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

Changes in Overall Section 307(b) Priorities

There’s nothing to say here, because the FCC tabled this item in order to “to analyze comments on the [various 307(b)] proposals in depth, to research certain matters brought up in those comments, and to devote the proper time and analysis to those major reforms without delaying action on a number of less complex but also important matters.” (Likely translation: Gosh, this is a complicated and controversial bunch of questions with no easy consensus in sight. Let’s get back to this some other time.) No timetable was provided for future action on the tabled questions – but at the current rate of, maybe, one broadcast-related item out of the full Commission every couple of months, the smart money figures that it’s going to take a while, if it happens at all.

“Tribal Priority”, Other Native American Provisions

Under the longstanding allotment priorities which are not being changed for now, proposals for new AM or NCE-FM stations – and for the allotment of new commercial FM channels – are assigned “priorities” based on their Section 307(b) attributes. An allotment opportunity that will deliver reception service to otherwise unserved areas/populations is assigned the highest priority (Priority 1). If the proposed allotment would delivery such service to areas/populations which receive only one other radio service, it rates Priority 2. And if it would not serve such unserved/underserved areas/populations, but would be the first local transmission service (i.e., the only radio station licensed to that particular community), it is Priority 3. Priorities 2 and 3 are treated as “co-equal”. There’s also a Priority 4 (for “other public interest factors”), a catch-all category that brings up the rear.

The Commission is concerned about the dramatic scarcity of radio stations serving Native American populations on tribal lands. Accordingly, the FCC has decided to shoe-horn a new priority – the “Tribal Priority” – between Priorities 1 and co-equal Priorities 2 and 3. That means that proposals (i.e., applications for new AM or NCE-FM stations, or new commercial FM channel drop-in proposals) entitled to a Tribal Priority will be entitled to preference over competing proposals which claim only Priority 2/3 status. That could mean the avoidance of an auction (for AM applicants) or a “comparative points” analysis (on the NCE-FM side). In other words, a Tribal Priority could be a serious benefit.

Not surprisingly, there are a lot of strings attached. The Tribal Priority is available only if:

• the proponent/applicant is a federally recognized Tribe, tribal consortium or an entity at least 51% of which is owned or controlled by a Tribe or Tribes (and there’s a further catch to that last option: such entities must be at least 51% owned/controlled by a Tribe or Tribes at least a portion of whose tribal lands lie within the proposed city-grade contour);
• the proposed community of license is on tribal lands;
• at least 50% of the daytime city-grade contour of the proposed facilities would cover tribal lands (although those lands need not all belong to the same Tribe); and
• the proposal/application would otherwise be entitled to either Priority 1or 2 (i.e., first or second reception service to more than de minimis population) or slightly modified Priority 3 (i.e., for commercial proposals, first local tribal-owned transmission service or, for NCE proposals, first local NCE tribal-owned transmission service).

And any applicant/proponent which successfully claims a Tribal Priority has more to think about. There’s a minimum four-year holding period (that’s four years of actual operation) before an AM or NCE-FM station obtained with a Tribal Priority can be sold (although that doesn’t apply if the buyer would itself qualify for the Tribal Priority).  (Gradual changes in an NCE licensee’s board would be permitted during the four-year period, as long as the 51% tribal ownership/control threshold is always maintained.) Further, for AM, NCE-FM and commercial FM stations subject to a Tribal Priority, during the four-year holding period the community of license can’t be changed and the station’s city-grade coverage cannot be modified to cover less than 50% of tribal lands. 

Interestingly, the lingering burdens could also affect non­-tribal licensees. In the context of commercial FM allotments, the Tribal Priority would come into play at the initial allotment state. Once the channel was allotted, it would be subject to auction, and there would be no guarantee that a tribal applicant would be the highest bidder, tribal or otherwise. In such cases, even a non-tribal licensee would have to provide service primarily to tribal lands for at least four years.

