CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

Feds revise triggers for automatic merger and acquisition review

Last year saw some successful (NBC/Comcast) and some not so successful (AT&T/T-Mobile) merger applications in the communications sector.  And with hope for continued improvement in the overall economic climate springing eternal, it’s possible that more large scale mergers may be in the pipeline. With that in mind, potential merger/acquisition candidates should be aware that the federal government has performed its annual ritual of announcing the thresholds it will use for automatic federal review of mergers and acquisitions. 

If a transaction exceeds a certain amount, both the Department of Justice and the Federal Trade Commission must scrutinize the deal and render an opinion about any anti-trust concerns raised by the deal.  In addition, as AT&T is acutely aware, when a large merger involves communications assets, the FCC also has no problem sticking its nose into the deal.  In fact, the FCC has its own SWAT team (formally called the Office Of General Counsel Transaction Team) to review deals.  Unlike the DoJ and the FTC, the FCC’s team is not automatically required to review deals of certain size; they could theoretically refrain from involving themselves in deals that pass the triggers described below. Note, though, that the FCC’s SWAT team – as well as DoJ and FTC – can choose to investigate smaller deals coming in below the triggers.

Readers considering a merger or acquisition should bear in mind that after February 27, 2012, the administration automatically will be sending at least two agencies to take a closer look at transactions where either:

the total value of the transaction exceeds $272,800,000; or

the total value of the transaction exceeds $68.2 million andone party to the deal has total assets of at least $13.6 million (or, if a manufacturer, has $13.6 million in annual net sales) and the other party has net sales or total assets of at least $136.4 million

When negotiating deals, all parties would be well-advised to bear these thresholds in mind. Once those lines are crossed, the prospect of additional (and considerable) time, expense and hassle to navigate the federal review process is a virtual certainty.

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The FCC has released a notice setting the procedures for Auction 93, the FM sell-a-thon set for  next Spring. Get out your calendars . . . and your checkbooks.

With only minor changes to auction rules from the past, the auction will look the same as previous sales conducted by the FCC, at least in terms of the procedures. But if you’re in the market for a channel in Llano or Centerville in Texas, or Dermott, Arkansas, or Cleveland (the one in Mississippi, not the one in Ohio), get set for some heartbreak: the Commission has removed those from the catalog of available channels up for bids. Because of pending rulemaking petitions proposing (among other things) substitution frequencies in those towns, the Commission pulled the four channels off the table for this auction. But that still leaves 119 channels up for grabs.

And there’s good news if you’ve got your heart set on the Grants Pass, Oregon channel. Originally priced to move with an opening bid of $35,000, that channel has been marked down to $15,000. One commenter argued that the original opening price was too high. Of course, that commenter’s suggested alternative price – a risibly paltry $750 – was a non-starter, as far as the Commission was concerned. Still, a reduction of more than 50% is nothing to sneeze at. (Note, though, that it would take only about nine rounds of spirited bidding for the price of the channel to get back to $35,000.)  

All of the remaining 118 permits will start with the same prices proposed by the FCC back in September. 

Potential bidders should mark their calendars with the following important dates:

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No obvious blockbuster items in latest list; Question: how will new restrictive “move-in” policies restricting affect prices?

With several months still to go in 2011, the FCC is already looking ahead to Spring, 2012 – it has announced that, come March 27, 2012, 123 new FM construction permits will be trotted out on the auction block. You can find a list of the available allotments here.

While the Commission refers to 123 “new” permits, watch out. Of the 123 permits, 16 are actually unsold left-overs from Auction 91, conducted earlier this year, and one goes back to Auction 70 (in 2007). (That last item was sold in Auction 70, but the buyer defaulted.)

If you’ve followed the Commission’s auction process, you know that there’s plenty of paperwork to get out of the way before the bid paddles start going up on March 27 and the gavel starts coming down some time later. The first step? A request for comments on proposed procedures, upfront payments and minimum opening bids. Comments are due by October 7, 2011, replies by October 17, 2011.

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Unless you’re looking for even more trouble than you’re probably already in, try to keep The Man happy.

Here’s a helpful tip: If an FCC inspector stops by your station, notices something amiss, and tells you to turn your station off, you’re probably better off following that particular instruction. About $7,000 better off, it looks like. Don’t take our word for it – just ask the licensee of a low power FM station in Dunnellon, Florida.

The lo-po’s problems started when the local FCC Field Office got a call from the local airport complaining about interference to an Air Traffic Control frequency. That kind of call generally gets the FCC’s attention pronto (and, speaking on behalf of the flying public, CommLawBlog supports that kind of attention). Using direction-finding gear, they tracked the offending signal to the LPFM station. The Feds showed up at the station’s doorstep, explained the situation to the only station staffer in sight, and asked him to turn the transmitter off. The guy refused. They got the station’s owner on the phone, and the inspectors asked him to tell his employee to turn the station off. The owner refused – unless the station’s engineer was present. The owner was finally convinced (after about half an hour) to get his sweet self down to the station, at which point he agreed to let the FCC folks inspect the operation. The inspectors found that the station was operating with a transmitter not certified by the Commission. The owner turned the transmitter off, and the interference to the airport ended.

