OPEN MIKE BY PETER TANNENWALD

Ins and Outs of Post-Auction Channel Sharing

So you want to sell spectrum in the incentive auction, but still remain in the business. The FCC has made that option available by allowing you to contract with another broadcaster to double up on a channel. But the rules of channel sharing are complex and still not settled. Here's the latest.

 

As the incentive auction approaches — now supposedly less than a year away — the FCC continues to fine-tune various components of the sprawling auction/repack process. Most recently the Commission has turned its attention to channel sharing.

Channel sharing, of course, is one way in which the commission hopes to encourage TV licensees to give up their current channels for sale in the auction. The idea is that any licensee willing to give up its channel, but unwilling to leave the business entirely, would simply share a channel with another station, thus freeing up its original channel for sale to wireless carriers.

It’s as if your neighbors down the street agreed to vacate their one-acre lot with a two-story house and move into the second story of your two-story house on a one-acre lot, making the neighbors’ original property available for that nice mobile broadband family to move into.

Under the commission’s sharing approach, each sharer gets its own license and is independently responsible to the FCC for its actions, but all share a common transmitter and antenna. The rules as initially adopted were somewhat restrictive in a number of important respects. But now, in response to petitions for reconsideration, the FCC has relaxed some of its earlier restrictions. Additionally, it  has requested comments on a number of proposals for further relief.

Post-Auction Sharing Agreements Permitted

Originally, only channel-sharing agreements (CSAs) entered into prior to the incentive auction and submitted to the commission with the stations’ pre-auction application would be recognized. That has changed. The commission will now permit stations to make their deals anytime up to the deadline by which pre-auction CSAs must be implemented — three months after the auction.

BRAND CONNECTIONS

In other words, you can enter the auction declaring your intent to share without knowing who your sharing partner will be. And if the FCC eventually adopts further proposals currently on the table, new sharing deals may be allowed any time in the future.

Sounds good? Beware of the fine print. First, in order to take advantage of this option, a station will have to specify in its pre-auction application that it intends to channel-share. This won’t mean that station will eventually have to enter into a CSA, although if it doesn’t find a partner after the auction, it won’t be able to keep its old license and will end up with no license (because its old channel will have been disposed of in the auction).

But if the pre-auction application does not include an expression of intent, the station will not be able to avail itself of a “first-generation” post-auction CSA. (“First-generation” CSAs are those in place at the completion of the auction process. “Second-generation” CSAs are those that may be entered into later down the line, outside of the incentive auction context.

Second, would-be sharers without a pre-auction CSA in place will be subject to the auction rules forbidding any communication or collaboration about a licensee’s auction strategy prior to and during the auction. Yes, such communication/collaboration will be permitted between or among sharing stations that have identified themselves (and submitted their CSAs) in their pre-auction applications. But that exception won’t apply to stations that enter the auction with no CSA in place.

That means that parties entering the auction with the intent to share, but without a pre-auction deal signed, sealed and delivered to the FCC, won’t even be able to discuss possible deals, much less negotiate them, during the auction.

On top of that, would-be sharers without a pre-auction CSA in place will in any event have to sign and implement their post-auction CSAs by the time that they are required to relinquish their channel, which will be only three months after the auction. One petitioner had argued that stations turning in their licenses should have 12 months in which to find an alternate channel to share, since the Communications Act ordinarily permits stations to remain off the air for up to 12 months.

Nope, said the FCC, the 12-month provision applies only to stations with licenses. When an auction participant turns in its license, by definition it ceases to have a license and the 12-month option is no longer available. Plus, limiting the post-auction CSA options reduces interruption of service to the public and should “smooth the MVPD’s post-auction transition process.”

And heads up: the FCC will not find and assign a sharing partner and will not guarantee that any station rolling the dice in this way will be able to find a willing sharer by the tight deadline.

CSA Limitations On Assignment Of Shared Spectrum

Another aspect of the initial rules that distressed potential sharers was the FCC’s view that because each sharer’s license will be completely independent, that license could be sold at will (subject to the usual FCC approval, of course). That meant that one sharing licensee could opt to sell its piece of a channel to a third party who might be a total stranger to the other sharing licensee.

The idea of having to share with a stranger was distasteful to a lot of licensees, who argued that CSAs should be allowed to provide that non-withdrawing sharers have the right to acquire a withdrawing sharer’s interest. Initially the FCC nixed this approach, saying that such a provision would constitute an unlawful right of reversion in favor of the survivor. But the FCC has changed its mind. OK, the FCC now says, we’ll let you off the hook: Sharing parties may agree on any provisions they like for disposition of the rights of a withdrawing party, including allowing the remaining party to resume use of the entire channel.

