The FCC this week issued a document called “Guidance Regarding Prohibition of Certain Communications During the Incentive Auction, Auction 1000.” That mouthful of a title identifies a document which clarifies the restrictions which apply during the incentive auction on communications by and between broadcasters (and wireless companies) that could influence the bidding in the auction. In other auction proceedings, these kinds of restrictions have commonly been referred to as “anti-collusion rules.” Here, the FCC talks about “prohibited communications” during the “quiet period.” The quiet period extends from the filing of applications evidencing an intent to participate in the auction (likely to happen in December of this year for TV broadcasters who are interested in offering their channel for surrender the FCC, see our article here about the auction timing and procedures, including a link to the slides from a presentation on auction issues that we conducted for several state broadcast associations), until the very end of the auction when the FCC announces the final results. Thus, this quiet period will potentially extend many months, especially if there are multiple “stages” of the auction where broadcasters offer their licenses for sale and wireless companies bid on the spectrum that has been surrendered. Many broadcasters and other industry participants – from programmers worried about being the conduit of information about broadcasters’ auction intentions, to noncommercial licensees worried about representations to their audiences that could be made during pledge drives – were concerned about the very strict rules initially adopted by the FCC, which prohibited almost any communications by broadcasters that would hint as to their intentions as to whether or not they would participate in the auction. The rules also threatened to bring station sales to a halt during this period. This week’s Guidance should alleviate at least some concerns, but significant restrictions remain, and the FCC demands that auction participants educate their employees about what can and cannot be said during the auction, as a disclosure of bidding strategy or tactics can result in severe penalties.
While the Guidance addresses both broadcasters participating in the Reverse Auction to sell their spectrum to the FCC to be repurposed for wireless uses, and the Forward Auction, where the wireless companies bid on the returned spectrum, we’ll focus on the broadcast issues. There were a number of significant clarifications that affect broadcasters. While we will briefly discuss some of the issues addressed by the Guidance, the penalties for the violation of these rules are so severe, and the rules so nuanced, that we feel the obligation to warn broadcasters not to rely on this summary or any other that you read in the trade press. This is one of those areas where getting legal advice from your own attorney about the ins and outs of these rules is crucial.That being said, here are some of the issues discussed in this week’s Guidance:
- The FCC will allow broadcasters to say whether or not they filed an initial application to participate in the auction. Those initial applications are likely to be filed later this year. Beyond that disclosure as to whether or not they filed, broadcasters who file an initial application should not say more about their goals and plans for their auction bidding.
- Many stations felt the need to be able to reassure business partners and, for noncommercial stations, donors, that they would be around after the auction. So, in addition to being able to say that a station did not file an application, stations, if they entered into a pre-quiet period channel sharing agreement filed with the FCC (see our article on channel sharing agreements here), can also say that they will be continuing in business after the auction – but they should not be revealing the existence of the channel sharing agreement or any of its particulars (simply saying that you will be around could imply that a station did not file an initial application to participate, or that it is planning to channel share – that ambiguity should not be clarified).
- Routine business transactions, e.g. entering into tower leases or programing agreements, will not be seen as conveying auction plans and strategies even where they may imply short-term changes to a station’s business plans, as long as the station does not indicate the reason for such changes.
- One channel sharing partner may communicate with the other partner only with respect to the station involved in the channel sharing agreement – communications about the first partner’s bidding plans should not be shared with other stations that may be commonly owned with the second partner to the sharing agreement.
- If a station’s news department obtains and broadcasts information about the bidding strategy or other auction plans of that station, or any other station, the FCC will not automatically hold the station accountable for the leak, but the FCC will look at all the circumstances as to how the information became available. The FCC warns station owners to be cautious with incentive auction information so that it is not conveyed to news departments.
- The Guidance provides cautions to law firms and other consultants about being involved in the bidding and tactics of multiple parties to the auction.
- The FCC was asked about disclosures required by law, e.g. by a noncommercial broadcaster who is owned by a state entity which would require public disclosure of information about sales and other significant transactions. The FCC suggests that some of the disclosures may not need to be made under exceptions to “sunshine laws.” It is also possible that some pre-quiet period disclosures could resolve sunshine law issues. But the FCC cautions broadcasters who feel that some disclosure might be required during the auction to seek advice from the FCC.
- Finally, the FCC cautions broadcasters generally to conduct education programs among their station employees about what could constitute a prohibited communication under its rules banning prohibited communications during the incentive auction quiet period.
One special area of concern involves broadcast transactions. There the FCC provided additional guidance that may affect the ability of broadcasters to negotiate the purchase and sale of stations during the quiet period. The FCC’s advice on these issues includes the following:
- Transactions for the sale of stations that occur after the beginning of the quiet period cannot include discussions of the incentive auction bidding strategy of the selling station – obviously making such discussions difficult as a buyer won’t know whether or not the station that it wants to buy will exist after the auction is complete. The FCC also suggests segregation of the people negotiating any sale from those handling the bidding in the incentive auction – a segregation that may well not be practical in many companies.
- As the auction rules require that a party who enters the incentive auction be the same party who ultimately sells the spectrum at the end of the auction, the FCC will not process and approve transactions filed after the start of the quiet period until after the auction concludes.
- However, for transactions entered into and filed with the FCC before the beginning of the quiet period, the FCC will allow the transactions to be processed and closed while the auction is progressing, if the buyer agrees to be bound by the decisions of the seller in the incentive auction. Note that the buyer and seller may not be able to discuss bidding strategy during the auction, but presumably they will have agreed to such strategy in the terms of their acquisition agreement before the quiet period has begun.
Obviously, these are very complex rules that will need to be understood by all broadcasters before the quiet period begins – probably in December. So for stations that will in any way be participating in the incentive auction, and for parties who could potentially become the conduit of information about bidding strategies and the bids themselves, contact counsel now to have these rules explained to you in detail.