Report No. MM 98-11 MASS MEDIA ACTION August 7, 1998 FCC ADOPTS AUCTION PROCEDURES FOR COMMERCIAL BROADCAST LICENSES The FCC has adopted rules to implement its authority to auction commercial analog broadcast licenses. In general, the Balanced Budget Act of 1997 requires the Commission to use auctions to award commercial broadcast licenses when there are mutually exclusive applications. One exception to this requirement is for mutually exclusive applications for full service stations filed before July 1, 1997. The FCC said there are only about 130 such pending cases involving commercial broadcast applicants in which the Commission could use either comparative hearings or auctions to award the license. These pending cases were frozen after the DC Circuit invalidated the FCC's central criterion for deciding initial licensing cases in Bechtel v. FCC. Today, the Commission decided that auctions would be fairer and more efficient than comparative hearings for the pending cases. Given the long delays associated with the comparative process, it concluded that auctions would be speedier even for the few cases in which an Initial Decision or a Commission decision was issued before Bechtel. It recognized this latter class of applicants had faced more lengthy delays and significant costs, but found these equitable concerns were outweighed by the additional delays, cost, and uncertainty that would result from deciding these cases by comparative hearings. It also noted that the court's remand order made it unlawful to decide any of these cases using the comparative standards in place when these applicants filed their applications. The Commission instructed the staff to begin auctions for mutually exclusive commercial broadcast applications. The FCC noted that auctions of pending competing applications would be limited to the pending applicants, and that filing windows would be opened for additional applications only in those instances in which there had either been no, or, in certain instances only an incomplete, filing period for mutually exclusive applications. To fulfill its duty to promote dissemination of licenses among a wide variety of applicants, and to ensure that certain designated entities have an opportunity to participate in the auctions, the Commission adopted a "new entrant" bidding credit for applicants with no, or very few, media interests. It believes this will help ensure that small businesses and businesses owned by minority groups and women are given the opportunity to participate in the provision of spectrum-based services pursuant to Section 309(j) of the Communications Act without raising any constitutional questions. Specifically, applicants with no controlling interests in any media outlets will receive a 35% bidding credit. Applicants with controlling interests in no more than 3 media outlets, none of which serve the same area as the proposed station, will receive a 25% bidding credit. Other media include AM, FM, TV, LPTV, DBS, MDS, cable, and daily newspapers. The Commission indicated, however, that it would revisit the question of designated entity provisions for broadcast auctions following the completion of studies that will assist the Commission in deciding what, if any, alternative or additional designated entity provisions to adopt. The FCC noted that it had an insufficient record in the broadcast services to support specific measures for women and minorities, and a less developed record on small businesses, than in other services where bidding credits for small businesses were adequate to fulfill its statutory responsibilities regarding designated entities generally. The FCC said it was important to complete, and seek public comment on, studies examining the barriers to auction participation faced by small, female- and minority-owned businesses before it decided what, if any, additional or alternative designated entity provisions to adopt for broadcast service auctions. It indicated that the further report and order would be issued as quickly as possible and that any additional or alternative designated entity provisions would apply to applications pending at that time. The Commission's procedural and payment rules set forth in the Part 1 auction rules will apply to broadcast auctions generally. For the broadcast service auctions, the Commission adopted a window filing procedure for all applications that are subject to being auctioned if mutually exclusive applications are filed. During the window, applicants would file short-form applications (FCC Form 175) along with enough engineering data for the staff to determine groups of mutually exclusive applications that will be included in an auction, or non-mutually exclusive applications that may be granted without an auction. The FCC noted that this relieves applicants of the burden of filing a long-form application, which only the auction winner (or a non-mutually exclusive applicant) would be required to file. By future public notices, the Commission will announce specific details for broadcast auctions, including the filing deadline for short-form applications, the amount of and deadline for submitting any upfront payments, and the time, place and method of competitive bidding to be used, as well as applicable bid submission and payment procedures. The Commission said that the Mass Media Bureau and Wireless Telecommunications Bureau would seek comment on, and establish, an appropriate auction design methodology prior to the start of each broadcast auction or group of broadcast auctions. In auctions of pending applications, the pending applicants (1) must file a short-form application (FCC Form 175) to confirm their interest in participating in the auction; (2) may request refunds of any previously paid hearing fees if the license is awarded by auction; and (3) may also request refunds of filing fees if they do not participate in the auction. The FCC also noted that before the deadline for filing the short form applications, pending applicants may enter into settlement agreements that comply with the FCC's settlement rules. In addition to mutually exclusive applications for full service commercial radio and analog TV stations, the auction rules will also apply to applications to provide secondary commercial broadcast services where mutually exclusive applications are filed. This includes the Low Power TV, FM translator and television translator services. Auctions will also be used to resolve mutually exclusive major modification applications unless the mutual exclusivity is resolved through negotiations. Where the conflict is not resolved, the FCC said it had no other way to resolve major modifications applications in a timely and efficient manner. Minor modification applications will not be auctioned. The FCC also noted that if it adopts changes in the definition of "major" modification, proposed in its technical streamlining proceeding, fewer modifications of existing stations will be considered "major" and thus subject to auction. Auctions will also be used to resolve pending and future cases involving applications to provide Instructional Television Fixed Service (ITFS) unless Congress enacts legislation clarifying that it did not intend to require auctions to award ITFS licenses. The statute requires such auctions because there is no express exemption for ITFS. The FCC said that ITFS auctions would not begin immediately so that Congress has an opportunity to consider legislation exempting ITFS from auction. It also announced a 120-day settlement period for pending ITFS applications. Settlement agreements executed in this period would be exempt from the limitation on payments to withdrawing applicants and the prohibition against third- party settlements. These auction procedures will apply to mutually exclusive broadcast applications that include only commercial applications. The FCC said that the statute clearly prohibits the use of auctions to choose among mutually exclusive applicants to operate on frequencies reserved for noncommercial broadcast service, for which only noncommercial entities may apply. It noted, however, that there are difficult issues regarding mutually exclusive applications for a nonreserved (or "commercial") frequency where one or more of the applicants is a noncommercial entity. The Commission indicated it will seek more focused comment on these issues in a further notice soon to be issued in an ongoing rulemaking proceeding to reexamine selection among mutually exclusive noncommercial applicants. (MM Docket No. 95-31). In seeking further comment on these issues, the FCC indicated that its goal will be to maximize the participation of noncommercial entities consistent with the statute. Comparative renewal cases, which cannot be resolved by competitive bidding procedures, were also frozen after the Bechtel decision. The FCC said it would resolve these proceedings on a case-by-case basis, and allow the parties to present the factors and evidence they believe relevant. An incumbent licensee's renewal expectancy for substantial performance, the FCC noted, would still be an important factor. Noting that litigation in such cases tends to be lengthy, the FCC said it would continue to waive certain settlement rules for this small class of cases. Action by the Commission August 6, 1998, by Decision (FCC 98-194). Chairman Kennard, Commissioners Ness and Powell, with Commissioners Furchtgott-Roth and Tristani dissenting in part. Chairman Kennard issuing a separate statement and Commissioners Furchtgott-Roth and Tristani issuing a joint statement. - FCC - News Media Contact: David Fiske (202) 418-0513 MMB Contacts: Jerianne Timmerman (202) 418-1600 and Lisa Scanlan (202) 418-2720 OGC Contacts: John Riffer and Lee Martin (202) 418-1720