This complex carve-out for a specific racial/ethnic category will likely raise eyebrows among constitutional scholars because it raises obvious “equal protection” questions. Normally, the government’s ability to engage in decision-making based on race or ethnicity is narrowly limited, as the Supreme Court made clear in its 1995 decision in Adarand Construction, Inc. v. Pena. The FCC recognized the potential Adarand problem and tried to head it off with an interesting counter. According to the FCC, the Tribal Priority isn’t about racial or ethnic preferences at all. Rather, that Priority is based on the “unique legal status of Indian tribes under Federal law”. And sure enough, there is considerable authority supporting the proposition that Tribes are “quasi-sovereign” entities which have historically interacted with the federal government “in a unique fashion”. 

Anytime you see the word “unique” popping up repeatedly in the space of a couple of paragraphs, you know that the FCC is trying to set up what the cognoscenti refer to as an anticipatory “purple cow” defense. That is done by describing the case at hand as so distinctive in so many ways (i.e., it’s unique) that it’s unlike any other case that has gone before or will come after – and therefore will have no precedential effect. While such efforts can often seem strained and unconvincing, that’s not the situation here. There is a long (and often not happy) history of interaction between the Feds and the Tribes as sovereign entities. And the FCC’s new Tribal Priority is set up as a program in which only the Tribes themselves (or “tribal entities”) – but not mere members of Tribes – will be permitted to take advantage of the Priority. By taking that approach, the Commission may have successfully avoided a constitutional “reverse discrimination” attack on the Priority.

Other Changes

By far the lion’s share of the decision is devoted to the Tribal Priority. Beyond that, the newly-adopted changes are more in the nature of housekeeping. For example:

• When an AM application is awarded on the basis of a 307(b) Priority 1, 2 or 4, the station’s facilities may be modified, but only if the modified facilities don’t result in a decrease of more than 20% in the factor(s) (e.g., population served) which resulted in the 307(b) preference.
• AM applicants will be required to demonstrate, in their initial Form 175s, compliance with four eligibility criteria: (a) daytime community of license coverage; (b) nighttime community of license coverage; (c) daytime protection of existing stations and previously-filed proposals; and (d) nighttime protection of existing stations and previously-filed proposals. In a concession to human fallibility (particularly when that fallibility bumps up against the arcane and labyrinthine complexity of the AM allocation rules), though, the Commission plans to provide a single opportunity to amend to correct failures to satisfy any of those criteria.
• The Commission has now codified the Bureau’s authority to: (a) permit partial settlements and/or amendments to help resolve mutual exclusivities has now been formally codified; (b) impose caps on the number of AM applications that may be filed during any particular window; and (c) establish more flexible deadlines for post-auction long-form applications. 
• The auction rules have been revised to confirm the current policy that an applicant’s maximum “new entrant bidding credit” is set in stone with the Form 175 showing. The credit may be reduced by circumstances that occur after the Form 175 is filed – for example, if the applicant acquires more stations – but the credit may not be increased beyond what is shown in the Form 175.
• Also on the topic of “new entrant bidding credits”, such credits aren’t available to the winning bidder if that bidder (or anyone with an attributable interest in the bidder) has any existing media in the “same area” as the facility up for auction. The Commission has now clarified how that “same area” is to be determined in this context (e.g., for FMs, use the “circular” contour, rather than the “calculated” contour, based on the maximum class facilities at the specified allotment site).

As a follow-up to the creation of the Tribal Priority, the Commission has also proposed (in the “Notice of Proposed Rule Making” portion of its decision) to extend the Tribal Priority to non-landed tribes, and to implement a Tribal Bidding Credit to assist Native Americans in the auction process. Comments and reply comments on those proposals will be due 60 and 90 days after the NPRM is published in the Federal Register.

 The new rules fall far short of what might have been expected from this proceeding when it got started back in April. But that’s not necessarily all bad. Many observers saw this proceeding as the beginning of the end of the “move-in” process by which radio stations get moved around – “around” here being kind of a euphemism for “into the Big City and away from the Small Town”. That obviously hasn’t happened . . . yet – but it remains a possibility.

On the other hand, the new rules open potentially significant new opportunities for Native Americans, while also creating a further strategic wrinkle for those involved in allocations proceedings. How and when all of this will start to play out remains in the Bureau’s control. Stay tuned.

