Broadcast Law Blog : Broadcast Lawyer & Attorney : Davis Wright Tremaine Law Firm : Broadcast Law Blog : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai

The Rural Radio presumptions seem to be looking for qualitative judgments about the areas and populations being served.  Various petitions for reconsideration of the Rural Radio order have been filed and are pending before the FCC (including one that I filed for clients) questioning the revised presumptions - and asking how they can be applied in real life situations.  In cases such as this one, and another decided last month, significant populations increases that would vastly improve the reach of a station were deemed insufficient to justify a city of license move.  Clearly, broadcasters and listeners would benefit from such moves, yet the Rural Radio Order seems to want to protect every listener choice of those in more rural parts of America.  While the Order does not explicitly rule out all moves into urban areas, it does not provide any clear-cut guidelines as to when such moves might be seen to be in the public interest, or even as to what specific criteria will be evaluated when reviewing such moves.  Will the Commission determine that loss of service to any area outside an urbanized area - no matter how well served that area may be - is more important than providing more service to an urbanized area?  Seemingly, this will cut off all opportunities to move stations to urbanized areas, entrenching the competitive landscape that currently exists in such area, without any evaluation of the economic survival opportunities of these additional services in rural areas.  New cases will probably answer such questions but, in the interim, many broadcasters will be left with little or no guidance on how such moves will be treated. 

The most fundamental change in policy adopted by the FCC was to change the process used to evaluate the Section 307(b) priorities between competing proposals for broadcast stations that will serve different communities.  Section 307(b) of the Communications Act is the section that requires that the Commission make a "fair, efficient and equitable distribution of radio services" among the "several States and communities."  The FCC has principally looked at three factors in making Section 307(b) determinations:

1. First priority is to proposals for coverage of "white areas" - areas that currently receive no other primary signals from any radio station
2. Second priority is given to coverage of "gray areas" - areas that currently receive only one other service - so that the new service would provide a first competitive "reception" service (a reception service meaning that the station can be received in that area, i.e. the area falls within a station's protected service contour).
3. The third criteria, equal in importance to the second, is the provision of a first "transmission service" to a community, i.e. the first station licensed to that community with primary responsibility to cover its needs and interests.
4. After that, the fourth priority was "other public interest factors", which traditionally looked at a comparison of proposals to see which provided more reception service to more people.

The change adopted in this case was to essentially return to an old policy, abandoned decades ago, that determines that a first reception service, priority 3 preference, was not available to applicants who file for a community that is part of an urbanized area.  Instead, the FCC will look to the transmission services available to the entire urbanized area to determine if a preference should be accorded to the applicant and, as all urbanized areas have multiple stations licensed to cities in the urbanized area, that preference would never apply to such a community (except where the presumption adopted here is rebutted, as set forth below).  While there are some differences, the newly adopted policy is similar to that which applied through the mid-1980s under the FCC's "suburban community policy and its "Berwick doctrine", both of which led to results similar to those that will probably result from the new rules.  Under the new policy, the presumption that a station proposing to serve a community is really one for the whole urbanized area would apply when a proposed station would cover 50% of the urbanized area around a major city - either from the proposed transmitter site or from another likely site.  The presumption can be rebutted, but that would require:

• Showing that the proposed community of license, while in or near the urbanized area, is still independent of the principal city in that area
• Showing that the community is not only independent but has actual needs for a local transmission service, and
• Demonstrating that the proposed station would in fact meet those needs.

In assessing the rebuttal, the FCC would look at:

• How much of the urbanized area would be covered by the proposed station
• The size of the proposed community of license versus that of the metropolitan area
• The "Tuck" factors - factors set out in a 20 year old case that looks at issues such as the existence of local government, civic and educational organizations in a community, whether it has an independent business and cultural existence, and whether it has its own media, post office and phone book, and generally whether it is more of an independent community or a bedroom of the nearby bigger city.

These Tuck factors would be applied more strictly than they have been in recent years, looking to give a preference only to those few communities in or near a metropolitan area that have a demonstrably separate existence from the central city. 

In addition, the Commission will create a new priority 4 to the 307(b) priorities listed above, giving the provision of a third, fourth or fifth reception service to substantial areas greater weight than the simple coverage of greater populations.  How that preference is applied is different in different circumstances.