The standard fine for operating with unauthorized equipment is $5K – and that’s exactly where the Enforcement Bureau’s Notice of Apparent Liability started. But the Bureau then tacked on an “upward adjustment” of $7,000 – a bump amounting to nearly 150% over the starting point – because the interference caused by the unlawful operation affected the safety of life and property and because the owner and his employee refused to comply with the inspectors’ request that the station be turned off immediately. Total fine: $12,000. Make you check payable to the FCC. Thanks for your business.

This isn’t brain surgery. Congress has given the FCC the authority to inspect broadcast stations (really – it’s in Section 303(n) of the Communications Act), and the FCC can exercise that authority. If FCC inspectors show up at your station, the best policy to follow 99.99% of the time is to invite them in, make them comfortable, and do what they tell you to do. As tempting as it might be to try to tell The Man where to get off, that’s bound to be a losing proposition no matter how you slice it.

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Final gavel comes down in déjà vu Auction No. 92. 

It took the FCC less than a week of bidding to unload 16 Advanced Wireless Service licenses in Auction No. 92. The auction, which wrapped up July 25, attracted $20,402.000 in high bids for spectrum previously occupied by TV Channels 52-69. The handful of licenses on the block cover a few small areas scattered around the county. 

If the 16 licenses looked a tad familiar, that’s not surprising.  It was the second time that these particular licenses had been up for grabs. They had been offered to bidders in the initial AWS auction in 2008.  Readers may recall that that auction lasted several weeks and raked in $19.6 billion for the U.S. Treasury. What readers may not recall is that, when the 2008 auction ended, these 16 licenses stayed put with the FCC: the high bidders either withdrew their bids or never got around to paying for the licenses. (Alltel was the high bidder for five of the licenses. Seven others, mostly in Puerto Rico, would have gone to VentureTel 700, if it had paid the FCC for them.)

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 [WARNING! While Auction 91 has closed, strict anti-collusion rules remain in effect for several more weeks. Parties who were involved in any way in the auction should refrain from discussing any aspect of the auction with any other parties who were involved in it.]

Going once, going twice, SOLD! It's official.  After two weeks of bidding, the FCC has brought down the gavel on Auction 91. The 144 FM construction permits (well, most of the 144) on the block attracted $10.5 million in successful bids overall – although the Commission will net less than that because of “new entrant” bidding credits available to some of the winning bidders. The total proceeds likely to be realized from the auction should be in the range of $8.5 million. The auction wrapped up on May 11, eleven bidding days after the opening round. A total of 66 different bidders ended up winners.

The next step in the auction process will be the release of a public notice establishing deadlines by which the winning bidders must wire their payments to the Treasury. The public notice will also establish the deadline by which winning bidders must submit their long-form applications to the FCC and the date on which the FCC's anti-collusion provisions will be lifted.

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2011 threshold triggers for federal scrutiny of mergers and acquisitions announced

Broadcasters and telecommunications operators contemplating possible deals for the coming year should remember that, as far as the federal government is concerned, there may be such a thing as Too Big. The Feds will step in to review an anticipated deal for potential antitrust problems if the deal exceeds certain threshold dollar amounts.  The law mandates that those threshold amounts be revised every year for inflation. The 2011 thresholds have just been announced, and will take effect on February 24, 2011. If your deal exceeds one of the revised thresholds, you should plan for increased government scrutiny, with all the additional hassle, expense and delay that such scrutiny entails.

Under federal antitrust law, certain mergers or acquisitions which exceed the specified thresholds must be submitted to the Federal Trade Commission (FTC) and the Department of Justice for Uncle Sam’s review before the transaction can be consummated.  (The theoretical basis for federal concern here: any transaction big enough to pass the thresholds is presumably big enough to affect interstate commerce.) The government’s internal process for adjusting these thresholds – based on the traditional measure of the gross national product – has been on the books for decades.

The newly-adjusted thresholds require pre-transaction notification if either:

• the total value of the transaction exceeds $263,800,000; or
• the total value of the transaction exceeds $66 million and one party to the deal has total assets of at least $13.2 million (or, if a manufacturer, has $13.2 million in annual net sales) and the other party has net sales or total assets of at least $131.9 million.

When negotiating deals, all parties would be well-advised to bear these thresholds in mind. Once those lines are crossed, the prospect of additional time, expense and hassle to navigate the federal review process is a virtual certainty.

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Start saving your nickels and dimes. The FCC has announced that it will auction 147 FM permits next Spring. Check out a list of the allotments coming up on the block here. 

Although the auction (dubbed “Auction 91”) isn’t scheduled to open until March 29, 2011, connoisseurs of the Commission’s auction processes know that there’s plenty of paperwork to get out of the way before the bid paddles start going up and the gavel starts coming down. The first step? A request for comments on proposed procedures, upfront payments and minimum opening bids. Comments are due by October 13, 2010, replies by October 27, 2010.

