Bureau provides guidance, grace period of sorts until May 31

If you have a broadcast construction permit that’s about to expire, listen up. The Media Bureau has provided some “guidance”on how to take advantage of a rule change that took effect last year, a change that could help you breathe the breath of life into that dying CP, if only for a little while. The “guidance” doesn’t begin to answer all the possible questions, but it at least establishes an important filing deadline for some CP assignment applicants.

Way back in December, 2007, the Commission adopted a number of rule changes intended to “increase participation in the broadcasting industry by new entrants and small businesses, including minority- and women-owned businesses, which historically have not been well-represented in the broadcasting industry.” It took the FCC four months to publish its order, which hit the presses in March, 2008; some of the rules took effect in July, 2008.

In that order the FCC agreed to allow the sale of expiring CP’s to “eligible entities” who pledge that they will complete construction before the expiration or within 18 months of consummation of the permit, whichever is later. The goal was to provide the acquiring “eligible entity” its own construction period of at least 18 months. Since the permits in question would otherwise likely expire (since CP’s cannot normally be extended), the thinking was that this would create an incentive for holders of soon-to-expire permits to deal them off to “eligible entities”, thereby increasing the number of such entities participating in the broadcast business.

But the original order left a number of details up-in-the-air.

One such unaddressed detail: the order did not specify when the application for assignment to the “eligible entity” has to be filed relative to the expiration of the permit. While the Commission assumed that the proposed acquisition of the permit would be consummated before the permit expired, the precise mechanics underlying the application were not spelled out in any detail. In fact, they weren’t spelled out at all.

The Bureau has now addressed at least that aspect. In its public notice, the Bureau has clarified that applications for CP sales filed pursuant to the “eligible entity” provision (i.e., Section 73.3598(a) of the rules) “should generally be on file at least 90 days prior to permit expiration.” So if you have a permit with a short remaining shelf life that you’re thinking about selling to an “eligible entity”, you should have the agreement tied down and the assignment application filed at least 90 days before the CP’s expiration date. (The idea is that that should ordinarily provide enough time for (a) the staff to process the assignment application through to a grant and (b) the parties then to consummate the deal.)

Since this “at-least-90-days-before-expiration” filing deadline had not previously been announced, the Bureau has established a grace period of sorts. Specifically, between now and May 31, 2009, the Bureau will accept CP assignment applications as long as the underlying permit has not expired prior to the filing of the application.  (The grant of any such assignment will be subject to a condition that the deal be closed within 30 days of the grant.)

But starting June 1, the Bureau will require that the sale to the eligible entity be consummated prior to the expiration of the underlying permit – hence the Bureau’s admonition that applications for such assignments be on file at least 90 days prior to the expiration.

The Bureau’s “guidance” here leaves unresolved a number of other practical questions concerning the implementation of Section 73.3598(a). We’ll just have to wait for further clarification(s). In the meantime, at least you know when your applications must be filed.

[Sidenote:  What, you may ask, is an “eligible entity”? Here’s how the Commission has defined that term for purposes of the Section 73.3598(a) provision, among others:

any entity that would qualify as a small business consistent with Small Business Administration (“SBA”) standards for its industry grouping, based on revenue. At present, the SBA defines as a small business a television broadcasting station that has no more than $13 million in annual receipts and a radio broadcasting entity that has no more than $6.5 million in annual receipts. To determine qualifications as a small business, the SBA considers the revenues of the parent corporation and affiliates of the parent corporation, not just the revenues of individual broadcast stations. In addition, in order to ensure that ultimate control rests in an eligible entity that satisfies the revenue criteria, the entity must satisfy one of several control tests. The eligible entity must hold: (1) 30 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast license; or (2) 15 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast licenses, provided that no other person or entity owns or controls more than 25 percent of the outstanding stock or partnership interests; or (3) more than 50 percent of the voting power of the corporation if the corporation that holds the broadcast licenses is a publicly traded company.

Promoting Diversification of Ownershipin the Broadcasting Services, FCC 07-217, pp. 4-5. The Commission is still considering possible changes to that definition – for example, abandoning the gender- and race-neutral approach and, instead, specifically including ownership by minorities and women as a definitional component of the term. In view of the thorny constitutional issues that such a change would give rise to, though, the Commission is not likely to embrace that particular change, at least in the near-term.]