companies that are over or close to the cap could be limited in their future acquisitions, according to Media Bureau Chief William Lake. A grandfathered ownership combination that is later sold or transferred would be required to “comply with the national ownership cap in existence at the time of the transfer,” he said. If a grandfathered company remained over the cap and sought to buy a new station, it wouldn’t be able to do so under the rule as it’s proposed in the NPRM without receiving a waiver, Lake said.

However, questions within the NPRM indicate possible flexibility in the proposed grandfathering rules. The proposal asks if the commission should consider “specific circumstances” in evaluating waivers for subsequent transactions by grandfathered station groups, such as whether the waiver would “allow a corporate transformation of an existing station group -- including a refinancing or restructuring -- versus action that would circumvent the proposed rule change.”

Pai said that he agreed with the other two commissioners that the “time has come for the UHF discount to take its place in the history books,” but said he was dissenting because he believes the grandfathering deadline should have been tied to the issuing of an order, and because the NPRM doesn’t propose raising the 39 percent ownership cap. Eliminating the discount has the effect of “tightening” the ownership cap, but the NPRM “does not seek comment on whether doing so would be a good idea,” he said. Rosenworcel didn’t discuss the possibility of raising the cap, but said that while considering the NPRM the commission should be “practical” about its “impacts on the marketplace.” “We are disappointed that Commissioner Pai has sided with broadcasters in arguing against the congressionally mandated limit,” said Free Press Policy Director Matt Wood in an emailed release.

The commission may have to re-examine raising the cap in the future, conceded acting Chairwoman Mignon Clyburn. However, she said the FCC has been considering eliminating the UHF discount for more than a decade. “The questions we ask today are ones the commission promised to raise many times in written orders and should not surprise any market participants,” she said. “Broadcasters have known for the last nine years that the discount was under review. The rule lost its technical justification long ago and became nothing more than a gift for large conglomerates,” said Wood.

Though Congress established the 39 percent broadcast ownership cap, the commission has the authority to eliminate the discount, said the Media Bureau. A 2004 3rd U.S. Circuit Court of Appeals decision on a challenge to the commission’s 2002 Biennial Review Order gave the FCC the authority to modify the discount, the NPRM said.

The commission also seeks comment on the permutations of a possible VHF discount, said the NPRM. The proposal asks if the discount should be 50 percent as the current UHF discount is, and if such a discount is merited since consumers have far more video options now than they did when the analogous UHF discount was enacted. Wells Fargo analyst Marci Ryvicker said in email to investors that the “VHF discount might just pass muster given that the FCC is encouraging broadcasters to trade UHF for VHF spectrum positions in the broadcast incentive auction.” -- Monty Tayloe (mtayloe@warren-news.com)