In fact, all of these new policies would be applied slightly differently, depending on the circumstances in which they arise.  In AM cases, where there are mutually exclusive applications filed in a window for new or major change applications, proposing different cities of license, the Commission need not reach a decision on 307(b) grounds as, if there is no winner based on these grounds, the applicants simply go to an auction.  Thus, in addition to the presumptions summarized above, the Commission gave specific guidance on the evaluation of the priority 4 preferences.  Preferences will only be given to applicants who have a 25% greater coverage of areas where they will provide a third, fourth or fifth service, and propose to provide a transmission service to a city that has fewer than 2 such services.  In addition, an applicant can submit a Service Value Index study (a study based on the 20 year old decision setting out a formula for evaluating the number of people in coverage areas proposed by applicants, with the raw population numbers adjusted by the number of services these areas already receive) to show that their proposals would better serve the public interest.  An SVI 30% better than that of a competing applicant will merit a preference.  Otherwise, it's off to an auction.

In cases where two or more petitioners are seeking to allot a new FM station to different communities, where such proposals are mutually preclusive, in addition to the general presumptions about service to communities in or near to an urbanized area being service to the whole urbanized area, the Commission decided, as in AM, to put more weight on third, fourth and fifth services.  There was no definitive percentage specified as to when such weight would be decisive, nor was there any indication as to whether a SVI showing would be considered.  No explanation of why an SVI was considered important for AM, but not for FM, was provided.  

In situations involving city of license moves, where there are usually no competing proposals for the FCC to evaluate.  So the FCC looked at standards that would make it generally more difficult for stations to move from rural to urban areas.  The Commission stated that it would generally disfavor moves that removed a second service from a community of over 7,500 people, and disfavor moves that created new areas that did not receive third, fourth or fifth services, if those areas constituted over 15% of the station's service area before any proposed move.  Applicants will also need to provide much more specific data on how many services are received in both the gain and loss areas (not stopping at 5 services, as is the common custom currently, but instead providing detailed analysis of how many services all gain and loss areas would receive).  These required showings will make city of license changes more costly to prepare, and will also make their consideration by the FCC more time-consuming and uncertain, as there are no criteria specified by which the detailed showings will be judged.  Apparently the proposals will need to be evaluated on a case-by-case basis.

These are but highlights of the changes made by the Commission.  The Order provides more detail on the showings required, the grandfathering that will be accorded to pending proposals, and other implementation issues.  But, needless to say, the differences from the current processing will be significant.

But what is perhaps most interesting is trying to figure out why these proposals were adopted now - when there are few new requests for the allocation of new FM channels, there is a decreasing interest in new AM service, and there are very few move-ins of stations to metropolitan areas - as the economics of those actions simply are not what they were years ago. These new rules, which will make many applications more costly to prepare, and will make challenges to proposals much more time-consuming to defend, solve problems that simply don't exist.  The FCC seems to justify these new rules on its beliefs that even rural residents deserve a choice of a multiplicity of entertainment and informational outlets (deeming 307b to be a consumer protection statute, not a broadcaster-centric model that encourages spectral efficiency - an interesting conclusion in this era where efficiency, not consumer protection, seems to be the buzzword of the FCC on the television side - see the proposals about which we have written many times - to repurpose the TV band for broadband).  The Commission does not consider questions of whether it is in fact economic to provide such services, and whether the multiplicity of services to rural areas is even so necessary in an age when anyone, anywhere, can receive hundreds of channels by buying a Sirius XM receiver.  While the Commission states many times in this order that the justifications underlying Section 307(b) have not changed since the 1930s, they fail to recognize that the radio industry and the media landscape generally has changed in the intervening 77 years since the section was adoption as part of the Communications Act. 

No doubt there will be appeals of this decision.  And there are many implementation issues that will need to be addressed by cases that try to apply the new policies that have been adopted.  So the final impact of this order is not yet knowable.  So watch as these issues develop. 

Spectrum congestion is usually not as acute in more rural areas so, to the extent that an area looses service when a station is moved into a larger market, if that service is needed (or can be profitable), another frequency can often be moved in to back-fill any service loss.  Of course, a station moving closer to a larger market may still provide some service to rural areas.  And Commission rules already preclude (except in rare circumstances) moving a community's only station out of that community, and prohibit the creation of "white areas" and "gray areas" - areas where residents will receive primary service from no radio stations (a "white area") or only one radio service (a "gray area").  So a baseline of service is already established by the rules.

