Picking NCE and LPFM Winners Simplified: NCE and LPFM Station Transfer Rules Relaxed

The Federal Communications Commission ("FCC") has changed in its rules for selecting winners from groups of mutually exclusive ("MX") noncommercial educational full-power radio ("NCE") and Low Power FM ("LPFM") applicants and has made it easier for MX applicants to negotiate voluntary time-sharing agreements. In the FCC's Report and Order, it has also shortened the minimum holding period for LPFM licenses and has clarified what requirements must be met by parties seeking to assign the licenses of NCE and LPFM stations.

Applications for new NCE and LPFM stations and for major changes in existing stations may be filed only during specified time periods announced by the FCC, called application "windows." All applications filed during a given window are deemed to have been filed on the same date, with no preference given to the first to file. When multiple applications are filed that conflict engineering-wise so that not all may be granted (i.e., they are MX), the FCC selects winners by a system of points. (The point system was developed because, although the Communications Act mandates awarding applications for commercial broadcast stations by auction, the statute forbids the use of auctions for noncommercial services, both full and low power.) The point systems are slightly different for full power and low power stations; but in general, points are awarded to applicants that own no other stations, are made up of local residents, have been in existence a long time, will provide of a first or second service to unserved areas (NCE only), and commit to broadcast eight hours of local programming a day (LPFM only). The FCC normally determines and publicly announces which applications are MX and then opens a 90-day settlement window. For LPFM applicants, during that settlement window, groups of two or three applicants may voluntarily agree to share airtime and may then be evaluated based on the sum of their separate points.

When the point system does not lead to a single winner, and not all the applicants settle, winners are chosen by tie-breakers, favoring applicants that have the fewest other granted authorizations and then applicants that have the fewest pending applications. As noted below, for NCE applicants a third-time breaker has been added.

In the past, if tie-breakers were not decisive for NCE applications, the Commission was supposed to convene a trial-type hearing to determine a division of time among the applicants. For LPFM applicants, the FCC simply imposed involuntary time-sharing arrangements. The FCC is now abandoning the hearing process for involuntary time-sharing among NCE applicants and is basically following the process used for LPFM involuntary time-sharing. In both NCE and LPFM cases, the three tied applicants with the longest uninterrupted local presence will participate in the involuntary time-sharing arrangement and the others will be dismissed.

Understanding and complying with the FCC's requirements and procedures have been difficult for many applicants. To try to make the system simpler and more transparent, the FCC has adopted these changes:

1. Applicants are no longer required to amend their governing documents to require fulfillment of promises not to acquire other stations and to limit directors or trustees to local residents in the future. Some governmental applicants have been legally unable to amend their documents without legislation, and some large institutions have been reluctant to amend their documents for various policy reasons. Diversity and localism promises must still be documented and fulfilled for at least four years after a station goes on the air, and facilities modifications that result in signal overlap with other stations with common ownership attribution will be prohibited. Only the formality of amending governing documents has been eliminated.
2. Applicants that have attributable interests in other stations and are willing to divest those interests to maximize their NCE points or to comply with the LPFM absolute prohibition on holding an interest in any other station will now have until the station goes on the air to complete divestitures rather than having to divest during the initial application window. Under that approach, unsuccessful applicants will never have to divest. However, a commitment to divest must be made during the application window.
3. The two current tie-breaking opportunities will be enlarged to three. In the third tie-breaker, priority will be given to an applicant that filed for a station in a previous window but did not win because of failure to achieve the most points and has remained in continuous existence since the previous window.
4. When NCE tie-breakers are unsuccessful, the FCC will not have hearings but rather will move NCE applicants to the LPFM model, where involuntary time-sharing is imposed, with contiguous 12-hour blocks assigned to two grantees and 8-hour blocks assigned to three grantees.

To facilitate voluntary time-sharing agreements, the FCC has relaxed its anti-collusion policies to allow LPFM applicants to negotiate point aggregation and time-sharing all the way up to the time Media Bureau actually imposes involuntary time-sharing. Settlements involving time-sharing may be structured to be contingent on the FCC's awarding each applicant the maximum number of points, and agreements may state that applicants who are awarded fewer points will automatically drop out. If a time-sharing agreement is rejected by the FCC, all previously negotiated time-sharing agreements will be voided, and a new 90-day window will be opened for negotiating new agreements.

