Repack Reimbursement Process Starts Now

July 12 — the middle of summer and a traditional time for media executives to take some well-earned vacation. This year it’s also an important post-incentive auction filing deadline for broadcast stations and MVPDs assigned to new channels as a result of the FCC’s spectrum auction and channel repack. Affected groups must prepare and submit two FCC documents by that date.

Some extra time will be allotted to stations that filed a request for a waiver for the Initial Construction Permit Filing Deadline (which was due by June 12). Stations whose waiver requests have been granted by the FCC will have 30 days after the grant of their construction permit to file the FCC Reimbursement Form (FCC Form 2100, Schedule 399), which must detail all of the repack expenses qualifying for reimbursement. Either way, a number of media management and engineering professionals will be spending their traditional summer vacation times navigating construction plans and budgets instead of costal waterways or beach reading.

There is some method in the madness. The FCC is working against an aggressive 39-month timeline to migrate all frequencies being sold or repacked. Also expect pressure from forward auction winners; T-Mobile has already been enticing stations to speed up the repack process.

Additionally, despite the siren call of the beach and the human urge to procrastinate, there are several very good reasons to submit the required data to the FCC as early as possible. As broadcast attorney David Oxenford points out, this information will allow the FCC to determine whether its ambitious repacking deadlines can be met. It will also indicate whether the $1.75 billion budgeted for the repack is enough to cover everyone’s expenses.

Even before the deadlines were finalized, Paul A. Cicelski, an attorney with Lerman Senter, prepared an article about the reimbursement process for MFM’s The Financial Manager magazine. A digital copy of the May-June issue of TFM, which includes his piece, is available on the MFM website for a limited time.

The following questions, summarized from Cicelski’s article, may help prepare those tasked with completing the FCC paperwork:

What expenses are eligible for reimbursement? — Only replacement equipment comparable to what the station is currently using is eligible for reimbursement. To help stations determine what expenses are likely to be covered, the FCC has already released a “Catalog of Potential Expenses and Estimated Costs.”

As Cicelski points out, the catalog, despite being reasonably comprehensive, is not intended to be a complete list of every possible reimbursable expense. He says that the FCC will be evaluating the “reasonableness” of all submitted estimated expenses on a case-by-case basis. The cost catalogue will be used as a “blueprint.”

Expense categories covered in the catalog, which is embedded in the FCC’s Reimbursement Form, include transmitters, antennas, transmission lines, tower equipment and rigging, and outside professional costs. They also include miscellaneous expenses such as building permits, equipment disposal and delivery costs, handling and storage charges and channel-change notifications.

Stations are also required to provide the FCC with an inventory of their current equipment (whether or not it is operational) and all the costs they expect to incur. It’s important to note that cost estimates provided in the FCC’s catalog can be replaced by actual itemized price quotes from vendors.

Are upgrades to ATSC 3.0 eligible? — Broadcasters may use the repack process as an opportunity to upgrade their station’s facilities, and that is OK. However, as Cicelski points out, “they will be required to pay the out-of-pocket difference between the amount the station could have paid for new equipment comparable to the setup a station used pre-repack, and the amount actually paid for any subsequent voluntary equipment upgrades.”

With respect to ATSC 3.0, the FCC said requests for 3.0-compatible equipment would be evaluated for reasonableness on a case-by-case basis. However, it does not anticipate providing reimbursement for new, optional features in equipment unless the station documents that the feature is already present in the equipment being replaced. In a nutshell, unless a station is currently using 3.0 gear, Cicelski predicts that such enhancements will be considered non-reimbursable upgrades.

What are considered ineligible expenses? — The Spectrum Act allows only repacked stations to receive reimbursement payments. However, as Cicelski explains, there may be cases in which a repacked broadcaster has a contractual obligation to pay expenses for interference to non-repacked third-party tower occupants, in which case those expenses can be reimbursed. In addition, Cicelski anticipates situations in which the FCC determines that such a reimbursement “is reasonable as part of a station’s repack.”

Regardless of the circumstances, stations will not be reimbursed for lost revenues, which the FCC defines as dollars lost as a “direct or ancillary result” of the repack. Examples include lost advertising revenues or lost airtime, “even if a station has to go off-air to put its new channel into operation.”

When do I receive reimbursements? — The FCC will make an initial allocation of funds to repacked stations of up to 80% of estimated costs for commercial TV stations and up to 90% of estimated costs for noncommercial TV stations. To receive payments, licensees are required to file claims for all incurred costs along with supporting invoices and cost documentation. As a result, it’s expected that most stations will need to submit multiple reimbursement requests that reflect the expenses they incur throughout the repack.

Each reimbursement request will be subject to a strict FCC engineering review along with financial audits. Cicelski’s advice is that stations “keep meticulous records and invoices for their actual costs.”

Prior to the conclusion of the three-year reimbursement period, the FCC will initiate a final cost “true-up” period based upon documentation of actual expenses and estimates of remaining ones. Using this data, it will distribute additional funds or reclaim funds a station hasn’t spent.

What happens if the money runs out? — Because the FCC’s reimbursement fund has a statutory cap of $1.75 billion, the FCC will be unable to fully reimburse stations if total costs exceed that amount, even if a station is entitled to reimbursement. As the NAB has argued, the repack involves more stations than the auction ultimately required and thus more than can likely be fully reimbursed.

The above information alone underscores the importance of submitting compete and actual data to the FCC as part of the application process. While, as Cicelski points out in his article, the current situation is such that “station licensees can expect to receive only a pro rata portion of their eligible costs for reimbursement and will have to pay the difference out of pocket,” the NAB is working with legislators to propose legislation that will increase the amount of the fund.

The Clock is Ticking

The amount of money at stake, “potentially millions of dollars,” makes it more than worthwhile for those impacted to dig into the process to insure that they apply for and receive all the reimbursements to which they are entitled. My hope is that sharing Paul Cicelski’s comments will help those affected identify the topics that need to be addressed with legal counsel and other experts who can supply the knowledge and expertise necessary for maximizing repack reimbursements.

The FCC’s reimbursement page as well as its “Repack Primer” also appear to be a very helpful tools. In addition, the organization is focusing its efforts on obtaining the additional time and money that it believes broadcasters will need to comply with the legislation.  

Similarly, don’t hesitate to include MFM on the list of resources available to you. I look forward to hearing how we may be able to help you. The clock is ticking and there are sure to be any number of unanticipated challenges in the months ahead.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at[email protected] and via the association’s LinkedIn, Twitter, or Facebook sites.