This alternative does pose its own complications, though. If a channel-sharing agreement breaks up and the full channel goes back to one of the parties, that will reduce the number of stations in the market by one, which could in turn affect the relevant multiple ownership limitations of that market. While existing ownership combinations will be grandfathered, creation of any new duopoly might be prohibited.

Yes, the FCC says, that’s the way it is: multiple and crossownership rules still apply, and if loss of a sharer blocks a planned transaction, so be it.

On a related note, the commission has also decided to let channel sharers agree among themselves what will happen in the event that one of the sharers loses its license by revocation or even voluntary cancellation. Initially, the FCC had taken the position that, if one sharer’s license were revoked or otherwise terminated, that license — the right to share the use of the particular channel — would automatically go back to the FCC, which could then grant the right to some new applicant. But some commenters objected to the notion that the commission might become a matchmaker, forcing unfamiliar sharers into a shotgun marriage of sorts.

On further reflection, the FCC has agreed, and will allow sharers to address this potential circumstance in their CSAs.

Flexibility Of CSA Terms

The FCC has decided the channel-sharing deals will not have to match the term of a CSA to the expiration date of the underlying FCC licenses, although the FCC has invited comment on whether CSAs should be subject to a minimum length of term.

No FCC Review Of CSAs Until After The Auction

As noted above, CSAs are supposed to be entered into and submitted to the FCC prior to the auction. But the FCC now says that it won’t get around to reviewing the substantive content of any CSAs until after the auction  which gives rise to the possibility that deals may have to be re-worked post-auction if the commission finds terms in them that raise regulatory problems. (It will review CSAs before the auction only to “to confirm that the parties qualify for the anti-collusion rule exception.”)

The FCC assures us all that it has no interest in substituting its judgment for the judgment of CSA participants “with respect to the terms of the agreement.” Any post-auction CSA review will be limited to “confirming that the CSA contains the required provisions and that any terms beyond those related to sharing of bit streams and related technical facilities comport with our general rules and policies regarding licensee agreements.” Still, sharers would be well-advised to insure that their CSAs provide for what happens if the FCC doesn’t like a term that the parties consider to be critical.

No Change Of Class If Sharing Terminates

The FCC observes that commercial and noncommercial stations may share a channel, and Class A and full-power stations may also share. But sharing won’t change their regulatory status apart from the fact that a Class A station sharing on a full-power channel will enjoy the benefit of extra power.

If a sharing deal breaks up, the noncommercial station will remain subject to noncommercial rules, even if it was sharing a channel not reserved for noncommercial use. And a Class A station will have to revert to Class A power limits even if it was sharing a full-power channel.

Further Items Out For Comment

As noted above, the FCC has also posed a number of questions about further issues that will need to be addressed with respect to CSAs entered into outside the context of the spectrum auction.

Generally, the commission contemplates applying the same overall matrix of operational and licensing rules to such post-auction arrangements as will be applied to pre-auction CSAs. Those include the provisions relating to sharing arrangements between full-power and Class A stations and between commercial and noncommercial licensees.

The commission invites comments on that approach as well as on second-generation sharers’ construction periods and MVPD carriage rights of sharers.

First-generation CSAs — agreements entered into by auction participants — will have to be implemented within three months after the auction. But what about second-generation CSAs involving a sharer that opted not to participate in the auction? To move onto somebody else’s channel pursuant to a CSA, such a second-generation sharer would have to file for a construction permit to do so, but should that permit, when issued, be subject to a three-year construction term (the standard shelf life of a CP) or a three-month term?

The Spectrum Act provides that stations choosing to share a channel won’t lose any of their MVPD (cable and satellite) carriage rights. The idea is that the total number of stations with such rights won’t change, and it doesn’t matter how many or how few TV channels those stations occupy. But second-generation CSAs give rise to the possibility that sharers might include entities that never owned a station before (and thus never had any carriage rights to begin with). Will such entities be entitled to carriage?

The FCC has tentatively concluded that a sharer will have carriage rights only if it possessed such rights through an auction-related channel sharing agreement or because it was operating on its own non-shared channel and had carriage rights immediately prior to entering into a channel-sharing agreement. However, the commission expressly invites alternate suggestions.

So the FCC has opened some new opportunities for channel sharing, though perhaps not as much as some parties would like. Sharing remains a useful idea that may be financially advantageous and otherwise attractive to some stations, but sharing is still a bit of a minefield whose topography is still shifting.

Anyone contemplating some type of sharing arrangement should be careful to get maximally familiar with all the relevant rules as soon as possible.