To tighten up policies intended to avoid some abuses that have been found in past applications, the FCC will add a question to both the NCE and the LPFM application forms requiring the applicant to certify that it has reasonable assurance of the availability of its proposed transmitter site and providing the name and telephone number of the site owner or agent who gave that assurance. In addition, LPFM applicants who have among their officers and board members persons who have participated in unlicensed and unlawful radio station operation (often called "pirate radio") will be flatly disqualified and will no longer be able to cure this fatal defect by removing the offending person(s) from their organization.

When FCC proceedings result in time-sharing, the FCC will permit all the participants to share a common transmitter site and transmitter and antenna. With or without a common site, if one or more sharing parties fail to build on time or decide to cancel their construction permit, the remaining applicants may divide up the forfeited hours however they choose.

The construction period for all new LPFM stations will be extended from 18 months to 36 months, formalizing an existing FCC policy under which 18-month periods have routinely been extended to 36 months on request. The construction period will be automatically tolled by the FCC where litigation challenging a grant remains unresolved or international coordination has not been completed, without the need for the permittee to request tolling.

The FCC has also modified its rules that limit modifications and sales of operating NCE and LPFM stations.

For the first four years after going on the air, NCE stations that were awarded based on a preference for providing a first or second service to an unserved or underserved area have not been permitted modify their facilities to withdraw the service they promised to provide; but the FCC will now allow applicants seeking modifications to propose some loss if they offset it with at least the same amount of first and second service gain to different areas, and the new proposal would have prevailed had it been made at the time the initial preference was awarded.

If an NCE station is sold before it has been on the air for four years, the seller may not make a profit on the transaction. The limitation of recouping only actual out-of-pocket costs is a continuation of present policy. If the initial construction permit was awarded on the basis of points, the buyer must certify that would have qualified for the same number of points had it been the original applicant.

The absolute prohibition on any sale of LPFM construction permits and the three-year holding period for licensed LPFM stations will be relaxed to permit sales 18 months after the construction permit is awarded, with the purchase price limited to recoupment of the cost of filing and prosecuting the original application and acquiring equipment and constructing the station. Recoupment of operating losses will not be allowed. For LPFM stations awarded on the basis of points, a buyer within the first four years of operation must qualify for the same number of points that the seller got. If an involuntary time-sharing is in effect, the buyer must have been in existence with a local presence for at least as long as the sharer in the group with the shortest local longevity.

The FCC has also simplified procedures addressing changes of more than 50% in the voting board members of an entity with a pending NCE or LPFM application - a change that in the past has constituted a "major change" transfer of control that normally would disqualify the applicant.

All changes in the board members of a governmental applicant will be deemed "minor" if the basic mission of the entity remains unchanged, regardless of whether the changes are gradual over time or take place suddenly (i.e., within a six-month time period). A minor change requires an amendment to the application that may decrease an applicant's comparative points (point increases are not recognized), but it is not disqualifying. Non-governmental applicants must also report board changes and may change 50% or more of their boards without being disqualified, but only if the change is gradual.

In 1989, the FCC proposed to exempt governmental licensees of existing stations from any obligation to file transfer of control applications no matter how or when their boards change. Some licensees have taken the position that legal "control" of a governmental entity never changes, because the entity is ultimately responsible to the voting public. The FCC has not officially endorsed that position and has explicitly stated that it is not resolving the governmental transfer application issue at this time. Meanwhile, non-governmental holders of NCE licenses and granted construction permits will continue to have to file short-form transfer of control applications for gradual board turnover and long forms for sudden changes of 50% or more. For LPFM licensees and permittees, both sudden and gradual board changes will continue to be permitted at any time. Sudden changes will require only a short form application. Gradual changes will not require any application, at least as long as the entity's "mission" is not changed; and since LPFM stations do not file biennial or other ownership reports, LPFM stations may undergo unlimited gradual changes in their boards with no vehicle for reporting those changes to the FCC.

There are aspects of the new rules, both new and old, where we expect further nuances to be developed through FCC Staff interpretation. We suggest consultation with legal counsel in the event of a change of 50% or more in board membership, especially if the entity has a pending application, but for licensed stations and granted construction permits as well.