The procedures the Commission has put out for comment do not contain anything different from past FCC broadcast spectrum auctions. Perhaps most notably, the FCC’s notice includes the standard four-paragraph disclaimer warning potential bidders that the government cannot guarantee that the spectrum at auction will actually work. While such disclaimers are regrettable – hey, if the government’s going to sell you spectrum to use for a broadcast station, shouldn’t you be able to assume that the spectrum will in fact serve that purpose? – caveat emptor is the way to go here: you don’t want to end up like the guy in Auction 37 who spent more than $4 million on a permit in scenic Pacific Junction, Iowa, only to discover that the spectrum couldn’t be used because it would interfere with nearby FAA communications. Oops.

In light of that consideration, potential bidders should roll up their sleeves now and investigate thoroughly any permits they may have their eye on. And there are a lot to look at this time around: a list of 147 FM frequencies, ranging from Class As to Class C3s, spread out over 39 states and one territory (Guam). (Veterans of last year’s Auction 79 may recognize 37 of the allotments, which went unsold back then and are now being trotted out again.)

Proposed starting bids go all the way from $1,000 to $100,000. The vast majority (80%) of proposed openers come in at $25,000 or less, and 33% start at less than $10K. The priciest allotments are proposed to open at $100K per. Don’t assume, though, that the final bids will necessarily be in the same ballpark as the opening bids: it only takes two determined bidders to goose the price of any permit skyward. 

The FCC’s release doesn’t mention bidding credits for new entrants, but the smart money figures that such preferences will be awarded in this auction as they have been in virtually all other auctions. Generally, a 35% bidding credit is available to bidders who own no other broadcast stations and a 25% credit is given to bidders who own three or fewer stations (provided that none of those stations is in the same market as the target auction permit).

Check back with CommLawBlog for updates.

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Third Circuit sends 2006 DE rules back to FCC for further consideration; $14B auction results from 2006 left untouched

Back in 2006, with big-ticket wireless auctions fast approaching, the FCC hustled through revisions of a number of rules affecting bidding credits in those auctions. The bad news for the FCC: the U.S. Court of Appeals for the Third Circuit has now sent two of the three rule changes back to the agency for a re-do because of procedural shortcomings in the 2006 rulemaking process. The good news for the FCC: the Court decided that the Commission will not have to re-do the auctions conducted pursuant to those flawed rules and, perhaps more importantly, will not have to give back the $14 billion or so it raked in in the August, 2006 auctions.

The bidding rules at issue involve eligibility for “Designated Entity”, or “DE”, status. Bidders entitled to that status are smaller companies that might otherwise find it hard, if not impossible, to compete with larger, well-established telecom companies in a dollar-for-dollar face-off. Committed to encouraging new entrants into the telecom universe, Congress instructed the Commission (in 47 U.S.C. §307(j)) to ensure opportunities for small businesses by, among other things, making bidding credits available to them. A bidding credit is defined by the FCC as a “percentage discount applied to the high bid amount for a license.” Practical illustration: if a bidder with a 25% bidding credit wins an auction with a bid of, say, $1 million, that bidder would have to pay only $750,000 after the credit is applied.

Credits of 15%, 25% or 35% were available (depending on various factors). With wireless prices hovering in the nine- and ten-figure range (T-Mobile alone bid a total of more than $4 billion-with-a-“b” – in the 2006 auction; four other bidders also tendered aggregate bids topping the $1 billion level), the credits were obviously worth serious money. With an eye toward ensuring that bidding credits were awarded only to companies deserving them, the Commission tried, in the run-up to the August, 2006 auctions, to tighten up the eligibility standards. 

That’s where it ran into problems.

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Long wait, little return as sale of 13 radio permits brings in less than $2,000,000

The Commission has just brought the gavel down on Auction 88, which featured 13 radio (AM, FM, FM translator) permits up for grabs. This was a closed auction – the participants were limited to folks who had filed applications for these particular facilities in the distant past. Some of those applications were filed as early as 1993; the most recent (for an AM permit) were filed in 2001.

While it took a decade or more to get things moving, it took the Commission a mere four days of auctioning to get things wrapped up. And if the FCC thought that keeping these permits on ice for so long might drive up the prices they would likely fetch, the FCC has at least one more think coming. By the time the bidding opened, four of the 13 permits had only one bidder, and so sold for their opening bid amounts which, in the aggregate, amounted to well under $200,000. (By contrast, one market was hotly contested, as two bidders slugged it out over an FM permit in North Madison, OH. The starting bid there was $75,000; after 16 rounds of bidding, one of the bidders cried uncle and the winner walked away with the permit for $425,000.)

When the dust settled, the FCC got less than $2,000,000 for all the permits (less than $1.5M, once you factor in bidding credits) – and that’s assuming that all the checks clear.

The communities and successful bids were as follows:

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