New Levels of Scrutiny

Posted on July 30th, 2015 by

We’ve noted a new level of scrutiny by the FCC on license or permit assignment applications – enough of an uptick to write about it here. We aren’t exactly sure what’s behind this new “hyper-scrutiny” but we are certain that it has added days (and sometimes weeks) to the FCC’s review and approval process.

Many years ago, the FCC transitioned to “certification” style application forms, which came along with various worksheets so applicants could ensure that transactions complied with the FCC’s rules. In fact, virtually all applications now begin with a question requiring the applicant to certify that it has completed the worksheets and in doing so, confirmed that the proposed transaction complies with the FCC’s rules and regulations. The original purpose of the certification-style approach, we believe, was to simplify the application process and make it faster. The FCC’s staff would simply be able to rely on applicant certifications instead of undertaking a time-consuming review of every aspect of a transaction to ensure compliance.

Well, despite the current “certification” nature of the FCC’s applications, the staff is not relying on those certifications but is instead undertaking its own review of them – in effect, performing a “trust but verify” task that was not envisioned in a “certification” world. At least in the license assignment application context, the first by-product of that is a bloating of the staff’s review period by some 25-30 days. A few years ago, the FCC would process a license assignment application within 45-50 days. Today, 75 days is not uncommon.

What’s taking so long? Document review. The staff is performing a checklist of its own for every purchase agreement, escrow agreement, time brokerage agreement, promissory note, or other contract related to a sales transaction. In the process, the staff has “overruled” existing precedent permitting exhibits to those agreements not germane to the FCC’s review to be excluded from filings, subject to the staff’s right to request them for review. As of a few weeks ago, all exhibits must be submitted, or the application won’t be processed.

Specific terms of agreements are also being scrutinized. We’ve had staffers call to confirm certain aspects of “consideration” for time brokerage agreements. And even the language in such agreements governing station staffing has been called into question, with written amendments required. Often, those staff phone calls include an instruction to ensure that all future agreements submitted with applications have clear language addressing a particular issue.

Some of this may be a backlash from a few high profile cases where applicants pointed out that various terms in transactional agreements had previously been “approved” in past license assignment applications. The FCC’s response to that position was clear. Approval of license assignment applications without specific referral to underlying documents or terms means that future applicants cannot rely on those grants as a stamp of approval on document language. While that policy remains, the FCC is certainly delving into the details, testing, verifying, requiring amendments and confirming that every issue governed by an FCC regulation passes their review – even if they won’t specifically declare it to be so when they grant an application.