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Given that the FCC adopted its Notice of Proposed Rulemaking to establish the parameters of its much-anticipated broadcast spectrum auctions on September 28, 2012, and released the text of that NPRM on October 2, 2012, you would think that the communications industry would now be buzzing over the details of the FCC’s long-in-the-making plan. Instead, from many corners of the industry, there has been stunned silence; not because there were any real surprises in the NPRM, but because the NPRM made clear to those not previously involved in the process the sheer enormity of the tasks ahead.

Also feeding the industry’s muted reaction is the fact that, because there were no surprises, the industry doesn’t know much more now than it did before about how the auctions will be structured. Instead, we are left with many excellent but unanswered questions asked by the NPRM, leaving the auction rules and structure a very ethereal proposition. As the annual deluge of Halloween horror movies reminds us, people are afraid of ethereal entities, and are unlikely to visit the FCC’s cabin in the woods (despite the “big money for spectrum” signs out front) until the FCC is able to remove the dark mystery from this undertaking.

On the one hand, the FCC’s staff deserves immense credit for asking the right questions on what is unquestionably the most complex undertaking the FCC has ever attempted (it makes you long for the simple-by-comparison DTV transition, which only took 13 years to accomplish). On the other hand, asking the right questions meant producing a 140 page, 425 paragraph NPRM, along with an additional 65 pages of appendices and commissioner statements.

The NPRM is a densely packed document with numerous questions and issues raised for public comment in each paragraph. Part of the problem, however, is that in order to get the entire package of materials down to 205 pages total, some of the NPRM’s questions had to be condensed so severely as to make it difficult to discern what precisely the FCC is asking about or proposing. As a result, you will note that a lot of the third-party summaries circulating are short on condensed narrative and long on direct quotes from the NPRM–often a sign that the person drafting the summary gave up on trying to figure out what the NPRM was trying to say, and decided to let the reader take a crack at it instead.

Comments on the NPRM are due on December 21, 2012, with Reply Comments due on February 19, 2013. While the FCC indicates that it intends to hold the spectrum auctions in 2014, keep in mind that once the Reply Comments are filed, if the FCC were able to resolve a paragraph’s worth of issues each and every day the FCC is open for business after that date, it would resolve the final issues in October of 2014. It would then need to release an order adopting the final policies and rules, and begin the process of setting up the reverse auction (for broadcasters interested in releasing spectrum) and the forward auction (for those interested in purchasing that spectrum for wireless broadband). Completing that process before 2015 will be extremely challenging.

Even this understates the actual time that will be required for the FCC to have a shot at a successful auction. Critically important to the success of such auctions is providing adequate time for potential spectrum sellers and buyers to analyze the final rules and assets to be sold to determine if they are interested in participating and at what price. If the FCC wants to encourage participation, it will need to ensure that potential spectrum sellers and buyers have at least a number of months to assess their options under the final rules. Otherwise, it is likely that many who might participate will not have attained an adequate level of comfort in the process to participate, or at least not at the prices the FCC is hoping to see. In that case, they will elect to remain on the sidelines.

Given the number of moving parts and these related considerations (which ignore entirely the possibility of additional delay from court appeals of the eventual rules), a 2014 auction seems very optimistic unless the FCC’s goal shifts from having a successful auction to just having any form of auction as soon as possible. While those already intent upon being a buyer or seller of spectrum would certainly prefer a fast auction since that means quicker access to spectrum and spectrum dollars and less competition for both, the FCC and the public have a vested interest in holding auctions with a broader definition of success (in terms of dollars to the treasury, less disruption of broadcast service, producing large enough swaths of spectrum to maximize spectrum efficiency, etc.).

This morning, the FCC announced an October 26, 2012 workshop focusing on broadcaster issues in the NPRM, so efforts at removing at least some of the mystery surrounding the auctions are already underway. Given that all television broadcasters will be affected by this process, whether through participation in the reverse auction or by being forced to modify their facilities in the subsequent spectrum repacking, it would be wise to participate in the workshop, which is also being streamed on the Internet.

And one last bit of good news: the workshop will be held at the Commission Meeting Room at FCC Headquarters in Washington, DC rather than at that cabin in the woods mentioned above. However, don’t be surprised if there is still a “big money for spectrum” banner over the door when you get there.