Peter Tannenwald is a communications attorney with Fletcher, Heald & Hildreth. He may be reached at 703-812-0404. This article originally appeared in the firm’s CommLawBlog. 


Comments (16)

Leave a Reply

Gregg Palermo says:

July 1, 2015 at 8:44 am

The real estate analog makes sense, except the part about wanting to stay in a failing business.

    Darrell Bengson says:

    July 1, 2015 at 1:53 pm

    lol, that “failing business” still supports millions of people in this country directly and indirectly.

Ellen Samrock says:

July 1, 2015 at 11:37 am

OMG! It gets worse with each reading. With CSAs, not only is a station surgically attached to a competitor but it continues to be subjected to the ham-fisted regulation of a government bureaucracy–and, with the possible exception of the EPA, it doesn’t get more ham-fisted then the FCC. This arrangement might work with a few noncoms but if CSAs became widespread (and I doubt they will) consider it lights out for broadcast television. This will go down in FCC history as one of its worst ideas and another stain on Tom Wheeler’s blighted legacy.

    Darrell Bengson says:

    July 1, 2015 at 1:51 pm

    The sky is falling, the sky is falling, throw away your TV’s remove your antennas and get back to the stone age…the sky is falling…..NOT

    Ellen Samrock says:

    July 1, 2015 at 4:40 pm

    Hey HansDummkopf, why not try managing a station before trolling?

    Wagner Pereira says:

    July 2, 2015 at 3:24 am

    Right back at ya….according to @Flashflood (and apparently Congress) if its not a Full Power Station, it doesn’t count!

    Ellen Samrock says:

    July 2, 2015 at 9:18 am

    And more brain droppings from yet another troll. It may come as a surprise to you to know that the viewing public neither knows nor cares what class of station they’re watching. To them it’s all the same–either they enjoy the programming or they don’t.

    Wagner Pereira says:

    July 2, 2015 at 1:49 pm

    And as seen by NSI, they clearly do not enjoy virtually any programming on a LPTV.

    Ellen Samrock says:

    July 2, 2015 at 4:53 pm

    Well, that’s a laugh since LPTVs, Class As (which are still basically LPTV stations) and full power stations share most of the same networks–including the big 4. And in the end, I couldn’t give a rat’s ass what some marketing firm, competitor, critic or a poster on this website thinks. My only concern are the viewers in my service contour. And judging from the emails and phone calls our station has gotten, the communities we serve loves our programming.

    Wagner Pereira says:

    July 2, 2015 at 10:02 pm

    Only if the Network cannot find a real station. Again, as @Flashflood says, LPTVs don’t count.

    Ellen Samrock says:

    July 3, 2015 at 1:36 am

    I have no shortage of networks who want to affiliate with us because of the market we’re in. Bottom line: I’m a licensed broadcaster. You, Outsider, are a loser wannabe who never will.

    Wagner Pereira says:

    July 4, 2015 at 3:23 am

    LOL…..that’s like saying the Manager of a Subway is as the same as the Manager of the Four Seasons or Per Se in NYC. Again, as pointed out last year, 20 Million tuned into CBS for crappy NFL Football games on Thursday Night while only 7M would tune in to better games on the NFL Network. (Not that your little LPTV would ever see anything close to those numbers in your wildest dreams). Enjoy your time behind the counter at your “Subway” location.

    Ellen Samrock says:

    July 5, 2015 at 1:12 am

    Wow, being compared to Subway. That’s great. They offer good quality, provide a valuable service to their community and have a highly respected brand. Since you know nothing about our station, you couldn’t possibly pontificate intelligently about it. But thanks for the comparison to Subway. I’ll take it.

    Wagner Pereira says:

    July 6, 2015 at 6:43 am

    Clearly you are out of the loop about Subway as much as you are Broadcasting! Subway’s US sales last year fell by 3%, the most of any of the top 25 fast-food chains. Subway also fell two spots to become the third-most-popular fast-food restaurant for the first time in seven years. And they did not adjust as America’s taste changed. You go ahead and be Subway!

Joe Jaime says:

July 2, 2015 at 10:05 pm

Who would want to let a competitor back into the market after they took the money and ran?

Ben Gao says:

July 7, 2015 at 3:30 pm

Doubling up two channels into one transmitter and 2 subchannels means a reduction in video quality- that exact opposite effect we were to obtain when HDTV was introduced. So instead of a spectacular 1080 main channel and a few 480 extra channels for good measure, we’ll get at best two 720 main-1 and main-2 channels and possible pixilation during sporting events especially if the station would like to keep it’s -3 channel. A bad deal all around for OTA TV, the way I read it.


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