307(b) Analysis Modifications

Allotment Priorities

The Commission proposes that:

• no Priority 3 preference should be awarded to AM or FM proposals which would or couldbe modified to place a principal community signal over the majority of an Urbanized Area. Instead, the Commission would adopt a rebuttable presumption that the proposal is for the Urbanized Area, and not for the station-less proposed community of license. This would likely put the kibosh on many “move-ins” of the kind that the Commission has routinely approved up to now. The NPRM solicits comments on what kind of showing might rebut the presumption the FCC is proposing.

• no dispositive Section 307(b) preferences under Priority 4 should be awarded to new or major change AM applications. In the alternative, Priority 4 preferences would normally be denied to AM applications when 75% or more of the population within the proposed city-grade contour (i.e., 5 mV/m) receives more than five aural services and the proposed community of license has more than five transmission services. Applications falling under those “floors” might still gain a Priority 4 preference, but only if they have a “service value index differential” (“SVI”) of at least 50%. (SVI is a relatively arcane and byzantine method, originally utilized in the FM context, of discounting raw population totals based on the number of services received.) Either of these approaches would likely result in fewer dispositive 307(b) awards, meaning that more AM applications would end up in auctions (since an application with a 307(b) preference otherwise beats out mutually exclusive applications, making an auction unnecessary).

• a new “underserved listeners” priority – which would be co-equal with Priorities 2 and 3 – should be created for any AM auction and FM allotment proposal that would provide a third, fourth, or fifth aural reception service to a substantial portion of the proposed service population. How much is “a substantial portion”? That’s open for comment. The NPRM asks whether this new priority should be limited to proposals providing such service to “at least 15, 25, 35, or 50 percent of the proposed service population”.

Community of License Changes

To address what it sees as the unfettered migration of stations from small communities to metropolitan areas, the FCC proposes an absolute prohibition on city-of-license changes that create white or gray areas (i.e., areas with no or one reception service, respectively). Furthermore, consistently with the presumption proposed in connection with the Priorities (discussed above), any move-in application proposing a first local service to a community would be treated as if it were proposing service to the Urbanized Area if the new station would or could place a daytime principal community signal over 50% or more of the Urbanized Area.  (Note: if that presumption were to be adopted, the traditional Tuck analysis used to determine whether a proposed community of license located in an Urbanized Area is or is not really a separate community for 307(b) purposes would be relegated to the scrapheap.)

Native American Tribal Preference

The Commission proposes to establish a new 307(b) priority – to be applied to FM allotments, AM filing window applications, and NCE filing window applications – for federally recognized Tribes. The priority would be sandwiched in between Priority 1 and the co-equal Priorities 2 and 3 – sort of Priority 1.5.

To qualify for that preference:

• the applicant would have to be either a federally recognized Tribe or tribal consortium, a member of a Tribe, or an entity more than 70 percent owned or controlled by members of a Tribe or Tribes; and
• at least 50 percent of the daytime principal community contour of the proposed facilities would have to cover tribal lands, in addition to meeting all other Commission technical standards; and
• the applicant would have to propose at least first local transmission service to the proposed community of license, which would have to be located on tribal lands.

Any authorization awarded as a result of a dispositive tribal priority would be subject to certain holding period limitations relating both to ownership and technical changes.

No Downgrades for 307(b)-Preferred Facilities

The NPRM proposes an absolute prohibition on any downgrade of AM facilities awarded pursuant to a dispositive 307(b) preference if the downgrade would result in service to  a smaller population or would otherwise negate the factors that led to the award of a dispositive preference.  In other words, AM licensees or permittees awarded a 307(b) preference will be required to provide service substantially as proposed in their short-form tech boxes. The FCC suggests that bar should be effective for four years.