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September 2012
Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • FCC Follows Up a $25,000 Fine With a $236,500 Fine
  • Two Tower Owners Fined for Fading Paint

FCC Issues Second Fine to Cable TV Operator for $236,500
As we previously reported in October 2011, the operator of a cable television system in Florida was fined $25,000 for a variety of violations of the FCC’s Rules, including failing to install and maintain operational Emergency Alert System (“EAS”) equipment, failing to operate its system within the required cable signal leakage limits, and failing to register the cable system with the FCC. This month, the FCC issued a second Notice of Apparent Liability for Forfeiture and Order (“NAL”) to the operator for continued violations of the FCC’s cable signal leakage and EAS rules and for failing to respond to communications from the FCC requiring that the operator submit a written statement of compliance.

In January 2011, agents from the Tampa Office of the FCC’s Enforcement Bureau inspected the cable system and discovered extensive signal leakage, prompting the issuance of a NAL in 2011. The FCC has established signal leakage rules to reduce emissions that could cause interference with aviation frequencies. Sections 76.605 and 76.611 of the FCC’s Rules establish a maximum cable signal leakage standard of 20 microvolts per meter (“µV/m”) for any point in the system and a maximum Cumulative Leak Index (“CLI”) of 64. If potentially harmful interference cannot be eliminated, the FCC’s Rules require that the system immediately suspend operations following notification from the FCC’s local field office. Normal operations cannot resume until the interference has been eliminated “to the satisfaction of” the FCC’s local field office.

In early September 2011, agents from the Enforcement Bureau conducted a follow-up inspection of the cable system. During the inspection, the agents discovered 33 leakages, 22 of which measured over 100 µV/m, and found that the CLI for the system was 86.97, well in excess of the maximum permitted. Two days after the inspection, the local field office issued an Order to Cease Operations, directing the cable system to cease operations until the leakages were eliminated and to seek written approval from the local field office prior to resuming normal operations. At the time of its issuance, the President of the cable system verbally consented to abide by the terms of the Order. However, the cable system operator never contacted the field office to seek approval to resume operations, and the field office has yet to approve further cable system operations.

Between September 2011 and March 2012, agents from the FCC inspected the cable system an additional five times. During those inspections, the agents found that not only had the cable system resumed operation without permission, but they once again observed numerous signal leakages during each inspection.

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In what seems to be the longest presidential campaign in history, tomorrow, September 7th, marks the beginning of the final stretch. That’s the first day of Lowest Unit Charge Season, the 60-day period before the November 6th, 2012 general election. During that time (which also occurs in the 45 days before a primary election), broadcast stations may charge no more than their lowest rate for each particular class of ad time purchased for a “use” by a legally qualified candidate.

Of course, while the concept sounds simple enough, its implementation at stations with dozens of different classes of ad time has proven to be a biennial headache for broadcasters. However, particularly for stations in political swing states, it can be a fairly profitable headache, and well worth the regulatory aspirin needed to get through it.

Contrary to a common misconception, Lowest Unit Charge applies to all legally qualified candidates during the LUC window, and not just to federal candidates. Also, keep in mind that the 60-day Lowest Unit Charge window is relevant only to the issue of rates. Other political broadcast rules, like the requirements for reasonable access for federal candidates and equal opportunities apply as soon as there are enough legally qualified candidates to trigger them (one in the case of reasonable access, and at least two in the case of equal opportunities, since there has to be a competing candidate to demand an equal opportunity in response to the first candidate’s airtime).

If the statements above have left you perplexed, confused, or questioning the very meaning of your existence, you should definitely take some time to look at the current edition of our Political Broadcasting Advisory. The Advisory fills in lots of detail on the matters discussed above, as well as myriad other issues created by the complexities of selling (or buying) political ad time in a regulated environment.

So, update the rate card attached to your Political Disclosure Statement, and get ready for the final stretch of a political season that has been excruciatingly long for viewers and listeners, but which will be over all too quickly for many broadcasters.

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July 2012
Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue is a special issue regarding recent FCC actions that provide a detailed (and expensive) look at Section 73.1206, the prohibition on recording telephone calls for broadcast.

FCC Issues a Total of $41,000 in Fines for Broadcaster Airing Prank Telephone Calls

The close of August in Washington, D.C. has brought with it a surge of beautiful weather, baseball excitement (for the first time in recent memory), and … forfeiture orders related to the improper recording of telephone calls for broadcast. On August 22nd, the FCC issued two forfeiture orders assessing a combined $41,000 in fines against licensees owned by the same parent company for violations of the telephone broadcast rule.

