Broadcast Incentive Auction Update: FCC Modifies Rules and Policies Governing Channel Sharing Agreements

Commission accepts back-up CSAs - with some caveats - and extends time to complete transition to shared facilities.

In a further effort to encourage broadcaster participation in the reverse portion of the Broadcast Incentive Auction, the FCC has both (a) clarified its policies toward "back-up" channel sharing agreements (CSAs) and (b) increased the time available for successful bidders to transition to shared facilities after the auction.

Back-up CSAs

A CSA, of course, is an arrangement pursuant to which two or three stations agree to share the 6 MHz of spectrum of one of the stations when one or more or more of the stations relinquish their spectrum in the auction. But what if all the CSA participants opt to participate in the auction - and then the FCC accepts the bids of all stations to relinquish their respective spectrum? That would leave no spectrum for any of the stations to share. That and other scenarios with similar results could discourage auction participation by licensees who wish to continue to broadcast after the auction.

Enter the "back-up CSA".

It's something of an insurance policy by which a party to a primary CSA agrees to share with yet another station should circumstances prevent the implementation of the primary CSA. And now the FCC has expressly clarified that it will indeed be permissible for "either or both parties [to a CSA] to also enter into a back-up CSA with one other station in the same DMA to act as the back-up host or sharer station."

Note the limitations: unlike a primary CSA, a back-up CSA may be with only one other station, and that station has to be in the same DMA. Fox, ION, Tribune and Univision had proposed that licensees should be allowed to use "contingent multi-party CSAs across multiple markets". The Commission, however, was not willing to go that far. It suspected that the proposal was intended to give participants in such multi-party/multi-market arrangements the ability to improperly communicate with one another about bids and bidding strategies. Such communications among reverse auction participants are strictly prohibited - but the Commission has carved out a limited exception for CSA participants, an exception which Fox et al. may have been trying to exploit.

While the FCC was not willing to allow such exploitation, it did have to acknowledge that some opportunity to communicate with participants in back-up CSAs should be allowed. Accordingly, the rule on communications concerning bids and bidding strategies now includes the following wrinkles:

the CSA exception to the prohibition against such communications applies only to communications between parties to a single CSA at any given time, and only if the CSA (or back-up CSA) was entered into and filed with the Commission by the December 18 deadline for applications;

if both stations in a primary CSA have a bidding status of "frozen-provisional winner", then parties to a back-up CSA may communicate regarding bids and bidding strategy, BUT they must cease such communication with the party to the primary CSA.

Another problem: under the reverse auction bidding procedures, the bidding status of a "frozen-provisional winner" is not necessarily permanent; that is, it may change to "bidding in the current round" if the auction enters a subsequent stage. Should that happen, the prohibition shifts again. To illustrate:

Let's assume that a primary CSA has ceased to be operative because the host station's status became "frozen-provisional winner" at one stage of the auction. If either station to that primary CSA also has a back-up CSA, the host's "frozen-provisional winner" status opens the door for the CSA participants to begin to communicate with a back-up CSA partner, if any of them has one.

But let's then assume that, in a subsequent stage, the primary CSA's host station's status changes back to "bidding in the current round". If the primary CSA expressly provides that it becomes the operative sharing agreement under such circumstances, the host may notify the sharee(s) in the primary CSA of the change in status, and the CSA exception will again apply to communications between the parties to the primary CSA rather than with the back-up host. In other words, if a host station becomes "unfrozen", then all bets are off with the back-up CSA, the primary CSA goes back into effect, and the sharee station(s) may no longer communicate with the back-up CSA station.

Got all that? If you plan to enter into a CSA and a back-up CSA, you'd better - because we can all expect the FCC to be unforgiving should it find that its prohibition against bids/bidding strategies communications has been violated, regardless of the complexity of the rules it has contrived.

Even without this latest complication, the issue of prohibited communications is a landmine waiting to go off. The FCC has underscored its intent to enforce the prohibition rigorously, but at the same time the guidance the Commission has provided suffers from a certain degree of ambiguity and uncertainty. This is a major concern, because the consequences of being caught in a prohibited communication could be extreme: dismissal of auction applications, fines, and possibly even civil liability running well into seven figures (or more) if one party's violation is attributed to the other party to the communication, and that other party is fined or loses its auction application. Again, anyone participating in the auction should be extremely familiar with the prohibited communications rules and should take equally extreme care to avoid any conduct that might even arguably violate those rules.

To complicate things more, the FCC seems to contemplate only two-party CSAs, with only two licensees communicating about bidding strategy. But since there is no rule confining CSAs to only two parties, application of the anti-collusion rules to three-party CSAs may become a morass not unlike like the muck in the streets of a coastal community after a hurricane.

Extended Transitional Period

In addition to providing for back-up CSAs, the FCC has decided to extend the amount of time a sharee in a CSA (whether the agreement was struck before or after the auction) will have to relinquish its pre-auction channel. Originally, a sharee had a meager three months after receipt of its reverse auction proceeds to cease operation on its original channel and move on over to the shared channel. Not a lot of time for what could turn out to be a complicated process. But now that period has been expanded to six months (again, starting as of receipt of the auction proceeds). And, recognizing that even six months might not be enough in some cases, the Commission has indicated that it will be open to granting waivers to allow up to two additional three-month terms, so long as such waivers won't adversely affect the transition. So from the original three months, sharees will now have at least six months, and possibly even up to a year, to complete their move to the shared facilities.