Auction Changes

AM Filing Criteria Tightened Up

According to the NPRM, the Commission has encountered an “unacceptably high percentage of defective” AM applications – both new and major mods – in recent years. So no more Mr. Nice Guy: the FCC proposes that applicants in future AM broadcast auctions must at the time of filing meet basic technical eligibility criteria, including community of license coverage (day and night), and protection of co- and adjacent-channel stations and prior-filed applications (day and night). The proposal would also prohibit the amendment of any Form 175 or tech box data that rendered the application technically ineligible at the time of filing. This prohibition would also extend to community of license change proposals before a CP is awarded.

Additionally, the Commission suspects that many AM auction applications are lobbed in by speculators looking for a simple singleton grant (thus avoiding actually having to participate in the pricey auction process). Accordingly, it’s looking at possible caps on AM auction applications – perhaps a maximum limit of five applications per applicant.  In addition, the Commission wants to know if it would be a good idea to apply special attribution rules to root out the use of affiliate entities (or stalking horses or fronts, etc.) to avoid the cap limits.

The NPRM would also codify the 2003 Nelson Enterprises decision, making explicit that, under Section 73.182(k), two AM applications are mutually exclusive if either application would enter the 25% limit of the other. 

No More FM Translator Band Hopping in NCE Land

Historically, FM translator CP holders have been able to snag a permit during an auction window for commercial band translators and then modify that permit to “hop” over to the reserved, noncommercial band with ease. This is desirable because of the less restrictive NCE rules regarding satellite and microwave signal delivery. (Hops could also go the other way – from NCE band to commercial – which enables applicants to get into the commercial band even though the Commission hasn’t opened a window for commercial translators.) The FCC views all such “hops” as undesirable, and so is proposing to prohibit such trans-band moves unless and until the translator to be moved has been built and operating (either licensed or with a license application pending) for at least two years.

Other Auction Arcana

Non-universal settlements. Applicants filing during auction windows are, of course, subject to very strict anti-collusion rules. However, the Bureau has historically relaxed those rules for the purpose of encouraging and facilitating pre-auction settlements during designated windows. The Commission thinks that such relaxations have been useful, so it is proposing to formalize the Bureau’s authority to permit non-universal technical amendments and settlements. But be careful: a technical amendment would have to resolve all mutual exclusivities between the amending application and all other applications in the MX group.

Deadlines for long-form applications.  The rules presently specify that long-form applications from auction winners must be filed within 30 days of the close of bidding. That has caused some heartburn in the past, particularly when the bidding wraps up in mid- to late-November, since that meant that long-forms had to be filed right in the middle of the December holidays. But the Commission is no Grinch – it cares, it really cares!  As a result, it is proposing to soften its rule to allow for some flexibility in the long-form deadline, “as circumstances warrant”.

“New entrant bidding credits” and unjust enrichment. A winning bidder is not eligible for a “new entrant bidding credit” (“NEBC”) if it, or any party with an attributable interest in the winning bidder, has an attributable interest in any existing mass media facility in the “same area” as the proposed new facility. The existing and proposed facilities are in the “same area” if the principal community contours of the two facilities would overlap. For purposes of the NEBC, the contour of a proposed new FM broadcast facility would be defined by the maximum class facilities at the allotment site.

The FCC also wants to be clear about unjust enrichment payments when a permit acquired with NEBC is sold. If the buyer would not have been entitled to the same NEBC, then the FCC has to be reimbursed for credits that the buyer was not eligible. The Commission now wants to clarify that that policy should also apply to pro forma transfers and assignments filed on Form 316. Supposedly the existing rule is clear as day on this point, but the FCC figures it should clarify because the staff has received a boatload of questions about it.

And noting yet another supposedly crystal clear policy apparently in need of further clarification, the FCC proposes to amend the rules to state unequivocally that while your maximum NEBC is set when you file your Form 175, it will be diminished by post-filing changes such as the acquisition of additional attributable interests.  The final determination of NEBC eligibility will be made when the post-auction long-form application is processed.