The telephone broadcast rule, Section 73.1206 of the Commission’s Rules, requires that, “[b]efore recording a telephone conversation for broadcast, or broadcasting such a conversation simultaneously with its occurrence, a licensee shall inform any party to the call of the licensee’s intention to broadcast the conversation, except where such party is aware, or may be presumed to be aware from the circumstances of the conversation, that it is being or likely will be broadcast.” While the rule language only talks about providing notice to the calling party, the FCC has reiterated many times that when a station employee intends to record a call for broadcast or broadcasts the call live, the employee must also obtain the party’s consent before recording the call or going live.

Both orders released on August 22nd involved a finding that the licensee had violated this rule. The first order involved prank calls made in April 2006 by radio personalities to members of the public during a comedy segment of the station’s morning show. In one conversation, the caller pretended to be an intruder hiding under the bed of the person receiving the call; in another, the caller pretended to be a loan shark bent upon collecting a debt.

The FCC began investigating the prank calls after receiving a complaint from a station listener. During the investigation, the licensee indicated it was unable to confirm or deny whether the prank calls aired on its morning show, and could not provide a recording or transcript of the program. The licensee acknowledged, however, that the program identified in the complaint was aired on the station and was simulcast on two co-owned stations.

The second forfeiture order released on the 22nd also involved the broadcast of an alleged prank call in which the caller pretended to be a hospital employee who then informed the call recipient that the recipient’s husband had been in a motorcycle accident and died at the hospital. When questioned about the incident, the licensee told the FCC that its parent company had contracted with an outside vendor who made and recorded the call. The licensee admitted that it broadcast the call on multiple occasions.

In the first case, the FCC had proposed a $25,000 fine. In the second case, the FCC had proposed a $16,000 fine. In both cases, the licensee urged cancellation of the proposed fines, to no avail. In batting down a myriad of arguments raised by the licensees, the FCC affirmed not only its broad investigative powers to enforce Section 73.1206, but also the licensees’ responsibility to both adhere to and demonstrate their adherence to the Commission’s Rules.

These two decisions provide an excellent primer for broadcasters on the FCC’s enforcement of the telephone broadcast rule, as between them, the FCC addressed a multitude of defenses raised by the licensees, ultimately concluding that none of those defenses could prevent the imposition of very substantial fines. More specifically, the FCC shot down each of the following licensee arguments:

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July 2012
Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • FCC Assesses $68,000 in Fines for Unauthorized STL Operations
  • EAS Failures Lead to $8,000 Fine

Licensee in Wyoming Slammed with $68,000 in Proposed Fines for STL Operations
July was not a good month for the licensee of FM radio stations located in Casper, Wyoming. The FCC issued four separate Notices of Apparent Liability for Forfeiture (“NAL”) against the licensee for a total forfeiture amount of $68,000.

In August 2011, an agent from the FCC’s Enforcement Bureau inspected the main studios of the licensee’s four FM radio stations and the corresponding studio transmitter links (“STL”) for each station. In the first of the four NALs, the agent discovered that although the station’s STL was operating on its authorized frequency, the STL was operating at the site of the station’s main studio, 0.3 miles away from the STL’s authorized location.

In December 2011, the Enforcement Bureau issued a Letter of Inquiry (“LOI”) to investigate. In the licensee’s delayed response to the LOI in April 2012, the licensee admitted that the STL had been the primary delivery mechanism for the FM station’s programming since 2001 and that an application to change the location of the STL “should have been filed” when the station moved its main studio ten years earlier. Only after the fact (in May 2012) did the licensee file an application to modify the STL’s authorized location. According to Section 1.903(a) of the FCC’s Rules, stations must operate in accordance with applicable rules and with a valid authorization granted by the FCC, and the base forfeiture for operating at an unauthorized location is $4,000. Here, the FCC decided that an upward adjustment of an additional $4,000 was warranted because the STL had been operating at the unauthorized location for ten years.

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June 2012
Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • Long-Term Violation of an FCC Order Leads to $25,000 Forfeiture
  • FCC Issues $10,000 Fines for Obstruction Lighting Violations

Licensee Fined $25,000 for Failing to Pay $8,000 Four Years Ago

The licensee of an AM radio station in Puerto Rico was recently fined $25,000 for a string of failures to comply with an FCC Consent Decree issued four years ago, showcasing the FCC’s irritation with unpaid fines.