Rumor has it that the new rules circulating at the Commission may require a greater number of stations be left in every community before any station from that city can be moved.  They may also require more reception service beyond white and gray areas, and may generally prohibit the movement of stations from rural areas into metros.  If this is in fact the case, the Commission may ignore the fact that all "communities" are not created equal.  Some rural areas may be in sparsely populated areas, where multiple stations cannot economically thrive.  The definition of "community" should also be considered, as in any metro, there may be many "communities", not all defined by political boundaries.  Some communities - defined by various social or economic or ethnic classifications, may well be deserving of service not provided by the existing stations in a market.  Putting the stop on the movement of new stations into a metro area may forever deny such service.  That is why virtually all broadcast groups, and several minority organizations, opposed such restrictions when they were first proposed. 

The rules and procedures of the allocation process are very detailed.  The changes made in this process four years ago, which made it easier to move stations from one city to another, are still subject to reconsideration petitions, and still have left several procedural issues unresolved.  No one outside the FCC knows exactly  what the new rules provide, so we don't know how they will interact with the existing rules, and whether they may be other unanticipated results.  So broadcasters should watch this decision carefully, and determine what ramifications they may have on your future plans. 

The Commission’s decision adds a wrinkle to the commonly held understanding that a broadcast applicant won’t be forced to build facilities authorized by a construction permit and can surrender a construction permit with no penalty. Now broadcasters need to seriously consider the viability of any proposed community of license changes, lest they unintentionally abandon the licensed facilities. But there are several facts that were present in this case and we can’t be sure just how pivotal they were to the outcome. For instance, the KIKT(FM) community of license change was part of a rulemaking proceeding. Now that community of license changes have been streamlined and, in most cases, do not need a rulemaking but can be requested as minor change applications, it remains to be seen whether this decision would apply with equal force in that context. And, if there is no competing facility, will the Commission nevertheless mandate construction of these community of license changes, even if the permittee decides, after the permit is granted, that its plans have changed? Is it in the public interest to force construction if there is no mutually exclusive modification or proposal lying in wait? What happens in the noncommercial context where there is no Table of Allotments, so there is no placeholder for the new community of license?   This case presented a set of polarized facts, that some might say could only result in the decision that the Commission’s staff reached. Warehousing spectrum for six years is clearly not in the public interest, especially when it obstructs implementation of a new proposal. But given the questions raised above, we can’t be certain how this decision would be applied to different facts. Nevertheless, this case serves as an indicator to broadcasters about where the Commission is headed as it relates to community of license changes, and a cautionary tale to those hasty to make moves without understanding the implications. Make such proposals seriously, as you may be forced to build what you promised even if your plans later change.

Service to white areas is the most important of the criteria, with the Second and Third Priorities having equal weight. Where there is a tie among the various criteria, the Fourth Priority is used to decide the case. The Commission’s concern is that service to Urban areas will, in most cases, win out in this analysis. Given the number of radio stations around the country, few proposals for new stations will propose coverage to white and gray areas. Applicants for new stations routinely propose to serve communities that have no other stations, even finding suburban communities without a local transmission service near to Urban centers so as to balance out any first transmission service that may be proposed outside of those areas. As a suburban station proposal that serves an Urban area will almost always, by definition, serve greater populations than a proposal for a more rural area, the proposals for an Urban station will almost always win in a 307(b) analysis under the Fourth Priority.

To combat this perceived loss of service to rural areas, the Commission has advanced a number of proposals and asked a number of questions. These include:

• Eliminating the Priority 4 preference in cases where there are mutually exclusive proposals for AM stations, meaning that more cases would end up tied under Priorities 1-3, and would have their cases decided by auction
• If the Priority 4 preference is used in AM cases, what exceptional circumstances would justify its use?
• A Proposal to consider all applications that cover more than 50% of an Urbanized area, or which could, by a change in facilities, could cover more than 50% of an Urbanized area,  as proposals for service to the Urbanized area as a whole – meaning that they would get no credit for a first local transmission service credit under Priority 3, and lose any 307(b) evaluation to a proposed first local transmission service in a rural area
• If an exception is made to adopt the rule set out above, when would such an exception apply to a community in or near an Urban area so that an applicant could show that the community needed a radio service? Would the “Tuck” factors that are currently being used to show the independence of a suburban community from the Urban area in which it is located have any continuing validity?
• Should there be a “service value index” developed to consider the weight to be accorded to proposals that involve third, forth and fifth reception services?
• A proposal to ban any move of a station’s city of license that would create white or gray areas
• Should policies be adopted that would prohibit the abandonment of service to areas getting less than 5 services?
• Should a new priority be adopted for stations proposing to serve Native American tribal lands?
• A proposal to prohibit the change in the facilities of a new AM station in such a way as to decrease service to underserved areas when it received a 307(b) preference for service to those areas
• Create a new review standard for auction applications that would reject applications that are technically flawed before the auction, rather than waiting to see if the applicant is the tentative selectee
• A proposal to cap the number of AM applications that can be filed in any Auction window - similar to the caps that have been adopted in many other FCC auction windows in other services

These and a number of other technical proposals are designed to make it harder to move stations into metropolitan areas.  But is this really an issue that the FCC needed to address?  How often are there rural communities that have real unmet needs when a station moves into a metropolitan area?  In most cases, if there is a real need for a station in the rural area, and there are the economics to support it, a new station can be located to fill that need - as it is much easier to put a new station in a rural area than in a metropolitan one.  The Commission cannot force stations to operate in rural areas - if there is no demand and no economic benefit in doing so, a station will go out of business or stop local programming.  If there is a need and an economic benefit to operating the station in the rural area, someone will do it.

The move-in stations that the FCC is attempting to ban are often those that promote diversity in the metropolitan markets.  Minority owners, noncommercial operators, and other new entrants have financing as their biggest obstacle to acquiring a station in a major market.  The few stations that do become available in major markets are often priced far too high for new entrants.  But move-in stations, with no cash flow or established business, are often priced so as to be attractive to new buyers (and as most big group owners are close to their ownership limits in many markets, and preserving cash in these economic times, there is often little competition for the purchase of such stations from the established market operators).  Cutting off the supply of move-in stations in the manner suggested by the Commission may well conflict with the Commission's stated goal of increasing minority ownership (see our post here on the Commission's recent attempts to promote minority ownership).

These issues will no doubt be addressed when the Commission receives comments on this proceeding - 60 days after it is published in the Federal Register.  Reply Comments are due 30 days after that.  Interested parties should be now considering their filings in this important new proceeding. 

In this proceeding, the procedure has been somewhat different.  The Commission's Notice of Proposed Rulemaking really did not suggest any proposed rules - instead just asking a number of questions that gave little guidance as to what the Commission was really thinking about doing to reform the ownership  rules (see our summary here).  The original Notice was much more akin to a Notice of Inquiry, which asks for general guidance on a subject, and then usually leads to a more specific Notice of Proposed Rulemaking.  Here, the Chairman's Public Notice was really the public's first look at what the proposed revisions to the rules would look like - and the suggestions seem to be those of the Chairman only, not those of the full Commission (or even necessarily a majority of the Commissioners).  And, instead of providing an opportunity for comments and replies and informal lobbying and advocacy, the Public Notice gives only a single date of December 11 for comments, and then seems to contemplate an FCC decision the next week (leaving no time for informal lobbying after the comment date, as there is a 7 day quiet period, where no lobbying is permitted, before a decision to be made at an FCC open meeting). 

In looking at the specifics of the proposal, one is struck by how many issues it leaves unanswered.  One would think that these issues will have to be addressed in any final order issued by the Commission.  The Notice of Proposed Rulemaking asked about a number of subjects that seem to have been ignored by the Chairman's proposal.  For instance, small market television stations have long been clamoring for some relief from the rules that only allow TV combinations in markets where there are eight separate TV owners.  Small market owners have long contended that in the very small markets the only way to start a station that is not affiliated with a major market is to run it in combination with another station - and certainly the only way to be able to afford local news on one of these stations is to have a second station that can share the costs.  And with the costs of the digital transition fast upon stations in these market, who have a limited revenue base from which to pay for the costs of the digital conversion (costs that are essentially the same as the costs for a large market station with far greater revenue opportunities), many of these smaller stations are hurting economically.  Yet there is no mention of small market duopoly relief in the Chairman's proposal.  Given that the US Court of Appeals, in a case brought by Sinclair Broadcasting, ruled that the Commission needed to provide more justification for its rules limiting TV duopolies to markets where there would be 8 independent owners after any combination, and prohibiting combinations among the Top 4 stations in a market, it would seem that this issue needs to be addressed and justified in any order of the FCC. 

