[Blogmeister’s Note: This is another in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series by clicking here. Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]
Hint: Maybe fewer folks than you might have thought.
Who will be eligible to participate in the “reverse” spectrum auction? Not, it would appear, everybody who might want to.
As required by Congress in the Middle Class Tax Relief and Job Creation Act of 2012 (which the FCC prefers to refer to as the “Spectrum Act”), in its Incentive Auction Notice of Proposed Rulemaking (NPRM), the Commission proposes significant eligibility limitations as far as the “reverse” auction goes.
First and probably most important, the only folks who could participate in the “reverse” auction would be licensees of full power and Class A television stations, both commercial and noncommercial. That automatically eliminates LPTV licensees and TV translator licensees.
But Class A licensees should not necessarily be breathing easily, particularly in light of the Commission’s recent attempts to downgrade a number of Class A stations to LPTV status. The NPRM proposes that any station whose Class A status has been revoked by the Commission would not be eligible to participate in the auction, even if the order downgrading the station has not become final by the time of the auction. (Licensees who get downgraded can seek reconsideration or review of the decision to downgrade, thus avoiding finality and keeping alive – or so they hope – the possibility that the decision might be reversed during the appeals process. Under the FCC’s proposed eligibility criteria for the reverse auction, however, any effort to reverse a downgrade might be pointless if the auction, and consequent repacking, occurs before the downgraded station could be restored to Class A status.)
There are some potential limiting considerations for full power licensees, too.
For instance, full power licensees’ bids must be based on their stations’ licensed facilities as of February 22, 2012. In other words, you can’t apply to modify those facilities now in some way that might improve your posture in the auction.
Class A licensees, by contrast, would be treated slightly differently, based on the status of the Class A station’s digital conversion. If the Class A station held a digital license on February 22, those facilities would determine the licensee’s options as far as spectrum relinquishment go. But if the Class A station was licensed as analog on February 22 and thereafter obtains a digital license prior to the beginning of the auction, the station’s licensed digital facilities as of the beginning of the auction would be considered. (In the latter case, if the digital license isn’t in hand by the time the auction starts, the Class A’s bidding options will be based on its licensed analog facilities as of February 22, 2012.)
The NPRM also proposes that any station whose license has been revoked or cancelled or has expired would be ineligible. Also ineligible would be any station that failed to file its license renewal application by the expiration date of that license (although apparently eligibility could be maintained if a licensee filed its renewal application after the filing deadline, but prior to expiration).
The mere fact that a station has a license renewal application pending would not ordinarily prevent it from participating in the auction. But the Commission is proposing an important gotcha on this score. How, the Commission asks, should it deal with licensees whose renewals are being held up because of enforcement actions (or who are otherwise subject to such actions). In other words, imagine that a TV licensee’s renewal has been held up because of indecency complaints or concerns about inadequate sponsorship IDs. (That shouldn’t tax anybody’s imagination too much – historically, hundreds of license renewals have been deferred for years because of such matters.) The FCC suggests in the NPRM that any licensee looking to turn in its license through the “reverse” auction process should have to pony up, in advance, an escrow payment to cover the fine that might result from any pending enforcement actions.
That proposed escrow scheme raises a number of questions, not the least of which involves the scheme’s fundamental legality. The Communications Act (that would be Section 504(c), to be precise) flatly prohibits the Commission from using a pending notice of apparent liability (NAL) “to the prejudice” of the subject of the action unless and until the forfeiture has been paid or a court of competent jurisdiction has ordered it to be paid. Here the Commission appears to be proposing that, even in the absence of an NAL establishing (a) an apparent violation and (b) a proposed forfeiture amount, the Commission might bar otherwise eligible licensees from participating in the “reverse” auction unless they fork over a wad of cash to cover some indeterminate fine covering some violation that may or may not have occurred.
Such a proposal is plainly problematic. It is even more so in view of the Commission’s well-established history of placing “enforcement holds” on a significant percentage of TV license renewal applications, often for unannounced reasons. (Side note: we have recently learned that the FCC has quietly lifted, without notice or explanation, some enforcement holds on some stations. This could be a harbinger of more sweeping efforts to clear away the holds that have stalled action on hundreds of TV renewal applications for years. But, since a new round of TV renewal applications is currently underway, it would not be surprising to see new enforcement holds cropping up, even if the old ones disappear.)
In any event, it seems to us that prospective “reverse” auction participants may want to oppose this element of the NPRM aggressively – unless they prefer to face the prospect of a potentially steep admission price for the privilege of participating in the auction.
One final eligibility note of truly limited impact: any newly licensed full power station will be eligible only if its initial construction permit had been granted by February 22, 2012 (the date on which the Spectrum Act was adopted) and the station has received a license by the time it submits its initial “short-form” auction application. Since there were a total of only three outstanding CP’s as of February 22, this particular condition is not likely to have far-reaching effect.
While we’ll be addressing the practical aspects of the “reverse” auction bidding process in greater detail in another installment in this series of posts, we’ll shed some light on that here, too. The NPRM proposes three options regarding what rights a licensee may offer up in exchange for a possible pay-out. A licensee’s bid could vary based on what it’s willing to do. In particular, it could offer to:
- cease broadcasting entirely (i.e., the licensee would in effect be turning in its license and leaving the broadcasting business);
- operate on a VHF channel (assuming that the station is a UHF licensee). In this case, the licensee would be signaling that, for a price, it would be willing to have its operation relocated to the VHF band; or
- share a 6 MHz channel with another station.
The NPRM also requests whether bidders agreeing to move from a UHF to a VHF channel should be allowed to limit that move to only a high-VHF channel, and whether licensees currently on high-VHF channels should be allowed to bid to move to low-VHF channels.
With respect to channel-sharing arrangements, the Commission proposes that stations entering into such deals would not be permitted to change their DMAs or communities of license. Although sharing a channel with a station in an adjacent DMA could be acceptable, neither station’s DMA assignment would be changed, and each would be required to continue to serve its respective existing community of license.
In addition to these broad-brush elements, the Commission solicits comments on a number of finer points. For example, should the FCC adopt a policy favoring waivers of existing power and height restrictions for stations agreeing to move to VHF channels? Should bidders be permitted, as part of their bids, to agree to accept additional interference, either from broadcast or wireless users, or to accept a reduced or modified service area?
To some degree, the auction eligibility requirements are set in stone, thanks to Congress – so LPTV and translator licensees need not apply, period. But the majority of auction niceties addressed in the NPRM are wide open for comment. Potential auction participants would do well to review the NPRM carefully and let the Commission know about points that are important to them. Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.
[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]