In 2005, the Enforcement Bureau issued a Notice of Apparent Liability for Forfeiture (NAL) for $15,000 against the licensee for failing to properly maintain a fence around its tower, violations related to the public inspection file, and operating with an unauthorized antenna pattern. Following the issuance of this first NAL, the FCC issued a Forfeiture Order which the licensee challenged, arguing that the forfeiture for the fencing violation should be reduced. The FCC eventually issued an Order lowering the penalty amount to $14,000, based on the licensee’s efforts to comply with the FCC’s antenna structure fencing requirements. Still unhappy with the FCC’s decision, the licensee filed a petition for reconsideration of the Order, but ultimately entered into a Consent Decree with the FCC in 2008 terminating the investigation.

In the Consent Decree, the licensee agreed to make a “voluntary” contribution of $8,000 to the U.S. Treasury. The licensee further agreed to submit compliance reports for two years and to certify to the FCC that it is properly maintaining its public inspection file, operating its transmitters as authorized, and has repaired the fence surrounding its tower.

However, the licensee failed to pay the $8,000 or submit its compliance reports to the FCC. In 2010, two years after the Consent Decree, the licensee responded to a letter of inquiry from the FCC, noting that it had sent a check to the FCC to pay the $8,000, but that the check had bounced because the licensee had insufficient funds.

The FCC rejected this excuse, and in May 2011, issued an additional NAL against the licensee for $25,000 for failing to comply with an FCC Order. Notably, the FCC concluded that there is no base forfeiture for failing to comply with an FCC Order, and that it is therefore within the FCC’s discretion to determine how serious the violation is and how large a penalty is warranted. In this instance, the FCC considered the licensee’s violations to be egregious and determined that “‘a consent decree violation, like misrepresentation, is particularly serious. The whole premise of a consent decree is that enforcement action is unnecessary due, in substantial part, to a promise by the subject of the consent decree to take the enumerated steps to ensure future compliance.'”
The licensee responded to the 2011 NAL, requesting that the forfeiture be cancelled due to the licensee’s financial situation–the majority of the owner’s companies had filed for bankruptcy and the licensee’s sole owner was some $70 million in debt. Unfortunately for the licensee, the FCC rejected this request and proceeded to issue a Forfeiture Order this month for the proposed $25,000. In the Forfeiture Order, the FCC acknowledged that the licensee’s financial situation indicated that it was unlikely to be able to pay the forfeiture. Nevertheless, the FCC considered the licensee’s continuous violation of the terms of the Consent Decree to be a demonstration of “bad faith and a complete disregard for Commission and Bureau authority.”

The licensee now has until mid-July to make the $25,000 payment, an amount significantly greater than the initial $8,000 contribution it was unable to pay in 2008.

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In a unanimous decision, the U.S. Supreme Court today ruled that it would like to have as little to do with the FCC’s broadcast indecency policy as possible. Rather than the momentous ruling on the constitutional future of broadcast indecency enforcement that advocates on all sides of the issue had hoped for, the mighty sound of the Court punting on the constitutional issue reverbated throughout Washington this morning.

Faced with a pair of Second Circuit decisions finding the FCC’s indecency policy to be unconstitutionally vague and therefore chilling to broadcast speech, the Court ruled in an 8-0 vote that the FCC had failed to give adequate notice to Fox and ABC at the time of their assertedly indecent broadcasts that the FCC was going to start finding “fleeting indecencies” (verbal or visual) actionable and therefore subject to fines and other sanctions. As a result, the FCC rulings against both Fox and ABC were overturned by the Court. Having made that decision on the narrow grounds of “lack of notice”, the Court concluded that it had no need to go further and delve into the constitutionality of the FCC’s indecency enforcement.

On a pragmatic level, the Court’s ruling seems to indicate that the appropriate “notice” on fleeting indecencies didn’t occur until the FCC announced its decision to begin prosecuting such indecencies in a 2004 case involving NBC and the Golden Globes Awards. As a result, broadcast stations facing indecency complaints (and delayed license renewals) for allegations of fleeting indecency should see those complaints dismissed by the FCC as long as the program at issue aired before the 2004 Golden Globes decision. Unfortunately, stations facing indecency complaints for programs aired after that 2004 decision may find that today’s Court ruling is irrelevant to them.

