Reconsideration of FCC's Rural Radio Decision - Making It Difficult to Move a Radio Station from a Rural to an Urban Area
Moving a station from a rural area into a more urban one was a fairly common occurrence until the recent recession – when the value of new "move-in" stations in many larger markets essentially collapsed. Soon after the collapse, the FCC stepped in to stop what the marketplace had already severely slowed, by effectively prohibiting the practice of moving stations into urbanized areas. In its Rural Radio Order (which we summarized here), the Commission adopted “presumptions” that eliminated preferences that applicants had received for proposing a new service to large suburban communities, and preferences based solely on the number of people that a modified station would serve. A number of parties (including ones that I represented), sought reconsideration of the FCC’s order, challenging both the theory of the FCC order and some of the details. On Friday, the FCC issued its order on reconsideration, denying any fundamental changes in the policy, but clarifying some of the details of the showings to be made in evaluating city of license changes for broadcast stations, and also grandfathering under the old rules more of the applications that were pending when the new rules were adopted.
Before discussing the changes, it is worth reviewing the Commission’s processes for deciding which of competing proposals for new FM channels in different communities should be granted, and whether the change in the city of license of an existing station is in the public interest. These choices are governed by Section 307(b) of the Communications Act and the substantial case law that has built up at the FCC around that section. Section 307(b) requires that the Commission make a “fair, efficient and equitable” distribution of radio service among the states and communities. Over the years, the FCC has adopted standards for determining how to make this distribution – favoring applications that propose a “first local reception service” (or service to “white areas” – those that currently receive no predicted service from other stations), net favoring a second reception service, next giving a preference to those providing a “first transmission service” (i.e. a first station licensed to a community). Finally, if none of the preceding preferences come into play, the Commission looks at “other public interest factors” – usually the total population served by a proposal, including an evaluation of the other services from other stations available in both the gain and loss area of a proposed facility move (or in the proposed coverage areas of the new allotments that the Commission is evaluating).
In the Rural Radio order, the FCC reversed over 20 years of practice and reverted to an old presumption, that any applicant proposing service to a community in an urbanized area was not proposing a first local service to that community (and was thus not entitled to a preference for a “first local transmission service”), but was instead proposing just another service to the larger urbanized area. The Commission went further, also holding that any proposal which would cover 50% of the urbanized area with a signal, or even where there was a location from which 50% or more of the urbanized area could be covered (even if that location wasn’t specified in the application), would be considered just another service to the urbanized area. This eliminates any preference for an applicant proposing to provide a first transmission service to any large suburban community.
Moreover, in the evaluation of “other public interest factors,” the Commission concluded that just serving more people – even if a proposal would serve substantially more people – would not necessarily be decisive if the areas deprived of service by a city of license change were substantial and relatively underserved by other radio stations. See the decision that we summarized here for an indication how this new procedure affected proposed move-ins.
In effect, these changes made it difficult, if not impossible, to move a station from a rural to an urbanized area.
What did the Commission change in the Reconsideration? The principal changes came in determining how to measure existing service in making the calculations as to whether an area is well-served or not, and in the grandfathering of applications that were pending at the time of the first order in the rural radio proceeding.
The Commission told applicants preparing showings counting other services in gain or loss areas to measure the other services based on their actual facilities – not based on their theoretical maximum facilities for their class of service, as had been the prior practice. In addition, the coverage for the new station should be measured from its proposed transmitter site, not from the “allocations coordinates” for the channel on which it will operate, as had been the process before the rule change. Finally, measurements of all AM stations are to use their daytime 2.0 mv/m contours, not the .5 mv/m contour that had been used for rural coverage in the past.
The Commission also determined that the grandfathering provisions of the new rules should be extended to include applications filed before the Notice of Proposed Rulemaking in this proceeding was issued by the FCC. The initial order had only allowed AM applications for new stations or major changes filed in the last AM window to be processed under the old rules. After a number of waiver requests were filed claiming that other applicants had spent just as much or more on their application process before the new rules were in place, the Commission seemed to conclude that the grandfathering provisions did not go far enough in protecting the expectations of applicants who had filed for city of license changes under the old rules. However, once the NPRM had been released, proposals filed thereafter, were deemed to be on notice of the proposed changes and thus not protected (with the limited exception of those proposals that were granted before the Rural Radio order was released, even if those grants had not yet become final) .
But any fundamental review of the underlying premises for the Rural Radio order was not to be. Parties (including those that I represented) questioned the fundamental premises of the order. These parties argued, among other things, that the need for new services in urban areas was actually greater than that in rural areas. On a per capita basis, the number of radio services that exist in urban areas is less than what exists in rural areas. Program choices, through satellite and the Internet, provide access to more entertainment channels no matter where one lives. But in urban areas, there are more needs for diverse programming choices, through radio stations that can target specific demographic group - groups that will have insufficient members in rural areas to economically support niche services. Economics will dictate where the best use of radio channels will be.
The Commission did not dispute the assertion that, on a per capita basis, there were fewer stations in urban areas than in rural ones. But, as an absolute number, the FCC decided that it was more important to provide listeners with programming choices in these rural areas – even if there are fewer people to listen to these stations. The Commission did not address how broadcasters were supposed to be able to economically support these competitive stations in rural areas. The more you slice a smaller audience, the harder it is to economically support each station in that smaller market. However, the Commission rejected these arguments, leaving these arguments for individualized waiver argument in specific cases of economic hardship at some future date.
In any event, the rural radio decision seems to be the law of the land (see this recent case decided just before the reconsideration decision applying its presumptions on an appeal of the case to which we linked above). But, in evaluating applications and how they fit under the policies set out in the decision, broadcasters need to take into account the changes made in this reconsideration order.