Scary Warning Accompanies FCC Announcement of Auction Application Window

The FCC today announced the application procedures to be used for broadcast stations wishing to participate in the spectrum auction, as well as application procedures for those wishing to purchase that spectrum in the forward auction.  Of particular interest to broadcast stations wishing to participate in the reverse auction is the announcement that the window for filing those auction applications will run from 12 noon Eastern Time on December 1, 2015 to 6pm Eastern Time on December 18, 2015.

At nearly 300 pages, many of which are packed with mathematical formulas for interference constraints, clearing target optimization, bid processing algorithms, and channel assignment optimization, today’s Public Notice is a dense read, and will be studied in detail by affected parties for the next several weeks.  However, a few highlights include:

• The FCC is waiving its “Red Light Rules” restricting processing of applications from those owing a debt to the FCC.  Such parties can participate in the auction as long as they formally acknowledge their obligation to pay past and future debts along with accrued interest, penalties, and costs, and agree to permit the FCC to deduct amounts owed from any auction payment.

• The auction application form, FCC Form 177, must be filed by each licensee wishing to participate in the auction.  A licensee holding multiple licenses may submit them all for auction on a single Form 177, but a group owner with numerous licensee subsidiaries will need to have each participating subsidiary file a separate Form 177.

• Applicants will not be obligated to bid for the options they select in the Form 177 (e.g., selling spectrum outright, moving from UHF to VHF, etc.), but they will need to commit to one of those bid options prior to 6pm Eastern Time on March 29, 2016.  Applicants wishing to preserve flexibility to bid for multiple options in the reverse auction must have selected those options in their Form 177.

• Those wishing to channel share after relinquishing their spectrum must indicate that intent in their auction application and certify whether they have already entered into a channel sharing agreement and/or intend to find a channel sharing partner after the auction.  Those entering channel sharing agreements before the auction must submit the agreements with their Form 177, and those entering such agreements after the auction must execute and implement them before the date they are required to surrender their license.

• When filing a channel sharing agreement with Form 177, the applicant cannot redact the agreement.  This raises a very real concern that the FCC will know, for example, the reserve price the sharing parties have agreed to as the minimum the licensee will accept for its spectrum in the auction, effectively providing the FCC with inside information about a party’s bidding strategy, and potentially skewing the FCC’s treatment of that party’s bids.

• Whether a channel sharing agreement is entered into pre-auction or post-auction, the party proposing to share another licensee’s spectrum must certify that the sharing arrangement will comply with the FCC’s multiple ownership rules.  However, parties to post-auction sharing agreements must demonstrate compliance based on the facts existing when they file their construction permit application to implement the sharing arrangement after the auction.  The Public Notice doesn’t address how the FCC will deal with situations where an existing duopoly is permissible because there are eight independent TV “voices” in the market before the auction, but less voices after the auction (when the licensee must demonstrate compliance due to a post-auction sharing agreement), because one or more stations in the market sold their spectrum outright in the auction.

• After the deadline for filing Form 177, (1) no major changes may be made to the application (e.g., changing the bid options or licenses offered in the auction, or, except in certain circumstances, making major ownership changes), and (2) the Form 177 must be updated within five days of the applicant learning that information in the form is no longer accurate.

• After the Form 177 is filed, FCC staff will send letters to individual applicants indicating that the applicant’s form is (1) complete, (2) rejected, or (3) incomplete or deficient in a minor way that may be corrected.  In the case of the third option, the letter will specify a deadline for submitting a corrected application, and applications that are not corrected by that time will be dismissed with no opportunity to refile.

The points above represent only a small portion of the vast and complex content contained in the Public Notice, and there are many others meriting close attention by any licensee thinking about entering the auction or a channel sharing agreement.

Stations not interested in either of those options might therefore be relieved that they do not have to focus on these complicated auction developments.  However, that sense of relief may be short-lived.  Among the many points raised in the Public Notice is the following:

As is the case with many business opportunities, some unscrupulous parties may attempt to use Auction 1001 to deceive and defraud unsuspecting eligible broadcast licensees.  Every eligible broadcast licensee is responsible for monitoring whether any applications have been filed for its license(s) in order to assure that only authorized applications are filed.  All licensees of eligible facilities recently completed a Form 2100 Schedule 381 Pre-Auction Technical Certification for each eligible facility using the Commission’s new Licensing and Management System (“LMS”).  At that time, if that licensee had more than one FCC Registration Number (“FRN”) associated with the eligible facility, LMS required the licensee to choose one FRN and one related password to associate with that facility.  Individuals in possession of this FRN and the related password will be able to file an application to participate in the reverse auction on behalf of the licensee. Therefore, we urge all licensees to maintain the integrity of their FRN and related password by regularly changing their password, and to monitor the auction filing system to assure that no unauthorized filings are made.  Licensees that become aware of an unauthorized filing should notify the Commission immediately in writing by e-mail to auction1001@fcc.gov.

If you think having someone make an unauthorized charge on your credit card is annoying, imagine waking up to find a disgruntled former employee has sold your station to the government.  One small upside: at least you won’t have to worry about what the FCC will do to you in the repacking.