In fact, the Court went out of its way to make clear that it was not ruling on any issue but the “vagueness” in the FCC’s treatment of fleeting indecencies caused by the lack of notice of its change in enforcement policy. Despite noting that the FCC’s Golden Globes decision amounted to a change in the FCC’s indecency policy, the Court wrote that “it is unnecessary for the Court to address the constitutionality of the current indecency policy as expressed in the Golden Globes Order and subsequent adjudications.” The decision takes the extra step of stating that “this opinion leaves the Commission free to modify its current indecency policy in light of its determination of the public interest and applicable legal requirements. And it leaved the courts free to review the current policy or any modified policy in light of its content and application.”

The Court’s ruling therefore appears to be little more than a “reset” in which, with the limited exception of parties accused of airing fleeting indecency prior to 2004, broadcast stations find themselves in the exact same position as before this litigation started many years ago: unsure as to what content is or is not permissible, and with no additional guidance from the courts as to where the FCC may permissibly draw that line.

While, as I noted in an earlier post, the Supreme Court will usually avoid making a constitutional ruling if it can decide a case on other grounds, the Court’s hesitance to step into this fray is striking. Rather than eliminating the chilling effect on First Amendment speech by providing clarity as to what the FCC can constitutionally demand of broadcasters, the Court actually increased the chilling affect. Airing anything that a single member of the public might allege is indecent can lead to:

1. a prolonged indecency investigation by the FCC;
2. withholding of FCC action on a station’s license renewal application while the investigation proceeds;
3. withholding of FCC action on any application to sell or transfer that station; and
4. large fines, short-term renewals, and other FCC sanctions.

On top of all that, the Court has now undeniably added another contributor to the chilling effect:

5. years of expensive litigation to demonstrate that the FCC’s actions in sanctioning a station for indecency were administratively or constitutionally improper.

With all these chilling factors, only a foolhardy broadcaster would air content that could subject it to this process, even if it knew from the beginning that it would ultimately win in court. That is the very definition of an impermissible chilling effect upon First Amendment speech. The Second Circuit decisions leading to today’s decision clearly recognized that impact, and Justice Ginsburg’s Concurrence to today’s decision recognizes it as well. While agreeing with the Majority that Fox and ABC were not given adequate notice of the FCC’s changing indecency standard, her Concurrence goes on to note that Pacifica, the Supreme Court’s original 1978 decision upholding the FCC’s indecency policy, “was wrong when it issued. Time, technological advances, and the Commission’s untenable rulings in the cases now before the Court show why Pacifica bears reconsideration.”

Unfortunately, by putting that decision off until another day, the Court leaves the waters of FCC indecency enforcement as murky (and chilling) as ever. Given that the FCC now has a backlog of 1.5 million indecency complaints involving 9700 programs–a backlog that was left pending while the FCC awaited guidance from the Court–the Court’s unwillingness in today’s decision to engage on the real issue before it is bad for the FCC, bad for broadcasters, and bad for viewers and listeners.

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While the perennial cliche is that the FCC is perpetually behind the curve in trying to keep up with new communications technologies, my experience has been that the FCC and its staff are pretty up to date on these developments. As a result, when we see a rule remain on the books after its usefulness has ended (or the discovery that it was never useful in the first place), it can usually be attributed to one of two possibilities: either fixing the rule hasn’t risen high enough on the FCC’s list of priorities to dedicate limited staff resources to the process (for example, modifying the FCC’s full power television rules to eliminate the rules and references applicable only to analog TV), or political pressures are impeding the process.

Rules that remain on the books because of a lack of staff resources tend to be addressed eventually. In contrast, rules that remain in place due to political pressures are well nigh immortal. In a 2010 C-SPAN interview with three former FCC chairmen regarding various issues, including the FCC’s media ownership rules, Chairman Hundt was quoted as saying “Why don’t we get an eraser and just get rid of them? None of us thought these rules made sense.” To which Chairman Powell responded “It’s a simple reason. It’s politics.” The third party to that conversation, Chairman Martin, had tried to slightly loosen the prohibition on broadcast/newspaper cross-ownership in 2008 in the nation’s largest markets, only to encounter a firestorm of protests and court appeals from media activists. As a result, the prohibition remains in place, although the FCC announced this past December that it is once again considering loosening the rule in the largest media markets (are you seeing a pattern here?).

