Elimination of TV UHF Discount Proposed

The FCC has voted to open a proceeding to consider eliminating a provision of its ownership rules that gives special treatment to UHF channels when computing the national television ownership cap.  Currently, the rule prohibits a single entity from owning stations that reach, in the aggregate, more than 39% of total television households nationwide.  The UHF discount allows owners of UHF stations to only count 50% of the television households in the UHF station’s market.  Application of the discount therefore allows a single entity to own stations that reach more than the 39% aggregate limit.

The FCC’s logic?  UHF stations aren’t considered “technically inferior” to VHF stations any longer because of the digital transition, where often, UHF station digital signals are considered superior to VHF in terms of interference and signal penetration.

Although titled a “Notice of Proposed Rulemaking,” the FCC already appears sold on the idea, presenting the rule change in terms of tentative conclusions it has already made, and seeking comment on those conclusions.  However, it does not simultaneously consider whether the 39% national ownership cap should also be changed.  And without that dicussion, eliminating the UHF discount will necessarily tighten the national ownership cap.  The FCC’s “proposal” could therefore significantly influence the marketplace – all before a decision is ultimately made on whether to eliminate the UHF discount.  That missing discussion and those potential consequences led Commissioner Ajit Pai to dissent from the FCC’s decision. 

With the incentive auction looming, the ultimate effect of the FCC’s mere “proposal” to eliminate the UHF discount introduces significant uncertainty for station owners as to what stations they may be able to own post-auction.  Though the proposed UHF discount elimination includes some consideration of grandfathered situations, those are not clear in the least.  The “proposal” could therefore pressure station owners to consider auctioning off spectrum of stations they may not be able to own post-auction.  Call us cynics, but that seems way too convenient for an incentive auction that depends on broadcaster participation to be successful.  Not surprisingly, unlike other proceedings where the FCC wants to proceed with all haste, the UHF discount elimination proposal doesn’t even have deadlines yet for comments and reply comments – in other words, it is on a slow train.