Large market TV operators were also looking for some opportunities.  In the 2003 order, the FCC allowed one entity in the very largest markets to own up to three TV stations.  No such proposal is contained in the Chairman's proposal. 

Radio, too, was hoping for some clarifications of the ownership rules that went into effect in 2004.  The radio rules adopted in the FCC's 2003 Multiple Ownership reform order were the only rules from that order that actually went into effect.   And those rules actually tightened the rules that were previously in effect - determining the number of stations in a market based on Arbitron market definitions rather than by contour overlaps.  As this reduced the number of stations in a number of markets, and the number of stations in a market determines how many stations one party can own, a number of issues were raised.  Many of the issues dealt with grandfathering of preexisting interests.  While the Commission grandfathered most combinations that existed at the time that the rules were adopted, that grandfathering protection would disappear in most cases upon an assignment or transfer.  While the FCC allowed grandfathering to continue if there was a transfer caused by the death of a shareholder, it made no provisions for grandfathering where there is a transfer that takes place over time in employee-owned or other closely-held businesses,  where continuity of ownership remains, though a technical transfer may have occurred.  The rules also forfeited grandfathering protection if there was a city of license change for any station in the cluster - even if that city of license change was from one community in an Arbitron market to another in the same market.  Some parties asked for reconsideration of that rule - again something not addressed, and much more important given the recent Commission decisions easing city of license changes to make it easier for radio stations to improve their technical facilities (see our posts, here and here)).

The 2003 Order also, for the first time, made radio Joint Sales Agreements attributable interests (meaning that stations subject to such agreements count as if they are owned by the party doing the advertising sales in assessing that party's compliance with the multiple ownership rules), and gave parties two years to divest themselves of any JSA which would result in a combination that would exceed the ownership rules.  A number of parties asked for reconsideration of that ruling - asking for further grandfathering of those agreements to preserve the economic benefits of the parties.  Parties also asked for clarification or other relief of situations in some geographically large Arbitron markets, where some parties need two lower power stations to cover a market.  Should those lower power stations count the same as a high power station that might alone cover the entire market.  The Third Circuit Court of Appeals decision which overturned most of the 2003 ownership rules seem to require that the Commission address the rationale for the strict reliance on the number of stations in a market in deciding ownership limitations without any consideration of the coverage or audience of such stations.  Again, there is no mention of any consideration of that issue in the Chairman's notice.  The Notice of Proposed Rulemaking in this proceeding also asked for a permanent definition of a radio market in areas not served by Arbitron - and there certainly has been no specific proposal made in that regard.

Thus, the Chairman's Public Notice would seemingly not signal the end of the ownership debate, as there remain many, many unanswered questions raised in this and other related proceedings.  So, even if the newspaper- broadcast issue is resolved next month, the Commission's multiple ownership work appears to be far from complete. 

This seems to be a troubling case of the Commission adopting rules and policies before formal rulemaking proceedings are completed.  In some cases, ad hoc policy changes may benefit broadcasters, but in cases like this, they may harm them and effectively impede the full implementation of a Commission decision that was long in the making.  And this change is in a policy that was fundamental when the FCC first authorized LPFM - that low power FM stations that serve limited areas, and which have great potential for preclusive effects on large stations serving much larger populations, would be secondary to the greater service provided by the full-power stations.  While the Commission can always change that policy, it would seem that they should do so in a reasoned rulemaking process, analyzing all of the pros and cons in the change in policy, through a resolution of a rulemaking proceeding like that which they started two years ago.  Obviously, we have to see how the application process plays out (and it indeed may just be an attempt to help the LPFM stations in a benign fashion that will not affect the upgrades of the full service stations) but if these processing policies do indeed result in denial or permanent limbo for some full-service station applications, this certainly would look like the prejudgment of an important issue without an analysis of all of the legitimately-raised counterarguments that have been submitted to the Commission in its rulemaking proceeding.