Rules residing in political purgatory–those kept on political life support long after their purpose has ended–survive until the facts on the ground change to such an extreme degree that even those who reflexively defend the rule can no longer do so. While some would justifiably rail against that system and demand that the nature of politics change, with rules created, modified, or eliminated based upon the cold hard facts of the situation, the nature of politics is actually the most relevant cold hard fact, and realistically, the least likely to change. Many rules will outlive their usefulness, and in fact become harmful, long before their demise. The only question is how long it takes after that tipping point is reached before it becomes politically feasible for the FCC to modify or eliminate the rule.

Of course, none of this occurs in a vacuum, and both individuals and businesses living with a rule must adapt to the changing situation on the ground, even as the rule itself remains unchanged. Recent “adaptations” make me wonder if we haven’t reached the point where the broadcast/newspaper cross-ownership rule, which certainly had a reasonable purpose at one time, has reached the point where it can no longer be defended with a straight face.

In particular, I am thinking of two recent events which suggest the rule has outlived its time. The first is the announcement last month by Media General that it is selling its newspapers to Berkshire Hathaway in order to concentrate on its broadcast and digital content delivery. When a company that actually does have both broadcast and newspaper interests does not find the combination sufficiently compelling to retain its newspaper operations, the premise of the rule–a fear of powerful broadcast/newspaper combinations dominating the market–appears misplaced.

More interesting, however, is the recent announcement by Newhouse Newspapers that it will be scaling back its daily newspaper in New Orleans (the well-known Times-Picayune), as well as those in Mobile, Huntsville, and Birmingham, Alabama. According to the announcement, these daily newspapers will now be published only three times a week, with increased focus on website content.

Why the drastic cutback from seven days a week to just three, rather than the more measured approach perennially proposed by the U.S. Postal Service of ending only Saturday delivery as a cost saving measure? Given that daily newspapers make a substantial portion of their revenue from publishing legal notices (which are usually required by law to be published in a daily newspaper), these newspapers must have thought long and hard before ceasing daily publication and placing that significant revenue stream at risk.

However, there may be one other factor at play. While the FCC’s rule prohibits ownership of both a broadcast station and a daily newspaper in the same area, the FCC defines a “daily newspaper” as one that is published at least four times a week. Whether by accident or by design, the decision to scale these newspapers back to three days a week makes them exempt from the FCC’s ownership restrictions, thereby expanding the pool of potential buyers to include those most likely to be interested in taking on such an asset–local broadcast station owners.

Whether that fact played into the owner’s decision to publish only three times a week frankly doesn’t matter much. If it did enter into it, then the newspaper cross-ownership rule has become actively harmful, forcing a newspaper that might have been happy to publish four, five or six times a week to instead publish only three times a week to avoid being subject to the rule. If it didn’t, then Newhouse’s decision to cut back to three days a week is merely an indication of things to come in a struggling newspaper industry. Either way, the FCC’s newspaper cross-ownership rule is being mooted by factual changes on the ground.

The clock is therefore ticking on how long it takes for the political pressure to also fade, allowing the FCC to finally proceed with its plan to loosen (or perhaps eliminate) the rule. During that wait, the only question is whether the rule is merely a curious anachronism, or if it actually harms the newspaper industry, either by preventing broadcasters from investing in local newspapers, or by forcing newspapers to cut back to publishing three times a week in order to circumvent the FCC’s rule. Unfortunately, by the time the political pressures keeping the rule alive finally recede, the damage may already be done, with newspapers ceasing existence or scaling back publication until the FCC’s rule becomes irrelevant. If that happens, the rule’s elimination may turn out to be no more consequential than the FCC’s eventual elimination of analog TV rules–an act of administrative housekeeping done when the item regulated no longer exists.

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May 2012
Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • FCC Fines Noncommercial Educational Station $12,500 for Ads
  • Public Inspection File Violations Lead to Three Short Term License Renewals
  • Main Studio Violations and Unauthorized Operations Garner $21,500 Fine

Noncommercial Educational Station Airs Expensive Ads
A recent fine against a noncommercial educational station serves as a warning to noncommercial licensees to be mindful of on-air acknowledgements and advertisements. In concluding a preceding that began in 2006, the FCC issued a $12,500 fine against a California noncommercial FM licensee for airing commercial advertisements in violation of the FCC’s rules and underwriting laws.