Supplemental Terrain Roughness Showings

The NPRM proposes to codify the terrain roughness standards which the Bureau staff has been informally using since 2001. Those standards come into play when the terrain in one or more directions from a proposed antenna site “departs widely” from the average elevation used by the staff to predict contours; in such cases, applicants may be able to use alternate coverage prediction methods. The trouble is that the Commission has declined to define the term “departs widely” in its rules, leaving applicants (and their engineers) in the dark. The staff has developed some informal parameters governing the use of alternate contour prediction methods. Those parameters are described at Paragraph 49 of the NPRM (they’re too long and convoluted to describe here). The FCC now proposes to formally codify those parameters in the rules.

It is difficult to overstate the extraordinary importance of the changes which the NPRM proposes to make to the processes by which new radio authorizations are sought and granted. While both AM and FM are mature radio services with nationwide reach, interest -- both in new stations and in modifications of existing stations – continues to run high. While Acting Chairman Copps and Commissioner Adelstein believe that that interest can and should be channeled in particular directions, one may justifiably wonder whether governmental fiat will be more effective than marketplace forces in assuring fair and efficient deployment of radio service. The NPRM raises a host of complex technical, regulatory and constitutional issues. Anyone with an interest in AM and FM radio would do well to review the NPRM with care and consider filing responsive comments. (The deadlines for comments and reply comments have not yet been established; check back to www.commlawblog.com for updates.)

The trial court dismissed the case because a decision some years ago seemed to indicate that the Court of Claims had no jurisdiction over FCC licensing matters. Biltmore Forest appealed to the Federal Circuit, pointing out that if the U.S. Court of Appeals for the D.C. Circuit (“the D.C. Circuit”) disclaims any jurisdiction over contract claims and the Court of Claims refuses to hear FCC license cases, the FCC can breach licensing contracts with impunity and the victimized applicant has no court to turn to. The appellate panel refused to re-visit the determination of the panel in the earlier case.

On the plus side, the Federal Circuit did seem to acknowledge that the FCC’s auction process creates a contract between the winning applicant and the Commission. If a rule violation is alleged (as Biltmore Forest alleged), the applicant’s path of challenge must be to the D.C. Circuit. However, if there was no rule violation at stake – for example, if the FCC failed to deliver a license that a high bidder had won or if the FCC delivered less than it had promised – the logic of the Court’s analysis implied that the applicant might very well have recourse to the Claims Court for money damages.  This issue arises more and more often when the FCC threatens to take away or undercut the value of spectrum which it has already auctioned. At some point, its failure to deliver the spectrum as advertised becomes a breach of the auction contract.

It remains to be seen whether the jilted applicant will pay another visit to the Supreme Court.  The original application was filed in 1987, but there are certain wounds that time does not heal.

Not surprisingly, a number of the tossed-out NCE folks asked the Commission to give this another think.  And after five (count ‘em, five) years of re-thinking, the Commission has now decided that the NCE applicants deserve a break.  Accordingly, the Media Bureau staff will be announcing, in the near future, a window period during which the NCE applicants in the 19 or so mixed groups will be given a one-time-only chance to amend their applications “for the sole purpose of applying for a commercial station.”  This means that NCE applicants in the affected groups who wish to proceed will have to move forward as if they were commercial applicants – which means that they will have to participate in an auction. 

In its decision the Commission did not identify the particular MX groups, although it did say that the 19 or so groups include 13 FM’s, four TV’s and two FM translators.  (In order to be included in those groups, the affected NCE applications must have been both filed, and MX with a commercial application, as of April 10, 2003.)   Keep an eye out for the Bureau’s public notice of the opening of the window if you think that you may be one of the lucky ones.

 To its credit, the FCC recognized that its plan had been seriously flawed.   Rather than proceeding with a new auction last summer as originally planned, the FCC opted to go back to the drawing board on the whole thing. After soliciting an original round of comments, it has now proffered yet another Further Notice of Proposed Rulemaking, a 212- page tome that revisits virtually every aspect of the D Block scheme. The result, on which comment is sought on a much abbreviated 30 day schedule, tentatively retains a good deal of the original plan but also proposes some novel new approaches to issuing the licenses. Here are a few of the highlights:

• The Public Private Partnership concept is maintained, but with changes. . The two entities must work together closely on the deployment plan, equipment, sharing protocols, and virtually every other element of sharing a huge nationwide telecommunications network but with radically different incentives and perspectives. Like a marriage counselor always on call, the FCC proposes to hover about resolving arguments and smoothing over differences as they arise. Testing such a novel mode of operation in a system critical to public safety on a nationwide scale using perhaps the most desirable spectrum likely to be available for decades to come is a risky proposition indeed, but the FCC seems committed to going forward.
• To be sure, the FCC has tried to eliminate from the equation some of the uncertainties which doomed the first auction by clarifying the rights and responsibilities of the public safety licensee (PSL) vis a vis the commercial licensee (CL): a Draft Network Sharing Agreement has been prepared which contains the "baseline" elements which the FCC expects the CL and PSL to agree on. The CL will only be liable for a default payment after the auction if it fails to reach agreement with the PSL on the remaining issues and the FCC deems the CL's position to be unreasonable. This still entails some risk to the CL since the default penalty will be between 3% and 20% of the amount bid. The Commission also clarified under what circumstances the PSL would have access to the CL's commercial spectrum, how much spectrum the PSL would be entitled to, and the circumstances in which such priority access would have to be offered. These proposals eliminate a number of the most contentious issues which previously were left open to negotiation.
  
• The FCC provided much clearer guidance on the governing structure of the PSL and its relationship with outside advisors --something which had been a subject of much discord in the first go-round. It also clarified eligible users of the public safety network, allowable fees, and funding possibilities.
  
• The FCC proposed a unique method of auctioning the D Block in which the spectrum will be awarded either on a single-licensee nationwide basis or a multiple-licensee regional basis depending on the auction results. If a nationwide licensee is selected, the 4G protocol is unrestricted, but if multiple licensees are selected, the operating protocol must be either Wi-Max or LTE depending on who bids the most for the licenses overall. This interesting proposal somewhat follows the proposal by NTCH, Inc. to let the governing protocol of the national D Block system be set by auction bidders who essentially "vote" with their dollars. Theproposal makes for an auction with many moving parts and innumerable permutations, but also conceivably has the effect of letting the market decide which configuration for the D block makes the most sense. At the same time, a single, consistent protocol will be established whether the licensee is nationwide or regional. The "regions" for this purpose are "Public Safety Regions" -- the 55 areas (plus three others) into which the US is divided for purposes of public safety planning. The Commission also clarified that the CL and PSL will both have access to the full 20 MHz of spectrum but their rights of priority usage to amounts of the spectrum will be set by the final order. Fifty percent of the capacity of the combined public safety/D Block network is subject to unrestricted public safety use and available for commercial use only on a secondary, preemptible basis. Public safety access to additional capacity on the network would be very limited and subject to narrowly defined “emergency” situations.
  
• The FCC revised its proposed build-out rules. The original rules called for strict build-out of substantial portion of the geographic area of the license within 4 years. Under the new proposal, the license term has been extended to 15 years, with construction benchmarks at the 4th, 10th and 15th years. (40% of the population of each Public Safety Region by the 4th year, 75% by the 10th year, and 90-95% by the15th year, depending on the population density of the Public Safety Region involved. The build-out obligation is therefore not only considerably spread out but also is less restrictive in terms of picking up the miniscule population pockets necessary to achieve 99% coverage.
  
• The FCC significantly lowered the minimum price from $1.33 billion to $750 million.
  
•  The FCC retained the elimination of the prohibition on "impermissible material relationships" between the auction winner and other parties. This means that auction winners who are Designated Entities may freely resell or lease portions of the spectrum to others without the usual restrictions.

The FCC clearly listened to the industry in devising a new structure for the D Block. All parties at the table, including the public safety community, recognized that the Public Private Partnership could not work unless the structure made commercial sense. The resulting proposal does make the spectrum more attractive by significantly clarifying the rights and obligations of the CL, reducing the minimum payment, easing the build-out burdens, and making the spectrum available to regional entities. Whether the complex and untested structure proposed here can work in the real world is something we will have to wait to find out. Comments may be filed on or before November 3.