In August 2006, agents from the Enforcement Bureau inspected the station and recorded a segment of the station’s programming. During the inspection, the agent determined that the recorded programming included commercial advertisements on behalf of for-profit entities. In January 2007, the Bureau issued an initial Letter of Inquiry (“LOI”) regarding the station’s commercial advertisements and additional technical violations. At the same time, the Bureau referred the matter to the Investigations and Hearings Division for additional investigation. The Division issued additional LOIs in 2008 and 2009, to which the licensee responded three times. In its responses, the licensee admitted to airing four commercial announcements over 2,000 times in total throughout an eight-month period in 2006. It also acknowledged that it had executed contracts with for-profit entities to broadcast the announcements in exchange for monetary payment.

According to Section 399(b) of the Communications Act and the FCC’s Rules, noncommercial educational stations are not permitted to broadcast advertisements, which are defined as program material that is intended to promote a service, facility, or product of a for-profit entity in exchange for remuneration. Noncommercial stations may air acknowledgments for entities that contribute funds to the station, but the acknowledgments must be made for identification purposes only. Specifically, such acknowledgments should not promote a contributor’s products or services and may not contain comparative or qualitative statements, price information, calls to action, or inducements to buy or sell. In addition to these rules, the FCC requires that licensees exercise “good faith” judgment in airing material that serves only to identify a station contributor, rather than to promote that contributor.

In this case, the FCC determined that the materials aired were prohibited advertisements because they favorably distinguished the contributors from their competitors, described the contributors with comparative or qualitative references, and included statements intended to entice customers to visit the contributors’ businesses. As a result, the FCC proposed a $12,500 fine in June 2010.

In response, the licensee argued that the FCC should reduce or cancel the fine because (1) the announcements complied with the FCC’s Rules and “good faith” precedent, (2) the announcements did not contain a “call to action,” and (3) the FCC had not previously prohibited the language used in the announcements. The licensee also claimed that the investigation of the station was improper because the FCC had previously indicated it would not monitor stations for underwriting violations, but would respond solely to complaints.

The FCC refused to cancel or reduce the fine, finding that both the fine and the investigation were warranted given the licensee’s violations. In its Order, the FCC defended its determination that the materials aired by the station were promotional advertisements because they contained comparative phrasing, qualitative statements, and aimed to encourage the audience to purchase the goods or services of the for-profit entities. In addition, the FCC rejected the notion that the investigation was in any way improper, noting that the FCC has broad authority to investigate the entities it regulates, including through field inspections.

Here, as in other underwriting cases, the FCC’s decision to issue a fine came down to a necessarily subjective interpretation of language–is a given statement promotional in nature or does it merely identify a source of funding? The FCC has acknowledged that it is sometimes difficult to distinguish between the two, hence the requirement that licensees exercise “good faith” judgment in airing underwriting announcements. Noncommercial educational stations must therefore carefully review the content of their on-air announcements to ensure the language is not unduly promotional in order to avoid a fate similar to the licensee in this case.

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The FCC created a stir in the broadcast community when, after proclaiming for more than a year that surrendering broadcast channels for the planned broadband spectrum auction would be entirely voluntary, it began to “volunteer” Class A stations it concluded had not complied with all FCC rules. I first raised this issue in a February post on the day the FCC released the first sixteen Orders to Show Cause demanding that the recipient Class A TV stations submit evidence as to why the FCC should not revoke their Class A status for infractions that would have previously drawn only a fine.

Loss of Class A status not only eliminates protection from being displaced by full power TV stations (or by a spectrum auction), but also disqualifies the station from sharing a post-auction channel with a full power station or seeking any compensation for its spectrum in the auction. Downgrading Class A stations to LPTV status therefore allows the FCC to sweep them aside involuntarily to clear spectrum for the auction, and avoid sharing the proceeds of the spectrum auction with that licensee.

It was therefore not too surprising when that initial batch of FCC orders was followed by dozens of subsequent FCC actions against Class A stations, some of which proposed substantial fines and indicated that the licensee had been earlier informed it could avoid a fine by notifying the FCC it wished to relinquish its Class A status.

Having put scores of stations on notice that their Class A status was either directly at risk or that they could avoid a fine by agreeing to relinquish Class A status, the FCC turned up the heat further this past week when it began issuing follow up orders revoking stations’ Class A status. While the writing was already on the wall for many of these stations given the FCC’s earlier actions against them, one of the orders offers a particularly disturbing insight into the determination with which the FCC is moving to thin the ranks of Class A stations (old FCC motto for Class A stations–“last bastion of independent voices in a consolidated TV world”; new FCC motto for Class A stations–“old and in the way”).

Station KVHM is (or at least was) a Class A station that received a pair of investigatory letters from the FCC in late March and early August of 2011. According to the FCC, the letters noted that the station had failed to file required children’s television reports and provided the licensee with thirty days to respond, making the first response due at the end of April 2011. However, as the FCC itself notes in the Order, the licensee, Humberto Lopez, died in May of 2011. According to his obituaries, Mr. Lopez, who owned multiple TV and radio stations and was an inductee of the Tejano Roots Hall of Fame, died “on May 16 after battling a long illness.”

In the last few weeks of his life, he apparently didn’t find time to respond to the FCC’s March letter, and was certainly unable to respond to its August letter. His failure to respond led the FCC to issue a February 2012 Order to Show Cause demanding that Lopez demonstrate why his Class A status should not be revoked. When, not surprisingly, the licensee was unable to deliver that message from beyond the grave, the FCC issued last week’s Order, stating “Lopez did not file a written statement in response to the Order to Show Cause, and, therefore, we deem him to have accepted the modification of the KVHM-LP license to low power television status.” Talk about being tough on a licensee; the FCC demanded not just that Lopez rise from the grave to defend his Class A status, but that he do so in writing.

While it is easy enough to ridicule an FCC Order that is on its face so completely preposterous as to invite comparison with the worst cinematic portrayals of soulless bureaucracy, the real lesson of this case can be found by delving a bit deeper into the facts. On the FCC’s side of the ledger, it is true that the first investigatory letter did arrive while the licensee was still alive, and that it was at least theoretically possible the licensee could have responded. Had the FCC’s Order been based on this fact alone, rather than on the licensee’s failure to respond long after his death to the 2012 Order to Show Cause, its action would have been hard-hearted, but perhaps defensible. The FCC could have argued that, given the licensee’s failure to meet the original response deadline, his estate lacked the “clean hands” necessary to protest the loss of Class A status, and that the FCC was just playing the hand it was dealt. However, as it turns out, the FCC lacked clean hands as well.

Why, you may ask, did the licensee’s estate not step up to oppose the Class A revocation? Apparently because it is still waiting for the FCC to grant the application to transfer control of the station from the deceased licensee to the licensee’s estate (controlled by an Executor). Despite the fact that such post-death transfers are normally accorded nearly automatic grants, that application remains pending at the FCC since early November 2011. Worse, the apparent reason why the transfer application is hung up at the FCC is because the FCC has still not acted on the station’s 2006 license renewal, which also remains pending. To be blunt, the licensee literally died waiting for the FCC to act on his license renewal application. While the FCC will often sit on a transfer application until the underlying station’s license renewal is granted based on the theory that the “seller” shouldn’t profit from the transfer of a station unless the FCC can first determine he was qualified to own it, the licensee here is beyond caring about such profit.

So in the fair world we like to think we live in, the FCC would have promptly granted the station’s transfer application (and perhaps its license renewal application as well), transferring control of the station to the Executor of the licensee’s estate. Without altering its timetable one iota, the FCC could then have proceeded to issue its February Order to Show Cause, and the Executor would have had a reasonable opportunity to try to defend the station’s Class A status. Instead, in its apparent haste to clear “voluntary” spectrum for auction, the FCC cut all of these procedural corners, leaving Lopez’s wife and (according to the obituary) twelve children with an asset of significantly diminished value, and no opportunity to seek their share of any spectrum auction proceeds.

What is particularly ironic is that the Lopez family is the archetype of the kind of licensee the FCC has argued will be interested in participating in the auction–a licensee that may no longer be as interested in running the station as in monetizing it to pay estate taxes and to split any remaining proceeds among the many heirs. The FCC has placed itself in the role of the cattle baron who dams up the stream, depriving his neighbors of water so that he can obtain their land for next to nothing (or in this case, nothing). If the FCC’s thirst for broadcast spectrum has become so intense that it is willing to sacrifice fundamental fairness and “widows and orphans” to get it, all broadcasters need to be looking over their shoulders for the next regulatory lightning bolt encouraging them to also “volunteer” their spectrum. Like death and taxes, it appears the FCC is determined to make surrendering spectrum for the auction an unavoidable fact of life (and death).